<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
REGISTRATION NO. 333-49441
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ZD INC.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 2721 13-3987754
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE PARK AVENUE
NEW YORK, NEW YORK 10016
(212) 503-3500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TIMOTHY C. O'BRIEN
ZIFF-DAVIS INC.
ONE PARK AVENUE
NEW YORK, NEW YORK 10016
(212) 503-3500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<CAPTION>
STEPHEN A. GRANT, ESQ. JEFFREY SMALL, ESQ.
<S> <C>
SULLIVAN & CROMWELL DAVIS POLK & WARDWELL
125 BROAD STREET 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10004 NEW YORK, NEW YORK 10017
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(o) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------
* Upon closing of the Offering, ZD Inc. will be renamed Ziff-Davis Inc. and
Ziff-Davis Inc. will be renamed ZD Inc.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued April 24, 1998 $250,000,000
Ziff-Davis Inc.
% SENIOR SUBORDINATED NOTES DUE 2008
ZIFF-DAVIS INC., A DELAWARE CORPORATION (THE "COMPANY"), WILL ISSUE % SENIOR
SUBORDINATED NOTES DUE 2008 (THE "NOTES") OFFERED HEREBY (THE "OFFERING") IN
THE AGGREGATE PRINCIPAL AMOUNT OF $250,000,000. INTEREST ON THE NOTES IS
PAYABLE SEMIANNUALLY ON AND OF EACH YEAR, COMMENCING , 1998.
THE NOTES WILL BE REDEEMABLE, IN WHOLE OR IN PART, AT THE OPTION OF THE
COMPANY AT ANY TIME ON OR AFTER 2003, AT THE REDEMPTION PRICES
SET FORTH HEREIN PLUS ACCRUED AND UNPAID INTEREST, IF ANY, AND ANY OTHER
AMOUNTS PAYABLE THEREON TO THE DATE OF REDEMPTION. SEE "DESCRIPTION OF
NOTES--OPTIONAL REDEMPTION." IN ADDITION, AT ANY TIME PRIOR TO 2001,
THE COMPANY MAY REDEEM UP TO 35% OF THE AGGREGATE PRINCIPAL AMOUNT OF
THE NOTES WITH THE NET PROCEEDS OF ONE OR MORE PUBLIC EQUITY
OFFERINGS (AS DEFINED HEREIN) AT % OF THEIR PRINCIPAL AMOUNT,
PLUS ACCRUED AND UNPAID INTEREST; PROVIDED THAT AFTER ANY SUCH
REDEMPTION AT LEAST $150.0 MILLION AGGREGATE PRINCIPAL AMOUNT OF
NOTES REMAINS OUTSTANDING.
----------
THE NOTES WILL BE SUBORDINATED TO ALL EXISTING AND FUTURE SENIOR INDEBTEDNESS
(AS DEFINED HEREIN) OF THE COMPANY AND EFFECTIVELY SUBORDINATED TO ALL
LIABILITIES OF THE COMPANY'S SUBSIDIARIES. AT DECEMBER 31, 1997, ON A PRO
FORMA BASIS AFTER GIVING EFFECT TO THE REORGANIZATION, INCLUDING THIS
OFFERING, THE COMPANY (EXCLUDING ITS SUBSIDIARIES) WOULD HAVE HAD
APPROXIMATELY $1.34 BILLION OF INDEBTEDNESS (EXCLUDING THE NOTES),
ALL OF WHICH WOULD HAVE BEEN SENIOR INDEBTEDNESS, AND THE COMPANY'S
SUBSIDIARIES WOULD HAVE HAD APPROXIMATELY $497.4 MILLION OF
LIABILITIES (EXCLUDING INDEBTEDNESS OWED TO THE COMPANY).
----------
CONCURRENTLY WITH THE OFFERING BEING MADE HEREBY, THE COMPANY IS OFFERING,
BY MEANS OF A SEPARATE PROSPECTUS, 25,800,000 SHARES OF ITS COMMON STOCK
(THE "COMMON STOCK OFFERING" AND, TOGETHER WITH THE OFFERING, THE
"OFFERINGS"). THE CONSUMMATION OF EACH OF THE OFFERINGS IS
CONDITIONED UPON, AND WILL OCCUR SIMULTANEOUSLY WITH THE
CONSUMMATION OF THE OTHER. SEE "USE OF PROCEEDS."
----------
ALL THE NET PROCEEDS WILL BE PAID TO AFFILIATES OF THE COMPANY. SEE "USE OF
PROCEEDS."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
--------- -------------- -------------
<S> <C> <C> <C>
Per Note................................. $ $ $
Total(3)................................. $ $ $
</TABLE>
- -----
(1) Plus accrued interest, if any, from , 1998.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(3) Before deducting expenses payable by the Company, estimated at
$ .
----------
The Notes are offered subject to prior sale, when, if and as if accepted by
the Underwriters and subject to approval of certain legal matters by Davis Polk
& Wardwell, counsel for the Underwriters. It is expected that delivery of the
Notes will be made on or about , 1998 against payment therefor in
immediately available funds.
----------
MORGAN STANLEY DEAN WITTER
BNY CAPITAL MARKETS, INC.
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
MERRILL LYNCH & CO.
, 1998
<PAGE>
[ART]
Artwork includes: (i) general comments relating to the Company and the
industry; (ii) descriptions of each of the Company's platforms; and (iii)
logos of the Company and each of the Company's 50 brands.
Text included within the artwork is as follows:
COVER PAGE:
The impact of computing and the Internet is a phenomenon that will define
this era.
The number of personal computers in use worldwide is now over 300 million
and use of the Internet has reached over 68 million U.S. adults.
Ziff-Davis is dedicated to bringing together the makers and users of
technology in a productive exchange.
We believe in technology.
SPREAD:
For companies targeting the technology marketplace, Ziff-Davis provides
integrated marketing programs across all of its platforms.
ZD PUBLISHING
Ziff-Davis' U.S. and international publications, including joint ventures
and over 50 licensed publications, total more than 80 publications worldwide.
PC Magazine, PC Week and Computer Shopper magazines are the top three computer
magazines in the U.S., as measured by total revenue.
ZD COMDEX & FORUMS
Ziff-Davis produces over 50 trade shows and conferences around the world.
COMDEX/Fall is the largest trade show in the U.S. as measured by total
revenue, total exhibit space and number of attendees.
ZD INTERNET
ZDNet.com, Ziff-Davis' computing Web site, was ranked as the leading Web
site in 1997 in the category of news, information and entertainment, as
measured by visitors per month. ZDNet has over one million registered users
and over 2.5 million e-mail recipients per month.
ZD EDUCATION
Ziff-Davis publishes computer training products and over 50 newsletters and
provides training through ZDUniversity, its Web based educational program.
ZD MARKET RESEARCH
Ziff-Davis develops, analyzes and compiles information on computer
technology issues and assists clients in identifying and targeting their
customers by tracking current activity and market share in the business, home
and reseller channels.
ZD TELEVISION
ZDTV, a 24 hour cable television channel and integrated Web site to be
launched by an affiliate, will target viewers interested in computers,
technology and the Internet.
BACK PAGE:
Ziff-Davis reaches makers and users of technology in over 100 countries.
believe in technology
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITERS."
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE NOTES OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
FOR INVESTORS OUTSIDE THE UNITED STATES: NO ACTION HAS BEEN OR WILL BE TAKEN
IN ANY JURISDICTION BY THE COMPANY OR BY AN UNDERWRITER THAT WOULD PERMIT A
PUBLIC OFFERING OF THE NOTES OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS
IN ANY JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN
THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS PROSPECTUS COMES ARE
REQUIRED BY THE COMPANY AND THE UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO
OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE NOTES AND THE DISTRIBUTION
OF THIS PROSPECTUS.
---------------
The Company's logo and certain of the titles and logos of the Company's
publications, products and services referenced herein are trademarks of the
Company. Each trade name, trademark or service mark of any other company
appearing in this Prospectus is the property of its holder.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 12
The Company............................................................... 19
The Reorganization........................................................ 21
Use of Proceeds........................................................... 22
Capitalization............................................................ 23
Selected Historical Combined Financial and Other Data..................... 24
Unaudited Pro Forma Combined Financial Information........................ 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 30
Industry.................................................................. 39
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business................................................................... 41
Management................................................................. 58
Certain Transactions....................................................... 66
Principal Stockholders..................................................... 69
Description of the Credit Facility......................................... 70
Description of Notes....................................................... 71
Underwriters............................................................... 98
Legal Matters.............................................................. 99
Experts.................................................................... 99
Additional Information..................................................... 100
Index to Financial Statements.............................................. F-1
</TABLE>
3
<PAGE>
This Prospectus includes statistical data regarding the publishing, trade
show and Internet sectors which was obtained from industry publications,
including reports generated by ActivMedia, Advertising Age, AdScope, Audit
Bureau of Circulations, BPA International, Computer Intelligence, CMR,
Cowles/Simba Information, Electronic Advertising and Marketplace Report,
FIND/SVP, Inc., IMS, International Communications Research, Jupiter Ad Spend,
MediaMetrix, Trade Show Week and U.S. Industry and Trade Outlook 1998. These
industry publications generally indicate that the information contained
therein has been obtained from sources believed to be reliable, but that the
accuracy and completeness of such information is not guaranteed. The Company
has not independently verified such data. The Company has not sought the
consent of any of these organizations to refer to their reports herein.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by reference to, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless otherwise indicated, the information in this Prospectus (i)
assumes no exercise of the over-allotment option in connection with the Common
Stock Offering and (ii) gives effect to the transactions described herein under
the heading "The Reorganization." Unless the context otherwise requires,
references in this Prospectus to "Ziff-Davis" or the "Company" are to the
Company and its consolidated subsidiaries after giving effect to the
transactions described herein under the heading "The Reorganization" and their
respective predecessors. Unless the context otherwise requires, references in
this Prospectus to "Softbank" refer to SOFTBANK Corp., a Japanese corporation,
and its affiliates. See "The Company--Relationship with Softbank" and "The
Reorganization." For definitions of certain capitalized terms used and not
defined herein, see "Description of Notes--Certain Definitions."
Upon closing of the Offering, the Company will assume the name Ziff-Davis
Inc. and the operating subsidiary with the same name will be renamed ZD Inc.
Unless the context otherwise requires, references in this Prospectus to "ZDI"
refer to the operating corporation and its subsidiaries, including (i) Ziff-
Davis Publishing Company prior to its acquisition by Softbank in February 1996
and (ii) operations owned by MAC Inc. but managed by ZDI and to be acquired by
the Company in the Reorganization. Such operations owned by MAC Inc. consist of
certain international consumer and Internet publications, international trade
shows and the ZDNet business (the "MAC Assets"). See "The Reorganization" and
"Business."
THE COMPANY
The Company believes it is the world's preeminent integrated media and
marketing company focused on computing and Internet-related technology, with
principal platforms in print publishing, trade shows and conferences, online
content, market research and education. The Company provides global technology
companies with marketing strategies for reaching key decision-makers.
The Company's PC Magazine, PC Week and Computer Shopper magazines are the top
three computer magazines in the U.S. and are among the top 25 U.S. magazines,
each as measured by total revenue in 1996 (the latest year for which data is
available). The Company also produces the world's most important trade shows
serving vendors, resellers, buyers and users of computer technology, including
COMDEX/Fall, the largest trade show in the U.S. The Company's ZDNet.com Web
site ("ZDNet") is the leading computing content site and ranked the number one
Web site in 1997 in the category of news, information and entertainment, as
measured by visitors per month.
The Company's 28 primary U.S. and international titles, including its joint
ventures, and over 50 licensed publications, total more than 80 publications
distributed worldwide, with a combined circulation of over eight million
primary readers. In 1997, Ziff-Davis was the largest technology publisher in
the U.S. in terms of total magazine revenue. In that same year, Ziff-Davis
accounted for 36.8% of all advertising and circulation dollars spent in
computer periodicals, with at least 50% more total magazine revenue than its
closest competitor. The preeminence of the Company's publications among readers
and advertisers is based on its comprehensive market and product coverage, the
quality of its editorial content and the influence of its readership.
In 1997, the Company produced over 50 trade shows and conferences worldwide
with over two million estimated attendees. The Company's COMDEX/Fall event is
the number one ranked trade show for all industries in the U.S. as measured by
total revenue, total exhibit space and number of attendees.
The Company's other media and marketing platforms include online content,
market research, education and the publication of computer-related newsletters
and training manuals and materials. In addition, the Company has an option to
acquire an interest in ZDTV: Your Computer Channel ("ZDTV"), the first 24-hour
cable television channel and integrated Web site focused exclusively on
computers, technology and the Internet, which is expected to be launched in the
first half of 1998.
5
<PAGE>
The Company had total revenue of $1.154 billion for 1997. The Company's
revenue is primarily derived from advertising sales, which represented 51.9% of
total revenue in 1997. The second largest component of the Company's revenue is
derived from trade shows and conferences, which accounted for 23.5% of total
revenue in 1997. Circulation revenue, comprised of subscription and newsstand
single copy sales, generated 13.1% of the Company's revenue in 1997 and other
revenue components, including online content, market research and revenue
derived from joint ventures and licenses, contributed 11.5% in 1997. The
Company had a net loss of $71.2 million for 1997 and expects the net loss for
the first quarter of 1998 to increase by 15-20% as compared with the first
quarter of 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
BUSINESS AND OPERATING STRATEGY
The Company's objective is to be the preferred marketing partner to
technology vendors and service providers seeking to reach primary decision-
makers involved in the specification and purchase of their products and
services. Major elements of the Company's strategy include:
.Maintain Focus on the Computer and Internet Technology Markets
.Develop the Most Comprehensive, Objective and Authoritative Content
.Build Upon Brand Strength of Existing Media Properties
.Continue to Leverage Multiple Media Marketing Platforms
.Expand Leadership on the Internet
.Launch New Products and Services
.Expand Global Reach
Although none of the proceeds of the Offerings will be paid to the Company,
the Company expects to fund its business and operating strategy from internally
generated cash flow from operations, which are estimated to be sufficient to
fund investments and the repayment of indebtedness. As a result of certain
large non-cash charges, the Company's earnings for the year ended December 31,
1997 were insufficient to cover fixed charges by $74.5 million and, on a pro
forma basis, by $6.8 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RELATIONSHIP WITH SOFTBANK
Upon the completion of the Reorganization described below, SOFTBANK Corp., a
Japanese corporation publicly-traded on the Tokyo Stock Exchange First Section
(together with its affiliates, "Softbank"), will own approximately 74.2% of the
outstanding shares of Common Stock (71.4% if the overallotment option relating
to the Common Stock Offering is exercised in full). The Company and Softbank
have entered into certain agreements governing various interim and ongoing
relationships between the two companies. Softbank also has given the Company an
undertaking not to expand certain operations outside Japan in competition with
the Company without the prior approval of the Company's management directors
after consulting with the Company's independent directors. This undertaking
would not preclude investments by investment funds managed by Softbank. The
Company has undertaken not to compete with Softbank in Japan without the prior
approval of SOFTBANK Corp.'s Board of Directors and has agreed to afford
Softbank the continuing right to license all of the Company's products and
services in Japan. See "Risk Factors--Control by Principal Stockholders and
Potential Conflicts of Interest," "The Company--Relationship with Softbank" and
"Certain Transactions."
6
<PAGE>
THE REORGANIZATION
The Company is an indirect subsidiary of SOFTBANK Corp., which, as of
December 31, 1997, was 50.2% owned by Mr. Masayoshi Son, its President,
including 43.4% directly held by his 99% owned holding company, MAC Inc., a
Japanese corporation ("MAC"), and SOFTBANK Corp.'s largest shareholder. Prior
to the Offerings, the Company's businesses were conducted through various
indirect subsidiaries of SOFTBANK Corp. The Company's publishing business was
principally conducted through Ziff-Davis Inc. ("ZDI") and its trade show
business was principally conducted through ZD COMDEX and Forums Inc. ("ZDCF").
The MAC Assets were managed by ZDI and ZDCF, but were owned by MAC.
Concurrently with the Offerings, the Company will consummate a Reorganization
(as described under "The Reorganization") pursuant to which: (i) all of the
stock of ZDI and ZDCF will be contributed to the Company by Softbank in
exchange for 74.2% of the Company's Common Stock; (ii) the Company will
complete the purchase of the MAC Assets; (iii) the Company will issue and sell
the Common Stock and the Notes pursuant to the Offerings; (iv) the Company will
enter into a credit facility with a group of financial institutions (the
"Credit Facility") and borrow $1.25 billion thereunder; and (v) approximately
$928 million of the Company's obligations to Softbank will be converted to
equity and the Company will repay approximately $1.531 billion of obligations
to Softbank. The Company has obtained a commitment letter from The Bank of New
York, Morgan Stanley Senior Funding, DLJ Capital Funding and The Chase
Manhattan Bank to provide such Credit Facility. All of the transactions
comprising the Reorganization will be deemed to occur simultaneously. See "Risk
Factors--Risks Relating to the Reorganization" and "--Absence of History as a
Stand-Alone Company; Limited Relevance of Historical Financial Information,"
"The Reorganization" and "Unaudited Pro Forma Combined Financial Information."
After giving pro forma effect to the Reorganization, as of December 31, 1997
the Company would have had outstanding approximately $1.59 billion of
Indebtedness, including a $650 million term loan, $600 million drawn under a
$700 million revolving credit loan under the Credit Facility, approximately $94
million of Indebtedness owed to Softbank and the Notes. All of such
Indebtedness (other than the Notes) would have been Senior Indebtedness. As of
such date, the Company's subsidiaries would have had approximately $497.4
million of liabilities (excluding Indebtedness owed to the Company). The
Company believes that, based on its current level of operations and anticipated
growth, the Company's ability to generate cash, together with other available
sources of funds (including available cash on hand at December 31, 1997, of
$30.3 million) will be adequate over the next 12 months to make required
payments of principal and interest on the Company's indebtedness, to fund
anticipated capital expenditures and future working capital requirements. The
Company expects to fund its business and operating strategy from internally
generated cash flow from operations, which are estimated to be sufficient to
fund investments as well as the repayment of indebtedness. In addition, after
giving effect to the Reorganization the Company will have $100 million of
undrawn and available credit under its revolving credit facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
7
<PAGE>
THE OFFERING
$250,000,000 aggregate principal amount of %
Notes Offered............... Subordinated Notes due 2008.
Maturity.................... , 2008
Interest Payment Dates...... Interest on the Notes is payable semi-annually
on and of each year, commencing
, 1998.
Optional Redemption......... The Notes may be redeemed at the option of the
Company, in whole or in part, at any time on or
after , 2003 at the redemption prices set
forth herein, plus accrued and unpaid interest,
if any, to the date of redemption. In addition,
upon one or more Public Equity Offerings
consummated prior to , 2001 the Company may
at its option redeem up to 35% of the original
principal amount of the Notes from the proceeds
thereof at % of the principal amount thereof
plus accrued interest to the date of redemption,
provided that at least $150 million aggregate
principal amount of the Notes must remain
outstanding after such redemption. See
"Description of Notes--Optional Redemption."
Change of Control........... Upon a Change of Control, each holder of Notes
will have the right to require the Company to
purchase such holder's Notes at a price of 101%
of the principal amount thereof plus accrued
interest, if any, to the date of purchase. There
can be no assurance that the Company will have
the financial resources necessary to purchase the
Notes upon a Change of Control. See "Risk
Factors--Possible Inability to Repurchase Notes
upon Change of Control" and "Description of
Notes--Repurchase of Notes upon a Change of
Control."
Ranking..................... The Notes are unsecured senior subordinated
obligations of the Company and will rank on a
parity with all other unsecured and subordinated
indebtedness of the Company and will be
subordinated in right of payment to all senior
indebtedness of the Company, including
indebtedness under the Credit Facility as well as
existing and future obligations of the Company's
subsidiaries to the extent of the assets of such
subsidiaries. After giving pro forma effect to
the Reorganization, as of December 31, 1997 the
Company would have had outstanding approximately
$1.34 billion of Indebtedness (excluding the
Notes), all of which would have been Senior
Indebtedness, and its subsidiaries would have had
approximately $497.4 million of liabilities
(excluding Indebtedness owed to the Company).
Credit Facility............. In connection with the Reorganization, the
Company will enter into a $1.35 billion Credit
Facility with a group of banks and borrow $1.25
billion thereunder.
Common Stock Offering....... Concurrently with the Offering being made hereby,
the Company is offering, by means of a separate
prospectus, 25,800,000 shares of its Common Stock
at an initial offering price of between $14 and
$17 per share. The consummation of the Offering
being made hereby and the Common Stock Offering
is conditioned upon, and will occur
simultaneously with, the consummation of the
other.
8
<PAGE>
Certain Covenants........... The Indenture contains certain restrictive
covenants which, among other things, restrict the
ability of the Company and its Restricted
Subsidiaries to incur indebtedness other than
Permitted Indebtedness; pay dividends; prepay
subordinated indebtedness; repurchase capital
stock; incur senior subordinated indebtedness;
create certain liens; engage in certain
transactions with Affiliates; or sell assets or
permit Restricted Subsidiaries to issue certain
guarantees. Moreover, the covenants limit the
ability of the Company to suffer to exist certain
dividend and other payment restrictions affecting
its Restricted Subsidiaries or make distributions
in respect of the Company's capital stock or make
certain other restricted payments. In addition,
the Indenture limits the ability of the Company
to merge or transfer all or substantially all of
its assets. The covenants are, however, subject
to a number of important exceptions and
qualifications. Certain of these covenants will
terminate if and when the Notes are Investment
Grade Rated. See "Description of Notes--Certain
Covenants."
Form of Notes...............
The Notes will be issued initially as one or more
global securities registered in the name of the
nominee of the Depository Trust Company ("DTC").
Beneficial interests in the Notes will be shown
on, and transfers thereof will be effected only
through, records maintained in book-entry form by
DTC or its nominee with respect to its
participants. Ownership of beneficial interests
is limited to persons that have accounts with DTC
("participants") or persons that may hold
interest through participants ("indirect
participants"). Except as set forth under
"Description of Notes," participants or indirect
participants are not entitled to receive physical
delivery of Notes in definitive form or to have
Notes issued and registered in their names and
are not considered the owners or holders thereof
under the Indenture. See "Description of Notes--
Book-Entry; Delivery and Form."
Use of Proceeds............. The net proceeds from the Offerings, together
with amounts drawn under the Credit Facility,
will be used to complete the purchase of the MAC
Assets and repay intercompany indebtedness. See
"Use of Proceeds."
RISK FACTORS
Prospective investors should consider carefully the information contained
under "Risk Factors," as well as the other information and data included in
this Prospectus for certain considerations relevant to evaluating an investment
in the Notes offered hereby.
9
<PAGE>
SUMMARY HISTORICAL COMBINED FINANCIAL AND OTHER DATA
The following table presents Summary Historical Combined Financial and Other
Data for ZDI and ZDCF as of December 31, 1997 and for the three years then
ended which were derived from the audited combined financial statements of ZDI
and ZDCF included elsewhere in this Prospectus. COMDEX was acquired by Softbank
on April 1, 1995 and ZDI was acquired by Softbank on February 29, 1996; the
Summary Historical Combined Financial and Other Data includes the results of
COMDEX and ZDI from such dates. See "The Reorganization." The following table
also presents pro forma combined financial data of ZDI and ZDCF giving effect
to the transactions described under the heading "The Reorganization" as if they
had occurred as of January 1, 1997, in the case of the statement of operations
data, and as of December 31, 1997, in the case of the balance sheet data. The
pro forma financial data does not purport to be indicative of the results that
actually would have been obtained had the Reorganization been completed as of
such dates and is not intended to be a projection of the future results of
operations or financial position of ZDI and ZDCF. The following information
should be read in conjunction with "Use of Proceeds," "Capitalization,"
"Selected Historical Combined Financial and Other Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Presentation of Financial Information," "Unaudited Pro Forma Combined Financial
Information" and the Combined Financial Statements of ZDI and ZDCF, including
the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
PRO FORMA
1995 1996 1997 1997(1)
-------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue, net.................... $202,729 $ 955,139 $1,153,761 $ 1,153,761
Depreciation and amortization... 24,305 139,736 154,940 156,940
Income from operations.......... 62,675 87,181 109,232 109,232
Interest expense, net........... 44,005 120,646 190,445 122,730
Income/(loss) before income
taxes.......................... 22,869 (27,124) (72,491) (4,776)
Net income/(loss)(2)............ 10,945 (52,081) (71,179) (7,915)
Pro forma basic loss per
share(2)....................... (.08)
Pro forma diluted loss per
share(2)....................... (.08)
Pro forma weighted average
shares outstanding(2).......... 100,000,000
OTHER DATA:
EBITDA(3)....................... $ 91,179 $ 233,258 $ 272,894 $ 274,894
Capital expenditures............ 3,367 22,365 30,196 --
Net cash provided (used) by
operating activities........... 26,168 61,543 (3,364) --
Net cash used by investing
activities..................... (817,887) (2,147,188) (44,196) --
Net cash provided by financing
activities..................... 815,408 2,087,652 47,946 --
Ratio of earnings to fixed
charges(4)..................... 1.5x -- -- --
Ratio of EBITDA to pro forma
interest expense............... -- -- -- 2.2x
<CAPTION>
AS OF DECEMBER 31,
1997
-----------------------
ACTUAL PRO FORMA
---------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 30,301 $ 30,301
Total assets........................................ 3,546,646 3,532,834
Total long-term obligations......................... 2,408,240 1,586,539
Stockholders' equity................................ 126,130 1,441,165
</TABLE>
10
<PAGE>
- --------
(1) Due to the subjectivity inherent in the assumptions concerning the timing
and nature of the uses of cash generated by the pro forma adjustments, cash
flows from operating, investing and financing activities are not presented
in the pro forma data.
(2) No historical earnings per share or share data are presented as the Company
does not consider such data meaningful. Upon closing of the Offering, 100
million shares of common stock will be outstanding and pro forma earnings
per share data gives effect to these shares as if they were outstanding on
January 1, 1997.
(3) "EBITDA" is defined as income before provision for income taxes, interest
expense, depreciation and amortization. EBITDA is not intended to represent
cash flows from operations and should not be considered as an alternative
to net income as an indicator of the Company's operating performance or to
cash flows as a measure of liquidity. The Company believes that EBITDA is a
standard measure commonly reported and widely used by analysts, investors
and other interested parties in the publishing and media industries.
(4) For purposes of the computations, earnings before fixed charges consist of
income/(loss) before income taxes adjusted for equity earnings (loss), as
appropriate, plus fixed charges. Fixed charges are defined as interest
expense plus that portion of rental expense which is deemed to be
representative of the interest factor. For the years ended December 31,
1996, 1997 and Pro Forma 1997 earnings were insufficient to cover fixed
charges by $26,598, $74,520 and $6,805, respectively.
----------------
For information relating to the three months ended March 31, 1998, see page
33 in "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
SEE THE TABLE ON PAGE 32 IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" FOR A PRESENTATION OF THE
COMBINED RESULTS AS IF ZDI HAD BEEN ACQUIRED ON JANUARY 1, 1995. THE COMPANY
BELIEVES THIS INFORMATION IS IMPORTANT IN EVALUATING ITS HISTORICAL RESULTS OF
OPERATIONS.
11
<PAGE>
RISK FACTORS
An investment in the Notes offered hereby involves various risks. Prior to
investing in the Notes being offered hereby, prospective investors should
consider carefully the factors set forth below, together with the other
information set forth in this Prospectus. Certain information contained in
this section and elsewhere in this Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors set forth in this section and
elsewhere in this Prospectus.
RISKS RELATING TO THE REORGANIZATION
The Company is a newly organized Delaware corporation, incorporated on
February 4, 1998 in contemplation of the Reorganization. As part of the
Reorganization, the Company has acquired and will acquire the MAC Assets for
approximately $370 million. Although the Company believes that the purchase
price does not exceed fair market value, such arrangements are not the result
of an arm's length negotiation between unrelated parties, and there can be no
assurance that the Company would not have been able to obtain better terms
from unrelated parties. See "The Reorganization," "Unaudited Pro Forma
Combined Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Transactions."
ABSENCE OF HISTORY AS A STAND-ALONE COMPANY; LIMITED RELEVANCE OF HISTORICAL
FINANCIAL INFORMATION
The Company has never operated as a stand-alone company. Until October 1997,
the ZDI and the ZDCF businesses were managed as separate Softbank
subsidiaries. The Company's future operating results will depend in part on
its ability to integrate these businesses and manage the combined enterprise.
In addition, although the Company will be a subsidiary of Softbank following
the Offerings, Softbank will be under no obligation to provide assistance to
the Company or any of its subsidiaries.
The financial information of ZDI and ZDCF included herein does not reflect
what the actual results of operations, financial position and cash flows of
the Company would have been had the Company existed and the Reorganization
been completed prior to the periods presented, nor is it necessarily
indicative of the results of operations, financial position and cash flows of
the Company in the future. The financial statements also include the MAC
Assets which are being transferred to the Company pursuant to the
Reorganization. See "Unaudited Pro Forma Combined Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Presentation of Financial Information" and "Certain Transactions."
CONTROL BY PRINCIPAL STOCKHOLDERS AND POTENTIAL CONFLICTS OF INTEREST
Upon the completion of the Reorganization, Softbank will own approximately
74.2% of the outstanding shares of Common Stock of the Company (71.4% if the
over-allotment option relating to the Common Stock Offering is exercised in
full). As a result, Softbank will be in a position to direct the election of
all members of the Board of Directors of the Company and to control even those
actions that require the approval of two-thirds or more of the voting share
capital of the Company, including amendments to the Company's Certificate of
Incorporation and any business combinations. Such concentration of ownership
would also have the effect of preventing a change in control of the Company
that might otherwise be beneficial to stockholders. Section 141 of the
Delaware General Corporation Law, however, imposes upon directors a fiduciary
duty to shareholders.
The Company and Softbank have entered into certain agreements governing
various interim and ongoing relationships between Softbank and the Company,
including certain licensing and management agreements relating to
publications, trade shows, ZDTV and ZDNet. In addition, Softbank has given the
Company an undertaking that, as long as it owns 40% of the voting stock of the
Company and can elect a majority of the Board of Directors, it will not expand
operations involving (x) publishing information on computing and Internet-
12
<PAGE>
related technology through the media of print, CD-ROM/DVD, Internet and
television, or (y) producing trade shows, conferences, exhibitions and similar
events primarily related to computing and Internet-related technology outside
Japan in competition with the Company without the prior approval of the
Company's management directors after consulting with the Company's independent
directors. This undertaking does not preclude investments by investment funds
managed by Softbank. Softbank manages certain venture capital funds which
invest in, among other things, computer and Internet-related companies. These
funds may be able to co-invest with the Company or compete with the Company
with respect to new investments. Softbank may develop new funds in the future,
which funds may compete with the Company for investment opportunities. The
Company has undertaken not to compete with Softbank in Japan without the prior
approval of SOFTBANK Corp.'s Board of Directors and to afford Softbank the
continuing right to license all of the Company's products and services in
Japan. Such arrangements and undertaking are not the result of an arm's length
negotiation between unrelated parties. See "--New Product Risks," "The
Company--Relationship with Softbank," "Certain Transactions" and "Principal
Stockholders."
SIGNIFICANT DEBT OBLIGATIONS; RESTRICTIVE COVENANTS
At December 31, 1997, on a pro forma basis after giving effect to the
Reorganization described under "Unaudited Pro Forma Combined Financial
Information," the Company's total debt was approximately $1.594 billion, its
total stockholders' equity was approximately $1.441 billion, its earnings were
insufficient to cover fixed charges by $6.8 million and its total debt was
52.5% of total capitalization. The Company's indebtedness is substantial in
relation to its stockholders' equity. The degree to which the Company is
leveraged could have important consequences to holders of Notes because: (i)
the Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes may
be impaired; (ii) the funds available to the Company for its operations may be
reduced if a substantial portion of the Company's cash flow from operations is
dedicated to the payment of principal and interest on its indebtedness; and
(iii) the Company's ability to incur additional debt may be impaired because
the Credit Facility and the Notes contain financial and other restrictive
covenants. The indebtedness of the Company requires a substantial portion of
the Company's cash flow to be dedicated to the payment of principal and
interest on indebtedness, thereby reducing funds available for capital
expenditures and future business opportunities. In addition, the Company's
indebtedness could increase the Company's vulnerability to adverse general
economic conditions (including increases in interest rates) and could impair
the Company's ability to take advantage of significant business opportunities
that may arise. Subject to certain limitations, the Credit Facility and the
Indenture will permit the Company and its subsidiaries to incur additional
indebtedness.
The ability of the Company to service its indebtedness, and to comply with
the financial and restrictive covenants contained in the Credit Agreement and
the Indenture is dependent upon the Company's future performance and business
growth which are subject to financial, economic, competitive, regulatory and
other factors affecting the Company, many of which are beyond its control.
While the Company believes that it will be able to generate sufficient cash
flow to cover required debt service payments, no assurance can be given to
that effect. If the Company is unable to generate sufficient funds to meet its
debt service obligations, it may be required to refinance some or all of such
debt, sell assets or raise additional equity. No assurance can be given that
such refinancings, asset sales or equity sales could be accomplished or, if
accomplished, would raise sufficient funds to meet its debt service
obligations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and "Description
of the Credit Facility." In addition, a downturn in general economic
conditions or in its business could have a material adverse effect on the
Company's ability to meet its debt service obligations or to conduct its
business in the ordinary course.
The Credit Facility will contain financial covenants which, among other
things, will require the Company to maintain certain financial ratios and
restrict the ability of the Company and certain of its subsidiaries to incur
indebtedness, make acquisitions or investments, and create or permit liens.
The Indenture will contain covenants
13
<PAGE>
which restrict the Company from incurring additional indebtedness, making
certain restricted payments, creating liens on its assets, making certain
asset dispositions and entering into certain transactions with affiliates. If
the Company is unable to generate sufficient cash flow or otherwise obtain the
funds necessary to make required payments of principal and interest under, or
is unable to comply with the covenants of, the Credit Facility or the
Indenture, the Company could be in default under the terms thereof, which
would permit the lenders pursuant to the Credit Facility to accelerate the
maturity of the Senior Indebtedness created pursuant thereto and receive
payment in full prior to the receipt by the Holders of Notes of any payment of
principal of, premium, if any, and interest on the Notes. See "Description of
the Credit Facility" and "Description of Notes."
SUBORDINATION OF THE NOTES; DEPENDENCE ON SUBSIDIARIES
The Notes will be subordinated to all Senior Indebtedness including all
obligations under the Credit Facility. In the event of a circumstance in which
the contractual subordination provisions apply, Holders of Notes will not be
entitled to receive and will have an obligation to pay over to holders of
Senior Indebtedness any payments they may receive in respect of the Notes. As
of December 31, 1997, on a pro forma basis after giving effect to the
Reorganization, the Company would have had outstanding an aggregate principal
amount of approximately $1.34 billion of Senior Indebtedness, which would rank
senior in right of payment to the Notes. Furthermore, subject to certain
limitations, the Credit Facility and the Indenture will permit the Company and
its subsidiaries to incur additional indebtedness, including Senior
Indebtedness. The indebtedness under the Credit Facility will become due prior
to the time the principal obligations under the Notes become due. Certain
subsidiaries of the Company will issue guarantees under the Credit Facility
which will be secured by a pledge of the equity interests in other
subsidiaries owned by them and the Company has pledged the issued and
outstanding capital stock of certain of its subsidiaries to secure
Indebtedness under the Credit Agreement. If the lenders under the Credit
Facility should attempt to foreclose on the collateral thereunder, the
Company's financial condition and the value of the Notes could be materially
adversely affected. In the event of a bankruptcy, liquidation or
reorganization of the Company, the assets of the Company would be available to
pay obligations on the Notes only after all Senior Indebtedness has been paid
in full, and there may not be sufficient assets remaining to pay amounts due
on any or all of the Notes then outstanding. See "Description of the Credit
Facility" and "Description of Notes."
In addition, the operations of the Company are conducted through its
subsidiaries. Therefore, the Company's ability to make required principal and
interest payments with respect to the Company's indebtedness, including the
Notes, depends on the earnings of its subsidiaries and on its ability to
receive funds from such subsidiaries through dividends or other payments. The
Notes are obligations exclusively of the Company. The Company's subsidiaries
are separate and distinct legal entities and are not obligated or required to
pay any amounts due pursuant to the Notes or to make funds available therefor
in the form of dividends or advances to the Company. Applicable law of the
jurisdictions in which the Company has organized or may organize subsidiaries
may limit such subsidiaries' ability to pay dividends. Furthermore, the Notes
effectively will be subordinated to all outstanding indebtedness and other
liabilities and commitments (including trade payables and operating lease
obligations) of the Company's subsidiaries. Any right of the Company to
receive assets of any of its subsidiaries upon the latter's liquidation or
reorganization (and the consequent right of Holders of Notes to participate in
those assets) effectively will be subordinated to the claims of that
subsidiary's creditors, except to the extent that the Company itself is
recognized as a creditor of such subsidiary, in which case the claims of the
Company would still be subordinate to any security interest in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held by
the Company. As of December 31, 1997, on a pro forma basis as described above,
the Company's subsidiaries would have had approximately $497.4 million of
liabilities (excluding Indebtedness to the Company) .
DEPENDENCE ON DEMAND FOR ADVERTISING
A significant portion of the Company's total revenue in 1997 (51.9%) was
derived from advertising sales. Should a general economic downturn or a
recession in the United States occur in the future, the Company's advertisers
may reduce their advertising budgets. In addition, technology product
advertisers may be affected by
14
<PAGE>
factors such as pricing pressures and new product launches. Furthermore, there
can be no assurance that technology product advertisers will maintain current
levels of advertising in special interest magazines and events as opposed to
general interest media such as newspapers, television and Internet sites. Any
material decline in the demand for advertising by technology product
advertisers could have an adverse effect on the Company's financial condition
and results of operations.
IMPORTANCE OF CERTAIN PUBLICATIONS AND TRADE SHOWS
Certain of the Company's publications have represented a significant portion
of the Company's historic revenue, and the Company expects that such
publications will continue to do so in the future. The Company's business
publications, which include such titles as PC Magazine, Computer Shopper and
PC Week, accounted for 65.3% of the Company's publishing revenue in 1997.
Although the Company believes it has a diversified portfolio of special-
interest publications and is not dependent on any single publication, a
significant decline in the performance of any of these publications could have
an adverse effect on the Company's financial condition and results of
operations. See "Business--Print Publishing--Sources of Print Publishing
Revenue."
Certain of the Company's trade shows and conferences have represented a
significant portion of the Company's historic revenue, and the Company expects
that such trade shows and conferences will continue to do so in the future.
COMDEX/Fall accounted for 34.0% of the Company's trade show and conference
revenue in 1997. Although the Company believes it has a diversified portfolio
of trade shows worldwide, a significant decline in the performance of
COMDEX/Fall could have an adverse effect on the Company's financial condition
and results of operations. See "Business--Trade Shows and Conferences--Sources
of Trade Show and Conference Revenue."
SEASONALITY OF REVENUE; FLUCTUATIONS IN REVENUE FROM PERIOD TO PERIOD;
ANTICIPATED LOSS FOR FIRST QUARTER OF 1998
The Company's business is seasonal, with revenue typically reaching its
highest level during the fourth quarter of each calendar year, largely due to
the timing of its single largest trade show event, COMDEX/Fall, and the
increase in publishing revenue in the fourth quarter due to increased consumer
buying activity during the holiday season. In 1997, 35.0% of the Company's
revenue was generated during the fourth quarter, with the first, second and
third quarters accounting for 19.5%, 26.1% and 19.4% of revenue, respectively.
In addition, the Company may experience fluctuations in revenue from period to
period based on levels of marketing expenditure by the Company's advertising
customers and by competition among computer technology marketers. Many of the
Company's large customers concentrate their advertising expenditures around
major new product launches. Marketing expenditure by technology companies can
also be affected by factors affecting the computer industry generally,
including changes in end user demand, pricing pressures and inventory
surpluses. Furthermore, the Company's results are affected by the number and
timing of new product launches and the timing of events. The launch of new
publications, trade shows and services are funded with cash flow from
operations and are expensed as incurred. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and "--
Seasonality."
For the first quarter of 1998, the Company will report a loss from
operations of $24 million as compared with a loss from operations of $15.6
million for the first quarter of 1997. There are several factors influencing
the lower operating results for the first quarter of 1998, including lower
advertising revenue in the Company's business publications as a result of
factors affecting the computer technology industry generally (substantially
offset by revenue from trade shows which were not held in the comparable
period of the prior year) and certain one-time costs occurring in the first
quarter of 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Three Months Ended March 31, 1998
Compared With Three Months Ended March 31, 1997 (unaudited)."
HISTORICAL NET LOSSES
The Company had net losses of $52.1 million and $71.2 million for the twelve
months ended December 31, 1996 and 1997, respectively. On a pro forma as
adjusted basis giving effect to the Reorganization, the Company had a net loss
of $7.9 million, or $(.08) per share, for the twelve months ended December 31,
1997. See "Unaudited Pro Forma Combined Financial Information." There can be
no assurance that the Company will report net income in the future.
15
<PAGE>
NEW PRODUCT RISKS
The Company's future success will depend in part on its ability to monitor
rapidly changing technologies and market trends and offer new publications,
trade shows and services that address the needs of specific target audiences.
The process of internally researching and developing, launching, acquiring
acceptance and establishing profitability for a new publication, trade show or
service, or assimilating and marketing an acquired publication, trade show or
service, can be risky and costly. There can be no assurance that the Company's
efforts to introduce new or assimilate acquired publications, trade shows or
services will be successful or profitable. In addition to its publications,
trade shows and services, the Company is a leading provider of Internet
content about computing services, primarily through its ZDNet online service.
The Internet is still in the relatively early stages of development;
therefore, there can be no assurance that the Company's Internet services will
remain competitive. Costs related to the development of new products are
expensed as incurred and, accordingly, the Company's profitability from year
to year may be adversely affected by the number and timing of new product
launches. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The Company has entered into a license and services agreement with MAC to
develop ZDTV. ZDTV is indirectly owned by MAC, but as part of this license and
services agreement MAC has granted the Company an option exercisable through
December 31, 1998 to purchase all of MAC's interest in ZDTV for an amount
equal to MAC's investment plus 10% per annum for the period of its investment.
The Company does not intend to exercise the option unless ZDTV has secured
sufficient cable carriage. This may include entering into a joint venture or
other co-ownership arrangement. The Company is currently funding ZDTV's
operations on behalf of MAC through unsecured advances which, for approved
levels of expenditure, are to be reimbursed by MAC. ZDTV's cash requirements
are expected to be approximately $54 million in 1998. There can be no
assurance that MAC will continue to approve and reimburse the Company for
expenditures or that the Company will exercise its option. If the Company
exercises its option, there can be no assurance that ZDTV will ultimately
obtain sufficient cable carriage and commercial acceptance to be profitable.
See "The Company--Relationship with Softbank" and "Certain Transactions."
RISKS ASSOCIATED WITH FLUCTUATIONS IN PAPER AND POSTAGE COSTS
The Company's principal raw material is paper. Paper costs constitute a
significant expense, accounting for 15.2% of the Company's total U.S. print
publishing operating expenses in 1997. Paper prices have been volatile over
the past several years, initially rising in 1994, rising more significantly in
1995 and 1996 and declining in 1997. Management anticipates paper prices will
increase in 1998. The Company does not use forward contracts and most of its
paper supply contracts, which are generally for a two to three year renewable
term, provide for price adjustments to reflect changing market prices.
Accordingly, significant increases in paper prices could adversely affect the
Company's future results of operations.
Postage for magazine distribution is also a significant expense for the
Company, accounting for 11.3% of the Company's total U.S. print publishing
operating expenses in 1997. Postage costs increase periodically and can be
expected to increase in the future. The United States Postal Service has
recently announced a 5.4% increase for commercial magazine rates, which is
expected to become effective in 1998. The Company may not be able to recover,
in whole or in part, paper or postage cost increases. Accordingly, significant
cost increases could have an adverse effect on the Company's financial
condition or results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Print
Publishing--Paper and Printing."
COMPETITION
The Company faces significant competition with respect to its print
publications, trade shows and conferences and other technology information
services. In its publishing business, the Company principally competes for
advertising and circulation revenue with publishers of other computer
technology publications, and also faces broad competition from media companies
that produce general interest magazines, newspapers and online content.
Overall competitive factors include product positioning, editorial quality,
circulation, price and
16
<PAGE>
customer service. Competition for advertising dollars is primarily based on
advertising rates, the nature and scope of readership, reader response to
advertisers' products and services and the effectiveness of sales teams. In
its trade show and conference business, the Company competes with other
producers of trade shows and conferences for exhibition space, exhibitors and
attendees, primarily on the basis of the quality of the conference, its
content and organizational efficiency. If the Company is unable to compete
effectively for advertisers, readers, exhibitors and/or attendees, its
financial condition and results of operations could be adversely affected. See
"Business--Competition."
CONSOLIDATION OF PRINCIPAL VENDORS; SIGNIFICANT SUPPLIER
The Company's principal vendors include paper suppliers, printers,
fulfillment houses and national newsstand distributors. Each of these
industries is currently experiencing consolidation among their principal
participants. Such consolidation may result in: (i) decreased competition,
which may lead to increased prices; (ii) interruptions and delays in services
provided by such vendors; and (iii) greater dependence on certain vendors.
Such factors could adversely affect the Company's results of operations. One
printing company accounted for approximately 50% of the Company's total print
publishing manufacturing expenditures in 1997 for its U.S.-based publications.
While the Company believes there are adequate alternatives available, an
interruption or delay in service from, or the loss of, this printer could have
an adverse effect on the Company. See "Business--Print Publishing--Paper and
Printing."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
One component of the Company's growth strategy is to further expand into
international markets. There are certain risks inherent in doing business in
international markets, such as the uncertainty of product acceptance by
different cultures, the risks of divergent business expectations or
difficulties in establishing joint ventures with foreign partners,
difficulties in staffing and managing multinational operations, currency
fluctuations, state-imposed restrictions on the repatriation of funds and
potentially adverse tax consequences. There can be no assurance that one or
more of such factors will not have an adverse effect on the Company's future
international operations and, consequently, on the Company's financial
condition and results of operations. See "Business --Print Publishing--
International Publications" and "Business--Trade Shows and Conferences."
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part of such
Holder's Notes at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the date of repurchase. No assurance can be given that the Company will have
sufficient resources to satisfy its repurchase obligation with respect to the
Notes following a Change of Control. See "Description of the Notes--Certain
Covenants--Repurchase of Notes upon a Change of Control."
The Credit Facility will prohibit the Company from purchasing the Notes
(except in certain limited circumstances beginning in the year 2000) and will
also provide that certain change of control events with respect to the Company
will constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Indebtedness to which the Company becomes a
party may contain similar restrictions and provisions. In the event a Change
of Control occurs at a time when the Company is prohibited from purchasing the
Notes, the Company could seek the consent of its lenders to the purchase of
the Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such consent or repay such
borrowings, the Company will remain prohibited from purchasing the Notes by
the relevant Senior Indebtedness. In such case, the Company's failure to
purchase the tendered Notes would constitute an event of default under the
Indenture and the Company's failure to make an offer to purchase would permit
the Holders of the Notes to declare the principal of, premium if any, and
accrued interest on the Notes immediately due and payable under the Indenture.
Such an event would constitute a default under the Credit Facility and could
constitute a default
17
<PAGE>
under other Senior Indebtedness. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the Holders of
the Notes. See "Description of the Notes."
NO PRIOR PUBLIC MARKET FOR THE NOTES
The Notes are a new issue of securities for which there is currently no
market. If the Notes are traded after their initial issuance, they may trade
at a discount from their initial offering price, depending upon prevailing
interest rates, the market for similar securities and other factors. The
Underwriters have informed the Company that, subject to applicable laws and
regulations, they currently intend to make a market in the Notes. However, the
Underwriters are not obligated to do so, and any such market making may be
discontinued at any time without notice. Therefore, no assurance can be given
as to whether an active trading market will develop for the Notes. The Company
does not intend to apply for listing of the Notes on any securities exchange
or on the National Association of Securities Dealers, Inc. automated quotation
system. See "Underwriters."
18
<PAGE>
THE COMPANY
The Company believes it is the world's preeminent integrated media and
marketing company focused on computing and Internet-related technology, with
principal platforms in print publishing, trade shows and conferences, online
content, market research and education. The Company's 28 primary U.S. and
international titles, including its joint ventures, and over 50 licensed
publications, total more than 80 publications distributed worldwide, with a
combined circulation of more than eight million primary readers. The Company's
predecessor was founded in 1927 and pioneered the development of special-
interest magazines, including Car and Driver, Popular Photography, Stereo
Review, Boating, Skiing and Modern Bride. The Company also produces the
world's most important trade shows related to computer technology, with over
two million estimated attendees at over 50 trade shows and conferences
worldwide in 1997. The Company's COMDEX/Fall event is the number one ranked
trade show for all industries in the U.S. as measured by total revenue, total
exhibit space and number of attendees. The Company's ZDNet.com Web site is the
leading computing content site and ranked the number one Web site in 1997 in
the category of news, information and entertainment, as measured by visitors
per month. The Company's other media and marketing platforms include market
research, education and the publication of computer-related newsletters,
training manuals and materials.
The Company's principal executive offices are located at One Park Avenue,
New York, New York 10016 and its telephone number is (212) 503-3500.
RELATIONSHIP WITH SOFTBANK
The Company is an indirect subsidiary of SOFTBANK Corp., which, as of
December 31, 1997, was 50.2% owned by Mr. Masayoshi Son, its President,
including 43.4% directly held by his 99% owned holding company, MAC. Softbank
is a leading provider of information and distribution services as
infrastructure for the digital information industry. Softbank is Japan's
leading distributor of computer software as well as a leading publisher of
Japanese computer technology publications. It also is an 80% owner of Kingston
Technology Company ("Kingston"), one of the world's largest independent
providers of computer memory modules; a founder and co-owner of Japan Sky
Broadcasting Co., Ltd. ("JSkyB"), a digital satellite broadcasting venture in
Japan; a shareholder, directly or through its investment fund affiliates, in
over 50 network and computer-related venture businesses in the digital
information industry; and a 29.4% owner of Yahoo! Inc.
Upon the completion of the Reorganization, Softbank will own approximately
74.2% of the outstanding shares of Common Stock (71.4% if the overallotment
option relating to the Common Stock Offering is exercised in full). The
Company and Softbank have entered into certain agreements governing various
interim and ongoing relationships between Softbank and the Company, including
certain licensing and management agreements relating to publications, trade
shows, ZDTV and ZDNet. See "Certain Transactions."
In addition, Softbank has given the Company an undertaking that, as long as
it owns 40% of the voting stock of the Company and can elect a majority of the
Board of Directors, it will not expand operations involving (x) publishing
information on computing and Internet-related technology through the media of
print, CD-ROM/DVD, Internet and television, or (y) producing trade shows,
conferences, exhibitions and similar events primarily related to computing and
Internet-related technology outside Japan in competition with the Company
without the prior approval of the Company's management directors after
consulting with the Company's independent directors.
This undertaking does not preclude investments by investment funds managed
by Softbank. Softbank manages certain venture capital funds which invest in,
among other things, computer and Internet-related companies. These funds may
be able to co-invest with the Company or compete with the Company with respect
to new investments. Softbank may develop new funds in the future, which funds
may compete with the Company for investment opportunities. The Company has
undertaken not to compete with Softbank in Japan without the prior approval of
SOFTBANK Corp.'s Board of Directors and has agreed to afford Softbank the
continuing right to license all of the Company's products and services in
Japan. See "Risk Factors--Control by Principal Stockholders and Potential
Conflicts of Interest" and "Certain Transactions."
19
<PAGE>
In order to expand its media platforms, the Company has entered into a
license and services agreement with MAC to develop ZDTV, a 24-hour cable
television channel and integrated Web site focused exclusively on computers,
technology and the Internet. ZDTV is indirectly owned by MAC, but as part of
this license and services agreement MAC has granted the Company an option
exercisable through December 31, 1998 to purchase all of MAC's interest in
ZDTV for an amount equal to MAC's investment plus 10% per annum for the period
of its invesment. Pursuant to the license and services agreement, the Company
has agreed to fund ZDTV's operations on behalf of MAC through unsecured
advances which, for approved levels of expenditure, are to be reimbursed by
MAC. Such advances bear interest at the 30-day LIBOR rate plus .50%. ZDTV's
cash requirements are expected to be approximately $54 million in 1998. The
Company's cumulative advances in respect of ZDTV, which totaled $14.4 million
net of $10.1 million in repayments through December 31, 1997, will be repaid
concurrently with the Reorganization. The Company has not yet determined
whether it will exercise its option to purchase MAC's interest in ZDTV. Any
such purchase will depend upon securing sufficient cable carriage, which may
include entering into a joint venture or other co-ownership arrangement,
including an arrangement with a third party cable system operator which will
provide carriage and also assume a portion of the ongoing cash requirements on
terms that are acceptable to the Company. ZDTV is not included in the
Company's results of operations. See "Certain Transactions."
20
<PAGE>
THE REORGANIZATION
The businesses to be conducted by the Company were acquired in a series of
acquisitions and internal reorganizations undertaken by Softbank. See "The
Company--Relationship with Softbank." The Company's principal business
operations are as follows:
(i) the computer technology publishing operations of Ziff-Davis
Publishing Company ("ZD Pubco"), which Softbank acquired in February 1996
for $1.8 billion in cash and subsequently renamed Ziff-Davis Inc.;
(ii) the COMDEX computer-related trade show operations ("COMDEX"), which
Softbank acquired in April 1995 for $803 million in cash and renamed
SOFTBANK COMDEX Inc. ("SB COMDEX"); and
(iii) the computer and network-related trade show operations of Ziff-
Davis Exposition and Conference Company ("ZD Expos"), which Softbank
acquired in December 1994 for $127 million in cash and subsequently renamed
SOFTBANK Forums Inc. ("SB Forums").
Concurrently with the ZD Pubco and ZD Expos acquisitions described above,
MAC purchased certain operations and assets of these companies for $302
million and $75 million, respectively. The MAC Assets consist of certain
international consumer and Internet publications, international trade shows
and the ZDNet business, most of which were still under development. The MAC
Assets and related operations have been managed by ZDI and ZDCF since their
acquisition by MAC. As part of the Reorganization discussed below, the MAC
Assets, except for those that have been discontinued, have been or will be
acquired by the Company at a purchase price that does not exceed fair market
value, based on an independent appraisal. A portion of the MAC Assets was
acquired by the Company on October 31, 1997 for $100 million, and the balance
will be sold to the Company concurrently with the Offerings. See "Use of
Proceeds."
In October 1997, Softbank decided to combine the businesses of ZDI, SB
COMDEX and SB Forums. SB Forums and SB COMDEX were merged as of December 31,
1997, with the surviving corporation named ZDCF. In order to complete the
combination and establish the Company as a separate public company,
concurrently with the Offerings, ZDI and ZDCF will be contributed to the
Company in exchange for 74.2% of the Company's Common Stock, and approximately
$928 million of the Company's obligations to Softbank will be converted to
equity at the initial public offering price. The amount of intercompany
indebtedness to be converted to equity is comprised of the obligations due to
Softbank as of December 31, 1997, except those repaid with borrowings under
the Credit Facility and the proceeds of the Notes Offering and a $94.2 million
note which matures on February 20, 2009. Assuming an initial public offering
price of $15.50 per share, the value of the capitalized intercompany
indebtedness would have been equivalent to 59.8 million shares of Common
Stock. In addition, the Company will receive approximately $10 million of
fixed assets from Kingston in exchange for $10 million of shares of the
Company's Common Stock (valued at the initial public offering price), which
assets will be subsequently leased back to Kingston.
As part of the Reorganization, the Company will: (i) issue 25.8 million
shares of its Common Stock in the Common Stock Offering; (ii) sell $250
million aggregate principal amount of its % Senior Subordinated Notes due
2008 in the Offering; and (iii) enter into the $1.35 billion Credit Facility
and borrow $1.25 billion thereunder. The Company will use the net proceeds
from the Offerings and the Credit Facility to (i) pay $270 million to MAC,
representing the purchase price for the remaining MAC Assets, and (ii) repay
approximately $1.589 billion of obligations to Softbank (including the
Company's liability to Softbank with respect to the $100 million purchase
price for the initial portion of the MAC Assets, net of the approximately $42
million of balances due from MAC in connection with funding for the MAC Assets
and ZDTV through December 31, 1997), which payment will eliminate all except
$94.2 million of the remaining intercompany indebtedness as of December 31,
1997. The Company has obtained a commitment letter from The Bank of New York,
Morgan Stanley Senior Funding, DLJ Capital Funding and The Chase Manhattan
Bank to provide such Credit Facility.
Unless the context otherwise indicates, references herein to the
"Reorganization" include all of the transactions described above. The
Offerings will be conditioned upon the completion of all such transactions
comprising the Reorganization, which shall be deemed to occur simultaneously.
21
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes and the Common
Stock are estimated to be $241.3 million and $377.5 million ($434.5 million if
the over-allotment option relating to the Common Stock Offering is exercised
in full), respectively, after deducting underwriting discounts and commissions
and estimated offering expenses payable by the Company. The Company intends to
use the proceeds from the Offerings and approximately $1.25 billion in
borrowings under the Credit Facility, to fund the approximately $270 million
purchase price of the balance of the MAC Assets (see "Risk Factors--Risks
Relating to the Reorganization") and repay approximately $1.589 billion of
intercompany obligations.
The following table summarizes the foregoing estimated sources and uses of
funds:
<TABLE>
<CAPTION>
AMOUNT
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Sources:
Notes Offering......................................... $ 250,000
Common Stock Offering.................................. 400,000
Borrowings under Credit Facility....................... 1,250,000
----------
Total sources........................................ $1,900,000
==========
Uses:
Net payments to affiliates(1).......................... $1,588,625
Offering expenses and debt issuance costs(2)........... 41,375
Purchase balance of MAC Assets......................... 270,000
----------
Total uses........................................... $1,900,000
==========
</TABLE>
- --------
(1) Net payments to affiliates include the following:
<TABLE>
<S> <C>
(i)Repayment of notes payable to affiliates:
7.8% notes maturing March 31, 2011......................... $1,080,000
8.0% notes maturing February 28, 2010...................... 375,027
8.0% notes maturing March 31, 2010......................... 74,772
8.0% notes maturing January 1, 2007........................ 1,513
(ii) Repayment of obligations to Softbank for the October 31,
1997 purchase of certain MAC Assets..................... 100,000
(iii) Receipt from MAC of amounts due with respect to
funding the development and operations of the MAC (42,687)
Assets and ZDTV through December 31, 1997 ............ ----------
$1,588,625
==========
</TABLE>
(2) Includes $22,500 in expenses related to the issuance of Common Stock and
$18,875 of debt issuance costs.
22
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997: (i) on a combined basis for ZDI and ZDCF; (ii) on a pro
forma basis after giving effect to the contribution of ZDI and ZDCF to the
Company, conversion of approximately $928 million of intercompany obligations
to equity and the Kingston sale-leaseback; and (iii) on a pro forma basis as
adjusted to give effect to the Offerings and the remaining debt refinancing.
See "The Reorganization." This table should be read in conjunction with
"Selected Historical Combined Financial and Other Data," "Unaudited Pro Forma
Combined Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Presentation of Financial
Information" and the Combined Financial Statements of ZDI and ZDCF.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------
ACTUAL PRO FORMA
COMBINED PRO FORMA AS ADJUSTED
---------- ---------- -----------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C> <C>
Debt:
Credit Facility.......................... $ -- $ -- $1,250,000
Notes.................................... -- -- 250,000
Notes payable to affiliates, including
current portion......................... 2,534,030 1,625,543 94,231
---------- ---------- ----------
Total debt........................... 2,534,030 1,625,543 1,594,231
Stockholders' equity:
Common Stock, $.01 par value, 1,000
shares authorized, 200 shares issued and
outstanding; Pro Forma: par value $.01
per share; 120,000,000 shares autho-
rized; 100,000,000 shares issued and
outstanding............................. $ -- $ -- $ 1,000
Additional paid-in-capital............... 248,330 1,185,865 1,562,365
Accumulated deficit...................... (119,429) (119,429) (119,429)
Deferred compensation.................... (996) (996) (996)
Cumulative translation adjustment........ (1,775) (1,775) (1,775)
---------- ---------- ----------
Total stockholders' equity............. 126,130 1,063,665 1,441,165
---------- ---------- ----------
Total capitalization................. $2,660,160 $2,689,208 $3,035,396
========== ========== ==========
</TABLE>
23
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL AND OTHER DATA
The Selected Historical Combined Financial and Other Data (i) of ZDI as of
and for the year ended December 31, 1995 and for the period January 1, 1996 to
February 28, 1996 and (ii) of ZDI and ZDCF as of and for the years ended
December 31, 1995 and 1996 and 1997 were derived from their respective
historical financial statements. Such financial statements, audited by
independent accountants, are included elsewhere herein. The historical
financial data of ZDI as of and for the years ended December 31, 1994 and 1993
is derived from ZDI's accounting records and has not been audited. The
following information should be read in conjunction with "Use of Proceeds,"
"Capitalization," "Unaudited Pro Forma Combined Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Presentation of Financial Information," the Combined Financial
Statements of ZDI and ZDCF and the Historical Consolidated Financial
Statements of ZDI, as of and for the year ended December 31, 1995 and for the
period January 1, 1996 to February 28, 1996.
<TABLE>
<CAPTION>
ZDI AND
ZDI(1) ZDCF COMBINED
--------------------------------------------- ---------------------------------
YEAR ENDED TWO-MONTH YEAR ENDED
DECEMBER 31, PERIOD ENDED DECEMBER 31,
------------------------------- FEBRUARY 28, ---------------------------------
1993 1994 1995 1996 1995(2) 1996(3) 1997
-------- ---------- ---------- ------------ ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue, net............ $649,452 $ 711,379 $ 768,995 $ 125,465 $ 202,729 $ 955,139 $1,153,761
Depreciation and amorti-
zation................. 38,228 34,208 91,546 15,137 24,305 139,736 154,940
Income from operations.. 29,481 80,723 55,750 7,270 62,675 87,181 109,232
Interest expense, net... 14,035 17,887 92,609 14,030 44,005 120,646 190,445
Income/(loss) before in-
come taxes............. 13,700 77,650 (40,250) (6,995) 22,869 (27,124) (72,491)
Net income/(loss)(4)(5). 13,700 77,650 (26,002) (4,547) 10,945 (52,081) (71,179)
OTHER DATA:
Capital expenditures.... $ 16,141 $ 15,119 $ 14,163 $ 552 $ 3,367 $ 22,365 $ 30,196
Ratio of earnings to
fixed charges(6)....... 1.7 4.1 -- -- 1.5 -- --
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash equiva-
lents.................. $ 36,300 $1,066,606 $ 10,083 $ 13,669 $ 27,908 $ 29,915 $ 30,301
Total assets............ 308,267 2,751,525 1,623,906 1,619,905 1,090,981 3,584,173 3,546,646
Total long-term obliga-
tions.................. 353,507 1,034,000 964,153 964,153 575,450 2,522,252 2,408,240
Stockholders' equity
(deficit).............. (214,355) 391,275 365,150 360,717 397,881 447,756 126,130
</TABLE>
- --------
(1) Historical Combined Financial and Other Data of ZDI has been presented for
all periods prior to its acquisition by Softbank on February 29, 1996 as
it represents the Company's principal operations.
(2) Reflects operations of SB Forums for the year and COMDEX from the date of
acquisition by Softbank on April 1, 1995.
(3) Reflects operations of SB Forums and COMDEX for the year and ZDI from the
date of acquisition by Softbank on February 29, 1996.
(4) For the years ended December 31, 1993 and 1994, the operations of ZDI were
conducted through various partnerships. Accordingly, no income taxes have
been provided.
(5) No historical earnings per share or share data are presented as the
Company does not consider such data meaningful.
(6) For purposes of the computations, earnings before fixed charges consist of
income/(loss) before income taxes adjusted for equity earnings/losses as
appropriate, plus fixed charges. Fixed charges are defined as interest
expense plus that portion of rental expense which is deemed to be
representative of the interest factor. For the year ended December 31,
1995 and the two-month period ended February 28, 1996, ZDI's earnings were
insufficient to cover fixed charges by $36,859 and $6,760, respectively.
For the years ended December 31, 1996 and 1997, ZDI and ZDCF's earnings
were insufficient to cover fixed charges by $26,598 and $74,520,
respectively.
For information relating to the three months ended March 31, 1998, see page
33 in "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
SEE THE TABLE ON PAGE 32 IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" FOR A PRESENTATION OF THE
COMBINED RESULTS AS IF ZDI HAD BEEN ACQUIRED ON JANUARY 1, 1995. THE COMPANY
BELIEVES THIS INFORMATION IS IMPORTANT IN EVALUATING ITS HISTORICAL RESULTS OF
OPERATIONS.
24
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Financial Information (the "Pro
Forma Financial Information") is based on the historical combined financial
statements of ZDI and ZDCF and has been prepared to illustrate the effects of
the Reorganization and the other transactions described below.
The Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1997 gives effect to the Reorganization as if it had occurred as
of January 1, 1997. The Unaudited Pro Forma Combined Balance Sheet as of
December 31, 1997 has been prepared as if the Reorganization had occurred on
that date. See "The Reorganization."
The Pro Forma Financial Information is not necessarily indicative of the
actual results of operations or financial position of the Company at December
31, 1997 and does not purport to represent the Company's results of operations
for future periods or its future financial position.
The Pro Forma Financial Information should be read in conjunction with the
Historical Combined Financial Statements of ZDI and ZDCF and notes thereto
which are included elsewhere in this Prospectus. In management's opinion, the
Pro Forma Financial Information includes all adjustments necessary to reflect
the effects of the Reorganization and other transactions described below.
25
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
COMBINED FOR CAPITAL ADJUSTMENTS PRO FORMA
ACTUAL CONTRIBUTIONS PRO FORMA FOR REFINANCINGS AS ADJUSTED
---------- ------------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equiva-
lents................ $ 30,301 $ $ 30,301 $ $ 30,301
Accounts receivable,
net.................. 221,310 221,310 221,310
Inventories........... 17,853 17,853 17,853
Prepaid expenses and
other current assets. 37,900 37,900 37,900
Due from affiliates... 131,290 131,290 (42,687)(e) 88,603
Deferred taxes........ 8,794 8,794 8,794
---------- --------- ---------- ----------- ----------
Total current as-
sets............... 447,448 447,448 (42,687) 404,761
Property and equipment,
net.................... 53,536 10,000 (a) 63,536 63,536
Intangible assets, net.. 3,030,333 3,030,333 3,030,333
Other assets............ 15,329 15,329 18,875 (f) 34,204
---------- --------- ---------- ----------- ----------
Total assets........ $3,546,646 $ 10,000 $3,556,646 $ (23,812) $3,532,834
========== ========= ========== =========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...... $ 55,468 $ $ 55,468 $ $ 55,468
Accrued expenses...... 80,094 80,094 80,094
Unearned income, net.. 154,682 154,682 154,682
Due to affiliates and
management........... 398,332 (19,048)(b) 379,284 (370,000)(g) 9,284
Current portion of
notes payable to
affiliates........... 125,790 125,790 (118,098)(h) 7,692
Other current
liabilities.......... 4,222 4,222 4,222
---------- --------- ---------- ----------- ----------
Total current lia-
bilities........... 818,588 (19,048) 799,540 (488,098) 311,442
Notes payable to affili-
ates................... 2,408,240 (908,487)(c) 1,499,753 (1,413,214)(h) 86,539
Long-term debt.......... -- -- 1,500,000 (i) 1,500,000
Deferred taxes.......... 180,117 180,117 180,117
Other liabilities....... 13,571 13,571 13,571
---------- --------- ---------- ----------- ----------
Total liabilities... 3,420,516 (927,535) 2,492,981 (401,312) 2,091,669
---------- --------- ---------- ----------- ----------
Stockholders' equity:
Preferred stock(1).... -- -- --
Common stock(2)....... -- -- 1,000 (j) 1,000
Additional paid-in
capital.............. 248,330 937,535 (d) 1,185,865 376,500 (j) 1,562,365
Retained earnings
(deficit)............ (119,429) (119,429) (119,429)
Deferred compensation. (996) (996) (996)
Cumulative translation
adjustment........... (1,775) (1,775) (1,775)
---------- --------- ---------- ----------- ----------
Total stockholders'
equity............. 126,130 937,535 1,063,665 377,500 1,441,165
---------- --------- ---------- ----------- ----------
Total liabilities
and stockholders'
equity............. $3,546,646 $ 10,000 $3,556,646 $ (23,812) $3,532,834
========== ========= ========== =========== ==========
</TABLE>
- --------
(1) Actual: par value $.01 per share, no shares issued and outstanding; Pro
Forma: 10,000,000 shares authorized, no shares issued and outstanding.
