<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange
- ---
Act of 1934.
For the Quarterly Period Ended: September 30, 1999
or
Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange
- ---
Act of 1934.
For the transition period from _________________ to _____________________
Commission File Number: 333-57201
Advanstar, Inc.
(Exact name of registrant as specified in its charter)
Delaware 94-3243499
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
545 Boylston Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 267-6500
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
------- -------
As of November 12, 1999, 33,630,000 shares of the Registrant's common stock were
outstanding.
<PAGE>
PART I Financial Information
Item 1. Financial Statements:
<TABLE>
<CAPTION>
Page in
this
Quarterly
Report
<S> <C>
Condensed Consolidated Balance Sheets at September 30, 1999 (unaudited)
and December 31, 1998......................................................... 2
Condensed Consolidated Statements of Operations (unaudited) for the three
months ended September 30, 1999 and 1998...................................... 3
Condensed Consolidated Statements of Operations (unaudited) for the nine
months ended September 30, 1999 and 1998...................................... 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the
three months ended September 30, 1999 and 1998................................ 5
Condensed Consolidated Statements of Cash Flows (unaudited) for the
nine months ended September 30, 1999 and 1998................................. 6
Notes to Condensed Consolidated Financial Statements (unaudited).................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 16
</TABLE>
PART II Other Information
<TABLE>
<S> <C> <C>
Item 4. Submissions of Matters to a Vote of Security Holders............ 25
Item 6(a). Exhibits........................................................ 25
Item 6(b). Reports on Form 8-K............................................. 25
Signature....................................................... 26
Exhibit Index................................................... 27
Exhibits........................................................
</TABLE>
1
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- -----
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .............................................................. $ 9,063 $ 14,016
Accounts receivable, net ............................................................... 28,012 27,976
Prepaid expenses ....................................................................... 16,075 14,784
Other .................................................................................. 1,690 2,097
-------- --------
Total current assets ................................................................ 54,840 58,873
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net ....................................................... 17,225 14,125
-------- --------
GOODWILL AND INTANGIBLE ASSETS, net ...................................................... 700,911 587,228
-------- --------
Total Assets ........................................................................ $772,976 $660,226
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ................................................... $ 15,435 $ 8,253
Accounts payable ....................................................................... 15,216 13,311
Accrued liabilities .................................................................... 27,489 19,135
Deferred revenue ....................................................................... 36,464 45,643
-------- --------
Total current liabilities ........................................................... 94,604 86,342
-------- --------
LONG-TERM DEBT, net of current maturities ................................................ 523,700 418,615
OTHER LONG-TERM LIABILITIES .............................................................. 6,684 3,227
MINORITY INTEREST ........................................................................ 15,753 17,282
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, $.01 par value; 40,000 shares authorized; 33,630 and 33,466 shares
issued and outstanding at September 30, 1999 and December 31, 1998, respectively ..... 336 335
Capital in excess of par ............................................................... 186,361 183,042
Accumulated deficit .................................................................... (48,984) (47,745)
Accumulated other comprehensive loss ................................................... (5,478) (872)
-------- --------
Total stockholder's equity .......................................................... 132,235 134,760
-------- --------
Total liabilities and stockholder's equity .......................................... $772,976 $660,226
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated statements.
2
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
--------------------------
<S> <C> <C>
Net revenue...................................................................... $ 84,049 $76,033
-------- -------
Operating expenses:
Cost of production......................................................... 16,793 16,340
Selling, editorial and circulation......................................... 33,515 30,198
General and administrative................................................. 9,080 8,734
Depreciation and amortization.............................................. 15,911 18,615
-------- -------
Total operating expenses............................................. 75,299 73,887
-------- -------
Operating income................................................................. 8,750 2,146
Other income (expense):
Interest expense, net...................................................... (10,743) (8,525)
Other income (expense), net................................................ 5 (82)
Non-recurring charge....................................................... (1,442) --
-------- -------
Income before income taxes and minority interest................................. (3,430) (6,461)
Provision (benefit) for income taxes............................................. (470) (329)
Minority interest in losses (earnings) of subsidiary............................. 1,276 (688)
-------- -------
Net loss......................................................................... $ (1,684) $(6,820)
======== =======
Earnings per share:
Basic and Diluted.......................................................... $ (0.05) $ (0.20)
======== =======
Weighted average shares outstanding:
Basic...................................................................... 33,630 33,466
Diluted.................................................................... 34,372 33,466
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated statements.
3
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data - Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------------------------------
<S> <C> <C>
Net revenue ...................................................................... $254,223 $197,245
-------- --------
Operating expenses:
Cost of production ......................................................... 50,765 41,715
Selling, editorial and circulation ......................................... 105,493 85,800
General and administrative ................................................. 33,790 26,571
Depreciation and amortization .............................................. 36,866 34,242
-------- --------
Total operating expenses ............................................. 226,914 188,328
-------- --------
Operating income ................................................................ 27,309 8,917
Other income (expense):
Interest expense, net ...................................................... (28,134) (19,016)
Other income (expense), net .............................................. (89) (1,976)
Non-recurring charge ..................................................... (1,442) --
-------- --------
Income before income taxes and minority interest ................................. (2,356) (12,075)
Provision for income taxes ....................................................... 224 65
Minority interest in losses (earnings) of subsidiary ............................. 1,341 (15)
-------- --------
Net loss ......................................................................... $ (1,239) $(12,155)
======== ========
Earnings per share:
Basic and Diluted ......................................................... $ (0.04) $ (0.43)
======== ========
Weighted average shares outstanding:
Basic ..................................................................... 33,584 28,338
Diluted ................................................................... 34,474 28,338
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated statements.
4
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
---------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................................. $ (1,684) $ (6,820)
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization ............................................... 16,062 18,761
Non-cash interest ........................................................... 325 216
Non-cash stock option compensation .......................................... (987) --
(Gain) loss on sales of assets and other .................................... (2,237) 692
Changes in operating assets and liabilities ................................. (3,726) (4,847)
--------- --------
Net cash provided by operating activities ................................. 7,753 8,002
--------- --------
INVESTING ACTIVITIES
Additions to property, plant and equipment ................................... (2,898) (892)
Change in notes receivable ................................................... 96 7
Acquisition of publications and trade shows, net ............................. (143,022) (75,245)
Proceeds from sale of assets ................................................. 17 9
--------- --------
Net cash used in investing activities ..................................... (145,807) (76,121)
--------- --------
FINANCING ACTIVITIES
Net proceeds from (payments on) revolving credit loan ........................ (1,500) 15,500
Proceeds from sale of stock .................................................. -- 980
Net proceeds from (payments on) long-term debt ............................... 134,509 39,115
--------- --------
Net cash provided by (used in) financing activities ....................... 133,009 55,595
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ....................................... (422) (301)
NET DECREASE IN CASH AND CASH EQUIVALENTS ..................................... (5,467) (12,825)
CASH AND CASH EQUIVALENTS, beginning of period ................................ 14,530 21,974
--------- --------
CASH AND CASH EQUIVALENTS, end of period ...................................... $ 9,063 $ 9,149
========= ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated statements.
5
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands - Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income .................................................................. $ (1,239) $ (12,155)
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization ............................................... 37,310 34,611
Non-cash interest ........................................................... 864 684
Non-cash stock option compensation ......................................... 3,708 --
(Gain) loss on sales of assets and other .................................... (1,439) 2,319
Changes in operating assets and liabilities ................................ (464) (2,938)
--------- ---------
Net cash provided by operating activities ................................. 38,740 22,521
--------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment ................................... (6,036) (2,570)
Change in notes receivable ................................................... 204 21
Acquisition of publications and trade shows, net ............................. (149,860) (348,148)
Proceeds from sale of assets ................................................. 39 4,030
--------- ---------
Net cash used in investing activities ..................................... (155,653) (346,667)
--------- ---------
FINANCING ACTIVITIES
Net proceeds from (payments on) revolving credit loan ........................ (20,500) 19,500
Proceeds from sale of stock ................................................. -- 70,980
Net proceeds from (payments on) long-term debt ............................... 132,739 236,505
--------- ---------
Net cash provided by (used in) financing activities ....................... 112,239 326,985
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ...................................... (279) (714)
NET DECREASE IN CASH AND CASH EQUIVALENTS .................................... (4,953) 2,125
CASH AND CASH EQUIVALENTS, beginning of period ................................ 14,016 7,024
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ...................................... $ 9,063 $ 9,149
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated statements.
6
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared by Advanstar, Inc. (the Company) in accordance with the
instructions to Form 10-Q and, therefore, do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Although management believes that the disclosures are
adequate to make the information presented not misleading, these condensed
consolidated financial statements should be read in conjunction with the
audited financial statements and the related notes, included in the Company's
Form 10-K for the year ended December 31, 1998. The results of operations for
the three month and nine month periods ended September 30, 1999, are not
necessarily indicative of the operating results that may be expected for the
entire year ending December 31, 1999.
2. Stock Split
On April 20, 1999, the Company's Board of Directors approved a two-for-one
stock split, which was effected as a stock dividend. On April 21, 1999, each
stockholder was issued one additional share of Common Stock for each share of
Common Stock held on the record date of April 20, 1999. All references to the
number of common shares and per share amounts have been adjusted to reflect the
stock split on a retroactive basis.
3. Acquisition
On July 28, 1999, the Company acquired certain trade show and publishing
properties of Larkin-Pluznik-Larkin, LLC and LPL/Style Group, LLC,
(collectively, Larkin) which operates apparel trade shows. The acquisition was
accounted for using the purchase method of accounting. The purchase price was
approximately $133.0 million in cash and assumed liabilities. Concurrent with
the Larkin acquisition, the Company amended and restated its credit agreement to
provide additional borrowing capacity to finance the acquisition.
The following are unaudited pro forma operating results as if the acquisition
had taken place at January 1, 1998:
Nine months ended
-----------------
September 30,
-------------
1999 1998
---- ----
(in thousands, except per
share data)
Total revenues........................ $275,959 $222,495
Operating income...................... 34,534 17,188
Net loss.............................. (2,485) (16,834)
Loss per share diluted................ $ (0.07) $ (0.59)
4. Non-Recurring Charge
Beginning in the quarter ended March 31, 1999, the Company began capitalizing
direct costs related to an initial public offering. During the quarter ended
September 30, 1999, the Company determined not to move forward at that time with
the initial public offering. As a result, the Company recognized a charge of
$1.4 million related to all costs of the initial public offering that had been
previously capitalized.
7
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Earnings Per Share
Earnings per share are calculated in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share".
The following table is a reconciliation of the earnings numerator and the
weighted-average shares denominator used in the calculations of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
(in thousands, except per share data)
Net income
Basic and diluted earnings per share ................ $(1,684) $(6,820) $(1,239) $(12,155)
Weighted Average Shares
Basic ............................................... 33,630 33,466 33,584 28,338
Adjustments for dilutive securities:
Employee stock options ........................ 742 -- 890 --
------- -------- -------- --------
Diluted ............................................. 34,372 33,466 34,474 28,338
======= ======= ======= ========
Earnings per share, basic and diluted .................... $ (0.05) $( 0.20) $ (0.04) $ ( 0.43)
======= ======= ======= ========
</TABLE>
6. Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -----------
<S> <C> <C>
(in thousands)
Tranche A term loan, interest at LIBOR plus 2.00%, 7.38% at September 30, 1999
due October 31, 2003 ........................................................... $ 94,117 $ 98,529
Tranche B term loan, interest at LIBOR plus 2.50%, 7.88% at September 30, 1999
due April 30, 2005 ............................................................. 149,100 149,700
Tranche C term loan, Interest at LIBOR plus 3.00%, 8.38% at September 30,1999
due June 30, 2007 ............................................................. 137,750 --
Revolving credit loan, interest at LIBOR plus 2.00%, 7.38% at September 30, 1999
due October 31, 2003 ........................................................... 8,500 29,000
Senior subordinated notes at 9.25%, due May 31, 2008, Net of discount ............. 149,668 149,639
-------- --------
539,135 426,868
Less--Current maturities ......................................................... (15,435) (8,253)
-------- --------
$523,700 $418,615
======== ========
</TABLE>
The Amended Credit Facility contains certain financial covenants, including a
minimum fixed charge coverage ratio and a maximum leverage ratio. The Company
was in compliance with all covenants as of September 30, 1999.
Certain financial covenants under the senior subordinated notes (the Notes)
issued by Advanstar Communications, Inc. (Communications), a wholly-owned
subsidiary of the Company, include a maximum leverage ration, a minimum fixed
charge coverage ratio, limitations on certain asset dispositions, dividends and
other restricted payments. The Company was in compliance with all covenants as
of September 30, 1999.
8
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. Comprehensive Income
The table below presents comprehensive income, defined as changes in the
equity of the Company excluding changes resulting from investments by and
distributions to shareholders.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
(in thousands)
Net loss ............................................... $(1,684) $(6,820) $(1,239) $(12,155)
Change in cumulative translation adjustment ............ (422) (301) (279) (714)
------- ------- ------- --------
Comprehensive loss ..................................... $(2,106) $(7,121) $(1,518) $(12,869)
======= ======= ======= ========
</TABLE>
8. Segment Information
<TABLE>
<CAPTION>
Trade Shows Corporate
and Trade Marketing and
Conferences Publications Services Other Totals
----------- ------------ --------- ---------- ------------
(in thousands)
Three months ended September 30, 1999
<S> <C> <C> <C> <C> <C>
Revenues .............................. $ 45,219 $ 34,234 $4,340 $ 256 $ 84,049
Gross profit .......................... 23,247 8,270 2,133 91 33,741
Segment assets ........................ 479,539 241,505 2,273 49,659 772,976
-------- -------- ------ ------- --------
Three months ended September 30, 1998
Revenues .............................. 39,865 32,427 3,774 (33) 76,033
Gross profit .......................... 18,658 8,916 1,983 (62) 29,495
Segment assets ........................ 348,078 249,460 2,292 48,518 648,348
-------- -------- ------ ------- --------
</TABLE>
<TABLE>
<CAPTION>
Trade Shows Corporate
And Trade Marketing and
Conferences Publications Services Other Totals
----------- ------------ --------- --------- -----------
(in thousands)
Nine months ended September 30, 1999
<S> <C> <C> <C> <C> <C>
Revenues ................................ $132,362 $108,239 $12,982 $ 640 $254,223
Gross profit ............................ 61,398 30,035 6,281 251 97,965
Segment assets .......................... 479,539 241,505 2,273 49,659 772,976
-------- -------- ------- ------- --------
Nine months ended September 30, 1998
Revenues ................................ 94,255 91,604 10,921 465 197,245
Gross profit ............................ 38,950 25,130 5,355 295 69,730
Segment assets .......................... 348,078 249,460 2,292 48,518 648,348
-------- -------- ------- ------- --------
</TABLE>
9
<PAGE>
ADVANSTAR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The reconciliation of total segment gross profit to consolidated pre-tax
income for the nine months ended September 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- -------------- ------------- -------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Total segment gross profit ........... $ 33,741 $ 29,495 $ 97,965 $ 69,730
General and administrative expense ... (9,080) (8,734) (33,790) (26,571)
Depreciation and amortization ........ (15,911) (18,615) (36,866) (34,242)
Other expense ........................ (12,180) (8,607) (29,665) (20,992)
-------- -------- -------- --------
Consolidated income before minority
interest and taxes ................. $ (3,430) $ (6,461) $( 2,356) $(12,075)
======== ======== ======== ========
</TABLE>
9. Supplemental Guarantor Condensed Consolidating Financial Statements
Basis of presentation
The Notes are fully and unconditionally guaranteed on a senior subordinated
basis, jointly and severally, by the Company and the wholly-owned domestic
subsidiaries of Communications. Communications is the only direct subsidiary of
the Company and is wholly-owned by the Company. The subsidiary guarantors are
Art Expositions International, Inc.; MAGIC; Applied Business TeleCommunications;
and Expocon Management Associates, Inc. Communications, the subsidiary
guarantors and the non-guarantor subsidiaries comprise all of the direct and
indirect subsidiaries of the Company. The condensed consolidated financial
statements of the guarantors are presented below and should be read in
connection with the consolidated financial statements of the Company. Separate
financial statements of the guarantors are not presented because the guarantors
are jointly, severally and unconditionally liable under the guarantees and the
Company believes the condensed consolidated financial statements presented are
more meaningful in understanding the financial position of the guarantors and
management has determined that such information is not material to investors.
There are no significant restrictions on the ability of the subsidiary
guarantors to make distributions to the Company.
