ZIFF DAVIS INC, DEFM14A, 2000-02-09

ZIFF DAVIS INC
DEFM14A, 2000-02-09
PERIODICALS: PUBLISHING OR PUBLISHING & PRINTING

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<PAGE>

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_]Preliminary Proxy Statement [_]Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))

[X]Definitive Proxy Statement

[_]Definitive Additional Materials

[_]Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

Ziff-Davis Inc.
----------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[_]No fee required

[X]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies: N/A

(2) Aggregate number of securities to which transaction applies: N/A

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $2 billion,
which is the maximum cash proceeds that the registrant has received or
expects to receive from the sale of various businesses as described
herein.

(4) Proposed maximum aggregate value of transaction: $2 billion (see (3)
above)

(5) Total fee paid:$400,000

[X]Fee paid previously with preliminary materials:$251,600

[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:
<PAGE>

[LOGO OF ZIFF-DAVIS INC.]

ZIFF-DAVIS INC.
28 EAST 28th STREET
NEW YORK, NEW YORK 10016

February 7, 2000

Dear Stockholder:

As you probably know by now, the board of directors of Ziff-Davis has
unanimously approved a major restructuring. In this restructuring we plan to:

. sell substantially all of our non-Internet assets for cash;

. use a portion of the proceeds from these sales to repay our debt and to
cover certain other liabilities;

. dividend out all or most of the remaining proceeds to the holders of our
ZD stock (NYSE-ZD); we currently estimate this special dividend will
amount to about $5.00 per share;

. transfer the remaining assets of our ZD division, including Computer
Shopper and our interest in Red Herring, to our ZDNet division in return
for an increase in ZD's retained interest in ZDNet; and

. eliminate our existing tracking stock structure by merging with a
subsidiary so that all of our stockholders will hold a single class of
ordinary common stock.

Immediately prior to the merger that will eliminate our tracking stock
structure, ZD's only remaining asset will be its retained interest in ZDNet. As
a result, each share of ZD stock will be equivalent to about 0.5 to 0.6 shares
of ZDNet stock (NYSE - ZDZ). We will maintain this equivalency in the merger by
converting each share of ZDNet stock into about 1.7 to 1.9 shares of common
stock while each share of ZD stock will remain outstanding as one share. We
will determine the exact conversion ratio in the manner described in the
attached proxy statement.

After the restructuring, we will be focused almost exclusively on the
Internet and we will change our name to ZDNet Inc. to reflect this new focus.

We have scheduled a special meeting of our stockholders for February 29,
2000 to vote on the restructuring and certain other proposals described in this
proxy statement.

The board of directors has carefully considered and unanimously approved the
restructuring and other proposals and determined that they are in the best
interests of our company and all of our stockholders. The board recommends that
you vote for these proposals by completing, signing and mailing the enclosed
proxy card to us.

SOFTBANK America Inc., which owns ZD stock entitled to cast a majority of
the total votes at the special meeting, has agreed to vote for these proposals.
Thus, we expect these proposals to pass regardless of how other stockholders
vote.

The proxy statement describes the proposals in detail, and we urge you to
read it carefully. We are very excited about our Internet future and thank you
for your continued support and interest.

Sincerely yours,

Eric Hippeau
Chairman

See "Risk Factors" beginning on page 17 for certain information relating to
an evaluation of the restructuring.

This proxy statement is dated February 7, 2000 and is first being mailed to
stockholders shortly after that date.
<PAGE>

ZIFF-DAVIS INC.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON FEBRUARY 29, 2000

TO THE STOCKHOLDERS OF
ZIFF-DAVIS INC.:

We will hold a special meeting of stockholders of Ziff-Davis Inc. at 9:00
a.m., Eastern Standard Time, on February 29, 2000 at 28 East 28th Street, New
York, New York for the following purposes:

1. To consider and vote upon the adoption of the following resolutions:

RESOLVED, that Ziff-Davis Inc. is hereby authorized to complete the
restructuring described under "Proposal 1--The Restructuring of Ziff-
Davis--General" in its proxy statement dated February 7, 2000 to which this
resolution is attached and, in furtherance thereof, is hereby specifically
authorized to (a) sell some or all of the following businesses and assets
owned or previously owned by Ziff-Davis Inc.: ZD Market Intelligence, ZD
Publishing, ZD Events, ZD Education, Smart Planet, an equity interest in
ZDTV and an equity interest in Red Herring Communications Inc., (b) pay a
special dividend to the holders of its ZD common stock, (c) transfer
certain assets from ZD to ZDNet and (d) complete the merger contemplated by
the merger agreement referred to in the next resolution; and

FURTHER RESOLVED, that the merger agreement attached as Annex II to such
proxy statement is hereby adopted.

2. To act upon proposals to amend each of the Amended 1998 Incentive
Compensation Plan and the Amended 1998 Non-Employee Directors' Stock Option
Plan to increase the number of shares available for issuance thereunder.

3. To transact such other business as may properly come before the meeting.

We describe the proposals in more detail in the accompanying proxy
statement, which you should read carefully before voting.

Only stockholders of record at the close of business on February 7, 2000
will be entitled to vote at the meeting.

To vote, you may either attend the meeting in person or complete, date, sign
and return the enclosed proxy. SOFTBANK America Inc., which owns ZD stock
entitled to cast a majority of the total votes entitled to be cast at the
special meeting, has agreed to vote for these proposals. Thus, we expect these
proposals to pass regardless of how other stockholders vote.

By order of the board of directors,

J. Malcolm Morris
Secretary

New York, New York
February 7, 2000
<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
RESTRUCTURING....................... 1
SUMMARY.............................. 2
RISK FACTORS......................... 17
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS.......... 26
THE SPECIAL MEETING.................. 27
OUR CURRENT COMPANY.................. 29
PROPOSAL 1--THE RESTRUCTURING
OF ZIFF-DAVIS....................... 30
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS OF ZIFF-
DAVIS INC. ......................... 55
PROPOSALS 2 AND 3--AMENDMENTS
TO BENEFIT PLANS.................... 61
EXECUTIVE COMPENSATION............... 70
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.... 75
STOCKHOLDER PROPOSALS................ 77
WHERE YOU CAN FIND MORE INFORMATION.. 77
</TABLE>
<TABLE>
<S> <C>
ANNEX I--PROPOSAL 1--RESOLUTION
AUTHORIZING THE RESTRUCTURING OF
ZIFF-DAVIS INC..................... I-1
ANNEX II--AGREEMENT AND PLAN OF
MERGER, INCLUDING AS AN ATTACHMENT
THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF THE
COMPANY ........................... II-1
ANNEX III--ZIFF-DAVIS INC. (Selected
Historical Consolidated Financial
and Other Data, Management's
Discussion and Analysis of
Financial Condition and Results of
Operations, Description of Business
and Consolidated Financial
Statements)........................ III-1
ANNEX IV--ZD (Selected Historical
Combined Financial and Other Data,
Management's Discussion and
Analysis of Financial Condition and
Results of Operations, Description
of Business and Combined Financial
Statements)........................ IV-1
ANNEX V--ZDNET (Selected Historical
Combined Financial and Other Data,
Management's Discussion and
Analysis of Financial Condition and
Results of Operations, Description
of Business and Combined Financial
Statements)........................ V-1
ANNEX VI--OPINION OF MORGAN STANLEY
DEAN WITTER........................ VI-1
</TABLE>

<PAGE>

QUESTIONS AND ANSWERS ABOUT THE RESTRUCTURING

Q: Why am I receiving this proxy statement?

A: You are receiving this proxy statement because we are seeking your proxy to
vote for the restructuring and the other proposals described in this proxy
statement at a special meeting of stockholders.

Q: What does the board of directors recommend?

A: The board of directors has carefully considered and unanimously approved the
restructuring and the other proposals and determined that they are in the
best interests of our company and all of our stockholders. The board
recommends that you vote for these proposals.

Q: What do I need to do now?

A: After you carefully read this document, please complete, sign and mail the
enclosed proxy card to us. Your shares will be voted (or not voted) as you
indicate on the proxy card. If you hold your shares in "street name" through
a broker or other institution, only that broker or institution can vote your
shares and it will not do so without instructions from you.

Q: What Do I Get in the Restructuring? When? What Happens To My Shares? When?

A: If you own ZD stock, you will receive a special dividend that we currently
estimate will amount to about $5.00 per share. We expect to pay this
dividend in the second quarter of 2000.

The last step in the restructuring is a merger that will eliminate our
existing tracking stock structure and result in a single class of ordinary
common stock for all of our stockholders. In the merger, we will convert
each share of ZDNet stock into about 1.7 to 1.9 shares of common stock
while each share of ZD stock will remain outstanding as one share. We will
determine the exact conversion ratio in the manner described later in this
proxy statement. We expect to complete the merger in the second quarter of
2000.

Q: Should I Send in My Stock Certificates?

A: No. After we complete the merger, we will send you instructions on how to
exchange your stock certificates.

Q: How will Softbank vote? Is Passage Assured?

A: SOFTBANK America Inc., which owns ZD stock entitled to cast a majority of
the total votes at the special meeting, has agreed to vote for these
proposals. Thus, we expect these proposals to pass regardless of how other
stockholders vote.

Q: What Do I Do If I Have Additional Questions?

A: Please call Morrow & Co., Inc. at (212) 754-8000 if you have any questions
about these matters.

1
<PAGE>

SUMMARY
This summary highlights key aspects of our proposals. It does not contain
all of the information that is important to you. You should read the entire
proxy statement for a more complete description.

Our Current Company

We are a leading media and marketing company focused on computing and
Internet-related technologies. Through our ZDNet division, which we call
"ZDNet," we provide online content and other Internet related services. Through
our ZD division, which we call "ZD," we are or have been engaged in the print
publishing, trade shows and conferences, education and television businesses.
We are in the process of selling these ZD businesses as part of the
restructuring described below.

We have two series of common stock: ZDNet Common Stock, which we call "ZDNet
stock," and ZD Common Stock, which we call "ZD stock." Each of these series is
what is commonly referred to as "tracking stock." We intend the ZDNet stock to
track the performance of ZDNet, and we intend the ZD stock to track the
performance of ZD. In addition to the businesses referred to above, ZD owns a
retained interest in ZDNet which is currently the equivalent of 60 million
shares of ZDNet stock.

Proposal 1--The Restructuring

General

The restructuring is a series of transactions that will transform us into a
company focused almost exclusively on Internet related businesses and replace
our existing tracking stock structure with a single class of ordinary common
stock. In the restructuring, we plan to:

. sell substantially all of our non-Internet assets for cash; these assets
include substantially all of ZD's assets other than its retained
interest in ZDNet;

. use a portion of the proceeds from these sales to repay ZD's debt and to
cover certain other ZD liabilities;

. dividend out all or most of the remaining proceeds to the holders of ZD
stock; we currently estimate this special dividend will amount to about
$5.00 per share;

. transfer the remaining ZD assets, including Computer Shopper and our
interest in Red Herring, to ZDNet in return for an increase in ZD's
retained interest in ZDNet; and

. eliminate our existing tracking stock structure by merging with a newly
formed subsidiary so that all of our stockholders will hold a single
class of ordinary common stock.

Sales of Non-Internet Assets for Cash

In the past few months, we sold our ZD Market Intelligence business for $106
million and our equity interest in ZDTV for $205 million. In addition, we
entered into agreements to sell our ZD Publishing business (which excludes
Computer Shopper) for $780 million and our ZD Education business for $172
million, and we expect to complete these sales in the first quarter of 2000.
The ZD Publishing and ZD Education sales are subject to the buyers receiving
debt financing, the receipt of various governmental approvals and third party
consents and various other conditions. The sales prices for ZD Publishing and
ZD Education are subject to adjustment in the manner described later in this
proxy statement (although we do not expect these adjustments to be material).
For more information about these sales, see "Proposal 1 -- The Restructuring of
Ziff-Davis--The Sale Agreements."

We are currently in discussions regarding a possible sale of ZD Events, and
we expect to either complete this sale or recapitalize ZD Events and spin it
off to holders of ZD stock in the second quarter of 2000. We also expect to
either sell our Smart Planet online consumer education business or transfer it
from ZD to ZDNet in the same time frame.

2
<PAGE>

Repayment of ZD Debt and Provision for Other ZD Liabilities

The principal amount of our debt is currently about $1.0 billion and all of
it is attributed to ZD. We will use a portion of the asset sale or
recapitalization proceeds to repay this debt. We will also use a portion to
cover the amounts that ZD owes ZDNet and certain other actual or contingent ZD
liabilities, net of amounts that ZDNet owes ZD. We will determine the amount
that we will leave behind to cover these other actual or contingent ZD
liabilities based on the advice of management and our financial and legal
advisors; since contingent liabilities are inherently uncertain, it is possible
that the amount we leave behind will turn out to be significantly more or less
than the amount actually needed to cover these liabilities.

Dividend to ZD Stockholders

After deducting from the asset sale or recapitalization proceeds the amounts
referred to in the preceding paragraph, we will dividend out all or most of the
remaining proceeds to the holders of ZD stock. The exact amount of this special
dividend will depend on the actual proceeds and the actual amounts we determine
to set aside to repay ZD debt, to cover other ZD liabilities and to fund future
ZDNet cash needs. If we determine to recapitalize ZD Events and spin it off to
ZD stockholders rather than to sell it, the dividend would include the stock of
ZD Events.

We currently estimate that the special dividend will amount to about $5.00
per share. We expect to pay this dividend in the second quarter of 2000, but
the exact timing will depend on when we are able to complete the disposition of
ZD Education, ZD Publishing and ZD Events.

Transfer of Assets from ZD to ZDNet

We will transfer the following assets from ZD to ZDNet in return for an
increase in ZD's retained interest in ZDNet:

. our Computer Shopper business,

. our interest in Red Herring Communications Inc. and

. any other ZD assets that we have not sold or set aside to cover ZD
liabilities.

Our certificate of incorporation provides that these transfers will increase
the number of shares of ZDNet stock issuable with respect to ZD's retained
interest in ZDNet by an amount equal to the fair value of the transferred
assets divided by the market value of the ZDNet stock on the transfer date. We
currently estimate that the fair value of the transferred assets will be about
$75 million, but the board will make a final determination at the time of
transfer.

The Merger

Immediately prior to the merger that will eliminate our tracking stock
structure, ZD's only remaining asset will be its retained interest in ZDNet. As
a result, at the time of the merger, each share of ZD stock will be equivalent
to a number of shares of ZDNet stock equal to:

. the number of shares of ZDNet stock issuable with respect to ZD's
retained interest in ZDNet, divided by

. the number of shares of ZD stock outstanding immediately prior to the
merger.

We call this number the "ZD/ZDNet equivalency ratio." After the merger, each
share of ZD stock will remain outstanding as one share of common stock. In
order to maintain the relationship between the ZD stock and ZDNet stock, in the
merger we will convert each share of ZDNet stock into a number of shares of our
common stock equal to the reciprocal of the equivalency ratio. Thus, we will
convert each share of ZDNet stock into a number of shares of common stock equal
to:

. the number of shares of ZD stock outstanding immediately prior to the
merger, divided by

. the number of shares of ZDNet stock issuable with respect to ZD's
retained interest in ZDNet.

We call this number the "exchange ratio," and we will round it to the nearest
0.00001 before we apply it in the merger.

3
<PAGE>

A total of 60 million shares of ZDNet stock are currently issuable with
respect to ZD's retained interest in ZDNet, but this number will increase as a
result of the transfer of the transferred assets in the manner described in the
preceding section. Because this increase will depend on the final valuation for
the transferred assets and the market value of the ZDNet stock on the date of
transfer, we cannot now tell you the exact number we will use to determine the
ZD/ZDNet equivalency ratio and the exchange ratio.

We provide the following as an illustrative example of these calculations.
If we assume that:

. the transferred assets in excess of those set aside to cover ZD
liabilities will be valued at about $75 million,

. the market price of ZDNet stock on the transfer date will be $27.8125
per share (which is equal to the closing price of the ZDNet stock on
January 31, 2000), and

. options to purchase about 8 million shares of ZD stock will be exercised
before the merger, resulting in there being about 111 million shares of
ZD stock outstanding at the time of the merger,

then the ZD/ZDNet equivalency ratio would be about 0.56 (that is, each ZD share
would be equivalent to about 0.56 ZDNet shares) and the exchange ratio would be
about 1.77 (that is, in the merger we would convert each ZDNet share into about
1.77 shares of common stock). The actual ZD/ZDNet equivalency ratio and
exchange ratio will be determined as described earlier in this section; the
final numbers may differ significantly from those set forth in this
illustrative example and may even fall outside the ranges set forth in the
stockholder's letter that appears on the front cover of this proxy statement.

After the restructuring, we will be focused almost exclusively on the
Internet, and as part of the merger we will change our name to ZDNet Inc. to
reflect this new focus.

We currently expect to complete the merger in the second quarter of 2000.

For more information about the merger, see "Proposal 1--The Restructuring of
Ziff-Davis--The Merger Agreement."

No Appraisal Rights

Under the Delaware General Corporation Law, you will not have appraisal
rights as a result of the restructuring.

Treatment of Options

We plan to deal with employee stock options in the manner described under
"Proposal 1--The Restructuring of Ziff-Davis--Treatment of Options."

Reasons for the Restructuring

The board of directors believes that recent market prices for our ZD stock
and ZDNet stock have not fully reflected the underlying value of our businesses
because of the diversity of those businesses, the level of our debt and our
existing tracking stock structure. The board also desires to focus more
narrowly on our Internet businesses because it believes the opportunity for
growth in these businesses is greater than it is in our other businesses. The
restructuring will:

. allow the holders of ZD stock to realize value from our non-Internet
assets,

. allow us to focus on our Internet businesses,

. allow us to pay down all of our debt and

. eliminate our tracking stock structure.

For these reasons, the board of directors believes that the restructuring will
enhance stockholder value and is in the best interests of our company and all
of our stockholders.

For more information about the background and reasons for the restructuring,
including information about a special committee we have formed to address
transactions that might create conflicts or the appearance of conflicts, see
"Proposal 1--The Restructuring of Ziff-Davis--Background of the Restructuring"
and "--Reasons for the Restructuring."

4
<PAGE>

Material Federal Income Tax Consequences of the Restructuring

We expect to have sufficient net operating losses to fully shelter any
federal income tax gain that is realized as a result of the sale of the
businesses as currently contemplated. For this reason, we expect that we will
not be required to pay any material federal income tax as a result of such
sales.

The company will not be required to pay any federal income taxes as a result
of the merger.

This summary does not apply to special classes of stockholders. To determine
whether you are a member of a special class and for more information about tax
consequences of the restructuring, see "Proposal 1--The Restructuring of Ziff-
Davis--Material Federal Income Tax Consequences of the Restructuring."

Accounting

The restructuring will result in an aggregate net loss of about $1.2
billion. The majority of this loss will be reported in the fourth quarter of
1999 with the remainder expected to be recognized in the first quarter of 2000.

This non-recurring loss results in large part from the dramatic shift in
value from our print publishing business (carried on our books at almost $1.9
billion) to our online business (carried on our books at only about $160
million). Since we are selling our print publishing businesses but not our
online business, we are recognizing an accounting loss on the sale but are not
permitted to recognize what we believe is currently a more than offsetting gain
represented by the difference between the current value and the book value of
our online business. For further information about the components of the loss,
see "Proposal 1--The Restructuring of Ziff-Davis--Accounting."

The merger will have no significant accounting consequences for the
consolidated company, except that after the merger the company will again begin
to report per share information on a consolidated basis.

Listing

After the merger, our common stock will continue to be listed on the NYSE,
although we may investigate the possibility of transferring our listing to
NASDAQ at some point in the future.

Proposals 2 and 3--Amendments to Benefit Plans

At the special meeting, we will also ask you to consider and approve
proposals to amend each of the Amended 1998 Incentive Compensation Plan and the
Amended 1998 Non-Employee Directors' Stock Option Plan.

The purpose of each of these proposed amendments is to increase the number
of shares available for issuance. The board of directors believes that it needs
to be able to grant more awards under these plans in order to maintain and
enhance our ability to recruit, retain and motivate top quality employees for
our Internet businesses. The market for top quality employees in the Internet
industry is extremely competitive and stock options and stock-based plans have
become an increasingly important part of the compensation packages for these
employees.

Recommendation of the Board of Directors

The board of directors has carefully considered and unanimously approved the
proposals and determined that they are in the best interests of our company and
all of our stockholders. The board of directors recommends that you vote for
all of the proposals.
5
<PAGE>

The Special Meeting

Time, Place and Matters to Be Voted Upon

We will hold a special meeting at 9:00 a.m., Eastern Standard Time, on
February 29, 2000 at our offices at 28 East 28th Street, New York, New York. At
the special meeting, you will be asked to:

. adopt resolutions authorizing the restructuring;

. approve the proposed amendments to the Amended 1998 Incentive
Compensation Plan and the Amended 1998 Non-Employee Directors' Stock
Option Plan; and

. transact such other business as may properly come before the meeting.

SOFTBANK America Inc., which owns ZD stock entitled to cast a majority of
the total votes at the special meeting, has agreed to vote for all of the
proposals. Thus, we expect the proposals to pass regardless of how other
stockholders vote.

Dividend Information

We have never paid dividends on our common stock. Other than the special
dividend described in this proxy statement, we currently intend to continue to
retain all of our earnings to finance our operations and fund future growth for
the foreseeable future.

Market Prices for Our Shares

Prior to the creation and issuance of our ZDNet stock on April 2, 1999, we
had only one series of common stock, which was listed and traded on the NYSE
under the symbol "ZD." On April 2, 1999, we re-designated that series as ZD
stock, and it continued to be listed and traded on the NYSE under the symbol
"ZD." As of February 4, 2000 there were 365 ZD stockholders of record. The
following table sets forth, for the calendar quarters indicated and for
July 14, 1999 (the last trading day that ended before we announced our decision
to explore strategic alternatives), the high and low sales prices per share of
ZD stock as reported on the NYSE Composite Tape.

<TABLE>
<CAPTION>
ZD ZD
Stock Stock
High Low
1998 ------ ------
<S> <C> <C>
Second Quarter (from April 29).................................. $19.00 $12.81
Third Quarter................................................... 16.38 5.38
Fourth Quarter.................................................. 23.94 3.63

<CAPTION>
1999
<S> <C> <C>
First Quarter................................................... $29.00 $15.81
Second Quarter.................................................. 25.31 11.00
Third Quarter................................................... 19.13 13.75
Fourth Quarter.................................................. 19.50 14.31
July 14, 1999................................................... 14.38 14.00

<CAPTION>
2000
<S> <C> <C>
First Quarter (through February 4).............................. $20.00 $14.81
</TABLE>

Our ZDNet stock has been listed and traded on the NYSE since March 31, 1999
under the symbol "ZDZ." As of February 4, 2000 there were 137 ZDNet
stockholders of record. The following table sets forth, for the calendar
quarters indicated and for July 14, 1999 (the last trading day that ended
before we announced our decision to explore strategic alternatives), the high
and low sales prices per share of ZDNet stock as reported on the NYSE Composite
Tape.

<TABLE>
<CAPTION>
ZDNet ZDNet
Stock Stock
High Low
1999 ------- ------
<S> <C> <C>
First Quarter (March 31 only).................................. $ 40.00 $29.00
Second Quarter................................................. 55.50 16.63
Third Quarter.................................................. 26.63 13.38
Fourth Quarter................................................. 25.69 18.00
July 14, 1999.................................................. 23.69 23.00

<CAPTION>
2000
<S> <C> <C>
First Quarter (through February 4)............................. $ 32.88 $19.88
</TABLE>

The following table sets forth the closing sales prices per share of ZD
stock and ZDNet stock on the NYSE on the following dates:

. July 14, 1999, the last trading day that ended before we announced our
decision to explore strategic alternatives,

. July 15, 1999, the first trading day that ended after we announced our
decision to explore strategic alternatives and

. February 4, 2000, the last practicable trading day before the date of
this proxy statement.

6
<PAGE>

The table also presents an estimated equivalent value per share of ZDNet stock
on each of the indicated dates, determined as:

. the price per share of ZD stock on the indicated date minus an estimated
cash dividend of $5.00 per share of ZD stock, times

. an estimated exchange ratio for the merger of 1.77.

<TABLE>
<CAPTION>
ZDNet
Stock
Estimated
ZD ZDNet Equivalent
Stock Stock Value
------ ------ ----------
<S> <C> <C> <C>
July 14, 1999.......................................... $14.19 $23.25 $16.27
July 15, 1999.......................................... 18.50 24.81 23.90
February 4, 2000....................................... 18.50 29.88 23.90
</TABLE>

We cannot predict the market prices for the ZD stock or ZDNet stock before
the merger or for our common stock after the merger. You should obtain current
market quotations.

7
<PAGE>
SUMMARY OF RESTRUCTURING STEPS

The following charts summarize the steps of the restructuring, assuming that:

. There are 111 million ZD shares and 17 million ZDNet shares outstanding,

. The value of the ZD assets transferred to ZDNet is $75 million and

. The ZDNet stock price at the time ZD assets are transferred is $27.8125 (the
closing price on January 31, 2000).

Steps 1 and 2: Sell Various Assets and Pay Down All Debt
-----------------------------------------

After Step 1 and 2:

_______________ ________________
! Holders of ! ! Holders of !
! ZD Stock ! ! ZDNet Stock !
!_______________! !________________!
| |
| 111 million 17 million |
| shares shares |
| |
| _____________________ |
|__________! !__________|
! Ziff-Davis Inc. !
________! !________
| !_____________________! |
| |
| |
________________|_______________ _________________|_______________
| ZD | | |
| | | |
| . Cash | | ZDNet |
| . Computer Shopper and | | |
| other residual ZD assets | | ZDNet online |
| . 60,000,000 share notional | | business |
| retained interest in ZDNet | | |
|________________________________| |_________________________________|

8
<PAGE>

Steps 3 and 4: Pay Spacial Dividend on ZD Stock and Transfer Residual
Assets to ZDNet in Return for Increased Retained Interest
---------------------------------------------------------

After Steps 3 and 4:

Step 5: Eliminate Tracking Stock Structure by Merging with a Shell Subsidiary
---------------------------------------------------------------------

In the Merger:

. Each share of ZD stock remains one share

. Each share of ZDNet stock becomes about 1.77 shares

<PAGE>

ZIFF-DAVIS INC.

SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA

The following table presents summary historical consolidated data for Ziff-
Davis Inc. as of and for the years ended December 31, 1996, 1997 and 1998 and
as of and for the nine months ended September 30, 1998 and 1999. This data was
derived from the Consolidated Financial Statements of Ziff-Davis Inc. which,
except for the 1996 balance sheet, are included in an Annex to this proxy
statement. The data as of and for the nine months ended September 30, 1998 and
1999 are unaudited.

An affiliate of Ziff-Davis Inc. acquired a print publishing business on
February 29, 1996; the data does not include results from the acquired business
for the period before the date of acquisition. On May 4, 1998, Ziff-Davis Inc.
completed a reorganization described in Note 2 to the unaudited Consolidated
Financial Statements of Ziff-Davis Inc. and on April 6, 1999, Ziff-Davis Inc.
completed a public offering of ZDNet stock described in Note 3 to the unaudited
Consolidated Financial Statements of Ziff-Davis Inc. Results for periods before
the reorganization and public offering are not directly comparable to results
for periods after those events. No historical earnings per share or share data
are presented as Ziff-Davis Inc. does not consider such data meaningful.

In addition, the table presents unaudited summary pro forma consolidated
data as of and for the year ended December 31, 1998 and as of and for the nine
months ended September 30, 1999. The pro forma data gives pro forma effect to
the transactions described in Notes 2 and 3 to the unaudited Consolidated
Financial Statements of Ziff-Davis Inc. and further assumes that the
restructuring had occurred (a) immediately prior to the beginning of each of
the periods presented, in the case of statement of operations and other data,
and (b) as of the balance sheet date, in the case of balance sheet data, all as
described in greater detail in the notes to the Unaudited Pro Forma
Consolidated Financial Statements of Ziff-Davis Inc. appearing later in this
proxy statement.

The pro forma data is not necessarily indicative of the actual financial
position or results of operations of Ziff-Davis Inc. as of or for the year
ended December 31, 1998 or as of or for the nine months ended September 30,
1999 or the financial position or results of operations that Ziff-Davis Inc.
would have experienced if the transactions for which the data gives pro forma
effect had in fact occurred at the times assumed. Also, the pro forma data does
not purport to represent Ziff-Davis Inc.'s future financial position or results
of operations.

This table should be read in conjunction with the Unaudited Pro Forma
Consolidated Financial Statements of Ziff-Davis Inc. appearing later in this
proxy statement as well as the Selected Historical Consolidated Financial and
Other Data, Management's Discussion and Analysis of Financial Condition and
Results of Operations and Consolidated Financial Statements for Ziff-Davis Inc.
included in an Annex to this proxy statement.