(2) Actual: par value $.01 per share, 1,000 shares authorized, 200 shares
issued and outstanding; Pro Forma: par value $.01 per share, 120,000,000
shares authorized, 100,000,000 shares issued and outstanding.
26
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED BALANCE SHEET
a. Reflects the transfer of approximately $10,000 of fixed assets from
Kingston in exchange for 645,161 shares of the Company's Common Stock.
b. Reflects the capitalization of amounts due to Softbank in connection with
the conversion of $927,535 of intercompany obligations.
c. Reflects the capitalization of notes payable to affiliates in connection
with the conversion of $927,535 of intercompany obligations.
d. Reflects the impact on stockholders' equity of the following:
<TABLE>
<C> <S> <C>
(i) Capitalization of amounts due to Softbank................ $ 19,048
(ii) Exchange of Common Stock for Kingston's fixed assets..... 10,000
(iii) Capitalization of notes payable to affiliates............ 908,487
--------
$937,535
========
</TABLE>
e. Represents the settlement of balances due from MAC with respect to funding
the operations and development of the MAC Assets and ZDTV.
f. Represents debt issuance costs incurred in connection with the Notes
Offering and Credit Facility.
g. Represents the payment of $100 million due to Softbank and $270 million due
to MAC for the purchase of the MAC Assets.
h. Represents the repayment of the current portion and long-term portion of
notes payable to affiliates of $118,098 and $1,413,214, respectively.
i. Represents initial borrowings under the Credit Facility of $1,250,000 and
the proceeds from the Notes Offering of $250,000.
j. Represents the issuance of 25.8 million shares of the Company's Common
Stock at an assumed initial offering price of $15.50 per share, net of
offering costs of $22,500. Assumes no exercise of the over-allotment option
relating to the Common Stock Offering.
27
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS
COMBINED FOR CAPITAL FOR PRO FORMA
ACTUAL CONTRIBUTION PRO FORMA REFINANCINGS AS ADJUSTED
---------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue, net............ $1,153,761 $ $1,153,761 $ $ 1,153,761
---------- ---------- ------------
Cost of production...... 325,245 325,245 325,245
Selling, general and
administrative
expenses............... 564,344 (2,000)(a) 562,344 562,344
Depreciation of property
and equipment.......... 30,379 2,000 (b) 32,379 32,379
Amortization of intangi-
ble assets............. 124,561 124,561 124,561
---------- ---------- ------------
Income from operations.. 109,232 109,232 109,232
Interest expense, net... (190,445) 59,052 (c) (131,393) 8,663(e) (122,730)
Other non-operating in-
come, net.............. 8,722 8,722 8,722
---------- ------- ---------- ------- ------------
Loss before income tax-
es..................... (72,491) 59,052 (13,439) 8,663 (4,776)
Provision (benefit) for
income taxes........... (1,312) 899 (d) (413) 3,552 (f) 3,139
---------- ------- ---------- ------- ------------
Net loss................ $ (71,179) $58,153 $ (13,026) $(5,111) $ (7,915)
========== ======= ========== ======= ============
Pro forma basic loss per
share.................. (.08)(g)
============
Pro forma diluted loss
per share.............. (.08)(g)
============
Pro forma weighted
average shares
outstanding............ 100,000,000(g)
</TABLE>
----------------
For information relating to the three months ended March 31, 1998, see page
33 in "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
a. Represents the rental income generated by leasing back to Kingston the
fixed assets received from Kingston.
b. Represents an increase in depreciation expense associated with the fixed
assets received from Kingston.
c. Represents the reduction of interest expense resulting from the
capitalization of $908,487 of notes payable to affiliates; such notes bore
interest at an average rate of 6.5% per annum.
d. Represents the impact of the following adjustments:
<TABLE>
<C> <S> <C>
(i) Tax impact of reduced interest expense totalling
$59,052 from the capitalization of $908,487 of notes
payable to affiliates, at an effective tax rate of
41%................................................... $ 24,211
(ii) Tax benefit relating to losses generated by the MAC
Assets which would have been available to the Company
had the MAC Assets been purchased on January 1, 1997.
These benefits will not be available to the Company
following the Offering................................ (23,312)
---------
$ 899
=========
e. Represents the impact of the following adjustments:
(i) Reduction of interest expense from the repayment of
notes payable to affiliates from the proceeds of the
Offerings and the initial borrowings under the Credit
Facility.............................................. $(122,272)
(ii) Increase in interest expense related to the Notes at
an assumed interest rate of 8.00%..................... 20,000
(iii) Increase in interest expense related to the Credit
Facility at an assumed interest rate of 7.25%......... 90,625
(iv) Amortization of deferred financing costs using the
interest method....................................... 2,984
---------
$ (8,663)
=========
</TABLE>
f. Represents the income tax effect of the adjustments described in note (e)
above at an effective tax rate of 41%.
g. Pro forma basic loss per share and pro forma weighted average number of
common shares outstanding includes 100,000,000 shares of Common Stock
assumed to be outstanding upon consummation of the Reorganization. Pro
forma diluted loss per share excludes 5,254,700 Common Stock equivalents
assumed to be outstanding upon consummation of the Reorganization as
inclusion of such Common Stock equivalents would be antidilutive.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company operates in two business segments: (i) publishing and (ii) trade
shows and conferences. The Company believes it is the world's preeminent
integrated media and marketing company focused on computing and Internet-
related technology, with principal platforms in print publishing, trade shows
and conferences, online content, market research and education. The Company's
28 primary U.S. and international titles, including its joint ventures, and
over 50 licensed publications, total more than 80 publications distributed
worldwide, with a combined circulation of more than eight million primary
readers. The Company also produces the world's most important trade shows
related to computer technology, with over two million estimated attendees at
over 50 trade shows and conferences worldwide in 1997. The Company's
COMDEX/Fall event is the number one ranked trade show for all industries in
the U.S. as measured by total revenue, total exhibit space and number of
attendees. The Company's ZDNet.com Web site is the leading computing content
site and ranked the number one Web site in 1997 in the category of news,
information and entertainment, as measured by visitors per month. The
Company's other media and marketing platforms include market research,
education and the publication of computer-related newsletters, training
manuals and materials.
The Company had net revenue of $1.154 billion for 1997. A substantial
portion of the Company's revenue is derived from the sale of advertising,
which in 1997 accounted for 51.9% of total revenue. No single advertiser has
comprised more than 3% of the Company's advertising revenue during any of the
last three years. However, the Company's top 20 advertisers accounted for
32.1% of total advertising revenue for 1997.
In the publishing segment, the Company's principal sources of revenue are
advertising (67.3% of 1997 total publishing revenue), circulation (17.4%) and
other (15.3%). Circulation comprises both paid subscriptions (10.8%) and
newsstand sales (6.6%) while other includes educational and training materials
(5.4%) and market research studies (6.2%) with the balance primarily
consisting of royalties, reprints and other miscellaneous sales. In the trade
shows and conferences segment, revenue is derived from two principal sources:
sale of exhibit space (64.8% of 1997 total segment revenue) and attendee
conference and seminar fees (14.9%). Unlike many trade show producers, the
Company derives a significant portion of its trade show revenue from other
sources (20.3%), including advertising in show-related publications,
billboards, banners, fees from managing customer-sponsored events and other
show-related activities. The Company believes these other sources will
continue to be an important growth area, particularly for its content-focused
events.
In the publishing business, the principal components of the Company's
production costs are raw materials, printing and distribution, which
represented 34.6%, 37.5% and 26.7%, respectively, of total 1997 publishing
production expenses. The Company's principal raw material is paper. Paper
supply and prices are subject to volatility and may be significantly affected
by many factors, including market and economic conditions. See "Risk Factors--
Risks Associated with Fluctuations in Paper and Postage Costs" and "--
Inflation and Change in Paper Prices." The principal components of production
costs within the trade shows and conferences business are the costs of renting
and preparing the facilities to hold the events (33.6%), direct mail and the
related costs for promotion of the events (33.2%) and program development and
presentation costs (11.3%).
The other principal operating costs for the Company are selling, general and
administrative expenses, including editorial costs. Included in these costs
are salaries, sales commissions and benefits (49.8%) along with marketing and
promotion expenses related to advertising and circulation (18.8%).
The Company's revenue and profitability are influenced by a number of
external factors, including the volume of new technology product
introductions, the amount and allocation of marketing expenditure by the
Company's clients, the extent to which sellers elect to advertise using print
and online media or participate in trade shows and conferences, changes in
paper prices, availability of appropriate venues for its largest trade shows
and conferences and competition among computer technology marketers (including
print publishers, producers of trade shows and providers of other technology
information services). Accordingly, the Company
30
<PAGE>
may experience fluctuations in revenue from period to period. Many of the
Company's large customers concentrate their advertising expenditures around
major new product launches. Marketing expenditures by technology companies can
also be affected by factors affecting the computer industry generally,
including pricing pressures and temporary surpluses of inventory. Revenue and
profitability are also influenced by product mix and the timing and frequency
of the Company's new product launches and launches in new markets, as well as
by acquisitions. New publications generally require several years to achieve
profitability and upon achieving initial profitability, often have lower
margins than more established publications. The launch of new publications,
trade shows and services are funded with cash flow from operations and are
expensed as incurred. Accordingly, the Company's revenue from year to year may
be affected by the number and timing of new product launches. If the Company
concludes that a new publication, trade show or service will not achieve
certain milestones with regard to revenues, profitability and cash flow within
a reasonable period of time, management may discontinue such publication,
trade show or service or merge it into another existing publication, trade
show or service. See "Risk Factors--New Product Risks."
Historically, the financing requirements of the Company have been funded
through intercompany loans and advances, totaling $2.5 billion at December 31,
1997, of which $126 million was current. As a result of the Reorganization,
the Company's intercompany debt owed to Softbank will be reduced to $94.2
million. Such indebtedness bears interest at 9.9% and matures in February
2009. Concurrently with the Offering, the Company intends to issue and sell
$250 million aggregate principal amount of Notes and will enter into the $1.35
billion Credit Facility and borrow $1.25 billion thereunder. See "--Liquidity
and Capital Resources."
PRESENTATION OF FINANCIAL INFORMATION
ZD Inc. was incorporated on February 4, 1998. Concurrent with the completion
of the Offerings, all of the common stock of ZDI and ZDCF, the Company's
principal operating subsidiaries, will be contributed to the Company.
These subsidiaries were acquired in a series of acquisitions and internal
reorganizations undertaken by the Company's principal stockholder, Softbank.
In December 1994, Softbank acquired SB Forums for $127 million in cash. The
acquisition was accounted for using the purchase method of accounting and
accordingly, the results of operations of SB Forums are included in the
Combined Financial Statements of ZDI and ZDCF for 1995, 1996 and 1997.
In April 1995, SOFTBANK acquired SB COMDEX for $803 million in cash, plus
transaction costs. The acquisition was accounted for using the purchase method
of accounting and accordingly, SB COMDEX's results are included in the
Combined Financial Statements since the date of acquisition. As of December
31, 1997, SB Forums and SB COMDEX were merged, with the surviving corporation
named ZD Comdex and Forums (ZDCF).
In February 1996, Softbank acquired Ziff-Davis Publishing Company
(subsequently renamed Ziff-Davis Inc.) for $1.8 billion in cash. The
acquisition of ZDI has been accounted for using the purchase method of
accounting and accordingly, the results of ZDI are included in the Combined
Financial Statements since the date of acquisition. ZDI's results of
operations for periods prior to the date of acquisition are set forth in the
ZDI Financial Statements included elsewhere in this Prospectus.
In connection with the acquisition of SB Forums and ZDI described above,
MAC, Softbank's largest shareholder, purchased certain operations and assets
of these companies for $75 million and $302 million, respectively. The MAC
Assets consist of certain international publications, consumer and Internet
publications, international trade shows and the ZDNet business, most of which
were still under development. As part of the Reorganization, the MAC Assets,
except for those which have been discontinued, have been or will be sold to
the Company. The acquisition of the MAC Assets has been accounted for in a
manner similar to a pooling of interests and is reflected in the Combined
Financial Statements of ZDI and ZDCF for all periods presented.
Due to the acquisition of ZDI on February 29, 1996 and the resulting
revaluation of assets and liabilities and the change in the Company's capital
structure, the historical financial statements of ZDI and ZDCF are not
directly comparable. The table below presents the Company's pro forma results
for 1996 and 1995 as if ZDI and ZDCF had been under common control since
January 1, 1995. The results of SB COMDEX are included since
31
<PAGE>
April 1, 1995. The combined results for 1995 and 1996 were derived by
combining the statement of operations for ZDI for the year ended December 31,
1995 and for the period January 1, 1996 to February 28, 1996 with the combined
statement of operations for ZDI and ZDCF for the years ended 1995 and 1996. In
addition, the purchase accounting adjustments related to the 1996 acquisition
of ZDI have been reflected as of January 1, 1995 resulting in pro forma
amortization, interest and income tax provision adjustments. Such adjustments
are further described in note (a) to the table set forth below under "--
Results of Operations." No pro forma adjustments have been made related to the
acquisition of SB COMDEX as such adjustments are not material. Although such
combination is not in accordance with generally accepted accounting
principles, management believes the combined statements present the most
meaningful basis of comparison. Intercompany transactions for those periods
were immaterial. The financial information presented herein may not
necessarily reflect the results of operations which would have occurred had
the Company been a stand-alone entity.
RESULTS OF OPERATIONS
The table below presents the combined results as if ZDI had been acquired on
January 1, 1995.
<TABLE>
<CAPTION>
ZDI AND ZDCF
YEAR ENDED DECEMBER 31,
-----------------------------------
PRO FORMA
----------------------- ACTUAL
1995 1996 1997
----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue, net:
Publishing.............................. $ 768,995 $ 815,720 $ 866,233
Trade shows and conferences............. 202,729 264,884 287,528
----------- ---------- ----------
971,724 1,080,604 1,153,761
----------- ---------- ----------
Cost of production:
Publishing.............................. 193,646 215,271 225,712
Trade shows and conferences............. 68,810 87,373 99,533
----------- ---------- ----------
262,456 302,644 325,245
Selling, general and administrative ex-
penses................................... 474,992 528,636 564,344
Depreciation and amortization(a).......... 154,163 161,259 154,940
----------- ---------- ----------
Income from operations.................... 80,113 88,065 109,232
Interest expense, net(a).................. (133,130) (135,500) (190,445)
Other non-operating income................ 808 6,106 8,722
----------- ---------- ----------
Loss before income taxes.................. (52,209) (41,329) (72,491)
Provision (benefit) for income taxes...... 9,607 25,682 (1,312)
----------- ---------- ----------
Net loss(a)............................... $ (61,816) $ (67,011) $ (71,179)
=========== ========== ==========
OTHER DATA:
EBITDA(b)................................. $ 235,084 $ 255,430 $ 272,894
Cash and cash equivalents, end of year.... 37,991 29,915 30,301
Net cash provided (used) by operating ac-
tivities................................. 63,231 65,681 (3,364)
Net cash used by investing activities..... (2,889,426) (66,856) (44,196)
Net cash from financing activities........ 1,793,361 6,768 47,946
</TABLE>
- --------
(a) The acquisition of ZDI on February 29, 1996 gave rise to different bases
of accounting for the period after the acquisition versus the period prior
to the acquisition. This is primarily due to a purchase price which
exceeded the book value of the assets acquired, financed by a higher level
of both debt and equity as compared to the pre-acquisition capital
structure. The amounts indicated above assume that the acquisition of ZDI
took place on January 1, 1995; therefore, depreciation and amortization,
interest expense and net loss have been increased (decreased) by
approximately $6,386, $824 and $10,383, respectively, for 1996 and
$38,312, $(3,484) and $46,759, respectively, for 1995.
(b) "EBITDA" is defined as income before provision for income taxes, interest
expense, depreciation and amortization. EBITDA is not intended to
represent cash flows from operations and should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. The Company
believes that EBITDA is a standard measure commonly reported and widely
used by analysts, investors and other interested parties in the publishing
and media industries.
32
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997 (UNAUDITED)
For the first quarter of 1998, the Company will report revenue of $228.1
million compared to $224.9 million for the first quarter of 1997. Revenue from
publishing operations will decline approximately 4.1% primarily due to the
absence of $12.8 million of revenue from Macuser and MacWeek magazines, which
were transferred in October 1997 to a 50/50 joint venture with another
publishing company and are no longer consolidated in the Company's results.
The publishing segment will also report lower advertising revenue from its
business publications principally as a result of factors affecting the
computer technology industry generally, including slowing demand for computer
products, fewer new product launches, pricing pressures, vendor market share
shifts and excess PC inventories in distribution channels. This decline will
be largely offset by increased advertising sales in the Company's Internet
business and consumer publications. More than offsetting the decline in
publishing revenue will be an increase of 77% in revenue from the Company's
tradeshows and conferences operations, primarily the result of earlier
production of two events in the first quarter of 1998 that had been held in
the second quarter of 1997.
The Company will report a loss from operations of $24 million for the first
quarter of 1998 as compared with a loss from operations of $15.6 million for
the first quarter of 1997. Reported EBITDA for the first quarter of 1998 will
be $15.1 million as compared to $25.5 million for the comparable period of
1997. The unfavorable variances are primarily due to the lower level of
advertising in business publications, which have higher profit margins than
consumer publications or the Internet business, coupled with approximately
$3.8 million of one-time costs for office relocations and $1.4 million of
expenses incurred in launching two new publications.
As indicated below under "Seasonality," the first quarter accounted for
approximately 19.4% and 19.5% of the Company's revenue in 1996 on a pro forma
basis and 1997, respectively, and approximately 12.0% and 9.4% of the
Company's EBITDA for the respective years.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH PRO FORMA YEAR ENDED DECEMBER 31,
1996
Revenue
Revenue increased by $73.2 million or 6.8% from $1,080.6 million in 1996 to
$1,153.8 million in 1997.
Revenue from publishing grew by $50.5 million or 6.2% from $815.7 million to
$866.2 million. Approximately $22 million was due to inclusion of a full year
of results for the electronic gaming publications acquired in mid-1996 and two
publications launched in late 1996. Revenue from Internet services increased
$13.5 million or 71.9% due to higher advertising volume attributable to the
Company's growing presence on the Internet. Increases in advertising rates,
generally ranging between 3% and 10%, and a 5.1% increase in advertising pages
contributed $11.5 million. Revenue from international operations, which
generated 10.2% of the segment's revenue, decreased by $6.6 million due to the
strengthening of the U.S. dollar relative to the major European currencies.
Continued growth from new educational product launches and sales of market
research studies accounted for the balance of the revenue growth.
Revenue from trade shows and conferences increased $22.6 million or 8.5%
from $264.9 million to $287.5 million. Approximately $15 million of the
increase was due to 11 new trade show launches, including revenue from
ancillary show-related sources. The balance of revenue growth was due to
higher exhibitor rates charged at the major events, partly offset by a decline
in revenue from COMDEX/Spring and certain U.K. events.
Cost of production
Production costs increased $22.6 million or 7.5% from $302.6 million to
$325.2 million.
Publishing production costs increased $10.4 million or 4.8% from $215.3
million in 1996 to $225.7 million. Costs related to new launches and volume-
related growth increased approximately $20 million but were partly offset by
approximately $10 million of lower paper costs.
The costs of producing trade shows and conferences increased $12.2 million
or 14.0% from $87.3 million to $99.5 million primarily as a result of costs
related to new events launched in 1997.
33
<PAGE>
Selling, general and administrative expenses
Selling, general and administrative expenses increased $35.7 million or 6.8%
from $528.6 million to $564.3 million. The increase was due to the addition of
employees to support base business volume growth and launches of new products
and services. Results included a one-time $6.0 million charge for the
consolidation and restructuring of the trade shows and conferences business
which was announced in the fourth quarter of 1997.
Costs for the publishing segment rose 4.2% while those for the trade shows and
conferences segment rose 22.1% due to the number of new launches and the one-
time restructuring charge.
Depreciation and amortization
Total depreciation and amortization decreased $6.3 million to $154.9 million
in 1997. The reduction in depreciation and amortization expense was a result
of certain assets being fully depreciated in 1996.
Interest expense, net
Net interest expense increased $54.9 million or 40.5% to $190.4 million in
1997 due to interest on an additional $900 million of intercompany
indebtedness to Softbank incurred to finance a return of capital.
Other non-operating income, net
Other non-operating income/expense primarily reflects the Company's equity
share of earnings and losses from joint ventures and fees earned from
management of trade shows and conferences not produced by the Company. Income
increased $2.6 million from $6.1 million in 1996 to $8.7 million or 42.6%
reflecting growth in fees from managed events and reduced losses from joint
ventures.
Income Taxes
The 1997 combined income tax benefit of $1.3 million compares to a pro forma
income tax provision of $25.7 million in 1996. The improvement in the tax
provision is due to a higher pre-tax loss giving rise to a tax benefit. The
difference between the 1997 and 1996 effective tax rates and the federal
statutory tax rate of 35.0% is primarily due to non-recognition of tax losses
generated by the MAC Assets ($56.9 million and $77.2 million in 1997 and 1996,
respectively), non-deductible goodwill amortization ($10.2 million and $8.6
million, respectively) and state and local income taxes. In addition, the 1996
tax provision increased approximately $3.2 million as a result of pro forma
adjustments related to the ZDI acquisition.
Net loss
As a result of the charges described above, net loss for the period
increased $4.2 million or 6.2% from $67.0 million to $71.2 million.
EBITDA
EBITDA for 1997 was $272.9 million, an increase of $17.5 million or 6.8%
from the $255.4 million generated in 1996. The increase was due to higher
revenue and management fee income, net of higher production costs and selling,
general and administrative expenses. The ratio of EBITDA to revenue remained
relatively constant at 23.7% for 1997 compared to the 1996 margin of 23.6%.
Excluding the one-time charge related to the consolidation and restructuring
of the trade shows and conferences business, the 1997 ratio would have been
24.2%.
PRO FORMA YEAR ENDED DECEMBER 31, 1996 COMPARED WITH PRO FORMA YEAR ENDED
DECEMBER 31, 1995
Revenue
Revenue increased by $108.9 million or 11.2% from $971.7 million in 1995 to
$1,080.6 million in 1996.
Revenue from publishing grew by $46.7 million or 6.1% from $769.0 million to
$815.7 million. Higher overall advertising rates combined with a 12.4% growth
in advertising pages contributed 47.5% of the revenue increase while the mid-
1996 acquisition of several electronic gaming publications accounted for 28.5%
of the
34
<PAGE>
increase. New educational product launches and growth in sales of market
research studies accounted for the balance of revenue growth. Internet revenue
was slightly below the prior year due to the transition from a business based
on membership and subscription fees to one which is supported primarily by
advertising.
Revenue from trade shows and conferences increased $62.2 million or 30.7%
from $202.7 million to $264.9 million. The launch of new international trade
shows accounted for 36.7% of the growth while the introduction of customized
events contributed 19.8%. The balance of the increase was due to growth in
exhibitor square footage and rates at the Company's major U.S. shows.
Cost of production
Production costs increased $40.2 million or 15.3% from $262.4 million to
$302.6 million.
Publishing production costs increased $21.6 million or 11.2% from $193.7
million to $215.3 million, primarily due to volume-related growth and higher
paper costs. Approximately 31.5% of the increase was attributed to costs for
the magazines acquired mid-year while increased frequencies on certain
publications and a full year of costs for publications launched in late 1995
accounted for 18.1% of the increase.
The costs of producing trade shows and conferences increased $18.6 million
or 27.0% from $68.8 million to $87.4 million. The increase was driven by the
cost of new product launches as well as higher direct marketing and facility-
related fees for the major U.S. events.
Selling, general and administrative expenses
Selling, general and administrative expenses rose $53.6 million or 11.3%
from $475.0 million to $528.6 million. This increase reflects the addition of
employees to support growth in the base business along with the launches of
new products and services. Costs for the publishing segment rose 5.8% while
those for the trade shows and conferences segment rose 61.6%, reflecting a
higher level of new launches and the absence of COMDEX related expenses for
the first three months of 1995 (COMDEX was acquired April 1, 1995).
Depreciation and amortization
Total depreciation and amortization of $161.3 million increased $7.1 million
from $154.2 million in 1995 primarily due to the inclusion of a full year's
depreciation and amortization relating to SB COMDEX, which was acquired April
1, 1995.
Interest expense, net
Net interest expense increased $2.4 million or 1.8% on a pro forma basis due
to higher average debt levels in 1996.
Other non-operating income, net
Income increased to $6.1 million compared to $.8 million in 1995 due to the
growth in fees from managed events along with reduced losses from joint
ventures.
Income Taxes
The combined income tax provision of $25.7 million compares to an income tax
provision of $9.6 million in 1995. The unfavorable variance in income taxes
and the difference in the 1996 and 1995 effective tax rates from the federal
statutory tax rate of 35% is primarily attributable to non-recognition of tax
losses generated by the MAC Assets ($77.2 million in 1996) and non-deductible
goodwill amortization ($8.6 million in 1996). In addition, the tax effects of
the 1996 and 1995 pro forma adjustments relating to the ZDI acquisition were a
$3.2 million and $11.9 million increase in tax provision, respectively.
Net Loss
As a result of the changes described above, net loss for the period
increased $5.2 million or 8.4% from $61.8 million to $67.0 million.
35
<PAGE>
EBITDA
EBITDA for 1996 was $255.4 million, an increase of $20.3 million or 8.7%
from the $235.1 million generated in 1995. The increase was due to higher
revenue and management fee income, net of higher production costs and selling,
general and administrative expenses. The cost of new product launches caused
the growth rate of expenses to exceed the revenue growth rate and, as a
result, the ratio of EBITDA to revenue of 23.6% decreased slightly from 24.2%
for 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the financing requirements of the Company have been funded
through intercompany loans and advances.
As a result of the Reorganization, the Company's intercompany debt owed to
Softbank will be reduced to $94.2 million. Such indebtedness bears interest at
9.9% and matures in February 2009. Concurrently with the Offering, the Company
intends to issue and sell approximately $400 million of Common Stock. In
addition, the Company will enter into the $1.35 billion Credit Facility, and
borrow $1.25 billion thereunder, to provide additional funds for the repayment
of intercompany debt to Softbank and to provide for the Company's working
capital requirements. The Credit Facility will consist of a $700 million
reducing revolving credit facility (with $600 million drawn at closing) and a
$650 million term loan, both of which will mature in March 2005. There will be
no scheduled reductions in the revolving credit commitment or amortization
under the term loan until September 2000. The Company has obtained a
commitment letter from The Bank of New York, Morgan Stanley Senior Funding,
DLJ Capital Funding and The Chase Manhattan Bank to provide such Credit
Facility. The consummation of each of the Offerings and the borrowings under
the Credit Facility are conditioned upon, and will occur simultaneously with,
the consummation of the others.
Cash and cash equivalents were $30.3 million and $29.9 million at December
31, 1997 and 1996, respectively. The balance increased $.4 million due to the
factors discussed below:
Cash (used) provided by operating activities was $(3.4) million and $65.7
million for the years ended December 31, 1997 and 1996, respectively. The
decrease from 1996 to 1997 was the result of higher interest expense and final
payment of long-term incentives to management established in connection with
the sale of ZDI in 1994.
For the year ended December 31, 1997, the Company used $44.2 million in cash
for investing activities, principally $30.2 million in capital expenditures.
The majority of these expenditures were for computer equipment and leasehold
improvements. The Company believes that future capital expenditures associated
with new office space will be approximately $35 million in 1998 and $25
million in 1999 (net of tenant improvement credits). Cash used for investing
activities on a pro forma basis for 1996 was $66.8 million principally due to
capital expenditures of $22 million and the acquisition of Sendai Publishing
Group for $28 million.
For the year ended December 31, 1997, the Company generated $47.9 million in
cash from financing activities, principally $66.6 million of capital
contributed by MAC to fund the operating losses of the MAC Assets, net of a
$21.4 million repayment of intercompany indebtedness. Pro forma cash flow from
financing activities for the year 1996 was $6.8 million, primarily from
capital contributions of $14.8 million from Softbank offset by a dividend of
$8.0 million.
The Company believes that, based on its current level of operations and
anticipated growth, the Company's ability to generate cash, together with
other available sources of funds including available cash on hand at December
31, 1997, of $30.3 million, will be adequate over the next 12 months to make
required payments of principal and interest on the Company's indebtedness, to
fund anticipated capital expenditures and future working capital requirements.
However, actual capital requirements may change, particularly as a result of
any acquisitions the Company may pursue. The ability of the Company to meet
its debt service obligations and reduce its total debt will depend upon the
future performance of the Company.
36
<PAGE>
The Company has entered into a license and services agreement with MAC to
develop ZDTV. ZDTV is indirectly owned by MAC, but as part of this license and
services agreement MAC has granted the Company an option exercisable through
December 31, 1998 to purchase all of MAC's interest in ZDTV for an amount
equal to MAC's investment plus 10% per annum for the period of its investment.
Pursuant to the license and services agreement, the Company has agreed to fund
ZDTV's operations on behalf of MAC through unsecured advances which, for
approved levels of expenditure, are to be reimbursed by MAC. Such advances
bear interest at the 30-day LIBOR rate plus .50%. ZDTV's cash requirements are
expected to be approximately $54 million in 1998. The Company's cumulative
advances in respect of ZDTV, which totaled $14.4 million net of $10.1 million
in repayments through December 31, 1997, will be repaid concurrently with the
Reorganization. The Company has not yet determined whether it will exercise
its option to purchase MAC's interest in ZDTV. Any such purchase will depend
upon securing sufficient cable carriage, which may include entering into a
joint venture or other co-ownership arrangement, including an arrangement with
a third party cable system operator which will provide carriage and also
assume a portion of the ongoing cash requirements on terms that are acceptable
to the Company. ZDTV is not included in the Company's results of operations.
In the event that the Company acquires a controlling interest in ZDTV from
MAC, such acquisition would be accounted for as a pooling transaction; in the
event that the Company acquires a non-controlling interest, such acquisition
would be accounted for under the equity method. See "Certain Transactions."
SEASONALITY
Historically, the Company's business has been seasonal as a significant
portion of the trade shows and conferences segment revenue has occurred in the
second and fourth quarters. In addition, the Company's publishing segment has
generated higher revenue in the second and fourth quarters. The following
table sets forth certain unaudited quarterly combined statements of operations
data for each of the eight quarters in the period ended December 31, 1997. In
the opinion of the Company's management, this unaudited information has been
prepared on a basis consistent with the audited Combined Financial Statements
of ZDI and ZDCF appearing elsewhere in this Prospectus (with the exception of
the March 31, 1996 data which has been prepared on the basis described in
Presentation of Financial Information above) and includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information set forth therein when read in conjunction with the Combined
Financial Statements and related notes thereto. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTERS ENDED
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- -------- ------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue, net:
Publishing............. $189,984 $197,121 $195,731 $232,884 $209,564 $219,195 $199,745 $237,729
Tradeshows and
conferences........... 19,661 69,047 53,631 122,545 15,321 82,135 24,227 165,845
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue........... 209,645 266,168 249,362 355,429 224,885 301,330 223,972 403,573
Percentage of total
year.................. 19.4% 24.6% 23.1% 32.9% 19.5% 26.1% 19.4% 35.0%
Cost of production...... 55,818 76,456 73,568 96,802 61,526 92,986 62,716 108,017
Selling, general and
administrative
expenses............... 122,730 122,846 133,035 150,025 139,980 143,243 143,131 137,990
Depreciation and amorti-
zation................. 35,284 41,692 41,793 42,490 38,966 39,032 39,699 37,243
Income (loss) from oper-
ations................. (4,187) 25,174 966 66,112 (15,587) 26,069 (21,574) 120,324
Income (loss) before
taxes.................. (28,139) (14,260) (30,556) 31,626 (60,145) (17,715) (66,937) 72,306
Net income (loss)....... (34,559) (20,680) (36,977) 25,205 (59,817) (17,387) (66,609) 72,634
EBITDA.................. 30,752 67,823 45,828 111,027 25,534 68,216 20,486 158,658
Percentage of total
year.................. 12.0% 26.6% 17.9% 43.5% 9.4% 25.0% 7.5% 58.1%
</TABLE>
INFLATION AND CHANGES IN PAPER PRICES
The Company continually assesses the impact of inflation and changes in
paper prices. The Company generally enters into contracts for the purchase of
paper which adjust the price on a quarterly basis. Paper prices began to rise
in 1994, rose significantly in 1995 and 1996 then decreased in 1997.
Management expects paper
37
<PAGE>
prices to increase again in 1998. The Company will continue to monitor the
impact of inflation and paper prices and will consider these matters in
setting its pricing policies.
The Company frequently reviews its purchasing and manufacturing processes
for opportunities to reduce costs and mitigate the impact of paper price and
postage rate increases (such as purchasing lighter-grade paper stock or, when
paper prices are at cyclical lows, increasing paper inventory or entering into
longer term contracts with suppliers). However, the Company has not entered,
and does not currently plan to enter, into long-term
forward price or option contracts for paper. See "Risk Factors--Risks
Associated with Fluctuations in Paper and Postage Costs" and "Business--Print
Publishing--Paper and Printing."
YEAR 2000 ISSUES
The Company uses a number of computer software programs and operating
systems, including applications for its internal electronic communications
network and for various administrative and billing functions. The Company has
assessed the scope of the Company's risks related to problems these computer
systems may have in processing date information related to the year 2000 and
believes such risks are not significant.
The Company has identified all of its significant internal software
applications which contain source codes that may be unable to appropriately
interpret the year 2000 and has already begun to modify or replace those
applications. The estimated costs to modify or replace these applications are
not material to the Company.
In addition, the Company has inquired of its vendors and business partners
about their progress in identifying and addressing problems related to the
year 2000. All major vendors with whom the Company exchanges electronic
information or on whose internal software applications the Company may be
dependent have committed to the Company that plans are in place to be
compliant before processing of information related to calendar year 2000 would
be required. Although no assurance can be given that all of these third party
systems will be year 2000 compliant, the Company believes that risk is not
significant.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income," issued in June 1997, will
require the Company to disclose, in financial statement format, all non-owner
changes in equity. Such changes include, for example, cumulative foreign
currency translation adjustments, certain minimum pension liabilities and
unrealized gains and losses on securities available for sale. This statement
is effective for fiscal years beginning after December 15, 1997 and requires
presentation of prior period financial statements for comparability purposes.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," issued in June 1997, establishes standards for reporting
information about operating segments in annual financial statements and
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Generally, financial information is required to be reported on the basis that
is used internally for evaluating segment performance and deciding how to
allocate resources to segments.
SFAS No. 132, "Employer's Disclosure about Pensions and Other Postretirement
Benefits," is effective for the year ended December 31, 1998. This statement
revises the disclosure requirements for employers' pension and other retiree
benefits.
The Company expects to adopt the above statements beginning with its 1998
financial statements.
FORWARD-LOOKING STATEMENTS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other sections of this Prospectus contain forward-looking
statements which are subject to various risks and uncertainties. Actual
results could differ materially from those discussed herein. Important factors
that could cause or contribute to such differences include those discussed
under "Risk Factors" as well as those discussed elsewhere in this Prospectus.
38
<PAGE>
INDUSTRY
Technology is widely recognized as one of the largest and fastest growing
sectors of the United States economy. The market for technology goods and
services is undergoing rapid expansion, largely fueled by: (i) increased
integration of computers into the workplace and home; (ii) shortened product
life cycles; and (iii) increased use of the Internet. The demand for computer
technology to enhance productivity as well as the increasing number of
applications in the areas of education, entertainment and communications has
dramatically increased the number of computers in use. The number of personal
computers in use worldwide has doubled from 150 million in 1995 to over 300
million in 1997, significantly broadening the consumer and business markets
for computer technology. In addition, rapid technological advances have
shortened product life cycles; for example, the estimated marketable product
life of a PC has decreased from five years in 1981 to less than six months
today. The Internet has also become a widely accepted information tool as
demonstrated by the proliferation of users, with 68 million adults in the U.S.
having used the Internet by year-end 1997, up from just five million in 1994,
and the sharp increase in the number of commercial Web sites worldwide, from
30,000 in 1995 to approximately 400,000 in 1997.
For buyers and users of computer technology products, these factors have
increased the demand for objective, up-to-date information and analysis. For
sellers of such products, these factors have increased their need to
communicate a wide range of information regarding their products and services,
from advertising designed to increase sales to education designed to improve
end-user satisfaction and build brand loyalty. Computer technology-focused
media enable sellers to communicate their message effectively by targeting a
focused customer base. As a result of the broadening of the consumer base, as
well as the favorable demographics of this base, computer technology
publications and other media are becoming increasingly attractive as a
platform for consumer product advertising.
COMPUTER TECHNOLOGY PRINT PUBLICATIONS MARKET
In 1996, advertising revenue in computer-oriented print publications
totalled $1.3 billion. In 1997, advertising revenue in computer-oriented
publications grew by 11.2% while the advertising market as a whole grew by
8.3% in the first ten months (the latest period for which data is available)
as compared to the same period in the prior year. Growth in advertising and
circulation revenue for computer-oriented publications has outpaced the
publishing industry in general, growing 10.4% a year from 1994 to 1997, versus
6.3% a year for all periodicals.
COMPUTER TECHNOLOGY TRADE SHOWS
A trade show can be described as a face-to-face version of a print
publication. Trade show attendees, like readers of print publications, are
presented with product advertisements in the form of exhibits and "editorial"
content in the form of conferences and other ancillary forums. Producers of
trade shows and conferences generate revenue from exhibit space sales,
advertising and conference and general attendance fees. Trade shows and
conferences allow sellers to conduct a large volume of face-to-face sales
presentations to qualified buyers in a short period of time. Professional
attendees include hardware and software manufacturers and developers, sales
and distribution personnel and large volume end-users. Industry leaders such
as Microsoft Corporation, Intel Corporation and Cisco Systems, Inc. have
consistently used these events to promote the launch of important products in
order to reach top-ranking decision-makers in the computer technology
industry.
Trade shows are becoming an increasingly important part of the marketing
strategy for information technology vendors. A recent study noted that
companies consider trade shows one of the most effective mediums for
generating and closing sales, second only to direct selling. Exhibit space
revenues from North American computer-product trade shows were approximately
$573 million in 1997. In 1997, exhibit square footage rose 28% at such shows,
the number of exhibiting firms increased 20% and attendance rose 28%.
39
<PAGE>
ONLINE AND OTHER TECHNOLOGY INFORMATION SERVICES
The proliferation of Web sites and the growing number of users combine to
make the Internet an increasingly significant advertising and brand-building
vehicle. The Internet enables marketers to deliver targeted messages as a
result of the ability to track consumer behavior and immediately convert
advertising responses into commercial transactions. The advertising-based
business model for online services, which is similar to print and television
media, involves the payment to Internet content and service providers of
advertising fees based primarily on the demographics and purchasing habits of
the audience and on the number and positioning of advertisements delivered.
The market for advertising on the Internet was approximately $597 million in
1997, a 152.6% increase from 1996. The computer technology industry has been
one of the leading advertisers on the Internet, comprising 35% of all
advertising dollars for the twelve months ended September 30, 1997. Web sites
focused on computing content provide yet another forum for sellers of computer
technology to deliver targeted product information and advertising to a
premium customer base. The Company expects that the Internet market, like the
publications market, will continue to broaden and gain appeal as a platform
for consumer product advertising as well.
40
<PAGE>
BUSINESS
The Company believes it is the world's preeminent integrated media and
marketing company focused on computing and Internet-related technology, with
principal platforms in print publishing, trade shows and conferences, online
content, market research and education. The Company provides global technology
companies with marketing strategies for reaching key decision-makers. The
Company is the successor to Ziff-Davis Publishing Company, which pioneered the
development of special-interest magazines; Ziff-Davis Exposition and
Conference Company; and the COMDEX computer and network-related trade show
operations of Interface Group-Nevada, Inc.
The Company's PC Magazine, PC Week and Computer Shopper magazines are the
top three computer magazines in the U.S. and are among the top 25 U.S.
magazines, each as measured by total revenue in 1996 (the latest year for
which data is available). The Company also produces the world's most important
trade shows serving vendors, resellers, buyers and users of computer
technology, including COMDEX/Fall, the largest trade show in the U.S. in 1997.
The Company's ZDNet.com Web site is the leading computing content site and
ranked the number one Web site in 1997 in the category of news, information
and entertainment, as measured by visitors per month.
The Company's 28 primary U.S. and international titles, including its joint
ventures, and over 50 licensed publications, total more than 80 publications
distributed worldwide, with a combined circulation of over eight million
primary readers. In 1997, Ziff-Davis was the largest technology publisher in
the U.S. in terms of total magazine revenue. In that same year, Ziff-Davis
accounted for 36.8% of all advertising and circulation dollars spent in
computer periodicals, with at least 50% more total magazine revenue than its
closest competitor. The Company's publications include PC Magazine, the
largest circulation computer magazine in the world, Computer Shopper, the
leading magazine targeted at direct buyers of computers (along with its Web-
based companion, Netbuyer), Computer Life, a monthly magazine for home
computing enthusiasts, and Family PC, a magazine specifically targeted to
households with children. ZD Labs, its computer testing facility, enables the
Company to provide reliable and authoritative product evaluations to a
sophisticated audience of brand-specifiers and decision-makers in both the
business and consumer markets. The preeminence of the Company's publications
among readers and advertisers is based on its comprehensive market and product
coverage, the quality of its editorial content and the influence of its
readership.
In 1997, the Company produced over 50 trade shows and conferences worldwide
with over two million estimated attendees. The Company's COMDEX/Fall event is
the number one ranked trade show for all industries in the U.S. as measured by
total revenue, total exhibit space and number of attendees.
The Company's other media and marketing platforms include online content,
market research, education and the publication of computer-related newsletters
and training manuals. In addition, the Company and MAC have developed ZDTV,
the first 24-hour cable television channel and integrated Web site focused
exclusively on computers, technology and the Internet, which is expected to be
launched in the first half of 1998. The Company has an option to purchase ZDTV
from MAC on or before December 31, 1998. See "--Television."
The Company developed certain international consumer and Internet
publications, international trade shows and the ZDNet business under the
ownership of MAC. As a result of the Reorganization, these businesses have
been or will be purchased from MAC. See "The Reorganization."
The Company's Ziff-Davis Media Network integrates the Company's marketing
activities into one cohesive resource for its largest customers. Originally
established to provide discounts for advertisers buying across two or more
magazine titles, the Media Network has been expanded to allow marketers to
reach their various target buyers through any combination of the Company's
media and marketing platforms.
The Company had total revenue of $1.154 billion for 1997. The Company's
revenue is primarily derived from advertising sales, which represented 51.9%
of total revenue in 1997. The second largest component of the
41
<PAGE>
Company's revenue is derived from trade shows and conferences, which accounted
for 23.5% of total revenue in 1997. Circulation revenue, comprised of
subscription and newsstand single copy sales, generated 13.1% of the Company's
revenue in 1997 and other revenue components, including online content, market
research and revenue derived from joint ventures and licenses, contributed
11.5% in 1997.
BUSINESS AND OPERATING STRATEGY
The Company's objective is to be the preferred marketing partner to
technology vendors and service providers seeking to reach primary decision-
makers involved in the specification and purchase of their products and
services. Major elements of the Company's strategy include:
Maintain Focus on the Computer and Internet Technology Markets. The Company
believes that its singular focus on the computer and Internet-related
technology markets provides it with substantial growth opportunities as well
as the ability to broaden its expertise in attracting both audiences and
advertisers.
Develop the Most Comprehensive, Objective and Authoritative Content. The
Company strives to produce the most comprehensive, objective and authoritative
editorial content in order to attract category brand-specifiers and decision-
makers to its media platforms. The ability to provide focused audiences with
their specific information needs attracts the leading advertisers and
exhibitors to the Company's products and services.
Build Upon Brand Strength of Existing Media Properties. The Company will
pursue continued growth from its core portfolio of leading brands, such as PC
Magazine, PC Week, COMDEX and ZDNet, by seeking to expand its market share of
audiences and advertisers and enhancing the quality and accessibility of the
content it produces and marketing services it provides. In addition, the
Company will continue to extend its existing brands into other platforms to
offer multiple media presentations of its content.
Continue to Leverage Multiple Media Marketing Platforms. The Company
believes that the scope and depth of its products and services across multiple
media platforms and geographic territories creates growth opportunities
exceeding those that such businesses could achieve independently. Such
opportunities include the leveraging of strong relationships with accounts in
one media platform into other platforms, cross-marketing Ziff-Davis products
and services to the audiences of its different platforms and packaging
integrated marketing products across all platforms for large advertisers. The
Company believes that its ability to offer clients multiple platform marketing
solutions gives it a competitive advantage over single platform providers.
Expand Leadership on the Internet. The Company intends to use its already
significant presence on the Internet and broad experience in publishing to
continue to reach new audiences and increase advertising revenue. In addition,
the Company believes that the large existing audience for ZDNet and its
affiliated sites, together with its publishing experience, gives it a
competitive advantage in identifying, acquiring and developing new products
and services.
Launch New Products and Services. The Company believes that rapid advances
in technology create additional growth opportunities for the launch of new
products and the expansion of its audiences and advertising base. The Company
seeks to be the first to identify new audiences and develop products and
services which respond to their informational needs. Management believes that
the scope of its operations and its experience in launching new products
across multiple media platforms and geographic regions reduce the risks
typically associated with these activities and enable it to more readily
achieve market acceptance for new products and services as compared to other
media companies.
Expand Global Reach. The Company intends to leverage its widely recognized
brands and its experience in multinational operations to expand further into
key overseas markets, focusing on those markets which have size and growth
characteristics that will support its strategy of cross-media operations.
Management intends to further expand internationally through the launch
overseas of proven U.S. properties, joint ventures and licensing arrangements
with local operating partners and through selective acquisitions.
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<PAGE>
The Company expects to fund its business and operating strategy from
internally generated cash flow from operations, which are estimated to be
sufficient to fund investments as well as the repayment of indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PRINT PUBLISHING
The Company is a leading computer-related magazine publisher, with 28
primary U.S. and international titles, including its joint ventures, and over
50 licensed publications, totaling more than 80 publications distributed
worldwide. In 1997, the Company's publications had combined circulation of
over eight million primary readers worldwide. Approximately 62% of the
Company's total revenue in 1997 was attributable to its print publishing
business. Each of the Company's magazines is designed to appeal to a target
audience of sophisticated customers in the business and consumer markets by
providing high-quality editorial content, often supported by independent
laboratory-based product testing. The Company seeks to maintain and increase
its revenue by introducing current advertisers to new titles, by attracting
new advertisers targeted at the Company's readership and by developing new
reader and advertising categories. Each of the Company's primary publications
has established its own Web site as a complementary delivery platform.
The Company believes its preeminent position in the computer publishing
market is based upon its leading brands in key categories, its ability to
successfully develop new brands for emerging product categories, its strength
in circulation and its ability to expand internationally. Ziff-Davis seeks to
produce the highest quality editorial content; it employs top editors and
columnists supported by laboratory-testing facilities that produce widely
acknowledged authoritative benchmarks for determining product quality. See "--
Editorial, Laboratory Testing and Benchmark Software." In addition to its
leading publications targeted at brand-specifiers and other industry
professionals, the Company has successfully introduced new publications
targeted at emerging sectors, including the consumer market (Family PC,
Computer Life and Computer Gaming World), technology lifestyle (Yahoo!
Internet Life) and Internet professionals (Internet Computing and Inter@ctive
Week). The Company's newsstand strategy focuses on developing strong
relationships with a key distributor and large retail accounts. In order to
offer clients coverage of broad international markets, the Company has adopted
a licensing strategy designed to maximize global reach and maintain content
quality in international publications while reducing cost of entry into new
markets. Depending on the characteristics of a particular market, the Company
may choose to own an international publication, enter into a master license
covering one or more titles, or enter into a joint venture if an attractive
local partner can be identified.
The Company's PC Magazine, PC Week and Computer Shopper magazines are the
top three computer magazines in the U.S. and are among the top 25 U.S.
magazines, each as measured by total revenue in 1996 (the latest year for
which data is available). In 1997, Ziff-Davis was the largest technology
publisher in the U.S. in terms of total magazine revenue. In that same year,
Ziff-Davis accounted for 36.8% of all advertising and circulation dollars
spent in computer periodicals, with at least 50% more total magazine revenue
than its closest competitor. In recent years, advertisements in the Company's
publications have expanded beyond those for computer technology products to
include consumer product advertising, reflecting the desirable demographics of
the Company's readership, as well as the expanding readership of computer
technology publications to a broader consumer market.
The Company's publications include paid-circulation magazines, which
generate revenue from newsstand sales, subscriptions and advertising, and
controlled-circulation publications, which are distributed free of charge to
qualified information technology professionals and generate revenue
principally from the sale of advertising. In addition, the readership of
controlled-circulation publications provides valuable demographic information
to the Company. Most of the current Ziff-Davis publications are either monthly
magazines providing comparative, laboratory-based product reviews or news
weeklies providing product and industry news and analysis; however, the
Company also serves the developing market for lifestyle and entertainment
publications focusing on technology.
43
<PAGE>
The Company's U.S. publications have a total circulation of over six million
primary readers, and the Company had a worldwide circulation of over eight
million primary readers. Its six paid-circulation business magazines
(including one joint venture) accounted for 47.2% of the total paid-
circulation of all computer technology business magazines in the U.S. in 1997.
In 1997, PC Magazine's circulation was greater than that of Business Week,
Fortune or Forbes. With respect to newsstand sales, a critical measure of
magazine vitality, in the first six months of 1997 Ziff-Davis accounted for
47.5% of all computer magazine copies sold, and on average Computer Shopper
had greater newsstand sales than Business Week, Fortune and Forbes combined.
44
<PAGE>
The following table sets forth information relating to the Company's primary
publications for 1997.
<TABLE>
<CAPTION>
CIRCULATION
--------------------
PUBLICATION 1997
FIRST FREQUENCY ADVERTISING
PUBLICATION ISSUE TYPE AMOUNT(1) (PER YEAR) PAGES(2)
----------- ----- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
U.S. BUSINESS
PC Magazine........... 1981 Paid 1,176,351 22x 6,261
PC Computing.......... 1988 Paid 1,008,615 12x 2,821
Computer Shopper...... 1979 Paid 561,308 12x 8,590
PC Week............... 1983 Controlled 300,105 51x 7,033
Windows Sources(3)(4). 1993 Paid 400,738 12x 2,108
Internet
Computing(3)(5)...... 1996 Paid 340,579 12x 948
Inter@ctive Week(3)... 1994 Controlled 101,510 45x 1,840
Macworld(6)........... 1985 Paid 671,391 12x 1,734
MacWeek(6)............ 1987 Controlled 97,502 48x 2,593
Sm@rt Reseller(3)..... 1998 Controlled 60,000(7) 12x N/A
U.S. CONSUMER
Computer Life(3)(8)... 1994 Paid 453,078 12x 1,268
Electronic Gaming
Monthly.............. 1988 Paid 358,198 12x 1,221
Yahoo! Internet
Life(3).............. 1995 Paid 325,771 12x 491
Computer Gaming
World(3)............. 1981 Paid 230,772 12x 2,320
EGM/2/................ 1988 Paid 126,310 12x 216
Official U.S.
PlayStation
Magazine(9).......... 1995 Paid 100,000(10) 12x 463
Family PC(3)(11)...... 1994 Paid 382,925 12x 1,343
INTERNATIONAL(3)
PC Professionell
(German)............. 1991 Paid 178,246 12x 1,461
PC Direkt (German).... 1992 Paid 139,229 12x 814
Internet Professionell
(German)............. 1997 Paid 26,665 12x 134
PC Magazine (UK)...... 1992 Paid 130,264 12x 3,054
PC Direct (UK)........ 1992 Paid 124,165 12x 7,432
PC Gaming World (UK).. 1997 Paid 40,385 12x 304
PC Expert (French).... 1992 Paid 98,816 12x 1,203
PC Direct (French).... 1992 Paid 83,097 12x 1,335
PC Week
(China)(12)(13)...... 1996 Controlled 50,000 51x 2,638
PC Computing
(China)(12).......... 1994 Paid 45,580 12x 360
PC Magazine
(China)(12).......... 1994 Paid 45,899 12x 678
</TABLE>
- --------
(1) Based on circulation information provided by the Company to the Audit
Bureau of Circulation for paid publications and BPA International for
controlled publications for the six month period ended December 31, 1997
other than French publications which are based on information provided to
the Office de la Justification de la Diffusion for the year ended
December 31, 1997; German publications, which are based on information
provided to Informationgemeinschaft zur Feststellungder Verbreiterung von
Webetragern e.v. for the quarter ended December 31, 1997; and Chinese
publications, which are based on information provided to BPA
International for paid publications for the six month period ended
December 31, 1997.
(2) As reported by AdScope for the year ended December 31, 1997 for domestic
publications and based on Company data for international publications.
(3) Properties which have been or will be acquired from MAC.
(4) To be reformulated and converted into a controlled circulation
publication in the second half of 1998.
(5) Formerly ZD Internet Magazine.
(6) Joint venture with International Data Group, Inc.
(7) 60,000 target rate base for 1998.
(8) To be combined with Equip in the second half of 1998 and called Equip.
(9) Formerly P.S.X.
(10) 100,000 target rate base for 1998.
(11) Joint venture with an affiliate of The Walt Disney Company.
(12) Venture with Richina Media Holdings and other local agencies in China.
(13) Circulation numbers and advertising pages are based on Company data.
45
<PAGE>
ZIFF-DAVIS MEDIA NETWORK
The Company's Ziff-Davis Media Network integrates the Company's marketing
activities into one cohesive resource for its largest customers. Originally
established to provide discounts for advertisers buying across two or more
magazine titles, the Media Network has been expanded to allow marketers to
reach their various target buyers through any combination of the Company's
media and marketing platforms. Currently 21 professionals in the Ziff-Davis
Media Network link major advertisers from one platform into other platforms.
EDITORIAL, LABORATORY TESTING AND BENCHMARK SOFTWARE
The Company has invested heavily in its editorial staff and in training and
technology to develop the high level of technical expertise required to
provide quality content on computer technology. It employs over 450 editorial
personnel worldwide, including award-winning editors and experts in their
fields. The Company believes that it provides its consumers with the most
reliable, objective and focused product evaluations and industry news. Because
of the quality and reputation of Ziff-Davis laboratory tests, the Company's
publications are widely regarded as a reliable source of objective product
evaluations. The Company's influence over computer purchasing carries with it
the responsibility to maintain the highest standards of fairness and
objectivity in its product reviews. To ensure this impartiality, Ziff-Davis
has instituted policies governing separation of editorial functions from
advertising sales functions and restricting trading in securities of
technology-related companies by its journalists.
The Company is committed to laboratory-based product testing as an integral
part of its editorial mission. In 1997, the Company spent over $10 million in
laboratory testing. Testers from many of the Company's different publications
work with the ZD Labs staff to provide comprehensive, objective test results
that can assist readers and users of Ziff-Davis publications and other
content-based services in making buying decisions. In addition to the core ZD
Labs staff, Ziff-Davis publications such as PC Magazine, PC Week, Computer
Shopper and PC Computing maintain their own staff and/or testing space at ZD
Labs as well as at their own locations. The ZD Labs testing facility provides
space for testing hundreds of products and systems. One of its newest
facilities is an Internet/Intranet lab dedicated to testing Web servers and
other Internet products. In its domestic lab facilities, the Company employs
120 technicians, enabling it to test thousands of products each year and
conduct large-scale tests that effectively simulate corporate installations.
The Company believes ZD Labs gives it a competitive advantage in terms of
staffing, equipment and access to the technology necessary to evaluate
products.
ZD Labs produces the core, publicly available and widely distributed
benchmark software that Ziff-Davis publications use worldwide to measure the
performance of PCs, Macintosh systems and servers. The Company's benchmarks
have become industry standards among major buyers of computer and Internet-
related technology.
SOURCES OF PRINT PUBLISHING REVENUE
Advertising Sales. The Company's advertising strategy for its publishing
business is based on helping customers maximize the return on their
advertising investment. Advertising sales accounted for 78.4% of the Company's
total print publishing revenue for 1997. Ziff-Davis has historically invested
in comprehensive research to better understand the computer technology market
and the positions of its different publications. The Ziff-Davis sales
philosophy is to encourage its sales force to adopt the role of marketing
consultant, using Ziff-Davis market research tools, such as the Company's
InternetTrack and BrandTrack services, to provide clients with information on
overall industry trends as opposed to more limited sales presentations
focusing on individual publications. As of December 31, 1997, Ziff-Davis
employed over 250 salespeople, sales managers and sales executives and over
325 sales support staff in its publishing segment to provide customer service,
research, promotional support and value-added programs for advertisers.
Circulation. Ziff-Davis maintains centralized circulation operations which
enable the Company to capitalize on its successful strategies and practices
across all publications on a timely basis. The Company strives
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<PAGE>
to increase its readership by building relationships with distributors,
retailers and subscribers. Revenue from circulation of the Company's paid-
circulation magazines accounted for 18.4% of the Company's total print
publishing revenue in 1997. This was comprised of subscription sales (10.1% of
total revenue in 1997 and 10.5% in 1996) and newsstand sales (8.1% in each of
1997 and 1996). The Company's publications have a total circulation of over
eight million primary readers worldwide.
The Company's newsstand strategy focuses on developing strong relationships
with a key distributor and large retail accounts. Ziff-Davis recently entered
into a newsstand distribution arrangement in the U.S. with Warner Publishers
Services ("Warner"), a division of Time Warner Inc., which covers the
Company's entire line of paid-circulation magazines. As of January 1998, the
Company became Warner's principal supplier of computer technology
publications. In addition, the Company has preferred distribution arrangements
with large retailers including WalMart, Barnes & Noble, Staples and Office
Max. These arrangements include special magazine displays featuring Ziff-Davis
brand products which increase the prominence of the Company's publications and
strengthen its brand identity. With respect to newsstand sales, a critical
measure of magazine vitality, Ziff-Davis publications accounted for 47.5% of
all computer magazine copies sold in the first six months of 1997.
The Company's subscription strategy is to maintain a highly focused
readership in order to provide the most effective affinity between advertisers
and readers. The Company believes that this strategy increases subscriber
loyalty and renewal rates and allows the Company to provide advertisers with
access to a precisely focused target audience. The Company's six paid-
circulation business magazines (including one joint venture) accounted for
47.2% of the total paid circulation of all computer technology business
magazines in the U.S. in 1996.
Licensing and Joint Ventures. The Company has adopted a licensing strategy
designed to maximize global reach and maintain content quality in
international publications while reducing the cost of entry into new markets.
In markets where the Company believes that the opportunity is significant
relative to the cost of entry, the Company may operate through wholly-owned
publishing companies. Through subsidiaries, the Company currently has
publishing operations in France, the United Kingdom and Germany. In other
markets, the Company has opted to enter into licensing arrangements with local
publishing companies, and currently has over 50 licensed publications
worldwide. The Company's licenses are generally three to five year agreements
that provide for a minimum annual royalty against a percentage of revenue. The
Company also operates through a number of joint venture companies with
partners, including joint ventures with International Data Group, Inc. ("IDG")
and an affiliate of The Walt Disney Company ("Disney") in the U.S. and a
venture with Richina Media Holdings and other local agencies in China. The
Company is currently negotiating with an affiliate of Disney to buy its
interest in the Family PC joint venture.
U.S. PUBLICATIONS
Business Magazines. In the U.S. market, the Company publishes ten computer
publications directed to business buyers, including six paid-circulation
magazines and four controlled-circulation weeklies or bi-weeklies. Each
publication produces authoritative, independent guidance that the Company
believes is generally considered to be the primary product resource in its
market segment. Two of these titles, Macworld and MacWeek, are dedicated to
the Apple Macintosh market and are published by Mac Publishing L.L.C., a joint
venture between the Company and IDG.
PC Magazine provides corporate buyers of computer technology with
comprehensive laboratory-based comparative reviews of PC hardware, software
and networking products, with a focus on technical specifications. With a
paid circulation of more than 1.18 million, PC Magazine is the largest
circulation computer magazine in the world, accounting for 35.4% of all
computer advertising revenue in directly competitive U.S. publications in
1997. PC Magazine has expanded its editorial material into other media,
including a Web publication, PC Magazine Online, and a CD ROM-based
multimedia companion magazine, PC Magazine Extra, which has a paid
circulation of over 75,000. PC Magazine also produces two newsstand-only
specials: Your New PC, which supplies buying advice for less sophisticated
computer buyers, and InternetUser, which focuses on reviews of Internet
products.
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PC Computing provides business users with results-oriented reviews of
computer products, with a focus on productivity and usability. A monthly
publication, it is one of only three computer magazines to have reached a
circulation of over one million readers. PC Computing recently launched
Equip, a quarterly newsstand publication that provides frequent buyers of
consumer electronic products with recommendations on digital electronic
products such as digital phones, DVD players, digital satellite dishes and
camcorders.
Computer Shopper provides readers who buy computer products directly from
manufacturers with buying advice, product evaluations, and technology
coverage, including information on the availability, pricing,
specifications and configurations of thousands of computer products. With a
newsstand circulation of approximately 300,000 in 1997 (the largest
newsstand sales of any computer publication), this monthly publication
sells more pages of advertising than any other computer magazine. Its
interactive Web-based companion, Netbuyer, is one of the leading Web sites
devoted to computer retailing.
PC Week provides enterprise product buyers and information technology
professionals at large corporate computing sites with timely information on
products, companies and general industry news. With a controlled
circulation of over 340,000 distributed to over 180,000 sites, it is the
leading computer weekly. Its online companion, PC Week Online, contains
such innovative features as PC Week Radio.
Windows Sources provides computer professionals responsible for
implementing computing standards within their organizations with detailed
reviews of important Windows 95 and Windows NT products. With an increasing
focus on Windows NT as a critical computing platform, this monthly
publication reached a paid circulation of more than 400,000 in 1997. Window
Sources will be reformulated in the second half of 1998 and converted into
a controlled circulation magazine.
Internet Computing provides key buyers of Internet and Intranet products
(primarily Web site designers and developers and IS/Intranet managers) with
product buying information, analysis of new technologies and techniques and
tips for creating Web sites. Internet Computing is published monthly and
reached a paid circulation of more than 340,000 in 1997.
Inter@ctive Week provides Internet and telecommunications professionals
with information on relevant business and technology issues, including
products, events, services, strategies, alliances and key players. With a
controlled circulation of over 100,000, Inter@ctive Week became one of the
leading publications for the digital communications technology industry in
less than three years.
Sm@rt Reseller, a bi-weekly launched in January 1998, provides value-
added resellers, system integrators, distributors, Web developers and
Internet service providers with in-depth news and analysis on business and
technology. Sm@rt Reseller currently targets a controlled circulation of
60,000.
Macworld provides Macintosh buyers with comparative, laboratory-based
product evaluations, reviews and information about Macintosh products,
supported by a product testing facility which the Company believes is the
most advanced in the Macintosh industry. Macworld has a qualified
circulation of over 650,000.
MacWeek is targeted at volume buyers of, and purchase influencers for,
Macintosh products at large sites in business, government and education, as
well as buyers at mid-level and smaller businesses, and delivers
information on Macintosh technology, industry trends, news, analysis and
new products. The only weekly Macintosh newspaper, MacWeek had a controlled
circulation of approximately 100,000 recipients in 1997 at nearly 56,000
work locations.
Consumer Magazines. The Company publishes seven magazines that serve the
rapidly growing consumer market and which are dedicated to meeting the varying
needs of computer enthusiasts and net surfers, family buyers and gamers. One
of these titles, Family PC, is published under a joint venture between the
Company and an affiliate of Disney.
Computer Life provides home computing enthusiasts with products, ideas
and techniques designed to help its readers further enrich their personal
computing experience and better integrate computing into all
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areas of their lives. Computer Life is a monthly publication with a
circulation of over 450,000. Computer Life will be combined with Equip in
the second half of 1998 and called Equip.
Electronic Gaming Monthly offers video game enthusiasts news, information
and product reviews about the latest games on ten different game systems.
Written by video gamers for video gamers, this monthly publication has a
primary circulation of more than 350,000. EGM/2/, a companion publication
to Electronic Gaming Monthly with a circulation of more than 125,000,
offers in-depth strategies, exclusive tips and tricks and comprehensive
maps and walk-throughs of the latest games.
Yahoo! Internet Life is the world's leading Internet consumer magazine.
Yahoo! Internet Life reaches a paid circulation of more than 325,000
readers. It is designed to be an entertaining and authoritative print and
online guide to the Internet, targeting an influential, affluent and early-
adopting group of readers. The Company has an exclusive license from Yahoo!
Inc. to use Yahoo! in the title of a print magazine.
Computer Gaming World provides computer game enthusiasts with results-
oriented gaming information. Computer Gaming World serves more than 230,000
game enthusiasts and is both the oldest and one of the largest computer
game publications.
Official U.S. PlayStation Magazine assists Sony PlayStation users in
getting the most out of their PlayStation game consoles by providing up-to-
date news, interviews and insights. This publication has a rate base of
100,000 PlayStation game fans.
Family PC is specifically targeted to households with children. Written
by parents for parents in plain English, its purpose is to help its paid
circulation of 380,000 select the right computers and software for their
families and ensure that they get the most rewarding, productive and
educational experiences from them. It is currently published under a joint
venture with an affiliate of Disney. The Company is currently negotiating
with an affiliate of Disney to buy its interest in Family PC.
INTERNATIONAL PUBLICATIONS
The Company publishes in the United Kingdom PC Magazine, PC Direct and PC
Gaming World and has announced plans to publish IT Week; in Germany PC
Professionell, PC Direkt and Internet Professionell; in France PC Expert and
PC Direct; and in the People's Republic of China PC Week, PC Computing and PC
Magazine through a venture with Richina Media Holdings and local agencies in
China.
PC Magazine (U.K.), PC Expert, PC Professionell, and PC Magazine (China) are
equivalents of PC Magazine (U.S.) adapted to their individual markets.
Similarly, PC Direct (U.K.), PC Direct (France), and PC Direkt are intended to
be equivalents of the Company's U.S. publication, Computer Shopper. Internet
Professionell is based on Internet Computing, while IT Week will be aimed at
information technology professionals and will include material from
Interactive Week, ZDNet News and other U.S. publications in addition to local
content.
PAPER AND PRINTING
Ziff-Davis maintains strong relationships with its paper suppliers and
printing companies. The Company uses five main paper suppliers for the
majority of its printing needs. In general, paper supply contracts are two to
three year agreements, with quarterly pricing adjustments, and are renewable
on a staggered basis. Most agreements contain pricing clauses that seek to
ensure the most competitive pricing on a quarter to quarter basis. The
Company's main paper suppliers for its U.S. publications are Bowater,
Champion, Consolidated, Fraser and UPM, which provided 12%, 33%, 15%, 12% and
12%, respectively, of the Company's paper supply in 1997 as measured by
tonnage. Printing companies that the Company has relationships with include
R.R. Donnelley, Brown, Quadgraphics and Quebecor. Approximately 50% of the
Company's total printing expenditures for its U.S. publications are with R.R.
Donnelley, which has a number of alternative printing sites. Printing
contracts are generally two to three year agreements.
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TRADE SHOWS AND CONFERENCES
The Company is the leading producer of trade shows, conferences and
customized marketing and educational programs for the computer industry in the
U.S. Approximately 25% of the Company's total revenue in 1997 was attributable
to its trade show and conference business which includes the industry-wide
COMDEX events, other trade shows and conferences focused on specific segments
of the computer technology industry, and customized events designed to meet
the marketing needs of specific clients. In 1997, the Company produced over 50
trade shows and conferences, 18 of which were held in North America.