10
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
At September 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Company Communications Magic ABC Expocon
---------- ----------- --------- --------- ---------
- -----------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ................ $ -- $ 2,530 $ 29 $ -- $ (2)
Accounts receivable, net ................. -- 24,512 293 (17) (224)
Prepaid expenses ......................... -- 8,775 2,569 619 519
Intercompany receivable (payable) ........ 119 (48,865) 57,196 (392) 1,653
Other .................................... -- 1,409 -- -- --
-------- ------- -------- ------- -------
Total current assets .................... 119 (11,639) 60,087 210 1,946
-------- ------- -------- ------- -------
Property, plant and equipment, net ........ -- 15,026 400 34 455
Investments in subsidiaries ............... 132,235 317,799 -- -- --
Net intangible assets, net ................ -- 424,749 201,375 17,191 10,571
-------- -------- -------- ------- --------
$132,354 $745,935 $261,862 $17,435 $12,972
======== ======== ======== ======= =======
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt ......... $ -- $ 15,435 $ -- $ -- $ --
Accounts payable .......................... 124 7,981 4,299 24 197
Deferred revenue .......................... -- 21,039 2,193 2,996 1,877
Accrued liabilities ....................... (5) 23,108 2,806 41 120
-------- -------- -------- ------- -------
Total current liabilities ................ 119 67,563 9,298 3,061 2,194
-------- -------- -------- ------- -------
Long term debt, net of current maturities .. -- 523,700 -- -- --
Other long term liabilities ................ -- 6,684 -- -- --
Minority interest .......................... -- 15,753 -- -- --
Stockholder interest
Common stock .............................. 36 10 1 2 1
Capital in excess of par value ............ 186,361 186,687 220,627 15,739 9,593
Retained earnings (deficit) ............... (48,984) (48,984) 31,936 (1,367) 1,184
Translation adjustment .................... (5,478) (5,478) -- -- --
-------- -------- -------- ------- --------
Total stockholder's equity ............... 132,235 132,235 252,564 14,374 10,778
-------- -------- -------- ------- --------
$132,354 $745,935 $261,862 $17,435 $12,972
======== ======== ======== ======= ========
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------- ------------- -------------
- ----------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents .............. $ 27 $ 6,506 $ -- $ 9,063
Accounts receivable, net ............... 52 3,448 -- 28,012
Prepaid expenses ....................... 3,707 3,593 -- 16,075
Intercompany receivable (payable) ...... 58,457 (9,592) (119) --
Other .................................. -- 281 -- 1,690
-------- ------- --------- --------
Total current assets .................. 62,243 4,236 (119) 54,840
-------- ------- --------- --------
Property, plant and equipment, net ...... 889 1,310 -- 17,225
Investments in subsidiaries ............. (450,034)
Net intangible assets, net .............. 229,137 47,025 -- 700,911
-------- ------- --------- --------
$292,269 $52,571 $(450,153) $772,976
======== ======= ========== ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt ...... $ -- $ -- $ -- $ 15,435
Accounts payable ....................... 4,520 2,715 (124) 15,216
Deferred revenue ....................... 7,066 8,359 -- 36,464
Accrued liabilities .................... 2,967 1,414 5 27,489
-------- ------- --------- --------
Total current liabilities ............. 14,553 12,488 (119) 94,604
-------- ------- --------- --------
Long term debt, net of current maturities -- -- -- 523,700
Other long term liabilities ............. -- -- -- 6,684
Minority interest ....................... -- -- -- 15,753
Stockholder interest
Common stock ........................... 4 332 (346) 336
Capital in excess of par value ......... 245,959 44,037 (476,683) 186,361
Retained earnings (deficit) ............ 31,753 (4,286) 21,517 (48,984)
Translation adjustment ................. -- -- 5,478 (5,478)
-------- ------- --------- --------
Total stockholder's equity ............ 277,716 40,083 (450,034) 132,235
-------- ------- --------- --------
$292,269 $52,571 $(450,153) $772,976
======== ======= ========= ========
- -----------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Company Communications Magic ABC Expocon
--------- --------------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenue ........................ $ -- $ 48,252 $27,503 $ 240 $ 1,737
-------- -------- ------- ----- ------
Operating expenses:
Cost of sales and selling, editorial
and circulation .................. -- 34,532 8,854 411 1,104
General and administrative ........ -- 7,153 499 -- 147
Depreciation and amortization ..... -- 7,892 2,775 213 329
-------- -------- ------- ----- ------
Total operating expenses ......... -- 49,577 12,128 624 1,580
-------- -------- ------- ----- ------
Operating income (loss) ............ -- (1,325) 15,375 (384) 157
Other income (expense):
Interest income (expense), net .... -- (10,411) -- -- --
Other income (expense), net ....... -- (761) 1 -- --
-------- -------- ------- ----- ------
Income (loss) before income taxes .. -- (12,497) 15,376 (384) 157
Provision for income tax ........... -- (225) -- -- (50)
Minority interest in earnings ...... -- 1,276 -- -- --
Equity in (loss) of subsidiaries ... (1,684) 9,762 -- -- --
-------- -------- ------- ----- ------
Net income (loss) .................. $ (1,684) $ (1,684) $15,376 $(384) $ 107
======== ======== ======= ===== ======
<CAPTION>
Non-
Guarantor Guarantor Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenue ........................ $29,480 $ 6,317 $ -- $ 84,049
------- ------- -------- --------
Operating expenses:
Cost of sales and selling, editorial
and circulation .................. 10,369 5,407 50,308
General and administrative ........ 646 1,281 -- 9,080
Depreciation and amortization ..... 3,317 4,702 -- 15,911
------- ------- -------- --------
Total operating expenses ......... 14,332 11,390 -- 75,299
------- ------- -------- --------
Operating income (loss) ............ 15,148 (5,073) -- 8,750
Other income (expense):
Interest income (expense), net .... -- (332) -- (10,743)
Other income (expense), net ....... 1 (677) -- (1,437)
------- ------- -------- --------
Income (loss) before income taxes .. 15,149 (6,082) -- (3,430)
Provision for income tax ........... (50) 745 -- 470
Minority interest in earnings ...... -- -- -- 1,276
Equity in (loss) of subsidiaries ... -- -- (8,078) --
------- ------- ------- --------
Net income (loss) .................. $15,099 $(5,337) $(8,078) $ (1,684)
======= ======= ======= ========
</TABLE>
12
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Company Communications Magic ABC Expocon
--------- --------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Net revenue ........................ $ -- $156,748 $55,216 $ 1,157 $7,927
-------- -------- ------- ------- ------
Operating expenses:
Cost of sales and selling, editorial
and circulation .................. -- 106,345 18,867 1,754 4,658
General and administrative ........ -- 27,740 1,486 -- 469
Depreciation and amortization ..... -- 20,615 8,323 684 989
-------- -------- ------- ------- ------
Total operating expenses ......... -- 154,700 28,676 2,438 6,116
-------- -------- ------- ------- ------
Operating income (loss) ............ -- 2,048 26,540 (1,281) 1,811
Other income (expense):
Interest income (expense), net .... -- (27,143) 2 -- --
Other income (expense), net ....... -- 1,360 1 -- --
-------- -------- ------- ------- ------
Income (loss) before income taxes .. -- (23,735) 26,543 (1,281) 1,811
Provision for income tax ........... -- (268) -- -- (50)
Minority interest in earnings ...... -- 1,341 -- -- --
Equity in (loss) of subsidiaries ... (1,239) 21,423 -- -- --
-------- -------- ------- ------- ------
Net income (loss) .................. $(1,239) $ (1,239) $26,543 $(1,281) $1,761
======== ======== ======= ======= ======
<CAPTION>
Non-
Guarantor Guarantor Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenue ........................ $64,300 $33,175 $ -- $254,223
--------- ------- -------- --------
Operating expenses:
Cost of sales and selling, editorial
and circulation .................. 25,279 24,634 -- 156,258
General and administrative ........ 1,955 4,095 -- 33,790
Depreciation and amortization ..... 9,996 6,255 -- 36,866
--------- ------- -------- --------
Total operating expenses ......... 37,230 34,984 -- 226,914
--------- ------- -------- --------
Operating income (loss) ............ 27,070 (1,809) -- 27,309
Other income (expense):
Interest income (expense), net .... 2 (993) -- (28,134)
Other income (expense), net ....... 1 (2,892) -- (1,531)
------- ------- -------- --------
Income (loss) before income taxes .. 27,073 (5,694) -- (2,356)
Provision for income tax ........... (50) 94 -- (224)
Minority interest in earnings ...... -- -- -- 1,341
Equity in (loss) of subsidiaries ... -- -- (20,184) --
------- ------- -------- --------
Net income (loss) .................. $27,023 $(5,600) $(20,184) $ (1,239)
======= ======= ======== ========
</TABLE>
13
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended September 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Company Communications Magic ABC Expocon
--------- --------------- --------- ------- --------
Operating Activities:
<S> <C> <C> <C> <C> <C>
Net income (loss) ..................... $(1,684) $ (1,684) $ 15,376 $(384) $ 107
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ........ -- 8,010 2,804 214 330
Non cash Items ....................... -- (2,907) -- -- --
Change in working capital
items ................................ -- 5,655 (18,035) 127 (427)
-------- --------- ------- ----- -----
Net cash provided by (used in)
operating activities ................. (1,684) 9,074 145 (43) 10
-------- --------- -------- ----- -----
Investment Activities:
Net loss in investment in
subsidiaries ......................... 1,684 -- -- -- --
Additions to property, plant and
equipment, net ....................... -- (2,626) (127] 46 (8)
Acquisitions of publications and -- (142,728) -- (3) 1
trade shows and other ................ -------- --------- -------- ----- ----
Net cash provided by (used in)
investing activities ................. 1,684 (145,354) (127) 43 (7)
-------- --------- -------- ----- -----
Financing Activities:
Proceeds from sale of common
stock and capital contributions
and other ............................ -- -- -- -- --
Dividends paid to minority interest
holders .............................. -- -- -- -- --
Borrowings of long-term debt,
net .................................. -- 133,009 -- -- --
-------- --------- -------- ----- -----
Net cash provided by (used in)
financing activities ................. -- 133,009 -- -- --
======== ========= ======== ===== =====
EFFECT OF EXCHANGE RATE ON CASH (422)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS: ................ -- (3,693) 18 -- 3
CASH AND CASH EQUIVALENTS,
beginning of period: ................. -- 6,223 11 -- (5)
-------- --------- -------- ----- -----
CASH AND CASH EQUIVALENTS,
$ -- $ 2,530 $ 29 $ -- $ (2)
end of period: ....................... ======== ========= ======== ===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------- ------------ ------------ ------------
Operating Activities:
<S> <C> <C> <C> <C>
Net income (loss) ..................... $ 15,099 $(5,337) $(8,078) $ (1,684)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ........ 3,348 4,704 -- 16,062
Non cash Items ....................... -- 8 -- (2,899)
Change in working capital
items ................................ (18,335) (808) 9,762 (3,726)
-------- ------- ------- --------
Net cash provided by (used in)
operating activities ................. 112 (1,433) 1,684 7,753
-------- ------- ------- ---------
Investment Activities:
Net loss in investment in
subsidiaries ......................... -- -- (1,684) --
Additions to property, plant and
equipment, net ........................ (89) (166) -- (2,881)
Acquisitions of publications and
trade shows and other ................ (2) (196) -- (142,926)
-------- ------- ------- ---------
Net cash provided by (used in)
investing activities ................. (91) (362) (1,684) (145,807)
-------- ------- ------- ---------
Financing Activities:
Proceeds from sale of common
stock and capital contributions
and other ............................ -- -- -- --
Dividends paid to minority interest
holders .............................. -- -- -- --
Borrowings of long-term debt,
net .................................. -- -- -- 133,009
-------- ------- ------- ---------
Net cash provided by (used in)
financing activities ................. -- -- -- 133,009
======== ======= ======= =========
EFFECT OF EXCHANGE RATE ON CASH (422)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS: ................. 21 (1,795) -- (5,467)
CASH AND CASH EQUIVALENTS,
beginning of period: .................. 6 8,301 -- 14,530
-------- ------- ------- ---------
CASH AND CASH EQUIVALENTS,
end of period: ....................... $ 27 $ 6,506 $ -- $ 9,063
======== ======= ======= =========
</TABLE>
14
<PAGE>
ADVANSTAR, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 1999
(in thousands - Unaudited)
<TABLE>
<CAPTION>
Company Communications Magic ABC Expocon
--------- --------------- --------- --------- --------
Operating Activities:
<S> <C> <C> <C> <C> <C>
Net income (loss) ...................... $(1,239) $ (1,239) $ 26,543 $(1,281) $ 1,761
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ......... -- 20,962 8,408 687 991
Non cash Items ........................ -- 3,125 -- -- --
Change in working capital
items ................................. -- 12,208 (34,654) (595) (2,363)
-------- --------- -------- ------- -------
Net cash provided by (used in)
operating activities .................. (1,239) 35,056 297 (1,189) 389
-------- --------- -------- ------- -------
Investment Activities:
Net loss in investment in
subsidiaries ......................... 1,239 -- -- -- --
Additions to property, plant and
equipment, net ....................... -- (5,137) (135) 46 (16)
Acquisitions of publications and
trade shows and other ................ -- (147,619) (29) 1,135 (3)
-------- --------- ------- ------- -------
Net cash provided by (used in)
investing activities ................. 1,239 (152,756) (164) 1,181 (19)
-------- --------- -------- ------- -------
Financing Activities:
Proceeds from sale of common
stock and capital contributions
and other ............................ -- -- -- -- --
Dividends paid to minority interest
holders .............................. -- -- -- -- --
Borrowings of long-term debt,
net .................................. -- 112,239 -- -- --
-------- --------- -------- ------- -------
Net cash provided by (used in)
financing activities ................. -- 112,239 -- -- --
======== ========= ======== ======= =======
EFFECT OF EXCHANGE RATE ON CASH (279)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS: ................. -- (5,740) 133 (8) 370
CASH AND CASH EQUIVALENTS,
beginning of period: .................. -- 8,270 (104) 8 (372)
-------- --------- -------- ------- -------
CASH AND CASH EQUIVALENTS,
end of period: ......................... $ -- $ 2,530 $ 29 $ $ (2)
======== ========= ======== ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor Consolidated
Subsidiaries Subsidiaries Elimination Total
------------- ------------ ------------ -------------
Operating Activities:
<S> <C> <C> <C> <C>
Net income (loss) ...................... $ 27,023 $(5,600) $(20,184) $ (1,239)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ......... 10,086 6,262 -- 37,310
Non cash Items ........................ -- 8 -- 3,133
Change in working capital
items ................................. (37,612) 3,517 21,423 (464)
-------- ------- -------- ---------
Net cash provided by (used in)
operating activities .................. (503) 4,187 1,239 38,740
-------- ------- -------- ---------
Investment Activities:
Net loss in investment in
subsidiaries ......................... -- -- (1,239) --
Additions to property, plant and
equipment, net ....................... (105) (755) -- (5,997)
Acquisitions of publications and
trade shows and other ................ 1,103 (3,140) -- (149,656)
-------- ------- -------- ---------
Net cash provided by (used in)
investing activities ................. 998 (3,895) (1,239) (155,653)
-------- ------- -------- ---------
Financing Activities:
Proceeds from sale of common
stock and capital contributions
and other ............................ -- -- -- --
Dividends paid to minority interest
holders .............................. -- -- -- --
Borrowings of long-term debt,
net .................................. -- -- -- 112,239
-------- ------- -------- ---------
Net cash provided by (used in)
financing activities ................. -- -- -- 112,239
======== ======= ======== =========
EFFECT OF EXCHANGE RATE ON CASH (279)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS: ................. 495 292 -- (4,953)
CASH AND CASH EQUIVALENTS,
beginning of period: .................. (468) 6,214 -- 14,016
-------- ------- -------- ---------
CASH AND CASH EQUIVALENTS,
end of period: ......................... $ 27 $ 6,506 $ -- $ 9,063
======== ======= ======== =========
</TABLE>
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
This quarterly report of Form 10-Q contains forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned not to place undue reliance on
these forward-looking statements, including statements about plans and
objectives of management and market growth and opportunity. These forward-
looking statements involve risks and uncertainties that could cause actual
results to differ materially from those indicated by such forward-looking
statements. Important cautionary statements and risk factors that would affect
actual results are discussed in Advanstar's periodic reports and registration
statements filed with the Securities and Exchange Commission, including those
under the caption entitled "Factors That May Affect Future Results" in the
Company's Annual Report on Form 10-K files with the Securities and Exchange
Commission on March 31, 1999.