10
<PAGE>

<TABLE>
<CAPTION>
Nine month Pro Forma
period ended Pro Forma nine month
Year ended December 31, September 30, year ended period ended
---------------------------------- ---------------------- December 31, September 30,
1996 1997 1998 1998 1999 1998 1999
---------- ---------- ---------- ---------- ---------- ------------ -------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue, net............ $ 955,139 $1,153,761 $1,108,892 $ 730,547 $ 752,910 $ 169,506 $ 120,882
Cost of operations:
Production and
content............... 271,532 325,245 305,346 207,395 202,038 61,151 42,504
Selling, general and
administrative
expenses.............. 456,690 564,344 567,683 425,764 458,593 77,179 60,713
Stock-based
compensation expense.. -- -- -- 189 4,861 3,477 3,073
Depreciation and
amortization.......... 139,736 154,940 152,544 114,594 127,866 9,543 10,348
Income (loss) from
operations............. 87,181 109,232 31,080 (17,395) (40,448) 18,156 4,244
Interest expense, net... 120,646 190,445 143,547 111,185 89,602 -- --
Income (loss) before
income taxes........... (27,124) (72,491) (104,236) (119,768) (87,602) 18,290 4,361
Net income (loss)....... 52,081 (71,179) (77,809) (86,179) (55,947) 7,513 1,680
Net income per common
share:
Basic.................. N/A N/A N/A N/A N/A 0.06 0.01
Diluted................ N/A N/A N/A N/A N/A 0.05 0.01
Weighted average common
shares outstanding:
Basic.................. N/A N/A N/A N/A N/A 129,890,502 137,736,688
Diluted................ N/A N/A N/A N/A N/A 141,485,182 151,580,906
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 29,915 $ 30,301 $ 32,566 $ 27,153 $ 29,791 20,292 61,220
Total assets............ 3,584,173 3,546,646 3,433,803 3,412,701 3,443,936 184,510 278,852
Total long-term debt.... 2,522,252 2,408,240 1,539,322 1,526,047 1,264,984 -- --
Stockholders' equity.... 447,756 126,130 1,352,598 1,344,048 1,605,158 156,293 241,930
Other Data:
Net cash provided (used)
by operating
activities(1).......... $ 61,543 $ (3,364) $ 95,776 $ 82,791 $ 63,923 N/A N/A
EBITDA(2)............... 234,338 276,810 244,346 106,200 130,602 31,310 17,782
Capital expenditures.... 22,365 30,196 36,599 27,399 64,624 N/A N/A
Investments and
acquisitions, net of
cash acquired.......... 2,124,823 14,000 27,772 13,192 65,181 N/A N/A
</TABLE>
- --------
<TABLE>
<S> <C>
</TABLE>
(1) This information should be read in conjunction with the more detailed
information concerning cash flows from operating, investing and financing
activities in the Consolidated Statements of Cash Flows set forth in Ziff-
Davis Inc.'s Consolidated Financial Statements included in an Annex to this
proxy statement.

(2) "EBITDA" is defined as income before provision for income taxes, interest
expense, depreciation and other non-cash charges. These non-cash charges
include amortization of intangible assets and stock-based compensation
expense. EBITDA as reported for Ziff-Davis Inc. includes its proportionate
interest in the EBITDA of ZDTV, LLC. EBITDA for the year ending December
31, 1998 does not include a one-time restructuring charge of $52,239,000.
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 Ziff-
Davis Inc.'s operating performance or to cash flows as a measure of
liquidity. Although Ziff-Davis Inc. 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, the EBITDA
presented for Ziff-Davis Inc. may not be comparable to similarly titled
measures reported by other companies.

11
<PAGE>

ZD DIVISION

SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL AND OTHER DATA

The following table presents summary historical combined historical data for
ZD as of and for the years ended December 31, 1996, 1997 and 1998 and as of and
for the nine months ended September 30, 1998 and 1999. ZD is the division of
Ziff-Davis Inc. focused on the businesses of print publishing, trade shows and
conferences and education. This data was derived from the Combined Financial
Statements of ZD which, except for the 1996 balance sheet, are included in an
Annex to this proxy statement. The data as of and for the nine months ended
September 30, 1998 and 1999 are unaudited.

An affiliate of Ziff-Davis Inc. acquired a print publishing business on
February 29, 1996; the data does not include results from the acquired business
for the period before the date of acquisition. On May 4, 1998, Ziff-Davis Inc.
completed a reorganization described in Note 2 to the unaudited Combined
Financial Statements of ZD and on April 6, 1999, Ziff-Davis Inc. completed a
public offering of ZDNet stock described in Note 3 to the unaudited Combined
Financial Statements of ZD. Results for periods before the reorganization and
public offering are not directly comparable to results for periods after those
events. No historical earnings per share or share data are presented as Ziff-
Davis Inc. does not consider such data meaningful.

In addition, the table presents unaudited summary pro forma combined data as
of and for the year ended December 31, 1998 and as of and for the nine months
ended September 30, 1999. The pro forma data gives effect to the transactions
described in Notes 2 and 3 to the unaudited Combined Financial Statements of
ZD, in a manner consistent with the treatments of those transactions in the
Unaudited Pro Forma Consolidated Financial Statements of Ziff-Davis Inc.
appearing later in this proxy statement. However, the pro forma data does not
give effect to any of the transactions included in the restructuring.

The pro forma data is not necessarily indicative of the actual financial
position or results of operations of ZD as of or for the year ended December
31, 1998 or as of or for the nine months ended September 30, 1999 or the
financial position or results of operations that ZD would have experienced if
the transactions for which the data gives pro forma effect had in fact occurred
at the times assumed. Also, the pro forma data does not purport to represent
ZD's future financial position or results of operations.

This table should be read in conjunction with the Selected Historical
Combined Financial and Other Data, Management's Discussion and Analysis of
Financial Condition and Results of Operations and Financial Statements for each
of Ziff-Davis Inc., ZD and ZDNet included in Annexes to this proxy statement.

12
<PAGE>

<TABLE>
<CAPTION>
Nine month Pro forma
period ended Pro forma nine month
Year ended December 31, September 30, year ended period ended
---------------------------------- ------------------------ December 31, September 30,
1996 1997 1998 1998 1999 1998 1999
---------- ---------- ---------- ----------- ----------- ------------ -------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue, net............ $ 938,924 $1,121,543 $1,052,749 $ 694,081 $ 685,119 $ 1,052,749 $ 685,119
Depreciation and
amortization........... 134,251 147,259 146,096 109,814 120,076 146,996 120,076
Income (loss) from
operations............. 104,594 131,713 38,586 (8,062) (40,764) 37,338 (40,764)
Interest expense, net... 120,646 190,445 143,547 111,185 90,545 123,659 86,878
Loss before income
taxes.................. (26,636) (71,648) (104,748) (119,456) (89,089) (85,940) (84,924)
Net loss................ (52,081) (71,179) (77,809) (86,179) (55,947) (66,524) (53,448)
Net loss per share...... N/A N/A N/A $ (0.86) $ (0.55) $ (0.67) $ (0.52)
Weighted average shares
outstanding............ N/A N/A N/A 100,000,000 102,508,377 100,000,000 102,508,377
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 29,915 $ 30,273 $ 32,274 $ 26,728 $ 29,300 $ 32,274 $ 29,300
Total assets............ 3,584,963 3,548,108 3,429,938 3,405,300 3,432,951 3,439,333 3,432,951
Total long-term debt.... 2,522,252 2,408,240 1,539,322 1,526,047 1,264,984 1,340,865 1,264,984
Division equity......... 447,756 126,130 1,352,598 1,344,048 1,592,637 1,534,565 1,592,637
Other Data:
Net cash provided by
operating
activities(1).......... $ 74,164 $ 11,900 $ 100,299 $ 87,455 $ 48,899 N/A N/A
EBITDA(2)............... 234,338 276,810 244,346 106,200 128,985 245,246 106,200
Capital expenditures.... 21,355 27,822 32,117 24,218 61,861 N/A N/A
Capital contributions to
ZDNet.................. 13,630 20,664 14,269 13,242 -- N/A N/A
Investments and
acquisitions, net of
cash acquired.......... 2,124,823 11,002 22,772 8,192 46,563 N/A N/A
</TABLE>
- --------
(1) This information should be read in conjunction with the more detailed
information concerning cash flows from operating, investing and financing
activities in the Combined Statements of Cash Flows set forth in ZD's
Combined Financial Statements included in an Annex to this proxy statement.
(2) "EBITDA" is defined as income before provision for income taxes, interest
expense, depreciation and other non-cash charges. These non-cash charges
include amortization of intangible assets and stock-based compensation
expense. EBITDA as reported for ZD includes its proportionate interest in
the EBITDA of ZDNet and ZDTV, LLC. EBITDA for the year ended December 31,
1998 does not include a one-time restructuring charge of $52,239,000.
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 ZD's
operating performance or to cash flows as a measure of liquidity. Although
Ziff-Davis Inc. 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, the EBITDA presented for ZD
may not be comparable to similarly titled measures reported by other
companies.

13
<PAGE>

ZDNET DIVISION

SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL AND OTHER DATA

The following table presents summary historical combined data for ZDNet as
of and for the ten month period ended December 31, 1996, as of and for the
years ended December 31, 1997 and 1998 and as of and for the nine months ended
September 30, 1998 and 1999. ZDNet is the online business division of Ziff-
Davis Inc. This data was derived from the Combined Financial Statements of
ZDNet which, except for the 1996 balance sheet, are included in an Annex to
this proxy statement. The data as of and for the nine months ended September
30, 1998 and 1999 are unaudited.

An affiliate of Ziff-Davis Inc. acquired ZDNet on February 29, 1996; the
data does not include results from ZDNet for the period before the date of
acquisition. No historical earnings per share or share data is presented as
Ziff-Davis Inc. does not consider such data to be meaningful.

In addition, the table presents unaudited summary pro forma combined data as
of and for the year ended December 31, 1998 and as of and for the nine months
ended September 30, 1999. The pro forma data gives pro forma effect to the
transactions described in Note 3 to the unaudited Combined Financial Statements
of ZDNet in a manner consistent with the treatment of those transactions in the
Unaudited Pro Forma Consolidated Financial Statements of Ziff-Davis Inc.
appearing later in this proxy statement. However, the pro forma data does not
give effect to any of the transactions included in the restructuring.

The pro forma data is not necessarily indicative of the actual financial
position or results of operations of ZDNet as of or for the year ended December
31, 1998 or as of or for the nine months ended September 30, 1999 or the
financial position or results of operations that ZDNet would have experienced
if the transactions for which the data gives pro forma effect had in fact
occurred at the times assumed. Also, the pro forma data does not purport to
represent ZDNet's future financial position or results of operations.

14
<PAGE>

<TABLE>
<CAPTION>
Pro forma
Ten months Year ended Nine month period ended Pro forma nine month
ended December 31, September 30, year ended period ended
December 31, ------------------ ------------------------ December 31, September 30,
1996 1997 1998 1998 1999 1998 1999
------------ -------- -------- ----------- ----------- ------------ -------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue, net............ $ 16,215 $ 32,218 $ 56,143 $ 36,466 $ 67,791 $ 56,143 $ 67,791
Cost of operations:
Production and
content............... 14,863 23,543 26,208 18,971 25,491 26,208 25,491
Selling, general and
administrative
expenses.............. 13,280 23,475 30,993 22,048 31,241 30,993 31,241
Stock-based
compensation expense.. -- -- -- -- 2,953 3,317 2,953
Depreciation and
amortization.......... 5,485 7,681 6,448 4,780 7,790 6,448 7,790
Income (loss) from
operations............. (17,413) (22,481) (7,506) (9,333) 316 (10,823) 316
Interest income......... -- -- -- -- 943 -- --
Minority interest....... -- 400 134 330 117 134 117
Income (loss) before
income taxes........... (17,413) (22,081) (7,372) (9,003) 1,376 (8,489) 1,926
Net income (loss)....... (16,925) (21,238) (7,884) (8,691) (111) (8,554) 219
Net loss per share...... N/A N/A N/A $ (0.12) $ (0.00) $ (0.12) $ 0.00
Weighted average shares
outstanding............ N/A N/A N/A 71,500,000 72,315,852 71,500,000 72,315,852
Balance Sheet Data (at
period end):
Total current assets.... $ 7,852 $ 11,521 $ 20,068 $ 15,502 $ 38,555 $ 45,953 $ 38,555
Total assets............ 82,507 87,326 97,686 95,092 179,650 118,953 179,650
Total liabilities....... 3,932 4,034 8,139 7,359 18,076 8,139 18,076
Division equity......... 78,575 83,292 89,547 87,734 161,574 115,432 161,574
Other Data:
Net cash provided (used)
in operating activities
(1).................... $(12,620) $(15,264) $ (4,522) $ (4,664) $ 15,022 N/A N/A
EBITDA (2).............. (11,928) (14,400) (924) (4,223) 11,176 (4,223) 11,176
Capital expenditures.... 1,010 2,374 4,483 3,181 2,763 N/A N/A
Investments and
acquisitions, net of
cash acquired.......... -- 2,998 5,000 5,000 18,618 N/A N/A
</TABLE>
- --------
(1) This information should be read in conjunction with the more detailed
information concerning cash flows from operating, investing and financing
activities in the Combined Statements of Cash Flows set forth in ZDNet's
Combined Financial Statements included in an Annex to this proxy statement.
(2) "EBITDA" is defined as income before provision for income taxes, interest
expense, depreciation and other non-cash charges. These non-cash charges
include amortization of intangible assets and stock-based compensation
expense. 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
ZDNet's operating performance or to cash flows as a measure of liquidity.
Although Ziff-Davis Inc. believes that EBITDA is a standard measure
commonly reported and widely used by analysts, investors and other
interested parties in the media industry, the EBITDA presented for ZDNet
may not be comparable to similarly titled measures reported by other
companies.

15
<PAGE>

COMPARATIVE PER SHARE DATA

We have set forth in the table below the following information:

. the pro forma book value and loss per share of ZD stock and ZDNet stock
as of and for the year ended December 31, 1998 and as of and for the
nine months ended September 30, 1999, in each case before giving effect
to the restructuring and based on the same assumptions and subject to
the same caveats described in the charts entitled "Summary Historical
and Pro Forma Combined Financial and Other Data" for ZD and ZDNet
appearing earlier in this summary,

. the pro forma book value and loss per share of common stock as of and
for the year ended December 31, 1998 and as of and for the nine months
ended September 30, 1999, in each case after giving effect to the
restructuring and based on the same assumptions and subject to the same
caveats described in the chart entitled "Summary Historical and Pro
Forma Consolidated Financial and Other Data" for Ziff-Davis Inc.
appearing earlier in this summary and

. the pro forma book value and loss per ZDNet estimated equivalent share
as of and for the year ended December 31, 1998 and as of and for the
nine months ended September 30, 1999, in each case computed by taking
the corresponding pro forma amount per share after giving effect to the
restructuring and multiplying it by an estimated exchange ratio for the
merger of 1.77.

<TABLE>
<CAPTION>
Post-
Restructuring
Pre- Pre- Post- ZDNet Stock
Restructuring Restructuring Restructuring Estimated
ZD Stock ZDNet Stock Common Stock Equivalent
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Pro forma book value per
share:
December 31, 1998..... $15.35 $ 1.61 $1.20 $2.13
September 30, 1999.... 15.42 2.19 1.72 3.04
Pro forma income (loss)
per share--basic:
Year ended December
31, 1998............. $(0.67) $(0.12) $0.06 $0.10
Nine months ended
September 30, 1999... (0.52) 0.00 0.01 0.02
Pro forma income (loss)
per share--diluted:
Year ended December
31, 1998............. $(0.67) $(0.12) $0.05 $0.09
Nine months ended
September 30, 1999... (0.52) 0.00 0.01 0.02
</TABLE>

16
<PAGE>

RISK FACTORS

You should carefully consider the risk factors described below, as well as the
other information included in this proxy statement, before you decide how to
vote on the proposals.

Risk Factors Relating to the Restructuring

The Sales Of ZD Publishing, ZD Education And ZD Events May Not Occur As
Contemplated

It is possible that the sale of one or more of ZD Publishing, ZD Education
and ZD Events will not occur as currently contemplated.

The ZD Publishing and ZD Education sales agreements are each subject to a
number of conditions, including, among others:

. the absence of certain adverse changes,

. the accuracy of representations and warranties on the closing date,

. the receipt of third party consents and

. the receipt of sufficient financing by the buyer.

Because these transactions are structured as asset sales, they will require
numerous third party consents, and we cannot assure you that we will be able to
obtain these consents on reasonable terms. The buyers will not be obligated to
purchase unless all the conditions to closing have been satisfied and we cannot
assure you that this will occur. If any of the conditions are not satisfied,
the sale may not proceed or we may be forced to renegotiate material terms,
including the price.

We are currently in discussions regarding a possible sale of ZD Events, but
we cannot assure you that a sale transaction will result and, if it does, we
cannot assure you that the sale price will meet Wall Street expectations. If we
are unable to reach agreement to sell ZD Events at an acceptable price, we
currently plan to recapitalize it and spin it off to holders of ZD stock.
However, we cannot assure you that we would be able to complete a
recapitalization and spin off. Moreover, if we are able to complete a
recapitalization and spin off of ZD Events, we cannot assure you that the value
of the special dividend (which would include most of the cash proceeds from the
recapitalization as well as the stock of ZD Events) would approximate the $5.00
per share of ZD stock that we currently envision.

If we do not complete one or more of the sales as planned, we will still be
free to complete the rest of the restructuring or otherwise revise it, in our
discretion.

The Special Dividend May Be Less Than $5.00 Per Share Of ZD Stock

We currently anticipate that we will pay a special dividend of about $5.00
per share of ZD stock as part of the restructuring. This is, however, an
estimate and we cannot assure you that this will be the actual amount of the
dividend. The board of directors will determine the amount of the dividend
after taking into account several factors, including:

. the actual amount of proceeds from the sales of ZD's businesses and

. the amount of cash we retain to cover ZD's actual and contingent
liabilities and to fund ZDNet's future cash needs.

The Exchange Ratio May Be More Or Less Than Our Example

Each share of ZDNet stock will convert into a fixed number of shares of our
common stock in the merger. The exact exchange ratio will depend upon three
factors that are not yet known and as a result we are unable to tell you now
what it will be. These three factors are:

. the value of the remaining ZD assets in excess of the cash set aside to
cover the ZD liabilities, as determined by our board of directors,

17
<PAGE>

. the market price of ZDNet stock on the date those assets are transferred
from ZD to ZDNet and

. the number of options to acquire ZD stock that are exercised prior to
the merger.

We have included an example of how we will calculate the exchange ratio in this
proxy statement which is based on certain assumptions with respect to these
three factors. This example, which results in an exchange ratio of about 1.77,
is included for illustrative purposes only. The actual exchange ratio may
differ significantly from this example and may even fall outside the range set
forth in the stockholder's letter that appears on the front cover of this proxy
statement.

The Amount We Leave Behind To Cover ZD Liabilities May Be Different From The
Amount Actually Needed

We will determine the amount that we will leave behind to cover actual or
contingent ZD liabilities based on the advice of management and our financial
and legal advisors, as contemplated under "Proposal 1--The Restructuring of
Ziff Davis--Repayment of ZD Debt and Provision for Other ZD Liabilities." Since
contingent liabilities are inherently uncertain, it is possible that the amount
we leave behind will turn out to be significantly more or less than the amount
actually needed to cover these liabilities. In that case, holders of ZDNet
stock would end up with significantly more or less value than they would
otherwise have, and holders of ZD stock would correspondingly end up with
significantly less or more value than they would otherwise have.

The Restructuring Involves Transactions That Might Create Conflicts Of
Interest

The restructuring involves transactions and issues that might create
conflicts or the appearance of conflicts between the interests of the holders
of ZD stock and the holders of ZDNet stock or between Softbank and other
stockholders. These transactions and issues include:

. the terms of the content license arrangements between ZDNet and the
buyer of our publishing business,

. the valuation of the assets being transferred from ZD to ZDNet,

. the valuation of any actual or contingent ZD liabilities that will be
provided for and

. the possibility that Softbank may provide equity or debt financing (or
both) to the buyer in connection with a possible sale of ZD Events.

In order to address these potential conflicts of interest, we created a special
committee of our board of directors to review these issues and make
recommendations to the full board. Our board of directors has followed the
recommendations of the special committee to date and expects to continue to do
so in the future.

The Sale Of ZD's Businesses May Adversely Affect ZDNet's Future Business

It is possible that the sale of ZD's businesses as part of the restructuring
may adversely affect ZDNet's future business in a number of ways, including the
following:

. ZDNet will no longer be able to leverage the ZD brand and cross-market
across all of ZD's platforms.

. ZDNet currently relies on content that it licenses from ZD Publishing on
an exclusive basis online. Under the agreement for the sale of ZD
Publishing, ZDNet will retain the rights to this content online for only
five years and those rights will remain exclusive to ZDNet for only
three years. After the three year exclusivity period expires, the buyer
of ZD Publishing will be free to use the content to compete with ZDNet
on the Internet, and after four years the buyer will be free to license
it to other online competitors.

18
<PAGE>

. The buyer of ZD Publishing is acquiring the "Ziff-Davis" brand name and
is receiving a license for the "ZD" brand name, in each case, for use in
print publishing and its future actions may adversely affect the ZD
brand.
. As a standalone company, ZDNet's costs of services may increase
significantly due to the loss of certain large volume discounts or other
special pricing arrangements it previously received as a division of
Ziff-Davis.

We Have Only Operated As A Standalone Company Since May 1998, And A
Significant Part Of Our Infrastructure May Be Transferred Along With The
Businesses Being Sold As Part Of The Restructuring

We have only operated as a standalone company since May 1998. In addition,
a significant part of our infrastructure may be transferred along with the
businesses being sold as part of the restructuring. Our success will depend on
our continued ability to manage the company with the resources available to us
and our ability to rebuild infrastructure appropriate for the new standalone
company.

ZDNet May Be Unable To Obtain Additional Financing On Reasonable Terms

As mentioned in a number of the risk factors described below, ZDNet will
need access to additional financing in order to be successful. Because the
company will be considerably smaller and less diversified after the
restructuring, it may be difficult for it to obtain additional financing on
reasonable terms. If this is the case, ZDNet's future financial position and
results of operations may be adversely affected.

Other Risk Factors

ZDNet Has An Extremely Limited Operating History And A History Of Net Losses
And There Is No Assurance ZDNet Will Report Net Income In The Future

ZDNet, which will constitute the principal business of the company after
the restructuring, has an extremely limited operating history and a
stockholder must consider the risks, expenses and difficulties frequently
encountered by such companies, particularly in the new and rapidly evolving
market for Internet products, content and services. We cannot assure you that
ZDNet will be successful in addressing such risks. Although ZDNet has
experienced revenue growth in recent periods, we cannot assure you that
ZDNet's revenue will continue to grow or continue at its current level.

ZDNet has incurred significant net losses in the past ($21.2 million in
1997, $7.9 million in 1998 and $0.1 million in the first nine months of 1999).
For more information regarding these net losses, see "ZDNet Summary Historical
and Pro Forma Combined Financial and Other Data" above, "Unaudited Pro Forma
Consolidated Financial Statements" below and ZDNet's Combined Financial
Statements in an Annex to this proxy statement. We cannot assure you that
ZDNet will report net income in the future.

We Cannot Accurately Predict ZDNet's Future Revenue

As a result of the evolving nature of the Internet and ZDNet's limited
operating history, we cannot accurately forecast ZDNet's revenue. Current and
future expense levels are based principally on estimated future revenue and
are to a large extent fixed. Accordingly, ZDNet may be unable to adjust
spending to compensate for any unexpected revenue shortfall. If ZDNet's actual
revenue is less than its estimated revenue, this could have an immediate
material adverse effect on ZDNet's profits and liquidity.

ZDNet's Quarterly Operating Results May Fluctuate Significantly And Are Not
Reliable Indicators Of Its Future Performance

ZDNet's quarterly operating results may fluctuate significantly because of
a variety of factors, many of which are outside our control, including:

. overall usage levels of the Internet and of ZDNet's sites in particular,

. demand for Internet advertising and the loss of advertisers,

. seasonal trends in Internet use and advertising,

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. the amount and timing of ZDNet's capital expenditures,

. costs relating to the expansion of ZDNet's operations and the
introduction of new sites and services,

. price competition or pricing changes in Internet advertising and

. costs relating to technical difficulties or system downtime.

We believe Internet advertising typically slows in the first quarter of the
year. Historically, ZDNet has experienced lower advertising and lower revenue
in the first quarter of each year as compared to the fourth quarter of the
prior year. Seasonality and cyclicality in the level of Internet advertising
expenditures generally could become more pronounced in the future as the
Internet becomes more accepted as an advertising vehicle. If a large number of
ZDNet's advertisers do not advertise in a given quarter or if advertising
revenue is deferred, ZDNet's revenue in that quarter could be substantially
reduced. This would have a material adverse affect on ZDNet's operating results
and could impair its business in future periods. Quarterly comparisons of
ZDNet's results of operations are not reliable and you should not rely on them
as an indication of ZDNet's future performance. For additional information
about the seasonality of ZDNet's revenue, see "ZDNet Management's Discussion
and Analysis of Financial Condition and Results of Operations" in an Annex to
this proxy statement.

ZDNet's Future Revenue Is Dependent On The Growth Of Internet Use And The
Acceptance Of The Internet As An Advertising And Commerce Medium

ZDNet's future revenue will depend largely on the widespread acceptance and
use of the Internet as an information source and as an advertising and commerce
vehicle. Rapid growth in Internet use is a recent trend and market acceptance
of the Internet as an advertising and commercial medium is highly uncertain.

The Internet may not be accepted as a viable advertising and commerce medium
for distribution of information and engaging in commerce for a number of
reasons, including:

. inadequate development of the network infrastructure,

. inadequate development of enabling technologies,

. insufficient commercial support for Internet advertising,

. concerns about privacy and security among users and

. lack of widely accepted standards for measuring the effectiveness of
advertising on the Internet.

ZDNet Depends On Advertising As A Principal Source Of Its Revenue

ZDNet derived 86% of its revenue in 1998 and 92% of its revenue in the first
nine months of 1999 from the sale of advertising on its Internet sites and we
expect that advertising revenue will continue to be the principal source of
ZDNet's revenue in the foreseeable future. Most of ZDNet's advertising
contracts are either short-term contracts and/or can be terminated by the
advertiser at any time with little notice. We cannot assure you that ZDNet will
be able to retain current advertisers or obtain new advertising contracts.

ZDNet's ability to generate advertising revenue will depend on several
factors, including:

. the continued development of the Internet as an advertising medium,

. the pricing of advertising on other Internet sites,

. the amount of traffic on ZDNet's network of sites,

. pricing pressures, delays and new product launches,

. ZDNet's ability to achieve, demonstrate and maintain attractive user
demographics and

. ZDNet's ability to develop and retain a skilled advertising sales force.

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ZDNet Is Increasingly Dependent On, And Receives A Significant Percentage Of
Its Revenue From, A Limited Number of Advertisers

A relatively small number of advertisers contribute a significant percentage
of ZDNet's consolidated revenue. ZDNet's top 20 advertising customers accounted
for approximately 46.5% of its advertising revenue in 1998 and approximately
42.1% of its advertising revenues in the first nine months of 1999. These
advertising clients, and its other advertising clients, may not continue to use
ZDNet's services to the same extent, or at all, in the future. A significant
reduction in advertising by one or more of ZDNet's largest advertisers would
have a material adverse effect on ZDNet's profits and liquidity.

ZDNet Depends On Arrangements With Third Parties For Internet Traffic To Its
Sites And ZDNet's Failure To Maintain These Arrangements With Third Parties
Could Adversely Affect Its Business

ZDNet's ability to advertise on and maintain links from other Internet sites
is an important element to its success. Traffic originating from links existing
on other Internet sites (particularly search engines, directories and other
navigational tools managed by Internet service providers and Web browser
companies), is an important segment of the overall traffic on ZDNet's Internet
sites. ZDNet has special linking arrangements to generate additional traffic
with Yahoo!, AltaVista, Go.com, Lycos and iVillage which are either short-term
arrangements and/or can be terminated with little notice. There is intense
competition for these types of linking arrangements. We cannot assure you that
these arrangements will be maintained or that advertising or links will
continue to be available on reasonable commercial terms or at all.

ZDNet Depends On Licensed Technology From Third Parties And ZDNet's Failure To
Maintain These Arrangements With Third Parties Could Adversely Affect Its
Business

ZDNet relies on certain technology licensed from third parties such as
Vignette's Storyserver, Thunderstone's Texis Search Engine and Netscape's Web
Server Software for use in operating and managing its Internet sites and
providing related services to users and advertisers. ZDNet's ability to
generate revenue from Internet commerce may also depend on data encryption and
authentication technologies that it may be required to license from third
parties. We cannot assure you that such technology licenses will be available
at all, that they will be available on reasonable commercial terms or that they
will operate as intended.

ZDNet's Competitive Position Depends On Its Ability To Attract And Retain Key
Personnel

ZDNet's failure to attract and retain qualified personnel could diminish its
competitive position. ZDNet's performance is substantially dependent on the
continued services and performance of its senior executive officers and other
key personnel. ZDNet does not have long-term employment agreements with any of
its key personnel and maintains no "key person" life insurance policies.
ZDNet's future success also depends on its ability to identify, attract, retain
and motivate highly skilled editorial, technical, managerial, sales, marketing
and customer service personnel. Competition for such persons is intense. We
cannot assure you that ZDNet will be able to attract or retain such personnel.

ZDNet May Not Be Able To Adequately Respond To Technological Change

The market for Internet products and services is characterized by rapid
technological developments, frequent new product introductions and evolving
industry standards. ZDNet will be required to continually improve the
performance, features and reliability of its network infrastructure and
Internet sites, particularly in response to competition and changing customer
demands. We cannot assure you that ZDNet will be successful in responding
rapidly, cost-effectively or adequately to such developments.