The COMDEX/Fall event has been held for 18 years and is the number one
ranked trade show for all industries in the U.S. as measured by total revenue,
total exhibit space and number of attendees. In 1997, the Company estimates
that over two million people attended Company trade shows and conferences
worldwide. In addition to COMDEX/Fall, held annually in Las Vegas, the Company
produces 18 other COMDEX events in 13 countries.
"NetWorld+Interop" ("N+I") and "Seybold Seminars" are segment-focused
Company trade shows. In 1997, nine such shows were held in six countries. The
N+I trade shows focus on the networking/interconnectivity segment of the
computer industry, while the Seybold Seminars focus on publishing and graphic
communications. In addition, the Company will produce the following segment-
focused trade shows in 1998: (i) WINDOWS WORLD in conjunction with Microsoft
Corporation; (ii) EXPO COMM, servicing the worldwide telecommunications
industry; (iii) CommUnity, for the emerging corporate integrated data, voice
and video segments; (iv) COMDEX/Enterprise, focusing on solutions for the
large corporate information technology infrastructures; (v) Java Internet
Business Expo, sponsored by Sun Microsystems, Inc. and focusing on the full
range of Java technology for information technology professionals; (vi)
Service and Support Expo, focusing on technology for help desk and information
technology support services; and (vii) Learning Technology, focusing on
applying technology to education and training. The Company's customized
conferences are designed to meet the marketing needs of a specific client. For
example, the Company produced the Java One series of conferences for Sun
Microsystems, Inc. which were designed to introduce Java software to the
developer community.
Attendees at the Company's trade shows and conferences cover a wide range of
participants from the computer industry, including manufacturers,
distributors, dealers, retailers, value-added and other resellers and large
corporate end-users. Each event includes an extensive conference program,
which provides a forum for the exchange and dissemination of information
germane to the particular event's focus. In addition, each event has one or
more "keynote" sessions with speakers drawn from computer industry leaders.
The Company estimates that in 1997 over 5,000 companies participated as
exhibitors in its trade shows and conferences and over 8,000 industry experts,
analysts and consultants spoke at its conference programs.
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The following table sets forth information relating to the Company's
principal trade shows and conferences, including joint ventures, for 1997.
Substantially all of the Company's international COMDEX events are joint
ventures and substantially all N+I events are owned by the Company.
<TABLE>
<CAPTION>
1997 ACTUAL
-------------------------------------
TOTAL NET ESTIMATED
LAUNCH SQUARE TOTAL TOTAL
YEAR FOOTAGE EXHIBITORS ATTENDEES
------ --------- ---------- ---------
<S> <C> <C> <C> <C>
EVENT
NORTH AMERICA
COMDEX/Fall.............................. 1979 1,362,400 1,750 200,000
COMDEX/Spring, WINDOWS WORLD & EXPO COMM
USA..................................... 1981 267,900 615 100,000
COMDEX/Canada incl. WINDOWS WORLD
and Connected Computing................. 1992 164,200 401 59,000
COMDEX/PacRim............................ 1995 79,000 239 33,000
COMDEX/Quebec............................ 1996 47,900 162 28,000
COMDEX/Miami & EXPO COMM Miami........... 1996 85,300 339 23,000
NetWorld+Interop & CommUnity Las Vegas... 1986 407,400 662 56,000
NetWorld+Interop & CommUnity Atlanta..... 1992 366,681 620 44,000
Seybold San Francisco Publishing......... 1986 141,900 315 38,000
Seybold Seminars East (New York)(1)...... 1982 107,000 271 23,000
Windows NT Intranet Solutions (WINTIS)
San Francisco........................... 1993 53,400 275 23,000
INTERNATIONAL
COMDEX/SUCESU-SP Brazil.................. 1992 358,900 455 128,000
COMDEX/Rio............................... 1994 105,400 214 90,000
COMDEX & WINDOWS WORLD Mexico(2)......... 1993 90,100 240 48,000
COMDEX/INFOCOM & WINDOWS WORLD Argentina. 1997 94,200 192 38,000
COMDEX IT France......................... 1997 180,800 466 50,000
COMDEX & Object World UK(2).............. 1996 52,020 209 21,000
COMDEX/Japan & Object World Tokyo(3)..... 1996 114,600 222 80,000
COMDEX/China............................. 1996 59,900 157 82,000
COMDEX/Korea............................. 1997 90,200 150 45,000
COMDEX/Asia at Singapore Informatics..... 1995 57,500 146 40,000
COMDEX/IT INDIA.......................... 1996 144,300 253 60,000
NetWorld+Interop Paris................... 1992 163,267 350 38,000
NetWorld+Interop Tokyo(3)................ 1993 187,600 287 91,000
Seybold Seminars Tokyo(3)................ 1996 24,600 53 28,000
Windows NT Intranet Solutions Japan(3)... 1994 77,500 176 46,000
</TABLE>
- --------
(1) Properties which have been or will be acquired from MAC.
(2) These international COMDEX events are wholly-owned by the Company.
(3) Trade shows in Japan are owned by Softbank and managed by the Company.
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SOURCES OF TRADE SHOW AND CONFERENCE REVENUE
In 1997, exhibitor space fees accounted for 64.8% of the Company's total
trade show and conference revenue. The Company believes most trade show
producers receive virtually all of their revenue from the sale of exhibitor
space fees. The Company has actively sought to increase its revenue from other
sources, including attendee fees, which accounted for 35.2% of all trade show
and conference revenue in 1997.
At each trade show, all exhibitors pay the same price per square foot of
booth space, regardless of the exhibit hall they select or the location or
size of their booth within a given hall. Typically, a majority of each trade
show's exhibitors commit to booth space during that year's show for the next
year's show. The Company encourages this commitment through a booth selection
procedure that grants priority based upon a seniority system. Annual renewal
is required for exhibitors to maintain their seniority. Exhibitors pay for
space in two or three installments, the last of which is usually due six
months prior to the upcoming event.
In 1997, attendee fees accounted for 14.9% of the Company's trade show and
conference revenue, primarily from N+I and Seybold events. Most COMDEX
attendees come as the invited guests of exhibiting companies. The Company
provides exhibiting companies with a supply of complimentary admission
tickets, which are generally given to customers and key prospects. This helps
exhibitors ensure that their best customers and prospects will attend.
The Company's trade show and conference advertising revenue is derived
principally from five products: (i) a daily newspaper distributed during the
show; (ii) the Program Exhibits Guide; (iii) the Preview, a newspaper
published and distributed to pre-registrants and certain prior year attendees
in advance of the show; (iv) advertising billboards and banners; and (v)
ancillary exhibitor logo products which are sold to exhibitors to increase
booth traffic and name recognition.
The Company also maintains a continuously updated database containing the
names and certain demographic information on its over two million attendees.
This database is rented to direct mail users on a fee-per-use basis.
COMDEX
COMDEX trade shows cover a broad range of new technologies at every stage in
their development and evolution--from introduction to commercial maturity.
Many of the most significant computer product launches over the past 18 years
occurred at COMDEX, including the launch of the IBM PC, Lotus 1-2-3, Windows
3.1 and DVD.
COMDEX/Fall is a five-day trade show held annually in November in Las Vegas.
In 1997 COMDEX/Fall had over 1,750 exhibiting companies occupying more than
1,350,000 net square feet of exhibit space and more than 200,000 attendees.
COMDEX/Spring, which was launched in 1981, is a smaller version of the fall
event. In 1997, it was held in Atlanta and had more than 600 exhibiting
companies and over 100,000 attendees. In April 1998, COMDEX/Spring will be
held in Chicago. For the last six years, the Company, in cooperation with
Microsoft Corporation, has produced a WINDOWS WORLD trade show concurrently
with COMDEX/Spring.
In 1993, the Company began launching additional COMDEX events in order to
capitalize on the international recognition of the COMDEX brand name. The 1998
schedule includes other COMDEX events in Miami, Toronto, Vancouver, Montreal,
Mexico City, Monterrey (Mexico), Buenos Aires, Sao Paulo, Rio de Janeiro,
London, Paris, Tokyo, Seoul, New Delhi, Beijing, Singapore and Cairo.
NETWORLD + INTEROP
N+I is the largest of the Company's segment-focused trade shows and is the
leading show for professionals in the rapidly growing field of computer
networking. N+I places strong emphasis on the quality of its conference
programs and, in recent years, has become a leading educational forum for the
Internet and enterprise computing
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communities. The largest N+I event is held annually in Las Vegas in May. Each
N+I trade show features InteropNet, a live, multi-platform network that
interconnects exhibitors to one another and to the Internet. In 1997, the N+I
Las Vegas event had over 600 exhibiting companies occupying more than 400,000
net square feet of exhibit space and more than 55,000 attendees. The N+I
Atlanta event, held in October each year, is only slightly smaller in all
categories. The 1998 schedule of N+I events includes seven shows in six
countries.
SEYBOLD SEMINARS
The Company's Seybold Seminars are segment-focused trade shows and are a
leading information and education provider for traditional and new media
publishing industries. These shows focus on the latest technologies and
products, design tools and desktop applications. The largest of the Seybold
series is held annually each September in San Francisco. In 1997, this Seybold
show had over 300 exhibiting companies occupying more than 140,000 net square
feet of exhibit space and more than 38,000 attendees. Other Seybold events are
held in New York and Tokyo.
OTHER EVENTS
The Company also produces EXPO COMM, a series of worldwide trade shows
focusing on the telecommunications, wireless and telephony segments of the
information technology marketplace. The Company purchased a 50% interest in
the series from EXPO COMM's founder, E.J. Krause & Associates, Inc., in 1996.
EXPO COMM events are held in Chicago, Moscow, Beijing, Buenos Aires, Sao
Paulo, Mexico City, Monterrey (Mexico) and Tokyo. WINDOWS WORLD trade shows
are held in cooperation with Microsoft Corporation concurrently with the
Company's COMDEX events in Chicago, Mexico City and Toronto. These events
showcase the latest Windows-based applications and solutions.
The Company also produces Learning Technology trade shows for professionals
focused on learning and helping others to learn to use technology, held in
Atlanta and Los Angeles, and Object World trade shows focused on the
commercial and practical aspects of applying object technology and distributed
computing in today's business environment, held in San Francisco, Boston,
London, Frankfurt and Tokyo.
INTERNET
The Company maintains a number of Web sites related to its publications,
trade shows and conferences and other media platforms. The Company's ZDNet.com
Web site is the leading computing content site and the number one Web site in
the category of news, information and entertainment, in each case as measured
by visitors per month in 1997, ranking it higher than Web sites produced by
Time Warner Inc. (Pathfinder.com), Disney (Disney.com) and ESPN
(Sportzone.com). The Company estimates that the ZDNet Web site serves more
than 100 million pages each month to more than five million visitors. It has
over one million registered users and over 2.5 million e-mail recipients per
month. ZDNet has successfully attracted new audiences in addition to
established computer enthusiasts, as is evidenced by the fact that 64% of
ZDNet users do not regularly read any computer technology publications. ZDNet
seeks to be the most comprehensive site for quality content about computing.
ZDNet has its own staff of over 100 editors, designers and technology
experts who create and develop a wide range of content, including current and
in-depth news, product reviews, investor information, shareware library,
online shopping, training, forums and chat areas. ZDNet coordinates and
collaborates on content development with the Company's other publications and
businesses and is fully integrated with the Company's individual Web sites.
ZDNet includes Netbuyer, a leading Web site devoted to computer retailing.
Softbank is a majority owner of Gamespot, a leading Web site for gaming
information, including reviews, demo downloads and other content. Softbank's
interest in Gamespot will be contributed to the Company concurrently with the
Reorganization. Over 80% of the content on ZDNet is original, with the
remainder supplied by the Company's print publications.
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The Company has a number of arrangements with leading Web sites and product
manufacturers to increase traffic and thereby advertising revenue to ZDNet.
ZDNet is the preferred computer and technology content-provider for leading
Internet sites and products, including Yahoo!, Excite, MSNBC and Pointcast, as
well as for leading Internet service providers such as Mindspring and AT&T's
World Net, each of which provides a direct link to ZDNet. ZDNet also has
arrangements with original equipment manufacturers, such as Compaq Computer
Corp. and Gateway 2000, Inc., whereby ZDNet is an automatic bookmark in the
Web browsers included on such computers.
The Company distributes localized versions of ZDNet in Germany as ZDNet
Deutschland, in France as ZDNet France and in the United Kingdom as ZDNet UK.
Localized versions of ZDNet are also distributed by licensees in Italy,
Russia, Japan, China, Taiwan, Australia and Latin America.
TELEVISION
In order to expand its media platforms, the Company has entered into a
license and services agreement with MAC to develop ZDTV, which is expected to
be launched in the first half of 1998. ZDTV will be the first 24-hour cable
television channel and integrated Web site focused exclusively on computers,
technology and the Internet. ZDTV will target a wide range of viewers,
including computer and technology enthusiasts, computer gaming enthusiasts,
business people, teens, families and other viewers with a sustained interest
in computers, technology and the Internet. Programs are expected to include
educational features, product evaluations, gaming tips and strategies, current
events and other entertainment. ZDTV will also feature live interactive
programming allowing viewers to participate through simultaneous Web
programming on ZDTV.com.
ZDTV is indirectly owned by MAC, but as part of the license and services
agreement, MAC has granted the Company an option exercisable through December
31, 1998 to purchase all of MAC's interest in ZDTV for an amount equal to
MAC's investment plus 10.0% per annum for the period of its investment.
Pursuant to the license and services agreement, the Company has agreed to fund
ZDTV's operations on behalf of MAC through unsecured advances which, for
approved levels of expenditure, are to be reimbursed by MAC. Such advances
bear interest at the 30-day LIBOR rate plus .50%. ZDTV's cash requirements are
expected to be approximately $54 million in 1998. The Company's cumulative
advances in respect of ZDTV, which totaled approximately $14.4 million net of
$10.1 million in repayments through December 31, 1997, will be repaid
concurrently with the Reorganization. The Company has not yet determined
whether it will exercise its option to purchase MAC's interest in ZDTV. Any
such purchase will depend upon access to sufficient cable carriage, which may
include entering into a joint venture or other co-ownership arrangement,
including an arrangement with a third party cable system operator which will
provide carriage and also assume a portion of the ongoing cash requirements on
terms that are acceptable to the Company. ZDTV is not included in the
Company's results of operations. See "Certain Transactions."
ZD Television Productions, which is also indirectly owned by MAC, creates
customized programming for ZDTV and third parties. The Company's option to
purchase ZDTV from MAC also includes the option to purchase ZD Television
Productions. Its productions have included the regional Emmy award-winning
"The Site" with MSNBC and "21st Century Home" with Home & Garden Television.
See "Certain Transactions."
EDUCATION
The Company is an independent publisher of computer training products and
services for end-users and advanced technology professionals. Its products and
services include Internet-based training, computer-based training, instructor-
led courseware and customization tools. The Company believes that its
education offerings extend the Company's reach and brand reputation while
permitting the Company to attract and retain customers.
The Company is a source of software-specific newsletters and technology
information, with more than 50 titles, a family of CD-ROM products and an
interactive Web site. Generally published monthly, the titles include time-
saving tips and techniques on products such as Windows 95, Novel NetWare,
Visual Basic, Word, Excel, Microsoft Office, PhotoShop and Windows NT, in
addition to several programming and operating systems journals. The Company's
informational Web site provides instant access to a library of back issues,
reviews, online links and chats with authors.
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Through ZD University, an Internet-based educational program, the Company
provided training to more than 37,000 paid subscribers in 1997, an increase of
100% from 1996. The ZD University Web site is closely integrated with ZDNet,
helping to ensure that customers of one service are exposed to other Company
services.
Through the Help Desk Institute and the Support Services Professionals
Association, the Company provides training programs and publications for
hardware and software support service professionals. The Company also
publishes Inside Technology Training, which reaches 40,000 information
technology and training managers, and other software support professionals. In
addition, the Company owns and operates a single-site training center that
specializes in applications, programming and certification training for
Microsoft, Novell and Lotus, and the Training Center Alliance, which provides
qualifying training center customers with enhanced marketing support and
referral capabilities worldwide.
MARKET RESEARCH
The Company's market research division develops, analyzes and compiles a
wide variety of information on computer technology issues ranging from
technical aspects of current usage to trends in decision making. The Computer
Intelligence ("CI") unit focuses on information concerning installed and
planned technology hardware and software purchases, and is a leading source in
North America and Europe of fact-based information concerning hardware and
software needs for the computer and communications industries. CI is an
important part of the Company's effort to be a single source marketing
solution, as it can provide the Company's marketing customers with important
information to identify their target customers. CI's databases are built from
more than 30,000 telephone interviews per month and contain data on installed
and planned computer and communications products and services at over 400,000
business sites in the U.S., Canada and eight European countries, according to
Company estimates. CI assists the Company's clients in identifying and
targeting their customers by tracking current activity and market share in the
business, home and reseller channels. Customers use CI's services to make
important marketing decisions.
The Company also identifies and analyzes trends in the decision making
process for consumers of computer technology. This type of information helps
to identify criteria other than technical product specifications that are used
in product selection. The Company's market research division also consolidates
information obtained in each of the databases maintained by the Company's
other operating divisions, so that each Ziff-Davis division can offer the
Company's clients a wide range of information to meet their marketing needs
across multiple platforms.
The Company publishes Microprocessor Report, a leading technical publication
for the microprocessor industry. It also produces Microprocessor Forum, the
industry's leading conference for the introduction of new high-performance
microprocessors, and PC Tech Forum, events which together attract more than
1,000 paid attendees and provide information on trends and markets.
COMPETITION
The Company competes with a wide range of companies for each of the products
and services it provides. Although such competition is significant and is
likely to increase in the future, the Company believes it has a greater
breadth of product and service offerings than any of its competitors.
The magazine publishing business is highly competitive. The Company faces
broad competition, not only from other technology publishers, but from other
media companies as well, including business, news and general interest
magazine publishers. Other principal computer and technology publishers in the
United States include IDG, CMP Media Inc., The McGraw-Hill Companies and
Imagine Publishing, each of which produces publications that directly compete
with one or more of the Company's publications. The Company also competes with
various computer and technology publishers in the international markets in
which it conducts business. A
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publishing company's success depends upon a number of factors, such as
editorial quality, product positioning and price. Competitive factors for
advertising sales include quality of readership, circulation, reader response
and advertising rates. The Company believes its publications effectively
compete in the marketplace on the basis of each of these factors.
The Company also faces competition in its trade show and conference
business, primarily from several significant trade show management companies.
These include Miller Freeman, Mecklermedia Corporation and IDG. The Company
believes its trade shows compete in the marketplace on the basis of quality of
conference content, organizational efficiency, and quality and number of
exhibitors and attendees.
The Internet media business is highly competitive. An increasing number of
companies are developing online content and services for delivery on the World
Wide Web in order to compete for audiences and the advertising dollars that
are currently being directed to the Internet. ZDNet competes with other
technology-related online content sites such as c|net, CMPnet, and IDGnet.
The Company's market research division faces competition from numerous
market research companies, including International Data Corporation, Gartner
Group's Dataquest and IntelliQuest. Database providers such as Information
Resource Group and Dun & Bradstreet provide additional competition.
The Company's education division competes with a variety of education
providers, including vendor-supplied training materials and traditional
classroom-based computer training.
ZDTV is expected to be the first 24-hour cable television channel and
integrated Web site focused on computer technology and the Internet, and as
such it is not expected to face direct competition in the near future. It
will, however, face competition from a variety of general and special interest
television programs. The market for television programming is highly
competitive, with many programming producers competing both for channel
carriage and for advertiser and audience market share.
TRADEMARKS
The Company has developed strong brand awareness for its principal
publications, trade shows and other products and services. Accordingly, the
Company considers its trademarks, copyrights, trade secrets and similar
intellectual property as critical to its success and relies on trademark,
copyright and trade secrets laws, as well as licensing and confidentiality
agreements, to protect its intellectual property rights. The Company generally
registers its material trademarks in the United States and in certain other
key countries in which these trademarks are used. Effective trademark,
copyright and trade secret protection may not be available in every country in
which the Company's publications and services are available.
The Company may be subject to claims of alleged infringement by it or its
licensees of trademarks and other intellectual property rights of third
parties from time to time in the ordinary course of business. The Company does
not believe there are any such legal proceedings or claims that are likely to
have, individually or in the aggregate, a material adverse effect on the
Company's business, financial condition or results of operations.
FACILITIES
The Company's world headquarters are located in New York and the Company has
over 50 editorial, production and sales offices and computer labs in many
other cities in the United States and around the world. The Company's other
principal offices are located in the Boston and San Francisco metropolitan
areas. The Company does not own real property that is material to its business
and leases all but one of its offices from third parties. The Company believes
that its properties, taken as a whole, are in good operating condition and are
suitable and adequate for the Company's current business operations, and that
suitable additional or alternative space, including space available under
lease options, will be available at commercially reasonable terms for future
expansion.
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EMPLOYEES
As of December 31, 1997, the Company had a total of 3,698 employees. Of
these employees, 1,160 were engaged in U.S. magazine publishing activities,
350 in international publishing activities, 728 in trade shows and
conferences, 197 in Internet-related activities, 414 in education activities,
486 in market research and 363 in central administrative services. None of the
Company's U.S. employees is represented by a labor union. The Company
considers its relationships with its employees to be satisfactory.
LEGAL PROCEEDINGS
The Company has been named as a defendant in an action, filed on April 17,
1998, in the Supreme Court of the State of New York, by minority shareholders
of SOFTBANK Interactive Marketing Inc. ("SIM"), formerly an indirect
subsidiary of Softbank. The complaint alleges, among other things, that SBH,
SIM's majority shareholder, acting with the Company and two of its senior
officers and directors who were directors of SIM (and who are also named as
defendants), had conflicts of interest between SIM and other Softbank
investments (including investments in the Company) and failed to act in the
best interests of SIM and the minority shareholders by taking actions which
benefitted the Company. The complaint states claims based on common law fraud,
breach of fiduciary duty and aiding and abetting theories and seeks in excess
of $200 million in damages. The Company believes that the claims against it
are without merit and intends a vigorous defense.
There are no other legal proceedings to which the Company is a party, other
than ordinary routine litigation incidental to the business of the Company
which is not otherwise material to the business or financial condition of the
Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are set forth in the
table below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Masayoshi Son.................... 40 Director
Yoshitaka Kitao.................. 47 Director
Ronald D. Fisher................. 50 Director
Eric Hippeau..................... 46 Chairman, Chief Executive Officer,
Director
Jason E. Chudnofsky.............. 54 President and Chief Executive
Officer, ZDCF, Director
Timothy C. O'Brien............... 49 Chief Financial Officer, Director
Claude P. Sheer.................. 47 President, ZD Publishing, Director
Robert G. Brown.................. 51 President, ZD Market Intelligence
Terri S. Holbrooke............... 41 President, ZD Brand and Marketing
J. Malcolm Morris................ 55 Senior Vice President, General
Counsel
Daryl R. Otte.................... 36 Senior Vice President, Development
and Planning
Daniel L. Rosensweig............. 36 President, ZD Internet Productions
William A. Rosenthal............. 37 President, ZD Education
Thomas L. Wright................. 38 Vice President, Treasurer
Jonathan D. Lazarus.............. 47 Director
Jerry C.-Y. Yang................. 29 Director
</TABLE>
The Company will nominate for election one additional independent director
as soon as practicable after consummation of the Offerings. See "--Board
Composition."
BIOGRAPHIES OF DIRECTORS AND EXECUTIVE OFFICERS
Masayoshi Son. Masayoshi Son has been President and Chief Executive Officer
of SOFTBANK Corp. since 1981. Mr. Son has been President and Chief Executive
Officer of Mediabank Corporation since 1994 and GeoCities Japan Corporation
since 1997 and was President and Chief Executive Officer of Japan Sky
Broadcasting Co. Ltd. from 1996 to 1998 and SB Networks Corporation from 1997
to 1998. In addition, Mr. Son is currently a Director of each of PASONABANK
Inc. and Yahoo! Japan Corporation and a Representative Director of each of MIC
Inc., Son Kosan Ltd. and MAC.
Yoshitaka Kitao. Yoshitaka Kitao has been Executive Vice President and Chief
Financial Officer of SOFTBANK Corp. since 1995. Mr. Kitao has been President
and Chief Executive Officer of SoftVenture Capital Inc. since 1996, SOFTBANK
Ventures Inc. since 1996 and SOFTBANK Contents Partners Corporation since
1997. Since 1997 Mr. Kitao has been President of Cybercash K.K. and a Director
of Trendmicro Inc. Previously, Mr. Kitao served as Director of Nomura
Wasserstein Perella Co., Ltd. from 1992 to 1993, Managing Director of
Wasserstein Perella & Co., Inc. from 1989 to 1992 and was the General Manager
for The Nomura Securities Co., Ltd.'s Corporate Finance and Services Dept. 3
from 1992 to 1995.
Ronald D. Fisher. Ronald D. Fisher has been the Vice Chairman of SOFTBANK
Holdings Inc. since 1995. From 1990 to 1995, Mr. Fisher was the Chief
Executive Officer of Phoenix Technologies Ltd, a leading developer and
marketer of system software for personal computers. From 1984 through 1989,
Mr. Fisher was the President of Interactive Systems Corporation. His prior
experience includes senior management positions at VisiCorp, TRW and ICL
(USA). In addition to being a Board member of SOFTBANK Corp., Mr. Fisher
serves on the Boards of Phoenix Technologies Ltd, Microtouch Systems Inc. and
Segue Software Inc.
Eric Hippeau. Eric Hippeau has been Chairman and Chief Executive Officer of
ZDI since 1993. He joined ZDI in 1989 as Publisher of PC Magazine, was named
Executive Vice President of ZDI in 1990, and President and Chief Operating
Officer in February 1991. Prior to joining ZDI, Mr. Hippeau held a number of
positions with IDG, including Vice President of computer publications in Latin
America and Publisher of IDG's InfoWorld magazine. Mr. Hippeau is currently a
Director of Yahoo! Inc.
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<PAGE>
Jason E. Chudnofsky. Jason E. Chudnofsky has been President and Chief
Executive Officer of ZDCF since October 1997. From 1988 to 1997, Mr.
Chudnofsky was President of the Trade Show Division of The Interface Group
which was renamed SOFTBANK COMDEX when that division was acquired by Softbank
in 1995. In addition, Mr. Chudnofsky served as President and Chief Executive
Officer of the Sands Expo and Convention Center Division from 1990 to 1995.
Mr. Chudnofsky has over 15 years of experience in the exposition, trade show
and conference industry.
Timothy C. O'Brien. Timothy C. O'Brien has been Vice President and Chief
Financial Officer of ZDI since 1995. From 1985 to 1994, Mr. O'Brien was Chief
Financial Officer of Reed Elsevier Inc. and Reed Publishing USA. From 1992 to
1994, he was also Executive Vice President of Cahners Publishing Company which
he joined in 1980. From 1970 to 1980, Mr. O'Brien was employed by Price
Waterhouse LLP.
Claude P. Sheer. Claude P. Sheer has been President of the ZD Publishing
Division of ZDI since December 1997, having served in 1997 as President of
U.S. Publications of ZDI and in 1996 as President of the Business Media Group.
Since joining ZDI in 1980, Mr. Sheer has served in a number of positions
including Publisher of PC Week and Group Vice President of Controlled
Circulation Publications.
Robert G. Brown. Robert G. Brown has been President of ZD Market
Intelligence since 1993. He joined Ziff-Davis in 1992 as Vice President of
Market Development. Prior to that time, from March 1988 to July 1992,
Mr. Brown was founder and President of R.G. Brown & Associates, a direct
marketing and management consulting company working with computer hardware and
software companies. Mr. Brown was previously President of Quadram, a unit of
Intelligent Systems, L.P., which manufactured and sold peripheral products to
PC users.
Terri S. Holbrooke. Terri S. Holbrooke has been President of ZD Brand &
Market Services since July 1997. From October 1996 to July 1997, Ms. Holbrooke
was Senior Vice President of Marketing for ZDI. From January 1996 to October
1996, Ms. Holbrooke was Vice President of SOFTBANK Exposition and Conference
Company. From 1986 to 1995, Ms. Holbrooke held several executive marketing
positions at Novell Inc., including head of Worldwide Marketing Communications
and Vice President of Strategic Planning.
J. Malcolm Morris. J. Malcolm Morris has been Senior Vice President, General
Counsel of ZDI since January 1998, having previously served as Vice President,
General Counsel since 1990. Mr. Morris joined ZDI in 1980 as Assistant General
Counsel. Prior to joining ZDI, Mr. Morris was engaged in the practice of law
at the New York firm of Cleary, Gottlieb, Steen & Hamilton.
Daryl R. Otte. Daryl R. Otte has been Senior Vice President of Development
and Planning for ZDI since 1997. From 1995 to 1997, Mr. Otte was Vice
President of Planning. From 1989 to 1995, Mr. Otte held various corporate
finance and planning positions at Reed Elsevier Inc., and its predecessors,
including Vice President of Planning, Cahners Publishing Company, and
Assistant to the Chief Financial Officer of Reed Publishing USA.
Daniel L. Rosensweig. Daniel L. Rosensweig has been President of ZD Internet
Productions since 1997, having served in 1996 and 1997 as Executive Vice
President of ZDI's Internet Publishing Group. From 1995 to 1996, Mr.
Rosensweig was Vice President and Publisher of PC Magazine, and, from 1994 to
1995, was Publisher of PC Magazine. Since joining ZDI in 1983, Mr. Rosensweig
held a number of positions, including Associate Publisher positions at
PC Magazine, Computer Shopper and PC Sources.
William A. Rosenthal. William A. Rosenthal has been President of ZD
Education since 1997 having served as President of ZDI's Logical Operations
division in 1996 and 1997. From 1993 to 1996, Mr. Rosenthal was the General
Manager for ZDI's Logical Operations division and from 1987 to 1993 was
Vice President of Sales and Marketing for that division.
59
<PAGE>
Thomas L. Wright. Thomas L. Wright has been Treasurer of ZDI since 1995 and
has been Vice President and Treasurer of SOFTBANK Holdings Inc. since 1996.
Prior to joining ZDI, Mr. Wright held various positions from 1986 to 1995 at
Reliance Group Holdings, Inc., most recently as Vice President and Assistant
Treasurer.
Jonathan D. Lazarus. Jonathan D. Lazarus was with Microsoft Corporation from
1985 through 1996, serving most recently as Vice President, Strategic
Relations. Mr. Lazarus serves on the Boards of ELEKOM Corp., Liquid Audio,
NetGravity, Vision Solutions and National Association of Television Program
Executives. Mr. Lazarus is also an advisor to Microsoft Corporation, the
Universal Studios New Media Group and ZDTV.
Jerry C.-Y. Yang. Jerry Yang co-founded Yahoo! Inc. in 1995 and has served
as an officer and a member of the Board of Directors of Yahoo! Inc. since
March 1995. Mr. Yang co-developed Yahoo! Inc. in 1994 while he was working
towards his Ph.D. in electrical engineering at Stanford University.
BOARD COMPOSITION
Following the Offering, the Board of Directors will consist of ten members,
which will include the nine current members of the Board plus one additional
"independent director" (within the meaning of the regulations of the New York
Stock Exchange (the "NYSE")) nominated for election by the Board of Directors.
It is expected that the new director will be elected by the Board within three
months following the closing of the Offering. Directors of the Company are
currently elected annually by its stockholders to serve during the ensuing
year or until their respective successors are duly elected and qualified.
Following the Offering, the Board of Directors will be divided into three
classes each of whose members will serve for a staggered three-year term. Upon
the expiration of the term of a class of directors, directors in such class
will be elected for three-year terms at the annual meeting of stockholders in
the year in which such term expires.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has two committees: an Audit Committee and
a Compensation Committee.
The Audit Committee will be comprised of the independent directors. The
Audit Committee reviews and recommends to the Board, as it deems necessary,
the internal accounting and financial controls for the Company and the
accounting principles and auditing practices and procedures to be employed in
preparation and review of financial statements of the Company. The Audit
Committee makes recommendations to the Board concerning the engagement of
independent public accountants and the scope of the audit to be undertaken by
such accountants. Price Waterhouse LLP presently serves as the independent
accountants of the Company.
The Compensation Committee is currently comprised of Mr. Fisher, who,
following the Offering, will be joined by the two independent directors. The
Committee reviews and, as it deems appropriate, recommends to the Board
policies, practices and procedures relating to the compensation of the
officers and other managerial employees and the establishment and
administration of employee benefit plans. The Committee exercises all
authority under any employee stock option plans of the Company as the
Committee therein specifies (unless the Board resolution appoints any other
committee to exercise such authority), and advises and consults with the
officers of the Company as may be requested regarding managerial personnel
policies. The Committee will have such additional powers and be granted
additional authority as may be conferred upon it from time to time by the
Board.
COMPENSATION OF DIRECTORS
Directors who are not executive officers or employees of the Company or
Softbank will receive an annual retainer of $25,000 for Board of Directors
service and a fee of $2,000 for each meeting of the Board of Directors or any
committee thereof attended.
The Company has adopted the 1998 Non-Employee Directors Stock Option Plan
(the "Non-Employee Directors Plan"). Directors of the Company who are not
employees of the Company or any of its subsidiaries ("Non-Employee Directors")
will automatically participate in the Non-Employee Directors Plan.
60
<PAGE>
Pursuant to the Non-Employee Directors Plan, each Non-Employee Director
shall receive upon election as a member of the Board an initial grant of stock
options to purchase 15,000 shares of Common Stock; provided, that each Non-
Employee Director who is on the Board of Directors on the date of the Offering
shall receive such initial grant of stock options on the date of the Offering.
Each Non-Employee Director shall automatically receive on each annual meeting
thereafter an annual grant of stock options to purchase 7,500 additional
shares of Common Stock. The terms of each stock option granted to a Non-
Employee Director shall provide that (i) the option price shall be equal to
100% of the fair market value (as defined in the 1998 Incentive Compensation
Plan) of the Common Stock on the date of grant, (ii) such option shall be
exercisable for a period of ten years following the date of grant, and (iii)
such option shall vest and become exercisable in five equal installments
beginning on the first anniversary of the date of grant.
Upon ceasing to be a Non-Employee Director, such option shall terminate
except with respect to any portion of such option then exercisable, which
portion shall remain exercisable for a period of (x) 90 days, if the
termination as Director resulted from any reason other than death, disability
or Cause (as defined in the 1998 Incentive Compensation Plan), or (y) one
year, if the termination resulted from death or disability; provided, that in
the event the termination resulted from a removal for Cause, such option shall
immediately terminate and no longer be exercisable to any extent; provided,
further, that in no event shall any such option remain exercisable past the
remainder of its scheduled ten-year term.
Upon a "change in control" of the Company (as defined in the Non-Employee
Directors Plan), each outstanding option shall fully vest and become
immediately exercisable in full. In addition, the Committee may provide in its
sole discretion that upon a change in control of the Company, each Non-
Employee Director shall be entitled to receive in cancellation of such Non-
Employee Director's outstanding and unexercised stock options, a cash payment
in an amount equal to the difference between the option price of such stock
options and (i) in the event the change of control is the result of a tender
offer or exchange offer for the Common Stock, the final offer price per share
paid for the Common Stock, multiplied by the number of shares of Common Stock
covered by such stock options, or (ii) in the event the change of control is
the result of any other occurrence, the aggregate value of the Common Stock
covered by such stock options, as determined by the Committee at such time.
COMPENSATION OF EXECUTIVE OFFICERS
The table below sets forth the compensation paid to, deferred or accrued for
the benefit of, the Company's Chief Executive Officer and each of the four
other most highly compensated executive officers for services rendered in all
capacities to the Company during the fiscal year ended December 31, 1997.
1997 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------- ---------------------
NAME AND PRINCIPAL RETIREMENT STOCK(1) ALL OTHER
POSITION SALARY($) BONUS($) PLAN($) OPTIONS(#) COMPENSATION($)(2)
------------------ ---------- --------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Eric Hippeau.......... 1,350,000 14,063 16,000 31,000 1,566
Chairman and Chief
Executive Officer
Jason E. Chudnofsky... 800,000 -- (3) 7,385 10,000 20,884
President and Chief
Executive Officer,
ZDCF
Claude P. Sheer....... 457,500 342,656 16,000 9,500 1,566
President, ZD
Publishing
Timothy C. O'Brien.... 462,500 305,850 16,000 7,700 20,806
Chief Financial
Officer
Robert G. Brown....... 382,500 253,151 16,000 3,200 5,949
President, ZD Market
Intelligence
</TABLE>
- --------
(1) Represents options to purchase stock of SOFTBANK Corp.
(2) All Other Compensation does not include certain payments in 1997 for
services rendered in 1994. See Note 9 to the ZDI and ZDCF Combined
Financial Statements and "Certain Transactions."
(3) Does not include bonus of $300,000 paid in 1997 for 1996.
61
<PAGE>
STOCK PLANS
Incentive Compensation Plan
General. The Company has adopted a 1998 Incentive Compensation Plan (the
"Plan") to provide long-term incentives for its key employees and enhance
shareholder value. The Plan will be administered by the Compensation Committee
(for purposes herein, the "Committee"), which will (i) select the
participants, determine the type of awards, and the number of shares or share
units subject to awards, and (ii) interpret the Plan and make all other
determinations necessary or advisable for its administration.
All employees and consultants of the Company and its affiliates who have
demonstrated significant management potential or the capacity for contributing
substantially to the successful performance of the Company and its affiliates,
are eligible to be participants in the Plan. Awards may consist of stock
awards, stock options (either incentive stock options within the meaning of
Section 422 of the Internal Revenue Code or nonstatutory stock options), stock
appreciation rights, performance shares (which may be granted as performance
share units) and restricted stock (which may be granted as restricted stock
units).
The Common Stock available for awards under the Plan shall not exceed
8,500,000 shares. In the event of any change in the outstanding shares by
reason of any stock dividend or split, recapitalization, merger or other
corporate change, or any distributions to common shareholders other than
regular cash dividends, the Committee may make such substitution or
adjustment, if any, as it deems to be equitable, as to the number or kind of
shares of Common Stock or other securities issued pursuant to the Plan and to
outstanding awards. Shares subject to an award that expires unexercised, is
forfeited, or terminated, or settled in cash in lieu of Common Stock, and
shares tendered to pay for the exercise of a stock option, shall thereafter
again be available for grant under the Plan.
Each award under the Plan shall be evidenced by an agreement setting forth
the terms and conditions, as determined by the Committee, which apply to such
award. In the sole discretion of the Committee, a participant may be permitted
to defer the receipt of cash or Common Stock otherwise deliverable under any
award.
Stock Options. The Committee shall establish the option price at the time
each stock option is granted, which price shall not be less than 100% of the
fair market value of the Common Stock on the date of grant. Stock options
shall vest and become exercisable at a rate determined by the Committee, and
shall remain exercisable for such period as specified by the Committee. The
award agreements in respect of options that are intended to qualify as
incentive stock options will contain any additional provisions necessary to
comply with the requirements of Section 422 of the Internal Revenue Code. In
no event may any employee receive in any calendar year grants of stock options
with respect to more than 1,000,000 shares of Common Stock.
The option price of each share as to which a stock option is exercised will
be paid in full at the time of such exercise in cash, by tender of shares of
Common Stock owned by the participant valued at fair market value, by a "sale
to cover" broker transaction or other cashless exercise method permitted under
Regulation T of the Federal Reserve Board, or by a combination of cash, shares
of Common Stock and other consideration as the Committee deems appropriate.
Stock Appreciation Rights. Stock appreciation rights ("SARs") may be granted
in tandem with a stock option or unrelated to a stock option. SARs shall vest
and become exercisable at a rate determined by the Committee, and shall remain
exercisable for such period as specified by the Committee. A SAR entitles its
holder to receive from the Company an amount equal to the excess of the fair
market value of a share of Common Stock on the exercise of the SAR over the
fair market value on the date of grant. The Committee may determine in its
sole discretion whether a SAR will be settled in cash, Common Stock or a
combination thereof. In no event may any employee receive in any calendar year
grants of SARs with respect to more than 500,000 shares of Common Stock.
Performance Shares. Performance shares may be granted in the form of actual
shares of Common Stock or share units having a value equal to an identical
number of shares of Common Stock. The performance
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<PAGE>
conditions and the length of the performance period will be determined by the
Committee but in no event may a performance period be less than one year. The
Committee may determine in its sole discretion whether performance shares
granted in the form of share units shall be paid in cash, Common Stock, or a
combination thereof.
Unless the Committee determines otherwise, awards of performance shares to a
Covered Employee will be subject to performance conditions based on the
achievement by the Company of target levels of items such as consolidated net
income, return on shareholders' equity, return on net assets or share price
performance. For purposes of the 1998 Incentive Compensation Plan, a "Covered
Employee" generally includes any employee that would be a covered employee
within the meaning of Section 162(m) of the Internal Revenue Code, and any
other employee of the Company or its subsidiaries designated by the Committee
in its discretion. The maximum number of performance shares subject to any
award to a Covered Employee is 500,000 for the first 12 months during the
performance period and each 12-month period thereafter.
Restricted Stock. Restricted stock may be granted in the form of actual
shares of Common Stock or share units having a value equal to an identical
number of shares of Common Stock. The employment conditions and the length of
the period for vesting of restricted stock will be established by the
Committee at time of grant, except that each restriction period shall not be
less than twelve months. During the restricted period, shares of restricted
stock may not be sold, assigned, transferred or otherwise disposed of, or
pledged or hypothecated as collateral for a loan or as security for the
performance of any obligation or for any other purpose as the Committee shall
determine. The Committee may determine in its sole discretion whether
restricted stock granted in the form of share units will be paid in cash,
Common Stock or a combination thereof.
Stock awards. In addition to awards of performance shares and restricted
stock, awards of Common Stock may be granted under the Plan in the form of
actual shares of Common Stock. Full ownership of such shares, whether issued
in the form of a certificate or in book entry, including the right to vote and
receive dividends, shall immediately vest in such participant.
Change in Control. In the event of a Change in Control (as defined below):
(i) all stock options will be fully vested and exercisable in full; (ii) all
SARs which have not been granted in tandem with stock options will become
exercisable in full; (iii) the restrictions applicable to all shares of
restricted stock will lapse and such shares will be deemed fully vested and
all restricted stock granted in the form of share units will be paid in cash;
(iv) all performance shares will be deemed to be earned at target level; and
(v) all performance shares granted in the form of share units will be paid in
cash.
For purposes of the Plan, "Change in Control" is generally defined as (i) a
change in the majority of the Board; except upon consent of previous Board;
(ii) certain mergers, consolidations or similar corporate transactions in
which the Company is not the surviving corporation or entity; or (iii) the
shareholders of the Company approve a plan of complete liquidation or
dissolution of the Company or a sale of all or substantially all of the
Company's assets; provided, that a Change in Control will not be deemed to
occur under clause (ii) if Softbank, directly or indirectly, is the beneficial
owner of more than 25% of the Company's voting securities or of the voting
securities of any surviving corporation, respectively.
Amendment and Termination. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that (a) no amendment will
be made without stockholder approval (including an increase in the number of
shares reserved for issuance under the Plan) if such approval is necessary to
comply with any applicable law, regulations or stock exchange rule, and (b)
except as otherwise provided under the cashout provisions in the event of a
Change in Control, no amendment will be made that would adversely affect the
rights of a participant under any award previously granted, without such
participant's written consent.
Effective Date. The Plan will have a term of ten years from February 13,
1998, subject to earlier termination.
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<PAGE>
Softbank Executive Stock Option Plans
The SOFTBANK Group Executive Stock Option Plans (the "Softbank Plans")
authorize the grant of options to those officers, directors and key employees
of Softbank as selected by a committee appointed by the Board of Directors of
SOFTBANK Holdings Inc. The Softbank Plans authorize the granting of options to
purchase SOFTBANK Corp. common stock at not less than 100% of the closing
market price on the date the option is granted. As of December 31, 1997,
substantially all options granted become exercisable in various installments
over the first six anniversaries of the date of grant and expire ten years
after the date of grant.
As of December 31, 1997, 966,986 options had been granted under the Softbank
Plans. On January 19, 1998, the exercise price of all options was reset at
4,000 Japanese yen per share, the market price of SOFTBANK Corp.'s common
stock on that date.
Employee Stock Purchase Plan
General. The Company has adopted an employee stock purchase plan (the "Stock
Purchase Plan"). The Stock Purchase Plan is intended to meet the applicable
requirements of Section 423 of the Internal Revenue Code and will be
administered by the Committee.
Option to Purchase. Under the Stock Purchase Plan, all full-time and certain
part-time employees of the Company who meet certain minimum service
requirements will be eligible to purchase shares of Common Stock by means of
payroll deductions. Eligible employees may elect to participate in offering
periods by authorizing after-tax payroll deductions of between 1% and 10% (in
whole percentages) of their base pay for the purchase of shares of Common
Stock. The aggregate maximum number of shares of Common Stock purchasable
under the Stock Purchase Plan is 1,500,000, subject to adjustment by the
Committee in its sole discretion in the event of any increase, reduction or
change or exchange of shares of Common Stock for a different number or kind of
shares or other securities of the Company by reason of any stock dividend or
split, recapitalization, merger, consolidation, spin-off, combination or
exchange of shares or other corporate change, or any distribution to common
shareholders other than cash dividends. Upon the dissolution or liquidation of
the Company, or upon a reorganization, merger or consolidation of the Company
as a result of which the Company is not the surviving corporation, or upon a
sale of substantially all of the Company's assets, or a sale or distribution
of a subsidiary of the Company, any affected participant will thereafter be
entitled to receive, for each share of Common Stock subject to such
participant's option, the cash, securities and/or property which a holder of
one share of Common Stock was entitled to receive upon and at the time of such
transaction.
The price at which shares of Common Stock will be purchased at the end of
each purchase period will be the lesser of (i) 85% of the Fair Market Value of
a share of Common Stock on the first business day of such purchase period or
(ii) 85% of the fair market value on the last business day of each purchase
period. No participating employee will be entitled in any calendar year to
purchase Common Stock having an aggregate fair market value as of the first
business day in any Purchase Period in excess of $25,000.
Amendment and Termination. The Board may at any time terminate or amend the
Plan. No such termination shall adversely affect options previously granted
and no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. No amendment shall be
effective unless approved by the shareholders of the Company if such
shareholder approval of such amendment is required to comply with any law,
regulation or stock exchange rule.
EMPLOYMENT AGREEMENTS
Eric Hippeau. The Company has entered into an employment agreement with Mr.
Hippeau, dated as of April 1, 1998, pursuant to which Mr. Hippeau will serve
as the Chairman and Chief Executive Officer of the Company through March 31,
2004. Pursuant to this agreement, Mr. Hippeau will receive an annual base
salary
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of not less than $900,000 and an annual incentive bonus of not less than
$600,000, as determined by the Compensation Committee assuming the achievement
of performance targets. The Company has granted Mr. Hippeau options to acquire
up to 860,000 shares of Common Stock pursuant to the Plan, of which 430,000
shares are based upon the achievement of certain performance targets.
Upon certain terminations of employment, the Company will pay Mr. Hippeau
his base salary plus his average incentive bonus for the preceding two years
for a period ending on the later of the date that is two years after the date
of termination or March 31, 2001. In the event that Mr. Hippeau's employment
is terminated in connection with a "change of control" (as defined), the
Company will pay Mr. Hippeau an amount which, on an after-tax basis, will
equal any excise tax imposed by Section 4999 of the Code as a result of
payments made under the agreement.
Jason Chudnofsky. The Company has entered into an employment agreement with
Mr. Chudnofsky, dated as of April 1, 1998, pursuant to which Mr. Chudnofsky
will serve as the Chairman and Chief Executive Officer of ZDCF through March
31, 2001. Pursuant to this agreement, Mr. Chudnofsky will receive an annual
base salary of not less than $800,000 and an annual incentive bonus of
$300,000, subject to adjustment and assuming the achievement of earnings and
other performance targets, as determined by the board of directors of ZDCF.
The Company has granted Mr. Chudnofsky options to acquire up to 300,000 shares
of Common Stock pursuant to the Plan.
Upon certain terminations of employment, the Company will pay Mr. Chudnofsky
his base salary plus his average incentive bonus for the year of termination
and the preceding two years for a period ending on the later of the date that
is two years after the date of termination or March 31, 2001.
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CERTAIN TRANSACTIONS
ARRANGEMENTS BETWEEN THE PRINCIPAL STOCKHOLDERS AND THE COMPANY
The Company and Softbank have entered into certain agreements governing
ongoing business relationships between them, including: (i) a master license
agreement for Softbank's producing and distributing Ziff-Davis publications in
Japan; (ii) a license agreement for Softbank's operating ZDNet in Japan; and
(iii) a series of agreements, including a trademark license agreement,
technical assistance agreement and accounting and administrative services
agreement, pursuant to which the Company will manage all ZDCF trade shows and
conferences conducted in Japan, but owned by Softbank. Total revenue earned by
the Company from such trade show and conference agreements will approximate
50% of the pre-tax income generated by such trade shows and conferences.
Softbank has given the Company an undertaking not to expand operations
involving (x) publishing information on computing and Internet-related
technology through the media of print, CD-Rom/DVD, Internet and television, or
(y) producing trade shows, conferences, exhibitions and similar events
primarily related to computing and Internet-related technology outside Japan
in competition with the Company without the prior approval of the Company's
management directors after consulting with the Company's independent
directors. This undertaking does not preclude investments by investment funds
managed by Softbank. Softbank manages certain venture capital funds which
invest in, among other things, computer and Internet-related companies. These
funds may be able to co-invest with the Company or compete with the Company
with respect to new investments. Softbank may develop new funds in the future,
which funds may compete with the Company for investment opportunities. The
Company has undertaken not to compete with Softbank in Japan without the prior
approval of SOFTBANK Corp.'s Board of Directors and to afford Softbank the
continuing right to license all of the Company's products and services in
Japan. See "Risk Factors--Control by Principal Stockholders and Potential
Conflicts of Interest."
The Company and Softbank entered into a Registration Rights Agreement, dated
as of April 1, 1998, in connection with the Offering. The Agreement entitles
Softbank to require the Company to register any or all of the Common Stock
held by it in a public offering pursuant to the Securities Act of 1933, as
amended, as well as to "piggyback" or include its shares of Common Stock in
any registration of Common Stock made by the Company.
CERTAIN RELATED PARTY TRANSACTIONS
The Company is a member of a group of companies affiliated through common
ownership under SOFTBANK Corp. and has various transactions and relationships
with members of the group, including SOFTBANK Corp.'s wholly-owned U.S.
subsidiary, SOFTBANK Holdings Inc. ("SBH"). Because of these relationships, it
is possible that the terms of the various transactions are not those that
would result from an arm's length dealing among unrelated parties.
In December 1994, as part of the acquisition of ZD Expos, MAC purchased a
portion of the trade show assets for $45 million and its parent company, Son
Kosan Ltd., purchased an additional portion for $30 million. Concurrently with
the purchase of assets, SB Forums and Son Kosan Inc. entered into a management
agreement pursuant to which SB Forums agreed to provide management services
with respect to certain Son Kosan operations in Japan, France and Germany. SB
Forums earned approximately $808,000, $1,667,000 and $2,644,000 for such
services for the years ended December 31, 1995, 1996 and 1997 respectively.
Son Kosan's trade show assets were sold to SB Forums for $10 million in
January 1997 and certain of MAC's trade show assets are being contributed to
ZDCF as part of the Reorganization. See "The Reorganization."
In February 1996, as part of the acquisition of ZD Pubco, MAC purchased
certain publishing assets for $302 million in cash. Concurrently with the sale
of assets, ZDI and MAC entered into a management agreement pursuant to which
ZDI agreed to provide management services with respect to the purchased
assets. The Company earned approximately $2 million for such services for each
of the years ended December 31, 1996 and 1997, respectively. Of these assets,
a portion was transferred to ZDI for $100 million as of October 31, 1997 and
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the balance will be sold to ZDI for $270 million concurrently with the
Offering. See "The Reorganization." The purchase price for the assets sold to
ZDI was not more than fair market value as determined by an independent
appraiser.
ZDI and Softbank entered into a series of license and syndication agreements
pursuant to which Softbank was granted the license to publish, or use certain
materials from, PC Week, Computer Shopper, PC Computing, MacWeek, Computer
Gaming World, PC Magazine and Internet Business Advantage. The Company earned
approximately $963,948 and $1,817,986 in connection therewith for the years
ended December 31, 1996 and 1997, respectively. Such agreements are being
combined into the master license agreement described above.
The Company has advanced funds for the account of MAC in managing the MAC
Assets and ZDTV, bearing interest at the 30-day LIBOR rate plus .50%; subject
to periodic reimbursement by MAC. Such advances totalled $8.1 million, $68.2
million and $70.9 million in 1995, 1996 and 1997, respectively. The remaining
outstanding amount as of December 31, 1997 of $42.6 million will be reimbursed
in connection with the Reorganization. See Note 9 to the Notes to the Combined
Financial Statements of ZDI and ZDCF.
During 1996 and 1997, the Company recorded revenues of approximately $.9
million and $2.7 million, respectively, from sales of advertising space and
trade show services to Kingston, an 80%-owned Softbank partnership. These
services were provided under terms consistent with those provided to
unaffiliated customers. See Note 9 of the Notes to the Combined Financial
Statements. Concurrently with the Offering the Company is entering into a
sale-leaseback transaction with Kingston. See "The Reorganization."
In 1997 the Company had an arrangement with SOFTBANK Interactive Marketing
("SIM"), a 65.3%-owned Softbank subsidiary, for providing interactive media
sales. The Company paid SIM approximately $.6 million and $1.8 million in
commissions for the years ended December 31, 1996 and 1997, respectively.
Effective December 31, 1997, SIM was acquired by an unrelated third party and
the Company terminated its representation agreement with SIM. See Note 9 of
the Notes to the Combined Financial Statements of ZDI and ZDCF.
During 1996 and 1997, the Company and Softbank were parties to a joint
venture agreement pursuant to which the Company managed all ZDCF trade shows
and conferences conducted in Japan. The Company earned approximately
$1,727,000 and $1,413,000 for such services for the years ended December 31,
1996 and 1997, respectively.
During 1996 and 1997, the Company incurred $2 million and approximately $1.6
million in advertising expenses with Yahoo! Inc. which is 29.4% owned by
Softbank. Mr. Yang is co-founder and Chief Yahoo and Mr. Hippeau is a director
of Yahoo! Inc.
During 1995 to 1997, the Company issued notes payable to Softbank in an
aggregate principal amount of $2.5 billion as of December 31, 1997,
principally for indebtedness incurred in the acquisition of ZD Expos, COMDEX
and ZD Pubco. See Note 9 of the Notes to the Combined Financial Statements.
As part of the acquisition of the Company by its former owner in 1994, the
Company agreed to assume certain obligations to management arising out of
prior employment arrangements with Ziff Communications Company. In 1995 and
immediately after the end of the 1996 calendar year, the Company paid under
such arrangements $29,702,469 to Mr. Hippeau, the Company's Chairman and CEO
and a Director of the Company, and $1,014,565 to Mr. Sheer, the President of
ZD Publishing and a Director of the Company. See Note 9 to the Notes to the
Combined Financial Statements of ZDI and ZDCF.
The Company has participated in the U.S. Softbank cash management program,
periodically transferring excess cash to SBH and in turn receiving cash
advances from SBH to fund the Company's short-term working capital
requirements. Under the program, interest is accrued based on the net balance
outstanding at the end of each month. Interest income is earned at the 30-day
LIBOR rate. Interest expense is incurred at such rate plus .50%. As of
December 31, 1996 and 1997, such net cash transfers from the Company to SBH
amounted to $41.3 million and $76.5 million, respectively. See Note 9 of the
Notes to the Combined Financial Statements of ZDI and ZDCF.
During 1997, the Company was a guarantor under SBH's $600 million loan
agreement with The Bank of New York, under which $102.5 million was
outstanding as of December 31, 1997, bearing interest at a weighted average
rate of 6.51% per annum. In March, 1998 this agreement was amended and
restated to increase the loan
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amount to $450 million. Under the amended agreement, the Company is a
guarantor under SBH's $450 million credit facility with The Bank of New York,
as agent, The Bank of New York and Morgan Stanley Senior Funding, Inc., as
lenders, and certain affiliate guarantors. The agreement governing the credit
facility contains certain restrictive covenants and other provisions which
bind the Company, but it does not prevent the Company from consummating the
Offering. Concurrently with the Reorganization, the Company will repay
obligations due to SBH; and it is expected that SBH will use a portion of such
proceeds to prepay the loans under the credit facility and terminate the
commitments thereunder.
SBH and its subsidiary SBH Delaware have agreed to act as guarantors for
payments under the Company's lease for its new headquarters located at 28 East
28th Street, New York, New York. In addition, the various intercompany loans
from SBH Delaware to the Company were subordinated to the lease agreement. In
accordance with the terms of these agreements, these arrangements will
terminate when the Company and SBH meet minimum net worth levels of $850
million and $715 million, respectively, upon completion of the Offerings, at
which time the Company will become the sole guarantor under the lease.
During 1997, the Company entered into an operating lease with GE Capital
Corp. for certain television production equipment that the Company subleased
to ZDTV on similar terms. This arrangement is expected to continue upon
completion of the Offering. The total amount of leased equipment will not
exceed $10 million.
During 1997, the Company participated in a global insurance program
implemented by SBH. Upon completion of the Offering, it is expected that the
Company will remain a part of this program. The total amount of insurance
expenses allocated to the Company for the period from August 1, 1997 to July
30, 1998 does not exceed $1.35 million.
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PRINCIPAL STOCKHOLDERS
The Company is a newly organized Delaware corporation, incorporated on
February 4, 1998, with no stock issued prior to the Reorganization. SBH is a
wholly-owned subsidiary of SOFTBANK Corp. which, as of December 31, 1997, was
50.2% owned by Mr. Masayoshi Son, its President, including 43.4% directly held
by his 99% owned holding company, MAC. Upon completion of the Reorganization,
Softbank will own approximately 74.2% of the outstanding shares of Common
Stock and approximately 25.8% of the outstanding shares of Common Stock will
be owned by the public.
The following table sets forth, as of April 1, 1998, certain information,
after giving effect to the Reorganization, with respect to the beneficial
ownership of the Common Stock (i) by each person or entity which beneficially
owns in excess of five percent of the Common Stock and (ii) all executive
officers and directors of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT
BENEFICIAL OWNER COMMON STOCK(1) OF CLASS
- ---------------- ------------------- --------
<S> <C> <C>
SOFTBANK Holdings Inc.(2) ......................... 74,200,000 74.2%
SOFTBANK Corp.(3) ................................. 74,200,000 74.2
MAC Inc.(4)........................................ 74,200,000 74.2
Masayoshi Son(5)................................... 74,200,000 74.2
Officers and directors as a group.................. 74,200,000 74.2
</TABLE>
- --------
(1) Assumes no exercise of the U.S. Underwriters' over-allotment option and
does not include 10 million shares of Common Stock reserved for issuance
under the Company's Incentive Compensation, Non-Employee Directors Option
and Employee Stock Purchase Plans. See "Management--Stock Plans."
(2) Includes shares of Common Stock owned by Kingston which may be
deemed to be beneficially owned by SBH. Such entity's address is 10
Langley Road, Suite 403, Newton Center, MA 02159.
(3) Reflecting shares of Common Stock owned by SBH, a wholly-owned subsidiary
of SOFTBANK Corp. Such entity's address is c/o SOFTBANK Corp., 24-1
Nihonbashi-Hakozakicho, Chuo-ku, Tokyo 103, Japan.
(4) Reflecting shares of Common Stock owned by SBH and indirectly by SOFTBANK
Corp., which is 43.4% owned by MAC. Such entity's address is 1-4-2
Azabudai, Minato-ku, Tokyo (106-0041).
(5) Reflecting shares of Common Stock owned by SBH and indirectly by SOFTBANK
Corp. and MAC, which is 99% directly and indirectly owned by Mr. Son,
SOFTBANK Corp.'s President. Such person's address is c/o SOFTBANK Corp.,
24-1 Nihonbashi-Hakozakicho, Chuo-ku, Tokyo 103, Japan.
After giving effect to the Reorganization, Kingston will own shares of
Common Stock, or less than 1% of the class of Common Stock. Concurrently with
the Offering SOFTBANK Kingston Inc., an affiliate of the Company and a wholly-
owned subsidiary of SBH, intends to sell a portion of the shares of Common
Stock of the Company issued to Kingston pursuant to the Registration Statement
of which this Prospectus forms a part. See "The Reorganization" and
"Underwriters."
As a result of its beneficial ownership of Common Stock, Softbank will be
able to influence significantly matters affecting the Company and will be in a
position to direct the election of all members of the Board of Directors and
to control even those actions that require the approval of two-thirds or more
of the voting share capital of the Company, including amendments to the
Company's Certificate of Incorporation and any business combinations. See
"Risk Factors--Control by Principal Stockholders and Potential Conflicts of
Interest."
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DESCRIPTION OF THE CREDIT FACILITY
The following summary of certain material provisions of the Company's Credit
Facility does not purport to be complete and is subject to, and qualified in
its entirety by, the Company's Indenture (as defined below) and Credit
Facility, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part and by the provisions of
applicable law. See "Additional Information."
CREDIT FACILITY
The Company has obtained a commitment letter from The Bank of New York,
Morgan Stanley Senior Funding, DLJ Capital Funding and The Chase Manhattan
Bank to provide a $1.35 billion Credit Facility. In connection with the
Reorganization, the Company will enter into the Credit Facility and borrow
$1.25 billion thereunder. The Credit Facility will consist of a seven year
$700 million reducing revolving credit facility (with $600 million drawn at
consummation of the Offerings) and a seven year $650 million term loan. The
revolving credit commitments will be reduced and the term loan will be
amortized beginning in September 2000, by (x) 10% in 2000, in two equal
quarterly installments, (y) 20% in each of 2001, 2002, 2003 and 2004 in four
equal quarterly installments and (z) 10% at final maturity in March, 2005. The
Credit Facility will be secured, in part, by a first priority security
interest in capital stock of certain subsidiaries of the Company and will be
guaranteed by all domestic subsidiaries of the Company (in each case,
including ZDI and ZDCF).
Amounts available under the Credit Facility will be available for loans,
Letters of Credit, and swing-line loans, subject to a certain maximum level of
borrowing. The Credit Facility will also provide the Company with the ability
to increase the revolving credit portion by $300 million to $1 billion at any
time prior to June, 2000 if the banks agree to increase their commitments.
Loans under both the revolving credit and term loan portions of the Credit
Facility will bear interest at either LIBOR plus an applicable margin or the
Alternate Base Rate plus an applicable margin. The applicable margin will be
based on a pricing grid to be determined by the Company's ratio of debt to
EBITDA. The Company will also pay a commitment fee on the unused portion of
the revolving credit.
The Credit Facility will contain certain customary affirmative and negative
covenants, including covenants (subject to certain exceptions) with respect
to, among other things, the delivery of financial statements and other
information, limitations on dispositions of assets, changes of business and
ownership, mergers or acquisitions, restricted payments, indebtedness, loans
and investments, and transactions with affiliates, negative pledge of assets,
maintenance of adequate and customary insurance coverage, compliance with all
applicable laws and regulations, and restriction on modifications of certain
agreements, charter documents or other material documents without the consent
of the lenders. The Credit Facility will also contain certain financial
covenants.
The failure to satisfy any of the covenants would constitute an Event of
Default under the Credit Facility. The Credit Facility will also include other
customary events of default, including, without limitation, nonpayment,
misrepresentation in a material respect, cross-default to other indebtedness,
bankruptcy, ERISA, judgments and change of control.
The Credit Facility is subject to certain terms and conditions, including
without limitation negotiation, execution and delivery of definitive financing
agreements, in each case containing terms and conditions, representations and
warranties, covenants, indemnifications, events of default and conditions to
lending.
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DESCRIPTION OF NOTES
The Notes are to be issued under an Indenture, dated as of the Issue Date
(the "Indenture"), between the Company and The Bank of New York, as Trustee
(the "Trustee"), a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The following
summary of certain material provisions of the Indenture and the Notes does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture and the Notes, including the
definitions of certain terms therein and those terms made a part thereof by
the Trust Indenture Act of 1939, as amended. Whenever particular Sections or
defined terms of the Indenture not otherwise defined herein are referred to,
such Sections or defined terms are incorporated herein by reference. For
purposes of this Section, references to the Company mean Ziff Davis Inc.
(formerly ZD Inc.), excluding its subsidiaries. For definitions of certain
capitalized terms used herein, see "--Certain Definitions."
GENERAL
The Notes will be unsecured senior subordinated obligations of the Company,
limited to $250 million aggregate principal amount, and will mature on ,
2008. The Notes will bear interest at the rate per annum shown on the cover
page of this Prospectus from the Issue Date or from the most recent Interest
Payment Date to which interest has been paid or provided for, payable
semiannually (to Holders of record at the close of business on the or
immediately preceding the Interest Payment Date) on the and
of each year, commencing , 1998.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially
will be the corporate trust office of the Trustee at 101 Barclay Street, New
York, New York 10286); provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the Holders as such
address appears in the Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
No service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in connection
therewith.
SINKING FUND
There will be no sinking fund payments for the Notes.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to , 2003. Thereafter, the
Notes will be redeemable, at the Company's option, in whole or in part, at any
time or from time to time and prior to maturity, upon not less than 30 nor
more than 60 days' prior notice mailed by first class mail to each Holder's
last address as it appears in the Security Register, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant Regular Record Date to receive interest due
on an Interest Payment Date that is on or prior to the redemption date), if
redeemed during the 12-month period commencing , of the years set forth
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003......................................................... %
2004.........................................................
2005.........................................................
2006 and thereafter.......................................... 100.00%
------
</TABLE>
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In addition, at any time and from time to time prior to , 2001, the
Company may redeem in the aggregate up to 35% of the original principal amount
of the Notes with the proceeds of one or more Public Equity Offerings
commenced after the Issue Date, at a redemption price (expressed as a
percentage of principal amount) of % plus accrued interest to the redemption
date (subject to the right of Holders of record on the relevant Regular Record
Date to receive interest due on an Interest Payment Date that is on or prior
to the redemption date); provided that at least $150 million aggregate
principal amount of the Notes must remain outstanding after each such
redemption; and provided further that any such redemption shall occur within
60 days of the date of the closing of such Public Equity Offering.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee, on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem to be fair and
appropriate; provided that no Note of $1,000 in principal amount or less shall
be redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
RANKING AND SUBORDINATION
The Notes will be senior subordinated Indebtedness of the Company. The
payment of the Senior Subordinated Obligations will, to the extent set forth
in the Indenture, be subordinated in right of payment to the prior payment in
full, in cash or cash equivalents, of all Senior Indebtedness. After giving
pro forma effect to the Reorganization, as of December 31, 1997, the Company
would have had approximately $1.34 billion of Indebtedness (other than the
Notes), all of which would have been Senior Indebtedness. See
"Capitalization." In addition, all existing and future liabilities (including
Trade Payables) of the Subsidiaries of the Company will be effectively senior
to the Notes. After giving pro forma effect to the Reorganization, as of
December 31, 1997, the Company's Subsidiaries would have had approximately
$497.4 million of liabilities (excluding Indebtedness owed to the Company).
See "Risk Factors--Subordination of the Notes; Dependence on Subsidiaries."
Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities, upon any
dissolution or winding up or total or partial liquidation or reorganization of
the Company, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness (including any interest accruing on or after, or which
would accrue but for, an event of bankruptcy, whether or not such interest is
an allowed claim enforceable against the debtor under the United States
Bankruptcy Code) shall first be paid in full, in cash or cash equivalents,
before the Holders of the Notes or the Trustee on behalf of the Holders of the
Notes shall be entitled to receive any payment by the Company on account of
Senior Subordinated Obligations or any payment to acquire any of the Notes for
cash, property or securities, or any distribution with respect to the Notes of
any cash, property or securities. Before any payment may be made by, or on
behalf of, the Company on any Senior Subordinated Obligations, upon any such
dissolution, winding up, liquidation or reorganization, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities, to which the Holders of the Notes or
the Trustee on behalf of the Holders of the Notes would be entitled, but for
the subordination provisions of the Indenture, shall be made by the Company or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person making such payment or distribution or by the Holders of the
Notes or the Trustee if received by them or it, directly to the holders of the
Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their representatives
or to any trustee or trustees under any indenture pursuant to which any such
Senior Indebtedness may have been issued, as their respective interests
appear, to the extent necessary to pay all such Senior Indebtedness in full,
in cash or cash equivalents after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such Senior
Indebtedness. However, notwithstanding the foregoing, Holders of Notes may
receive securities so long as (i) the Notes are not treated in any case or
proceeding or other event described above as part of the same class of claims
as the Senior Indebtedness or any class of claims on a parity with or senior
to the Senior Indebtedness for any payment or distribution, (ii) such
securities are subordinated at least to the same extent as the Notes to Senior
Indebtedness of the Company and any securities issued in exchange for such
Senior Indebtedness and (iii) such securities are authorized by an order
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or decree of a court of competent jurisdiction in a reorganization proceeding
under any applicable bankruptcy, insolvency or similar law which gives effect
to the subordination of the Notes to Senior Indebtedness in a manner and with
an effect which would be required if this sentence were not included in this
paragraph.
