<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1998
REGISTRATION NO. 333-46493
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share.. $460,000,000 $135,700(2)
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933. A portion of the
proposed maximum aggregate offering price represents shares that are to be
offered outside of the United States but that may be resold from time to
time in the United States.
(2) Such fee was paid in connection with the filing of this Registration
Statement on February 18, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL 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 , 1998 ,000,000 Shares
Ziff-Davis Inc.
COMMON STOCK
----------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY, ,000,000
SHARES ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE
U.S. UNDERWRITERS AND ,000,000 SHARES ARE BEING OFFERED INITIALLY
OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS
BEEN NO PUBLIC MARKET FOR COMMON STOCK OF THE COMPANY. IT IS
CURRENTLY ANTICIPATED THAT THE INITIAL PUBLIC OFFERING PRICE
WILL BE BETWEEN $ AND $ PER SHARE. SEE "UNDERWRITERS"
FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
----------
CONCURRENTLY WITH THE OFFERING BEING MADE HEREBY, THE COMPANY IS OFFERING, BY
MEANS OF A SEPARATE PROSPECTUS, $250 MILLION AGGREGATE PRINCIPAL AMOUNT OF
ITS % SENIOR SUBORDINATED NOTES DUE 2008 (THE "NOTES 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."
----------
UPON COMPLETION OF THE OFFERINGS, AFFILIATES OF THE COMPANY WILL RETAIN
APPROXIMATELY % OF THE OUTSTANDING VOTING POWER OF THE COMPANY. SEE
"PRINCIPAL STOCKHOLDERS."
----------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE
NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "ZD."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 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.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at
$ . All the net proceeds will be paid to affiliates of the
Company. See "Use of Proceeds."
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional Shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriters."
----------
The Shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the Shares will be made on or about April , 1998 at
the office of Morgan Stanley & Co. Incorporated, New York, NY against payment
therefor in immediately available funds.
----------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
April , 1998
<PAGE>
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
[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 each of the Company's 50 brands.
Text included within the artwork is as follows:
[TO COME]
2
<PAGE>
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 COMMON STOCK 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 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, 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 COMMON STOCK 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 COMMON STOCK
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........................................................ 4
Risk Factors.............................................................. 10
The Company............................................................... 15
The Reorganization........................................................ 17
Use of Proceeds........................................................... 18
Capitalization............................................................ 19
Dividend Policy........................................................... 19
Dilution.................................................................. 20
Selected Historical Combined Financial and Other Data..................... 21
Unaudited Pro Forma Combined Financial Information........................ 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
Industry.................................................................. 36
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.................................................................. 38
Management................................................................ 54
Certain Transactions...................................................... 61
Principal Stockholders.................................................... 64
Description of Capital Stock.............................................. 65
Shares Eligible for Future Sale........................................... 69
Description of Certain Indebtedness....................................... 71
Certain United States Tax Consequences to Non-U.S. Holders of Common
Stock.................................................................... 72
Underwriters.............................................................. 75
Validity of Common Stock.................................................. 78
Experts................................................................... 78
Additional Information.................................................... 79
Index to Financial Statements............................................. F-1
</TABLE>
---------------
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.
3
<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 U.S. Underwriters' over-allotment option 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."
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 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 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 in the most effective
manner.
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.
4
<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.
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
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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RELATIONSHIP WITH SOFTBANK
After completion of the Reorganization described below, approximately % of
the outstanding shares of the Common Stock will be owned by SOFTBANK Corp., a
Japanese Corporation publicly-traded on the Tokyo Stock Exchange First Section
(together with its affiliates, "Softbank"). 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."
5
<PAGE>
The following table presents Softbank's total historical investment in and
return on investment from the Company as well as the value of its investment at
the assumed initial offering price (calculated based on the midpoint of the
range set forth on the cover page). See also "Dilution."
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS
EXCEPT PER
SHARE
DATA)
----------
<S> <C>
Historical investment in the Company....................... $3,040,201
Total return on investment................................. $ 471,966(1)
Percentage of Company held after the Offerings............. %
Value of investment after the Offerings.................... $ (2)
</TABLE>
- --------
(1) Total return includes $8,000 in dividends, $355,096 in interest and
$108,870 in debt principal repayments.
(2) Assumes an initial public offering price of $ and a holding of
shares of Common Stock by Softbank.
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 wholly-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 % 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. All of the transactions comprising the Reorganization will be
deemed to occur simultaneously. See "Risk Factors--Risks Relating to the
Reorganization--Absence of History as a Stand-Alone Company; Limited Relevance
of Historical Financial Information," "The Reorganization" and "Unaudited Pro
Forma Combined Financial Information."
6
<PAGE>
THE OFFERING
Common Stock offered:
<TABLE>
<S> <C>
U.S. Offering................ shares
International Offering....... shares
-----------
Total.................... shares
===========
</TABLE>
Common Stock to be
outstanding after the shares(1)
Offering...................
Notes Offering..............
Concurrently with the Offering being made hereby,
the Company is offering, by means of a separate
prospectus, $250 million aggregate principal
amount of its % Senior Subordinated Notes due
2008 (the "Notes"). The consummation of the
Offering being made hereby and the Notes Offering
is conditioned upon, and will occur
simultaneously with, the consummation of the
other.
Use of Proceeds............. The net proceeds from the Offerings, together
with the 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."
NYSE symbol................. "ZD"
- ----------------
(1) Does not include shares of Common Stock reserved for issuance under
the Company's Incentive Compensation and Employee Stock Purchase Plans. See
"Management--Stock Plans."
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 shares of Common Stock offered hereby.
7
<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)
<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)........................
Pro forma diluted loss per
share(2)........................
Pro forma weighted average shares
outstanding(2)..................
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)...................... 1.5 -- -- --
<CAPTION>
AS OF DECEMBER 31,
1997
----------------------
ACTUAL PRO FORMA
---------- ----------
<S> <C> <C> <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.......................... 1,586,539 86,539
Stockholders' equity................................. 126,130 1,441,165
</TABLE>
8
<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,
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
30 in "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
SEE THE TABLE ON PAGE 29 IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" FOR A PRO FORMA 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.
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves various
risks. Prior to investing in the Common Stock 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, based on an
independent appraisal of the assets, 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 Offering, Softbank will own % of the outstanding
shares of Common Stock of the Company ( % if the U.S. Underwriters' over-
allotment option 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 certain 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, including certain licensing and
management agreements and arrangements relating to ZDTV. 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
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<PAGE>
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," "Principal Stockholders," "Certain
Transactions" and "Description of Capital Stock."
SIGNIFICANT DEBT OBLIGATIONS
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 Common Stock
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 are
expected to contain financial and other restrictive covenants, including those
relating to the incurrence of additional indebtedness, the creation of liens,
the payment of dividends and sales of assets. See "Description of Certain
Indebtedness." 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.
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 factors such as pricing pressures and new
product launches. 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 49.0% of the Company's print 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."
11
<PAGE>
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--Seasonality."
For the first quarter of 1998, the Company expects that its net loss will
increase by 15-20% as compared with the first quarter of 1997. There are
several factors influencing the lower operating results anticipated 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, 1998 (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 $. 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.
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 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
12
<PAGE>
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. In addition, the Company faces broad competition from
media companies that produce magazines, newspapers and online content. Overall
competitive factors include product positioning, editorial quality,
circulation, price and 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-
13
<PAGE>
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."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company expects to have
shares of Common Stock outstanding ( shares if the U.S. Underwriters'
over-allotment option is exercised in full), which will be freely tradeable
without restriction by persons other than "affiliates" of the Company. The
remaining shares of Common Stock will be deemed "restricted" securities within
the meaning of the Securities Act of 1933, as amended (the "Securities Act"),
and, as such, may not be sold in the absence of registration under the
Securities Act or an exemption therefrom, including the exemption contained in
Rule 144 under the Securities Act. The Company and Softbank have entered into
a registration rights agreement in connection with the Offering which provides
Softbank with the right to require the Company to register any or all of the
Common Stock held by Softbank in a public offering pursuant to the Securities
Act and the right to "piggyback" or include Softbank's Common Stock in any
registration of Common Stock made by the Company. No prediction can be made as
to the effect, if any, that future sales of shares of Common Stock, or the
availability of such shares for future sales, will have on the market price of
the shares of Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock, and such a
reduction in the market price of the Common Stock could impair the ability of
the Company to raise additional capital through future public offerings of its
equity securities. See "Shares Eligible for Future Sale."
DIVIDEND POLICY; HOLDING COMPANY STRUCTURE
The Company currently intends to retain earnings to finance its operations,
fund future growth and reduce indebtedness and does not anticipate paying
dividends in the foreseeable future. In addition, as a holding company, the
Company's major assets will initially be the shares it holds in its
subsidiaries. Therefore, the Company's ability to pay future dividends and
distributions, if any, to holders of the Common Stock is dependent upon the
receipt of dividends or other payments from its subsidiaries. See "Dividend
Policy."
SUBSTANTIAL AND IMMEDIATE DILUTION
The initial public offering price of the Common Stock will be higher than
the book value per share of Common Stock. Accordingly, purchasers in the
Offering will suffer a substantial and immediate dilution of $ in the net
tangible book value per share of Common Stock from the initial public offering
price. See "Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for
the Company's Common Stock will develop or be sustained after the Offering.
The initial public offering price will be determined by negotiation between
the Company and the representatives of the Underwriters based upon several
factors. See "Underwriters" for a discussion of the factors to be considered
in determining the initial public offering price. The trading price of the
Company's Common Stock could be subject to wide fluctuations in response to
quarterly variations in operating results, expectations of securities
analysts, announcements of new publications or technological innovations by
the Company or its competitors, changes in financial estimates by securities
analysts, the operating and stock price performance of other companies that
investors may deem comparable to the Company and other events or factors. In
addition, the stock market in general has experienced extreme volatility that
often has been unrelated to the operating performance of particular companies
which are traded on the market. These broad market and industry fluctuations
may adversely affect the trading price of the Company's Common Stock,
regardless of the Company's actual operating performance.
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Certificate of Incorporation and By-Laws
may inhibit changes in control of the Company not approved by the Board of
Directors. The Company will also be afforded the protections of Section 203 of
the Delaware General Corporation Law, which could have similar effects. See
"Description of Capital Stock."
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THE COMPANY
The Company 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 wholly-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 31.1% owner of Yahoo! Inc.
After completion of the Reorganization, Softbank will own approximately %
of the outstanding shares of Common Stock. 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 and ZDNet in
Japan. 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."
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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 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 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. 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."
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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 sale of the Company's Common Stock offered hereby, ZDI
and ZDCF will be contributed to the Company in exchange for % 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 $ per
share, the value of the capitalized intercompany indebtedness would have been
equivalent to 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 shares of
its Common Stock in the Offering, (ii) sell $250 million aggregate principal
amount of its % Senior Subordinated Notes due 2008 in the Notes 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.
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.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock and the
Notes are estimated to be $377.5 million ($434.5 million if the U.S.
Underwriters' over-allotment option is exercised in full) and $241.3 million,
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:
Common Stock Offering.................................. $ 400,000
Notes Offering......................................... 250,000
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.
18
<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:
Notes.................................... $ -- $ -- $ 250,000
Credit Facility.......................... -- -- 1,250,000
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; shares authorized;
shares issued and
outstanding............................. $ -- $ $ --
Additional paid-in-capital............... 248,330 1,185,865 1,563,365
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>
DIVIDEND POLICY
The Company currently intends to retain all of its earnings following the
Offering in order to finance its operations, repay indebtedness and fund
future growth and, accordingly, does not expect to pay any dividends for the
foreseeable future. The Board of Directors will review this dividend policy
from time to time in light of the conditions then existing, including the
Company's financial condition, results of operations, capital requirements,
restrictions, if any, contained in financing or other agreements binding upon
the Company, and such other factors as the Board of Directors deems relevant.
The Credit Facility and provisions of the Notes contain certain limitations on
the payment of dividends. See "Risk Factors--Dividend Policy; Holding Company
Structure" and "Description of Certain Indebtedness--Notes and--Credit
Facility."
19
<PAGE>
DILUTION
As of December 31, 1997 the pro forma net tangible book value of the Company
was $ or $ per share of Common Stock. Pro forma net tangible
book value per share is determined by dividing the tangible net worth of the
Company (total assets less intangible assets and total liabilities) by the
aggregate number of shares of Common Stock outstanding, assuming the
Reorganization had taken place on January 1, 1997. After giving effect to the
sale of the shares of Common Stock offered hereby and the
application of the net proceeds therefrom, assuming an initial public offering
price of $ per share, pro forma net tangible book value of the Company as
of December 31, 1997 would have been approximately $ million, or $
per share. This represents an immediate increase in pro forma net tangible
book value of $ per share to the current stockholder of the Company and
an immediate dilution in pro forma net tangible book value of $ per
share to purchasers of Common Stock in the Offering. The following table
illustrates the per share dilution in pro forma net tangible book value to new
investors:
<TABLE>
<S> <C> <C>
Initial public offering price per share................... $
Pro forma net tangible book value per share at December
31, 1997(1).............................................. ( )
Increase in pro forma net tangible book value per share
attributable to purchasers in the Offering............... ----
Pro forma net tangible book value per share after the ( )
Offering................................................. --------
Dilution in pro forma net tangible book value per share to $
purchasers of Common Stock in the Offering (2)........... ========
</TABLE>
- --------
(1) Pro forma net tangible book value per share at December 31, 1997 includes
.
(2) Dilution is determined by subtracting pro forma net tangible book value
per share after the Offering from the initial public offering price per
share.
The following table summarizes, on a pro forma basis, as of December 31,
1997, the number of shares of Common Stock purchased from the Company, the
total consideration paid (or to be paid) and the average price per share paid
(or to be paid) by the Company's existing stockholder and by new investors
purchasing shares of Common Stock in the Offering, based on an assumed initial
public offering price of $ per share, before deducting estimated
offering expenses and underwriting discounts and commissions.
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION
-------------- --------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Softbank.......................... % $ % $
Purchasers of Common Stock in the
Offering.........................
----- ----- ------- -----
Total........................... 100.0% $ 100.0%
===== ===== ======= =====
</TABLE>
The foregoing calculations exclude an aggregate of: (i) shares of
Common Stock issuable upon the exercise of options granted under the Company's
Incentive Compensation and Employee Stock Purchase Plans and (ii)
additional shares of Common Stock reserved for grants of additional options
under the Company's Incentive Compensation and Employee Stock Purchase Plans.
See "Management--Stock Plans."
20
<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 2,819,974 1,623,906 1,619,905 1,090,981 3,584,173 3,546,646
Total long-term obliga-
tions.................. 353,507 1,034,751 964,153 964,153 575,450 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
30 in "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
SEE THE TABLE ON PAGE 29 IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" FOR A PRO FORMA 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.
21
<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.
22
<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)....... --
Additional paid-in
capital.............. 248,330 937,535 (d) 1,185,865 377,500 (j) 1,563,365
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, 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, 110,000,000
shares authorized, shares issued and outstanding.
23
<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 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 shares of the Company's Common Stock at an
assumed initial offering price of $ per share, net of offering costs of
$22,500. Assumes no exercise of the Underwriters' over-allotment option.
24
<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.................. (g)
==========
Pro forma diluted loss
per share.............. (g)
==========
Pro forma weighted
average shares
outstanding............ (g)
</TABLE>
----------------
For information relating to the three months ended March 31, 1998, see page
30 in "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
25
<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 shares of Common Stock assumed to
be outstanding upon consummation of the Reorganization. Pro forma diluted
loss per share excludes Common Stock equivalents assumed to be
outstanding upon consummation of the Reorganization as inclusion of such
Common Stock equivalents would be antidilutive.
26
<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 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 may experience fluctuations in
revenue from period to period. Many of the Company's large customers
27
<PAGE>
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 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
28
<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.
29
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997 (UNAUDITED)
For the first quarter of 1998, the Company expects to report approximately
the same level of revenue as compared with the first quarter of 1997. Revenue
from publishing operations will decline approximately 5% primarily due to the
absence of over $12 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 record significantly 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 approximately 75% 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 expects the net loss for the first quarter to increase by 15-20%
as compared with the first quarter of 1997. The increase is 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 $3.4 million of one-time costs for office relocations and
$1.8 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.
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.
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
30
<PAGE>
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 from $67.0 million or 6.2% 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 33.5%
of the 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.
31
<PAGE>
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 6.1% while
those for the trade shows and conferences segment rose 58.7%, 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 from $61.8 million or 8.4% to $67.0 million.
32
<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 $250 million aggregate principal amount of Notes. 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.
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 $50.8 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. Cash flow from financing
activity 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.
The Company has entered into a license and services agreement with MAC to
develop ZDTV. ZDTV is 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
33
<PAGE>
MAC's investment plus 10% per annum for the period of its investment. 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. 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 confer-
ences................. 19,661 69,047 53,631 122,545 15,321 82,135 24,227 165,845
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 42,491 38,966 39,032 39,699 37,243
Income (loss) from oper-
ations................. (4,187) 25,175 966 66,111 (15,587) 26,069 (21,574) 120,324
Income (loss) before
taxes.................. (28,139) (14,260) (30,556) 31,625 (60,145) (17,715) (66,937) 72,306
Net income (loss)....... (34,559) (20,680) (36,977) 25,204 (59,817) (17,387) (68,609) 72,634
EBITDA.................. 30,752 67,823 45,828 111,027 25,534 68,216 20,486 158,658
</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 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
34
<PAGE>
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.
35
<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%.
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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 in the first six months of 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.
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BUSINESS
The Company 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 in the most effective
manner. 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 Company's
revenue is derived from trade shows and conferences, which accounted for 23.5%
of total revenue in
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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.
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."
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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.
The Company's U.S. publications have a total circulation of approximately
six million readers, with 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.
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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)..... 1993 Paid 400,738 12x 2,108
Internet
Computing(3)(4)....... 1996 Paid 340,579 12x 948
Inter@ctive Week(3).... 1994 Controlled 101,510 45x 1,840
Macworld(5)............ 1985 Paid 671,391 12x 1,734
MacWeek(5)............. 1987 Controlled 97,502 48x 2,593
Sm@rt Reseller(3)...... 1998 Controlled 60,000(6) 12x N/A
U.S. CONSUMER
Computer Life(3)....... 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(7)........... 1995 Paid 100,000(8) 12x 463
Family PC(3)(9)........ 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)(10)(11)....... 1996 Controlled 50,000 51x 2,638
PC Computing
(China)(10)........... 1994 Paid 45,580 12x 360
PC Magazine
(China)(10)........... 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 Justication 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) Formerly ZD Internet Magazine.
(5) Joint venture with International Data Group, Inc.
(6) 60,000 target rate base for 1998.
(7) Formerly P.S.X.
(8) 100,000 target rate base for 1998.
(9) Joint venture with an affiliate of The Walt Disney Company.
(10) Venture with Richina Media Holdings and other local agencies in China.
(11) Circulation numbers and advertising pages are based on Company data.
41
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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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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.
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
had 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 areas of their
lives. Computer Life is a monthly publication with a circulation of over
450,000.
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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 are Bowater, Champion, Consolidated, Fraser and
UPM, each of which provides over 10% of the Company's paper supply. 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.
45
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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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<PAGE>
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.
47
<PAGE>
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
48
<PAGE>
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.
49
<PAGE>
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 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. 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. 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 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.
50
<PAGE>
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
51
<PAGE>
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
There are no 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
Jerry Yang....................... 27 Director
</TABLE>
The Company will nominate for election two independent directors 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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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.
55
<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.
Jerry 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 eight current members of the Board plus two additional
"independent directors" (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 directors 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. See "Description of Capital Stock--
Certain Provisions of the Certificate of Incorporation and By-laws."
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 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 ZD Inc. Incentive Compensation Plan (the
"1998 Incentive Compensation 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 1998 Incentive Compensation Plan. See
"--Stock Plans--Incentive Compensation Plan" for a detailed discussion of the
1998 Incentive Compensation Plan.
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Pursuant to the 1998 Incentive Compensation Plan, each Non-employee Director
shall receive upon election as a member of the Board an initial grant of stock
options to purchase 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 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 1998 Incentive
Compensation 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(3) ALL OTHER
POSITION SALARY($) BONUS($) PLAN($) OPTIONS(#) COMPENSATION($)
------------------ ---------- --------- ---------- ---------- ---------------
<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 -- 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 3,250 5,949
President, ZD Market
Intelligence
</TABLE>
- --------
(1) 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."
(2) Does not include bonus of $300,000 paid in 1997 for 1996.
(3) Represents options to purchase stock of SOFTBANK Corp.
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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
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 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 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
58
<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 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 the 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.
59
<PAGE>
Effective Date. The Plan will have a term of ten years from February 15,
1998, subject to earlier termination.
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 23, 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, except for certain employees who earn above a certain
level of total compensation and participate in the 1998 Incentive Compensation
Plan. 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 , 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.
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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 service mark 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 , 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 $75 million and its parent company, Son
Kosan Ltd., purchased an additional portion for $10 million. 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
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.
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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.
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% and
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.
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 $1,114,565 to Mr. Sheer, the President of
ZD Publishing and a Director of the Company. See Note 8 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 $150 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 in contemplation of the Reorganization and is a wholly-owned
subsidiary of SBH, a Delaware corporation. SBH is a wholly-owned subsidiary of
SOFTBANK Corp. which is 43.4% owned by MAC. MAC is more than 99% directly and
indirectly owned by Mr. Masayoshi Son, SOFTBANK Corp.'s President. Upon
completion of the Reorganization, Softbank will own approximately % of the
outstanding shares of Common Stock and approximately % of the outstanding
shares of Common Stock will be owned by the public.
The following table sets forth, as of February , 1998, certain information
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 before and after giving effect to the Offerings.
<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING(1)
---------------------------- ----------------------------
NUMBER OF SHARES OF PERCENT NUMBER OF SHARES OF PERCENT
BENEFICIAL OWNER COMMON STOCK OF CLASS COMMON STOCK OF CLASS
- ---------------- ------------------- -------- ------------------- --------
<S> <C> <C> <C> <C>
SOFTBANK Holdings
Inc.(2) ............... % %
SOFTBANK Corp.(3) ......
MAC Inc.(4).............
Masayoshi Son(5)........
Officers and directors
as a group.............
</TABLE>
- --------
(1) Assumes no exercise of the U.S. Underwriters' over-allotment option and
does not include shares of Common Stock reserved for issuance under the
Company's Incentive Compensation and Employee Stock Purchase Plans. See
"Management--Stock Plans."
(2) 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.
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 certain 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" and "Description of Capital Stock--Certain Provisions of the
Certificate of Incorporation and By-laws."
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DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Company's capital stock
describes all material provisions of, but does not purport to be complete and
is subject to, and qualified in its entirety by, the Company's Certificate of
Incorporation and By-laws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law. See "Available Information."
At the time of the Offering, the total amount of authorized capital stock of
the Company will be 120 million shares, consisting of 110 million shares of
Common Stock, par value $.01 per share, and 10 million shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). Upon completion of the
Offering, shares of Common Stock and no shares of Preferred Stock will
be issued and outstanding. As of , 1998, there were no shares of Common
Stock outstanding. The discussion herein describes the Company's Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") and
By-laws, as anticipated to be in effect upon consummation of the Offering, and
their effect on the Common Stock.
Prior to the Offering, there has been no public market for the Common Stock.
See "Risk Factors--No Prior Public Market; Possible Volatility of Stock Price."
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered by the Company will be upon payment therefor,
validly issued, fully paid and nonassessable. The holders of outstanding shares
of Common Stock are entitled to receive dividends out of assets legally
available therefor at such time and in such amounts as the Board of Directors
may from time to time determine. See "Dividend Policy." The shares of Common
Stock are not convertible and the holders thereof have no preemptive or
subscription rights to purchase any securities of the Company. Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive pro rata the assets of the Company which are
legally available for distribution, after payment of all debts and other
liabilities. Each outstanding share of Common Stock is entitled to one vote on
all matters submitted to a vote of the stockholders, including election of
directors. There is no cumulative voting. Except as otherwise required by law
or the Certificate of Incorporation, the Common Stock will vote on all matters
submitted to a vote of the stockholders, including election of directors.
PREFERRED STOCK
The Certificate of Incorporation provides that shares of Preferred Stock may
be issued in one or more series from time to time by the Board, and the Board
is expressly authorized to fix by resolution or resolutions the designations
and the powers, preferences and rights, and the qualifications, limitations and
restrictions thereof, of the shares of each series of Preferred Stock,
including without limitation the following: (a) the distinctive serial
designation of such series which shall distinguish it from other series; (b)
the number of shares included in such series; (c) the dividend rate (or method
of determining such rate) payable to the holders of the shares of such series,
any conditions upon which such dividends shall be paid and the date or dates
upon which such dividends shall be payable; (d) whether dividends on the shares
of such series shall be cumulative and, in the case of shares of any series
having cumulative dividend rights, the date or dates or method of determining
the date or dates from which dividends on the shares of such series shall be
cumulative; (e) the amount or amounts which shall be payable out of the assets
of the Company to the holders of the shares of such series upon voluntary or
involuntary liquidation, dissolution or winding up the Company, and the
relative rights of priority, if any, of payment of the shares of such series;
(f) the price or prices at which, the period or periods within which and the
terms and conditions upon which the shares of such series may be redeemed, in
whole or in part, at the option of the Company or at the option of the holder
or holders thereof or upon the happening of a specified event or events; (g)
the obligation, if any, of the Company to purchase or redeem shares of such
series pursuant to a sinking fund or otherwise and the price or prices at
which, the period or periods within which and
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the terms and conditions upon which the shares of such series shall be
redeemed or purchased, in whole or in part, pursuant to such obligation; (h)
whether or not the shares of such series shall be convertible or exchangeable,
at any time or times at the option of the holder or holders thereof or at the
option of the Company or upon the happening of a specified event or events,
into shares of any other class or classes or any other series of the same or
any other class or classes of stock of the Company, and the price or prices or
rate or rates of exchange or conversion and any adjustments applicable
thereto; and (i) whether or not the holders of the shares of such series shall
have voting rights, in addition to the voting rights provided by law, and if
so the terms of such voting rights. Subject to the rights of the holders of
any series of Preferred Stock, the number of authorized shares of any class or
series of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the outstanding shares entitled to vote, irrespective
of the provisions of Section 242(b)(2) of the General Corporation Law of
Delaware or any corresponding provision hereafter enacted.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
Staggered Board of Directors
Following the Offering, the Board of Directors will consist of ten members.
The Certificate of Incorporation provides that the directors of the Company
will be divided into three classes, as nearly equal in number as reasonably
possible, as determined by the Board. The initial term of office of Class I
directors will expire at the first annual meeting of stockholders, the initial
term of office of Class II directors will expire at the second annual meeting
of stockholders and the initial term of office of Class III directors will
expire at the third annual meeting of stockholders, with each class of
directors to hold office until their successors have been duly elected and
qualified. At each annual meeting of stockholders, directors elected to
succeed the directors whose terms expire at such annual meeting shall be
elected to hold office for a term expiring at the annual meeting of
stockholders in the third year following the year of their election and until
their successors have been duly elected and qualified. The classification of
the Board will have the effect of making it more difficult for stockholders to
change the composition of the Board, because only a minority of the directors
are up for election at each annual meeting, and the Board may not be replaced
by vote of the stockholders at any one time.
Number of Directors; Removal; Filling Vacancies
The Certificate of Incorporation provides that the number of members of the
Board of Directors will be fixed from time to time pursuant to the By-laws.
The By-laws provide that the Board will consist of one or more members, the
number of which will be determined from time to time by the Board. The
Certificate of Incorporation and By-laws provide that in the event of any
increase or decrease in the authorized number of directors, (a) each director
then serving as such shall nevertheless continue as a director of the class of
which he is a member until the expiration of his current term, or his earlier
death, retirement, resignation, or removal, and (b) the newly created or
eliminated directorships resulting from such increase or decrease shall be
apportioned by the Board among the three classes of directors so as to
maintain such classes as nearly equal in number as reasonably possible. The
Certificate of Incorporation and By-laws provide that directors may be removed
only for cause except that a director who is also an officer may be removed
upon ceasing to be an officer. The By-laws provide that vacancies, whether
arising through death, retirement, resignation or removal of a director or
through an increase in the authorized number of directors of any class, may
only be filled by a majority vote of the remaining directors of the class in
which such vacancy occurs, or by the sole remaining director of that class if
one such director remains, or by the majority vote of the directors of the
remaining classes if no such director remains, or by stockholders at an annual
meeting of stockholders of the Company. A director elected to fill a vacancy
shall serve for the remainder of the then present term of office of the class
to which he is elected. These provisions would prevent any stockholder from
enlarging the Board and then filling the new directorships with such
stockholder's own nominees.
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No Stockholder Action by Written Consent; Special Meetings
The Certificate of Incorporation and By-laws provide that any action
required or permitted to be taken by the stockholders of the Company must be
duly effected at a duly called annual or special meeting of such holders and
may not be taken by any consent in writing by such holders. The Certificate of
Incorporation and By-laws provide that special meetings of stockholders of the
Company may be called only by the Chairman of the Board, the Vice Chairman of
the Board, the President or the Board pursuant to a resolution stating the
purpose or purposes thereof, and any power of stockholders to call a special
meeting is specifically denied. No business other than that stated in the
notice shall be transacted at any special meeting. These provisions will have
the effect of delaying consideration of a stockholder proposal until the next
annual meeting unless a special meeting is called by the Chairman, Vice
Chairman, President or the Board for consideration of such proposal.
Advance Notice for Stockholder Nominations and Proposals of New Business
The By-laws require notice of any proposal to be presented by any
stockholder or of the name of any person to be nominated by any stockholder
for election as a director of the Company at a meeting of stockholders to be
delivered to the Secretary of the Company not less than 60 nor more than 90
days prior to the date of the meeting. Accordingly, failure by a stockholder
to act in compliance with the notice provisions will mean that the stockholder
will not be able to nominate directors or propose new business.
Amendments
The Certificate of Incorporation provides that the affirmative vote of the
holders of at least 80% of the stock entitled to vote generally in the
election of directors, voting together as a single class, or a majority of the
Board is required to amend provisions of the By-laws relating to stockholder
action without a meeting; the calling of special meetings; the number (or
manner of determining the number), election and term of the Company's
directors; the filling of vacancies; and the removal of directors.
CERTAIN PROVISIONS OF DELAWARE LAW
Following the consummation of the Offering, the Company will be subject to
the "Business Combination" provisions of Section 203 of the DGCL. In general,
such provisions prohibit a publicly held Delaware corporation from engaging in
various "business combination" transactions with any "interested stockholder"
for a period of three years after the date of the transaction which the person
became an "interested stockholder," unless: (i) the transaction is approved by
the Board of Directors prior to the date the "interested stockholder" obtained
such status; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested stockholder"
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (a) persons who are
directors and also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer; or
(iii) on or subsequent to such date the "business combination" is approved by
the Board of Directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the outstanding
voting stock which is not owned by the "interested stockholder." A "business
combination" is defined to include mergers, asset sales and other transactions
resulting in financial benefit to a stockholder. In general, an "interested
stockholder" is a Person who, together with affiliates and associates, owns
(or within three years, did own) 15% or more of a corporation's voting stock.
The statute could prohibit or delay mergers or other takeover or change in
control attempts with respect to the Company and, accordingly, may discourage
attempts to acquire the Company.
Section 203 and the provision of the Company's Certificate of Incorporation
and By-laws described above may make it more difficult for a third party to
acquire, or discharge bids for, the Company. Section 203 and these provisions
could have the effect of inhibiting attempts to change the membership of the
Company's Board of Directors.
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LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102 of the DGCL authorizes a Delaware corporation to include a
provision in its certificate of incorporation limiting or eliminating the
personal liability of its directors to the corporation and its stockholders
for monetary damages for breach of the directors' fiduciary duty of care. The
duty of care requires that, when acting on behalf of the corporation,
directors exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitations authorized by
such provision, directors are accountable to corporations and their
stockholders for monetary damages for conduct constituting gross negligence in
the exercise of their duty of care. Although Section 102 of the DGCL does not
change a director's duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Company's
Certificate of Incorporation and By-laws include provisions which limit or
eliminate the personal liability of its directors to the fullest extent
permitted by Section 102 of the DGCL. Consequently, a director or officer will
not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for (i) any breach
of the director's duty of loyalty to the Company or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases, redemptions or other distributions and (iv) any transaction
from which the director derived an improper personal benefit.
The Certificate of Incorporation and By-laws provide that the Company will
indemnify to the full extent permitted by law any person made or threatened to
be made a party to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person or
such person's testator or intestate is or was a director, officer or employee
of the Company or serves or served at the request of the Company as a
director, officer or employee. The Certificate of Incorporation and By-laws
provide that expenses, including attorneys' fees, incurred by any such person
in defending any such action, suit or proceeding will be paid or reimbursed by
the Company promptly upon receipt by it of an undertaking of such person to
repay such expenses if it shall ultimately be determined that such person is
not entitled to be indemnified by the Company.
The inclusion of these indemnification provisions in the Company's Certificate
of Incorporation and By-laws is intended to enable the Company to attract
qualified persons to serve as directors and officers who might otherwise be
reluctant to do so.
The directors and officers of the Company are insured under policies of
insurance maintained by the Company, subject to the limits of the policies,
against certain losses arising from any claim made against them by reason of
being or having been such officers or directors. In addition, the limited
liability provisions in the Certificate of Incorporation and the
indemnification provisions in the Certificate of Incorporation and By-laws may
discourage stockholders from bringing a lawsuit against directors for breach
of their fiduciary duty (including breaches resulting from grossly negligent
conduct) and may have the effect of reducing the likelihood of derivative
litigation against directors and officers, even though such an action, if
successful, might otherwise have benefitted the Company and it stockholders.
Furthermore, a stockholder's investment in the Company may be adversely
affected to the extent the Company pays the costs of settlement and damage
awards against directors and officers of the Company pursuant to the
indemnification provisions in the Company's By-laws. The limited liability
provisions in the Certificate of Incorporation will not limit the liability of
directors under federal securities laws.
LISTING
Application has been made to list the Common Stock on the NYSE under the
symbol "ZD."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the
Company. The Company can make no predictions as to the effect, if any, that
sales of shares or the availability of shares for sale will have on the market
price prevailing from the time. Nevertheless, sales of significant amounts of
Common Stock in the public market, or the perception that such sales may
occur, could adversely affect the prevailing market prices. See "Risk
Factors--Shares Eligible for Future Sale."
Upon completion of the Offering, the Company expects to have shares of
Common Stock outstanding. Of the shares outstanding after the Offering, the
shares of Common Stock ( shares if the U.S. Underwriters' over-
allotment is exercised in full) sold in the Offering will be freely tradeable
without restriction under the Securities Act, except for any such shares which
may be acquired by an "affiliate" of the Company (an "Affiliate"), which
shares will be subject to the volume limitations of Rule 144. As defined in
Rule 144, an Affiliate of an issuer is a person that, directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under
common control with, such issuer.
An aggregate of shares of Common Stock held by existing
stockholders upon completion of the Offering will be "restricted securities"
(as that phrase is defined in Rule 144) and may not be resold in the absence
of registration under the Securities Act or pursuant to exemptions from such
registration, including among others, the exemption provided by Rule 144 under
the Securities Act. One year after the date of this Prospectus, approximately
shares of Common Stock will be eligible for sale in the public market
pursuant to Rule 144, subject to the volume limitations and other restrictions
described below.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least one year has elapsed
since the later of the date the "restricted securities" were acquired from the
Company and the date they were acquired from an Affiliate, then the holder of
such restricted securities (including an Affiliate) is entitled to sell a
number of shares within any three-month period that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock
(approximately shares immediately after the Offering) or the average
weekly reported volume of trading of the Common Stock on the NYSE during the
four calendar weeks preceding such sale. The holder may only sell such shares
through unsolicited brokers' transactions. Sales under Rule 144 are also
subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting restricted
shares in accordance with the foregoing volume limitations and other
requirements without regard to any holding period. Under Rule 144 (k), if a
period of at least two years has elapsed between the later of the date
restricted securities were acquired from the Company and the date they were
acquired from an Affiliate, as applicable, a holder of such restricted
securities who is not an Affiliate at the time of the sale and has not been an
Affiliate for at least three months prior to the sale would be entitled to
sell the shares immediately without regard to the volume limitations and other
restrictions described above.
Any employee of the Company who purchased his or her shares of Common Stock
or received an option to purchase Common Stock pursuant to a written
compensation plan or contract while the Company was not subject to the
reporting requirements of the U.S. Securities Exchange Act of 1934, as amended
(the "Exchange Act") may be entitled to rely on the resale provisions of Rule
701 under the Securities Act, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the current public information,
holding period, volume limitation or notice provisions of Rule 144 and permits
Affiliates to sell their Rule 701 shares without having to comply with the
holding period provision of Rule 144, in each case beginning 90 days after the
Company became subject to the reporting requirements of the Exchange Act.
The Company and Softbank entered into a Registration Rights Agreement, dated
as of , 1998 (the "Registration Rights Agreement"), in connection with
the Offering. The Registration Rights Agreement provides Softbank with the
right 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.
Pursuant to the Registration Rights
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Agreement, Softbank also has the right to "piggyback" or include its Common
Stock in any registration of Common Stock made by the Company.
Notwithstanding the foregoing, in connection with the Offering, each of the
Company, SOFTBANK Corp., the Company's directors and the Company's executive
officers, who own in aggregate shares of Common Stock, have agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated
on behalf of the Underwriters during the period ending 180 days after the date
of this Prospectus, they will not, directly or indirectly, (a) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase,
lend, or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (whether such shares or any such securities are
then owned by such person or are thereafter acquired directly from the
Company), or (b) enter into any swap or similar agreement that transfers, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (a) or (b) of this
paragraph is to be settled by delivery of such Common Stock or such other
securities, in cash or otherwise, other than (i) the sale to the Underwriters
of the shares of the Common Stock under the Underwriting Agreement (as
defined), (ii) the issuance by the Company of shares of Common Stock upon the
exercise of an option or warrant or the conversion of any security outstanding
on the date hereof of which the Underwriters have been advised in writing,
(iii) the issuance of shares of Common Stock in connection with the
Reorganization or (iv) subject to certain conditions, the sale by Softbank of
the shares of Common Stock issued for the Kingston assets. In addition,
SOFTBANK Corp. has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, neither it nor any
of its affiliates will, during the period ending 180 days after the date of
the Prospectus, make any demand for, or exercise any right with respect to,
the registration of any shares of Common Stock or any security convertible
into or exercisable or exchangeable for Common Stock.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summaries of certain material provisions of the Company's
Notes and Credit Facility do not purport to be complete and are subject to,
and qualified in its entirety by, the Company's Indenture (as defined below)
and Credit Facility), copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law. See "Available Information."
NOTES
General
The Notes are to be issued under an Indenture, to be dated as of , 1998
(the "Indenture"), between the Company and The Bank of New York, as trustee
(the "Trustee"). The Notes are general unsecured senior subordinated
obligations of the Company, and will rank on a parity with all other unsecured
and subordinated indebtedness of the Company. The Notes will be subordinated
in right of payment to all senior indebtedness of the Company (including
indebtedness under the Credit Agreement) as well as all other Senior
Indebtedness (as defined in the Indenture).
The Notes will be limited to $250,000,000 aggregate principal amount and
will mature on , 2008. Interest on the Notes will be payable on and
of each year, commencing , 1998 at the rate of % per annum. 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, at redemption prices starting
at % of their principal amount and declining to 100% of their principal
amount on or after , plus accrued and unpaid interest.
Covenants
The Indenture contains certain restrictive covenants, including, among
others, the following: (i) a limitation on the ability of the Company and its
Restricted Subsidiaries (as defined in the Indenture) to incur any
indebtedness other than Permitted Indebtedness (as defined in the Indenture);
(ii) a limitation on the ability of the Company and its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment (as
defined in the Indenture); (iii) a limitation on the ability of the Company to
suffer to exist certain dividend and other payment restrictions affecting its
Restricted Subsidiaries; (iv) a limitation on the ability of the Company to
sell or to permit any Restricted Subsidiary to issue or sell capital stock of
a Restricted Subsidiary; (v) a limitation on the ability of the Company and
its Restricted Subsidiaries to consummate certain Asset Sales (as defined in
the Indenture) unless certain conditions are fulfilled; and (vi) limitations
on any transaction with affiliates.
In addition, the Indenture limits the ability of the Company to merge with
or to transfer all or substantially all of its assets to another person.
Except as set forth above, the Indenture does not contain any material
quantitative financial requirements. The Notes provide for acceleration upon
customary events of default.
CREDIT FACILITY
The Company intends to enter into a $1.35 billion term Credit Facility with
a group of banks 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. 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 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
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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. There can be no assurance as to when or whether the Credit Facility
will be entered into or as to whether the Credit Facility will contain the
terms and conditions described above, and such may contain terms and
conditions more favorable or less favorable to the Company than set forth
above.
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a person that, for United States federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership or
an estate or trust, in each case not subject to United States federal income
tax on a net income basis in respect of income or gain from Common Stock (a
"non-U.S. holder"). This discussion does not consider the specific facts and
circumstances that may be relevant to particular holders in light of their
personal circumstances and does not address the treatment of non-U.S. holders
of Common Stock under the laws of any state, local or foreign taxing
jurisdiction. Further, the discussion is based on provisions of the United
States Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations thereunder, and administrative and judicial interpretations
thereof, all as in effect on the date hereof and all of which are subject to
change on a possibly retroactive basis. Each prospective holder is urged to
consult a tax advisor with respect to the United States federal tax
consequences of acquiring, holding and disposing of Common Stock, as well as
any tax consequences that may arise under the laws of any state, local or
foreign taxing jurisdiction.
DIVIDENDS
Dividends paid to a non-U.S. holder of Common Stock will be subject to
withholding of United States federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business
within the United States (and are attributable to a United States permanent
establishment of such holder, if an applicable income tax treaty so requires
as a condition for the non-U.S. holder to be subject to United States income
tax on a net income basis in respect of such dividends). Such "effectively
connected" dividends are subject to tax at rates applicable to United States
citizens, resident aliens and domestic United States corporations, and are not
generally subject to withholding. Any such effectively connected dividends
received by a non-United States corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as may be specified by an applicable income tax treaty.
Under currently effective United States Treasury regulations, dividends paid
to an address in a foreign country are presumed to be paid to a resident of
that country (unless the payor has knowledge to the contrary) for purposes of
the withholding discussed above and, under the current interpretation of
United States Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. Under recently finalized United States
Treasury regulations that will generally be effective for distributions after
December 31, 1999 (the "Final
72
<PAGE>
Withholding Regulations"), however, a non-U.S. holder of Common Stock who
wishes to claim the benefit of an applicable treaty rate would be required to
satisfy applicable certification requirements. In addition, under the Final
Withholding Regulations, in the case of Common Stock held by a foreign
partnership, (x) the certification requirement would generally be applied to
the partners of the partnership and (y) the partnership would be required to
provide certain information, including a United States taxpayer identification
number. The Final Withholding Regulations also provide look-through rules for
tiered partnerships.
A non-U.S. holder of Common Stock that is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for
refund with the United States Internal Revenue Service.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income tax in respect of gain recognized on a disposition of Common Stock
except in the following circumstances: (i) the gain is effectively connected
with a trade or business conducted by the non-U.S. holder in the United States
(and is attributable to a permanent establishment maintained in the United
States by such non-U.S. holder if an applicable income tax treaty so requires
as a condition for such non-U.S. holder to be subject to United States
taxation on a net income basis in respect of gain from the sale or other
disposition of the Common Stock); (ii) in the case of a non-U.S. holder who is
an individual and holds the Common Stock as a capital asset, such holder is
present in the United States for 183 or more days in the taxable year of the
sale and certain other conditions exist; (iii) the Company is or has been a
"United States real property holding corporation" for federal income tax
purposes and, in the event that the Common Stock is considered "regularly
traded on an established securities market", the non-U.S. holder held,
directly or indirectly at any time during the five-year period ending on the
date of disposition, more than 5% of the Common Stock (and is not eligible for
any treaty exemption); or (iv) the non-U.S. holder is subject to tax pursuant
to certain provisions of the Code applicable to U.S. expatriates. Effectively
connected gains realized by a corporate non-U.S. Holder may also, under
certain circumstances, be subject to an additional "branch profits tax" at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty.
The Company believes it is not currently, and does not anticipate becoming,
a "United States real property holding corporation" for federal income tax
purposes.
FEDERAL ESTATE TAXES
Common Stock held by a non-U.S. holder at the time of death will be included
in such holder's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under current law, United States information reporting requirements (other
than reporting of dividend payments for purposes of the withholding tax noted
above) and backup withholding tax generally will not apply to dividends paid
to non-U.S. holders that are either subject to the 30% withholding discussed
above or that are not so subject because an applicable tax treaty reduces such
withholding. Otherwise, backup withholding of United States federal income tax
at a rate of 31% may apply to dividends paid with respect to Common Stock to
holders that are not "exempt recipients" and that fail to provide certain
information (including the holder's United States taxpayer identification
number). Generally, unless the payor of dividends has definite knowledge that
the payee is a United States person, the payor may treat dividend payments to
a payee with a foreign address as exempt from information reporting and backup
withholding. However, under the Final Withholding Regulations, dividend
payments generally will be subject to information reporting and backup
withholding unless applicable certification requirements are satisfied. See
the discussion above with respect to the rules applicable to foreign
partnerships under the Final Withholding Regulations.
73
<PAGE>
In general, United States information reporting and backup withholding
requirements also will not apply to a payment made outside the United States
of the proceeds of a sale of Common Stock through an office outside the United
States of a non-United States broker. However, United States information
reporting (but not backup withholding) requirements will apply to a payment
made outside the United States of the proceeds of a sale of Common Stock
through an office outside the United States of a broker (i) that is a United
States person, (ii) that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, (iii)
that is a "controlled foreign corporation" as to the United States, or (iv)
(effective beginning January 1, 2000) a foreign partnership, if at any time
during its tax year, one or more of its partners are U.S. persons (as defined
in U.S. Treasury regulations) who in the aggregate hold more than 50% of the
income or capital interest in the partnership or if, at any time during its
tax year, such foreign partnership is engaged in a United States trade or
business, unless the broker has documentary evidence in its records that the
holder or beneficial owner is a non-United States person or the holder or
beneficial owner otherwise establishes an exemption. Payment of the proceeds
of the sale of Common Stock to or through a United States office of a broker
is currently subject to both United States backup withholding and information
reporting unless the holder certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption.
A non-United States holder generally may obtain a refund of any excess
amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the United States Internal Revenue Service.
74
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), Goldman, Sachs & Co. and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") are acting as U.S. Representatives, and the International
Underwriters named below for whom Morgan Stanley & Co. International Limited,
Merrill Lynch International, Goldman Sachs International and Donaldson, Lufkin
& Jenrette International are acting as International Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Common Stock set forth opposite
the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................................
Goldman, Sachs & Co. ..............................................
Donaldson, Lufkin & Jenrette Securities Corporation................
------
Subtotal.........................................................
------
International Underwriters:
Morgan Stanley & Co. International Limited.........................
Merrill Lynch International........................................
Goldman Sachs International........................................
Donaldson, Lufkin & Jenrette International.........................
------
Subtotal.........................................................
------
Total............................................................
======
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively
referred to as the "Underwriters" and the "Representatives", respectively. The
Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
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 all of the shares of Common Stock offered hereby (other than
those covered by the U.S. Underwriters' over-allotment option described below)
if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly,
any Shares or distribute any prospectus relating to the Shares outside of the
United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States
or Canadian Person. With respect to any Underwriter that is a U.S. Underwriter
and an International Underwriter, the foregoing representations and agreements
(i) made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement
75
<PAGE>
between U.S. and International Underwriters. As used herein, "United States or
Canadian Person" means any national or resident of the United States or
Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
Underwriters under the Underwriting Agreement are referred to herein as the
"Shares."
Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of
any number of Shares as may be mutually agreed. The per share price of any
Shares sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any Shares, directly or indirectly, in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and has represented that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made.
Each U.S. Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing
such Shares, such dealer represents and agrees that it has not offered or
sold, and will not offer or sell, directly or indirectly, any of such Shares
in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws thereof and that any offer or sale of Shares in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus
in the province or territory of Canada in which such offer or sale is made,
and that such dealer will deliver to any other dealer to whom it sells any of
such Shares a notice containing substantially the same statement as contained
in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date for
the sale of the Shares to the International Underwriters, will not offer or
sell, any Shares to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995; (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the Shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it
in connection with the offering of the Shares to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or
sales to Japanese International Underwriters or dealers and except pursuant to
any exemption from the registration requirements of the Securities and
Exchange Law and otherwise in compliance with applicable provisions of
Japanese law. Each International Underwriter has further agreed to send to any
dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, any of such Shares, directly
or indirectly, in Japan or to or for the account of any resident thereof
except for offers or sales to Japanese International Underwriters or dealers
and except pursuant to any exemption from the registration requirements of the
Securities and Exchange Law and otherwise in compliance with applicable
76
<PAGE>
provisions of Japanese law, and that such dealer will send to any other dealer
to whom it sells any of such Shares a notice containing substantially the same
statement as contained in this sentence.
The Underwriters initially propose to offer part of the shares of Common
Stock 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 $ a share under the public offering
price. Any Underwriter may allow, and such dealers may reallow, a concession
not in excess of $ a share to other Underwriters or to certain
other dealers. After the initial offering of the shares of Common Stock, the
offering price and other selling terms may from time to time be varied by the
Representatives.
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the public offering price set
forth on the cover page hereof, less underwriting discounts and commissions.
The U.S. Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares of Common Stock offered hereby. To the extent such option is exercised,
each U.S. Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as the number set forth next to such U.S. Underwriter's name in the
preceding table bears to the total number of shares of Common Stock set forth
next to the names of all U.S. Underwriters in the preceding table.
The Company intends to make an application to list the Common Stock on the
New York Stock Exchange under the symbol "ZD." In order to meet the
requirements for listing the Common Stock on the New York Stock Exchange, the
Underwriters have undertaken to meet the New York Stock Exchange's minimum
distribution, issuance and aggregate market value requirements.
At the request of the Company, the U.S. Underwriters have reserved shares of
Common Stock offered hereby for sale, at the initial public offering price, up
to shares to be issued by the Company and offered hereby for directors,
officers, employees, business associates and related persons of the Company.
The number of shares of Common Stock available for sale to the general public
will be reduced to the extent such individuals purchase such reserved shares.
Any reserved shares which are not so purchased will be offered by the U.S.
Underwriters to the general public on the same basis as the other shares
offered hereby.
Each of the Company, the Company's directors and certain of the Company's
executive officers has agreed that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, during the period ending 180
days after the date of the Prospectus, it will not (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities,
in cash or otherwise. The restrictions described in this paragraph do not
apply to (a) the sale to the Underwriters of the shares of Common Stock under
the Underwriting Agreement, (b) the issuance by the Company of shares of
Common Stock upon the exercise of an option or a warrant or the conversion of
a security outstanding on the date of this Prospectus of which the
Underwriters have been advised in writing, (c) transactions by any person
other than the Company relating to shares of Common Stock or other securities
acquired in open market transactions after the completion of the offering of
the Shares, (d) the issuance of shares of Common Stock in connection with the
Reorganization or (e) subject to certain conditions, the sale by Softbank of
the shares of Common Stock issued in exchange for the Kingston assets. In
addition, SOFTBANK Corp. has agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, neither it
nor any of its affiliates will, during the period ending 180 days after the
date of the Prospectus, make any demand for, or exercise any right with
respect to, the registration of any shares of Common Stock or any security
convertible into or exercisable or exchangeable for Common Stock.
77
<PAGE>
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the Offering, creating a short position in the Common Stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the Common Stock, the Underwriters may bid for, and purchase,
shares of Common Stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an Underwriter or a dealer for
distributing the Common Stock in the Offering if the syndicate repurchases
previously distributed shares of Common Stock 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 Common
Stock 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, Merrill Lynch and DLJ are also acting as
underwriters in connection with the Notes Offering and will receive customary
discounts and commissions in connection therewith. Morgan Stanley Senior
Funding, an affiliate of Morgan Stanley, 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 has committed to provide
bridge financing to Softbank Holdings Inc. in an aggregate principal amount of
$225 million and will receive fees pursuant to such bridge financing
arrangement customary to performing such services.