ZDNet's Competition Is Intense And Is Expected To Increase Significantly

We cannot assure you that ZDNet will be able to maintain its competitive
position. Competition among Internet content providers is intense and is
expected to increase significantly in the future. The market for

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Internet content sites is rapidly evolving and barriers to entry are low,
enabling newcomers to launch competitive sites at relatively low cost.
Moreover, increased competition could result in price reductions, reduced
margins or loss of market share, any of which could have an effect on our
future revenue and profits.

We believe ZDNet competes most directly with Web sites specializing in
broad-based technology information. These include c|net, CMP, Internet.com and
IDG. ZDNet also generally competes for users and advertisers with:

. Internet portals and search sites, that help users access information
rather than create original content and are not specifically focused on
technology related information, such as Excite, Infoseek, Lycos and
Yahoo!,

. general news sites, such as those provided by CNN and ABC,

. general purpose online service providers, such as America Online and
MSN,

. browser/software companies offering information services, such as
Microsoft and Netscape and

. large general-interest sites.

In addition, ZDNet competes with traditional media content businesses such
as newspapers, magazines, radio and television. In order to compete
successfully and attract users, advertisers and strategic partners, ZDNet must
continue to provide high quality, engaging content in a timely and cost-
effective manner.

To Remain Competitive, ZDNet Must Constantly Expand And Develop New Content
Areas And Services. This Is Inherently Risky And Expensive

ZDNet's future success may depend in part on its ability to continue
expanding its Internet sites to include new subject matters and services.
Costs related to developing new content areas and services are expensed as
they are incurred while revenue related to these new content areas and
services typically builds over time. Accordingly, ZDNet's profitability from
year to year may be adversely affected by the number and timing of new
launches. In addition, we cannot assure you that any new areas or services
will be developed in a timely or cost-effective manner or that they will be
successful.

ZDNet Has Launched An Expensive Advertising Campaign That May Or May Not Be
Effective.
ZDNet May Need To Spend Significantly More Money On Advertising In The Future

On December 25, 1999, ZDNet launched a 15-month, $25 million consumer
advertising campaign. This campaign is ZDNet's first major attempt at offline
consumer advertising. The campaign will initially run on network and cable TV,
in mainstream and technology-focused print publications and in key online and
outdoor positions. We cannot assure you that this campaign, or any other
advertising campaign we may launch in the future, will be effective. In
addition, to remain competitive, ZDNet may need to spend significantly more
money on advertising in the future and such additional costs could adversely
affect ZDNet's profits.

We Cannot Assure You That ZDNet Will Continue To Develop The ZDNet Brand

We cannot assure you that ZDNet will be able to continue to develop its
brand. ZDNet believes brand identity is important to attracting and expanding
its user base, Internet traffic and advertising and commerce relationships.
ZDNet believes the significance of brand recognition will intensify as the
number of Internet sites increases.

Any Capacity Constraints Or System Disruptions Could Have A Material Adverse
Effect On ZDNet

The performance and reliability of ZDNet's Internet sites and network
infrastructure are critical to its reputation and ability to attract and
retain users, advertisers, merchants and strategic partners. Any system error
or failure, or a sudden and significant increase in traffic, may result in the
unavailability of sites and significantly delay response times. Individual,
sustained or repeated occurrences could result in a loss of potential or
existing users, advertisers or strategic partners. In addition, because
ZDNet's advertising revenue is directly related to the number of
advertisements it delivers to users, system interruptions or delays would
reduce the number of impressions delivered and thereby reduce its revenue.

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ZDNet's systems and operations are vulnerable to interruption or malfunction
due to certain events beyond its control, including natural disasters,
telecommunications failures and computer hacking. ZDNet also relies on Web
browsers and online service providers to provide Internet access to its sites.
We cannot assure you that ZDNet will be able to expand its network
infrastructure, either itself or through use of third-party hosting systems or
service providers, on a timely basis sufficient to meet demand. ZDNet presently
has only a limited amount of redundant facilities or systems, no formal
disaster recovery plan and no sufficient business interruption insurance to
compensate for losses that may occur. Any interruption to its systems or
operations could have a material adverse effect on ZDNet's business and its
ability to retain users, advertisers and strategic partners.

ZDNet's Networks May Be Vulnerable To Security Risks

ZDNet's networks may be vulnerable to unauthorized access, computer viruses
and other security problems. A user who circumvents security measures could
misappropriate proprietary information or cause interruptions or malfunctions
in ZDNet's operations. ZDNet may be required to expend significant resources to
protect against the threat of such security breaches or to alleviate problems
caused by such breaches. Although ZDNet intends to continue to implement
industry-standard security measures, not all security measures which are
implemented may be the latest state of the art and such measures may be
inadequate.

Increased Government Regulation Of The Internet Could Have A Material Adverse
Effect On ZDNet

Increased government regulation, or the application of existing laws to
online activities, could inhibit Internet growth, expose ZDNet and other online
content providers to additional liabilities and increase the cost of doing
business. This could have a material adverse effect on ZDNet's profits and
liquidity. The increasing popularity and use of the Internet and other online
services may lead to the adoption of new laws and regulations in the U.S. or
elsewhere covering issues affecting ZDNet's business, such as online privacy,
copyright and trademark, sales taxes and fair business practices or which
require qualification to do business as a foreign corporation in certain
jurisdictions. For instance, the European Union's privacy regulations may limit
the collection and use of certain user information.

ZDNet Relies On Intellectual Property Rights Which May Not Be Adequately
Protected Under Current Laws

To establish and protect its trademarks, service marks and other proprietary
rights in its products and services, ZDNet relies on a combination of:

. copyright, unfair competition, trademark, service mark and trade secret
laws and

. confidentiality agreements with certain of its licensees and other third
parties and confidentiality agreements and policies covering its
employees.

We cannot assure you that these measures will be adequate, that ZDNet will
seek or be able to secure registrations for all of its marks in the U.S. or
internationally or that third parties will not infringe upon or misappropriate
its proprietary rights. Any infringement or misappropriation, or litigation
relating to intellectual property rights, may divert management's attention and
ZDNet's funds to litigate such claims.

Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related business are
uncertain and evolving. In particular, new domain name registration and
ownership priority procedures have recently been adopted which may make it more
difficult for ZDNet to retain or obtain desirable domain names.

ZDNet May Incur Liability For Its Internet Content And User Data

As a content provider, ZDNet may face potential liability for intellectual
property infringement, defamation, indecency and other claims. In addition,
ZDNet may incur liability for unauthorized duplication or

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distribution of third-party content or materials or for information collected
from and about its users. We cannot assure you that third parties or users will
not bring claims against ZDNet relating to proprietary rights or use of
personal information. Although ZDNet seeks to obtain indemnification from
strategic partners for any liability resulting from licensed content or linked
sites, we cannot assure you that such indemnities will always be obtainable or
adequate. ZDNet's general liability insurance may not cover or be adequate for
potential claims of this type.

ZDNet May Not Be Able To Adequately Manage Its Growth

ZDNet will need to effectively plan and manage its business to succeed in
the rapidly evolving Internet industry. ZDNet continues to increase the scope
of its operations and has grown its workforce substantially. As of December 31,
1998, ZDNet had a total of 316 employees and as of December 31, 1999, ZDNet had
a total of 483 employees--a growth of 52.8%. This growth has placed, and future
growth may place, a significant strain on ZDNet's resources. For example, we
expect that the variety of advertising products available on ZDNet sites will
expand, increasing demands on ZDNet's billing and collection systems and
requiring additional resources to properly determine pricing and discounting
structures. ZDNet expects that it will need to continue to improve its
financial and management controls and reporting systems and procedures, and
will need to continue to expand, train and manage its workforce.

ZDNet's Acquisition And Investment Strategy Exposes It To Risks

ZDNet currently intends to continue acquisitions of and investments in new
or complementary businesses, products, services or technologies. However, we
cannot assure you that ZDNet will be able to identify suitable acquisition or
investment candidates. Even if ZDNet does identify suitable candidates, we
cannot assure you that ZDNet will be able to make such acquisitions or
investments on reasonable commercial terms or successfully assimilate
personnel, operations, products, services or technologies into its operations.
This could disrupt ZDNet's ongoing business, distract ZDNet's management and
employees, increase ZDNet's expenses, including amortization of goodwill, and
materially and adversely affect ZDNet's profits and liquidity.

ZDNet Intends To Expand Its International Operations And May Encounter A
Number Of Problems Doing So. There Are Also A Number Of Risks Associated With
International Operations That Could Adversely Affect ZDNet's Business

Expansion Of International Operations. One component of ZDNet's growth
strategy is to further expand into international markets. ZDNet's international
operations are at an early stage of development and have an extremely limited
operating history. In addition, the markets in which ZDNet has undertaken
international expansion have technology and online industries that are less
well developed than in the U.S.

Risks Of International Operations. There are certain risks inherent in doing
business in international markets, such as the following:

. uncertainty of product acceptance by different cultures,

. unforeseen changes in regulatory requirements,

. difficulties in staffing and managing multinational operations,

. state-imposed restrictions on the repatriation of funds,

. currency fluctuations,

. difficulties in finding appropriate foreign licensees or joint venture
partners and

. potentially adverse tax consequences.

There is a risk that such factors will have an adverse effect on ZDNet's
ability to successfully operate internationally and on its profits and
liquidity.

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The Inclusion Of Computer Shopper In Our Consolidated Results May Adversely
Affect Our Stock Price

We plan to include our Computer Shopper business in the assets that we will
transfer to ZDNet in return for an increase in ZD's retained interest in
ZDNet. Although we expect that the value of Computer Shopper will be
immaterial in relation to the expected market capitalization of ZDNet Inc.
after the restructuring, we also expect Computer Shopper to be highly material
to the consolidated financial statements of ZDNet Inc. after the
restructuring. Even though we plan to break out our online business as a
separate segment from our Computer Shopper business for accounting purposes,
it is possible that the market will not value our stock as highly as it would
in the absence of Computer Shopper since, among other things, we expect that
our consolidated revenues will grow at a substantially lower rate (or may even
decline) as a result of including Computer Shopper in our consolidated
results.

Our Historical And Pro Forma Financial Information Is Not particularly
Relevant To Our Actual Results

Our financial information included in this proxy statement does not reflect
what the actual results of operations, financial position and cash flows would
have been had Ziff-Davis existed and the restructuring been completed prior to
the periods in question. In addition, the financial information is not
necessarily indicative of our future results of operations, financial position
and cash flows.

We Are Controlled By Our Principal Stockholder. This Creates Potential
Conflicts Of Interest

SOFTBANK Corp. and its non-Ziff-Davis affiliates ("Softbank") currently own
71,620,000 shares of ZD stock and will, after the restructuring, own a
majority of our outstanding shares of common stock. As a result, Softbank will
be able to elect all the members of the board of directors. Softbank could
also control those actions requiring the approval of the holders of a majority
of the voting stock, including amendments to our charter and any business
combinations. This concentration of ownership could prevent a change in
control of ZDNet that might otherwise be beneficial to stockholders.

We have entered into certain agreements with Softbank governing ongoing
relationships. These agreements include certain licensing and management
agreements relating to ZDNet. However, the agreements with Softbank do not
preclude investments by venture capital funds managed by Softbank which invest
in, among other things, computer and Internet-related companies. These funds
may be able to co-invest with or compete with ZDNet with respect to new
investments. In addition, Softbank may also develop new funds which may
compete with ZDNet for investment opportunities. These agreements will also
prohibit ZDNet from competing with SOFTBANK Corp. in Japan without the prior
approval of SOFTBANK Corp.'s board of directors and give Softbank the
continuing right to license all of ZDNet's products and services in Japan.
These arrangements and undertakings might be less favorable than arrangements
negotiated at arm's length between unrelated parties.

We Are A Defendant In Several Lawsuits, Which Could Materially And Adversely
Affect Our Business And Operations

In connection with the initial public offering of our common stock on April
28, 1998, the repricing of certain stock options and a former joint venture
between Softbank and certain third parties, we have been named as a defendant
in several lawsuits. While we believe there are substantial defenses to all of
the claims, we cannot assure you that we will prevail. Defense costs and/or
settlement costs relating to these actions could be substantial, and the
defense of these actions may divert management's attention and resources. If
the plaintiffs prevail in these actions, any judgments awarded by the courts
could have a material adverse effect on our liquidity. For more information
regarding these lawsuits, see "ZDNet Description of Business--Legal
Proceedings" set forth in an Annex to this proxy statement.

----------------

Our logo and certain of our Internet sites, publications, products and
services referenced in this proxy statement are our trademarks. Each trade
name, trademark or service mark of any other company appearing in this proxy
statement is the property of its owner.

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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS

Some of the information in this proxy statement may constitute forward-
looking statements which are subject to various risks and uncertainties. These
forward-looking statements include, without limitation, statements regarding
the timing of the sales that are part of the restructuring (or even whether
those sales will in fact close), the net proceeds to be received in those
sales, the timing and amount of the cash dividend to be paid to holders of ZD
stock as part of the restructuring, the ZD liabilities that will need to be
provided for as part of the restructuring, the timing of the merger, the
ZD/ZDNet equivalency ratio and the exchange ratio for the merger, our future
business plans and strategies and our future financial condition or results of
operations, as well as other statements that are not historical. You can find
many of these statements by looking for words like "may," "will," "believes,"
"expects," "anticipates," "plans" and "estimates" and for similar expressions.

Because forward-looking statements involve risks and uncertainties, there
are factors that could cause the actual results to differ materially from those
expressed or implied. For example, the statements appearing under "Risk
Factors" and other cautionary statements appearing in Management's Discussion
and Analysis of Financial Condition and Results of Operations for each of Ziff-
Davis Inc., ZDNet and ZD appearing elsewhere in this proxy statement describe
circumstances that could materially affect the accuracy of forward-looking
statements.

If there are any subsequent written or oral forward-looking statements made
by us or any person acting on our behalf, they are qualified in total by the
cautionary statements contained or referred to in this section. We do not
undertake any obligation to release publicly any revisions to these forward-
looking statements to reflect events or circumstances after the date of this
document or to reflect the occurrence of unanticipated events.

This proxy statement also includes statistical data regarding the
publishing, trade show and Internet industries. This data was obtained from
industry publications and reports which we believe to be reliable sources. We
have not independently verified such data nor sought the consent of any
organizations to refer to their reports in this proxy statement.

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THE SPECIAL MEETING

General

The board of directors of Ziff-Davis Inc. is furnishing this proxy statement
to solicit proxies in connection with a special meeting to be held at 9:00
a.m., Eastern Standard Time, on February 29, 2000 at our offices at 28 East
28th Street, New York, New York and at any adjournments or postponements
thereof.

The purpose of the special meeting is to:

. Consider and adopt resolutions authorizing the restructuring of Ziff-
Davis Inc. These resolutions are set forth in full in Annex I to this
proxy statement. We refer to this proposal as Proposal 1.

. Consider and approve proposals to amend each of the Amended 1998
Incentive Compensation Plan and the Amended Non-Employee Directors'
Stock Option Plan to increase the number of shares available for
issuance thereunder. We refer to these proposals as Proposals 2 and 3.

. Act on other matters that may be brought properly before the special
meeting.

The board of directors recommends that stockholders vote "FOR" Proposals 1,
2 and 3.

Record Date; Voting

Stockholders of record at the close of business on February 7, 2000 are
entitled to vote at the special meeting. As of this record date, there were
approximately 103.7 million shares of ZD stock issued and outstanding and
approximately 14.1 million shares of ZDNet stock issued and outstanding.
Holders of ZD stock and holders of ZDNet stock will vote together as a single
class on all business before the special meeting. A quorum will be met at the
special meeting if the holders of a majority of the outstanding shares of
common stock are present in person or by proxy.

Holders of ZD stock will be entitled to one vote per share of ZD stock held
on the record date and holders of ZDNet stock will be entitled to 1.47758 votes
per share of ZDNet stock held on the record date. The voting rights of the
ZDNet stock were determined based on the relative average trading prices of the
ZDNet stock and the ZD stock during the twenty consecutive trading day period
ending on and including the fifth trading day before the record date.

Presence of Independent Accountants

Representatives of our independent accountants will be present at the
special meeting and will have the opportunity to make a statement if they so
desire. The independent accountants will be available to respond to appropriate
questions you might have.

Vote Required

Proposal 1 requires the affirmative vote of the holders of shares entitled
to cast a majority of the votes entitled to be cast by all outstanding shares
of common stock. Each of Proposals 2 and 3 requires the affirmative vote of the
holders of shares entitled to cast a majority of the votes entitled to be cast
by all shares of common stock present in person or represented by proxy at the
special meeting. Any failure to be present at the special meeting, in person or
by proxy, any abstention and any failure to instruct a broker as to how to vote
shares held by such broker with respect to any proposal will have the same
effect as votes against each of the proposals. If a broker, which is the record
holder of certain shares, indicates on a form of proxy that it does not have
discretionary authority to vote such shares on any proposal, or if shares are
voted in other circumstances in which proxy authority is defective or has been
withheld with respect to such proposal, these non-voted shares will be counted
for quorum purposes but will have the same effect as a vote against each of the
proposals.

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Proxies

Each copy of this document mailed to stockholders is accompanied by a form
of proxy with voting instructions for submission by mail. We will vote shares
represented by the proxies received and not properly revoked in accordance with
the instructions contained therein. A stockholder who has given a proxy may
revoke it at any time before it is exercised by filing with the Secretary of
Ziff-Davis a written revocation or a duly executed proxy bearing a later date
or by voting in person at the special meeting. However, a proxy is not revoked
by simply attending the special meeting. Stockholders who have instructed a
broker to vote their shares must follow directions received from their broker
to change or revoke their proxy. To submit a written proxy by mail,
stockholders should complete, sign, date and mail the proxy card provided with
this document in accordance with the instructions set forth on such card. If no
choice is specified on the form of proxy, the shares will be voted "FOR" the
approval of each of the proposals described in this proxy statement. If you
vote "FOR" the proposals at the special meeting you may be forfeiting your
right to challenge the proposals in the future.

Other Matters

The board of directors is not currently aware of any business to be acted
upon at its stockholders meeting, other than as described herein. If, however,
other matters are properly brought before the special meeting, the persons
appointed as proxies will have discretion to vote or act thereon according to
their best judgment, unless otherwise indicated on any particular proxy. The
persons appointed as proxies also will have discretion to vote on adjournment
of the special meeting. Such adjournment may be for the purpose of soliciting
additional proxies. Notwithstanding the foregoing, shares represented by
proxies voting against the adoption of the restructuring will be voted against
a proposal to adjourn the special meeting for the purposes of soliciting
additional proxies.

Solicitation of Proxies

We will bear the expense of printing and mailing proxy materials. In
addition to soliciting proxies by mail, certain of our directors, officers and
other employees may solicit proxies by personal interview, telephone or
facsimile. We will not pay additional compensation to such persons for such
solicitation. We will reimburse brokerage firms and others for their reasonable
expenses in forwarding solicitation materials to beneficial owners of common
stock. We have also retained Morrow & Co., Inc. to perform various proxy
advisory, distribution and solicitation services at a cost of approximately
$2,500 plus disbursements.

Do Not Send in Stock Certificates

Stockholders should not send stock certificates with their proxy cards.
After the merger constituting part of the restructuring is completed:

. we will mail holders of ZDNet stock a transmittal form with instructions
on how to exchange their current stock certificates for stock
certificates representing common stock of the surviving company and

. holders of ZD stock will not need to exchange their stock certificates
since their ZD stock will remain outstanding as shares of common stock
of the surviving company and their stock certificates will continue to
represent those shares. However, if after the merger any holders of ZD
stock would like to exchange their stock certificates for new stock
certificates that specify the new name of the company and the correct
designation for the common stock, they should contact the company's
transfer agent or Secretary.

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OUR CURRENT COMPANY

The mailing address of our principal executive offices is 28 East 28th
Street, New York, New York 10016, and our telephone number is (212) 503-3500.

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PROPOSAL 1--THE RESTRUCTURING OF ZIFF-DAVIS

General

At the special meeting, stockholders will be asked to consider and adopt
resolutions authorizing the restructuring of Ziff-Davis Inc. These resolutions
are set forth in full in Annex I to this proxy statement.

. sell substantially all of our non-Internet assets for cash; these assets
include substantially all of ZD's assets other than its retained
interest in ZDNet;

. use a portion of the proceeds from these sales to repay ZD's debt and to
cover certain other ZD liabilities;

. dividend out all or most of the remaining proceeds to the holders of ZD
stock; we currently estimate this special dividend will amount to about
$5.00 per share;

. transfer the remaining ZD assets, including Computer Shopper and our
interest in Red Herring Communications Inc., to ZDNet in return for an
increase in ZD's retained interest in ZDNet; and

. eliminate our existing tracking stock structure by merging with ZD
Merger Subsidiary Inc., our newly formed subsidiary, so that all of our
stockholders will hold a single class of ordinary common stock.

ZD Merger Subsidiary is a Delaware corporation organized in January 2000 and is
a wholly owned subsidiary of Ziff-Davis Inc. To date, this subsidiary has
engaged in no activities other than those incident to its formation and the
merger. The mailing address of its principal executive offices is 28 East 28th
Street, New York, New York 10016, and its telephone number is (212) 503-3500.

Sales of Non-Internet Assets for Cash

Repayment of ZD Debt and Provision for Other ZD Liabilities

The principal amount of our debt is currently about $1.0 billion and all of
it is attributed to ZD. We will use a portion of the asset sale or
recapitalization proceeds to repay this debt. We will also use a portion to
cover the amounts that ZD owes ZDNet and certain other actual or contingent ZD
liabilities, net of amounts that ZDNet owes ZD. We will determine the amount
that we will leave behind to cover these other actual or contingent ZD
liabilities based on the advice of management and our financial and legal
advisors. Because contingent liabilities are inherently uncertain, it is
possible that the amount we leave behind will turn out to be significantly more
or less than the amount actually needed to cover these liabilities.

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Dividend to ZD Stockholders

Transfer of Assets from ZD to ZDNet

We will transfer the following assets from ZD to ZDNet in return for an
increase in ZD's retained interest in ZDNet:

. our Computer Shopper business,

. our interest in Red Herring Communications Inc. and

. any other ZD assets that we have not sold or set aside to cover ZD
liabilities.

The Merger

. the number of shares of ZDNet stock issuable with respect to ZD's
retained interest in ZDNet, divided by

. the number of shares of ZD stock outstanding immediately prior to the
merger.

We call this number the "ZD/ZDNet equivalency ratio." After the merger, each
share of ZD stock will remain outstanding as one share of common stock. In
order to maintain the relationship between the ZD stock and ZDNet stock, in the
merger we will convert each share of ZDNet stock into a number of shares of
common stock equal to the reciprocal of the equivalency ratio. Thus, we will
convert each share of ZDNet stock into a number of shares of common stock equal
to:

. the number of shares of ZD stock outstanding immediately prior to the
merger, divided by

. the number of shares of ZDNet stock issuable with respect to ZD's
retained interest in ZDNet.

We call this number the "exchange ratio," and we will round it to the nearest
0.00001 before we apply it in the merger. Fractional shares of common stock
will not be issued to holders of ZDNet stock. In lieu of fractional shares,
holders of ZDNet stock will receive a cash payment.

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in the preceding section. Because this increase will depend on the final
valuation for the transferred assets and the market value of the ZDNet stock on
the date of transfer, we cannot now tell you the exact number we will use to
determine the ZD/ZDNet equivalency ratio and the exchange ratio.

We provide the following as an illustrative example of these calculations.
If we assume that:

. the transferred assets in excess of those set aside to cover ZD
liabilities will be valued at about $75 million,

. the market price of ZDNet stock on the transfer date will be $27.8125
per share (which is equal to the closing price of the ZDNet stock on
January 31, 2000), and

. options to purchase about 8 million shares of ZD stock will be exercised
before the merger, resulting in there being about 111 million shares of
ZD stock outstanding at the time of the merger,

then the ZD/ZDNet equivalency ratio would be about 0.56 (that is, each ZD share
would be equivalent to about 0.56 ZDNet shares) and the exchange ratio would be
about 1.77 (that is, in the merger we would convert each ZDNet share into about
1.77 shares of common stock). The actual ZD/ZDNet equivalency ratio and
exchange ratio will be determined as described earlier in this section; the
final numbers may significantly differ from those set forth in this
illustrative example and may even fall outside the ranges set forth in the
stockholder's letter that appears on the front cover of this proxy statement.

After the restructuring, we will be focused almost exclusively on the
Internet, and as part of the merger we will change our name to ZDNet Inc. to
reflect this new focus. We will also amend our certificate of incorporation to
delete all of the provisions relating to our existing tracking stock structure
so that it will provide for a single class of ordinary common stock. These
deletions will have no substantive effect, since our current certificate of
incorporation states that the tracking stock provisions will apply only when
there are shares of both series of common stock outstanding.

We currently expect to complete the merger in the second quarter of 2000.

For more information about the merger, see "--The Merger Agreement" below.

No Appraisal Rights

Under the Delaware General Corporation Law, you will not have appraisal
rights as a result of the restructuring.

Treatment of Options

We plan to deal with employee stock options to purchase ZD stock, which we
call "ZD options," and employee stock options to purchase ZDNet stock, which we
call "ZDNet options," in the following way:

. We will accelerate the vesting of all of the options granted in 1998,
and 50% of the options granted in 1999, held by any employee transferred
to the buyer of a sold business, but only if the employee remains with
the sold business until a specified date after the date on which we sell
that business or is terminated by the buyer before that day. The
remaining options held by these employees will be forfeited.

. We will generally accelerate the vesting of all of the ZD options
granted in 1998, and 50% of the ZD options granted in 1999, held by any
employee who remains with Ziff-Davis through a specified date or is
terminated by Ziff-Davis before that date as a result of the
restructuring. We do not currently expect to accelerate the vesting of
any ZDNet options held by employees who remain with Ziff-Davis.

. If we pay any dividend on ZD stock before a ZD option is exercised (as
expected), we will adjust the terms of the ZD options in a customary
manner in order to preserve the employee's effective position.

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. If ZD options are exercised prior to the merger, we will attribute the
exercise proceeds to ZD and will apply those proceeds to increase the
dividend we will pay to holders of ZD stock or to increase the amount we
will transfer from ZD to ZDNet in return for an increase in ZD's
retained interest in ZDNet. If ZDNet options are exercised prior to the
merger, we will attribute the exercise proceeds to ZDNet and those
proceeds will not affect the dividend or the amount we transfer from ZD
to ZDNet.

. Accelerated ZD options will generally expire on June 30, 2000, to the
extent they have not already been exercised or forfeited. ZDNet options
held by employees who remain with Ziff-Davis will expire according to
their current schedule.

If we complete the merger before all ZD options have been exercised, have
been forfeited or have expired, we will compensate ZDNet for the dilutive
effect of these options by either:

. leaving behind cash of ZD sufficient to cover the spread between the
aggregate market value of the shares subject to those options shortly
before the merger and the aggregate exercise price of those options (in
a manner analogous to the provision for ZD liabilities contemplated
under "--Repayment of ZD Debt and Provision for Other ZD Liabilities"
above) or

. reducing ZD's retained interest in ZDNet by an amount equal to the
spread referred to above divided by the market price of the ZDNet stock
on a date shortly before the merger (in a manner analogous to the
transfer of assets in return for an increased retained interest
contemplated under "--Transfer of Assets from ZD to ZDNet" above).

When we complete the merger, each remaining option to purchase a share of ZD
will continue to be an option to purchase a share of common stock at the same
exercise price.

When we complete the merger, each option to purchase a share of ZDNet will
become an option to purchase, for the same aggregate exercise price, a number
of shares of common stock equal to the exchange ratio in the merger.

Material Federal Income Tax Consequences of the Restructuring

The following summary of the federal income tax consequences of the
restructuring is based on the tax laws of the United States (including the
Internal Revenue Code of 1986, as amended, existing and proposed Treasury
Department regulations, published rulings and court decisions), all of which
are subject to change. This summary does not address the tax consequences of
the restructuring if you are a member of a special class of investors, such as

. a tax-exempt entity,

. a financial institution,

. an insurance company,

. a dealer in securities or currencies,

. a trader in securities who elects to use a mark-to-market method of
accounting,

. a person who is liable for alternative minimum tax,

. a person who actually or constructively owns 10% or more of the ZD stock
or ZDNet stock,

. a person who is not for United States federal income tax purposes
--a citizen or resident of the United States,
--a domestic corporation,
--an estate whose income is subject to United States federal income
taxation regardless of its source or
--a trust over which a United States court can exercise primary
supervision and as to which one or more United States persons are
authorized to control all substantial decisions,

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<PAGE>

. a person who holds ZD stock or ZDNet stock as part of a straddle,
hedging or conversion transaction or

. a person whose functional currency is not the U.S. dollar.

You should consult your own tax advisors with regard to the application of
the federal income tax laws to your particular situation, as well as to the
applicability and effect of any state, local, or foreign tax laws to which you
may be subject.

Assuming we have no earnings and profits for tax purposes (as we expect),
the dividend to holders of ZD stock will be treated as a return of capital
reducing basis for federal income tax purposes. If the amount of the dividend
exceeds a ZD stockholder's basis, the excess will be taxed for federal income
tax purposes as a capital gain and will be long-term capital gain or loss if
the ZD stockholder's holding period for the ZD stock exceeds one year. Long-
term capital gain of a noncorporate person is generally subject to a maximum
tax rate of 20%.