No direct or indirect payment by or on behalf of the Company of Senior
Subordinated Obligations, whether pursuant to the terms of the Notes or upon
acceleration or otherwise, shall be made if, at the time of such payment,
there exists a default in the payment of all or any portion of the obligations
under or with respect to any Senior Indebtedness of the Company and such
default shall not have been cured or waived or the benefits of this sentence
waived by or on behalf of the holders of such Senior Indebtedness. In
addition, during the continuance of any other event of default with respect to
any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated, upon receipt by the Trustee of written notice from the trustee
or other representative for the holders of such Designated Senior Indebtedness
(or the holders of at least a majority in principal amount of such Designated
Senior Indebtedness then outstanding), no payment of Senior Subordinated
Obligations may be made by or on behalf of the Company upon or in respect of
the Notes for a period (a "Payment Blockage Period") commencing on the date of
receipt of such notice and ending 179 days thereafter (unless, in each case,
such Payment Blockage Period shall be terminated (i) by written notice to the
Trustee from such trustee of, or other representatives for, such holders or
(ii) by such event of default having been cured or waived or otherwise ceasing
to exist or (iii) by payment in full in cash or cash equivalents of such
Designated Senior Indebtedness). Not more than one Payment Blockage Period may
be commenced with respect to the Notes during any period of 360 consecutive
days. Notwithstanding anything in the Indenture to the contrary, there must be
180 consecutive days in any 360-day period in which no Payment Blockage Period
is in effect. No event of default that existed or was continuing (it being
acknowledged that any subsequent action that would give rise to an event of
default pursuant to any provision under which an event of default previously
existed or was continuing shall constitute a new event of default for this
purpose) on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period shall be, or shall be made, the basis for the commencement of a second
Payment Blockage Period by the representative for, or the holders of, such
Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default shall have been cured or waived
for a period of not less than 90 consecutive days.
To the extent any payment of Senior Indebtedness (whether by or on behalf of
the Company, as proceeds of security or enforcement of any right of setoff or
otherwise) is declared to be fraudulent or preferential, set aside or required
to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Senior Indebtedness or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as
if such payment had not occurred. To the extent the obligation to repay any
Senior Indebtedness is declared to be fraudulent, invalid, or otherwise set
aside under any bankruptcy, insolvency, receivership, fraudulent conveyance or
similar law, then the obligation so declared fraudulent, invalid or otherwise
set aside (and all other amounts that would come due with respect thereto had
such obligation not been so affected) shall be deemed to be reinstated and
outstanding as Senior Indebtedness for all purposes hereof as if such
declaration, invalidity or setting aside had not occurred.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provision referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the Holders to accelerate the maturity
thereof. See "--Events of Default."
By reason of the subordination provisions described above, in the event of
liquidation or insolvency, creditors of the Company who are not holders of
Senior Indebtedness may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than Holders of the Notes.
The subordination provisions described above will cease to be applicable to
the Notes upon any defeasance of the Notes described under "--Defeasance."
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CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness
The Company will not, and will not permit any of its Restricted Subsidiaries
to, Incur any Indebtedness; provided that the Company may Incur Indebtedness
or Acquired Indebtedness and any Restricted Subsidiary may Incur Acquired
Indebtedness, if, on the date of such Incurrence, after giving pro forma
effect to the Incurrence of such Indebtedness and the receipt and application
of the proceeds therefrom, the Consolidated Leverage Ratio would be less than
or equal to 7.0 to 1, for Indebtedness Incurred on or prior to March 31, 1999,
or 6.0 to 1, for Indebtedness Incurred thereafter.
Notwithstanding the foregoing, the Company and, to the extent provided
below, any Restricted Subsidiary may Incur the following (each, "Permitted
Indebtedness"):
(i) Indebtedness of the Company Incurred under the Credit Agreement, or
Guarantees thereof pursuant to the Credit Agreement, in an aggregate
principal amount at any time outstanding not to exceed $1.65 billion less
any amount of Indebtedness permanently repaid as provided under the
"Limitation on Asset Sales" covenant described below;
(ii) Indebtedness of the Company or any Restricted Subsidiary to the
Company or any Wholly Owned Restricted Subsidiary as long as such
Indebtedness continues to be owed to the Company or any Wholly Owned
Restricted Subsidiary;
(iii) Indebtedness of the Company pursuant to the Notes and Indebtedness
of any Guarantor pursuant to a Subsidiary Guarantee of the Notes;
(iv) Indebtedness consisting of Guarantees by a Person that becomes a
Restricted Subsidiary of Indebtedness Incurred by the Company to finance
the acquisition of such Person, provided, that the Incurrence of the
Indebtedness being Guaranteed is permitted under the Indenture;
(v) Indebtedness consisting of Guarantees by Restricted Subsidiaries
which Guarantees are permitted to be Incurred under the "Limitation on
Issuances of Guarantees by Restricted Subsidiaries" covenant;
(vi) Indebtedness of the Company or any Restricted Subsidiary ("Permitted
Refinancing Indebtedness") issued in exchange for, or the net proceeds of
which are used to refinance or refund, then outstanding Indebtedness (other
than Indebtedness of the Company pursuant to the Credit Agreement), in an
amount not to exceed the amount so refinanced or refunded (plus premiums,
accrued interest, fees and expenses); provided that Indebtedness the
proceeds of which are used to refinance or refund the Notes or Indebtedness
that is pari passu with, or subordinated in right of payment to, the Notes
shall only be permitted under this clause (vi) if (A) in case the Notes are
refinanced in part or the Indebtedness to be refinanced is pari passu with
the Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made
subordinate in right of payment to the Notes at least to the extent that
the Indebtedness to be refinanced is subordinated to the Notes and (C) such
new Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no
event may Indebtedness of the Company be refinanced pursuant to this clause
(vi) by means of any Indebtedness of any Restricted Subsidiary;
(vii) Indebtedness of the Company or any Restricted Subsidiary (A) in
respect of bid, performance, surety or appeal bonds provided in the
ordinary course of business consistent with past practice, (B) under
Currency Agreements and Interest Rate Agreements (provided that such
Currency Agreements do not
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increase the Indebtedness of the obligor outstanding at any time other than
as a result of fluctuations in foreign currency exchange rates or by reason
of fees, indemnities and compensation payable thereunder) or (C) arising
from agreements providing for indemnification, adjustment of purchase price
or similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company pursuant
to such agreements, in any case Incurred in connection with the disposition
of any business, assets or Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds
actually received by the Company or any Restricted Subsidiary in connection
with such disposition;
(viii) Indebtedness of the Company or any Restricted Subsidiary under
letters of credit and bankers' acceptances issued in the ordinary course of
business;
(ix) Indebtedness of the Company, to the extent the net proceeds thereof
are promptly (A) used to purchase Notes tendered in an Offer to Purchase
made as a result of a Change in Control or (B) deposited to defease the
Notes as described below under "Defeasance";
(x) Indebtedness of the Company or any Restricted Subsidiary outstanding
on the Issue Date (other than Indebtedness described in clause (i), (ii) or
(iii) of this covenant);
(xi) Indebtedness of the Company or any Restricted Subsidiary in an
aggregate principal amount at any time outstanding not to exceed $100
million ; and
(xii) Indebtedness of Restricted Subsidiaries in an aggregate principal
amount at any time outstanding not to exceed $200 million, provided, that,
after giving pro forma effect to the Incurrence of such Indebtedness and
the application of the proceeds therefrom, the Company could Incur at least
$1.00 of Indebtedness under the first paragraph above.
For purposes of determining compliance with the "Limitation on Indebtedness"
covenant described in the two preceding paragraphs, (A) in the event that an
item of Indebtedness meets the criteria of more than one of the types of
Indebtedness described in the clauses of the preceding paragraph, the Company,
in its sole discretion, shall classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of such
clauses, (B) an item of Indebtedness may be divided and classified in more
than one of the types of Indebtedness described above and (C) the amount of
Indebtedness issued at a price that is less than the principal amount thereof
shall be equal to the amount of the liability in respect thereof determined in
conformity with GAAP.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly (such payments and other actions described in clauses
(i) through (iv) being collectively "Restricted Payments"):
(i) declare or pay any dividend or make any distribution on its Capital
Stock (other than (x) dividends or distributions payable solely in shares
of its or such Restricted Subsidiary's Capital Stock (other than Redeemable
Stock) or in options, warrants or other rights to acquire shares of Capital
Stock (other than Redeemable Stock) or (y) pro rata dividends or
distributions on Common Stock of Restricted Subsidiaries held by minority
stockholders) held by Persons other than the Company or any of its Wholly
Owned Restricted Subsidiaries;
(ii) purchase, redeem, retire or otherwise acquire for value any shares
of Capital Stock of the Company or any Subsidiary (including options,
warrants or other rights to acquire such shares of Capital Stock) held by
Persons other than the Company or any of its Wholly Owned Restricted
Subsidiaries;
(iii) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value of any Subordinated Obligations or any intercompany
debt owed to SOFTBANK Corp. or its Affiliates (other than the Company and
its Restricted Subsidiaries); provided, that this clause (iii) shall not
apply to the Existing Softbank Note; or
(iv) make any Investment that is a Restricted Investment;
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if, at the time of, and after giving effect to, the proposed Restricted
Payment: (A) a Default or Event of Default shall have occurred and be
continuing, (B) the Company could not Incur at least $1.00 of Indebtedness
under the first paragraph of the "Limitation on Indebtedness" covenant or (C)
the aggregate amount expended for all Restricted Payments (the amount so
expended, if other than in cash, to be determined in good faith by the Board
of Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) after the Issue Date would exceed the sum of (1) the remainder of
(x) the aggregate amount of Consolidated EBITDA (or, if the Consolidated
EBITDA is negative, minus 100% of such negative amount) accrued on a
cumulative basis during the period (taken as one accounting period) beginning
on the first day of the fiscal quarter during which the Issue Date occurs and
ending on the last day of the last fiscal quarter preceding the Transaction
Date for which reports have been filed pursuant to the "SEC Reports" covenant
minus (y) the product of 1.4 multiplied by the aggregate amount of
Consolidated Interest Expense accrued on a cumulative basis for the period
referred to in clause (x) plus (2) the Net Proceeds received by the Company
from the issuance and sale permitted by the Indenture of its Capital Stock
(other than Redeemable Stock) to a Person who is not a Subsidiary, including
an issuance or sale permitted by the Indenture of Indebtedness of the Company
subsequent to the Issue Date upon the conversion or exchange of such
Indebtedness into Capital Stock (other than Redeemable Stock) of the Company,
or from the issuance to any Person who is not a Subsidiary of any options,
warrants or other rights to acquire Capital Stock of the Company (in each
case, exclusive of any Redeemable Stock or any options, warrants or other
rights to acquire Redeemable Stock) plus (3) an amount equal to the net
reduction in Restricted Investments in any Person resulting from payments of
dividends, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary or from the Net Cash
Proceeds from the sale of any such Investment (except, in each case, to the
extent any such payment or proceeds are included in the calculation of
Adjusted Consolidated Net Income), or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as provided in
the definition of "Investments"), not to exceed, in each case, the amount of
Investments previously made by the Company and any Restricted Subsidiary in
such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at
said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Subordinated Obligations including premium, if any,
and accrued and unpaid interest, with the proceeds of, or in exchange for,
Permitted Refinancing Indebtedness; (iii) the repurchase, redemption or other
acquisition of Capital Stock of the Company in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of Capital Stock
(other than Redeemable Stock) of the Company; (iv) the making of any principal
payment or the repurchase, retirement, defeasance or other acquisition for
value of Subordinated Obligations of the Company in exchange for, or out of
the proceeds of, a substantially concurrent offering of, shares of the Capital
Stock of the Company (other than Redeemable Stock); (v) the purchase,
redemption, acquisition, cancellation or other retirement for value of shares
of Capital Stock of the Company, options on any such shares or related stock
appreciation rights or similar securities held by officers or employees or
former officers or employees (or their estates or beneficiaries under their
estates), upon death, disability, retirement, severance or termination of
employment or pursuant to any agreement under which such shares of stock or
related rights were issued; provided that the aggregate cash consideration
paid for such purchase, redemption, acquisition, cancellation or other
retirement of such shares of Capital Stock or related rights after the Issue
Date does not exceed an aggregate amount of $10 million in any twelve month
period; (vi) Investments acquired in exchange for Capital Stock (other than
Redeemable Stock) of the Company; (vii) payments or distributions pursuant to
or in connection with a consolidation, merger or transfer of assets that
complies with the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of the Company, (viii) Investments by the Company or any of its
Restricted Subsidiaries in a joint venture or joint ventures with any Person
or Persons in an aggregate amount not to exceed $75 million, provided that
such joint venture or joint ventures is or are engaged in a business that is
similar or related, ancillary or complementary to the nature or type of the
business of the Company and its Restricted Subsidiaries and joint venture
companies existing on the date of such Investment (as determined in good faith
by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) and provided, further, that the Company
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may make up to $150 million of additional Investments under this clause (viii)
in lieu of Investments permitted to be made, but not made, pursuant to clause
(ix) hereof, (ix) Investments by the Company or any of its Restricted
Subsidiaries in an aggregate amount not to exceed $150 million in connection
with the ZDTV Acquisition; provided, that the amount of such Investments
permitted under this clause (ix) shall be reduced by the amount of Investments
in excess of $75 million made pursuant to clause (viii) hereof; or (x) any
other Restricted Payment which, together with all other Restricted Payments
made pursuant to this clause (x) since the Issue Date, does not exceed $25
million; provided that, except in the case of clauses (i) and (iii), no
Default or Event of Default shall have occurred and be continuing or occur as
a consequence of the actions or payments set forth therein. The amount of any
Restricted Payments permitted pursuant to clauses (viii), (ix) or (x) above
shall be determined after giving effect to the net reduction in the amount of
any Investment made pursuant to such clause (viii), (ix) or (x), respectively,
to the extent contemplated by clause (3) of the first paragraph above of this
"Limitation on Restricted Payments" covenant.
Each Restricted Payment permitted pursuant to the preceding paragraph
(excluding Restricted Payments referred to in clauses (ii), (vi), (viii) and
(ix)) and the Net Proceeds from any issuance of Capital Stock referred to in
clauses (iii), (iv) and (vi) shall (without duplication) be included in
calculating whether the conditions of clause (C) of the second preceding
paragraph have been met with respect to any subsequent Restricted Payments.
Limitation on Senior Subordinated Indebtedness
The Company shall not Incur any Indebtedness that is subordinate in right of
payment to any Senior Indebtedness unless such Indebtedness is pari passu
with, or subordinated in right of payment to, the Notes; provided that the
foregoing limitation shall not apply to distinctions between categories of
Senior Indebtedness of the Company that exist by reason of any Liens or
Guarantees arising or created in respect of some but not all such Senior
Indebtedness.
Limitation on Liens
The Company shall not Incur any Indebtedness secured by a Lien ("Secured
Indebtedness") which is not Senior Indebtedness (or Indebtedness that would
constitute Senior Indebtedness except that it is without recourse to the
Company) unless contemporaneously therewith effective provision is made to
secure the Notes equally and ratably with (or, if the Secured Indebtedness is
subordinated in right of payment to the Notes, prior to) such Secured
Indebtedness for so long as such Secured Indebtedness is secured by a Lien.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Company or any other Restricted Subsidiary, (ii) pay any
Indebtedness or other obligations owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any other
Restricted Subsidiary or (iv) transfer any of its property or assets to the
Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Issue Date in the Credit Agreement, the
Indenture or any other agreements in effect on the Issue Date, and any
extensions, amendments, refinancings, renewals or replacements of any of the
foregoing; provided that the encumbrances and restrictions in any such
extensions, amendments, refinancings, renewals or replacements are no less
favorable in any material respect to the Holders than those encumbrances or
restrictions that are then in effect and that are being extended, amended,
refinanced, renewed or replaced; (ii) existing under or by reason of
applicable law; (iii) existing with respect to any Person or the property or
assets of such Person acquired by the Company or any Restricted Subsidiary and
existing at the time of such acquisition, which encumbrances or restrictions
(A) are not applicable to any Person or the property or assets of any Person
other than such Person or the property or assets of such Person so acquired
and (B) were not put in place in anticipation of such acquisition, and any
extensions, refinancings, renewals or replacements of any of the foregoing;
provided that the encumbrances and
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restrictions in any such extensions, refinancings, renewals or replacements
are no less favorable in any material respect to the Holders than those
encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced; (iv) in the case of clause (iv) of
the preceding paragraph, (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is subject to
a lease, license, conveyance or contract, (B) existing by virtue of any
transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness and, that do
not, individually or in the aggregate, detract from the value of property or
assets of the Company or any Restricted Subsidiary in any manner material to
the Company or any Restricted Subsidiary; (v) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of,
or property and assets of, such Restricted Subsidiary or (vi) contained in the
terms of any Indebtedness or any agreement pursuant to which such Indebtedness
was issued if (A) the encumbrance or restriction applies only in the event of
a payment default or a default with respect to a financial covenant contained
in such Indebtedness or agreement, (B) the encumbrance or restriction is not
materially more disadvantageous to the Holders of the Notes than is customary
in comparable financings (as determined by the Company) and (C) the Company
determines that any such encumbrance or restriction will not materially affect
the Company's ability to make principal or interest payments on the Notes.
Nothing contained in the preceding paragraph shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or permitting to
exist any Lien otherwise not prohibited by the Indenture or (2) restricting
the sale or other disposition of property or assets of the Company or any of
its Restricted Subsidiaries that secure Indebtedness of the Company or any of
its Restricted Subsidiaries.
Limitation on the Issuance of Capital Stock of Restricted Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary, (ii) issuances or sales to foreign nationals of shares
of Capital Stock of foreign Restricted Subsidiaries, to the extent required by
applicable law, (iii) if, immediately after giving effect to such issuance or
sale, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary; provided that any Investment in such Person remaining after giving
effect to such issuance or sale would have been permitted to be made under the
"Limitation on Restricted Payments" covenant, if made on the date of such
issuance or sale, (iv) to the extent such shares represent directors'
qualifying shares or (v) issuances or sales of Common Stock of a Restricted
Subsidiary that remains a Restricted Subsidiary after such transaction, the
Net Cash Proceeds from which are applied in compliance with clause (A) or (B)
of the "Limitation on Asset Sales" covenant.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company or any Restricted
Subsidiary (except Indebtedness of a Restricted Subsidiary of such Restricted
Subsidiary) ("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee (a "Subsidiary Guarantee") of payment of the Notes
by such Restricted Subsidiary and (ii) such Restricted Subsidiary waives and
will not in any manner whatsoever claim or take the benefit or advantage of
any rights of reimbursement, indemnity or subrogation or any other rights
against the Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guarantee; provided
that this paragraph shall not be applicable to (I) any Guarantee of any
Restricted Subsidiary that existed at the time such Person became a Restricted
Subsidiary and was not Incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary, (II) Guarantees permitted under
clause (iv) of the second paragraph of the "Limitation on Indebtedness"
covenant, (III) any Guarantee by any Restricted Subsidiary of Indebtedness
Incurred under the Credit Agreement and permitted by the Indenture, (IV) any
Guarantee by any Restricted Subsidiary of Indebtedness Incurred by the Company
under any senior commercial term loan and/or revolving credit facility entered
into principally with commercial banks and/or other financial institutions
typically party to commercial loan agreements and permitted by the Indenture
or (V) any Guarantee by any Restricted Subsidiary of
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Indebtedness Incurred by another Restricted Subsidiary and permitted by the
Indenture. If the Guaranteed Indebtedness is (A) pari passu with the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be pari passu with,
or subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be subordinated to
the Subsidiary Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
transfer to any Person not an Affiliate of the Company, of all of the Capital
Stock of such Restricted Subsidiary directly or indirectly owned by the
Company, or all or substantially all the assets of such Restricted Subsidiary
(which sale, exchange or transfer is not prohibited by the Indenture) or (ii)
the release or discharge of the Guarantee which resulted in the creation of
such Subsidiary Guarantee, except a discharge or release by or as a result of
payment under such Guarantee.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale unless: (i) such Asset Sale is effected at not less
than fair market value (as determined in good faith by the Board of
Directors); and (ii) either (x) at least 75% of the consideration is received
in cash, Temporary Cash Investments or the assumption of Indebtedness (other
than Subordinated Obligations) or (y) the consideration therefor received by
the Company or any Restricted Subsidiary is in the form of equity or debt
securities of the transferee of such assets; provided, that Asset Sales
pursuant to this clause (y) shall not exceed an aggregate of $25 million in
any twelve month period. In the event and to the extent that the Net Cash
Proceeds received by the Company or its Restricted Subsidiaries from one or
more Asset Sales occurring on or after the Issue Date in any period of 12
consecutive months exceed $20 million, the Company, shall, or shall cause one
or more of its Restricted Subsidiaries to, (1) within twelve months after the
date such Net Cash Proceeds exceed $20 million, (A) apply an amount equal to
such excess Net Cash Proceeds to permanently repay Senior Indebtedness of the
Company or Indebtedness of any Restricted Subsidiary, as the case may be, in
each case owing to a Person other than the Company or any of its Restricted
Subsidiaries or (B) invest an equal amount, or the amount not so applied
pursuant to clause (A) (or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement), in the business of
the Company and its Restricted Subsidiaries as of the date of application of
such amounts (or in Capital Stock of a Restricted Subsidiary or a Person
engaged either in the same business as the Company or any of its Restricted
Subsidiaries or a business related, ancillary or complementary thereto that,
as a result of such Investment, becomes a Restricted Subsidiary) and (2) apply
such excess Net Cash Proceeds (to the extent not applied pursuant to clause
(1) above) as provided in the following three paragraphs. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period as set forth in clause (1) of the
preceding sentence and not applied as so required by the end of such period
shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as
defined below) totals at least $20 million, the Company must, not later than
the fifteenth Business Day of such month, make an offer (an "Excess Proceeds
Offer") to purchase from the Holders on a pro rata basis an aggregate
principal amount of Notes equal to the Excess Proceeds on such date, at a
purchase price equal to 100% of the principal amount of the Notes, plus, in
each case, accrued interest (if any) to the date of purchase (the "Excess
Proceeds Payment").
The Company will commence an Excess Proceeds Offer by mailing a notice to
the Trustee and each Holder stating: (i) that the Excess Proceeds Offer is
being made pursuant to the "Limitation on Asset Sales" covenant of the
Indenture and that all Notes validly tendered will be accepted for payment on
a pro rata basis; (ii) the purchase price and the expiration date for such
Excess Proceeds Offer (which shall be the date not less than 20 Business Days
from the date such notice is mailed) (the "Excess Proceeds Offer Expiration
Date"); (iii) that any Note not tendered will continue to accrue interest
pursuant to its terms; (iv) that, unless the Company defaults in the payment
of the Excess Proceeds Payment, any Note accepted for payment pursuant to the
Excess Proceeds Offer shall cease to accrue interest on and after the Excess
Proceeds Payment Date (as defined below); (v) that
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Holders electing to have a Note purchased pursuant to the Excess Proceeds
Offer will be required to surrender the Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the
Note completed, to the paying agent at the address specified in the notice
prior to the close of business on the Excess Proceeds Offer Expiration Date;
(vi) that Holders will be entitled to withdraw their election if the paying
agent receives, not later than the close of business on the Excess Proceeds
Offer Expiration Date, a facsimile transmission or letter setting forth the
name of such Holder, the principal amount of Notes delivered for purchase and
a statement that such Holder is withdrawing his election to have such Notes
purchased; and (vii) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples thereof.
On a date no more than four Business Days after the Excess Proceeds Offer
Expiration Date (the "Excess Proceeds Payment Date"), the Company will (i)
accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to the Excess Proceeds Offer; (ii) deposit with the paying agent
money sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all
Notes or portions thereof so accepted together with an officers' certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The paying agent shall promptly mail to the Holders of Notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall
promptly authenticate and mail to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered; provided that each
Note purchased and each new Note issued shall be in a principal amount of
$1,000 or integral multiples thereof. The Company will publicly announce the
results of the Excess Proceeds Offer as soon as practicable after the Excess
Proceeds Offer Expiration Date. For purposes of the "Limitation on Asset
Sales" covenant of the Indenture, the Trustee shall act as the paying agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are
received by the Company under the "Limitation on Asset Sales" covenant of the
Indenture and the Company is required to repurchase Notes as described above.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary
(each, a "Related Party Transaction"), except upon fair and reasonable
economic terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
In addition, and without limiting the foregoing, (i) any Related Party
Transaction or series of Related Party Transactions with an aggregate value in
excess of $5 million must first be approved by a majority of the Board of
Directors of the Company who are disinterested in the subject matter of the
transaction pursuant to a Board Resolution, and (ii) with respect to any
Related Party Transaction or series of Related Party Transactions with an
aggregate value in excess of $10 million, the Company must first obtain a
favorable written opinion from a nationally recognized investment banking firm
or nationally recognized independent accounting or consulting firm as to the
fairness from a financial point of view of such transaction to the Company or
such Subsidiary, as the case may be.
The foregoing limitation does not limit, and shall not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries, (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company,
(iii) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments " covenant or (iv) transactions pursuant to Existing Affiliate
Agreements.
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Repurchase of Notes upon a Change of Control
Upon the occurrence of a Change of Control, each Holder shall have the right
to require the repurchase of its Notes by the Company in cash pursuant to the
offer described below (the "Change of Control Offer") at a
purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the date of purchase (the "Change of Control Payment").
Prior to the mailing of the notice to Holders provided for in the succeeding
paragraph, but in any event within 30 days following any Change of Control,
the Company covenants to (i) repay in full all indebtedness of the Company
that would prohibit the repurchase of the Notes as provided for in the
succeeding paragraph or (ii) obtain any requisite consents under instruments
governing any such indebtedness of the Company to permit the repurchase of the
Notes as provided for in the succeeding paragraph. The Company shall first
comply with the covenant in the preceding sentence before it shall be required
to repurchase Notes pursuant to the "Repurchase of Notes upon a Change of
Control" covenant of the Indenture.
Within 30 days of the Change of Control, the Company shall mail a notice to
the Trustee and each Holder stating: (i) that a Change of Control has occurred
(and a brief description of the events resulting in such Change of Control),
that the Change of Control Offer is being made pursuant to the "Repurchase of
Notes upon a Change of Control" covenant of the Indenture and that all Notes
validly tendered will be accepted for payment; (ii) the purchase price and the
expiration date for such Change of Control Offer (which shall be the date not
less than 20 Business Days from the date such notice is mailed) (the "Change
of Control Offer Expiration Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the
Company defaults in the payment of the Change of Control Payment, any Note
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest on and after the Change of Control Payment Date (as defined
below); (v) that Holders electing to have any Note or portion thereof
purchased pursuant to the Change of Control Offer will be required to
surrender such Note, together with the form entitled "Option of the Holder to
Elect Purchase" on the reverse side of such Note completed, to the paying
agent at the address specified in the notice prior to the close of business on
the Change of Control Offer Expiration Date; (vi) that Holders will be
entitled to withdraw their election if the paying agent receives, not later
than the close of business on the Change of Control Offer Expiration Date, a
facsimile transmission or letter setting forth the name of such Holder, the
principal amount of Notes delivered for purchase and a statement that such
Holder is withdrawing his election to have such Notes purchased; and (vii)
that Holders whose Notes are being purchased only in part will be issued new
Notes equal in principal amount to the unpurchased portion of the Notes
surrendered; provided that each Note purchased and each new Note issued shall
be in a principal amount of $1,000 or integral multiples thereof.
On a date no more than four business days after the Change of Control Offer
Expiration Date (the "Change of Control Payment Date"), the Company will: (i)
accept for payment Notes or portions thereof tendered pursuant to the Change
of Control Offer; (ii) deposit with the paying agent money sufficient to pay
the purchase price of all Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee, all Notes or portions
thereof so accepted together with an Officers' Certificate specifying the
Notes or portions thereof accepted for payment by the Company. The paying
agent shall promptly mail, to the Holders of Notes so accepted, payment in an
amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Offer Expiration Date. For purposes of the "Repurchase of Notes upon a
Change of Control" covenant of the Indenture, the Trustee shall act as paying
agent.
The Company will not be required to make a Change of Control Offer if a
third party makes an offer to purchase Notes in the manner, at the times and
otherwise in compliance with the requirements set forth in the Indenture
applicable to the Change of Control Offer to be made by the Company and
purchases all Notes validly tendered and not withdrawn under such offer to
purchase.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of
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Control occurs and the Company is required to repurchase the Notes under the
"Repurchase of Notes upon a Change of Control" covenant of the Indenture.
If the Company is unable to repay all of its indebtedness that would
prohibit repurchase of the Notes or is unable to obtain the consents of the
holders of indebtedness, if any, of the Company outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase
of Notes, then the Company
will have breached the "Repurchase of Notes upon a Change of Control" covenant
of the Indenture. This breach will constitute an Event of Default under the
Indenture if it continues for a period of 60 consecutive days after written
notice is given to the Company by the Trustee or the Holders of at least 25%
in aggregate principal amount of the Notes outstanding. In addition, the
failure by the Company to repurchase Notes at the conclusion of the Change of
Control Offer will constitute an Event of Default without any waiting period
or notice requirements.
There can be no assurances that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the "Repurchase of Notes upon a
Change of Control" covenant of the Indenture (as well as may be contained in
other securities of the Company that might be outstanding at the time). The
"Repurchase of Notes upon a Change of Control" covenant of the Indenture will,
unless the consents referred to above are obtained, require the Company to
repay all indebtedness then outstanding that by its terms would prohibit such
Note repurchase, either prior to or concurrently with such Note repurchase.
The Credit Facility will prohibit the Company from purchasing the Notes except
in certain limited circumstances beginning in the year 2000 depending upon the
Company's amount of leverage.
LIMITATION OF APPLICABILITY OF CERTAIN COVENANTS IF NOTES RATED INVESTMENT
GRADE
Notwithstanding the foregoing, the Company's and its Restricted
Subsidiaries' obligations to comply with the provisions of the Indenture
described above under the captions "--Certain Covenants--Limitation on
Indebtedness", "--Limitation on Restricted Payments", "--Limitation on Senior
Subordinated Indebtedness," "--Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries", "--Limitation on the Issuance
of Capital Stock of Restricted Subsidiaries", "--Limitation on Asset Sales"
and "--Limitation on Transactions with Shareholders and Affiliates" will
terminate if and when the Notes are Investment Grade Rated.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company shall not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person nor permit any
Person to merge with or into the Company unless:
(i) the Company shall be the continuing Person, or the Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or that acquired or leased such property and assets of the Company
shall be a corporation organized and validly existing under the laws of the
United States of America or any jurisdiction thereof and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee,
all of the obligations of the Company on all of the Notes and under the
Indenture;
(ii) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a pro forma
basis, but not including the effect of any purchase accounting adjustments,
the Company, or any Person becoming the successor obligor of the Notes
shall have a Consolidated Net Worth at least equal to the Consolidated Net
Worth of the Company immediately prior to such transactions, provided that
this clause (iii) shall not apply to a consolidation or merger with or into
a Wholly Owned Restricted Subsidiary with a positive net worth;
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provided that, in connection with any such merger or consolidation, no
consideration (other than Common Stock in the surviving Person or the
Company) shall be issued or distributed to the stockholders of the Company;
(iv) immediately after giving effect to such transaction on a pro forma
basis, the Company, or any Person becoming the successor obligor of the
Notes could Incur at least $1.00 of Indebtedness under the first paragraph
of the "Limitation on Indebtedness" covenant provided that this clause (iv)
shall not apply to a consolidation or merger with or into a Wholly Owned
Restricted Subsidiary with a positive net worth;
provided that, in connection with any such merger or consolidation, no
consideration (other than Common Stock in the surviving Person or the
Company) shall be issued or distributed to the stockholders of the Company;
and
(v) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clauses (iii) and (iv) above) and opinion of counsel, in each case stating
that such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided for
herein relating to such transaction have been complied with; provided that
clauses (iii) and (iv) above do not apply if, in the good faith
determination of the Board of Directors of the Company, whose determination
shall be evidenced by a Board Resolution, the principal purpose of such
transaction is to change the state of incorporation of the Company; and
provided further that any such transaction shall not have as one of its
purposes the evasion of the foregoing limitations.
SEC REPORTS
The Indenture provides that whether or not the Company is then required to
file with the Commission information, documents or reports pursuant to Section
13 or Section 15(d) of the Exchange Act, the Company will file with the
Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the supplementary and
periodic information, documents and reports which would be required pursuant
to such sections if the Company were subject thereto.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of, or premium, if any, on
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; whether or not such payment is prohibited by the
provisions described above under "--Ranking and Subordination"; (b) default in
the payment of interest on any Note when the same becomes due and payable, and
such default continues for a period of 30 days; whether or not such payment is
prohibited by the provisions described above under "--Ranking and
Subordination"; (c) default in the performance or breach of the provisions of
the Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or the failure to purchase
Notes tendered in a Change of Control Offer or Excess Proceeds Offer in
accordance with the "Limitation on Asset Sales" or "Repurchase of Notes upon a
Change of Control" covenant; (d) the Company or any Guarantor defaults in the
performance of or breaches any other covenant or agreement in the Indenture or
under the Notes (other than (a), (b) or (c) above) and such default or breach
continues for a period of 60 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
Notes; (e) there occurs with respect to any issue or issues of Indebtedness of
the Company or any of its Significant Subsidiaries having an outstanding
principal amount of $25 million individually or $50 million in the aggregate
for all such issues of all such Persons, whether such Indebtedness now exists
or shall hereafter be created, (i) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior to its
Stated Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 60 days of such
acceleration and/or (ii) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 60 days of such payment default; (f) any
final judgment or order for the payment of money in excess of $25 million in
the aggregate for all such final judgments or orders against all such Persons
shall be rendered against the Company
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and/or any of its Significant Subsidiaries and shall not be paid or
discharged, and there shall be any period of 60 consecutive days following
entry of the final judgment or order that causes the aggregate amount for all
such final judgments or orders outstanding and not paid or discharged or
bonded against all such Persons to exceed $25 million (in excess of amounts
which the Company's insurance carriers have agreed to pay under applicable
policies) during which a stay of enforcement of such final judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; (g) a
court having jurisdiction in the premises enters a decree or order for (A)
relief in respect of the Company or any of its Significant Subsidiaries in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (B) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company
or any of its Significant Subsidiaries
or for all or substantially all of the property and assets of the Company or
any of its Significant Subsidiaries or (C) the winding up or liquidation of
the affairs of the Company or any of its Significant Subsidiaries and, in each
case, such decree or order shall remain unstayed and in effect for a period of
60 consecutive days; or (h) the Company or any of its Significant Subsidiaries
(A) commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any of
its Significant Subsidiaries or for all or substantially all of the property
and assets of the Company or any of its Significant Subsidiaries or (C)
effects any general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders (the
"Acceleration Notice")), may, and the Trustee at the request of such Holders
shall, declare the principal of, premium, if any, and accrued interest on the
Notes to be immediately due and payable. Upon a declaration of acceleration,
such principal of, premium, if any, and accrued interest shall be immediately
due and payable; provided, however, that if there are any amounts outstanding
under the Credit Agreement, such declaration shall not become effective until
the earlier of (i) an acceleration of the Indebtedness under the Credit
Agreement and (ii) 5 Business Days after receipt by the Company and the Bank
Agent of such Acceleration Notice. In the event of a declaration of
acceleration because an Event of Default set forth in clause (f) above has
occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by the
Company or the relevant Significant Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in clause (g) or (h)
above occurs with respect to the Company, the principal of, premium, if any,
and accrued interest on the Notes then outstanding shall ipso facto become and
be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder. The Holders of at least a majority in
principal amount of the outstanding Notes by written notice to the Company and
to the Trustee, may waive all past defaults and rescind and annul a
declaration of acceleration and its consequences if (i) all existing Events of
Default, other than the nonpayment of the principal of, premium, if any, and
interest on the Notes that have become due solely by such declaration of
acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. For
information as to the waiver of defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of Holders of Notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from Holders of Notes. A
Holder may not pursue any remedy with respect to the Indenture or the Notes
unless: (i) the Holder gives the Trustee written notice of a continuing Event
of Default; (ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the remedy;
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(iii) such Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the Holders of at least
a majority in aggregate principal amount of the outstanding Notes do not give
the Trustee a direction that is inconsistent with the request. However, such
limitations do not apply to the right of any Holder of a Note to receive
payment of the principal of, premium, if any, or interest on, such Note or to
bring suit for the enforcement of any such payment, on or after the due date
expressed in the Notes, which right shall not be impaired or affected without
the consent of the Holder.
The Indenture will require certain officers of the Company to certify, on or
before a date not more than 90 days after the end of each fiscal year, that
they have conducted or supervised a review of the activities of the Company
and its Restricted Subsidiaries and the Company's and its Restricted
Subsidiaries' performance under the Indenture and that, to the best of such
officer's knowledge, based upon such review, the Company has fulfilled all
obligations thereunder or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. The Company will also be obligated to notify the Trustee of any
default or defaults in the performance of any covenants or agreements under
the Indenture.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company,
the Guarantors and the Trustee with the consent of the Holders of not less
than a majority in aggregate principal amount of the outstanding Notes;
provided that no such modification or amendment may, without the consent of
each Holder affected thereby, (i) change the Stated Maturity of the principal
of, or any installment of interest on, any Note, (ii) reduce the principal
amount of, or premium, if any, or interest on, any Note, (iii) reduce any
amount payable on redemption of the Notes or upon the occurrence of an Event
of Default or reduce the Change of Control Payment or the Excess Proceeds
Offer Payment, (iv) change the place or currency of payment of principal of,
premium, if any, or interest on, any Note, (v) impair the right to institute
suit for the enforcement of any payment on or after the Stated Maturity (or,
in the case of a redemption, on or after the Redemption Date) of any Note,
(vi) reduce the above-stated percentage of outstanding Notes the consent of
whose Holders is necessary to modify or amend the Indenture, (vii) waive a
default in the payment of principal of, premium, if any, or interest on the
Notes, (viii) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults, (ix) modify or change any provision of the Indenture affecting the
ranking of the Notes or the Subsidiary Guarantee in a manner adverse to the
holders of the Notes or (x) release any Guarantor from any of its obligations
under its Subsidiary Guarantee or the Indenture other than in accordance with
the provisions of the Indenture, or amend or modify any provision relating to
such release.
Neither the Company nor any of its Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise to any Holder of any notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes (and any Guarantor will be discharged from any and all
obligations in respect of its Subsidiary Guarantee) on the 123rd day after the
deposit referred to below, and the provisions of the Indenture will no longer
be in effect with respect to the Notes and the Subsidiary Guarantees (except
for, among other matters, certain obligations to register the transfer or
exchange of the Notes, to replace stolen, lost or mutilated Notes, to maintain
paying agencies and to hold monies for payment in trust) if, among other
things, (A) the Company has deposited with the Trustee, in trust, money and/or
U.S. Government Obligations that through the payment of interest and principal
in respect thereof in accordance with their terms
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will provide money in an amount sufficient to pay the principal of, premium,
if any, and accrued interest on the Notes on the Stated Maturity of such
payments in accordance with the terms of the Indenture and the Notes, (B) the
Company has delivered to the Trustee (i) either (x) an opinion of counsel to
the effect that Holders will not recognize income, gain or loss for Federal
income tax purposes as a result of the Company's exercise of its option under
this "Defeasance" provision and will be subject to Federal income tax on the
same amount and in the same manner and at the same times as would have been
the case if such deposit, defeasance and discharge had not occurred, which
opinion of counsel must be based upon (and accompanied by a copy of) a ruling
of the Internal Revenue Service to the same effect unless there has been a
change in applicable Federal income tax law after the date of the Indenture
such that a ruling is no longer required or (y) a ruling directed to the
Trustee received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the effect
that the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days following the deposit,
the trust fund will not be subject to the effect of Section 547 of the United
States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law,
(C) immediately after giving effect to such deposit on a pro forma basis, no
Event of Default, or event that after the giving of notice or lapse of time or
both would become an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Company is a party or by which the Company is bound, and (D) if
at such time the Notes are listed on a national securities exchange, the
Company has delivered to the Trustee an opinion of counsel to the effect that
the Notes will not be delisted as a result of such deposit, defeasance and
discharge.
Defeasance of Certain Covenants and Certain Events of Default. The Indenture
further will provide that the provisions of the Indenture will no longer be in
effect with respect to clauses (iii), (iv) and (v) under "--Consolidation,
Merger and Sale of Assets" and all the covenants described under "--Certain
Covenants," and clauses (c) and (d) under "--Events of Default" with respect
to such covenants shall be deemed not to be Events of Default, upon, among
other things, the deposit with the Trustee, in trust, of money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued interest on
the Notes on the Stated Maturity of such payments in accordance with the terms
of the Indenture and the Notes, the satisfaction of the provisions described
in clauses (B)(ii), (C) and (D) of the preceding paragraph and the delivery by
the Company to the Trustee of an opinion of counsel to the effect that, among
other things, the Holders will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit and defeasance of certain
covenants and Events of Default and will be subject to Federal income tax on
the same amount and in the same manner and at the same times as would have
been the case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions
of the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Notes at the time
of the acceleration resulting from such Event of Default. However, the Company
will remain liable for such payments.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any
of the Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, shareholder, officer,
director, employee or controlling person of the Company or of any successor
Person thereof. Each Holder, by accepting the Notes, waives and releases all
such liability.
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CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default, the
Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in
its exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as amended,
incorporated by reference therein contain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided that if its acquires any conflicting
interest, it must eliminate such conflict or resign.
GOVERNING LAW
The contractual rights and obligations of the Company and any Guarantor and
the rights of the holders of the Notes arising out of or in connection with
the Notes, including the obligation of the Company and any Guarantor to pay
all principal, interest and any other amounts payable under the Indenture and
the Notes, will be governed by, and shall be construed in accordance with, the
laws of the State of New York without giving effect to the conflict of laws
provisions thereof.
BOOK-ENTRY; DELIVERY AND FORM
The Notes will be represented by one or more permanent global Notes in
definitive, fully registered form without interest coupons ("Global Notes")
and will be deposited with the Trustee as custodian for, and registered in the
name of, a nominee of DTC. Except in the limited circumstances described
below, owners of beneficial interests in a Global Note will not be entitled to
receive physical delivery of Certificated Notes (as defined below).
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
Investors also may hold their interests in a Note directly through Cedel
Bank, societe anonyme ("Cedel") or Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system ("Euroclear"), if they
are participants in such systems, or indirectly through organizations that are
participants in such system. Cedel and Euroclear will hold interests in the
Notes on behalf of their participants through DTC.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with the applicable procedures of DTC, in addition to those provided for under
the Indenture and, if applicable, those of Euroclear and Cedel.
Payments of the principal of, premium, if any, and interest on, a Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. Neither the Company, the Trustee nor any paying agent under the
Indenture will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
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The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of a Global Note, will
credit participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests
in such Global Note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Cedel will be effected in the ordinary
way in accordance with their respective rules and operating procedures.
The Company expects that DTC will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in a Global Note is credited and only in respect of such portion
of the aggregate principal amount of Notes as to which such participant or
participants has or have given such direction. However, if there is an Event
of Default under the Notes, DTC will exchange the applicable Global Note for
Certificated Notes, which it will distribute to its participants.
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants and facilitate the clearance and settlement
of securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Global Note
among participants of DTC, Euroclear and Cedel, they are under no obligation
to perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Interests in the Global Notes will be exchanged for Certificated Notes if
(i) DTC notifies the Company that it is unwilling or unable to continue as
depositary for the Global Notes, or DTC ceases to be a "Clearing Agency"
registered under the Exchange Act, and a successor depositary is not appointed
by the Company within 90 days, or (ii) an Event of Default has occurred and is
continuing with respect to the Notes and DTC requests that Certificated Notes
be issued. Upon the occurrence of any of the events described in the preceding
sentence, the Company will cause the appropriate Certificated Notes to be
delivered.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other
capitalized term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person merged or consolidated with or into or became a Restricted
Subsidiary or assumed in connection with a Business Acquisition by the Company
or a Restricted Subsidiary and not Incurred in connection with, or in
contemplation
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of, such Person becoming a Restricted Subsidiary or such Business Acquisition,
provided that Indebtedness of such Person which is redeemed, defeased, retired
or otherwise repaid at the time of or immediately upon consummation of the
transactions by which such Person becomes a Restricted Subsidiary or such
Business Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such
period determined in conformity with GAAP; provided that the following items
shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income (but not loss) of any Person that is not a
Restricted Subsidiary, except to the extent of the amount of dividends or
other distributions that are actually paid in cash to the Company or any of
its Restricted Subsidiaries by such Person during such period; (ii) solely for
the purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the "Limitation on Restricted
Payments" covenant described above (and in such case, except to the extent
includable pursuant to clause (i) above), the net income of any Person accrued
prior to the date it becomes a Restricted Subsidiary or is merged into or
consolidated with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by
the Company or any of its Restricted Subsidiaries; (iii) the net income (or
loss) of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such Restricted Subsidiary of
such net income is not permitted at such time of determination by its charter
or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary; (iv) any net
gains or losses (on an after-tax basis) attributable to asset sales and (v)
any net after-tax extraordinary gains or extraordinary losses.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or
a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted
Subsidiaries or (iii) any other property and assets of the Company or any of
its Restricted Subsidiaries outside the ordinary course of business of the
Company or such Restricted Subsidiary and, in each case, that is not governed
by the provisions of the Indenture applicable to mergers, consolidations and
sales of assets of the Company; provided that "Asset Sale" shall not include
(a) sales or other dispositions of inventory, receivables and other current
assets, (b) sales, transfers or other dispositions of assets constituting a
Restricted Payment permitted to be made under the "Limitation on Restricted
Payments" covenant or (c) sales or other dispositions of assets for
consideration at least equal to the fair market value of the assets sold or
disposed of (as determined in good faith by the Board of Directors), in the
case of this clause (c), to the extent that the consideration received
consists of property or assets that are to be used in the business of the
Company and its Restricted Subsidiaries.
"Average Life" means, at any date of determination with respect to any
Indebtedness, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such Indebtedness and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Bank Agent" shall mean The Bank of New York, or its successor as
administrative agent for the lenders under the Credit Agreement.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person, or any authorized committee of the Board of
Directors of such Person.
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"Business Acquisition" means (i) an Investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
with the Company or any of its Restricted Subsidiaries or (ii) an acquisition
by the Company or any of its Restricted Subsidiaries of the property and
assets of any Person other than the Company or any of its Restricted
Subsidiaries that constitute substantially all of the assets of such Person or
of any division or line of business of such Person.
"Business Disposition" means any sale, transfer or other disposition
(including by way of merger or consolidation) in one transaction or a series
of related transactions by the Company or any of its Restricted Subsidiaries
to any Person other than the Company or any of its Restricted Subsidiaries of
(i) all or substantially all of the Capital Stock of any Restricted Subsidiary
or (ii) all or substantially all of the assets of any Restricted Subsidiary or
of any division or line of business of the Company or any of its Restricted
Subsidiaries.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's capital stock or other ownership
interests, whether now outstanding or issued after the date of the Indenture,
including, without limitation, all common stock and Preferred Stock.
"Capitalized Lease" means, with respect to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person; and
"Capitalized Lease Obligation" means the rental obligations, as aforesaid,
under such lease.
"Certificated Notes" means Notes issued in the form of permanent
certificated securities in registered form in substantially the form set forth
in the Indenture.
"Change of Control" means such time as (i) any "person" or "group" (as such
terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act)
other than the Existing Stockholders becomes the ultimate "beneficial owner"
(as such term is used in Rule 13d-3 promulgated pursuant to the Exchange Act),
directly or indirectly, of more than 50% of the aggregate voting power of the
Voting Stock of the Company on a fully diluted basis; or (ii) individuals who
on the Issue Date constitute the Board of Directors of the Company (together
with any new directors whose election by such Board or whose nomination for
election by the stockholders of the Company was approved by a majority of the
directors then in office who were either directors on the Issue Date or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then
in office.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and all shares of such
Person's Capital Stock (excluding Preferred Stock of such Person), including,
without limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, for any period, the sum of Adjusted
Consolidated Net Income, plus (without duplication) the following to the
extent deducted in calculating Adjusted Consolidated Net Income: (i)
Consolidated Interest Expense; (ii) income taxes (other than income taxes
(either positive or negative) attributable to asset sales and extraordinary
gains or extraordinary losses); (iii) depreciation expense; (iv) amortization
expense; (v) all other non-cash items reducing Adjusted Consolidated Net
Income (other than items which will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be, made) less all non-cash
items increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in
conformity with GAAP and (vi) the interest component of all payments
associated with Capitalized Lease Obligations paid, accrued or scheduled to be
paid or to be accrued by the Company and its Restricted Subsidiaries during
such period; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent
Adjusted Consolidated Net Income is not otherwise reduced in accordance with
GAAP) by an amount equal to (A) the amount of the Adjusted Consolidated Net
Income attributable to such Subsidiary multiplied by (B) the quotient of (1)
the number of shares of outstanding common stock of such Subsidiary not owned
on the last day of such period by the Company or any Restricted Subsidiary
divided by (2) the total number of shares of outstanding common stock of such
Subsidiary on the last day of such period.
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"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness of the Company and its Restricted
Subsidiaries (including amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation,
calculated in accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing; the net costs
associated with Interest Rate Agreements; and interest in respect of
Indebtedness that is Guaranteed by the Company or any of its Restricted
Subsidiaries or is secured by a Lien on the assets of the Company or any of
its Restricted Subsidiaries), plus (without duplication) the product of (i)
the aggregate amount for such period of dividends on any Redeemable Stock of
the Company and its Restricted Subsidiaries and (ii) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state, local and foreign statutory tax rate, expressed as a
decimal; excluding, however, (i) any amount of such interest or dividends of
any Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof (but only in the same proportion as the
net income of such Restricted Subsidiary is excluded from the calculation of
Adjusted Consolidated Net Income pursuant to clause (iii) of the definition
thereof) and (ii) any premiums, fees and expenses (and any amortization
thereof) payable in connection with the offering of the Notes and the
consummation of the Credit Agreement, all as determined on a consolidated
basis (without taking into account Unrestricted Subsidiaries) in conformity
with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(i) the aggregate amount of Indebtedness of the Company and its Restricted
Subsidiaries on a consolidated basis outstanding at such Transaction Date to
(ii) the aggregate amount of Consolidated EBITDA for the four most recent
fiscal quarters immediately prior to such Transaction Date for which financial
statements of the Company have been filed with the Commission pursuant to "SEC
Reports" above (the "Reference Period"). In making the foregoing calculation,
(A) pro forma effect shall be given to (x) any Indebtedness (other than
Indebtedness referred to in clause (E) hereof) Incurred from the beginning of
the Reference Period through the Transaction Date, to the extent such
Indebtedness is outstanding on the Transaction Date and (y) the repayment of
any Indebtedness (other than Indebtedness referred to in clause (E) hereof)
that was outstanding during or after such Reference Period but that is not
outstanding or is to be repaid on the Transaction Date; (B) pro forma effect
shall be given to Business Dispositions and Business Acquisitions (including
giving pro forma effect to the application of proceeds of any Business
Disposition) that occur during such Reference Period or thereafter and on or
prior to the Transaction Date as if they had occurred and such proceeds had
been applied on the first day of such Reference Period; (C) pro forma effect
shall be given to asset dispositions and asset acquisitions (including giving
pro forma effect to the application of proceeds of any asset disposition) that
have been made by any Person that has become a Restricted Subsidiary or has
been merged with or into the Company or any Restricted Subsidiary during such
Reference Period or subsequent to such period and prior to the Transaction
Date and that would have constituted Business Dispositions or Business
Acquisitions had such transactions occurred when such Person was a Restricted
Subsidiary as if such Business Dispositions or Business Acquisitions were
Business Dispositions or Business Acquisitions that occurred on the first day
of such Reference Period, (D) until such time as the Reference Period includes
four fiscal quarters subsequent to the Issue Date, pro forma effect shall be
given to the Reorganization and (E) the aggregate amount of Indebtedness
outstanding at such Transaction Date will be deemed to include the average
amount of funds outstanding during such Reference Period under any revolving
credit or similar facilities of the Company or its Restricted Subsidiaries;
provided that to the extent that clause (B) or (C) of this sentence requires
that pro forma effect be given to a Business Acquisition or Business
Disposition, such pro forma calculation shall be based upon the four full
fiscal quarters immediately preceding the Transaction Date of the Person, or
division or line of business of the Person, that is acquired or disposed of
for which financial information is available.
"Consolidated Net Worth" of any Person means, at any date of determination,
stockholder's equity of such Person, less (i) any amounts attributable to
Redeemable Stock or any equity security convertible into or exchangeable for
Indebtedness, (ii) the cost of treasury stock and (iii) the principal amount
of any promissory
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notes receivable from the sale of the Capital Stock of such Person (excluding
the effects of foreign currency exchange adjustments under Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
52).
"Credit Agreement" means the credit agreement to be entered into between the
Company and Morgan Stanley Senior Funding, The Bank of New York, The Chase
Manhattan Bank and DLJ Capital Funding, as agents
for a group of financial institutions, as lenders, on or prior to the Issue
Date, together with any agreements, instruments and documents executed or
delivered pursuant to or in connection with such Credit Agreement (including,
without limitation, any Guarantee or security documents), in each case as such
Credit Agreement or such agreements, instruments or documents may be amended,
supplemented, refinanced, refunded, replaced or otherwise modified from time
to time and whether by the same or any other agent, lender or group of
lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement entered into by the Company or any
Restricted Subsidiary for the purpose of protecting such Person against
fluctuations in currency rates.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means the Indebtedness under the Credit
Agreement and any other Indebtedness constituting Senior Indebtedness that, at
the date of determination, has an aggregate principal amount outstanding of at
least $75 million and that is specifically designated by the Issuer, in the
instrument creating or evidencing such Senior Indebtedness as "Designated
Senior Indebtedness."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Affiliate Agreements" means the agreements between the Company or
any Subsidiary of the Company, on the one hand, and SOFTBANK Corp. or any of
its Affiliates (other than the Company and its Subsidiaries), on the other
hand, that are filed as exhibits to the Company's Registration Statement on
Form S-1 (File No. 333-46493), and, in each case, any renewal, extension or
amendment thereof that is on terms no less favorable to the Holders than the
terms in effect on the Issue Date.
"Existing Softbank Note" means the 9.9% promissory note due on February 28,
2009 payable to SOFTBANK Corp. by ZD COMDEX and Forums Inc. as in effect on
the Issue Date.
"Existing Stockholders" means SOFTBANK Corp. and its Affiliates.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect on the Issue Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as approved by a significant
segment of the accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation of such other Person (whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a corresponding
meaning.
"Guaranteed Indebtedness" has the meaning assigned under the "Limitation on
Issuances of Guarantees by Restricted Subsidiaries" covenant.
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"Guarantor" means any Restricted Subsidiary which issues a Subsidiary
Guarantee pursuant to the "Limitation on Issuances of Guarantees by Restricted
Subsidiaries" covenant; provided that any Guarantor that becomes an
Unrestricted Subsidiary in compliance with the "Limitation on Indebtedness"
and "Limitation on Restricted Payments" covenants shall not be a "Guarantor"
after becoming an Unrestricted Subsidiary.
"Holders" means a person in whose name a Note is registered.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness;
provided that (i) the Indebtedness of a Person existing at the time such
Person became a Subsidiary or a Restricted Subsidiary, as the case may be,
shall be deemed to have been Incurred at such time by such Subsidiary or
Restricted Subsidiary, as the case may be, and (ii) that neither the accrual
of interest nor the accretion of original issue discount shall be considered
an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), whether or not Incurred at the date of
the Indenture (i) all indebtedness of such Person for borrowed money; (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments; (iii) all obligations of such Person in respect of
letters of credit or other similar instruments (including reimbursement
obligations with respect thereto, but excluding obligations with respect to
letters of credit (including trade letters of credit) securing obligations
entered into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon or, if drawn upon, to the extent
such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement), (iv) all obligations of
such Person to pay the deferred and unpaid purchase price of property or
services (but excluding Trade Payables or accrued liabilities arising in the
ordinary course of business); (v) all Capitalized Lease Obligations of such
Person; (vi) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A) the
fair market value of such asset at such date of determination (as determined
in good faith by the Board of Directors), and (B) the amount of such
Indebtedness; (vii) all Indebtedness of other Persons Guaranteed by such
Person to the extent such Indebtedness is Guaranteed by such Person; (viii)
all Redeemable Stock issued by such Person valued at the greater of its
voluntary or involuntary maximum fixed repurchase price; and (ix) to the
extent not otherwise included in this definition, obligations under Currency
Agreements and Interest Rate Agreements. The amount of Indebtedness of any
Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the contingency
giving rise to the obligation, provided (A) that the amount outstanding at any
time of any Indebtedness issued with original issue discount is the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP, (B) that Indebtedness shall not include any liability
for federal, state, local or other taxes and (C) that money borrowed and set
aside at the time of the Incurrence of any Indebtedness in order to prefund
the payment of the interest on such Indebtedness shall not be deemed to be
"Indebtedness" so long as such money is held to secure the payment of such
interest.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement incurred by the
Company or any Restricted Subsidiary for the purpose of fixing or hedging such
Person's exposure to fluctuations in interest rates.
"Investment" means any direct or indirect advance, loan or other extension
of credit (other than advances to customers in the ordinary course of business
that are, in conformity with GAAP, recorded as accounts receivable on the
balance sheet of the lender) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by
such Person, including, without limitation, pursuant to an Asset Sale, and
shall include (i) the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary and (ii) the fair market value of the Capital Stock
(or any other Investment), held by the Company or any of its Restricted
Subsidiaries, of (or in) any Person that has ceased to be a Restricted
Subsidiary, including without limitation, by reason of any transaction
permitted by clause (iii) of the "Limitation on the Issuance of Capital Stock
of Restricted Subsidiaries" covenant provided, that
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"Investment" shall not include (i) Interest Rate Agreements and Currency
Agreements, (ii) loans and advances to employees made in the ordinary course
of business, (iii) prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and other
similar documents and (iv) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be
treated as expenses in accordance with GAAP. For purposes of the definition of
"Unrestricted Subsidiary"
and the "Limitation on Restricted Payments" covenant described above, (i)
"Investment" shall include the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its Restricted
Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary and (ii) any property transferred to or from any Person shall be
valued at its fair market value at the time of such transfer, in each case as
determined by the Board of Directors in good faith.
"Investment Grade Rated" means having a rating of BBB, A, AA or AAA, as
modified by any plus or minus indication, or an equivalent successor rating,
by S&P or any of its successors or assigns and a rating of Baa, A, Aa or Aaa,
as modified by any numerical indication, or an equivalent successor rating, by
Moody's or any of its successors or assigns.
"Issue Date" means the date and time at which the Notes are originally
issued under the Indenture.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, any option or
other agreement to sell, or any filing of or any agreement to give any
security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of
such Asset Sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and
proceeds from the conversion of other property received or to be received when
converted to cash or cash equivalents, net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale; (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale without regard to the consolidated results of operations of the Company
and its Restricted Subsidiaries, taken as a whole; (iii) payments made to
repay Indebtedness or any other obligation outstanding at the time of such
Asset Sale that either (A) is secured by a Lien on the property or assets sold
or (B) is required to be paid as a result of such sale and (iv) appropriate
amounts to be provided by the Company or any Restricted Subsidiary as a
reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP.
"Net Proceeds" means, with respect to any issuance or sale of Capital Stock,
the aggregate net proceeds of such issuance or sale in the form of cash or
cash equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or cash equivalents
(except to the extent such obligations are financed or sold with recourse to
the Company or any Restricted Subsidiary of the Company), and the fair market
value of non-cash proceeds constituting Capital Stock of a corporation engaged
in the business of the Company and its Restricted Subsidiaries or similar or
related, ancillary or complementary businesses (the fair market value of which
shall be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution), in
each case net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
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<PAGE>
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency, instrumentality or
political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference stock, whether
now outstanding or hereafter issued, including, without limitation, all series
and classes of such preferred or preference stock.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective Registration Statement
under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock of any Person
that by its terms or otherwise is (i) required to be redeemed prior to the
Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the Notes shall not
constitute Redeemable Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the
holders of such Capital Stock than the provisions contained in "Limitation on
Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants
described below and such Capital Stock specifically provides that such Person
will not repurchase or redeem any such stock pursuant to such provision prior
to the Company's repurchase of such Notes as are required to be repurchased
pursuant to the "Limitation on Asset Sales" and "Repurchase of Notes upon a
Change of Control" covenants described above. Notwithstanding the foregoing,
Capital Stock shall not be deemed to be Redeemable Stock if it may only be so
redeemed solely in consideration of Capital Stock that is not Redeemable
Stock.
"Reorganization" means that series of transactions which shall be
consummated on the Issue Date pursuant to which (i) all of the stock of Ziff-
Davis Inc. and ZD COMDEX and Forums Inc. will be contributed to the Company in
exchange for 74,200,000 shares of the Company's Common Stock, (ii) certain
obligations owed to Softbank Corporation will be converted to equity, (iii)
the Company shall issue and sell in an initial public offering 25,800,000
shares of its Common Stock and the Notes, (iv) the Company shall enter into
the Credit Agreement and borrow $1.25 billion thereunder and (v) the Company
shall apply the proceeds of the sale of its Common Stock and the Notes
referred to in clause (iii) and the borrowings under the Credit Agreement
referred to in clause (iv) to purchase from MAC Inc. certain operations and
assets relating to certain publications and trade shows and to repay certain
indebtedness owed to Softbank Corporation and its Affiliates, which
transactions shall be deemed to take place simultaneously on the Issue Date,
all as further described in the Company's Registration Statement on Form S-1
(File No. 333-46493).
"Restricted Investment" means any Investment by the Company or any
Restricted Subsidiary in any Person other than (i) an Investment in the
Company or a Restricted Subsidiary or in any Person that, as a result of such
Investment, becomes a Restricted Subsidiary or will be merged or consolidated
with or into or transfer or convey all or substantially all its assets to, the
Company or a Restricted Subsidiary; provided that such person's primary
business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such Investment, (ii)
Temporary Cash Investments and (iii) any non-cash consideration received in
connection with an Asset Sale that was made in compliance with the "Limitation
on Asset Sales" covenant.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Senior Indebtedness" means the following obligations of the Company,
whether outstanding on the Issue Date or thereafter Incurred: (i) all
Indebtedness and all other monetary obligations (including expenses, fees and
other monetary obligations) of the Company under the Credit Agreement and (ii)
all other Indebtedness of the Company (other than the Notes), including
principal and interest on such Indebtedness, unless such Indebtedness,
95
<PAGE>
by its terms or by the terms of any agreement or instrument pursuant to which
such Indebtedness is issued, is pari passu with, or subordinated in right of
payment to, the Notes; provided that the term "Senior Indebtedness"
shall not include (a) any Indebtedness of the Company that, when Incurred, was
without recourse to the Company, (b) any Indebtedness of the Company to a
Subsidiary of the Company, or to a joint venture in which the Company has an
interest, (c) any Indebtedness of the Company, to the extent not permitted by
the "Limitation on Indebtedness" covenant (but as to any such Indebtedness
under the Credit Agreement, no such violation shall be deemed to exist for
purposes of this clause (c) if the Bank Agent shall have received a
representation from an Officer of the Company to the effect that the issuance
of such Indebtedness does not violate such covenant), (d) any Indebtedness to
any employee of the Company or any of its Subsidiaries, (e) any liability for
taxes owed or owing by the Company, (f) any Trade Payables or (g) any Capital
Stock. Senior Indebtedness will also include interest accruing on or after, or
which would accrue but for, events of bankruptcy of the Company and its
Subsidiaries at the rate provided for in the document governing such Senior
Indebtedness, whether or not such interest is an allowed claim enforceable
against the debtor in a bankruptcy case under bankruptcy law.
"Senior Subordinated Obligations" means any principal of, premium, if any,
or interest on the Notes payable pursuant to the terms of the Notes or upon
acceleration, including any amounts received upon the exercise of rights of
rescission or other rights of action (including claims for damages) or
otherwise, to the extent relating to the purchase price of the Notes or
amounts corresponding to such principal, premium, if any, or interest on the
Notes.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X promulgated
under the Securities Act of 1933, as amended, as such Regulation is in effect
on the date hereof.
"S&P" means Standard & Poor's Ratings Service and its successors.
"Stated Maturity" means (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal of or interest on any
debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Subordinated Obligations" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinated or
junior in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a
combination thereof). Unless otherwise specified, "Subsidiary" means a
Subsidiary of the Company.
"Subsidiary Guarantee" has the meaning assigned under the "Limitation on
Issuances of Guarantees by Restricted Subsidiaries" covenant.
"Temporary Cash Investment" means any of the following: (i) U.S. Government
Obligations, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50 million (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "P-1" (or
higher) according to Moody's or "A-1" (or higher) according to S&P or any
money market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above,
(iv) commercial paper, maturing not more than 90 days after the date of
acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United
96
<PAGE>
States of America, any state thereof or any foreign country recognized by the
United States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or higher)
according to S&P, (v) securities with maturities of six months or less from
the date of acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to S&P and
(vi) money market funds which invest substantially all of their assets in
securities described in the preceding clauses (i) through (v).
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any Indebtedness
by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"U.S. Government Obligations" means securities issued or directly and fully
guaranteed or insured by the United States of America or any agent or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary; provided that (A) any Guarantee by the Company or any Restricted
Subsidiary of any Indebtedness of the Subsidiary being so designated shall be
deemed an "Incurrence" of such Indebtedness and an "Investment" by the Company
or such Restricted Subsidiary (or both, if applicable) at the time of such
designation, (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under the "Limitation on
Restricted Payments" covenant described above, and (C) if applicable, the
Incurrence of Indebtedness and the Investment referred to in clause (A) of
this proviso would be permitted under the "Limitation on Indebtedness" and
"Limitation on Restricted Payments" covenants described above. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that immediately after giving effect to such designation
(x) the Company could Incur $1.00 of additional Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant below and (y) no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an officers' certificate certifying that such
designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, such
Subsidiary if all of the outstanding Capital Stock or other similar equity
ownership interests (but not including Preferred Stock) in such Subsidiary
(other than any director's qualifying shares or Investments by foreign
nationals mandated by applicable law) is owned directly or indirectly by such
Person.
"ZDTV Acquisition" means the acquisition of an interest in ZDTV LLC and/or
ZD Television Productions, Inc. held by MAC Holdings America, Inc. (whether
such acquisition is consummated by the Company directly or indirectly, by
acquisition of assets, stock or joint venture interests, or otherwise)
pursuant to the License and Services Agreement among Ziff-Davis Inc., ZDTV
LLC, ZD Television Productions, Inc., MAC Holdings America, Inc. and MAC Inc.
dated as of July 28, 1997, and any renewal, amendment or extension thereof.
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UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the
Underwriters named below (collectively, the "Underwriters") have severally
agreed to purchase, and the Company has agreed to sell to them, the aggregate
principal amount of Notes set forth opposite the names of such Underwriters
below:
<TABLE>
<CAPTION>
PRINCIPAL
NAME AMOUNT OF NOTES
---- ---------------
<S> <C>
Underwriters:
Morgan Stanley & Co. Incorporated............................ $
BNY Capital Markets, Inc.....................................
Donaldson, Lufkin & Jenrette Securities Corporation..........