General
Advanstar is a worldwide provider of integrated, business-to-business
marketing communications solutions for targeted industry sectors, principally
through trade shows and conferences and through controlled circulation trade,
business and professional magazines. We also provide a broad range of other
marketing services products, including classified advertising, direct mail
services, reprints, database marketing, directories, guides, reference books
and internet based advertising, sponsorships and custom projects.
Advanstar reports its business in three segments: trade shows and
conferences, which consists primarily of the management of expositions and
seminars held in convention and conference centers; publications, which consists
primarily of the creation and distribution of controlled circulation trade,
business and professional magazines; and marketing services, which consists
primarily of sales of a variety of direct mail and database products, magazine
editorial reprints, and directory and classified advertising.
Trade shows and conferences accounted for 53.8% and 52.4% of total revenue
for the three months, and 52.1% and 47.8% of total revenue for the nine months
ended September 30, 1999 and 1998, respectively. Publications accounted for
40.7% and 42.7% of total revenue for the three months, and 42.6% and 46.4% of
total revenue for the nine months ended September 30, 1999 and 1998,
respectively. Marketing services accounted for 5.5% and 4.9% of total revenue
for the three months, and 5.4% and 5.8% of total revenue for the nine months
ended September 30, 1999 and 1998, respectively. Our revenue reaches its
highest levels during the first and third quarters of the year due to the timing
of the MAGIC trade shows and our other large trade shows and conferences.
Because trade shows and conferences revenue is recognized when a particular
event is held, we may experience fluctuations in quarterly revenue based on the
movement of annual trade show dates from one quarter to another.
Beginning in the quarter ended March 31, 1999, we began capitalizing direct
costs related to an initial public offering. During the quarter ended September
31, 1999, we determined not to move forward at that time with the initial public
offering. As a result, we have recognized a $1.4 million charge for costs
previously capitalized.
Sources of Revenue
Trade shows and conferences. The trade shows and conferences segment
derives revenue principally from the sale of exhibit space and conference
attendance fees generated at its events. Events are generally held on an annual
basis in major metropolitan or convention areas such as New York City or Las
Vegas. At many of our trade shows, a portion of exhibit space is reserved and
partial payment is received as much as a year in advance. For example, over 70%
of exhibit space at our ScanTech, ICCM and TeleCon shows is reserved prior to
the end of the preceding show. The sale of exhibit space is affected by the on-
going quality and quantity of attendance, venue selection and availability,
industry life cycle and general market conditions. Revenue and related direct
event expenses are recognized in the month in which the event is held. Cash is
collected in advance of an event and is recorded on our balance sheet as
deferred revenue.
16
<PAGE>
Publications. The publications segment derives revenue principally from the
sale of advertising in its business-to-business magazines. Additionally,
certain publications derive revenue from paid subscriptions, custom publishing,
and internet based advertising and sponsorship activities. Paid subscriptions
comprise less than 5% of total publishing revenue. Most publications are
produced monthly with advertising sold both on an annual schedule and single
insertion basis. The sale of advertising is affected by new product releases,
circulation quality, readership and general market conditions. Advertising
revenue is recognized on the publication issue date, and subscription revenue,
if any, is recognized over the subscription period, typically one year.
Marketing services. The marketing services segment derives its revenue from
the sale of value-added marketing products such as classified advertising, both
print and internet based, direct mail services, reprints, database marketing,
directories, guides and reference books. These products complement and, in many
cases, utilize the content or databases generated by our trade shows,
conferences and publications. The sale of these products is affected by the
success of the event or publication from which these products are derived, the
quality of the sales team and general market conditions. Revenue is generally
recognized when the applicable product is shipped.
Components of Expenses
Trade shows and conferences. Costs incurred by the trade shows and
conferences segment include facility rent, outsourced services such as
registration, security and decorator, and attendee and exhibitor promotion.
Exhibitors generally contract directly with third parties for on-site services
such as electrical, booth set-up and drayage. Staff salaries and related payroll
expenses are treated as monthly period expenses. All other direct costs are
expensed in the month the event occurs. General and administrative costs are not
allocated to the segments.
Publications. Costs incurred by the publications segment include printing,
paper and postage; selling and promotion; editorial and prepress; and
circulation acquisition and fulfillment. Additionally, publisher and sales staff
costs, and production, editorial and circulation staff costs, with related
payroll taxes and benefits, are charged to the publications. We outsource the
actual printing of our publications. General and administrative costs are not
allocated to the segments.
Marketing services. Costs of the marketing services segment include
printing and distribution costs, database administration fees and selling and
product development salaries and related payroll taxes and benefits. General and
administrative costs are not allocated to the segments.
Selected Financial Data
The following table sets forth selected statements of operations and other
financial data.
We define "EBITDA" as operating income plus amortization and depreciation.
EBITDA does not represent, and should not be considered to be, an alternative to
net income or cash flow from operations as determined in accordance with GAAP,
and our calculation thereof may not be comparable to that reported by other
companies. We believe that EBITDA provides useful information regarding our
ability to service and/or incur indebtedness and is used by many other
companies. Our key financial covenants under the Amended Credit Agreement,
which impact the amount of indebtedness we are permitted to incur, are based, in
part, on our EBITDA. EBITDA does not take into account our working capital
requirements, debt service requirements and other commitments. Accordingly,
EBITDA is not necessarily indicative of amounts that may be available to us for
discretionary uses.
To calculate EBITDA for the three months ended September 30, 1999 and
1998, we adjusted operating income by $1.3 and $(0.7), to reflect minority
interest. To calculate EBITDA for the nine months ended September 30, 1999, we
adjusted operating income by $1.3 million, to reflect minority interest. There
was no comparable adjustment in calculating EBITDA for the nine months ended
September 30, 1998.
17
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------- ------------ ------------ -----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net revenue:
Trade shows and conferences............................... $45,219 $39,865 $132,362 $ 94,255
Publications.............................................. 34,234 32,427 108,239 91,604
Marketing services and other.............................. 4,596 3,741 13,622 11,386
------- ------- -------- --------
Total net revenues..................................... 84,049 76,033 254,223 197,245
Production, selling and other direct expenses:
Trade shows and conferences............................... 21,972 21,207 70,964 55,305
Publications.............................................. 25,964 23,511 78,204 66,474
Marketing services and other.............................. 2,372 1,820 7,090 5,736
------- ------- -------- --------
Total production, selling and other direct expenses.... 50,308 46,538 156,258 127,515
General and administrative expenses......................... 10,881 9,329 32,358 28,340
Non-cash stock option compensation.......................... (987) -- 3,708 --
Amortization................................................ 15,097 18,020 34,590 32,473
------- ------- -------- --------
Operating income....................................... 8,750 2,146 27,309 8,917
Other income (expense):
Interest expense (net).................................... 10,743 8,525 28,134 19,016
Other income (expense).................................... (161) (770) (190) (1,991)
Provision (benefit) for income taxes........................ (470) (329) 224 65
------- ------- -------- --------
Net income (loss)........................................... $(1,684) $(6,820) $ (1,239) $(12,155)
======= ======= ======== ========
EBITDA...................................................... $23,123 $20,070 $ 67,275 $ 43,169
</TABLE>
Three Months Ended September 30, 1999 Compared to the Three Months Ended
September 30, 1998
Revenue
Revenue increased $8.0 million or 10.5% from $76.0 million for the third
quarter of 1998 to $84.0 million for the comparable period in 1999.
Revenue from trade shows and conferences increased $5.4 million or 13.4 %
from $39.8 million in the third quarter of 1998 to $45.2 million for the third
quarter of 1999. The increase in revenue was attributable to acquisitions
resulting in a revenue increase of $7.3 million, growth in our existing product
portfolio, including MAGIC, of $2.7 million or 8.0% over the comparable period
of 1998, partially offset by $2.7 million caused by the movement of trade show
dates from one quarter to another and $1.9 million related to discontinued
events.
Revenue from publications increased $1.8 million or 5.6% from
$32.4 million in the third quarter of 1998 to $34.2 million for the comparable
period in 1999. The increase was primarily attributable to the acquisition of
Travel Agent in August 1998 and Sensors magazine in July 1999. Revenue from
acquisitions increased $3.8 million, offset by $0.5 million in sold or
discontinued properties, $0.9 million caused by the movement of an annual
directory from one quarter to another and a $0.6 million or 2.3% decrease from
continuing comparable publications. Our publishing properties operate in many
different markets and industries which are subject to economic conditions
prevalent in those industries. Accordingly, publishing properties' advertising
pages and revenues may fluctuate in connection with the markets in which they
operate.
Revenue from marketing services increased $0.9 million or 22.9% from
$3.7 million for the third quarter of 1998 to $4.6 million for third quarter of
1999. Growth in revenue from directories and list rentals was primarily
responsible for the increase.
18
<PAGE>
Production, Selling and Other Direct Expense
Production, selling and other direct expenses increased $3.8 million or
8.1% from $46.5 million for the third quarter of 1998 to $50.3 million for the
third quarter of 1999.
Trade shows and conferences production, selling and other direct expenses
increased $0.8 million or 3.6% from $21.2 million for the third quarter of 1998
to $22.0 million for the comparable period in 1999. This increase was primarily
due to increases in operation, promotion and management costs associated with
our acquisitions as well as costs attributable to growth in existing events,
offset by costs associated with trade show date shifts and discontinued events.
Publications production, selling and other direct expenses increased $2.5
million or 10.4% from $23.5 million for the third quarter of 1998 to $26.0
million for the third quarter of 1999. This increase was primarily attributable
to direct costs related to acquisitions as well as selected investments and
product development in certain of our publications.
Marketing services production, selling and other direct expenses increased
$0.6 million or 30.3% from 1.8 million for the third quarter of 1998 to $2.4
million for the third quarter of 1999. This increase was primarily due to
increased selling expenses incurred as a result of our efforts to market these
products as well as increased costs of production due to the growth in those
respective product lines.
General and Administrative Expenses
General and administrative expenses increased $1.6 million or 16.6% from
$9.3 million for the three months ended September 30, 1998 to $10.9 million for
the three months ended September 30, 1999. This increase was primarily
attributable to increased overheads related to the eight acquisitions completed
during or after the quarter ended September 30, 1998. As we integrate these
acquisitions into our existing structure we incur certain additional overheads
necessary to support the acquired business. These were partially offset by a
$1.0 million reduction in stock option compensation expense.
Amortization
Amortization expense decreased $2.9 million from $18.0 million for the
three months ended September 30, 1998 to $15.1 million for the three months
ended September 30, 1999 primarily due to increased amortization of intangible
assets related to the acquisitions, offset by a reduced level of charges taken
as a result of discontinued properties. During 1999 and 1998 we wrote-off $3.7
million and $13.4 million of intangible assets attributable to discontinued
properties.
Operating Income
Operating income increased $6.7 million or 307.7% from $2.1 million for the
three months ended September 30, 1998 to $8.8 million for the three months
ended September 30, 1999. The increase was due to revenue growth across our
segments, a reduction in intangible assets written-off during the third quarter
and a $1.0 million reduction in stock option related compensation expense.
Interest Expense
Net interest expense increased $2.2 million or 26.0% from $8.5 million for
the three months ended September 30, 1998 to $10.7 million for the three months
ended September 30, 1999 due to the additional indebtedness necessary to fund
acquisitions, partially offset by an aggregate reduction in interest rates of
approximately 0.4%. In July 1999, we obtained an additional $138.0 million in
term debt financing that was used to fund the Larkin and other acquisitions
during the quarter.
Net Loss
Net loss decreased $5.1 million or 75.3% from $6.8 million for the three
months ended September 30, 1998 to $1.7 million for the three months ended
September 30, 1999 due to the improvements in operating results
19
<PAGE>
described above, offset by a $1.4 million charge related to the write-off of
previously capitalized costs of the proposed initial public offering.
EBITDA
EBITDA increased $3.1 million or 15.2% from $20.0 million for the three
months ended September 30, 1998 to $23.1 million for the three months ended
September 30, 1999. The increase was due to the increase in our revenue,
operating performance and other changes as described above.
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended
September 30, 1998
Revenue
Revenue increased $57.0 million or 28.9% from $197.2 million for the first
nine months of 1998 to $254.2 million for the first nine months of 1999.
Revenue from our trade shows and conferences increased $38.1 million or
40.4% from $94.3 million for the first nine months of 1998 to $132.4 million for
the first nine months of 1999. We completed 12 acquisitions in 1998 which
contained at least one trade show or conference, such as MAGIC, SeCA, Starform
and Larkin. Revenue attributable to acquisitions grew $43.1 million to $67.3
million in the first nine months of 1999 from $24.2 million for the same period
in 1998. Revenue on the balance of the business declined $5.0 million due to
growth in the remaining business of $3.2 million or 5.4% to $63.4 million in
1999 from $60.2 million in 1998. This revenue was offset by $5.0 million from
discontinued events held in 1998 and $3.2 million caused by the movement of
trade show dates from one quarter to another.
Revenue from our publications increased $16.6 million or 18.2% from
$91.6 million for the first nine months of 1998 to $108.2 million for the first
nine months of 1999. The increase in revenue was due primarily to acquisitions
that we made in 1998 and 1999. Acquisitions such as Travel Agent,
TeleProfessional, Post and Sensors accounted for $20.3 million of the total
revenue increase from publications in the first nine months of 1999. These
revenue gains were partially offset by a $1.9 million or 2.3% reduction in
revenue from our other properties and $1.8 million relating to sold or
discontinued properties. Our publishing properties operate in many different
markets and industries which are subject to economic conditions prevalent in
those industries. Accordingly, publishing revenues may fluctuate in connection
with the markets in which they operate.
Revenue from our marketing services increased $2.2 million or 19.6% from
$11.4 million for the first nine months of 1998 to $13.6 million for the first
nine months of 1999. Growth in revenue from list rentals, display and classified
advertising, card decks and books was primarily responsible for the increase.
Production, Selling and Other Direct Expenses
Production, selling and other direct expenses increased $28.8 million or
22.5% from $127.5 million for the first nine months of 1998 to $156.3 million
for the first nine months of 1999.
Trade shows and conferences production, selling and other direct expenses
increased $15.7 million or 28.3% from $55.3 million for the first nine months of
1998 to $71.0 million for the first nine months of 1999. This increase was
primarily due to increases in our operation, promotion and management costs
associated with our acquisitions as well as to costs attributable to new
launches and growth in our existing events.
Publications production, selling and other direct expenses increased $11.7
million or 17.6% from $66.5 million for the first nine months of 1998 to $78.2
million for the first nine months of 1999. Direct costs related to acquisitions
of publications were primarily responsible for the increase as well as selected
investments and product development in certain of our publications.
Marketing services production, selling and other direct expenses increased
$1.4 million or 23.6% from $5.7 million for the first nine months of 1998 to
$7.1 million for the first nine months of 1999. This increase was
20
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primarily due to the increased selling expenses incurred as a result of our
efforts to market these products as well as increased costs of production due to
the growth in those respective product lines.
General and administrative expenses
General and administrative expenses increased $4.0 million or 14.2% from
$28.3 million for the first nine months of 1998 to $32.3 million for the first
nine months of 1999. This increase was primarily attributable to increased
overheads related to the eight acquisitions completed during or after the
quarter ended September 30, 1998. These increases were partially offset by
improvements in our trade show operations support group. Additionally, general
and administrative expenses include a $3.7 million non-cash charge related to
our stock option compensation plan.
Amortization
Amortization expense increased $2.1 million from $32.5 million for the
first nine months of 1998 to $34.6 million for the first nine months of 1999.
This increase was primarily attributable to increased amortization of intangible
assets related to our acquisitions, partially offset by $10.1 million of
intangible assets written off during the first nine months of 1998. These
intangible assets related to publication and trade show properties that were
discontinued.
Operating income
Operating income increased $18.4 million or 206.3% from $8.9 million for
the first nine months of 1998 to $27.3 million for the first nine months of
1999. The increase was due to the revenue growth across our segments, partially
offset by a $3.7 million non-cash charge for stock option related compensation
expense and increased amortization expense.
Interest expense
Net interest expense increased $9.1 million or 47.9% from $19.0 million for
the first nine months of 1998 to $28.1 million for the first nine months of 1999
due to the additional indebtedness incurred to fund acquisitions, partially
offset by an aggregate reduction in interest rates of approximately 0.4%. In
July 1999, we obtained an additional $138.0 million in term debt financing that
was used to fund the Larkin and certain other acquisitions.
Net loss
Net loss decreased $10.9 million or 89.8% from a net loss of
$12.1 million for the first nine months of 1998 to a net loss of $1.2 million
for the first nine months of 1999 due the improvements in operating performance
described above.