No ZD stockholder will be required to pay any federal income taxes as a
result of the merger. No ZDNet stockholder will be required to pay any federal
income taxes as a result of the merger, except to the extent of cash received
instead of a fractional share of common stock. Any cash received by a ZDNet
stockholder will be treated as received in redemption of the ZDNet
stockholder's fractional share interest, and the ZDNet stockholder would
generally recognize a capital gain or loss equal to the difference between the
amount of cash received and the ZDNet stockholder's basis in the ZDNet stock
exchanged therefor.

The company will not be required to pay any material federal income taxes as
a result of the merger.

Backup Withholding and Information Reporting

In general, we will report any dividend payments made to a ZD stockholder
that is a non-corporate United States person to the Internal Revenue Service.
We also will be required to "backup withhold" at the rate of 31% of the amount
of the dividend if you fail to provide your accurate taxpayer identification
number in the manner required by law, if the Internal Revenue Service notifies
us that you have failed to report all interest or dividends required to be
shown on your federal income tax returns or, in certain circumstances, if you
fail to comply with applicable certification requirements. Certain corporations
and other exempt persons may be required to establish their exemption from
information reporting and back-up withholding by certifying their status on
Internal Revenue Service Form W-8BEN.

We (or your broker) may also be required to report and backup withhold on
any cash received by a ZDNet stockholder instead of a fractional share of ZD
stock.

Amounts withheld under the backup withholding rules may be credited against
your tax liability, and you may obtain a refund of any excess amounts withheld
under the backup withholding rules by filing the appropriate claim for a refund
with the Internal Revenue Service.

Accounting

The restructuring will result in a net loss of about $1.2 billion. The
majority of this loss will be reported in the fourth quarter of 1999 with the
remainder expected to be recognized in the first quarter of 2000.

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recognizing an accounting loss on the sale but are not permitted to recognize
what we believe is currently a more than offsetting gain represented by the
difference between the current value and the book value of our online business.
The following table summarizes the estimated components of the loss:

<TABLE>
<CAPTION>
Component Estimated gain (loss)
- --------- ---------------------
<S> <C>
Sale of ZD Publishing (which excludes Computer
Shopper): ............................................. $ (766,000,000)*
Write-down of Computer Shopper intangible assets........ (270,000,000)**
Accounting charge for accelerating vesting of stock
options................................................ (190,000,000)
Sale of ZD Education.................................... 115,000,000*
Sale of equity interest in ZDTV......................... 111,000,000*
Sale of ZD Market Intelligence.......................... 75,000,000*
Sale of ZD Events and other transaction costs........... (320,000,000)
---------------
Estimated loss........................................ $(1,245,000,000)
===============
</TABLE>
- --------
* Based on sales prices in completed or announced transactions. See "--The
Sale Agreements" below.

** The write-down of Computer Shopper intangible assets results from
management's review of the recoverability of the value of such assets. This
review was undertaken during the fourth quarter of 1999 primarily due to
the write-down of intangible assets resulting from the agreement to sell
our other publications. Based on management's current assessment of market
conditions, projected future profitability and the impact of the
restructuring, including the loss of certain synergies, an impairment
write-down, estimated to be approximately $270 million, will be recorded in
the fourth quarter of 1999. The amount of this write-down was determined
based upon a discounted cash flow analysis.

The foregoing amounts are only estimates. The actual gain or loss associated
with each component may be more or less than that set forth above.

Listing

After the merger, our common stock will continue to be listed on the NYSE,
although we may investigate the possibility of transferring our listing to
NASDAQ at some point in the future.

Recommendation of the Board of Directors

The board of directors has carefully considered and unanimously approved
Proposal 1 and determined that it is in the best interests of our company and
all of our stockholders. The board of directors recommends that you vote "FOR"
Proposal 1.

Background of the Restructuring

We continually review each of our businesses and Ziff-Davis Inc. as a whole
to determine the best way to realize the company's inherent value. As a result
of this review process, we retained Morgan Stanley Dean Witter (whom we call
"Morgan Stanley") and Sullivan & Cromwell in mid 1999 and shortly thereafter we
publicly announced that we were beginning to explore strategic alternatives to
maximize stockholder value. As part of this exploration process, we determined
to explore the possible sale of all or substantially all of our non-Internet
assets.

Accordingly, Morgan Stanley, on our behalf, commenced auctions with respect
to the ZDTV, ZD Education, ZD Publishing and ZD Events divisions. Each business
was the subject of its own auction process. All of these auctions proceeded in
similar fashion, with Morgan Stanley working with our management to

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<PAGE>

identify potential purchasers and to prepare presentations discussing the
operations of those businesses for those potential purchasers. Morgan Stanley
also delivered to potential purchasers a form of sale agreement prepared by us
and our legal counsel with respect to each of the potential sales. In each
case, Morgan Stanley requested potential purchasers to submit bids with respect
to their proposed purchase. Potential purchasers then conducted due diligence
investigations with respect to the relevant businesses and submitted bids.
Morgan Stanley then discussed these bids with the potential purchasers, and
indicated the manner in which such bids could be improved to make such bids
more attractive to us. Thereafter, we and our financial and legal advisors
commenced negotiations and proceeded to final contract with whichever purchaser
we had determined had made the most attractive offer with respect to a given
business.

Set forth below is a more specific chronology for these auctions:

. Auction for ZD Education--Throughout August and September 1999, Ziff-
Davis and Morgan Stanley discussed a possible ZD Education transaction
with a variety of potential purchasers and invited those potential
purchasers to submit indications of interest by October 7, 1999. On
October 7, 1999, various interested parties submitted initial
indications of interest. On November 15, 1999, interested parties
submitted final bids and Morgan Stanley began to discuss the terms of
those bids with those parties. On November 16, 1999, Ziff-Davis and its
financial and legal advisors commenced negotiations for the sale of the
ZD Education division with Wasserstein Perella U.S. Equity Partners and
its financial and legal advisors. On November 17, 1999, Ziff-Davis
entered into an agreement to sell its ZD Education division to a company
controlled by Wasserstein Perella. For more information about this
agreement, see "--The Sale Agreements--ZD Education" below.

. Auction for ZDTV--Throughout August and September 1999, Ziff-Davis and
Morgan Stanley discussed a possible ZDTV transaction with a variety of
potential purchasers and invited those potential purchasers to submit
indications of interest. During October 1999, various interested parties
submitted initial indications of interest. Throughout October and into
November 1999, Morgan Stanley reviewed the terms of those indications of
interest with the interested parties. On November 7, 1999, Ziff-Davis
and its financial and legal advisors commenced negotiations for the sale
of our equity interest in ZDTV with Vulcan Programming Inc. (a company
controlled by Paul G. Allen) and its financial and legal advisors.
Vulcan Programming Inc. owned almost all of the equity in ZDTV that we
did not own. On November 19, 1999, Ziff-Davis entered into an agreement
to sell its equity interest in ZDTV to Vulcan Programming Inc. On
January 21, 2000, we completed this transaction. For more information
about this agreement, see "--The Sale Agreements--ZDTV" below.

. Auction for ZD Publishing--Throughout August and September 1999, Ziff-
Davis and Morgan Stanley discussed a possible ZD Publishing transaction
with a variety of potential purchasers and invited those potential
purchasers to submit indications of interest by October 7, 1999. On
October 7, 1999, various interested parties submitted initial
indications of interest. On November 19, 1999, interested parties
submitted final bids and Morgan Stanley began to discuss the terms of
those bids with those parties. On November 30, 1999, Ziff-Davis and its
financial and legal advisors commenced negotiations for the sale of the
ZD Publishing division with Willis Stein & Partners and its financial
and legal advisors. On December 6, 1999, Ziff-Davis entered into an
agreement to sell its ZD Publishing division to a company controlled by
Willis Stein & Partners. For more information about this agreement, see
" -- The Sale Agreements--ZD Publishing" below.

. Auction for ZD Events--Beginning in August 1999, Ziff-Davis and Morgan
Stanley discussed a possible ZD Events transaction with a variety of
potential purchasers and invited those purchasers to submit indications
of interest, and since that time various interested parties have done
so. We are currently in discussions regarding a possible sale of ZD
Events, and we expect to complete this sale or recapitalize ZD Events
and spin it off to holders of ZD stock in the second quarter of 2000.

Because the restructuring involves transactions that might create conflicts
or the appearance of conflicts between the interests of the holders of ZD stock
and the holders of ZDNet stock or between Softbank and other

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<PAGE>

stockholders, we created a special committee of our board of directors to
review these issues and make recommendations to the full board. The sole member
of the special committee is Jonathan Lazarus. The special committee engaged
Hambrecht & Quist as financial advisors and Preston Gates & Ellis LLP as legal
advisors to assist it in its work. The special committee has been an active
participant in the restructuring process. The special committee has met
frequently with its financial and legal advisors and members of Ziff-Davis'
senior management to review the terms of the restructuring, including the
material terms of the asset purchase agreements. The issues that have been
considered or will be considered by the special committee include:

. the terms of the content license arrangements between ZDNet and the
buyer of our publishing business,

. the valuation of the assets being transferred from ZD to ZDNet,

. the valuation of any actual or contingent ZD liabilities that will be
provided for and

. the possibility that Softbank may provide equity or debt financing (or
both) to the buyer in connection with a possible sale of ZD Events.

In each case thus far, the board of directors has followed the recommendations
of the special committee, and the board expects to continue to do so in the
future.

Reasons for the Restructuring

. allow the holders of ZD stock to realize value from our non-Internet
assets,

. allow us to focus on our Internet businesses,

. allow us to pay down all of our debt and

. eliminate our tracking stock structure.

For these reasons, the board of directors believes that the restructuring will
enhance stockholder value and is in the best interests of our company and all
of our stockholders.

In connection with the sales of particular businesses, the board of
directors also considered the following additional factors:

. the price and terms of the respective sale agreements, including the
fact that the price will be payable in cash,

. the fact that the company and Morgan Stanley had conducted an open
auction and that the company had not received any other offers that were
superior to the terms of these sales,

. the advice of Morgan Stanley, its financial advisor, as to the financial
aspects of each of the sales and

. the opinions of Morgan Stanley to the effect that, subject to the
matters and limitations set forth therein, the consideration to be
received by Ziff-Davis in connection with the sale of its ZD Publishing
business is fair, from a financial point of view, to Ziff-Davis. This
opinion, dated December 5, 1999, is attached as an Annex to this proxy
statement. We encourage you to read this opinion in its entirety.

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The board of directors also evaluated the potential negative aspects of the
restructuring, including the following:

. the challenges inherent in pursuing a business strategy relating to a
pure play Internet company,

. the possibility that the potential increase in price of the common stock
that may occur as a result of the restructuring may not be realized and

. the fact that the remaining sales may not be completed in the
anticipated time frame or on the agreed terms (particularly in light of
the fact that all of the remaining sales are conditioned on the buyer
obtaining debt financing).

The board of directors was fully aware of the interests of management and
directors described in the next section.

The foregoing discussion of the information and factors which were given
weight by the board of directors is not exhaustive, but includes all material
factors considered by it. The board of directors did not assign specific
weights to the foregoing factors and individual directors may have given
different weights to different factors. The board of directors did, however,
unanimously determine that the restructuring is in the best interests of our
company and all of our stockholders.

Interests of Management and Directors in the Restructuring

In considering the proposals and the recommendations of our board of
directors, you should be aware that some of our executive officers and
directors have interests in the proposals to be voted upon and some of these
interests may be different from those of the holders of ZD stock or ZDNet stock
or both. These interests include the following:

. Most of our executive officers and directors have unvested options to
acquire ZD stock at prices significantly below the current market price
which will vest as a result of the restructuring.

. Some of our executive officers and directors that are part of the
management of businesses we are selling intend to become employees of
the buyer and may receive significant financial inducements from the
buyer to do so.

. Most of our executive officers and directors have unvested options to
acquire ZDNet stock which may become more valuable as a result of the
restructuring.

. Some of our executive officers and directors are affiliated with
Softbank. Softbank is the largest holder of ZD stock and, accordingly,
has a greater economic interest in ZD than in ZDNet.

No Appraisal Rights

Under the General Corporation Law of the State of Delaware, you will not
have appraisal rights in connection with the restructuring.

The Sale Agreements

General

We have entered into four separate purchase agreements with various third
parties that provide for the sale of:

. ZD Market Intelligence, our market intelligence division,

. ZD Education, our business education division,

. our equity interest in ZDTV, our television division and

. ZD Publishing, our print publishing division.

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As of the date of this proxy statement, we have already completed the sale
of our ZD Market Intelligence division and our equity interest in ZDTV.

ZD Market Intelligence

On August 30, 1999, we entered into an agreement to sell our ZD Market
Intelligence division to Harte-Hanks for $101 million. The address of Harte-
Hanks is 200 Concord Plaza Drive, San Antonio, Texas 78216. On October 1, 1999,
we completed this transaction.

The initial purchase price was subject to a post-closing adjustment based on
the amount by which the division's working capital on the closing date was
greater than or less than zero. As a result of this post-closing adjustment,
the buyer paid us an additional $5 million.

Under the terms of the agreement, at closing the buyer acquired all of our
assets primarily used in the division, with certain limited exceptions. These
exceptions included:

. any assets primarily used in connection with the division's former
metric businesses and

. the marks "Ziff-Davis" and "ZD."

At closing, the buyer assumed all of our liabilities related to the
division, with certain limited exceptions. These exceptions included:

. any long term debt,

. certain liabilities relating to certain active and former employees and

. liabilities for taxes incurred prior to closing.

The agreement contained customary representations, warranties and covenants.
The representations and warranties generally terminate on March 1, 2000.

ZD Education

On November 17, 1999, we entered into an agreement to sell our ZD Education
division to WP Education Holdings LLC, a company controlled by Wasserstein
Perella, for $172 million, subject to an adjustment as described in the next
paragraph. The address of the buyer is c/o WP Management Partners, L.L.C., 320
Park Avenue, 14th Floor, New York, New York 10022. We expect to complete this
transaction in the first quarter of 2000.

The $172 million purchase price is subject to a post-closing adjustment in
either direction to the extent that the net assets of the division as of the
closing date is different from the net assets of the division as of September
30, 1999.

Under the terms of the agreement, at closing the buyer will acquire all of
our assets primarily related to, or used or held for use primarily in
connection with, the division's business, with certain limited exceptions.
These exceptions include:

. cash, bank accounts and marketable securities,

. rights under insurance policies and

. all rights to the names "Ziff-Davis," "Ziff," "ZD" and any derivation
thereof, subject to the division's license agreements with Smart Planet,
Inc. and ZDNet.

At closing, the buyer will assume all of our liabilities related to the
division, with certain limited exceptions. These exceptions include:

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. any obligations for borrowed money,

. all liabilities and obligations with respect to the Pacifica litigation
described in the purchase agreement and

. liabilities for taxes incurred prior to closing.

The agreement contains customary representations, warranties and covenants.
The representations and warranties will not survive closing.

The agreement contains customary conditions to closing. These conditions
include, without limitation, receipt of various governmental approvals and
third party consents. (Because the transaction is structured as an asset sale,
it will require numerous third party consents, but we do not currently expect
to have trouble obtaining any material consents.)

In addition, the following are conditions to the buyer's obligation to
complete the transaction:

. the buyer shall have obtained financing for the transaction on the terms
set forth in the commitment letter and term sheet provided from
BankBoston, N.A. at the time of the signing of the agreement and

. there shall not have occurred breaches of representations and
warranties, failures to perform covenants, failures to obtain specified
consents, and any material adverse change in the business, assets,
liabilities, results of operations, prospects or condition (financial or
otherwise) of the education division and Ziff-Davis Education Canada
taken as a whole, which, individually or in the aggregate, results in a
diminution in excess of $8.6 million in the value of the education
division and Ziff-Davis Education Canada taken as a whole (any portion
of such diminution of value that results in a corresponding reduction in
the net assets of the division as of the closing date (and that would
not have resulted in a net asset reduction in the absence of such
events), is excluded from such determination).

Either party may terminate the agreement if the transaction has not been
completed by March 1, 2000, as long as the terminating party has not breached
the agreement in a manner that has proximately contributed to the failure to
complete the transaction by such date. Either party may also terminate the
agreement if a condition to closing becomes incapable of being satisfied or if
any governmental entity enjoins the transactions. Further, one party may
terminate the agreement if the other breaches any of its representations,
warranties or covenants in any material respect that cannot be, or is not,
cured within 10 days.

ZDTV

On November 19, 1999, we entered into an agreement to sell our 64% equity
interest in ZDTV to Vulcan Programming Inc., a company controlled by Paul G.
Allen, for $204.8 million. The address of the buyer is Vulcan Programming Inc.,
110 110th Avenue, N.E., Suite 550, Bellevue, Washington 98004. Before this
transaction, the buyer owned a 32% interest in ZDTV. We completed this
transaction on January 21, 2000.

The agreement contains customary representations, warranties and covenants.
The representations and warranties generally terminate on the 60th day after
the closing. In addition, under the agreement:

. the buyer assumed our obligations to Sky TV under the Sky TV asset
purchase agreement,

. the buyer assumed our obligations to DirecTV under various agreements
and indemnified us from any liabilities or obligations arising pursuant
to such agreements,

. we will continue to provide certain services and rights to ZDTV until no
later than June 30, 2000 pursuant to an Amended Services Agreement and

. for a one-year period following the completion of the sale, the buyer
will honor our contracts with third parties which provide for ZDTV's
services to be packaged with the services of our other divisions.

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ZD Publishing

On December 6, 1999, we entered into an agreement to sell our ZD Publishing
division (which excludes Computer Shopper and our investment in Red Herring) to
WS-ZD Acquisition, Inc., a company controlled by Willis Stein & Partners (a
private equity fund), for $780 million, subject to adjustments described in the
next paragraph. The address of WS-ZD Acquisition, Inc. is c/o Willis Stein &
Partners II, L.P., 227 West Monroe Street, Chicago, Illinois 60606. We expect
to complete this transaction in the first quarter of 2000.

If the division's 1999 earnings before interest, taxes, depreciation and
amortization excluding the effect of the assets not being sold ("1999 EBITDA")
is less than $88.4 million, the $780 million purchase price will be reduced by
an amount equal to 7.9 times the amount by which 1999 EBITDA is less than $98.2
million. In addition, if the division's tangible net worth at September 30,
1999 excluding the assets and liabilities not being transferred to the buyer
("September 30 Tangible Net Worth") exceeds the division's tangible net worth
at closing excluding the assets and liabilities not being transferred to the
buyer ("Closing Tangible Net Worth") by more than $5 million, the purchase
price will be reduced by an amount equal to the difference between the
September 30 Tangible Net Worth and the Closing Net Tangible Worth.

. our Computer Shopper print publication,

. our investment in Red Herring Communications Inc.,

. the marks "EQUIP" and "Inter@ctive Investor" and derivatives thereof and

. subject to a license agreement to be entered into between us and the
buyer at the completion of the sale, all rights to the name "ZD."

At closing, the buyer will assume all of our liabilities related to the
division, with certain limited exceptions. These exceptions include:

. any obligations for borrowed money,

. certain disclosed litigation, litigation existing on the date of signing
that should have been disclosed and could reasonably be expected to
result in liability in excess of $1,000,000 and litigation arising after
the date of the agreement and prior to closing if such litigation would
cause a material adverse effect on the publishing division and

. liabilites for taxes incurred prior to closing.

The agreement contains customary representations, warranties and covenants.
The representations and warranties will not survive closing.

In addition, the following are conditions to the buyer's obligation to
complete the transaction:

. the buyer shall have obtained financing for the transaction on the terms
set forth in the commitment letters attached as an exhibit to the
agreement and

. the representations and warranties shall be true and correct in all
material respects as of the date of the agreement and at closing and the
seller shall have performed in all material respects its covenants under
the agreement (where "material" is defined to mean material to the
division as a whole except

41
<PAGE>

that, for purposes of determining the materiality of any breach of
representation that existed as of the date of the agreement or any
breach of a covenant (other than breaches not within the reasonable
control of the seller), "material" includes matters that individually or
in the aggregate have resulted in or would result in damages of $15
million or greater).

Before the closing, the company will enter into a service agreement with
the buyer covering various services that we will provide to the buyer for up
to six months following the closing and covering the terms on which the buyer
will make office space available to our affiliates during this transitional
period.

Either party may terminate the agreement if the transaction has not been
completed by April 4, 2000, as long as the terminating party has not breached
the agreement in a manner that has proximately contributed to the failure to
complete the transaction by such date. Either party may terminate the
agreement if a condition to closing becomes incapable of being satisfied, or
if any governmental entity enjoins the transactions. Further, one party may
terminate the agreement if the other breaches any of its representations,
warranties or covenants in any material respect that cannot be, or is not,
cured within 10 days.

ZDNet License Agreement

In order to assure that ZDNet will continue to have access to content from
the publishing division on terms similar to those it currently enjoys, the
buyer will formalize the content relationship by entering into a written
license agreement at the closing of the sale. That license agreement will
grant us the right to use and license third parties to use online the content
of the publications that are being sold for a period of five years. During the
first three years, that right will be exclusive. During the fourth year, the
buyer will be permitted to use the content online but only on its own
websites, and during the fifth year, the buyer will be permitted to use and
license third parties to use the content online. For the first four years, we
will host the official websites for the publications that are the subject of
the license agreement, and during the fifth year buyer will host the official
websites.

In exchange for these rights, we will continue to pay a royalty that will
initially be set at a similar level to the royalty that ZDNet currently pays
the publishing division: 5% of the first $100 million in annual revenue (net
of bad debt expense), 4% of the next $50 million in annual revenue (net of bad
debt expense) and 3% of any incremental annual revenue (net of bad debt
expense) over $150 million. In the fourth year of the license agreement, the
royalty will be reduced to 50% of these levels, and in the fifth year, the
royalty will be reduced to 25% of these levels. In addition, for the first
three years, the royalty is subject to the following minimum and maximum
payments.

<TABLE>
<CAPTION>
Minimum Maximum
Payment Payment
----------- -----------
<S> <C> <C>
First Year.............................................. $ 7 million $14 million
Second Year............................................. $ 9 million $18 million
Third Year.............................................. $11 million $22 million
</TABLE>

The license agreement will also contain various cross promotional rights
and obligations, including our right to one free page of advertising and one
additional page at "house rates" (i.e., substantially discounted) in each
issue of each publication subject to the licensing agreement.

Advice And Opinion Of Morgan Stanley

Under a letter agreement dated July 14, 1999, we engaged Morgan Stanley to
provide financial advisory services to us. Morgan Stanley was selected by the
board of directors to act as its financial advisor for the restructuring based
on Morgan Stanley's qualifications, expertise and reputation, as well as its
knowledge of the

42
<PAGE>

business and affairs of Ziff-Davis. Morgan Stanley gave financial advice to the
board of directors in connection with all of the sales described above. In
addition, as described below, Morgan Stanley rendered a formal opinion to the
board of directors in connection with the sale of ZD Publishing.

Publishing

On December 5, 1999, Morgan Stanley delivered its oral opinion (subsequently
confirmed in writing) to the board of directors that, as of such date, the
consideration to be received by Ziff-Davis pursuant to the ZD Publishing sale
agreement was fair from a financial point of view to Ziff-Davis, based upon and
subject to the various considerations and assumptions set forth in the opinion.

The full text of the opinion dated December 5, 1999, which sets forth
assumptions made, procedures followed, matters considered and limitations on
the scope of the review undertaken by Morgan Stanley in rendering its opinion,
is attached as an Annex to this proxy statement. Ziff-Davis stockholders are
urged to read the entire opinion. Morgan Stanley's written opinion is directed
to the board of directors and only addresses the fairness of the consideration
to be received by Ziff-Davis pursuant to the ZD Publishing sale agreement from
a financial point of view as of the date of the opinion. Morgan Stanley's
written opinion does not address any other aspect of the sale and does not
constitute a recommendation to any Ziff-Davis stockholder as to how to vote at
the special meeting. This summary of the opinion is qualified in its entirety
by reference to the opinion's full text.

In connection with rendering its opinion, Morgan Stanley, among other
things:

. reviewed certain publicly available financial statements and other
information of Ziff-Davis,

. reviewed certain internal financial statements and other financial and
operating data concerning Ziff-Davis and ZD Publishing prepared by the
management of Ziff-Davis and ZD Publishing,

. analyzed certain financial projections prepared by the management of
Ziff-Davis and ZD Publishing,

. discussed the past and current operations and financial condition and
the prospects of ZD Publishing with management of Ziff-Davis and ZD
Publishing,

. reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions,

. participated in discussions and negotiations among representatives of
Ziff-Davis and Willis Stein & Partners (the "Buyer") (and certain other
parties) and their financial and legal advisors,

. reviewed the draft ZD Publishing sale agreement and supporting schedules
dated December 4, 1999 and certain related documents and

. performed such other analyses as Morgan Stanley has deemed appropriate.

Morgan Stanley has assumed and relied upon without independent verification
the accuracy and completeness of the information reviewed by them for the
purposes of its opinion. With respect to the financial projections, Morgan
Stanley has assumed that they have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the future financial
performance of ZD Publishing. In addition, Morgan Stanley assumed that the sale
will be consummated in accordance with the terms of the ZD Publishing sale
agreement. Morgan Stanley has not made any independent valuation or appraisal
of the assets or liabilities of Ziff-Davis, nor has Morgan Stanley been
furnished with any such appraisals. Morgan Stanley's opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to us as of, the date of such opinion.

The following is a brief summary of the material financial analyses
performed by Morgan Stanley in connection with its opinion and the preparation
of its opinion. Certain of these summaries of financial analyses include
information presented in tabular format. In order to fully understand the
financial analyses used by

43
<PAGE>

Morgan Stanley, the tables must be read together with the text of each summary.
The tables alone do not constitute a complete description of the financial
analyses. Morgan Stanley used financial estimates for ZD Publishing developed
by management of Ziff-Davis in performing some of its analyses.

Peer Group Comparison. Morgan Stanley compared certain financial information
of ZD Publishing with corresponding financial information for a group of
domestic and international business-to-business and consumer magazine
publishers including:

EMAP-Petersen
Hachette-Fillipachi
McGraw-Hill
Meredith
Penton
Primedia
Reader's Digest
Reed-Elsevier
Scholastic
United News & Media
VNU

Morgan Stanley analyzed, among other things, the current aggregate value of
each company expressed as a multiple of estimated revenue and earnings before
interest, taxes, and depreciation and amortization expense ("EBITDA") for the
calendar year 2000, as of September 30, 1999. As of December 5, 1999 and based
on estimates of revenue and EBITDA taken from selected securities research
analysts, the statistics derived from this analysis are set forth below:

<TABLE>
<CAPTION>
ZD Business to Business and
Publishing Consumer Publishing Companies
Transaction -----------------------------
MANAGEMENT CASE Multiples Median(1) High(1) Low(1)
------------------------ ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
2000E Revenue
Multiples.............. 1.2x 1.8x 2.9x .8x
2000E EBITDA Multiples.. 7.0x 8.7.x 13.2x 7.3x
<CAPTION>
ZD Business to Business and
Publishing Consumer Publishing Companies
Transaction -----------------------------
CONSERVATIVE CASE Multiples Median(1) High(1) Low(1)
------------------------ ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
2000E Revenue
Multiples.............. 1.4x 1.8x 2.9x .8x
2000E EBITDA Multiples.. 9.6x 8.7x 13.2x 7.3x
</TABLE>
- --------
(1) These multiples have been reduced by .25x revenue and 1.5x EBITDA to
reflect the reduced Internet opportunity inherent in the content agreement
between ZD Publishing and ZDNet.

Morgan Stanley calculated the financial multiples and ratios for ZD
Publishing based on the purchase price contained in the ZD Publishing sale
agreement and financial projections developed by management of Ziff-Davis
("Management Case"). The Management Case forecasts were then revised by Morgan
Stanley to reflect conservative forecasts for ZD Publishing ("Conservative
Case"). Morgan Stanley first noted that the purchase price represented a
multiple of 1.4x calendar year 1999 estimated revenue and 7.9x calendar year
1999 estimated EBITDA. Morgan Stanley then noted that the purchase price
represented a multiple of 1.2x calendar year 2000 Management Case estimated
revenue and 7.0x calendar year 2000 Management Case estimated EBITDA. Morgan
Stanley also noted that purchase price represented a multiple of 1.4x calendar
year 2000 Conservative Case estimated revenue and 9.6x calendar year 2000
Conservative Case estimated EBITDA. In addition, Morgan Stanley noted the
reduced Internet opportunity for ZD Publishing inherent in the exclusive
content agreement in place between ZD Publishing and ZDNet, as well as the
negative growth rates experienced by ZD Publishing over the course of the last
year.

44
<PAGE>

No company used in the peer group comparison is identical to ZD Publishing.
In evaluating the peer group companies, Morgan Stanley made judgments and
assumptions with regard to industry performance, Internet opportunities,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of ZD Publishing (e.g., the impact of
competition on ZD Publishing and the industry generally, industry growth and
the absence of any material adverse change in the financial condition and
prospects of ZD Publishing or the industry or in the financial markets in
general).