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
------------
Total...................................................... $250,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes offered hereby are
subject to the approval of certain legal matters by their counsel and to
certain other conditions. The Underwriters are obligated to take and pay for
the entire aggregate principal amount of Notes offered hereby if any are
taken.
The Underwriters propose to offer part of the Notes offered hereby directly
to the public at the public offering price set forth on the cover page hereof
and part to certain dealers at a price that represents a concession not in
excess of $ of the principal amount of the Notes. Any Underwriter may
allow, and such dealers may reallow, a concession not in excess of $ of
the principal amount of the Notes to other Underwriters or to certain other
dealers. After the Offering, the offering price and other selling terms may
from time to time be varied by the Underwriters.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may over-allot in connection with the
Offering, creating a short position in the Notes for their own account. In
addition, to cover over-allotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, the Notes in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
Underwriter or a dealer for distributing the Notes in the Offering if the
syndicate repurchases previously distributed the Notes in transactions to
cover syndicate short positions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the
Notes above independent market levels. The Underwriters are not required to
engage in these activities and may end any of these activities at any time.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
Certain of the Underwriters from time to time perform various investment
banking services for the Company and Softbank, for which such Underwriters
receive compensation. Morgan Stanley & Co. Incorporated ("Morgan Stanley"),
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") are also acting as underwriters in
connection with the Common Stock Offering and will receive customary discounts
and commissions in connection therewith. Morgan Stanley Senior Funding, an
affiliate of Morgan Stanley, The Bank of New York, an affiliate of BNY Capital
Markets, Inc., and DLJ Capital Funding, an affiliate of DLJ, are each acting
as an agent and a lender under the Credit Facility and will receive fees
pursuant to the Credit Facility customary to performing such services. In
addition, Morgan Stanley Senior Funding and The Bank of New York are currently
lenders to SBH under a $450 million revolving credit facility and will receive
fees pursuant to such financing arrangement customary to performing such
services. The
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Bank of New York is the Trustee under the Indenture and has been appointed by
the Company as registrar and paying agent with respect to the Notes and
transfer agent and registrar with respect to the Common Stock.
The Notes are a new issue of securities with no established trading market.
The Underwriters have advised the Company that they intend to make a market in
the Notes but are not obligated to do so and may discontinue market making at
any time without notice. No assurance can be given as to the liquidity of the
trading market for the Notes.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Sullivan & Cromwell, New York, New York, U.S. counsel to the Company.
Stephen A. Grant, a partner of Sullivan & Cromwell, owns 5,350 shares of
common stock of SOFTBANK Corp., which are held in a retirement account.
Certain legal matters will be passed upon for the Underwriters by Davis Polk &
Wardwell, New York, New York.
EXPERTS
The Balance Sheet of ZD Inc. as of March 27, 1998 and the Combined Financial
Statements of Ziff-Davis Inc. and ZD COMDEX and Forums Inc. as of December 31,
1996 and 1997 and for the three years in the period ended December 31, 1997
and the Consolidated Financial Statements of Ziff-Davis Inc. at December 31,
1995 and February 28, 1996 and for the year ended December 31, 1995 and for
the period from January 1, 1996 to February 28, 1996, included in this
Prospectus have been so included in reliance upon the reports of Price
Waterhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
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<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (together with all
amendments and exhibits, the "Registration Statement") under the Securities
Act, and the rules and regulations promulgated thereunder, with respect to the
Common Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Securities offered hereby, reference is hereby
made to the Registration Statement and to the schedules and exhibits thereto.
The Registration Statement, including the exhibits and schedules thereto, may
be inspected, without charge, and copies may be obtained, at prescribed rates,
at the public reference facilities of the Commission maintained at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Copies of
the Registration Statement may also be inspected, without charge, at the
Commission's regional office at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. In addition, copies of the Registration Statement may be
obtained by mail at prescribed rates, from the Commission's Public Reference
Section at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
Upon completion of the Offering, the Company will become subject to the
information and periodic reporting requirements of the Exchange Act, and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the public
reference facilities, regional offices and Web site referred to above.
100
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ZD INC.
Report of independent accountants........................................ F-2
Balance sheet as of March 27, 1998....................................... F-3
Notes to balance sheet................................................... F-4
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
Report of independent accountants........................................ F-5
Combined balance sheets as of December 31, 1996 and 1997................. F-6
Combined statements of operations for the years ended December 31, 1995,
1996 and 1997........................................................... F-7
Combined statements of cash flows for the years ended December 31, 1995,
1996 and 1997........................................................... F-8
Combined statements of changes in stockholder's equity for the years
ended December 31, 1995, 1996 and 1997.................................. F-9
Notes to combined financial statements................................... F-10
ZDI (ZIFF-DAVIS INC.)
Report of independent accountants........................................ F-28
Consolidated balance sheets as of December 31, 1995 and February 28,
1996.................................................................... F-29
Consolidated statements of operations for the year ended December 31,
1995 and for the period from January 1, 1996 to February 28, 1996....... F-30
Consolidated statements of cash flows for the year ended December 31,
1995 and for the period from January 1, 1996 to February 28, 1996....... F-31
Consolidated statements of changes in stockholder's equity for the year
ended December 31, 1995 and for the period from January 1, 1996 to
February 28, 1996....................................................... F-32
Notes to consolidated financial statements............................... F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of ZD Inc.
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of ZD Inc. at March 27, 1998 in
conformity with generally accepted accounting principles. This balance sheet
is the responsibility of the Company's management; our responsibility is to
express an opinion on this balance sheet based on our audit. We conducted our
audit in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about
whether the balance sheet is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the balance sheet, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
New York, NY
March 27, 1998
F-2
<PAGE>
ZD INC.
BALANCE SHEET
<TABLE>
<S> <C>
ASSETS
<CAPTION>
MARCH 27,
1998
---------
<S> <C>
Cash.................................................................. $ --
-----
Total assets.......................................................... $ --
=====
LIABILITIES AND STOCKHOLDERS' EQUITY
Commitments and contingencies (Notes 1 and 2).........................
Stockholders' equity.................................................. $ --
-----
Total liabilities and stockholders' equity............................ $ --
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ZD INC.
NOTES TO BALANCE SHEET
1. ORGANIZATION
ZD Inc. (the "Company") is a newly formed nonstock corporation incorporated
in the State of Delaware on February 4, 1998. Upon completion of the
reorganization discussed below, the Company will be a majority-owned indirect
subsidiary of SOFTBANK Corp. and affiliates ("Softbank"). The Company's
capital structure after the reorganization will consist of 10,000,000
authorized shares of $.01 par value preferred stock with no shares issued and
outstanding and 120,000,000 authorized shares of $.01 shares of common stock
with 74,200,000 shares issued and outstanding.
The Company was formed to effect the reorganization of ZDI (Ziff-Davis Inc.)
and ZDCF (ZD COMDEX and Forums Inc.), both indirect wholly-owned subsidiaries
of Softbank. The reorganization is expected to be completed in the second
quarter of 1998 and will be accounted for in a manner similar to a pooling of
interests as the Company, ZDI and ZDCF will be companies under common control.
There have been no operations of ZD Inc. as of March 27, 1998, and,
accordingly, statements of ZD Inc.'s operations and cash flows have not been
included herein.
2. FINANCING ARRANGEMENTS
The Company expects to raise approximately $400,000,000 from the initial
public offering of its Common Stock, approximately $250,000,000 in notes, and
approximately $1,250,000,000 of senior bank debt. There can be no assurances
that the expected levels of financing from the Common Stock and Notes
Offerings will be obtained.
The Company has obtained a commitment from a group of banks to enter into a
$1.35 billion Credit Facility. The Credit Facility will consist of a seven-
year $700 million reducing revolving credit facility (with $600 million drawn
at closing) and a seven year $650 million term loan. The revolving credit will
be available for loans, letters of credit, and swing-line loans, subject to a
certain maximum level of borrowing. Reductions in revolving credit commitments
and term loan amortization will occur in equal quarterly amounts beginning
September, 2000 through final maturity in March, 2005. The Credit Agreement
will also provide the Company the ability to increase the revolving credit
portion by $300 million to $1 billion at any time prior to June, 2000 if the
banks agree to increase their commitments.
Loans under both the revolving credit and term loan portions of the Credit
Facility will bear interest at either LIBOR plus an applicable margin or the
Alternate Base Rate plus an applicable margin. The applicable margin will be
based on a pricing grid to be determined by the Company's ratio of total debt
to EBITDA. The Company will also pay a commitment fee on the unused portion of
the revolving credit.
The funds raised will be used to retire substantially all of the existing
notes payable to Softbank and its affiliates of ZDI and ZDCF, and for the
purchase of certain assets from affiliated companies.
3. EMPLOYEE BENEFIT PLANS
1998 Incentive Compensation Plan
The Company adopted the 1998 Incentive Compensation Plan (the "Plan") to
provide long-term incentives for its key employees and enhance shareholder
value. The Plan provides for the issuance of up to 8,500,000 options, stock
appreciation rights, stock awards and other interests in the Company's Common
Stock. On February 13, 1998, the Company granted 5,254,700 options with an
exercise price of $16.00 per share representing the fair value of such options
at that date. Such options vest ratably over five years.
1998 Employee Stock Purchase Plan
The Company has adopted the Employee Stock Purchase Plan (the "Stock
Purchase Plan") whereby eligible employees may purchase the Company's Common
Stock with after tax payroll deductions of 1% to 10% of their base pay. The
price at which shares of Common Stock will be purchased is the lesser of 85%
of the Fair Market Value of a share of Common Stock on (i) the first business
day of a purchase period or (ii) the last business day of a purchase period.
The Company has reserved 1.5 million shares of Common Stock for issuance under
the Stock Purchase Plan.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Ziff-Davis Inc. and ZD COMDEX and
Forums Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, cash flows and changes in stockholder's
equity, present fairly, in all material respects, the financial position of
Ziff-Davis Inc. and ZD COMDEX and Forums Inc. and their subsidiaries (the
"Companies") at December 31, 1997 and 1996, and the results of Ziff-Davis
Inc.'s operations and cash flows for the period from February 29, 1996 to
December 31, 1996 and for the year ended December 31, 1997 and the results of
ZD COMDEX and Forums Inc.'s operations and cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Companies' management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, NY
February 17, 1998
F-5
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 29,915 $ 30,301
Accounts receivable, net............................. 203,863 221,310
Inventories.......................................... 16,804 17,853
Prepaid expenses and other current assets............ 35,190 37,900
Due from affiliates.................................. 77,208 131,290
Deferred taxes....................................... 8,674 8,794
---------- ----------
Total current assets................................... 371,654 447,448
Property and equipment, net............................ 53,561 53,536
Intangible assets, net................................. 3,148,333 3,030,333
Other assets........................................... 10,625 15,329
---------- ----------
Total assets........................................... $3,584,173 $3,546,646
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable..................................... $ 57,105 $ 55,468
Accrued expenses..................................... 79,921 80,094
Unearned income, net................................. 174,876 154,682
Due to affiliates and management..................... 69,416 398,332
Current portion of notes payable to affiliates....... 33,198 125,790
Other current liabilities............................ 3,890 4,222
---------- ----------
Total current liabilities.............................. 418,406 818,588
Notes payable to affiliates............................ 2,522,252 2,408,240
Deferred taxes......................................... 181,309 180,117
Other liabilities...................................... 14,450 13,571
---------- ----------
Total liabilities...................................... 3,136,417 3,420,516
---------- ----------
Commitments and contingencies (Notes 15, 16 and 18)
Stockholder's equity:
Common stock, $.01 par value; 1,000 shares
authorized;
200 shares issued and outstanding................... -- --
Additional paid-in capital........................... 498,818 248,330
Accumulated deficit.................................. (48,250) (119,429)
Deferred compensation................................ (2,448) (996)
Cumulative translation adjustment.................... (364) (1,775)
---------- ----------
Total stockholder's equity............................. 447,756 126,130
---------- ----------
Total liabilities and stockholder's equity............. $3,584,173 $3,546,646
========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-6
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Revenue, net:
Publishing................................... $ -- $690,255 $ 866,233
Trade shows and conferences.................. 202,729 264,884 287,528
-------- -------- ----------
202,729 955,139 1,153,761
-------- -------- ----------
Cost of production:
Publishing................................... -- 184,159 225,712
Trade shows and conferences.................. 68,810 87,373 99,533
-------- -------- ----------
68,810 271,532 325,245
Selling, general and administrative expenses... 46,939 456,690 564,344
Depreciation and amortization of property and
equipment..................................... 1,412 32,303 30,379
Amortization of intangible assets.............. 22,893 107,433 124,561
-------- -------- ----------
Income from operations......................... 62,675 87,181 109,232
Related party interest expense, net............ (44,005) (120,646) (190,445)
Other non-operating income, net................ 4,199 6,341 8,722
-------- -------- ----------
Income (loss) before income taxes.............. 22,869 (27,124) (72,491)
Provision (benefit) for income taxes........... 11,924 24,957 (1,312)
-------- -------- ----------
Net income (loss).............................. $ 10,945 $(52,081) $ (71,179)
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-7
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------------
1995 1996 1997
--------- ----------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 10,945 $ (52,081) $(71,179)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation and amortization............. 24,305 139,736 154,940
Income from equity investments............ -- (115) (2,030)
Deferred tax provision (benefit).......... 11,924 24,957 (1,312)
Provision for bad debts, returns and can-
cellations............................... 662 14,475 13,616
Compensation earned on restricted stock... -- 1,080 3,916
Changes in operating assets and liabili-
ties:
Accounts receivable..................... (26,041) (52,561) (32,515)
Inventories............................. -- 7,788 (853)
Accounts payable and accrued expenses... 9,516 12,850 (7,376)
Unearned income......................... (3,153) 1,392 (20,194)
Due to affiliates and management........ (7,460) (29,303) (38,543)
Other, net.............................. 5,470 (6,675) (1,834)
--------- ----------- --------
Net cash provided (used) by operating
activities................................. 26,168 61,543 (3,364)
--------- ----------- --------
Cash flows from investing activities:
Capital expenditures........................ (3,367) (22,365) (30,196)
Acquisitions, net of cash acquired.......... (814,520) (2,124,823) (14,000)
--------- ----------- --------
Net cash used by investing activities....... (817,887) (2,147,188) (44,196)
--------- ----------- --------
Cash flows from financing activities:
Proceeds from notes payable to affiliates... 575,450 1,080,000 10,000
Principal payments on notes payable to af-
filiates................................... (77,450) -- (31,420)
Contributed capital......................... 317,408 1,015,652 69,366
Payment of dividends........................ -- (8,000) --
--------- ----------- --------
Net cash provided by financing activities... 815,408 2,087,652 47,946
--------- ----------- --------
Net increase in cash and cash equivalents... 23,689 2,007 386
Cash and cash equivalents at beginning of
year....................................... 4,219 27,908 29,915
--------- ----------- --------
Cash and cash equivalents at end of year.... $ 27,908 $ 29,915 $ 30,301
========= =========== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-8
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ZDI ZDCF ADDITIONAL RETAINED CUMULATIVE TOTAL
------------- ------------- PAID-IN EARNINGS DEFERRED TRANSLATION STOCKHOLDER'S
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) COMPENSATION ADJUSTMENT EQUITY
------ ------ ------ ------ ---------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... -- $ -- 100 $ -- $ 62,178 $ 886 $ -- $ -- $ 63,064
Capital contribution
from Softbank.......... 317,408 317,408
Net income.............. 10,945 10,945
Foreign currency
translation adjustment. 111 111
--- ------ --- ------ ---------- --------- ------ ------- ----------
Balance at December 31,
1995................... -- -- 100 -- 379,586 11,831 -- 111 391,528
Acquisition of Ziff-
Davis Inc.............. 100 1,014,178 1,014,178
Return of capital ...... (899,948) (899,948)
Capital contribution.... 1,474 1,474
Dividend paid .......... (8,000) (8,000)
Shares contributed to
restricted stock plan.. 3,528 (3,528) --
Compensation earned on
restricted stock....... 1,080 1,080
Net loss................ (52,081) (52,081)
Foreign currency
translation adjustment. (475) (475)
--- ------ --- ------ ---------- --------- ------ ------- ----------
Balance at December 31,
1996................... 100 -- 100 -- 498,818 (48,250) (2,448) (364) 447,756
Return of capital ...... (381,434) (381,434)
Capital contribution ... 128,482 128,482
Shares contributed to
restricted stock plan.. 2,464 (2,464) --
Compensation earned on
restricted stock....... 3,916 3,916
Net loss................ (71,179) (71,179)
Foreign currency
translation adjustment. (1,411) (1,411)
--- ------ --- ------ ---------- --------- ------ ------- ----------
Balance at December 31,
1997................... 100 $ -- 100 $ -- $ 248,330 $(119,429) $ (996) $(1,775) $ 126,130
=== ====== === ====== ========== ========= ====== ======= ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-9
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
1. THE COMPANIES AND BASIS OF PRESENTATION
The combined financial statements include the accounts of ZDI (Ziff-Davis
Inc.) and ZDCF (ZD COMDEX and Forums, Inc.) and their subsidiaries and
predecessor companies (collectively the "Companies"). The Companies are
wholly-owned indirect subsidiaries of SOFTBANK Corp. ("Softbank"), a Japanese
corporation which, as of December 31, 1997, was 50.2% owned by Mr. Son, its
President, including 43.4% directly owned by his 99% owned holding company,
MAC Inc. ( "MAC"), also a Japanese corporation.
As further described below, the combined financial statements include the
accounts of COMDEX (formerly Softbank COMDEX, Inc.) and ZDI as of their
respective acquisition dates and Forums (formerly Softbank Forums Inc.) for
all periods presented. Effective December 31, 1997, COMDEX and Forums merged
and the surviving company was renamed ZD COMDEX and Forums Inc.
The Companies operate in two business segments: (i) publishing and (ii)
trade shows and conferences.
Publishing
The publishing segment is engaged in publishing magazines, journals,
newsletters, electronic information products, training manuals and providing
market research about the computer industry. The publishing segment's
principal operations are in the United States and Europe, although it also
licenses or syndicates its editorial content to over 50 other publications
distributed worldwide.
Trade shows and conferences
The trade shows and conferences segment is engaged in the organization,
production and management of trade shows, conferences and seminars for the
computer industry. The trade shows and conferences segment's principal
operations are in the United States and to a lesser extent in Europe and Asia.
Acquisition of ZDI (formerly Ziff-Davis Publishing Company and Ziff-Davis
Holdings Corp.)
In February 1996, Softbank acquired the stock of Ziff-Davis Holdings Corp.
("Holdings") for an aggregate purchase price of approximately $1,800,000, plus
transaction costs. Concurrent with the acquisition, in a separate agreement,
MAC Inc., directly or through wholly-owned affiliates, acquired certain of the
assets and assumed certain of the liabilities of ZDI (the "MAC Assets") for an
aggregate purchase price of approximately $302,000.
The acquisitions of ZDI by the Companies and the MAC Assets by MAC Inc. have
been accounted for as of February 29, 1996 using the purchase method of
accounting. The excess of the purchase price over the fair value of the assets
acquired and liabilities assumed was $1,922,000 and $285,000, respectively.
Subsequent to the acquisition, Holdings and ZDI were merged with ZDI being
the surviving corporation.
F-10
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Unaudited summarized pro forma financial information
The following unaudited summarized pro forma financial information presents
the results of operations of the Companies as if the acquisition of ZDI had
taken place on January 1, 1995:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1995 1996
-------- ----------
<S> <C> <C>
Revenue, net........................................... $971,724 $1,080,604
======== ==========
Income from operations................................. $ 80,113 $ 88,065
======== ==========
Net loss............................................... $(61,816) $ (67,011)
======== ==========
</TABLE>
The pro forma results include amortization of intangible assets and interest
expense on debt assumed issued to finance the purchase. The pro forma results
are not necessarily indicative of what actually would have occurred if the
acquisition had been completed as of the beginning of the year, nor are they
necessarily indicative of future combined results.
Purchase of MAC Assets
In 1997, ZDI agreed to purchase certain of the MAC Assets for $370,000. The
acquisition will be effected in two tranches; the first of which closed on
October 31, 1997 and the second, which is subject to the successful completion
of an initial public offering of ZD Inc.'s Common Stock (refer to Note 18) or
upon a similar significant external financing. At December 31, 1997, ZDI has
accrued the $370,000 purchase price which has been recorded as a return of
capital.
The acquisitions from MAC described above have been accounted for in a
manner similar to a pooling of interests as all entities involved are under
common control. Accordingly, the accompanying combined financial statements
include the results of operations of the MAC Assets from February 29, 1996.
Throughout these financial statements any reference to ZDI and ZDCF or the
Companies includes ZDI, ZDCF and the MAC Assets from February 29, 1996.
Acquisition of Sendai
On May 8, 1996, ZDI acquired substantially all of the assets and liabilities
of Sendai Publishing Group, Inc., a publisher and distributor of magazines,
books, products and computer services related to the electronic gaming
industry, for approximately $27,500, plus transaction costs. The acquisition
was accounted for as a purchase and accordingly, Sendai's results are included
in the combined financial statements since the date of acquisition. The excess
of the purchase price over assets acquired approximated $33,378. The
operations of Sendai did not have a material effect on the combined results of
operations for the year ended December 31, 1996.
Acquisition of COMDEX
Effective April 1, 1995, Softbank acquired the assets of the COMDEX trade
show business, now part of ZDCF, for approximately $803,000, plus transaction
costs. The acquisition has been accounted for as of April 1, 1995 using the
purchase method of accounting and accordingly COMDEX's results are included in
the combined financial statements since the date of acquisition. The excess of
the purchase price over the fair value of the assets acquired and liabilities
assumed was $849,000.
F-11
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include the accounts of ZDI and ZDCF
including, as discussed above, the MAC Assets. All significant transactions
between these entities have been eliminated in combination.
Investments in companies in which ownership interests range from 20 to 50
percent and the Companies have the ability to exercise significant influence
over the operating and financial policies of such companies are accounted for
under the equity method.
Parent Company Financing
As described in Note 18, Softbank announced a Reorganization and a financing
plan which includes a recapitalization of the Companies' debt and equity
structures. Prior to the consummation of the recapitalization transactions,
the Companies are dependent on funding from Softbank. At December 31, 1997,
the Companies had current liabilities which exceeded current assets by
$371,140. To the extent that the Companies are unable to fund their current
obligations as they become due from their operating cash flows, Softbank has
committed to provide additional financing or to restructure existing loan
arrangements at least through February 1999.
Cash and cash equivalents
The Companies consider all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Concentration of credit risk
The Companies place its temporary cash investments with high credit quality
financial institutions. At times, such investments may be in excess of
federally insured limits. The Companies have not experienced losses in such
accounts.
The Companies' advertisers and exhibitors include principally customers who
represent a variety of technology companies in the United States and other
countries. The Companies extend credit to their customers and distributors and
historically have not experienced significant losses relating to receivables
from individual customers or groups of customers.
Property and equipment
Property and equipment have been recorded at cost or their estimated fair
value at the date of acquisition. Depreciation is computed using the straight-
line method over the estimated useful lives of the assets which range from
three to thirty years. Leasehold improvements are amortized using the
straight-line method over the service life of the improvement or the life of
the related lease, whichever is shorter. Maintenance and repair costs are
charged to expense as incurred.
Inventories
Inventories, which consist principally of paper, are stated at the lower of
cost or market. Cost is determined on a first-in, first-out basis.
Intangible assets
Intangible assets consist principally of advertising lists, exhibitor
relationships, trademarks and trade names, and goodwill. Amortization of these
assets is computed on a straight-line basis over their estimated useful lives.
Identifiable
F-12
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
intangible assets are amortized over a period of 2 to 40 years and goodwill,
which represents the excess of the purchase price over the estimated fair
values of net assets acquired, is amortized over a period of 5 to 40 years
(refer to Note 5). The Companies assess the recoverability of their intangible
assets whenever adverse events or changes in circumstances indicate that
expected future cash flows (undiscounted and without interest charges) may not
be sufficient to support the carrying amount of intangible assets. If
undiscounted cash flows are not sufficient to support the recorded assets, an
impairment is recognized to reduce the carrying value of the intangibles to
estimated recoverable values. The Companies have not experienced any
impairment of its intangible assets.
Revenue recognition
Advertising revenue for the Companies' publications, less agency
commissions, is recognized as income in the month that the related
publications are sent to subscribers or become available for sale at
newsstands.
Circulation revenue consists of both subscription revenue and single copy
newsstand sales. Subscription revenue, less estimated cancellations, is
deferred and recognized as income in the month that the related publications
are sent to subscribers. Newsstand sales, less estimated returns, are
recognized in the month that the related publications become available for
sale at newsstands.
Payments received in advance of trade shows, conferences and seminars are
initially reported on the balance sheet as deferred revenue and are recognized
as income when the events take place.
Revenue generated by market research is recognized when the service is
provided.
On-line revenue, predominantly advertising, is recognized evenly over the
period of the related advertising contract which corresponds to the period of
time the advertising is displayed.
Operating costs and expenses
Cost of production includes the direct costs of producing magazines,
newsletters and training materials, primarily paper, printing and
distribution, and the direct costs associated with organizing, producing and
managing trade shows, seminars, conferences and expositions. Selling, general
and administrative costs include subscriber acquisition costs which are
expensed as incurred. Editorial and product development costs are expensed as
incurred. Product development costs include the cost of artwork, graphics,
prepress, plates and photography for new products.
Foreign currency
The effect of translating foreign currency financial statements into U.S.
dollars is included in the cumulative translation adjustments account in
stockholder's equity. Gains and losses on foreign currency transactions, which
are not significant to operations, have been included in selling, general and
administrative expenses. The Companies have not historically entered into
forward currency contracts.
Other non-operating income
Other non-operating income includes management fee income and the Companies'
equity share of income or loss from joint ventures.
Income taxes
The Companies use the asset and liability approach for financial accounting
and reporting of deferred taxes.
F-13
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results may differ from these estimates.
Fair value of financial instruments
All current assets and liabilities are carried at cost, which approximates
fair value because of the short-term maturity of those instruments. The
recorded amounts of the Companies' long-term debt payable to affiliates also
approximate fair value based upon the current rates available to the Companies
for debt with similar remaining maturities.
Stock-based compensation
The Companies have elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," to account for stock options.
Effective January 1, 1996, the Companies adopted the disclosure-only
provisions of Statement of Financial Accounting Standard ("SFAS") No. 123,
"Accounting for Stock-Based Compensation."
Earnings per share
Historical earnings per share data have been omitted on the basis that they
are not meaningful due to the insignificant number of shares outstanding.
New Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income," issued in June 1997, will
require the Companies to disclose, in financial statement format, all non-
owner changes in equity. Such changes include, for example, cumulative foreign
currency translation adjustments and unrealized gains and losses on securities
available for sale. This statement is effective for fiscal years beginning
after December 15, 1997 and requires presentation of prior period financial
statements for comparability purposes.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," issued in June 1997, establishes standards for reporting
information about operating segments in annual financial statements and
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Generally, financial information will be required to be reported on the basis
that is used internally for evaluating segment performance and deciding how to
allocate resources to segments.
SFAS No. 132, "Employer's Disclosure about Pensions and Other Post-
Retirement Benefits," is effective for the year ended December 31, 1998. This
standard revises the disclosure requirements for employers' pension and other
retiree benefits.
The Companies expect to adopt the above statements beginning with their 1998
financial statements.
3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Accounts receivable..................................... $284,829 $309,565
Allowance for doubtful accounts, returns and
cancellations.......................................... (80,966) (88,255)
-------- --------
$203,863 $221,310
======== ========
</TABLE>
F-14
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Computers and equipment.................................. $ 30,513 $ 50,170
Leasehold improvements................................... 38,439 40,033
Furniture and fixtures................................... 18,402 17,619
-------- --------
87,354 107,822
Accumulated depreciation and amortization................ (33,793) (54,286)
-------- --------
$ 53,561 $ 53,536
======== ========
</TABLE>
5. INTANGIBLE ASSETS, NET
Intangible assets, net, consist of the following:
<TABLE>
<CAPTION>
RANGE OF DECEMBER 31,
USEFUL LIVES ----------------------
(YEARS) 1996 1997
------------ ---------- ----------
<S> <C> <C> <C>
Advertising lists....................... 7-34 $ 888,100 $ 888,100
Exhibitor relationships ................ 4-27 154,070 154,070
Trademarks/trade names.................. 30-40 735,595 735,595
License agreements...................... 6-14 11,212 11,212
Subscriber lists........................ 3-10 51,475 51,475
Other................................... 2-20 57,599 57,599
Goodwill................................ 5-40 1,380,993 1,387,556
---------- ----------
3,279,044 3,285,607
Accumulated amortization................ (130,711) (255,274)
---------- ----------
$3,148,333 $3,030,333
========== ==========
</TABLE>
Intangible assets primarily relate to the acquisitions of ZDI, COMDEX and
the MAC Assets. As discussed in Note 1, the acquisitions were accounted for
under the purchase method of accounting. As such, purchase price was allocated
to tangible and identifiable intangible assets with the remaining amount being
allocated to goodwill.
Advertising lists, exhibitor relationships and subscriber lists were
recorded at their estimated fair value as determined by an income approach.
Trademarks/trade names were recorded at their estimated fair value using a
relief from royalty approach.
All intangible assets are being amortized using the straight-line method
over their estimated useful lives, up to 40 years. In determining the
estimated useful lives, the Companies considered their competitive position in
the markets in which they operate, the historical attrition rates of
advertisers, subscribers and exhibitors, legal and contractual obligations,
and other factors.
Recoverability of goodwill and intangible assets is assessed at a minimum on
an annual basis. Impairments would be recognized in operating results if a
permanent diminution in value were to occur based upon an undiscounted cash
flow analysis.
F-15
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Payroll and related employee benefits....................... $24,978 $29,112
Accrued interest-related party.............................. 4,449 6,226
Other taxes payable......................................... 6,310 2,822
Other....................................................... 44,184 41,934
------- -------
$79,921 $80,094
======= =======
</TABLE>
7. UNEARNED INCOME
Unearned income consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
-------- --------
<S> <C> <C>
Unexpired subscriptions.................................. $100,387 $ 82,167
Prepaid conference fees.................................. 91,776 80,706
Reserve for cancellations................................ (17,287) (8,191)
-------- --------
$174,876 $154,682
======== ========
</TABLE>
8. INCOME TAXES
The Companies have been included in consolidated U.S. federal income tax
returns filed by Softbank, except for operations relating to the MAC Assets
(described in Note 1), which were assets of a separate taxpayer. The tax
expense reflected in the combined statements of operations and tax liabilities
reflected in the combined balance sheet have been prepared on a separate
return basis as though the Companies filed stand-alone income tax returns. No
tax benefit has been recorded for the losses related to the MAC Assets, as
such losses are not available to the Companies.
The Companies and Softbank do not have a tax sharing agreement. Therefore,
no intercompany tax payments have been made and no related intercompany
receivable or payable has been recorded.
Income (loss) before income taxes is attributable to the following
jurisdictions:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
United States.................................. $ 25,094 $(22,095) $(74,638)
Foreign........................................ (2,225) (5,029) 2,147
-------- -------- --------
Total........................................ $ 22,869 $(27,124) $(72,491)
======== ======== ========
</TABLE>
Components of the provision (benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
U.S. federal income taxes:
Current............................................ $ -- $ -- $ --
Deferred........................................... 9,240 19,338 (1,017)
State and local income taxes:
Current............................................ -- -- --
Deferred........................................... 2,684 5,619 (295)
Foreign income taxes................................. -- -- --
------- ------- -------
Total provision (benefit) for income taxes....... $11,924 $24,957 $(1,312)
======= ======= =======
</TABLE>
F-16
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
A reconciliation of the U.S. federal statutory tax rate to the Companies'
effective tax rate on income (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996 1997
---- ------ -----
<S> <C> <C> <C>
Federal tax rate....................................... 35.0% 35.0% 35.0%
State and local taxes (net of federal tax benefit)..... 6.0 6.0 6.0
Non-recognition of combined losses of MAC Assets....... 9.9 (116.6) (32.2)
Amortization of non-deductible goodwill................ 1.0 (13.1) (5.8)
Other.................................................. 0.2 (3.3) (1.2)
---- ------ -----
Effective tax rate..................................... 52.1% (92.0)% 1.8%
==== ====== =====
</TABLE>
The effective tax rate differs from the federal statutory tax rate primarily
as a result of the Companies' inability to deduct losses of the MAC Assets
prior to the effective date of the purchase. The amortization of nondeductible
goodwill resulted primarily from the stock acquisition of 100% of the stock of
ZDI in 1996.
Following is a summary of the components of the deferred tax accounts at
December 31, 1996 and December 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Current deferred tax assets and (liabilities):
Allowance for bad debts............................. $ 8,825 $ 8,750
Other............................................... (151) 44
--------- ---------
Current deferred net tax assets................... 8,674 8,794
--------- ---------
Noncurrent deferred tax assets and (liabilities):
Basis difference in intangible assets............... (273,375) (288,286)
Net operating loss and other carryforwards.......... 129,798 133,314
Other............................................... 11,603 13,711
--------- ---------
Noncurrent deferred tax liabilities............... (131,974) (141,261)
Valuation allowance................................... (49,335) (38,856)
--------- ---------
Net noncurrent deferred tax liabilities........... (181,309) (180,117)
--------- ---------
Net deferred tax liabilities.......................... $(172,635) $(171,323)
========= =========
</TABLE>
As of December 31, 1996 and 1997 the Companies had total deferred tax assets
of $100,891 and $116,963, respectively, and total deferred tax liabilities of
$273,526 and $288,286, respectively. The December 31, 1996 and December 31,
1997 net deferred tax assets are reduced by a valuation allowance of $49,335
and $38,856, respectively, primarily relating to tax benefits of foreign net
operating loss carryforwards which are not expected to be realized. The
decrease in the valuation allowance in 1997 is primarily related to the
expiration of foreign net operating loss carryforwards. No deferred tax asset
has been established for the losses associated with the MAC Assets, which will
not be available to the Companies as a deduction.
The Companies have U.S. and foreign net operating loss carryforwards of
approximately $286,322, which will begin to expire in 1998. The Companies'
utilization of certain net operating loss carryforwards, of approximately
$122,549, is subject to limitations, due to the change of ownership resulting
from the Softbank
F-17
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
acquisition of the ZDI stock on February 29, 1996. Management believes that
such limitations will not significantly affect the Companies' ability to
recognize the deferred tax assets relating to the carryforward. Accordingly,
no valuation allowance to reduce the deferred tax asset relating to the
carryforward has been established. In addition, the Companies have alternative
minimum tax credit carryforwards of $385 which may be carried forward
indefinitely until used.
The Companies' foreign subsidiaries have no undistributed earnings for
remittance to the U.S. and, therefore, no U.S. or foreign tax provision on
remittances has been recorded.
9. DUE TO AFFILIATES AND MANAGEMENT
The Companies are members of a group of companies affiliated through common
ownership with Softbank and has various transactions and relationships with
members of the group. Because of these relationships, it is possible that the
terms of those transactions are not the same as those that would result from
transactions among unrelated parties.
Receivables/payables
Receivables from affiliates consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- --------
<S> <C> <C>
Receivable from:
MAC and subsidiaries...................................... $ 7,140 $ 42,687
Softbank.................................................. 67,451 84,365
Other affiliates.......................................... 2,617 4,238
------- --------
$77,208 $131,290
======= ========
</TABLE>
Payables to management and affiliates consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- --------
<S> <C> <C>
Payable to:
Management................................................ $29,834 $ --
MAC and subsidiaries...................................... -- 270,000
Softbank.................................................. 39,582 126,371
Other affiliates.......................................... -- 1,961
------- --------
$69,416 $398,332
======= ========
</TABLE>
See Note 18 for a discussion of the Companies' plan to restructure their
debt and equity structures.
As part of the 1996 acquisition of ZDI, the Companies agreed to assume
certain obligations to management arising out of prior employment arrangements
with previous owners. In January 1997, the Companies paid all amounts due,
including accrued interest, through the payment date.
Periodically, the Companies transfer excess cash to Softbank for cash
management purposes and in turn receive cash advances from Softbank to fund
the Companies' short-term working capital requirements. Interest is accrued
based on the net balance outstanding at the end of each month. Interest income
is earned at the 30-day LIBOR rate for the applicable month. Interest expense
is incurred at the 30-day LIBOR rate plus 0.5%.
F-18
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Other affiliated arrangements
During the years ended December 31, 1996 and 1997, the Companies incurred
$2,000 and $1,631, advertising expense with Yahoo!, Inc. (Yahoo!), an
affiliated company. No advertising expense with Yahoo! was incurred in 1995.
The Companies sell advertising space and exhibition services to Kingston
Technology Company ("Kingston"), an affiliated company. During the years ended
December 31, 1995, 1996 and 1997, the Companies recorded revenues of $0, $882
and $2,667, respectively, from sales to Kingston. These services were provided
under terms consistent with those provided to unaffiliated customers.
ZDCF has entered into an agreement to manage certain trade shows and
expositions owned by Softbank and its affiliates, whereby ZDCF earns
management and licensing fees. The fees earned by ZDCF for the years ended
December 31, 1995, 1996 and 1997 were $1,979, $3,394 and $4,057, respectively.
In 1996 and 1997, the Companies had an arrangement with SOFTBANK Interactive
Marketing ("SIM"), an affiliated company, for the provision of interactive
media sales. The Companies paid commissions to SIM of $600 and $1,800 during
the years ended December 31, 1996 and 1997, respectively. Effective December
31, 1997, SIM was acquired by an unrelated third party. Management believes
that the sale of SIM by Softbank will have no material impact on the
Companies.
The Companies have an arrangement with SOFTBANK Services, an affiliated
company, whereby the Companies are charged for administrative services
provided plus a management fee. For the years ended December 31, 1995, 1996
and 1997, the Companies incurred services fees of $0, $359 and $1,259,
respectively, in relation to this agreement.
ZDI has entered into certain licensing agreements with Softbank for the
publishing and distribution of Japanese language editions of certain
publications. The fees earned by ZDI for the years ended December 31, 1996 and
1997 were approximately $964 and $1,818, respectively, in each year.
The Companies have entered into a license and services agreement with MAC to
develop ZDTV: Your Computer Channel. ZDTV is owned by MAC, but as part of this
license and services agreement MAC has granted the Companies an option
exercisable through December 31, 1998 to purchase all of MAC's interest in
ZDTV for an amount equal to MAC's investment plus 10% per annum. The Companies
are currently funding ZDTV's operations on behalf of MAC through unsecured
advances which, for approved levels of expenditure, are to be reimbursed by
MAC. Such advances bear interest at the 30-day LIBOR rate plus .50%. The
Companies' cumulative advances, which totaled $14.4 million net of $10.1
million in repayments through December 31, 1997, will be repaid concurrently
with the Reorganization (See Note 18). The Companies have not yet determined
whether they will exercise the option to purchase MAC's interest in ZDTV. Any
such purchase will depend upon access to sufficient cable carriage, which may
include entering into a joint venture or other co-ownership arrangement,
including an arrangement with a third party cable system operator which will
provide carriage and also assume a portion of the ongoing cash requirements on
terms that are acceptable to the Companies. ZDTV is not included in the
Companies' financial statements.
If the Companies were to acquire a controlling interest in ZDTV from MAC,
such acquisition would be accounted for as a pooling transaction; if the
Companies were to acquire a non-controlling interest, such acquisition would
be accounted for under the equity method.
ZDI has entered into operating leases for television production equipment
and has sublet such equipment to ZDTV, an affiliated company. The terms of the
subleases are substantially identical to the terms of the leases which provide
for annual lease payments totaling approximately $610 through 2003.
F-19
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Notes payable to affiliates
The Company's long-term debt is payable to Softbank and consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Notes payable to affiliate(1)........................ $1,080,000 $1,080,000
Notes payable to affiliate(2)........................ 900,000 900,000
Notes payable to affiliate(3)........................ 398,000 375,027
Note payable to affiliate(4)......................... 100,000 94,231
Note payable to affiliate(5)......................... 77,450 74,772
Note payable to affiliate(6)......................... -- 10,000
---------- ----------
Total.............................................. 2,555,450 2,534,030
Less--Current portion................................ (33,198) (125,790)
---------- ----------
$2,522,252 $2,408,240
========== ==========
</TABLE>
- --------
(1) Principal and interest payments are due in 53 consecutive quarterly
installments on the last business day of each calendar quarter beginning
March 31, 1998 through March 31, 2011. The notes bear interest at a rate
of 7.8% per annum.
(2) These notes mature on December 31, 2001 and bear an interest rate of 6.5%
per annum, payable on the last business day of each quarter beginning
March 31, 1997.
(3) Notes mature on February 28, 2010. The notes bear interest at a rate of
8.0% per annum.
(4) Notes mature on February 28, 2009. The notes bear interest at 9.9% per
annum.
(5) Note is payable in 52 equal quarterly installments commencing March 31,
1997. The note bears interest at a rate of 8.0% per annum.
(6) Note is payable on January 1, 2007. The note bears interest at a rate of
8.0% per annum.
Scheduled principal payments due on long-term debt outstanding at December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 125,790
1999.............................................................. 125,790
2000.............................................................. 125,790
2001.............................................................. 1,025,790
2002.............................................................. 125,790
Thereafter........................................................ 1,005,080
----------
Total........................................................... $2,534,030
==========
</TABLE>
See Note 18 for a discussion of the Companies' plan to restructure its debt
and equity structures.
Guarantee of Softbank's U.S. debt
In April 1996, Softbank signed a line of credit agreement totaling $50,000
with an independent lender for which the Companies, along with certain other
Softbank affiliates, are guarantors. In January 1997 and October 1997, this
line of credit was increased to $75,000 and $150,000, respectively. At
December 31, 1997, $102,500 was outstanding under the line of credit.
Return of capital and dividends
On December 15, 1996, the Companies declared a return of capital of
approximately $900,000 paid through the issuance of a note payable to a
subsidiary of Softbank and a cash dividend of $8,000 to Softbank. In 1997, the
Companies recorded a return of capital of $381,434 in connection with the
purchase price of companies under common control.
F-20
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
10. EMPLOYEE STOCK COMPENSATION PLANS
Executive stock option plan
The SOFTBANK 1996 and 1997 Executive Stock Option Plans provide for the
granting of nonqualified stock options to purchase the common stock of
Softbank to officers, directors and key employees of the Companies. Under the
plans, options have been granted at exercise prices equal to the closing
market price in Japan's public equities market (market price denominated in
Japanese yen) on the date of grant. As of December 31, 1997, substantially all
options granted become exercisable in various installments over the first six
anniversaries of the date of grant and expire ten years after the date of
grant.
Information relating to stock options during 1995, 1996 and 1997 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OPTION PRICE
OF SHARES PER SHARE(1)
--------- ----------------
<S> <C> <C>
Shares outstanding under options at December
31, 1995 -- --
Granted........................................ 739,493(2) $87.15
Exercised...................................... -- --
Forfeited...................................... 12,740(2) 87.15
-------
Shares outstanding under options at December
31, 1996...................................... 726,753 87.15
Granted........................................ 386,363 61.40
Exercised...................................... -- --
Forfeited...................................... 146,130 78.88
-------
Shares outstanding under options at December
31, 1997...................................... 966,986 $78.11
=======
Shares exercisable
At December 31, 1996......................... -- --
At December 31, 1997 (price range $44.26-
$87.15)..................................... 107,630 $82.06
</TABLE>
- --------
(1) The exercise price of the stock options is set in Japanese yen. The
exercise prices as shown above have been converted to U.S. dollars based
upon the exchange rate as of the date of grant for the respective options.
(2) Adjusted for a 1.4:1 stock split during 1996 and a 1.3:1 stock split
during 1997.
As permitted by SFAS 123, the Companies have chosen to continue to account
for stock options in accordance with the provisions of APB 25 and,
accordingly, no compensation expense related to stock option grants was
recorded in 1996 or 1997. Pro forma information regarding net income is
required by SFAS 123 and has been determined as if the Companies had accounted
for stock options under the fair value method. The fair value of the option
grants was estimated at the date of grant using the Black Scholes option-
pricing model with the following assumptions for 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Risk-free interest rate.................................... 5.89% 6.35%
Dividend yield............................................. 0.26% 0.22%
Volatility factor.......................................... 54.03% 51.35%
Expected life.............................................. 6 years 6 years
</TABLE>
The weighted average fair value of options granted in 1996 and 1997 was
$64.30 and $34.05, respectively. For purposes of the pro forma disclosures,
the estimated fair value of the options is amortized to expense over
F-21
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
the options' vesting period. Had compensation cost for the stock option plans
been determined based upon the fair value at the grant date for awards during
1996 and 1997, consistent with the provisions of SFAS 123, the Companies' net
loss would have been increased by approximately $3,100 and $4,200,
respectively. On January 23, 1998, the exercise price of all of the shares
outstanding under option agreements were reset to an exercise price equal to
the closing market price on Japan's Tokyo Stock Exchange First Section at that
date. In conjunction with the repricing, those options previously exercisable
on December 31, 1997 may now be exercised only after July 19, 1998. Repricing
of the stock options will not result in compensation expense to the Companies.
Other stock compensation plans
During 1996 and 1997, the Company granted 45,760 and 61,940 shares of common
stock of Softbank, respectively, (adjusted for two 1.4:1 stock splits during
1996 and a 1.3:1 stock split during 1997) to certain key employees, subject to
restrictions as to continuous employment which expire over a three to five-
year period from the date of grant. The granting of the shares to the
Companies' employees has been recorded as additional paid-in capital offset by
a reduction to stockholder's equity as deferred compensation. Such amounts
were recorded at the fair value, as established by market price of the shares
on the date of grant. The unearned compensation is being amortized ratably
over the restricted periods. During 1996, restrictions on 13,790 shares
expired, 2,160 shares were forfeited and $1,080 was charged to expense related
to the restricted stock awards. During 1997, restrictions on 75,210 shares
expired, 2,150 shares were forfeited and $3,916 was charged to expense related
to these restricted stock awards.
11. EMPLOYEE BENEFIT PLANS
Pension plan
Certain employees of ZDCF who have met eligibility requirements are covered
by a noncontributory defined benefit pension plan. The benefits are based on
years of service and average compensation at the time of retirement. The
Companies' funding policy is to contribute amounts sufficient to meet the
minimum funding requirements as set forth in the Employee Retirement Income
Security Act of 1974 ("ERISA"). Contributions to the plan are determined in
accordance with the projected unit credit cost method. Plan assets consist of
U.S. equity securities, high grade corporate bonds and commercial paper, and
U.S. treasury notes.
The weighted average assumed discount rate of 7% and rate of increase in
future compensation levels of 6% was used in the determination of the
actuarial present value of the projected benefit obligation at December 31,
1996 and 1997. The weighted average expected long-term rate of return on plan
assets at December 31, 1996 and 1997 was 7%.
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
1995 1996 1997
----- ------ -----
<S> <C> <C> <C>
Service cost........................................... $ 472 $ 700 $ 391
Interest cost.......................................... 363 472 456
Expected return on plan assets......................... (172) (300) (445)
Amortization of transition obligation.................. 149 199 75
----- ------ -----
Net periodic pension cost.............................. $ 812 $1,071 $ 477
===== ====== =====
</TABLE>
F-22
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
The following table sets forth the funded status and amounts recognized in
the balance sheet:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................... $ 4,132 $ 5,721
======= =======
Accumulated benefit obligations......................... 4,224 5,721
======= =======
Projected benefit obligations............................. 7,967 5,721
Plan assets at fair value................................. (4,467) (6,004)
------- -------
Projected benefit obligation in excess (less than) of plan
assets................................................... 3,500 (283)
Unrecognized net transition asset (liability)............. (2,297) 1,279
------- -------
Pension liability included in balance sheet............... $ 1,203 $ 996
======= =======
</TABLE>
During 1997, the Companies decided to terminate the defined benefit pension
plan and pursuant to this decision, all accrued benefits became fully vested
as of August 31, 1997. The above amounts reflect the effects of such
termination. All accrued plan obligations will be settled during 1998. There
was no significant gain or loss recognized in connection with the termination.
Any gain or loss associated with the plan settlement will be recognized in
1998.
Retirement plans
The Companies maintain various defined contribution retirement plans.
Substantially all of the Companies' employees are eligible to participate in
one of the plans under which annual contributions may be made by the Companies
for the benefit of all eligible employees. In certain cases, employees may
also make contributions to the plan in which they participate which, and
subject to certain limitations, may be matched by the Companies up to certain
specified percentages. Employees are generally eligible to participate in a
plan upon joining the Companies and receive matching contributions after one
year of employment. The Companies made contributions to the plans totaling
$2,115, $10,470 and $13,725 in 1995, 1996 and 1997, respectively.
12. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
The Companies have investments in the following companies/joint ventures:
<TABLE>
<CAPTION>
COMPANY/ CARRYING VALUE AT
JOINT VENTURE DECEMBER 31,
------------- OWNERSHIP -----------------
PERCENTAGE 1996 1997
---------- -------- --------
<S> <C> <C> <C>
Mac Publishing LLC............................. 50% $ -- $ 16,244
ExpoComm LLC................................... 50% $ 7,698 $ 7,758
Family PC G.P. ................................ 50% $ 10,138 $ 9,342
</TABLE>
The companies/joint ventures listed above are engaged primarily in the
publication or distribution of print media and the organization, production
and management of trade shows. Other investments and joint ventures are not
material to the Companies' financial statements.
The Companies equity income (loss) was $0, $(796) and $335 in 1995, 1996 and
1997, respectively.
F-23
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
13. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest to related parties.................. $ 8,390 $ 99,509 $185,447
Income taxes................................. -- 360 4
Noncash investing and financing activities:
Fair value of assets acquired................ $836,479 $2,508,603 $ 20,749
Liabilities assumed.......................... 21,959 370,518 6,749
-------- ---------- --------
Cash paid.................................... 814,520 2,138,085 14,000
Less--Cash acquired.......................... -- 13,262 --
-------- ---------- --------
Net cash paid for acquisitions............... $814,520 $2,124,823 $ 14,000
======== ========== ========
Return of capital dividends.................. $ -- $ 899,948 $381,434
======== ========== ========
Capital contributions........................ $ -- $ 5,002 $ 61,580
======== ========== ========
</TABLE>
14. STOCKHOLDER'S EQUITY
The Companies' issued and outstanding Common Stock consists of 100 shares of
ZDI and 100 shares of ZDCF. Such shares provide the holder with identical
rights in corporate matters.
15. OPERATING LEASE COMMITMENTS
The Companies are obligated under various operating leases which expire at
various dates through 2021. Future minimum rental commitments under
noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 34,912
1999................................................................ 32,702
2000................................................................ 28,875
2001................................................................ 25,891
2002................................................................ 24,932
Thereafter.......................................................... 248,407
--------
Total........................................................... $395,719
========
</TABLE>
Netted in the above totals is approximately $5,000 for which ZDI has
noncancelable subleases in place. Total sublease income approximates ZDI's
required payments under the related leases. Rent expense amounted to
approximately $2,492, $23,015 and $29,994 for the years ended December 31,
1995, 1996 and 1997, respectively.
16. CONTINGENCIES
The Companies are subject to various claims and legal proceedings arising in
the normal course of business. Management believes that the ultimate
liability, if any, in the aggregate will not be material to the consolidated
balance sheet, future operations or cash flows.
F-24
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
17. SEGMENT INFORMATION
Business segment information
The Companies' operations have been classified into two business segments:
(i) publishing and (ii) trade shows and conferences.
Publishing
The publishing segment is engaged in publishing magazines, journals,
newsletters, electronic information products, training manuals and providing
market research about the computer industry. The publishing segment's
principal operations are in the United States and Europe, although it also
licenses or syndicates its editorial content to over 50 other publications
distributed worldwide.
Trade shows and conferences
The trade shows and conferences segment is engaged in the organization,
production and management of trade shows, conferences and seminars for the
computer industry. The trade shows and conferences segment's principal
operations are in North America and to a lesser extent in Europe, Asia and
Latin America.
Summarized financial information by business segment as of December 31,
1995, 1996 and 1997 and for each of the years then ended is set forth below:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue, net:
Publishing............................... $ -- $ 690,255 $ 866,233
Trade shows and conferences.............. 202,729 264,884 287,528
---------- ---------- ----------
$ 202,729 $ 955,139 $1,153,761
========== ========== ==========
Income from operations:
Publishing............................... $ -- $ 18,676 $ 49,997
Trade shows and conferences.............. 62,675 68,505 59,235
---------- ---------- ----------
$ 62,675 $ 87,181 $ 109,232
========== ========== ==========
Total assets at December 31:
Publishing............................... $ -- $2,440,651 $2,422,360
Trade shows and conferences.............. 1,090,981 1,143,522 1,124,286
---------- ---------- ----------
$1,090,981 $3,584,173 $3,546,646
========== ========== ==========
Depreciation and amortization:
Publishing............................... $ -- $ 106,587 $ 118,814
Trade shows and conferences.............. 24,305 33,149 36,126
---------- ---------- ----------
$ 24,305 $ 139,736 $ 154,940
========== ========== ==========
Capital expenditures:
Publishing............................... $ -- $ 14,657 $ 21,399
Trade shows and conferences.............. 3,367 7,708 8,797
---------- ---------- ----------
$ 3,367 $ 22,365 $ 30,196
========== ========== ==========
</TABLE>
Operating income by business segment excludes interest income and interest
expense.
F-25
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Geographic Segment Information
<TABLE>
<CAPTION>
UNITED STATES OTHER AREAS COMBINED
------------- ----------- ----------
Year ended December 31, 1995:
<S> <C> <C> <C>
Revenue, net........................... $ 192,789 $ 9,940 $ 202,729
========== ======== ==========
Income (loss) from operations.......... $ 64,930 $ (2,255) $ 62,675
========== ========
Other non-operating income............. 4,199
Related party-interest expense......... 44,005
----------
Income before taxes.................... $ 22,869
==========
Total assets at December 31, 1995...... $1,081,829 $ 9,152 $1,090,981
========== ======== ==========
Year ended December 31, 1996:
Revenue, net........................... $ 854,666 $100,473 $ 955,139
========== ======== ==========
Income (loss) from operations.......... $ 92,210 $ (5,029) $ 87,181
========== ========
Other non-operating income............. 6,341
Related party-interest expense......... 120,646
----------
Loss before taxes...................... $ (27,124)
==========
Total assets at December 31, 1996...... $3,549,102 $ 35,071 $3,584,173
========== ======== ==========
Year ended December 31, 1997:
Revenue, net........................... $1,040,297 $113,464 $1,153,761
========== ======== ==========
Income from operations................. $ 107,085 $ 2,147 $ 109,232
========== ========
Other non-operating income............. 8,722
Related party-interest expense......... 190,445
----------
Loss before taxes...................... $ (72,491)
==========
Total assets at December 31, 1997...... $3,500,945 $ 45,701 $3,546,646
========== ======== ==========
</TABLE>
Transactions between geographic areas are not significant.
F-26
<PAGE>
ZDI (ZIFF-DAVIS INC.) AND ZDCF (ZD COMDEX AND FORUMS INC.)
(WHOLLY-OWNED INDIRECT SUBSIDIARIES OF SOFTBANK CORP.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
18. SUBSEQUENT EVENTS (UNAUDITED)
Reorganization of the Companies
In February 1998, Softbank announced a reorganization of the Companies (the
"Reorganization"). In connection with the Reorganization, Softbank will
contribute the common stock of ZDI and ZDCF to a newly formed company in
exchange for a majority of the new company's common stock, the balance of
which will be offered to the public. In addition, approximately $928 million
of obligations owed to Softbank will be converted to equity, approximately
$1.5 billion of notes payable to affiliates will be refinanced, the $370
million obligation for the purchase of the MAC Assets will be paid and
balances totaling approximately $42 million due from MAC will be settled. The
Reorganization is contingent upon the successful completion of the public
stock offering and refinancing of the notes payable to affiliates.
Guarantee of Softbank's U.S. Debt
In March 1998, the Company increased its guarantee of Softbank's U.S. debt
from $150 million to $450 million.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Ziff-Davis Inc., (formerly Ziff-Davis Publishing Company)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows and changes in stockholder's
equity, present fairly, in all material respects, the financial position of
Ziff-Davis Inc. and its subsidiaries (formerly Ziff-Davis Publishing Company
or the "Company") at December 31, 1995 and February 28, 1996, and the results
of their operations and their cash flows for the year ended December 31, 1995
and for the period from January 1, 1996 to February 28, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 16 to the financial statements, the Company was acquired
by SOFTBANK Holdings Inc. on February 29, 1996.
PRICE WATERHOUSE LLP
New York, NY
February 17, 1998
F-28
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 10,083 $ 13,669
Accounts receivable, net........................... 113,078 116,075
Inventories........................................ 21,825 26,009
Deferred taxes..................................... 22,129 23,570
Prepaid postage and other current assets........... 16,621 16,852
---------- ----------
Total current assets................................. 183,736 196,175
Property and equipment, net.......................... 64,110 58,589
Intangible assets, net............................... 1,348,064 1,338,684
Deferred charges and other assets.................... 27,996 26,457
---------- ----------
Total assets......................................... $1,623,906 $1,619,905
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable................................... $ 56,488 $ 43,795
Accrued expenses................................... 68,814 78,333
Unexpired subscriptions, net....................... 81,737 86,435
Due to management and affiliates................... 58,480 58,762
Current portion of long-term debt.................. 6,847 6,847
Other current liabilities.......................... 2,048 2,733
---------- ----------
Total current liabilities............................ 274,414 276,905
Deferred taxes....................................... 11,822 10,815
Long-term debt....................................... 439,153 439,153
Subordinated debentures--related party............... 525,000 525,000
Other long-term liabilities.......................... 8,367 7,315
---------- ----------
Total liabilities.................................... 1,258,756 1,259,188
---------- ----------
Commitments and contingencies (Notes 14, 15 and 16)
Stockholder's equity:
Common stock, $.01 par value; 1,000 shares autho-
rized;
100 shares issued and outstanding................. -- --
Additional paid-in capital......................... 391,275 391,275
Accumulated deficit................................ (26,002) (30,549)
Cumulative translation adjustment.................. (123) (9)
---------- ----------
Total stockholder's equity........................... 365,150 360,717
---------- ----------
Total liabilities and stockholder's equity........... $1,623,906 $1,619,905
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-29
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1996
YEAR ENDED TO
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ---------------
<S> <C> <C>
Revenue, net...................................... $768,995 $125,465
Cost of production................................ 193,646 31,112
Selling, general and administrative expenses...... 428,053 71,946
Depreciation and amortization of property and
equipment........................................ 37,160 6,073
Amortization of intangible assets................. 54,386 9,064
-------- --------
Income from operations.......................... 55,750 7,270
Interest expense, net............................. (92,609) (14,030)
Equity in losses of joint ventures................ 3,391 235
-------- --------
Loss before income taxes........................ (40,250) (6,995)
Income tax benefit................................ (14,248) (2,448)
-------- --------
Net loss.......................................... $(26,002) $ (4,547)
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-30
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1996
YEAR ENDED TO
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................ $ (26,002) $ (4,547)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................. 91,546 15,137
Loss from equity investments.................. 3,391 235
Provisions for bad debts, allowances and
cancellations................................ 14,097 3,014
Deferred tax benefit.......................... (14,248) (2,448)
Changes in operating assets and liabilities:
Accounts receivable......................... (26,956) (6,011)
Inventories................................. (9,014) (4,184)
Accounts payable and accrued expenses....... 8,136 (3,174)
Unexpired subscriptions, net................ 2,499 4,698
Due to management and affiliates............ (3,020) 282
Other, net.................................. (3,366) 1,136
----------- --------
Net cash provided by operating activities....... 37,063 4,138
----------- --------
Cash flows from investing activities:
Capital expenditures.......................... (14,163) (552)
Proceeds from sale of businesses.............. 23,508 --
----------- --------
Net cash provided (used) by investing
activities..................................... 9,345 (552)
----------- --------
Cash flows from financing activities:
Borrowings under revolving credit facility.... 80,625 24,335
Repayment of revolving credit facility........ (60,625) (24,335)
Repayment of acquisition indebtedness......... (1,122,931) --
----------- --------
Net cash used by financing activities........... (1,102,931) --
----------- --------
Net (decrease)/increase in cash and cash
equivalents.................................... (1,056,523) 3,586
Cash and cash equivalents at beginning of
period......................................... 1,066,606 10,083
----------- --------
Cash and cash equivalents at end of period...... $ 10,083 $ 13,669
=========== ========
Supplemental cash flow disclosures:
Interest paid................................. $ 78,811 $ 29,255
Income taxes paid............................. $ 92,729 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-31
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
------------- PAID-IN ACCUMULATED TRANSLATION STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
------ ------ ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... 100 $ -- $391,275 $ -- $ -- $391,275
Net loss................ -- -- -- (26,002) -- (26,002)
Foreign currency
translation adjustment. -- -- -- -- (123) (123)
--- ----- -------- -------- ----- --------
Balance at December 31,
1995................... 100 -- 391,275 (26,002) (123) 365,150
Net loss................ -- -- -- (4,547) -- (4,547)
Foreign currency
translation adjustment. -- -- -- -- 114 114
--- ----- -------- -------- ----- --------
Balance at February 28,
1996................... 100 $ -- $391,275 $(30,549) $ (9) $360,717
=== ===== ======== ======== ===== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-32
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
1. ORGANIZATION AND ACQUISITION
Ziff-Davis Inc. ("ZDI," formerly Ziff-Davis Publishing Company) is a wholly-
owned subsidiary of Ziff-Davis Holdings Corp. ("Holdings").
ZDI is engaged in publishing magazines, journals and training manuals and
providing market research about the computer industry, with operations in the
United States, Canada and Europe.
Acquisition
Effective January 1, 1995, Holdings, through ZDI, directly and indirectly
acquired certain assets and assumed certain liabilities of the Ziff-Davis
publishing business and related businesses (the "Acquisition" or the "Acquired
Businesses") from Ziff Communications Company, L.P., a limited partnership
("ZCC") and other persons and entities (collectively referred to as the
"Sellers"), for an aggregate purchase price of approximately $1,400,000 plus
transaction costs. ZDI funded the Acquisition through the issuance of Common
Stock, bank borrowings and a subordinated note payable to Holdings.
The acquisition has been accounted for using the purchase method of
accounting.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of ZDI and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Investments in companies in which ownership interests range from 20 to 50
percent are accounted for under the equity method. ZDI has an equity
investment interest in Family PC G.P. of 50%. The equity investment in Family
PC G.P. is not material to ZDI's consolidated financial statements.
Cash and cash equivalents
ZDI considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Concentration of credit risk
ZDI places its temporary cash investments with high credit quality financial
institutions. At times, such investments may be in excess of federally insured
limits. ZDI has not experienced losses in such accounts.
ZDI's advertisers include customers who represent a variety of technology
companies in the United States and other countries. ZDI extends credit to its
customers and historically has not experienced significant losses relating to
receivables from individual customers or groups of customers.
Property and equipment
Property and equipment have been recorded at their estimated fair value at
the date of acquisition. Depreciation is computed using the straight-line
method over the estimated useful lives of the acquired assets, ranging from 3
to 39 years. Leasehold improvements are amortized using the straight-line
method over the service life of the improvement or the life of the related
lease, whichever is shorter. Maintenance and repair costs are charged to
expense as incurred.
F-33
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Paper inventories
Paper inventories are stated at the lower of cost or market. Cost is
determined on a first-in, first-out basis.
Intangible assets
Intangible assets consist principally of advertising lists, trademarks and
trade names and goodwill. Amortization of these assets is computed on a
straight-line basis over their estimated useful lives. Identifiable intangible
assets are amortized over a period of 2 to 39 years and goodwill, which
represents the excess of the purchase price over the estimated fair values of
net assets acquired, is amortized over 40 years. ZDI assesses the
recoverability of its intangible assets whenever adverse events or changes in
circumstances indicate that expected future cash flows (undiscounted and
without interest charges) may not be sufficient to support the carrying amount
of intangible assets. If undiscounted cash flows are not sufficient to support
the recorded assets, an impairment loss is recognized to reduce the carrying
value of the intangibles to its estimated recoverable value.
Revenue recognition
Advertising revenue for ZDI's publications, less agency commissions, is
recognized as income in the month that the related publications are sent to
subscribers or becomes available for sale at newsstands.
Circulation revenue consists of both subscription and single copy newsstand
sales. Subscription revenue, less estimated cancellations, is deferred and
recognized as income in the month that the related publications are sent to
subscribers. Newsstand sales, less estimated returns, are recognized in the
month that the related publications become available for sale at newsstands.
Revenue generated by market research is recognized when the service is
provided.
Operating costs and expenses
Cost of production includes paper, manufacturing, distribution and
fulfillment. Selling and promotion costs include subscriber acquisition costs
which are expensed as incurred. Editorial and product development costs are
generally expensed as incurred. Product development costs include the cost of
artwork, graphics, prepress, plates and photography for new products.
Foreign currency
Gains and losses on foreign currency transactions, which are not
significant, have been included in selling, general and administrative
expenses. The effect of translation of foreign currency financial statements
into U.S. dollars is included in the cumulative translation adjustments
account in stockholder's equity.
Income taxes
ZDI uses the asset and liability approach for financial accounting and
reporting of deferred taxes.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements.
Actual results may differ from these estimates.
F-34
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Fair value of financial instruments
All current assets and liabilities are carried at cost, which approximates
fair value because of the short-term maturity of those instruments. The
recorded amounts of ZDI's long-term debt also approximate fair value which was
based upon the current rates available to ZDI for debt with similar remaining
maturities.
Impairment of long-lived assets
In 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" ("SFAS 121"). ZDI adopted SFAS 121 in fiscal 1996 with no
effect on operations.
Earnings per share
Historical earnings per share data has been omitted on the basis that it is
not meaningful due to the insignificant number of shares outstanding.
3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
Accounts receivable............................... $168,961 $166,036
Allowance for doubtful accounts, returns and
cancellations.................................... (55,883) (49,961)
-------- --------
$113,078 $116,075
======== ========
</TABLE>
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
Computers and equipment............................ $ 55,838 $ 56,390
Leasehold improvements............................. 25,999 25,999
Furniture and fixtures............................. 12,404 12,404
Other.............................................. 7,029 7,029
-------- --------
101,270 101,822
Accumulated depreciation and amortization.......... (37,160) (43,233)
-------- --------
$ 64,110 $ 58,589
======== ========
</TABLE>
F-35
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
5. INTANGIBLE ASSETS, NET
Intangible assets, net, consist of the following:
<TABLE>
<CAPTION>
RANGE OF
LIVES DECEMBER 31, FEBRUARY 28,
(YEARS) 1995 1996
-------- ------------ ------------
<S> <C> <C> <C>
Advertiser lists.......................... 7-39 $ 645,800 $ 645,800
Trademarks and trade names................ 30 235,820 235,820
Subscriber lists.......................... 3-10 47,436 47,436
Other..................................... 2-5 28,800 28,800
License agreements........................ 6-14 11,211 11,211
Goodwill.................................. 40 433,383 433,067
---------- ----------
1,402,450 1,402,134
Accumulated amortization.................. (54,386) (63,450)
---------- ----------
$1,348,064 $1,338,684
========== ==========
</TABLE>
Intangible assets primarily relate to the acquisition of ZDI. As discussed
in Note 1, the acquisition was accounted for under the purchase method of
accounting. As such the purchase price was allocated to tangible and
identifiable intangible assets with the remaining amount allocated to
goodwill.
Advertising lists, exhibitor relationships and subscriber lists were
recorded at their estimated fair value as determined by an "income" approach.
Trademarks/trade names were recorded at their estimated fair value using a
"relief from royalty" approach.
All intangible assets are being amortized using the straight-line method
over their estimated useful lives, up to 40 years. In determining the
estimated useful lives, ZDI considered its competitive position in the markets
in which it operates, the historical attrition rates of advertisers,
exhibitors and subscribers, legal and contractual obligations, and other
factors.
Recoverability of goodwill and intangible assets is assessed at a minimum on
an annual basis. Impairments would be recognized in operating results if a
permanent diminution in value were to occur based upon an undiscounted cash
flow analysis.