PRICING OF OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock will be
determined by negotiations between the Company and the Representatives. Among
the factors to be considered in determining the initial public offering price
will be the Company's record of operations, the Company's current financial
position and future prospects, the experience of its management, the economics
of the industry in general, the general condition of the equity securities
markets, sales, earnings and certain other financial operation information of
the Company in recent periods, the price-earnings ratios, price-sales ratios,
market prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. The estimated
initial public offering price range set forth on the cover page of this
Preliminary Prospectus is subject to change as a result of market conditions
and other factors.
VALIDITY OF COMMON STOCK
The validity of the Common Stock 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 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.
78
<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.
79
<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 and Stockholder of
ZD Inc.
The information and capitalization of the Company described in Note 1 to the
balance sheet has not been consummated at March 27, 1998. When it has been
consummated, we would be in a position to furnish the following report:
"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
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
MARCH 27,
1998
---------
<S> <C>
Cash................................................................. $ --
-----
Total assets......................................................... $ --
=====
LIABILITIES AND STOCKHOLDERS' EQUITY
Commitments and contingencies (Notes 1 and 2)........................
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized; no
shares issued and outstanding..................................... $ --
Common stock, $.01 par value; 110,000,000 shares authorized; no
shares issued and
outstanding....................................................... --
-----
Total 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 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 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 will be obtained.
The Company is currently negotiating with 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. INCENTIVE COMPENSATION
On February 13, 1998, 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.
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 wholly-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
Notes payable to affiliates(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 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
Year ended December 31, 1995:
<TABLE>
<CAPTION>
UNITED STATES OTHER AREAS COMBINED
------------- ----------- ----------
<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>
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)
Transactions between geographic areas are not significant.
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.
Guarantees 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 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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 March , 1998
,000,000 Shares
Ziff-Davis Inc.
COMMON STOCK
----------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. OF THE SHARES OF COMMON STOCK BEING OFFERED HEREBY,
,000,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES
AND CANADA BY THE INTERNATIONAL UNDERWRITERS AND ,000,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS. SEE "UNDERWRITERS." PRIOR TO THE OFFERING, THERE HAS
BEEN NO PUBLIC MARKET FOR COMMON STOCK OF THE COMPANY. IT IS
CURRENTLY ANTICIPATED THAT THE INITIAL PUBLIC OFFERING PRICE
WILL BE BETWEEN $ AND $ PER SHARE. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.
----------
CONCURRENTLY WITH THE OFFERING BEING MADE HEREBY, THE COMPANY IS OFFERING, BY
MEANS OF A SEPARATE PROSPECTUS, $250 MILLION AGGREGATE PRINCIPAL AMOUNT OF
ITS % SENIOR SUBORDINATED NOTES DUE 2008 (THE "NOTES 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."
----------
UPON COMPLETION OF THE OFFERINGS, AFFILIATES OF THE COMPANY WILL RETAIN
APPROXIMATELY % OF THE OUTSTANDING VOTING POWER OF THE COMPANY. SEE
"PRINCIPAL STOCKHOLDERS."
----------
APPLICATION WILL BE MADE TO LIST THE COMMON STOCK ON THE
NEW YORK STOCK EXCHANGE UNDER THE SYMBOL "ZD."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 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.
----------
PRICE $ A SHARE
----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Share................................... $ $ $
Total(3).................................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at
$ . All the net proceeds will be paid to affiliates of the
Company. See "Use of Proceeds."
(3) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
additional shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriters."
----------
The Shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the Shares will be made on or about April , 1998 at
the office of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in immediately available funds.
----------
MORGAN STANLEY DEAN WITTER
MERRILL LYNCH INTERNATIONAL
GOLDMAN SACHS INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
International
March , 1998
(INTERNATIONAL VERSION)
<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...................... $135,700
NASD fees and expenses.... 30,500
Legal fees and expenses... *
Fees and expenses of qual-
ification under state se-
curities laws
(including legal fees)... *
NYSE listing fees and ex-
penses................... *
Accounting fees and ex-
penses................... *
Printing and engraving
fees..................... *
Registrar and transfer
agent's fees............. *
Miscellaneous............. *
Total................... $ *
</TABLE>
- --------
* To be filed by amendment
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.
3.2 Form of By-laws of the Company.
4.1 Specimen of certificate representing the Company's Common Stock, par
value $.01 per share.**
5.1 Opinion of Sullivan & Cromwell, counsel to the Company.**
10.1 1998 Incentive Compensation Plan.
10.2 1998 Employee Stock Purchase Plan.**
10.3 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.**
10.4 Master License Agreement, dated as of January 1, 1998, between Ziff-
Davis Inc. and SOFTBANK Corp.**
10.5 ZDNet License Agreement, dated as of , between Ziff-Davis Inc.
and SOFTBANK Corp.**
10.6 Service Mark License Agreement, dated as of , between Ziff-Davis
Inc. and SOFTBANK Corp.**
10.7 Technical Assistance Agreement, dated as of , between Ziff-Davis
Inc. and SOFTBANK Corp.**
10.8 Accounting and Administrative Services Agreement, dated as of ,
between Ziff-Davis Inc. and SOFTBANK Corp.**
10.9 Registration Rights Agreement, dated as of , between Ziff-Davis
Inc. and SOFTBANK Corp.**
10.10 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.**
10.11 Credit Agreement, dated as of , 1998, between Ziff-Davis Inc.,
BNY Capital Markets, Inc., Morgan Stanley Senior Funding, Inc. and the
Agents listed therein.**
10.12 Lease of Ziff-Davis Inc. headquarters at 28 East 28th Street, New York,
New York.
10.13 Lease Agreement, dated as of , 1998, between ZD Inc., ZD COMDEX
and Forums Inc. and Kingston Technology Company.**
10.14 Form of Indenture, dated as of , 1998, between Ziff-Davis Inc. and
The Bank of New York, as Trustee.**
12. Computation of Ratio of Earnings to Fixed Charges.
21.1 List of subsidiaries of the Company.**
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Sullivan & Cromwell (included in Exhibit 5 above).**
27. Financial Data Schedule.*
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing of the Offering, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-2
<PAGE>
(b) 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.
(c) 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 Registration Statement or amendment thereto to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, New York on the 1st day of March, 1998.
ZD Inc.
/s/ Ronald D. Fisher
By
-----------------------------------
RONALD D. FISHER
PRESIDENT
/s/ Ronald D. Fisher
-----------------------------------
RONALD D. FISHER,
SOLE DIRECTOR, PRESIDENT AND
TREASURER (PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
II-4
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
BEFORE PAYMENT OF CAPITAL
OF
ZD INC.
(PURSUANT TO SECTION 241 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE)
ZD Inc., a Delaware corporation (the "Corporation"), hereby certifies as
follows:
FIRST. The Corporation has not received any payment for any of its stock and
this amendment to its certificate of incorporation has been duly adopted in
accordance with Section 241 of the General Corporation law of the State of
Delaware.
SECOND. The Board of Directors of the Corporation duly adopted a resolution
setting forth and declaring advisable the amendment of its certificate of
incorporation to read as follows:
ARTICLE FIRST
NAME
The name of the Corporation is ZD Inc.
ARTICLE SECOND
REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE THIRD
PURPOSES
The purposes of the Corporation are as follows:
(a) to publish information on computing and Internet-related technology
through the media of print, CD ROM/DVD, Internet and television;
(b) to produce trade shows, conferences, exhibitions and similar events
primarily related to computing and Internet-related technology; and
(c) to engage in any other lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
<PAGE>
ARTICLE FOURTH
CAPITAL STOCK
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 120 million shares, of which 110 million
shares of the par value of $.01 per share shall be designated as Common Stock,
and 10 million shares of the par value of $.01 per share shall be designated
as Preferred Stock.
Shares of Preferred Stock may be issued in one or more series from time to
time by the board of directors, and the board of directors is expressly
authorized to fix by resolution or resolutions the designations and the
powers, preferences and rights, and the qualifications, limitations and
restrictions thereof, of the shares of each series of Preferred Stock,
including without limitation the following:
(a) the distinctive serial designation of such series which shall
distinguish it from other series;
(b) the number of shares included in such series;
(c) the dividend rate (or method of determining such rate) payable to the
holders of the shares of such series, any conditions upon which such
dividends shall be paid and the date or dates upon which such dividends
shall be payable;
(d) whether dividends on the shares of such series shall be cumulative
and, in the case of shares of any series having cumulative dividend rights,
the date or dates or method of determining the date or dates from which
dividends on the shares of such series shall be cumulative;
(e) the amount or amounts which shall be payable out of the assets of the
Corporation to the holders of the shares of such series upon voluntary or
involuntary liquidation, dissolution or winding up the Corporation, and the
relative rights of priority, if any, of payment of the shares of such
series;
(f) the price or prices at which, the period or periods within which and
the terms and conditions upon which the shares of such series may be
redeemed, in whole or in part, at the option of the Corporation or at the
option of the holder or holders thereof or upon the happening of a
specified event or events;
(g) the obligation, if any, of the Corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the price
or prices at which, the period or periods within which and the terms and
conditions upon which the shares of such series shall be redeemed or
purchased, in whole or in part, pursuant to such obligation;
(h) whether or not the shares of such series shall be convertible or
exchangeable, at any time or times at the option of the holder or holders
thereof or at the option of the Corporation or upon the happening of a
specified event or events, into shares of any other class or classes or any
other series of the same or any other class or classes of stock of the
Corporation, and the price or prices or rate or rates of exchange or
conversion and any adjustments applicable thereto; and
(i) whether or not the holders of the shares of such series shall have
voting rights, in addition to the voting rights provided by law, and if so
the terms of such voting rights.
Subject to the rights of the holders of any series of Preferred Stock, the
number of authorized shares of any class or series of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote, irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of Delaware or any corresponding
provision hereafter enacted.
2
<PAGE>
ARTICLE FIFTH
BY-LAWS
The board of directors of the Corporation is expressly authorized to adopt,
amend or repeal by-laws of the Corporation.
The by-laws of the Corporation may also be altered or repealed and new by-
laws may be adopted (i) at any annual or special meeting of stockholders, by
the affirmative vote of the holders of not less than a majority of the voting
power of all outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors, considered for purposes hereof
as a single class, provided, however, that any proposed alteration or repeal
of, or the adoption of any by-law inconsistent with, Sections 1.2, 1.11 and
1.12 of Article I of the by-laws, Sections 2.1 and 2.2 of Article II of the
by-laws, or this sentence, by the stockholders shall require the affirmative
vote of the holders of not less than 80% of the voting power of all
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors, considered for purposes hereof as a
single class, or (ii) by the affirmative vote of a majority of the board of
directors.
ARTICLE SIXTH
BOARD OF DIRECTORS
The number of directors of the Corporation shall be fixed from time to time
pursuant to the by-laws of the Corporation. Commencing with the first annual
meeting of stockholders, the directors of the Corporation shall be divided
into three classes, as nearly equal in number as reasonably possible, as
determined by the board of directors, with the initial term of office of the
first class of such directors ("Class I") to expire at the first annual
meeting of stockholders, the initial term of office of the second class of
such directors ("Class II") to expire at the second annual meeting of
stockholders and the initial term of office of the third class of such
directors ("Class III") to expire at the third annual meeting of stockholders
thereafter, with each class of directors to hold office until their successors
have been duly elected and qualified. At each annual meeting of stockholders,
directors elected to succeed the directors whose terms expire at such annual
meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders in the third year following the year of their election
and until their successors have been duly elected and qualified. Elections of
directors need not be by written ballot except and to the extent provided in
the by-laws of the Corporation. In the event of any increase or decrease in
the authorized number of directors, (a) each director then serving as such
shall nonetheless continue as a director of the class of which he is a member
until the expiration of his current term, or his earlier death, retirement,
resignation, or removal, and (b) the newly created or eliminated directorships
resulting from such increase or decrease shall be apportioned by the board of
directors among the three classes of directors so as to maintain such classes
as nearly equal in number as reasonably possible. No director may be removed
except for cause, provided a director who is also an officer of the
Corporation shall resign or be removed upon termination of his or her
employment as such officer. This Article SIXTH may not be amended, modified or
repealed except by the affirmative vote of the holders of not less than 80% of
the voting power of all outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, considered for
purposes hereof as a single class.
ARTICLE SEVENTH
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of the
Corporation must be taken at a duly called annual or special meeting of such
holders and may not be taken by any consent in writing by such holders. Except
as otherwise provided for herein or required by law, special meetings of
stockholders of the Corporation for any purpose or purposes may be called only
by the Chairman or the board of directors pursuant to a resolution stating the
purpose or purposes thereof, and any power of stockholders to call a special
meeting is specifically denied.
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ARTICLE EIGHTH
DIRECTOR LIABILITY
A director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that such exemption from liability or limitation thereof
is not permitted under the Delaware General Corporation Law as currently in
effect or as the same may hereafter be amended. No amendment, modification or
repeal of this Article EIGHTH shall adversely affect any right or protection
of a director that exists at the time of such amendment, modification or
repeal.
IN WITNESS WHEREOF, ZD Inc. has caused this certificate to be signed by Eric
Hippeau, its Chairman, on the day of April 1998.
ZD Inc.
By
-----------------------------------
Eric Hippeau, Chairman
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EXHIBIT 3.2
BY-LAWS
OF
ZD INC.
ARTICLE I
STOCKHOLDERS
Section 1.1. Annual Meetings. An annual meeting of stockholders shall be
held for the election of directors at such date, time and place either within
or without the State of Delaware as may be designated by the Board of
Directors from time to time. Any other proper business may be transacted at
the annual meeting.
Section 1.2. Special Meetings. Special meetings of stockholders may be
called at any time by the Chairman, if any, the Vice Chairman, if any, the
President or the Board of Directors pursuant to a resolution stating the
purpose or purposes thereof, to be held at such date, time and place either
within or without the State of Delaware as may be stated in the notice of the
meeting. Any power of stockholders to call a special meeting is specifically
denied.
Section 1.3. Notice of a Meetings. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the
meeting is called. Unless otherwise provided by law, the written notice of any
meeting shall be given not less than 10 nor more than 60 days before the date
of the meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail, postage prepaid, directed to the stockholder at such
stockholder's address as it appears on the records of the Corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or special,
may be adjourned from time to time, to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment
is for more than 30 days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of stockholders, except where otherwise
provided by law or the certificate of incorporation or these by-laws, the
holders of a majority of the outstanding shares of stock entitled to vote on a
matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a separate vote by
class or classes is required for any matter, the holders of a majority of the
outstanding shares of such class or classes, present in person or represented
by proxy, shall constitute a quorum to take action with respect to that vote
on that matter. Two or more classes or series of stock shall be considered a
single class if the holders thereof are entitled to vote together as a single
class at the meeting. In the absence of a quorum of the holders of any class
of stock entitled to vote on a matter, the holders of such class so present or
represented may, by majority vote, adjourn the meeting of such class from time
to time in the manner provided by Section 1.4 of these by-laws until a quorum
of such class shall be so present or represented. Shares of its own capital
stock belonging on the record date for the meeting to the Corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes; provided, however, that the foregoing shall not
limit the right of the Corporation to vote stock, including but not limited to
its own stock, held by it in a fiduciary capacity.
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Section 1.6. Organization. Meetings of stockholders shall be presided over
by the Chairman, or in the absence of the Chairman by the Vice Chairman, if
any, or in the absence of the Vice Chairman by a Vice President, or in the
absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary, or in the absence of the Secretary an Assistant
Secretary, shall act as secretary of the meeting, but in the absence of the
Secretary and any Assistant Secretary the chairman of the meeting may appoint
any person to act as secretary of the meeting.
The order of business at each such meeting shall be as determined by the
chairman of the meeting. The chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all
such acts and things as are necessary or desirable for the proper conduct of
the meeting, including, without limitation, the establishment of procedures
for the maintenance of order and safety, limitations on the time allotted to
questions or comments on the affairs of the Corporation, restrictions on entry
to such meeting after the time prescribed for the commencement thereof and the
opening and closing of the voting polls.
Section 1.7. Inspectors. Prior to any meeting of stockholders, the Board of
Directors or the Chairman shall appoint one or more inspectors to act at such
meeting and make a written report thereof and may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at the meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall ascertain the number of shares outstanding and
the voting power of each, determine the shares represented at the meeting and
the validity of proxies and ballots, count all votes and ballots, determine
and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors and certify their
determination of the number of shares represented at the meeting and their
count of all votes and ballots. The inspectors may appoint or retain other
persons to assist them in the performance of their duties. The date and time
of the opening and closing of the polls for each matter upon which the
stockholders will vote at a meeting shall be announced at the meeting. No
ballot, proxy or vote, nor any revocation thereof or change thereto, shall be
accepted by the inspectors after the closing of the polls. In determining the
validity and counting of proxies and ballots, the inspectors shall be limited
to an examination of the proxies, any envelopes submitted therewith, any
information provided by a stockholder who submits a proxy by telegram,
cablegram or other electronic transmission from which it can be determined
that the proxy was authorized by the stockholder, ballots and the regular
books and records of the corporation, and they may also consider other
reliable information for the limited purpose of reconciling proxies and
ballots submitted by or on behalf of banks, brokers, their nominees or similar
persons which represent more votes than the holder of a proxy is authorized by
the record owner to cast or more votes than the stockholder holds of record.
If the inspectors consider other reliable information for such purpose, they
shall, at the time they make their certification, specify the precise
information considered by them, including the person or persons from whom they
obtained the information, when the information was obtained, the means by
which the information was obtained and the basis for the inspectors' belief
that such information is accurate and reliable.
Section 1.8. Voting; Proxies. Unless otherwise provided in the certificate
of incorporation, each stockholder entitled to vote at any meeting of
stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. Each
stockholder entitled to vote at a meeting of stockholders or to express
consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy, but
no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power, regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking
the proxy or another duly executed proxy bearing a later date with the
Secretary of the Corporation. Voting at meetings of stockholders need not be
by written ballot unless the holders of a majority of the
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outstanding shares of all classes of stock entitled to vote thereon present in
person or represented by proxy at such meeting shall so determine. Directors
shall be elected by a plurality of the votes of the shares present in person
or represented by proxy at the meeting and entitled to vote on the election of
directors. In all other matters, unless otherwise provided by law or by the
certificate of incorporation or these by-laws, the affirmative vote of the
holders of a majority of the shares present in person or represented by proxy
at the meeting and entitled to vote on the subject matter shall be the act of
the stockholders. Where a separate vote by class or classes is required, the
affirmative vote of the holders of a majority of the shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class or classes, except as otherwise provided by law or by the
certificate of incorporation or these by-laws.
Section 1.9. Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than 60 nor less
than 10 days before the date of such meeting. If no record date is fixed by
the Board of Directors, the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day
on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 1.10. List of Stockholders Entitled to Vote. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof and may be inspected by any stockholder who is present.
Section 1.11 Consent of Stockholders Not Permitted. Any action required or
permitted to be taken by the stockholders of the Corporation must be taken at
a duly called annual or special meeting of such holders and may not be taken
by any consent in writing by such holders.
Section 1.12. Advance Notice of Stockholder Proposals. At any annual or
special meeting of stockholders, proposals by stockholders and persons
nominated for election as directors by stockholders shall be considered only
if advance notice thereof has been timely given as provided herein and such
proposals or nominations are otherwise proper for consideration under
applicable law and the certificate of incorporation and by-laws of the
Corporation. Notice of any proposal to be presented by any stockholder or of
the name of any person to be nominated by any stockholder for election as a
director of the Corporation at any meeting of stockholders shall be delivered
to the Secretary of the Corporation at its principal executive office not less
than 60 nor more than 90 days prior to the date of the meeting; provided,
however, that if the date of the meeting is first publicly announced or
disclosed (in a public filing or otherwise) less than 70 days prior to the
date of the
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meeting, such advance notice shall be given not more than ten days after such
date is first so announced or disclosed. Public notice shall be deemed to have
been given more than 70 days in advance of the annual meeting if the
Corporation shall have previously disclosed, in these by-laws or otherwise,
that the annual meeting in each year is to be held on a determinable date,
unless and until the Board determines to hold the meeting on a different date.
Any stockholder who gives notice of any such proposal shall deliver therewith
the text of the proposal to be presented and a brief written statement of the
reasons why such stockholder favors the proposal and setting forth such
stockholder's name and address, the number and class of all shares of each
class of stock of the Corporation beneficially owned by such stockholder and
any material interest of such stockholder in the proposal (other than as a
stockholder). Any stockholder desiring to nominate any person for election as
a director of the Corporation shall deliver with such notice a statement in
writing setting forth the name of the person to be nominated, the number and
class of all shares of each class of stock of the Corporation beneficially
owned by such person, the information regarding such person required by
paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by the
Securities and Exchange Commission (or the corresponding provisions of any
regulation subsequently adopted by the Securities and Exchange Commission
applicable to the Corporation), such person's signed consent to serve as a
director of the Corporation if elected, such stockholder's name and address
and the number and class of all shares of each class of stock of the
Corporation beneficially owned by such stockholder. As used herein, shares
"beneficially owned" shall mean all shares as to which such person, together
with such person's affiliates and associates (as defined in Rule 12b-2 under
the Securities Exchange Act of 1934), may be deemed to beneficially own
pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934,
as well as all shares as to which such person, together with such person's
affiliates and associates, has the right to become the beneficial owner
pursuant to any agreement or understanding, or upon the exercise of warrants,
options or rights to convert or exchange (whether such rights are exercisable
immediately or only after the passage of time or the occurrence of
conditions). The person presiding at the meeting, in addition to making any
other determinations that may be appropriate to the conduct of the meeting,
shall determine whether such notice has been duly given and shall direct that
proposals and nominees not be considered if such notice has not been given.
stock of the Corporation beneficially owned by such stockholder. As used
herein, shares "beneficially owned" shall mean all shares as to which such
person, together with such person's affiliates and associates (as defined in
Rule 12b-2 under the Securities Exchange Act of 1934), may be deemed to
beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities
Exchange Act of 1934, as well as all shares as to which such person, together
with such person's affiliates and associates, has the right to become the
beneficial owner pursuant to any agreement or understanding, or upon the
exercise of warrants, options or rights to convert or exchange (whether such
rights are exercisable immediately or only after the passage of time or the
occurrence of conditions). The person presiding at the meeting, in addition to
making any other determinations that may be appropriate to the conduct of the
meeting, shall determine whether such notice has been duly given and shall
direct that proposals and nominees not be considered if such notice has not
been given.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. Powers; Number; Qualifications. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The Board of Directors shall consist of one or more members,
the number thereof to be determined from time to time by the Board. Directors
need not be stockholders.
Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies. The
directors of the Corporation shall be divided into three classes, as nearly
equal in number as reasonably possible, as determined by the Board of
Directors, with the initial term of office of the first class of such
directors to expire at the first annual meeting of stockholders, the initial
term of office of the second class of such directors to expire at the second
annual meeting of stockholders and the initial term of office of the third
class of such directors to expire at the third annual meeting of stockholders,
with each class of directors to hold office until their successors have been
duly elected and qualified. At each annual meeting of stockholders, directors
elected to succeed the directors whose terms expire at such annual meeting
shall be elected to hold office for a term expiring at the annual
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meeting of stockholders in the third year following the year of their election
and until their successors have been duly elected and qualified or until his
or her earlier resignation or removal.
Any director may resign at any time upon written notice to the Board of
Directors or to the President or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein, and unless
otherwise specified therein no acceptance of such resignation shall be
necessary to make it effective. No director may be removed except for cause,
provided a director who is also an officer of the Corporation shall resign or
be removed upon termination of his or her employment as such officer.
In the event of any increase or decrease in the authorized number of
directors, (a) each director then serving as such shall nonetheless continue
as a director of the class of which he is a member until the expiration of his
current term, or his earlier death, retirement, resignation, or removal, and
(b) the newly created or eliminated directorships resulting from such increase
or decrease shall be apportioned by the Board of Directors among the three
classes of directors so as to maintain such classes as nearly equal in number
as reasonably possible. Unless otherwise provided in the certificate of
incorporation or these by-laws, vacancies, whether arising through death,
retirement, resignation or removal of a director or through an increase in the
authorized number of directors of any class, may only be filled by a majority
vote of the remaining directors of the class in which such vacancy occurs, or
by the sole remaining director of that class if one such director remains, or
by the majority vote of the directors of the remaining classes if no such
director remains, or by stockholders at an annual meeting of stockholders of
the Corporation. Any director elected or appointed to fill a vacancy shall
hold office until the next election of the class of directors of the director
which such director replaced, and until and his or her successor is elected
and qualified or until his or her earlier resignation or removal.
Section 2.3. Regular Meetings. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware and at such
times as the Board may from time to time determine, and if so determined
notice thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of Directors
may be held at any time or place within or without the State of Delaware
whenever called by the Chairman, by the Vice Chairman, if any, or by any two
directors. Reasonable notice thereof shall be given by the person or persons
calling the meeting.
Section 2.5. Participation in Meetings by Conference Telephone
Permitted. Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the Board of Directors, or any committee designated
by the Board, may participate in a meeting of the Board or of such committee,
as the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the Board
of Directors one-third of the entire Board shall constitute a quorum for the
transaction of business. The vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board unless the
certificate of incorporation or these by-laws shall require a vote of a
greater number. In case at any meeting of the Board a quorum shall not be
present, the members of the Board present may adjourn the meeting from time to
time until a quorum shall be present.
Section 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman, or in the absence of the Chairman by the Vice
Chairman, if any, or in their absence by a chairman chosen at the meeting. The
Secretary, or in the absence of the Secretary an Assistant Secretary, shall
act as secretary of the meeting, but in the absence of the Secretary and any
Assistant Secretary the chairman of the meeting may appoint any person to act
as secretary of the meeting.
Section 2.8. Action by Directors Without a Meeting. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of
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Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or of such committee, as the case may be, consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
Section 2.9. Compensation of Directors. Unless otherwise restricted by the
certificate of incorporation or these by-laws, the Board of Directors shall
have the authority to fix the compensation of directors.
ARTICLE III
COMMITTEES
Section 3.1. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
or in these by-laws, shall have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it; but no such committee shall have the power or
authority in reference to the following matters: (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by
law to be submitted to stockholders for approval, (ii) adopting, amending or
repealing these By-Laws or (iii) removing or indemnifying directors.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a
majority of the entire authorized number of members of such committee shall
constitute a quorum for the transaction of business, the vote of a majority of
the members present at a meeting at the time of such vote if a quorum is then
present shall be the act of such committee, and in other respects each
committee shall conduct its business in the same manner as the Board conducts
its business pursuant to Article II of these by-laws.
ARTICLE IV
OFFICERS
Section 4.1. Officers; Election. As soon as practicable after the annual
meeting of stockholders in each year, the Board of Directors shall elect a
Chairman and Chief Executive Officer and a Secretary, and it may, if it so
determines, elect from among its members a Vice Chairman. The Board may also
elect one or more Vice Presidents, one or more Assistant Vice Presidents, one
or more Assistant Secretaries, a Treasurer and one or more Assistant
Treasurers and such other officers as the Board may deem desirable or
appropriate and may give any of them such further designations or alternate
titles as it considers desirable. Any number of offices may be held by the
same person unless the certificate of incorporation or these by-laws otherwise
provide.
Section 4.2. Term of Office; Resignation; Removal; Vacancies. Unless
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any officer
may resign at any time upon written notice to the Board or to the Chairman or
the Secretary of the Corporation. Such resignation shall take effect at the
time specified therein, and unless otherwise specified therein no acceptance
of such resignation shall be necessary to make it effective. The Board may
remove any officer with or without cause at any time. Any such removal shall
be without prejudice to the contractual rights of such officer, if any, with
the Corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled by the Board at any
regular or special meeting.
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Section 4.3. Powers and Duties. The officers of the Corporation shall have
such powers and duties in the management of the Corporation as shall be stated
in these by-laws or in a resolution of the Board of Directors which is not
inconsistent with these by-laws and, to the extent not so stated, as generally
pertain to their respective offices, subject to the control of the Board. The
Secretary shall have the duty to record the proceedings of the meetings of the
stockholders, the Board of Directors and any committees in a book to be kept
for that purpose. The Board may require any officer, agent or employee to give
security for the faithful performance of his or her duties.
ARTICLE V
STOCK
Section 5.1. Certificates. Every holder of stock in the Corporation shall be
entitled to have a certificate signed by or in the name of the Corporation by
the Chairman or Vice Chairman, if any, or a Vice President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary, of the Corporation, representing the number of shares of stock in
the Corporation owned by such holder. If such certificate is manually signed
by one officer or manually countersigned by a transfer agent or by a
registrar, any other signature on the certificate may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.
If the Corporation is authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the Corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided by law,
in lieu of the foregoing requirements, there may be set forth on the face or
back of the certificate which the Corporation shall issue to represent such
class or series of stock a statement that the Corporation will furnish without
charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may
be made against it on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6.2. Seal. The Corporation may have a corporate seal which shall
have the name of the Corporation inscribed thereon and shall be in such form
as may be approved from time to time by the Board of Directors. The corporate
seal may be used by causing it or a facsimile thereof to be impressed or
affixed or in any other manner reproduced.
Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors and
Committees. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written
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waiver thereof, signed by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders, directors or members of a committee of directors
need be specified in any written waiver of notice unless so required by the
certificate of incorporation or these by-laws.
Section 6.4. Indemnification of Directors, Officers and Employees;
Insurance. The Corporation shall indemnify to the full extent permitted by law
any person made or threatened to be made a party to any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person or such person's testator or intestate is
or was a director, officer or employee of the Corporation or serves or served
at the request of the Corporation any other enterprise as a director, officer
or employee. Expenses, including attorneys' fees, incurred by any such person
in defending any such action, suit or proceeding shall be paid or reimbursed
by the Corporation promptly upon receipt by it of an undertaking of such
person to repay such expenses if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation. The rights
provided to any person by this by-law shall be enforceable against the
Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director, officer or employee as provided
above. No amendment of this by-law shall impair the rights of any person
arising at any time with respect to events occurring prior to such amendment.
For purposes of this by-law, the term "Corporation" shall include any
predecessor of the Corporation and any constituent corporation (including any
constituent of a constituent) absorbed by the Corporation in a consolidation
or merger; the term "other enterprise" shall include any corporation,
partnership, joint venture, trust or employee benefit plan; service "at the
request of the Corporation" shall include service as a director, officer or
employee of the Corporation which imposes duties on, or involves services by,
such director, officer or employee with respect to an employee benefit plan,
its participants or beneficiaries; any excise taxes assessed on a person with
respect to an employee benefit plan shall be deemed to be indemnifiable
expenses; and action by a person with respect to an employee benefit plan
which such person reasonably believes to be in the interest of the
participants and beneficiaries of such plan shall be deemed to be action not
opposed to the best interests of the Corporation.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the Delaware General Corporation Law.
Section 6.5. Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present
at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
her or their votes are counted for such purpose, if: (1) the material facts as
to his or her relationship or interest and as to the contract or transaction
are disclosed or are known to the Board or the committee, and the Board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (2) the material facts
as to his or her relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good
faith by vote of the stockholders; or (3) the contract or transaction is fair
as to the Corporation as of the time it is authorized, approved or ratified,
by the Board, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorizes the contract or
transaction.
Section 6.6. Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of,
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punch cards, magnetic tape, photographs, microphotographs or any other
information storage device, provided that the records so kept can be converted
into clearly legible form within a reasonable time. The Corporation shall so
convert any records so kept upon the request of any person entitled to inspect
the same.
Section 6.7. Amendment of By-Laws. These by-laws may be amended or repealed,
and new by-laws adopted, by the Board of Directors, but the stockholders
entitled to vote may adopt additional by-laws and may amend or repeal any by-
law whether or not adopted by them, subject in each case to the provisions of
the certificate of incorporation.
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EXHIBIT 10.1
ZIFF-DAVIS
1998 INCENTIVE COMPENSATION PLAN
1. PURPOSE.
The purpose of the Ziff-Davis 1998 Incentive Compensation Plan (the "Plan")
is to promote the growth and performance of ZD Inc., a Delaware corporation
(the "Company") and its affiliates, by encouraging employees and consultants
of the Company and its affiliates to acquire an ownership position in the
Company through the holding of common stock of the Company, par value $0.01
per share (the "Common Stock"), enhancing the ability of the Company and its
affiliates to attract and retain employees and consultants of outstanding
ability, and providing such employees and consultants with an interest in the
Company parallel to that of the Company's stockholders.
2. PLAN ADMINISTRATION.
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), composed
of "non-employee directors" within the meaning of Rule 16b-3 as promulgated
under Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act")
and "outside directors" within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). A majority of the Committee
shall constitute a quorum, and the acts of the majority of such quorum shall
be the acts of the Committee. Subject to the provisions of the Plan, the
Committee (i) shall select the participants in the Plan ("Participants"),
determine the type of awards ("Awards") to be made to Participants, determine
the number of shares or share units subject to Awards, and (ii) shall have the
authority to interpret the Plan, to establish, amend, and rescind any rules
and regulations relating to the Plan, to determine the terms and provisions of
any Award agreements entered into hereunder, and to make all other
determinations necessary or advisable for the administration of the Plan. The
Committee may accelerate the exercisability of any Award granted hereunder,
and may correct any defect, supply any omission or reconcile any inconsistency
in the Plan or in any Award in the manner and to the extent it shall deem
desirable to carry it into effect. The determinations of the Committee in the
administration of the Plan, as described herein, shall be final, conclusive
and binding on all persons, including the Company and its subsidiaries, its
shareholders, Participants and their estates and beneficiaries. Members of the
Committee and any officer or employee of the Company or any subsidiary acting
at the direction of, or on behalf of, the Committee shall not be personally
liable for any action or determination taken or made in good faith with
respect to the Plan, and shall, to the extent permitted by law, be fully
indemnified by the Company with respect to any such action or determination.
It is the intention of the Company that the Plan and the administration
thereof comply in all respects with Section 16(b) of the Exchange Act and the
rules and regulations thereunder, and in all events the Plan shall be
construed in favor of its meeting the requirements of Rule 16b-3 promulgated
under the Exchange Act.
3. ELIGIBILITY.
All employees and consultants of the Company and its affiliates who have
demonstrated significant management potential or who have the capacity for
contributing in a substantial measure to the successful performance of the
Company and its affiliates, as determined by the Committee, are eligible to be
Participants in the Plan and to receive Awards under Section 5.
4. SHARES SUBJECT TO THE PLAN.
Subject to adjustment as provided in Section 9, the number of shares of
Common Stock available for the grant of Awards under the Plan shall not exceed
8,500,000 shares. The shares issued under the Plan may be authorized and
unissued shares or treasury shares, as the Company may from time to time
determine. Shares subject to or underlying an Award that expires unexercised,
or is forfeited, terminated or canceled, or is paid in cash in lieu of Common
Stock and shares that are tendered to pay for the exercise of a stock option
shall thereafter again be available for grant under the Plan.
<PAGE>
5. TYPES OF AWARDS.
Awards under the Plan may consist of one or more of the following: stock
awards, stock options (either incentive stock options within the meaning of
Code Section 422 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). Awards of
performance shares and restricted stock may provide the Participant with
dividends or dividend equivalents and voting rights prior to vesting (whether
based on a period of time or based on attainment of specified performance
conditions).
(a) Stock Awards. Awards of Common Stock (other than pursuant to Sections
5(d) and 5(e)) may be granted in the form of actual shares of Common Stock. At
the discretion of the Committee, a stock certificate may be issued in respect
of Stock Awards or a book entry of the Stock Award may be made. If a
certificate is issued, such certificate shall be registered in the name of and
be delivered to the Participant. 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.
(b) 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 option price of each share as to which a stock option is exercised shall
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 as of the
date of exercise (subject to such guidelines for the tender of Common Stock as
the Committee may establish), 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. In no event may any
Participant receive grants of stock options with respect to more than
1,000,000 shares of Common Stock in any calendar year. For purposes of the
Plan, "Fair Market Value" means, per share of Common Stock, the closing price
of the Common Stock on the New York Stock Exchange (the "NYSE") on the
applicable date, or, if there are no sales of Common Stock on the NYSE on such
date, then the closing price of the Common Stock on the last previous day on
which a sale on the NYSE is reported; provided, that prior to the initial
public offering of the Common Stock, Fair Market Value means such value as
determined in good faith by the Committee.
(c) Stock Appreciation Rights. Stock appreciation rights ("SARs") may be
granted in tandem with a stock option, in addition to a stock option, or may
be freestanding and unrelated to a stock option. SARs granted in tandem or in
addition to a stock option may be granted either at the same time as the stock
option or at a later time. 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 shall entitle the Participant 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 of
a share of Common Stock on the date of grant. The Committee shall determine in
its sole discretion whether the SAR shall be settled in cash, Common Stock or
a combination of cash and Common Stock. In no event may any Participant
receive grants of stock appreciation rights with respect to more than 500,000
shares of Common Stock in any calendar year.
(d) 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. In the event that a stock
certificate is issued in respect of performance shares, such certificate shall
be registered in the name of the Participant but shall be held by the Company
until the time the performance shares are earned. The performance conditions
and the length of the performance period shall be determined by the Committee
but in no event may a performance period be less than one year. The Committee
shall 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
of cash and Common Stock.
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Awards of performance shares to a Covered Employee (as defined below) shall
(unless the Committee determines otherwise) be subject to performance
conditions based on the achievement by the Company relating to one or more of
the following: consolidated operating profit, consolidated net income, funds
from operations, return on or growth in shareholders' equity, return on net
assets, attainment of specified levels of earnings per share or improvements
in the Company's revenues, share price performance, enterprise value,
enterprise value per share, equity value, EBITDA (earnings before interest,
taxes, depreciation and amortization), free cash flow or any combination of
the foregoing. The Committee shall establish the relevant performance
conditions within 90 days after the commencement of the performance period (or
such later date as may be required or permitted by Section 162(m) of the
Code). The Committee may, in its discretion, reduce or eliminate the amount of
payment with respect to an Award of performance shares to a Covered Employee,
notwithstanding the achievement of a specified performance condition. The
maximum number of performance shares subject to any Award to a Covered
Employee shall be 500,000 for the first 12 months during the performance
period and each 12-month period thereafter (or, to the extent the Award is
paid in cash, the maximum dollar amount of any such Award shall be the
equivalent cash value of such number of shares of Common Stock at the closing
price on the last day of the performance period on which shares of Common
Stock are traded on the NYSE). An Award of performance shares to a Participant
who is a Covered Employee shall (unless the Committee determines otherwise)
provide that in the event of the employee's termination of employment prior to
the end of the performance period for any reason, such Award will be payable
only (x) if the applicable performance conditions are achieved and (y) to the
extent, if any, as the Committee shall determine.
For purposes of the Plan, "Covered Employee" means, at the time of an Award
(or such other time as required or permitted by Section 162(m) of the Code)
(i) the Company's Chief Executive Officer (or an individual acting in such
capacity), (ii) any employee of the Company or its subsidiaries who, in the
discretion of the Committee for purposes of determining those employees who
are "covered employees" under Section 162(m) of the Code, is likely to be
among the four other highest compensated officers of the Company for the year
in which an Award is made or payable, and (iii) any other employee of the
Company or its subsidiaries designated by the Committee in its discretion.
(e) 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 shall be established by the
Committee at time of grant, except that each restriction period shall not be
less than twelve months. In the event that a stock certificate is issued in
respect of restricted stock, such certificate shall be registered in the name
of the Participant but shall be held by the Company until the end of the
restricted period. 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 shall determine in its sole discretion whether restricted stock
granted in the form of share units shall be paid in cash, Common Stock, or a
combination of cash and Common Stock.
6. AWARD AGREEMENTS.
Each Award under the Plan shall be evidenced by an agreement setting forth
the terms and conditions, as determined by the Committee, which shall apply to
such Award (including the effect upon such Award of a Participant's
termination of employment), in addition to the terms and conditions specified
in the Plan. In the sole discretion of the Committee, a Participant may be
permitted to defer, on such terms and conditions as the Committee shall
specify, the receipt of cash or Common Stock otherwise deliverable under any
Award.
7. WITHHOLDING.
The Company shall have the right to deduct from any payment to be made
pursuant to the Plan the amount of any taxes required by law to be withheld
therefrom, or to require a Participant to pay to the Company such amount
required to be withheld prior to the issuance or delivery of any shares of
Common Stock or the payment
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of cash under the Plan. The Committee may, in its discretion, permit a
Participant to elect to satisfy such withholding obligation by having the
Company retain the number of shares of Common Stock whose Fair Market Value
equals the amount required to be withheld. Any fraction of a share of Common
Stock required to satisfy such obligation shall be disregarded and the amount
due shall instead be paid in cash to the Participant.
8. NONTRANSFERABILITY; FORFEITURE.
No Award shall be assignable or transferable, and no right or interest of
any Participant shall be subject to any lien, obligation or liability of the
Participant, except by will or the laws of descent and distribution.
Notwithstanding the immediately preceding sentence, the Committee may, subject
to the terms and conditions it may specify, permit a Participant to transfer
any stock options (other than incentive stock options) granted to him pursuant
to the Plan to one or more of his immediate family members or to trusts
established in whole or in part for the benefit of the Participant and/or one
or more of such immediately family members. During the lifetime of the
Participant, stock options shall be exercisable only by the Participant or by
the immediate family member or trust to whom such stock options have been
transferred in accordance with this Section 8. For purposes of this Plan, (i)
"immediate family" shall mean the Participant's spouse and issue (including
adopted and step children) and (ii) "immediate family members and trusts
established in whole or in part for the benefit of the Participant and/or one
or more of such immediate family members" shall be further limited, if
necessary, so that neither the transfer of a stock option to such immediate
family member or trust, nor the ability of a Participant to make such a
transfer shall have adverse consequences to the Company or the Participant by
reason of Section 162(m) of the Code. In addition, notwithstanding anything in
the Plan to the contrary, the Committee may provide in any Award agreement
that such Award may be forfeited for Cause. Furthermore, no share of Common
Stock acquired pursuant to an exercise of a stock option hereunder shall be
transferable or assignable except as provided under Section 14; provided,
however, that upon the consummation of an initial public offering of the
Common Stock, such restriction on the transferability or assignability of the
Common Stock acquired upon exercise of a stock option hereunder shall lapse
and be without further effect.
9. ADJUSTMENT OF AND CHANGES IN STOCK.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger,
consolidation, spinoff, combination or exchange of shares 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 or reserved for issuance pursuant to the Plan and
to outstanding Awards.
10. CHANGE OF CONTROL.
(a) In the event of a Change of Control, (i) all SARs which have not been
granted in tandem with stock options shall become exercisable in full, (ii)
the restrictions applicable to all shares of restricted stock shall lapse and
such shares shall be deemed fully vested and all restricted stock granted in
the form of share units shall be paid in cash, (iii) all performance shares
shall be deemed to be earned at target level and all performance shares
granted in the form of share units shall be paid in cash, and (iv) all stock
options shall be fully vested and exercisable in full. For purposes of the
Plan, "Change in Control" means the occurrence of any one of the following
events:
(1) individuals who, on June 1, 1998, are members of the Board (the
"Incumbent Directors") cease for any reason following June 1, 1998, to
constitute at least a majority of the Board; provided, that any new
director who is approved by a vote of at least a majority of the Incumbent
Directors shall be treated as an Incumbent Director;
(2) the shareholders of the Company approve a merger, consolidation,
statutory share exchange or similar form of corporate transaction in which
the Company is not the surviving corporation or entity;
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provided, however, that such approval shall not be a Change in Control if
immediately following such transaction, SOFTBANK Corporation, directly or
indirectly, would be the beneficial owner of more than 25% of the
securities entitled to vote for the election of the board of directors of
the surviving corporation or entity; or
(3) 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.
(b) The Committee, in its sole discretion, may further provide that in the
event of a Change of Control, each Participant shall receive in cancellation
of such Participant's outstanding and unexercised stock options and SARs, a
cash payment in an amount equal to the difference between the option price of
such stock options or, in the case of SARs, the Fair Market Value of a share
of Common Stock on the date of grant and (A) 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, or such
lower price as the Committee may determine with respect to any incentive stock
option to preserve its incentive stock option status, multiplied by the number
of shares of Common Stock covered by such stock options, or (B) 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; provided, that such cash payment election shall not be
available in the event such cancellation and payment would prevent the Company
from using the pooling-of-interests method of accounting with respect to the
transaction giving rise to the Change of Control.
(c) In the event that the Committee shall determine, in its sole discretion,
that any payment, acceleration of vesting or lapse of restrictions with
respect to an Award would subject a Participant to an excise tax under Section
4999 of the Code, such payment shall be reduced (but not below zero) or such
acceleration of vesting or lapse of restrictions shall not occur (a "Cutback")
to the extent necessary to avoid imposition of such excise tax, but only if by
reason of such Cutback the resulting Net After-Tax Benefit (as defined below)
exceeds the Net After-Tax Benefit (determined without giving effect to this
sentence); provided, however, that no Cutback shall occur in respect of any
Participant if (i) any contract or agreement between such Participant and the
Company or any of its affiliates provides otherwise, or (ii) such Cutback
would prevent the use of the pooling-of-interests method of accounting in
respect of the transaction giving rise to the Change of Control. For purposes
of the Plan, "Net After-Tax Benefit" means the sum of (x) the total amount
payable to the Participant hereunder, plus (y) all other benefits and payments
which are payable to or for the benefit of such Participant that constitute
"parachute payments" within the meaning of Code Section 280G, less (z) the
amount of federal, state and local income taxes and other taxes (including any
excise tax imposed under Code Section 4999) payable with respect to the
foregoing amounts, calculated assuming the Participant was subject to the
maximum income tax rates for each year in which such foregoing amounts are
paid. The Committee may, in its discretion, include such further provisions
and limitations in any agreement documenting such Awards as it may deem
equitable and in the best interests of the Company.
11. NO RIGHT TO EMPLOYMENT.
No person shall have any claim or right to be granted an Award, and the
grant of an Award shall not be construed as giving a Participant the right to
be retained in the employ of the Company or its subsidiaries. Further, the
Company and its subsidiaries expressly reserve the right at any time to
dismiss a Participant free from any liability, or any claim under the Plan,
except as provided herein or in any Award agreement entered into hereunder.
12. GOVERNMENTAL COMPLIANCE.
Each Award under the Plan shall be subject to the requirement that if at any
time the Committee shall determine that the listing, registration or
qualification of any shares issuable or deliverable thereunder upon any
securities exchange or under any Federal or state law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition thereof, or in connection therewith, no such grant or award may be
exercised or shares issued or delivered unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free
of any conditions not acceptable to the Committee.
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13. AMENDMENT AND TERMINATION.
The Board may amend, suspend or terminate the Plan or any portion thereof at
any time, provided that (a) no amendment shall be made without stockholder
approval (including an amendment to increase the number of shares reserved for
issuance under the Plan) if such approval is necessary in order for the Plan
to comply with any applicable law, regulations or stock exchange rule, and (b)
except as provided in Section 10, no amendment shall be made that would
adversely affect the rights of a Participant under any Award previously
granted, without such Participant's written consent.
14. SALE TO COMPANY.
(a) Except as provided in Section 14(c), and subject to the provisions of
the Plan, an optionee that acquires shares of Common Stock pursuant to the
exercise of a stock option hereunder shall be permitted to put to the Company
such shares of Common Stock at Fair Market Value as of the date of sale, in
accordance with regulations and procedures established by the Committee for
such purpose; provided, however, that no such shares of Common Stock shall be
permitted to be put to the Company unless such shares of Common Stock have
been held by the optionee for at least six months as of the date of sale.
(b) Except as provided in Section 14(c), in the event of an optionee's
termination of employment for any reason whatsoever, the Company shall have
the right to call shares of Common Stock acquired by such optionee pursuant to
the exercise of a stock option hereunder at Fair Market Value as of the date
of sale. The Company may exercise its right to call with respect to all or any
portion of the shares of Common Stock subject to such call, and if the Company
calls only a portion of such shares, the remaining shares shall continue to be
subject to the Company's right to call.
(c) Notwithstanding the provisions of Sections 14(a) and 14(b), in the event
of an initial public offering of the Common Stock, the put rights of an
optionee under Section 14(a), and the call rights of the Company under Section
14(b), shall terminate immediately and be without further force or effect.
15. EFFECTIVE DATE.
The Plan shall be effective as of February , 1998 (the "Effective Date").
Subject to earlier termination pursuant to Section 13, the Plan shall have a
term of ten years from its Effective Date. The Plan is conditioned upon the
approval of the shareholders of the Company prior to the initial public
offering of shares of Common Stock of the Company, and failure to receive such
approval shall render the Plan and all outstanding Awards issued thereunder
void and of no effect.
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EXHIBIT 10.12
AGREEMENT OF LEASE, made as of this 15th day of January 1998, between 63
MADISON ASSOCIATES, L.P., a Delaware limited partnership, having an office c/o
George Comfort & Sons, Inc., 200 Madison Avenue, New York, New York 10016
("Landlord" or "Owner"), and ZIFF-DAVIS INC., a corporation duly organized and
existing under the laws of Delaware, qualified to do business in the State of
New York, and having its principal place of business at One Park Avenue, New
York, New York 10016 ("Tenant").
W I T N E S S E T H:
-------------------
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord the
area known as Concourse Level "B-2" (which the parties hereto agree for the
purposes of this lease contains 62,120 rentable square feet), the entire eighth
(8th), ninth (9th), tenth (10th), eleventh (11th), twelfth (12th), thirteenth
(13th), fourteenth (14th) and fifteenth (15th) floors (which the parties hereto
agree for the purposes of this lease collectively contain 337,653 rentable
square feet) (the demised portion of Concourse Level B-2 and the 8th through
15th floors collectively referred to herein as the "premises" or the "demised
premises") in the building known as No. 63 Madison Avenue ("Building" or
"building") in the Borough of Manhattan, City of New York, and the exclusive
right to use that portion of the lobby of the Building shown in Exhibit A1 (the
"Z-D Lobby") subject to the terms and conditions of Article 58 hereof, for the
term of approximately twenty-one (21) years and five (5) months ("Term"), or
until the Term shall sooner cease and expire as hereinafter provided, to
commence, with respect to each full floor of the demised premises, on the
applicable Commencement Date (as defined in Article 30) and to end on the last
day of the calendar month in which occurs the date that is twenty-one (21) years
and five (5) months after the Trigger Commencement Date (as defined in Paragraph
30(A)) (the "Expiration Date"), both dates inclusive, at a fixed annual rental
("Fixed Rent") which Tenant agrees to pay in lawful money of the United States
which shall be legal tender in payment of all debts and dues, public and
private, at the time of payment, in equal monthly installments in advance on the
first day of each month during the Term, at the office of Landlord or such other
place as Landlord may designate, without any set off or deduction whatsoever,
except as otherwise expressly provided in this lease to the contrary and except
that Tenant shall pay the first monthly installment of Fixed Rent in the sum of
$866,847.10 on the execution hereof.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
1. Rent
----
Tenant shall pay the rent as above and as hereinafter provided.
2. Use and Occupancy
-----------------
(A) Tenant shall use and occupy the demised premises for executive,
administrative and general offices [such general office use to include, without
limitation, training and conference rooms and computer facilities], and uses
incidental thereto (such incidental uses, which shall not include training and
conference rooms or computer facilities, or any other executive, administrative
or general office use, not to exceed fifteen (15%) percent of the rentable area
of the demised premises) provided that all such incidental uses are not in
violation of the certificate of occupancy for the Building (as the same may be
amended by Landlord or Tenant as permitted hereby) or in violation of any
applicable Law, and all such incidental uses are in keeping with the character
of the Building, and for no other purpose. Tenant shall obtain all licenses,
permits and other governmental approvals in connection
<PAGE>
with Tenant's computer facilities. Tenant further represents to Landlord that
such facilities shall (i) not utilize or emit noxious chemicals or require
special exhaust systems and (ii) be used in connection with Tenant's multimedia
company business.