Analysis of Selected Precedent Transactions. As part of its analysis, Morgan
Stanley reviewed the following 22 transactions involving business to business
and consumer publishing companies since 1994:

.February 1994, United Advertising / Harmon

.October 1994, Forstmann-Little / Ziff-Davis

.January 1995, KIII / Rogers

.February 1995, Economist Group / Journal of Commerce

.March 1995, KIII / PJS

.November 1995, KIII / Cahners

.February 1996, Softbank / Ziff-Davis

.April 1996, Hellman & Friedman / Advanstar

.August 1996, Investor Group / Petersen

.October 1996, United News & Media / Blenheim Group PLC

.June 1997, Reed-Elsevier / Chilton Publications

.July 1997, Euromoney / Institutional Investor

.January 1998. Primedia / Cowles Media

.January 1998, Cinven / IPC

.April 1998, Pearson / Apax Partners

.April 1998, Advanstar / Magic

.October 1998, Madison Dearborn / Reiman

.October 1998, Penton Media / Mecklermedia

.December 1998, EMAP / Petersen

.March 1999, Miller-Freeman / CMP

.March 1999, United News & Media / CMP

.August 1999, Veronis Shuler & Associates / Hanley-Wood

For each of these, Morgan Stanley reviewed the prices paid and calculated
the multiples of trailing revenue and EBITDA. This analysis indicated multiples
ranging from 1.8x to 4.5x trailing revenue for these transactions, with a
median multiple of 2.0x. The analysis indicated multiples ranging from 6.7x to
31.7x trailing EBITDA for these transactions with a median multiple of 10.9x.
Morgan Stanley noted that the purchase price for ZD Publishing represented a
multiple of 1.4x 1999 estimated revenue and 7.9x 1999 estimated EBITDA. In
addition, Morgan Stanley noted the reduced Internet opportunity for ZD
Publishing inherent in the exclusive content agreement in place between ZD
Publishing and ZDNet, as well as the negative growth rates experienced by ZD
Publishing over the course of the last year.

45
<PAGE>

No transaction used in the analysis of selected precedent transactions is
identical to the sale. In evaluating these transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, Internet
opportunities, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of ZD Publishing (e.g., the
impact of competition on ZD Publishing and the industry generally, industry
growth and the absence of any material adverse change in the financial
condition and prospects of ZD Publishing or the industry or in the financial
markets in general).

Discounted Cash Flow Analysis. Morgan Stanley performed a discounted cash
flow analysis (i.e., an analysis of the present value of projected cash flows
using discount rates and perpetuity growth rates as indicated below) of ZD
Publishing. Morgan Stanley analyzed ZD Publishing using a forecast for the
period beginning September 30, 1999 and ending December 31, 2006, based on
estimates developed by Ziff-Davis management ("Management Case"). Morgan
Stanley estimated ZD Publishing's discounted cash flow value by using a
discount rate of 13% to 15% and perpetuity growth rates ranging from 3% to 6%.
This analysis yielded a range of values for ZD Publishing of approximately $780
- - $930 million. The purchase price for ZD Publishing represented no premium to
the Management Case discounted cash flow values.

The Management Case forecasts were revised by Morgan Stanley and a separate
discounted cash flow analysis was conducted to reflect conservative forecasts
for ZD Publishing ("Conservative Case"). This analysis yielded a range of
values for ZD Publishing of approximately $640 - $760 million. The purchase
price for ZD Publishing represented a premium to the discounted cash flow
values of approximately 3%-22%.

Morgan Stanley performed a variety of financial and comparative analyses
solely for purposes of providing its opinion to the board of directors as to
the fairness of the consideration from a financial point of view to Ziff-Davis.
While the foregoing summary describes the analyses and factors reviewed by
Morgan Stanley for its opinion, it is not intended to be a complete description
of all the analyses performed by Morgan Stanley in arriving at its opinion.

The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, selecting any portion of its analyses, without
considering all analyses, would create an incomplete view of the process
underlying its opinion. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and factors, and
may have deemed various assumptions more or less probable than other
assumptions, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of ZD Publishing.

In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ZD Publishing. The
analyses performed by Morgan Stanley are not necessarily indicative of future
results or actual values, which may be significantly more or less favorable
than those suggested by such estimates. The analyses performed were prepared
solely as part of Morgan Stanley's analysis of the fairness of the
consideration from a financial point of view to Ziff-Davis and were conducted
in connection with the delivery of its opinion. The analyses are not intended
to be appraisals or to reflect the prices at which ZD Publishing might actually
be sold.

The consideration was determined through arm's length negotiations between
Ziff-Davis and Buyer and was approved by the board of directors. Morgan Stanley
did not recommend any specific consideration to Ziff-Davis or that any specific
consideration constituted the only appropriate consideration for the sale.
Morgan Stanley's opinion to the board of directors was one of many factors
taken into consideration by the board of directors in making its determination
to approve the sale. Consequently, the Morgan Stanley analyses described above
should not be viewed as determinative of the opinion of the board of directors
with respect to the value of ZD Publishing or whether the board of directors
would have been willing to agree to different consideration.

46
<PAGE>

General

Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. In the ordinary
course of Morgan Stanley's trading, brokerage and financial activities, Morgan
Stanley or its affiliates may at any time hold long or short positions, may
trade, make a market or otherwise effect transactions, for its own account or
for the accounts of customers, in the securities of Ziff-Davis. In the past,
Morgan Stanley and its affiliates have provided financial advisory and
financing services for Ziff-Davis, affiliates of Ziff-Davis and Buyer and have
received fees for the rendering of these services.

Under the letter agreement dated as of July 14, 1999, Morgan Stanley has
provided advisory services and financial opinions in connection with the
restructuring and Ziff-Davis has agreed to pay a customary fee to Morgan
Stanley based on the aggregate value of the transactions if the sales are
consummated, including an additional success fee measured with reference to the
future stock price of the ZD stock if the sales of ZD Education, ZD Publishing,
ZD Events and our equity interest in ZDTV are all consummated. In addition,
Ziff-Davis has also agreed to indemnify Morgan Stanley and its affiliates,
their respective directors, officers, agents and employees and each person, if
any, controlling Morgan Stanley or any of its affiliates against certain
liabilities and expenses, including the fees of its legal counsel and certain
liabilities under the federal securities laws, arising out of Morgan Stanley's
engagement and the transactions in connection therewith.

Filings, Approvals, Clearances and Consents for the Sales

In each of the pending sale agreements, we have agreed to use our reasonable
efforts (or reasonable best efforts, depending on the agreement) to obtain all
government approvals and third party consents necessary to complete the
respective sales. In addition, each sale agreement provides that it is a
condition to closing that the parties shall have received all necessary
government approvals and third party consents except for those which the
failure to obtain would not be material. These transactions will require
numerous third party consents because these transactions are structured as
asset sales.

These transactions will require numerous third party consents because these
transactions are structured as asset sales.

There can be no assurance that the approvals and consents described above
that have not yet been obtained will be obtained, or, if obtained, will not
include conditions that would be detrimental to us or would result in the
abandonment of the transactions by us or other parties to the sale agreements.
Neither we nor the other parties have determined how we will respond to
conditions, limitations or divestitures which may be sought by governmental
entities or third parties in connection with any requisite approvals or
consents. If any conditions, limitations or divestitures are sought by
governmental entities or third parties, we and the other parties will make such
determinations at the appropriate time.

The Merger Agreement

A copy of the merger agreement is attached as an Annex to this proxy
statement. The merger agreement provides, among other things, for a merger of
Ziff-Davis Inc. and a newly formed subsidiary of Ziff-Davis Inc. that was
formed solely for the purpose of engaging in the merger. Pursuant to the
merger, the newly formed subsidiary will merge with and into Ziff-Davis Inc.,
and Ziff-Davis Inc. will be the surviving corporation.

Terms Of The Merger

In the merger:

. each share of ZDNet stock issued and outstanding immediately prior to
the merger will be converted into a number of shares of common stock
equal to the exchange ratio for the merger calculated as described under
"--The Merger" above,

47
<PAGE>

. each share of ZD stock issued and outstanding immediately prior to the
merger will remain an issued and outstanding share of common stock and

. each share of common stock of the newly formed subsidiary issued and
outstanding immediately prior to the merger will be canceled and retired
without payment of any consideration therefor and will cease to exist.

Fractional shares of common stock will not be issued to holders of ZDNet stock.
In lieu of fractional shares, holders of ZDNet stock will receive a cash
payment.

Effective Time Of The Merger

The merger will become effective at the time when we duly file a certificate
of merger with the Secretary of State of the State of Delaware or such other
time as agreed upon by the parties and set forth in the certificate of merger.

Certificate Of Incorporation And By-laws Of Ziff-Davis Inc.

The merger agreement provides that, at the effective time of the merger, our
Amended and Restated Certificate of Incorporation will be further amended and
restated to read in its entirety as set forth in Exhibit A to the merger
agreement. The substance of the amendments is to:

. Delete all of the provisions relating to our existing tracking stock
structure so that it will provide for a single class of ordinary common
stock. These deletions will have no substantive effect, since our
current certificate of incorporation states that the tracking stock
provisions will apply only when there are shares of both series of
common stock outstanding.

. Change the name of the company from Ziff-Davis Inc. to ZDNet Inc.

The merger will not affect our current by-laws.

Termination

We may choose to terminate the merger agreement and abandon the merger at
any time prior to the completion of the merger.

48
<PAGE>

Description Of Capital Stock And Comparison Of Stockholders' Rights; Anti-
Takeover Considerations

We currently have outstanding two series of common stock: ZDNet Common
Stock, which we call "ZDNet stock," and ZD Common Stock, which we call "ZD
stock." Each of these series is what is commonly referred to as "tracking
stock." We intend the ZDNet stock to track the performance of ZDNet, and we
intend the ZD stock to track the performance of ZD. In addition to the
businesses being sold as part of the restructuring described in this proxy
statement, ZD owns a retained interest in ZDNet which is currently the
equivalent of 60 million shares of ZDNet stock.

The terms of our two series of common stock are typical for "tracking
stock." After the merger described in this proxy statement, all of our
stockholders will hold a single class of ordinary common stock. The following
is a brief comparison of the rights our stockholders currently have and the
rights they will have after the merger:

<TABLE>
<CAPTION>
Current Rights Rights After Merger
-------------- -------------------
<S> <C>
. Holders of ZD stock and holders of ZDNet . Holders of common stock will vote
stock generally vote together as a together as a single class and have one
single class. Holders of ZD stock have vote per share. Stockholders will not
one vote per share and holders of ZDNet have preemptive or cumulative voting
stock have a number of votes per share rights.
determined with reference to the ZDNet
stock price as compared to the ZD stock
price over a specified averaging period
prior to the record date for the vote.
Neither holders of ZDNet stock nor
holders of ZD stock have preemptive or
cumulative voting rights.
. Holders of ZD stock and ZDNet receive . Holders of common stock will receive
dividends if, as and when the board dividends if, as and when the board
declares them out of legally available declares them out of legally available
funds, and the board may declare funds.
dividends in equal or unequal amounts on
each series (or may declare dividends on
one series and not on the other), but
the dividends on ZD stock cannot be
greater than the amount ZD could pay if
ZD were a separate Delaware corporation
and the dividends on ZDNet stock cannot
be greater than the amount ZDNet could
pay if ZDNet were a separate Delaware
corporation.
. If we dispose of all or substantially . We will not be permitted to sell all or
all of the assets of ZD, we are required substantially all of the assets of Ziff-
to distribute to holders of ZD stock Davis Inc. (renamed ZDNet Inc.) unless
their proportionate interest in the net we receive stockholder approval to do
proceeds or issue ZDNet stock for ZD so. Neither we nor our stockholders will
stock at a 10% premium. Similarly, if we have any conversion or redemption rights
dispose of all or substantially all of with respect to the ZD stock or the
the assets of ZDNet, we are required to ZDNet stock. None of the other
distribute to holders of ZDNet stock provisions described in the paragraph
their proportionate interest in the net that appears to the left of this
proceeds or issue ZD stock for ZDNet paragraph will apply.
stock at a 10% premium. In addition, we
are not permitted to sell all or
substantially all of the assets of Ziff-
Davis Inc. unless we receive stockholder
approval to do
</TABLE>

49
<PAGE>

<TABLE>
<CAPTION>
Current Rights Rights After Merger
-------------- -------------------
<S> <C>
so. We are also permitted in certain
circumstances to exchange ZD stock for
ZDNet stock or vice versa, to redeem ZD
stock in return for stock of a subsidiary
holding all of the assets and liabilities
of ZD or to redeem ZDNet stock in return
for the stock of a subsidiary holding all
of the assets and liabilities of ZDNet.
Except as otherwise described in this
paragraph, neither we nor our stockholders
have any conversion or redemption rights
with respect to the ZD stock or the ZDNet
stock.
. If we liquidate, holders of ZD stock and . If we liquidate, holders of common stock
ZDNet stock will share in the assets will share in the assets remaining after
remaining after satisfaction in full of satisfaction in full of the prior rights
the prior rights of creditors and of creditors and payment of the
payment of the aggregate liquidation aggregate liquidation preference for all
preference for all outstanding shares of outstanding shares of preferred stock,
preferred stock, pro rata in relation to pro rata in proportion to the number of
the aggregate market value of their shares held.
holdings over a specified averaging
period prior to announcement of the
liquidation.
</TABLE>

Our transfer agent and registrar will continue to be The Bank of New York.

Certain Other Provisions Of Our Restated Certificate Of Incorporation And By-
laws

Authorized Shares

We currently have authority to have outstanding up to 210 million shares of
common stock (regardless of series) and 10 million shares of preferred stock,
and the merger will not change these amounts. After the merger, and after
giving effect to the shares of common stock we expect to have outstanding at
that time (but without giving effect to options we expect to have outstanding
at that time), we will have authority to issue about 70 million additional
shares of common stock, and 10 million shares of preferred stock, without
further stockholder approval under the Delaware General Corporation Law. One of
the effects of the existence of authorized and unissued common stock and
preferred stock could be to enable the board of directors to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of Ziff-Davis by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
our management. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of Ziff-Davis.

Preferred Stock

Our current certificate of incorporation provides, and our certificate of
incorporation after the merger will provide, that the board of directors may
issue shares of preferred stock in one or more series from time to time. The
board of directors has the authority 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:

. the distinctive serial designation of such series which shall
distinguish it from other series,

. the number of shares included in such series,

. the dividend rate (or method of determining such rate) payable to
holders of the shares of such series,

. any condition upon which such dividends shall be paid and the date or
dates upon which such dividends shall be payable,

50
<PAGE>

. 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,

. the amount or amounts which shall be payable out of the assets of Ziff-
Davis to holders of the shares of such series upon voluntary or
involuntary liquidation, dissolution or winding-up Ziff-Davis and the
relative rights of priority, if any, of payment of the shares of such
series,

. 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 Ziff-Davis or at the
option of the holder or holders thereof or upon the happening of a
specified event or events,

. the obligation, if any, of Ziff-Davis 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,

. 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 Ziff-Davis 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 Ziff-Davis and the price or prices or rate or rates of exchange or
conversion and any adjustments applicable thereto and

. whether or not 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.

Unless a corporation's certificate provides otherwise, Section 242(b)(2) of
the General Corporation Law of the State of Delaware automatically gives
holders of the outstanding shares of a class the option to vote as a class on
amendments to increase or decrease the number of authorized shares of such
class. Our charter provides, however, that, subject to the rights of 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 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 the State of
Delaware or any corresponding provision hereafter enacted.

Staggered Board Of Directors

The board of directors is divided into three classes, each of whose members
serve for a staggered three-year term. Upon the expiration of the term of a
class of directors, directors in such class are elected for three-year terms at
the annual meeting of stockholders in the year in which such term expires. The
classification of the board of directors has the effect of making it more
difficult for stockholders to change the composition of the board of directors,
because only a minority of the directors are up for election at each annual
meeting, and the board of directors may not be replaced by vote of the
stockholders at any one time.

Number Of Directors; Removal; Filling Vacancies

The number of members of the board of directors will be fixed from time to
time pursuant to our by-laws. Our by-laws provide that the board of directors
will consist of one or more members, the number of which is determined from
time to time by the board of directors. In the event of any increase or
decrease in the authorized number of directors,

. a director 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

. 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.

51
<PAGE>

Directors may be removed only for cause. However, a director who is also an
officer may be removed upon ceasing to be an officer. 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, the sole remaining director of that class if one
such director remains, the majority vote of the directors of the remaining
classes if no such director remains or stockholders at an annual meeting of
stockholders of Ziff-Davis.

A director elected to fill a vacancy shall serve for the remainder of his
term of office of the class to which he is elected. These provisions prevent
any stockholder from enlarging the board of directors and then filling the new
directorships with such stockholder's own nominees.

No Stockholder Action By Written Consent; Special Meetings

Any action required or permitted to be taken by the stockholders of Ziff-
Davis 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. Special
meetings of stockholders of Ziff-Davis may be called only by the Chairman of
the board of directors or the board of directors pursuant to a resolution
stating the purpose or purposes of the special meeting. 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 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 of directors for
consideration of such proposal.

Advance Notice For Stockholder Nominations And Proposals Of New Business

Our by-laws establish an advance notice procedure. This procedure requires
stockholders to deliver to Ziff-Davis notice of any proposal to be presented or
of a candidate to be nominated for election as a director of Ziff-Davis not
less than 60 nor more than 90 days prior to the date of the meeting. However,
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 meeting,
such advance notice shall be given not more than 10 days after such date is
first so announced or disclosed. 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 affirmative vote of 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 of directors, is required to amend provisions of our
by-laws relating to stockholder action without a meeting, the calling of
special meetings, the number (or manner of determining the number) of Ziff-
Davis's directors, the election and term of Ziff-Davis' directors, the filling
of vacancies and the removal of directors.

Certain Provisions Of Delaware Law

Ziff-Davis is subject to the business combination provisions of Section 203
of the General Corporation Law of the State of Delaware. 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 in which the person
became an interested stockholder unless:

. the business combination transaction, or the transaction in which the
interested stockholder became an interested stockholder, is approved by
the board of directors prior to the date the interested stockholder
obtained such status,

52
<PAGE>

. 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 (1) persons who are
directors and also officers and (2) 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

. 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 Ziff-Davis and,
accordingly, may discourage attempts to acquire Ziff-Davis. Since the board of
directors approved the acquisition of common stock by SOFTBANK America Inc.
before SOFTBANK America Inc. acquired such common stock, SOFTBANK America Inc.
is not an interested stockholder for these purposes.

Limitations On Liability And Indemnification Of Officers And Directors

Section 102 of the General Corporation Law of the State of Delaware
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 or 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 or their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Although Section 102 of the General Corporation Law of the State of Delaware
does not change a director's duty of care, it enables corporations to limit
available relief to equitable remedies such as injunction or rescission. Our
charter and by-laws include provisions which limit or eliminate the personal
liability of our directors to the fullest extent permitted by Section 102 of
the General Corporation Law of the State of Delaware. Consequently, a director
will not be personally liable to Ziff-Davis or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for any breach of
the director's duty of loyalty to Ziff-Davis or its stockholders, acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, unlawful payments of dividends or unlawful stock
repurchases, redemptions or other distributions and any transaction from which
the director derived an improper personal benefit.

Our by-laws provide that Ziff-Davis 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 Ziff-Davis or serves
or served at the request of Ziff-Davis any other enterprise as a director,
officer or employee. Our 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 Ziff-Davis 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 Ziff-Davis.
The inclusion of these indemnification provisions in our by-laws is intended to
enable Ziff-Davis to attract qualified persons to serve as directors and
officers who might otherwise be reluctant to do so.

The directors and officers of Ziff-Davis are insured under policies of
insurance maintained by Ziff-Davis, subject to the limits of such policies,
against certain losses arising from any claim made against them by reason

53
<PAGE>

of being or having been such officers or directors. In addition to the
protection available under our charter, by-laws and insurance policies, we have
entered into agreements with our outside directors to indemnify them to the
fullest extent permitted by law against losses arising from any claim against
them by reason of being or having been a director. In addition, the limited
liability provisions in our charter and the indemnification provisions in our
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 Ziff-Davis and our
stockholders. Furthermore, a stockholder's investment in Ziff-Davis may be
adversely affected to the extent we pay the costs of settlement and damage
awards against directors and officers of Ziff-Davis pursuant to the
indemnification agreements and the indemnification provisions in our by-laws.
The limited liability provisions in our charter will not limit the liability of
directors under federal securities laws.

----------------

Section 203 of the General Corporation Law of the State of Delaware, and the
provisions of our charter and by-laws described above, may make it more
difficult for a third party to acquire or discourage bids for Ziff-Davis.
Section 203 and these provisions could have the effect of inhibiting attempts
to change the membership of the board of directors.

54
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF ZIFF-DAVIS INC.

The following unaudited pro forma consolidated financial statements of Ziff-
Davis Inc. are based on the historical Consolidated Financial Statements of
Ziff-Davis Inc. appearing in an Annex to this proxy statement, adjusted to give
effect to the reorganization described in Note 2 to the unaudited Consolidated
Financial Statements of Ziff-Davis Inc. included in that Annex, the public
offering described in Note 3 to those financial statements and the
restructuring described in this proxy statement.

The Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 1998
gives pro forma effect to the public offering and the restructuring as if they
had occurred as of that date. The Unaudited Pro Forma Consolidated Balance
Sheet as of September 30, 1999 gives pro forma effect to the restructuring as
if it had occurred as of that date. The Unaudited Pro Forma Consolidated
Statement of Operations for the year ended December 31, 1998 gives pro forma
effect to the reorganization, the public offering and the restructuring as if
they had occurred immediately prior to January 1, 1998. The Unaudited Pro Forma
Consolidated Statement of Operations for the nine months ended September 30,
1999 gives pro forma effect to the public offering and the restructuring as if
they had occurred immediately prior to January 1, 1999. Further detail about
the pro forma adjustments appear in notes appearing at the end of the unaudited
pro forma consolidated financial statements.

These statements are not necessarily indicative of the actual financial
position or results of operations of Ziff-Davis Inc. as of the dates or for the
periods indicated or the financial position or results of operations that Ziff-
Davis Inc. would have experienced if the transactions for which the statements
give pro forma effect had in fact occurred at the times assumed. Also, the
statements do not purport to represent Ziff-Davis Inc.'s future financial
position or results of operations.

These statements should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements for Ziff-Davis Inc. included in an Annex to
this proxy statement.

55
<PAGE>

ZIFF-DAVIS INC.
UNAUDITED PRO FORMA CONSOLIDATED
BALANCE SHEETS
(dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
December 31, 1998 September 30, 1999
------------------------------------- -------------------------------------
Actual Adjustment Pro forma Actual Adjustment Pro forma
----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 32,566 $ (12,274) $ 20,292 $ 29,791 $ 31,429 $ 61,220
Accounts receivable,
net.................. 227,325 (189,495) 37,830 218,437 (186,322) 32,115
Inventories........... 15,551 (12,213) 3,338 12,946 (11,918) 1,028
Prepaid expenses and
other current
assets............... 34,543 (33,042) 1,501 37,407 (35,417) 1,990
Due from affiliates... 53,984 (53,984) -- 4,722 (4,722) --
Deferred taxes........ 22,262 (21,483) 779 22,262 (22,262) --
----------- ------------ ----------- ----------- ------------ -----------
Total current
assets............. 386,231 (322,491) 63,740 325,565 (229,212) 96,353
Securities available for
sale................... -- -- -- 7,916 -- 7,916
Property and equipment,
net.................... 91,189 (82,758) 8,431 116,917 (106,741) 10,176
Intangible assets, net.. 2,907,043 (2,799,704) 107,339 2,935,514 (2,787,725) 147,789
Other assets............ 49,340 (44,340) 5,000 58,024 (41,406) 16,618
----------- ------------ ----------- ----------- ------------ -----------
Total assets........ $ 3,433,803 $ (3,249,293) $ 184,510 $ 3,443,936 $ (3,165,084) $ 278,852
=========== ============ =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...... $ 75,863 $ (71,303) $ 4,560 $ 36,506 $ (32,307) $ 4,199
Accrued expenses...... 97,319 (80,228) 17,091 136,081 (115,874) 20,207
Unearned income, net.. 152,081 (147,307) 4,774 195,613 (183,097) 12,516
Due to affiliates and
management........... 4,618 (4,618) -- -- -- --
Current portion of
notes payable to
affiliates........... 7,692 (7,692) -- 6,923 (6,923) --
Other current
liabilities.......... 13,125 (13,125) -- 17,054 (17,054) --
----------- ------------ ----------- ----------- ------------ -----------
Total current
liabilities........ 350,698 (324,273) 26,425 392,177 (355,255) 36,922
Notes payable to
affiliates............. 70,192 (70,192) -- 65,769 (65,769) --
Notes payable, net of
unamortized discount... 1,469,130 (1,469,130) -- 1,199,215 (1,199,215) --
Deferred taxes.......... 165,082 (164,303) 779 134,884 (134,884) --
Due to management....... 5,400 (5,400) -- 665 (665) --
Other liabilities....... 19,690 (19,690) -- 14,813 (14,813) --
----------- ------------ ----------- ----------- ------------ -----------
Total liabilities... 2,080,192 (2,052,988) 27,204 1,807,523 (1,770,601) 36,922
----------- ------------ ----------- ----------- ------------ -----------
Commitments and
contingencies
Minority interest....... 1,013 -- 1,013 31,255 (31,255) --
----------- ------------ ----------- ----------- ------------ -----------
Total stockholders'
equity................. 1,352,598 (1,196,305) 156,293 1,605,158 (1,363,228) 241,930
----------- ------------ ----------- ----------- ------------ -----------
Total liabilities
and stockholders'
equity............. $ 3,433,803 $ (3,249,293) $ 184,510 $ 3,443,936 $ (3,165,084) $ 278,852
=========== ============ =========== =========== ============ ===========
Common Stock
Outstanding, par value
$0.01 per share
Ziff-Davis Inc.--ZD
Stock................ 100,000,000 (100,000,000) -- 103,310,097 (103,310,097) --
Ziff-Davis Inc.--ZDNet
Stock................ 11,500,000 (11,500,000) -- 13,706,063 (13,706,063) --
Common Stock.......... -- 129,890,502 129,890,502 -- 140,999,081 140,999,081
</TABLE>

The accompanying notes are an integral part of these pro forma financial
statements.

56
<PAGE>

ZIFF-DAVIS INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
Pro forma
Pro forma Nine Months Nine Months
Year Ended Year Ended Ended Ended
December 31, December 31, September 30, September 30,
1998 Adjustment 1998 1999 Adjustment 1999
------------ ---------- ------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue, net:
Publishing............ $ 782,882 $(673,184) $ 109,698 $518,626 $(468,169) $ 50,457
Events................ 269,867 (269,867) -- 157,150 (157,150) --
Internet.............. 56,143 3,665 59,808 67,791 2,634 70,425
Television............ -- -- -- 9,343 (9,343) --
--------- --------- ----------- -------- --------- -----------
1,108,892 (939,386) 169,506 752,910 (632,028) 120,882
Production and content.. 305,346 (244,195) 61,151 202,038 (159,534) 42,504
Selling, general and
administrative
expenses............... 567,683 (490,504) 77,179 458,593 (397,880) 60,713
Stock-based
compensation........... -- 3,477 3,477 4,861 (1,788) 3,073
Depreciation and
amortization of
property and
equipment.............. 29,885 (27,785) 2,100 25,558 (23,281) 2,277
Amortization of
intangible assets...... 122,659 (115,216) 7,443 102,308 (94,237) 8,071
Restructuring charge.... 52,239 (52,239) -- -- -- --
--------- --------- ----------- -------- --------- -----------
Income (loss) from
operations............. 31,080 (12,924) 18,156 (40,448) 44,692 4,244
Interest expense, net--
related party.......... (65,935) 65,935 -- -- -- --
Interest expense, net... (77,612) 77,612 -- (89,602) 89,602 --
Other non-operating
income, net............ 8,231 (8,097) 134 26,762 (26,762) --
Minority interest in
losses of
subsidiaries........... -- -- -- 15,686 (15,569) 117
--------- --------- ----------- -------- --------- -----------
Income (loss)
before income taxes.... (104,236) 122,526 18,290 (87,602) 91,963 4,361
Provision (benefit) for
income taxes........... (26,427) 37,204 10,777 (31,655) 34,336 2,681
--------- --------- ----------- -------- --------- -----------
Net income (loss)....... $ (77,809) $ 85,322 $ 7,513 $(55,947) $ 57,627 $ 1,680
========= ========= =========== ======== ========= ===========
Pro forma net income per
common share
Basic................. $ 0.06 $ 0.01
Diluted............... $ 0.05 $ 0.01
Pro forma weighted
average common shares
outstanding
Basic................. 129,890,502 137,736,688
Diluted............... 141,485,182 151,580,906
</TABLE>

The accompanying notes are an integral part of these pro forma financial
statements.