EBITDA
EBITDA increased $24.1 million or 55.8% from $43.2 million for the first
nine months of 1998 to $67.3 million for the first nine months of 1999. The
increase was due primarily to an increase in our revenue and resulting increase
in operating performance as described above.
Liquidity and Capital Resources
Historically, our financing requirements have been funded through cash
generated by operating activities, the sale of additional shares of common stock
to our existing stockholder, revolving and term loan borrowings and, in 1998,
the issuance of $150.0 million of the Notes.
Cash flows from operating activities. Net cash provided by operations
in the first nine months of 1999 increased $16.2 million, or 72.0%, to $38.7
million in 1999 from $22.5 million in the first nine months of 1998. The
21
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increase was due primarily to an increase in earnings of $10.9 million which
includes additional depreciation and amortization of $2.7 million and a non-cash
charge of $3.7 million of compensation expense related to our stock options.
These additional incremental charges should be added back to our net loss when
determining our cash flows from operating activities. A decrease in other
charges of $3.6 million partially offset by a decrease in working capital items
of $2.5 million served to offset the gains described above.
Cash flows from investing activities. Net cash used in investing
activities decreased $191.0 million from $346.7 million to $155.7 million for
the firstnine months of 1999. The decrease is primarily due to a reduction in
acquisition activity, offset by an increase in fixed asset expenditures
principally attributable to our year 2000 efforts and proceeds of $4.0 million
from the sale of certain properties in April 1998.
Cash flows from financing activities. Net cash provided by financing
activities decreased $214.8 million from $327.0 million for the first nine
months of 1998 to $112.2 million for the first nine months of 1999. This
decrease was principally due to our financing fewer acquisitions in 1999 in
comparison to 1998, and repayments on our long-term debt. In July 1999, we also
obtained an additional $138.0 million in term debt financing that was used to
fund the Larkin acquisition.
Capital expenditures. Capital expenditures increased $3.4 million from
$2.6 million for the first nine months of 1998 to $6.0 million for the first
nine months of 1999. The increase was due primarily to upgrades and expansion
of certain of our computer networks and servers principally related to our year
2000 efforts and other strategic investments. Capital expenditures have been
financed by our cash flows from operations.
We expect that our primary source of liquidity will be cash flow from
operations. We also have a $60.0 million revolving line of credit available for
funding capital expenditures, working capital needs, acquisitions, or for other
general corporate purposes. As of September 30, 1999, we have approximately
$51.5 million of availability under the revolving credit facility. We generally
operate with negative working capital, excluding cash and current maturities of
long-term debt, due to the impact of deferred revenue from expositions, which
are billed and collected as deposits up to one year in advance of the respective
trade show. Consequently, our existing operations are expected to maintain very
low or negative working capital balances. We believe that we have sufficient
capital resources for ongoing operations requirements. For our long-term
capital requirements beyond December 31, 2001, we will continue to rely on
operating cash flows and believe that we will be able to access capital markets.
We make no assurance that we will have access to these markets on terms
favorable to us or at all.
Interest payments on our Notes and interest and principal payments under
our credit facility will represent significant liquidity requirements for us.
Our credit facility includes both term loans and a revolving credit facility.
The senior term debt under our credit facility consists of three tranches,
$100.0 million of tranche A term loans amortizing over 5.5 years maturing
October 31, 2003, $150.0 million of tranche B term loans with modest
amortization over the initial 5.5 years of its term maturing with balloon
payments in 2004 and 2005 and $138.0 million of tranche C term loans with modest
amortization over the initial 7 years of its term maturing with balloon payments
in 2006 and 2007. The Chase Manhattan Bank, as administrative agent, leads our
lenders which include FleetBoston Financial Corp., Bank of New York, Dresdner
Bank AG, Heller Financial, First Source Financial LLP, Pacific Century Bank and
Trust Company of the West as well as several other institutional funds. The
$60.0 million revolving credit facility matures on October 31, 2003. Interest
rates under our senior term debt and revolving credit facility fluctuate and
significant increases in LIBOR could adversely impact our liquidity. To
mitigate such risk, we have capped our interest rate exposure by fixing interest
rates on approximately $270.0 million of long-term debt by the issuance of our
Notes and the purchase of interest rate cap agreements ranging from 8.0% to
8.5%.
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We believe that cash flow from operations and borrowings under the
revolving credit facility will provide adequate funds for our working capital
needs, planned capital expenditures, debt service obligations (including our
Notes) and other needs. We believe such liquidity will also enable us to make
selective acquisitions to the extent of available free cash flow and remaining
availability under our revolving credit facility. There can be no assurance
that our business will generate sufficient revenue growth, or that future
borrowings will be available to enable us to service our indebtedness or to fund
our other liquidity needs.
Year 2000 Issues
We have conducted a review of our computer systems and software
infrastructure to identify risks related to processing Year 2000 information.
With the implementation of our enhanced exposition system, we have substantially
completed our plan to become Year 2000 compliant. We continue to assess the
readiness of our mission critical systems and test (and correct where necessary)
any ancillary systems through the remainder of 1999. The total outside cost of
our activities incurred to date is approximately $4.2 million. Most of these
costs relate to the purchase of capital equipment and have been capitalized. We
believe that any additional cost to remediate our computer systems and software
infrastructure will be immaterial. With our completed modifications and
upgrades to existing software, Year 2000 compliance will not pose significant
operational issues. We have identified significant service providers, vendors
and suppliers that we believe will be critical to our business operations after
December 31, 1999. We have not identified any deficiencies in our vendor's
Year 2000 status.
The outcome of our Year 2000 readiness review depends on a number of risks
and uncertainties, some of which are beyond our control. Based on our review
and assessment to date, we do not believe that any Year 2000 issues will have a
material adverse effect on our business, financial condition or results of
operations. If we are not able to resolve any unforeseen Year 2000 issues,
there could be a delay in providing services to new subscribers of our
publications and in our trade show operations, such as invoicing exhibitors. If
our services were delayed, we could continue to mail our publications to our
subscribers as of December 31, 1999 and manually invoice exhibitors at our trade
shows until we could take remedial action. We do not believe a delay caused by
failure to resolve unforeseen Year 2000 issues would have a material impact on
our revenue.
Market Risk
We are exposed to various market risks, which is the potential loss arising
from adverse changes in market rates and prices, such as foreign currency
exchange and interest rates. We do not enter into derivatives or other financial
instruments for trading or speculative purposes. We enter into financial
instruments to manage and reduce the impact of changes in interest rates and
foreign currency exchange rates.
Interest. We rely significantly on long-term floating rate and fixed rate
debt in its capital structure. At September 30, 1999, our debt totaled $539.1
million of which $270.0 million was either fixed rate debt or covered by
interest rate cap agreements.
At September 30, 1999, we had fixed rate debt of $150.0 million and
floating rate debt of $389.1 million. Holding other variables constant (such as
debtlevels) a one percentage point decrease in interest rates would have a net
increase in the fair market value of the fixed rate debt of approximately $9.0
million. The pre-tax earnings and cash flows impact for the next year resulting
from a one percentage point increase in interest rates on variable rate debt
would be a reduction of $3.9 million, holding other variables constant and
excluding the impact of our interest rate cap agreements.
23
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Currencies. We maintain assets and operations in Europe, South America
and Asia. The results of operations and financial position of the our foreign
operations are principally measured in their respective currency and translated
into U. S. dollars. As a result, exposure to foreign currency gains and losses
exists. The reported income of these subsidiaries will be higher or lower
depending on a weakening or strengthening of the US dollar against the
respective foreign currency. Our subsidiaries and affiliates also purchase and
sell products and services in various currencies. As a result, we may be
exposed to cost increases relative to the local currencies in the markets in
which it sells.
A portion of our assets are based in our foreign locations and are
translated into U S dollars at foreign currency exchange rates in effect as of
the end of each period, with the effect of such translation reflected as a
separate component of stockholder's investment. Accordingly, our consolidated
stockholder's investment will fluctuate depending upon the weakening or
strengthening of the U S dollar against the respective foreign currency.
Our strategy for management of currency risk relies primarily upon
conducting our operations in a country's respective currency and may, from time
to time,enter into forward exchange contracts to reduce our exposure to currency
fluctuations. There are no material forward exchange contracts outstanding
during the periods presented.
For the nine months ended September 30, 1999, a hypothetical 10%
strengthening of the U.S. dollar relative to the currencies of foreign countries
in which we operate was not material.
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PART II Other Information
Item 4. Submissions of Matters to a Vote of Security Holders.
None
Item 6. Exhibits and Reports filed on Form 8-K
Item 6(a). Exhibits
10.1 Form of Second Amended and Restated 1996 Stock Option Plan.
10.2 Employment Agreement dated September 1, 1999, by and
between Advanstar, Inc. and Robert L. Krakoff.
10.3 Employment Agreement dated September 1, 1999, by and
between Advanstar, Inc. and James M. Alic.
10.4 Employment Agreement dated September 1, 1999, by and
between Advanstar, Inc. and Martin C. ("Skip") Farber.
27 Financial Data Schedule for the three months ended September
30, 1999.
Item 6(b). Reports on Form 8-K
A report on Form 8-K was filed by the Company on August 12, 1999.
25
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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.
Advanstar, Inc.
By: /s/ David W. Montgomery
-----------------------------------
Date: November 12, 1999
David W. Montgomery
Vice President - Finance and
Chief Financial Officer
(Authorized Officer and
Principal Financial Officer)
26
<PAGE>
Advanstar, Inc.
Exhibit Index
Exhibit No.
10.1 Form of Second Amended and Restated 1996 Stock Option Plan.
10.2 Employment Agreement dated September 1, 1999, by and between
Advanstar, Inc. and Robert L. Krakoff.
10.3 Employment Agreement dated September 1, 1999, by and between
Advanstar, Inc. and James M. Alic.
10.4 Employment Agreement dated September 1, 1999, by and between
Advanstar, Inc. and Martin C. ("Skip") Farber.
27 Financial Data Schedule for the three months ended
September 30, 1999.
27
<PAGE>
EXHIBIT 10.1
ADVANSTAR, INC.
SECOND AMENDED AND RESTATED
1996 STOCK OPTION PLAN
----------------------
1. Purpose. The purpose of this Second Amended and Restated 1996 Stock
-------
Option Plan (the "Plan") is to amend and restate in its entirety the Amended and
Restated 1996 Stock Option Plan, as amended, of Advanstar, Inc. (the "Company")
and to encourage employees of the Company and of any present or future parent or
subsidiary of the Company (collectively, "Related Corporations"), and other
individuals who render services to the Company or a Related Corporation, by
providing opportunities to purchase stock in the Company pursuant to options
granted hereunder ("Non-Qualified Options"). Non-Qualified Options are referred
to hereafter individually as an "Option" and collectively as "Options." As used
herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation," respectively, as those terms are defined in Section
424 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Administration of the Plan.
--------------------------
A. Board or Committee Administration. The Plan shall be administered by
---------------------------------
the Board of Directors of the Company (the "Board") or, by a committee
appointed by the Board (the "Committee"). Hereinafter, all references in
this Plan to the "Committee" shall mean the Board if no Committee has been
appointed. Subject to ratification of the grant or authorization of each
Option by the Board (if so required by applicable state law), and subject
to the terms of the Plan, the Committee shall have the authority to (i)
determine to whom Options may be granted; (ii) determine the time or times
at which Options shall be granted; (iii) determine the exercise price of
shares subject to each Option, which price shall not be less than the
minimum price specified in paragraph 6; (iv) determine (subject to
paragraph 7) the time or times when each Option shall become exercisable
and the duration of the exercise period; (v) extend the period during which
outstanding Options may be exercised; (vi) determine whether restrictions
such as repurchase options are to be imposed on shares subject to Options
and the nature of such restrictions, if any; and (vii) interpret the Plan
and prescribe and rescind rules and regulations relating to it. The
Committee shall take whatever actions it deems necessary, under Section 422
of the Code and the regulations promulgated thereunder, to ensure that
Options granted hereunder are not treated as "incentive stock options"
("ISOs"). The interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted under it shall be final
unless otherwise determined by the Board. The Committee may from time to
time adopt such rules and regulations for carrying out the Plan as it may
deem advisable. No member of the Board or the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or
any Option
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<PAGE>
granted under it.
B. Committee Actions. The Committee may select one of its members as its
-----------------
chairman, and shall hold meetings at such time and places as it may
determine. A majority of the Committee shall constitute a quorum and acts
by a majority of the members of the Committee at a meeting at which a
quorum is present, or acts reduced to or approved in writing by a majority
of the members of the Committee (if consistent with applicable state law),
shall constitute the valid acts of the Committee. From time to time the
Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.
C. Grant of Options to Board Members. All grants of Options to members
---------------------------------
of the Board shall in all respects be made in accordance with the
provisions of this Plan applicable to other eligible persons. Consistent
with the provisions of the first sentence of paragraph 2(A) above, members
of the Board who either (i) are eligible to receive grants of Options
pursuant to the Plan or (ii) have been granted Options may vote on any
matters affecting the administration of the Plan or the grant of any
Options pursuant to the Plan, except that no such member shall act upon the
granting to himself or herself of Options, but any such member may be
counted in determining the existence of a quorum at any meeting of the
Board during which action is taken with respect to the granting to such
member of Options.
D. Performance-Based Compensation. The Board, in its discretion, may
------------------------------
take such action as may be necessary to ensure that Options granted under
the Plan qualify as "qualified performance-based compensation" within the
meaning of Section 162(m) of the Code and applicable regulations
promulgated thereunder ("Performance-Based Compensation"). Such action may
include, in the Board's discretion, some or all of the following (i) if the
Board determines that Options granted under the Plan generally shall
constitute Performance-Based Compensation, the Plan shall be administered,
to the extent required for such Options to constitute Performance-Based
Compensation, by a Committee consisting solely of two or more "outside
directors" (as defined in applicable regulations promulgated under Section
162(m) of the Code), (ii) if any Options with an exercise price less than
the fair market value per share of Common Stock are granted under the Plan
and the Board determines that such Options should constitute Performance-
Based Compensation, such options shall be made exercisable only upon the
attainment of a pre-established, objective performance goal established by
the Committee, and such grant shall be submitted for, and shall be
contingent upon shareholder approval and (iii) Options granted under the
Plan may be subject to such other terms and conditions as are necessary for
compensation recognized in connection with the exercise or disposition of
such
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<PAGE>
stock option or the disposition of Common Stock acquired pursuant to such
stock option, to constitute Performance-Based Compensation.
3. Eligible Employees and Others. Options may be granted to any
-----------------------------
employee, officer or director (whether or not also an employee) or consultant of
the Company or any Related Corporation. The granting of any Option to any
individual or entity shall neither entitle that individual or entity to, nor
disqualify such individual or entity from, participation in any other grant of
Options.
4. Stock. The stock subject to Options shall be authorized but unissued
-----
shares of Common Stock of the Company, par value $ 0.01 per share (the "Common
Stock"), or shares of Common Stock reacquired by the Company in any manner. The
aggregate number of shares which may be issued pursuant to the Plan is 2,051,124
(giving effect both to the 100-for-1 split of the Common Stock in May 1997 and
the 2-for-1 split of the Common Stock in April 1999), subject to adjustment as
provided in paragraph 13. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part or shall be repurchased by
the Company, the shares subject to such Option shall again be available for
grants of Options under the Plan.
5. Granting of Options. Options may be granted under the Plan at any
-------------------
time on or after November 15, 1996 and prior to November 15, 2006. The date of
grant of an Option under the Plan will be the date specified by the Committee at
the time it grants the Option; provided, however, that such date shall not be
prior to the date on which the Committee acts to approve the grant.
6. Minimum Option Price.
--------------------
A. Price for Options. Subject to Paragraph 2(D) (relating to compliance
-----------------
with Section 162(m) of the Code), the exercise price per share of each
Option granted under the Plan shall be the fair market value of the Common
Stock of the Company on the date of grant, unless otherwise specified in
the agreement relating to the grant of such Option; provided that in no
event shall such exercise price be less than the minimum legal
consideration required therefor under the laws of any jurisdiction in which
the Company or its successors in interest may be organized.