(B) Notwithstanding anything contained in this lease to the contrary,
Tenant covenants and agrees that Tenant will not use, or permit the use of, the
demised premises or any part thereof, (i) for any manufacturing or retail use,
(ii) for photographic reproductions and/or offset printing, other than such
reproduction or printing which is ancillary to the use of the demised premises
as general, administrative and executive offices, (iii) as a school or classroom
other than for periodic training of Tenant's employees and non-retail clients
under contract with Tenant provided that (a) such training shall be at Tenant's
sole risk, cost and expense, (b) such training shall be incidental to Tenant's
business and shall not violate the certificate of occupancy for the Building (as
the same may be amended by Landlord or Tenant as permitted hereby) or any
applicable Law (it is understood and agreed that Tenant shall, at its sole cost
and expense, obtain any licenses, permits and authorizations which may be
required for such use), and (c) no portion of the demised premises shall be
sublet or licensed to anyone (other than related corporations of Tenant) for
such training purposes, (iv) for the conduct of an auction, (v) for gambling
activities, (vi) for the conduct of obscene or pornographic activities, and in
no event shall any pornographic or "adult" newspaper, book, magazine, film,
video, poster, picture, representation or merchandise of any kind be sold,
distributed, displayed or offered for sale, (vii) for liquor sales, (viii) as an
employment agency, (ix) as offices of an agency, department or bureau of the
United States Government, any state or municipality within the United States or
any foreign government, or any political subdivision of any of them, (x) by or
for a labor union, (xi) by or for a pawnbroker, (xii) by or for a check cashing
establishment, (xiii) as a funeral establishment, (xiv) as or for a "closeout"
store for low-priced merchandise, (xv) for medical offices, (xvi) subject to
Paragraph C of this Article, for the sale of confectionery, beverages,
sandwiches, ice cream, baked goods or any other food, or (xvii) subject to
Paragraph C of this Article, for the preparation, dispensing or consumption of
food or beverages in any manner whatsoever. Tenant covenants and agrees that
Tenant will not use, or permit the use of, the demised premises or any part
thereof for any purpose which would materially impair or materially interfere
with any of the operations of the building, constitute a public or private
nuisance, unreasonably interfere with or disturb Landlord or another tenant or
occupant of the building or actually disturb any of the same or materially
impair the appearance of the building.
(C) Notwithstanding the foregoing, Tenant shall be permitted to install, in
accordance with Law and the terms and conditions of this lease, and only if
permitted by the certificate of occupancy for the Building (as the same may be
amended from time to time by Landlord or Tenant as permitted hereby), kitchen
and dining facilities in accordance with Paragraph (E) hereof, gym facilities in
accordance with Paragraph (F) hereof and/or a day care center, but in each
instance only for the exclusive use of Tenant's own employees only (and, in the
case of dining facilities, for Tenant's business guests). Landlord shall not be
obligated to provide cleaning services to any portion of the premises used as a
gym or day care center, for the storage, preparation, service or consumption of
food or beverages or for any other non-office use except as specifically
provided in the cleaning specifications annexed hereto as Exhibit D.
(D) Tenant shall not obtain or accept for use in the demised premises
towel, floor polishing, lighting maintenance, cleaning or
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other similar services from any party not theretofore approved by Landlord
(which approval will not be unreasonably withheld or delayed) and which shall be
granted or withheld within seven (7) days after Tenant's request therefor is
deemed given in accordance with Article 27 hereof. If Landlord fails to respond
within such seven (7) day period and Tenant gives Landlord a reminder notice and
Landlord still fails to respond within five (5) days after the date the reminder
notice is deemed given in accordance with Article 27 hereof, Landlord's approval
of such request shall be deemed granted. Such services shall be furnished only
at such hours, in such places within the demised premises and pursuant to such
regulations as Landlord reasonably prescribes.
(E) Tenant agrees no gym facility shall be installed on the eighth (8th)
floor or on any floor below the eighth (8th) floor or on any floor above the
eighth (8th) floor which is directly above or adjoining another tenant in the
Building except Tenant may install a gym facility on Concourse Level B-2;
provided, however, that if Tenant installs a gym facility on any floor above the
eighth (8th) floor in accordance with the above criteria and another tenant
relocates to a floor directly below or adjoining said facility, Tenant shall not
be required to relocate said facility. Tenant further agrees that the equipment
within said facility shall be installed in accordance with the penultimate
sentence of Paragraph (A) of Article 6 and the provisions of Article 3 hereof.
(F) Tenant agrees that if cooking shall be performed in its kitchen and
dining facility (other than microwave and convection ovens for warming and
reheating food) then: (A) Tenant shall install and maintain all flues, vents,
grease traps, exhaust systems and ansul systems and other similar items
reasonably requested by Landlord, (B) all ducts and flues shall be installed
within the demised premises and shall exit the Building from a location
reasonably acceptable to Landlord and Tenant, (C) Tenant shall maintain and
clean all grease traps, ducts and flues on a commercially reasonable regular
basis, (D) Tenant shall bag all wet garbage and place such garbage in containers
that prevent the escape of odors, (E) Tenant shall contract with an exterminator
to exterminate vermin and rodents on a regular basis as part of a program to
keep the demised premises free of vermin and rodents by reason of the operation
of each such kitchen and dining facility and (F) if the Building sewer and
plumbing lines are clogged or otherwise impaired by reason of the operation of
any such kitchen and dining facility, Tenant shall reimburse Landlord for its
reasonable out-of-pocket costs to unclog or correct the same (it being
understood that all of the items described in clauses (A)-(E) above shall be at
Tenant's sole cost and expense). Tenant further agrees not to allow odors to
escape from the demised premises to other portions of the Building whether or
not cooking is performed from such facility.
3. Tenant Alterations
------------------
(A) Tenant shall not make or perform, or permit the making or performance
of, any alterations (including, any Alteration, which is reasonably likely to
adversely affect NYL's Conduits and Risers or the services provided by NYL's
Conduits and Risers or adversely affects NYL's access to any pull boxes for
NYL's Conduits and Risers), installations, improvements, additions or other
physical changes in or about the demised premises (including, any Alteration,
which is reasonably likely to adversely affect NYL's Conduits and Risers or the
services provided by NYL's Conduits and Risers or adversely affects NYL's access
to any pull boxes for NYL's Conduits and Risers) (each an "Alteration" and
collectively, "Alterations") without Landlord's prior written consent in each
instance. It is understood and agreed that Landlord shall not
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withhold approval of the proposed location to which NYL's pull boxes are to be
relocated by Tenant pursuant to this Article 3 provided that the Alteration to
be performed by such relocation is not reasonably likely to adversely affect
NYL's Conduits and Risers or adversely affect access to NYL's Conduits and
Risers and such location complies with all Laws (it being understood that this
sentence shall not affect any right of Landlord in this Article 3 to approve any
aspect of such Alteration other than the location of such pull boxes and shall
not affect Tenant's obligation to comply with the further provisions of this
Article, including, without limitation, Paragraph (F) below). Notwithstanding
the foregoing, Tenant may, without Landlord's prior written consent, but upon
not less than seven (7) days prior written notice to Landlord (except no notice
shall be required for decorative Alterations or any other Alterations which do
not require approval of any governmental authority having jurisdiction), make or
perform any Alterations within the demised premises that (i) are nonstructural,
(ii) do not affect the Building's exterior, (iii) do not affect the Building's
systems or facilities, (iv) do not affect any part of the Building other than
the demised premises, (v) do not affect any service required to be furnished by
Landlord to Tenant (it is understood and agreed however that Tenant may perform
Alterations that solely affect services furnished to Tenant so long as Landlord
is not responsible in any manner whatsoever for any diminution of, or adverse
affect to, such service as a result of such Alteration) or to any other tenant
or occupant of the Building, (vi) do not reduce the value or utility of the
Building and (vii) are not reasonably likely to adversely affect NYL's Conduits
and Risers or the services provided by NYL's Conduits and Risers or adversely
affects NYL's access to any pull boxes for NYL's Conduits and Risers. However,
Landlord hereby agrees in principle that Tenant shall have the right to (1) make
facade changes on the 28th Street side of the Building in accordance with the
preliminary plans, prepared by or on behalf of Tenant and attached hereto as
Exhibit L, in connection with the construction of a new separate entrance, doors
and facade to the demised premises, (2) make changes that will allow for the use
of a portion of the demised premises for assembly purposes, subject (except with
respect to training and conference rooms) to the fifteen (15%) percent
limitation set forth in Article 2(A), (3) install equipment on the roof of the
Building, subject to the provisions of Article 48 hereof, (4) make changes to
the terrace, subject to the provisions of Article 40 hereof, (5) install
interior connecting stairways, (6) create the Z-D Lobby in accordance with
Article 58 hereof and Exhibits A-1 and L, and/or (7) install a cafeteria in the
Building, in each case as Tenant shall from time to time elect, subject in each
of such instances to Landlord's approval of Tenant's plans and specifications
therefor, which approval shall not be unreasonably withheld or delayed and
subject to all of the provisions of this Article and any other provision of this
lease with respect to each such Alteration. Landlord shall cooperate, at no
cost, expense, or risk to Landlord, with Tenant with respect to the execution of
permits and the amendment of the C/O (as defined in Article 14 hereof) as may be
required by reason of the foregoing, subject to the provisions of Article 14
hereof. All Alterations shall be done at Tenant's expense and at such times and
in such manner as Landlord may from time to time reasonably designate pursuant
to the Alteration Rules annexed hereto as Exhibit F and subject to Laws. Prior
to making any Alterations, Tenant (a) shall, if such Alteration requires
Landlord's consent, submit to Landlord, either electronically (and the date of
delivery shall be deemed to have occurred on receipt) or by personal delivery in
accordance with Article 27, detailed plans and specifications, including layout,
architectural, mechanical and structural drawings for each such proposed
Alteration and shall not commence any such Alteration without first obtaining
Landlord's written approval of such plans and specifications (which approval
will not be unreasonably withheld or
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<PAGE>
delayed to the extent that Landlord is required not unreasonably to withhold or
delay approval of the Alteration itself), (b) shall, at its expense, obtain all
permits, approvals and certificates required by any governmental or quasi-
governmental bodies and deliver duplicates thereof to Landlord (Landlord shall
within two (2) business days after Tenant's request and Landlord's actual
receipt of the applications (including, without limitation, the plans to be
filed in connection therewith), sign the applications for any such permits
prepared by Tenant which require Landlord's signature (it being understood and
agreed that such signing of the permit application shall not constitute approval
of the Alterations) and Tenant shall indemnify and hold Landlord harmless
against any claim, cost, liability or expense resulting from any error, omission
or other impropriety or deficiency in any such application and the plans to be
filed in connection therewith) and (c) shall furnish to Landlord certificates of
policies of worker's compensation insurance (covering all persons to be employed
by Tenant and Tenant's contractors and subcontractors in connection with such
Alteration) and comprehensive public liability (including property damage
coverage) insurance in such amounts and as otherwise provided in Article 45(A).
Landlord will use reasonable and good faith efforts to respond within seven (7)
business days to requests for plan approval. The grounds for any disapproval
must be stated in reasonable detail. If Landlord fails to respond to a request
for approval within said seven (7) business day period, then, provided that
Tenant's request therefor contained, in bold-faced, 20 point type, the legend
"Failure to respond is deemed approval pursuant to Paragraph 3(A) of the lease",
Landlord's approval shall be deemed given; provided, however, (i) if such plans
require the review, in Landlord's good faith judgment, by an outside
architectural or engineering firm, and (ii) Landlord notifies Tenant of such
requirement for review within four (4) business days following the request for
approval, then the time period for Landlord to respond to a request for approval
shall be extended until the date which is eight (8) days following the
expiration of the above four (4) business day period. If Tenant resubmits the
plans to address the grounds for Landlord's disapproval, then the "seven" and
"four" business day periods set forth in the immediately preceding sentence
shall be reduced to "three" and "two" business day periods, respectively, solely
in connection with such each resubmission. Notwithstanding the foregoing in
connection with any proposed Alteration which is reasonably likely to adversely
affect NYL's Conduits and Risers or the services provided by NYL's Conduits and
Risers or adversely affect NYL's access to any pull boxes for NYL's Conduits and
Risers, the above time periods shall be ten (10) business days and, after a
second notice to Landlord and NYL, five (5) business days, to provide Landlord
with time to submit such plans to NYL for its approval and for NYL to receive
and approve such plans. Tenant agrees to designate on such plans if such plans
are reasonably likely to adversely affect NYL's Conduits and Risers or the
services provided by NYL's Conduits and Risers or adversely affect NYL's access
to any pull boxes for NYL's Conduits and Risers. Reasonably promptly after
completion of each Alteration, Tenant, at Tenant's expense, shall furnish
Landlord with (x) final "as built" plans and specifications for each Alteration
(if "as built" plans exist and, if not, with final plans and specifications with
field notations certified by Tenant's architect) showing the Alterations but
only as to those Alterations for which Landlord's consent or approval is
required, (y) Building Department filing documents, permits and final approvals
and other evidence reasonably satisfactory to Landlord that the Alterations are
in compliance with all applicable legal requirements, and (z) in connection with
either (a) Tenant's Work or (b) contemporaneously performed Alterations costing
in the aggregate in excess of $1,000,000 or as to which Landlord makes a
monetary contribution, evidence reasonably satisfactory to Landlord that all
laborers, materialmen
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and mechanics have been paid, including, duly executed and acknowledged releases
of liens against the demised premises, the Building, and the materials and
improvements therein from the general contractor and all electrical, mechanical
and plumbing contractors contracting directly with Tenant or anyone acting on
Tenant's behalf involved with any installation which is part of the Alterations.
Landlord will cooperate with Tenant, at Tenant's expense, to the extent
reasonably requested by Tenant to facilitate Tenant's compliance with Tenant
obtaining permits, approvals and certificates pursuant to subdivision (y) above
and the smooth and expeditious conduct of Alterations. All Alterations shall be
made and performed in accordance with the Alteration Rules and in such a manner
so as to minimize interference with other tenants and occupants of the Building
including the performance of such work on an overtime basis to the extent that
work of such type is customarily performed on an overtime basis in accordance
with good construction practices in office buildings in midtown Manhattan; all
materials and equipment to be incorporated in the demised premises as a result
of all Alterations shall be of good quality; and no leasehold improvements or
Alterations which are incorporated into the premises shall, nor shall the
Building be subject to, any lien, encumbrance, chattel mortgage, title retention
or security agreement. In the event that any of Tenant's personalty or equipment
(including, without limitation, Tenant's telephone and computer equipment) shall
be subject to any lien, encumbrance, chattel mortgage, title retention or
security agreement ("Personalty Lien") and the holder thereof removes any such
personalty or equipment, Tenant and such holder shall be jointly and severally
liable and responsible to repair any damage to the demised premises and the
Building arising from such removal and to restore the demised premises and the
Building using the same textures and materials. The foregoing obligations of any
such holder shall be expressly set forth in any agreement or other document
between Tenant and such holder that creates a Personalty Lien or a subsequent
written agreement executed by such holder prior to the removal of such
personalty or equipment (a copy of which shall be delivered to Landlord prior
to, and as a condition of, any such removal). Tenant shall not, at any time
prior to or during the Term, knowingly directly or indirectly employ, or permit
the employment of, any contractor, mechanic or laborer in the demised premises,
whether in connection with any Alteration or otherwise, if, in Landlord's
reasonable discretion, such employment will interfere or cause any conflict with
other contractors, mechanics, or laborers engaged in the construction,
maintenance or operation of the Building by Landlord, Tenant or others. In the
event of any such interference or conflict, whether permitted knowingly or not,
Tenant, upon demand of Landlord, shall cause all contractors, mechanics or
laborers causing such interference or conflict to leave the Building
immediately.
(B) No approval of any plans or specifications by Landlord or consent by
Landlord allowing Tenant to make any Alterations or any inspection of
Alterations made by or for Landlord shall in any way be deemed to be an
agreement by Landlord that the contemplated Alterations comply with any legal
requirements or insurance requirements or the certificate of occupancy for the
Building nor shall it be deemed to be a waiver by Landlord of the compliance by
Tenant of any provision of this lease.
(C) Except with respect to Tenant's Work, Tenant shall promptly reimburse
Landlord for all reasonable, out-of-pocket fees, costs and expenses including,
but not limited to, those of architects and engineers, reasonably incurred by
Landlord and paid to third parties in connection with the review of Tenant's
plans and specifications for any Alteration and inspecting the Alterations to
determine whether the same are being or have been performed in accordance with
the approved plans and specifications
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therefor and with all legal requirements and insurance requirements and other
requirements of this lease; provided, however, that no such reimbursement shall
be required if Tenant's plans and specifications were prepared, and construction
of the Alterations is supervised, by an engineer and architect who are reputable
and licensed in the State of New York and respectively have reasonable
engineering or architectural experience, as the case may be, in office buildings
located in the Borough of Manhattan.
(D) Prior to performing any Alterations which require Landlord's consent,
Tenant shall consult with Landlord and orally or in writing identify the
contractors performing such Alterations. If Landlord has had problems with any
of such contractors, based upon the prior experiences of Landlord or any of the
partners or principals of Landlord, then Landlord may orally or in writing
identify such contractors (the "Problem Contractors"), and specify, in
reasonable detail, the nature of such problems. Tenant agrees not to employ any
of the Problem Contractors in connection with any Alteration requiring
Landlord's consent without Landlord's prior written approval, which approval
shall not be unreasonably withheld or delayed. In the event Tenant elects to
dispute any disapproval by Landlord, the dispute shall be resolved by a Hearing
in accordance with the provisions of Paragraph (B) of Article 41 of this lease.
(E) If any mechanic's lien is filed against the demised premises, or the
Building of which the same forms a part, for work claimed to have done for, or
materials furnished to, Tenant, whether or not done pursuant to this article,
the same shall be discharged by Tenant within forty-five (45) days after notice
to Tenant, at Tenant's expense, by payment or by the filing of a bond required
by law. All fixtures (except trade fixtures) and all paneling, partitions,
railings and like installations (collectively, "Tenant Improvements"), installed
in the premises at any time, either by Tenant or by Landlord in Tenant's behalf,
shall, at the end of the Term become the property of Landlord, but all Tenant
Improvements shall remain upon and be surrendered with the demised premises
unless, in the case of vaults, Landlord elects, by notice to Tenant, at any time
prior to sixty (60) days after the Expiration Date, to relinquish Landlord's
rights thereto and to have them removed by Tenant, in which event the same shall
be removed from the premises by Tenant within thirty (30) days after Landlord's
notice, at Tenant's expense. Nothing in this Article shall be construed to give
Landlord title to or to prevent Tenant's removal of trade fixtures, moveable
office furniture, furnishings and equipment, but upon removal of any such items
from the premises or upon removal of any vaults as may be required by Landlord,
Tenant shall, immediately and at its expense, repair and restore the demised
premises using the same textures and materials, to the extent reasonably
practicable under the circumstances, and repair any damage to the demised
premises or the Building due to such removal. All property permitted or required
to be removed by Tenant at the end of the Term remaining in the premises after
Tenant's removal shall be deemed abandoned and may, at the election of Landlord,
either be retained as Landlord's property or may be removed from the premises by
Landlord, at Tenant's expense.
(F) As used in this lease, "NYL's Conduits and Risers" shall mean the
Conduits and Risers which service premises in the Building and 51 Madison Avenue
occupied by the New York Life Insurance Company ("NYL"). It is understood and
agreed that any Alteration which relocates, moves or otherwise raises NYL's
Conduits and Risers (collectively "Conduit Relocation") shall be performed (i)
by Tenant during hours which are not business hours or during days which are not
business days unless such Conduit Relocation will not interfere with the conduct
of NYL's business or the services provided by NYL's Conduits and Risers, (ii) in
accordance with
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plans and specifications which were approved by Landlord, and (iii) in a manner
which minimizes interference with NYL, including, without limitation, by
scheduling the date and time of the Conduit Relocation on a date and time
reasonably specified by Landlord.
(G) Subject to the provisions of Article 57 hereof, Tenant shall indemnify
and save harmless Landlord and Landlord's partners, directors, officers,
shareholders, principals, agents and employees against all loss, damage, claim,
liability, judgments, obligations, damages, penalties and expense (including,
without limitation, reasonable counsel fees) directly or indirectly arising out
of (i) any breach of the Tenant of the provisions of Article 3 as the same
relate to NYL's Conduits and Risers including without limitation any Conduit
Relocation and (ii) any work or thing done or any condition created by Tenant
which damages, interferes with or otherwise adversely affects NYL's Conduits and
Risers or the services provided by NYL's Conduits and Risers or NYL's access to
any pull boxes for NYL's Conduits and Risers.
(H) Notwithstanding the foregoing provisions of this Article 3, in the
event Tenant has obtained all Permits required by any governmental or quasi-
governmental body for any proposed Immaterial Alteration (as hereinafter
defined), whether or not constituting part of Tenant's Work, and has complied
with the other requirements of this Article with respect to such proposed
Immaterial Alteration, except for the requirement of obtaining Landlord's
written approval of the plans and specifications of such proposed Immaterial
Alteration, Tenant may, at its sole risk (a) upon not less than thirty (30) days
notice (which notice shall include the Permits and all plans which were filed
with the Permit applications) to Landlord in connection with Tenant's Work which
is an Immaterial Alteration or (b) upon not less than seven (7) days notice
(which notice shall include the Permits and all plans which were filed with the
Permit application) to Landlord in connection with other Immaterial Alterations,
commence such Immaterial Alteration without first obtaining the Landlord's prior
written approval; provided, however, in connection with the Immaterial
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Alterations set forth in (a) above and (b) above, (i) Tenant shall submit to
Landlord plans for Landlord's approval no later than fifteen (15) days following
delivery of the above notice and (ii) if the Landlord subsequently disapproves
such Immaterial Alteration in accordance with this Article, and if Tenant does
not Dispute such disapproval in accordance with Section 41(B) hereof or, if
there is a Dispute, such Dispute is resolved in Landlord's favor, Tenant shall,
at its sole cost and expense, stop the performance of such Immaterial
Alteration, remove the same and restore the demised premises to the condition
which existed immediately prior to such other Immaterial Alteration. As used
herein, "Immaterial Alterations" shall mean (1) non-structural improvement work
and non-structural alterations by Tenant (including demolition of existing
improvements by other tenants) (2) ordinary, non-structural work, and (3)
structural repairs and restorations having a cost of less than $50,000. As used
herein, "structural" work, repairs or restoration means any work, repair,
restoration, demolition, removal, construction, addition, improvement, change or
alteration to the Building that either (i) affects the load-bearing walls,
loading-bearing columns or the structural integrity of the floor or ceiling
slabs or (ii) affects the exterior of the Building. In no event, under any
circumstances, shall Immaterial Alterations consist of either (x) any
Alterations which are reasonably likely to adversely affect NYL's Conduits and
Risers or the services provided by NYL's Conduits and Risers or adversely
affects NYL's access to any pull boxes for NYL's Conduits and Risers or (y)
adversely affects the Building systems, including, without limitation, the
electrical, elevator, life-safety, plumbing, heating, ventilating or air
conditioning systems.
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4. Maintenance and Repairs
-----------------------
Tenant shall, throughout the Term, take good care of the demised premises
and the fixtures and appurtenances therein, and such other areas of the Building
used on a primarily exclusive basis by Tenant including, but not limited to, the
terrace, the 28th Street Loading Docks, and the Z-D Lobby, in each case so long
as same is available to Tenant for use on a primarily exclusive basis. Except
to the extent caused by "Landlord's Negligence or Wilful Misconduct" (as
hereinafter defined), Tenant shall be responsible for all damage or injury to
the demised premises or any other part of the Building and the systems and
equipment thereof, whether requiring structural or nonstructural repairs caused
by or resulting from Tenant's Negligence or Wilful Misconduct (as hereinafter
defined), or which arise out of any work, labor, service or equipment done for
or supplied to Tenant or any subtenant or licensee of Tenant or arising out of
the installation, use or operation of the property or equipment of Tenant or any
subtenant or licensees of Tenant and resulting in damage or injury to the
demised premises or any other part of the Building. (As used in this lease, the
phrase "Tenant's Negligence or Wilful Misconduct" includes also the negligence
or wilful misconduct of Tenant's, or any of Tenant's subtenants, contractors,
employees, agents, invitees (while in the premises or when acting in accordance
with Tenant's instructions outside of the premises) or licensees and the phrase
"Landlord's Negligence or Wilful Misconduct" includes also the negligence or
wilful misconduct of Landlord's employees, contractors, agents or licensees
licensed by Landlord to perform work in the Building). Tenant shall also repair
all damage to the Building and the demised premises caused by the moving of
Tenant's fixtures, furniture and equipment. Tenant shall promptly make, at
Tenant's expense, all repairs in and to the demised premises for which Tenant is
responsible, using (in the case of such repairs which involve Alterations
requiring Landlord's consent) contractors in accordance with the provisions of
Paragraph (D) of Article 3 hereof. Any other repairs in or to the Building or
the facilities and systems thereof for which Tenant is responsible and which are
not performed by Tenant pursuant to the immediately preceding two sentences,
including, without limitation, any repairs to the roof, roof membrane, parapets,
drainage systems and structural portions of the demised premises for which
Tenant is responsible, shall be performed by Landlord at the Tenant's expense
provided that such expense shall be commercially reasonable and competitive.
Except for maintenance and repair obligations of Tenant under this lease,
Landlord shall maintain in good working order and repair the exterior and the
structural portions of the Building, including the structural portions of the
demised premises, the roof, roof membrane, parapets and drainage systems
(including, without limitation, those on the terrace), the public portions of
the Building interior and the Building plumbing, electrical, heating,
ventilating and elevator systems (to the extent such systems presently exist or
are installed by Landlord) serving the demised premises, in a manner in keeping
with the specifications attached hereto as Exhibit B-3, if applicable, and in
any event in a manner in keeping with that of comparable office buildings in
Manhattan upgraded as contemplated in this lease. Tenant agrees to give prompt
notice (after Tenant has actual knowledge) of any defective condition in the
premises for which Landlord may be responsible hereunder. Landlord agrees to
perform (or arrange the performance of) such obligations with commercially
reasonable promptness after Landlord has actual knowledge of such obligations
and to the extent commercially reasonable, in such a manner so as not to
unreasonably interfere with the conduct of Tenant's business or reduce the
amount of Tenant's usable area (other than to a de minimis extent) available to
Tenant. There shall be no allowance to Tenant for diminution of rental value
and no liability on the part of Landlord by reason of
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inconvenience, annoyance or injury to business arising from Landlord or others
making repairs, alterations, additions or improvements in or to any portion of
the Building or the demised premises or in and to the fixtures, appurtenances or
equipment thereof. It is specifically agreed that Tenant shall not, except as
expressly provided in this lease, be entitled to any setoff or reduction of rent
by reason of any failure of Landlord to comply with the covenants of this or any
other article of this lease. Tenant agrees that, except as expressly provided in
this lease, Tenant's sole remedy at law in such instance will be by way of an
action for damages for breach of contract. The provisions of this Article 4
shall not apply in the case of fire or other casualty which are dealt with in
Article 9 hereof.
5. Window Cleaning
---------------
Tenant will not clean nor require, permit, suffer or allow any window in
the demised premises to be cleaned from the outside in violation of Section 202
of the Labor Law or any other applicable law or of the Rules of the Board of
Standards and Appeals, or of any other Board or body having or asserting
jurisdiction.
6. Requirements of Law, Fire Insurance, Floor Loads
------------------------------------------------
(A) Prior to the commencement of the Term, if Tenant is then in possession,
and at all times thereafter, Tenant, at Tenant's sole cost and expense, shall
promptly comply with all present and future laws, orders and regulations of all
state, federal, municipal and local governments, departments, commissions and
boards and any direction of any public officer pursuant to law, and all orders,
rules and regulations of the New York Board of Fire Underwriters, Insurance
Services Office, or any similar body (each a "Law" and collectively, "Laws")
that impose any violation, order or duty upon Landlord or Tenant with respect to
the demised premises or the Building, if arising out of Tenant's particular use
or manner of use thereof (as opposed to mere generic office use). Nothing
contained in the immediately preceding sentence shall require Tenant to comply
with Laws that must be complied with on a building-wide basis (other than by
reason of Tenant's acts, omissions or manner of use) or that impose any
violation, order or duty arising by reason of acts or omissions occurring after
the expiration or sooner termination of the Term. The preceding sentence shall
limit only Tenant's obligation to comply with Laws relating to the physical
aspect of the demised premises as opposed to Laws relating to Tenant's conduct
of business therein, with which it is Tenant's sole obligation to comply.
Landlord shall cause the public portions of the Building (together with those
portions of the Building systems and structural elements of the Building
affecting Tenant) to comply with Laws to the extent necessary for Tenant safely
and lawfully to occupy the premises for general office use, except to the extent
arising from the Tenant's acts, omissions or Alterations. Nothing herein shall
require Tenant to make structural repairs or structural alterations unless such
requirement arises by reason of Tenant's manner of use of the demised premises
or method of operation therein or, as required by reason of the performance of
Alterations by Tenant, unless any such structural repair or alteration required
by reason of Tenant's Alterations is expressly required to be performed by
Landlord pursuant to the provisions of this lease. So long as Tenant shall have
agreed to pay for and indemnify and hold harmless Landlord from and against any
and all damages, interest, penalties and expenses, including, but not limited
to, reasonable attorney's fees, which are incurred as a result of any contest,
deferral or appeal of Tenant's obligation to comply with Laws, and Tenant shall
not otherwise then be in monetary or material non-monetary default after notice
and the expiration of any applicable grace period, Tenant may contest, appeal
and defer compliance with any such Laws
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provided that the same is done with all reasonable promptness and provided such
appeal shall not subject Landlord or any Holder or ground lessor, if any, to
prosecution for a criminal offense or constitute a default under any lease or
mortgage under which Landlord may be obligated, or cause the demised premises or
any part thereof to be condemned or vacated. Upon Tenant's written request,
Landlord shall advise Tenant as to whether any such contest, appeal and/or
deferral shall constitute a default under any lease or mortgage under which
Landlord shall then the obligated. Tenant shall not do or permit any act or
thing to be done in or to the demised premises which is contrary to Law or, if
Tenant has actual notice, which will invalidate or be in conflict with public
liability, fire or other policies of insurance at any time carried by or for the
benefit of Landlord with respect to the demised premises or the Building or
which shall or might reasonably subject Landlord to any liability or
responsibility to any person or for property damage. Tenant shall not keep
anything in the demised premises except as now or hereafter permitted by the
Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization
or other authority having jurisdiction, and then only in such manner and such
quantity so as not to increase the rate for fire insurance applicable to the
Building, nor use the premises in a manner which will increase the insurance
rate for the Building or any property located therein over that in effect prior
to the commencement of Tenant's occupancy. Tenant shall pay all costs, expenses,
fines, penalties or damages, which may be imposed upon Landlord by reason of
Tenant's failure to comply with the provisions of this Article and, if by reason
of such failure the fire insurance rate shall, at the beginning of this lease or
at any time thereafter, be higher than it otherwise would be, then Tenant shall
reimburse Landlord, as additional rent hereunder, for that portion of all fire
insurance premiums thereafter paid by Landlord which shall have been charged
because of such failure by Tenant. In any action or proceeding wherein Landlord
and Tenant are parties, a schedule or "make-up" of rates for the Building or
demised premises issued by the New York Fire Insurance Exchange, or other body
making fire insurance rates applicable to said premises shall be conclusive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rates then applicable thereto. Tenant shall not place a load upon
any floor of the demised premises exceeding the floor load per square foot area
which it was designed to carry and which is allowed by Law. All safes, business
machines, gym facilities and gym equipment, and mechanical equipment shall be
placed and maintained by Tenant, at Tenant's expense, in settings sufficient to
absorb and prevent vibration, noise and annoyance. Landlord represents that the
demised premises may be lawfully used by Tenant for executive and general
offices.
(B) Supplementing and notwithstanding the foregoing
provisions of this Article 6:
(i) Tenant shall be required to comply with Laws of general applicability
regarding the physical aspect of the premises only if the requirement for
compliance arises by reason of the manner in which Tenant is conducting its
business operations at the Building as opposed to its mere occupancy of the
demised premises; and
(ii) If Tenant ceases a manner of use of, or method of operation in, the
demised premises and such cessation obviates the necessity of making a
structural repair or structural alteration, Tenant no longer shall have any
responsibility to make such repair or alteration.
(C) All work performed or installations made by Tenant (or by Landlord at
Tenant's request and expense) in and to the demised
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premises shall be done in a fashion such that the demised premises and the
Building shall be in compliance with the requirements of Local Law 5 of 1973 of
The City of New York, as heretofore and hereafter amended ("Local Law 5"). The
foregoing shall include, without limitation, (i) relocation of existing fire
detection devices, alarm signals and/or communication devices necessitated by
the alteration of the demised premises, and (ii) installation of such additional
fire control or detection devices as may be required by Laws as a result of
Tenant's particular use or manner of use of the demised premises (as opposed to
mere generic office use). In addition, Tenant shall cause the demised premises
to be connected to the Building "Class E" system (Landlord agrees to provide
"Class E" panels on each floor of the demised premises in areas reasonably
acceptable to Landlord and Tenant with sufficient points for Tenant to tie into)
and Landlord shall, at Tenant's reasonable expense, arrange to have the demised
premises and Tenant added to the "Class E" computer. Except for maintenance or
repairs resulting from Tenant's Negligence or Wilful Misconduct, Landlord shall
be responsible for the maintenance and repair of the Building "Class E" system
outside of the demised premises and "Class E" computer and shall cure as
promptly as reasonably practicable any violations existing with respect thereto
as of the applicable Commencement Date that have an adverse effect on Tenant or
are otherwise required to be performed by Landlord pursuant to this Article 6.
(D) Landlord shall not be responsible for any damage to Tenant's fire
control or detection devices nor shall Landlord have any responsibility for the
maintenance or replacement thereof unless caused by Landlord's Negligence or
Wilful Misconduct (as defined in Article 4 hereof). Tenant shall indemnify
Landlord from and against all loss, damage, cost, liability or expense
(including, without limitation, reasonable attorneys' fees and disbursements)
suffered or incurred by Landlord by reason of the installation and/or operation
of any such devices except if such loss, damage, cost, liability or expense is
caused by Landlord's Negligence or Wilful Misconduct.
(E) All work and installations required to be undertaken by Tenant pursuant
to this Article shall be performed at Tenant's sole cost and expense and in
accordance with the applicable provisions of this lease.
(F) The fact that Landlord shall have heretofore consented to any
installations or Alterations made by Tenant in the demised premises shall not
relieve Tenant of its obligations pursuant to this Article with respect to such
installations or Alterations.
(G) If any utility company or governmental or quasi-governmental authority
requires any work, installation or improvement to be made to the Building in
connection with any Alteration performed by Tenant, the installation or
operation of equipment or machinery in the demised premises or for any other
reason relating to Tenant's particular use or manner of use of the demised
premises (as opposed to mere generic office use), Tenant shall reimburse
Landlord for the commercially reasonable cost of such work, installation or
improvement within thirty (30) days of the rendition of a bill therefor except
to the extent the necessity therefor arose by reason of a violation not created
by Tenant, its employees, contractors, agents, licensees or subtenants.
(H) Except as otherwise expressly provided in this lease, Tenant shall be
responsible, at Tenant's expense, for causing Tenant's Work and other
Alterations in or to the demised premises and the portion of the lobby dedicated
to Tenant's use to comply with the Americans with Disabilities Act as in effect
from time to time, and any state or local variations thereof (collectively,
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"ADA"). Landlord, at Landlord's expense, shall be responsible for causing the
passenger elevators of the building and the common areas of the building to
comply with the ADA.
7. Subordination
-------------
(A) This lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such leases or the
real property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee affecting any lease or the real property
of which the demised premises are a part. In confirmation of such
subordination, Tenant shall execute promptly any certificate that Landlord may
reasonably request to confirm the subordination provided in this Article.
Notwithstanding the foregoing, any subordination of this lease to any future
mortgage or ground lease shall be conditioned upon Landlord's obtaining for
Tenant's benefit an agreement in recordable form and in substance customarily
adopted by the holder of the mortgage or ground lease, as the case may be, and
reasonably satisfactory to Tenant and the holder of such mortgage or ground
lease (a "Holder") to the effect that, in the event of any foreclosure of such
mortgage or the termination of such ground lease, as the case may be, the Holder
will not make Tenant a party defendant to such foreclosure or termination
(unless required by applicable law) nor disturb its possession under this lease,
provided Tenant shall not be in default hereunder beyond any applicable notice
and grace period under this lease for the curing of such default (a "Non-
Disturbance Agreement"). To the extent not so provided by applicable law or
pursuant to the terms of a written non-disturbance and attornment agreement
executed by the Holder, in the event of the enforcement by a Holder of the
remedies provided for by law or by the ground lease or a mortgage, if the Holder
or any successors or assigns shall, at its or their sole option, succeed to the
interest of Landlord under this lease whether through eviction, possessory or
foreclosure action or a deed in lieu of foreclosure and this lease shall not be
terminated or affected by such foreclosure or any such proceedings, Tenant shall
attorn to and recognize the Holder (or its successors or assigns) as its
Landlord upon the terms, covenants, conditions and agreements contained in this
lease to the same extent and in the same manner as if this lease were a direct
lease between the Holder (or its successors or assigns) and Tenant, except that
the Holder (or its successors or assigns), whether or not it shall have
succeeded to the interest of Landlord under this lease, shall not (i) have any
liability for refusal or failure to perform or complete any work required to be
performed by Landlord under this lease or any work letter annexed hereto to
prepare the demised premises or the Building for Tenant's occupancy, or any
liability under any guaranty or indemnification with respect to such work, or
otherwise have any obligation to prepare the demised premises or the Building
for occupancy in accordance with the provisions of this lease, (ii) be liable
for any act, omission or default of any prior landlord under this lease which
shall not then be continuing, (iii) be subject to any offsets, claims or
defenses which shall have heretofore accrued to Tenant against any prior
landlord under this lease, except for any offset against rental expressly
provided for in this lease, and (iv) be bound by any rent or additional rent
which Tenant might have paid to any prior landlord for more than one (1) month
in advance in the case of Fixed Rent, or in excess of one (1) periodic payment
in advance in the case of additional rent, except as expressly approved in
writing by the Holder.
(B) This lease, and all rights of Tenant hereunder, are and
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<PAGE>
shall be subject and subordinate, in all respects to two (2) mortgages both
dated November 20, 1995, between Landlord, as mortgagor, and New York Life
Insurance and Annuity Corporation ("NYLA"), as mortgagee, and the liens created
or continued thereby and to each and every advance made or hereafter to be made
thereunder, and to all renewals, modifications, spreaders, consolidations,
replacements and extensions thereof, including any increases in the principal
sums secured thereby, and any increases in the rates of interest provided
therein (collectively, the "Fee Mortgages"), and to each and all of the rights
of the mortgagee(s) thereunder. This Paragraph shall be self-operative and no
further instrument of subordination shall be required. Landlord represents that
as of the date of this lease (a) Landlord is the owner in fee of the Building
and the land upon which the Building is situated (the "Land"), (b) there are no
mortgages encumbering the fee interest in the Building and/or the Land other
than the Fee Mortgages and (c) there are no underlying leases affecting the
Building and/or the Land.
(C) Landlord and Tenant agree to execute and deliver on execution of this
lease the Subordination, Non-Disturbance and Attornment Agreement (the "SNDA")
which is annexed hereto as Exhibit R and made a part hereof.
(D) The parties acknowledge that Paragraph 18 of the SNDA contains certain
obligations and agreements by Tenant in connection with a contemplated IDA
Transaction which, if consummated, would subject the Premises to a Condominium
regime to enable Tenant to obtain Tax Relief as more specifically set forth in
the SNDA. Tenant agrees that any default by Tenant under the terms, covenants
and provisions of said Paragraph 18 shall be a default by Tenant under this
lease.
(E) Tenant further agrees that (i) Tenant shall assume the sole and primary
responsibility for all of the obligations, covenants, agreements and indemnities
of Landlord (including, without limitation, the indemnification obligations set
forth in subparagraphs (D) and (F)) under the terms of Paragraph 18 of the SNDA
and (ii) Tenant and/or Guarantor shall on demand pay all costs and expenses
(including, without limitation, reasonable attorney's fees and disbursements)
incurred by Landlord in connection with or relating to, the IDA Transaction,
Condominium and/or Tax Relief.
8. Property--Loss, Damage, Reimbursement, Indemnity
------------------------------------------------
Landlord or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the Building, nor for loss of or
damage to any property of Tenant by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause of whatsoever nature,
except to the extent caused by or due to Landlord's Negligence or Wilful
Misconduct (as defined in Article 4 hereof). Landlord and its agents will not
be liable for any such damage caused by other tenants or persons in, upon or
about the Building or caused by operations in construction of any private,
public or quasi public work except to the extent caused by Landlord's Negligence
or Wilful Misconduct. If at any time any windows of the demised premises are
closed, darkened or bricked up for a period of ten (10) or fewer business days
for any reason whatsoever including, but not limited to, Landlord's own acts (or
permanently closed, darkened or bricked up, if required by Law or, in the case
of lot line windows, in the event of construction of adjacent improvements),
Landlord shall not be liable for any damage Tenant may sustain thereby (except
to the extent resulting from Landlord's Negligence or Wilful Misconduct) and
Tenant shall not be entitled to any compensation therefor nor abatement or
diminution of rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction. Subject
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to Articles 9(I), (J) and (L), Tenant shall indemnify, defend and save harmless
Landlord and each Holder against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses, including reasonable attorneys' fees,
paid, suffered or incurred as a result of any breach by Tenant, of any covenant
or condition of this lease, or Tenant's Negligence or Wilful Misconduct. Subject
to Articles 9(I), (K), and (L), Landlord shall indemnify, defend, and save
harmless Tenant against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses, including reasonable attorneys' fees,
paid, suffered or incurred as a result of any breach by Landlord of any covenant
or condition of this lease (except as expressly set forth in this lease), or
Landlord's Negligence or Wilful Misconduct. Tenant's liability under this lease
extends to the acts and omissions of any subtenant of Tenant, and any agent,
contractor, employee, invitee of Tenant (while in the demised premises or when
acting in accordance with Tenant's instructions when outside the demised
premises) or any licensee of Tenant or any subtenant of Tenant. Landlord's
liability under this lease extends to the acts or omissions of any employees,
contractors or agents of Landlord or any person or entity licensed by Landlord
to perform work in the Building. In case any action or proceeding is brought
against either party by reason of any such claim, the other party upon written
notice from the first party, will, at the second party's expense, resist or
defend such action or proceeding by counsel approved by the first party in
writing, such approval not to be unreasonably withheld or delayed.
9. Destruction, Fire and Other Casualty
------------------------------------
(A) If the demised premises or any part thereof shall be damaged by fire or
other casualty (each a "Casualty"), Tenant, reasonably promptly after obtaining
actual knowledge thereof, shall give immediate notice thereof to Landlord, but
Tenant's failure to deliver such notice shall not be a default under this lease,
and this lease shall continue in full force and effect except as hereinafter set
forth.
(B) If the demised premises are partially damaged or rendered partially
untenantable by Casualty, the damages thereto including, without limitation,
those affecting Tenant Improvements shall be repaired by and at the expense of
Landlord after Landlord has actual knowledge thereof and the Fixed Rent and
additional rent, until such repair shall be substantially completed, shall be
apportioned from the day following the Casualty according to the part of the
premises which is tenantable in accordance with Paragraph (D) below.
(C) If the demised premises are totally damaged or rendered wholly
untenantable by Casualty, or if, thirty (30%) percent or more of the demised
premises is rendered wholly untenantable and, on a reasonable business judgment
basis, the remainder of the demised premises is insufficient to conduct Tenant's
business therefrom of which Tenant notifies Landlord within seven (7) days of
the Casualty (time being of the essence) and in fact Tenant does not conduct any
business from or occupy or use any portion of the demised premises, then the
Fixed Rent and additional rent shall be proportionately paid up to the time of
the Casualty and thenceforth shall cease until the date when the premises,
including, without limitation, Tenant Improvements, shall have been repaired and
restored by Landlord in accordance with Paragraph (D) below, subject to
Landlord's right to elect not to restore the same as hereinafter provided.
(D) If (i) the demised premises are substantially damaged during the last
two (2) years of the Term or (ii) (whether or not the demised premises are
damaged in whole or in part) if the
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Building shall be so substantially damaged that Landlord shall decide to
demolish it, then, in either of such events, but in the latter such event only
if Landlord terminates all of the other office leases in the Building which
Landlord has the right to terminate, Landlord may elect to terminate this lease
by written notice to Tenant (the "Termination Notice"), given within 90 days
after such Casualty, specifying a date for the expiration of this lease, which
date (the "Termination Date") shall not be more than 30 days after the date the
Termination Notice is given, and, upon the Termination Date, the Term shall
expire as fully and completely as if the Termination Date was the date set forth
above for the termination of this lease and Tenant shall forthwith quit,
surrender, and vacate the premises without prejudice, however, to the parties'
rights and remedies against one another under the lease provisions in effect
prior to such termination, and any rent owing shall be paid up to the
Termination Date and any payments of rent made by Tenant which were on account
of any period subsequent to the Termination Date shall be returned to Tenant.
Notwithstanding the foregoing, Tenant shall have the right, solely in connection
with Landlord's termination of this lease in the event of a Casualty
substantially damaging the demised premises during the last two (2) years of the
Term in accordance with "(i)" above, but not in the event of "(ii)" above, to
nullify the Termination Notice by delivering the Extension Notice for the First
or Second Extension Term, as the case may be and as provided in Article 53 of
this lease, at any time prior to the Termination Date, provided that Tenant's
time period to deliver the Extension Notice shall not have expired in accordance
with said Article 53 and Tenant satisfies all of the other terms, covenants and
conditions of said Article 53 with respect to such Extension Term. Unless
Landlord shall serve a Termination Notice as provided for herein or unless
Tenant shall serve a termination notice in accordance with Paragraph G hereof,
Landlord shall make the repairs and restorations (including, without limitation,
those with respect to Tenant Improvements) with all reasonable expedition,
subject to delays due to adjustment of insurance claims, labor troubles and
causes beyond Landlord's reasonable control. After any such Casualty, Tenant
shall cooperate with Landlord's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property that may in any way impede
Landlord's demolition, repair or restoration. Tenant's liability for rent shall
resume on a floor-by-floor basis the earlier of (i) sixty (60) days after the
date of substantial completion of Landlord's restoration with respect to the
applicable floor or (ii) the date Tenant first occupies any portion of such
floor of the premises affected by the Casualty for the conduct of Tenant's
business. Landlord shall deliver to Tenant at least fifteen (15) days advance
notice of the date that Landlord anticipates Landlord's repair and restoration
of the demised premises will be substantially completed. Tenant shall have the
right to contest Landlord's determination of the date Landlord shall claim to be
the date on which Landlord's repair and restoration of the demised premises has
been substantially completed. Any such dispute shall be resolved by a Hearing in
accordance with the provisions of Paragraph 41(B) hereof. Pending resolution of
such dispute, Tenant shall pay Fixed Rent and additional rent from the date
determined by Landlord subject to a refund if Tenant prevails at the Hearing. In
the event Landlord shall fail to pay any such refund to Tenant within thirty
(30) days after such refund is determined to be due to Tenant pursuant to said
Hearing, Tenant shall be entitled to receive, and Landlord shall pay, interest
thereon at the Interest Rate from the date such sums were paid by Tenant until
and including the date such sums are refunded to Tenant.
(E) Except for Tenant Improvements (which shall be insured by Landlord and,
except as otherwise provided in Paragraph (E)of
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Article 3 hereof, shall remain on the demised premises at the end of the Term
in accordance with Paragraph (E) of Article 3 hereof) Tenant acknowledges that
Landlord will not carry insurance on Tenant's furniture and/or furnishings or
any fixtures or equipment, or personal property of Tenant removable by Tenant
and agrees that Landlord will not be obligated to repair any damage thereto or
replace the same.
(F) Tenant hereby waives the provisions of Section 227 of the Real Property
Law and agrees that the provisions of this Article shall govern and control in
lieu thereof.
(G) Supplementing the foregoing provisions of this Article, (i) if an
independent contractor chosen by Landlord estimates that Landlord's portion of
any restoration necessitated by a Casualty cannot reasonably be substantially
completed within nine (9) months after the occurrence of the Casualty, Landlord
shall so notify Tenant of the estimated date by which the demised premises shall
be restored within sixty (60) days of the Casualty and in such event Tenant may
terminate this lease by notice sent to Landlord within thirty (30) days after
receipt of Landlord's notice (time being of the essence); (ii) if Landlord's
portion of any restoration necessitated by Casualty has not been substantially
completed within the later of (a) such estimated date or (b) nine (9) months
after the occurrence of the applicable Casualty (such later date being herein
referred to as the "Outside Date"), then Tenant may terminate this lease by
notice sent to Landlord within thirty (30) days after the Outside Date (time
being of the essence), or (iii) if, within twenty-four (24) months prior to the
Expiration Date, the demised premises are materially damaged by a Casualty so as
to prevent Tenant from conducting business and Tenant is not using the demised
premises, Tenant may terminate this lease by notice sent to Landlord within
ninety (90) days after such Casualty (time being of the essence). In any such
event, this lease shall terminate on the date such termination notice is sent.
On or before such effective date, Tenant shall vacate and surrender possession
of the demised premises in the condition required by this lease, Fixed Rent and
other amounts payable under this lease shall be prorated as of such effective
date and the parties shall have no further rights or obligations hereunder.
Notwithstanding the foregoing, the Outside Date shall be extended up to an
additional five (5) month period to the extent such restoration is delayed due
to adjustment of insurance claims or circumstances of the nature set forth in
Article 26 or otherwise beyond Landlord's reasonable control (but in no event
more than two (2) months for insurance adjustment).
(H) If Landlord shall fail to complete Landlord's portion of the
restoration of the demised premises by the Outside Date (as defined in Paragraph
G above and as such Outside Date may be extended pursuant to Paragraph G above)
and Tenant elects not to cancel this lease pursuant to Paragraph G above, then,
subject to the prior written consent of the Holder of the Fee Mortgages [which
may be withheld in the Holder's sole discretion (Tenant agrees to waive any and
all claims against the Holder by reason of the Holder's failure to so consent)
and shall be deemed given if such Holder fails to respond within thirty (30)
days following its receipt of Tenant's request for such consent and five (5)
business days following a second reminder notice to Holder], Tenant shall have
the right, upon not less than thirty (30) days prior written notice to Landlord
and Landlord's failure to substantially complete such restoration within said
thirty (30) day period, to complete in accordance with the provisions of this
lease, including, without limitation, Article 3 hereof, Landlord's portion of
the restoration of the demised premises (but not any other portion of the
Building). Tenant shall complete Landlord's portion of the restoration of the
demised premises within a commercially reasonable time period. Landlord shall
reimburse Tenant for the
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reasonable costs of such restoration of Landlord's portion with reasonable
promptness following receipt of items required in Paragraph (B) of Article 54 of
this lease in connection with Tenant's Work subject to Paragraphs 54(C) and
54(E) of this lease. If the Holder of the Fee Mortgages shall not so consent,
Tenant shall have the right, as its sole and only remedy and upon not less than
thirty (30) days prior written notice and Landlord's failure to substantially
complete such restoration within said thirty (30) day period, to terminate this
lease effective as of the date Tenant's notice is given.
(I) Anything hereinbefore contained in this Article to the contrary
notwithstanding, Landlord and Tenant shall each endeavor to secure an
appropriate clause in, or an endorsement upon, each fire or extended coverage or
rent or business interruption insurance policy obtained by it and covering the
Building, the demised premises or the personal property, fixtures and equipment
located therein or thereon, pursuant to which the respective insurance companies
waive subrogation or permit the insured, prior to any loss, to agree with a
third party to waive any claim it might have against such third party. The
waiver of subrogation or permission for waiver of any claim hereinbefore
referred to shall extend to the agents of each party and its employees and, in
the case of Tenant, shall also extend to its general and limited partners and
all other persons and entities occupying or using the demised premises in
accordance with the terms of this lease and, in the case of Landlord, shall also
extend to all general and limited partners and members of Landlord. If, and to
the extent that such waiver or permission can be obtained only upon payment of
an additional charge, then, except as provided in the following two paragraphs,
the party benefiting from the waiver or permission shall pay such charge upon
demand, or shall be deemed to have agreed that the party obtaining the insurance
coverage in question shall be free of any further obligations under the
provisions hereof relating to such waiver or permission.
(J) If Landlord is unable at any time to obtain one of the provisions
referred to in Paragraph (I) of this Article in any of its insurance policies,
Landlord shall cause Tenant and, if Tenant becomes a partnership, its partners
and members, to be named in such policy or policies as one of the insureds, but
if any additional premium shall be imposed for the inclusion of Tenant, its
partners and members as such insureds, Tenant shall pay such additional premium
upon demand or Landlord shall be excused from its obligations under Paragraph
(I) of this Article with respect to the insurance policy or policies for which
such additional premiums would be imposed. If Tenant is named as one of the
insureds in any of Landlord's policies in accordance with the foregoing, Tenant
shall endorse promptly to the order of Landlord, without recourse, any check,
draft or order for the payment of money representing the proceeds of any such
policy or any other payment growing out of or connected with such policy and
Tenant hereby irrevocably waives any and all rights in and to such proceeds and
payments.