57
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Pro Forma Consolidated Balance Sheet Notes

December 31, 1998

The pro forma adjustments for the unaudited pro forma consolidated balance
sheet as of December 31, 1998 assume that the following had occurred as of that
date:

. the sale of 11,500,000 shares of ZDNet stock at a public offering price
of $19.00 per share, less underwriting discounts and expenses of $1.74
per share;

. the application of the net proceeds from the sale of ZDNet stock to
reduce indebtedness underZiff-Davis Inc.'s revolving credit facility by
approximately $200 million;

. the sale of ZD Market Intelligence, ZD Publishing (which excludes
Computer Shopper), ZD Events, Ziff-Davis Inc.'s equity interest in ZDTV
and ZD Education for proceeds assumed to aggregate $1.9 billion (the
actual number will not impact the pro forma statements, as explained
under "--General Notes" below);

. the use of a portion of the proceeds from the sale of these businesses
to repay ZD's remaining debt (approximately $1.35 billion at December
31, 1998 after giving effect to the $200 million repayment referred to
above), to pay certain expenses (assumed to aggregate $75 million) and
to cover certain ZD contingent liabilities (assumed to aggregate $10
million) (see "--General Notes" below);

. a $270 million write down of intangible assets relating to Ziff-Davis
Inc.'s Computer Shopper business (this amount, which is an estimate of
the impairment write down that Ziff-Davis Inc. expects it will take in
the fourth quarter of 1999, is the amount by which the estimated net
present value of future cash flows from Computer Shopper exceeds the
carrying value of Computer Shopper);

. the vesting and exercise of options to purchase an assumed 5.5 million
shares of ZD stock for an assumed $34 million and options to purchase an
assumed 2.3 million shares of ZDNet stock for an assumed $10 million
(see "--General Notes" below);

. the payment of a dividend to holders of ZD stock in an amount assumed to
equal all of the remaining proceeds from the sales of the various
businesses and the exercise of ZD options; under the foregoing
assumptions, the dividend would aggregate about $500 million, or about
$4.73 per share of ZD stock (see "--General Notes" below); and

. the elimination of Ziff-Davis Inc.'s tracking stock structure through a
merger with a newly formed subsidiary, as a result of which each share
of ZDNet stock will be converted into an assumed 1.77 shares of common
stock and each share of ZD stock will remain outstanding as one share of
common stock (see "--General Notes" below).

September 30, 1999

The pro forma adjustments for the unaudited pro forma consolidated balance
sheet as of September 30, 1999 assume that the following had occurred as of
that date:

. the use of a portion of the proceeds from the sale of these businesses
to repay ZD's remaining debt (approximately $1.27 billion at September
30, 1999), to pay certain expenses (assumed to aggregate $75 million)
and to cover certain ZD contingent liabilities (assumed to aggregate $10
million) (see "--General Notes" below);

58
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

. the vesting and exercise of options to purchase an assumed 7.6 million
shares of ZD stock for an assumed $66 million and options to purchase an
assumed 3.3 million shares of ZDNet stock for an assumed $39 million
(see "--General Notes" below);

. the payment of a dividend to holders of ZD stock in an amount assumed to
equal all of the remaining proceeds from the sales of the various
businesses and the exercise of ZD options; under the foregoing
assumptions, the dividend would aggregate about $608 million, or about
$5.48 per share of ZD stock (see "--General Notes" below); and

Unaudited Pro Forma Consolidated Statement of Operations Notes

Year Ended December 31, 1998

The pro forma adjustments for the unaudited pro forma consolidated statement
of operations for the year ended December 31, 1998 assume that the following
had occurred immediately prior to January 1, 1998:

. the reorganization described in Note 2 to the unaudited Consolidated
Financial Statements of Ziff-Davis Inc. included in an Annex to this
proxy statement;

. the grant of ZDNet options that were in fact granted in the fourth
quarter of 1998 and the adjustment of the terms of those options to
reflect the dividend and merger described above, resulting in a greater
pro forma diluted weighted average common shares outstanding and the
recording of non-cash compensation expense during the period; and

. each of the other transactions described under "Unaudited Pro Forma
Consolidated Balance Sheet Notes--December 31, 1998" above.

In addition, for purposes of calculating the pro forma diluted weighted average
common shares outstanding (under the treasury stock method) and the resulting
pro forma diluted net income per common share, this consolidated statement of
operations assumes a weighted average price per common share of $15.71 (which
is equal to the closing price per share of ZDNet stock on January 31, 2000
divided by the assumed exchange ratio in the merger of 1.77).

Nine Months Ended September 30, 1999

The pro forma adjustments for the unaudited pro forma consolidated statement
of operations for the nine months ended September 30, 1999 assume that the
following had occurred immediately prior to January 1, 1999:

. the sale of 11,500,000 shares of ZDNet stock at a public offering price
of $19.00 per share, less underwriting discounts and expenses of $1.74
per share;

. the application of the net proceeds from the sale of ZDNet stock to
reduce indebtedness under Ziff-Davis Inc.'s revolving credit facility by
approximately $200 million;

59
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

. the grant of options that were in fact granted at various times in the
first three quarters of 1999 and the adjustment of the terms of all
options to reflect the dividend and merger described above, resulting in
a greater pro forma diluted weighted average common shares outstanding
during the period; and

. each of the other transactions described under "Unaudited Pro Forma
Consolidated Balance Sheet Notes--September 30, 1999" above.

General Notes Applicable to All of the Unaudited Pro Forma Consolidated
Financial Statements

As long as the dividend to holders of ZD stock is assumed to equal all of
the remaining proceeds from the sales of the various businesses and the
exercise of ZD options, none of the following amounts have any impact on the
pro forma consolidated financial statements:

. the actual sale proceeds from the assumed sales of the various
businesses,

. the actual amount needed to repay ZD's remaining debt, to pay various ZD
expenses and to cover various ZD contingent liabilities and

. the actual amount of proceeds from the exercise of ZD options.

Of course, the foregoing amounts will have a direct impact on the size of the
dividend paid to holders of ZD stock.

The foregoing adjustments assume that Ziff-Davis Inc. will merge with a
newly formed subsidiary, as a result of which each share of ZDNet stock will be
converted into an assumed 1.77 shares of common stock and each share of ZD
stock will remain outstanding as one share of common stock. The actual exchange
ratio will be calculated as described under "Proposal 1--The Restructuring of
Ziff-Davis--The Merger" appearing earlier in this proxy statement. The
underlying assumptions that generated this assumed exchange ratio are described
in that same section of this proxy statement.

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<PAGE>

PROPOSALS 2 and 3--AMENDMENTS TO BENEFIT PLANS

General

At the special meeting, we will also ask you to consider and approve
proposals to amend:

. The Amended 1998 Incentive Compensation Plan (the "Incentive Plan") and

. The Amended 1998 Non-Employee Directors' Stock Option Plan (the "Non-
Employee Directors' Plan").

The purpose of the amendments to each of the plans is to increase the number of
shares available for issuance thereunder.

Description of Amendment to Incentive Plan (Proposal 2)

The amendment to the Incentive Plan will increase the number of shares of
common stock (regardless of series) available for grants or awards. Currently,
the Incentive Plan allows a cumulative issuance of up to 23,000,000 shares. As
it will be amended:

. the total cumulative number of shares of common stock that may be issued
under the Incentive Plan through December 31, 2000 may not exceed a
maximum of 40,000,000 and

. the total cumulative number of shares of common stock that may be issued
through the end of any fiscal year beginning after December 31, 2000 may
not exceed the maximum number in effect during the preceding fiscal year
plus four percent of the number of shares of common stock outstanding as
of the last day of the preceding fiscal year.

These shares may be authorized but unissued common stock or authorized and
issued common stock held in treasury or otherwise acquired for the purposes of
the Incentive Plan. If any grant or award is forfeited or is otherwise
terminated or canceled without the delivery of shares of common stock or if
shares of common stock owned by a grantee are tendered to pay the exercise
price of grants or awards, then such shares will again become available under
the Incentive Plan. No more than 40,000,000 shares of common stock may be
available for delivery in connection with the exercise of ISOs (as defined
below).

We estimate that options to purchase about 11 million shares will already
have been exercised by the time of the merger described in this proxy statement
and that options to purchase another 22 million shares will remain outstanding
at that time. Based on this estimate, about 7 million shares would initially be
available for future grants or awards under the Incentive Plan.

Description Of The Incentive Plan

General

Ziff-Davis adopted the Incentive Plan to provide long-term incentives for
its key employees and enhance stockholder value, the principal terms and
conditions of which are set forth below.

The Incentive Plan is administered by the incentive compensation plan
committee which

. selects the participants and determines the type of awards and the
number of shares or share units subject to awards and

. interprets the Incentive Plan and makes all other determinations
necessary or advisable for its administration.

All employees and consultants of Ziff-Davis and our affiliates who have
demonstrated significant management potential or the capacity for contributing
substantially to the successful performance of Ziff-Davis and our affiliates
are eligible to be participants in the Incentive Plan. Awards may consist of
stock awards, stock options (either incentive stock options ("ISO") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, 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.

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<PAGE>

In the event of any change in the outstanding shares by reason of any stock
dividend or split, recapitalization, merger, consolidation, spin-off,
combination, exchange of shares, other corporate change or distributions to
common stockholders other than regular cash dividends, the incentive
compensation plan 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 Incentive
Plan and to outstanding awards.

Each award under the Incentive Plan will be evidenced by an agreement
setting forth the terms and conditions, as determined by the incentive
compensation plan committee, which apply to such award. In the sole discretion
of the incentive compensation plan committee, a participant may be permitted to
defer the receipt of cash or common stock otherwise deliverable under any
award.

Stock Options

The incentive compensation plan committee will establish the option price at
the time each stock option is granted, which price will generally not be less
than 100% of the fair market value of the common stock on the date of grant,
unless otherwise specifically determined by the incentive compensation plan
committee. Stock options will vest and become exercisable at a rate determined
by the incentive compensation plan committee, and will remain exercisable for
such period as specified by the incentive compensation plan committee. The
award agreements in respect of stock options that are intended to qualify as
ISOs will contain any additional provisions necessary to comply with the
requirements of Section 422 of the Internal Revenue Code.

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 incentive compensation plan
committee deems appropriate.

Limitation On Awards Of Options To Any Individual

Under the Incentive Plan, no individual employee may receive grants of stock
options with respect to more than 1,000,000 shares of common stock (regardless
of series) in any calendar year; provided, however, that for the 1998 calendar
year, no individual employee could receive grants of stock options with respect
to more than 2,600,000 shares of common stock.

Stock Appreciation Rights

Stock appreciation rights, also known as SARs, may be granted in tandem with
a stock option or may be unrelated to a stock option. SARs will vest and become
exercisable at a rate determined by the incentive compensation plan committee,
and will remain exercisable for such period as specified by the incentive
compensation plan committee. SARs entitle holders to receive from Ziff-Davis 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 incentive compensation plan committee will
determine in its sole discretion whether a SAR will be settled in cash, common
stock or a combination thereof. In no event may any employee receive in any
calendar year grants of SARs with respect to more than 500,000 shares of common
stock.

Performance Shares

Performance shares may be granted in the form of actual shares of common
stock or share units having a value equal to an identical number of shares of
common stock. The performance conditions and the length of the performance
period will be determined by the incentive compensation plan committee but in
no event may

62
<PAGE>

a performance period be less than one year. The incentive compensation plan
committee will 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 incentive compensation plan committee determines otherwise,
awards of performance shares to a covered employee will be subject to
performance conditions based on the achievement by Ziff-Davis of target levels
of items such as consolidated net income, return on stockholders' equity,
return on net assets or share price performance. For purposes of the Incentive
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 Ziff-Davis or its subsidiaries designated by the
incentive compensation plan committee in its discretion. The maximum number of
performance shares subject to any award to a covered employee is 500,000 for
the first 12 months during the performance period and each 12-month period
thereafter.

Restricted Stock

Restricted stock may be granted in the form of actual shares of common stock
or share units having a value equal to an identical number of shares of common
stock. The employment conditions and the length of the period for vesting of
restricted stock will be established by the incentive compensation plan
committee at the time of grant, except that each restriction period will not be
less than 12 months. During the restricted period, shares of restricted stock
may not be sold, assigned, transferred or otherwise disposed of, pledged or
hypothecated as collateral for a loan or as security for the performance of any
obligation or for any other purpose as the incentive compensation plan
committee determines. The incentive compensation plan committee will 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 Incentive 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, will immediately vest in such participant.

Change In Control

In the event of a change in control (as defined below):

. all stock options will be fully vested and exercisable in full,

. all SARs which have not been granted in tandem with stock options will
become exercisable in full,

. 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,

. all performance shares will be deemed to be earned at target level and

. all performance shares granted in the form of share units will be paid
in cash.

For purposes of the Incentive Plan, "change in control" is generally defined
as (1) a change in the majority of the board of directors except upon consent
of the previous board of directors, (2) certain mergers, consolidations or
similar corporate transactions in which Ziff-Davis is not the surviving
corporation or entity or (3) a plan of complete liquidation or dissolution of
Ziff-Davis or a sale of all or substantially all of Ziff-Davis' assets that is
approved by the stockholders of Ziff-Davis; provided that, a change in control
will not be deemed to occur under clause (2) if SOFTBANK Corp., directly or
indirectly, is the beneficial owner of more than 25% of the voting securities
of any surviving corporation.

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<PAGE>

Amendment And Termination

The board of directors may amend, suspend or terminate the Incentive Plan or
any portion thereof at any time; provided that,

. no amendment will be made without stockholder approval (including an
increase in the number of shares reserved for issuance under the
Incentive Plan) if such approval is necessary in order for the Incentive
Plan to comply with any applicable law, regulations or stock exchange
rule and

. except as otherwise provided under the cashout provisions in the event
of a change in control, no amendment will be made that would adversely
affect the rights of a participant under any award previously granted,
without such participant's written consent.

Effective Date

The Incentive Plan will expire 10 years from February 13, 1998, unless it is
terminated earlier.

Repricing

On September 23, 1998, the incentive compensation plan committee authorized
the amendment of options granted under the Incentive Plan prior to that date
including those granted on June 24, 1998. Pursuant to such amendment, the
exercise price of such stock options was reduced from $16.00 to $6.00 (the
closing price of our common stock on September 23, 1998), but the stock options
will not vest until three months after the dates on which the stock options
were originally to become vested unless otherwise accelerated in connection
with the restructuring.

Common Stock Available Under The Incentive Plan

Both before and after the amendment:

. the shares of common stock issued under the Incentive Plan may be
authorized and unissued shares or treasury shares, as the company may
from time to time determine;

. up to 327,500 shares of common stock were available out of outstanding
shares in respect of awards of stock options granted to certain
participants in connection with the cancellation of corresponding
options to purchase stock of SOFTBANK Corp. Shares of common stock in
respect of these awards will be supplied by SOFTBANK Corp-- Ziff-Davis'
majority stockholder; and

. shares subject to an award that expires unexercised, are forfeited, or
terminated, or settled in cash instead of common stock, and shares
tendered to pay for the exercise of a stock option, will thereafter
again be available for grant under the Incentive Plan.

Grants Of Awards

Currently, under the Incentive Plan, grants of stock options and other
stock-based awards may be made with respect to either ZD stock or ZDNet stock,
or both. After the restructuring is completed, grants of stock options and
other stock-based awards under the Incentive Plan will be made in respect of
the common stock of the company.

Effect Of Amendment On Outstanding Awards

The approval of the amendment to the Incentive Plan will not result in any
adjustment to the outstanding awards under the Incentive Plan.

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<PAGE>

Future Awards Under The Incentive Plan

The incentive compensation plan committee will be able to grant awards
under the Incentive Plan with respect to common stock in such amounts and
types as it determines in its discretion in accordance with the terms of the
Incentive Plan.

Market Value Of Securities Underlying the Options

As of January 31, 2000 the aggregate market value of the securities
underlying the ZD stock options was approximately $17.7 million and the
aggregate market value of the securities underlying the ZDNet stock options
was approximately $44.8 million.

Plan Benefits

We cannot currently determine the number of shares subject to stock options
that may be granted in the future to executive officers and employees under
the Incentive Plan. The following table sets forth information with respect to
the ZD stock options and the ZDNet stock options granted prior to February 1,
2000 to (1) the named executive officers below, (2) all current executive
officers as a group, (3) all current directors who are not executive officers
as a group and (4) all employees (including all current officers who are not
executive officers) as a group under the Incentive Plan.

<TABLE>
<CAPTION>
Number of Number of
options to options to
purchase shares of purchase shares
ZD stock granted of ZDNet stock
under granted under the
Name the Incentive Plan Incentive Plan
---- ------------------ -----------------
<S> <C> <C>
Eric Hippeau ............................ 1,020,000 700,000
Chairman and Chief Executive Officer
Jason E. Chudnofsky...................... 327,000 70,500
President and Chief Executive Officer,
ZD Events
Michael S. Perlis........................ 310,000 118,750
President and Chief Executive Officer,
ZD Publishing
Timothy C. O'Brien....................... 192,000 168,000
Chief Financial Officer
Terri S. Holbrooke....................... 177,000 80,500
President, ZD Corporate Operations
James J. Spanfeller, Jr.................. 77,000 47,750
Executive Vice President, ZD Publishing
Jack Dolce............................... 82,701 48,250
Executive Vice President, ZD Publishing
All current executive officers as a group
(15 persons)............................ 2,567,717 5,114,400
All current directors who are not
executive officers as a group
(4 persons)............................. 237,500 90,000
All employees (including all current
officers who are not executive officers)
as a group (1,014 persons).............. 8,472,422 11,402,158
</TABLE>

Federal Income Tax Consequences

The following is a brief description of the federal income tax consequences
generally arising with respect to awards under the Incentive Plan.

The grant of a stock option or SAR will not have any tax consequences for
the participant or the company.

A participant will not recognize taxable income upon exercising an ISO
(within the meaning of Section 422 of the Internal Revenue Code), except where
a participant is subject to the alternative minimum tax. Upon

65
<PAGE>

exercising a stock option other than an ISO, the participant generally must
recognize ordinary income equal to the difference between the exercise price
and fair market value of the freely transferable and nonforfeitable shares
acquired on the date of exercise. Upon exercising an SAR, the participant
generally must recognize ordinary income equal to the cash or the fair market
value of the freely transferable and nonforfeitable shares received.

If the participant does not hold the common stock acquired upon exercise of
an ISO for at least one year from the date of exercise and two years from the
date of grant (the "Holding Period"), the participant generally must recognize
ordinary income equal to the lesser of

. the fair market value of the shares at the date of exercise of the ISO
minus the exercise price or

. the amount realized upon the disposition of the ISO shares minus the
exercise price.

Otherwise, a participant's disposition of shares acquired upon the exercise
of a stock option (including an ISO for which the ISO Holding Periods are met)
or SAR generally will result in short-term or long-term capital gain or loss
measured by the difference between the sale price and the participant's tax
basis in such shares (the tax basis generally being the exercise price plus any
amount recognized as ordinary income in connection with the exercise of a stock
option or SAR).

We generally will be entitled to a tax deduction equal to the amount
recognized as ordinary income by the participant in connection with a stock
option or SAR. We generally are not entitled to a tax deduction relating to
amounts that represent a capital gain to a participant. Accordingly, we will
not be entitled to any tax deduction with respect to an ISO if the participant
holds the shares for the ISO Holding Period prior to disposition of the shares.

With respect to awards granted under the Incentive Plan that result in the
payment or issuance of cash or shares or other property that is either not
restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant generally must recognize ordinary income equal to
the cash or the fair market value of shares or other property received. We
generally will be entitled to a deduction in an amount equal to the ordinary
income recognized by the participant.

With respect to awards involving the issuance of shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture (e.g., restricted stock), the participant generally must recognize
ordinary income equal to the fair market value of the shares or other property
at the first time the shares or other property becomes transferable or is not
subject to a substantial risk of forfeiture, whichever occurs earlier. We
generally will be entitled to a deduction in an amount equal to the ordinary
income recognized by the participant.

Description of Amendment to Non-Employee Directors' Plan (Proposal 3)

The amendment to the Non-Employee Directors' Plan will increase the number
of shares of common stock (regardless of series) available for grants or awards
over time. Currently, the Non-Employee Directors' Plan allows a cumulative
issuance of up to 300,000 shares. As it will be amended:

. the total cumulative number of shares of common stock that may be issued
under the Non-Employee Directors' Plan through December 31, 2000 may not
exceed a maximum of 300,000 and

. the total cumulative number of shares of common stock that may be issued
through the end of any fiscal year beginning after December 31, 2000 may
not exceed the maximum number in effect during the preceding fiscal year
plus 0.1 percent of the number of shares of common stock outstanding as
of the last day of the preceding fiscal year.

These shares may be authorized but unissued common stock or authorized and
issued common stock held in treasury or otherwise acquired for the purposes of
the Non-Employee Directors' Plan. If any grant or award is

66
<PAGE>

forfeited or is otherwise terminated or canceled without the delivery of
shares of common stock or if shares of common stock owned by a grantee are
tendered to pay the exercise price of grants or awards, then such shares will
again become available under the Incentive Plan.

Description Of The Non-Employee Directors' Plan

Eligibility

Directors who are not employees of Ziff-Davis, SOFTBANK Corp., SOFTBANK
Holdings Inc. or SOFTBANK America Inc. ("non-employee directors")
automatically participate in the Non-Employee Directors' Plan.

Types Of Options

Currently, under the Non-Employee Directors' Plan, each Non-Employee
Director automatically receives:

. upon election as a member of the board of directors, an initial grant of
options to purchase 15,000 shares of common stock and

. on the date of each annual stockholders meeting thereafter a grant of
options to purchase 7,500 shares of common stock (the "Nondiscretionary
Options").

The Non-Employee Directors' Plan provides that, if applicable, the committee
administering the plan may determine the portion of the stock options granted
that shall be stock options to purchase shares of ZD stock and the portion of
the stock options that shall be stock options to purchase shares of ZDNet. The
plan further provides that a non-employee director may not receive the annual
grant of stock options to purchase 7,500 shares of common stock in any year in
which such non-employee director also receives the initial grant of stock
options to purchase 15,000 shares of common stock. In addition, under the Non-
Employee Directors' Plan,

. each non-employee director who was on the board of directors on the date
of the initial public offering of ZDNet stock received a grant of stock
options to purchase 25,000 shares of ZDNet stock on the date of such
offering at the initial public offering price, which vest and become
exercisable with respect to 25% of the shares on December 31, 1999, and
an additional 6.25% of the shares at the end of each three-month period
thereafter and

. each non-employee director who was on the board of directors on the date
of the initial public offering of Ziff-Davis' common stock in April 1998
received such initial grant on the date of such initial public offering.

After the restructuring is completed, each non-employee director will
automatically receive the Nondiscretionary Options with respect to the common
stock of the company.

Under the Non-Employee Directors' Plan, the terms of the Nondiscretionary
Options provide that the option price will be equal to 100% of the fair market
value (as defined in the Non-Employee Directors' Plan) unless the committee
administering the Non-Employee Directors' Plan determines otherwise in its
discretion, except that the option price of the option to purchase 25,000
shares of ZDNet stock granted on the date of the initial public offering of
ZDNet stock was equal to the initial public offering price. The stock option
vests and becomes exercisable in five equal installments beginning on the
first anniversary of the date of grant and expires 10 years from the date of
grant. If the optionee ceases to be a non-employee director, the stock option
will expire, except that

. if the termination results from any reason other than death, disability
or cause, the stock options will remain exercisable for 90 days and

. if the termination results from death or disability, the stock option
will remain exercisable for one year.

In no event will any such option remain exercisable past the remainder of its
scheduled ten-year term.

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<PAGE>

Each non-employee director is eligible to receive grants of stock options
(in addition to the Nondiscretionary Options) from time to time, and on such
terms and conditions, as are determined by the board of directors.

Changes in Outstanding Shares

In the event of any change in the outstanding shares by reason of any stock
dividend or split, recapitalization, merger, consolidation, spin-off,
combination, exchange of shares, other corporate change or distributions to
common stockholders other than regular cash dividends, the compensation
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 Non-Employee
Directors' Plan and to outstanding awards.

Change In Control

Upon a change in control of Ziff-Davis, each outstanding stock option will
fully vest and become immediately exercisable in full. In addition, the
compensation committee may provide in its sole discretion that upon a change in
control of Ziff-Davis, each non-employee director will 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

. 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

. 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 compensation committee at such time.

Amendment And Termination

The board of directors may amend, suspend or terminate the Non-Employee
Directors' Plan or any portion thereof at any time, provided that, no amendment
shall be made

. without stockholder approval if such approval is necessary in order for
the Non-Employee Directors' Plan to comply with any applicable law,
regulation or stock exchange rule and

. except in the case of a change in control of Ziff-Davis, that would
adversely affect the rights of any non-employee director under any
outstanding stock option without such non-employee director's written
consent.

Grants Of Options

Currently, under the Non-Employee Directors' Plan, grants of stock options
may be made with respect to either ZD stock or ZDNet stock, or both. After the
restructuring is completed, grants of stock options under the Non-Employee
Directors' Plan will be made in respect of the common stock of the company.

Effect of Amendment On Outstanding Options

The approval of the amendment to the Non-Employee Directors' Plan will not
result in any adjustment to the outstanding stock options under the Non-
Employee Directors' Plan.

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<PAGE>

Market Value of Securities Underlying the Options

As of January 31, 2000 non-employee directors as a group have received stock
options to purchase 37,500 shares of ZD stock and 57,500 shares of ZDNet stock
under the Non-Employee Director's Plan. As of January 31, 2000 the aggregate
market value of the securities underlying these ZD stock options was
approximately $0.7 million and the aggregate market value of the securities
underlying these ZDNet stock options was approximately $1.6 million.

Federal Income Tax Consequences

The following is a brief description of the federal income tax consequences
generally arising with respect to stock options granted under the Non-Employee
Directors' Plan.

The grant of a stock option will create no tax consequences for the non-
employee director or Ziff-Davis. Upon exercising a stock option, the non-
employee director generally must recognize ordinary income equal to the
difference between the exercise price and fair market value of the shares
acquired on the date of exercise, and we generally will be entitled to a tax
deduction equal to the amount recognized as ordinary income by the participant.
The disposition of shares acquired upon the exercise of a stock option
generally will result in capital gain or loss measured by the difference
between the sale price and the participant's tax basis in such shares (the tax
basis generally being the exercise price plus any amount recognized as ordinary
income in connection with the exercise of the stock option).

Recommendation of the Board of Directors

The board of directors has carefully considered and unanimously approved
Proposals 2 and 3 and determined that they are in the best interests of our
company and all of our stockholders. The board of directors recommends that you
vote "FOR" Proposals 2 and 3.

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<PAGE>

EXECUTIVE COMPENSATION

Summary Compensation Table

The table below sets forth the compensation paid to, deferred or accrued for
the benefit of, our Chief Executive Officer, each of the four other most highly
compensated executive officers and two additional highly compensated officers
of Ziff-Davis for services rendered in all capacities to Ziff-Davis during the
last three fiscal years.

<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------- ------------
Securities
Underlying
Name and Principal Options All Other
Position Year Salary($) Bonus($) (#)(1) Compensation($)(2)
------------------ ---- --------- --------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Eric Hippeau............ 1999 900,000 0 300,000(3a) 1,161,689(4)
Chairman and Chief
Executive Officer 1998 1,050,000 0 1,665,032(3b) 17,566
1997 1,350,000 14,063 31,000 17,566
Jason E. Chudnofsky..... 1999 800,000 91,200 45,000(5a) 28,720
President and Chief
Executive Officer, 1998 800,000 288,493 378,395(5b) 95,023
ZD Events 1997 800,000 300,000 10,000 28,269
Michael S. Perlis....... 1999 650,000 300,000 100,000(6a) 20,759
President and Chief
Executive Officer, 1998 93,750 0 328,750(6b) 130
ZD Publishing 1997(7) -- -- -- --
Timothy C. O'Brien...... 1999 490,000 191,798 70,000(8a) 221,961(9)
Chief Financial Officer 1998 485,833 136,163 312,988(8b) 42,892
1997 462,500 305,850 7,700 36,806
Terri S. Holbrooke...... 1999 457,450 163,099 70,000(10a) 18,425
President, ZD Corporate
Operations 1998 430,000 137,993 193,410(10b) 14,018
1997 380,000 143,993 5,000 6,868
James J. Spanfeller,
Jr..................... 1999 355,000 1,217,984 45,000(11a) 17,227
Executive Vice
President, 1998 316,250 171,244 84,458(11b) 17,218
ZD Publishing 1997 272,500 99,484 1,650 13,335
Jack Dolce.............. 1999 350,000 515,377 64,701(12a) 24,563
Executive Vice
President, 1998 300,000 269,833 68,250(12b) 21,342
ZD Publishing 1997 300,000 289,224 2,000 11,066
</TABLE>
- --------
(1) The options granted in 1997 are options to purchase common stock of
SOFTBANK Corp. under the SOFTBANK Group Executive Stock Option Plans (the
"Softbank Options"). The options listed for 1998 include the Softbank
Options granted in 1996 and 1997 which were repriced in 1998 to (Yen)4,000
(the "Repriced Softbank Options"). No additional Softbank Options were
granted in 1998 to any of the persons named in the table above.
(2) All Other Compensation for 1999 reflects contributions to Ziff-Davis'
defined contribution plan, group term life insurance and reimbursement of
certain medical expenses and housing costs.
(3)(a) Includes options to purchase 160,000 shares of ZD stock and options to
purchase 140,000 shares of ZDNet stock.
(b) Includes options to purchase 860,000 shares of ZD stock, options to
purchase 560,000 shares of ZDNet stock and 245,032 Repriced Softbank
Options (including the 31,000 granted in 1997).
(4) Includes $1,135,160 paid to Mr. Hippeau in connection with grants made
under the ZDTV, L.L.C. Profits Interest Plan.
(5)(a) Includes options to purchase 27,000 shares of ZD stock and options to
purchase 18,000 shares of ZDNet stock.
(b) Includes options to purchase 300,000 shares of ZD stock, options to
purchase 52,500 shares of ZDNet stock and 25,895 Repriced Softbank
Options (including the 10,000 granted in 1997).
(6)(a) Includes options to purchase 60,000 shares of ZD stock and options to
purchase 40,000 shares of ZDNet stock.
(b) Includes options to purchase 250,000 shares of ZD stock and options to
purchase 78,750 shares of ZDNet stock.
(7) Mr. Perlis was not an employee of Ziff-Davis in 1997.
(8)(a) Includes options to purchase 42,000 shares of ZD stock and options to
purchase 28,000 shares of ZDNet stock.
(b) Includes options to purchase 150,000 shares of ZD stock, options to
purchase 140,000 shares of ZDNet stock and 22,988 Repriced Softbank
Options (including the 7,700 granted in 1997).
(9) Includes $174,640 paid to Mr. O'Brien in connection with grants made under
the ZDTV, L.L.C. Profits Interest Plan.
(10)(a) Includes options to purchase 42,000 shares of ZD stock and options to
purchase 28,000 shares of ZDNet stock.
(10)(b) Includes options to purchase 135,000 shares of ZD stock, options to
purchase 52,500 shares of ZDNet stock and 5,910 Repriced Softbank
Options (including the 5,000 granted in 1997).