B. Reserved.
--------
C. Reserved.
--------
D. Determination of Fair Market Value. If, at the time an Option is
----------------------------------
granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the date of grant or, if the
prices or quotes discussed in this sentence are unavailable for such date,
the last business day for
-3-
<PAGE>
which such prices or quotes are available prior to the date of grant and
shall mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last reported sale price (on that date) of
the Common Stock on the Nasdaq National Market, if the Common Stock is not
then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the
Common Stock is not reported on the Nasdaq National Market. If the Common
Stock is not publicly traded at the time an Option is granted under the
Plan, "fair market value" shall be deemed to be the fair value of the
Common Stock (without discount for minority interest or illiquidity) as
determined by the Committee after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale and
offer prices of the Common Stock in private transactions negotiated at
arm's length.
7. Option Duration. Subject to earlier termination as provided in
---------------
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than ten years
from the date of grant.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through
------------------
12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on the date of
-------
grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. Full Vesting of Installments. Once an installment becomes exercisable
----------------------------
it shall remain exercisable until expiration or termination of the Option,
unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be exercised at any
----------------
time or from time to time, in whole or in part, for up to the total number
of shares with respect to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have the right to
-----------------------
accelerate the date on which any installment of any Option becomes
exercisable.
9. Termination of Employment. The termination of employment of an
-------------------------
optionee shall cause such optionee's Options to terminate immediately unless
otherwise specified in the agreement relating to the grant of such Options.
Nothing in the Plan shall be deemed to give any optionee the right to be
retained in employment or other service by the Company or any Related
Corporation for any period of time. For purposes of this paragraph 9, employment
shall be considered as continuing uninterrupted during any
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<PAGE>
bona fide leave of absence (such as those attributable to illness, military
obligations or governmental service) provided that the period of such leave does
not exceed 90 days or, if longer, any period during which such optionee's right
to reemployment is guaranteed by statute or by contract. A bona fide leave of
absence with the written approval of the Committee shall not be considered an
interruption of employment under this paragraph 9, provided that such written
approval contractually obligates the Company or any Related Corporation to
continue the employment of the optionee after the approved period of absence.
10. Death; Disability.
-----------------
A. Death. If an optionee ceases to be employed by the Company and all
-----
Related Corporations by reason of his or her death, any Option owned by
such optionee may be exercised, to the extent otherwise exercisable on the
date of death, by the estate, personal representative or beneficiary who
has acquired the Option by will or by the laws of descent and distribution,
until the earlier of (i) the specified expiration date of the Option or
(ii) 365 days from the date of the optionee's death.
B. Disability. If an optionee ceases to be employed by the Company and
----------
all Related Corporations by reason of his or her disability, such optionee
shall have the right to exercise any Option held by him or her on the date
of termination of employment, to the extent of the number of shares with
respect to which he or she could have exercised it on that date, until the
earlier of (i) the specified expiration date of such Option or (ii) 365
days from the date of the termination of the optionee's employment. For the
purposes of the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code or any successor
statute.
11. Assignability. Options shall not be transferable except to the extent
-------------
set forth in the agreement relating thereto.
12. Terms and Conditions of Options. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including termination and cancellation provisions and
restrictions applicable to shares of Common Stock issuable upon exercise of
Options. The Committee may from time to time confer authority and responsibility
on one or more of its own members and/or one or more officers of the Company to
execute and deliver such instruments. The proper officers of the Company are
authorized and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
-----------
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<PAGE>
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock shall
--------------------------------
be subdivided or combined into a greater or smaller number of shares
(excluding, for the purpose of this paragraph 13(A), the 100-for-1 split of
the Common Stock in March 1997 and the 2-for-1 split of the Common Stock in
April 1999) or if the Company shall issue any shares of Common Stock as a
stock dividend on its outstanding Common Stock, the number of shares of
Common Stock deliverable upon the exercise of Options shall be
appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
B. Consolidations or Mergers. If the Company is to be consolidated with
-------------------------
or acquired by another entity in a merger or other reorganization in which
the holders of the outstanding voting stock of the Company immediately
preceding the consummation of such event, shall, immediately following such
event, hold, as a group, less than a majority of the voting securities of
the surviving or successor entity, or in the event of a sale of all or
substantially all of the Company's assets or otherwise (each, an
"Acquisition"), the Committee or, if in the absence of action by the
Committee, the board of directors of any entity assuming the obligations of
the Company hereunder (the "Successor Board"), shall, as to outstanding
Options, either (i) make appropriate provision for the continuation of such
Options by substituting on an equitable basis for the shares then subject
to such Options either (a) the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition, (b)
shares of stock of the surviving or successor corporation or (c) such other
securities as the Successor Board deems appropriate, the fair market value
of which shall not materially exceed the fair market value of the shares of
Common Stock subject to such Options immediately preceding the Acquisition;
or (ii) upon written notice to the optionees, provide that all Options must
be exercised, to the extent then exercisable or to be exercisable as a
result of the Acquisition, within a specified number of days of the date of
such notice, at the end of which period the Options shall terminate; or
(iii) terminate all Options in exchange for a cash payment equal to the
excess of the fair market value of the shares subject to such Options (to
the extent then exercisable or to be exercisable as a result of the
Acquisition) over the exercise price thereof.
C. Recapitalization or Reorganization. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the
Company or of another corporation are issued with respect to the
outstanding shares of Common Stock, an optionee upon exercising an Option
shall be entitled to receive for the purchase price paid upon such exercise
the securities he or she would have received if he or
-6-
<PAGE>
she had exercised such Option prior to such recapitalization or
reorganization.
D. Reserved.
--------
E. Dissolution or Liquidation. In the event of the proposed dissolution
--------------------------
or liquidation of the Company, each Option will terminate immediately prior
to the consummation of such proposed action or at such other time and
subject to such other conditions as shall be determined by the Committee.
F. Issuances of Securities. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
G. Fractional Shares. No fractional shares shall be issued under the
-----------------
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. Adjustments. Upon the happening of any of the events described in
-----------
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Options which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
14. Means of Exercising Options. An Option (or any part or installment
---------------------------
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (d) at the
discretion of the Committee, by any combination of (a), (b) and (c) above. The
holder of an Option shall not have the rights of a shareholder with respect to
the shares covered by his Option until the date of issuance of a stock
certificate to such holder for such shares. Except as expressly provided above
in paragraph 13 with respect to changes in capitalization and stock
-7-
<PAGE>
dividends, no adjustment shall be made for dividends or similar rights for which
the record date is before the date such stock certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board as of
--------------------------
November 15, 1996. The Plan shall expire at the end of the day on November 15,
2006 (except as to Options outstanding on that date). Subject to the provisions
of paragraph 5 above, Options may be granted under the Plan prior to the date of
stockholder approval of the Plan. The Board may terminate or amend the Plan in
any respect at any time. Except as otherwise provided in this paragraph 15, in
no event may action of the Board alter or impair the rights of an optionee,
without such optionee's consent, under any Option previously granted to such
optionee.
16. Reserved.
--------
17. Application Of Funds. The proceeds received by the Company from the
--------------------
sale of shares pursuant to Options granted under the Plan shall be used for
general corporate purposes.
18. Reserved.
--------
19. Withholding of Additional Income Taxes. Upon the exercise of an
--------------------------------------
Option, the transfer of an Option pursuant to an arm's length transaction, the
vesting or transfer of restricted stock or securities acquired on the exercise
of a Option hereunder, or the making of a distribution or other payment with
respect to such stock or securities, the Company may withhold taxes in respect
of amounts that constitute compensation includible in gross income. The
Committee in its discretion may condition (i) the exercise of an Option (ii) the
transfer of an Option, or (iii) the vesting or transferability of restricted
stock or securities acquired by exercising an Option, on the optionee's making
satisfactory arrangement for such withholding. Such arrangement may include
payment by the optionee in cash or by check of the amount of the withholding
taxes or, at the discretion of the Committee, by the optionee's delivery of
previously held shares of Common Stock or the withholding from the shares of
Common Stock otherwise deliverable upon exercise of a Option shares having an
aggregate fair market value equal to the amount of such withholding taxes.
20. Governmental Regulation. The Company's obligation to sell and deliver
-----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares. The Committee shall not grant Options under the Plan
unless the Company has complied with all applicable securities laws in
connection with such grant.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
file tax information returns reporting the income received by optionees in
connection with the Plan.
-8-
<PAGE>
21. Governing Law. The validity and construction of the Plan and the
-------------
instruments evidencing Options shall be governed by the laws of the State of
Delaware, or the laws of any jurisdiction in which the Company or its successors
in interest may be organized.
-9-
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
September 1, 1999 by and between Advanstar, Inc., a Delaware corporation (the
"Company") and Robert L. Krakoff ("Executive").
WHEREAS, the Company currently operates certain trade exposition and
publishing businesses; and
WHEREAS, the Company wishes to continue to employ Executive and Executive
is prepared to continue to serve in those capacities required by the Company.
NOW, THEREFORE, the parties agree as follows:
1. Position and Authority. The Company agrees to employ the Executive, and
----------------------
the Executive accepts such employment and agrees to serve the Company as
Chairman of the Board of Directors and Chief Executive Officer of the Company
and any of its respective Subsidiaries as may from time to time be requested by
the Company, for the compensation and benefits detailed in Sections 3 and 4
hereof. It is understood that the Executive will report to the Board of
Directors and that no other officer shall regularly so report. During the
Employment Term, the Company shall nominate Executive, and shall use its
commercially reasonable best efforts to cause Executive to be elected, to the
Board of Directors. The Executive shall be the highest ranking officer of the
Company and shall have (in all cases subject to the overall authority and
control of the Board of Directors) such authority as is typical for executives
having similar positions in similar companies. A "Subsidiary" shall be any
company in which the Company beneficially owns more than 50% of the voting power
of such company's outstanding voting securities.
2. Duties. Executive shall devote substantially all of his business time
------
(subject to four weeks of vacation, or such greater amount as is authorized by
the Board of Directors) to the affairs of the Company during the employment
term, except as may be consented to by the Board of Directors. Notwithstanding
the foregoing, to the extent that it does not materially interfere with the
performance of his duties, Executive may devote such business time as is
reasonably necessary to his duties as a director of not more than two business
corporations not affiliated with the Company, and Executive may devote business
time to any charitable or not-for-profit activities. Executive shall perform
such duties and responsibilities as the Board of Directors of the Company may
reasonably determine from time to time, provided that such duties and
responsibilities are consistent with Executive's position as Chief Executive
Officer of the Company and do not diminish Executive's authority as set forth in
Section 1 hereof. Executive will not be required to relocate his permanent
residence outside of greater Boston, Massachusetts; provided that, if Executive
--------
and the Company agree that Executive will relocate his permanent residence to
another city (such agreement to include the Company's reimbursement of
relocation expenses) (a "New Location") and perform his duties and
1
<PAGE>
responsibilities pursuant to the terms of this contract at the Company's offices
in the New Location, then Executive will not be required to relocate his
permanent residence outside the New Location.
3. Base Compensation and Bonus.
----------------------------
(a) Base Compensation. Executive will be compensated at a base salary
-----------------
rate of $500,000 per year (or such higher rate as may be set from time to time
by the Board of Directors in its discretion) during the employment term. Base
compensation will be paid in installments on the same schedule as the Company's
Subsidiaries generally pay their employees. All compensation and benefits will
be subject to reduction by all federal, state, local and other withholdings and
similar taxes and payments required by applicable law.
(b) Bonus for any Fiscal Year. The Executive shall receive bonus
-------------------------
compensation based on the relationship between the Company's actual earnings
before interest, taxes, depreciation and amortization and non-cash compensation
expense ("EBITDA") for each fiscal year starting with the fiscal year ending
December 31, 1999 (determined based on the Company's audited financial
statements for such fiscal year) and the EBITDA set for such year in the Company
"Adjusted Business Plan" (as defined below) as follows:
<TABLE>
<CAPTION>
Actual EBITDA Bonus
as a Percentage (as a Percentage
of Plan of Base Salary
--------------- ----------------
<S> <C>
Less than 80% No bonus
100% 50% of Base Salary
120% or More 100% of Base Salary
</TABLE>
If actual EBITDA as a percentage of the Company's Adjusted Business Plan falls
between 80% and 120%, the amount of bonus shall be pro rated on a straight-line
basis. In no case shall bonus payable under this Section 3(b) exceed 100% of
Base Salary unless agreed to by the Board of Directors in its absolute
discretion. Nothing herein shall be construed to prohibit or restrict the
Company from paying additional compensation to Executive if the Board of
Directors so determines in its absolute discretion.
The "Adjusted Business Plan" shall be the Company's business plan for
the fiscal year in question as approved by the Board of Directors with the
consent of Executive, appropriately adjusted for acquisitions or dispositions
during the year as determined by the Board of Directors in good faith. If the
Board and the Executive do not adopt a mutually satisfactory business plan prior
to the beginning of any fiscal year, the business plan for purposes of this
Section 3(b) shall be the last business plan submitted by the Company to its
lenders, subject to adjustment as provided above for acquisitions and
dispositions occurring after the date thereof.
2
<PAGE>
Any bonus payable under this Section 3(b) shall be paid not later than
60 days after the applicable fiscal year end.
4. Benefits.
--------
(a) During Executive's employment by the Company, Executive will
receive the same (or substantially similar) employee benefits to those provided
by the Company or its Subsidiaries to other members of senior management from
time to time, including, without limitation, medical and dental insurance,
disability insurance and life insurance (the latter in an amount of not less
than $1,500,000), provided, that regardless of whether or not paid for other
members of senior management, the Company shall pay the entire amount of any
premium for life insurance in an amount of $1,500,000 and disability insurance
provided by the Company to Executive under this Agreement.
(b) During and after the employment term the Company agrees that if
Executive is made a party, or compelled to testify or otherwise participate in,
any action, suit or proceeding (a "Proceeding"), by reason of the fact that he
is or was a director or officer of the Company or any of its Subsidiaries,
Executive shall be indemnified by the Company as provided in Section 145 of the
Delaware General Corporation Law or (but not to any lesser extent) as authorized
by the Company's certificate of incorporation or bylaws or resolutions of the
Company's Board of Directors against all cost, expense, liability, damage and
loss reasonably incurred or suffered by Executive in connection therewith, and
such indemnification shall continue as to Executive even if he has ceased to be
a director or officer of the Company or Subsidiary for the period of any
applicable statute of limitations or, if longer, for the period in which any
such Proceeding which commenced within the period of any such statute of
limitations is pending. The Company shall advance to Executive all reasonable
costs and expenses incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an itemized list of the costs and expenses and an
undertaking by Executive to repay the amount of such advance if it shall
ultimately be determined, in a final judgment for which the time to appeal has
expired, that, pursuant to applicable law, he is not entitled to be indemnified
against such costs and expenses.
(c) The Company will reimburse Executive for his reasonable and
customary business expenses, including travel, accommodations and meals.
Such reimbursement shall include the reasonable cost of travel to and
from Boston (other than commuting expenses) and accommodations and meals when
outside of Boston.
(d) The Company shall lease in Boston office space, reasonably
satisfactory to Executive, at which the Company's principal executive offices
shall be located, including Executive's principal office. Any leasehold
improvements reasonably necessary to prepare such office space for use as the
Company's principal executive office, and all reasonably necessary office
equipment, shall be paid for by the Company. The Company shall provide
Executive with
3
<PAGE>
a secretary and such additional office staff as the Board of Directors and
Executive shall determine.
5. Stock Options. In the event that capital is invested in the Company
after the date hereof by any person up to a total aggregate investment
(including capital already invested) of $300,000,000, the Company shall make
additional shares available for the grant of options under the Company's Amended
and Restated 1996 Stock Option Plan (the "Plan") such that the number of shares
of Common Stock of the Company issued or issuable upon exercise of options
granted under the Plan equals the number of shares of Common Stock of the
Company held by AHI Advanstar LLC multiplied by a percentage (expressed as a
decimal) equal to the difference between (A) and (B), where (A) is 18.0%
(reduced by the amount, if any, by which the Carried Interest Percentage (as
defined in the Amended and Restated Operating Agreement (the "Operating
Agreement") of AHI Advanstar LLC) of Peter J. Solomon, Co., Ltd. is less than
2.5%) and (B) is the aggregate Carried Interest Percentage of all members of the
AHI Advanstar LLC as it may be adjusted from time to time by the Operating
Agreement. This Section 5 shall terminate upon the occurrence of a Final
Liquidity Event (as defined in the Operating Agreement).
6. Term. This Agreement shall have a term equal to the periodfrom the
----
Effective Date through May 31, 2003 (the "Employment Term"), provided that
--------
Sections 9 and 10 shall survive such expiration in accordance with their terms.