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
Payroll and related employee benefits.............. $35,044 $35,152
Accrued interest................................... 16,804 27,526
Other taxes payable................................ 1,588 2,576
Other accrued expenses............................. 15,378 13,079
------- -------
$68,814 $78,333
======= =======
</TABLE>
F-36
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
7. INCOME TAXES
Loss before income taxes is attributable to the following jurisdictions:
<TABLE>
<CAPTION>
YEAR JANUARY 1
ENDED TO
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
United States...................................... $(31,114) $(4,757)
Foreign............................................ (9,136) (2,238)
-------- -------
Total............................................ $(40,250) $(6,995)
======== =======
</TABLE>
Components of the income tax benefit are as follows:
<TABLE>
<CAPTION>
YEAR JANUARY 1
ENDED THROUGH
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
U.S. federal income taxes:
Current.......................................... $ -- $ --
Deferred......................................... (11,040) (1,897)
State and local income taxes:
Current.......................................... -- --
Deferred......................................... (3,208) (551)
Foreign income taxes............................... -- --
-------- -------
Total income tax benefit....................... $(14,248) $(2,448)
======== =======
</TABLE>
A reconciliation of the U.S. federal statutory tax rate to ZDI's effective
tax rate on loss before income taxes is as follows:
<TABLE>
<CAPTION>
YEAR JANUARY 1
ENDED TO
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
Federal tax at 35%................................ 35.0% 35.0%
State and local taxes (net of federal tax bene-
fit)............................................. 6.0 6.0
Foreign losses.................................... (2.5) (2.5)
Amortization of nondeductible goodwill............ (1.3) (1.2)
Other nondeductible expenses...................... (1.8) (2.3)
---- ----
Effective tax rate.............................. 35.4% 35.0%
==== ====
</TABLE>
F-37
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
Following is a summary of the components of the deferred tax accounts at
December 31, 1995 and February 28, 1996:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
Current deferred tax assets:
Allowance for bad debts......................... $ 8,396 $ 8,535
Employee compensation, bonus, and vacation...... 12,248 12,687
Other........................................... 1,485 2,348
-------- --------
Current deferred tax assets................... 22,129 23,570
-------- --------
Noncurrent deferred tax assets and (liabilities):
Basis difference in intangible assets........... (69,271) (71,589)
Basis difference in property and equipment...... (3,378) (1,863)
Deferred rental expense......................... 3,285 3,139
Net operating loss carryforwards................ 102,165 103,954
Acquisition reserves............................ 2,773 2,756
Other........................................... (220) (36)
-------- --------
Gross noncurrent deferred tax assets.......... 35,354 36,361
Valuation allowance............................. (47,176) (47,176)
-------- --------
Net noncurrent deferred tax liabilities....... (11,822) (10,815)
-------- --------
Total net deferred tax assets..................... $ 10,307 $ 12,755
======== ========
</TABLE>
As of December 31, 1995 and February 28, 1996, ZDI had total deferred tax
assets of $83,176 and $86,243, respectively, and total deferred tax
liabilities of $72,869 and $73,488, respectively.
As of February 28, 1996, ZDI has U.S. and foreign net operating loss
carryforwards of approximately $244,172, which will begin to expire on
December 31, 1996. The December 31, 1995 and the February 28, 1996 net
deferred tax asset is reduced by a valuation allowance of $47,176 relating to
tax benefits of foreign net operating loss carryforwards which are not
expected to be recognized.
ZDI's foreign subsidiaries have no undistributed earnings for remittance to
the U.S. and therefore no U.S. or foreign tax provision on remittances has
been recorded.
8. DUE TO MANAGEMENT AND AFFILIATES
Payables to management and affiliates consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1996
------------ ------------
<S> <C> <C>
Payable to:
Management....................................... $28,161 $28,443
Sellers.......................................... 21,500 21,500
Holdings......................................... 8,819 8,819
------- -------
$58,480 $58,762
======= =======
</TABLE>
F-38
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
As part of the Acquisition, ZDI agreed to assume certain obligations to
management arising out of prior employment arrangements. Approximately $40,000
was due under these arrangements, of which approximately $12,000 was paid in
1995. The balance of the obligation, including accrued interest, was paid in
1997.
Amounts due to sellers represent final amounts payable related to the
Acquisition.
9. LONG-TERM DEBT
Long-term debt at December 31, 1995 and February 28, 1996 is comprised of
the following:
<TABLE>
<S> <C>
Bank debt:
Tranche A........................................................ $ 86,604
Tranche B........................................................ 179,479
Tranche C........................................................ 159,917
Revolving credit arrangement..................................... 20,000
--------
446,000
Less--Current portion.............................................. (6,847)
--------
$439,153
========
</TABLE>
On December 21, 1994, ZDI borrowed $515,000 under the terms of a Credit
Agreement. The proceeds of the loan were used to finance a portion of the
Acquisition and pay certain transaction costs.
Tranche A, as amended on August 31, 1995, is a six-year term loan due
quarterly in varying amounts from September 30, 1995 through December 31,
2000. Tranche B is a seven-year term loan due quarterly in varying amounts
commencing September 30, 1995 through September 30, 2001, with a final payment
of $126,000 on December 31, 2001. Tranche C is an eight-year term loan
providing for quarterly payments, aggregating $1,000 per calendar year
commencing September 30, 1995 through December 31, 2001, followed by four
quarterly payments of $39,500 through December 31, 2002.
The Credit Agreement also provides ZDI with an additional $85,000, increased
to $150,000 under terms of the August 31, 1995 amendment, under a revolving
credit arrangement through December 31, 2000. These funds are available for
loans, letters of credit, and swing-line loans, subject to certain maximum
levels of borrowing. At least once during each year, for a period of 30
consecutive days, the loans outstanding under the revolving credit facility
must be reduced so that the aggregate outstanding amount does not exceed
$130,000 during such 30-day period. The commitment fee for the revolving
credit facility is .50% during 1995 and 1996 on the unused portion of the
facility. ZDI has the option to permanently reduce the amount available for
borrowings under the revolving credit facility by a minimum of $5,000 at any
time. At December 31, 1995 and February 28, 1996, $130,000 under the revolving
credit facility is available for borrowing.
During 1995 and the period January 1, 1996 to February 28, 1996, the Tranche
A and revolving credit loans bore interest, payable at least quarterly, at
either the Average Bank Rate ("ABR"), as defined, plus 1.25%, or at the
Eurodollar rate, plus 2.5% at the election of ZDI. Tranche B and C loans bore
interest, payable at least quarterly, at either the ABR, plus 1.75% and 2.25%,
respectively, or at the Eurodollar rate, as defined, plus 3% and 3.5%,
respectively, at the election of ZDI. Swing-line loans bear interest at the
ABR, plus the applicable margins as discussed above. Borrowings outstanding at
December 31, 1995 and February 28, 1996 were $446,000 and the weighted average
interest rate was 8.8% and 10.1%, respectively.
F-39
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
ZDI is required to comply with various restrictive covenants, including
maintaining certain financial ratios, restrictions on additional indebtedness,
capital expenditures, acquisitions, certain asset sales, declaration of
dividends and acquisition of ZDI's or Holdings' Common Stock. All borrowings
under the Credit Agreement are secured by the common stock and other equity
interests of ZDI and its wholly-owned subsidiaries.
ZDI is required to make mandatory prepayments of the loans with the net
proceeds of certain asset sales and debt issuances, if any. ZDI is also
required, commencing with the year ending December 31, 1995, to prepay the
loans with a portion of excess cash flow, as defined, once certain cash
balances are achieved. These cash balances were not achieved during 1995 or
for the period from January 1, 1996 to February 28, 1996 and therefore no
prepayments occurred.
Scheduled principal payments for each of the next five years are as follows:
<TABLE>
<S> <C>
1996................................................................ $ 6,847
1997................................................................ 13,518
1998................................................................ 21,524
1999................................................................ 23,658
2000................................................................ 52,795
Thereafter.......................................................... 327,658
--------
Total............................................................. $446,000
========
</TABLE>
10. RELATED PARTY TRANSACTIONS
Prior to the Acquisition, ZCC provided certain services to ZDI, including
legal, tax, human resources, payroll, facilities management and management
information services. The remaining unpaid balance (approximately $8,100) for
such services was paid in the normal course of business during 1995. Beginning
in 1995, ZDI sublet office space and provided administrative services to ZCC.
Such office space and services were provided to ZCC at ZDI's cost. The
majority partners of ZCC have a continuing investment in Holdings of
approximately 6%.
On the closing date of the Acquisition, ZDI paid approximately $280,000 in
cash to the Sellers and issued notes due January 13, 1995 and January 16, 1995
totaling $1,033,931, for the balance. These notes were subsequently fully paid
in January, 1995.
See Note 11 for a description of subordinated debentures.
In connection with the Acquisition, ZDI paid transaction costs of $14,000 to
an affiliate of Holdings.
The Company paid $44,555 and $3,791 in interest to Holdings for the year
ended December 31, 1995 and for the period from January 1, 1996 to February
28, 1996, respectively.
11. SUBORDINATED DEBENTURES--RELATED PARTY
On December 21, 1994, ZDI issued a $525,000 subordinated note payable to
Holdings to finance a portion of the Acquisition. The note bears interest at 8
1/2% per annum with interest payable semiannually on February 28 and August 31
of each year. The principal is repayable in three installments of $175,000
each on December 21, 2005, December 21, 2006 and December 21, 2007. This note
is fully subordinated in right of payment to the bank borrowings (see Note 9).
F-40
<PAGE>
ZDI (ZIFF-DAVIS INC., FORMERLY ZIFF-DAVIS PUBLISHING COMPANY)
(A WHOLLY-OWNED SUBSIDIARY OF ZIFF-DAVIS HOLDINGS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
12. EMPLOYEE BENEFIT PLANS
Retirement plans
ZDI and its subsidiaries maintain various defined contribution retirement
plans. Substantially all of ZDI's employees are eligible to participate in one
of the plans under which annual contributions may be made by ZDI for the
benefit of all eligible employees. Employees may also make contributions to
the plan in which they participate which, subject to certain limitations, may
be matched by ZDI up to certain specified percentages. Employees are generally
eligible to participate in a plan upon joining ZDI and receive matching
contributions immediately upon commencement of employment. In addition, the
employees become eligible to receive a discretionary Company contribution
after one year of employment. ZDI made contributions of $8,432 and $1,407 for
the year ended December 31, 1995 and for the period ended February 28, 1996,
respectively.
13. SALE OF BUSINESSES
During 1995, ZDI disposed of two subsidiaries and received cash
consideration of $23,508. No gain or loss was realized on the dispositions.
14. OPERATING LEASE COMMITMENTS
ZDI is obligated under various operating leases which expire at various
dates through 2006. Future minimum rental commitments under noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
1996 (ten-month period).............................................. $15,771
1997................................................................. 19,606
1998................................................................. 18,219
1999................................................................. 12,532
2000................................................................. 9,611
Thereafter........................................................... 14,583
-------
Total.............................................................. $90,322
=======
</TABLE>
Netted in the above totals is approximately $2,300 for which ZDI has
noncancelable subleases in place. Total sublease income approximates ZDI's
required payments under the related leases. Rent expense amounted to
approximately $22,900 and $4,020 for the year ended December 31, 1995 and for
the period from January 1, 1996 to February 28, 1996, respectively.
15. CONTINGENCIES
ZDI is subject to various claims and legal proceedings arising in the normal
course of business. Management believes that the ultimate liability, if any,
in the aggregate will not be material to the consolidated balance sheet,
future operations or cash flows.
16. SUBSEQUENT EVENTS
Acquisition of the Company
In February 1996, SOFTBANK Corp. entered into an agreement to acquire the
stock of ZDI for an aggregate purchase price of approximately $1,800,000, plus
transaction costs. In a separate agreement, MAC Inc. Ltd., an affiliated
company of SOFTBANK Corp., acquired directly and through affiliates, certain
of the assets and assumed certain of the liabilities of ZDI for an aggregate
purchase price of approximately $302,000.
F-41
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses, other than
underwriting discounts and commissions, to be incurred in connection with the
distribution of the securities registered under this Registration Statement.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Securities and Exchange Commission registration fee............ $ 73,750
NASD fees and expenses......................................... $ 25,500
Legal fees and expenses........................................ 450,000
Printing and engraving fees.................................... 150,000
Accounting fees and expenses................................... 500,000
Trustee's fees................................................. 15,000
Miscellaneous.................................................. 35,750
----------
Total........................................................ $1,250,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees
and individuals against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with any threatened, pending or completed actions, suits or
proceeding in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant. The
statute provides that it is not exclusive of other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise. Section 6.4 of the
Registrant's By-laws provides for indemnification by the Registrant of its
directors, officers and employees to the fullest extent permitted by the
Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for payments of unlawful dividends or unlawful stock repurchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. The Company's Certificate of Incorporation provides
for such limitation of liability.
Reference is also made to Section 7(c) of the Underwriting Agreement filed
as Exhibit 1.1 to the Registration Statement for information concerning the
Underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Form of Certificate of Incorporation of the Company (incorporated herein
by reference to the exhibit in the Company's Registration Statement on
Form S-1, File No. 333-46493).
3.2 Form of By-laws of the Company (incorporated herein by reference to the
exhibit in the Company's Registration Statement on Form S-1, File No.
333-46493).
4.1 Indenture, dated as of May 1, 1998, between Ziff-Davis Inc. and The Bank
of New York, as Trustee.
5.1 Opinion of Sullivan & Cromwell, counsel to the Company.
10.1 1998 Incentive Compensation Plan (incorporated herein by reference to
the exhibit in the Company's Registration Statement on Form S-1, File
No. 333-46493).
10.2 1998 Employee Stock Purchase Plan (incorporated herein by reference to
the exhibit in the Company's Registration Statement on Form S-1, File
No. 333-46493).
10.3 Undertaking, dated as of April 1, 1998, between SOFTBANK Corp. and ZD
Inc. (incorporated herein by reference to the exhibit in the Company's
Registration Statement on Form S-1, File No. 333-46493).
10.4 License and Services Agreement, dated as of July 28, 1997, between Ziff-
Davis Inc., ZDTV LLC, ZD Television Productions, Inc., MAC Holdings
(America) Inc. and MAC Inc. (incorporated herein by reference to the
exhibit in the Company's Registration Statement on Form S-1, File No.
333-46493).
10.5 Master License Agreement, dated as of April 1, 1998, between Ziff-Davis
Inc. and SOFTBANK Corp. (incorporated herein by reference to the exhibit
in the Company's Registration Statement on Form S-1, File No. 333-
46493).
10.6 License Agreement, dated as of July 1, 1998, between MAC Inc., Ziff-
Davis Inc. and SOFTBANK Corp. (incorporated herein by reference to the
exhibit in the Company's Registration Statement on Form S-1, File No.
333-46493).
10.7 Agreement to Produce, dated April 1, 1998, between ZD COMDEX and Forums
Inc. and SOFTBANK Forums KK (incorporated herein by reference to the
exhibit in the Company's Registration Statement on Form S-1, File No.
333-46493).
10.8 Trademark License Agreement, dated as of April 1, 1998, between ZD
COMDEX and Forums Inc. and SOFTBANK Forums KK (incorporated herein by
reference to the exhibit in the Company's Registration Statement on Form
S-1, File No. 333-46493).
10.9 Technical Assistance Agreement, dated as of April 1, 1998, between ZD
COMDEX and Forums Inc. and SOFTBANK Forums KK (incorporated herein by
reference to the exhibit in the Company's Registration Statement on Form
S-1, File No. 333-46493).
10.10 Accounting and Administrative Services Agreement, dated as of April 1,
1998, between ZD COMDEX and Forums Inc. and SOFTBANK Forums KK
(incorporated herein by reference to the exhibit in the Company's
Registration Statement on Form S-1, File No. 333-46493).
10.11 Registration Rights Agreement, dated as of April 1, 1998, between ZD
Inc. and SOFTBANK Holdings Inc. (incorporated herein by reference to the
exhibit in the Company's Registration Statement on Form S-1, File No.
333-46493).
10.12 Credit Agreement, dated as of March 27, 1996, between SOFTBANK Holdings
Inc., the Guarantors listed therein, The Bank of New York and Morgan
Stanley Senior Funding, Inc., as amended March 9, 1998 (incorporated
herein by reference to the exhibit in the Company's Registration
Statement on Form S-1, File No. 333-46493).
10.13 Credit Agreement, dated as of , 1998, between Ziff-Davis Inc.,
BNY Capital Markets, Inc., Morgan Stanley Senior Funding, Inc. and the
Agents listed therein.**
10.14 Lease of Ziff-Davis Inc. headquarters at 28 East 28th Street, New York,
New York (incorporated herein by reference to the exhibit in the
Company's Registration Statement on Form S-1, File No. 333-46493).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.15 Lease Agreement, dated as of May 4, 1998, between Ziff-Davis Inc., ZD
Inc., ZD COMDEX and Forums Inc. and Kingston Technology Company
(incorporated herein by reference to the exhibit in the Company's
Registration Statement on Form S-1, File No. 333-46493).
10.16 1998 Non-Employee Directors Stock Option Plan Agreement (incorporated
herein by reference to the exhibit in the Company's Registration
Statement on Form S-1, File No. 333-46493).
10.17 Assignment, dated as of May 4, 1998, between Kingston Technology Company
and Ziff-Davis Inc. (incorporated herein by reference to the exhibit in
the Company's Registration Statement on Form S-1, File No. 333-46493).
10.18 Employment Agreement, dated as of April 1, 1998, between ZD Inc. and
Eric Hippeau (incorporated herein by reference to the exhibit in the
Company's Registration Statement on Form S-1, File No. 333-46493).
10.19 Employment Agreement, dated as of April 1, 1998, between ZD COMDEX and
Forums Inc. and Jason E. Chudnofsky (incorporated herein by reference to
the exhibit in the Company's Registration Statement on Form S-1, File
No. 333-46493).
12. Computation of Ratio of Earnings to Fixed Charges (incorporated herein
by reference to the exhibit in the Company's Registration Statement on
Form S-1, File No. 333-46493).
21.1 List of subsidiaries of the Company (incorporated herein by reference to
the exhibit in the Company's Registration Statement on Form S-1, File
No. 333-46493).
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Sullivan & Cromwell (included in Exhibit 5 above).
25 Statement of eligibility of trustee.
27 Financial Data Schedule (incorporated herein by reference to the exhibit
in the Company's Registration Statement on Form S-1, File No. 333-
46493).
</TABLE>
- --------
** To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Not applicable.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under "Item 14,
Indemnification of Directors and Officers" above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment to the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, New York on the 24th day of April, 1998.
ZD Inc.
/s/ Eric Hippeau
By:
----------------------------------
ERIC HIPPEAU
CHAIRMAN, CHIEF EXECUTIVE OFFICER
Each of the undersigned hereby constitutes and appoints Timothy C. O'Brien
(Chief Financial Officer of the Company) and J. Malcolm Morris (Senior Vice
President and General Counsel), and each of them severally, his/her true and
lawful attorney-in-fact or attorneys-in-fact with power of substitution and
resubstitution to sign in his/her name, place and stead in any and all such
capacities the Registration Statement and any and all amendments thereto
(including post-effective amendments and amendments filed pursuant to Rule
462(b) under the Securities Act) and any documents in connection therewith,
and to file the same with the Securities and Exchange Commission, each of said
attorneys-in-fact to have power to act with or without the other, and to have
full power and authority to do and perform, in the name and on behalf of each
such officer and director of the Registrant who shall have executed such a
power of attorney, every act whatsoever which such attorneys-in-fact, or any
of them, may deem necessary or desirable to be done in connection therewith as
fully and to all intents and purposes as such officer or director of the
Registrant might or could do in person.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on April 24, 1998.
SIGNATURES TITLE
/s/ Eric Hippeau Chairman, Chief Executive Officer,
- ------------------------------------- Director (Principal Executive
(ERIC HIPPEAU) Officer)
/s/ Timothy C. O'Brien Chief Financial Officer, Director
- ------------------------------------- (Principal Financial Officer)
(TIMOTHY C. O'BRIEN)
/s/ Mark D. Moyer Controller (Principal Accounting
- ------------------------------------- Officer)
(MARK D. MOYER)
/s/ Masayoshi Son Director
- -------------------------------------
(MASAYOSHI SON)
/s/ Yoshitaka Kitao Director
- -------------------------------------
(YOSHITAKA KITAO)
/s/ Ronald D. Fisher Director
- -------------------------------------
(RONALD D. FISHER)
II-4
<PAGE>
SIGNATURES TITLE
/s/ Jason E. Chudnofsky Director
- -------------------------------------
(JASON E. CHUDNOFSKY)
/s/ Claude P. Sheer Director
- -------------------------------------
(CLAUDE P. SHEER)
/s/ Jonathan D. Lazarus Director
- -------------------------------------
(JONATHAN D. LAZARUS)
/s/ Jerry C.-Y. Yang Director
- -------------------------------------
(JERRY C.-Y. YANG)
II-5
<PAGE>
EXHIBIT 1.1
$250,000,000
ZD INC.
____% SENIOR SUBORDINATED NOTES DUE 2008
UNDERWRITING AGREEMENT
April 28, 1998
<PAGE>
April 28, 1998
Morgan Stanley & Co. Incorporated
BNY Capital Markets, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Merrill Lynch, Pierce, Fenner & Smith Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
ZD Inc., a Delaware corporation (the "COMPANY"), proposes to issue and sell
to the several Underwriters named in Schedule I hereto (the "UNDERWRITERS")
$250,000,000 principal amount of its ____% Senior Subordinated Notes due 2008
(the "SECURITIES") to be issued pursuant to the provisions of an Indenture dated
as of May __, 1998 (the "INDENTURE") between the Company and The Bank of New
York, as Trustee (the "TRUSTEE").
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement, including a prospectus, relating to the
Securities. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the prospectus in the form first
used to confirm sales of Securities is hereinafter referred to as the
"PROSPECTUS." If the Company has filed an abbreviated registration statement to
register additional ____% Senior Subordinated Notes due 2008 pursuant to Rule
462(b) under the Securities Act (the "RULE 462 REGISTRATION STATEMENT"), then
any reference herein to the term "REGISTRATION STATEMENT" shall be deemed to
include such Rule 462 Registration Statement.
It is understood and agreed that as of the Closing Date (as defined below),
the Company will consummate a series of transactions pursuant to which (i) all
of the stock of Ziff-Davis Inc. ("ZDI"), ZD COMDEX and Forums Inc. ("ZDCF") and
ZD Holdings (U.K.) Limited will be contributed to the Company by SOFTBANK
Holdings Inc., a wholly owned subsidiary of SOFTBANK Corp., in exchange for
74,200,000 shares of Common Stock, (ii) certain obligations owed to SOFTBANK
Corp. will be converted to equity, (iii) the Company will enter
1
<PAGE>
into a U.S.$1.35 billion Credit Agreement with The Bank of New York, Morgan
Stanley Senior Funding and other lenders (the "CREDIT AGREEMENT") and borrow
$1.25 billion thereunder, (iv) the Company will issue and sell the Securities
pursuant to this Agreement and shall issue and sell 25,800,000 Shares of its
Common Stock (the "SHARES") pursuant to an underwriting agreement (the "EQUITY
UNDERWRITING AGREEMENT") of even date herewith and (v) the Company will apply
the proceeds of the sale of the Shares and the Securities, together with amounts
borrowed under the Credit Agreement, to purchase from MAC Inc. certain
operations and assets relating to certain publications and trade shows and to
repay certain Indebtedness owed to SOFTBANK Corp. and its affiliates (all such
transactions, as more fully described in the Prospectus, shall collectively be
referred to herein as the "REORGANIZATION"), which transactions shall be deemed
to take place simultaneously on the Closing Date. In connection with the
Reorganization, the Company will change its name to "Ziff-Davis Inc." and ZDI
will change its name to "ZD Inc."
1. Representations and Warranties. The Company represents and warrants to
and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the Company's
knowledge, threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) the Registration Statement and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations
and warranties set forth in this paragraph do not apply to (A) statements
or omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein or (B) that part
of the Registration Statement that constitutes the Statement of Eligibility
(Form T-1) under the Trust Indenture Act of 1939, as amended (the "TRUST
INDENTURE ACT"), of the Trustee.
2
<PAGE>
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware and
has the corporate power and authority to own its property and to conduct
its business as described in the Prospectus.
(d) Each entity that will be a subsidiary of the Company after
giving effect to the Reorganization (each a "SUBSIDIARY") has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has the corporate power
and authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its Subsidiaries, taken
as a whole; all of the issued shares of capital stock of each Subsidiary of
the Company (including, but not limited to, ZDI, ZDCF and Holdings) have
been duly and validly authorized and issued, are fully paid and non-
assessable and, as of the Closing Date, will be owned directly by the
Company, free and clear of all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The Indenture has been duly qualified under the Trust Indenture
Act and has been duly authorized, executed and delivered by the Company and
is a valid and binding agreement of the Company, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and general principles of equity.
(g) The Securities have been duly authorized and, when executed and
authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Underwriters in accordance with the terms
of this Agreement, will be entitled to the benefits of the Indenture and
will be valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and general principles of equity.
(h) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement, the
3
<PAGE>
Indenture, the Securities and the consummation of the transactions
comprising the Reorganization will not contravene any provision of
applicable law or the certificate of incorporation or by-laws of the
Company or any agreement or other instrument binding upon the Company or
any of its Subsidiaries that is material to the Company and its
Subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any Subsidiary, and no consent, approval, authorization or order of, or
qualification with (any of the foregoing, a "CONSENT"), any governmental
body or agency is required for the performance by the Company of its
obligations under this Agreement, the Indenture, the Securities or the
consummation of the transactions comprising the Reorganization, except (i)
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Securities and (ii) for
Consents the failure of which to have been obtained would not have a
material adverse effect on the Company and its Subsidiaries taken as a
whole.
(i) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its Subsidiaries, taken as a whole, from that
set forth in or contemplated by the Prospectus (exclusive of any amendments
or supplements thereto subsequent to the date of this Agreement).
(j) There are no legal or governmental proceedings pending or, to
the Company's knowledge, threatened to which the Company or any of its
Subsidiaries is a party or to which any of the properties of the Company or
any of its Subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(k) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
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(l) The Company is not and, after giving effect to the
Reorganization, will not be an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended.
(m) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company and
its Subsidiaries have not incurred any liability or obligation, direct or
contingent that is material to the Company and its Subsidiaries, taken as a
whole, nor entered into any transaction not in the ordinary course of
business that is material to the Company and its Subsidiaries, taken as a
whole and (ii) there has not been any material change in the capital stock,
short-term debt or long-term debt of the Company and its consolidated
subsidiaries, except in each case as described in or contemplated by the
Prospectus (exclusive of any amendments or supplements thereto subsequent
to the date of this Agreement).
(n) The Company and its Subsidiaries have good and marketable title
to all personal property owned by them which is material to the business of
the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries; the Company does not hold title to any real
property that is material to the Company and its Subsidiaries, taken as a
whole; and any real property and buildings held under lease by the Company
and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries, in each case except as
described in or contemplated by the Prospectus.
(o) The Company and its Subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, the
loss or failure to obtain of which would not have a material adverse effect
on the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its Subsidiaries, taken as a whole, and
neither the Company nor any of its Subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if the
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<PAGE>
subject of an unfavorable decision, ruling or finding, would result
in any material adverse change in the condition, financial or otherwise, or
in the earnings, business or operations of the Company and its
Subsidiaries, taken as a whole.
(p) The Company and each of its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(q) No material labor dispute with the employees of the Company or
any of its Subsidiaries exists, except as described in or contemplated by
the Prospectus, or, to the knowledge of the Company, is imminent; and the
Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could result in any material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its Subsidiaries, taken as a
whole.
(r) As of the Closing Date, the Reorganization will have been
completed as described in the Prospectus.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell to
the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective principal amounts of Securities set forth in Schedule I
hereto opposite its name at _____% of their principal amount plus accrued
interest, if any, from ______, 1998 to the date of payment and delivery.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Securities as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Securities are to be offered to the public initially at
____% of their principal amount (the "PUBLIC OFFERING PRICE") plus accrued
interest, if
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<PAGE>
any, from _______, 1998 to the date of payment and delivery and to certain
dealers selected by you at a price that represents a concession not in excess of
____% of their principal amount, and that any Underwriter may allow, and such
dealers may reallow, a concession, not in excess of ____% of their principal
amount, to any Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Securities shall be made to the
Company in Federal or other funds immediately available in New York City at
10:00 a.m., New York City time, on May [4], 1998, or at such other time on the
same or such other date, not later than May [11], 1998, as shall be designated
in writing by you. The time and date of such payment are hereinafter referred
to as the "CLOSING DATE."
Payment for the Securities shall be made against delivery to you on the
Closing Date for the respective accounts of the several Underwriters of the
Securities registered in such names and in such denominations as you shall
request in writing not less than one full business day prior to the Closing
Date, with any transfer taxes payable in connection with the transfer of the
Securities to the Underwriters duly paid.
5. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Securities to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Securities are subject to the
condition that the Registration Statement shall have become effective not later
than 5:30 p.m. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading
or of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of
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<PAGE>
the Company and its Subsidiaries, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in the
judgment of Morgan Stanley, is material and adverse and that makes
it, in the judgment of Morgan Stanley, impracticable to market the
Securities on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 5 above and to the effect
that the representations and warranties of the Company contained in this
Agreement are true and correct as of the Closing Date and that the Company
has complied with all of the agreements and satisfied all of the conditions
on its part to be performed or satisfied hereunder on or before the Closing
Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Sullivan & Cromwell, outside counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the State of
Delaware has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus;
(ii) each of ZDI and ZDCF has been duly incorporated, is
validly existing as a corporation in good standing under the laws of
the State of Delaware, has the corporate power and authority to own
its property and to conduct its business as described in the
Prospectus;
(iii) this Agreement has been duly authorized, executed and
delivered by the Company;
(iv) The Indenture has been duly authorized, executed and
delivered by the Company and duly qualified under the Trust Indenture
Act of 1939; the Securities have been duly authorized, executed,
authenticated, issued and delivered; and the Indenture and the
Securities constitute valid and legally binding obligations
8
<PAGE>
of the Company enforceable in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles;
(v) none of (A) the execution and delivery by the Company of,
and the performance by the Company of its obligations under, this
Agreement, the Indenture and the Securities, (B) the execution and
delivery by the Company of, and the performance by the Company of its
obligations under, the agreements entered into by the Company in
connection with the transactions comprising the Reorganization or (C)
the transfer of the shares of Common Stock of SOFTBANK Corp. or its
affiliates in exchange for the stock of ZDI and ZDCF, the purchase of
the MAC Assets and the repayment of approximately $1.589 billion of
obligations to SOFTBANK Corp., all in connection with the
Reorganization: (1) will violate the Company's certificate of
incorporation or by-laws, (2) to the best of such counsel's
knowledge, result in a default under or breach of any agreement or
other instrument binding upon the Company or any of its Subsidiaries
that is filed as an exhibit to the Registration Statement or (3)
violate any Federal law of the United States or law of the State of
New York applicable to the Company; provided, however, that for the
purposes of this paragraph, such counsel need express no opinion with
respect to Federal or state securities laws, other antifraud laws and
fraudulent transfer; provided, further, that insofar as performance
by the Company of its obligations under agreements entered into by
the Company in connection with the Reorganization and this Agreement
are concerned, such counsel need express no opinion as to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights.
(vi) All regulatory consents, authorizations, approvals and
filings required to be obtained or made by the Company under the
Federal laws of the United States and the General Corporation Law of
the State of Delaware for the issuance, sale and delivery of the
Securities by the Company to you have been obtained or made.
(vii) after due inquiry, such counsel does not know of any
litigation or governmental proceedings instituted or threatened
against the Company or any of its Subsidiaries that are required to
9
<PAGE>
be disclosed in the Registration Statement or the Prospectus and are
not so disclosed or of any documents that are required to be
disclosed in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not
summarized or filed as required;
(viii) the Company is not and, after giving effect to the
Reorganization, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended;
(ix) the Registration Statement, as of the effective date of
the Registration Statement, and the Prospectus, as of the date of the
Prospectus, appeared on their face to be appropriately responsive in
all material respects to the requirements of the Act and the Trust
Indenture Act of 1939 and the applicable rules and regulations of the
Commission thereunder; nothing that came to such counsel's attention
in the course of their review has caused such counsel to believe that
the Registration Statement, as of its effective date, contained any
untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of the
date of the Prospectus, contained any untrue statement of a material
fact or omitted to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which
they were made, not misleading. Such counsel may state that they do
not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or
the Prospectus except for those made under the captions "Description
of Notes" and "Underwriters" in the Prospectus, insofar as they
relate to provisions of documents therein described. Such counsel may
also state that they do not express any opinion or belief as to the
financial statements or other financial or statistical data contained
in the Registration Statement or the Prospectus or as to the
statement of the eligibility and qualification of the Trustee under
the Indenture under which the Securities are being issued.
(d) The Underwriters shall have received on the Closing Date an
opinion of Davis Polk & Wardwell, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 5, (c)(iii)
5(c)(iv) 5(c)(v) and 5(c)(x) above.
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With respect to Section 5 (c)(x) above, Sullivan & Cromwell and Davis
Polk & Wardwell may state that their opinion and belief are based upon
their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification, except as specified.
The opinion of Sullivan & Cromwell described in Section 5(c) above
shall be rendered to the Underwriters at the request of the Company and
shall so state therein.
(e) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from Price Waterhouse, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
of the Company, ZDI and ZDCF, and certain financial information contained
in the Registration Statement and the Prospectus (including pro forma and
other unaudited combined financial data); provided that the letter
delivered on the Closing Date shall use a "cut-off date" not earlier than
the date hereof.
(f) You shall have received evidence satisfactory to you that the
contribution to the Company of the stock of ZDI, ZDCF and ZD Holdings
(U.K.) Ltd. by SOFTBANK Holdings Inc. shall have occurred, and that the
other transactions comprising the Reorganization shall have occurred or
will occur as of the Closing Date, including the concurrent closings of the
issuance and sale of the Shares contemplated by the Equity Underwriting
Agreement and the borrowings under the Credit Agreement.
6. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, five signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 6(c) below, as many copies of the Prospectus and any supplements
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<PAGE>
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before filing any amendment or supplement the Registration
Statement or the Prospectus, to furnish to you a copy of each such proposed
amendment or supplement and not to file any such proposed amendment or
supplement to which you reasonably object, and to file with the Commission
within the applicable period specified in Rule 424(b) under the Securities
Act any prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Securities as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall occur or
condition exist as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if, in the reasonable opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the Commission
and furnish, at its own expense, to the Underwriters and to the dealers
(whose names and addresses you will furnish to the Company) to which
Securities may have been sold by you on behalf of the Underwriters and to
any other dealers upon request, either amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor, in cooperation with the Underwriters, to qualify the
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions as you shall reasonably request, provided that the Company
shall not be required to qualify to do business in any jurisdiction where
it is not now qualified or to take any action which would subject it to
general or unlimited service of process in any jurisdiction where it is not
now so subject or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise subject.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the twelve-
month period ending June 30, 1998 that satisfies the provisions
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of Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) During the period beginning on the date hereof and continuing to
and including the Closing Date, not to offer, sell, contract to sell or
otherwise dispose of any debt securities of the Company or warrants to
purchase or otherwise acquire debt securities of the Company substantially
similar to the Securities (other than (i) the Securities and (ii)
commercial paper issued in the ordinary course of business), without the
prior written consent of Morgan Stanley & Co. Incorporated.
(g) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Securities under the Securities Act and
all other fees or expenses in connection with the preparation and filing of
the Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery
of the Securities to the Underwriters, including any transfer or other
taxes payable thereon, (iii) the cost of printing or producing any Blue Sky
or legal investment memorandum in connection with the offer and sale of the
Securities under state law and all expenses in connection with the
qualification of the Securities for offer and sale under state law as
provided in Section 6(d) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Underwriters in connection with
such qualification and in connection with the Blue Sky or legal investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements
of counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Securities by the National Association
of Securities Dealers, Inc., (v) any fees charged by the rating agencies
for the rating of the Securities, (vi) the cost of printing certificates
representing the Securities, (vii) the costs and charges of any trustee,
transfer agent, registrar or depositary, (viii) the costs and expenses of
the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the
Securities, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with
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<PAGE>
the prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and
the cost of any aircraft chartered in connection with the road show, and
(ix) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise
made in this Section. It is understood, however, that except as provided in
this Section, Section 7 entitled "Indemnity and Contribution", and the last
paragraph of Section 9 below, the Underwriters will pay all of their costs
and expenses, including fees and disbursements of their counsel, transfer
taxes payable on resale of any of the Securities by them and any
advertising expenses connected with any offers they may make.
7. Indemnity and Contribution. (a) The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act to the same extent as the foregoing indemnity from the
Company to such Underwriter, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 7(a) or 7(b), such person (the
"INDEMNIFIED PARTY")
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<PAGE>
shall promptly notify the person against whom such indemnity may be sought
(the "INDEMNIFYING PARTY") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed in
writing to the retention of such counsel or (ii) the named parties to any
such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings
in the same jurisdiction, be liable for the fees and expenses of more than
one separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be reimbursed
as they are incurred. Such firm shall be designated in writing by Morgan
Stanley & Co. Incorporated, in the case of parties indemnified pursuant to
Section 7(a), and by the Company, in the case of parties indemnified
pursuant to Section 7(b). The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel as contemplated by
the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into
more than 30 days after receipt by such indemnifying party of the aforesaid
request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such proceeding.
(d) To the extent the indemnification provided for in Section 7(a)
or 7(b) is unavailable to an indemnified party or insufficient in respect
of any losses,
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claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Securities or (ii)
if the allocation provided by clause 7(d)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and of the Underwriters on
the other hand in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Securities shall be deemed to be in the
same respective proportions as the net proceeds from the offering of the
Securities (before deducting expenses) received by the Company and the
total underwriting discounts and commissions received by the Underwriters,
in each case as set forth in the table on the cover of the Prospectus, bear
to the aggregate Public Offering Price of the Securities. The relative
fault of the Company on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The Underwriters' respective obligations to contribute
pursuant to this Section 7 are several in proportion to the respective
principal amounts of Securities they have purchased hereunder, and not
joint.
(e) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 7(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which
the total price at which the Securities underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages
that such Underwriter has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of
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fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The remedies provided for
in this Section 7 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any indemnified party at law
or in equity.
(f) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this Agreement, (ii)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter or by or on behalf of the Company, its officers
or directors or any person controlling the Company and (iii) acceptance of
and payment for any of the Securities.
8. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange or the National Association of
Securities Dealers, Inc., (ii) trading of any securities of the Company shall
have been suspended on any exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in New York shall have been
declared by either Federal or New York State authorities or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in your judgment, is material
and adverse and (b) in the case of any of the events specified in clauses
8(a)(i) through 8(a)(iv), such event, singly or together with any other such
event, makes it, in the judgment of Morgan Stanley, impracticable to market the
Securities on the terms and in the manner contemplated in the Prospectus.
9. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date, any one or more of the Underwriters shall fail or
refuse to purchase Securities that it has or they have agreed to purchase
hereunder on such date, and the aggregate principal amount of Securities which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase is not more than one-tenth of the aggregate principal amount of the
Securities to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the principal amount of Securities
set forth opposite their respective names in Schedule I bears to the principal
amount of Securities set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Securities which such defaulting
17
<PAGE>
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the principal amount of Securities that
any Underwriter has agreed to purchase pursuant to this Agreement be increased
pursuant to this Section 9 by an amount in excess of one-ninth of such principal
amount of Securities without the written consent of such Underwriter. If, on the
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Securities and the aggregate principal amount of Securities with respect to
which such default occurs is more than one-tenth of the aggregate principal
amount of Securities to be purchased on such date, and arrangements satisfactory
to you and the Company for the purchase of such Securities are not made within
48 hours after such default, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriter or the Company. In any such case
either you or the Company shall have the right to postpone the Closing Date, but
in no event for longer than seven days, in order that the required changes, if
any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. Any action taken under this paragraph
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
reasonable and documented out-of-pocket expenses (including the fees and
disbursements of their counsel) reasonably incurred by such Underwriters in
connection with this Agreement or the offering contemplated hereunder.
10. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
11. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
18
<PAGE>
12. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
ZD Inc.
By:
------------------------------------------
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
BNY Capital Markets, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Acting severally on behalf of themselves and the several Underwriters named in
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
-------------------------------------------
Name:
Title:
19
<PAGE>
SCHEDULE I
PRINCIPAL AMOUNT
OF
SECURITIES TO BE
UNDERWRITER PURCHASED
- --------------------------------------- ---------------------
Morgan Stanley & Co. Incorporated
BNY Capital Markets, Inc...............
Donaldson, Lufkin & Jenrette Securities
Corporation...........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................
---------------------
Total: ........................... $ 250,000,000
=====================
20
<PAGE>
EXHIBIT 4.1
=========================================================================
ZIFF-DAVIS INC.
AND
THE BANK OF NEW YORK, Trustee
Indenture
Dated as of May ___, 1998
----------
$250,000,000
___% Senior Subordinated Notes Due 2008
=========================================================================
<PAGE>
TABLE OF CONTENTS
------------
<TABLE>
<CAPTION>
PAGE
----
ARTICLE 1
DEFINITIONS
<S> <C>
SECTION 1.01. Certain Terms Defined.....................................................12
SECTION 1.02. Other Definitions.........................................................29
ARTICLE 2
ISSUE, EXECUTION, FORM AND REGISTRATION OF SECURITIES
SECTION 2.01. Authentication and Delivery of Securities.................................30
SECTION 2.02. Execution of Securities...................................................30
SECTION 2.03. Certificate of Authentication.............................................31
SECTION 2.04. Form, Denomination and Date of Securities; Payments of
Interest......................................................................31
SECTION 2.05. Global Security Legends...................................................32
SECTION 2.06. Registration, Transfer and Exchange.......................................32
SECTION 2.07. Book-Entry Provisions for Global Securities...............................34
SECTION 2.08. Mutilated, Defaced, Destroyed, Lost and Stolen Securities.................35
SECTION 2.09. Cancellation of Securities................................................36
SECTION 2.10. Temporary Securities......................................................36
SECTION 2.11. CUSIP and CINS Numbers....................................................36
ARTICLE 3 COVENANTS OF THE
COMPANY AND THE TRUSTEE.
SECTION 3.01. Payment of Principal and Interest.........................................37
SECTION 3.02. Offices for Payments, etc.................................................37
SECTION 3.03. Appointment to Fill a Vacancy in Office of Trustee........................37
SECTION 3.04. Paying Agents.............................................................37
SECTION 3.05. Certificates to Trustee...................................................38
SECTION 3.06. Securityholders' Lists....................................................39
SECTION 3.07. Reports by the Trustee....................................................39
SECTION 3.08. Limitation on Restricted Payments.........................................39
SECTION 3.09. Limitation on Indebtedness................................................42
SECTION 3.10. Limitation on Asset Sales.................................................45
SECTION 3.11. Limitation on Liens.......................................................47
SECTION 3.12. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.............................................47
</TABLE>
<PAGE>
<TABLE>
PAGE
----
<S> <C>
SECTION 3.13. Limitation on Senior Subordinated Indebtedness.............................48
SECTION 3.14. Limitation on Transactions with Shareholders and
Affiliates....................................................................49
SECTION 3.15. Limitation on the Issuance of Guarantees by Restricted
Subsidiaries..................................................................49
SECTION 3.16. Limitation on the Issuance of Capital Stock of Restricted
Subsidiaries..................................................................50
SECTION 3.17. Repurchase of Securities Upon a Change of Control.........................51
SECTION 3.18. Limitation of Applicability of Certain Covenants if
Securities Rated Investment Grade.............................................52
SECTION 3.19. SEC Reports...............................................................52
SECTION 3.20. Existence.................................................................53
SECTION 3.21. Payment of Taxes and Other Claims.........................................53
SECTION 3.22. Maintenance of Properties and Insurance...................................54
SECTION 3.23. Waiver of Stay, Extension or Usury Laws...................................54
ARTICLE 4
REMEDIES OF THE TRUSTEE AND HOLDERS ON EVENT OF DEFAULT
SECTION 4.01. Events of Default.........................................................55
SECTION 4.02. Acceleration..............................................................56
SECTION 4.03. Other Remedies............................................................57
SECTION 4.04. Waiver of Past Defaults...................................................57
SECTION 4.05. Control by Majority.......................................................57
SECTION 4.06. Limitation on Suits.......................................................58
SECTION 4.07. Rights of Holders to Receive Payment......................................58
SECTION 4.08. Collection Suit by Trustee................................................58
SECTION 4.09. Trustee May File Proofs of Claim..........................................58
SECTION 4.10. Priorities................................................................59
SECTION 4.11. Undertaking for Costs.....................................................59
ARTICLE 5
CONCERNING THE TRUSTEE
SECTION 5.01. Duties and Responsibilities of the Trustee; During Default;
Prior to Default..............................................................60
SECTION 5.02. Certain Rights of the Trustee.............................................61
SECTION 5.03. Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof.................................62
SECTION 5.04. Trustee and Agents May Hold Securities; Collections, etc..................63
SECTION 5.05. Moneys Held by Trustee....................................................63
</TABLE>
ii
<PAGE>
<TABLE>
PAGE
----
<S> <C>
SECTION 5.06. Notice of Default.........................................................63
SECTION 5.07. Compensation and Indemnification of Trustee and Its
Prior Claim...................................................................63
SECTION 5.08. Right of Trustee to Rely on Officers' Certificate, etc....................64
SECTION 5.09. Persons Eligible for Appointment as Trustee...............................64
SECTION 5.10. Resignation and Removal; Appointment of Successor
Trustee.......................................................................65
SECTION 5.11. Acceptance of Appointment by Successor Trustee............................66
SECTION 5.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee...........................................................67
SECTION 5.13. Preferential Collection of Claims.........................................67
ARTICLE 6
CONCERNING THE HOLDERS
SECTION 6.01. Evidence of Action Taken by Holders.......................................68
SECTION 6.02. Proof of Execution of Instruments and of Holding of
Securities; Record Date.......................................................68
SECTION 6.03. Securities Owned by Company Deemed Not Outstanding........................68
SECTION 6.04. Right of Revocation of Action Taken.......................................69
ARTICLE 7
SUPPLEMENTAL INDENTURES
SECTION 7.01. Supplemental Indentures Without Consent of Holders........................70
SECTION 7.02. With Consent of Holders...................................................70
SECTION 7.03. Effect of Supplemental Indenture..........................................72
SECTION 7.04. Documents to Be Given to Trustee; Compliance with TIA.....................72
SECTION 7.05. Notation on Securities in Respect of Supplemental
Indentures....................................................................73
ARTICLE 8
CONSOLIDATION, MERGER OR SALE OF ASSETS
SECTION 8.01. Consolidation, Merger or Sale of Assets...................................73
SECTION 8.02. Successor Corporation Substituted.........................................74
SECTION 8.03. Opinion of Counsel to Trustee.............................................75
</TABLE>
iii
<PAGE>
<TABLE>
PAGE
----
<C>
ARTICLE 9
SUBORDINATION
<S>
SECTION 9.01. Agreement to Subordinate..................................................75
SECTION 9.02. Liquidation; Dissolution; Bankruptcy......................................75
SECTION 9.03. Default on Designated Senior Indebtedness.................................76
SECTION 9.04. When Distributions Must Be Paid Over......................................77
SECTION 9.05. Notice....................................................................78
SECTION 9.06. Subrogation...............................................................78
SECTION 9.07. Relative Rights...........................................................79
SECTION 9.08. The Company and Holders May Not Impair Subordination......................79
SECTION 9.09. Distribution or Notice to Representative..................................80
SECTION 9.10. Rights of Trustee and Paying Agent........................................80
SECTION 9.11. Authorization to Effect Subordination.....................................81
SECTION 9.12. Payment...................................................................81
ARTICLE 10
REDEMPTION OF SECURITIES
SECTION 10.01. Right of Optional Redemption; Prices.....................................81
SECTION 10.02. Notice of Redemption; Partial Redemptions................................82
SECTION 10.03. Payment of Securities Called for Redemption..............................83
SECTION 10.04. Exclusion of Certain Securities from Eligibility for
Selection for Redemption......................................................84
ARTICLE 11
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 11.01. Company's Option to Effect Defeasance or Covenant
Defeasance....................................................................84
SECTION 11.02. Legal Defeasance and Discharge...........................................84
SECTION 11.03. Covenant Defeasance......................................................85
SECTION 11.04. Conditions to Legal or Covenant Defeasance...............................85
SECTION 11.05. Deposited Money and Government Securities to be Held
in Trust; Other Miscellaneous Provisions......................................87
SECTION 11.06. Repayment to Company.....................................................87
SECTION 11.07. Reinstatement............................................................88
</TABLE>
iv
<PAGE>
<TABLE>
PAGE
----
ARTICLE 12
MISCELLANEOUS PROVISIONS
<S> <C>
SECTION 12.01. Incorporators, Stockholders, Officers, Directors,
Employees and Controlling Persons of Company Exempt from
Individual Liability..........................................................88
SECTION 12.02. Provisions of Indenture for the Sole Benefit of Parties and
Holders.......................................................................89
SECTION 12.03. Successors and Assigns of Company Bound by Indenture.....................89
SECTION 12.04. Notices and Demands on Company, Trustee and Holders......................89
SECTION 12.05. Officers' Certificates and Opinions of Counsel;
Statements to Be Contained Therein............................................90
SECTION 12.06. Payments Due on Saturdays, Sundays and Holidays..........................91
SECTION 12.07. Conflict of Any Provision of Indenture with Trust
Indenture Act of 1939.........................................................91
SECTION 12.08. New York Law to Govern...................................................91
SECTION 12.09. Third Party Beneficiaries................................................91
SECTION 12.10. Counterparts............................................................91
SECTION 12.11. Effect of Headings.......................................................92
</TABLE>
v
<PAGE>
THIS INDENTURE, dated as of May ___, 1998 between Ziff-Davis Inc.
(formerly ZD Inc.), a Delaware corporation (the "Company"), and The Bank of New
York, a New York banking corporation (the "Trustee"),
W I T N E S S E T H :
WHEREAS, the Company has duly authorized the issuance of its ___%
Senior Subordinated Notes Due 2008 (the "Securities") and, to provide, among
other things, for the authentication, delivery and administration thereof, the
Company has duly authorized the execution and delivery of this Indenture; and
WHEREAS, the Securities and the Trustee's certificate of
authentication shall be in substantially the following form:
[FORM OF FACE OF SECURITY]
No. $
[CUSIP] [CINS]
Ziff-Davis Inc.
___% Senior Subordinated Note Due 2008
Ziff-Davis Inc., a Delaware corporation (the "Company"), for value
received hereby promises to pay to ___ or registered assigns the principal sum
of ___ Dollars at the Company's office or agency for said purpose in The City of
New York, on ___ , 2008, in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest, semi-annually on ___ and ___
(each an "Interest Payment Date") of each year, commencing with ___, 1998, on
said principal sum in like coin or currency at the rate per annum set forth
above at said office or agency from the most recent Interest Payment Date to
which interest on the Securities has been paid or duly provided for, unless the
date hereof is a date to which interest on the Securities has been paid or duly
provided for, in which case from the date of this Security, or, if no interest
on the Securities has been paid or duly provided for, from May __, 1998.
Notwithstanding the foregoing, if the date hereof is after ___ or___ (each a
"Regular Record Date"), as the case may be, and before the immediately following
Interest Payment Date, this Security shall bear interest from such Interest
Payment Date; provided, that if the Company shall default in the payment of
interest due on such Interest Payment Date then this Security shall bear
interest from the next preceding Interest Payment Date to which interest on the
Securities has been paid or duly provided for. The interest so payable on any
Interest Payment Date will, except as otherwise provided in the Indenture
referred to on the reverse hereof, be paid to the person in whose name this
Security is registered at the close of business on the
<PAGE>
Regular Record Date preceding such Interest Payment Date whether or not such day
is a business day; provided that interest may be paid, at the option of the
Company, by mailing a check therefor payable to the registered holder entitled
thereto at such holder's last address as it appears on the Security register or
by wire transfer, in immediately available funds, to such bank or other entity
in the continental United States as shall be designated in writing by such
holder prior to the relevant Regular Record Date and shall have appropriate
facilities for such purpose, or in accordance with the standard operating
procedures of the Depositary (as defined in the Indenture).
Interest, other than default interest, on the Securities will be
computed on the basis of a 360-day year consisting of twelve 30-day months.
Reference is made to the further provisions set forth on the reverse
hereof. Such further provisions shall for all purposes have the same effect as
though fully set forth at this place.
This Security shall not be valid or obligatory until the certificate
of authentication hereon shall have been duly signed by the Trustee acting under
the Indenture.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
ZIFF-DAVIS INC.
By:
----------------------------------
Name:
Title:
3
<PAGE>
[FORM OF REVERSE OF SECURITY]
Ziff-Davis Inc.
___% Senior Subordinated Note Due 2008
This Security is one of a duly authorized issue of debt securities of
the Company, limited to the aggregate principal amount of $250,000,000 (except
as otherwise provided in the Indenture mentioned below), issued or to be issued
pursuant to an indenture dated as of May ___, 1998 (the "Indenture"), duly
executed and delivered by the Company to The Bank of New York, as Trustee
(herein called the "Trustee"). Reference is hereby made to the Indenture and all
indentures supplemental thereto for a description of the rights, limitations of
rights, obligations, duties and immunities thereunder of the Trustee, the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Securities.
This Security will bear interest until final maturity at a rate per
annum shown above, except as provided in the next paragraph. The Company will
pay interest on overdue principal of, premium, if any, and to the extent lawful,
interest on overdue installments of interest, at an ___% rate per annum based on
a 360-day year consisting of twelve 30-day months.
In case an Event of Default (as defined in the Indenture) shall have
occurred and be continuing, the principal of all the Securities may be declared
due and payable, in the manner and with the effect, and subject to the
conditions, provided in the Indenture. The Indenture provides that in certain
events such declaration and its consequences may be waived by the holders of a
majority in aggregate principal amount of the Securities then outstanding and
that, prior to any such declaration, such holders may waive any past default
under the Indenture and its consequences except a default in the payment of
principal of, premium, if any, or interest on any of the Securities. Any such
consent or waiver by the holder of this Security (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such holder and upon all
future holders and owners of this Security and any Security which may be issued
in exchange or substitution herefor, whether or not any notation thereof is made
upon this Security or such other Securities.
The Indenture permits the Company and the Trustee, with the consent
of the holders of at least a majority in aggregate principal amount of the
Securities at the time outstanding, evidenced as in the Indenture provided, to
execute supplemental indentures adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of any
supplemental indenture or modifying in any manner the rights of the holders of
the Securities; provided that no such
4
<PAGE>
modification or amendment may, without the consent of each holder affected
thereby, (i) change the Stated Maturity (as defined in the Indenture) of the
principal of, or any installment of interest on, any Security, (ii) reduce the
principal amount of, or premium, if any, or interest on, any Security, (iii)
reduce any amount payable on redemption of the Securities or upon the occurrence
on an Event of Default or reduce the Change of Control Payment (as defined in
the Indenture) or the Excess Proceeds Payment (as defined in the Indenture),
(iv) change the place or currency of payment of principal of, premium, if any,
or interest on, any Security, (v) impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the redemption date) of any Security, (vi) reduce the
above-stated percentage of outstanding Securities the consent of whose holders
is necessary to modify or amend the Indenture, (vii) waive a default in the
payment of principal of, premium, if any, or interest on the Securities, (viii)
reduce the percentage or aggregate principal amount of outstanding Securities
the consent of whose holders is necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults, (ix) modify or
change any provision of the Indenture affecting the ranking of the Securities or
the Subsidiary Guarantee (as defined in the Indenture) in a manner adverse to
the holders of the Securities or (x) release any Guarantor (as defined in the
Indenture) from any of its obligations under its Subsidiary Guarantee or the
Indenture other than in accordance with the provisions of the Indenture, or
amend or modify any provision relating to such release.
Notwithstanding the foregoing, without the consent of any holder of
Securities, the Company and the Trustee may amend or supplement the Indenture or
the Securities to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Securities in addition to or in place of certificated Securities,
to provide for the assumption of the Company's obligations to holders of
Securities in the case of a merger or consolidation, to make any change that
would provide any additional rights or benefits to the holders of Securities or
that does not adversely affect the legal rights under the Indenture of any such
holder, or to comply with requirements of the Commission (as defined in the
Indenture) in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act of 1939 (as defined in the Indenture).
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, premium,
if any, and interest on this Security at the place, times, and rate, and in the
currency, herein prescribed.
The Securities are issuable only as registered Securities without
coupons in denominations of $1,000 and any multiple of $1,000.
5
<PAGE>
At the office or agency of the Company referred to on the face hereof
and in the manner and subject to the limitations provided in the Indenture,
Securities may be exchanged for a like aggregate principal amount of Securities
of other authorized denominations.
Upon due presentment for registration of transfer of this Security at
the above-mentioned office or agency of the Company, a new Security or
Securities of authorized denominations, for a like aggregate principal amount,
will be issued to the transferee as provided in the Indenture. No service charge
shall be made for any such transfer, but the Company may require payment of a
sum sufficient to cover any tax or other similar governmental charge that may be
imposed in connection therewith.
The Securities may be redeemed at the option of the Company as a
whole, or from time to time in part, on any date on or after ___, 2003, upon
mailing a notice of such redemption not less than 30 nor more than 60 days prior
to the date fixed for redemption to the holders of Securities to be redeemed,
all as provided in the Indenture, at the following redemption prices (expressed
in percentages of principal amount) together in each case with accrued and
unpaid interest to the date fixed for redemption (subject to the right of
holders of record on the relevant Regular Record Date to receive interest on an
Interest Payment Date that is on or prior to the redemption date):
<TABLE>
<CAPTION>
If redeemed during the twelve-month period beginning ___,
Year Percentage
<S> <C>
2003........................................................................... ___%
2004........................................................................... ___%
2005........................................................................... ___%
2006 and thereafter............................................................ 100.0000%
</TABLE>
In addition, at any time and from time to time prior to ___, 2001, the Company
may redeem in the aggregate up to 35% of the original principal amount of the
Securities with the proceeds of one or more Public Equity Offerings (as defined
in the Indenture) commenced after the Issue Date (as defined in the Indenture),
at a redemption price (expressed as a percentage of principal amount) of __%
plus accrued interest to the redemption date (subject to the right of holders of
record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the redemption date); provided that
at least $150 million aggregate principal amount of the Securities must remain
outstanding after each such redemption; and provided further that any such
redemption shall occur within 60 days of the date of the closing of such Public
Equity Offering.
6
<PAGE>
Subject to payment by the Company of a sum sufficient to pay the
amount due on redemption, interest on this Security (or portion hereof if this
Security is redeemed in part) shall cease to accrue upon the date duly fixed for
redemption of this Security (or portion hereof if this Security is redeemed in
part).
Upon a Change of Control (as defined in the Indenture), any holder of
Securities will have the right to cause the Company to purchase the Securities
of such holder, in whole or in part in integral multiples of aggregate principal
amount of $1,000, at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to any Change of
Control Payment Date (as defined in the Indenture), as provided in, and subject
to the terms of the Indenture.
All amounts owed under and in respect of this Security are
subordinated in right of payment, to the extent and in the manner provided in
Article Nine of the Indenture, to the prior payment in full in cash of all
amounts owed under and in respect of all Senior Indebtedness (as defined in the
Indenture) of the Company, and the subordination of the Securities is for the
benefit of all holders of all Senior Indebtedness of the Company, whether
outstanding on the Issue Date or incurred thereafter. The Company agrees, and
each holder by accepting a Security agrees, to the subordination.
The Company, the Trustee, and any authorized agent of the Company or
the Trustee, may deem and treat the registered holder hereof as the absolute
owner of this Security (whether or not this Security shall be overdue and
notwithstanding any notation of ownership or other writing hereon made by anyone
other than the Company or the Trustee or any authorized agent of the Company or
the Trustee), for the purpose of receiving payment of, or on account of, the
principal hereof and premium, if any, and, subject to the provisions on the face
hereof, interest hereon and for all other purposes, and neither the Company nor
the Trustee nor any authorized agent of the Company or the Trustee shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of,
premium, if any, or the interest on this Security, for any claim based thereon,
or otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Company in the Indenture, or in any of the
Securities or because of the creation of any Indebtedness (as defined in the
Indenture) represented thereby, against any incorporator, shareholder, officer,
director, employee or controlling person of the Company or of any successor
Person thereof, either directly or through the Company or any successor Person,
whether by virtue of any constitution, statute or rule of law or by the
enforcement of any assessment or penalty or otherwise, all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released.
7
<PAGE>
The Indenture is hereby incorporated by the reference and to the
extent of any variance between the provisions hereof and the Indenture, the
Indenture shall control.
This Security shall be deemed to be a contract under the laws of the
State of New York, and for all purposes shall be construed in accordance with
the laws of said State, except as may otherwise be required by mandatory
provisions of law.
8
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
Dated:
-----------------------------
This is one of the Securities described in the within-mentioned
Indenture.
THE BANK OF NEW YORK,
as Trustee
By:
----------------------------
Authorized Signatory
9
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- --------------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- --------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing ____________________ attorney to transfer said Security on the
books of the Company with full power of substitution in the premises.
Date: --------------------------------
___________ NOTICE: The signature to this
assignment must correspond with
the name as written upon the face
of the within-mentioned
instrument in every particular,
without alteration or any change
whatsoever.
Signature Guarantee:
------------
10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant
to Section 3.10 or Section 3.17 of the Indenture, check the Box: [_]
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 3.10 or Section 3.17 of the Indenture, state the
amount (in principal amount at maturity): $_______________.
Date:
_______________
Your Signature: ______________________________________________
(Sign exactly as your name appears on
the other side of this Security)
Signature Guarantee: _________________________
11
<PAGE>
AND WHEREAS, all things necessary to make the Securities, when
executed by the Company and authenticated and delivered by the Trustee as in the
Indenture provided, the valid, binding and legal obligations of the Company, and
to constitute these presents a valid indenture and agreement according to its
terms, have been done;
NOW, THEREFORE:
In consideration of the premises and the purchases of the Securities
by the Holders thereof, the Company and the Trustee mutually covenant and agree
for the equal and proportionate benefit of the respective Holders from time to
time of the Securities as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Certain Terms Defined. The following terms (except as
otherwise expressly provided or unless the context otherwise clearly requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section. All other terms
used in this Indenture which are defined in the Trust Indenture Act of 1939 or
the definitions of which in the Securities Act of 1933 are referred to in the
Trust Indenture Act of 1939 (except as herein otherwise expressly provided or
unless the context otherwise clearly requires), shall have the meanings assigned
to such terms in said Trust Indenture Act and in said Securities Act as in force
at the date of this Indenture. All accounting terms used herein and not
expressly defined shall have the meanings given to them in accordance with GAAP
(whether or not such is indicated herein). The words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Indenture as a whole
and not to any particular Article, Section or other subdivision. The terms
defined in this Article include the plural as well as the singular.
"Acquired Indebtedness" means Indebtedness of a Person existing at
the time such Person merged or consolidated with or into or became a Restricted
Subsidiary or assumed in connection with a Business Acquisition by the Company
or a Restricted Subsidiary and not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary or such Business
Acquisition, provided that Indebtedness of such Person which is redeemed,
defeased, retired or otherwise repaid at the time of or immediately upon
consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Business Acquisition shall not be Acquired Indebtedness.
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"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication): (i) the net income (but not loss) of any Person that is not a
Restricted Subsidiary, except to the extent of the amount of dividends or other
distributions that are actually paid in cash to the Company or any of its
Restricted Subsidiaries by such Person during such period; (ii) solely for the
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of Section 3.08 (and in such case,
except to the extent includable pursuant to clause (i) above), the net income of
any Person accrued prior to the date it becomes a Restricted Subsidiary or is
merged into or consolidated with the Company or any of its Restricted
Subsidiaries or all or substantially all of the property and assets of such
Person are acquired by the Company or any of its Restricted Subsidiaries; (iii)
the net income (or loss) of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such Restricted
Subsidiary of such net income is not permitted at such time of determination by
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Restricted Subsidiary; (iv) any
net gains or losses (on an after-tax basis) attributable to asset sales and (v)
any net after-tax extraordinary gains or extraordinary losses.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets of the Company or any of its Restricted
Subsidiaries outside the ordinary course of business of the Company or such
Restricted Subsidiary and, in each case, that is not governed by the provisions
of the Indenture applicable to mergers, consolidations and sales of assets of
the Company; provided that "Asset Sale" shall not include (a) sales or other
dispositions of inventory, receivables and other current assets, (b) sales,
transfers or other dispositions of assets constituting a Restricted Payment
permitted to be made
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under Section 3.08 or (c) sales or other dispositions of assets for
consideration at least equal to the fair market value of the assets sold or
disposed of (as determined in good faith by the Board of Directors), in the case
of this clause (c), to the extent that the consideration received consists of
property or assets that are to be used in the business of the Company and its
Restricted Subsidiaries.
"Average Life" means, at any date of determination with respect to
any Indebtedness, the quotient obtained by dividing (i) the sum of the products
of (a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such Indebtedness and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Bank Agent" shall mean The Bank of New York, or its successor as
administrative agent for the lenders under the Credit Agreement.
"Board Resolution" means a copy of a resolution, certified by the
Secretary of the Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification, and delivered
to the Trustee.
"Business Acquisition" means (i) an Investment by the Company or any
of its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
with the Company or any of its Restricted Subsidiaries or (ii) an acquisition by
the Company or any of its Restricted Subsidiaries of the property and assets of
any Person other than the Company or any of its Restricted Subsidiaries that
constitute substantially all of the assets of such Person or of any division or
line of business of such Person.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person, or any authorized committee of the Board of Directors
of such Person.
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized by law to
close.
"Business Disposition" means any sale, transfer or other disposition
(including by way of merger or consolidation) in one transaction or a series of
related transactions by the Company or any of its Restricted Subsidiaries to any
Person other than the Company or any of its Restricted Subsidiary of (i) all or
substantially all of the Capital Stock of any Restricted Subsidiary or (ii) all
or substantially all of the assets of any Restricted Subsidiary or of any
division or line of business of the Company or any of its Restricted
Subsidiaries.
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"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's capital stock or other ownership
interests, whether now outstanding or issued after the date of the Indenture,
including, without limitation, all common stock and Preferred Stock.
"Capitalized Lease" means, with respect to any Person, any lease of
any property (whether real, personal or mixed) of which the discounted present
value of the rental obligations of such Person as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such Person; and
"Capitalized Lease Obligation" means the rental obligations, as aforesaid, under
such lease.
"Certificated Securities" means securities issued in the form of
permanent certificated securities in registered form in substantially the form
hereinabove recited.