(K) If Tenant is unable at any time to obtain one of the provisions
referred to in Paragraph (I) of this Article in any of its insurance policies,
Tenant shall cause Landlord, its partners and members to be named in such policy
or policies as one of the insureds, but if any additional premium shall be
imposed for the inclusion of Landlord, its partners and members, as such
insureds, Landlord shall pay such additional premium upon demand or Tenant shall
be excused from its obligations under Paragraph (I) of this Article with respect
to the insurance policy or policies for which such additional premiums would be
imposed. If Landlord, its partners and members are named as one of the insureds
in any of Tenant's policies in accordance with the foregoing, Landlord and such
partners and members shall endorse promptly to the order of
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Tenant, without recourse, any check, draft or order for the payment of money
representing the proceeds of any such policy or any other payment growing out of
or connected with such policy and Landlord hereby irrevocably waives any and all
rights in and to such proceeds and payments.
(L) Subject to Paragraphs (I), (J) and (K) of this Article, and insofar as
may be permitted by the terms of the insurance policies carried by it, each
party hereby releases the other party and such other party's partners and
members with respect to any claim (including a claim for negligence) which it
might otherwise have against the other party for loss, damage or destruction
with respect to its property by fire or other casualty (including rental value
or business interest, as the case may be) occurring during the Term. Nothing
contained in Paragraph (I), (J), (K) or (L) of this Article shall be deemed to
relieve either party of any duty imposed elsewhere in this lease to repair,
restore or rebuild or to nullify any abatement of rents expressly provided for
elsewhere in this lease.
(M) Notwithstanding anything in this lease to the contrary, it is
understood and agreed that Landlord shall be entitled to receive all insurance
proceeds payable with respect to Tenant Improvements whether or not the same are
designated as the Tenant's property in this lease.
10. Eminent Domain
--------------
(A) If the whole or any part of the demised premises in excess of 10% of
the aggregate rentable area thereof, shall be acquired or condemned by Eminent
Domain for any public or quasi public use or purpose or access to the demised
premises is so substantially denied that Tenant cannot conduct business at the
demised premises by reason of such Eminent Domain proceeding, then and in such
event, the Term shall cease and terminate from the date of title vesting in such
proceeding and Tenant shall have no claim for the value of any unexpired Term
and Tenant hereby assigns to Landlord, Tenant's entire interest in any such
award.
(B) Tenant shall be entitled to claim, prove and receive in any
condemnation proceeding such awards as may be allowed for moving expenses,
fixtures and other property installed by it at its sole cost and expense in the
demised premises (excluding Tenant Improvements to the extent such award is
utilized for restoration of such Tenant Improvements), provided such awards do
not adversely affect the awards for Landlord's interest in the Land and
Building. In the event of a temporary taking of the use of the demised premises,
Tenant may, if it elects, remain liable in accordance with the terms of this
lease, and in such case there shall be no abatement of rent, but Landlord shall
assign to Tenant any award made for such temporary taking of the use of the
demised premises. Any such election on the part of Tenant shall be exercised by
the service of written notice on the Landlord within thirty (30) days after the
actual taking of such use for a temporary period.
(C) If less than 10% of the demised premises is acquired or condemned by
Eminent Domain for any public or quasi public use or purpose, (i) Landlord shall
with reasonable diligence restore the remaining portion of the demised premises
(inclusive of Tenant Improvements but exclusive of Tenant's furniture,
furnishings, equipment, fixtures and other personal property installed or owned
by Tenant) to a complete architectural unit and (ii) the Fixed Rent and
additional rent payable hereunder shall be reduced on a pro rata basis from and
after the date of vesting of title of such acquisition or condemnation by
Eminent Domain and Tenant's vacation of such acquired or condemned portion of
the demised premises.
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11. Assignment, Mortgage, Etc.
--------------------------
(A) Except as otherwise expressly permitted in this Article, Tenant, for
itself, its legal representatives, successors and assigns, expressly covenants
that it shall not assign, mortgage or encumber this agreement, nor underlet, or
suffer or permit the demised premises or any part thereof to be used by others,
without the prior written consent of Landlord in each instance. A transfer of
more than a fifty percent (50%) beneficial interest in Tenant, whether such
transfer occurs at one time, or in a series of related transactions, and whether
of stock, partnership interest or otherwise, by any party in interest shall be
deemed an assignment of this lease, but not including transfers (i) resulting
from the death of a shareholder of Tenant, or (ii) to or among the existing
shareholders of Tenant, their immediate families or trusts for the benefit
thereof, or (iii) on a recognized national securities exchange. If this lease
is assigned, or if the demised premises or any part thereof is underlet or
occupied by anybody other than Tenant, Landlord may, with respect to an
undertenant or other occupant after default by Tenant (after notice and the
expiration of any applicable cure period), collect rent from the assignee,
under-tenant or occupant, and apply the net amount collected to the rent herein
reserved, but no such assignment, underletting, occupancy or collection shall be
deemed a waiver of this covenant, or the acceptance of the assignee, under-
tenant or occupant as tenant, or, except as otherwise specifically provided
herein, a release of Tenant from the further performance by Tenant of covenants
on the part of Tenant herein contained. The consent by Landlord to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Landlord to any further
assignment or underletting with respect to an undertenant or other occupant.
(B) Tenant shall neither: (i) publicly advertise for the occupancy of all
or any part of the demised premises at a rental rate less than the rental rate
at which Landlord is then offering to lease comparable space in the Building; or
(ii) if Landlord has comparable space available for a comparable term, assign
this lease to or sublet to or permit the occupancy of all or any part of the
demised premises by any other party which is then a tenant, subtenant, licensee
or occupant of any space in the Building or which has negotiated with Landlord
for space in the Building within the six (6) month period preceding the date of
Landlord's receipt of "Tenant's Request" as defined in Paragraph (F) of this
Article. Upon Tenant's request, Landlord shall advise Tenant of the rental rate
at which Landlord is then offering to lease comparable space in the Building.
In the event Tenant submits to Landlord the name of a proposed assignee or
proposed subtenant, Landlord agrees to notify Tenant within ten (10) days after
such submission is deemed given hereunder whether such party is a party
characterized in subparagraph (ii) of this Paragraph (B).
(C) If Tenant intends to effect an assignment of this lease (other than
assignments pursuant to Paragraphs (O) or (P) of this Article) or a sublease
("Major Sublease") which by itself, or in the aggregate with all other subleases
(other than subleases pursuant to Paragraphs (N), (T) or (U) of this Article),
covers at least thirty (30%) percent of the then demised premises (but not less
than one-half (1/2) of a full floor) and such sublease, or subleases, are for
all or substantially all of the balance of the then Term, it shall provide
Landlord with a written offer to recapture the affected space (the "Recapture
Offer"), specifying whether Tenant intends to assign the lease or to sublet the
demised premises and specifying the proposed space to be sublet with a
reasonably accurate floor plan (the "Space") which shall include corridor space,
if any, necessary for access to the 28th Street Loading Dock Bays and the new
freight elevator provided that such
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corridor space shall be equitably allocated to the demised premises and the
Space and the proposed effective date of the assignment or commencement and
expiration dates of the sublease, as the case may be and, in either case, the
proposed effective date or commencement date shall not be earlier than thirty
(30) days from the date of delivery of the Recapture Offer.
(D) Landlord may, within thirty (30) days after its receipt of the
Recapture Offer in connection with an assignment or a Major Sublease, by notice
to Tenant ("Landlord's Notice"), require (i) if the proposed transaction was an
assignment, that Landlord and Tenant enter into an agreement terminating this
lease, or (ii) if the proposed transaction was a Major Sublease, that Landlord
and Tenant enter into an agreement terminating this lease with respect to the
Space specified in the Recapture Offer, on the terms set forth in Paragraph (E),
provided, however, Tenant shall have the right to rescind the Recapture Offer by
notice to Landlord within fifteen (15) days of the date Landlord's Notice is
deemed given hereunder (time being of the essence), in which event Landlord's
Notice and the Recapture Offer shall be deemed void and of no force or effect
but Tenant shall reimburse and indemnify Landlord for all reasonable, out-of-
pocket costs and expenses, including without limitation, legal fees and
brokerage claims and commissions, incurred or expended by Landlord arising from
the Recapture Offer.
(E) If Landlord requires that this lease be terminated as to the entire
demised premises or be terminated with respect to the Space pursuant to
Paragraph (D), then unless Tenant does not duly and timely rescind the Recapture
Offer as provided in Paragraph (D), (i) (if the transaction is a Major Sublease
of less than all the premises) Landlord shall perform the work to separate the
Space from the demised premises and install a separate submeter to measure the
consumption of electricity in the Space (or, in the alternative, the parties
shall agree on an equitable method to allocate electricity charges between the
Space and the balance of the premises), (ii) Landlord and Tenant shall execute
and deliver an agreement (a) if the proposed transaction was an assignment,
terminating this lease as of the proposed effective date set forth in the
Recapture Offer, but in no event earlier than the date Landlord gives Landlord's
Notice, or (b) if the proposed transaction was a Major Sublease, terminating
this lease with respect to the Space specified in the Recapture Offer as of the
commencement date set forth in Recapture Offer but in no event earlier than the
date Landlord gives Landlord's Notice, and (iii) in the event such termination
is not with respect to the entire demised premises, the Fixed Rent shall be
reduced taking into account the rentable square footage contained in the Space
as set forth in Paragraph 23(B) hereof and the rent per rentable square foot
applicable thereto as set forth in Paragraph 23(B) hereof, and Tenant's
Proportionate Share of Taxes and Tenant's Proportionate Share of Operating
Expenses shall be reduced on a pro rata basis, in each case effective as of the
effective date of said termination and Tenant's delivering vacant possession of
the Space in accordance with the terms and conditions of this lease.
(F) If (i) Landlord shall not exercise its recapture option under Paragraph
(D) and (E) above within the time period provided (time being of the essence)
and Tenant shall procure an assignee or subtenant for the demised premises, or
(ii) if such Recapture Offer shall not be applicable to the proposed subletting,
then Tenant shall submit to Landlord a written request ("Tenant's Request") for
Landlord's consent to such assignment or subletting, which shall be accompanied
by the following: (a) the name and address of the proposed assignee or
subtenant; (b) in the case of an assignment of this lease, a duplicate original
of the assignment agreement and all documents related to or accompanying such
assignment, or a terms sheet ("Terms Sheet") containing all of the material
business
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terms of such assignment, and, in the case of a sublease, a duplicate original
of the sublease and all documents related to or accompanying such sublease or a
Terms Sheet containing all of the material business terms of such subletting,
including, without limitation, in connection with either an assignment or
subletting, any separate consideration therefor, the rental rate to be paid
(including any escalation and base years or additional rent payable), the term
thereof (including any renewal options and the anticipated commencement date and
expiration date thereof), any work to be performed or paid for by Tenant,
whether in the affected space or in order to make the affected space
maintainable as an independent unit, the amount and duration of any rent
concessions, the cost and extent of any so-called "take-over" obligations to be
assumed by Tenant and any other conditions (including, without limitation, the
commencement and expiration dates thereof and a space or floor plan identifying
such space and square footage thereof), (c) the nature and character of the
business of the proposed assignee or subtenant and its proposed use of the
demised premises; and (d) banking, financial and other credit information
reasonably sufficient to enable Landlord to determine the financial
responsibility of the proposed assignee or subtenant. Within five (5) days
following Landlord's receipt of Tenant's Request, Landlord may request such
other commercially reasonable information relating to the amplification or
clarification of the materials submitted with Tenant's Request (collectively,
"Ancillary Information"), Tenant agrees to deliver to Landlord the Ancillary
Information with reasonable promptness after Tenant's receipt of Landlord's
request therefor. It shall be a condition of Landlord granting its consent to a
proposed assignment (other than pursuant to Paragraphs (O) and (P) of this
Article) or to a proposed Major Sublease that Tenant delivers Tenant's Request
to Landlord no later than nine (9) months after the earlier to occur of (x) the
date Landlord was required to deliver Landlord's Notice with respect to the
Recapture Offer or (y) the date Landlord delivers a notice to Tenant rejecting
the Recapture Offer (time being of the essence). If Tenant does not deliver
Tenant's Request within said nine (9) month period, Tenant shall again submit to
Landlord a Recapture Offer if required in accordance with Paragraph (C) hereof
if Tenant desires to assign this lease or to enter into a Major Sublease.
Provided Tenant shall have complied with the foregoing provisions of this
Paragraph, Landlord shall not unreasonably withhold or delay its consent to the
proposed assignment or subletting of all or any portion of the demised premises
covered by such Tenant's Request and shall respond within thirty (30) days after
receipt of Tenant's Request and any Ancillary Information. If Landlord fails to
respond to Tenant's Request to assign this lease or sublet all or part of the
demised premises within thirty (30) days after receipt of Tenant's Request and
any Ancillary Information, Tenant shall have the right thereafter to give
Landlord a reminder notice (which notice shall state that Landlord shall be
deemed to have consented to the proposed assignment or subletting if Landlord
fails to respond thereto within five (5) days thereafter) and if Landlord fails
to respond to Tenant's Request within five (5) days after such reminder notice
is deemed given hereunder, Landlord shall be deemed to have consented to such
Tenant's Request.
(G) No permitted or consented to assignment of this lease (including,
without limitation, pursuant to Paragraphs (O) and (P) of this Article) shall be
effective or valid unless and until Tenant delivers to Landlord duplicate
originals of the instrument of assignment duly executed and acknowledged, in
recordable form, (wherein the assignee assumes jointly and severally with Tenant
the due performance of Tenant's obligations under this lease from and after the
date of the assignment) and all related and accompanying documents. In
addition, if the terms of such assignment and/or related and accompanying
documents shall, in Landlord's reasonable judgment, materially vary from those
set forth in the Terms Sheet
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(as defined in Paragraph F hereof) or if such assignment shall not be executed
and delivered to Landlord as provided above within nine (9) months following the
date Landlord approved Tenant's Request, then Tenant shall again submit to
Landlord a new Recapture Offer, if applicable, in accordance with Paragraph (C)
of this Article, or if not applicable a new Tenant's Request in accordance with
Paragraph (F) of this Article.
(H) In the event of any such assignment, Landlord and the assignee may
modify this lease in any manner, without notice to Tenant or Tenant's prior
consent, without thereby terminating Tenant's liability for the performance of
its obligations under this lease, except that any such modification which, in
any way, increases any of such obligations shall not, to the extent of such
increase only, be binding upon Tenant.
(I) Except as otherwise provided in Paragraph (U) of this Article, no
permitted or consented to sublease of all or any part of the demised premises
including without limitation, pursuant to Paragraphs (N) and (T) of this
Article, shall be effective or valid unless and until Tenant delivers to
Landlord duplicate originals of the instrument of sublease (containing the
provisions required by Paragraph (J) of this Article) and all related and
accompanying documents. Any such sublease shall be subject and subordinate to
this lease. In addition, if the terms of such sublease and/or related and
accompanying documents shall, in Landlord's reasonable judgment, materially vary
from those set forth in the Terms Sheet (as defined in Paragraph F hereof) or if
such sublease shall not be executed and delivered to Landlord as provided above
within nine (9) months following the date Landlord approved Tenant's Request,
then Tenant shall again submit to Landlord a new Recapture Offer, if applicable,
in accordance with Paragraph (C) of this Article, or if not applicable a new
Tenant's Request in accordance with Paragraph (F) of this Article.
(J) Any such sublease shall contain substantially the following provisions:
(i) "In the event of a default under any underlying lease of all or any
portion of the premises demised hereby which results in the termination of such
lease, the subtenant hereunder shall, at the option of the lessor under any such
lease ("Under lying Lessor"), attorn to and recognize the Underlying Lessor as
landlord hereunder and shall, promptly upon the Underlying Lessor's request,
execute and deliver all instruments necessary or appropriate to confirm such
attornment and recognition. Not withstanding such attornment and recognition,
the Underlying Lessor shall not (a) be liable for any previous act or omission
of the landlord under this sublease which shall not then be continuing, (b) be
subject to any offset, not expressly provided for in this sublease, which shall
have accrued to the subtenant hereunder against said landlord, or (c) be bound
by any modification of this sublease or by any prepayment of more than one
month's rent, unless such modification or prepayment shall have been previously
approved in writing by the Underlying Lessor. The subtenant hereunder hereby
waives all rights under any present or future law to elect, by reason of the
termination of such underlying lease, to terminate this sublease or surrender
possession of the premises demised hereby.
(ii) "This sublease may not be assigned or the premises demised hereunder
further sublet, in whole or in part, without the prior written consent of the
Underlying Lessor in accordance with all the provisions of the Underlying Lease
including Section K of Article 11 of the Underlying Lease".
(K) Neither a permitted assignment nor a permitted sublease
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nor Landlord's consent to any assignment or sublease shall release Tenant from
its liability for the performance of Tenant's obligations hereunder during the
balance of the Term or constitute Landlord's consent to any (i) further
assignment of this lease or of any permitted sublease or (ii) further sublease
of all or any portion of the premises demised hereunder or under any permitted
sublease. Landlord agrees not unreasonably to withhold or delay its consent to
any further sublease or assignment by any subtenant, subject to all the
applicable provisions of this lease. If a sublease to which Landlord has
consented is assigned or all or any portion of the premises demised thereunder
is sublet without the consent of Landlord in each instance obtained, provided
such consent of Landlord was required, Tenant shall immediately terminate such
sublease, or arrange for the termination thereof, and proceed expeditiously to
have the occupant thereunder dispossessed.
Notwithstanding the foregoing provisions of this Paragraph (K), so long as
Tenant is not in any monetary default or any material non-monetary default which
remains uncured after the expiration of any applicable notice and cure period in
the event of (a) an assignment of this lease by Tenant pursuant to this Article,
(b) Tenant's full compliance with all of the terms of this Article, (c) the
prior written approval of the holder of the mortgage on the Land and the
Building and any ground or underlying lessors, which approval may be withheld by
such holder or ground or underlying lessor in its sole discretion and (d) the
assignee's satisfaction of all of the assignment conditions set forth in (i)-(v)
below (the "Assignment Conditions"), then Tenant shall be released from
liability under this lease solely for obligations arising for the period after
the effective date of such assignment. It is a condition to the above release
that the assignee deliver to Landlord evidence satisfactory to Landlord that (i)
the assignee is incorporated in a State which is located in the United States,
(ii) the assignee is publicly traded at or above book value on a recognized
stock exchange located in the United States, (iii) the assignee has at least an
"A" rating in the most recent edition of Standard and Poor's (or its successor
rating organization) and at least an equivalent rating in the most recent
edition of Moody's Investing Service (or its successor rating organization),
(iv) the assignee has a stable or advancing track record of profitability on a
current basis and commensurate with said assignee's net worth during the
immediately preceding twenty-four (24) months, and (v) the assignee has a
demonstrable tangible net worth as determined in accordance with generally
accepted accounting principles, consistently applied, and certified to Landlord
by an independent certified public accountant, at least equal to Three Billion
Dollars as of the effective date of such assignment.
(L) Tenant shall pay to Landlord, promptly upon demand therefor, all
reasonable out-of-pocket costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements) incurred by Landlord in connection
with any assignment of this lease or assignment of any sublease or sublease of
all or any part of the demised premises, whether proposed or consummated.
(M) If Landlord gives its consent to any assignment of this lease or
assignment of any sublease or to any sublease or if Tenant otherwise enters into
any assignment or sublease permitted hereunder, Tenant shall, in consideration
therefor, pay to Landlord, as and when received by Tenant:
(i) in the case of an assignment, fifty (50%) percent of the amount, if
any, by which (a) all sums and other considerations paid to Tenant by or on
behalf of the assignee for or by reason of such assignment (including, but not
limited to, sums paid for the
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sale of Tenant's fixtures, equipment, furniture, furnishings or other personal
property less the then fair market value thereof) exceeds (b) the sum of (x) the
amount of any rental concessions and work allowance granted by Tenant or costs
incurred by Tenant in preparing the demised premises for the assignee's
occupancy, plus (y) all reasonable and customary out-of-pocket expenses
reasonably incurred by Tenant directly relating to such assignment, such as the
New York State and City Transfer Taxes (but not income taxes), brokerage
commissions, engineering, advertising and promotion expenses and legal fees, but
only to the extent such commissions, expenses and fees are reasonable out-of-
pocket and paid to independent and unrelated third parties and fees of Landlord
in connection with obtaining Landlord's consent, all evidenced by receipted
bills furnished to Landlord, plus (z) an amount (hereinafter referred to as the
"Assignment Vacancy Allowance") equal to the Fixed Rent and additional rent
under Articles 36 and 37 hereof payable by Tenant during the period beginning on
the date that the demised premises are completely vacant and Tenant has notified
Landlord of such vacancy and ending on (1) the date that anyone occupies all of
any portion of the demised premises or (2) the effective date of the assignment
or any other occupancy agreement or (3) the date that Tenant receives any
payment in connection with the assignment of this lease or any other occupancy
of the demised premises, whichever shall occur first; provided, however, (i)
--------- -------
Tenant shall not be entitled to deduct the Assignment Vacancy Allowance if
Tenant is offering to assign this lease at an amount in excess of the fair
market value of Tenant's then leasehold estate hereunder and (ii) the Assignment
Vacancy Allowance shall not exceed an amount equal to six (6) month's Fixed Rent
and additional rent then payable under Articles 36 and 37 of this lease; and
(ii) in the case of a sublease, fifty (50%) percent of the amount, if any,
by which (a) any rents, additional charges or other consideration payable under
the sublease to Tenant by the subtenant (including, but not limited to, sums
paid for the sale or rental of Tenant's fixtures, equipment, furniture or other
personal property in excess of the then fair market value thereof), exceeds (b)
the sum of (x) the Fixed Rent and additional rent accruing during the term of
the sublease in respect of the sublet space (at the rate per square foot payable
by Tenant hereunder and applicable to such sublet space) pursuant to the Term
and (y) the amount of any rental concessions and work allowance granted by
Tenant or costs incurred by Tenant in physically separating the sublet space
from the rest of the demised premises or otherwise in preparing the sublet space
for the subtenant's occupancy, plus all reasonable and customary out-of-pocket
expenses reasonably incurred by Tenant directly relating to such subletting,
such as the New York State and City Transfer Taxes (but not income taxes),
brokerage commissions, engineering, advertising and promotion expenses and legal
fees, but only to the extent such commissions, expenses and fees are reasonable
out-of-pocket and paid to independent and unrelated third parties and fees of
Landlord in connection with obtaining Landlord's consent, all evidenced by
receipted bills furnished to Landlord, plus (z) an amount (hereinafter referred
to as the "Sublease Vacancy Allowance") equal to the Fixed Rent and additional
rent under Articles 36 and 37 hereof payable by Tenant for the sublet space on a
per rentable square foot basis beginning on the date that the sublet space is
completely vacant and Tenant has notified Landlord of such vacancy and ending on
(1) the date that anyone occupies all or any portion of said sublet space or (2)
the effective or commencement date of the sublease or any other occupancy
agreement with respect to the sublet space or (3) the date that Tenant receives
any rent or other payment in connection
with such sublease or any other occupancy of the sublet space (other than any
payment in respect of the first installment of rent received by Tenant upon
execution of the sublease or other
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occupancy agreement prior to the effective date of such sublease or other
occupancy agreement), whichever shall occur first; provided, however, (i) Tenant
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shall not be entitled to deduct the Sublease Vacancy Allowance if Tenant is
offering to sublet the subleased premises at an amount in excess of the fair
market rent for the subleased premises and (ii) the Sublease Vacancy Allowance
shall not exceed an amount equal to six (6) month's Fixed Rent and additional
rent then payable under Articles 36 and 37 of this lease.
(N) Tenant may, without Landlord's prior written consent, but upon not less
than twenty (20) days' prior written notice to Landlord, permit any corporations
or other business entities which control, are controlled by, or are under common
control with Tenant (herein referred to as a "related corporation") to sublet or
use all or part of the demised premises for any of the purposes permitted to
Tenant, subject however to compliance with Tenant obligations under this lease
[other than Paragraphs (C), (D), (E), (F) and (M) (except as hereinafter
provided) and, in the event Tenant is subletting additional space to a related
corporation, clause (ii) of Paragraph B] provided that (i) Tenant shall not be
in default beyond applicable notice and cure periods in the performance of any
of its obligations under this lease, (ii) prior to such subletting or use,
Tenant furnishes Landlord with the name of such related corporation, together
with a certification of Tenant, and such other proof as Landlord may reasonably
request, that such subtenant is a related corporation of Tenant, and (iii) in
the reasonable judgment of Landlord, the proposed subtenant is of a character
comparable to the character of other tenants in the Building. Within ten (10)
days after Landlord's request from time to time, but not more frequently than
annually (unless Landlord has a reasonable basis to believe that such subtenant
is no longer a related corporation of Tenant, in which case Landlord may request
such certification more frequently than annually), an officer of Tenant shall
certify to Landlord that such subtenant remains a related corporation of Tenant,
failing which the provisions of Paragraph (M) shall apply retroactive to the
date such subtenant no longer was a related corporation of Tenant. Such
subletting shall not be deemed to vest in any such related corporation any right
or interest in this lease or the demised premises nor shall it relieve, release,
impair or discharge any of Tenant's obligations hereunder. For the purposes
hereof, "control" shall be deemed to mean ownership of not less than forty (40%)
percent of all of the voting stock of such corporation or not less than forty
(40%) percent of all of the legal and equitable interest in any other business
entities.
(O) Tenant may, without Landlord's prior written consent, but upon not less
than twenty (20) days prior written notice to Landlord, assign this lease to any
corporations or other business entities which are majority controlled by
SOFTBANK Holdings Inc. (herein referred to as a "Related Entity"), subject
however to compliance with Tenant's obligations under this lease (other than
Paragraphs (C), (D), (E), (F) and (M) (except as hereinafter provided) of this
Article); provided that (i) Tenant shall not be in default beyond applicable
notice and cure periods in the performance of any of its obligations under this
lease, (ii) prior to such assignment, Tenant furnishes Landlord with the name of
any such Related Entity, together with a certification of Tenant, and such other
proof as Landlord may reasonably request, that such assignee is a Related
Entity, (iii) the proposed occupancy shall not increase the office cleaning
requirements, if any, (other than to a de minimis extent) or impose an extra
burden (except for a de minimis amount) upon the building equipment or building
services unless the assignee agrees to pay for the same and such extra burden
does not otherwise adversely affect the Building equipment and/or services, (iv)
the proposed assignee shall not be entitled,
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directly or indirectly, to diplomatic or sovereign immunity and shall be subject
to the service of process in, and the jurisdiction of the courts of New York
State, (v) in the reasonable judgment of Landlord, the proposed assignee is of a
character comparable to the character of other tenants in the Building and (vi)
Tenant and the Related Entity shall collectively have a demonstrable tangible
net worth, as determined in accordance with generally accepted accounting
principles, consistently applied, and certified to Landlord by an independent
certified public accountant, at least equal to the net worth of Tenant
immediately prior to the date of the assignment (the "Net Worth Requirement").
Within ten (10) days after Landlord's request from time to time, an officer of
Tenant shall certify to Landlord that such assignee remains a Related Entity,
failing which the provisions of Paragraph (M) shall apply retroactive to the
date such assignee no longer was a Related Entity. Except as otherwise
specifically provided in Paragraph (K) hereof, such assignment shall not
relieve, release, impair or discharge any of Tenant's obligations hereunder. For
the purposes hereof, "control" shall be deemed to mean ownership of more than
fifty (50%) percent of all of the voting stock of any corporation or more than
fifty (50%) percent of all of the legal and equitable interest in any other
business entities.
(P) Tenant may, without Landlord's prior written consent, but upon not less
than twenty (20) days' prior written notice to Landlord, assign or transfer its
entire interest in this lease and the leasehold estate hereby created to a
successor entity of Tenant (as hereinafter defined); provided, however, that (i)
Tenant shall not be in default beyond applicable notice and cure periods in any
of the terms of this lease, (ii) the proposed occupancy shall not increase the
office cleaning requirements, if any, (other than to a de minimis extent) or
impose an extra burden (except for a de minimis amount) upon the building
equipment or building services unless the assignee agrees to pay for the same
and such extra burden does not otherwise adversely affect the Building equipment
and/or services, and (iii) the proposed assignee shall not be entitled, directly
or indirectly, to diplomatic or sovereign immunity and shall be subject to the
service of process in, and the jurisdiction of the courts of New York State. A
"successor entity" as used in this Paragraph (P) shall mean (a) an entity into
which or with which Tenant, its successors or assigns, is merged or
consolidated, in accordance with applicable statutory provisions for the merger
or consolidation, provided that by operation of law or by effective provisions
contained in the instruments of merger or consolidation, the liabilities of the
entities participating in such merger or consolidation are assumed by the entity
surviving such merger or consolidation, or (b) an entity acquiring this lease
and the term hereof and the estate hereby granted, the goodwill and all or
substantially all of the other property and assets of Tenant, its successors or
assigns, and assuming all or substantially all of the liabilities of Tenant, its
successors and assigns, or (c) any successor to a successor entity becoming such
by either of the methods described in subdivisions (a) and (b) above; provided
that (x) such merger or consolidation, or such acquisition and assumption, as
the case may be, is for a good business purpose and not principally for the
purpose of transfer ring the leasehold estate created hereby, and (y)
immediately after giving effect to any such merger or consolidation, or such
acquisition and assumption, as the case may be, the entity surviving such merger
or created by such consolidation or acquiring such assets and assuming such
liabilities, as the case may be, shall have a demonstrable tangible net worth,
as determined in accordance with generally accepted accounting principles,
consistently applied, and certified to Landlord by an independent certified
public accountant, at least equal to the net worth of Tenant immediately prior
to the date of such merger or consolidation or such acquisition and assumption.
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(Q) Notwithstanding anything to the contrary herein above contained, in no
event will there be permitted to be more than three (3) occupants (including
Tenant and its related entities) on any one (1) of the floors constituting the
demised premises.
(R) It shall be deemed reasonable for Landlord to withhold its consent
under this Article 11 if Tenant is then in monetary or material non-monetary
default under this lease beyond any applicable notice or grace period or if the
intended use is not for office use or is not similar and consistent with those
then existing in the Building in Landlord's reasonable judgment.
(S) With respect to any sublease (but not to any underletting by any
subtenant) to which Landlord consents covering space which (i) constitutes a
sublease of at least a full floor other than pursuant to Paragraphs (N) and (T),
(ii) is with a subtenant who has, in Landlord's good faith judgment, a financial
worth comparable to the financial worth that Landlord is then requiring of
direct tenants in the building for space that is comparable to the space sublet
by such subtenant (but taking into account the rental obligations under such
sublease or, if greater, under this lease (on a per rentable square foot
basis)), and (iii) provides for a rental which is equal to or in excess (on a
per rentable square foot basis) of the Fixed Rent and recurring additional rent
payable hereunder by Tenant with respect to such space from time to time
throughout the Term (or if less (on a per rentable square foot basis) than the
Fixed Rent and recurring additional rent payable hereunder by Tenant, if such
subtenant agrees, in the non-disturbance and attornment agreements hereinafter
referred to, that such rental (on a per rentable square foot basis) will
automatically and without condition become so equal, if, as and when the
attornment provided for in such non-disturbance and attornment agreement becomes
effective between Landlord (or a holder of a mortgage or ground lessor, as
applicable) and the subtenant following the termination of this lease), Landlord
shall, at Tenant's request, execute and deliver to such subtenant a non-
disturbance and attornment agreement in the form of Exhibit J annexed hereto
---------
(provided, that such non-disturbance and attornment agreement is first executed
- ---------
and delivered by all parties thereto other than Landlord, including Tenant) and
shall use good faith efforts to obtain from the holder of any mortgage then
encumbering the Building and the lessor under any ground lease then affecting
the Building a non-disturbance or recognition agreement, as applicable, for the
benefit of such subtenant. Notwithstanding anything to the contrary set forth
in this Paragraph (S), any non-disturbance and attornment agreement delivered by
Landlord or a holder of a mortgage or ground lessor pursuant to this Paragraph
(S) shall, pursuant to this lease, be conditional and by its terms expressly
contain the condition such that, in the event of any termination of this lease
other than by reason of Tenant's default (e.g., by reason of a casualty pursuant
----
to Article 9 or by reason of condemnation pursuant to Article 10), then any non-
disturbance and attornment agreement to a subtenant shall, automatically and
without further act of the parties, terminate and be of no further force or
effect from and after the applicable termination date; provided, that if (a)
--------
this lease is terminated with respect to less than all of the premises, or (b)
Tenant pursuant to Article 53 exercises its extension option with respect to
less than all of the premises, only such non-disturbance and attornment
agreements to subtenants who sublease any of such space with respect to which
this lease is terminated or not extended, as the case may be, shall,
automatically and without further act of the parties, terminate and be of no
further force or effect from and after the applicable termination date or the
day preceding the commencement of the applicable extension term, as the case may
be. Tenant shall promptly reimburse Landlord, as additional rent, for all
reasonable costs and expenses, including, but not limited to, reasonable
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attorney's fees, incurred by Landlord in connection with this Paragraph (S).
(T) Anything herein to the contrary notwithstanding, Tenant shall not be
required to provide a Tenant's Request and Landlord's consent shall not be
required with respect to a sublease, or subleases in the aggregate, covering
space which is less than one (1) full floor in the demised premises (a
"Permitted Sublease(s)"), and Paragraphs (C), (D), (E), and (F) of this Article
shall not be applicable thereto, subject however to compliance with Tenant's
obligations under this lease and further provided that (i) Tenant shall not be
in default in the performance of any of its obligations under this lease beyond
any applicable notice and cure period, (ii) at least twenty (20) days prior to
the occurrence of such subletting, Tenant furnishes Landlord with the name of
any such subtenant and its proposed use of the demised premises which shall be
solely for executive, administrative or general offices, (iii) such subletting,
or series of subleases, shall be for a good business purpose and not for the
purpose of obviating the provisions of this lease, and (iv) such subtenant shall
be of a character as is then in keeping with the standards of Landlord for the
Building.
(U) Tenant will have the right to permit one or more business affiliates of
Tenant to occupy one or more portions of the premises, for office use and/or any
other permitted use specified in Article 2 hereof only, without the requirement
of obtaining Landlord's consent, but Tenant shall give Landlord prompt notice
thereof in each instance and Paragraphs (C), (D), (E), (F), (I), (J), (L) and
(M) and clause (ii) of Paragraph (B) of this Article shall not apply to any such
occupancy, but such occupancy shall otherwise be subject to the terms and
conditions of this lease. Any space occupied pursuant to this Paragraph (U)
shall not be separated from the balance of the premises and shall be accessible
only from a common entrance. For purposes of this subsection, the term
"business affiliate of Tenant" shall mean a person or entity with whom Tenant
has or expects to have a business relationship.
12. Electric Current
----------------
(A) Tenant covenants and agrees that at all times its use of electric
current shall not exceed the capacity of existing feeders to the Building or the
risers or wiring installation, and Tenant will not overload such installations
or interfere with the use thereof by other tenants of the Building.
(B) From and after the applicable Commencement Date, Landlord agrees to
furnish, and Tenant shall have available, up to eight (8) watts of electric
current per usable square foot (demand load) for Tenant's use in the demised
premises (in addition to that required for the base building air conditioning
machinery as set forth in Exhibit B-3) upon and subject to the terms and
conditions set forth in this Article 12. Tenant is to be responsible for the
distribution of such electricity throughout the demised premises. From and after
the Electric Commencement Date (as hereinafter defined), Tenant shall purchase
from Landlord or Landlord's designated agent all electric current consumed in
the applicable floor(s) of the demised premises. Tenant will pay to Landlord as
additional rent a sum equal to (i) "Landlord's Average Cost" (as that term is
hereinafter defined), for the relevant billing period, multiplied by (ii) the
total kilowatt hours recorded on Tenant's sub-meter or submeters during such
billing period. "Landlord's Average Cost" for all purposes of this lease shall
be determined by dividing (y) the total dollar amount billed to Landlord for the
Building by the entity providing electric current to the Building (the "Electric
Company") for the relevant billing period (including, without limitation, all
charges for "demand," fuel,
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"on-peak" and "off-peak" usage, "time of day" usage and any and all other
relevant adjustments and charges) by (z) the total kilowatt hours utilized by
the Building for such billing period. Tenant's consumption of electrical energy
at the demised premises will be measured by submeters to be installed by
Landlord at Landlord's expense. "Electric Commencement Date" with respect to
each floor of the demised premises shall mean the date on which the submeters
measuring the usage of electric current consumed on such floor are made
functional, provided that Landlord shall not have such submeters made functional
until the date Tenant (or anyone claiming under or through Tenant) occupies all
or any portion of such floor for the conduct of business. Tenant shall provide
thirty (30) days prior written notice to Landlord of the date Tenant intends to
occupy all or any portion of each floor of the demised premises (on a floor by
floor basis) for the conduct of any business, and Tenant shall not, prior to
Electric Commencement Date, consume any electric current on such floors except
for bona fide construction or construction related purposes.
(C) Where more than one submeter measures Tenant's electric service
(including such electric energy as is consumed in connection with the operation
of the ventilation and air conditioning equipment servicing the demised
premises), the service rendered through each submeter may be computed and billed
as an aggregate total in accordance with the provisions hereof. Bills therefor
may be rendered monthly and shall be payable within thirty (30) days after
rendition of such billing accompanied by reasonable documentation, as additional
rent.
(D) Landlord is not in any way liable or responsible to Tenant for any
loss, damage or expense which Tenant may sustain or incur if either the quantity
or character of electric service is changed or is no longer available or
suitable for Tenant's requirements, except to the extent resulting from
Landlord's Negligence or Wilful Misconduct (but, in no event, will Landlord have
any responsibility for consequential damages). Subject to Tenant's compliance
with Articles 3 and 44 and all other applicable provisions of this lease,
Landlord agrees, in principle, to Tenant obtaining, at Tenant's sole cost and
expense, from the Electric Company additional electric capacity from the street
(adjoining the Building) to the Building and such additional risers necessary to
handle the same, provided there is no diminution of, or any other adverse effect
upon, the Building or its electric system or the electrical capacity and, unless
Tenant pays for such increased costs, no increase in the electrical cost for the
balance of the Building. Except as set forth in Exhibits B and B-3, any riser
or risers necessary to supply Tenant's electrical requirements in excess of
those specified in Paragraph (B) will, upon written request of Tenant, be
installed by Landlord at the sole cost and expense of Tenant if the same is
reasonably practicable and will not cause damage or injury to the Building or
the operation thereof or the demised premises or the operations of other tenants
or occupants of the Building, and will not cause or create a dangerous or
hazardous condition. In addition to the installation of such riser or risers,
Landlord will also, at the sole cost and expense of Tenant, install all other
equipment proper and necessary in connection therewith, subject to the aforesaid
terms and conditions. All of such costs and expense which are payable by Tenant
hereunder shall be paid by Tenant to Landlord within thirty (30) days after
rendition of any bill or statement to Tenant therefor which bill or statement is
accompanied by reasonable documentation, as additional rent.
(E) Provided Landlord does not discriminate against Tenant, Landlord may
discontinue such service of electric current after the Electric Commencement
Date upon thirty (30) days notice to Tenant without being liable to Tenant
therefor and without in any way
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affecting this lease or the liability of Tenant hereunder or causing a
diminution of Fixed Rent. Such discontinuance is not to be deemed to be a
lessening or diminution of service within the meaning of any law, rule or
regulation now or hereafter enacted, promulgated or issued. If Landlord so
discontinues furnishing electric current to Tenant, or if Tenant at its option
elects and notifies Landlord reasonably in advance, Tenant shall arrange to
obtain electric current directly from the Electric Company. Such electric
current may be furnished to Tenant by means of the then existing building system
feeders, risers and wiring to the extent that the same are available, suitable
and safe for such purposes. All meters and additional panel boards, feeders,
risers, wiring and other conductors and equipment that may be required to obtain
and to measure Tenant's consumption of electric current directly from the
Electric Company shall be installed and maintained by Landlord, at Tenant's
expense if Landlord is required by Law, the Electric Company or for any other
reason to discontinue furnishing electricity to Tenant or if Tenant elects to
purchase electricity directly from the Electric Company, and at Landlord's
expense if Landlord voluntarily determines to discontinue furnishing electricity
to Tenant. Provided Tenant proceeds promptly and diligently after receipt of
Landlord's notice to arrange to obtain and to measure Tenant's consumption of
electric current directly from the Electric Company, Landlord may not
discontinue electric service until Tenant is able to obtain service directly
from the Electric Company (unless Landlord is compelled to do so by Law or the
Electric Company).
(F) Tenant agrees not to make any material alterations or additions (which
affect or may affect the building's electric system and which are not the
installation of ordinary office equipment) to the electric equipment and/or
appliances installed in the demised premises from and after the date of
completion of Landlord's Work without the prior written consent of Landlord in
each instance (which consent shall not be unreasonably withheld or delayed), and
only in accordance with all the applicable provisions of this lease.
(G) If any tax is imposed upon Landlord's receipt from the sale or resale
of electric energy to Tenant by any federal, state or municipal authority, where
permitted by law, Tenant agrees to pay Landlord within thirty (30) days after
rendition of a bill therefor Tenant's pro-rata share of such taxes, as
additional rent.
(H) If during any time during the Term occurring on or after the Electric
Commencement Date, it is determined that the submeters servicing the demised
premises are or were malfunctioning, Tenant shall pay Landlord for such period
an amount determined by Landlord's electrical consultant (subject to Tenant's
right to dispute as provided in Paragraph (I) hereof), based upon the average of
the submetered amounts during the same period for the immediate preceding two
(2) years (or if such malfunction occurs prior to the beginning of the third
(3rd) year of the Term, such amount shall be reasonably estimated by Landlord's
electrical consultant based upon any prior usage under similar circumstances of
occupancy and use, if any).
(I) Anything in this Article to the contrary notwithstanding, if Tenant
disputes any determination made by Landlord's electrical consultant or engineer
("Landlord's Electrical Consultant") pursuant to Paragraph (H) of this Article,
Tenant may challenge such determination, within ninety (90) days after receipt
thereof (time being of the essence), by submitting a different estimate made by
Tenant's reputable independent electrical engineer or qualified consultant
("Tenant's Electrical Consultant"), which shall be paid by Tenant. If
Landlord's Electrical Consultant and Tenant's Electrical Consultant agree on a
determination, such
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<PAGE>
agreement shall be conclusive upon the parties. If Landlord's Electrical
Consultant and Tenant's Electrical Consultant cannot agree, they shall select a
third reputable independent electrical engineer or qualified consultant, the
cost of whom shall be shared equally by both parties, to make a binding
determination with respect to such dispute. If Landlord's Electrical Consultant
and Tenant's Electrical Consultant cannot select a third electrical engineer or
consultant, the same shall be selected by the Presiding Judge of the Appellate
Division of the Supreme Court of the State of New York, First Department. No
delay in the resolution of any such dispute shall affect the effective date of
any such determination.
(J) The parties agree to cooperate with each other in the selection of a
service provider of electricity to the demised premises (in the event Laws
permit such a choice) that provides high quality service at a reasonable rate.
13. Access to Premises
------------------
Landlord or Landlord's agents shall have the right (but shall not be
obligated) (a) to enter all or any part of the demised premises and the terrace
in an emergency at any time, but Landlord shall use reasonable efforts to
furnish Tenant with prior or contemporaneous telephonic or other oral notice,
and (b) to enter the demised premises and terrace (including the Security Areas,
as hereinafter defined), upon such prior notice as hereinafter provided.
Landlord shall be accompanied by a representative of Tenant, provided Tenant
shall have furnished the name and telephone number of Tenant's representative(s)
in writing to Landlord from time to time ("Tenant's Representative"). Except in
emergencies, Landlord shall deliver Tenant not less than seven (7) business days
notice (or such shorter period if such access is required to comply with Law) in
the event Landlord is aware that any Building systems may be disrupted by reason
of such access. If Tenant is required to discontinue operations in any portion
of the demised premises, Landlord shall, except in emergencies, deliver to
Tenant at least fourteen (14) days notice (or such shorter period if such access
is required to comply with Law). All other access by Landlord or Landlord's
agents shall be (except for emergencies as provided above) upon notice (which
may be telephonic or oral) of no less than forty-eight (48) hours (or such
shorter period if such access is required to comply with Law) during regular
business or such other hours as are mutually agreeable to Landlord and Tenant,
accompanied by Tenant's Representative, at Tenant's election and provided that
Tenant shall make Tenant's Representative available promptly and at a time
reasonably acceptable to Tenant. Such access shall be for the purposes of
examining the demised premises and/or making such repairs, replacements and
improvements as Landlord may deem necessary to the demised premises and the
terrace or necessary or reasonably desirable to any other portion of the
Building. If Tenant fails to make Tenant's Representative reasonably available
and/or permit Landlord or Landlord's agents access to the demised premises and
terrace as required hereunder, Tenant agrees, in addition to any other right or
remedy of Landlord under this lease, to reimburse Landlord for the costs of any
overtime labor or any other costs incurred by Landlord as a result thereof.
Landlord shall use reasonable efforts to minimize interference with Tenant's
occupancy, including, without limitation, Tenant's occupancy of the terrace,
while such work is in progress and shall cooperate with Tenant as to the
scheduling of such work, but Landlord will not be required to use overtime labor
unless either (i) necessary so as to prevent material disruption to Tenant's
operations and/or to the conduct of its business or (ii) Tenant agrees to
reimburse Landlord for the cost of such overtime labor. Tenant shall permit
Landlord to use and maintain and replace pipes and conduits in and through the
demised premises and
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to erect new pipes and conduits therein, if required in Landlord's reasonable
business judgment, provided they are concealed within the walls, floor or
ceiling and they are placed in a location approved by Tenant, which approval
shall not be unreasonably withheld or delayed. Upon the completion of such work,
repairs and installations, there shall be no reduction (except to a de minimis
extent not exceeding fifty (50) square feet per floor) in the rentable area of
the demised premises and the affected portions of the demised premises shall
have been restored at Landlord's expense to substantially their condition
immediately prior to the performance of such work, repairs or installations. In
the event of a reduction of the rentable area in excess of fifty (50) square
feet per floor, the Fixed Rent and additional rent payable under Articles 36 and
37 hereof shall be appropriately reduced based upon the reduction of rentable
square feet contained in the premises and, in the case of Fixed Rent, the then
Fixed Rent per rentable square foot applicable to that portion of the floor no
longer included within the demised premises in accordance with Paragraph 23(B)
hereof. Landlord may, during the progress of any work in the demised premises,
take all necessary materials and equipment into the demised premises without the
same constituting an eviction nor shall the Tenant be entitled to any abatement
of rent while such work is in progress nor to any damages by reason of loss or
interruption of business or otherwise, subject to the provisions of this Article
13. Any such materials will be stored in an orderly fashion in a place
reasonably designated by Tenant, but in a reasonable location. Throughout the
Term hereof, Landlord shall have the right to enter the demised premises and
terrace at reasonable business hours upon reasonable prior notice of at least
forty-eight (48) hours which may be telephonic or oral to Tenant's
Representative for the purpose of showing the same to prospective purchasers or
mortgagees of the Building, and during the last twelve (12) months of the Term
for the purpose of showing the same to prospective tenants; provided, however,
there shall be no such entry into Security Areas unless such entry is necessary
and specifically requested by the prospective purchaser, mortgagee or
prospective tenant. If Tenant is not present to open and permit an entry into
the premises in an emergency, Landlord or Landlord's agents may enter the same
whenever such entry may be necessary by master key or forcibly and provided
reasonable care is exercised to safeguard Tenant's property, such entry shall
not render Landlord or its agents liable therefor, nor in any event shall the
obligations of Tenant hereunder be affected. If during the last month of the
Term, Tenant shall have removed all of Tenant's property therefrom, Landlord may
immediately enter, alter, renovate or redecorate the demised premises without
limitation or abatement of rent, or incurring liability to Tenant for any
compensation and such act shall have no effect on this lease or Tenant's
obligations hereunder. As used herein, "Security Areas" shall mean those areas
in the demised premises to which all of Tenant's personnel do not have access
and which are designated in plans which have been submitted to Landlord or in a
notice otherwise given to Landlord, as the same may be changed from time to
time.
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14. Occupancy
---------
(A) Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the Building (the "C/O"), a
copy of which is attached as Exhibit I or any amended C/O permitted under this
lease. Landlord will not amend the C/O in any way that would adversely affect
Tenant's use of the premises for its permitted use thereof. Tenant has
inspected the premises and accepts them as is, subject to the work required to
be performed by Landlord described in this lease and the riders annexed hereto
with respect to Landlord's Work, if any, and except for latent defects. In any
event, except as otherwise expressly provided herein, Landlord makes no
representation as to the condition of the premises and Tenant agrees to accept
the same subject to violations, whether or not of record, which have no adverse
effect on Tenant's occupancy of the demised premises for the uses expressly
permitted herein.
(B) Landlord represents that, upon completion of Landlord's Work, (i) the
premises will be in compliance with all Laws (including ADA) that are applicable
to space in such condition (i.e., not including Laws that are applicable by
reason of Tenant's Work or the fact that Tenant's Work has yet to be completed),
and (ii) the premises will be free of asbestos that applicable Law requires to
be removed or encapsulated, it being understood that Landlord will remove or
encapsulate same at its cost and the need for such removal and/or encapsulation
shall not be deemed to be a result of Tenant's Work.
(C) Landlord agrees, at no expense to Landlord, to cooperate to the extent
reasonably practicable with Tenant's efforts to amend the C/O to accommodate a
use ancillary to Tenant's business which does not increase the cost to Landlord
in operating the Building unless Tenant will pay for any such increased costs,
subject, however, to the restrictions contained in Article 2 hereof and any
other applicable provision of this lease and provided that Tenant obtains
Landlord's prior written approval of such use, which approval will not be
unreasonably withheld or delayed.
15. Bankruptcy
----------
(A) Anything elsewhere in this lease to the contrary notwithstanding, this
lease may be cancelled by Landlord by the sending of a written notice to Tenant
within a reasonable time after the happening of any one or more of the following
events: (i) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor which, if involuntary, is not discharged or
stayed within ninety (90) days of the commencement thereof; or (ii) the making
by Tenant of an assignment or any other arrangement for the benefit of creditors
under any state statute. Neither Tenant nor any person claiming through or under
Tenant, or by reason of any statute or order of court, shall thereafter be
entitled to possession of the demised premises but shall forthwith quit and
surrender the demised premises. If this lease shall be assigned in accordance
with its terms, the provisions of this Article 15 shall be applicable only to
the party then owning Tenant's interest in this lease.
(B) It is stipulated and agreed that in the event of the termination of
this lease pursuant to Paragraph (A) hereof, Landlord shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rent reserved hereunder for the unexpired portion of the
Term and the fair and reasonable rental value of the demised premises for the
same period. In the computation of such damages the difference between any
installment of rent becoming due
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hereunder after the date of termination and the fair and reasonable rental value
of the demised premises for the period for which such installment was payable
shall be discounted to the date of termination at the Federal discount rate then
in effect. If the premises or any part thereof be relet by the Landlord for the
unexpired Term, or any part thereof, before presentation of proof of such
liquidated damages to any court, commission or tribunal, the amount of rent
reserved upon such reletting shall be deemed to be the fair and reasonable
rental value for the part or the whole of the premises so relet during the term
of the reletting. Nothing herein contained shall limit or prejudice the right of
the Landlord to prove for and obtain as liquidated damages by reason of such
termination, an amount equal to the maximum allowed by any statute or rule of
law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater, equal to, or
less than the amount of the difference referred to above.
(C) Landlord shall not have the right to terminate this lease pursuant to
this Article 15 so long as Tenant is duly performing all of its obligations
under this lease.
(D) Without limiting any of the foregoing provisions of this Article 15 or
Articles 16 or 17 hereof, if, pursuant to the Bankruptcy Code of 1978, as the
same may be amended (the "Bankruptcy Code"), Tenant is permitted to assign this
lease in disregard of the obligations contained in Article 11 hereof, Tenant
agrees that adequate assurance of future performance by the assignee permitted
under such Code shall mean the deposit of cash security with Landlord in an
amount equal to the sum of two quarters of one year's Fixed Rent then reserved
hereunder plus an amount equal to two quarters of all additional rent payable
under this lease for the calendar year preceding the year in which such
assignment is intended to become effective, which deposit shall be held by
Landlord for the balance of the Term as security for the full and faithful
performance of all of the obligations under this lease on the part of Tenant yet
to be performed. Landlord shall deposit such security in an interest-bearing
account. To the extent not prohibited by Law, Landlord shall be entitled to
receive and retain as an administrative expense a sum equivalent to one (1%)
percent per annum upon such security deposit. The balance of the interest
credited to such account by reason of such security deposit, after the deduction
of such administrative expense, shall, at the end of each calendar year during
the Term of this lease, after such deduction, be paid over by Landlord to the
then Tenant promptly following the then Tenant's request during the succeeding
calendar year during the Term; provided, however, that any undistributed accrued
interest on such security deposit at the expiration of the Term shall be
returned to the then Tenant promptly after such expiration. Subject to the
provisions of the Bankruptcy Code, if Tenant receives or is to receive any
valuable consideration for such an assignment of this lease, such consideration,
after deducting therefrom (i) the brokerage commissions, if any, and other
expenses reasonably incurred by Tenant for such assignment, and (ii) any portion
of such consideration reasonably designated by the assignee as paid for the
purchase of Tenant's property in the demised premises in excess of the fair
market value thereof, shall be and become the sole and exclusive property of
Landlord and shall be paid over to Landlord directly by such assignee. In
addition, adequate assurance shall mean that any such assignee of this lease
shall have a net worth, exclusive of good will, sufficient in Landlord's
judgment, considering the responsibility involved.