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<PAGE>

(11)(a) Includes options to purchase 27,000 shares of ZD stock and options to
purchase 18,000 shares of ZDNet stock.
(11)(b) Includes options to purchase 50,000 shares of ZD stock, options to
purchase 29,750 shares of ZDNet stock and 4,708 Repriced Softbank
Options (including the 1,650 granted in 1997).
(12)(a) Includes options to purchase 42,701 shares of ZD stock (including
1,200 Softbank Options that were converted into 4,701 ZD options in
1999) and options to purchase 22,000 shares of ZDNet stock.
(12)(b) Includes options to purchase 40,000 shares of ZD stock, options to
purchase 26,250 shares of ZDNet stock and 2,000 Repriced Softbank
Options.

Option Grants and Exercises in 1999

The following two tables summarize stock option grants to, and exercises by,
each of the persons named in the Summary Compensation Table during 1999 and the
value of the options held by them as of December 31, 1999.

Option Grants in 1999

<TABLE>
<CAPTION>
Potential Realized
Percent of Value at Assumed
Total Annual Rates of Stock
Number of Options Price Appreciation for
Securities Granted to Exercise Option Term
Underlying Employees or Base -----------------------
Name and Principal Option in Fiscal Price
Position Granted(#) Year(%) ($/Sh) Expiration Date 5%($) 10%($)
------------------ ---------- ---------- -------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Eric C. Hippeau......... 160,000(1) 3.55 15.8750 April 20, 2009 1,597,392 4,048,106
Chairman and Chief 40,000(2) 0.61 31.0625 April 20, 2009 781,402 1,980,225
Executive 100,000(2) 1.53 20.00 December 17, 2009 1,257,789 3,187,485
Officer 200,00(3) 8.10 0.35(4)October 25, 2009 44,023 111,562
Jason Chudnofsky........ 27,000(1) 0.60 15.8750 April 20, 2009 269,560 683,118
President and Chief 18,000(2) 0.28 31.0625 April 20, 2009 351,631 891,101
Executive
Officer, ZD Events
Michael S. Perlis....... 60,000(1) 1.33 15.8750 April 20, 2009 599,022 1,518,040
President and Chief 40,000(2) 0.61 31.0625 April 20, 2009 781,402 1,980,225
Executive
Officer, ZD Publishing
Timothy C. O'Brien...... 42,000(1) 0.93 15.8750 April 20, 2009 419,315 1,062,628
Chief Financial Officer 28,000(2) 0.43 31.0625 April 20, 2009 546,981 1,386,158
Terri S. Holbrooke...... 42,000(1) 0.93 15.8750 April 20, 2009 419,315 1,062,628
President, ZD Corporate 28,000(2) 0.43 31.0625 April 20, 2009 546,981 1,386,158
Operations 25,000(3) 1.01 0.35(4)October 25, 2009 5,503 13,945
James J. Spanfeller 27,000(1) 0.60 15.8750 April 20, 2009 269,560 683,118
Jr.....................
Executive Vice 18,000(2) 0.28 31.0625 April 20, 2009 351,631 891,101
President, ZD
Publishing
Jack Dolce.............. 33,000(1) 0.73 15.8750 April 20, 2009 329,462 834,922
Executive Vice 5,000(1) 0.11 15.7500 June 30, 2000 3,938 7,875
President, ZD
Publishing
22,000(2) 0.34 31.0625 April 20, 2009 429,771 1,089,124
4,701(5) 0.10 8.8939 February 28, 2006 17,021 39,666
</TABLE>
- --------
(1) Represents options to purchase shares of ZD stock.
(2) Represents options to purchase shares of ZDNet stock.
(3) Represents options to purchase shares of common stock of Smart Planet Inc.
(4) The exercise price represents the fair value of one share of common stock
of Smart Planet at the time of granting of the options, based on a third
party valuation of Smart Planet.
(5) Represents options to purchase shares of ZD stock, which were granted in
exchange for cancelled Softbank options.

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<PAGE>

Aggregated Option Exercises in 1999 and Fiscal Year-End Option Values

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Value Options at Fiscal Year-End (#) Fiscal Year-End($)
Shares ------------ ------------------------------ -------------------------
Name and Principal Acquired On
Position Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------------ ------------ ------------ --------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric Hippeau............ -- -- 150,500(1) 869,500(1) 1,476,781 6,961,969
Chairman and Chief
Executive Officer -- -- 140,000(2) 560,000(2) 2,339,400 7,118,200
65,000(4) 5,574,275 12,068(3) 167,964(3) 11,081,562 154,234,623
-- -- -- 200,000(5) -- --
Jason E. Chudnofsky..... -- -- 90,000(1) 237,000(1) 883,125 2,060,625
President and Chief
Executive Officer, -- -- 13,125(2) 57,375(2) 219,319 657,956
ZD Events 14,000(4) 6,225,402 537(3) 11,358(3) 493,106 10,429,597
Michael S. Perlis....... 35,000(6) 321,562 15,000(1) 260,000(1) 139,668 1,932,500
President and Chief
Executive Officer, 11,000(7) 189,997 8,687(2) 99,063(2) 145,168 986,934
ZD Publishing -- -- -- -- -- --
Timothy C. O'Brien...... -- -- 52,500(1) 139,500(1) 515,156 956,718
Chief Financial Officer -- -- 35,000(2) 133,000(2) 584,850 1,754,550
5,000(4) 1,204,312 6,603(3) 11,386(3) 6,063,271 10,455,308
Terri S. Holbrooke...... -- -- 47,250(1) 129,750(1) 463,641 861,047
President ZD Corporate -- -- 13,125(2) 67,375(2) 219,319 657,956
Operations
1,000(4) 94,335 182(3) 3,403(3) 167,123 3,124,839
-- -- -- 25,000(5) -- --
James J. Spanfeller -- -- 17,500(1) 59,500(1) 171,719 318,906
Jr.....................
Executive Vice -- -- 7,437(2) 40,313(2) 124,280 372,842
President,
ZD Publishing 2,366(4) 93,076 -- 2,342(3) -- 2,150,585
Jack Dolce.............. -- -- 14,000(1) 68,701(1) 137,375 287,961
Executive Vice -- -- 6,562(2) 41,688(2) 109,658 328,978
President,
ZD Publishing 800(4) 31,448 -- -- -- --
</TABLE>
- --------
(1) Represents options to purchase shares of ZD stock.
(2) Represents options to purchase shares of ZDNet stock.
(3) Represents Repriced Softbank Options.
(4) Represents shares of SOFTBANK Corp.
(5) Represents options to purchase shares of common stock of Smart Planet Inc.
(6) Represents shares of ZD stock.
(7) Represents shares of ZDNet stock.

Composition of the Board of Directors

The board of directors currently consists of eight members. Mr. O'Brien will
resign from the board of directors when he resigns as an officer on March 31,
2000 and Mr. Chudnofsky will resign from the board of directors upon the
closing of the sale or spinoff of ZD Events. The board of directors intends to
nominate for election two additional "independent directors" within the meaning
of the regulations of the NYSE to replace these directors. The board of
directors is divided into three classes each of whose members serves for a
staggered three-year term. Upon the expiration of the term of a class of
directors, directors in such class are elected for three-year terms at the
annual meeting of stockholders in the year in which such term expires.

Committees of the Board of Directors; Compensation Committee Interlocks and
Insider Participation

The board of directors currently has two committees: an audit committee and
a compensation committee. The audit committee currently consists of Messrs.
Lazarus and Yang. The compensation committee currently consists of Messrs.
Fisher, Lazarus and Yang.

Our audit committee reviews and recommends to the board of directors, as it
deems necessary, our internal accounting and financial control and the
accounting principles and auditing practices and procedures to be employed in
preparation and review of our financial statements. Our audit committee makes
recommendations

72
<PAGE>

to the board of directors concerning the engagement of independent public
accountants and the scope of the audit to be undertaken by such accountants.
PricewaterhouseCoopers LLP presently serves as our independent accountants.

Our compensation committee reviews and, as it deems appropriate, recommends
to the board of directors 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 compensation
committee also advises and consults with the officers of Ziff-Davis Inc. as may
be requested regarding managerial personnel policies. The compensation
committee will have such additional powers and be granted additional authority
as may be conferred upon it from time to time by the board of directors.

Each of Messrs. Fisher, Lazarus and Yang is independent of management. Mr.
Fisher is the Vice Chairman of SOFTBANK America Inc., our majority stockholder,
and Mr. Yang is a co-founder and Chief Yahoo of Yahoo! Inc. Mr. Hippeau, our
chairman and chief executive officer, is a director and serves on the
compensation committee of Yahoo! During 1998 and the first nine months of 1999,
we incurred approximately $0.3 million and $0.2 million, respectively, in
advertising expenses with Yahoo! Inc.

Compensation of Directors

Directors who are not employees of Ziff-Davis, SOFTBANK Corp., SOFTBANK
Holdings Inc. or SOFTBANK America Inc. will receive an annual retainer of
$25,000 for board of directors service, will receive a fee of $2,000 for each
meeting of the board of directors or any committee thereof attended and will
automatically participate in the Non-Employee Directors' Plan. For more
information on the Non-Employee Directors' Plan, see "Proposals 2 and 3--
Amendments to Benefit Plans--Proposal 3--Amendments to Non-Employee Directors'
Plan".

Employment Agreements

Eric Hippeau

In April 1998, we entered into an employment agreement with Mr. Hippeau to
serve as our Chairman and Chief Executive Officer through March 31, 2004. In
March 1999, Mr. Hippeau's employment agreement was amended. Pursuant to the
amended agreement, Mr. Hippeau will receive an annual base salary of not less
than $900,000 and, in lieu of an annual incentive bonus, stock options as
determined from time to time by our compensation committee. Pursuant to the
Incentive Plan, we have granted Mr. Hippeau options to acquire up to 1,020,000
shares of ZD stock (of which 430,000 shares are based upon the achievement of
certain performance targets) and options to acquire up to 700,000 shares of
ZDNet stock.

On or before the merger, Mr. Hippeau will resign as Chief Executive Officer,
but it is expected he will continue to serve as non-executive Chairman. Our
compensation committee will determine the appropriate level of compensation for
Mr. Hippeau's new duties. In connection with the restructuring, certain of Mr.
Hippeau's unvested ZD options will become vested. The remainder of his unvested
ZD options, ZDNet options and options to purchase shares of common stock of
SOFTBANK Corp. will continue to vest in accordance with the terms of the grants
for these options.

Jason Chudnofsky

In April 1998, we entered into an employment agreement with Mr. Chudnofsky
to serve as the President and Chief Executive Officer of ZD Events Inc. through
March 31, 2001. Pursuant to this agreement, Mr. Chudnofsky receives an annual
base salary of not less than $800,000 and an annual incentive bonus of
$300,000, subject to adjustment and assuming the achievement of earnings and
other performance targets, as determined by the board of directors of ZD Events
Inc. Pursuant to the Incentive Plan, we have granted Mr. Chudnofsky options to
acquire up to 327,000 shares of ZD stock and options to acquire up to 70,500
shares of ZDNet stock.

73
<PAGE>

It is anticipated that upon the sale or spinoff of ZD Events, Mr. Chudnofsky
would be employed by ZD Events Inc. as opposed to Ziff-Davis. Upon termination
of Mr. Chudnofsky's employment, all of his ZD options and ZDNet options will
become vested.

Timothy C. O'Brien

In April 1998, we entered into an employment agreement with Mr. O'Brien to
serve as our Vice President, Chief Financial Officer through March 31, 2001.
Pursuant to this agreement, Mr. O'Brien receives an annual base salary of not
less than $490,000 and an annual incentive bonus of $300,000, subject to
adjustment and assuming the achievement of earnings and other performance
targets, as determined by the board of directors of Ziff-Davis Inc. Pursuant to
the Incentive Plan, we have granted Mr. O'Brien options to acquire up to
192,000 shares of ZD stock and options to acquire up to 168,000 shares of ZDNet
stock.

In connection with the restructuring, Mr. O'Brien will end his employment
with us on March 31, 2000. As a result, we will pay Mr. O'Brien severance equal
to the sum of his then current base salary and his annual incentive
compensation, using the average amount of incentive compensation earned in 1999
and 1998 (which is deemed to be $200,000). In addition, all of Mr. O'Brien's ZD
options, ZDNet options and options to purchase shares of common stock of
SOFTBANK Corp. will vest immediately. Mr. O'Brien will continue to receive
coverage under our health plans for a period of one year.

Terri S. Holbrooke

In April 1998, we entered into an employment agreement with Ms. Holbrooke to
serve as President of ZD Brand & Market Services through March 31, 2001.
Pursuant to this agreement, Ms. Holbrooke receives an annual base salary of not
less than $420,000 and an annual incentive bonus of $150,000, subject to
adjustment and assuming the achievement of earnings and other performance
targets, as determined by the board of directors of Ziff-Davis. Pursuant to the
Incentive Plan, we have granted Ms. Holbrooke options to acquire up to 177,000
shares of ZD stock and options to acquire up to 80,500 shares of ZDNet stock.

In connection with the restructuring, Ms. Holbrooke will end her employment
with us on February 29, 2000. As a result, we will pay Ms. Holbrooke severance
equal to her current base salary. In addition, all of Ms. Holbrooke's ZD
options, ZDNet options and options to purchase shares of common stock of
SOFTBANK Corp. will vest immediately. Ms. Holbrooke will continue to receive
coverage under our health plans for a period of one year.

Michael S. Perlis

In November 1998, we entered into an employment agreement with Mr. Perlis to
serve as President of ZD Publishing through December 31, 2001. Pursuant to this
agreement, Mr. Perlis receives an annual base salary of not less than $650,000
and an annual incentive bonus equal to a percentage of the EBITDA for ZD
Publishing above a base amount. Pursuant to the Incentive Plan, we have granted
Mr. Perlis options to acquire up to 310,000 shares of ZD stock and options to
acquire up to 118,750 shares of ZDNet stock.

It is anticipated that Mr. Perlis will be employed by the purchaser of ZD
Publishing after the closing of that sale. If Mr. Perlis does not become
employed by the purchaser of ZD Publishing, his employment with us will end and
we will pay him severance equal to $550,000. In addition, all of Mr. Perlis' ZD
options and ZDNet options will vest immediately.

74
<PAGE>

SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Certain Beneficial Owners

The following table sets forth certain information with respect to the
beneficial ownership (1) of ZD stock as of January 31, 2000 and (2) of the
common stock of the company as of January 31, 2000 but after giving effect to
the restructuring based on an estimated exchange ratio of 1.77, by each person
or entity which beneficially owns more than five percent of the outstanding
shares of the common stock of Ziff-Davis. As of January 31, 2000 no person or
entity beneficially owned more than five percent of the outstanding shares of
ZDNet stock.

<TABLE>
<CAPTION>
Prior to the After the
Restructuring Restructuring
--------------------- -------------------
Number of
Number of Shares of Percent
shares of Percent of Common of
Beneficial Owner ZD Stock Class(1) Stock Class(1)
- ---------------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
SOFTBANK America Inc.(2).............. 71,619,355 69.10% 71,619,355 55.70%
SOFTBANK Holdings Inc.(3)............. 71,620,000 69.10 71,620,000 55.70
SOFTBANK Corp.(4)..................... 71,620,000 69.10 71,620,000 55.70
Masayoshi Son(5)...................... 71,620,000 69.10 71,620,000 55.70
</TABLE>
- --------
(1) The percentage of ownership is based on (a) 103,651,482 shares of ZD stock
outstanding as of January 31, 2000 and (b) 128,579,163 shares of common
stock of the company outstanding as of January 31, 2000 after giving effect
to the restructuring based on an estimated exchange ratio of 1.77.
(2) SOFTBANK America Inc.'s address is 10 Langley Road, Suite 403, Newton
Center, MA 02459.
(3) Includes shares owned by SOFTBANK America Inc. and 645 shares owned by
SOFTBANK Kingston Inc., all of which may be deemed to be beneficially owned
by SOFTBANK Holdings Inc. SOFTBANK Holdings Inc.'s address is 10 Langley
Road, Suite 403, Newton Center, MA 02459.
(4) Includes shares owned by SOFTBANK America Inc. and SOFTBANK Kingston Inc.,
all of which may be deemed to be beneficially owned by SOFTBANK Corp.
SOFTBANK Corp.'s address is 24-1 Nihonbashi-Hakozakicho, Chuo-ku, Tokyo
103, Japan.
(5) Includes shares owned by SOFTBANK America Inc. and SOFTBANK Kingston Inc.,
all of which may be deemed to be beneficially owned by Mr. Son (who owns
37.95% of SOFTBANK Corp. and is its President). Mr. Son'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 is able to
influence significantly matters affecting Ziff-Davis. Softbank is able to elect
all members of the board of directors and to control those actions that require
the approval of holders of a majority of the voting stock of Ziff-Davis,
including amendments to our charter and approval of any business combinations.
See "Risk Factors--Other Risk Factors--We Are Controlled By Our Principal
Stockholders. This Creates Potential Conflicts of Interest."

75
<PAGE>

Management

The following table sets forth certain information with respect to the
beneficial ownership (1) of ZD stock and ZDNet stock as of January 31, 2000 (2)
of the common stock of the company as of January 31, 2000 but after giving
effect to the restructuring based on an estimated exchange ratio of 1.77 and
(3) of the common stock of SOFTBANK Corp. as of December 31, 1999, in each case
by (x) each person named in the Summary Compensation Table, (y) each director
of Ziff-Davis and (z) all executive officers and directors of Ziff-Davis as a
group.

<TABLE>
<CAPTION>
Prior to the Restructuring After the Restructuring
-------------------------------------------- -----------------------
Number of
Number of Number of shares of
shares of Shares of Number of common stock of
common stock Percent of ZDNet Percent of Shares of Percent of SOFTBANK Percent of
Beneficial Owner of ZD Stock Class(1) Stock Class(1) Common Stock Class(1) Corp.(2) Class(1)
- ---------------- ------------ ---------- --------- ---------- ------------ ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eric Hippeau(3)......... 225,101 * % 192,500 1.37% 565,826 * % 30,498 * %
Jason E. Chudnofsky(3).. 126,750 * 28,406 * 177,028 * 5,716 *
Timothy C. O'Brien(3)... 80,500 * 50,750 * 170,327 * 4,701 *
Michael S. Perlis(4).... 77,500 * 35,110 * 139,644 * 0 *
Terri S. Holbrooke(4)... 65,500 * 23,906 * 107,813 * 1,364 *
Daniel L. Rosensweig(3).. 58,600 * 546,875 3.88 1,026,568 * 3,136 *
Masayoshi Son(5)........ 71,620,000 69.10 0 * 71,620,000 55.70 41,708,748 37.95
Ronald D. Fisher(6)..... 85,000 * 14,450 * 110,576 * 274,450 *
Jonathan D. Lazarus(7).. 39,000 * 15,313 * 66,104 * 0 *
Jerry Yang(8)........... 18,300 * 7,813 * 32,129 * 0 *
James J. Spanfeller, Jr.(9).. 25,919 * 13,797 * 50,339 * 942 *
Jack Dolce(9)........... 29,505 * 13,703 * 53,759 * 0 *
Officers and directors
as a group............. 72,600,376 70.04 1,475,863 10.48 75,212,653 58.50 41,760,363 37.99
</TABLE>
- --------
* Less than one percent.
(1) The percentage of ownership is based on (a) 103,651,482 shares of ZD stock
outstanding as of January 31, 2000; (b) 14,083,436 shares of ZDNet stock
outstanding as of January 31, 2000, (c) 128,579,163 shares of common stock
of the company outstanding as of January 31, 2000 after giving effect to
the restructuring based on an estimated exchange ratio of 1.77 and (d)
109,910,337 shares of common stock of SOFTBANK Corp. outstanding as of
December 31, 1999. Shares of common stock subject to options which are
currently exercisable or exercisable within 60 days of the date referenced
above, are deemed outstanding for computing the percentages of the person
holding such options, but are not deemed outstanding for computing the
percentages of any other person. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
includes voting and investment power with respect to shares. Unless
otherwise indicated, the persons named in the table have sole voting and
sole investment control with respect to all shares beneficially owned.
(2) Includes options granted in 1996 and 1997 to purchase common stock of
SOFTBANK Corp. under the SOFTBANK Group Executive Stock Option Plans.
(3) Both a director and an executive officer named in the Summary Compensation
Table.
(4) An executive officer named in the Summary Compensation Table.
(5) Includes shares owned by SOFTBANK America Inc. and SOFTBANK Kingston Inc.,
all of which may be deemed to be beneficially owned by Mr. Son.
(6) Including shares owned by 1995 Fisher Family Trust.
(7) Including shares owned by Lazarus Family Investments LLC, all of which may
be deemed to be beneficially owned by Jonathan D. Lazarus, a member of such
LLC.
(8) Including shares owned by Red Husky Foundation.
(9) An officer named in the Summary Compensation Table.

76
<PAGE>

STOCKHOLDER PROPOSALS

If you intend to present any stockholder proposals at our 2000 Annual
Meeting of Stockholders, the proposals must have been received by Ziff-Davis at
our principal executive offices located at 28 East 28th Street, New York, NY
10016 by December 31, 1999 (or, if the date of our 2000 Annual Meeting is after
June 26, 2000, a reasonable time before Ziff-Davis begins to print and mail its
proxy materials) and must be in compliance with applicable Securities and
Exchange Commission regulations to be included in Ziff-Davis' proxy statement
and related proxy materials to be used in connection with our 2000 Annual
Meeting.

Any stockholder proposals you submit outside the proxy process must comply
with Ziff-Davis' advance notice procedure as set forth in our by-laws. This
procedure requires stockholders to deliver to Ziff-Davis, at our principal
executive offices located at 28 East 28th Street, New York, NY 10016, notice of
any proposal to be presented or of a candidate to be nominated for election as
a director of Ziff-Davis not less than 60 nor more than 90 days prior to the
date of the annual or special meeting, as the case may be. However, 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 meeting, such advance
notice shall be given not more than 10 days after such date is first so
announced or disclosed. Accordingly, if you or any stockholder fails to act in
compliance with the notice provisions you will not be able to nominate
directors or propose new business.

WHERE YOU CAN FIND MORE INFORMATION

Ziff-Davis files reports, proxy statements and other information with the
SEC under the Securities Exchange Act of 1934. You may read and copy this
information at the following locations of the SEC:

Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-
2511

You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. Further information on the operation of the
SEC's Public Reference Room in Washington, D.C. can be obtained by calling the
SEC at 1-800-SEC-0330.

The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like Ziff-Davis,
who file electronically with the SEC. The address of that site is
http://www.sec.gov.

You can also inspect reports, proxy statements and other information about
Ziff-Davis Inc. at the offices of the NYSE, 20 Broad Street, New York, New York
10005.

77
<PAGE>

ANNEX I

PROPOSAL 1--RESOLUTIONS AUTHORIZING THE RESTRUCTURING OF ZIFF-DAVIS INC.

RESOLVED, that Ziff-Davis Inc. is hereby authorized to complete the
restructuring described under "Proposal 1--The Restructuring of Ziff-Davis--
General" in its proxy statement dated February 7, 2000 to which this resolution
is attached and, in furtherance thereof, is hereby specifically authorized to
(a) sell some or all of the following businesses and assets owned or previously
owned by Ziff-Davis Inc.: ZD Market Intelligence, ZD Publishing, ZD Events, ZD
Education, Smart Planet, an equity interest in ZDTV and an equity interest in
Red Herring Communications Inc., (b) pay a special cash dividend to the holders
of its ZD common stock, (c) transfer certain assets from ZD to ZDNet and (d)
complete the merger contemplated by the merger agreement referred to in the
next resolution; and

FURTHER RESOLVED, that the merger agreement attached as Annex II to such
proxy statement is hereby adopted.

I-1
<PAGE>

ANNEX II

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER, dated as of February 7, 2000 (this
"Agreement"), between Ziff-Davis Inc., a Delaware corporation (the
"Corporation"), and ZD Merger Subsidiary Inc., a Delaware corporation and
wholly owned subsidiary of the Corporation ("Merger Sub").

RECITALS

WHEREAS, the Corporation and Merger Sub desire to merge on the terms and
subject to the conditions set forth herein;

WHEREAS, the Board of Directors of the Corporation has adopted a resolution
approving this Agreement and declaring it advisable and in the best interest of
the Corporation and its stockholders; and

WHEREAS, the Board of Directors of Merger Sub has adopted a resolution
approving this Agreement and declaring it advisable and in the best interest of
Merger Sub and its sole stockholder, and the sole stockholder of Merger Sub, by
a written consent dated the date hereof, has voted for adoption of this
Agreement;

NOW THEREFORE, the Corporation and Merger Sub hereby agree as follows:

ARTICLE I

THE MERGER

Section 1.1. The Merger. On the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in Section 1.2),
Merger Sub shall be merged with and into the Corporation and the separate
corporate existence of Merger Sub shall thereupon cease (the "Merger"). The
Corporation shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation"), and the separate
corporate existence of the Corporation with all its rights, privileges, powers
and franchises shall continue unaffected by the Merger, except as set forth in
Article II. The Merger shall have the effects specified in the General
Corporation Law of the State of Delaware (the "DGCL").

Section 1.2. Filing of Certificate of Merger; Effective Time. As soon as
practicable after all of the conditions set forth in Article IV are satisfied,
the Corporation and Merger Sub will cause a Certificate of Merger (the
"Certificate of Merger") to be executed, acknowledged and filed with the
Secretary of State of the State of Delaware as provided in Section 251 of the
DGCL. The Merger shall become effective at the time when the Certificate of
Merger has been duly filed with the Secretary of State of the State of Delaware
or at such other time as shall be agreed by the parties and set forth in the
Certificate of Merger in accordance with the DGCL (such time of effectiveness,
the "Effective Time").

ARTICLE II

NAME; CERTIFICATE OF INCORPORATION;
BY-LAWS; DIRECTORS AND OFFICERS

Section 2.1. Name of Surviving Corporation. The name of the Surviving
Corporation shall be ZDNet Inc.

Section 2.2. Certificate of Incorporation of Surviving Corporation. The
amended and restated certificate of incorporation of the Corporation as in
effect immediately prior to the Effective Time shall be further amended and
restated as of the Effective Time so as to read in its entirety as set forth in
Exhibit A

II-1
<PAGE>

hereto and, as so amended and restated, such certificate of incorporation shall
be the amended and restated certificate of incorporation of the Surviving
Corporation until thereafter amended as provided therein or by applicable law.

Section 2.3. By-Laws of Surviving Corporation. The by-laws of the
Corporation as in effect immediately prior to the Effective Time shall be the
by-laws of the Surviving Corporation, until thereafter amended as provided
therein or by applicable law.

Section 2.4. Directors and Officers of Surviving Corporation. The directors
and officers of the Corporation immediately prior to the Effective Time shall,
from and after the Effective Time, be the directors and officers of the
Surviving Corporation until their successors have been duly elected or
appointed or until their earlier death, resignation or removal.

ARTICLE III

TREATMENT OF SHARES IN THE MERGER;
EXCHANGE OF CERTIFICATES

Section 3.1. Treatment of Shares in the Merger. The shares of common stock
of the Corporation and Merger Sub shall be treated in the Merger as follows:

(a) ZDNet Stock. At the Effective Time, as a result of the Merger and
without any action on the part of the holder of any capital stock of the
Corporation or Merger Sub, each share of Ziff-Davis Inc.-- ZDNet Common
Stock, par value $.01 per share ("ZDNet Stock"), of the Corporation issued
and outstanding immediately prior to the Effective Time shall be converted
into a number of shares of Common Stock, par value $0.01 per share ("Common
Stock"), of the Surviving Corporation equal to the Exchange Ratio. As used
herein, the term "Exchange Ratio" means (i) the number of shares of Ziff-
Davis Inc.--ZD Common Stock, par value $.01 per share ("ZD Stock"), of the
Corporation outstanding immediately prior to the Effective Time divided by
(ii) the Number of Shares Issuable with Respect to ZD's Retained Interest
in ZDNet (as such term is defined in the Amended and Restated Certificate
of Incorporation of the Corporation) immediately prior to the Effective
Time. At the Effective Time, all shares of ZDNet Stock shall no longer be
outstanding and shall be cancelled and retired and shall cease to exist,
and each certificate (a "Certificate") formerly representing any of such
shares of ZDNet Stock shall thereafter represent only the shares of Common
Stock into which such shares have been converted and the right to receive
cash pursuant to Sections 3.2(c) and 3.2(e).

(b) ZD Stock. At the Effective Time, as a result of the Merger and
without any action on the part of the holder of any capital stock of the
Corporation or Merger Sub, each share of ZD Stock issued and outstanding
immediately prior to the Effective Time shall remain outstanding as one
issued and outstanding share of Common Stock of the Surviving Corporation.