"Change of Control" means such time as (i) any "person" or "group"
(as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act) other than the Existing Stockholders becomes the ultimate "beneficial
owner" (as such term is used in Rule 13d-3 promulgated pursuant to the Exchange
Act), directly or indirectly, of more than 50% of the aggregate voting power of
the Voting Stock of the Company on a fully diluted basis; or (ii) individuals
who on the Issue Date constitute the Board of Directors of the Company (together
with any new directors whose election by such Board or whose nomination for
election by the stockholders of the Company was approved by a majority of the
directors then in office who were either directors on the Issue Date or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then in
office.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and all shares
of such Person's Capital Stock (excluding Preferred Stock of such Person),
including, without limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, for any period, the sum of Adjusted
Consolidated Net Income, plus (without duplication) the following to the extent
deducted in calculating Adjusted Consolidated Net Income: (i) Consolidated
Interest Expense; (ii) income taxes (other than income taxes (either positive or
negative) attributable to asset sales and extraordinary gains or extraordinary
losses); (iii) depreciation expense; (iv) amortization expense; (v) all other
non-cash items reducing Adjusted Consolidated Net Income (other than items which
will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be, made) less all non-cash items increasing Adjusted
Consolidated Net Income, all as
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determined on a consolidated basis for the Company and its Restricted
Subsidiaries in conformity with GAAP and (vi) the interest component of all
payments associated with Capitalized Lease Obligations paid, accrued or
scheduled to be paid or to be accrued by the Company and its Restricted
Subsidiaries during such period; provided that, if any Restricted Subsidiary is
not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA shall be reduced
(to the extent Adjusted Consolidated Net Income is not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Subsidiary multiplied by (B) the
quotient of (1) the number of shares of outstanding common stock of such
Subsidiary not owned on the last day of such period by the Company or any
Restricted Subsidiary divided by (2) the total number of shares of outstanding
common stock of such Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness of the Company and its Restricted
Subsidiaries (including amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation,
calculated in accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; the net costs associated with
Interest Rate Agreements; and interest in respect of Indebtedness that is
Guaranteed by the Company or any of its Restricted Subsidiaries or is secured by
a Lien on the assets of the Company or any of its Restricted Subsidiaries), plus
(without duplication) the product of (i) the aggregate amount for such period of
dividends on any Redeemable Stock of the Company and its Restricted Subsidiaries
and (ii) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined Federal, state, local and foreign
statutory tax rate, expressed as a decimal; excluding, however, (i) any amount
of such interest or dividends of any Restricted Subsidiary if the net income of
such Restricted Subsidiary is excluded in the calculation of Adjusted
Consolidated Net Income pursuant to clause (iii) of the definition thereof (but
only in the same proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof) and (ii) any premiums, fees and expenses
(and any amortization thereof) payable in connection with the offering of the
Securities and the consummation of the Credit Agreement, all as determined on a
consolidated basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis outstanding at such Transaction
Date to (ii) the aggregate amount of Consolidated EBITDA for the four most
recent fiscal quarters immediately prior to such Transaction Date for which
financial statements of the Company have been filed with the Commission pursuant
to Section 3.19 (the
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"Reference Period"). In making the foregoing calculation, (A) pro forma effect
shall be given to (x) any Indebtedness (other than Indebtedness referred to in
clause (E) hereof) Incurred from the beginning of the Reference Period through
the Transaction Date, to the extent such Indebtedness is outstanding on the
Transaction Date and (y) the repayment of any Indebtedness (other than
Indebtedness referred to in clause (E) hereof) that was outstanding during or
after such Reference Period but that is not outstanding or is to be repaid on
the Transaction Date; (B) pro forma effect shall be given to Business
Dispositions and Business Acquisitions (including giving pro forma effect to the
application of proceeds of any Business Disposition) that occur during such
Reference Period or thereafter and on or prior to the Transaction Date as if
they had occurred and such proceeds had been applied on the first day of such
Reference Period; (C) pro forma effect shall be given to asset dispositions and
asset acquisitions (including giving pro forma effect to the application of
proceeds of any asset disposition) that have been made by any Person that has
become a Restricted Subsidiary or has been merged with or into the Company or
any Restricted Subsidiary during such Reference Period or subsequent to such
period and prior to the Transaction Date and that would have constituted
Business Dispositions or Business Acquisitions had such transactions occurred
when such Person was a Restricted Subsidiary as if such Business Dispositions or
Business Acquisitions were Business Dispositions or Business Acquisitions that
occurred on the first day of such Reference Period, (D) until such time as the
Reference Period includes four fiscal quarters subsequent to the Issue Date, pro
forma effect shall be given to the Reorganization and (E) the aggregate amount
of Indebtedness outstanding at such Transaction Date will be deemed to include
the average amount of funds outstanding during such Reference Period under any
revolving credit or similar facilities of the Company or its Restricted
Subsidiaries; provided that to the extent that clause (B) or (C) of this
sentence requires that pro forma effect be given to a Business Acquisition or
Business Disposition, such pro forma calculation shall be based upon the four
full fiscal quarters immediately preceding the Transaction Date of the Person,
or division or line of business of the Person, that is acquired or disposed of
for which financial information is available.
"Consolidated Net Worth" of any Person means, at any date of
determination, stockholder's equity of such Person, less (i) any amounts
attributable to Redeemable Stock or any equity security convertible into or
exchangeable for Indebtedness, (ii) the cost of treasury stock and (iii) the
principal amount of any promissory notes receivable from the sale of the Capital
Stock of such Person (excluding the effects of foreign currency exchange
adjustments under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52).
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally
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administered, which office is, at the date as of which this Indenture is dated,
located at 101 Barclay Street, Floor 21 West, New York, New York 10286.
"Credit Agreement" means the credit agreement to be entered into
between the Company and Morgan Stanley Senior Funding, The Bank of New York, The
Chase Manhattan Bank and DLJ Capital Funding, as agents for a group of financial
institutions, as lenders, on or prior to the Issue Date, together with any
agreements, instruments and documents executed or delivered pursuant to or in
connection with such Credit Agreement (including, without limitation, any
Guarantee or security documents), in each case as such Credit Agreement or such
agreements, instruments or documents may be amended, supplemented, refinanced,
refunded, replaced or otherwise modified from time to time and whether by the
same or any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement entered into by the Company or any
Restricted Subsidiary for the purpose of protecting such Person against
fluctuations in currency rates.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees, and
their respective successors.
"Designated Senior Indebtedness" means the Indebtedness under the
Credit Agreement and any other Indebtedness constituting Senior Indebtedness
that, at the date of determination, has an aggregate principal amount
outstanding of at least $75 million and that is specifically designated by the
Issuer, in the instrument creating or evidencing such Senior Indebtedness as
"Designated Senior Indebtedness."
"Event of Default" means any event or condition specified as such in
Section 4.01 which shall have continued for the period of time, if any, therein
designated.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Affiliate Agreements" means the agreements between the
Company or any Subsidiary of the Company, on the one hand, and SOFTBANK Corp. or
any of its Affiliates (other than the Company and its Subsidiaries), on the
other hand, that are filed as exhibits to the Company's Registration Statement
on Form S-1 (File No. 333-46493), and, in each case, any renewal, extension or
amendment thereof that is on terms no less favorable to the Holders than the
terms in effect on the Issue Date.
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"Existing Softbank Note" means the 9.9% promissory note due on
February 28, 2009 payable to SOFTBANK Corp. by ZD COMDEX and Forums Inc. as in
effect on the Issue Date.
"Existing Stockholders" means SOFTBANK Corp. and its Affiliates.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect on the Issue Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation of such other Person (whether arising by virtue
of partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor" means any Restricted Subsidiary which issues a Subsidiary
Guarantee pursuant to Section 3.15; provided that any Guarantor that becomes an
Unrestricted Subsidiary in compliance with Sections 3.08 and 3.09 shall not be a
"Guarantor" after becoming an Unrestricted Subsidiary.
"Holders", "holder of Securities", "Securityholder" or other similar
terms means a person in whose name a Security is registered.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness; provided that (i) the Indebtedness of a Person existing at the
time such Person became a Subsidiary or a Restricted Subsidiary, as the case may
be, shall be deemed to have been Incurred at such time by such Subsidiary or
Restricted Subsidiary, as
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the case may be, and (ii) that neither the accrual of interest nor the accretion
of original issue discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), whether or not Incurred at the date of the
Indenture (i) all indebtedness of such Person for borrowed money; (ii) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments; (iii) all obligations of such Person in respect of letters
of credit or other similar instruments (including reimbursement obligations with
respect thereto, but excluding obligations with respect to letters of credit
(including trade letters of credit) securing obligations entered into in the
ordinary course of business of such Person to the extent such letters of credit
are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed
no later than the third Business Day following receipt by such Person of a
demand for reimbursement), (iv) all obligations of such Person to pay the
deferred and unpaid purchase price of property or services (but excluding Trade
Payables or accrued liabilities arising in the ordinary course of business); (v)
all Capitalized Lease Obligations of such Person; (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination (as determined in good faith by the Board of
Directors), and (B) the amount of such Indebtedness; (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person; (viii) all Redeemable Stock issued by such Person
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price; and (ix) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements. The amount
of Indebtedness of any Person at any date shall be the outstanding balance at
such date of all unconditional obligations as described above and, with respect
to contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided (A) that the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time as determined
in conformity with GAAP, (B) that Indebtedness shall not include any liability
for Federal, state, local or other taxes and (C) that money borrowed and set
aside at the time of the Incurrence of any Indebtedness in order to prefund the
payment of the interest on such Indebtedness shall not be deemed to be
"Indebtedness" so long as such money is held to secure the payment of such
interest.
"Indenture" means this instrument as originally executed and
delivered or, if amended or supplemented as herein provided, as so amended or
supplemented.
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"Interest Payment Date" means each semiannual interest payment date
on ____ and ____ of each year, commencing ____, 1998.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement incurred
by the Company or any Restricted Subsidiary for the purpose of fixing or hedging
such Person's exposure to fluctuations in interest rates.
"Investment" means any direct or indirect advance, loan or other
extension of credit (other than advances to customers in the ordinary course of
business that are, in conformity with GAAP, recorded as accounts receivable on
the balance sheet of the lender) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by
such Person, including, without limitation, pursuant to an Asset Sale, and shall
include (i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary and (ii) the fair market value of the Capital Stock (or any other
Investment), held by the Company or any of its Restricted Subsidiaries, of (or
in) any Person that has ceased to be a Restricted Subsidiary, including without
limitation, by reason of any transaction permitted by clause (iii) of Section
3.16 provided, that "Investment" shall not include (i) Interest Rate Agreements
and Currency Agreements, (ii) loans and advances to employees made in the
ordinary course of business, (iii) prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation, performance and
other similar documents and (iv) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP. For purposes of the definition of
"Unrestricted Subsidiary" and Section 3.08, (i) "Investment" shall include the
fair market value of the assets (net of liabilities (other than liabilities to
the Company or any of its Restricted Subsidiaries)) of any Restricted Subsidiary
at the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary and shall exclude the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its Restricted
Subsidiaries)) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary and (ii) any property
transferred to or from any Person shall be valued at its fair market value at
the time of such transfer, in each case as determined by the Board of Directors
in good faith.
"Investment Grade Rated" means having a rating of BBB, A, AA or AAA,
as modified by any plus or minus indication, or an equivalent successor rating,
by S&P or any of its successors or assigns and a rating of Baa, A, Aa or Aaa, as
modified by any numerical indication, or an equivalent successor rating, by
Moody's or any of its successors or assigns.
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"Issue Date" means the date and time at which the Securities are
originally issued under the Indenture.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, any option or other
agreement to sell, or any filing of or any agreement to give any security
interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received or to be received when converted
to cash or cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale; (ii) provisions for all taxes (whether or not such taxes
will actually be paid or are payable) as a result of such Asset Sale without
regard to the consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole; (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP.
"Net Proceeds" means, with respect to any issuance or sale of Capital
Stock, the aggregate net proceeds of such issuance or sale in the form of cash
or cash equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not interest,
component thereof) when received in the form of cash or cash equivalents (except
to the extent such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary of the Company), and the fair market value of
non-cash proceeds constituting Capital Stock of a corporation engaged in the
business of the Company and its Restricted Subsidiaries or similar or related,
ancillary or complementary businesses (the fair market value of which shall be
determined in good faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution), in
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each case net of attorney's fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to the Company, (i) the Chairman of the
Board of Directors, the President, any Vice President, the Chief Financial
Officer, and (ii) the Treasurer or any Assistant Treasurer, or the Secretary or
any Assistant Secretary.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board of Directors or the President or any Vice President (whether or not
designated by a number or numbers or a word or words added before or after the
title "Vice President") of the Company and delivered to the Trustee. Each such
certificate shall comply with Section 314 of the Trust Indenture Act of 1939 and
include the statements provided for in Section 12.05.
"Opinion of Counsel" means an opinion in writing signed by legal
counsel who may be an employee of or counsel to the Company or who may be other
counsel satisfactory to the Trustee. Each such opinion shall comply with Section
314 of the Trust Indenture Act of 1939 and include the statements provided for
in Section 12.05, and such others as may reasonably be requested by the Trustee,
if and to the extent required hereby.
"outstanding", when used with reference to Securities, subject to the
provisions of Article Twelve, means, as of any particular time, all Securities
authenticated and delivered by the Trustee under this Indenture, except
(a) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or redemption
of which moneys in the necessary amount shall have been deposited in
trust with the Trustee or with any paying agent (other than the
Company) or shall have been set aside, segregated and held in trust
by the Company (if the Company shall act as its own paying agent),
provided that if such Securities are to be redeemed prior to the
maturity thereof, notice of such redemption shall have been given as
herein provided, or provision satisfactory to the Trustee shall have
been made for giving such notice; and
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(c) Securities in substitution for which other Securities shall
have been authenticated and delivered, or which shall have been paid,
pursuant to the terms of Section 2.08 (unless proof satisfactory to
the Trustee and the Company is presented that any of such Securities
is held by a person in whose hands such Security is a legal, valid
and binding obligation of the Company).
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency, instrumentality or
political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference stock,
whether now outstanding or hereafter issued, including, without limitation, all
series and classes of such preferred or preference stock.
"principal" wherever used with reference to the Securities or any
Security or any portion thereof, shall be deemed to include "and premium, if
any".
"Public Equity Offering" means an underwritten primary public
offering of common stock of the Company pursuant to an effective registration
statement under the Securities Act of 1933, as amended.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Securities, (ii) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Securities or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Securities; provided that any
Capital Stock that would not constitute Redeemable Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the Securities shall not
constitute Redeemable Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in Sections 3.10 and 3.17
and such Capital Stock specifically provides that such Person will not
repurchase or redeem any such stock pursuant to such provision prior to the
Company's repurchase of such Securities as are required to be repurchased
pursuant to Section 3.10 or 3.17. Notwithstanding the foregoing, Capital Stock
shall not be deemed to be Redeemable
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<PAGE>
Stock if it may only be so redeemed solely in consideration of Capital Stock
that is not Redeemable Stock.
"Regular Record Date" for the Interest payable on any Interest
Payment Date (except a date for payment of defaulted interest) means the ____ or
____ (whether or not a Business Day) as the case may be, next preceding such
Interest Payment Date.
"Reorganization" means that series of transactions which shall be
consummated on the Issue Date pursuant to which (i) all of the stock of ZD Inc.
(formerly Ziff-Davis Inc.) and ZD COMDEX and Forums Inc. will be contributed to
the Company in exchange for 74,200,000 shares of the Company's Common Stock,
(ii) certain obligations owed to SOFTBANK Corp. will be converted to equity,
(iii) the Company shall issue and sell in an initial public offering 25,800,000
shares of its Common Stock and the Securities, (iv) the Company shall enter into
the Credit Agreement and borrow $1.25 billion thereunder and (v) the Company
shall apply the proceeds of the sale of its Common Stock and the Securities
referred to in clause (iii) and the borrowings under the Credit Agreement
referred to in clause (iv) to purchase from MAC Inc. certain operations and
assets relating to certain publications and trade shows and to repay certain
indebtedness owed to SOFTBANK Corp. and its Affiliates, which transactions shall
be deemed to take place simultaneously on the Issue Date, all as further
described in the Company's Registration Statement on Form S-1 (File No.
333-46493).
"Restricted Investment" means any Investment by the Company or any
Restricted Subsidiary in any Person other than (i) an Investment in the Company
or a Restricted Subsidiary or in any Person that, as a result of such
Investment, becomes a Restricted Subsidiary or will be merged or consolidated
with or into or transfer or convey all or substantially all its assets to, the
Company or a Restricted Subsidiary; provided that such person's primary business
is related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment, (ii) Temporary Cash
Investments and (iii) any non-cash consideration received in connection with an
Asset Sale that was made in compliance with Section 3.10.
"Restricted Subsidiary" means any Subsidiary other than an
Unrestricted Subsidiary.
"Responsible Officer" when used with respect to the Trustee means any
vice president (whether or not designated by numbers or words added before or
after the title "vice president"), any trust officer, any assistant trust
officer, any assistant vice president, any assistant secretary, any assistant
treasurer, or any other officer or assistant officer of the Trustee customarily
performing functions similar to those performed by the persons who at the time
shall be such officers, respectively, or to
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whom any corporate trust matter is referred because of his or her knowledge of
and familiarity with the particular subject.
"Security" or "Securities" means any Security or Securities, as the
case may be, authenticated and delivered under this Indenture.
"Senior Indebtedness" means the following obligations of the Company,
whether outstanding on the Issue Date or thereafter Incurred: (i) all
Indebtedness and all other monetary obligations (including expenses, fees and
other monetary obligations) of the Company under the Credit Agreement and (ii)
all other Indebtedness of the Company (other than the Securities), including
principal and interest on such Indebtedness, unless such Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, is pari passu with, or subordinated in right of payment
to, the Securities; provided that the term "Senior Indebtedness" shall not
include (a) any Indebtedness of the Company that, when Incurred, was without
recourse to the Company, (b) any Indebtedness of the Company to a Subsidiary of
the Company, or to a joint venture in which the Company has an interest, (c) any
Indebtedness of the Company, to the extent not permitted by Section 3.09 (but as
to any such Indebtedness under the Credit Agreement, no such violation shall be
deemed to exist for purposes of this clause (c) if the Bank Agent shall have
received a representation from an Officer of the Company to the effect that the
issuance of such Indebtedness does not violate such covenant), (d) any
Indebtedness to any employee of the Company or any of its Subsidiaries, (e) any
liability for taxes owed or owing by the Company, (f) any Trade Payables or (g)
any Capital Stock. Senior Indebtedness will also include interest accruing on or
after, or which would accrue but for, events of bankruptcy of the Company and
its Subsidiaries at the rate provided for in the document governing such Senior
Indebtedness, whether or not such interest is an allowed claim enforceable
against the Indebtednessor in a bankruptcy case under bankruptcy law.
"Senior Subordinated Obligations" means any principal of, premium, if
any, or interest on the Securities payable pursuant to the terms of the
Securities or upon acceleration, including any amounts received upon the
exercise of rights of rescission or other rights of action (including claims for
damages) or otherwise, to the extent relating to the purchase price of the
Securities or amounts corresponding to such principal, premium, if any, or
interest on the Securities.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article One, Rule 1-02 of Regulation S-X
promulgated under the Securities Act of 1933, as amended, as such Regulation is
in effect on the date hereof.
"S&P" means Standard & Poor's Rating's Service and its successors.
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"Stated Maturity" means (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subordinated Obligations" means any Indebtedness of the Company
(whether outstanding on the Issue Date or thereafter Incurred) which is
subordinated or junior in right of payment to the Securities.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof). Unless otherwise specified, "Subsidiary" means a Subsidiary of the
Company.
"Temporary Cash Investment" means any of the following: (i) U.S.
Government Obligations, (ii) time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated
"P-1" (or higher) according to Moody's or "A-1" (or higher) according to S&P or
any money market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States of America with a rating
at the time as of which any investment therein is made of "P-1" (or higher)
according to Moody's or "A-1" (or higher) according to S&P, (v) securities with
maturities of six months or less from the date of acquisition issued or fully
and unconditionally guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing authority
thereof, and rated at least "P-1" (or higher) according to Moody's or "A-1" (or
higher) according to S&P and (vi) money market funds which invest substantially
all of their assets in securities described in the preceding clauses (i) through
(v).
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"Trade Payables" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries arising
in the ordinary course of business in connection with the acquisition of goods
or services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Trust Indenture Act of 1939" means the Trust Indenture Act of 1939,
as amended, as in force at the date as of which this Indenture was originally
executed, and "TIA", when used in respect of an indenture supplemental hereto,
means such Act as in force at the time such indenture supplemental hereto
becomes effective.
"Trustee" means the entity identified as "Trustee" in the first
paragraph hereof and, subject to the provisions of Article Five, shall also
include any successor trustee.
"U.S. Government Obligations" means securities issued or directly and
fully guaranteed or insured by the United States of America or any agent or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary that at the time
of determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, the Company or any Restricted
Subsidiary; provided that (A) any Guarantee by the Company or any Restricted
Subsidiary of any Indebtedness of the Subsidiary being so designated shall be
deemed an "Incurrence" of such Indebtedness and an "Investment" by the Company
or such Restricted Subsidiary (or both, if applicable) at the time of such
designation, (B) either (I) the Subsidiary to be so designated has total assets
of $1,000 or less or (II) if such Subsidiary has assets greater than $1,000,
such designation would be permitted under Section 3.08, and (C) if applicable,
the Incurrence of Indebtedness and the Investment referred to in clause (A) of
this proviso would be permitted under Sections 3.08 and 3.09. The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that immediately after giving effect to such designation
(x) the Company could Incur $1.00 of additional Indebtedness under the first
paragraph of Section 3.09 and (y) no Default or Event of Default shall have
occurred and be continuing. Any
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such designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
such Subsidiary if all of the outstanding Capital Stock or other similar equity
ownership interests (but not including Preferred Stock) in such Subsidiary
(other than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned directly or indirectly by such Person.
"ZDTV Acquisition" means the acquisition of an interest in ZDTV LLC
and/or ZD Television Productions, Inc. held by MAC Holdings America, Inc.
(whether such acquisition is consummated by the Company directly or indirectly,
by acquisition of assets, stock or joint venture interests, or otherwise)
pursuant to the License and Services Agreement among ZD Inc. (formerly Ziff-
Davis Inc.), ZDTV LLC, ZD Television Productions, Inc., MAC Holdings America,
Inc. and MAC Inc. dated as of July 28, 1997, and any renewal, amendment or
extension thereof.
SECTION 1.02. Other Definitions.
<TABLE>
Defined in
Term Section
---- -------
<S> <C>
"Acceleration Notice".......................................................... 4.02
"Agent Members"................................................................ 2.07
"Change of Control Offer"...................................................... 3.17
"Change of Control Offer Expiration Date"...................................... 3.17
"Change of Control Payment".................................................... 3.17
"Change of Control Payment Date"............................................... 3.17
"Covenant Defeasance".......................................................... 11.03
"Excess Proceeds".............................................................. 3.10
"Excess Proceeds Offer"........................................................ 3.10
"Excess Proceeds Offer Expiration Date"........................................ 3.10
"Excess Proceeds Payment"...................................................... 3.10
"Excess Proceeds Payment Date"................................................. 3.10
"Global Security".............................................................. 2.04
"Guaranteed Indebtedness"...................................................... 3.15
"Legal Defeasance"............................................................. 11.02
"Payment Blockage Period"...................................................... 9.03
</TABLE>
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<TABLE>
<CAPTION>
Defined in
Term Section
---- -------
<S> <C>
"Permitted Indebtedness"....................................................... 3.09
"Permitted Refinancing Indebtedness"........................................... 3.09
"Registrar".................................................................... 2.06
"Related Party Transaction".................................................... 3.14
"Restricted Payments".......................................................... 3.08
"Secured Indebtedness"......................................................... 3.11
"Security Register"............................................................ 2.06
"Subsidiary Guarantee"......................................................... 3.15
</TABLE>
ARTICLE 2
ISSUE, EXECUTION, FORM AND REGISTRATION OF SECURITIES
SECTION 2.01. Authentication and Delivery of Securities. Upon the
execution and delivery of this Indenture, or from time to time thereafter,
Securities in an aggregate principal amount not in excess of the amount
specified in the form of Security hereinabove recited (except as otherwise
provided in Section 2.08) may be executed by the Company and delivered to the
Trustee for authentication, and the Trustee shall thereupon authenticate and
make available for delivery said Securities to or upon the written order of the
Company, signed by its Chairman of the Board of Directors, or any Vice Chairman
of the Board of Directors, or its President or any Vice President (whether or
not designated by a number or numbers or a word or words added before or after
the title "Vice President") without any further action by the Company.
SECTION 2.02. Execution of Securities. The Securities shall be signed
on behalf of the Company by its Chairman of the Board of Directors or its
President or any Vice President (whether or not designated by a number or
numbers or a word or words added before or after the title "Vice President").
Such signature may be the manual or facsimile signatures of the present or any
future such officers.
In case any officer of the Company who shall have signed any of the
Securities shall cease to be such officer before the Security so signed shall be
authenticated and delivered by the Trustee or disposed of by the Company, such
Security nevertheless may be authenticated and delivered or disposed of as
though the person who signed such Security had not ceased to be such officer of
the Company; and any Security may be signed on behalf of the Company by such
persons as, at the actual date of the execution of such Security, shall be the
proper officers of the Company, although at the date of the execution and
delivery of this Indenture any such person was not such officer.
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SECTION 2.03. Certificate of Authentication. Only such Securities as
shall bear thereon a certificate of authentication substantially in the form
hereinabove recited, executed by the Trustee by manual signature of one of its
authorized signatories, shall be entitled to the benefits of this Indenture or
be valid or obligatory for any purpose. Such certificate by the Trustee upon any
Security executed by the Company shall be conclusive evidence that the Security
so authenticated has been duly authenticated and delivered hereunder and that
the Holder is entitled to the benefits of this Indenture.
SECTION 2.04. Form, Denomination and Date of Securities; Payments of
Interest. The Securities and the Trustee's certificates of authentication shall
be substantially in the form recited above. The Securities shall be issuable in
denominations provided for in the form of Security recited above. The Securities
shall be numbered, lettered, or otherwise distinguished in such manner or in
accordance with such plans as the officers of the Company executing the same may
determine with the approval of the Trustee.
Any of the Securities may be issued with appropriate insertions,
omissions, substitutions and variations, and may have imprinted or otherwise
reproduced thereon such legend or legends, not inconsistent with the provisions
of this Indenture, as may be required to comply with any law or with any rules
or regulations pursuant thereto, including those required by Section 2.05, or
with the rules of any securities market in which the Securities are admitted to
trading, or to conform to general usage.
Each Security shall be dated the date of its authentication, shall
bear interest from the applicable date and shall be payable on the dates
specified on the face of the form of Security recited above.
The Securities shall be issued initially in the form of one or more
global Securities (a "Global Security") deposited with the Trustee as custodian
for the Depositary.
The person in whose name any Security is registered at the close of
business on any Regular Record Date with respect to any Interest Payment Date
shall be entitled to receive the interest, if any, payable on such Interest
Payment Date notwithstanding any transfer or exchange of such Security
subsequent to the Regular Record Date and prior to such Interest Payment Date,
except if and to the extent the Company shall default in the payment of the
interest due on such Interest Payment Date, in which case such defaulted
interest, plus (to the extent lawful) any interest payable on the defaulted
interest, shall be paid to the persons in whose names outstanding Securities are
registered at the close of business on a subsequent record date (which shall be
not less than five Business Days prior to the date of such
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payment) established by notice given by mail by or on behalf of the Company to
the holders of Securities not less than 15 days preceding such subsequent record
date.
SECTION 2.05. Global Security Legends. Each Global Security shall
bear the following legends on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, TO THE COMPANY
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR
SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED
TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES
OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE.
SECTION 2.06. Registration, Transfer and Exchange. The Securities are
issuable only in registered form. The Company will keep at each office or agency
to be maintained for the purpose as provided in Section 3.02 (the "Registrar") a
register or registers (the "Security Register(s)") in which, subject to such
reasonable regulations as it may prescribe, it will register, and will register
the transfer of, Securities as in this Article provided. Such Security Register
shall be in written form in the English language or in any other form capable of
being converted into such form within a reasonable time. At all reasonable times
such Security Register or Security Registers shall be open for inspection by the
Trustee.
Upon due presentation for registration of transfer of any Security at
each such office or agency, the Company shall execute and the Trustee shall
authenticate and make available for delivery in the name of the transferee or
transferees a new
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Security or Securities in authorized denominations for a like aggregate
principal amount.
A Holder may transfer a Security only by written application to the
Registrar stating the name of the proposed transferee and otherwise complying
with the terms of this Indenture. No such transfer shall be effected until, and
such transferee shall succeed to the rights of a Holder only upon, final
acceptance and registration of the transfer by the Registrar in the Security
Register. Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee, and any agent of the Company shall treat the
person in whose name the Security is registered as the owner thereof for all
purposes whether or not the Security shall be overdue, and neither the Company,
the Trustee, nor any such agent shall be affected by notice to the contrary.
Furthermore, any Holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interests in such Global Security
may be effected only through a book entry system maintained by the Holder of
such Global Security (or its agent) and that ownership of a beneficial interest
in the Security shall be required to be reflected in a book entry. When
Securities are presented to the Registrar or a co-Registrar with a request to
register the transfer or to exchange them for an equal principal amount of
Securities of other authorized denominations, the Registrar shall register the
transfer or make the exchange as requested if the requirements for such
transactions set forth herein are met. To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate
Securities at the Registrar's request.
The Company may require payment of a sum sufficient to cover any tax
or other similar governmental charge that may be imposed in connection with any
exchange or registration of transfer of Securities (other than any such transfer
taxes or other similar governmental charge payable upon exchanges pursuant to
Section 2.10, 7.05 or 10.03). No service charge to any Holder shall be made for
any such transaction.
The Company shall not be required to exchange or register a transfer
of (a) any Securities for a period of 15 days next preceding the first mailing
of notice of redemption of Securities to be redeemed, or (b) any Securities
selected, called or being called for redemption except, in the case of any
Security where public notice has been given that such Security is to be redeemed
in part, the portion thereof not so to be redeemed.
All Securities issued upon any transfer or exchange of Securities
shall be valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Securities
surrendered upon such transfer or exchange.
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<PAGE>
SECTION 2.07. Book-Entry Provisions for Global Securities. (a) Each
Global Security shall (i) be registered in the name of the Depositary for such
Global Securities or the nominee of such Depositary, (ii) be delivered to the
Trustee as custodian for such Depositary and (iii) bear legends as set forth in
Section 2.05.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depositary, or the Trustee as its custodian, or
under the Global Security, and the Depositary may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by the Depositary or impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Security.
(b) Transfers of a Global Security shall be limited to transfers of
such Global Security in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in a
Global Security may be transferred in accordance with the rules and procedures
of the Depositary. In addition, Certificated Securities shall be transferred to
all beneficial owners in exchange for their beneficial interests if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
Depositary for the Global Security or the Depository ceases to be a "clearing
agency" registered under the Exchange Act and a successor depositary is not
appointed by the Company within 90 days of such notice or (ii) an Event of
Default of which a Responsible Officer of the Trustee has actual notice has
occurred and is continuing and the Registrar has received a request from the
Depositary to issue such Certificated Securities.
(c) In connection with the transfer of the entire Global Security to
beneficial owners pursuant to paragraph (b) of this Section, such Global
Security shall be deemed to be surrendered to the Trustee for cancellation, and
the Company shall execute, and the Trustee shall authenticate and deliver, to
each beneficial owner identified by the Depositary in exchange for its
beneficial interest in such Global Security an equal aggregate principal amount
of Certificated Securities of authorized denominations.
(d) The registered holder of a Global Security may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Securities.
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<PAGE>
SECTION 2.08. Mutilated, Defaced, Destroyed, Lost and Stolen
Securities. In case any temporary or definitive Security shall become mutilated,
defaced or be apparently destroyed, lost or stolen, the Company in its
discretion may execute, and upon the written request of any officer of the
Company, the Trustee shall authenticate and make available for delivery, a new
Security, bearing a number not contemporaneously outstanding, in exchange and
substitution for the mutilated or defaced Security, or in lieu of and
substitution for the Security so apparently destroyed, lost or stolen. In every
case the applicant for a substitute Security shall furnish to the Company and to
the Trustee and any agent of the Company or the Trustee such security or
indemnity as may be required by them to indemnify and defend and to save each of
them harmless and, in every case of destruction, loss or theft evidence to their
satisfaction of the apparent destruction, loss or theft of such Security and of
the ownership thereof.
Upon the issuance of any substitute Security, the Company may require
the payment of a sum sufficient to cover any transfer tax or other similar
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
In case any Security which has matured or is about to mature, or has been called
for redemption in full, shall become mutilated or defaced or be apparently
destroyed, lost or stolen, the Company may, instead of issuing a substitute
Security, pay or authorize the payment of the same (without surrender thereof
except in the case of a mutilated or defaced Security), if the applicant for
such payment shall furnish to the Company and to the Trustee and any agent of
the Company or the Trustee such security or indemnity as any of them may require
to save each of them harmless from all risks, however remote, and, in every case
of apparent destruction, loss or theft, the applicant shall also furnish to the
Company and the Trustee and any agent of the Company or the Trustee evidence to
their satisfaction of the apparent destruction, loss or theft of such Security
and of the ownership thereof.
Every substitute Security issued pursuant to the provisions of this
Section by virtue of the fact that any Security is apparently destroyed, lost or
stolen shall constitute an additional contractual obligation of the Company,
whether or not the apparently destroyed, lost or stolen Security shall be at any
time enforceable by anyone and shall be entitled to all the benefits of (but
shall be subject to all the limitations of rights set forth in) this Indenture
equally and proportionately with any and all other Securities duly authenticated
and delivered hereunder. All Securities shall be held and owned upon the express
condition that, to the extent permitted by law, the foregoing provisions are
exclusive with respect to the replacement or payment of mutilated, defaced, or
apparently destroyed, lost or stolen Securities and shall preclude any and all
other rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement or payment of
negotiable instruments or other securities without their surrender.
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SECTION 2.09. Cancellation of Securities. All Securities surrendered
for payment, redemption, registration of transfer or exchange, if surrendered to
the Company or any agent of the Company or the Trustee, shall be delivered to
the Trustee for cancellation or, if surrendered to the Trustee, shall be
cancelled by it; and no Securities shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. If the Company
shall acquire any of the Securities, such acquisition shall not operate as a
redemption or satisfaction of the indebtedness represented by such Securities
unless and until the same are delivered to the Trustee for cancellation.
SECTION 2.10. Temporary Securities. Pending the preparation of
definitive Securities, the Company may execute and, upon receipt of an order
from the Company, the Trustee shall authenticate and make available for delivery
temporary Securities (printed, lithographed, typewritten or otherwise
reproduced, in each case in form satisfactory to the Trustee). Temporary
Securities shall be issuable as registered Securities without coupons, of any
authorized denomination, and substantially in the form of the definitive
Securities but with such omissions, insertions and variations as may be
appropriate for temporary Securities, all as may be determined by the Company
with the concurrence of the Trustee. Temporary Securities may contain such
reference to any provisions of this Indenture as may be appropriate. Every
temporary Security shall be executed by the Company and be authenticated by the
Trustee upon the same conditions and in substantially the same manner, and with
like effect, as the definitive Securities. Without unreasonable delay the
Company shall execute and shall furnish definitive Securities and thereupon
temporary Securities may be surrendered in exchange therefor without charge at
each office or agency to be maintained by the Company for the purpose pursuant
to Section 3.02, and the Trustee shall authenticate and make available for
delivery in exchange for such temporary Securities a like aggregate principal
amount of definitive Securities of authorized denominations. Until so exchanged
the temporary Securities shall be entitled to the same benefits under this
Indenture as definitive Securities.
SECTION 2.11. CUSIP and CINS Numbers. The Company in issuing the
Securities may use "CUSIP" and "CINS" numbers (if then generally in use), and
the Trustee shall use CUSIP numbers and CINS numbers, as the case may be, in
notices of redemption or exchange as a convenience to Holders; provided that any
such notice shall state that no representation is made as to the correctness of
such numbers either as printed on the Securities or as contained in any notice
of redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Securities. The Company shall promptly
notify the Trustee of any change in the CUSIP number or CINS number, as the case
may be.
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ARTICLE 3 COVENANTS OF THE
COMPANY AND THE TRUSTEE.
SECTION 3.01. Payment of Principal and Interest. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of, and interest on, each of the Securities at the place or
places, at the respective times and in the manner provided in the Securities.
Each installment of interest on the Securities may be paid by mailing checks for
such interest payable to or upon the written order of the holders of Securities
entitled thereto as they shall appear on the registry books of the Company, or
by wire transfer to such holders in immediately available funds, to such bank or
other entity in the continental United States as shall be designated by such
holders and shall have appropriate facilities for such purpose, or in accordance
with the standard operating procedures of the Depositary.
SECTION 3.02. Offices for Payments, etc. So long as any of the
Securities remain outstanding, the Company will maintain in the Borough of
Manhattan, The City of New York, the following: (a) an office or agency where
the Securities may be presented for payment, (b) an office or agency where the
Securities may be presented for registration of transfer and for exchange as in
this Indenture provided and (c) an office or agency where notices and demands to
or upon the Company in respect of the Securities or of this Indenture may be
served. The Company will give to the Trustee written notice of the location of
any such office or agency and of any change of location thereof. The Company
hereby initially designates the Corporate Trust Office of the Trustee as the
office or agency for each such purpose. In case the Company shall fail to
maintain any such office or agency or shall fail to give such notice of the
location or of any change in the location thereof, presentations and demands may
be made and notices may be served at the Corporate Trust Office.
SECTION 3.03. Appointment to Fill a Vacancy in Office of Trustee. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section, a Trustee, so that there shall
at all times be a Trustee hereunder.
SECTION 3.04. Paying Agents. Whenever the Company shall appoint a
paying agent other than the Trustee, it will cause such paying agent to execute
and deliver to the Trustee an instrument in which such agent shall agree with
the Trustee, subject to the provisions of this Section,
(a) that it will hold all sums received by it as such agent for the
payment of the principal of or interest on the Securities (whether such sums
have been paid to it by the Company or by any other obligor on the Securities)
in trust for the benefit of the holders of the Securities or of the Trustee,
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(b) that it will give the Trustee notice of any failure by the
Company (or by any other obligor on the Securities) to make any payment of the
principal of or interest on the Securities when the same shall be due and
payable, and
(c) that it will pay any such sums so held in trust by it to the
Trustee upon the Trustee's written request at any time during the continuance of
the failure referred to in clause (b) above.
The Company will, prior to each due date of the principal of or
interest on the Securities, deposit with the paying agent a sum sufficient to
pay such principal or interest, and (unless such paying agent is the Trustee)
the Company will promptly notify the Trustee of any failure to take such action.
If the Company shall act as its own paying agent, it will, on or
before each due date of the principal of or interest on the Securities, set
aside, segregate and hold in trust for the benefit of the holders of the
Securities a sum sufficient to pay such principal or interest so becoming due.
The Company will promptly notify the Trustee of any failure to take such action.
Anything in this Section to the contrary notwithstanding, the Company
may at any time, for the purpose of obtaining a satisfaction and discharge of
this Indenture or for any other reason, pay or cause to be paid to the Trustee
all sums held in trust by the Company or any paying agent hereunder, as required
by this Section, such sums to be held by the Trustee upon the trusts herein
contained.
Anything in this Section to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section are subject to the
provisions of Sections 11.05 and 11.06.
SECTION 3.05. Certificates to Trustee. (a) The Company will deliver
to the Trustee within 90 days after the end of each fiscal year of the Company a
certificate from the principal executive, financial or accounting officer of the
Company stating that such officer has conducted or supervised a review of the
activities of the Company and its Restricted Subsidiaries and the Company's and
its Restricted Subsidiaries' performance under the Indenture and that, to the
best of such officer's knowledge, based upon such review, the Company has
fulfilled all obligations thereunder or, if there has been a default in the
fulfillment of any such obligation (determined without regard to any period of
grace or requirement of notice provided in the Indenture), specifying each such
default and the nature and status thereof.
(b) The Company will deliver to the Trustee, as soon as possible and
in any event within 10 days after the Company becomes aware or should reasonably
become
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aware of the occurrence of an Event of Default or a Default, an Officers'
Certificate setting forth the details of such Event of Default or Default, and
the action which the Company proposes to take with respect thereto.
(c) The Company will deliver to the Trustee within 90 days after the
end of each fiscal year of the Company a written statement by the Company's
independent public accountants stating (i) that their audit examination has
included a review of the terms of this Indenture and the Securities as they
relate to accounting matters, and (ii) whether, in connection with their audit
examination, any Default has come to their attention and, if such a Default has
come to their attention, specifying the nature and period of the existence
thereof.
SECTION 3.06. Securityholders' Lists. If and so long as the Trustee
shall not be the Registrar, the Company will furnish or cause to be furnished to
the Trustee a list in such form as the Trustee may reasonably require of the
names and addresses of the holders of the Securities pursuant to Section 312 of
the Trust Indenture Act of 1939 (a) semi-annually not more than 15 days after
each Regular Record Date as of such Regular Record Date, and (b) at such other
times as the Trustee may request in writing, within thirty days after receipt by
the Company of any such request as of a date not more than 15 days prior to the
time such information is furnished.
SECTION 3.07. Reports by the Trustee. (a) The Trustee shall transmit
to Holders such reports concerning the Trustee and its actions under this
Indenture as may be required pursuant to the Trust Indenture Act of 1939 at the
times and in the manner provided pursuant thereto. If required by Section 313(a)
of the Trust Indenture Act of 1939, the Trustee shall, within sixty days after
each May 15 following the date of this Indenture deliver to Holders a brief
report, dated as of such May 15, which complies with the provisions of such
Section 313(a).
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange, if
any, upon which the Securities are listed, with the Commission and with the
Company. The Company will promptly notify the Trustee when the Securities are
listed on any stock exchange or of any delisting thereof.
SECTION 3.08. Limitation on Restricted Payments. The Company will
not, and will not permit any Restricted Subsidiary to, directly or indirectly
(such payments and other actions described in clauses (i) through (iv) being
collectively "Restricted Payments"):
(i) declare or pay any dividend or make any distribution on its
Capital Stock (other than (x) dividends or distributions payable
solely in shares of its or such Restricted Subsidiary's Capital Stock
(other than
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Redeemable Stock) or in options, warrants or other rights to acquire
shares of Capital Stock (other than Redeemable Stock) or (y) pro rata
dividends or distributions on Common Stock of Restricted Subsidiaries
held by minority stockholders) held by Persons other than the Company
or any of its Wholly Owned Restricted Subsidiaries;
(ii) purchase, redeem, retire or otherwise acquire for value any
shares of Capital Stock of the Company or any Subsidiary (including
options, warrants or other rights to acquire such shares of Capital
Stock) held by Persons other than the Company or any of its Wholly
Owned Restricted Subsidiaries;
(iii) make any voluntary or optional principal payment, or voluntary
or optional redemption, repurchase, defeasance, or other acquisition
or retirement for value of any Subordinated Obligations or any
intercompany debt owed to SOFTBANK Corp. or its Affiliates (other
than the Company and its Restricted Subsidiaries); provided, that
this clause (iii) shall not apply to the Existing Softbank Note; or
(iv) make any Investment that is a Restricted Investment;
if, at the time of, and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing, (B) the
Company could not Incur at least $1.00 of Indebtedness under the first paragraph
of Section 3.09 or (C) the aggregate amount expended for all Restricted Payments
(the amount so expended, if other than in cash, to be determined in good faith
by the Board of Directors, whose determination shall be conclusive and evidenced
by a Board Resolution) after the Issue Date would exceed the sum of (1) the
remainder of (x) the aggregate amount of Consolidated EBITDA (or, if the
Consolidated EBITDA is negative, minus 100% of such negative amount) accrued on
a cumulative basis during the period (taken as one accounting period) beginning
on the first day of the fiscal quarter during which the Issue Date occurs and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed pursuant to Section 3.19 minus (y) the product
of 1.4 multiplied by the aggregate amount of Consolidated Interest Expense
accrued on a cumulative basis for the period referred to in clause (x) plus (2)
the Net Proceeds received by the Company from the issuance and sale permitted by
the Indenture of its Capital Stock (other than Redeemable Stock) to a Person who
is not a Subsidiary, including an issuance or sale permitted by the Indenture of
Indebtedness of the Company subsequent to the Issue Date upon the conversion or
exchange of such Indebtedness into Capital Stock (other than Redeemable Stock)
of the Company, or from the issuance to any Person who is not a Subsidiary of
any options, warrants or other rights to acquire Capital Stock of the Company
(in each case, exclusive of any Redeemable Stock or any options,
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warrants or other rights to acquire Redeemable Stock) plus (3) an amount equal
to the net reduction in Restricted Investments in any Person resulting from
payments of dividends, repayments of loans or advances, or other transfers of
assets, in each case to the Company or any Restricted Subsidiary or from the Net
Cash Proceeds from the sale of any such Investment (except, in each case, to the
extent any such payment or proceeds are included in the calculation of Adjusted
Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in each case, the amount of Investments
previously made by the Company and any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Subordinated Obligations including premium, if any, and
accrued and unpaid interest, with the proceeds of, or in exchange for, Permitted
Refinancing Indebtedness; (iii) the repurchase, redemption or other acquisition
of Capital Stock of the Company in exchange for, or out of the proceeds of a
substantially concurrent offering of, shares of Capital Stock (other than
Redeemable Stock) of the Company; (iv) the making of any principal payment or
the repurchase, retirement, defeasance or other acquisition for value of
Subordinated Obligations of the Company in exchange for, or out of the proceeds
of, a substantially concurrent offering of, shares of the Capital Stock of the
Company (other than Redeemable Stock); (v) the purchase, redemption,
acquisition, cancellation or other retirement for value of shares of Capital
Stock of the Company, options on any such shares or related stock appreciation
rights or similar securities held by officers or employees or former officers or
employees (or their estates or beneficiaries under their estates), upon death,
disability, retirement, severance or termination of employment or pursuant to
any agreement under which such shares of stock or related rights were issued;
provided that the aggregate cash consideration paid for such purchase,
redemption, acquisition, cancellation or other retirement of such shares of
Capital Stock or related rights after the Issue Date does not exceed an
aggregate amount of $10 million in any twelve month period; (vi) Investments
acquired in exchange for Capital Stock (other than Redeemable Stock) of the
Company; (vii) payments or distributions pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the provisions of
the Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company, (viii) Investments
by the Company or any of its Restricted Subsidiaries in a joint venture or joint
ventures with any Person or Persons in an aggregate amount not to exceed $75
million, provided that such joint venture or joint ventures is or are engaged in
a business that is similar or related, ancillary or complementary to the nature
or type of the business of the Company and its Restricted Subsidiaries and joint
venture
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companies existing on the date of such Investment (as determined in good faith
by the Board of Directors, whose determination shall be conclusive and evidenced
by a Board Resolution) and provided, further, that the Company may make up to
$150 million of additional Investments under this clause (viii) in lieu of
Investments permitted to be made, but not made, pursuant to clause (ix) hereof,
(ix) Investments by the Company or any of its Restricted Subsidiaries in an
aggregate amount not to exceed $150 million in connection with the ZDTV
Acquisition; provided, that the amount of such Investments permitted under this
clause (ix) shall be reduced by the amount of Investments in excess of $75
million made pursuant to clause (viii) hereof; or (x) any other Restricted
Payment which, together with all other Restricted Payments made pursuant to this
clause (x) since the Issue Date, does not exceed $25 million; provided that,
except in the case of clauses (i) and (iii), no Default or Event of Default
shall have occurred and be continuing or occur as a consequence of the actions
or payments set forth therein. The amount of any Restricted Payments permitted
pursuant to clauses (viii), (ix) or (x) above shall be determined after giving
effect to the net reduction in the amount of any Investment made pursuant to
such clause (viii), (ix) or (x), respectively, to the extent contemplated by
clause (3) of the first paragraph above of this Section 3.08.
Each Restricted Payment permitted pursuant to the preceding paragraph
(excluding Restricted Payments referred to in clauses (ii), (vi), (viii) and
(ix)) and the Net Proceeds from any issuance of Capital Stock referred to in
clauses (iii), (iv) and (vi) shall (without duplication) be included in
calculating whether the conditions of clause (C) of the second preceding
paragraph have been met with respect to any subsequent Restricted Payments.
SECTION 3.09. Limitation on Indebtedness. The Company will not, and
will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness;
provided that the Company may Incur Indebtedness or Acquired Indebtedness and
any Restricted Subsidiary may Incur Acquired Indebtedness, if, on the date of
such Incurrence, after giving pro forma effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds therefrom, the
Consolidated Leverage Ratio would be less than or equal to 7.0 to 1, for
Indebtedness Incurred on or prior to March 31, 1999, or 6.0 to 1, for
Indebtedness Incurred thereafter.
Notwithstanding the foregoing, the Company and, to the extent
provided below, any Restricted Subsidiary may Incur the following (each,
"Permitted Indebtedness"):
(i) Indebtedness of the Company Incurred under the Credit
Agreement, or Guarantees thereof pursuant to the Credit Agreement, in
an aggregate principal amount at any time outstanding not to exceed
$1.65
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billion less any amount of Indebtedness permanently repaid as
provided under Section 3.10;
(ii) Indebtedness of the Company or any Restricted Subsidiary to the
Company or any Wholly Owned Restricted Subsidiary as long as such
Indebtedness continues to be owed to the Company or any Wholly Owned
Restricted Subsidiary;
(iii) Indebtedness of the Company pursuant to the Securities and
Indebtedness of any Guarantor pursuant to a Subsidiary Guarantee of
the Securities;
(iv) Indebtedness consisting of Guarantees by a Person that becomes
a Restricted Subsidiary of Indebtedness Incurred by the Company to
finance the acquisition of such Person, provided, that the Incurrence
of the Indebtedness being Guaranteed is permitted under the
Indenture;
(v) Indebtedness consisting of Guarantees by Restricted
Subsidiaries which Guarantees are permitted to be Incurred under
Section 3.15;
(vi) Indebtedness of the Company or any Restricted Subsidiary
("Permitted Refinancing Indebtedness") issued in exchange for, or the
net proceeds of which are used to refinance or refund, then
outstanding Indebtedness (other than Indebtedness of the Company
pursuant to the Credit Agreement), in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest,
fees and expenses); provided that Indebtedness the proceeds of which
are used to refinance or refund the Securities or Indebtedness that
is pari passu with, or subordinated in right of payment to, the
Securities shall only be permitted under this clause (vi) if (A) in
case the Securities are refinanced in part or the Indebtedness to be
refinanced is pari passu with the Securities, such new Indebtedness,
by its terms or by the terms of any agreement or instrument pursuant
to which such new Indebtedness is outstanding, is expressly made pari
passu with, or subordinate in right of payment to, the remaining
Securities, (B) in case the Indebtedness to be refinanced is
subordinated in right of payment to the Securities, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is outstanding, is
expressly made subordinate in right of payment to the Securities at
least to the extent that the Indebtedness to be refinanced is
subordinated to the Securities and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness,
does not mature prior to the Stated Maturity of the Indebtedness to
be refinanced or refunded, and the
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Average Life of such new Indebtedness is at least equal to the
remaining Average Life of the Indebtedness to be refinanced or
refunded; and provided further that in no event may Indebtedness of
the Company be refinanced pursuant to this clause (vi) by means of
any Indebtedness of any Restricted Subsidiary;
(vii) Indebtedness of the Company or any Restricted Subsidiary (A) in
respect of bid, performance, surety or appeal bonds provided in the
ordinary course of business consistent with past practice, (B) under
Currency Agreements and Interest Rate Agreements (provided that such
Currency Agreements do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder) or (C) arising from agreements
providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company
pursuant to such agreements, in any case Incurred in connection with
the disposition of any business, assets or Restricted Subsidiary
(other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition), in a
principal amount not to exceed the gross proceeds actually received
by the Company or any Restricted Subsidiary in connection with such
disposition;
(viii) Indebtedness of the Company or any Restricted Subsidiary
under letters of credit and bankers' acceptances issued in the
ordinary course of business;
(ix) Indebtedness of the Company, to the extent the net proceeds
thereof are promptly (A) used to purchase Securities tendered in an
Offer to Purchase made as a result of a Change in Control or (B)
deposited to defease the Securities pursuant to Article Eleven;
(x) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date (other than Indebtedness described in
clause (i), (ii) or (iii) of this Section 3.09);
(xi) Indebtedness of the Company or any Restricted Subsidiary in an
aggregate principal amount at any time outstanding not to exceed $100
million ; and
(xii) Indebtedness of Restricted Subsidiaries in an aggregate
principal amount at any time outstanding not to exceed $200 million,
provided, that,
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after giving pro forma effect to the Incurrence of such Indebtedness
and the application of the proceeds therefrom, the Company could
Incur at least $1.00 of Indebtedness under the first paragraph of
this Section 3.09.
For purposes of determining compliance with this section, (A) in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in the clauses of the preceding paragraph, the
Company, in its sole discretion, shall classify such item of Indebtedness and
only be required to include the amount and type of such Indebtedness in one of
such clauses, (B) an item of Indebtedness may be divided and classified in more
than one of the types of Indebtedness described above and (C) the amount of
Indebtedness issued at a price that is less than the principal amount thereof
shall be equal to the amount of the liability in respect thereof determined in
conformity with GAAP.
SECTION 3.10. Limitation on Asset Sales. The Company will not, and
will not permit any Restricted Subsidiary to, consummate any Asset Sale unless:
(i) such Asset Sale is effected at not less than fair market value (as
determined in good faith by the Board of Directors); and (ii) either (x) at
least 75% of the consideration is received in cash, Temporary Cash Investments
or the assumption of Indebtedness (other than Subordinated Obligations) or (y)
the consideration therefor received by the Company or any Restricted Subsidiary
is in the form of equity or debt securities of the transferee of such assets;
provided, that Asset Sales pursuant to this clause (y) shall not exceed an
aggregate of $25 million in any twelve month period. In the event and to the
extent that the Net Cash Proceeds received by the Company or its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the Issue Date
in any period of 12 consecutive months exceed $20 million, the Company, shall,
or shall cause one or more of its Restricted Subsidiaries to, (1) within twelve
months after the date such Net Cash Proceeds exceed $20 million, (A) apply an
amount equal to such excess Net Cash Proceeds to permanently repay Senior
Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, as the
case may be, in each case owing to a Person other than the Company or any of its
Restricted Subsidiaries or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A) (or enter into a definitive agreement committing
to so invest within 12 months after the date of such agreement), in the business
of the Company and its Restricted Subsidiaries as of the date of application of
such amounts (or in Capital Stock of a Restricted Subsidiary or a Person engaged
either in the same business as the Company or any of its Restricted Subsidiaries
or a business related, ancillary or complementary thereto that, as a result of
such Investment, becomes a Restricted Subsidiary) and (2) apply such excess Net
Cash Proceeds (to the extent not applied pursuant to clause (1) above) as
provided in the following three paragraphs. The amount of such excess Net Cash
Proceeds required to be applied (or to be committed to be applied) during such
12-month period as set forth in clause (1) of
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the preceding sentence and not applied as so required by the end of such period
shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount
of Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as
defined below) totals at least $20 million, the Company must, not later than the
fifteenth Business Day of such month, make an offer (an "Excess Proceeds Offer")
to purchase from the Holders on a pro rata basis an aggregate principal amount
of Securities equal to the Excess Proceeds on such date, at a purchase price
equal to 100% of the principal amount of the Securities, plus, in each case,
accrued interest (if any) to the date of purchase (the "Excess Proceeds
Payment").
The Company will commence an Excess Proceeds Offer by mailing a
notice to the Trustee and each Holder stating: (i) that the Excess Proceeds
Offer is being made pursuant to Section 3.10 of the Indenture and that all
Securities validly tendered will be accepted for payment on a pro rata basis;
(ii) the purchase price and the expiration date for such Excess Proceeds Offer
(which shall be the date not less than 20 Business Days from the date such
notice is mailed) (the "Excess Proceeds Offer Expiration Date"); (iii) that any
Security not tendered will continue to accrue interest pursuant to its terms;
(iv) that, unless the Company defaults in the payment of the Excess Proceeds
Payment, any Security accepted for payment pursuant to the Excess Proceeds Offer
shall cease to accrue interest on and after the Excess Proceeds Payment Date (as
defined below); (v) that Holders electing to have a Security purchased pursuant
to the Excess Proceeds Offer will be required to surrender the Security,
together with the form entitled "Option of the Holder to Elect Purchase" on the
reverse side of the Security completed, to the paying agent at the address
specified in the notice prior to the close of business on the Excess Proceeds
Offer Expiration Date; (vi) that Holders will be entitled to withdraw their
election if the paying agent receives, not later than the close of business on
the Excess Proceeds Offer Expiration Date, a facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Securities
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Securities purchased; and (vii) that Holders whose
Securities are being purchased only in part will be issued new Securities equal
in principal amount to the unpurchased portion of the Securities surrendered;
provided that each Security purchased and each new Security issued shall be in a
principal amount of $1,000 or integral multiples thereof.
On a date no more than four Business Days after the Excess Proceeds
Offer Expiration Date (the "Excess Proceeds Payment Date"), the Company will (i)
accept for payment on a pro rata basis Securities or portions thereof tendered
pursuant to the Excess Proceeds Offer; (ii) deposit with the paying agent money
sufficient to pay the purchase price of all Securities or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all
Securities or portions
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thereof so accepted together with an Officers' Certificate specifying the
Securities or portions thereof accepted for payment by the Company. The paying
agent shall promptly mail to the Holders of Securities so accepted payment in an
amount equal to the purchase price, and the Trustee shall promptly authenticate
and mail to such Holders a new Security equal in principal amount to any
unpurchased portion of the Security surrendered; provided that each Security
purchased and each new Security issued shall be in a principal amount of $1,000
or integral multiples thereof. The Company will publicly announce the results of
the Excess Proceeds Offer as soon as practicable after the Excess Proceeds Offer
Expiration Date. For purposes of this Section 3.10, the Trustee shall act as the
paying agent.
The Company will comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are received
by the Company under this Section 3.10 and the Company is required to repurchase
Securities as described in this Section 3.10.
SECTION 3.11. Limitation on Liens. The Company shall not Incur any
Indebtedness secured by a Lien ("Secured Indebtedness") which is not Senior
Indebtedness (or Indebtedness that would constitute Senior Indebtedness except
that it is without recourse to the Company) unless contemporaneously therewith
effective provision is made to secure the Securities equally and ratably with
(or, if the Secured Indebtedness is subordinated in right of payment to the
Securities, prior to) such Secured Indebtedness for so long as such Secured
Indebtedness is secured by a Lien.
SECTION 3.12. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries. The Company will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Company or any other Restricted Subsidiary,
(ii) pay any Indebtedness or other obligations owed to the Company or any other
Restricted Subsidiary, (iii) make loans or advances to the Company or any other
Restricted Subsidiary or (iv) transfer any of its property or assets to the
Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Issue Date in the Credit Agreement, the
Indenture or any other agreements in effect on the Issue Date, and any
extensions, amendments, refinancings, renewals or replacements of any of the
foregoing; provided that the encumbrances and restrictions in any such
extensions, amendments, refinancings, renewals or replacements are no less
favorable in any material respect to the Holders than those encumbrances or
restrictions that are then in effect and that are being
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extended, amended, refinanced, renewed or replaced; (ii) existing under or by
reason of applicable law; (iii) existing with respect to any Person or the
property or assets of such Person acquired by the Company or any Restricted
Subsidiary and existing at the time of such acquisition, which encumbrances or
restrictions (A) are not applicable to any Person or the property or assets of
any Person other than such Person or the property or assets of such Person so
acquired and (B) were not put in place in anticipation of such acquisition, and
any extensions, refinancings, renewals or replacements of any of the foregoing;
provided that the encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements are no less favorable in any material
respect to the Holders than those encumbrances or restrictions that are then in
effect and that are being extended, refinanced, renewed or replaced; (iv) in the
case of clause (iv) of the preceding paragraph, (A) that restrict in a customary
manner the subletting, assignment or transfer of any property or asset that is
subject to a lease, license, conveyance or contract, (B) existing by virtue of
any transfer of, agreement to transfer, option or right with respect to, or Lien
on, any property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness and, that do not,
individually or in the aggregate, detract from the value of property or assets
of the Company or any Restricted Subsidiary in any manner material to the
Company or any Restricted Subsidiary; (v) with respect to a Restricted
Subsidiary and imposed pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of, or
property and assets of, such Restricted Subsidiary or (vi) contained in the
terms of any Indebtedness or any agreement pursuant to which such Indebtedness
was issued if (A) the encumbrance or restriction applies only in the event of a
payment default or a default with respect to a financial covenant contained in
such Indebtedness or agreement, (B) the encumbrance or restriction is not
materially more disadvantageous to the Holders of the Securities than is
customary in comparable financings (as determined by the Company) and (C) the
Company determines that any such encumbrance or restriction will not materially
affect the Company's ability to make principal or interest payments on the
Securities. Nothing contained in the preceding paragraph shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming or
permitting to exist any Lien otherwise not prohibited by the Indenture or (2)
restricting the sale or other disposition of property or assets of the Company
or any of its Restricted Subsidiaries that secure Indebtedness of the Company or
any of its Restricted Subsidiaries.
SECTION 3.13. Limitation on Senior Subordinated Indebtedness. The
Company shall not Incur any Indebtedness that is subordinate in right of payment
to any Senior Indebtedness unless such Indebtedness is pari passu with, or
subordinated in right of payment to, the Securities; provided that the foregoing
limitation shall not apply to distinctions between categories of Senior
Indebtedness of the Company that
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exist by reason of any Liens or Guarantees arising or created in respect of some
but not all such Senior Indebtedness.
SECTION 3.14. Limitation on Transactions with Shareholders and
Affiliates. The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary (each,
a "Related Party Transaction"), except upon fair and reasonable economic terms
no less favorable to the Company or such Restricted Subsidiary than could be
obtained, at the time of such transaction or at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
Person that is not such a holder or an Affiliate.
In addition and without limiting the foregoing, (i) any Related Party
Transaction or series of Related Party Transactions with an aggregate value in
excess of $5 million must first be approved by a majority of the Board of
Directors of the Company who are disinterested in the subject matter of the
transaction pursuant to a Board Resolution, and (ii) with respect to any Related
Party Transaction or series of Related Party Transactions with an aggregate
value in excess of $10 million, the Company must first obtain a favorable
written opinion from a nationally recognized investment banking firm or
nationally recognized independent accounting or consulting firm as to the
fairness from a financial point of view of such transaction to the Company or
such Subsidiary, as the case may be.
The foregoing limitation does not limit, and shall not apply to (i)
any transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries, (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company,
(iii) any Restricted Payments not prohibited by Section 3.08 or (iv)
transactions pursuant to Existing Affiliate Agreements.
SECTION 3.15. Limitation on the Issuance of Guarantees by Restricted
Subsidiaries. The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company or any Restricted
Subsidiary (except Indebtedness of a Restricted Subsidiary of such Restricted
Subsidiary) ("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for a Guarantee (a "Subsidiary Guarantee") of payment of the
Securities by such Restricted Subsidiary and (ii) such Restricted Subsidiary
waives and will not in any manner whatsoever claim or take the benefit or
advantage of any rights of reimbursement, indemnity or subrogation or any other
rights against the Company
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or any other Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; provided that this paragraph shall
not be applicable to (I) any Guarantee of any Restricted Subsidiary that existed
at the time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary, (II) Guarantees permitted under clause (iv) of the second paragraph
of Section 3.09, (III) any Guarantee by any Restricted Subsidiary of
Indebtedness Incurred under the Credit Agreement and permitted by the Indenture,
(IV) any Guarantee by any Restricted Subsidiary of Indebtedness Incurred by the
Company under any senior commercial term loan and/or revolving credit facility
entered into principally with commercial banks and/or other financial
institutions typically party to commercial loan agreements and permitted by the
Indenture or (V) any Guarantee by any Restricted Subsidiary of Indebtedness
Incurred by another Restricted Subsidiary and permitted by the Indenture. If the
Guaranteed Indebtedness is (A) pari passu with the Securities, then the
Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Securities,
then the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Securities.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary shall provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer to any Person not an Affiliate of the Company, of all of the Capital
Stock of such Restricted Subsidiary directly or indirectly owned by the Company,
or all or substantially all the assets of such Restricted Subsidiary (which
sale, exchange or transfer is not prohibited by the Indenture) or (ii) the
release or discharge of the Guarantee which resulted in the creation of such
Subsidiary Guarantee, except a discharge or release by or as a result of payment
under such Guarantee.
SECTION 3.16. Limitation on the Issuance of Capital Stock of
Restricted Subsidiaries. The Company will not sell, and will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell any shares of
Capital Stock of a Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) except (i) to the Company or a
Wholly Owned Restricted Subsidiary, (ii) issuances or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law, (iii) if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary; provided that any Investment in such Person remaining
after giving effect to such issuance or sale would have been permitted to be
made under Section 3.08, if made on the date of such issuance or sale, (iv) to
the extent such shares represent directors' qualifying shares or (v) issuances
or sales of Common Stock of a Restricted Subsidiary that remains a
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Restricted Subsidiary after such transaction, the Net Cash Proceeds from which
are applied in compliance with clause (A) or (B) of Section 3.10.
SECTION 3.17. Repurchase of Securities Upon a Change of Control. Upon
the occurrence of a Change of Control, each Holder shall have the right to
require the repurchase of its Securities by the Company in cash pursuant to the
offer described below (the "Change of Control Offer") at a purchase price equal
to 101% of the principal amount thereof, plus accrued interest (if any) to the
date of purchase (the "Change of Control Payment"). Prior to the mailing of the
notice to Holders provided for in the succeeding paragraph, but in any event
within 30 days following any Change of Control, the Company covenants to (i)
repay in full all indebtedness of the Company that would prohibit the repurchase
of the Securities as provided for in the succeeding paragraph or (ii) obtain any
requisite consents under instruments governing any such indebtedness of the
Company to permit the repurchase of the Securities as provided for in the
succeeding paragraph. The Company shall first comply with the covenant in the
preceding sentence before it shall be required to repurchase Securities pursuant
to this Section 3.17.
Within 30 days of the Change of Control, the Company shall mail a
notice to the Trustee and each Holder stating: (i) that a Change of Control has
occurred (and a brief description of the events resulting in such Change of
Control), that the Change of Control Offer is being made pursuant to Section
3.17 of the Indenture and that all Securities validly tendered will be accepted
for payment; (ii) the purchase price and the expiration date for such Change of
Control Offer (which shall be the date not less than 20 Business Days from the
date such notice is mailed) (the "Change of Control Offer Expiration Date");
(iii) that any Security not tendered will continue to accrue interest pursuant
to its terms; (iv) that, unless the Company defaults in the payment of the
Change of Control Payment, any Security accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest on and after the Change
of Control Payment Date (as defined below); that Holders electing to have any
Security or portion thereof purchased pursuant to the Change of Control Offer
will be required to surrender such Security, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of such Security
completed, to the paying agent at the address specified in the notice prior to
the close of business on the Change of Control Offer Expiration Date; (vi) that
Holders will be entitled to withdraw their election if the paying agent
receives, not later than the close of business on the Change of Control Offer
Expiration Date, a facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Securities delivered for purchase and a
statement that such Holder is withdrawing his election to have such Securities
purchased; and (vii) that Holders whose Securities are being purchased only in
part will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; provided that each Security
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purchased and each new Security issued shall be in a principal amount of $1,000
or integral multiples thereof.
On a date no more than four Business Days after the Change of Control
Offer Expiration Date (the "Change of Control Payment Date"), the Company will:
(i) accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer; (ii) deposit with the paying agent money sufficient to
pay the purchase price of all Securities or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee, all Securities or
portions thereof so accepted together with an Officers' Certificate specifying
the Securities or portions thereof accepted for payment by the Company. The
paying agent shall promptly mail, to the Holders of Securities so accepted,
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Security equal in principal amount
to any unpurchased portion of the Securities surrendered; provided that each
Security purchased and each new Security issued shall be in a principal amount
of $1,000 or integral multiples thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Offer Expiration Date. For purposes of this Section, the
Trustee shall act as paying agent.
The Company will not be required to make a Change of Control Offer if
a third party makes an offer to purchase Securities in the manner, at the times
and otherwise in compliance with the requirements set forth in the Indenture
applicable to the Change of Control Offer to be made by the Company and
purchases all Securities validly tendered and not withdrawn under such offer to
purchase.
The Company will comply with Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and the
Company is required to repurchase the Securities under this Section.
SECTION 3.18. Limitation of Applicability of Certain Covenants if
Securities Rated Investment Grade. The Company's and its Restricted
Subsidiaries' obligations to comply with Sections 3.08, 3.09, 3.10, 3.12, 3.13,
3.14 and 3.16 will terminate if and when the Securities are Investment Grade
Rated.
SECTION 3.19. SEC Reports. (i) So long as any of the Securities
remain outstanding, whether or not the Company is then required to file with the
Commission information, documents or reports pursuant to Section 13 or Section
15(d) of the Exchange Act, the Company will file with the Trustee and the
Commission, in accordance with rules and regulations prescribed from time to
time by the Commission, such of the supplementary and periodic information,
documents and reports which would be required pursuant to such sections if the
Company were
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subject thereto. All obligors on the Securities will comply with Section 314(a)
of the Trust Indenture Act of 1939.
(ii) The Company shall promptly mail copies of all such annual
reports, information, documents and other reports provided to the Trustee
pursuant to Section 3.19(a)(i) hereof to the Holders at their addresses
appearing in the register of Securities maintained by the Registrar. The Company
shall also make such information available to securities analysts and
prospective investors upon request.