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16. Default
-------
(A) If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenant for the payment of rent or additional rent; or if any
execution or attachment shall be issued against Tenant or any of Tenant's
property whereupon the demised premises shall be taken or occupied by someone
other than Tenant and not dismissed within ninety (90) days; or if this lease be
rejected under ' 235 of Title 11 of the U.S. Code (bankruptcy code), then, in
any one or more of such events, upon Landlord serving a written thirty (30) days
notice upon Tenant specifying the nature of said default and upon the expiration
of said thirty (30) days, if Tenant shall have failed to comply with or remedy
such default, or if the said default or omission complained of shall be of a
nature that the same cannot be completely cured or remedied within said thirty
(30) day period, and if Tenant shall not have diligently commenced during such
default within such thirty (30) day period, and shall not thereafter with
reasonable diligence and in good faith proceed to remedy or cure such default,
then Landlord may serve a written ten (10) days' notice of cancellation of this
lease upon Tenant, and upon the expiration of said ten (10) days this lease and
the Term shall end and expire as fully and completely as if the expiration of
such ten (10) day period were the day herein definitely fixed for the end and
expiration of this lease and the Term and Tenant shall then quit and surrender
the demised premises to Landlord but Tenant shall remain liable as hereinafter
provided.
(B) If the notice provided for in Paragraph (A) hereof shall have been
given, and the Term shall expire as aforesaid; or if Tenant shall make default
in the payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required
for more than fifteen (15) days after notice from Landlord, then and in any of
such events, Landlord may, without notice, re-enter the demised premises and
dispossess Tenant and the legal representative of Tenant or any other occupant
of the demised premises by summary proceedings or any other lawful proceedings,
and remove their effects and hold the premises as if this lease had not been
made.
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17. Remedies of Landlord and Waiver of Redemption
---------------------------------------------
In case of any such default, reentry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent shall become due thereupon and be
paid up to the time of such reentry, dispossess and/or expiration, (b) Landlord
may relet the premises or any part or parts thereof, either in the name of
Landlord or otherwise, for a term or terms, which may at Landlord's option be
less than or exceed the period which would otherwise have constituted the
balance of the Term and may grant concessions or free rent or charge a higher
rental than that in this lease, and/or (c) Tenant or the legal representatives
of Tenant shall also pay Landlord as liquidated damages for the failure of
Tenant to observe and perform said Tenant's covenants herein contained, any
deficiency between the rent hereby reserved and/or covenanted to be paid and the
net amount, if any, of the rents collected on account of the lease or leases of
the demised premises for each month of the period which would otherwise have
constituted the balance of the Term. The failure of Landlord to relet the
premises or any part or parts thereof shall not release or affect Tenant's
liability for damages. In computing such liquidated damages there shall be
added to the said deficiency such expenses as Landlord may incur in connection
with reletting, such as legal expenses, attorneys' fees, brokerage, advertising
and for keeping the demised premises in good order or for preparing the same for
reletting through the balance of the Term. Any such liquidated damages shall be
paid in monthly installments by Tenant on the rent day specified in this lease
and any suit brought to collect the amount of the deficiency for any month shall
not prejudice in any way the rights of Landlord to collect the deficiency of any
subsequent month by a similar proceeding. Landlord, in putting the demised
premises in good order or preparing the same for re-rental may, at Landlord's
option, make such alterations, repairs, replacements, and/or decorations in the
demised premises as Landlord, in Landlord's good faith judgment, considers
advisable and necessary for the purpose of reletting the demised premises, and
the making of such alterations, repairs, replacements, and/or decorations shall
not operate or be construed to release Tenant from liability hereunder as
aforesaid. Landlord shall in no event be liable in any way whatsoever for
failure to relet the demised premises, or in the event that the demised premises
are relet, for failure to collect the rent thereof under such reletting, and in
no event shall Tenant be entitled to receive any excess, if any, of such net
rents collected over the sums payable by Tenant to Landlord hereunder. In the
event of a breach or threatened breach by Tenant of any of the covenants or
provisions hereof, Landlord shall have the right of injunction and the right to
invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Landlord from any other
remedy, in law or in equity. Tenant hereby expressly waives any and all rights
of redemption granted by or under any present or future laws in the event of
Tenant being evicted or dispossessed for any cause, or in the event of Landlord
obtaining possession of the demised premises, by reason of the violation by
Tenant of any of the covenants and conditions of this lease, or otherwise.
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18. Fees and Expenses
-----------------
(A) If Tenant shall default (after notice and the expiration of any
applicable cure period) in the observance or performance of any term or covenant
on Tenant's part to be observed or performed under or by virtue of any of the
terms or provisions in any article of this lease, then, unless otherwise
provided elsewhere in this lease, Landlord may immediately or at any time
thereafter and without further notice perform the obligation of Tenant
thereunder and Tenant shall, within thirty (30) days after demand, reimburse
Landlord for its reasonable out-of-pocket costs incurred in connection therewith
as additional rent. If the Term shall have expired at the time of making of
such expenditures or incurring of such obligations, such sums shall be
recoverable by Landlord as damages.
(B) Whenever this lease provides that a party shall be responsible for
costs or expenses incurred by the other party, such responsibility shall be
limited to reasonable out-of-pocket costs and expenses.
(C) If any legal proceeding is brought by reason of the claimed default of
either party hereto, the prevailing party shall be entitled to reimbursement by
the other for its reasonable attorneys' fees.
(D) If Landlord shall default in its obligations under this lease to
perform repairs, maintenance or replacements to the demised premises required to
be performed by Landlord or provide any service to the demised premises required
to be provided by Landlord and shall not be diligently pursuing the cure of such
default, then unless otherwise provided elsewhere in this lease, and provided
that Tenant is then occupying at least 150,000 rentable square feet in the
Building, Tenant may perform the same (provided the Building systems outside the
demised premises and/or any other areas outside the demised premises, including
without limitation the electrical, elevator, life-safety, plumbing, heating,
ventilating or air conditioning systems, are not in any way adversely affected
by such performance and further provided that Tenant complies with all of the
applicable provisions of this lease, including, without limitation, Article 3
hereof) at the expense of Landlord immediately in an emergency (except in the
event of an emergency, Tenant shall use reasonable efforts to furnish Landlord
with prior telephonic or other oral notice followed promptly by written notice)
or in all other circumstances if such default continues for thirty (30) days
after a notice to Landlord (in which Tenant notifies Landlord that Tenant will
undertake such performance and specifies in detail the repairs which Tenant will
perform at Landlord's expense) and such default further continues for five (5)
business days after the giving by Tenant to Landlord of a second notice
following such thirty (30) day period (provided, that such thirty (30) day and
--------
five (5) day periods shall be deemed extended (i) if prior to the expiration of
such period, Landlord promptly commences and thereafter diligently prosecutes to
completion all commercially reasonable steps necessary to cure such failure, or
(ii) if Landlord, acting in good faith, sends a notice to Tenant disputing that
Landlord is in default in its obligations under this lease and electing to have
such "Dispute" resolved by an informal hearing ("Hearing") upon and subject to
the terms and conditions hereinafter set forth, in which event Tenant shall not
undertake such performance unless and until such Dispute is resolved in its
favor. If Tenant performs any of Landlord's obligations under this lease
pursuant to the immediately preceding sentence, Landlord shall reimburse Tenant
for the reasonable out-of-pocket costs thereof incurred by Tenant, within thirty
(30) days after receipt by Landlord of reasonably detailed
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receipted statements itemizing the nature of the work and the amounts of such
costs. If Landlord fails to so reimburse Tenant within the above thirty (30) day
period, Tenant shall have the right upon not less than thirty (30) days notice
to Landlord to offset such costs, together with interest on the unpaid balance
thereof accruing at a rate equal to the Interest Rate (as defined in Paragraph
42(C) hereof), against future rental obligations hereunder unless Landlord prior
to the expiration of such thirty (30) day period from receipt of said notice
from Tenant notifies Tenant that it disputes the commercial reasonableness of
the amount claimed by Tenant to be due and elects to have such Dispute resolved
by a Hearing upon and subject to the terms and conditions hereinafter set forth,
in which event Landlord shall pay any undisputed amount due Tenant and Tenant
shall have the right to offset the costs which the Hearing Officer determines to
be due to Tenant hereunder together with interest on the unpaid balance thereof
at the Interest Rate, against future Fixed Rent obligations hereunder, unless
Landlord reimburses Tenant in the amount determined to be due to Tenant
hereunder within thirty (30) days after such determination is made. In addition,
if the Hearing Officer determines that such Dispute was brought in bad faith,
then interest shall accrue from date such sums were first due.
(a) The Hearing shall be held at the offices of the hearing officer, who
shall be selected pursuant to the then existing rules and procedures of the
American Arbitration Association in New York City, and who shall be an architect
or engineer duly licensed in New York, with at least ten (10) years experience
in the operation of Manhattan office buildings ("Hearing Officer");
(b) The Hearing shall be held within ten (10) days after the Hearing
Officer is designated pursuant to substantive and procedural rules to be
established by the Hearing Officer;
(c) The determination by the Hearing Officer shall be conclusive upon the
parties and shall be made within seven (7) days after the Hearing is completed;
(d) If the Dispute involves whether or not Landlord is in default in its
obligations under this lease, and (i) the Hearing Officer determines that
Landlord was in default, then Landlord shall pay the fees of the Hearing
Officer, or (ii) the Hearing Officer determines that Landlord was not in
default, then Tenant shall pay the fees of the Hearing Officer; and
(e) If the Dispute involves whether or not the amount claimed by Tenant to
be due is commercially reasonable and (i) the Hearing Officer determines that
the amount was commercially unreasonable, then Tenant shall pay the fees of the
Hearing Officer, or (ii) if the Hearing Officer determines that such amount was
commercially reasonable, then Landlord shall pay the fees of the Hearing
Officer.
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19. Building Alterations and Management
-----------------------------------
(A) Landlord shall have the right at any time in the exercise of its
commercially reasonable business judgment without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the Building and
to change the number or designation by which the Building may be known or the
name of the Building (other than (a) to a name of another tenant in the Building
unless such other tenant occupies space in the Building equal to or in excess of
one and one-half (1 1/2) times the rentable square feet area then occupied by
Tenant and related corporations of Tenant, or (b) if Tenant is then engaged
primarily in the multi-media business, to a name of another tenant engaged
primarily in the multi-media business (i) if Tenant and related corporations of
Tenant are occupying a minimum of 200,000 rentable square feet in the Building,
or (ii) Tenant uses the demised premises as the primary offices for its senior
executives and occupies a minimum of one (1) full floor of the demised
premises). Notwithstanding the foregoing, however, Landlord shall not (except if
required to do so by Law or in the event of emergency) so long as Tenant and
related corporations and subtenants of Tenant collectively occupy a minimum of
200,000 rentable square feet in the Building including at least one (1) full
floor of the demised premises as the primary offices for its senior executives,
exercise any such right in a manner that affects Tenant's dedicated entrance to
the Building, the "Northern Elevator Passenger Bank" (as defined in Article
28(A) hereof), or affects the 28th Street Loading Dock Bays (as defined in
Article 28(A) hereof) or, if Tenant and related corporations of Tenant occupy a
full floor of the demised premises, change the bathrooms serving said floors,
all other than to a de minimis extent, except if the same constitutes part of
Landlord's Work, without in each case obtaining Tenant's prior consent, which
consent shall not be unreasonably withheld or delayed. Tenant will use
reasonable and good faith efforts to respond within seven (7) business days to
Landlord's request provided Landlord's notice specifies the requirement in bold-
face 20 point type. The grounds for any disapproval must be stated in
reasonable detail. The foregoing shall not prohibit Landlord or Landlord's
other tenants from using, or permitting others to use, such entrance, elevator
bank, or the 28th Street Loading Dock Bays if the Lease is terminated with
respect to a portion of the demised premises. Except as otherwise specifically
provided in this lease, there shall be no allowance to Tenant for diminution of
rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Landlord or other
tenants making any repairs in the Building or any such alterations, additions
and improvements. Furthermore, in connection with all areas of the Building
other than the entrance to the Z-D Lobby, Tenant shall not have any claim
against Landlord by reason of Landlord's imposition of such controls of the
manner of access to the Building by Tenant's social or business visitors as the
Landlord may deem necessary for the security of the Building and its occupants.
Landlord will not conduct Building alterations in such a manner as to deny
Tenant access to the demised premises unless the same shall be required (i) by
Law, or (ii) in the event access is denied on a temporary basis, by Casualty or
emergency, and Landlord shall use reasonable efforts to minimize interference
with Tenant's occupancy and the conduct of its business by reason of such
alterations. Landlord will not reduce the usable area of the demised premises
(except to a de minimus extent) unless the same shall be required by Law or as
otherwise permitted in this lease.
(B) Tenant acknowledges and agrees that Landlord may, at its option, using
plenum space of Concourse Level B-2 construct a pit
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in the location shown in Exhibit C annexed hereto and made a part hereof for the
installation of an additional loading dock elevator to be used by NYL. If
Landlord intends to perform such construction, Landlord shall commence the same
within one (1) month following the date of execution and delivery of this lease
by Landlord and Tenant and perform the same on a reasonably expedited schedule
using reasonable efforts to minimize interference with Tenant.
20. No Representations by Landlord
------------------------------
Neither Landlord nor Landlord's agents have made any representations or
promises with respect to the physical condition of the Building, the land upon
which it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no rights, easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this lease. Tenant has inspected the Building and the demised
premises and is thoroughly acquainted with their condition and agrees to take
the same "as is" except as herein provided and acknowledges that the taking of
possession of the demised premises by Tenant shall be conclusive evidence that
the said premises were in good and satisfactory condition at the time such
possession was so taken, except for those portions of Landlord's Work to be
completed after delivery of possession of the demised premises and, in
connection with those portions of Landlord's Work to be performed before
delivery of possession of the demised premises, except as to punchlist items
with respect to Landlord's Work and latent defects. Landlord shall not be
required to perform or pay for any work to prepare the demised premises for
Tenant's occupancy, except as specifically otherwise provided in this lease.
All understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Landlord and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
21. End of Term
-----------
Upon the expiration or other termination of the Term, Tenant shall quit and
surrender to Landlord the demised premises, broom clean, in good order and
condition, ordinary wear and tear and damages which Tenant is not required to
repair as provided elsewhere in this lease excepted, and Tenant shall remove all
its property, subject to any applicable provisions of Article 3 hereof. Tenant's
obligation to observe or perform this covenant shall survive the expiration or
other termination of this lease. If the last day of the Term or any renewal
thereof falls on Sunday, this lease shall expire at noon on the preceding
Saturday unless it be a legal holiday in which case it shall expire at noon on
the preceding business day.
22. Quiet Enjoyment
---------------
Landlord covenants and agrees with Tenant that upon Tenant paying the rent
and additional rent and observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the premises hereby demised, subject, nevertheless, to the
terms and conditions of this lease including, but not limited to, Article 30 and
41 hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
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23. Failure to Give Possession
--------------------------
(A) It is expressly understood that Tenant shall not be obligated to accept
possession of any portion of the demised premises which does not constitute a
full floor of the demised premises. If Landlord is unable to give possession of
any full floor comprising a part of the demised premises on the date of the
commencement of the Term hereof (such portion being hereinafter referred to as a
"Delayed Portion"), because of the holding-over or retention of possession of
any tenant, undertenant or occupants or for any other reason, Landlord shall
not, except as hereinafter provided in this Article, be subject to any liability
for failure to give possession on said date and the validity of this lease shall
not be impaired under such circumstances, nor shall the same be construed in any
wise to extend the Term, but the Fixed Rent payable hereunder shall be abated
with respect to the Delayed Portion as hereinafter provided in Paragraphs (B),
(C) and (D), and the performance of Tenant's other obligations hereunder with
respect to such Delayed Portion will be stayed (provided Tenant is not
responsible for Landlord's inability to obtain possession) until after Landlord
shall have given Tenant notice in accordance with Article 55 that such Delayed
Portion of the demised premises is substantially ready and delivered to Tenant
for Tenant's occupancy in accordance with the provisions of this lease. The
parties acknowledge and agree that the following floors are delivered on the
date hereof and are not Delayed Portions except as provided in Paragraph (E):
---
the 8th, 9th, 10th and 11th floors (the "Delivered Portions"). If permission is
given to Tenant to enter into the possession of the demised premises or to
occupy premises other than the demised premises prior to the date specified as
the commencement of the Term, Tenant covenants and agrees that such occupancy
shall be deemed to be under all the terms, covenants, conditions and provisions
of this lease, except as to the covenant to pay rent. The provisions of this
article are intended to constitute "an express provision to the contrary" within
the meaning of Section 223-a of the New York Real Property Law.
(B) In the event that any full floor constituting a part of the demised
premises [other than the 12th floor] is not vacant on or before the date hereof,
Landlord shall use commercially diligent efforts to achieve such vacancy,
including, without limitation, the commencement and diligent prosecution of a
holdover proceeding, if permissible and commercially appropriate, and shall keep
Tenant apprised of the status of such efforts. The parties acknowledge that by
reason of the practices and procedures of the Civil Court of New York County,
Landlord and Tenant Part, it may not be possible for Landlord expeditiously to
recover vacant possession of all or a portion of such space from such occupant.
In addition, subject to the provisions of Paragraph (E) hereof, if Landlord has
not delivered a Delayed Portion of the demised premises by the date hereof with
items 1 and 2 of Exhibit B substantially completed (which date shall be subject
to extension by one (1) day for each day of any delay caused by the acts or
negligence of Tenant or Tenant's employees, agents, contractors or
subcontractors or by reason of Force Majeure and the date of this lease, as the
same may be so extended, is herein referred to as the "Outside Delivery Date")
then, in addition to the rights set forth in Article 55 hereof, Tenant shall be
entitled to a credit against Fixed Rent otherwise payable under the lease after
the Fixed Rent Commencement Date equal to the sum of (i) the product of (a) the
"Daily Fixed Rent" (as hereinafter defined) applicable to the Delayed Portion
(other than the 12th Floor), and (b) the number of days in the period (the
"First Credit Period") from the Outside Delivery Date through the earlier to
occur of (x) the date that Landlord delivers possession of such applicable
Delayed Portion with items 1 and 2 of Exhibit B substantially complete or (y)
thirty-one (31) days from the Outside Delivery Date, plus (ii) the product of
(a) twice the
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Daily Fixed Rent applicable to the Delayed Portion (other than the
12th Floor) and (b) the number of days, if any, in the period (the "Second
Credit Period") from the day immediately following expiration of the First
Credit Period through the earlier to occur of (x) the date that Landlord
delivers possession of such applicable Delayed Portion with items 1 and 2 of
Exhibit B substantially complete or (y) two hundred forty (240) days from the
expiration of the First Credit Period, plus (iii) the product of (a) thrice the
Daily Fixed Rent applicable to the Delayed Portion (other than the 12th Floor)
and (b) the number of days, if any, in the period from the day immediately
following the expiration of the Second Credit Period through the date that
Landlord delivers possession of such applicable Delayed Portion with items 1 and
2 of Exhibit B substantially complete. Daily Fixed Rent with respect to any
floor of the demised premises which shall constitute a Delayed
Portion means the quotient obtained by dividing (x) the Fixed Rent applicable to
such floor, determined by multiplying the annual Fixed Rent per rentable square
foot applicable thereto (as hereinafter specified) by the number of rentable
square feet contained therein (as hereinafter specified) by (y) 360. For
purposes of this lease, including, without limitation, all offsets or rent
decreases or increases provided for herein, (1) the Fixed Rent per rentable
square foot applicable to each of the 8th through 15th floors of the Building
shall mean $28.25 per annum during Rent Period 1, $32.35 per annum during Rent
Period 2, $36.45 per annum during Rent Period 3 and $40.60 per annum during Rent
Period 4, (2) the Fixed Rent per rentable square foot applicable to Concourse
Level B-2 shall mean $13.90 per annum during Rent Period 1, $15.45 per annum
during Rent Period 2, $17.25 per annum during Rent Period 3 and $19.30 per annum
during Rent Period 4 and (3) the floors of the Building, to the extent demised
hereunder, are deemed to contain the following number of rentable square feet:
Floor Rentable Square Feet
-------------------------- --------------------
Concourse Level B-2 62,120
8th Floor 49,140
9th Floor 49,140
10th Floor 49,140
11th Floor 49,140
12th Floor 48,714
13th Floor 30,609
14th Floor 30,885
15th Floor 30,885
(C) Notwithstanding the foregoing provisions of Paragraph (B) hereof,
solely with respect to Concourse Level B-2, if Landlord shall not have
substantially completed removal of the escalator and staircase and re-flooring
of the opening on the Concourse Level B-2 as described in Exhibit B annexed
hereto (collectively the "Escalator Work") on or prior to the Outside Delivery
Date, but shall have otherwise delivered Concourse Level B-2 with items 1 and 2
of Exhibit B substantially complete and shall have furnished Tenant with a
segregated work area in Concourse Level B-2 (said date of partial completion, as
the same may be extended by one (1) day for each day of any delay caused by the
acts or negligence of Tenant or Tenant's employees, agents, contractors or
subcontractors or by reason of Force Majeure being herein referred to as the
"Partial Completion Date"), then in lieu of the credit against Fixed Rent set
forth in Paragraph (B) above with respect to Concourse Level B-2 only, by reason
of same being a Delayed Portion solely by reason of Landlord's failure to
substantially complete the Escalator Work, Tenant shall be entitled to a credit
against Fixed Rent otherwise payable under this lease equal to (x) the product
of (1) one-half of the Daily Fixed Rent applicable to Concourse Level B-2 and
(2) the number of days in the period (the "First CLB Credit Period") from the
Partial Completion Date through the earlier to occur of (a) the date of
substantial completion of
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the Escalator Work or (b) sixty (60) days following the Partial Completion Date
plus (y) the product of (1) the Daily Fixed Rent applicable to Concourse
Level B-2 and (2) the number of days, if any, in the period (the "Second CLB
Credit Period") from the day immediately following the expiration of the First
CLB Credit Period through the earlier to occur of (a) the date of substantial
completion of the Escalator Work or (b) thirty (30) days following the
expiration of the First CLB Credit Period plus (z) the product of (1) one and
one-half the Daily Fixed Rent applicable to Concourse Level B-2 and (2) the
number of days, if any, of the period from the day immediately following the end
of the Second CLB Credit Period through the date of substantial completion of
the Escalator Work. Notwithstanding anything to the contrary contained in this
lease, Landlord may retain the portion of Concourse Level B-2 shown by the
diagonal markings on Exhibit "C" annexed hereto and made a part hereof (the "FC
Space") and permit NYL to use the same as a freight corridor until April 30,
1998. Landlord agrees to deliver the FC Space to Tenant in its then "as is"
physical condition on May 1, 1998, and Landlord's retention of the FC Space
shall not result in Concourse Level B-2 becoming a Delayed Portion or cause the
Partial Completion Date with respect to Concourse Level B-2 to be postponed.
During the period of the Landlord's retention of the FC Space, Tenant shall
receive the following rent credits: (i) during the period from the Partial
Completion Date through April 30, 1998, Tenant shall be entitled to receive a
rent credit equal to $120.04 per business day until the FC Space is so delivered
to Tenant, (ii) during the period from May 1, 1998 through July 31, 1998, Tenant
shall be entitled to receive a rent credit equal to $240.08 per business day
until the FC Space is so delivered to Tenant, and (iii) thereafter, Tenant shall
be entitled to receive a rent credit equal to $360.12 per business day until the
FC Space is so delivered to Tenant.
(D) During the period, if any, from the Outside Delivery Date through the
date Landlord delivers the 12th floor portion of the demised premises with items
1 and 2 of Exhibit B substantially complete (the "12th Floor Credit Period"),
Tenant shall be entitled to a credit against Fixed Rent otherwise payable under
the lease after the Fixed Rent Commencement Date equal to the product of (a) the
Daily Fixed Rent applicable to the 12th floor and (b) the number of days of the
12th Floor Credit Period. In addition, in the event Landlord has not delivered
the 12th floor portion of the demised premises with items 1 and 2 of Exhibit B
substantially complete by May 1, 1998 (which May 1, 1998 date, as the same may
be extended by one (1) day for each day of delay caused by the acts, omissions
or negligence of Tenant or Tenant's employees, agents, contractors or
subcontractors or by reason of Force Majeure is herein referred to as the
"Outside 12th Floor Delivery Date"), then, in addition to the rights set forth
in the first sentence of this Paragraph (D) and in Article 55 hereof, Tenant
shall be entitled to a credit against rent otherwise payable hereunder equal to
the sum of (i) the product of (a) $1,767.85 and (b) the number of days in the
period (the "First 12th Floor Additional Credit Period") from the Outside 12th
Floor Delivery Date through the earlier to occur of (x) the date Landlord
delivers possession of the 12th Floor with items 1 and 2 of Landlord's Work
substantially complete or (y) thirty-one (31) days from the Outside 12th Floor
Delivery Date plus (ii) the product of (a) $5,892.83 and (b) the number of days,
if any, in the period (the "Second 12th Floor Additional Credit Period") from
the day immediately following the expiration of the First 12th Floor Additional
Credit Period through the earlier to occur of (x) the date Landlord delivers
possession of the 12th Floor with items 1 and 2 of Landlord's Work substantially
complete or (y) one hundred twenty (120) days from the expiration of the First
12th Floor Fixed Rent Credit Period plus (iii) the product of (a) $11,468.09 and
(b) the number of days, if any, in the period from the day immediately following
the
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expiration of the Second 12th Floor Additional Credit Period through the
date Landlord delivers possession of the 12th Floor with items 1 and 2 of
Landlord's Work substantially complete.
(E) Notwithstanding the provisions of Paragraph (B) hereof, Tenant
acknowledges that Landlord will demolish the bathrooms of the 8th, 9th, 10th,
11th, 13th, 14th and 15th floors of the demised premises after demolishing the
balance of said premises and delivering possession of such premises to Tenant,
and Tenant agrees that such floors, including the Delivered Portions which have
been delivered to Tenant, may be delivered to Tenant, and shall not constitute
Delayed Portions, solely by reason of Landlord's subsequent demolition of the
bathrooms within the time periods hereinafter set forth. Landlord agrees to
substantially complete demolition of the bathrooms of the Delivered Portions
within seven (7) days from the date hereof and the bathrooms on floors 13, 14
and 15 of the demised premises within seven (7) days after delivery of such
floors (which dates shall be subject to extension by one day for each day of any
day caused by the acts or negligence of Tenant or Tenant's employees, agents,
contractors or subcontractors or by reason of Force Majeure and such dates, as
the same may be so extended, are herein referred to as the "Outside Bathroom
Delivery Dates"). In the event Landlord fails to substantially complete
demolition of the bathrooms on any of the aforesaid floors by the Outside
Bathroom Delivery Dates, then any such floor shall constitute a Delayed Portion
and Tenant shall receive with respect to each such floor, from and after the
applicable Outside Bathroom Delivery Date, the same credits against Fixed Rent
as if the applicable Outside Bathroom Delivery Date was the Outside Delivery
Date as provided in Paragraph (B) hereof until the demolition of the bathroom on
such floor is substantially completed. Landlord shall give Tenant at least 24
hours oral or telephonic notice of the date of substantial completion of the
bathroom demolition. Landlord agrees that this Paragraph (E) shall not apply to
Concourse Level B-2 and the 12th floor which portions of the demised premises
shall be delivered with the bathrooms therein demolished in accordance with
Exhibit B.
(F) The rent credits set forth in this Article 23 shall be in addition to
all other abatements, rent credits and offsets set forth in this lease.
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24. No Waiver
---------
(A) The failure of either party to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this lease or
of any of the Rules or Regulations set forth or hereafter adopted by Landlord,
shall not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of an original violation. The
receipt by Landlord or the payment by Tenant of rent with knowledge of the
breach of any covenant of this lease shall not be deemed a waiver of such breach
and no provision of this lease shall be deemed to have been waived by Landlord
or Tenant unless such waiver be in writing signed by such party. No payment by
Tenant or receipt by Landlord of a lesser amount than the monthly rent herein
stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement of any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
in this lease provided. No act or thing done by Landlord or Landlord's agents
during the Term hereby demised shall be deemed an acceptance of a surrender of
the premises, and no agreement to accept such surrender shall be valid unless in
writing signed by Landlord. No employee of Landlord or Landlord's agent shall
have any power to accept the keys of the premises prior to the termination of
this lease and the delivery of keys to any such agent or employee shall not
operate as a termination of this lease or a surrender of the premises.
(B) No payment made pursuant hereto by Tenant to Landlord under protest
shall be deemed to be a waiver of Tenant's rights to contest either the amount
of, or the liability for, such payment.
(C) If Landlord or Landlord's managing or rental agent accepts from Tenant
one or more keys to the demised premises in order to assist Tenant in showing
the demised premises for subletting or other disposition or for the performance
of work therein for Tenant or for any other purpose, the acceptance of such key
or keys shall not constitute an acceptance of a surrender of the demised
premises nor a waiver of any of Landlord's rights or Tenant's obligations under
this lease including, without limita tion, the provisions relating to
assignment and subletting and the condition of the demised premises.
25. Waiver of Trial by Jury
-----------------------
It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Landlord and Tenant, Tenant's use of or occupancy of the
premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Landlord commences any summary
proceeding for possession of the premises, Tenant will not interpose any
counterclaim of whatever nature or description in any such proceeding including
a counterclaim under Article 4 unless such waiver will result under applicable
law in the waiver of Tenant's right to bring such claim in a separate
proceeding. The foregoing shall not prohibit Tenant from asserting any
affirmative defenses permitted by Law.
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26. Inability to Perform
--------------------
If either Tenant or Landlord is delayed or prevented from performing any of
its non-monetary obligations hereunder by reason of Force Majeure (as said term
is hereinafter defined), the period of such delay or of such prevention shall be
added to the time herein provided within which such obligation may be performed.
The term Force Majeure as used in this lease shall mean any period of delay
which arises from or through Acts of God; strikes, lockouts or labor difficulty;
sabotage, accident, riot or civil commotion; acts of war; and other similar
extraordinary causes (not including the lack of money) beyond such party's
reasonable control. The provisions of this Article 26 shall not apply in the
case of a Casualty which is dealt with in Article 9 hereof.
27. Bills and Notices
-----------------
All notices, bills, statements and other communications which either party
may be required or may desire to give to the other shall be in writing, except
as otherwise provided in this lease. A notice which Landlord may desire or be
required to give to Tenant shall be deemed sufficiently given or rendered if,
delivered to the receptionist of Tenant personally against a receipt between
9:00 A.M. to 5:00 P.M. on business days or sent by registered or certified mail,
return receipt requested, or by nationally recognized overnight courier,
Attention: Director of Corporate Real Estate and Facilities, addressed to
Tenant, if prior to the date of Tenant's occupancy of the demised premises, at
One Park Avenue, New York, New York 10016, with a copy by ordinary mail to
Rogers & Wells, 200 Park Avenue, New York, New York 10166, Attention: Joanne
Feil, Esq., or if on or after the Trigger Commencement Date, at the Building
with a copy by ordinary mail to Rogers & Wells, 200 Park Avenue, New York, New
York 10166, Attention: Joanne Feil, Esq., or to such other address as is
designated by notice to Landlord in the manner provided herein, and the giving
of such notice shall be deemed to be the time when the same is delivered to
Tenant or delivery is refused, or three (3) days after being so mailed or the
next business day after being sent by nationally recognized overnight courier
(the above addresses, as the same may change from time to time, are hereinafter
collectively referred to as "Tenant's Notice Address"). A notice which Tenant
may desire or be required to give to Landlord shall be deemed sufficiently given
or rendered if delivered to the receptionist of Landlord personally against a
receipt between 9:00 A.M. to 5:00 P.M. on business days or sent by registered or
certified mail, return receipt requested, or by nationally recognized overnight
courier Attention: Mr. Peter Duncan, addressed to Landlord at the address first
hereinabove given with a copy by ordinary mail to Stuart D. Byron, Esq., Tenzer
Greenblatt LLP, 405 Lexington Avenue, New York, New York 10174, or at such other
address as Landlord shall designate by written notice and the giving of such
notice shall be deemed to be the time when the same is delivered to Landlord or
delivery is refused or three (3) days after being so mailed or the next business
day after being sent by nationally recognized overnight courier (the above
addresses, as the same may change from time to time, are hereinafter
collectively referred to as "Landlord's Notice Address"). Anything herein to
the contrary notwithstanding, a notice of default or termination which Landlord
or Tenant may desire or be required to give to the other party shall be deemed
sufficiently given or rendered only if given by registered or certified mail,
return receipt requested, addressed to Tenant's or Landlord's Notice Address, as
the case may be, and the giving of such notice shall be deemed to be three (3)
days after being so mailed. See also Article 43 regarding notices to a
mortgagee.
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28. Services Provided by Landlord
-----------------------------
(A) As long as this lease is in full force and effect, Landlord shall
provide: (i) except as required by Law or in the event of emergency or
Casualty, and only so long as Tenant continues to lease the entire demised
premises set forth in the Witnesseth clause on page one of this lease, and
subject to Landlord's reasonable rules and regulations, dedicated use of the
northern bank of passenger elevators as shown on Exhibit G (the "Northern
Elevator Passenger Bank") for passenger use only or for deliveries solely during
the performance of Tenant's Work as provided in Article 44 hereof (Tenant shall
not have the right to use other passenger elevators in the Building except in
the event of an emergency or a Casualty); (ii) subject to the reasonable rules
and regulations of Landlord and so long as Tenant continues to lease the entire
demised premises set forth in the Witnesseth clause on page one of this lease,
the exclusive right to use the two (2) loading bays (the "28th Street Loading
Dock Bays") within the easterly 28th Street loading dock area as shown on
Exhibit H, provided, however that Landlord, after coordination with Tenant, may
use or permit the use of the 28th Street Loading Dock Bays when either or both
of the same is not in use by Tenant; (iii) heat to the demised premises and Z-D
Lobby to maintain the conditions set forth in Exhibit B-3 and only on business
days (Mondays through Fridays, holidays excepted) from 8:00 A.M. to 8:00 P.M.
and on Saturday from 8:00 A.M. to 1:00 P.M.; (iv) water for ordinary lavatory
and drinking purposes, but if Tenant uses or consumes water for any other
purposes or in unusual quantities (in Landlord's good faith determination),
Landlord may install a water meter at Tenant's expense which Tenant shall
thereafter maintain at Tenant's expense in good working order and repair to
register Tenant's water consumption and Tenant shall pay for water consumed as
shown on said meter as additional rent as and when bills are rendered; (v)
cleaning service for the demised premises, the Z-D Lobby, passenger elevator
cabs and freight elevator on business days at Landlord's expense (provided that
the demised premises are kept in order by Tenant) in accordance with the
cleaning specifications which are annexed hereto, made a part hereof and marked
Exhibit D. Subject to Tenant's compliance with the applicable provisions of
this lease and Landlord's prior written consent which will not be unreasonably
withheld or delayed, Landlord shall permit Tenant to employ its own cleaning
contractor solely for above building standard cleaning. Tenant shall pay
Landlord the actual cost of removal of any Tenant's refuse and rubbish (other
than ordinary office refuse and rubbish and that which is required to be removed
by Landlord pursuant to Exhibit D annexed hereto) from the Building; (vi) air
conditioning/cooling to the demised premises and to the Z-D Lobby as required
pursuant to Exhibit B-3 annexed hereto on business days (Mondays through
Fridays, holidays excepted) from 8:30 am to 5:30 pm and during an additional
fifteen (15) hours per week as specified by Tenant from time to time on any days
other than Sundays and holidays upon not less than 48 hours telephonic notice
from Tenant to Landlord and ventilation to the demised premises on business days
during the aforesaid hours and during an additional 15 hours per week as
specified by Tenant from time to time on any days other than Sundays and
holidays upon not less than 48 hours telephonic notice from Tenant to Landlord
except when heat or air conditioning/cooling is being furnished as aforesaid.
If Tenant requires heat, air conditioning/cooling or ventilation for more
extended hours or on Sundays or on holidays, as defined under Landlord's
contract with Operating Engineers Local 94-94A, Landlord will furnish the same
at Tenant's expense (except for Supplemental A/C furnished by Tenant as provided
in Article 38); (vi) use of the freight elevator to be constructed during the
hours set forth in Exhibit Q annexed hereto and made a part hereof; provided,
--------
however, if the lease is terminated with respect to a portion of the demised
- -------
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<PAGE>
premises, then the hours exclusively designated for Tenant as set forth in
Exhibit Q shall be reduced proportionately and such deleted hours shall be used
on a first come, first serve basis; and (vii) non-exclusive use of the loading
dock elevator which services Concourse Levels B-1 and B-2 on a first come, first
serve, basis.
(B) Landlord reserves the right to stop services of the heating, elevators,
plumbing, air conditioning, ventilation, power systems or cleaning or other
services, if any, when necessary by reason of accident or for repairs,
alterations, replacements or improvements necessary or desirable in the
reasonable judgment of Landlord for as long as may be reasonably required by
reason thereof; provided, however, Landlord agrees not to do so without giving
Tenant at least fourteen (14) days prior notice except in the event of
emergency, Casualty or when required by Law (provided that in the event of an
emergency, Casualty or when required by Law, Landlord shall use reasonable
efforts to give prior or contemporaneous telephonic or other oral notice). If
the Building of which the demised premises are a part supplies manually operated
elevator service, Landlord at any time may substitute automatic control elevator
service and upon fourteen (14) days' written notice to Tenant, proceed with
alterations necessary therefor without in any wise affecting this lease or the
obligations of Tenant hereunder. The same shall be done with a minimum of
inconvenience to Tenant and Landlord shall pursue the alteration with due
diligence.
(C) Anything in this lease to the contrary notwithstanding, if, as a result
of Landlord's failure to provide a service that it is obligated to provide under
this lease or as a result of any work performed by Landlord in the demised
premises or to the Building, and such failure or work is not caused by the acts
or omissions of Tenant, its employees, agents, contractors or subcontractors,
the entire demised premises or any portion thereof (other than a de minimis
-- -------
portion) becomes untenantable for Tenant's operation of its business for a
period of five (5) consecutive business days after notice thereof by Tenant to
Landlord specifying such failure by Landlord, then, provided Tenant shall not
have used the affected portion of the demised premises during such period and
thereafter continues not to do so, the Fixed Rent and additional rent shall
abate with respect to the affected portion commencing on the sixth (6th)
business day after the giving of the aforesaid notice until the date on which
the affected portion of the demised premises becomes tenantable, regardless of
any delay by Tenant in resuming such operations.
29. Captions
--------
The Captions are inserted only as a matter of convenience and for reference
and in no way define, limit or describe the scope of this lease nor the intent
of any provisions thereof.
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30. Definitions
-----------
(A) (a) The term "office" or "offices", wherever used in this lease,
shall not be construed to means premises used as a store or stores, for the
retail sale (or dealing with the general public) or display, at any time, of
goods, wares or merchandise, of any kind, or as a restaurant, shop, booth,
bootblack or other stand, barber shop, or for other similar purposes or for
manufacturing. The term "Landlord" means a landlord or lessor, and as used in
this lease means only the owner, or the mortgagee in possession, for the time
being of the Land and/or the Building (or the owner of a lease of the Building
or of the Land and Building) of which the demised premises form a part, so that
in the event of any sale or sales of the Land and/or the Building or of this
lease, or in the event of a lease of the Building, or of the Land and/or
Building or any transfer of said lease, the said Landlord shall be and hereby is
entirely freed and relieved of all covenants and obligations of Landlord
hereunder thereafter accruing, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser, at any such sale, or the said lessee of
the Building, or of the Land and Building, that, the purchaser or the lessee of
the Building has assumed and agreed to carry out any and all covenants and
obligations of Landlord, hereunder. The words "re-enter" and "re-entry" as
used in this lease are not restricted to their technical legal meaning. The
term "business days" as used in this lease shall exclude Saturdays (except such
portion thereof as is covered by specific hours in Article 28 hereof), Sundays
and all days observed by the State or Federal Government as legal holidays and
those designated as holidays by the applicable Building service union employees
service contract or by the applicable Operating Engineers contract with respect
to HVAC service. As of the date hereof, the Building holidays consist of New
Year's Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Thanksgiving Day, the day after Thanksgiving Day and
Christmas Day.
(B) The following terms contained in this Article 30 shall have the
meanings hereinafter set forth as such terms are used throughout this lease,
including the exhibits, schedules and riders hereto (if any).
(i) "Commencement Date" with respect to each full floor of the
demised premises including, without limitation, Concourse
Level B-2, shall mean (a) the date hereof with respect to
Delivered Portions of the demised premises, (b) the Partial
Completion Date with respect to Concourse Level B-2 and (c)
such later date as Landlord substantially completes the work
required to be performed by Landlord pursuant to items 1 and
2 of Exhibit B, with respect to floors 12, 13, 14 and 15 of
the demised premises, and tenders vacant possession of such
full floors of the demised premises to Tenant.
(ii) "Broker" shall mean collectively Insignia/Edward S. Gordon
Company, Inc. and George Comfort & Sons., Inc.
(iii) "Trigger Commencement Date" shall mean the date on
which the Commencement Date has occurred with respect to the
entire demised premises, including Concourse Level B-2, but
for the 12th floor of the Building.
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31. Adjacent Excavation Shoring
---------------------------
If an excavation shall be made upon land adjacent to the demised premises,
or shall be authorized to be made, Tenant shall, after reasonable prior notice
except in the event of emergency (provided that Landlord shall use reasonable
efforts to give prior or contemporaneous telephonic or other oral notice in an
emergency), afford to the person causing or authorized to cause such excavation,
license to enter upon the demised premises for the purpose of doing such work as
said person shall deem reasonably necessary to preserve the wall or the Building
from injury or damage and to support the same by proper foundations without any
claim for damages or indemnity against Landlord, or diminution or abatement of
rent except to the extent of Landlord's Negligence or Wilful Misconduct. If
Landlord is performing such work, Landlord shall use reasonable efforts to
minimize interference with Tenant's occupancy while such work is in progress and
shall cooperate with Tenant as to the scheduling of such work but Landlord will
not be required to use overtime labor unless (i) required in order to prevent
disruption of Tenant's operations and/or to the conduct of its business or (ii)
unless Tenant agrees to reimburse Landlord for the costs of such overtime labor.
32. Rules and Regulations
---------------------
Tenant and Tenant's servants, employees, agents, contractors,
subcontractors, visitors and licensees shall observe faithfully, and comply
with, the Rules and Regulations and such other and further reasonable Rules and
Regulations as Landlord or Landlord's agents may from time to time adopt and
uniformly enforce with respect to office tenants and that are not inconsistent
with or derogate Tenant's rights under this lease and do not unreasonably
interfere with Tenant's use of the demised premises as permitted hereby.
Landlord agrees to act reasonably in its applications of the Rules and
Regulations. Notice of any additional Rules or Regulations shall be given by
sixty (60) days prior notice except in the event of emergency, Casualty or when
required by Law in which events notice shall be given when commercially
reasonable. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Landlord or Landlord's agents, the
parties hereto agree to submit the question of the reasonableness of such Rule
or Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Landlord within sixty (60) days
except in the event of emergency, Casualty or when required by Law in which
events notice shall be given within twenty (20) days after the giving of notice
from Landlord thereof and such events and notice period with respect to disputes
shall be so specified in the notice from Landlord. Nothing in this lease
contained shall be construed to impose upon Landlord any duty or obligation to
enforce the Rules and Regulations or terms, covenants or conditions in any other
lease, as against any other tenant and Landlord shall not be liable to Tenant
for violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees unless such violation materially affects Tenant's use and
occupancy of the demised premises and Tenant notifies Landlord of same and
Landlord fails to use commercially reasonable efforts to notify such other
tenant of such violation.
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33. Security
--------
Tenant has not initially deposited with Landlord any security for the
faithful performance and observance by Tenant of the terms, provisions and
conditions of this lease.
34. Successors and Assigns
----------------------
The covenants, conditions and agreements contained in this lease shall bind
and inure to the benefit of Landlord and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns.
35. Rental Payments
---------------
(A) The Fixed Rent shall be as follows:
(i) for the period commencing on the date hereof and ending on last
day of the six (6) year and five (5) month period commencing on the Trigger
Commencement Date ("Rent Period 1"), TEN MILLION FOUR HUNDRED TWO THOUSAND ONE
HUNDRED SIXTY-FIVE and 25/100 ($10,402,165.25) DOLLARS per annum;
(ii) for the five (5) year period commencing on the day immediately
succeeding the last day of Rent Period 1 ("Rent Period 2"), ELEVEN MILLION EIGHT
HUNDRED EIGHTY-TWO THOUSAND EIGHT HUNDRED TWENTY-EIGHT and 55/100
($11,882,828.55) DOLLARS per annum;
(iii) for the five (5) year period commencing on the day
immediately succeeding the last day of Rent Period 2 ("Rent Period 3"), THIRTEEN
MILLION THREE HUNDRED SEVENTY-NINE THOUSAND TWENTY-ONE AND 85/100
($13,379,021.85) DOLLARS per annum; and
(iv) for the period commencing on the day immediately succeeding the
last day of Rent Period 3 and ending on the Expiration Date ("Rent Period 4"),
FOURTEEN MILLION NINE HUNDRED SEVEN THOUSAND SIX HUNDRED TWENTY-SEVEN and 80/100
($14,907,627.80) DOLLARS per annum.
(B) All payments other than Fixed Rent to be made by Tenant pursuant to
this lease shall be deemed additional rent and, in the event of any non-payment
thereof, Landlord shall have all rights and remedies provided for herein or by
law for non-payment of rent.
(C) All payments of Fixed Rent and additional rent (collectively, sometimes
called "rent" or "rental" herein) to be made by Tenant pursuant to this lease
shall be made by wire transfer or by checks payable in U.S. funds drawn upon a
New York City bank which is a member of the New York Clearing House Association
or any successor thereto.
(D) If Landlord receives from Tenant any payment less than the sum of the
Fixed Rent and additional rent then due and owing pursuant to this lease, Tenant
hereby waives its right, if any, to designate the items to which such payment
shall be applied and agrees that Landlord in its sole discretion may apply such
payment in whole or in part to any Fixed Rent, any additional rent or to any
combination thereof then due and payable hereunder.
(E) Unless Landlord shall otherwise expressly agree in writing, acceptance
of Fixed Rent or additional rent from anyone other than Tenant shall not relieve
Tenant of any of its obliga tions under this lease, including the obligation to
pay Fixed Rent and additional rent, and Landlord shall have the right at any
time, upon notice to Tenant, to require Tenant to pay the Fixed Rent and
additional rent payable hereunder directly to Landlord.
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Furthermore, such acceptance of Fixed Rent or additional rent shall not be
deemed to constitute Landlord's consent to an assignment of this lease or a
subletting or other occupancy of the demised premises by anyone other than
Tenant, nor a waiver of any of Landlord's rights or Tenant's obligations under
this lease, provided that Landlord shall accept payment from any permitted
assignee of Tenant as payment by Tenant hereunder.
(F) Landlord's failure to timely bill all or any portion of any amount
payable pursuant to this lease for any period during the Term shall neither
constitute a waiver of Landlord's right to ultimately collect such amount or to
bill Tenant at any subsequent time retroactively for the entire amount so
unbilled, which previously unbilled amount shall be payable within thirty (30)
days after being so billed. Notwithstanding the foregoing, Tenant shall have no
obligation to pay amounts that have not been billed (i) two (2) years after the
date on which such amounts would have been due had Landlord timely billed Tenant
therefor or (ii) in connection with payments of additional rent under Articles
12, 36 and 37 of this lease, by the later to occur of (x) two (2) years after
the date on which such amounts would have been due had Landlord timely billed
Tenant therefor or (y) ninety (90) days following Tenant's delivery of a
reminder notice to Landlord. If any such amount is billed before the expiration
of said two (2) year period, but later than seven (7) months after the date on
which such amount would have been due had Landlord timely billed Tenant
therefor, then, if such amount exceeds $24,000.00, Tenant may, at its option,
defer payment until a date which is not later than January 31st of the calendar
year immediately following the date when Landlord first rendered the statement
for such amount which is due. For purposes of this Paragraph (F), the amounts
payable under Article 12 hereof shall be billed not less frequently than
quarterly, the amounts payable under Article 37 hereof shall be billed not more
than nine (9) months following the end of the applicable Operational Year and
the amounts payable under Article 36 shall be billed not more than six (6)
months following the end of each fiscal tax year.
(G) Anything herein to the contrary notwithstanding, provided this lease
shall be in full force and effect and whether or not the Commencement Date shall
have occurred with respect to any portion of the demised premises and except for
the first month's Fixed Rent paid on execution of this lease, the Fixed Rent
shall abate completely during the period commencing on the date hereof and
expiring on July 9, 1999 [the day immediately following said July 9, 1999 date
(i.e., July 10, 1999) is herein referred to as the "Fixed Rent Commencement
Date"). All other terms and conditions of this lease shall be in full force and
effect during such period. Such abatement is in addition to any other abatement,
offset or rent credit specifically set forth in this lease.
(H) If on the Commencement Date, or at any time during the Term, the Fixed
Rent or additional rent reserved in this lease is not fully collectible by
reason of any Law, Tenant agrees to take such steps as Landlord may reasonably
request to permit Landlord to collect the maximum rents which may be legally
permissible from time to time during the continuance of such legal rent
restriction (but not in excess of the amounts reserved therefor under this
lease). Upon the termination of such legal rent restriction, Tenant shall pay
to Landlord, to the extent permitted by Law, an amount equal to (i) the Fixed
Rent and additional rent which would have been paid pursuant to this lease but
for such legal rent restriction, less (ii) the Fixed Rent and additional rent
paid by Tenant to Landlord during the period such legal rent restriction was in
effect. If such amount is in excess of $25,000, Tenant may pay the excess in
installments over the remaining term of the lease with interest at the "base
rate" of Citibank, N.A. from time to time in effect, any amount remaining unpaid
to be accelerated in
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the event this lease is terminated prior to the scheduled Expiration Date.
36. Tax Escalation
--------------
(A) For purposes hereof:
(i) "Real Estate Taxes" shall mean all real estate taxes and any
general or special assessments, vault taxes, government levies, municipal taxes,
county taxes or any governmental charge, ordinary or extraordinary, unforeseen
as well as foreseen, of any kind or nature whatsoever levied, assessed or
imposed by any governmental authority having jurisdiction upon or with respect
to the Building and the Land (including, without limitation, assessments for
public benefits to the Land or Building and Business Improvement District taxes
or assessments and similar impositions and taxes resulting from the sale of the
Land or Building); provided, however, that if, because of any change in the
method of taxation of real estate, any increase or any other tax or assessment,
however denominated (including, without limitation, any franchise, income,
profit, sales, use, occupancy, gross receipts or rental tax) is imposed upon
Landlord or the owner of the Land or the Building, or the occupancy, rents or
income therefrom, in substitution for any of the foregoing Real Estate Taxes or
for an increase in any of the foregoing Real Estate Taxes, such increase or
other tax or assessment shall be deemed part of Real Estate Taxes computed as if
Landlord's sole asset were the Land and the Building. Anything contained herein
to the contrary notwithstanding, Real Estate Taxes shall not be deemed to
include (a) unincorporated business or corporation taxes of Landlord, (b)
franchise taxes, (c) estate, gift, succession, transfer or inheritance taxes,
(d) gross receipts or income taxes, or (e) any similar taxes imposed on
Landlord, unless such taxes are levied, assessed or imposed as a substitute for
the whole or any part of, or as a substitute for an increase in, the taxes,
assessments, levies, fees, charges and impositions that now constitute Real
Estate Taxes. Further, Real Estate Taxes shall not be deemed to include (1)
penalties and interest incurred by reason of Landlord's failure to make timely
payment of Real Estate Taxes except to the extent Tenant fails to make timely
payment of Real Estate Taxes, or (2) mortgage, recording and capital gains
taxes.