7. Termination.
-----------
(a) This Agreement may be terminated by the Company at any time for
Cause upon written notice to Executive, which notice shall specify the reason
for termination. Such notice shall be given at any time prior to termination in
the case of matters described in clauses (B) or (C), and shall be given not less
than 30 days prior to the date of termination, in the case of matters described
in clauses (A), (D) or (E), and in the case of matters described in clauses (A),
(D) or (E) shall be rescinded if the Executive cures any misconduct, negligent
act, breach or failure giving rise to such notice to the reasonable satisfaction
of the Board of Directors, including curing any damage suffered by the Company
as a result thereof. As used herein, "Cause" shall mean (A) willful misconduct
or gross negligence by Executive in respect of his material obligations under
this Agreement, (B) conviction of a felony involving moral turpitude, (C) theft
of Company property or other disloyal or dishonest conduct of the Executive that
materially harms the Company or its business or (in the case of dishonest
conduct) undermines the confidence of the Board of Directors, (D) willful breach
of this Agreement, or (E) willful failure to observe Company policies or carry
out the directives of the Board of Directors.
(b) Executive may terminate this Agreement for Good Reason by giving
thirty (30) days prior written notice to the Company. "Good Reason" shall exist
only if (i) Executive is removed or is not re-appointed as the Company's Chief
Executive Officer, except in connection with termination of this Agreement by
the Company for Cause or due to death or Disability (as defined below), (ii)
Executive is assigned duties, or authority is withdrawn from Executive,
inconsistent with Executive's authority pursuant to Section 1, without
Executive's express
4
<PAGE>
written consent, (iii) breach by the Company of any material obligation of the
Company under this Agreement or (iv) Hellman & Friedman and its affiliates shall
cease to beneficially own, directly or indirectly, at least 50% of the voting
securities of the Company, and another person or group (as defined in Section 13
of the Securities Exchange Act) beneficially owns greater than 50% of such
voting securities.
(c) Should the Executive terminate this Agreement for Good Reason, or
should the Company terminate this Agreement without Cause, then the Executive
shall be entitled to receive, for a period of one year, the salary and the
benefits provided for in Sections 3 and 4 hereof, provided that any bonus under
--------
Section 3(b) will be payable only with respect to that portion of the fiscal
year in which Executive's employment was terminated (or any prior fiscal year
for which bonus remains unpaid)); bonus for any partial fiscal year shall be
determined by multiplying the bonus Executive would have received had he
continued to work for the Company during the entire fiscal year by a fraction,
the numerator of which is the number of days in the fiscal year during which
Executive was employed by the Company, and the denominator of which is 365 (such
amount the "Pro Rata Bonus Amount"). If any such benefits cannot be legally
provided, or the provision thereof would disqualify any plan for favorable tax
treatment under the Internal Revenue Code, a financially equivalent substitute
shall be provided. The Company shall have no obligation to Executive under this
Section 7(c) if Executive breaches the provisions of the letter agreement
referred to in Section 9. This clause (c) shall not apply to a termination
under clause (d) below.
(d) This Agreement shall terminate automatically upon Executive's
death. This Agreement may be terminated by the Company upon written notice to
Executive, or by Executive upon written notice to the Company, upon Executive's
Disability. For purposes of this Agreement, "Disability" means the Executive's
suffering of a disability which shall have prevented him from performing his
obligations hereunder for a period of at least 120 consecutive days or 180 non-
consecutive days in any 365 day period. In the event of termination of this
Agreement due to Executive's death or Disability, in addition to any salary due
to Executive as of the date of death or Disability and remaining unpaid,
Executive shall be entitled to receive, at such time as Executive would
otherwise would have received such sum, the Pro Rata Bonus Amount for the
portion of the fiscal year in which Executive's death or Disability occurred
during which Executive was employed by the Company.
(e) If the Company terminates this Agreement with Cause or if the
Executive terminates this Agreement without Good Reason, or if this Agreement is
terminated under clause (d) above, then the Executive shall, from the date of
such termination, no longer be entitled to any compensation under Sections 3 or
4 (other than, in the case of termination for Disability, disability benefits as
provided pursuant to Section 4 and, in the case of termination for death or
Disability, any bonus payable pursuant to clause (d) above). Nothing in this
clause (e) shall affect Executive's rights under Company health and disability
plans in which Executive participates to the extent such plans provide for
benefits to be paid following the termination of employment.
5
<PAGE>
(f) Termination of this Agreement shall not discharge any liability
(of either the Company or the Executive) existing at the date of termination.
Further, notwithstanding any termination, the provisions of Sections 9 and 10
shall survive in accordance with their terms.
(g) If Executive ceases to be employed by the Company for any reason,
Executive will resign from the Board of Directors if requested by the Company.
8. Effective Date. This Agreement shall take effect as of the date hereof
--------------
("Effective Date").
9. Non-Competition and Confidentiality. Executive shall execute and
-----------------------------------
deliver a letter agreement in the form of Exhibit A hereto.
10. Arbitration. Any claim arising out of or relating to this Agreement
-----------
(including disputes regarding the presence or absence of "Cause" or "Good
Reason" in the event of a termination), or otherwise arising out of or relating
to the Executive's employment by the Company, will be subject to arbitration in
San Francisco, California (if brought by Executive) or Boston, Massachusetts (if
brought by the Company), in accordance with the Federal Arbitration Act and the
rules of the American Arbitration Association relating to commercial disputes.
The prevailing party in any such arbitration shall be entitled to recover from
the other party its reasonable expenses incurred in connection with such
arbitration, including the reasonable fees and expenses of counsel.
11. Severability. If any provision of this Agreement is determined to be
------------
invalid or unenforceable, it shall be adjusted rather than voided, to achieve
the intent of the parties to the extent possible, and the remainder of the
Agreement shall be enforced to the maximum extent possible.
12. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Executive and the Company with respect to the terms and conditions of
the employment of Executive by the Company, and as of the Effective Date
supersedes all prior or concurrent arrangements, discussions, agreements or
understandings with respect to the Executive's employment.
13. Governing Law. This Agreement shall be governed by the laws of
-------------
California without regard to principles of conflicts of law.
14. Notice. Any notice, or other written communication to be given
------
pursuant to this Agreement for whatever reason shall be deemed duly given and
received (a) if delivered personally, from the date of delivery, or (b) by
certified mail, postage pre-paid, return receipt requested, three (3) days after
the date of mailing, addressed to the above parties as follows:
6
<PAGE>
If to the Company:
Advanstar, Inc.
545 Boylston Street
Boston, Massachusetts 02116
Attn: Board of Directors
with a copy to each of:
Hellman & Friedman LLC
One Maritime Plaza
Suite 1200
San Francisco, California 94111
Attn: Mitchell R. Cohen
and
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94101
Attn: Timothy G. Hoxie, Esq.
If to Executive:
Robert L. Krakoff
257 Commonwealth Avenue
Boston, Massachusetts 02116
and:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attn: F. George Davitt, Esq.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date and year first above written.
ADVANSTAR, INC.
By: /S/ David W. Montgomery
-----------------------
David W. Montgomery
Chief Financial Officer
/S/ Robert L. Krakoff
---------------------
Robert L. Krakoff
8
<PAGE>
Exhibit A
---------
Advanstar, Inc.
545 Boylston Street
Boston, MA 02116
September 1, 1999
Robert L. Krakoff
257 Commonwealth Avenue
Boston, MA 02116
Dear Mr. Krakoff:
You are to be employed by Advanstar, Inc. (the "Company" and, together with
its subsidiaries "Advanstar"). In consideration of your employment with the
Company, you and the Company agree as follows:
1. Non-Competition. You agree that you will not, during the course of
---------------
your employment with the Company or for the Non-Compete Period following the
termination of such employment, compete with Advanstar, as defined in paragraph
4 below. As used herein "Non-Compete Period" means (a) if your employment is
terminated by the Company without Cause (as defined therein) or by you for Good
Reason (as defined therein), six months or (b) if your employment is terminated
for any other reason, one year.
2. Confidentiality. You acknowledge that your association with Advanstar
---------------
will bring you into close contact with many confidential affairs of Advanstar,
including information about costs, profits, markets, sales, publications, key
personnel, pricing policies, operational methods, other business affairs,
methods and other information not readily available to the public, and plans for
future development. In recognition of the foregoing, you covenant and agree
that you will keep confidential all material confidential to Advanstar that is
not otherwise in the public domain and that you will not intentionally disclose
any such information to anyone outside Advanstar or make any use thereof for
your own benefit or for any purpose other than the advancement of the business
of Advanstar at any time except with the prior written consent of Advanstar as
evidenced by a certified resolution of the Board of Directors of the Company.
For purposes of this Agreement, the following information shall be deemed not to
constitute confidential information of Advanstar:
(a) Any information developed independently by you;
(b) Information that was received by you from a third-party, which,
to your knowledge, is not bound by an agreement of
confidentiality with Advanstar; or
1
<PAGE>
(c) Any information that is in the public domain or generally
available to the public.
3. No Solicitation of Employees. You covenant that during the Non-Compete
----------------------------
Period, you will not, and no person, corporation, partnership, or other entity
over which you exercise control (whether as an officer, director, sole
proprietor, holder, debt or equity securities, consultant, partner, or
otherwise) will, directly or indirectly (a) enter into any written or oral
agreement or understanding relating to the services of any person who is then
employed by Advanstar or, in the case of any employee other than secretaries,
clerks and similar employees fulfilling merely clerical functions, who has been
so employed within the preceding six months, or (b) solicit, or bid against
Advanstar in an attempt to be awarded, any trade show or exposition business, or
any publishing contract, from any party sponsoring or arranging any trade show
or exposition, or publishing or sponsoring any publication, in either case with
which Advanstar then has such a relationship or contract.
4. Certain Definitions. For purposes of this Letter Agreement,
-------------------
competition with Advanstar shall include carrying on any business that is
competitive with the business of Advanstar, in the United States or in any other
country in which Advanstar conducts business as of the termination of your
employment. For purposes of this Letter Agreement, (a) the business of
Advanstar will be deemed to include (without limitation) the organization of
trade shows and expositions of the type and with respect to the industries held
by Advanstar as of the termination of your employment (it being understood that
industry shall be analogized to the categories of the category system of the
Standard Rate Data Service) and the publication (including electronic
publication) of trade journals and other magazines aimed at the particular
businesses, industries or professions (as defined by category according to the
category system of the Standard Rate Data Service) at which Advanstar's
operations are aimed, and (b) each of the following activities (without
limitation) will be deemed to constitute to carrying on business: to engage in,
work with, have interest in, advise, lend money to, guarantee the debts or
obligations of, or permit one's name or any part thereof to be used in
connection with, an enterprise or endeavor either individually, in partnership,
or in conjunction with any person, firm, association, company, or corporation,
whether as principal, agent, shareholder (other than holding of less than 1% of
the voting securities of any public company or 5% of the voting securities of
any private company), employee, director, consultant, or in any other capacity
or manner whatsoever.
5. Severability. The scope and effect of the terms and provisions
------------
contained in this Letter Agreement (including the noncompetition covenant
contained in Section 1) will be as broad in time (but not beyond the time
periods specified herein), geography, and all other respects as is permitted by
applicable law. If arbitrators, a court, or another body of competent
jurisdiction determine that any term or provision of this Agreement is excessive
in scope, then if possible such term or provision will be adjusted (rather than
voided) in accordance with the purpose stated in the preceding sentence and with
applicable law, but in such a manner as to minimize the change in the provision.
If such term or provision cannot be so adjusted, then it will be struck. All
other terms and provisions of this Letter Agreement will be deemed valid and
enforceable to the full extent possible.
2
<PAGE>
6. Remedies. If any of the covenants or agreements in Sections 1, 2 or 3
--------
are violated or threatened to be violated, you agree and acknowledge that such
violation or threatened violation will cause irreparable injury to Advanstar,
and that the remedy at law of Advanstar for any such violation or threatened
violation will be inadequate and that Advanstar will be entitled to obtain any
injunction prohibiting a continuance or occurrence of such violations or
threatened violations in addition to (not in limitation of) any other rights or
remedies available at law or in equity. Your services hereunder are of a
special, unique, unusual, extraordinary character which gives them peculiar
value, the loss of which cannot be reasonably or adequately computed in damages.
The provisions of this Letter Agreement will be binding upon and inure to
the benefit of our respective heirs, executives, administrators, successors and
assigns. This Letter Agreement will be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts. If there is any conflict
between the provisions of this letter agreement and the provisions of any other
agreement between you and the Company in respect of the subject matter hereof,
the provisions of this agreement shall govern.
Very truly yours,
ADVANSTAR, INC.
By: /S/ David W. Montgomery
-----------------------
David W. Montgomery
Chief Financial Officer
ACCEPTED AND AGREED:
/S/ Robert L. Krakoff
- ---------------------
Robert L. Krakoff
3
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
September 1, 1999 by and between Advanstar, Inc., a Delaware corporation (the
"Company") and James M. Alic ("Executive").
WHEREAS, the Company currently operates certain trade exposition and
publishing businesses; and
WHEREAS, the Company wishes to continue to employ Executive and Executive
is prepared to continue to serve in those capacities required by the Company.
NOW, THEREFORE, the parties agree as follows:
1. Position and Authority. The Company agrees to employ the Executive, and
----------------------
the Executive accepts such employment and agrees to serve the Company as Vice
Chairman of the Company and any of its respective Subsidiaries as may from time
to time be requested by the Company, for the compensation and benefits detailed
in Sections 3 and 4 hereof. It is understood that the Executive will report to
the Chief Executive Officer of the Company. During the Employment Term, the
Company shall nominate Executive, and shall use its commercially reasonable best
efforts to cause Executive to be elected, to the Board of Directors. A
"Subsidiary" shall be any company in which the Company beneficially owns more
than 50% of the voting power of such company's outstanding voting securities.
2. Duties. Executive shall devote substantially all of his business time
------
(subject to four weeks of vacation, or such greater amount as is authorized by
the Board of Directors) to the affairs of the Company during the employment
term, except as may be consented to by the Board of Directors. Notwithstanding
the foregoing, to the extent that it does not materially interfere with the
performance of his duties, Executive may devote such business time as is
reasonably necessary to his duties as a director of not more than two business
corporations not affiliated with the Company, and Executive may devote business
time to any charitable or not-for-profit activities. Executive shall perform
such duties and responsibilities as the Board of Directors or Chief Executive
Officer of the Company may reasonably determine from time to time, provided that
such duties and responsibilities are consistent with Executive's position as
Vice Chairman of the Company and do not diminish Executive's authority as set
forth in Section 1 hereof. Executive will not be required to relocate his
permanent residence .
3. Base Compensation and Bonus.
---------------------------
(a) Base Composition. Executive will be compensated at a base salary
----------------
rate of $400,000 per year (or such higher rate as may be set from time to time
by the Board of Directors in its discretion) during the employment term. Base
compensation will be paid in installments on the same schedule as the Company's
Subsidiaries generally pay their employees. All
1
<PAGE>
compensation and benefits will be subject to reduction by all federal, state,
local and other withholdings and similar taxes and payments required by
applicable law.
(b) Bonus for any Fiscal Year. The Executive shall receive bonus
-------------------------
compensation based on the relationship between the Company's actual earnings
before interest, taxes, depreciation and amortization and non-cash compensation
expense ("EBITDA") for each fiscal year starting with the fiscal year ending
December 31, 1999 (determined based on the Company's audited financial
statements for such fiscal year) and the EBITDA set for such year in the Company
"Adjusted Business Plan" (as defined below) as follows:
<TABLE>
<CAPTION>
Actual EBITDA Bonus
as a Percentage (as a Percentage
of Plan of Base Salary
--------------- ----------------
<S> <C>
Less than 80% No bonus
100% 50% of Base Salary
120% or More 100% of Base Salary
</TABLE>
If actual EBITDA as a percentage of the Company's Adjusted Business Plan falls
between 80% and 120%, the amount of bonus shall be pro rated on a straight-line
basis. In no case shall bonus payable under this Section 3(b) exceed 100% of
Base Salary unless agreed to by the Board of Directors in its absolute
discretion. Nothing herein shall be construed to prohibit or restrict the
Company from paying additional compensation to Executive if the Board of
Directors so determines in its absolute discretion.
The "Adjusted Business Plan" shall be the Company's business plan for
the fiscal year in question as approved by the Board of Directors with the
consent of the Chief Executive Officer of the Company, appropriately adjusted
for acquisitions or dispositions during the year as determined by the Board of
Directors in good faith. If the Board and the Chief Executive Officer do not
adopt a mutually satisfactory business plan prior to the beginning of any fiscal
year, the business plan for purposes of this Section 3(b) shall be the last
business plan submitted by the Company to its lenders, subject to adjustment as
provided above for acquisitions and dispositions occurring after the date
thereof.