(iii) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 3.20. Existence. Subject to Articles Three and Eight of this
Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each such Subsidiary and the rights
(whether pursuant to charter, partnership certificate, agreement, statute or
otherwise), material licenses and franchises of the Company and each such
Subsidiary, provided that the Company shall not be required to preserve any such
right, license or franchise, or the existence of any Restricted Subsidiary, if
the maintenance or preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole.
SECTION 3.21. Payment of Taxes and Other Claims. The Company will pay
or discharge and shall cause each of its Subsidiaries to pay or discharge, or
cause to be paid or discharged, before the same shall become delinquent (a) all
material taxes, assessments and governmental charges levied or imposed upon (i)
the Company or any such Subsidiary, (ii) the income or profits of any such
Subsidiary which is a corporation or (iii) the property of the Company or any
such Subsidiary and (b) all material lawful claims for labor materials and
supplies that, if unpaid, might by law become a lien upon the property of the
Company or any such Subsidiary; provided that the Company shall not be required
to pay of discharge, or cause to be paid or discharged, any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings and for which adequate
reserves have been established.
SECTION 3.22. Maintenance of Properties and Insurance. The Company
will cause all properties used or useful in the conduct of its business or the
business of
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any of its Restricted Subsidiaries, to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided that nothing in this Section
3.22 shall prevent the Company or any such Subsidiary from discontinuing the
use, operation or maintenance of any of such properties or disposing of any of
them, if such discontinuance or disposal is, in the judgment of the Company,
desirable in the conduct of the business of the Company or such Subsidiary.
The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, in such amounts, with such deductibles and by such
methods as shall be customary for corporations similarly situated in the
industry in which the Company or such Restricted Subsidiary, as the case may be,
is then conducting business.
SECTION 3.23. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not (i) at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of or interest on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture and the Company will expressly
waive all benefit or advantage of any such law and (ii) hinder, delay or impede
the execution of any power granted to the Trustee under this Indenture and will
suffer and permit the execution of every such power as though no such law had
been enacted.
ARTICLE 4
REMEDIES OF THE TRUSTEE AND HOLDERS ON EVENT OF DEFAULT
SECTION 4.01. Events of Default. Each of the following constitutes
an "Event of Default":
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(a) default in the payment of principal of, or premium, if any, on
any Security when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise; whether or not such payment is prohibited
by the provisions of Article Nine.
(b) default in the payment of interest on any Security when the same
becomes due and payable, and such default continues for a period of 30 days;
whether or not such payment is prohibited by the provisions of Article Nine;
(c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or the failure to purchase
Securities tendered in a Change of Control Offer or Excess Proceeds Offer in
accordance with Section 3.10 or Section 3.17;
(d) the Company or any Guarantor defaults in the performance of or
breaches any other covenant or agreement in the Indenture or under the
Securities (other than (a), (b) or (c) above) and such default or breach
continues for a period of 60 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
Securities;
(e) there occurs with respect to any issue or issues of Indebtedness
of the Company or any of its Significant Subsidiaries having an outstanding
principal amount of $25 million individually or $50 million in the aggregate for
all such issues of all such Persons, whether such Indebtedness now exists or
shall hereafter be created, (i) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 60 days of such
acceleration and/or (ii) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 60 days of such payment default;
(f) any final judgment or order for the payment of money in excess
of $25 million in the aggregate for all such final judgments or orders against
all such Persons shall be rendered against the Company and/or any of its
Significant Subsidiaries and shall not be paid or discharged, and there shall be
any period of 60 consecutive days following entry of the final judgment or order
that causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged or bonded against all such Persons to
exceed $25 million (in excess of amounts which the Company's insurance carriers
have agreed to pay under applicable policies) during which a stay of enforcement
of such final judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect;
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(g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any of its Significant Subsidiaries or for all or substantially
all of the property and assets of the Company or any of its Significant
Subsidiaries or (C) the winding up or liquidation of the affairs of the Company
or any of its Significant Subsidiaries and, in each case, such decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; or
(h) the Company or any of its Significant Subsidiaries (A) commences
a voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or consents to the entry of an order for relief
in an involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any of its Significant
Subsidiaries or for all or substantially all of the property and assets of the
Company or any of its Significant Subsidiaries or (C) effects any general
assignment for the benefit of creditors.
SECTION 4.02. Acceleration. If an Event of Default (other than an
Event of Default specified in clause (g) or (h) of Section 4.01 that occurs with
respect to the Company) occurs and is continuing under the Indenture, the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Securities then outstanding, by written notice to the Company (and to the
Trustee if such notice is given by the Holders (the "Acceleration Notice")),
may, and the Trustee at the request of such Holders shall, declare the principal
of, premium, if any, and accrued interest on the Securities to be immediately
due and payable. Upon a declaration of acceleration, such principal of, premium,
if any, and accrued interest shall be immediately due and payable; provided,
however, that if there are any amounts outstanding under the Credit Agreement,
such declaration shall not become effective until the earlier of (i) an
acceleration of the Indebtedness under the Credit Agreement and (ii) 5 Business
Days after receipt by the Company and the Bank Agent of such Acceleration
Notice. In the event of a declaration of acceleration because an Event of
Default set forth in clause (f) of Section 4.01 has occurred and is continuing,
such declaration of acceleration shall be automatically rescinded and annulled
if the event of default triggering such Event of Default pursuant to clause (e)
of Section 4.01 shall be remedied or cured by the Company or the relevant
Significant Subsidiary or waived by the holders of the relevant Indebtedness
within 60 days after the declaration of acceleration with respect thereto. If an
Event of Default specified in clause (g) or (h) of Section 4.01 occurs with
respect to the Company, the principal of, premium, if any, and accrued interest
on the Securities then outstanding shall ipso facto become
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and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder.
SECTION 4.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal or interest on the Securities or to enforce the performance of any
provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies are cumulative
to the extent permitted by law.
SECTION 4.04. Waiver of Past Defaults. The Holders of at least a
majority in principal amount of the outstanding Securities by written notice to
the Company and to the Trustee, may waive all past defaults and rescind and
annul a declaration of acceleration and its consequences if (i) all existing
Events of Default, other than the nonpayment of the principal of, premium, if
any, and interest on the Securities that have become due solely by such
declaration of acceleration, have been cured or waived and (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction. Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 4.05. Control by Majority. The Holders of at least a majority
in aggregate principal amount of the outstanding Securities may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee. However, the
Trustee may refuse to follow any direction that conflicts with law or the
Indenture, that may involve the Trustee in personal liability, or that the
Trustee determines in good faith may be unduly prejudicial to the rights of
Holders of Securities not joining in the giving of such direction and may take
any other action it deems proper that is not inconsistent with any such
direction received from Holders of Securities.
SECTION 4.06. Limitation on Suits. A Holder may not pursue any
remedy with respect to the Indenture or the Securities unless:
(i) the Holder gives the Trustee written notice of a continuing Event
of Default;
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(ii) the Holders of at least 25% in aggregate principal amount of
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(iii) such Holder or Holders offer the Trustee indemnity satisfactory
to the Trustee against any costs, liability or expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(v) during such 60-day period, the Holders of at least a majority in
aggregate principal amount of the outstanding Securities do not give the Trustee
a direction that is inconsistent with the request.
SECTION 4.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal, premium, if any, and interest on the Security, on or after
the respective due dates expressed in the Security, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of the Holder.
SECTION 4.08. Collection Suit by Trustee. If an Event of Default
specified in Section 4.01(a) or (b) hereof occurs and is continuing, the Trustee
is authorized to recover judgment in its own name and as trustee of an express
trust against the Company or any other obligor for the whole amount of
principal, premium, if any, and interest remaining unpaid on the Securities and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover amounts due the Trustee under
Section 5.07 hereof, including the costs and expenses of collection, including
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
SECTION 4.09. Trustee May File Proofs of Claim. The Trustee is
authorized to file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and the Holders allowed in any judicial
proceedings relative to the Company (or any other obligor upon the Securities),
its creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims and any custodian in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee, and in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 5.07
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hereof. To the extent that the payment of any such compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 5.07 hereof out of the estate in any such
proceeding, shall be denied for any reason, payment of the same shall be secured
by a Lien on, and shall be paid out of, any and all distributions, dividends,
money, securities and other properties which the Holders may be entitled to
receive in such proceeding whether in liquidation or under any plan of
reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 4.10. Priorities. If the Trustee collects any money pursuant
to this Article, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 5.07, including payment of all compensation, expense and liabilities
incurred, and all advances made, by the Trustee and the costs and expenses of
collection;
Second: to Holders for amounts due and unpaid on the Securities for
principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Securities
for principal, premium, if any and interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 4.10 upon five Business Days prior notice to
the Company.
SECTION 4.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as a Trustee, a court in its discretion
may require the filing by any party litigant in the suit of an undertaking to
pay the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees and expenses, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 4.06 hereof, or a
suit by Holders of more than 10% in aggregate principal amount of the then
outstanding Securities.
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ARTICLE 5
CONCERNING THE TRUSTEE
SECTION 5.01. Duties and Responsibilities of the Trustee; During
Default; Prior to Default. The Trustee, prior to the occurrence of a Default and
after the curing or waiving of any Default which may have occurred, undertakes
to perform such duties and only such duties as are specifically set forth in
this Indenture. In case an Event of Default has occurred (which has not been
cured or waived) the Trustee shall exercise such of the rights and powers vested
in it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own wilful misconduct, except that
(a) prior to the occurrence of an Event of Default of which the
Trustee has actual notice and after the curing or waiving of all such Events of
Default which may have occurred:
(i) the duties and obligations of the Trustee shall be determined
solely by the express provisions of this Indenture, and the Trustee
shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
statements, certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case of
any such statements, certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Indenture
(but need not confirm or investigate the accuracy of the facts stated
therein);
(b) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction of
the holders
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of not less than a majority in principal amount of the Securities at the time
outstanding relating to the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee, under this Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there shall be reasonable ground for believing that the
repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.
This Section 5.01 is in furtherance of and subject to Sections 315
and 316 of the Trust Indenture Act of 1939.
SECTION 5.02. Certain Rights of the Trustee. In furtherance of and
subject to the Trust Indenture Act of 1939, and subject to Section 5.01:
(a) the Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any resolution, Officers' Certificate or
any other certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, note, coupon, security or other paper or
document believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless other
evidence in respect thereof be herein specifically prescribed); and any
resolution of the Board of Directors may be evidenced to the Trustee by a copy
thereof certified by the secretary or an assistant secretary of the Company;
(c) the Trustee may consult with counsel of its selection and any
advice or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be taken by it
hereunder in good faith and in accordance with such advice or Opinion of
Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
trusts or powers vested in it by this Indenture at the request, order or
direction of any of the Securityholders pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted
by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture;
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(f) prior to the occurrence of a Default hereunder, of which the
Trustee has actual notice, and after the curing or waiving of all Defaults, the
Trustee shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, appraisal, bond, debenture, note,
coupon, security, or other paper or document unless requested in writing so to
do by the holders of not less than a majority in aggregate principal amount of
the Securities then outstanding; provided that, if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities likely to
be incurred by it in the making of such investigation is, in the opinion of the
Trustee, not reasonably assured to the Trustee by the security afforded to it by
the terms of this Indenture, the Trustee may require reasonable indemnity
against such expenses or liabilities as a condition to proceeding; the
reasonable expenses of every such examination shall be paid by the Company or,
if paid by the Trustee or any predecessor trustee, shall be repaid promptly by
the Company upon demand;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys not regularly in its employ and the Trustee shall not be responsible
for any misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder; and
(h) The Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of the Trustee,
and such notice references the Securities and this Indenture.
SECTION 5.03. Trustee Not Responsible for Recitals, Disposition of
Securities or Application of Proceeds Thereof. The recitals contained herein and
in the Securities, except the Trustee's certificates of authentication, shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representation as to the validity or sufficiency of this Indenture or of the
Securities. The Trustee shall not be accountable for the use or application by
the Company of any of the Securities or of the proceeds thereof.
SECTION 5.04. Trustee and Agents May Hold Securities; Collections,
etc. The Trustee or any agent of the Company or the Trustee, in its individual
or any other capacity, may become the owner or pledgee of Securities with the
same rights it would have if it were not the Trustee or such agent and may
otherwise deal with the Company and receive, collect, hold and retain
collections from the Company with
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the same rights it would have if it were not the Trustee or such agent. However,
subject to Section 5.13 hereof, the Trustee will comply with Sections 310(b) and
311 of the Trust Indenture Act of 1939.
SECTION 5.05. Moneys Held by Trustee. Subject to the provisions of
Section 11.06 hereof, all moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by mandatory provisions of law. Neither the Trustee nor any agent of
the Company or the Trustee shall be under any liability for interest on any
moneys received by it hereunder.
SECTION 5.06. Notice of Default. If any Default or any Event of
Default occurs and is continuing and if such Default or Event of Default is
actually known to a Responsible Officer of the Trustee, the Trustee shall mail
to each Holder in the manner and to the extent provided in Trust Indenture Act
of 1939 Section 313(c) notice of the Default or Event of Default within 90 days
after it occurs, unless such Default or Event of Default has been cured;
provided, however, that, except in the case of a default in the payment of the
principal of, premium, if any, or interest on any Security, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determine that the withholding of such
notice is in the interest of the Holders.
SECTION 5.07. Compensation and Indemnification of Trustee and Its
Prior Claim. The Company covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, such compensation as shall be agreed
in writing between the Company and the Trustee (which shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust) and the Company covenants and agrees to pay or reimburse the Trustee and
each predecessor Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by or on behalf of it in accordance
with any of the provisions of this Indenture (including the reasonable
compensation and the expenses and disbursements of its counsel and of all agents
and other persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or bad faith. The
Company also covenants to indemnify the Trustee and each predecessor Trustee
for, and to hold it harmless against, any and all loss, liability, damage, claim
or expense, including taxes (other than taxes based on the income of the
Trustee) incurred without negligence or bad faith on its part, arising out of or
in connection with the acceptance or administration of this Indenture or the
trusts hereunder and its duties hereunder, including the costs and expenses of
defending itself against or investigating any claim of liability in the
premises. The obligations of the Company under this Section to compensate and
indemnify the Trustee and each predecessor Trustee and to pay or reimburse the
Trustee and each
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predecessor Trustee for expenses, disbursements and advances shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. Such additional indebtedness shall be a senior
claim to that of the Securities upon all property and funds held or collected by
the Trustee as such, except funds held in trust for the benefit of the holders
of particular Securities, and the Securities are hereby subordinated to such
senior claim.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 4.01(g) or Section 4.01(h), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
SECTION 5.08. Right of Trustee to Rely on Officers' Certificate, etc.
Subject to Sections 5.01 and 5.02, whenever in the administration of the trusts
of this Indenture the Trustee shall deem it necessary or desirable that a matter
be proved or established prior to taking or suffering or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or bad faith on the
part of the Trustee, be deemed to be conclusively proved and established by an
Officers' Certificate delivered to the Trustee, and such certificate, in the
absence of negligence or bad faith on the part of the Trustee, shall be full
warrant to the Trustee for any action taken, suffered or omitted by it under the
provisions of this Indenture upon the faith thereof.
SECTION 5.09. Persons Eligible for Appointment as Trustee. The
Trustee hereunder shall at all times be a corporation having a combined capital
and surplus of at least $100,000,000, and which is eligible in accordance with
the provisions of Section 310(a) of the Trust Indenture Act of 1939. If such
corporation publishes reports of condition at least annually, pursuant to law or
to the requirements of a Federal, State or District of Columbia supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
SECTION 5.10. Resignation and Removal; Appointment of Successor
Trustee. (a) The Trustee may at any time resign by giving written notice of
resignation to the Company. Upon receiving such notice of resignation, the
Company shall promptly appoint a successor trustee by written instrument in
duplicate, executed by authority of the Board of Directors, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor trustee. If no successor trustee shall have been so appointed and have
accepted appointment within 30 days after the mailing of such notice of
resignation, the resigning trustee may petition, at the expense of the Company,
any court of competent jurisdiction for the appointment of
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a successor trustee, or any Securityholder who has been a bona fide holder of a
Security or Securities for at least six months may, on behalf of himself and all
others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of
Section 310(b) of the Trust Indenture Act of 1939, after written
request therefor by the Company or by any Securityholder who has been
a bona fide holder of a Security or Securities for at least six
months; or
(ii) the Trustee shall cease to be eligible in accordance with
the provisions of Section 5.09 and shall fail to resign after written
request therefor by the Company or by any such Securityholder; or
(iii) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver or liquidator of the
Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or
liquidation;
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors of the Company, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee, or,
subject to Section 315(e) of the Trust Indenture Act of 1939, any Securityholder
who has been a bona fide holder of a Security or Securities for at least six
months may on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, remove the Trustee and appoint a
successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Securities at the time outstanding may at any time remove the Trustee and
appoint a successor trustee by delivering to the Trustee so removed, to the
successor trustee so appointed and to the Company the evidence provided for in
Section 6.01 of the action in that regard taken by the Securityholders.
If no successor trustee shall have been so appointed and have
accepted appointment 30 days after the mailing of such notice of removal, the
trustee being removed may petition, at the expense of the Company, any court of
competent
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jurisdiction for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
appoint a successor trustee.
(d) Any resignation or removal of the Trustee and any appointment of
a successor trustee pursuant to any of the provisions of this Section 5.10 shall
become effective upon acceptance of appointment by the successor trustee as
provided in Section 5.11.
SECTION 5.11. Acceptance of Appointment by Successor Trustee. Any
successor trustee appointed as provided in Section 5.10 shall execute and
deliver to the Company and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, upon payment of its charges then
unpaid, the trustee ceasing to act shall, subject to Section 11.06, pay over to
the successor trustee all moneys at the time held by it hereunder and shall
execute and deliver an instrument transferring to such successor trustee all
such rights, powers, duties and obligations. Upon request of any such successor
trustee, the Company shall execute any and all instruments in writing for more
fully and certainly vesting in and confirming to such successor trustee all such
rights and powers. Any trustee ceasing to act shall, nevertheless, retain a
prior claim upon all property or funds held or collected by such trustee to
secure any amounts then due it pursuant to the provisions of Section 5.07.
Upon acceptance of appointment by a successor trustee as provided in
this Section 5.11, the Company shall mail notice thereof by first-class mail to
the holders of Securities at their last addresses as they shall appear in the
Security Register. If the acceptance of appointment is substantially
contemporaneous with the resignation, then the notice called for by the
preceding sentence may be combined with the notice called for by Section 5.10.
If the Company fails to mail such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Company.
SECTION 5.12. Merger, Conversion, Consolidation or Succession to
Business of Trustee. Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or to which the Trustee's assets
may be sold, or any corporation resulting from any merger, conversion,
consolidation or sale to which the Trustee shall be a party or by which the
Trustee's property may be bound, or any corporation succeeding to all or
substantially all the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided that such
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corporation shall be eligible under the provisions of Section 5.09, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to
the trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor Trustee and deliver such
Securities so authenticated; and, in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor Trustee; and in all such cases such certificate shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have; provided, that the right to
adopt the certificate of authentication of any predecessor Trustee or to
authenticate Securities in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
SECTION 5.13. Preferential Collection of Claims. Reference is made to
Section 311 of the Trust Indenture Act of 1939. For purposes of Section 311(b)
(4) and (6) of such Act, the following terms shall mean:
(a) "cash transaction" means any transaction in which full payment
for goods or securities sold is made within seven days after delivery of the
goods or securities in currency or in checks or other orders drawn upon banks or
bankers and payable upon demand; and
(b) "self-liquidating paper" means any draft, bill of exchange,
acceptance or obligation which is made, drawn, negotiated or incurred by the
Company for the purpose of financing the purchase, processing, manufacturing,
shipment, storage or sale of goods, wares or merchandise and which is secured by
documents evidencing title to, possession of, or a lien upon, the goods, wares
or merchandise or the receivables or proceeds arising from the sale of the
goods, wares or merchandise previously constituting the security, provided the
security is received by the Trustee simultaneously with the creation of the
creditor relationship with the Company arising from the making, drawing,
negotiating or incurring of the draft, bill of exchange, acceptance or
obligation.
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ARTICLE 6
CONCERNING THE HOLDERS
SECTION 6.01. Evidence of Action Taken by Holders. Any request,
demand, authorization, direction, notice, consent, waiver or other action
provided by this Indenture to be given or taken by Securityholders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Securityholders in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee. Proof of execution of any instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture and (subject to
Sections 5.01 and 5.02) conclusive in favor of the Trustee and the Company, if
made in the manner provided in this Article.
SECTION 6.02. Proof of Execution of Instruments and of Holding of
Securities; Record Date. Subject to Sections 5.01 and 5.02, the execution of any
instrument by a Securityholder or his agent or proxy may be proved in accordance
with such reasonable rules and regulations as may be prescribed by the Trustee
or in such manner as shall be satisfactory to the Trustee. The holding of
Securities shall be proved by the Security register or by a certificate of the
Registrar thereof. The Company may set a record date for purposes of determining
the identity of holders of Securities entitled to vote or consent to any action
referred to in Section 6.01, which record date may be set at any time or from
time to time by notice to the Trustee, for any date or dates (in the case of any
adjournment or resolicitation) not more than 60 days nor less than five days
prior to the proposed date of such vote or consent, and thereafter,
notwithstanding any other provisions hereof, only holders of Securities of
record on such record date shall be entitled to so vote or give such consent or
to withdraw such vote or consent.
SECTION 6.03. Securities Owned by Company Deemed Not Outstanding. In
determining whether the holders of the requisite aggregate principal amount of
Securities have concurred in any direction, consent or waiver under this
Indenture, Securities which are owned by the Company or any other obligor on the
Securities or by any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or any other obligor
on the Securities shall be disregarded and deemed not to be outstanding for the
purpose of any such determination, except that for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, consent
or waiver only Securities which a Responsible Officer of the Trustee actually
knows are so owned shall be so disregarded. Securities so owned which have been
pledged in good faith may be regarded as outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not
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the Company or any other obligor upon the Securities or any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or any other obligor on the Securities. In case of a
dispute as to such right, the advice of counsel shall be full protection in
respect of any decision made by the Trustee in accordance with such advice. Upon
request of the Trustee, the Company shall furnish to the Trustee promptly an
Officers' Certificate listing and identifying all Securities, if any, known by
the Company to be owned or held by or for the account of any of the
above-described persons; and, subject to Sections 5.01 and 5.02, the Trustee
shall be entitled to accept such Officers' Certificate as conclusive evidence of
the facts therein set forth and of the fact that all Securities not listed
therein are outstanding for the purpose of any such determination.
SECTION 6.04. Right of Revocation of Action Taken. At any time prior
to (but not after) the evidencing to the Trustee, as provided in Section 6.01,
of the taking of any action by the holders of the percentage in aggregate
principal amount of the Securities specified in this Indenture in connection
with such action, any holder of a Security the serial number of which is shown
by the evidence to be included among the serial numbers of the Securities the
Holders of which have consented to such action may, by filing written notice at
the Corporate Trust Office and upon proof of holding as provided in this
Article, revoke such action so far as concerns such Security. Except as
aforesaid any such action taken by the holder of any Security shall be
conclusive and binding upon such holder and upon all future holders and owners
of such Security and of any Securities issued in exchange or substitution
therefor, irrespective of whether or not any notation in regard thereto is made
upon any such Security. Any action taken by the holders of the percentage in
aggregate principal amount of the Securities specified in this Indenture in
connection with such action shall be conclusively binding upon the Company, the
Trustee and the holders of all the Securities.
ARTICLE 7
SUPPLEMENTAL INDENTURES
SECTION 7.01. Supplemental Indentures Without Consent of Holders.
The Company, the Guarantors (if any) and the Trustee may amend or supplement
this Indenture or the Securities without the consent of any Holder:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
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(iii) to provide for any supplemental indenture required pursuant
to Section 3.15 hereof;
(iv) to provide for the assumption of the Company's obligations
to the Holders of the Securities in the case of a merger,
consolidation or sale of assets pursuant to Article Eight hereof;
(v) to make any change that would provide any additional rights
or benefits to the Holders of the Securities or that does not
adversely affect the legal rights hereunder of any such Holder; or
(vi) to comply with requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the
Trust Indenture Act of 1939.
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture, and upon receipt
by the Trustee of the documents described in Section 7.04 hereof, the Trustee
shall join with the Company and the Guarantors (if any), in the execution of any
supplemental indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations which may be
therein contained, but the Trustee shall not be obligated to enter into such
supplemental indenture which affects its own rights, duties or immunities under
this Indenture or otherwise.
SECTION 7.02. With Consent of Holders. Except as provided in the next
succeeding paragraphs, this Indenture or the Securities may be amended or
supplemented with the consent of the Holders of at least a majority in aggregate
principal amount of the Securities then outstanding (including consents obtained
in connection with a tender offer or exchange offer for such Securities), and
any existing default or compliance with any provision of this Indenture or the
Securities may be waived with the consent of the Holders of a majority in
aggregate principal amount of the then outstanding Securities (including
consents obtained in connection with a tender offer or exchange offer for such
Securities).
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence satisfactory to the Trustee of the consent
of the Holders as aforesaid, and upon receipt by the Trustee of the documents
described in Section 7.04 hereof, the Trustee shall join with the Company and
the Guarantors (if any), in the execution of such supplemental indenture unless
such supplemental indenture affects the Trustee's own rights, duties or
immunities under this Indenture
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or otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Holders under this
Section 7.02 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture or waiver.
Subject to Sections 4.04 and 4.07 hereof, the Holders of a majority in aggregate
principal amount of the Securities then outstanding may waive compliance in a
particular instance by the Company with any provision of this Indenture or the
Securities. Without the consent of each Holder affected, however, an amendment
or waiver may not (with respect to any Security held by a non-consenting
Holder):
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Security;
(ii) reduce the principal amount of, or premium, if any, or interest
on, any Security;
(iii) reduce any amount payable on redemption of the Securities or
upon the occurrence on an Event of Default or reduce the Change of Control
Payment or the Excess Proceeds Offer Payment;
(iv) change the place or currency of payment of principal of,
premium, if any, or interest on, any Security;
(v) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption, on or
after the redemption date) of any Security;
(vi) reduce the above-stated percentage of outstanding Securities the
consent of whose Holders is necessary to modify or amend the Indenture;
(vii) waive a default in the payment of principal of, premium, if
any, or interest on the Securities;
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(viii) reduce the percentage or aggregate principal amount of
outstanding Securities the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults;
(ix) modify or change any provision of the Indenture affecting the
ranking of the Securities or the Subsidiary Guarantee in a manner adverse to the
holders of the Securities; or
(x) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or the Indenture other than in accordance with the
provisions of the Indenture, or amend or modify any provision relating to such
release.
Neither the Company nor any of its Subsidiaries will, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise to any Holder of any notes for or as an inducement to
any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Securities unless such consideration is offered to be paid or
agreed to be paid to all Holders of the Securities that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
SECTION 7.03. Effect of Supplemental Indenture. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith and
the respective rights, limitations of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Company and the holders of Securities
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
SECTION 7.04. Documents to Be Given to Trustee; Compliance with TIA.
The Trustee, subject to the provisions of Sections 5.01 and 5.02, may receive an
Officers' Certificate and an Opinion of Counsel as conclusive evidence that any
such supplemental indenture complies with the applicable provisions of this
Indenture. Every such supplemental indenture shall comply with the TIA.
SECTION 7.05. Notation on Securities in Respect of Supplemental
Indentures. Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to the provisions of this Article may bear a
notation approved by the Trustee as to form (but not as to substance) as to any
matter provided for by such supplemental indenture or as to any action taken at
any such meeting. If the Company or the Trustee shall so determine, new
Securities so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any
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modification of this Indenture contained in any such supplemental indenture may
be prepared by the Company, authenticated by the Trustee and delivered in
exchange for the Securities then outstanding.
ARTICLE 8
CONSOLIDATION, MERGER OR SALE OF ASSETS
SECTION 8.01. Consolidation, Merger or Sale of Assets. The Company
shall not consolidate with, merge with or into, or sell, convey, transfer, lease
or otherwise dispose of all or substantially all of its property and assets (as
an entirety or substantially an entirety in one transaction or a series of
related transactions) to, any Person nor permit any Person to merge with or into
the Company unless:
(i) the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which
the Company is merged or that acquired or leased such property and
assets of the Company shall be a corporation organized and validly
existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, all of the
obligations of the Company on all of the Securities and under the
Indenture;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a pro
forma basis, but not including the effect of any purchase accounting
adjustments, the Company, or any Person becoming the successor
obligor of the Securities shall have a Consolidated Net Worth at
least equal to the Consolidated Net Worth of the Company immediately
prior to such transactions, provided that this clause (iii) shall not
apply to a consolidation or merger with or into a Wholly Owned
Restricted Subsidiary with a positive net worth; provided that, in
connection with any such merger or consolidation, no consideration
(other than Common Stock in the surviving Person or the Company)
shall be issued or distributed to the stockholders of the Company;
(iv) immediately after giving effect to such transaction on a pro
forma basis, the Company, or any Person becoming the successor
obligor of the Securities could Incur at least $1.00 of Indebtedness
under the first
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paragraph of Section 3.09; provided that this clause (iv) shall not
apply to a consolidation or merger with or into a Wholly Owned
Restricted Subsidiary with a positive net worth; provided that, in
connection with any such merger or consolidation, no consideration
(other than Common Stock in the surviving Person or the Company)
shall be issued or distributed to the stockholders of the Company;
and
(v) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clauses (iii) and (iv) above) and opinion of counsel, in each case
stating that such consolidation, merger or transfer and such
supplemental indenture complies with this provision and that all
conditions precedent provided for herein relating to such transaction
have been complied with; provided that clauses (iii) and (iv) above
do not apply if, in the good faith determination of the Board of
Directors of the Company, whose determination shall be evidenced by a
Board Resolution, the principal purpose of such transaction is to
change the state of incorporation of the Company; and provided
further that any such transaction shall not have as one of its
purposes the evasion of the foregoing limitations.
SECTION 8.02. Successor Corporation Substituted. Upon any
consolidation or merger, or any sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 8.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be substituted for (so that from and after the date of such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation), and may exercise every right and
power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein.
SECTION 8.03. Opinion of Counsel to Trustee. The Trustee, subject to
the provisions of Sections 5.01 and 5.02, may receive an Opinion of Counsel as
conclusive evidence that any such consolidation, merger, conveyance, sale,
transfer, lease, exchange or other disposition complies with the applicable
provisions of this Indenture.
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ARTICLE 9
SUBORDINATION
SECTION 9.01. Agreement to Subordinate. The Company agrees, and each
Holder by accepting a Security agrees, any provision of this Indenture or the
Securities to the contrary notwithstanding, that all Obligations owed under and
in respect of the Securities are subordinated in right of payment, to the extent
and in the manner provided in this Article Nine, to the prior payment in full in
cash or cash equivalents of all Senior Indebtedness of the Company, and that the
subordination of the Securities pursuant to this Article Nine is for the benefit
of all holders of all Senior Indebtedness of the Company, whether outstanding on
the Issue Date or incurred thereafter.
SECTION 9.02. Liquidation; Dissolution; Bankruptcy. (a) Upon any
payment or distribution of assets or securities of the Company of any kind or
character, whether in cash, property or securities, upon any dissolution or
winding up or total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due or to become due upon all Senior Indebtedness
(including any interest accruing on or after, or which would accrue but for, an
event of bankruptcy, whether or not such interest is an allowed claim
enforceable against the debtor under the United States Bankruptcy Code) shall
first be paid in full, in cash or cash equivalents, before the Holders of the
Securities or the Trustee on behalf of the Holders of the Securities shall be
entitled to receive any payment by the Company on account of Senior Subordinated
Obligations or any payment to acquire any of the Securities for cash, property
or securities, or any distribution with respect to the Securities of any cash,
property or securities. Before any payment may be made by, or on behalf of, the
Company on any Senior Subordinated Obligations, upon any such dissolution,
winding up, liquidation or reorganization, any payment or distribution of assets
or securities of the Company of any kind or character, whether in cash, property
or securities, to which the Holders of the Securities or the Trustee on behalf
of the Holders of the Securities would be entitled, but for the subordination
provisions of the Indenture, shall be made by the Company or by any receiver,
trustee in bankruptcy, liquidating trustee, agent or other similar Person making
such payment or distribution or by the Holders of the Securities or the Trustee
if received by them or it, directly to the holders of the Senior Indebtedness
(pro rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their representatives or to any trustee or
trustees under any indenture pursuant to which any such Senior Indebtedness may
have been issued, as their respective interests appear, to the extent necessary
to pay all such Senior Indebtedness in full, in cash or cash equivalents after
giving effect to any concurrent payment, distribution or provision therefor to
or for the holders of such Senior Indebtedness. However,
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notwithstanding the foregoing, Holders of Securities may receive securities so
long as (i) the Securities are not treated in any case or proceeding or other
event described above as part of the same class of claims as the Senior
Indebtedness or any class of claims on a parity with or senior to the Senior
Indebtedness for any payment or distribution, (ii) such securities are
subordinated at least to the same extent as the Securities to Senior
Indebtedness of the Company and any securities issued in exchange for such
Senior Indebtedness and (iii) such securities are authorized by an order or
decree of a court of competent jurisdiction in a reorganization proceeding under
any applicable bankruptcy, insolvency or similar law which gives effect to the
subordination of the Securities to Senior Indebtedness in a manner and with an
effect which would be required if this sentence were not included in this
paragraph.
(b) Notwithstanding anything to the contrary in this Section 9.02,
Holders of Securities may continue to receive payments from the trust
established pursuant to Section 11.04.
SECTION 9.03. Default on Designated Senior Indebtedness. No direct or
indirect payment by or on behalf of the Company of Senior Subordinated
Obligations, whether pursuant to the terms of the Securities or upon
acceleration or otherwise, shall be made if, at the time of such payment, there
exists a default in the payment of all or any portion of the obligations under
or with respect to any Senior Indebtedness of the Company and such default shall
not have been cured or waived or the benefits of this sentence waived by or on
behalf of the holders of such Senior Indebtedness. In addition, during the
continuance of any other event of default with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated, upon
receipt by the Trustee of written notice from the trustee or other
representative for the holders of such Designated Senior Indebtedness (or the
holders of at least a majority in principal amount of such Designated Senior
Indebtedness then outstanding), no payment of Senior Subordinated Obligations
may be made by or on behalf of the Company upon or in respect of the Securities
for a period (a "Payment Blockage Period") commencing on the date of receipt of
such notice and ending 179 days thereafter (unless, in each case, such Payment
Blockage Period shall be terminated (i) by written notice to the Trustee from
such trustee of, or other representatives for, such holders or (ii) by such
event of default having been cured or waived or otherwise ceasing to exist or
(iii) by payment in full in cash or cash equivalents of such Designated Senior
Indebtedness). Not more than one Payment Blockage Period may be commenced with
respect to the Securities during any period of 360 consecutive days.
Notwithstanding anything in the Indenture to the contrary, there must be 180
consecutive days in any 360-day period in which no Payment Blockage Period is in
effect. No event of default that existed or was continuing (it being
acknowledged that any subsequent action that would give rise to an event of
default pursuant to any provision under which an event of default previously
existed or was continuing shall constitute a new event of default for this
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purpose) on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period shall be, or shall be made, the basis for the commencement of a second
Payment Blockage Period by the representative for, or the holders of, such
Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default shall have been cured or waived
for a period of not less than 90 consecutive days.
To the extent any payment of Senior Indebtedness (whether by or on
behalf of the Company, as proceeds of security or enforcement of any right of
setoff or otherwise) is declared to be fraudulent or preferential, set aside or
required to be paid to any receiver, trustee in bankruptcy, liquidating trustee,
agent or other similar Person under any bankruptcy, insolvency, receivership,
fraudulent conveyance or similar law, then if such payment is recovered by, or
paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent
or other similar Person, the Senior Indebtedness or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred. To the extent the obligation to repay any Senior
Indebtedness is declared to be fraudulent, invalid, or otherwise set aside under
any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then the obligation so declared fraudulent, invalid or otherwise set aside (and
all other amounts that would come due with respect thereto had such obligation
not been so affected) shall be deemed to be reinstated and outstanding as Senior
Indebtedness for all purposes hereof as if such declaration, invalidity or
setting aside had not occurred.
SECTION 9.04. When Distributions Must Be Paid Over. If the Company
shall make any payment to the Trustee on account of the principal of, or
premium, if any, or interest on, the Securities, or the Holders shall receive
from any source any payment on account of the principal of, premium, if any, or
interest on, the Securities or any Obligation in respect of the Securities, at a
time when such payment is prohibited by this Article Nine, the Trustee or such
Holders shall hold such payment in trust for the benefit of, and shall pay over
and deliver to, the holders of the Company's Senior Indebtedness (pro rata as to
each of such holders on the basis of the respective amounts of such Senior
Indebtedness held by them) or their representative, as their respective
interests may appear, for application to the payment of all outstanding Senior
Indebtedness of the Company until all such Senior Indebtedness has been paid in
full in cash or cash equivalents, after giving effect to all other payments or
distributions to, or provisions made for, the holders of the Company's Senior
Indebtedness.
With respect to the holders of Senior Indebtedness of the Company,
the Trustee undertakes to perform only such obligations on its part as are
specifically set forth in this Article Nine, and no implied covenants or
obligations with respect to any
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holders of the Company's Senior Indebtedness shall be read into this Indenture
against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty
to the holders of the Company's Senior Indebtedness, and shall not be liable to
any holders of such Senior Indebtedness if the Trustee shall pay over or
distribute to, or on behalf of, Holders or the Company or any other Person,
money or assets to which any holders of such Senior Indebtedness are entitled
pursuant to this Article Nine, except if such payment is made at a time when a
Responsible Officer has actual knowledge that the terms of this Article Nine
prohibit such payment.
SECTION 9.05. Notice. Neither the Trustee nor the paying agent shall
at any time be charged with the knowledge of the existence of any facts that
would prohibit the making of any payment to or by the Trustee or paying agent
under this Article Nine unless and until the Trustee or paying agent shall have
received written notice thereof from the Company or one or more holders of the
Company's Senior Indebtedness or a representative of any holders of such Senior
Indebtedness; and, prior to the receipt of any such written notice, the Trustee
or paying agent shall be entitled to assume conclusively that no such facts
exist; provided that if a Responsible Officer of the Trustee shall not have
received the notice provided for in this Section 9.05 at least one Business Days
prior to the date such payment is due pursuant to the terms hereof, then,
notwithstanding anything herein to the contrary, the Trustee shall have full
power and authority to make such payment and shall not be affected by any notice
to the contrary which may be received by it within one Business Day prior to
such date (it being understood that nothing contained in this Section 9.05 shall
limit the rights of the holders of the Company's Senior Indebtedness to recover
any payment pursuant to Section 9.04). The Trustee shall be entitled to rely on
the delivery to it of written notice by a Person representing itself to be a
holder of the Company's Senior Indebtedness (or a representative thereof) to
establish that such notice has been given. In the event that the Trustee
determines in good faith that further evidence is required with respect to the
right of any person as a holder of Senior Indebtedness to participate in any
payment or distribution pursuant to this Article, the Trustee may request such
person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of Senior Indebtedness held by such person, the extent to which such
person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such person under this Article, and if such
evidence is not furnished, the Trustee may defer any payment which it may be
required to make for the benefit of such person pursuant to the terms of this
Indenture pending judicial determination as to the rights of such person to
receive such payment.
The Company shall promptly notify the Trustee and the paying agent in
writing of any facts it knows that would cause a payment of principal of,
premium, if any, or interest on, the Securities or any other Obligation in
respect of the Securities to violate this Article Nine, but failure to give such
notice shall not affect
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the subordination of the Securities to the Senior Indebtedness of the Company
provided in this Article Nine or the rights of holders of such Senior
Indebtedness under this Article Nine.
SECTION 9.06. Subrogation. After all Senior Indebtedness of the
Company has been paid in full in cash or cash equivalents and until the
Securities are paid in full, Holders shall be subrogated (equally and ratably
with all other Indebtedness pari-passu with the Securities) to the rights of
holders of such Senior Indebtedness to receive distributions applicable to such
Senior Indebtedness to the extent that distributions otherwise payable to the
Holders have been applied to the payment of such Senior Indebtedness. A
distribution made under this Article Nine to holders of the Company's Senior
Indebtedness that otherwise would have been made to Holders is not, as between
the Company and Holders, a payment by the Company on its Senior Indebtedness.
SECTION 9.07. Relative Rights. This Article Nine defines the relative
rights of Holders and holders of the Company's Senior Indebtedness. Nothing in
this Indenture shall: (1) impair, as between the Company and Holders, the
Company's Obligations, which are absolute and unconditional, to pay principal
of, premium, if any, and interest on the Securities in accordance with their
terms; (2) affect the relative rights of Holders and the Company's creditors
other than their rights in relation to holders of the Company's Senior
Indebtedness; or (3) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the rights of
holders of the Company's Senior Indebtedness to receive distributions and
payments otherwise payable to Holders.
The failure to make a payment on account of principal of or interest
on the Securities by reason of any provision of this Article Nine shall not be
construed as preventing the occurrence of an Event of Default under Section
4.01.
SECTION 9.08. The Company and Holders May Not Impair Subordination.
(a) No right of any holder of the Company's Senior Indebtedness to enforce the
subordination as provided in this Article Nine shall at any time or in any way
be prejudiced or impaired by any act or failure to act by the Company or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture or the Securities or any other agreement regardless of any knowledge
thereof with which any such holder may have or be otherwise charged.
(b) Without in any way limiting Section 9.08(a), the holders of any
Senior Indebtedness of the Company may, at any time and from time to time to the
extent not otherwise prohibited by this Indenture, without the consent of or
notice to any Holders, without incurring any liabilities to any Holder and
without impairing or releasing the subordination and other benefits provided in
this Indenture or the
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Holders' obligations to the holders of such Senior Indebtedness, even if any
Holder's right of reimbursement or subrogation or other right or remedy is
affected, impaired or extinguished thereby, do any one or more of the following:
(i) amend, renew, exchange, extend, modify, increase or supplement in any manner
such Senior Indebtedness or any instrument evidencing or guaranteeing or
securing such Senior Indebtedness or any agreement under which such Senior
Indebtedness is outstanding (including, but not limited to, changing the manner,
place or terms of payment or changing or extending the time of payment of, or
renewing, exchanging, amending, increasing or altering, (1) the terms of such
Senior Indebtedness, (2) any security for, or any Guarantee of, such Senior
Indebtedness, (3) any liability of any obligor on such Senior Indebtedness
(including any guarantor) or any liability incurred in respect of such Senior
Indebtedness) (ii) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and in any order any property pledged,
mortgaged or otherwise securing such Senior Indebtedness or any liability of any
obligor thereon, to such holder, or any liability incurred in respect thereof;
(iii) settle or compromise any such Senior Indebtedness or any other liability
of any obligor of such Senior Indebtedness to such holder or any security
therefor or any liability incurred in respect thereof and apply any sums by
whomsoever paid and however realized to any liability (including, without
limitation, payment of any of the Company's Senior Indebtedness) in any manner
or order; and (iv) fail to take or to record or otherwise perfect, for any
reason or for no reason, any lien or security interest securing such Senior
Indebtedness by whomsoever granted, exercise or delay in or refrain from
exercising any right or remedy against any obligor or any guarantor or any other
Person, elect any remedy and otherwise deal freely with any obligor and any
security for such Senior Indebtedness or any liability of any obligor to the
holders of such Senior Indebtedness or any liability incurred in respect of such
Senior Indebtedness.
(c) Each Holder by accepting a Security agrees not to compromise,
release, forgive or otherwise discharge the Company's Obligations with respect
to such Holder's Security unless holders of a majority of the outstanding amount
of each class of Senior Indebtedness consent to such compromise, release,
forgiveness or discharge.
SECTION 9.09. Distribution or Notice to Representative. Whenever a
distribution is to be made, or a notice given, to holders of Senior Indebtedness
of the Company, the distribution may be made and the notice given to their
representative, if any. If any payment or distribution of the Company's assets
is required to be made to holders of any of the Company's Senior Indebtedness
pursuant to this Article Nine, the Trustee and the Holders shall be entitled to
rely upon any order or decree of any court of competent jurisdiction, or upon
any certificate of a representative of such Senior Indebtedness or a custodian,
in ascertaining the holders of such Senior Indebtedness entitled to participate
in any such payment or distribution, the amount
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to be paid or distributed to holders of such Senior Indebtedness and all other
facts pertinent to such payment or distribution or to this Article Nine.
SECTION 9.10. Rights of Trustee and Paying Agent. The Trustee or
paying agent may continue to make payments on the Securities unless prior to any
payment date it has received written notice of facts that would cause a payment
of principal of, or premium, if any, or interest on, the Securities to violate
this Article Nine. Only the Company, a representative of Senior Indebtedness, or
a holder of Senior Indebtedness that has no representative may give such notice.
To the extent permitted by the Trust Indenture Act of 1939, the
Trustee in its individual or any other capacity may hold Indebtedness of the
Company (including Senior Indebtedness) with the same rights it would have if it
were not Trustee. Any agent of the Trustee may do the same with like rights.
Nothing in this Article Nine shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 5.07.
SECTION 9.11. Authorization to Effect Subordination. Each Holder of a
Security by its acceptance thereof authorizes and directs the Trustee on its
behalf to take such action as may be necessary or appropriate to effectuate the
subordination as provided in this Article Nine, and appoints the Trustee as such
Holder's attorney-in-fact for any and all such purposes (including, without
limitation, the timely filing of a claim for the unpaid balance of the Security
that such Holder holds in the form required in any insolvency or liquidation
proceeding and causing such claim to be approved).
If a proper claim or proof of debt in the form required in such
proceeding is not filed by or on behalf of all Holders prior to 30 days before
the expiration of the time to file such claims or proofs, then the holders or a
representative of any Senior Indebtedness of the Company are hereby authorized,
and shall have the right (without any duty), to file an appropriate claim for
and on behalf of the Holders.
SECTION 9.12. Payment. A payment on account of or with respect to any
Security shall include, without limitation, principal, premium or interest with
respect to or in connection with any optional redemption or purchase provisions,
any direct or indirect payment payable by reason of any other Indebtedness or
Obligation being subordinated to the Securities, and any direct or indirect
payment or recovery on any claim as a Holder relating to or arising out of this
Indenture or any Security, or the issuance of any Security, or the transactions
contemplated by this Indenture or referred to herein.
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ARTICLE 10
REDEMPTION OF SECURITIES
SECTION 10.01. Right of Optional Redemption; Prices. (a) On or after
____, 2003, the Company at its option may, at any time, redeem all, or from time
to time any part of, the Securities upon payment of the optional redemption
prices set forth in the form of Security hereinabove recited, together with
accrued and unpaid interest to the date fixed for redemption.
(b) At any time and from time to time prior to ____, 2001, the
Company may redeem in the aggregate up to 35% of the original principal amount
of the Securities with the proceeds of one or more Public Equity Offerings
commenced after the Issue Date, at a redemption price (expressed as a percentage
of principal amount) of __% plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to the
redemption date); provided that at least $150 million aggregate principal amount
of the Securities must remain outstanding after each such redemption; and
provided further that any such redemption shall occur within 60 days of the date
of the closing of such Public Equity Offering.
SECTION 10.02. Notice of Redemption; Partial Redemptions. Notice of
redemption to the holders of Securities to be redeemed as a whole or in part
shall be given by mailing notice of such redemption by first class mail, postage
prepaid, at least 30 days and not more than 60 days prior to the date fixed for
redemption to such holders of Securities at their last addresses as they shall
appear upon the registry books. Any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the Holder receives the notice. Failure to give notice by mail, or any defect in
the notice to the holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
The notice of redemption to each such Holder shall identify the
Securities to be redeemed (including CUSIP or CINS numbers) and shall specify
the principal amount of each Security held by such Holder to be redeemed, the
date fixed for redemption, the redemption price, the place or places of payment,
that payment will be made upon presentation and surrender of such Securities,
that interest accrued to the date fixed for redemption will be paid as specified
in said notice and that on and after said date interest thereon or on the
portions thereof to be redeemed will cease to accrue. In case any Security is to
be redeemed in part only the notice of redemption shall state the portion of the
principal amount thereof to be redeemed and shall state that on and after the
date fixed for redemption, upon surrender of such
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Security, a new Security or Securities in principal amount equal to the
unredeemed portion thereof will be issued.
The notice of redemption of Securities to be redeemed at the option
of the Company shall be given by the Company or, at the Company's request, by
the Trustee in the name and at the expense of the Company.
No later than 10:00 a.m. on the redemption date specified in the
notice of redemption given as provided in this Section, the Company will deposit
with the Trustee or with one or more paying agents (or, if the Company is acting
as its own paying agent, set aside, segregate and hold in trust as provided in
Section 3.04) an amount of money sufficient to redeem on the redemption date all
the Securities so called for redemption at the appropriate redemption price,
together with accrued interest to the date fixed for redemption. The Company
will deliver to the Trustee at least 70 days prior to the date fixed for
redemption an Officers' Certificate stating the aggregate principal amount of
Securities to be redeemed.
If less than all the Securities are to be redeemed, the Trustee shall
select, either pro rata, by lot or by any other method it shall in its sole
discretion deem fair and appropriate, Securities to be redeemed in whole or in
part; provided that no Security of $1,000 in principal amount or less shall be
redeemed in part. The Trustee shall promptly notify the Company in writing of
the Securities selected for redemption and, in the case of any Securities
selected for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Securities shall relate, in the case of
any Security redeemed or to be redeemed only in part, to the portion of the
principal amount of such Security which has been or is to be redeemed.
SECTION 10.03. Payment of Securities Called for Redemption. If notice
of redemption has been given as above provided, the Securities or portions of
Securities specified in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable redemption price, together
with interest accrued to the date fixed for redemption, and on and after said
date (unless the Company shall default in the payment of such Securities at the
redemption price, together with interest accrued to said date) interest on the
Securities or portions of Securities so called for redemption shall cease to
accrue and, except as provided in Sections 5.05 and 11.06, such Securities shall
cease from and after the date fixed for redemption to be entitled to any benefit
or security under this Indenture, and the Holders thereof shall have no right in
respect of such Securities except the right to receive the redemption price
thereof and unpaid interest to the date fixed for redemption. On presentation
and surrender of such Securities at a place of payment specified in said notice,
said Securities or the specified portions thereof shall be paid
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and redeemed by the Company at the applicable redemption price, together with
interest accrued thereon to the date fixed for redemption; provided that any
semi-annual payment of interest becoming due on or prior to the date fixed for
redemption shall be payable to the holders of such Securities registered as such
on the relevant Regular Record Date subject to the terms and provisions of
Section 2.04 hereof.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate borne
by the Security.
Upon presentation of any Security redeemed in part only, the Company
shall execute and the Trustee shall authenticate and make available for delivery
to or on the order of the Holder thereof, at the expense of the Company, a new
Security or Securities, of authorized denominations, in principal amount equal
to the unredeemed portion of the Security so presented.
SECTION 10.04. Exclusion of Certain Securities from Eligibility for
Selection for Redemption. Securities shall be excluded from eligibility for
selection for redemption if they are identified by registration and certificate
number in a written statement signed by an authorized officer of the Company and
delivered to the Trustee at least 40 days prior to the last date on which notice
of redemption may be given as being owned of record and beneficially by, and not
pledged or hypothecated by either (a) the Company or (b) an entity specifically
identified in such written statement as directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company.
ARTICLE 11
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 11.01. Company's Option to Effect Defeasance or Covenant
Defeasance. The Company may at its option by a Board Resolution, at any time,
elect to have either Section 11.02 or Section 11.03 applied to the outstanding
Securities upon compliance with the conditions set forth below in this Article
Eleven.
SECTION 11.02. Legal Defeasance and Discharge. Upon the Company's
exercise under Section 11.01 hereof of the option applicable to this Section
11.02, the Company shall be deemed to have been discharged from any and all
Obligations with respect to all outstanding Securities (and any Guarantor will
be discharged from any and all Obligations in respect of its Subsidiary
Guarantee) on the date which is
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the 123rd day after the deposit referred to in Section 11.04(a); provided that
all of the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Securities, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 11.05 hereof and the other
Sections of this Indenture referred to in clauses (i) and (ii) of this Section
11.02, and to have satisfied all its other obligations under such Securities and
this Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder: (i) the rights of Holders of outstanding Securities to
receive solely from the trust fund described in Section 11.04 hereof, and as
more fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest on such Securities when such payments are due,
(ii) the Company's obligations with respect to such Securities under Sections
2.01, 2.02, 2.05, 2.06, 2.07, 2.08, 2.10, 3.01, 3.02, 3.04 and 11.05 hereof,
(iii) the rights, powers, trusts, duties and immunities of the Trustee
hereunder, including, without limitation, the Trustee's rights under Section
5.07 hereof, and the Company's obligations in connection therewith and with this
Article Eleven. Subject to compliance with this Article Eleven, the Company may
exercise its option under this Section 11.02 notwithstanding the prior exercise
of its option under Section 11.03 hereof with respect to the Securities.
SECTION 11.03. Covenant Defeasance. Upon the Company's exercise under
Section 11.01 hereof of the option applicable to this Section 11.03, the Company
shall be released from its obligations under the covenants contained in Sections
3.08 through 3.17 and clauses (iii), (iv) and (v) of Section 8.01 hereof with
respect to the outstanding Securities on and after the date the conditions set
forth below are satisfied (hereinafter, "Covenant Defeasance"), and the
Securities shall thereafter be deemed not outstanding for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed outstanding for all other purposes hereunder. For this
purpose, such Covenant Defeasance means that, with respect to the outstanding
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 4.01(c) or
(d) hereof, but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby.
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SECTION 11.04. Conditions to Legal or Covenant Defeasance. The
following shall be the conditions to application of either Section 11.02 or
Section 11.03 hereof to the outstanding Securities:
(a) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay the principal of, premium, if any, and accrued
interest on the Securities on the Stated Maturity of such payments in accordance
with the terms of the Indenture and the Securities;
(b) in the case of an election under Section 11.02 hereof, the
Company has delivered to the Trustee (i) either (x) an Opinion of Counsel to the
effect that Holders will not recognize income, gain or loss for Federal income
tax purposes as a result of the Company's exercise of its option under this
Article Eleven and will be subject to Federal income tax on the same amount and
in the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, which opinion of counsel
must be based upon (and accompanied by a copy of) a ruling of the Internal
Revenue Service to the same effect unless there has been a change in applicable
Federal income tax law after the date of the Indenture such that a ruling is no
longer required or (y) a ruling directed to the Trustee received from the
Internal Revenue Service to the same effect as the aforementioned Opinion of
Counsel and (ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and after
the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law;
(c) in the case of an election under Section 11.03 hereof, the
delivery by the Company to the Trustee of (i) an Opinion of Counsel to the
effect that, among other things, the Holders will not recognize income, gain or
loss for Federal income tax purposes as a result of such deposit and defeasance
and will be subject to Federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such deposit and
defeasance had not occurred and (ii) an Opinion of Counsel to the effect that
the creation of the defeasance trust does not violate the Investment Company Act
of 1940 and after the passage of 123 days following the deposit, the trust fund
will not be subject to the effect of Section 547 of the United States Bankruptcy
Code or Section 15 of the New York Debtor and Creditor Law;
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(d) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or lapse of
time or both would become an Event of Default, shall have occurred and be
continuing on the date of such deposit or during the period ending on the 123rd
day after the date of such deposit, and such deposit shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which the Company is bound,
(e) if at such time the Securities are listed on a national
securities exchange, the Company has delivered to the Trustee an Opinion of
Counsel to the effect that the Securities will not be delisted as a result of
such deposit, defeasance and discharge,
(f) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit made by the Company pursuant to its
election under Sections 11.02 or 11.03 hereof was not made by the Company with
the intent of preferring the Holders of the Securities over the other creditors
of the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others, and
(g) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Legal Defeasance under Section
11.02 or the Covenant Defeasance under Section 11.03 (as the case may be) have
been complied with as contemplated by this Section 11.04.
SECTION 11.05. Deposited Money and Government Securities to be Held
in Trust; Other Miscellaneous Provisions. Subject to Section 11.06 hereof, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee pursuant to Section 11.04 hereof in respect of the outstanding
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any paying agent (including the Company acting as paying
agent) as the Trustee may determine, to the Holders of such Securities of all
sums due and to become due thereon in respect of principal of, premium, if any,
and interest, but such money need not be segregated from other funds except to
the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the money or U.S. Government
Obligations deposited pursuant to Section 11.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding
Securities.
Anything in this Article Eleven to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the Company's
request
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any money or U.S. Government Obligations held by it as provided in Section 11.04
hereof which, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
Trustee (which may be the opinion delivered under Section 11.04(a) hereof), are
in excess of the amount thereof which would then be required to be deposited to
effect an equivalent Legal Defeasance or Covenant Defeasance.
SECTION 11.06. Repayment to Company. Any money deposited with the
Trustee or any paying agent, or then held by the Company, in trust for the
payment of the principal of, premium, if any, or interest on any Security and
remaining unclaimed for two years after such principal, premium, if any, or
interest has become due and payable shall be paid to the Company on its written
request or (if then held by the Company) shall be discharged from such trust;
and the Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such paying agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; provided, however,
that the Trustee or such paying agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in The
New York Times and The Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 11.07. Reinstatement. If the Trustee or paying agent is
unable to apply any money or U.S. Government Obligations in accordance with
Section 11.02 or 11.03 hereof, as the case may be, by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Company's obligations under
this Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 11.02 or 11.03 hereof until such time
as the Trustee or paying agent is permitted to apply all such amounts in
accordance with Section 11.02 or 11.03 hereof, as the case may be; provided,
however, that, if the Company makes any payment of principal of, premium, if
any, or interest on any Security following the reinstatement of its obligations,
the Company shall be subrogated to the rights of the Holders of such Security to
receive such payment from the amounts held by the Trustee or paying agent.
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ARTICLE 12
MISCELLANEOUS PROVISIONS
SECTION 12.01. Incorporators, Stockholders, Officers, Directors,
Employees and Controlling Persons of Company Exempt from Individual Liability.
No recourse for the payment of the principal of, premium, if any, or interest on
any of the Securities or any claim based thereon or otherwise in respect
thereof, and no recourse under or upon any obligation, covenant or agreement of
the Company contained in this Indenture, or in any Security, or because of the
creation of any indebtedness evidenced thereby, shall be had against any
incorporator, as such, or against any past, present or future stockholder,
officer, director, employee or controlling person, as such, of the Company or of
any successor Person, either directly or through the Company or any successor
Person, under any rule of law, statute or constitutional provision or by the
enforcement of any assessment or by any legal or equitable proceeding or
otherwise, all such liability being expressly waived and released by the
acceptance of the Securities by the holders thereof and as part of the
consideration for the issue of the Securities.
SECTION 12.02. Provisions of Indenture for the Sole Benefit of
Parties and Holders. Except as set forth in Section 12.09, nothing in this
Indenture or in the Securities, expressed or implied, shall give or be construed
to give to any person, firm or corporation, other than the parties hereto and
their successors and the holders of the Securities, any legal or equitable
right, remedy or claim under this Indenture or under any covenant or provision
herein contained, all such covenants and provisions being for the sole benefit
of the parties hereto and their successors and of the holders of the Securities.
SECTION 12.03. Successors and Assigns of Company Bound by Indenture.
All the covenants, stipulations, promises and agreements in this Indenture
contained by or in behalf of the Company shall bind its successors and assigns,
whether so expressed or not.
SECTION 12.04. Notices and Demands on Company, Trustee and Holders.
Any notice or demand which by any provision of this Indenture is required or
permitted to be given or served by the Trustee or by the holders of Securities
to or on the Company may be given or served by being deposited postage prepaid,
first-class mail (except as otherwise specifically provided herein) addressed
(until another address of the Company is filed by the Company with the Trustee)
to Ziff- Davis, Inc., One Park Avenue, New York, New York 10016, Attention:
Legal Department, with a copy to the Treasurer. Any notice, direction, request
or demand by the Company or any Securityholder to or upon the Trustee shall be
deemed to
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have been sufficiently given or made, for all purposes, if given or made at the
Corporate Trust Office.
Where this Indenture provides for notice to Holders, such notice
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to each Holder entitled
thereto, at his last address as it appears in the Security Register. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. The Trustee
may waive notice to it of any provision herein, and such waiver shall be deemed
to be for its convenience and discretion. Waivers of notice by Holders shall be
filed with the Trustee, but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in regular
mail service, it shall be impracticable to mail notice to the Company and
Securityholders when such notice is required to be given pursuant to any
provision of this Indenture, then any manner of giving such notice as shall be
satisfactory to the Trustee shall be deemed to be a sufficient giving of such
notice.
SECTION 12.05. Officers' Certificates and Opinions of Counsel;
Statements to Be Contained Therein. Upon any application or demand by the
Company to the Trustee to take any action under any of the provisions of this
Indenture, the Company shall furnish to the Trustee an Officers' Certificate
stating that all conditions precedent provided for in this Indenture relating to
the proposed action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent have been
complied with, except that in the case of any such application or demand as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or demand, no
additional certificate or opinion need be furnished.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (a) a statement that the person
making such certificate or opinion has read such covenant or condition, (b) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or
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condition has been complied with and (d) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the Company
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of or representations by counsel, unless such officer knows that the
certificate or opinion or representations with respect to the matters upon which
his certificate, statement or opinion may be based as aforesaid are erroneous,
or in the exercise of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of counsel may be based, insofar as it
relates to factual matters or information which is in the possession of the
Company, upon the certificate, statement or opinion of or representations by an
officer or officers of the Company, unless such counsel knows that the
certificate, statement or opinion or representations with respect to the matters
upon which his certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that the same are
erroneous.
Any certificate, statement or opinion of an officer of the Company or
of counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Company, unless such officer or counsel, as the
case may be, knows that the certificate or opinion or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm of public
accountants filed with the Trustee shall contain a statement that such firm is
independent.
SECTION 12.06. Payments Due on Saturdays, Sundays and Holidays. If
the date of maturity of interest on or principal of the Securities or the date
fixed for redemption of any Security shall not be a Business Day, then payment
of interest or principal need not be made on such date, but may be made on the
next succeeding Business Day with the same force and effect as if made on the
date of maturity or the date fixed for redemption, and no interest shall accrue
for the period after such date.
SECTION 12.07. Conflict of Any Provision of Indenture with Trust
Indenture Act of 1939. If and to the extent that any provision of this Indenture
limits, qualifies or conflicts with another provision included in this Indenture
by operation of Sections 310 to 317, inclusive, of the Trust Indenture Act of
1939 (an "incorporated provision"), such incorporated provision shall control.
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SECTION 12.08. New York Law to Govern. This Indenture and each
Security shall be deemed to be a contract under the laws of the State of New
York, and for all purposes including the obligations of the Company and any
Guarantor and the rights of holders of the Securities arising out of or in
connection with the Securities, including the obligations of the Company and any
Guarantor to pay all principal, interest or other amounts payable under the
Indenture and such Security, will be governed by and shall be construed in
accordance with the laws of said State, without giving effect to the conflict of
laws provisions thereof, except as may otherwise be required by mandatory
provisions of law.
SECTION 12.09. Third Party Beneficiaries. Holders of Senior
Indebtedness of the Company are third party beneficiaries of this Indenture, and
any of them (or their representative) shall have the right to enforce the
provisions of this Indenture that benefit such holders.
SECTION 12.10. Counterparts. This Indenture may be executed in any
number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same instrument.
SECTION 12.11. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of May ___, 1998.
ZIFF-DAVIS INC.,
as Issuer
By
----------------------------------
Title:
THE BANK OF NEW YORK,
as Trustee
By
----------------------------------
Title:
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EXHIBIT 5.1
April 24, 1998
ZD Inc.,
One Park Avenue,
New York, New York 10016.
Dear Sirs:
In connection with the registration under the Securities Act of 1933 (the
"Act") of $250,000,000 principal amount of Senior Subordinated Notes due 2008
(the "Securities") of ZD Inc., a Delaware corporation (the "Company"), we, as
your counsel, have examined such corporate records, certificates and other
documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our opinion,
when the Registration Statement has become effective under the Act, the
Indenture relating to the Securities has been duly authorized, executed and
delivered, the terms of the Securities and of their issuance
<PAGE>
ZD Inc. -2-
and sale have been duly established in conformity with the Indenture so as not
to violate any applicable law or result in a default under or breach of any
agreement or instrument binding upon the Company and so as to comply with any
requirement or restriction imposed by any court or governmental body having
jurisdiction over the Company, and the Securities have been duly executed and
authenticated in accordance with the Indenture and issued and sold as
contemplated in the Registration Statement, the Securities will constitute valid
and legally binding obligations of the Company, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
The foregoing opinion is limited to the Federal laws of the United States,
the laws of the State of New York and the General Corporation Law of the State
of Delaware, and we are expressing no opinion as to the effect of the laws of
any other jurisdiction.
<PAGE>
ZD Inc. -3-
We have relied as to certain matters on information obtained from public
officials, officers of the Company and other sources believed by us to be
responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the refer ence to us under the heading "Legal
Matters" in the Prospectus. In giving such consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act.
Very truly yours,
SULLIVAN AND CROMWELL
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 27, 1998,
relating to the balance sheet of ZD Inc. and our reports dated February 17,
1998, relating to the combined financial statements of Ziff-Davis Inc. and ZD
COMDEX and Forums Inc., and the consolidated financial statements of Ziff-
Davis Inc. (formerly Ziff-Davis Publishing Company), which appear in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
New York, NY
April 24, 1998
<PAGE>
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
ZD Inc.
(Exact name of obligor as specified in its charter)
Delaware 13-3987754
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
One Park Avenue
New York, New York 10016
(Address of principal executive offices) (Zip code)
______________________
Senior Subordinated Notes due 2008
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT
IS SUBJECT.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Name Address
- -----------------------------------------------------------------------------------
<S> <C> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7A-
29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R.
229.10(D).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with
Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed
with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed
with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
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<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 9th day of April, 1998.
THE BANK OF NEW YORK
/s/ James W.P. Hall
By: ___________________________
Name: James W.P. Hall
Title: Vice President
<PAGE>
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Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin..................... $ 5,004,638
Interest-bearing balances............. 1,271,514
Securities:
Held-to-maturity securities........... 1,105,782
Available-for-sale securities......... 3,164,271
Federal funds sold and Securities pur-
chased under agreements to resell....... 5,723,829
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................34,916,196
LESS: Allowance for loan and
lease losses ..............581,177
LESS: Allocated transfer risk
reserve........................429
Loans and leases, net of unearned
income, allowance, and reserve 34,334,590
Assets held in trading accounts......... 2,035,284
Premises and fixed assets (including
capitalized leases)................... 671,664
Other real estate owned................. 13,306
Investments in unconsolidated
subsidiaries and associated
companies............................. 210,685
Customers' liability to this bank on
acceptances outstanding............... 1,463,446
Intangible assets....................... 753,190
Other assets............................ 1,784,796
-----------
Total assets............................ $57,536,995
===========
LIABILITIES
Deposits:
In domestic offices................... $27,270,824
Noninterest-bearing ......12,160,977
Interest-bearing .........15,109,847
In foreign offices, Edge and
Agreement subsidiaries, and IBFs...... 14,687,806
Noninterest-bearing .........657,479
Interest-bearing .........14,030,327
Federal funds purchased and Securities
sold under agreements to repurchase. 1,946,099
Demand notes issued to the U.S.
Treasury.............................. 283,793
Trading liabilities..................... 1,553,539
Other borrowed money:
With remaining maturity of one year
or less............................. 2,245,014
With remaining maturity of more than
one year through three years............ 0
With remaining maturity of more than
three years......................... 45,664
Bank's liability on acceptances exe-
cuted and outstanding................. 1,473,588
Subordinated notes and debentures....... 1,018,940
Other liabilities....................... 2,193,031
-----------
Total liabilities....................... 52,718,298
-----------
EQUITY CAPITAL
Common stock............................ 1,135,284
Surplus................................. 731,319
Undivided profits and capital
reserves.............................. 2,943,008
Net unrealized holding gains
(losses) on available-for-sale
securities............................ 25,428
Cumulative foreign currency transla-
tion adjustments...................... ( 16,342)
-----------
Total equity capital.................... 4,818,697
-----------
Total liabilities and equity
capital ........................... $57,536,995
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot ]
Thomas A. Renyi ] Directors
Alan R. Griffith ]
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