(ii) "Base Tax Year" shall mean the New York City fiscal tax year
commencing July 1, 1999 and ending June 30, 2000.
(iii) "Base Year Taxes" shall mean the Real Estate Taxes as finally
determined for the Base Tax Year.
(iv) "Subsequent Tax Year" shall mean any New York City fiscal tax
year commencing after June 30, 2000.
(v) "Tax Year" or "fiscal year" or "fiscal tax year" shall mean the
fiscal tax year for which for Real Estate Taxes are levied by the City of New
York (i.e. presently from July 1 of a given calendar year through the following
June 30), any portion of which occurs during the Term.
(vi) "Tenant's Proportionate Share of Taxes" shall mean 50.14%.
(B) If the Real Estate Taxes for any Subsequent Tax Year during the Term
exceed the Base Year Taxes, Tenant shall pay Landlord Tenant's Proportionate
Share of Taxes of such excess on or before the later to occur of (i) fifteen
(15) days prior to the date on which the Real Estate Taxes for such Subsequent
Tax Year are due to the applicable taxing authority without the imposition of
interest or penalty charges thereon or to a Holder, or (ii)
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within thirty (30) days after Landlord shall furnish to Tenant a statement (the
"Tax Statement") setting forth the amount thereby due and payable by Tenant
including a computation thereof. If Real Estate Taxes are payable by Landlord to
the applicable taxing authority or to a Holder in installments, then Landlord
shall bill Tenant for Tenant's Proportionate Share of such excess Real Estate
Taxes in corresponding installments, such that Tenant's payment is due on or
before the later to occur of (a) thirty (30) days after Landlord shall furnish a
Tax Statement therefor to Tenant, or (b) fifteen (15) days prior to the date
when Landlord is obligated to pay the excess Real Estate Taxes to the applicable
taxing authority without the imposition of interest or penalty charges thereon
or to a Holder. If the actual amount of Real Estate Taxes is not known to
Landlord as of the date of the Tax Statement, then Landlord may nevertheless
bill Tenant for such installment on the basis of a good faith estimate, which
estimate shall presume that the Real Estate Taxes have not increased by more
than five (5%) percent per annum over those payable for the fiscal year
immediately preceding the Subsequent Tax Year in question unless Landlord
furnishes Tenant with a reasonable explanation that Landlord's estimate is
otherwise reasonable, in which event Tenant shall pay the amount so
estimated on or before the later to occur of (i) fifteen (15) days prior to the
date on which the Real Estate Taxes for such Subsequent Tax Year are due to the
applicable taxing authority without the imposition of interest or penalty
charges thereon or to a Holder, or (ii) within thirty (30) days after receipt of
such bill, subject to prompt refund by Landlord, or payment by Tenant, upon a
supplemental billing by Landlord once the amount actually owed by Tenant is
determined. Except as provided in the immediately preceding sentence, Landlord
shall provide Tenant with a copy of the current tax bill used in the preparation
of the Tax Statement with such Tax Statement.
(C) If Landlord receives any refund of Real Estate Taxes for any Subsequent
Tax Year for which Tenant has made a payment pursuant hereto, Landlord shall
(after deducting from such refund all reasonable expenses incurred in connection
therewith) pay to Tenant, within thirty (30) days after receipt, Tenant's
Proportionate Share of Taxes of the net refund; provided, however, (i) the
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amount of such refund payable to Tenant for such Tax Year shall not exceed the
amount of Tenant's Proportionate Share of Real Estate Taxes for the same Tax
Year and (ii) such refund shall be appropriately prorated based upon the portion
of the Tax Year for which Tenant makes a payment with respect to Real Estate
Taxes in accordance with this Article 36. Landlord shall, during each
Subsequent Tax Year occurring during the Term, commence and prosecute to
completion proceedings to reduce the assessed valuation of the Land and Building
unless Landlord elected, on a reasonable good faith basis, not to commence the
same and/or prosecute the same to completion if such election is not for the
primary purpose of reducing the assessed valuation of other properties owned or
managed by Landlord or the partners or other principals of Landlord. Within
thirty (30) days after Landlord shall furnish Tenant a bill therefor accompanied
by supporting documentation, Tenant shall pay Landlord Tenant's Proportionate
Share of the costs and expenses of any nature (including, without limitation,
consulting, appraisal, legal and accounting fees) incurred by Landlord in good
faith in connection with any tax protest or other proceeding or arrangement
leading to a reduction in Real Estate Taxes, whether before or after the initial
assessment thereof.
(D) If any Subsequent Tax Year is only partially within the Term, all
payments pursuant hereto shall be appropriately prorated, based on the portion
of the Subsequent Tax Year which is within the Term. Except as limited by
Article 35(F): (i) Tenant's obligation to make the payments required by
Paragraphs (B) and (C) of this
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Article 36 shall survive the Expiration Date or any sooner termination of this
lease; and (ii) Landlord's obligation to make the payments required by
Paragraphs (B) and (C) hereof shall survive the Expiration Date or any sooner
termination of this lease.
(E) Except as limited by Article 35(F), each Tax Statement given by
Landlord pursuant to Paragraph (B) shall be binding upon Tenant unless, within
the earlier to occur of (i) six (6) years after its receipt of such Tax
Statement or (ii) the later to occur of (a) two (2) years after the end of the
Term or (b) two (2) years after Tenant's receipt of such Tax Statement, Tenant
notifies Landlord of its disagreement therewith, specifying the portion thereof
with which Tenant disagrees. Any dispute hereunder shall be resolved in a
manner specified in Paragraph 37(J) hereof. Pending resolution of such dispute,
subject to Paragraph 35(F), Tenant shall, without prejudice to its rights, pay
all amounts determined by Landlord to be due, subject to prompt refund by
Landlord (without interest) upon any contrary determination; provided, however,
that if Landlord fails to make such refund within thirty (30) days after the
dispute is resolved, Landlord shall pay interest thereon at the Interest Rate
(as defined in Paragraph (C) of Article 42 hereof) from the 31st day until the
date paid.
(F) Landlord represents that as of the date of this lease (i)
there are no tax abatements, deferrals or phase-ins (except for those phase-ins
reflected on the bill for the 1997-1998 fiscal tax year) of real estate taxes in
effect, (ii) Tenant's Proportionate Share of Taxes and Tenant's Proportionate
Share of Operating Expenses are equal to a fraction, the numerator of which is
the number of rentable square feet contained in the demised premises, and the
denominator of which is the number of rentable square feet contained in the
Building, and (iv) the denominator for purposes of calculating Tenants'
Proportionate Share of Taxes and Operating Expenses is currently 797,377 in both
this lease and the existing lease in the Building between Landlord, as landlord,
and New York Life Insurance Company, as tenant.
37. Operating Expense Escalation
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(A) For all purposes of this lease:
(1) (i) "Operating Expenses" means all commercially reasonable costs
and commercially reasonable expenses (including sales, use and excise taxes
thereon) paid (without any mark-up by Landlord and without duplication) by or on
behalf of Landlord (whether directly or by way of payment to the Board of
Managers as hereinafter defined in subsection 5 of this Paragraph (A)) in
respect of the operation, servicing, safety, cleaning, security, maintenance,
repair and management of the Building, its loading docks, receiving areas,
sidewalks, curbs, plazas and streets in front of or adjacent to the Building
(collectively, "Landlord's Property") which are properly chargeable thereto on a
cash accounting basis together with and including (without limitation) the costs
of gas, oil, steam, water, sewer rental, landscaping, electricity, HVAC and
other utilities furnished to the Building and utility taxes, the costs of
maintaining and repairing toilet rooms [(for which Landlord (or the Board of
Managers) has any responsibility)] in the Building, and the expenses incurred in
connection with the maintenance, repair and management of the Landlord's
Property such as insurance premiums, auditing and other professional fees and
expenses, but specifically excluding (or deducting, as the case may be):
(a) Real Estate Taxes or any increases thereof,
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(b) transfer, gains, franchise, inheritance, estate, succession, gift,
corporation, unincorporated business, gross receipts, profit, income and
mortgage taxes or taxes resulting from the sale of the Land or Building or
Business Improvement District taxes or assessments imposed upon Landlord (or the
Board of Managers), other than sales taxes on items or services otherwise
includable in Operating Expenses,
(c) mortgage interest and amortization,
(d) all leasing costs, including, without limitation, leasing and
brokerage commissions and similar fees, and accounting and appraisal fees
relating to determinations of fair market rent and rental concessions,
(e) the cost of electrical energy furnished to any space leased or
available for lease in the Building,
(f) the cost of tenant installations and decorations incurred in
connection with preparing space for a tenant, and any other contribution by
Landlord (or the Board of Managers) to the cost of tenant improvements,
(g) salaries, fringe benefits and other compensation of Landlord's (or
the Board of Managers') personnel above the grade of building manager,
(h) ground rent or any other payments paid under ground leases (other
than payments which, independent of the ground lease, would constitute an
Operating Expense hereunder),
(i) depreciation and amortization, except as provided herein,
(j) advertising, entertainment and promotional costs for the Building,
(k) except to the extent the following costs and expenditures are
competitive in the marketplace, costs and expenditures payable to any affiliate
of Landlord (i.e., controlling, controlled by or under common control with
Landlord), or (A) to an entity in which Landlord directly or indirectly owns at
least a 20% interest or (B) to any shareholder owning at least 20% of the common
stock, any general partner, any officer or member of any board of directors of
Landlord or of any entity described in this clause (k) or (C) to any person who
is a relative by blood or marriage of any such persons, in case of each of
subclauses (A), (B) and (C) above in excess of the amount which would be paid in
the absence of such relationship (it being agreed that the competitive portion
of such fees and expenditures may only be included if Landlord shall notify
Tenant and specify in reasonable detail in its Operating Statement which fees
and expenditures were payable to any such affiliate or other such person with
such a relationship to Landlord),
(l) costs incurred with respect to a sale or transfer of (A) all or
any portion of the Building or any interest therein or in any person or entity
of whatever tier owning an interest therein, or (B) any interest in Landlord,
(m) financing and refinancing costs, including, without limitation,
legal and accounting fees and expenses and prepayment penalties incurred in
respect thereof,
(n) except as otherwise provided herein, the cost of any improvement,
repair, alteration, addition, change, replacement or other item which under GAAP
is properly classified
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as a capital expenditure, including, without limitation, rental payments for any
equipment ordinarily considered to be of a capital nature,
(o) lease takeover or takeback costs incurred by Landlord in
connection with leases in the Building,
(p) costs for which Landlord receives compensation through the
proceeds of insurance or for which Landlord would have been compensated by
insurance had it carried the coverage required to be carried by Landlord under
this lease or for which Landlord receives compensation or reimbursement from any
other source, including a service contract or warranty,
(q) expenses incurred in connection with services or other benefits
(A) of a type not provided to Tenant (or provided to Tenant at separate or
additional charge) but that are provided to another tenant or occupant of the
Building or (B) provided to other tenants or occupants of the Building at a
level greater than that provided to Tenant without separate or additional
charge, in which case such expenses shall be excluded from Operating Expenses to
the extent such expenses exceed the amount which would have been incurred to
provide such services or other benefits to such other tenant or occupants at the
same level as such services or other benefits are provided to Tenant,
(r) legal fees, expenses and disbursements incurred in connection with
leasing, sales, financing or refinancings or disputes with current or
prospective tenants, real estate brokers, and/or the enforcement of leases,
(s) amounts otherwise includable in Operating Expenses but reimbursed
to Landlord directly by Tenant or other tenants (other than through provisions
similar to this Article 37),
(t) to the extent any costs includable in Operating Expenses are
incurred with respect to both the Building and other properties (including,
without limitations, salaries, fringe benefits and other compensation of
Landlord's (or the Board of Managers') personnel who provide services to both
the Building and other properties), there shall be excluded from Operating
Expenses a fair and reasonable percentage thereof which is not properly
allocable to the Land and/or Building,
(u) the cost of any judgment, settlement, or arbitration award
resulting from any liability of Landlord (other than a liability for amounts
otherwise includable in Operating Expenses hereunder) and all expenses incurred
in connection therewith,
(v) the cost of providing any service customarily provided by a
managing agent and the cost of which is customarily included in management fees
(e.g., bookkeeping and accounting costs and wages of executive personnel of the
managing agent),
(w) the cost of acquiring or replacing any separate electrical meter
Landlord may provide to any of the tenants in the Building,
(x) costs relating to withdrawal liability or unfunded pension
liability under the Multi-Employer Pension Plan Act or other similar law,
(y) the cost of constructing, installing, operating and maintaining
any specialty facility such as an observatory, broadcasting facilities, luncheon
club, athletic or recreational club, child care or similar facility, cafeteria
or dining facility
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or conference center or garage, including, without limitation, salaries and
benefits of any attendants, unless such specialty facility is approved in
writing by Tenant (not to be unreasonably withheld or delayed) and is available
for use by Tenant and Tenant's employees, subtenants and assignees,
(z) any interest, fine, penalty or other late charges payable by
Landlord (or the Board of Managers), incurred as a result of late payments,
except to the extent the same was with respect to a payment, part or all of
which, was the responsibility of Tenant hereunder and with respect to which
Tenant did not make in a timely fashion or did not make at all, but only on such
part as was due but was not paid in a timely fashion or not paid by Tenant at
all,
(aa) any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord,
(bb) costs of acquiring, leasing, installing, maintaining, restoring,
displaying, insuring or protecting (A) sculptures, (B) paintings and (C) other
objects of fine art located within or outside the Building,
(cc) expenditures for repairing and/or replacing any defect in any
work performed by Landlord pursuant to the provisions of this lease except to
the extent Landlord exercised reasonable judgment in the price paid by Landlord
(or the Board of Managers) without a warranty,
(dd) costs incurred to remedy violations of law that arise by reason
of Landlord's negligence in failing to construct, maintain or operate the
Building or any part thereof in compliance with laws,
(ee) costs incurred in connection with making any additions to, or
building additional stories on, the Building or its plazas, or adding buildings
or other structures adjoining the Building, or connecting the Building to other
structures adjoining the Building,
(ff) costs incurred in connection with the acquisition or disposition
of (A) air rights, (B) transferable development rights, (C) easements or (D)
other real property interests,
(gg) any insurance costs that are not customary for office buildings
in Manhattan similar to the Building (unless the insurance costs in question are
required by a holder of a mortgage or ground lease), and any increased insurance
costs reimbursed directly to Landlord by a tenant, including, without
limitation, Tenant, pursuant to their respective leases,
(hh) costs incurred by Landlord which result from Landlord's or other
tenant's breach of a lease or Landlord's Negligence or Wilful Misconduct (as
defined in Article 4 hereof) including any penalty or interest incurred by
Landlord as a result thereof (provided, that if and to the extent that such
costs would have been incurred by Landlord even in the absence of such breach of
lease, negligence or misconduct and would otherwise be includable in Operating
Expenses, then such costs shall nevertheless be included in Operating Expenses),
(ii) the cost of repairs or replacements or restorations by reason of
fire or other casualty or condemnation above the commercially reasonable
insurance deductible which deductible shall not be in excess of one half of one
(0.5%) percent of the applicable insurance coverage unless only higher
deductibles
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are commercially available at reasonable costs,
(jj) costs and expenses incurred by Landlord in connection with any
obligation of Landlord to indemnify any Building tenant (including Tenant)
pursuant to its lease or otherwise; provided, that if and to the extent that
such costs and expenses would have been incurred by Landlord even in the absence
of such indemnity obligation and would otherwise be includable in Operating
Expenses, then such costs and expenses shall nevertheless be included in
Operating Expenses,
(kk) the cost paid or incurred in connection with the removal,
replacement, enclosure, encapsulation or other treatment of any asbestos, PCB's
or other hazardous materials in the Building (provided that (A) any such costs
paid or incurred in connection with any such hazardous materials which Tenant
brings or causes to be brought to the demised premises after the date hereof and
(B) any costs paid or incurred in connection with any hazardous materials (other
than any hazardous materials which existed in the Building prior to the
Commencement Date) if and to the extent such costs are paid or incurred by
reason of the performance by Tenant of Alterations shall be the responsibility
of Tenant but shall not constitute an Operating Expense),
(ll) management fees in excess of the greater of (A) 2% of gross
revenues (exclusive of reimbursements for capital work performed for a tenant
and security deposits except to the extent applied to the rent), or (B)
management fees charged by first class management firms at buildings comparable
to the Building for services comparable to those services being provided at the
Building; provided, that in no event shall the management fee included in
Operating Expenses in years subsequent to the Base Operational Year be computed
at a rate greater than that used to compute the management fee included in
Operating Expenses in the Base Operational Year,
(mm) any profits Landlord earns or receives on so-called sundry
charges to individual tenants,
(nn) the cost of electricity and overtime HVAC furnished to the
demised premises or any other rentable space in the Building whether or not
leased to tenants,
(oo) the amount of any actual incremental costs incurred by Landlord
in the operation, maintenance or repair of any Building system or facility
within any portion of the Building core or any other portion of the Building
common areas as the result of non-standard installations (including, without
limitation, raised flooring) made by other Building tenants within such portion
of the Building core and/or common areas,
(pp) all costs of Landlord's general corporate or partnership and
general administrative and overhead expenses,
(qq) any bad debt loss, rent loss or reserves for bad debts or rent
loss,
(rr) all costs associated with Landlord's voluntary political
contributions, voluntary civic contributions or voluntary charitable
contributions,
(ss) the cost of temporary exhibitions located at or within the
Landlord's Property,
(tt) all costs associated with any management office in the Building
if and to the extent such costs are for items of general and administrative
overhead (e.g., costs of telephone, copy
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and fax machines, limited miscellaneous supplies, but not including salaries and
wages of management and employees of the Building which are subject to the other
provisions of this Article 37),
(uu) all costs associated with any off-site offices of Landlord,
(vv) the cost of purchasing insurance on the personal property of any
tenant,
(ww) any fee or expenditure in excess of commercially reasonable
amounts for materials or services of comparable quality,
(xx) costs incurred in installing, operating and maintaining any
specialty equipment not normally installed, operated, and maintained in
buildings comparable to the Building and not necessary for Landlord's operation,
repair, maintenance, and providing of required services for the Building,
(yy) any increase in insurance premiums reimbursable by any tenant of
the Building in accordance with the terms of their lease,
(zz) reserves unless and until expended for items or services
otherwise included in Operating Expenses, and
(aaa) any other expense which would not be rendered as a
normal maintenance or operating expense for a commercial office building in New
York City.
(ii) Any insurance proceeds received with respect to any item
previously included as an Operating Expense shall be deducted from Operating
Expenses for the Operational Year in which such proceeds are received. All
Operating Expenses shall be without any profit whatsoever to Landlord or any
affiliate of Landlord (except to the extent permitted under clause (k) above).
(iii) Notwithstanding that Operating Expenses are
otherwise charged on a cash basis in accordance with this Article 37, if any
capital improvement is made during any Operational Year for the purpose of
saving or reducing Operating Expenses (as, for example, a labor-saving
improvement), then the amortized cost of such improvement (i.e., the cost of
such improvement amortized over the useful life thereof in accordance with GAAP)
shall be included in Operating Expenses for the Operational Year in which such
improvement was made and each Operational Year thereafter until fully
reimbursed; provided, that the amount of any such costs attributable to such
capital improvement relating to any particular Operational Year that may be
included in Operating Expenses for such Operational Year shall not exceed the
actual savings realized for such Operational Year as a result of such
expenditures by Landlord (or the Board of Managers), which actual savings shall
be as determined by a reputable, licensed engineer or other professional
consultant having expertise in the area (whose commercially reasonable fees are
to be included in Operating Expenses), who shall be retained by Landlord (or the
Board of Managers) and approved by Tenant (such approval not to be unreasonably
withheld or delayed), and a copy of whose professional opinion and analysis
shall be furnished to Tenant (the "Savings Report") together with the Statement
for the first Operational Year in which such capital improvement is included in
Operating Expenses. If Landlord shall fail to deliver a Savings Report to Tenant
together with said Statement, then Tenant shall have no obligation to pay to
Landlord that portion of Operating Expenses attributable to such capital
improvement until such time as Landlord shall deliver such Savings Report to
Tenant. Nothing
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contained in this subdivision (iii) shall be deemed to allow Landlord to include
in Operating Expenses the cost of a capital improvement solely to replace a
capital item or other item not otherwise includable as an Operating Expense.
(iv) If the cost of any energy saving device or program installed or
implemented shall have been included in Operating Expenses in accordance with
this Article 37, any payment received by Landlord by reason of such device or
program shall be deducted from Operating Expenses in the Operational Year in
which such payment is received by Landlord.
(2) "Base Operating Expenses" shall mean the Operating Expenses for
calendar year 2000 ("Base Operational Year").
(3) "Operational Year" shall mean each calendar year all or partly
within the Term commencing with the calendar year 2001.
(4) "Tenant's Proportionate Share of Operating Expenses" shall be
50.14%.
(5) "Board of Managers" shall mean the board of managers of any
Condominium in the Building pursuant to Article 59 hereof.
(B) In determining the amount of the Base Operating Expenses or the
Operating Expenses for any Operational Year, if less than one hundred (100%)
percent of the rentable area of the Building shall have been occupied by office
tenants at any time during any such year, the Base Operating Expenses or the
Operating Expenses for any such Operational Year shall be adjusted to an amount
equal to the like expenses which would normally be expected to have been
incurred had the Building had an office occupancy of one hundred (100%) percent
throughout the applicable year. This provision shall not be applied so as to
result in a profit to Landlord.
(C) If Landlord (or the Board of Managers) is not furnishing any particular
work or service (the cost of which if performed by Landlord (or the Board of
Managers) would constitute an Operating Expense) to a tenant who has undertaken
to perform such work or service in lieu of the performance thereof by Landlord
(or the Board of Managers), the Operating Expenses for each Operational Year
during which such situation exists (and also during the calendar year 2000, if
such situation exists during the calendar year 2000) shall be increased by an
amount equal to the additional Operating Expense which reasonably would have
been incurred during such period by Landlord (or the Board of Managers) if it
had at its own expense furnished such service or services to such tenant. This
provision shall not be applied so as to result in a profit to Landlord (or the
Board of Managers).
(D) In any Operational Year in which Operating Expenses exceed Base
Operating Expenses, Tenant shall pay to Landlord Tenant's Proportionate Share of
Operating Expenses of such excess in accordance with the provisions of this
lease.
(E) Within the first nine (9) months after the end of each Operational Year
(and within eighteen (18) months after the end of the last Operational Year),
Landlord shall endeavor to forward to Tenant an itemized statement prepared by
Landlord's accountants ("Statement") of the Operating Expenses for the prior
Operational Year (or for the Base Operational Year, in the case of the first
Operational Year) and a computation of the amount payable by Tenant pursuant to
this Article for such Operational Year.
(F) (1) With each installment of Fixed Rent payable during the first
Operational Year (i.e., calendar year 2001), Tenant shall pay to Landlord the
monthly sum of $10,000 (or such lesser monthly
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sum as shall be appropriate assuming that Operating Expenses increase over those
applicable to the Base Operational Year at a rate of four (4%) percent per
annum) on account of the amount due pursuant to this Article for such
Operational Year.
(2) With each installment of Fixed Rent payable during the Term during
and after the second Operational Year, Tenant shall pay to Landlord on account
of the amount payable pursuant to this Article for the then Operational Year:
(a) until Landlord forwards the applicable Statement for the preceding
Operational Year, the amount of the monthly payment due during December of the
preceding Operational Year; and
(b) after Landlord forwards the applicable Statement for the preceding
Operational Year, one-twelfth (1/12th) of 104% of the amount payable pursuant to
this Article for such preceding Operational Year.
(G) Once Landlord forwards the applicable Statement for the preceding
Operational Year, Landlord and/or Tenant, as the case may be, promptly, within
thirty (30) days thereafter, shall make appropriate payment to the other
(without interest) of any amount overpaid by Tenant or owing to Landlord for
such Operational Year based on the amount due pursuant to such Statement and
amounts theretofore paid by Tenant for such preceding Operational Year.
(H) Subject to Article 35(F), Tenant's obligation to make any payment
pursuant to this Article shall survive the Expiration Date or any sooner
termination of this lease and shall be appropriately prorated for any
Operational Year which is only partially within the Term.
(I) Subject to Article 35(F) hereof, each Statement given by Landlord
pursuant to Paragraph (E) shall be binding upon Tenant unless, within the
earlier to occur of six (6) years after its receipt of such Statement or three
(3) years after the Expiration Date (or, with respect to any Statement given
after the end of the Term, three (3) years after such Statement is received by
Tenant), Tenant, acting in good faith, notifies Landlord of its disagreement
therewith, specifying the portion thereof with which Tenant disagrees. Tenant
shall have the right, upon reasonable notice, to audit Landlord's records
regarding Operating Expenses, but not more frequently than once a year and only
during the period in which Tenant is entitled to send a notice of disagreement,
plus ninety (90) days (as may be extended by any delay in Landlord's making such
records available to Tenant) or such longer period as may be required to resolve
such dispute pursuant to Paragraph (J) below provided that Tenant's notice of
disagreement is sent in a timely manner pursuant to the provisions of this
Paragraph (I). Any disputes regarding Operating Expenses shall be resolved by
arbitration in accordance with Paragraph (J). Pending resolution of such
dispute, Tenant shall, without prejudice to its rights, pay all amounts
determined by Landlord to be due, subject to refund by Landlord (without
interest) upon any contrary determination. If Landlord fails to make such
refund within thirty (30) days after Landlord's receipt of the Hearing Officer's
written determination specifying the amount due to Tenant pursuant to such
arbitration, Tenant shall have the right to offset such amounts from the next
installments of additional rent due under this Article 37 provided that if, at
the end of such thirty (30) day period, this lease has theretofore expired or
has otherwise been terminated other than as a result of the fault or acts of
Tenant, then, notwithstanding the foregoing provisions of this Paragraph (I),
such sums shall bear interest at the Interest Rate (as defined in Paragraph
42(C) hereof) from the date same are so determined to be due to Tenant
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hereunder to and including the date paid Tenant together with all accrued
interest thereon. If any dispute is resolved in Tenant's favor, Tenant shall be
entitled to dispute the same specific item in prior years, provided the time to
dispute such prior year's Statement under Law has not expired. If the Hearing
Officer (as defined below) determines that Tenant has underpaid the additional
rent payable under this Article 37, then said sums shall be paid by Tenant to
Landlord within thirty (30) days after such determination has been rendered.
(J) Whenever Tenant disputes Landlord's calculation of additional rent
payable by Tenant under Article 36 or under this Article 37, Tenant's sole
remedy therefor shall be to send a notice to Landlord ("Hearing Notice") before
the expiration of the time period to dispute the applicable Statement as set
forth in Paragraph (I) above, or, with respect to Real Estate Taxes, before the
expiration of the time period to dispute the applicable statement as set forth
in Paragraph 36(E) hereof, specifying the specific item or items of Operating
Expense or Real Estate Taxes, as applicable, that it disputes ("Additional Rent
Dispute") and electing to have the Additional Rent Dispute resolved by an
informal hearing ("Additional Rent Hearing") upon and subject to the terms and
conditions hereinafter set forth:
(1) The Additional Rent Hearing shall be held at the offices of the
Additional Rent Hearing Officer, who shall be designated by the American
Arbitration Association in accordance with the then existing procedure of its
New York City office and who shall be a certified public accountant with at
least ten (10) years experience in New York City real estate accounting
including operating escalations under office leases.
(2) The Additional Rent Hearing shall be held within ten (10) days
after the date on which the Additional Rent Hearing Officer is designated
pursuant to substantive and procedural rules to be established by the Additional
Rent Hearing Officer;
(3) The determination by the Additional Rent Hearing Officer shall be
conclusive upon the parties and shall be made within seven (7) days after the
Additional Rent Hearing is completed; and
(4) If the Additional Rent Hearing Officer determines that the amount
overcharged to Tenant is equal to or less than the greater of (a) three (3%)
percent of the amount properly payable by Tenant hereunder, or (b) $25,000.00,
whichever is higher, or if the Additional Rent Hearing Officer determines that
Tenant was not overcharged hereunder, Tenant shall pay the fees of the
Additional Rent Hearing Officer and the costs of any audit in connection with
such dispute. If the Additional Rent Hearing Officer determines that the amount
overcharged to Tenant is more than the greater of (a) three (3%) percent of the
amount properly payable by Tenant hereunder, or, (b) $25,000.00, whichever is
higher, Landlord shall pay such fees and reasonable out-of-pocket audit costs
including that of the Additional Rent Hearing Officer.
38. Air Conditioning
----------------
(A) Whenever the Building air conditioning system is in operation, Tenant
shall use its best efforts to close the venetian blinds and/or drapes in the
demised premises. Tenant shall comply with reasonable regulations promulgated
by Landlord in connection with heating, ventilating and air conditioning the
Building.
(B) Landlord agrees that Tenant shall have the right, as part of Tenant's
Work (as defined in Article 44 hereof) or otherwise,
but in all instances subject to the terms, covenants and conditions
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of Article 3 and the other applicable provisions of this lease, to arrange for
the installation at Tenant's sole cost and expense, of supplemental air
conditioning units ("Supplemental A/C") in the demised premises. Landlord shall
have no responsibility for the operation, maintenance, repair or replacement of
any such Supplemental A/C, all of which shall be the responsibility of Tenant.
39. Brokerage
---------
Tenant and Landlord each represents that it did not deal with any broker or
finder in connection with this lease other than the Broker. Tenant shall
indemnify Landlord against any liability and expense (including reasonable
attorney's fees) for any brokerage commission or finder's fee claimed by anyone
other than the Broker based on the actions of Tenant or its agents or
representatives. Landlord will pay Broker a commission pursuant to a separate
agreement between Landlord and Broker and shall indemnify Tenant against any
liability and expense (including reasonable attorney's fees) for any brokerage
commission or finder's fee claimed by anyone based on the actions of Landlord or
its agents or representatives and for any brokerage commission or finder's fee
claimed by the Broker hereunder regardless of the actions of Tenant or its
agents and representatives. The parties' liability hereunder shall survive any
expiration or termination of this lease.
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40. 13th Floor Setback
------------------
(A) As long as Tenant and/or its related corporations are occupying the
entire thirteenth (13th) floor of the Building, Tenant may (if and to the extent
permitted by Law but subject to all the covenants, agreements, terms, conditions
and provisions of this lease, including, but not limited to this Article 40)
during the Term (except as otherwise provided herein), have and enjoy, at
Tenant's risk, the use, for dignified leisure purposes in connection with
Tenant's business, of the setback roof area on the thirteenth (13th) floor of
the building (the "terrace"), subject to the full use by Landlord of the terrace
in order to enable Landlord to fulfill its obligations hereunder or to otherwise
operate and maintain the Building and its systems. Free access to the terrace
through the demised premises in order that Landlord (or its agents) may fulfill
its obligations hereunder or otherwise operate and maintain the Building and its
systems is expressly reserved to Landlord in an emergency at any time (provided
that Landlord shall use reasonable efforts to give Tenant prior or
contemporaneous telephonic or other oral notice in an emergency) or in all other
cases upon not less than forty-eight (48) hours prior notice (or such shorter
period if access is required to comply with Law) to Tenant's Representative
(which notice may be oral or telephonic followed promptly by written notice)
during normal business hours and accompanied by Tenant's Representative if
Tenant elects and Tenant's Representative is available. Landlord shall attempt
to coordinate such access with Tenant so as to minimize interference with
Tenant's use of the demised premises. So long as Tenant shall have the right to
use the terrace or shall actually use the terrace, Tenant, at Tenant's sole
expense, shall clean the terrace and keep the terrace clear and free from
debris, water, ice and snow to the extent necessary for Tenant's use thereof,
except Landlord shall, at its expense (subject to reimbursement as an Operating
Expense pursuant to Article 37 hereof) remove ice and snow which Landlord, in
its reasonable discretion determines, block the roof's drainage or as otherwise
required for the maintenance or safety of the Building. Landlord shall not at
any time be obligated to clean or free the terrace from debris, water, ice and
snow, except as may be required in the immediately preceding sentence. Nothing
contained herein shall be deemed or construed to constitute a representation by
Landlord that the terrace may, as a matter of Law, be so used by Tenant. In the
event of any discontinuance or reduction of the use by Tenant of the terrace,
Tenant shall not be entitled to any compensation or diminution or abatement of
rent, nor shall such discontinuance or reduction be deemed constructive or
actual or partial eviction. Tenant agrees that it shall not do anything or omit
to do anything or permit anything to be done on or in the terrace or any part
thereof which shall, in Landlord's reasonable judgment, detract from the
appearance of the building, impair the dignity of the building, interfere with
the comfort of other tenants and occupants of the building, or physically change
the terrace or any part thereof.
(B) Tenant shall indemnify and save harmless Landlord and each Holder and
Landlord's managing agent against all loss, damage, claim, liability and expense
(including, but not limited to, reasonable counsel fees) directly or indirectly
arising out of and/or in connection with the use of the terrace by Tenant, its
officers, employees, contractors and invitees and/or the activities thereon
except to the extent such costs arise by reason of Landlord's maintenance
responsibilities set forth in Paragraph (A) above or elsewhere in this lease.
(C) So long as Tenant has the right to use the terrace or actually uses the
terrace, Tenant shall, at Tenant's cost and expense, provide and keep in force
for the benefit of Landlord, its managing agent and each Holder of which Tenant
has been provided
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the name and address the same, insurance coverage as is required under Article
45 with respect to, and in connection with, the terrace and the use thereof and
installations thereon. Tenant shall also pay Landlord, as additional rent,
within thirty (30) days after receipt of a statement (which statement shall
include reasonable documentation therefor) for any increased insurance premium
costs to Landlord as a result of the provisions of this Article.
(D) Tenant will, within five (5) business days after demand by Landlord and
as often as each such demand shall occur, forthwith discontinue any use of the
terrace to which Landlord shall reasonably object and/or remove any decoration
visible from outside the demised premises or installation for which Landlord has
not previously provided written consent to which Landlord in its reasonable
discretion shall reasonably object but, with respect to such decoration or
installation which is not possible to remove within such five (5) business day
period, commence to remove same immediately and thereafter proceed with
diligence to complete the removal of same. On or before the Expiration Date,
Tenant shall, upon Landlord's request, at Tenant's cost and expense, remove all
installations, furnishings and personal property of Tenant and/or anyone
claiming under or through Tenant from the terrace and repair all damage to the
terrace and any part thereof caused by such removal. Tenant agrees that Tenant
will conform to and comply with all applicable laws and regulations with respect
to use of the terrace and with such reasonable Rules and Regulations as Landlord
may in its reasonable judgment deem necessary or proper and from time to time
adopt for the safety, care, cleanliness, appearance and/or maintenance of the
terrace.
(E) During the Term, if Tenant is then actually using the terrace, Landlord
shall take commercially reasonable appropriate measures to ensure that
Landlord's terrace drainage system and window washing rigs will function without
material, adverse interference to Tenant's normal use of the terrace.
41. Exculpatory and Hearing Clause
------------------------------
(A) Anything herein to the contrary notwithstanding, the liability of
Landlord and any prior landlord hereunder and the partners of Landlord and any
prior landlord hereunder for negligence, failure to perform lease obligations or
otherwise under or in connection with this lease shall be limited to their
respective interests in the Land and Building. Tenant shall neither seek to
enforce nor enforce any judgment or other remedy against any other asset of
Landlord or any partner of Landlord or any party that holds any interest in
Landlord. Notwithstanding the foregoing, Tenant shall have the right to enforce
any final and unappealable judgment against Landlord which is not paid by
Landlord within fifteen (15) days after entry thereof by offsetting amounts
payable by Landlord to Tenant under this lease against any amounts payable by
Tenant hereunder. Nothing contained in this paragraph shall preclude Tenant
from exercising any right of offset, including any interest due Tenant, against
rent or additional rent that is expressly permitted and set forth in any other
provision of this lease.
(B) Anything in this lease to the contrary notwithstanding, wherever any
provision is made in this lease for Landlord's consent or approval, or exercise
of judgment or imposition of a requirement, rule, regulation or designation, or
any determination by Landlord's agent, such consent or approval shall not be
withheld or delayed unreasonably or in bad faith and such judgment or imposition
of a requirement, rule, regulation or designation or determination of Landlord's
agent, shall be exercised reasonably and in good faith. Tenant hereby waives
any claim against Landlord
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which it may have (including, without limitation, a claim for damages) based
upon any assertion that Landlord or its agent unreasonably withheld or delayed
any such consent or approval, or exercised its judgment or imposed a
requirement, rule, regulation or determination or designation or otherwise acted
unreasonably (but Tenant does not waive any claim that Landlord acted in bad
faith). Whenever either party hereto alleges that the other party has acted
unreasonably with respect to a matter arising under this lease (but not in bad
faith), the sole remedy of the party making such allegation therefor shall be to
send a notice to the other party hereto ("Section 41(B) Hearing Notice"),
specifying the matter with respect to which it alleges that such other party has
acted unreasonably ("Section 41(B) Dispute") and electing to have the Section
41(B) Dispute resolved by an informal hearing ("Section 41(B) Hearing") upon and
subject to the terms and conditions hereinafter set forth:
(i) The Section 41(B) Hearing shall be held at the offices of the
hearing officer, who shall be selected pursuant to the then existing rules and
procedures of the American Arbitration Association in New York City, and who
shall be an attorney, duly admitted in New York, with at least ten (10) years
experience in Manhattan office leasing ("Section 41(B) Hearing Officer");
(ii) The Section 41(B) Hearing shall be held within ten (10) days
after the Section 41(B) Hearing Officer is designated pursuant to substantive
and procedural rules to be established by the Section 41(B) Hearing Officer;
(iii) The determination by the Section 41(B) Hearing Officer shall be
conclusive upon the parties and shall be made within seven (7) days after the
Section 41(B) Hearing is completed; and
(iv) If the party alleged to have acted unreasonably is determined to
have acted properly, the party making such allegation shall pay the fees of the
Section 41(B) Hearing Officer. If the party alleged to have acted unreasonably
is determined to have acted improperly, such party shall pay such fees.
42. Submission to Jurisdiction, Etc.
--------------------------------
(A) Tenant hereby represents to Landlord that it is not entitled, directly
or indirectly, to diplomatic or sovereign immunity (or, in the alternative,
Tenant hereby irrevocably and unconditionally waives diplomatic and/or sovereign
immunity if Tenant is entitled thereto). This lease shall be deemed to have
been made in New York County, New York, and shall be construed in accordance
with the laws of the State of New York. All actions or proceedings relating,
directly or indirectly, to this lease shall be litigated only in courts located
within the County of New York. Tenant, SOFTBANK Holdings Inc. and SBH Delaware,
Inc., jointly and severally as guarantors (jointly and severally, "Guarantor")
and their respective successors and assigns hereby irrevocably subject
themselves to the jurisdiction of any state or federal court located within such
county.
(B) Whenever any default, request, action or inaction by either party
reasonably causes the other party to incur attorneys' fees and/or any other
costs or expenses, the party in default or making such request, action or
inaction agrees that it shall pay and/or reimburse the other party for any such
reasonable, out-of-pocket fees, costs or expenses within thirty (30) days after
being billed therefor. If any legal proceeding is brought by reason of a
claimed default by either party hereunder, the prevailing party shall be
reimbursed by the other for its reasonable attorneys' fees.
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(C) Except as otherwise specifically provided in this lease, if any monies
owing by Tenant or Landlord to the other party under this lease are paid more
than fifteen (15) days after the date such monies are payable pursuant to the
provisions of this lease, the party which is late in its payments shall pay the
other party interest thereon, at a rate (the "Interest Rate") equal to the
lesser of the then maximum lawful rate or one (1) percentage point above the
"base rate" or "prime rate" of Citibank, N.A. from time to time in effect, for
the period from the date such monies were payable to the date such monies are
paid.
(D) The submission of this lease to Tenant shall not constitute an offer by
Landlord to execute and exchange a lease with Tenant and is made subject to
Landlord's and Tenant's acceptance, execution and delivery thereof and is not
binding upon either party until same is executed and delivered by Landlord and
Tenant and the Non-Disturbance Agreement is executed and delivered by the holder
of the Fee Mortgages as provided in Article 7 hereof.
(E) Each person executing this lease hereby covenants, represents and
warrants that he or she is duly authorized to execute, acknowledge and deliver
this lease.
(F) As a special inducement to Landlord to enter into this lease, Tenant
undertakes, covenants and agrees to deliver to Landlord (i) from each Guarantor
simultaneously with its execution of this lease a duly executed and acknowledged
guaranty in the applicable form annexed hereto as Exhibit N and (ii) a
subordination agreement in the form annexed hereto as Exhibit O. It is
specifically understood and agreed that a default which is not cured prior to
the expiration of any applicable notice and cure period under the guarantees or
either of them or a default which is not cured prior to the expiration of any
applicable notice and cure period under the subordination agreement or any other
documents related to the guaranties or subordination agreement shall be deemed a
material default under this lease.
(G) The provisions of this Article shall survive the expiration of this
lease.
43. Modifications Requested by Mortgagee, Etc.
------------------------------------------
(A) If any present or prospective mortgagee of the Land or the Building or
any leasehold interest therein requires, as a condition precedent to extending
or issuing its loan, the modification of this lease in such manner as does not
lessen Tenant's rights or increase its obligations hereunder or lessen
Landlord's obligations or increase Landlord's rights (except, in each case, to a
de minimis extent), Tenant shall not unreasonably delay or withhold its consent
to such modification and shall execute and deliver such confirming documents in
form and substance reasonably acceptable to Tenant therefor as such mortgagee
reasonably requires.
(B) Tenant agrees to send a copy of all notices of any default by Landlord
under the lease or any other circumstance which would entitle Tenant to cancel
or terminate the lease or to claim a partial or total eviction or to exercise
any self-help remedy or to receive any rent offset, abatement or credit, (other
than abatements of rent, offsets or credits set forth in Articles 23 and 35G of
this lease) to Landlord hereunder to the holder(s) of the Fee Mortgages provided
Tenant is furnished with the name and address of the holder(s) of the Fee
Mortgages and Tenant agrees to accept any cure of such default by the holder(s)
of the Fee Mortgages (but nothing herein shall require the holder(s) of the Fee
Mortgages to cure any such default).
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44. Tenant's Work
-------------
(A) Tenant shall, at its expense, and in compliance with the further
provisions of this Article 44, the "Alteration Rules" annexed as Exhibit F and
other applicable provisions of this lease, make such alterations, improvements
and decorations in the demised premises as Tenant may consider necessary or
desirable to prepare the same for Tenant's occupancy ("Tenant's Work"). In
addition, Tenant shall, at Tenant's expense, make all modifications and
additions and replacements to the alarm systems within the demised premises as
may be necessitated by Tenant's Work.
(B) Tenant shall have prepared by a licensed architect, at Tenant's
expense, and shall submit to Landlord for its approval, complete, detailed and
fully dimensioned architectural, electrical, mechanical and engineering plans
and drawings (1/8" scale), and specifications for Tenant's Work ("Tenant's
Plans"). Tenant's Plans shall conform to the existing physical condition of the
Building, the filed plans and specifications for the Building, and all
applicable laws and requirements of law and public authorities and the rules and
regulations implementing the same.
(C) Upon Landlord's written approval of Tenant's Plans, which shall not be
unreasonably withheld and which shall be granted or withheld within the time
periods set forth in Article 3 of this lease, Tenant, at its expense, shall
cause Tenant's Plans (including necessary mechanical plans and specifications)
to be filed with the governmental agencies having jurisdiction thereof, in order
to obtain, and shall obtain, all governmental permits, approvals, licenses,
authorizations, waivers, consents and certificates (collectively "Permits")
which may be required in connection with the performance of Tenant's Work. Such
plans shall be delivered to Landlord by personal delivery in accordance with
Article 27 hereof or electronically (in which case the date of delivery shall be
deemed to have occurred upon Landlord's receipt thereof). Landlord shall within
two (2) business days after Tenant's request and Landlord's actual receipt of
the applications, sign the applications for such Permits (including without
limitation, the plans to be filed in connection therewith) prepared by Tenant
which require Landlord's signature and Tenant shall indemnify and hold Landlord
harmless against any claim, cost, liability or expense resulting from any error,
omission or other impropriety or deficiency in any such application and the
plans to be filed in connection therewith (it being understood and agreed that
such signing of the Permits shall not constitute approval of Tenant's Work).
Tenant's Work shall be governed by the provisions of Articles 3 and 6 with
respect to Alterations, as if Tenant's Work were Alterations, as modified and
supplemented by this Article. Landlord shall permit Tenant's contractors,
subcontractors and suppliers to move construction materials, supplies and
equipment for Tenant's Work to the demised premises and to remove construction
waste and debris therefrom, by (i) the Northern Passenger Elevator Bank, (ii)
the new freight elevator to be installed pursuant to Exhibit B, (iii) and the
loading dock elevator on a first come, first serve basis. Tenant's contractors,
subcontractors and suppliers shall pay Landlord's specified regular charges
(which shall not be in excess of Landlord's out-of-pocket cost) for the use of
such loading dock elevator at such times. Tenant shall, and shall cause its
contractors, subcontractors and suppliers to, comply with the Alteration Rules
and Landlord's reasonable directions for the coordination and control of
construction activities in the Building and the protection and security of the
Building and its systems, facilities and occupants.
(D) Tenant shall have the right to install and use a hoist during the
performance of Tenant's Work, and Landlord agrees to reimburse Tenant for one-
half of the reasonable installation costs
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of such hoist and such hoist shall not be used on the 27th Street Side of the
building. Thereafter, such hoist shall be used at Tenant's sole expense (except
(i) Landlord shall pay for electric current in connection with the use of the
hoist and (ii) if the new freight elevator is not installed and operational
(with all permits and other governmental approvals required with respect thereto
obtained and duplicate copies of all such permits and approvals delivered to
Tenant) and Landlord has not satisfied all fire alarm requirements therefor by
July 31, 1998 as provided in Exhibit "B" hereof (time of the essence), then
Landlord shall be responsible for the reasonable operational costs in connection
with the Tenant's use of the hoist from and after August 1, 1998 to and
including such date as such new freight elevator shall be installed and
operational (with all permits and other governmental approvals required with
respect thereto obtained and duplicate copies of all such permits and approvals
delivered to Tenant and Landlord has satisfied all fire alarm requirements
therefor). The hoist shall be used for construction purposes only in compliance
with Law and at such times and in such a manner as Landlord may from time to
time reasonably designate. Tenant shall, at its expense (i) obtain and maintain
all permits, approvals and certificates required by any governmental or quasi-
governmental bodies in connection with the use of such hoist and shall deliver
duplicates thereof to Landlord, and (ii) obtain and deliver to Landlord standard
insurance industry certificates (or their equivalents) of workmen's compensation
insurance in the amounts required by Law and comprehensive liability insurance
under either basic or an umbrella policy in an amount not less than $50,000,000
combined single limit per occurrence for bodily injury and property damage
arising out of the use and operation of the hoist and with an insurance company
and in a form reasonably satisfactory to Landlord. If Landlord fails to pay any
sums due from it pursuant to this Paragraph (D) within thirty (30) days after
Tenant's bill therefor accompanied by supporting documentation is received by
Landlord, Tenant shall have the right to offset such sums, together with
interest thereon at the Interest Rate, against amounts payable by Tenant under
this lease.
(E) Tenant shall, reasonably promptly after completion of Tenant's Work,
furnish Landlord with (i) final "as built" plans of the demised premises (or
final plans with field notations) showing Tenant's Work, (ii) Building
Department filing documents, permits and final approvals and other evidence
reasonably satisfactory to Landlord that Tenant's Work is in compliance with all
applicable legal requirements, and (iii) evidence reasonably satisfactory to
Landlord that all laborers, materialmen and mechanics have been paid, including
duly executed and acknowledged releases of liens against the demised premises,
the Building, and the materials and improvements therein from the general
contractor and all electrical, mechanical and plumbing contractors involved with
the installation in form and substance reasonably acceptable to Landlord
covering all of Tenant's Work.
(F) If, by reason of the existence of a violation in the Building (that was
not caused by Tenant, its contractors, subcontractors, agents or employees), or
for any other act or omission of Landlord, its agents, employees, contractors or
subcontractors that is not permitted by this lease, and that results in Tenant
being delayed in the substantial completion of Tenant's Work, the Commencement
Date applicable to each floor of the demised premises so affected will be
delayed by one day for each day of any such delay in the substantial completion
of Tenant's Work to the extent caused by the existence of such violation or act
or omission. Any such delay in the Commencement Date applicable to each floor
shall be in addition to any other credits, offsets and abatements as
specifically provided in this lease. Landlord will, as promptly as reasonably
practicable after
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receipt of notice of any such violation from Tenant, use all reasonable efforts
to remove or cure any such violation.
45. Insurance
---------
(A) During the Term, Tenant shall pay for and keep in force general
liability policies in standard form protecting against any and all liability
occasioned by accident or occurrence, subject to customary exclusions and a
deductible of $250,000 or such other deductible as Landlord shall reasonably
approve (it being understood and agreed that Tenant shall be solely responsible
for all losses, liabilities and costs which are under such deductible), such
policies to be written on an occurrence basis, by recognized and well-rated
insurance companies authorized to transact business in the State of New York,
having a policyholder's rating of no less than "A-" and a financial size
category of not less than "VIII" in the most current edition of Best's Insurance
Reports. Landlord hereby approves, as of the date hereof and subject to the
standards set forth above, Tenant's right to use (i) for property insurance,
Tokio Marine and Fire Insurance Company, Ltd. and (ii) for liability insurance,
American Home Insurance Company (basic policy), AIU Insurance Company (Umbrella-
1st layer), Transcontinental Insurance Company (Umbrella-2nd layer), Travelers
Indemnity of Illinois (Umbrella-3rd layer) and National Surety Corporation
(Umbrella-4th layer). The minimum limits of liability shall be a combined single
limit with respect to each occurrence in an amount of not less than $10,000,000
for injury (or death) and damage to property (which may be carried under a basic
$1,000,000 policy and an umbrella policy for the balance provided that at all
times during the Term there is no less than $10,000,000 coverage with respect to
the demised premises and those portions of the Building then designated for
Tenant's primarily exclusive use). If at any time during the Term it appears
that public liability or property damage limits in the City of New York for
premises similarly situated, due regard being given to the use and occupancy
thereof, are higher than the foregoing limits, then, upon written notice from
Landlord, Tenant shall increase the foregoing limits accordingly, but not more
often than once every five (5) years. Landlord, its managing agent and each
mortgagee and ground lessor, if any, of whom Tenant has received notice shall be
named as additional insureds in the aforesaid insurance policies. Tenant shall
also secure and keep in force "all risk" property insurance, including loss by
fire and, by means of the standard extended coverage endorsement, loss or damage
by such other casualties as may be covered thereby, covering all of its personal
property, machinery, equipment, trade fixtures, goods, merchandise, furniture,
furnishings and other items removable by Tenant located in the demised premises
and/or on the terrace (but only so long as Tenant has the right to use the
terrace pursuant to Article 40 hereof or actually uses the terrace) in the case
of each such item for the full replacement value thereof from time to time. Such
policies shall also provide that Landlord and each Holder shall be afforded
thirty (30) days prior notice of cancellation of said insurance (provided,
however, that Tenant shall be excused from compliance with this sentence if such
provision is not obtainable from any insurance company at commercially
reasonable rates or if it is not then commonly required of tenants in buildings
similar to the Building in Manhattan so long as Landlord and each such Holder
shall be afforded at least ten (10) days prior notice of cancellation of said
insurance). Tenant shall deliver standard insurance industry certificates (or
their equivalents) evidencing such policies. All premiums and charges for the
aforesaid insurance shall be paid by Tenant and if Tenant shall fail to make
such payment when due, Landlord may, after giving Tenant at least thirty (30)
days notice, make it and the amount thereof shall be repaid to Landlord by
Tenant on demand and the amount thereof may, at the option of Landlord, be added
to and become a part of the
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additional rent payable hereunder; provided, however, if the notice afforded
-------- -------
Landlord in the immediate preceding sentence is less than thirty (30) days, then
the above thirty (30) day time period may be reduced to the amount of notice
given to Landlord of such cancellation. Tenant shall not violate or permit to be
violated any condition of any of said policies and Tenant shall perform and
satisfy the requirements of the companies writing such policies.