Any bonus payable under this Section 3(b) shall be paid not later than
60 days after the applicable fiscal year end.
4. Benefits.
--------
(a) During Executive's employment by the Company, Executive will
receive the same (or substantially similar) employee benefits to those provided
by the Company or its Subsidiaries to other members of senior management from
time to time.
2
<PAGE>
(b) During and after the employment term the Company agrees that if
Executive is made a party, or compelled to testify or otherwise participate in,
any action, suit or proceeding (a "Proceeding"), by reason of the fact that he
is or was a director or officer of the Company or any of its Subsidiaries,
Executive shall be indemnified by the Company as provided in Section 145 of the
Delaware General Corporation Law or (but not to any lesser extent) as authorized
by the Company's certificate of incorporation or bylaws or resolutions of the
Company's Board of Directors against all cost, expense, liability, damage and
loss reasonably incurred or suffered by Executive in connection therewith, and
such indemnification shall continue as to Executive even if he has ceased to be
a director or officer of the Company or Subsidiary for the period of any
applicable statute of limitations or, if longer, for the period in which any
such Proceeding which commenced within the period of any such statute of
limitations is pending. The Company shall advance to Executive all reasonable
costs and expenses incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an itemized list of the costs and expenses and an
undertaking by Executive to repay the amount of such advance if it shall
ultimately be determined, in a final judgment for which the time to appeal has
expired, that, pursuant to applicable law, he is not entitled to be indemnified
against such costs and expenses.
(c) The Company will reimburse Executive for his reasonable and
customary business expenses, including travel, accommodations and meals.
Such reimbursement shall include the reasonable cost of travel to and
from Boston, Cleveland and other Company offices and accommodations and meals
when outside of his residence location.
5. Reserved.
--------
6. Term. This Agreement shall have a term equal to the period from the
----
Effective Date through May 31, 2003 (the "Employment Term"), provided that
--------
Sections 9 and 10 shall survive such expiration in accordance with their terms.
7. Termination.
-----------
(a) This Agreement may be terminated by the Company at any time for
Cause upon written notice to Executive, which notice shall specify the reason
for termination. Such notice shall be given at any time prior to termination in
the case of matters described in clauses (B) or (C), and shall be given not less
than 30 days prior to the date of termination, in the case of matters described
in clauses (A), (D) or (E), and in the case of matters described in clauses (A),
(D) or (E) shall be rescinded if the Executive cures any misconduct, negligent
act, breach or failure giving rise to such notice to the reasonable satisfaction
of the Board of Directors, including curing any damage suffered by the Company
as a result thereof. As used herein, "Cause" shall mean (A) willful misconduct
or gross negligence by Executive in respect of his material obligations under
this Agreement, (B) conviction of a felony involving moral turpitude, (C) theft
of Company property or other disloyal or dishonest conduct of the Executive that
materially harms the Company or its business or (in the case of dishonest
conduct) undermines
3
<PAGE>
the confidence of the Board of Directors, (D) willful breach of this Agreement,
or (E) willful failure to observe Company policies or carry out the directives
of the Board of Directors.
(b) Executive may terminate this Agreement for Good Reason by giving
thirty (30) days prior written notice to the Company. "Good Reason" shall exist
only if (i) Executive is removed or is not re-appointed as the Company's Vice
Chairman, except in connection with termination of this Agreement by the Company
for Cause or due to death or Disability (as defined below), (ii) Executive is
assigned duties, or authority is withdrawn from Executive, inconsistent with
Executive's authority pursuant to Section 1, without Executive's express written
consent, (iii) breach by the Company of any material obligation of the Company
under this Agreement, (iv) Hellman & Friedman and its affiliates shall cease to
beneficially own, directly or indirectly, at least 50% of the voting securities
of the Company, and another person or group (as defined in Section 13 of the
Securities Exchange Act) beneficially owns greater than 50% of such voting
securities or (v) Robert Krakoff ceases to be Chief Executive Officer of the
Company and Executive is not appointed Chief Executive Officer of the Company.
(c) Should the Executive terminate this Agreement for Good Reason, or
should the Company terminate this Agreement without Cause, then the Executive
shall be entitled to receive, for a period of one year, the salary and the
benefits provided for in Section Sections 3 and 4 hereof, provided that any
bonus under Section 3(b) will be payable only with respect to that portion of
the fiscal year in which Executive's employment was terminated (or any prior
fiscal year for which bonus remains unpaid)); bonus for any partial fiscal year
shall be determined by multiplying the bonus Executive would have received had
he continued to work for the Company during the entire fiscal year by a
fraction, the numerator of which is the number of days in the fiscal year during
which Executive was employed by the Company, and the denominator of which is 365
(such amount the "Pro Rata Bonus Amount"). If any such benefits cannot be
legally provided, or the provision thereof would disqualify any plan for
favorable tax treatment under the Internal Revenue Code, a financially
equivalent substitute shall be provided. The Company shall have no obligation
to Executive under this Section 7(c) if Executive breaches the provisions of the
letter agreement referred to in Section 9. This clause (c) shall not apply to a
termination under clause (d) below.
(d) This Agreement shall terminate automatically upon Executive's
death. This Agreement may be terminated by the Company upon written notice to
Executive, or by Executive upon written notice to the Company, upon Executive's
Disability. For purposes of this Agreement, "Disability" means the Executive's
suffering of a disability which shall have prevented him from performing his
obligations hereunder for a period of at least 120 consecutive days or 180 non-
consecutive days in any 365 day period. In the event of termination of this
Agreement due to Executive's death or Disability, in addition to any salary due
to Executive as of the date of death or Disability and remaining unpaid,
Executive shall be entitled to receive, at such time as Executive would
otherwise would have received such sum, the Pro Rata Bonus Amount for the
portion of the fiscal year in which Executive's death or Disability occurred
during which Executive was employed by the Company.
4
<PAGE>
(e) If the Company terminates this Agreement with Cause or if the
Executive terminates this Agreement without Good Reason, or if this Agreement is
terminated under clause (d) above, then the Executive shall, from the date of
such termination, no longer be entitled to any compensation under Sections 3 or
4 (other than, in the case of termination for Disability, disability benefits as
provided pursuant to Section 4 and, in the case of termination for death or
Disability, any bonus payable pursuant to clause (d) above). Nothing in this
clause (e) shall affect Executive's rights under Company health and disability
plans in which Executive participates to the extent such plans provide for
benefits to be paid following the termination of employment.
(f) Termination of this Agreement shall not discharge any liability
(of either the Company or the Executive) existing at the date of termination.
Further, notwithstanding any termination, the provisions of Sections 9 and 10
shall survive in accordance with their terms.
(g) If Executive ceases to be employed by the Company for any reason,
Executive will resign from the Board of Directors if requested by the Company.
8. Effective Date. This Agreement shall take effect as of the date hereof
--------------
(the "Effective Date").
9. Non-Competition and Confidentiality. Executive shall execute and
-----------------------------------
deliver a letter agreement in the form of Exhibit A hereto.
10. Arbitration. Any claim arising out of or relating to this Agreement
-----------
(including disputes regarding the presence or absence of "Cause" or "Good
Reason" in the event of a termination), or otherwise arising out of or relating
to the Executive's employment by the Company, will be subject to arbitration in
San Francisco, California (if brought by Executive) or Boston, Massachusetts (if
brought by the Company), in accordance with the Federal Arbitration Act and the
rules of the American Arbitration Association relating to commercial disputes.
The prevailing party in any such arbitration shall be entitled to recover from
the other party its reasonable expenses incurred in connection with such
arbitration, including the reasonable fees and expenses of counsel.
11. Severability. If any provision of this Agreement is determined to be
------------
invalid or unenforceable, it shall be adjusted rather than voided, to achieve
the intent of the parties to the extent possible, and the remainder of the
Agreement shall be enforced to the maximum extent possible.
12. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Executive and the Company with respect to the terms and conditions of
the employment of Executive by the Company, and, as of the Effective Date,
supersedes all prior or concurrent arrangements, discussions, agreements or
understandings with respect to the Executive's employment.
13. Governing Law. This Agreement shall be governed by the laws of
-------------
California without regard to principles of conflicts of law.
5
<PAGE>
14. Notice. Any notice, or other written communication to be given
------
pursuant to this Agreement for whatever reason shall be deemed duly given and
received (a) if delivered personally, from the date of delivery, or (b) by
certified mail, postage pre-paid, return receipt requested, three (3) days after
the date of mailing, addressed to the above parties as follows:
If to the Company:
Advanstar, Inc.
545 Boylston Street
Boston, Massachusetts 02116
Attn: Board of Directors
Hellman & Friedman LLC
One Maritime Plaza
Suite 1200
San Francisco, California 94111
Attn: Mitchell R. Cohen
with a copy to:
Heller, Ehrman, White & McAuliffe
333 Bush Street
San Francisco, California 94101
Attn: Timothy G. Hoxie, Esq.
If to Executive:
James M. Alic
6 Snowflake Lane
Westport, Connecticut 06880
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attn: F. George Davitt, Esq.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date and year first above written.
ADVANSTAR, INC.
By: /S/ Robert L. Krakoff
---------------------
Robert L. Krakoff
Chairman of the Board and Chief Executive
Officer
/S/ James M. Alic
-----------------
James M. Alic
7
<PAGE>
Exhibit A
---------
Advanstar, Inc.
545 Boylston Street
Boston, MA 02116
September 1, 1999
James M. Alic
6 Snowflake Lane
Westport, CT 06880
Dear Mr. Alic:
You are to be employed by Advanstar, Inc. (the "Company" and, together with
its subsidiaries "Advanstar"). In consideration of your employment with the
Company, you and the Company agree as follows:
1. Non-Competition. You agree that you will not, during the course of
---------------
your employment with the Company or for the Non-Compete Period following the
termination of such employment, compete with Advanstar, as defined in paragraph
4 below. As used herein "Non-Compete Period" means (a) if your employment is
terminated by the Company without Cause (as defined therein) or by you for Good
Reason (as defined therein), six months or (b) if your employment is terminated
for any other reason, one year.
2. Confidentiality. You acknowledge that your association with Advanstar
---------------
will bring you into close contact with many confidential affairs of Advanstar,
including information about costs, profits, markets, sales, publications, key
personnel, pricing policies, operational methods, other business affairs,
methods and other information not readily available to the public, and plans for
future development. In recognition of the foregoing, you covenant and agree
that you will keep confidential all material confidential to Advanstar that is
not otherwise in the public domain and that you will not intentionally disclose
any such information to anyone outside Advanstar or make any use thereof for
your own benefit or for any purpose other than the advancement of the business
of Advanstar at any time except with the prior written consent of Advanstar as
evidenced by a certified resolution of the Board of Directors of the Company.
For purposes of this Agreement, the following information shall be deemed not to
constitute confidential information of Advanstar:
(a) Any information developed independently by you;
(b) Information that was received by you from a third-party, which,
to your knowledge, is not bound by an agreement of
confidentiality with Advanstar; or
A-1
<PAGE>
(c) Any information that is in the public domain or generally
available to the public.
3. No Solicitation of Employees. You covenant that during the Non-Compete
----------------------------
Period, you will not, and no person, corporation, partnership, or other entity
over which you exercise control (whether as an officer, director, sole
proprietor, holder, debt or equity securities, consultant, partner, or
otherwise) will, directly or indirectly (a) enter into any written or oral
agreement or understanding relating to the services of any person who is then
employed by Advanstar or, in the case of any employee other than secretaries,
clerks and similar employees fulfilling merely clerical functions, who has been
so employed within the preceding six months, or (b) solicit, or bid against
Advanstar in an attempt to be awarded, any trade show or exposition business, or
any publishing contract, from any party sponsoring or arranging any trade show
or exposition, or publishing or sponsoring any publication, in either case with
which Advanstar then has such a relationship or contract.
4. Certain Definitions. For purposes of this Letter Agreement,
-------------------
competition with Advanstar shall include carrying on any business that is
competitive with the business of Advanstar, in the United States or in any other
country in which Advanstar conducts business as of the termination of your
employment. For purposes of this Letter Agreement, (a) the business of
Advanstar will be deemed to include (without limitation) the organization of
trade shows and expositions of the type and with respect to the industries held
by Advanstar as of the termination of your employment (it being understood that
industry shall be analogized to the categories of the category system of the
Standard Rate Data Service) and the publication (including electronic
publication) of trade journals and other magazines aimed at the particular
businesses, industries or professions (as defined by category according to the
category system of the Standard Rate Data Service) at which Advanstar's
operations are aimed, and (b) each of the following activities (without
limitation) will be deemed to constitute to carrying on business: to engage in,
work with, have interest in, advise, lend money to, guarantee the debts or
obligations of, or permit one's name or any part thereof to be used in
connection with, an enterprise or endeavor either individually, in partnership,
or in conjunction with any person, firm, association, company, or corporation,
whether as principal, agent, shareholder (other than holding of less than 1% of
the voting securities of any public company or 5% of the voting securities of
any private company), employee, director, consultant, or in any other capacity
or manner whatsoever.
5. Severability. The scope and effect of the terms and provisions
------------
contained in this Letter Agreement (including the noncompetition covenant
contained in Section 1) will be as broad in time (but not beyond the time
periods specified herein), geography, and all other respects as is permitted by
applicable law. If arbitrators, a court, or another body of competent
jurisdiction determine that any term or provision of this Agreement is excessive
in scope, then if possible such term or provision will be adjusted (rather than
voided) in accordance with the purpose stated in the preceding sentence and with
applicable law, but in such a manner as to minimize the change in the provision.
If such term or provision cannot be so adjusted, then it will be struck. All
other terms and provisions of this Letter Agreement will be deemed valid and
enforceable to the full extent possible.
A-2
<PAGE>
6. Remedies. If any of the covenants or agreements in Sections 1, 2 or 3
--------
are violated or threatened to be violated, you agree and acknowledge that such
violation or threatened violation will cause irreparable injury to Advanstar,
and that the remedy at law of Advanstar for any such violation or threatened
violation will be inadequate and that Advanstar will be entitled to obtain any
injunction prohibiting a continuance or occurrence of such violations or
threatened violations in addition to (not in limitation of) any other rights or
remedies available at law or in equity. Your services hereunder are of a
special, unique, unusual, extraordinary character which gives them peculiar
value, the loss of which cannot be reasonably or adequately computed in damages.
The provisions of this Letter Agreement will be binding upon and inure to
the benefit of our respective heirs, executives, administrators, successors and
assigns. This Letter Agreement will be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts. If there is any conflict
between the provisions of this letter agreement and the provisions of any other
agreement between you and the Company in respect of the subject matter hereof,
the provisions of this agreement shall govern.
Very truly yours,
ADVANSTAR, INC.
By: /S/ Robert L. Krakoff
---------------------
Robert L. Krakoff
Chairman of the Board and Chief Executive
Officer
ACCEPTED AND AGREED:
/S/ James M Alic
- ----------------
James M. Alic
A-3
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
September 1, 1999 by and between Advanstar, Inc., a Delaware corporation (the
"Company") and Martin C. ("Skip") Farber ("Executive").
WHEREAS, the Company currently operates certain trade exposition and
publishing businesses; and
WHEREAS, the Company wishes to continue to employ Executive and Executive
is prepared to continue to serve in those capacities required by the Company.
NOW, THEREFORE, the parties agree as follows:
1. Position and Authority. The Company agrees to employ the Executive,
----------------------
and the Executive accepts such employment and agrees to serve the Company as
Executive Vice President of the Company and any of its respective Subsidiaries
as may from time to time be requested by the Company, for the compensation and
benefits detailed in Sections 3 and 4 hereof. It is understood that the
Executive will report to the Chairman of the Board of Directors and Chief
Executive Officer or to the Vice Chairman of the Company. A "Subsidiary" shall
be any company in which the Company beneficially owns more than 50% of the
voting power of such company's outstanding voting securities.
2. Duties. Executive shall devote substantially all of his business time
------
(subject to four weeks of vacation, or such greater amount as is authorized by
the Board of Directors) to the affairs of the Company during the employment
term, except as may be consented to by the Board of Directors. Executive shall
perform such duties and responsibilities as the Board of Directors or Chief
Executive Officer of the Company may determine from time to time. Executive will
not be required to relocate his permanent residence outside of greater Boston,
Massachusetts; provided that, if Executive and the Company agree that Executive
-------- ----
will relocate his permanent residence to another city (a "New Location") and
perform his duties and responsibilities pursuant to the terms of this contract
at the Company's offices in the New Location, then Executive will not be
required to relocate his permanent residence outside the New Location.