(B) Landlord will maintain liability and "all risk" full replacement
property insurance, including loss by fire and standard extended coverage
endorsement, in conformity with that maintained with respect to other similar
buildings in the vicinity and as required by the Fee Mortgage(s) covering the
Building, including, without limitation, Tenant Improvements, provided that (i)
the limits of Landlord's liability policies (which may be an umbrella policy)
shall be no less than $10,000,000.00 for combined single limit per occurrence
for bodily injury and property damage, and (ii) the limits of such casualty
insurance shall in all events be sufficient to avoid any co-insurance
requirement. Landlord shall, upon Tenant's request, deliver certificates of
such insurance to Tenant evidencing such policies.
46. Estoppel Certificate
--------------------
Each party, at any time, and from time to time, upon at least twenty (20)
days' prior notice by the other, shall execute, acknowledge and deliver to the
requesting party, and/or to any other person, firm or corporation specified by
the requesting party, a statement certifying that this lease is unmodified and
in full force and effect (or, if there have been modifications, that the same is
in full force and effect as modified and stating the modifications), stating the
dates to which the Fixed Rent and additional rent have been paid, stating
whether or not there exists any default by the requesting party under this
lease, and, if so, specifying each such default, and any other matters
reasonably requested by the requesting party or the recipient. Notwithstanding
the foregoing, neither party hereto shall be required to furnish such a
statement more frequently than three times per year and each party thereto shall
be entitled to give such statement to the best of its knowledge and to take an
exception for items of additional rent that have not yet been billed.
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47. Holdover
--------
If Tenant holds over after the expiration of the Term for a period in
excess of one (1) month with respect to all or any portion of the demised
premises, the parties hereby agree that Tenant's occupancy of the demised
premises after the expiration of the Term shall be upon all of the terms set
forth in this lease except that from and after the first month succeeding the
expiration or sooner termination of the Term, Tenant shall pay as use and
occupancy for each month (or portion thereof) of the holdover period an amount
equal to one and one-half (1-1/2) times the sum of (i) the average monthly Fixed
Rent (excluding any abatements) payable by Tenant during the last twelve (12)
months of the Term for both (x) the portion of the demised premises in which
Tenant is holding over (the "Occupied Portion") and (y) any portion of the
demised premises in which Tenant is not holding over but is adversely affected
by Tenant's holding over as a result of Landlord's agreement to deliver such
portion of the demised premises to another tenant or other occupant in
accordance with a written lease or other occupancy agreement with such tenant or
occupant (the "Adversely Affected Portion"), and (ii) the average monthly
additional rent (excluding any abatements) payable by Tenant during the last
year of the Term for both (x) the Occupied Portion and (y) the Adversely
Affected Portion. Such use and occupancy charge shall be in lieu of
consequential damages.
48. Rooftop Communications Equipment
--------------------------------
(A) Landlord agrees that, subject to Landlord's prior written approval, not
to be unreasonably withheld or delayed in accordance with the applicable
provisions of this lease, including Articles 3 and 44, and subject to applicable
Laws and the terms and conditions hereinafter stipulated, Tenant may install and
thereafter maintain and operate satellite dishes, antennae, wireless cable and
other conduit communications devices and equipment systems as shall be utilized
by a multi-media technology company from time to time for communications
purposes (collectively, the "Roof Equipment"), together with any reasonably
required support structures (including, without limitation, supporting
materials, concrete pads and a direct connection to Building steel) and related
equipment, including, without limitation, electrical and telecommunication
conduit lines connecting the Roof Equipment to the demised premises (such
support structures and related equipment, together with the Roof Equipment,
being herein collectively called the "Communications Equipment") on a portion of
the rooftop of the Building to be reasonably designated by Landlord and
reasonably acceptable to Tenant, and in any event not to exceed Tenant's pro
rata share of the area of the rooftop, as determined, from time to time, by a
fraction, the numerator of which is the number of rentable square feet contained
in the demised premises and the denominator of which is the total number of
rentable square feet contained in the Building. Tenant's use of the rooftop of
the Building is a non-exclusive use and Landlord may permit the use of any other
portion of the roof to any other person, firm or corporation (including
Landlord) for any use, including the installation of other satellite dishes,
antennae and support equipment, so long as the existence, use, operation and
location of any such item, other than those items which are presently installed,
or any replacement(s) thereof, does not interfere with the use, operation or
maintenance of the Communications Equipment. The Communications Equipment is to
be used solely for Tenant's own business purposes and not for the benefit of any
subtenant, assignee, licensee or other occupant of the demised premises (unless
Tenant permits such use at no additional charge except for reimbursement to
Tenant for any out-of-pocket expenses incurred by Tenant in connection
therewith).
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(B) Tenant shall have access to the rooftop of the Building without notice
to Landlord for the purpose of installing, maintaining, servicing or repairing
the approved Communications Equipment and/or maintaining, servicing or repairing
other equipment or systems of Tenant permitted under this lease.
(C) Tenant shall comply with all applicable Laws, in any manner affecting
or relating to Tenant's installation, repair, maintenance and operation of the
Communications Equipment. Tenant shall secure all permits and licenses required
for the installation and operation of the Communications Equipment as well as
all permits and licenses required for the use and operation of the
Communications Equipment, including, without limitation, any approval, license
or permit required from the Federal Communications Commission. Landlord will
cooperate with Tenant, at Tenant's expense, in Tenant's efforts to obtain such
permits and licenses including the execution and return to Tenant of
applications therefor which require Landlord's signature within two (2) business
days after Tenant's request therefor and Landlord's actual receipt of such
applications (including without limitation, the plans to be filed in connection
therewith) for such permits and licenses which were prepared by Tenant and which
require Landlord's signature, and Tenant shall indemnify and hold Landlord
harmless against any claim, cost, liability or expense resulting from any error,
omission or other impropriety or deficiency in any such application and the
plans to be filed in connection therewith.
(D) Tenant shall pay for all electrical service required for Tenant's use
of the Communications Equipment pursuant to the applicable provisions of Article
12. Such electrical service shall be measured by a submeter acceptable to
Landlord and installed and maintained by Tenant at Tenant's expense. In the
alternative, upon Tenant's compliance with all applicable provisions of this
lease, including, without limitation, Landlord's approval of the plans therefor,
which approval will not be unreasonably withheld in accordance with the
applicable provisions of this lease, including Articles 3 and 44, Tenant will be
permitted to connect at Tenant's sole cost and expense the Communications
Equipment to Tenant's electrical supply in the demised premises.
(E) Tenant shall promptly repair all damage to the rooftop of the Building
and to any other part of the Building caused by or resulting from the
installation, maintenance, repair, operation or removal of the Communications
Equipment except to the extent the same results from Landlord's Negligence or
Wilful Misconduct (as defined in Article 4 hereof).
(F) Tenant agrees that, except as provided in Paragraph (D), Landlord shall
not be required to provide any services whatsoever to the rooftop of the
Building and/or the Communications Equipment.
(G) All installations made by Tenant on the rooftop of the Building or in
any other part of the Building pursuant to the provisions of this Article shall
be at the sole risk of Tenant and neither Landlord nor Landlord's agents or
employees shall be liable for any damage or injury thereto caused in any manner,
except to the extent the same results from Landlord's Negligence or Wilful
Misconduct. The Communications Equipment (including, without limitation, the
electrical service supply lines to make operable the Communications Equipment)
shall be erected, installed, repaired, maintained and operated by Tenant at the
sole cost and expense of Tenant and without charge, cost or expense to Landlord.
(H) Tenant shall indemnify and save harmless Landlord from and against: (i)
all loss, damage, liability, cost and expense of any nature (including, without
limitation, reasonable attorneys' fees and expenses) by reason of any liens,
orders, claims or
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charges resulting from any work done, or materials or supplies furnished, in
connection with the fabrication, erection, installation, maintenance and
operation of the Communications Equipment, and (ii) all loss, damage, liability,
cost and expense of any nature (including, without limitation, reasonable
attorneys' fees and expenses), arising out of accidents, damage, injury or loss
to any and all persons and property, or either, whomsoever or whatsoever
resulting from or arising in connection with the erection, installation,
maintenance, operation and repair of the Communications Equipment, except, in
each case, to the extent the same results from Landlord's Negligence or Wilful
Misconduct.
(I) All work and installations (including, without limitation, electrical
lines and equipment) to be done and made by Tenant pursuant to the provisions of
this Article shall be performed in accordance with the terms, covenants,
conditions and provisions of this lease. All plans and specifications of
Tenant's work and installations to be done and made by Tenant pursuant to the
provisions of this Article shall be subject to the prior approval of Landlord,
which shall not be unreasonably withheld or delayed in accordance with the
applicable provisions of Articles 3 and 44 of this lease, and such work and
installations shall be further subject to inspection and reasonable supervision
by Landlord or Landlord's outside architect or engineer as provided in paragraph
(C) of Article 3.
(J) The Communications Equipment shall be Tenant's personal property, shall
be maintained and kept in repair by Tenant and, upon the expiration of the Term
or upon the earlier termination of this lease in any manner, if Tenant so elects
or, if Landlord so directs by written notice to Tenant (given, in the case of
the termination of this lease on the scheduled Expiration Date, at least ninety
(90) days prior thereto, and, in the case of the earlier termination of this
lease, not later than ninety (90) days thereafter), shall be removed by Tenant
(other than in-the-wall cabling and wiring) and Tenant shall repair any damage
to the rooftop of the Building or any other portion or portions of the Building
caused by or resulting from said removal.
(K) All installations made by Tenant shall not interfere with or adversely
affect any existing equipment (including existing rooftop antennae),
installations, lines or machinery of the Building or any other tenant or
occupant of the Building. Any additional installations made after the date of
this lease by Landlord or by others with Landlord's permission (except those the
location of which is mandated by law or other like circumstance as to which
Landlord has no control) shall not interfere with or adversely affect the
Communications Equipment or the operation thereof.
(L) Landlord, at its sole risk, cost and expense, upon at least forty-five
(45) days prior written notice to Tenant (or such shorter period of notice if
such relocation is required by Law or as a result of an emergency), may relocate
the Communications Equipment to other areas of the Building and rooftop thereof
reasonably designated by Landlord, so long as such relocation is required by Law
or necessary for the operations and maintenance of the Building, and the
Communications Equipment is placed in an area which will result in the
Communications Equipment being least likely to be adversely affected thereby.
Such relocation shall be performed in a manner and at a time so as to minimize
to the maximum extent reasonably practicable any disruption of Tenant's normal
business activities and such relocation shall not impair Tenant's data reception
via such Communications Equipment.
49. Signage
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(A) Tenant shall have the right to install and maintain, at its own
expense, subject to the written approval of Landlord as to dimensions, material,
content, location and design, which approval shall not be unreasonably withheld
or delayed, a canopy on the 28th Street facade of the Building. Tenant shall
clean, repair and maintain said canopy and other Signage installed in accordance
with this Article in good order and condition and replace the same, if
necessary. Tenant shall in connection with such canopy and other Signage comply
with all of the laws, orders, rules and regulations of the governmental
authorities having jurisdiction thereof, including zoning laws, building codes
and as required by insurance underwriters and shall obtain and pay for all
permits required therefor. Tenant expressly agrees that such canopy and other
Signage shall not be manufactured and/or installed on the building until all
approvals and permits are first obtained and copies thereof delivered to
Landlord with evidence of payment for any fees pertaining thereto. Tenant
agrees to pay all annual renewal fees pertaining to Tenant's canopy and other
Signage. In no event shall Tenant install (i) any Signage on the 27th Street
side of the Building or (ii) any Signage on the exterior of the Building of a
competitor of NYL so long as NYL is a tenant in the Building.
(B) In the event Landlord or Landlord's representatives shall deem it
necessary to remove any such canopy in order to make any repairs, alterations or
improvements in or upon the demised premises, or the Building wherein same is
situated, or any part thereof, Tenant shall, at its sole cost and expense,
promptly following Landlord's request therefor, remove said canopy and replace
the same whenever the said repairs, alterations or improvements shall have been
completed, provided that Tenant shall have the right to dispute the
reasonableness of Landlord's request for such removal pursuant to Section 41(B)
hereof, in which event Tenant shall not be required to comply with Landlord's
request unless and until such Section 41(B) Dispute is resolved in Landlord's
favor.
(C) Except as provided in Article 48 hereof and in Paragraph (D) of this
Article 49, Tenant shall not, without the prior written consent of Landlord in
each instance (not to be unreasonably withheld or delayed), (i) place or install
or suffer to be placed or installed or maintained in the demised premises, the
terrace or any place visible from the exterior of the demised premises any sign,
awning, canopy, banner, flag, decoration, lettering, advertising matter or the
like (collectively, "Signage") and (ii) place or maintain on any glass of any
window of the demised premises any Signage. Landlord shall have the right to
remove any Signage which is installed without Landlord's prior written consent
in violation of this Article and to charge Tenant for the reasonable cost of
such removal and any repairs necessitated thereby. Tenant shall not place any
free standing signs on the terrace or on the 27th Street Side of the Building.
(D) Notwithstanding the foregoing: (i) Landlord hereby consents to Tenant's
right to install and maintain directional signage on Madison Avenue as shown on
Exhibit "M" annexed hereto and made a part hereof or such Signage on Madison
Avenue of such greater dimensions as are permitted to be used for directional
Signage installed by any other existing tenant of the Building solely for its
directional signage installed on Madison Avenue; (ii) Tenant shall not in any
circumstances install any Signage on the 27th Street side of the Building, and
(iii) Landlord hereby approves an entrance sign above the 28th Street entrance
which is commensurate with a first class office building which is in compliance
with all applicable Laws.
50. Access to the Demised Premises
------------------------------
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Subject to Landlord's security regulations, circumstances beyond Landlord's
reasonable control and the provisions contained in Article 58 hereof, Tenant
shall have access to the demised premises twenty-four (24) hours per day, three
hundred sixty-five (365) days per year.
51. Hazardous Materials
-------------------
(A) Tenant shall not cause or permit "Hazardous Materials" (as defined
below) to be used, transported, stored, released, handled, produced or installed
in or from the demised premises, except that inflammable or combustible (but not
explosive) items may be brought into and used within the demised premises as may
be needed for the maintenance and operation of equipment found in an office
building, so long as done in compliance with all laws and governmental
requirements. The term "Hazardous Materials" shall, for the purposes hereof,
mean any flammable, explosive or radioactive materials, hazardous or toxic
substances or wastes, asbestos or any material containing asbestos, and any
other substance or material defined as hazardous by any federal, state or local
law, ordinance, rule or regulation, including, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, the Hazardous Materials Transportation Act, as amended, the Resources
Conservation and Recovery Act, as amended, the Superfund Amendment and
Reauthorization Act of 1986, or by the regulations adopted and publications
promulgated pursuant to each of the foregoing. In the event of a breach of the
provisions of this Article, Landlord, in addition to all of its rights and
remedies under this lease and pursuant to Law, may require Tenant to remove any
such Hazardous Materials from the demised premises or the Building in the manner
prescribed for such removal by all requirements of Law. The provisions of this
Article shall survive the expiration or sooner termination of this lease.
Notwithstanding anything in this lease to the contrary, Tenant shall have no
obligation or liability under this lease based upon the presence of Hazardous
Materials within the demised premises and/or the Land (i) not introduced, caused
or permitted by Tenant or anyone acting under or through Tenant, its agents,
suppliers, contractors, licensees or invitees, or (ii) prior to the date Tenant
first has access to all or any portion of the demised premises, including,
without limitation, the performance of any Alterations by or on behalf of
Tenant.
(B) Landlord warrants and represents that no Hazardous Materials that is
required under presently existing laws to be removed or friable asbestos that is
not encapsulated will exist in the demised premises on the Commencement Date,
except for a de minimis amount permitted by law. In the event of a breach of
said representations (other than if caused by materials introduced to the
demised premises by or on behalf of Tenant), as Tenant's sole and exclusive
remedy, and at Landlord's sole cost and expense, Landlord shall cause such
Hazardous Materials or asbestos to be removed or encapsulated in accordance with
all applicable Laws and the Commencement Date with respect to the applicable
floors and other floors adversely affected shall be delayed by one day for each
day that the completion of Tenant's Work with respect to the applicable floor is
delayed solely by reason of the presence of asbestos or Hazardous Materials that
Landlord is required to remove or encapsulate.
52. Recording and Memorandum of Lease
---------------------------------
Landlord and Tenant agree not to record this lease. The parties shall,
contemporaneously with the execution of this lease, execute, acknowledge and
deliver a short form or memorandum of this lease in recordable form and
otherwise in the form annexed hereto as Exhibit K. Recording, filing and like
charges imposed by any
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governmental agency to effect such recording shall be paid by Tenant. Upon the
expiration or termination of this lease, Tenant, at Landlord's request, shall
execute, acknowledge and deliver to Landlord all necessary instrument(s) in
recordable form evidencing a termination of this lease and sufficient to
discharge any memorandum hereof of record, and Tenant shall pay for all
recording, filing and like charges imposed by any governmental agency to effect
such recording.
53. Options to Extend
-----------------
(A) So long as Tenant is occupying at least two (2) full contiguous floors
in the Building, Tenant may elect to extend the Term for two (2) additional
consecutive periods of ten (10) years each, the first commencing on the day
immediately following the Expiration Date and ending on the last day of the
calendar month occurring ten (10) years thereafter (the "First Extension Term")
and the second commencing on the day immediately following the expiration of the
First Extension Term and ending on the last day of the calendar month occurring
ten (10) years thereafter (the "Second Extension Term"); each of the First
Extension Term and the Second Extension Term being sometimes referred to as an
"Extension Term" herein) unless sooner terminated pursuant to any of the terms,
conditions or covenants of this lease or pursuant to law, in each case the First
Extension Term and the Second Extension Term shall be with respect to all of the
then demised premises or, if and as Tenant shall specify in its Extension Notice
described hereinbelow, a contiguous portion of the then demised premises
consisting of no less than two (2) full contiguous floors of the Building
situated on contiguous floors commencing from the uppermost or lowermost floors
of the then demised premises, provided that:
(i) Tenant shall give Landlord notice by registered or certified mail,
return receipt requested or by nationally recognized overnight courier
(hereinafter called "Extension Notice") of its election to extend the Term for
the First Extension Term not later than the later to occur of (i) eighteen (18)
months prior to the expiration of the initial Term, or (ii) ninety (90) days
after Landlord shall give a notice to Tenant reminding Tenant of its option to
extend (the "Reminder Notice"), and, of its election to extend for the Second
Extension Term not later than the later to occur of (i) eighteen (18) months
prior to the expiration of the First Extension Term, or (ii) ninety (90) days
after Landlord shall give the Reminder Notice to Tenant, time being of the
essence in both cases, provided that any Reminder Notice (a) given by Landlord
to Tenant earlier than twenty-four (24) months prior to the expiration of the
Initial Term or the First Extension Term, as the case may be, shall have no
force or effect hereunder, and (b) shall specify in not less than 20 point type
that Tenant shall be deemed to have waived its rights to extend the Term
hereunder if Tenant fails to give its Extension Notice by the later to occur of
(x) eighteen (18) months prior to the expiration of the initial Term or First
Extension Term, as applicable, or (y) ninety (90) days after the Reminder Notice
is given, and
(ii) Tenant is not in monetary or material non-monetary default under
this lease beyond any applicable notice or grace period as of the time of the
giving of an Extension Notice and on the commencement date of the First
Extension Term or the Second Extension Term, as the case may be.
(B) (i) The fixed annual rent payable by Tenant to Landlord during
the First Extension Term is to be a sum equal to the fair market rent for the
premises to be demised for the entire First Extension Term determined as of the
first day of the calendar month that shall be four (4) months prior to the
commencement of
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the First Extension Term and during the Second Extension Term is to be a sum
equal to the fair market rent for the premises to be demised for the entire
Second Extension Term determined as of the first day of the calendar month that
shall be four (4) months prior to the commencement of the Second Extension Term
(each of such dates is hereinafter called "Determination Date") and which
determination shall be made within a reasonable period of time after the
occurrence of the applicable Determination Date pursuant to the provisions of
Paragraph (C).
(ii) For the purposes hereof, fair market rent shall take into account
all relevant factors, including without limitation, (a) the actual condition of
the demised premises as of the applicable Determination Date, the base years
applicable to Articles 36 and 37 as provided in paragraph (E) hereof, and
Tenant's options pursuant to this Article and Article 56 and (b) that Landlord
shall receive savings since there are no advertising costs, brokerage
commissions (other than the then managing agent for the Building, if any),
rental abatements, tenant improvement allowances or work to be performed by
Landlord in connection with the applicable Extension Term and that there will be
no loss of rent by reason of the demised premises being vacant and (c) that
Tenant shall receive savings as a result of not having to incur any moving,
installation, stationery, announcement or other similar costs and no disruption
of Tenant's business as a result of a relocation to another building and the
search for new premises and (d) that the net effective rent, taking all of the
foregoing factors into account, paid by existing tenants may be higher than the
rent paid by new tenants for comparable space in the same building.
(C) (i) Landlord and Tenant shall use their best efforts to agree upon the
fair market rent for the demised premises during the thirty (30) day period
following the applicable Determination Date. If Landlord and Tenant cannot reach
an agreement within thirty (30) days after the applicable Determination Date,
Landlord and Tenant respectively shall select a reputable, qualified, licensed
real estate broker with at least ten (10) years experience in midtown New York
County office leasing, having an office in midtown New York County and familiar
with the rentals then being charged in the Building and in comparable buildings
(respectively, "Landlord's Broker" and "Tenant's Broker"), who shall confer
promptly after their selection by Landlord and Tenant and shall use their best
efforts to agree upon the fair market rent of the demised premises. If
Landlord's Broker and Tenant's Broker cannot reach agreement within sixty (60)
days after the applicable Determination Date, and, if the fair market rent
determined by Landlord's Broker's and the fair market rent determined by
Tenant's Broker's differ by less than $2.00 per rentable square foot per annum,
then the Fixed Rent payable for the applicable Extension Term shall be one
hundred percent (100%) of the average of the fair market rent determined by
Landlord's Broker and the fair market rent determined by Tenant's Broker. If the
fair market rent determined by Landlord's Broker and the fair market rent
determined by Tenant's Broker differ by at least $2.00 per rentable square foot
per annum, then, within twenty (20) days thereafter, they shall designate a
third reputable, qualified, licensed real estate broker with at least ten (10)
years experience in New York County, having an office in New York County and
familiar with the rentals then being charged in the Building and in comparable
buildings (the "Independent Broker"). Upon the failure of Landlord's Broker and
Tenant's Broker to agree upon the designation of the Independent Broker, then
the Independent Broker shall be appointed by a Justice of the Supreme Court of
the State of New York upon ten (10) days notice, or by another court in New York
County having jurisdiction and exercising functions similar to those exercised
by the Supreme Court of the State of New York. Concurrently with such
appointment, Landlord's Broker and Tenant's
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Broker respectively shall submit a letter to the Independent Broker, with a copy
to Landlord and Tenant, setting forth such broker's estimate of the fair market
rent of the demised premises (respectively, "Landlord's Broker's Letter" and
"Tenant's Broker's Letter").
(ii) If an Independent Broker is appointed hereunder, the Independent
Broker shall conduct such investigations and hearings as he may deem appropriate
and shall, within thirty (30) days after the date of his designation, choose
either the rental set forth in Landlord's Broker's Letter or that set forth in
Tenant's Broker's Letter to be the fair market rent and such choice shall be
binding upon Landlord and Tenant. Landlord and Tenant shall each pay the fees
and expenses of its respective broker. The fees and expenses of the Independent
Broker shall be shared equally by Landlord and Tenant.
(D) In the event Landlord or Tenant initiates the arbitration process and
as of the commencement date of either the First Extension Term or the Second
Extension Term the amount of the fair market rent has not been determined,
Tenant shall continue to pay the Fixed Rent and additional rent in effect under
this lease for the last month of the initial Term in the case of the First
Extension Term or the last month of the First Extension Term in the case of the
Second Extension Term (without giving effect to any temporary abatement thereof)
reduced on a pro rata per rentable square foot basis in the event Tenant has
elected to have the Extension Term apply to less than all of the demised
premises as permitted in Paragraph (A) hereof; and when such determination has
been made, an appropriate retroactive adjustment in the Fixed Rent shall be made
as of the commencement date of the First Extension Term or the Second Extension
Term, as the case may be.
(E) All of the same terms, conditions, covenants and agreements contained
in this lease are to continue in full force and effect during the First
Extension Term and the Second Extension Term, including, without limitation,
Articles 36 and 37 hereof, except (i) the Fixed Rent shall be determined
pursuant to Paragraphs (B) and (C) of this Article, (ii) the Base Tax Year for
the First Extension Term will be the New York City fiscal tax year in which the
First Extension Term commences, the Base Tax Year for the Second Extension Term
will be the New York City fiscal tax year in which the Second Extension Term
commences, Base Operating Expenses for the First Extension Term will be the
Operating Expenses for the full calendar year during which the First Extension
Term commences, and Base Operating Expenses for the Second Extension Term will
be the Operating Expenses for the full calendar year during which the Second
Extension Term commences, (iii) in the case of the First Extension Term, Tenant
will have no other or further right to extend or renew the Term except for the
Second Extension Term and, in the case of the Second Extension Term, Tenant will
have no other or further right to extend or renew the Term, (iv) Tenant agrees
to accept the demised premises in their condition existing as of the
commencement date of the First Extension Term and the Second Extension Term, as
the case may be, subject to any obligations under this lease then existing and
which have not then been complied with by Landlord, (v) Exhibit B and Articles
23, 39, 44, 54 and 55 will be deemed deleted and there is to be no Landlord's
Contribution or rent concession, credit or abatement, and (vi) in the event such
extension is not with respect to the entire demised premises, Tenant's
Proportionate Share of Taxes and Tenant's Proportionate Share of Operating
Expenses shall be reduced on a pro-rata basis effective as of the commencement
of the applicable Extension Term, the demised premises shall be reconfigured, if
necessary, to provide, access to the new freight elevator and 28th Street
Loading Dock Bays to Landlord and its tenants, and Tenant's exclusive hours for
use of the new freight
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elevator as set forth in Exhibit Q shall be reduced in accordance with Article
19 hereof, and Tenant shall deliver to Landlord vacant possession of that
portion of the demised premises to which such Extension Term shall not apply in
accordance with the terms and conditions of this lease.
(F) If Tenant does not duly and timely give an Extension Notice pursuant to
the provisions of Paragraph (A) hereof, this Article will have no force or
effect and be deemed deleted from this lease and Tenant's options to extend the
Term pursuant to this Article will be deemed waived. Tenant may not exercise
its option for the Second Extension Term unless it previously exercised or
simultaneously exercises its option for the First Extension Term.
(G) If this lease is extended for the First Extension Term or the Second
Extension Term, then Landlord and Tenant agree to execute, acknowledge and
deliver an instrument confirming the exercise of Tenant's right to extend the
Term, the last day of the First Extension Term or the Second Extension Term, as
the case may be, and setting forth the fixed annual rental for the First
Extension Term or the Second Extension Term, as finally determined, but failure
to do so will not affect the respective rights and obligations of the parties.
(H) If Tenant exercises its right to extend the Term for the First
Extension Term or the Second Extension Term pursuant to this Article, the
phrases "the term of this lease" or "the term hereof" or "the Term" as used in
this lease, are to be construed to include, when practicable, the First
Extension Term or the Second Extension Term, as the case may be.
54. Landlord's Contribution
-----------------------
(A) Following Landlord's approval of Tenant's Plans and prior to Tenant's
commencement of Tenant's Work, Tenant shall provide Landlord with a certified
statement from Tenant's Chief Financial Officer setting forth in reasonable
detail the then reasonable estimate of the Reimbursable Costs (as hereinafter
defined).
(B) Subject to the terms and conditions set forth below, Landlord agrees to
reimburse Tenant (i) up to a maximum amount of $16,436,785.00, to be used solely
for the demised premises, plus (ii) an amount, up to a maximum amount of
$1,500,000.00, to be used soley for the Z-D Lobby renovation pursuant to item 8
of Exhibit B, plus (iii) an amount, up to a maximum amount of $1,250,000, for
all additional costs pursuant to (i) and/or (ii) above, plus (iv) the amounts
for passenger elevator cabs and bathroom renovation work set forth in Exhibit B
(said amounts described in (i), (ii), (iii) and (iv) hereof are collectively
"Landlord's Contribution") for costs ("Reimbursable Costs") incurred by Tenant
for leasehold improvements made in and to the demised premises, the Northern
Passenger Elevator Bank, bathrooms on the floors of the demised premises and the
Z-D Lobby, as the case may be, within the first two years of the Term as part of
Tenant's Work approved by Landlord. No part of Landlord's Contribution may be
utilized by Tenant for so-called "soft costs" in connection with Tenant's Work,
except that up to but not exceeding twenty (20%) of Landlord's Contribution may
be utilized for ordinary and reasonable out-of-pocket costs and fees of Tenant's
architect, engineer and construction manager (provided that each of them are
independent and not related to or employees of Tenant or any of its affiliated
or related entities), and filing fees. Landlord agrees to disburse to Tenant
(or, at Tenant's option, not more than five of the persons named in the
certificate set forth in subdivision (a) of this paragraph (B) and designated by
Tenant in Tenant's requisition) from time to time, but not more often than once
in any thirty (30) day period, within ten (10) business days of receipt of
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each Tenant's request, except as otherwise provided in Paragraph (C) below that
portion of Landlord's Contribution equal to ninety-five (95%) percent of the
amount set forth in Tenant's requisition for Reimbursable Costs, provided,
however, that Landlord will not be obligated to make any advance if, and for so
long as, a material default under this lease for which notice has been given
remains uncured. Landlord will also not be obligated to make any advance until
receipt of a request therefor from Tenant and the submission by Tenant of the
following:
(a) A certificate signed by Tenant and Tenant's architect dated not
more than ten (10) days prior to such request setting forth (i) the attached
list contains all of the contractors, subcontractors and materialmen who
furnished labor, supplies and materials to the demised premises and the
aggregate amount of monies that each contractor, subcontractor and materialman
received up to the date of Tenant's request, (ii) that the sum then requested is
justly due to persons who have rendered services or furnished materials for the
work therein specified, and giving a brief description of such services and
materials and the several amounts due to each of said persons in respect
thereof, and stating that no part of such expenditure contained in the current
requisition, was the basis, in any previous or then pending prior request, for
the receipt of Landlord's Contribution or has been made out of the proceeds of
Landlord's Contribution received by Tenant, (iii) that except for the amount, if
any, stated pursuant to the foregoing subdivision (ii) in such certificate to be
due to the date of Tenant's request for services or materials, there is no
outstanding indebtedness (except for withholding such amount as permitted in the
applicable contract) known to the persons signing such certificate, which is
then due for labor, wages, materials, supplies or services in connection with
Tenant's Work which, if unpaid, might immediately become the basis of a vendors,
mechanic's, laborer's or materialmen's statutory or similar lien upon such work
or upon the Land and Building or any part thereof or upon Tenant's leasehold
interest, (iv) that the work described in the certificate has been completed
substantially in accordance with the Tenant's Plans, (v) that to the best of
Tenant's knowledge, there has not been filed with respect to the demised
premises or the building or any part thereof or any improvements thereon, any
vendor's, mechanic's, laborer's, materialmen's or other like liens arising out
of Tenant's Work which has not been bonded or discharged of record, and (vi)
that Tenant has substantially and materially complied with all of the conditions
set forth in Articles 3, 6 and 44 and the Alteration Rules of this lease.
(b) Landlord agrees to disburse two and one-half (2.5%) percent of the
remaining five (5%) percent balance of the portion of Landlord's Contribution
for which Tenant has submitted payment requests upon (i) substantial completion
of Tenant's Work in accordance with Tenant's Plans and a certificate signed by
Tenant and Tenant's architect certifying thereto has been delivered to Landlord,
and (ii) Landlord's receipt of original, duly executed and acknowledged releases
of liens from the general contractor and all electrical, mechanical and plumbing
contractors, paid receipts or such other proof of payment as Landlord reasonably
requires for all work done and materials supplied.
(c) Landlord agrees to disburse the remaining two and one-half (2.5%)
percent balance of the portion of Landlord's Contribution for which Tenant has
submitted payment requests upon full compliance by Tenant with the provisions of
Article 44, except that final approval from the New York City Fire Department
will not be required provided Tenant has applied for such final approval and
diligently pursues the same until obtained and Tenant's architect has furnished
a written certificate to Landlord stating that to the best of his knowledge all
of Tenant's Work has been completed in
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full compliance with the requirements of the New York City Fire Department.
(C) Following Landlord's approval of Tenant's Plans and prior to the
commencement of Tenant's Work, Tenant shall provide Landlord with a copy of the
Construction Management or General Contractor's Contract without the prices (the
"Contract") which shall be certified by Tenant and the construction manager or
general contractor, as the case may be, as being true and complete (except for
the omission of the prices). Landlord agrees that if the Contract shall
specifically provide for Tenant to withhold five (5%) percent or more of all
payments to Tenant's contractor(s) with whom Tenant has privity of contract, and
the certificates set forth in Paragraph B(a) establish and confirm that the
Tenant has withheld from each payment to such contractor(s) five (5%) percent or
more of all of the amounts paid to the contractor(s) as required in the
Contract, then Landlord shall pay one hundred (100%) percent of the amount set
forth in Tenant's requisitions and the provisions of subparagraph (b) and (c) of
said Paragraph (B) shall not apply to such requisitions.
(D) It is expressly understood and agreed that Tenant shall diligently
complete, at its sole cost and expense, Tenant's Work, whether or not Landlord's
Contribution is sufficient to fund such completion and notwithstanding the
provisions of subparagraphs (b) and (c) of Paragraph (B) of this Article. Any
costs to complete Tenant's Work in excess of Landlord's Contribution shall be
the sole responsibility and obligation of Tenant.
(E) If Landlord shall fail to disburse to Tenant any portion of Landlord's
Contribution to which Tenant is entitled when due as a result of Tenant's full
compliance with the foregoing provisions of this Article, then Tenant may give
Landlord notice of such failure and if Landlord shall continue to fail to make
such disbursement to Tenant within thirty (30) days after Landlord's receipt of
notice, then Tenant shall have the right to offset the amount of such
disbursement, plus interest at the Interest Rate from the original due date
thereof until paid, against the Fixed Rent and additional rent next becoming due
under this lease. Notwithstanding the foregoing, Tenant shall not have such
offset right with respect to any portion of such reimbursement as to which
Landlord shall give Tenant notice that Landlord disputes Tenant's claim with
respect thereto unless Landlord continues to fail to reimburse Tenant for such
portion, together with interest thereon as provided above, within ten (10)
business days after Tenant has obtained an arbitration determination in its
favor. If it is determined that Landlord's dispute was not brought in good
faith, then, notwithstanding the foregoing, the aforesaid interest shall accrue
from the date of Landlord's failure to pay.
55. Landlord's Work
---------------
(A) Landlord agrees to perform the work required to be performed by
Landlord pursuant to Exhibit B, and in accordance with the schedule of
completion dates set forth in Exhibits B and E annexed hereto (hereinafter
called "Landlord's Work") at Landlord's cost and expense except as otherwise
provided in Exhibit B, in building standard manner, in keeping with normal
construction practices, using building standard materials, which shall be good
and workmanlike and in compliance with law.
(B) With respect to items 1 and 2 of Landlord's Work as set forth in
Exhibit B, Landlord and Tenant acknowledge and agree (i) that the Delivered
Portions are delivered on execution of this lease (other than the bathrooms
which shall be delivered thereafter as provided in Paragraph E of Article 23
upon at least 24 hours oral or telephonic notice to Tenant) (iii) floors 13, 14
and 15 of
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the demised premises shall be delivered following execution of this lease with
items 1 and 2 substantially complete (other than the bathrooms which shall be
delivered thereafter as provided in Paragraph E of Article 23 upon at least 24
hours oral or telephonic notice to Tenant) upon at least twenty-four (24) hours
oral or telephonic notice to Tenant and (iii) Concourse Level B-2 and the 12th
floor shall be delivered following execution of this lease with items 1 and 2
substantially complete upon at least seven (7) days written notice to Tenant.
With respect to all other items of Landlord's Work as set forth in Exhibit B,
Landlord shall provide Tenant at least twenty (20) days prior written notice of
the date anticipated by Landlord to be the date on which such item of Landlord's
Work shall be substantially complete. Landlord and/or Landlord's architect
shall, upon Tenant's request and promptly after the date of such substantial
completion, meet with Tenant and/or Tenant's architect to conduct an inspection
of the demised premises and the establishment of a list of punchlist items.
Landlord shall use diligent efforts to complete all such punchlist items within
thirty (30) days after the date of such inspection. In the event of any dispute
as to whether the substantial completion date has occurred which is not resolved
by parties within five (5) business days after such inspection, the same shall
be resolved by arbitration, in accordance with the rules then obtaining of the
American Arbitration Association (or any successor thereto), and the parties
shall equally share the cost of any such arbitration. Upon agreement by Landlord
and Tenant or upon the resolution of such dispute, the parties shall confirm in
writing the substantial completion date and applicable Commencement Date, as the
case may be, provided that the failure of either party to request and/or execute
such agreement shall not affect the applicable substantial completion date and
Commencement Date as determined as aforesaid.
(C) In the event that any item of Landlord's Work is not substantially
completed by the deadlines set forth in the schedule set forth in Exhibit "E"
(the "Rent Credit Dates"), which Rent Credit Dates shall be extended one (1) day
for each day of any delay on the part of Tenant, its agents, contractors or
employees, or by reason of Force Majeure, then Tenant shall be entitled to the
credit(s) set forth in said Exhibit "E" for the period commencing on the
applicable Rent Credit Date with respect to the item of Landlord's Work which
was not substantially completed through the earlier to occur of (x) substantial
completion of the applicable item(s) of Landlord's Work or (y) the date
specified by Tenant to Landlord in the Tenant Completion Notice that Tenant
intends to commence performance of the applicable item(s) of Landlord's Work
(the "TCN Date"), which shall not be less than forty-five (45) days after the
giving of such notice by Tenant to Landlord. Upon at least forty-five (45) days
prior written notice (the "Tenant Completion Notice") from Tenant to Landlord
(to be given on or after the Rent Credit Date), Tenant may elect to
substantially complete the item(s) of Landlord's Work specified in such Tenant
notice, and, if Landlord shall fail to substantially complete the same by the
TCN Date, Tenant shall, unless Landlord elects, at its option and prior to the
TCN Date, to Dispute such failure and have a Hearing in accordance with the
procedures set forth in Article 18 (in which event Tenant shall not undertake
such performance and the TCN Date shall be deferred unless and until such
Dispute is resolved pursuant to said Paragraph 18(D)), complete such items of
Landlord's Work that Landlord has so failed to substantially complete, on
Landlord's behalf. Landlord shall reimburse Tenant for the reasonable out-of-
pocket costs incurred by Tenant to unrelated parties in order to complete such
portions of Landlord's Work within thirty (30) days after Landlord's receipt of
itemized bills therefor. In the event that Landlord shall fail to make all or
any portion of such reimbursement within thirty (30) days after delivery of such
bills, then, as Tenant's sole remedy, Tenant shall have the right to offset such
amounts, together with interest
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thereon from the due date thereof until so offset at a rate equal to the
Interest Rate, against the next items of Fixed Rent coming due under this lease
unless Landlord shall Dispute such reimbursement amount and elect to have a
Hearing in accordance with the procedures set forth in Article 18, in which
event Tenant shall have the right to offset the amounts not in dispute and those
amounts which the Hearing Officer determines to be due to Tenant hereunder,
together with interest thereon at the Interest Rate, against future Fixed Rent
obligations hereunder, unless Landlord reimburses Tenant in the amount
determined to be due to Tenant hereunder within thirty (30) days after such
determination is made. If it is determined that Landlord's dispute was not
brought in good faith, then, notwithstanding the foregoing, the aforesaid
interest shall accrue from the date of Landlord's failure to pay. It is
understood and agreed that Tenant's right to perform any applicable item of
Landlord's Work under this Paragraph (C) shall apply to all of Landlord's Work,
whether inside or outside of the demised premises, and whether or not such Work
affects Building systems or structural elements of the Building.
56. Expansion Rights
----------------
(A) The following terms contained in this Article 56 shall have the
meanings hereinafter set forth as such terms are used throughout this lease,
including the exhibits, schedules and riders hereto (if any):
(i) "Expansion Space" shall mean any space that Tenant leases pursuant
to this Article 56 and shall consist of one or more Partial Floors, provided
that, if the Offered Space consists of more than one Partial Floor, then, unless
physically impossible, the Expansion Space shall be (i) contiguous to the
uppermost or lowermost floor of the then demised premises and (ii) internally
contiguous.
(ii) "Expansion Space Commencement Date" for any Expansion Space shall
mean the date on which Landlord delivers vacant possession of such Expansion
Space to Tenant. The term "Commencement Date," as used throughout this lease,
shall mean, for each Expansion Space, the applicable Expansion Space
Commencement Date with respect thereto, unless otherwise specified.
(iii)"Offered Space" shall mean space that Landlord is required to
offer to Tenant pursuant to this Article only.
(iv) "Landlord's Offer Notice" shall mean a notice from Landlord to
Tenant offering to lease Offered Space to Tenant.
(v) "Tenant's Acceptance Notice" shall mean a notice from Tenant
accepting an offer contained in a Landlord's Offer Notice to lease the Expansion
Space specified in Tenant's Acceptance Notice.
(vi) "Business Terms" shall mean the material economic business terms
contained in a Landlord's Offer Notice, including, without limitation, the
rental rate to be paid, any escalation payment obligations and the applicable
base years, any other additional rent, the duration of the term thereof
(including any renewal options) (the "Offered Space Term"), any tenant
improvement allowance for any tenant improvement work to be paid for by
Landlord, or, at Tenant's option, a rent concession which is equal to such
allowance, and the amount and duration of any other rent concessions and lease
take-over obligations. The Business Terms shall be comparable to the terms that
Landlord is then willing to lease such Offered Space to other prospective
tenants.
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(vii) "Net Effective Rental" shall mean the constant net effective
rental payable for the Offered Space for the Offered Space Term, taking into
account all applicable Business Terms and calculated on the basis of an interest
factor of the then current Interest Rate.
(viii) A "Partial Floor" shall mean one-half of a full floor (or less
than one-half of a full floor if less than one-half of a full floor is Available
and Landlord desires to lease same as an independent premises to an independent
third party) which is configured in a manner reasonably acceptable to Landlord.
(B) Promptly after the terms and conditions of any leasing of Expansion
Space have been established pursuant to the applicable provisions of this
Article 56, the parties will execute and deliver an amendment to this lease
setting forth the addition of such Expansion Space in and to the demised
premises and the terms and conditions applicable thereto.
(C) Except with respect to base building work which constitutes part
of the Business Terms, Landlord shall deliver the Expansion Space "as is"; it
being understood and agreed that Landlord shall not be obligated to perform any
other work to prepare the Expansion Space for Tenant's occupancy. Upon such
delivery by Landlord, (i) the Expansion Space Commencement Date shall be deemed
to have occurred, (ii) the Fixed Rent, Tenant's Proportionate Share of Taxes and
Tenant's Proportionate Share of Operating Expenses shall be increased as
provided in the Article appropriate to such Expansion Space but prorated based
on the size of the Expansion Space and (iii) Tenant shall have available to it
any tenant improvement allowance or rent concession which constitutes part of
the Business Terms applicable to the Expansion Space based upon the same being
delivered to Tenant in its "as is" condition and any other rent concession
constituting part of the Business Terms applicable to the Offered Space, in each
case prorated based on the size of the Expansion Space as compared with the size
of the Offered Space.
(D) If any occupant of Expansion Space does not vacate its space on or
before the expiration or termination of the existing lease therefor, if any,
Landlord shall diligently pursue all commercially reasonable remedies in order
to obtain vacant possession of such space, including, without limitation, the
commencement and diligent prosecution of a holdover proceeding, if permissible,
and shall keep Tenant apprised of the status of such efforts. The parties
acknowledge that by reason of the practices and procedures of the Civil Court of
New York County, Landlord and Tenant Part, it may not be possible for Landlord
expeditiously to recover vacant possession of all or a portion of such space
from such occupant. Therefore, no such holdover by such occupant shall entitle
Tenant to recover damages or any other amount from Landlord or to terminate this
lease with respect to such Expansion Space except as specifically hereinafter
provided in this Paragraph D, nor shall Landlord be required to make any payment
to, or enter into any agreement with, such occupant to facilitate or accomplish
the recovery of vacant possession of such space. Notwithstanding the foregoing,
Tenant shall have the right to terminate this lease with respect only to the
Expansion Space which Tenant shall then have elected to lease hereunder if such
Expansion Space is not delivered to Tenant as required hereunder within one
hundred thirty (130) days after the date that Landlord expects the Offered Space
is or will be Available (as hereinafter defined) as set forth in Landlord's
Offer Notice or as otherwise agreed upon by the parties, provided Tenant gives
notice of such termination to Landlord no later than twenty (20) days following
the expiration of said one hundred thirty (130) day period (time being of the
essence with respect to the last day such notice may be given). The provisions
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of this Paragraph are intended to constitute "an express provision to the
contrary" within the meaning of Section 223-a of the New York Real Property Law.
(E) If at any time any office space in the Building becomes
"Available," as hereinafter defined, Landlord shall promptly deliver a
Landlord's Offer Notice with respect to all of such Available office space.
Tenant shall thereupon have the right, to be exercised by a Tenant's Acceptance
Notice given to Landlord no later than the seventy-fifth (75th) day after
Landlord gives such Landlord's Offer Notice to Tenant (as to which time shall be
of the essence provided that Landlord's Offer Notice specifies in not less than
20 point type that Tenant shall be deemed to have waived its rights to lease the
Offered Space pursuant to such Landlord's Offer Notice if Tenant shall fail to
respond to such Landlord's Offer Notice within seventy-five (75) days after same
is given to Tenant) to lease Expansion Space as specified by Tenant in Tenant's
Acceptance Notice on the Business Terms contained in such Landlord's Offer
Notice (as revised on a pro-rata basis in the event the Expansion Space which
Tenant elects to lease consists of less than all of the Offered Space and
subject to the requirements that the Offered Space be delivered "as is" as
provided in Paragraph (C) hereof and that the term of the Expansion Space (the
"Expansion Space Term") be determined in the manner set forth in Paragraphs
(A)(ii) and (J) hereof) and otherwise as herein set forth. Notwithstanding the
foregoing, Landlord shall have no obligation to deliver a Landlord's Offer
Notice (i) if Tenant is then in monetary or material non-monetary default after
notice and the expiration of any applicable cure period, or (ii) if Tenant is
not then occupying for its own use and the use of its Related Entities at least
two (2) full contiguous floors in the Building.
(F) Space shall be deemed "Available" only if Landlord then desires to
market it and either (i) (a) the then existing tenant thereof has not exercised
an option to renew or extend the term of its lease and the time by which such
tenant must exercise such option has expired and (b) the then existing occupant
thereof is not negotiating with Landlord for a lease or renewal thereof, or (ii)
Landlord reasonably expects that, within the succeeding six (6) months, the
lease therefor will be terminated and Landlord will receive vacant possession
thereof, free of any claims or rights of any third party.
(G) If Tenant timely delivers Tenant's Acceptance Notice, then, as of
the Expansion Commencement Date for the applicable Expansion Space, such
Expansion Space shall become part of the demised premises upon all of the terms
and conditions that are applicable to the initial demised premises, except as
hereinafter set forth.
(H) The Expansion Space shall be leased to Tenant upon the Business
Terms contained in Landlord's Offer Notice to which it pertains (adjusted, as
applicable, as provided in Paragraphs (C), (E) and (J) hereof) and otherwise
upon all the terms and conditions set forth in this lease with respect to the
initial demised premises.
(I) If Tenant fails to timely deliver Tenant's Acceptance Notice with
respect to Offered Space under this Article, Tenant shall be deemed to have
waived its rights with respect to such Offered Space and Landlord shall be free
to lease such Offered Space to any third party on such terms and conditions as
Landlord shall determine, provided, however, (i) if Landlord fails to enter into
a lease within nine (9) months after the earlier to occur of (x) the last date
that Tenant was permitted to deliver Tenant's Acceptance Notice with respect to
such Offered Space or (y) the date Tenant delivers a notice to Landlord
rejecting the entire
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Offered Space or (ii) if Landlord decides to enter into a lease within such nine
(9) month period at less than ninety-five (95%) percent of the Net Effective
Rental contained in Landlord's Offer Notice with respect to such Offered Space,
then Landlord shall give Tenant a new Landlord's Offer Notice upon terms
comparable to those offered to other prospective tenants during such period
(unless either (a) Landlord is not required to do so pursuant to Paragraph
(E)(i) or (ii) hereof or Paragraph (J) or Paragraph (K) hereof or (b) the
Offered Space is no longer Available as provided in Paragraph (F) hereof) as if
the latest Landlord's Offer Notice had not been given and Tenant shall have the
right, to be exercised by Tenant's Acceptance Notice given to Landlord no later
than the sixtieth (60th) day after Landlord gives such new Landlord's Offer
Notice to Tenant (if such new Landlord Offer Notice is given to Tenant within
two (2) years after the prior Landlord's Offer Notice with respect to such
Offered Space was given to Tenant, and otherwise no later than the seventy-fifth
(75th) day after same is given to Tenant) (as to which time shall be of the
essence provided that Landlord's Offer Notice specifies in not less than 20
point type that Tenant shall be deemed to have waived its right to lease the
Offered Space pursuant to such Landlord's Offer Notice if Tenant shall fail to
respond to such Landlord's Offer Notice within sixty (60) (or, as
applicable,seventy-five (75)) days after same is given to Tenant), to lease the
Offered Space on the terms herein set forth including, without limitation, those
of Paragraph (A)(i).
(J) Landlord and Tenant agree that the Expansion Space Term shall be
co-terminous with that applicable to the initial demised premises (subject to
Tenant's rights to extend the Term with respect to the initial demised premises
and any Expansion Space in accordance with Article 53 hereof), and the fixed
annual rental payable by Tenant to Landlord for both the Expansion Space and the
balance of the demised premises during any applicable Extension Term which
commences after the Expansion Space Commencement Date shall be a sum equal to
the fair market rent for both such premises as determined in accordance with
Article 53 hereof, provided that, anything herein to the contrary
notwithstanding:
(i) Landlord shall have no obligation to offer what would otherwise be
Offered Space to Tenant hereunder if (a) such Offered Space consists of less
than a full floor and the Term hereof (including any available Extension
Term(s)) is less than three (3) years or (b) such Offered Space consists of
exactly one floor and the Term hereof (including any available Extension
Term(s)) is less than five (5) years or (c) such Offered Space consists of more
than one floor and the Term hereof (including any available Extension Terms(s))
is less than seven (7) years;
(ii) If the Term hereof giving effect to only previously exercised
Extension Term(s) is less than the minimum number of years set forth in (i)
above, it shall be a condition precedent for Tenant to exercise its rights with
respect to any Offered Space that Tenant elect in Tenant's Acceptance Notice to
exercise its rights with respect to an available Extension Term if the Term of
this lease but for such Extension Term would otherwise be less than the minimum
number of years set forth in (i) above; and
(iii) the Business Terms applicable to the Expansion Space and the
Expansion Space Term shall be revised as required to encompass the same Net
Effective Rental which is set forth in the applicable Landlord's Offer Notice,
taking into account that the fixed annual rent payable by Tenant to Landlord for
both the Expansion Space and the balance of the demised premises during any
applicable Extension Term which shall commence after the Expansion Space
Commencement Date has occurred shall be a sum equal to the fair market rent for
both such premises as
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determined in accordance with Article 53 hereof.
(K) Notwithstanding anything to the contrary contained in this Article
56, Landlord shall have no obligation to offer Tenant Offered Space in
accordance with this Article 56 (i) during the initial Term or the First
Extension Term, if Tenant's right to elect to extend the Term for the First
Extension Term or Second Extension Term, as applicable, has expired in
accordance with the terms of Article 53 of this lease; and (ii) during the last
three (3) years of the Second Extension Term. If Tenant delivers Tenant's
Acceptance Notice as and when required hereunder, the Expansion Space shall be
leased by Tenant for the Expansion Space Term as determined in accordance with
Paragraphs (A)(ii) and (J) hereof, subject to Tenant's rights pursuant to
Paragraph (D) hereof.
57. Consequential Damages
---------------------
Each of Landlord and Tenant mutually waive the right to seek consequential
damages from the other (or the other's affiliates, related corporations,
partners, members, shareholders, officers, employees and agents) with respect to
any matter arising under this lease except that the foregoing shall not release
Tenant from any liability in connection with any claim by any other tenant or
other occupant of the Building or any Holder. The provision of this Article 57
shall not apply to the indemnification obligations of Tenant as set forth in
Paragraph (G) of Article 3 hereof; provided, however, any consequential damages
-------- -------
which arise by reason of the indemnification obligations of Tenant as set forth
in Paragraph (G) of Article 3 hereof shall not exceed the sum of $5,000,000.00
with respect to any occurrence.
58. The Z-D Lobby
-------------
(A) So long as Tenant continues to lease the initial demised premises as
set forth in the witnesseth clause on page one of this lease, Tenant shall have
exclusive use of the portion of the lobby identified on Exhibit L, subject to
access, ingress and egress by Landlord and others in the event of an occurrence
which materially interferes with access, ingress or egress through the lobby
located on the 27th Street side of the Building, or is necessary for the
operations of the Building and its systems or if such access, ingress or egress
is otherwise determined by Landlord to be reasonably necessary. Landlord shall
have no obligation to provide any services to the Z-D Lobby other than
electricity as provided in Article 12 and cleaning service in accordance with
Article 28 hereof. Tenant shall, at Tenant's expense, keep such area in
compliance with Law, and in good repair in accordance with the standards of the
Building. If Tenant shall elect upon not less than thirty (30) days prior
written notice to Landlord, Tenant shall employ and maintain security personnel
and a security desk for the purpose of screening Tenant's visitors and shall be
responsible for the security of the demised premises and the Z-D Lobby,
otherwise, Landlord shall employ and maintain such security personnel and
security desk and Tenant shall, on or before the first day of each month during
the Term, reimburse Landlord for all of the commercially reasonable actual costs
thereof, as additional rent hereunder.
(B) Tenant shall indemnify and save harmless Landlord, each Holder and
Landlord's managing agent against all loss, damage, claim, liability and expense
(including, but not limited to, reasonable counsel fees) directly or indirectly
arising out of and/or in connection with the use of the Z-D Lobby by Tenant, its
officers, employees, agents, contractors and invitees and/or any activities
conducted thereon including, without limitation, the acts or omissions of
Tenant's security personnel and any of Tenant's security obligations as set
forth in Paragraph A above,
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unless arising out of or in connection with Landlord's Negligence or Wilful
Misconduct.
(C) So long as Tenant has the right to use the Z-D Lobby on a primarily
exclusive basis or actually uses the Z-D Lobby on a primarily exclusive basis,
Tenant shall, at Tenant's cost and expense, provide and keep in force for the
benefit of Landlord, its managing agent and each Holder of which Tenant has been
provided the name and address of the same, insurance coverage with respect to,
and in connection with, the Z-D Lobby, and the use thereof and the installations
thereon as is required under Article 45. Tenant shall also pay Landlord, as
additional rent, within thirty (30) days after receipt of a statement (which
statement shall include reasonable documentation therefor) for any increased
insurance premium costs to Landlord as a result of the provisions of this
Article.
(D) Tenant will, within five (5) business days after demand by Landlord and
as often as each such demand shall occur, but subject to Tenant's right to
Dispute as provided in Section 41(B) hereof, forthwith discontinue any use of
the Z-D Lobby to which Landlord shall reasonably object and/or remove any
installation for which Landlord has not previously provided consent to which
Landlord in its reasonable discretion shall reasonably object but, with respect
to such installation which is not possible to remove within such five (5)
business day period, commence to remove same immediately and thereafter proceed
with diligence to complete the removal of same. On or before the Expiration
Date, Tenant shall, at Tenant's cost and expense, remove all furnishings and
personal property of Tenant and/or anyone claiming under or through Tenant from
the Z-D Lobby and repair all damage to the Building, Z-D Lobby and any part
thereof which is caused by such removal. Tenant agrees that Tenant will conform
to and comply with all Laws and regulations with respect to use of the Z-D Lobby
and with such reasonable Rules and Regulations as Landlord may in its reasonable
judgment deem necessary or proper and from time to time adopt for the safety,
care, cleanliness, appearance and/or maintenance of the Z-D Lobby.
(E) Tenant shall have the right to use that portion of the Z-D Lobby shown
in Exhibit L as "Messenger Center" for Tenant's messenger center (the
"Messenger Center") and for no other purpose, but subject to the last sentence
of Paragraph (D). Subject to all of the applicable terms, covenants and
condition of this lease, Landlord shall not be obligated to furnish any services
to the Messenger Center (other than electric current if furnished as hereinafter
provided) and the Messenger Center, for purposes of this lease, shall not be
deemed part of the demised premises, but shall constitute part of the Z-D Lobby.
If and so long as Landlord shall furnish electric current to the Messenger
Center for Tenant's use for ordinary office lighting and light office equipment,
Tenant shall pay to Landlord, as additional rent, the sum of $1,596.00 per annum
($123.30 per month) to compensate Landlord for obtaining and redistributing
electric current to the Messenger Center (the "MC Electric Charge") subject to
increases as hereinafter provided. The MC Electric Charge shall be paid on the
first date of each month of the Term, together with each monthly installment of
Fixed Rent, commencing on the date Tenant first conducts business from the
Messenger Center. If Landlord's Average Cost shall be increased subsequent to
the date hereof by change in Landlord's electric rates, charges of any kind
imposed thereon, or for any other reason, then the aforesaid MC Electric Charge
shall be increased in the same percentage. In no event is the original $1,596.00
per annum MC Electric Charge (as adjusted by any electricity costs increases of
Landlord) to be reduced.
(F) Except as otherwise provided in this Article, Tenant's
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<PAGE>
use of the Z-D Lobby and its obligations with respect thereto, including,
without limitation, the Alterations to the Z-D Lobby, shall be in accordance
with all of the terms, provisions, conditions and agreements contained in this
lease.
-92-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
Witness for Landlord: 63 MADISON ASSOCIATES, L.P.
- ---------------------- By: Comfort 63 Madison, Inc.,
a general partner
By:_____________________________________
Name: Peter S. Duncan
Title: President
By: Loeb Partners Realty and
Development Corp., a
general partner
By:____________________________________
Joseph S. Lesser
Title: President
Witness for Tenant: ZIFF-DAVIS INC.
______________________ By:____________________________________
[Vice] President
-93-
<PAGE>
ACKNOWLEDGEMENTS
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this 15th day of January, 1998, before me appeared Joseph S.
Lesser, to me personally known, who being by me duly sworn, did say that he
resides at 155 East 72nd Street, New York, New York, that he is the President of
Loeb Partners Realty and Development Corp., a general partner of 63 Madison
Associates L.P., the partnership that executed the foregoing instrument, that he
had authority to sign the same in such capacity and that he executed said
instrument on behalf of said corporation and partnership pursuant to said
authorization.
__________________________________
Notary Public
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this 15 day of January, 1998, before me appeared Peter S. Duncan,
to me personally known, who being by me duly sworn, did say that he resides at
101 Monterey Avenue, Pelham, New York 10803, that he is the Executive Vice
President of Comfort 63 Madison, Inc., a general partner of 63 Madison
Associates, L.P., the partnership that executed the foregoing instrument, that
he had authority to sign the same in such capacity and that he executed said
instrument on behalf of said corporation and said partnership pursuant to said
authorization.
__________________________________
Notary Public
CORPORATE TENANT
STATE OF NEW YORK, )
: ss.
COUNTY OF NEW YORK )
On this 15th day of January , 1998, before me personally came Thomas L.
Wright to me to me known, who being duly sworn, did depose and say that he
resides ____________________ in ____________ ____________________________ that
he is the Treasurer of ZIFF-DAVIS INC., the corporation described in and which
executed the foregoing instrument, as TENANT, by order of the Board of
Directors of said corporation, and that he signed his name thereto by like
order.
__________________________________
Notary Public
<PAGE>
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 32.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Landlord. There shall not be used in any space, or in the public hall of the
Building, either by any tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the Building, and no tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors, halls, or elevators, or out of the doors or windows or stairways of
the Building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors and/or vibrations, or interfere in any way with other tenants or those
having business therein, nor shall any animals (other than seeing-eye dogs) or
birds be kept in or about the Building. Smoking or carrying lighted cigars or
cigarettes in the elevators and common areas of the Building is prohibited.
4. Except as otherwise provided in this lease, no awnings or other
projections shall be attached to the outside walls of the Building without the
prior written consent of Landlord.
5. Except as otherwise specifically provided in this lease, no sign,
advertisement, notice or other lettering shall be exhibited, inscribed, painted
or affixed by any tenant on any part of the outside of the demised premises or
the Building or on the inside of the demised premises if the same is visible
from the outside of the premises without the prior written consent of Landlord
which will not be unreasonably withheld or delayed, except that the name of
Tenant may appear on the entrance door of the demised premises. In the event of
the violation of the foregoing by any Tenant, Landlord may remove same without
any liability, and may charge the expense incurred by such removal to Tenant or
tenants violating this rule. Interior signs on doors and directory tablet or
multi-tenanted floors shall be inscribed, painted or affixed for each Tenant by
Landlord at the expense of such Tenant.
6. No tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the Building. No boring, cutting or stringing of
wires shall be permitted, except as provided in Article 3. No tenant shall lay
linoleum, or other similar floor covering, so that the same shall come in direct
contact with the floor of the demised premises, and, if linoleum or other
similar floor covering is desired to be used an interlining of builder's
deadening felt shall be first affixed to the floor, by a paste or other
material, soluble in water, the use of cement or
<PAGE>
other similar adhesive material being expressly prohibited.
7. Each tenant must, upon the termination of his tenancy, restore to
Landlord one set of keys to the entrance door of all offices and toilet rooms,
either furnished to, or otherwise procured by, such Tenant, and in the event of
the loss of any keys so furnished, such Tenant shall pay to Landlord the cost
thereof.
8. Except as otherwise specifically provided in this lease, freight,
furniture, business equipment, merchandise and bulky matter of any description
shall be delivered to and removed from the premises only on the freight
elevators and through the service entrances and corridors, and only during hours
and in a manner reasonably approved by Landlord.
9. Canvassing, soliciting and peddling in the Building is prohibited and
each Tenant shall cooperate to prevent the same.
10. Except for the Z-D Lobby as provided in this lease, Landlord reserves
the right to exclude from the Building (other than the 28th Street entrance)
between the hours of 6 p.m. and 8 a.m. and at all hours on Sundays, and legal
holidays all persons who do not present a pass to the Building signed by
Landlord. Landlord will furnish passes to persons for whom any tenant requests
same in writing. Each tenant shall be responsible for all persons for whom such
tenant requests such pass and shall be liable to Landlord for all acts of such
person.
11. Landlord shall have the right to prohibit any advertising by any
tenant containing the name or address of the Building which in Landlord's
opinion, tends to impair the reputation of the Building or its desirability as a
Building for offices, and upon written notice from Landlord, Tenant shall
refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible or explosive fluid, material,
chemical or substance (except for lawful quantities of normal office supplies),
or cause or permit any odors of cooking or other processes, or any unusual or
other objectionable odors to permeate in or emanate from the demised premises.
13. If the Building contains central air conditioning and ventilation,
Tenant agrees to keep all windows closed at all times and to abide by all
reasonable Rules and Regulations issued by the Landlord with respect to such
services.
14. Tenant shall not move any safe, heavy machinery, heavy equipment,
bulky matter, or fixtures into or out of areas of the Building which are not
reserved to Tenant on a primarily exclusive basis as set forth in the lease
without Landlord's prior written consent which will not be unreasonably
withheld. If such safe, machinery, equipment, bulky matter or fixtures requires
special handling, all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto and the movement thereof into and out of areas of the
Building which are not reserved to Tenant on a primarily exclusive basis shall
be done during such hours as Landlord may reasonably designate.
-2-
<PAGE>
EXHIBIT B
<PAGE>
EXHIBIT C
FREIGHT ELEVATOR CORRIDOR
<PAGE>
EXHIBIT D
CLEANING SPECIFICATIONS
<PAGE>
EXHIBIT E
INTENTIONALLY OMITTED
<PAGE>
EXHIBIT F
<PAGE>
-2-
<PAGE>
Dear :
Regarding the proposed alteration indicated by your provided plan for
filing with the Building department, the Landlord approves same only for the
purpose of required approval under the lease and for filing purposes. Please be
advised that the following provisions apply to this and future approvals of
final construction plans when provided.
1. All costs and expenses in connection with or arising out of the
performance of the work shall be borne by Tenant subject to Landlord's
reimbursement as provided in Article 54 of the lease. At no time shall Tenant do
or permit, anything to be done whereby our property may be subject to any
mechanics' or other liens or encumbrances arising out of the work; and our
consent herein shall not be deemed to constitute any consent or permission to do
anything which may create or be the basis of any lien or charge against the
estate of the Landlord in the demised premises or the real estate of which they
are a part.
2. Tenant will perform this work in a safe and lawful manner
complying with applicable laws and all requirements and regulations of municipal
and other governmental or duly constituted bodies exercising authority,
including but not limited to required compliance with the applicable Americans
with Disabilities Act of 1990.
3. Tenant will hereby indemnify and agree to defend and hold us
harmless from and against any and all suits, claims, violations, actions, loss,
cost on personal injury or property damage caused in the performance of this
work by you, and your employees, agents, servants or contractors engaged by you;
and you will repair or replace, or at our election reimburse us for the cost of
repairs, or replacing any portion of the building or item of equipment, or any
of our real or personal property so damaged, lost or destroyed in the
performance of this work.
4. Workmen's Compensation in statutory limits and Comprehensive
Liability, Bodily Injury and Property Damage Insurance in at least the amount of
$10,000,000.00, Combined Single Limit (CSL) with companies and on forms
satisfactory to us, shall be provided and at all times maintained by Tenant and
your contractors engaged in the performance of the work, and before proceeding
with the work, insurance industry standard certificates (or their equivalent) of
such insurance shall be submitted to us.
5. We shall have no responsibility for, or in connection with, the
work and you will remedy at your expense, and be responsible for any and all
defects in all such work that may appear during or after the completion thereof
whether the same shall affect premises in particular or any part of the building
in general.
6. The Landlord or its agents shall not be responsible for any
disturbances or deficiency created in the air conditioning or other mechanical,
electrical or structural facilities within the building as a result of the
alteration performed by or on behalf of Tenant (other than by Landlord or
Landlord's agents, contractors, and/or employees) unless due to a pre-existing
defect or system inadequacy. If such disturbances or deficiencies result (other
than by reason of Landlord's Negligence or Wilful Misconduct (as defined in your
lease with us), it shall be the Tenant's entire responsibility to correct the
resulting conditions, and to restore the services to the complete satisfaction
of the Landlord, its architect and engineers.
7. (a) Tenant's contractors shall comply with the
-3-
<PAGE>
rules of the building and the manner of handling materials, equipment and debris
to avoid conflict and interference with building operation.
(b) The delivery of materials and equipment must be arranged to avoid
any inconvenience and annoyance to other tenants. Cleaning must be controlled to
prevent dirt and dust from infiltrating into adjacent Tenant or mechanical
areas.
8. We expressly reserve the right to revoke this consent upon three
(3) days notice to you in the event of the breach of any of the terms or
conditions hereof that is not cured with such three-day period, or, in the case
of such term or condition which cannot be cured within such three (3) day
period, in the event you fail to commence the cure within such three (3) day
period and/or fail to proceed thereafter with diligence to complete the cure
thereof.
9. Except as otherwise provided in your lease with us, any cost
incurred by landlord pursuant to this agreement shall be payable by tenant as
additional rent as and when billed.
10. Submit all permits prior to starting work, approved plans,
electrical approvals, and final inspections for our records.
11. Submit final approval by Building Department, Fire Department and
Architect's Write-offs for the work.
12. In the event of any inconsistency between this letter and the
lease, the lease shall prevail.
Please sign and return one (1) copy to our office prior to
commencement of work.
Very truly yours,
63 MADISON ASSOCIATES, L.P.
By:__________________________
ACCEPTED & AGREED TO:
By:__________________________
Date:________________________
-4-
<PAGE>
EXHIBIT G
NORTHERN PASSENGER ELEVATOR BANK
<PAGE>
EXHIBIT H
28TH STREET LOADING DOCK BAYS
<PAGE>
EXHIBIT I
CERTIFICATE OF OCCUPANCY
<PAGE>
EXHIBIT J
FORM OF NON-DISTURBANCE AND
---------------------------
ATTORNMENT AGREEMENT FOR TENANT'S SUBTENANTS
--------------------------------------------
AGREEMENT, dated as of ______________, ____ between 63 Madison
Associates. L.P., a Delaware limited partnership having an office at 200 Madison
Avenue, New York, New York 10016 ("Lessor") and _________________________, a
------
____________________ having an office at ____________________________
("Subtenant").
- -----------
W I T N E S S E T H:
-------------------
WHEREAS, Lessor is the lessor under that certain Lease, dated
____________, made by Lessor, as landlord, and Ziff-Davis Inc., as tenant
("Sublandlord") (the "Lease"), which Lease covers certain space (the "Premises")
- ------------- ----- --------
in the building located at 63 Madison Avenue, New York, New York (the
"Property") and more particularly described on Exhibit A annexed hereto; and
-------- ---------
WHEREAS, Sublandlord and Subtenant have entered into a certain
agreement of sublease, dated as of ___________, ____ [DESCRIBE ANY AMENDMENTS]
(the "Sublease") initially covering a portion of the Premises (the "Subleased
-------- ---------
Premises") in the building forming a part of the Property.
- --------
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
(i) The Sublease and Subtenant's interest thereunder is now and at
all times shall continue to be unconditionally subject and subordinate in each
and every respect to the Lease and to any and all renewals, amendments,
modifications, supplements, extensions, and replacements of the Lease.
(ii) Provided that the Subtenant is not in default under any of the
terms, covenants and conditions of the Sublease beyond any applicable notice and
cure period, (a) the enforcement or termination of the Lease shall not terminate
the Sublease, nor shall Lessor disturb, interfere with or otherwise affect
Subtenant's leasehold estate, use and possession of the Subleased Premises in
accordance with the terms of the Sublease or any rights of Subtenant (and any
person or entity claiming through or under Subtenant) under the Sublease, in
each case by reason of the subordination of the Sublease to the Lease or in any
action or proceeding instituted under or in connection with the Lease or by
reason of a transfer of the Sublandlord's interest under the Lease in lieu of
termination of the Lease, whether in connection with a bankruptcy proceeding or
otherwise and (b) neither Subtenant nor any person or entity claiming through or
under Subtenant shall be named or joined in any action or other proceeding to
enforce or terminate the Lease unless such joinder shall be required by law;
provided, that either (i) such joinder shall not result in the termination of
- --------
the Sublease or (ii) if such joinder shall result in the termination of the
Sublease, Lessor or any other Successor Landlord (as hereinafter defined) (as
the case may be) shall enter into a new lease with Subtenant upon the same terms
and conditions as were contained in the Sublease, except that (x) the
obligations and liabilities of Lessor or other Successor Landlord (as the case
may be) under any such new lease shall be subject to the terms and conditions of
this Agreement (or a new agreement then entered into identical to this
Agreement), and (y) the expiration date of such new lease shall coincide with
the original expiration date of the Sublease. Subtenant shall execute any such
new lease and shall attorn to Lessor or the other Successor Landlord (as the
case may be) so as to establish direct privity between Lessor or such other
Successor Landlord (as the case may be) and Subtenant.
<PAGE>
(iii) If the interest of the Sublandlord under the Lease shall be
transferred by reason of termination of the Lease or pursuant to an assignment
in lieu thereof (or similar device) whether in connection with a bankruptcy
proceeding or otherwise, the Sublease shall not be terminated or affected
thereby but shall continue in full force and effect as a direct lease between
Subtenant and Lessor or any other person acquiring, or succeeding to, the
interests of Sublandlord in the Property as a result of any such proceeding or
assignment (Lessor, any such other person, their successors and assigns are
hereinafter collectively called the "Successor Landlord") and Subtenant shall be
------------------
bound to the Successor Landlord, and the Successor Landlord shall be bound to
Subtenant, under all of the terms, covenants and conditions of the Sublease for
the balance of the term thereof remaining, with the same force and effect as if
the Successor Landlord were the Sublandlord, and Subtenant does hereby (i) agree
to attorn to the Successor Landlord, including Lessor if it be the Successor
Landlord, as its landlord, (ii) affirm its obligations under the Sublease, and
(iii) agree to make payments of all sums due under the Sublease to the Successor
Landlord, said attornment, affirmation and agreement to be effective and self-
operative without the execution of any further instruments, upon the Successor
Landlord succeeding to the interest of the Sublandlord under the Sublease
(provided that if the Successor Landlord requests, without implying any
obligation to do so on the Successor Landlord's part. Subtenant will confirm the
attornment described herein to the Successor Landlord in writing); provided,
that any Successor Landlord shall not be:
(a) bound by any rent or additional rent which Subtenant might
have paid for more than one (1) month in advance to any prior landlord
(including Sublandlord), unless such prepayment shall have been made
with Lessor's prior written consent; nor
(b) liable for any damages or other relief attributable to any
prior landlord (including Sublandlord) or liable for any act or
omission of any prior landlord (including Sublandlord) except as
expressly provided in this Agreement, it being understood that the
foregoing is not intended to (i) relieve a Successor Landlord of any
liability arising by reason of its acts or omissions from and after
the date the Successor Landlord succeeds to the rights of the prior
landlord, including liability arising by reason of a continuation of
the failure of the prior landlord (including Sublandlord) to perform
its obligations under the Sublease, in which case the Successor
Landlord upon receipt of notice of such continuation from Subtenant
shall have a reasonable period of time to remedy same (it being agreed
that to the extent a time period is granted Sublandlord in the
Sublease for such remedy such time period shall be deemed a reasonable
period of time for purposes of this clause (i)), or (ii) deny
Subtenant the benefit of any rent offset right, abatement or credit to
which Subtenant is entitled pursuant to the express provisions of the
Sublease (notwithstanding that such offset right, abatement or credit
accrued against a prior landlord (including Sublandlord)); nor
(c) required to account for any security deposit other than any
security deposit actually delivered to the Successor Landlord; nor
(d) liable for any consequential damages attributable to any act
or omission of any prior landlord (including Sublandlord); nor
-2-
<PAGE>
(e) liable for any damages or other relief attributable to any
breach of any representation or warranty contained in the Sublease by
any prior landlord (including Sublandlord) relating to the identity or
status of any prior landlord thereunder (including Sublandlord); nor
(f) subject to any offset or defense not specifically provided
for in the Sublease and which Subtenant may have against any prior
landlord (including Sublandlord); nor
(g) bound by any modification of the Sublease which either
increases the obligations of Lessor, reduces the rights of Lessor,
decreases the obligations of Subtenant, or increases the rights of
Subtenant and in each such instance made without the written consent
of Lessor, including without limitation any agreement by Subtenant to
surrender the Sublease. Lessor agrees that (i) if Lessor has
consented under the terms of the Lease to a particular modification of
the Sublease, Lessor shall be deemed, without further action on the
part of Lessor, to have consented to such modification for purposes of
this Agreement (and, upon request by Subtenant, Lessor shall confirm
in writing such consent, but Lessor's failure to so confirm in writing
shall not negate Lessor's deemed consent hereunder) and (ii) if
Lessor's consent to a particular modification of the Sublease shall
not be required under the terms of the Lease, then Lessor shall not
unreasonably withhold, delay or condition its consent under this
Agreement to such modification of the Sublease.
(iv) Subtenant agrees that to the extent that the Sublease provides
for a rental which, after taking into account any free rent periods, credits,
offsets or deductions to which the Subtenant may be entitled thereunder, is less
(on a per rentable square foot basis) than the Fixed Rent and recurring
additional rent (as such terms are defined in the Lease) payable by Tenant under
the Lease with respect to the Subleased Premises (the "Overlease Rent") from
--------------
time to time throughout the term of the Sublease, Subtenant agrees that the
rental payable under the Sublease will automatically and without condition
become equal to the Overlease Rent on a per rentable square foot basis, if, as
and when the attornment provided for herein becomes effective between Lessor or
any other Successor Landlord and Subtenant.
(v) If (i) Sublandlord, as debtor-in-possession, or any trustee
appointed in a bankruptcy case of Sublandlord, obtains an order of the
Bankruptcy Court authorizing the rejection of the Sublease in accordance with
'365 of the Bankruptcy Code (as hereinafter defined), and Subtenant elects to
retain its rights under the Sublease in accordance with '365(h) of the
Bankruptcy Code, (ii) Lessor or any other Successor Landlord shall acquire title
to the Property upon termination of the Lease or by the acceptance of an
assignment in lieu thereof or by any other means, and (iii) the Sublease is in
full force and effect, then, in such event, Lessor or any other Successor
Landlord (as the case may be) shall enter into a new lease with Subtenant upon
the same terms and conditions as were contained in the Sublease, except that (x)
the obligations and liabilities of Lessor or other Successor Landlord (as the
case may be) under any such new lease shall be subject to the terms and
conditions of this Agreement (or a new agreement then entered into identical to
this Agreement), and (y) the expiration date of such new lease shall coincide
with the original expiration date of the Sublease. Subtenant shall execute any
such new lease and shall attorn to Lessor or the other Successor Landlord (as
the
-3-
<PAGE>
case may be) so as to establish direct privity between Lessor or such other
Successor Landlord (as the case may be) and Subtenant.
(vi) Subtenant shall notify Lessor of any default by Sublandlord
under the Sublease or any other circumstance which would entitle Subtenant to
cancel or terminate the Sublease or to claim a partial or total eviction. If
Sublandlord fails to cure any default as to which Subtenant is obligated to give
notice pursuant to the preceding sentence within the time provided for in the
Sublease (or if no such period of time is provided in the Sublease, within a
reasonable period of time), then Lessor shall have an additional 30 days after
receipt of such notice within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
if, within such 30 days, Lessor has commenced and is diligently pursuing the
remedies necessary to cure such default (including, without limitation,
commencement of foreclosure proceedings or eviction proceedings, if necessary to
effect such cure), in which event the Sublease shall not be terminated and
Subtenant shall not exercise any other rights or remedies under the Sublease or
otherwise while such remedies are being so diligently pursued, other than
Subtenant's right to (a) any abatement, deduction, counterclaim or setoff of any
rent or additional rent expressly set forth in this Sublease, (b) self-help in
accordance with the applicable provision-of the Sublease or (c) terminate the
Sublease pursuant to and in accordance with the applicable provision of the
Sublease in the case of a casualty or condemnation with respect to the Property.
Nothing herein shall be (i) deemed to imply that Subtenant has any right to
terminate the Sublease or any other right or remedy, except as may be otherwise
expressly provided for in the Sublease, or (ii) construed as a promise or
undertaking by Lessor to cure any default of Sublandlord.
(vii) This Agreement may not be modified except by an agreement in
writing signed by Subtenant and Lessor or their respective successors in
interest. This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their respective heirs, representatives, successors and assigns.
(viii) Subtenant and Lessor agree that this Agreement satisfies all
conditions and requirements in the Sublease relating to the granting of a non-
disturbance agreement by Lessor. Lessor and Subtenant further agree that in the
event there is any inconsistency between the terms and provisions of this
Agreement and the terms and provisions of the Sublease dealing with
nondisturbance by Lessor, the terms and provisions of this Agreement shall be
controlling.
(ix) All notices, demands, consents, approvals, advices, waivers or
other communications (each, a "Notice") which may or are required to be given by
------
either party to the other under this Agreement shall be in writing and, unless
otherwise required by law, shall be sent (a) by hand, (b) by United States Mail,
certified or registered, postage prepaid, return receipt requested or (c) by a
nationally-recognized overnight carrier, in each case addressed to the party to
be notified at the address for such party specified in the first paragraph of
this Agreement (in the case of any Notice to Subtenant, to the attention of
_________________, [with a copy (by ordinary mail) to _____________]) and in the
case of any Notice to Lessor, to the attention of Peter Duncan [with a copy (by
ordinary mail) to _____________]), or to such other place in the continental
United States as the party to be notified may from time to time designate by
Notice to the notifying party (with copy, in the case of each Notice to Lessor,
to Stuart D. Byron, Esq. c/o Tenzer Greenblatt LLP, 405 Lexington Avenue, New
York, New York 10174, and in the case of each Notice to Subtenant, to _________,
Attention: ________), with a copy of each Notice to
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<PAGE>
Subtenant to _____________, Attention:___________. Each Notice shall be deemed
to have been given (i) in the case of hand delivery, on the date such Notice is
actually received as evidenced by a written receipt therefor or refusal to
accept delivery, as of the date of such failure, (ii) three (3) days after the
date sent by United States mail, certified or registered, postage prepaid,
return receipt requested,or (iii) one (1) business day after sent by a
nationally recognized overnight courier.
(x) Anything herein or in the Sublease to the contrary
notwithstanding, if Lessor or a Successor Landlord shall become the Sublandlord
under the Sublease, Lessor and any such Successor Landlord shall have no
obligation, nor incur any liability, beyond Lessor's or such Successor
Landlord's then interest, if any, in the Property and Subtenant shall look
exclusively to such interest, if any, of Lessor or such Successor Landlord in
the Property for the payment and discharge of any obligations imposed upon
Lessor or such Successor Landlord hereunder or under the Sublease. Subtenant
shall look solely to the estate or interest owned by Lessor or such Successor
Landlord in the Property and Subtenant shall not collect or attempt to collect
any such judgment out of any other assets of Lessor or such Successor Landlord.
Nothing contained in this Section (x) shall be construed to diminish or impair
Subtenant's abatement, offset, credit or self-help rights as expressly set forth
in the Sublease.
(xi) This Agreement shall be governed by the laws of the State of New
York. If any term of this Agreement or the application thereof to any person or
circumstances shall to any extent be invalid or unenforceable, the remainder of
this Agreement or the application of such term to any person or circumstances
other than those as to which it is invalid or unenforceable shall not be
affected thereby, and each term of this Agreement shall be valid and enforceable
to the fullest extent permitted by law. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered will be deemed
to be an original and all of which taken together, will be deemed to be one and
the same instrument.
(xii) If, after the date of this Agreement, Subtenant acquires any
option or right to purchase the Property or an interest therein, Subtenant
agrees that such option shall be subject and subordinate to the lien or charge
of the Lease.
(xiii) Nothing in this Agreement shall be deemed or construed to be
an agreement or obligation by Lessor to perform any covenant of any prior
landlord (including Sublandlord) under the Sublease unless and until Lessor
becomes the Sublandlord under the Sublease, and then only during the time when
Lessor is the Sublandlord.
(xiv) Subtenant agrees that during the term of the Sublease, without
Lessor's prior written consent, Subtenant shall not cancel, terminate or
surrender the Sublease, except (a) at the normal expiration of the Sublease
term, (b) otherwise pursuant to and in accordance with the express terms of the
Sublease or (c) in the event of a default by Sublandlord under the Sublease
which gives Subtenant the right (whether pursuant to the Sublease, at law or in
equity) to terminate the Sublease, provided Subtenant shall have complied with
the provisions of Section (vi) above.
(xv) Subtenant and Lessor agree that unless Lessor shall otherwise
consent in writing, the estate of Sublandlord in and to the Property and the
leasehold estate created by the Sublease shall not merge, but shall remain
separate and distinct, notwithstanding the union of such estates either in
Sublandlord or Subtenant or any third party by purchase, assignment or
otherwise.
-5-
<PAGE>
(xvi) (a) Subtenant represents to Lessor that, as of the date of
this Sublease, a true and complete copy of the Sublease has heretofore been
delivered to Lessor.
(b) Subtenant has no right or option of any nature whatsoever,
whether arising out of the Sublease or otherwise, to purchase the Premises or
the Property, or any interest or portion in or of either of them, to expand into
other space in the Property or to extend or renew the term of the Sublease,
except as provided for in the Sublease, or expressly set forth on Exhibit B.
---------
(c) Subtenant represents to Lessor that as of the date of this
Agreement, (i) the Sublease is in full force and effect, (ii) except as set
forth in the recitals to this Agreement, the Sublease has not been modified or
amended and (iii) to the best of Subtenant's knowledge, there exist no events of
default, or events which, with notice or the passage of time or both, would be
events of default, under the Sublease, on either the Subtenant's part or the
Sublandlord's, nor is there any right of offset, abatement, credit or self-help
against any of Subtenant's obligations under the Sublease, other than as
provided for in the Sublease.
(d) Subtenant acknowledges that Lessor is relying on the
representations, certifications and undertakings made by Subtenant in this
Agreement in executing and delivering this Agreement.
(e) Within 20 days after Lessor's request, Subtenant shall deliver to
Lessor and to any person designated by Lessor, an estoppel certificate executed
by Subtenant certifying (if such is the case), as of the date of such
certificate, to the matters set forth in Section (xvi)(c) above and such other
related information about Subtenant or the Sublease as Lessor may reasonable
request solely to clarify the matters set forth in Section (xvi)(c) above.
(xvii) Subtenant waives the provisions, if any (i) contained in the
Sublease or any other agreement relating thereto and (ii) of any statute or rule
of law now or hereafter in effect, which provisions may give or purport to give
to Subtenant any right or election, by reason of a termination by the Lessor of
the Lease, to terminate or otherwise adversely affect the Sublease and the
obligations of Subtenant thereunder other than in accordance with the provisions
of this Agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto caused this
Agreement to be duly executed as of the day and year first above written.
Lessor: 63 MADISON ASSOCIATES, L.P.
By:_________________________________
Name:
Title:
Subtenant: _______________________________
By:__________________________________
Name:
Title:
[ADD NOTARY FORMS AND EXHIBITS A AND B]
-6-
<PAGE>
-7-
<PAGE>
EXHIBIT K
MEMORANDUM OF LEASE
THIS MEMORANDUM OF LEASE ("Memorandum") is executed as of the _____ day of
______________, 1998, to evidence for recording purposes the execution of a
certain lease dated as of ____________, 1997 (the "Lease"), the relevant terms
of which are set forth below:
1. Name and Address of Landlord.
----------------------------
The landlord is 63 MADISON ASSOCIATES, L.P., ("Landlord"), a Delaware
limited partnership, having an office c/o George Comfort & Sons, Inc., 200
Madison Avenue, New York, New York 10016.
2. The Tenant is ZIFF-DAVIS INC. ("Tenant"), a Delaware corporation
having an office at One Park Avenue, New York, New York 10016.
3. Term.
----
The term of the Lease is for approximately twenty-one (21) years and
five (5) months, subject to Tenant's options to extend the same for two (2)
consecutive ten (10) year periods pursuant to the terms and conditions provided
in the Lease.
4. Description of Leased Premises.
------------------------------
The leased premises consisting of Concourse Level B-2 and the entire
eighth (8th), ninth (9th), tenth (10th), eleventh (11th), twelfth (12th),
thirteenth (13th), fourteenth (14th) and fifteenth (15th) floors of the building
known as 63 Madison Avenue, New York, New York (the "Building") (collectively,
the "Premises"), subject to certain expansion options available to Tenant as
specified more particularly in the lease. Schedule A attached hereto and
incorporated herein by reference is a legal description of the land upon which
the Building is situated.
5. Related Documents.
-----------------
The Lease is supplemented by the following documents (collectively,
the "Supplemental Documents"):
(a) Subordination Agreement dated as of ______________, 1998 among
Landlord, Tenant and SBH Delaware, Inc.;
(b) Guaranty dated __________________, 1998 by SBH Delaware, Inc. in
favor of Landlord; and
(c) Guaranty dated ________________, 1998 by SOFTBANK Holdings Inc. in
favor of Landlord.
6. Conflict.
--------
In the event of any conflict between the terms hereof and the terms of
the Lease or the Supplemental Documents, the terms of the Lease and the
Supplemental Documents shall govern.
After recording, this Memorandum
should be returned to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
<PAGE>
Attn: Joanne Feil, Esq.
IN WITNESS WHEREOF, the parties have executed this
Memorandum of Lease on the respective dates as set forth on the acknowledgments
below:
63 MADISON ASSOCIATES, L.P.
By: Comfort 63 Madison, Inc.,
a general partner
By:________________________________________
Name: Peter S. Duncan
Title: President
By: Loeb Partners Realty and
Development Corp., a
general partner
By:________________________________________
Joseph S. Lesser
Title: President
ZIFF-DAVIS INC.
By:________________________________________
Name:__________________________________
Title: [Vice] President
1083297.23
-2-
<PAGE>
ACKNOWLEDGEMENTS
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this ____________ day of ____________________, 1998, before me
appeared Joseph S. Lesser, to me personally known, who being by me duly sworn,
did say that he resides at 155 East 72nd Street, New York, New York, that he is
the President of Loeb Partners Realty and Development Corp., a general partner
of 63 Madison Associates L.P., the partnership that executed the foregoing
instrument, that he had authority to sign the same in such capacity and that he
executed said instrument on behalf of said corporation and said partnership
pursuant to said authorization.
__________________________________
Notary Public
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this ____________ day of ____________________, 1998, before me
appeared Peter S. Duncan, to me personally known, who being by me duly sworn,
did say that he resides at 101 Monterey Avenue, Pelham, New York 10803, that he
is the Executive Vice President of Comfort 63 Madison, Inc., a general partner
of 63 Madison Associates, L.P. the partnership that executed the foregoing
instrument, that he had authority to sign the same in such capacity and that he
executed said instrument on behalf of said corporation and said partnership
pursuant to said authorization.
__________________________________
Notary Public
CORPORATE TENANT
STATE OF NEW YORK, )
: ss.
COUNTY OF )
On this ____________ day of ____________________, 1998, before me
personally came ________________________________ to me to me known, who being
duly sworn, did depose and say that [s]he resides
______________________________________ in ____________
____________________________ that [s]he is [a Vice President] [the President] of
ZIFF-DAVIS INC., the corporation described in and which executed the foregoing
instrument, as TENANT, by order of the Board of Directors of said corporation,
and that [s]he signed [her] [his] name thereto by like order.
__________________________________
Notary Public
<PAGE>
SCHEDULE A
All that certain plot, piece or parcel of land, situate, lying and being in the
Borough of Manhattan, City, County and State of New York, bounded and described
as follows:
BEGINNING at the intersection of the northerly side of East 27th Street with the
easterly side of Madison Avenue;
THENCE along said side of Madison Avenue in a northerly direction, 197 feet 6
inches to the southerly side of East 28th Street;
THENCE along said side of East 28th Street, a distance of 275 feet to a point
which is distant 150 feet westerly as measured along said side of East 28th
Street from the Westerly side of Park Avenue South;
THENCE southerly and parallel with said side of Park Avenue South 197 feet 6
inches to the northerly side of East 27th Street; and
THENCE westerly along said side of East 27th Street, a distance of 275 feet to
the point of place of BEGINNING.
TOGETHER WITH the benefits and subject to the burdens of an Agreement dated
November 20, 1995 between New York Life Insurance Company and 63 Madison
Associates, L.P. and recorded in the Office of the New York City Register's
Office on January 10, 1996 in Reel 2280 page 174.
<PAGE>
EXHIBIT L
ZIFF-DAVIS LOBBY
<PAGE>
EXHIBIT M
SIGNAGE
<PAGE>
EXHIBIT N
GUARANTY
<PAGE>
EXHIBIT O
SUBORDINATION AGREEMENT
<PAGE>
EXHIBIT P
FREIGHT ELEVATOR SHAFT WAY
<PAGE>
EXHIBIT Q
FREIGHT ELEVATOR HOURS
<TABLE>
<CAPTION>
BUSINESS DAYS
- --------------------------------
<S> <C>
8:00 A.M. - 12:00 P.M. - Exclusive Use by Tenant
12:00 P.M. - 2:00 P.M. - No Use by Tenant
2:00 P.M. - 5:00 P.M. - Exclusive Use by Tenant
5:00 P.M. - 7:00 P.M. - Scheduled Use by Tenant on a
priority basis upon 24 hours'
advance notice to Landlord
7:00 P.M. - 8:00 A.M - First Come, First Serve basis
</TABLE>
NON-BUSINESS DAYS
- -----------------
First Come, First Serve Basis
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
1. Rent..................................................................................... 1
2. Use and Occupancy........................................................................ 1
3. Tenant Alterations....................................................................... 3
4. Maintenance and Repairs.................................................................. 8
5. Window Cleaning.......................................................................... 9
6. Requirements of Law, Fire Insurance, Floor Loads......................................... 9
7. Subordination............................................................................ 12
8. Property--Loss, Damage, Reimbursement, Indemnity......................................... 13
9. Destruction, Fire and Other Casualty..................................................... 14
10. Eminent Domain........................................................................... 18
11. Assignment, Mortgage, Etc................................................................ 19
12. Electric Current......................................................................... 28
13. Access to Premises....................................................................... 30
14. Occupancy................................................................................ 32
15. Bankruptcy............................................................................... 32
16. Default.................................................................................. 33
17. Remedies of Landlord and Waiver of Redemption............................................ 34
18. Fees and Expenses........................................................................ 35
19. Building Alterations and Management...................................................... 36
20. No Representations by Landlord........................................................... 38
21. End of Term.............................................................................. 38
22. Quiet Enjoyment.......................................................................... 38
23. Failure to Give Possession............................................................... 38
24. No Waiver................................................................................ 42
25. Waiver of Trial by Jury.................................................................. 42
26. Inability to Perform..................................................................... 43
27. Bills and Notices........................................................................ 43
28. Services Provided by Landlord............................................................ 44
29. Captions................................................................................. 45
30. Definitions.............................................................................. 45
31. Adjacent Excavation Shoring.............................................................. 46
32. Rules and Regulations.................................................................... 47
33. Security................................................................................. 47
34. Successors and Assigns................................................................... 47
35. Rental Payments.......................................................................... 47
36. Tax Escalation........................................................................... 49
38. Air Conditioning......................................................................... 59
39. Brokerage................................................................................ 59
40. 13th Floor Setback....................................................................... 60
41. Exculpatory and Hearing Clause........................................................... 61
42. Submission to Jurisdiction, Etc.......................................................... 62
43. Modifications Requested by Mortgagee, Etc................................................ 63
44. Tenant's Work............................................................................ 64
45. Insurance................................................................................ 65
46. Estoppel Certificate..................................................................... 67
47. Holdover................................................................................. 67
48. Rooftop Communications Equipment......................................................... 67
49. Signage.................................................................................. 70
50. Access to the Demised Premises........................................................... 71
51. Hazardous Materials...................................................................... 71
52. Recording and Memorandum of Lease........................................................ 72
53. Options to Extend........................................................................ 72
54. Landlord's Contribution.................................................................. 75
55. Landlord's Work.......................................................................... 77
56. Expansion Rights......................................................................... 79
57. Consequential Damages.................................................................... 82
58. The Z-D Lobby............................................................................ 83
</TABLE>
Exhibit A - Demised Premises
Exhibit A1 - The Z-D Lobby
Exhibit B - Landlord's Work
Exhibit B1 - Bathroom Specifications
-1-
<PAGE>
Exhibit B2 - Passenger Elevator Specifications
Exhibit B3 - MEP Requirements for 63 Madison Avenue
Exhibit B4 - Job Memorandum Dated 11/11/97
Exhibit B5 - 63 Madison Avenue Roof Plan
Exhibit C - Freight Corridor
Exhibit D - Cleaning Specifications
Exhibit E - Schedule of Completion Dates and Rent Credits
Exhibit E1 - Preliminary Plan - re: Bulk Feeder
Exhibit F - Alteration Rules
Exhibit G - Northern Passenger Elevator Bank
Exhibit H - 28th Street Loading Dock Bays
Exhibit I - Certificate of Occupancy
Exhibit J - Subtenant's Non-Disturbance Agreement
Exhibit K - Memorandum of Lease
Exhibit L - Ziff-Davis Lobby and Entrance Way Preliminary Plan
Exhibit M - Madison Avenue Directional Signage Specifications
Exhibit N - Guaranty
Exhibit O - Subordination Agreement
Exhibit P - Freight Elevator Shaft Way
Exhibit P1 - Elevator Shaft Power and Ventilation Regulations
Exhibit Q - Freight Elevator Hours
Exhibit R - Subordination, Non-Disturbance and Attornment Agreement
Exhibit S - Location of Additional Loading Dock Elevator Pit
-2-
<PAGE>
Index of Defined Terms
<TABLE>
<CAPTION>
Term Page
<S> <C>
12th Floor Credit Period................................................... 41
28th Street Loading Dock Bays.............................................. 44
ADA........................................................................ 12
Additional Rent Dispute.................................................... 59
Additional Rent Hearing.................................................... 59
Additional Rent Hearing Officer............................................ 59
Adversely Affected Portion................................................. 67
Alteration................................................................. 3
Alteration Rules........................................................... 64
Alterations................................................................ 3
Ancillary Information...................................................... 21
Assignment Conditions...................................................... 23
Assignment Vacancy Allowance............................................... 23
Available.................................................................. 80
Bankruptcy Code............................................................ 33
Base building air conditioning machinery................................... 28
Base Operating Expenses.................................................... 57
Base Operational Year...................................................... 57
Base Tax Year.............................................................. 50
Base Year Taxes............................................................ 50
Board of Managers.......................................................... 57
Broker..................................................................... 46
Building................................................................... 1
Business affiliate of Tenant............................................... 28
Business Terms............................................................. 79
C/O........................................................................ 32
Casualty................................................................... 14
Commencement Date.......................................................... 46, 79
Communications Equipment................................................... 68
Conduit Relocation......................................................... 7
Contract................................................................... 77
Control.................................................................... 25
Daily Fixed Rent........................................................... 39
Delayed Portion............................................................ 38
Delivered Portions......................................................... 39
Demised premises........................................................... 1
Determination Date......................................................... 73
Dispute.................................................................... 36
Electric Commencement Date................................................. 28
Electric Company........................................................... 28
Escalator Work............................................................. 40
Expansion Space............................................................ 79
Expansion Space Commencement Date.......................................... 79
Expansion Space Term....................................................... 81
Expiration Date............................................................ 1
Extension Notice........................................................... 72
Extension Term............................................................. 72
FC Space................................................................... 40
Fee Mortgages.............................................................. 13
First 12th Floor Additional Credit Period.................................. 41
First CLB Credit Period.................................................... 40
First Credit Period........................................................ 39
First Extension Term....................................................... 72
Fiscal tax year............................................................ 50
Fiscal year................................................................ 50
Fixed Rent1
Fixed Rent Commencement Date............................................... 49
Force Majeure.............................................................. 43
Guarantor.................................................................. 62
Hazardous Materials........................................................ 71
Hearing.................................................................... 36
Hearing Notice............................................................. 59
</TABLE>
-1-
<PAGE>
<TABLE>
<S> <C>
Hearing Officer............................................................ 36
Holder..................................................................... 12
Immaterial Alterations..................................................... 8
Independent Broker......................................................... 73
Interest Rate.............................................................. 63
Land....................................................................... 13
Landlord................................................................... 1
Landlord's Average Cost.................................................... 28
Landlord's Broker.......................................................... 73
Landlord's Broker's Letter................................................. 74
Landlord's Contribution.................................................... 75
Landlord's Electrical Consultant........................................... 30
Landlord's Negligence or Wilful Misconduct................................. 8
Landlord's Notice.......................................................... 20
Landlord's Notice Address.................................................. 43
Landlord's Offer Notice.................................................... 79
Landlord's Property........................................................ 52
Landlord's Work............................................................ 77
Law........................................................................ 10
Laws....................................................................... 10
Local Law 5................................................................ 11
Major Sublease............................................................. 19
MC Electric Charge......................................................... 84
Messenger Center........................................................... 84
Net Effective Rental....................................................... 79
Net Worth Requirement...................................................... 25
Non-Disturbance Agreement.................................................. 12
Northern Elevator Passenger Bank........................................... 44
NYL........................................................................ 7
NYL's Conduits and Risers.................................................. 7
Occupied Portion........................................................... 67
Offered Space.............................................................. 79
Offered Space Term......................................................... 79
Operating Expenses......................................................... 51
Operational Year........................................................... 57
Outside 12th Floor Delivery Date........................................... 41
Outside Bathroom Delivery Dates............................................ 41
Outside Date............................................................... 16
Outside Delivery Date...................................................... 39
Owner...................................................................... 1
Partial Completion Date.................................................... 40
Partial Floor.............................................................. 79
Permits.................................................................... 64
Permitted Sublease(s)...................................................... 27
Personalty Lien............................................................ 6
Premises................................................................... 1
Problem Contractors........................................................ 6
Real Estate Taxes.......................................................... 49
Recapture Offer............................................................ 19
Reimbursable Costs......................................................... 75
Related corporation........................................................ 24
Related Entity............................................................. 25
Reminder Notice............................................................ 72
Rent Credit Dates.......................................................... 78
Rent" or "rental........................................................... 48
Roof Equipment............................................................. 68
Savings Report............................................................. 56
Second 12th Floor Additional Credit Period................................. 41
Second CLB Credit Period................................................... 40
Second Credit Period....................................................... 39
Second Extension Term...................................................... 72
Section 41(B) Dispute...................................................... 62
Section 41(B) Hearing...................................................... 62
Section 41(B) Hearing Notice............................................... 62
Section 41(B) Hearing Officer.............................................. 62
Security Areas............................................................. 31
Signage.................................................................... 70
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
SNDA....................................................................... 13
Space...................................................................... 19
Statement.................................................................. 57
Sublease Vacancy Allowance................................................. 24
Subsequent Tax Year........................................................ 50
Successor entity........................................................... 26
Supplemental A/C........................................................... 59
Tax Year................................................................... 50
TCN Date................................................................... 78
Tenant..................................................................... 1
Tenant Completion Notice................................................... 78
Tenant Improvements........................................................ 7
Tenant's Acceptance Notice................................................. 79
Tenant's Broker............................................................ 73
Tenant's Broker's Letter................................................... 74
Tenant's Electrical Consultant............................................. 30
Tenant's Negligence or Wilful Misconduct................................... 8
Tenant's Notice Address.................................................... 43
Tenant's Plans............................................................. 64
Tenant's Proportionate Share of Operating Expenses......................... 57
Tenant's Proportionate Share of Taxes...................................... 50
Tenant's Representative.................................................... 30
Tenant's Request........................................................... 19
Tenant's Work.............................................................. 64
Term....................................................................... 1
Termination Date........................................................... 15
Termination Notice......................................................... 15
Terms Sheet................................................................ 20
Terrace.................................................................... 60
Trigger Commencement Date.................................................. 46
Underlying Lessor.......................................................... 22
Z-D Lobby.................................................................. 1
</TABLE>
-3-
<PAGE>
EXHIBIT 12
ZIFF-DAVIS INC. AND ZD COMDEX AND FORUMS INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ZDI (THE PREDECESSOR) ZDI AND ZDCF COMBINED
--------------------------------------- ------------------------------------
TWO MONTH
YEAR ENDED DECEMBER 31, PERIOD ENDED YEAR ENDED DECEMBER 31,
------------------------- FEBRUARY 28, ------------------------------------
PROFORMA
1993 1994 1995 1996 1995 1996 1997 1997 (A)
------- -------- -------- ------------ ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss)
from continuing
operations............. $13,700 $ 73,207 $(40,250) $(6,995) $22,869 $(27,124) $(72,491) $ (4,776)
Less: Income (loss) from
equity investments..... -- 4,443 3,391 235 -- 526 (2,029) (2,029)
------- -------- -------- ------- ------- -------- -------- --------
13,700 77,650 (36,859) (6,760) 22,869 (26,598) (74,520) (6,805)
------- -------- -------- ------- ------- -------- -------- --------
Interest expense........ 14,035 17,887 92,609 14,030 44,005 120,646 190,445 122,730
Interest portion of rent
expense................ 6,267 7,292 7,633 1,340 831 7,672 9,998 9,998
------- -------- -------- ------- ------- -------- -------- --------
Total fixed charges..... 20,302 25,179 100,242 15,370 44,836 128,318 200,443 132,728
------- -------- -------- ------- ------- -------- -------- --------
Earnings before income
taxes and fixed
charges................ $34,002 $102,829 $ 63,383 $ 8,610 $67,705 $101,720 $125,923 $125,923
======= ======== ======== ======= ======= ======== ======== ========
Ratio of earnings to
fixed charges.......... 1.7 4.1 (b) (b) 1.5 (b) (b) (b)
======= ======== ======== ======= ======= ======== ======== ========
</TABLE>
- --------
(a) Presented on a pro forma basis as adjusted to give effect to the
Reorganization and Common Stock Offerings
(b) ZDI's earnings for the year ended December 31, 1995 and for the two months
ended February 28, 1996 were insufficient to cover fixed charges by $36,859
and $6,760, respectively. ZDI and ZDCF's combined earnings for the year
ended December 31, 1995, 1996, 1997 and Pro forma 1997 were insufficient to
cover fixed charges by $26,598, $74,520 and $6,805, respectively.
1
<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 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
March 30, 1998