3. Base Compensation and Bonus.
---------------------------
(a) Base Composition. Executive will be compensated at a base salary
----------------
rate of $310,000.00 per year (or such higher rate as may be set from time to
time by the Chief Executive Officer in his discretion) during the employment
term. Base compensation will be paid in installments on the same schedule as the
Company's Subsidiaries generally pay their employees. All compensation and
benefits will be subject to reduction by all federal, state, local and other
withholdings and similar taxes and payments required by applicable law.
1
<PAGE>
(b) Bonus for any Fiscal Year. The Executive shall be eligible to
-------------------------
receive an annual bonus as determined by the Chief Executive Officer of the
Company in accordance with the Company's bonus plan, if any, that may be in
effect at such time; provided that any bonus payable under this Section 3(c)
--------
upon a termination of this Agreement by the Company without Cause (as defined
below) or by the Executive for Good Reason (as defined below) will be a Pro Rata
Bonus Amount (as defined below). Any bonus payable will be paid after the end of
the applicable fiscal year at the same time as other bonuses to senior
management are payable as determined by the Chief Executive Officer.
4. Benefits.
--------
(a) During Executive's employment by the Company, Executive will
receive the same (or substantially similar) employee benefits to those provided
by the Company or its Subsidiaries to other executive vice presidents from time
to time.
(b) During and after the employment term the Company agrees that if
Executive is made a party, or compelled to testify or otherwise participate in,
any action, suit or proceeding (a "Proceeding"), by reason of the fact that he
is or was a director or officer of the Company or any of its Subsidiaries,
Executive shall be indemnified by the Company as provided in Section 145 of the
Delaware General Corporation Law or (but not to any lesser extent) as authorized
by the Company's certificate of incorporation or bylaws or resolutions of the
company's Board of Directors against all cost, expense, liability, damage and
loss reasonably incurred or suffered by Executive in connection therewith, and
such indemnification shall continue as to Executive even if he has ceased to be
a director or officer of the Company or Subsidiary for the period of any
applicable statute of limitations or, if longer, for the period in which any
such Proceeding which commenced within the period of any such statute of
limitations is pending. The Company shall advance to Executive all reasonable
costs and expenses incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for such advance. Such
request shall include an itemized list of the costs and expenses and an
undertaking by Executive to repay the amount of such advance if it shall
ultimately be determined, in a final judgment for which the time to appeal has
expired, that, pursuant to applicable law, he is not entitled to be indemnified
against such costs and expenses.
(c) The Company will reimburse Executive for his reasonable and
customary business expenses, including travel, accommodations and meals.
5. Stock Options. Executive shall be eligible to be granted
-------------
non-qualified stock options to purchase shares of the Common Stock, on such
terms and conditions as are customary for such grants by the Company; provided
--------
that nothing herein shall entitle Executive to any stock option grant.
6. Term. This Agreement shall have a term equal to the period from
----
the Effective Date through May 31, 2003 (the "Employment Term"), provided that
--------
Sections 9 and 10 shall survive such expiration in accordance with their terms.
2
<PAGE>
7. Termination.
-----------
(a) This Agreement may be terminated by the Company at any time for
Cause upon written notice to Executive, which notice shall specify the reason
for termination. Such notice shall be given at any time prior to termination in
the case of matters described in clauses (B) or (C), and shall be given not less
than 30 days prior to the date of termination, in the case of matters described
in clauses (A), (D) or (E), and in the case of matters described in clauses (A),
(D) or (E) shall be rescinded if the Executive cures any misconduct, negligent
act, breach or failure giving rise to such notice to the reasonable satisfaction
of the Board of Directors, including curing any damage suffered by the Company
as a result thereof. As used herein, "Cause" shall mean (A) willful misconduct
or gross negligence by Executive in respect of his material obligations under
this Agreement, (B) commission of a felony involving moral turpitude, (C) theft
of Company property or other disloyal or dishonest conduct of the Executive that
materially harms the Company or its business or (in the case of dishonest
conduct) undermines the confidence of the Board or the Chief Executive Officer
in the Executive, (D) willful breach of this Agreement, or (E) willful failure
to observe Company policies or carry out the directives of the Board of
Directors or the Chief Executive Officer of the Company.
(b) Executive may terminate this Agreement for Good Reason by giving
thirty (30) days prior written notice to the Company. "Good Reason" shall exist
only if (i) Executive is removed or is not re-appointed as one of the Company's
executive vice presidents, except in connection with termination of this
Agreement by the Company for Cause or due to death or Disability (as defined
below) or (ii) breach by the Company of any material obligation of the Company
under this Agreement.
(c) Should the Executive terminate this Agreement for Good Reason, or
should the Company terminate this Agreement without Cause, then the Executive
shall be entitled to receive, for a period of one year, the base salary provided
for in Section 3(a) and such bonus payable under Section 3(b) hereof, provided
--------
that any bonus under Section 3(b) will be payable only with respect to that
portion of the fiscal year in which Executive's employment was terminated (or
any prior fiscal year for which bonus remains unpaid)); bonus for any partial
fiscal year shall be determined by multiplying the bonus Executive would have
received had he continued to work for the Company during the entire fiscal year
by a fraction, the numerator of which is the number of days in the fiscal year
during which Executive was employed by the Company, and the denominator of which
is 365 (such amount the "Pro Rata Bonus Amount"). The Company shall have no
obligation to Executive under this Section 7(c) if Executive breaches the
provisions of the letter agreement referred to in Section 9. This clause (c)
shall not apply to a termination under clause (d) below.
(d) This Agreement shall terminate automatically upon Executive's
death. This Agreement may be terminated by the Company upon written notice to
Executive, or by Executive upon written notice to the Company, upon Executive's
Disability. For purposes of this Agreement, "Disability" means the Executive's
suffering of a disability which shall have prevented him from performing his
obligations hereunder for a period of at least 90 consecutive days or 120 non-
consecutive days in any 365 day period. In the event of termination of this
-3-
<PAGE>
Agreement due to Executive's death or Disability, in addition to any salary due
to Executive as of the date of death or Disability and remaining unpaid,
Executive shall be entitled to receive, at such time as Executive would
otherwise would have received such sum, the Pro Rata Bonus Amount for the
portion of the fiscal year in which Executive's death or Disability occurred
during which Executive was employed by the Company.
(e) If the Company terminates this Agreement with Cause or if the
Executive terminates this Agreement without Good Reason, or if this Agreement is
terminated under clause (d) above, then the Executive shall, from the date of
such termination, no longer be entitled to any compensation or any bonus under
Sections 3 or 4 (other than, in the case of termination for Disability,
disability benefits as provided pursuant to Section 4 and, in the case of
termination for death or Disability, any bonus payable pursuant to clause (d)
above). Nothing in this clause (e) shall affect Executive's rights under Company
health and disability plans in which Executive participates to the extent such
plans provide for benefits to be paid following the termination of employment.
(f) Termination of this Agreement shall not discharge any liability
(of either the Company or the Executive) existing at the date of termination.
Further, notwithholding any termination, the provisions of Sections 9 and 10
shall survive in accordance with their terms.
8. Effective Date. This Agreement shall take effect as of the date hereof
--------------
(the "Effective Date").
9. Non-Competition and Confidentiality. Executive shall execute and
-----------------------------------
deliver a letter agreement in the form of Exhibit A hereto.
10. Arbitration. Any claim arising out of or relating to this Agreement
-----------
(including disputes regarding the presence or absence of "Cause" or "Good
Reason" in the event of a termination), or otherwise arising out of or relating
to the Executive's employment by the Company, will be subject to arbitration in
Boston, Massachusetts, in accordance with the Federal Arbitration Act and the
rules of the American Arbitration Association relating to commercial disputes.
The prevailing party in any such arbitration shall be entitled to recover from
the other party its reasonable expenses incurred in connection with such
arbitration, including the reasonable fees and expenses of counsel.
11. Severability. If any provision of this Agreement is determined to be
------------
invalid or unenforceable, it shall be adjusted rather than voided, to achieve
the intent of the parties to the extent possible, and the remainder of the
Agreement shall be enforced to the maximum extent possible.
12. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between Executive and the Company with respect to the terms and conditions of
the employment of Executive by the Company, and supersedes all prior or
concurrent arrangements, discussions, agreements or understandings with respect
to your employment.
-4-
<PAGE>
13. Governing Law. This Agreement shall be governed by the laws of the
-------------
Commonwealth of Massachusetts without regard to principles of conflicts of law.
14. Notice. Any notice, or other written communication to be given
------
pursuant to this Agreement for whatever reason shall be deemed duly given and
received (a) if delivered personally, from the date of delivery, or (b) by
certified mail, postage pre-paid, return receipt requested, three (3) days after
the date of mailing, addressed to the above parties as follows:
If to the Company:
Advanstar, Inc.
545 Boylston Street
Boston, MA 02116
Attn: Robert L. Krakoff
with a copy to:
Hellman & Friedman LLC
One Maritime Plaza
Suite 1200
San Francisco, California 94111
Attn: Mitch Cohen
and
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attn: F. George Davitt, Esq.
If to Executive:
Skip Farber
220 Country Drive
Weston, MA 02193
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
date and year first above written.
ADVANSTAR, INC.
By: /S/ Robert L. Krakoff
---------------------
Robert. L. Krakoff
Chairman and Chief Executive Officer
/S/ Martin C. ("Skip") Farber
-----------------------------
Martin C. ("Skip") Farber
-6-
<PAGE>
Exhibit A
---------
Advanstar, Inc.
545 Boylston Street
Boston, MA 02116
September 1, 1999
Martin C. ("Skip") Farber
220 Country Drive
Weston, MA 02193
Dear Mr. Farber:
You are to be employed by Advanstar, Inc. (the "Company" and, together with
its subsidiaries "Advanstar"). In consideration of your employment with the
Company, you and the Company agree as follows:
1. Non-Competition. You agree that you will not, during the course of
---------------
your employment with the Company or for the Non-Compete Period following the
termination of such employment, compete with Advanstar, as defined in paragraph
4 below. As used herein "Non-Compete Period" means (a) if your employment is
terminated by the Company without Cause (as defined therein) or by you for Good
Reason (as defined therein), six months or (b) if your employment is terminated
for any other reason, one year. If there is any conflict between the provisions
of this letter agreement and the provisions of any other agreement between you
and the Company in respect of the subject matter hereof, the provisions of this
agreement shall govern.
2. Confidentiality. You acknowledge that your association with Advanstar
---------------
will bring you into close contact with many confidential affairs of Advanstar,
including information about costs, profits, markets, sales, publications, key
personnel, pricing policies, operational methods, other business affairs,
methods and other information not readily available to the public, and plans for
future development. In recognition of the foregoing, you covenant and agree that
you will keep confidential all material confidential to Advanstar that is not
otherwise in the public domain and that you will not intentionally disclose any
such information to anyone outside Advanstar or make any use thereof for your
own benefit or for any purpose other than the advancement of the business of
Advanstar at any time except with the prior written consent of Advanstar as
evidenced by a certified resolution of the Chief Executive Officer or the Board
of Directors of the Company. For purposes of this Agreement, the following
information shall be deemed not to constitute confidential information of
Advanstar:
(a) Any information developed independently by you;
-1-
<PAGE>
(b) Information that was received by you from a third-party, which,
to your knowledge, is not bound by an agreement of
confidentiality with Advanstar; or
(c) Any information that is in the public domain or generally
available to the public.
3. No Solicitation of Employees. You covenant that, for the duration of 1
----------------------------
year after any termination of your employment for any reason, you will not, and
no person, corporation, partnership, or other entity over which you exercise
control (whether as an officer, director, sole proprietor, holder, debt or
equity securities, consultant, partner, or otherwise) will, directly or
indirectly (a) enter into any written or oral agreement or understanding
relating to the services of any person who is then employed by Advanstar or, in
the case of any employee other than secretaries, clerks and similar employees
fulfilling merely clerical functions, who has been so employed within the
preceding six months, or (b) solicit, or bid against Advanstar in an attempt to
be awarded, any trade show or exposition business, or any publishing contract,
from any party sponsoring or arranging any trade show or exposition, or
publishing or sponsoring any publication, in either case with which Advanstar
then has such a relationship or contract. If there is any conflict between the
provisions of this letter agreement and the provisions of any other agreement
between you and the Company in respect of the subject matter hereof, the
provisions of this agreement shall govern.
4. Certain Definitions. For purposes of this Letter Agreement,
-------------------
competition with Advanstar shall include carrying on any business that is
competitive with the business of Advanstar, in the United States or in any other
country in which Advanstar conducts business as of the termination of your
employment. For purposes of this Letter Agreement, (a) the business of Advanstar
will be deemed to include (without limitation) the organization of trade shows
and expositions of the type and with respect to the industries held by Advanstar
as of the termination of your employment (it being understood that industry
shall be analogized to the categories of the category system of the Standard
Rate Data Service) and the publication (including electronic publication) of
trade journals and other magazines aimed at the particular businesses,
industries or professions (as defined by category according to the category
system of the Standard Rate Data Service) at which Advanstar's operations are
aimed, and (b) each of the following activities (without limitation) will be
deemed to constitute to carrying on business: to engage in, work with, have
interest in, advise, lend money to, guarantee the debts or obligations of, or
permit one's name or any part thereof to be used in connection with, an
enterprise or endeavor either individually, in partnership, or in conjunction
with any person, firm, association, company, or corporation, whether as
principal, agent, shareholder (other than holding of less than 1% of the voting
securities of any public company or 5% of the voting securities of any private
company), employee, director, consultant, or in any other capacity or manner
whatsoever.
5. Severability. The scope and effect of the terms and provisions
------------
contained in this Letter Agreement (including the noncompetition covenant
contained in Section 1) will be as broad in time (but not beyond the time
periods specified herein), geography, and all other respects as is permitted by
applicable law. If arbitrators, a court, or another body of competent
-2-
<PAGE>
jurisdiction determine that any term or provision of this Agreement is excessive
in scope, then if possible such term or provision will be adjusted (rather than
voided) in accordance with the purpose stated in the preceding sentence and with
applicable law, but in such a manner as to minimize the change in the provision.
If such term or provision cannot be so adjusted, then it will be struck. All
other terms and provisions of this Letter Agreement will be deemed valid and
enforceable to the full extent possible.
6. Remedies. If any of the covenants or agreements in Sections 1, 2 or 3
--------
are violated or threatened to be violated, you agree and acknowledge that such
violation or threatened violation will cause irreparable injury to Advanstar,
and that the remedy at law of Advanstar for any such violation or threatened
violation will be inadequate and that Advanstar will be entitled to obtain any
injunction prohibiting a continuance or occurrence of such violations or
threatened violations in addition to (not in limitation of) any other rights or
remedies available at law or in equity. Your services hereunder are of a
special, unique, unusual, extraordinary character which gives them peculiar
value, the loss of which cannot be reasonably or adequately computed in damages.
The provisions of this Letter Agreement will be binding upon and inure to
the benefit of our respective heirs, executives, administrators, successors and
assigns. This Letter Agreement will be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
Very truly yours,
ADVANSTAR, INC.
By: /S/ Robert L. Krakoff
---------------------
Robert L. Krakoff
Chairman and Chief Executive Officer
ACCEPTED AND AGREED:
/S/ Martin C. ("Skip") Farber
- -----------------------------
Martin C. ("Skip") Farber
A-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 9,063 9,063
<SECURITIES> 0 0
<RECEIVABLES> 28,678 28,678
<ALLOWANCES> 666 666
<INVENTORY> 1,435 1,435
<CURRENT-ASSETS> 54,840 54,840
<PP&E> 24,485 24,485
<DEPRECIATION> 7,260 7,260
<TOTAL-ASSETS> 772,976 772,976
<CURRENT-LIABILITIES> 94,604 94,604
<BONDS> 523,700 523,700
0 0
0 0
<COMMON> 336 336
<OTHER-SE> 131,899 131,899
<TOTAL-LIABILITY-AND-EQUITY> 772,976 772,976
<SALES> 0 0
<TOTAL-REVENUES> 84,049 254,223
<CGS> 0 0
<TOTAL-COSTS> 50,308 156,258
<OTHER-EXPENSES> 24,991 70,656
<LOSS-PROVISION> 325 1,109
<INTEREST-EXPENSE> 10,743 28,134
<INCOME-PRETAX> (3,480) (2,356)
<INCOME-TAX> (470) 224
<INCOME-CONTINUING> (1,684) (1,239)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,684) (1,239)
<EPS-BASIC> (0.05) (0.04)
<EPS-DILUTED> (0.05) (0.04)
</TABLE>