(c) Common Stock of Merger Sub. At the Effective Time, as a result of
the Merger and without any action on the part of the holder of any capital
stock of the Corporation or Merger Sub, each share of common stock, par
value $1.00 per share, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall cease to be outstanding, shall be
canceled and retired without payment of any consideration therefor and
shall cease to exist.

Section 3.2. Exchange of Certificates.

(a) Exchange Agent. The Surviving Corporation shall deposit with an exchange
agent (the "Exchange Agent"), on a timely basis, for the benefit of the persons
who had, immediately prior to the Effective Time, been holders of shares of
ZDNet Stock, certificates representing shares of Common Stock into which such
shares of ZDNet Stock shall have been converted as contemplated in Section
3.1(a) and any cash that the Surviving Corporation may be required to pay
pursuant to Section 3.2(c) or 3.2(e) (such certificates and cash, for so long
as held in deposit, being hereinafter referred to as the "Exchange Fund").

II-2
<PAGE>

(b) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each person who was,
immediately prior to the Effective Time, a registered holder of ZDNet Stock a
letter of transmittal and instructions for use in effecting the surrender of
the Certificates. Upon surrender of a Certificate together with such letter of
transmittal, duly executed and completed in accordance with the instructions,
the holder of such Certificate shall be entitled to receive in exchange
therefor (i) a certificate representing that number of shares of Common Stock
that such holder is entitled to receive pursuant to this Article III and (ii) a
check in an amount (after giving effect to any required tax withholdings) equal
to any cash the holder has a right to receive pursuant to Section 3.2(c) or
3.2(e), and the Certificate so surrendered shall forthwith be cancelled. No
interest will be paid or accrued on any amount payable upon due surrender of
the Certificates. If any certificate for shares of Common Stock is to be issued
in a name other than that in which the Certificate surrendered in exchange
therefor was registered, it shall be a condition of such exchange that the
Certificate be properly endorsed or otherwise in proper form for transfer and
that the person requesting issuance shall pay any transfer or other taxes
required by reason of the issuance of the certificate for such shares of Common
Stock in a name other than that of the registered holder of the Certificate
surrendered or shall establish to the satisfaction of the Surviving Corporation
or the Exchange Agent that such tax has been paid or is not applicable.

(c) Status of Unexchanged Certificates; Dividends and Distributions with
Respect to Shares Represented by Unexchanged Certificates. Shares of Common
Stock to be issued pursuant to the Merger shall be deemed issued and
outstanding as of the Effective Time for all purposes, and from the Effective
Time to the time that a Certificate is exchanged for a new certificate
representing shares of Common Stock as contemplated above, such Certificate
shall be deemed to represent the shares of Common Stock issuable in exchange
therefor and the person who immediately prior to the Effective Time was the
registered holder of such Certificate shall be deemed to be the registered
holder of such shares; provided, however, that whenever a dividend or other
distribution is payable by the Surviving Corporation on shares of Common Stock
represented by a Certificate, the dividend or other distribution shall not be
paid to the holder thereof until such Certificate is surrendered for exchange
in accordance with this Article III (or an affidavit of loss in lieu thereof is
delivered as contemplated by Section 3.2(g)) and shall thereafter (subject to
the effect of applicable laws) be paid without interest.

(d) Transfers. At and after the Effective Time, there shall be no transfers
on the stock transfer books of the Surviving Corporation of the shares of ZDNet
Stock that were outstanding immediately prior to the Effective Time.

(e) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Common Stock will be issued pursuant to the
Merger and any person who was a registered holder of shares of ZDNet Stock
immediately prior to the Effective Time and who would, in the absence of this
Section 3.2(e), be entitled to receive a fraction of a share of Common Stock
pursuant to the Merger will instead be entitled to receive a cash payment in
lieu thereof, in an amount equal to such fraction times the closing price of a
share of ZD Stock, as reported in The Wall Street Journal, New York City
edition, on the last full trading day ending prior to the Effective Time.

(f) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any certificates for
Common Stock) that remains unclaimed by the holders of Certificates for 180
days after the Effective Time shall be transferred to the Surviving
Corporation, and thereafter holders of Certificates who have not already
exchanged their Certificates as contemplated by this Article III shall look
only to the Surviving Corporation for delivery of certificates representing
their shares of Common Stock and payment of cash pursuant to Sections 3.2(c)
and 3.2(e) upon due surrender of their Certificates (or affidavits of loss in
lieu thereof), in each case, without any interest thereon. Notwithstanding the
foregoing, none of the Corporation, the Surviving Corporation, the Exchange
Agent or any other person shall be liable to any former holder of shares of
ZDNet Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.

II-3
<PAGE>

(g) Lost, Stolen or Destroyed Certificates. In the event any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed and, if required by the Surviving Corporation, the posting by such
person of a bond in customary amount as indemnity against any claim that may be
made against it with respect to such Certificate, the Surviving Corporation
will, in exchange for such lost, stolen or destroyed Certificate, issue and
deliver a certificate representing the shares of Common Stock and pay the cash
to which such person is entitled pursuant to Sections 3.1, 3.2(c) and 3.2(e).

Section 3.3. No Appraisal Rights. In accordance with Section 262 of the
DGCL, no appraisal rights shall be available to holders of shares of ZD Stock,
ZDNet Stock or common stock of Merger Sub in connection with the Merger.

Section 3.4. Adjustments to Prevent Dilution. In the event that, prior to
the Effective Time, the Corporation changes the number of shares of ZDNet Stock
or ZD Stock outstanding through a stock split, reverse split or stock dividend,
the number of shares of Common Stock into which each share of ZDNet Stock shall
be converted in the Merger pursuant to Section 3.1 shall be proportionately
adjusted to equitably reflect such change.

ARTICLE IV

CONDITIONS TO THE MERGER

The obligations of the Corporation and Merger Sub to consummate the Merger
are subject to the satisfaction of the following conditions:

(a) this Agreement shall have been approved by the stockholders of the
Corporation in the manner required under the DGCL and the Corporation's
Amended and Restated Certificate of Incorporation; and

(b) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger.

ARTICLE V

TERMINATION

Section 5.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time by mutual written
consent of the Corporation and Merger Sub.

Section 5.2. Effect of Termination. If this Agreement is terminated pursuant
to Section 5.1, this Agreement shall become void and of no effect with no
liability on the part of either party hereto.

ARTICLE VI

MISCELLANEOUS

Section 6.1. Integration. This Agreement constitutes the entire
understanding between Merger Sub and the Corporation with respect to the
subject matter hereof.

Section 6.2. Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns.

Section 6.3. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to principles of conflict of laws.

II-4
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized representatives as of the day and year
first above written.

Ziff-Davis Inc.

/s/ Eric Hippeau
By: _________________________________
Name:Eric Hippeau
Title:President and Chief
Executive Officer

ZD Merger Subsidiary Inc.

/s/ Eric Hippeau
By: _________________________________
Name:Eric Hippeau
Title:President

II-5
<PAGE>

Exhibit A

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

ZDNET INC.

(Adopted in accordance with Section 251 of the
General Corporation Law of the State of Delaware)

ARTICLE FIRST

NAME

The name of the Corporation is ZDNet 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 purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.

ARTICLE FOURTH

CAPITAL STOCK

The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 220 million shares, of which 210 million
shares shall be designated as Common Stock, par value $0.01 per share ("Common
Stock"), and 10 million shares shall be designated as Preferred Stock, par
value $0.01 per share ("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;

II-6
<PAGE>

(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 the State of Delaware or any
corresponding provision hereafter enacted.

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

II-7
<PAGE>

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.

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 General Corporation Law of the State of Delaware 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.

II-8
<PAGE>

ANNEX III

ZIFF-DAVIS INC.

INDEX TO ANNEX III

<TABLE>
<CAPTION>
Page
------
<S> <C>
Ziff-Davis Inc. Selected Historical Consolidated Financial and Other
Data.................................................................. III-2
Ziff-Davis Inc. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the three and nine month
periods ended September 30, 1998 and 1999............................. III-3
Ziff-Davis Inc. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the years ended December 31,
1996, 1997 and 1998 .................................................. III-13
Ziff-Davis Inc. Description of Business................................ III-25
Ziff-Davis Inc. Unaudited Consolidated Financial Statements for the
three and nine month periods ended September 30, 1998 and 1999
Unaudited Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999 ................................................. III-26
Unaudited Consolidated Statements of Operations for the three and
nine month periods ended September 30, 1998 and 1999................ III-27
Unaudited Consolidated Statements of Comprehensive Loss for the three
and nine month periods ended September 30, 1998 and 1999............ III-28
Unaudited Consolidated Statements of Cash Flows for the nine month
periods ended September 30, 1998 and 1999........................... III-29
Unaudited Consolidated Statements of Changes in Stockholders' Equity
for the nine month period ended September 30, 1999.................. III-30
Notes to Unaudited Consolidated Financial Statements................. III-31
Ziff-Davis Inc. Consolidated Financial Statements for the years ended
December 31, 1996, 1997 and 1998
Report of Independent Accountants.................................... III-39
Consolidated Balance Sheets as of December 31, 1997 and 1998 ........ III-40
Consolidated Statements of Operations for the years ended December
31, 1996, 1997 and 1998 ............................................ III-41
Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1997 and 1998............................................. III-42
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998........................ III-43
Notes to Consolidated Financial Statements........................... III-44
</TABLE>

III-1
<PAGE>

ZIFF-DAVIS INC.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The following table presents selected historical consolidated data for Ziff-
Davis Inc. as of and for the years ended December 31, 1995, 1996, 1997 and 1998
and as of and for the nine months ended September 30, 1998 and 1999. This data
was derived from the Consolidated Financial Statements of Ziff-Davis Inc. The
data as of and for the nine months ended September 30, 1998 and 1999 are
unaudited.

An affiliate of Ziff-Davis Inc. acquired a print publishing business (ZDI) on
February 29, 1996; the data does not include results from the acquired business
for the period before the date of acquisition. However, because ZDI represented
Ziff-Davis Inc.'s principal operations, the following table also presents
selected historical combined data for ZDI as of and for the years ended
December 31, 1994 and 1995 and as of and for the two months ended February 28,
1996. The data as of and for the year ended December 31, 1995 and as of and for
the two months ended February 28, 1996 was derived from the audited
Consolidated Financial Statements of ZDI. The data as of and for the year ended
December 31, 1994 was derived from ZDI's unaudited consolidated financial
statements.

On May 4, 1998, Ziff-Davis Inc. completed a reorganization described in Note
2 to the unaudited Consolidated Financial Statements of Ziff-Davis Inc. and on
April 6, 1999 Ziff-Davis Inc. completed a public offering of ZDNet stock
described in Note 3 to the unaudited Consolidated Financial Statements of Ziff-
Davis Inc. Results for periods before the reorganization and public offering
are not directly comparable to results for period after those events. No
historical earnings per share or share data are presented as Ziff-Davis Inc.
does not consider such data meaningful.

For information concerning the pro forma effect of the reorganization, the
public offering of ZDNet stock and the restructuring described in this proxy
statement, see "Unaudited Pro Forma Consolidated Financial Statements of Ziff-
Davis Inc." included earlier in this proxy statement.

This table should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Consolidated
Financial Statements for Ziff-Davis Inc. included later in this Annex.

<TABLE>
<CAPTION>
ZDI(1) Ziff-Davis Inc.
----------------------------------- ---------------------------------------------------------------------
Nine month
Year ended Two-month period ended
December 31, period ended Year ended December 31, September 30,
--------------------- February 28, --------------------------------------------- ----------------------
1994 1995 1996 1995(2) 1996(2) 1997 1998 1998 1999
---------- ---------- ------------ ---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Op-
erations Data:
Revenue, net.... $ 711,379 $ 768,995 $ 125,465 $ 202,729 $ 955,139 $1,153,761 $1,108,892 $ 730,547 $ 752,910
Depreciation and
amortization... 34,208 91,546 15,137 24,305 139,736 154,940 152,544 114,594 127,866
Income (loss)
from
operations..... 80,723 55,750 7,270 62,675 87,181 109,232 31,080 (17,395) (40,448)
Interest
expense, net... 17,887 92,609 14,030 44,005 120,646 190,445 143,547 111,185 89,602
Income (loss)
before income
taxes.......... 77,650 (40,250) (6,995) 22,869 (27,124) (72,491) (104,236) (119,768) (87,602)
Net income
(loss)(3)(4)... 77,650 (26,002) (4,547) 10,945 (52,081) (71,179) (77,809) (86,179) (55,947)
Balance Sheet
Data (at period
end):
Cash and cash
equivalents.... $1,066,606 $ 10,083 $ 13,669 $ 27,908 $ 29,915 $ 30,301 $ 32,566 $ 27,153 $ 29,791
Total assets.... 2,751,525 1,623,906 1,619,905 1,090,981 3,584,173 3,546,646 3,433,803 3,412,701 3,443,936
Total long-term
debt........... 1,034,000 964,153 964,153 575,450 2,522,252 2,408,240 1,539,322 1,526,047 1,264,984
Stockholders'
equity ........ 391,275 365,150 360,717 397,881 447,756 126,130 1,352,598 1,344,048 1,605,158
Other Data:
Capital
expenditures... $ 15,119 $ 14,163 $ 552 $ 3,367 $ 22,365 $ 30,196 $ 36,599 $ 27,399 $ 64,624
Investments and
acquisitions,
net of cash
acquired....... -- -- -- 814,520 2,124,823 14,000 27,772 13,192 65,181
</TABLE>
- --------
(1) A third party acquired ZDI as of January 1, 1995. An affiliate of Ziff-
Davis Inc. acquired ZDI on February 29, 1996. Because ZDI represented Ziff-
Davis Inc.'s principal operations, ZDI data has been presented for periods
before these dates.
(2) An affiliate of Ziff-Davis Inc. acquired ZDI on February 29, 1996; Ziff-
Davis Inc. data does not include results from the acquired business for
periods before the date of acquisition.
(3) During 1994, ZDI conducted its operations through various partnerships.
Accordingly, there was no income tax provision for 1994.
(4) No historical earnings per share or share data are presented as Ziff-Davis
Inc. does not consider such data meaningful.

III-2
<PAGE>

ZIFF-DAVIS INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND
1999

Overview

Ziff-Davis Inc. was formed through an initial public offering and a
reorganization that were completed on May 4, 1998. Prior to that date, the
predecessors of Ziff-Davis Inc. were wholly owned indirect subsidiaries of
SOFTBANK Corp. (together with its non-Ziff-Davis Inc. affiliates, "Softbank")
or assets owned by MAC Inc., an affiliate of SOFTBANK Corp. ("MAC Assets"). As
such, financial statements for periods prior to May 4, 1998 have been prepared
on a combined basis while the financial statements for the periods after May 4,
1998 have been prepared on a consolidated basis.

Historically, Ziff-Davis Inc.'s business has been seasonal, earning a
significant portion of its revenue in the second and fourth quarters. In
addition, the shift in timing of a tradeshow or conference may result in
material differences in comparison to prior periods.

On July 14, 1999, Ziff-Davis Inc. announced that it had retained Morgan
Stanley Dean Witter to explore strategic alternatives to maximize stockholder
value. That exploration process has resulted in the comprehensive restructuring
described in this proxy statement. The impact of the restructuring is addressed
elsewhere in this proxy statement and is not otherwise addressed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations for Ziff-Davis Inc.

ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on March
30, 1999, to authorize the issuance of a new series of common stock, designated
as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), which is intended to
reflect the performance of Ziff-Davis Inc.'s Internet business division, ZDNet.
When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis Inc.'s existing
common stock was re-classified as Ziff-Davis Inc.--ZD Common Stock ("ZD
Stock"), which is intended to reflect the performance of Ziff-Davis Inc.'s
other businesses and a retained interest in ZDNet. The businesses represented
by ZD Stock are referred to as "ZD".

The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc.
issued 11.5 million shares of ZDNet Stock, including 1.5 million shares issued
in conjunction with the underwriters' exercise of their option to purchase
additional shares to cover over-allotments. Net proceeds of approximately
$198.6 million were received on April 6, 1999.

Acquisitions and Sale of Common Stock

ZDTV

On February 4, 1999, Ziff-Davis Inc. purchased ZDTV, LLC ("ZDTV") from MAC
Holdings (America) Inc., a related party, for a purchase price of approximately
$81.4 million. Ziff-Davis Inc. paid approximately

III-3
<PAGE>

$32.8 million of the purchase price in cash (settled on February 5, 1999) and
paid the remainder by applying approximately $48.6 million in advances owed to
it by MAC Holdings (America) Inc. Ziff-Davis Inc. also agreed to be responsible
for the funding of ZDTV during the period in 1999 prior to the purchase which
was accounted for as additional purchase price. Such funding amounted to
approximately $4.2 million.

On February 5, 1999, Vulcan Programming Inc., an entity owned by Paul G.
Allen, acquired a one-third equity interest in ZDTV for $54.0 million in cash.
In March 1999, an additional 4.0% equity interest was acquired by ZDTV's
president. In both cases, the acquisitions were effected by issuing additional
equity.

As a result of the acquisition, Ziff-Davis Inc. recorded an increase in
intangible assets of $76.1 million which will be amortized over 10 years.
ZDTV's cash requirements are currently expected to be approximately $50 million
for 1999. The $54.0 million invested in ZDTV by Vulcan Programming Inc. will be
used to fund ZDTV and thereafter cash requirements will be funded by the
members or by third parties.

Sale of Common Stock

On March 4, 1999, Vulcan Ventures Inc., the investment vehicle of Paul G.
Allen, purchased 3,030,303 shares of Ziff-Davis Inc. common stock for $50.0
million in cash.

GameSpot Inc.

On April 7, 1999, Ziff-Davis Inc. closed on the acquisition of the remaining
30% interest in GameSpot Inc. in exchange for 600,000 newly issued shares of
ZDNet Stock valued at approximately $11.4 million. This acquisition was
accounted for under the purchase method of accounting.

Updates.com Inc.

On July 2, 1999, Ziff-Davis Inc. acquired Updates.com, Inc. for $5.0 million
in cash and 582,526 shares of ZDNet Stock valued at $13.5 million. This
acquisition was accounted for under the purchase method of accounting.

SoftSeek Inc.

On July 30, 1999, Ziff-Davis Inc. acquired SoftSeek Inc. for $7.0 million in
cash and 991,038 shares of ZDNet Stock valued at $19 million. This acquisition
was accounted for under the purchase method of accounting.

In connection with the acquisitions described in the preceding three
paragraphs, Ziff-Davis Inc. will record additional amortization expense in 1999
of approximately $5.5 million.

Presentation of Financial Information

Ziff-Davis Inc. is comprised of certain operations which were acquired at
various times and completed a reorganization in May 1998. See Notes 1 and 2 to
Ziff-Davis Inc.'s Consolidated Financial Statements included in this Annex.

III-4
<PAGE>

Results of Operations

Comparison of the three months ended September 30, 1999 and 1998

Revenue

Revenue for the third quarter of 1999 was $258.3 million compared to $226.0
million for the third quarter of 1998, an increase of $32.3 million or 14.3%.
Revenue by segment is summarized in the following table:

<TABLE>
<CAPTION>
Three months
ended
September 30,
-----------------
1999 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Revenue:
Publishing............................................. $165,268 $181,727
Events................................................. 63,085 29,787
Internet............................................... 26,291 14,504
Television............................................. 3,642 --
-------- --------
Total................................................ $258,286 $226,018
======== ========
</TABLE>

Revenue from the publishing segment decreased by $16.5 million or 9.1% from
$181.7 million in the third quarter of 1998 to $165.3 million in the third
quarter of 1999. Excluding the effect of the three magazines that were closed
in October 1998 as part of a restructuring, publishing segment revenue
decreased by $10.4 million or 5.9%. Revenue from newer business publications
and consumer publications increased by 80.8% and 28.1%, respectively, but were
more than offset by a revenue decline from the major business publications,
most significantly at Computer Shopper. Margin pressure on computer equipment
manufacturers, industry consolidation product delays, and a focus on Year 2000
transition contributed to reduced demand for advertising in these publications.

Revenue from the events segment increased by $33.3 million or 111.8% from
$29.8 million in the third quarter of 1998 to $63.1 million in the third
quarter of 1999. The primary reason for the increase was the shift of two
events from the fourth quarter of 1998 to the third quarter of 1999. Excluding
the shifting of events, revenue decreased by $5.7 million or 8.3%, primarily
due to the discontinuation of certain smaller events.

Revenue from the Internet segment increased by $11.8 million or 81.3% from
$14.5 million in the third quarter of 1998 to $26.3 million in the third
quarter of 1999. Revenue from advertising accounted for 92.7% of total revenue
for 1999 compared to 86.4% for the same period in 1998. During the period both
the number of advertisers and the average monthly revenue per advertiser
increased as did the average sale price per page. Subscription-based fees and
services declined as expected and were $1.9 million of the three months ended
September 30, 1999 compared to $2.0 million for the same period in 1998.

Revenue from the television segment was $3.6 million for 1999. The television
segment was acquired on February 4, 1999 when Ziff-Davis Inc. purchased ZDTV
from MAC Holdings (America) Inc. for an aggregate purchase price of $81.4
million. (See Note 4 in the Ziff-Davis Inc. Unaudited Consolidated Financial
Statements).

Cost of production

The cost of production increased by $6.4 million or 10.3% from $62.5 million
in the third quarter of 1998 to $69.0 million in the third quarter of 1999. The
increase was driven by the acquisition of ZDTV and the shift in timing of
certain events. The increase was mostly offset by the decline in publishing
production costs related to a decline in advertising pages and the absence of
costs related to the closure of certain publications. Cost of production was
26.7% and 27.7% of revenue for the three months ended September 30, 1999 and
1998, respectively. The decrease as a percentage of revenue primarily reflects
the increased profitability of ZDNet.

III-5
<PAGE>

Selling, general and administrative expenses

Selling, general and administrative expenses were $157.5 million for the
third quarter of 1999 compared to $140.4 million in the third quarter of 1998,
an increase of $17.1 million or 12.2%. The increase was primarily related to
the acquisition of ZDTV and the increase in personnel and advertising costs
required to support the growth of ZDNet, partially offset by the reduced costs
as a result of the fourth quarter 1998 restructuring. Selling, general and
administrative expenses were 61.0% and 62.1% of revenue for the three months
ended September 30, 1999 and 1998, respectively.

Stock-based compensation

Stock-based compensation is a non-cash charge which is recorded over the
vesting period of certain stock option and restricted stock grants. Stock-based
compensation increased by $1.4 million from $0.1 million in the third quarter
of 1998 to $1.5 million for the third quarter of 1999. The increase was a
result of the issuance of certain options of ZDNet Stock and the conversion of
certain SOFTBANK Corp. stock options to Ziff-Davis Inc. stock options in
December 1998, both of which resulted in compensation.

Depreciation and amortization

Total depreciation and amortization expense was $44.7 million for the third
quarter of 1999 compared to $37.8 for the third quarter of 1998, an increase of
$6.9 million or 18.2%. The primary reason for the increase was depreciation and
amortization of assets associated with the acquisitions of ZDTV, Updates.com
and SoftSeek along with depreciation at Ziff-Davis Inc.'s new offices. These
increases were partially offset by the absence of amortization related to
intangible assets written off as part of the October 1998 restructuring.

Interest expense, net

Net interest expense declined by $0.5 million or 1.6% to $28.6 million for
the third quarter of 1999 from $29.1 million for the third quarter of 1998.
This was primarily due to a significant reduction in Ziff-Davis Inc.'s
outstanding debt through the reorganization and initial public offering
completed in May 1998 and the ZDNet Stock offering completed in April 1999,
partially offset by higher average interest rates in the 1999 period and non-
cash interest charges related to the amortization of fees paid in connection
with the December 1998 amendment to the credit facility.

Other non-operating income, net

Other non-operating income primarily reflects Ziff-Davis Inc.'s equity share
of earnings and losses from joint ventures, fees earned from management of
events not produced by Ziff-Davis and gains or losses realized on the
disposition of business units. Income of $15.3 million for the quarter ended
September 30, 1999 was $10.9 million higher than the income for the same period
in 1998 of $4.4 million. This difference was primarily due to one-time gains of
$13.3 million from the sale of several business units, principally the sale of
Ziff-Davis Inc.'s 50.0% interest in the ExpoComm joint venture, partially
offset by lower joint venture and management fee income. The sale of these
business units is not expected to have a material impact on Ziff-Davis Inc.'s
future results from operations or cash flows.

Minority interest in losses of subsidiaries

Losses attributable to minority stockholders of Ziff-Davis Inc.'s
subsidiaries increased $5.4 million from $0.1 million for the third quarter of
1998 to $5.5 million for the third quarter of 1999. This increase is primarily
due to the sale of a one-third interest in ZDTV in February 1999, creating a
minority interest in the losses of ZDTV.

III-6
<PAGE>

Income taxes

The consolidated tax benefit for the third quarter of 1999 was $7.3 million
compared to $35.0 million in the third quarter of 1998. The effective tax rate
for the three months ended September 30, 1999 was 32.6% compared to 88.6% for
the 1998 quarter. The difference is due to variances in the projected annual
effective tax rate for the respective years. These rates are based on estimates
for annual earnings and taxes available at the time and reflect adjustments to
record year-to-date income tax benefits or expense at revised rates of 36.1%
and 28.0% for the 1999 and 1998 periods, respectively. The actual annual
effective tax rate for 1988 was 25.4%.

Income taxes are provided based on Ziff-Davis Inc.'s projected annual
effective tax rate which differs from the U.S. federal statutory rate of 35.0%
due to certain items which are not deductible for income tax purposes,
primarily (i) losses of the MAC Assets prior to their purchase by Ziff-Davis
Inc., (ii) non-deductible goodwill amortization, and (iii) the effect of state
and local taxes. The deferred tax benefit for the three months ended September
30, 1999 has been reflected as a reduction of the long-term deferred tax
liability.

Net loss

As a result of the factors discussed above, the net loss increased from $4.5
million for the three months ended September 30, 1998 to $15.0 million for the
three months ended September 30, 1999.

EBITDA

EBITDA is defined as income before provision for income taxes, interest
expense, depreciation and other non-cash charges. These non-cash charges
include amortization of intangible assets and stock-based compensation expense.
EBITDA as reported for Ziff-Davis Inc. includes its interest in the EBITDA of
ZDTV, currently 64.0%.

EBITDA for the third quarter of 1999 was $51.0 million compared to $27.6
million for the third quarter of 1998, an increase of $23.4 million or 84.8%.
This change in EBITDA reflects the shift in timing of two events, one-time
gains from the sale of business units, and the significant improvement at
ZDNet, partly offset by the inclusion of ZDTV losses and declines in the
publishing segment.

Comparison of the nine months ended September 30, 1999 and 1998

Revenue

Revenue for the nine months ended September 30, 1999 was $752.9 million
compared to $730.5 million for the nine months ended September 30, 1998, an
increase of $22.3 million or 3.1%. Revenue by segment is summarized in the
following table:

<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
1999 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Revenue:
Publishing............................................. $518,626 $571,391
Events................................................. 157,150 122,690
Internet............................................... 67,791 36,466
Television............................................. 9,343 --
-------- --------
Total................................................ $752,910 $730,547
======== ========
</TABLE>

III-7
<PAGE>

publishing segment revenue decreased by $28.7 million or 5.2%. Revenue from
newer business publications and consumer publications increased by 53.8% and
43.8%, respectively, but were more than offset by a decline from the major
business publications, most significantly at Computer Shopper. Margin pressure
on computer equipment manufacturers, industry consolidation, product delays,
and a focus on Year 2000 transition contributed to reduced demand for
advertising in these publications.

Revenue from the events segment increased by $34.5 million or 28.1% from
$122.7 million in the nine months ended September 30, 1998 to $157.2 million in
the nine months ended September 30, 1999. This increase is primarily due to the
shift in timing of two events from the fourth quarter of 1998 to the third
quarter of 1999. This increase was partly offset by declines related to
discontinuation of certain smaller shows.

Revenue from the Internet segment increased by $31.3 million or 85.9% from
$36.5 million in the first nine months of 1998 to $67.8 million for the first
nine months of 1999. Revenue from advertising accounted for 92.4% of total
revenue for 1999 compared to 83.1% for the same period in 1998. During the
period both the number of advertisers and the average monthly revenue per
advertiser increased as did the average sale price per page. Subscription-based
fees and services declined as expected and were $5.1 million for the nine
months ended September 30, 1999 compared to $6.2 million for the same period in
1998.

Revenue from the television segment was $9.3 million for 1999. The television
segment was acquired on February 4, 1999 when Ziff-Davis Inc. purchased ZDTV
from MAC Holdings (America) Inc. for an aggregate purchase price of $81.4
million. (See Note 4 in the Ziff-Davis Inc. Unaudited Consolidated Financial
Statements.)

Cost of production

The cost of production decreased by $5.4 million or 2.6% from $207.4 million
for the nine months ended September 30, 1998 to $202.0 million for the nine
months ended September 30, 1999. The decline was consistent with the decrease
in revenue attributed to the discontinuation of three magazines in October 1998
as well as the decline in advertising pages in the business magazines. These
cost reductions were partially offset by production costs incurred from the
acquisitions of ZDTV and the shift in timing of certain events. Cost of
production was 26.8% and 28.4% of revenue for the three months ended September
30, 1999 and 1998, respectively. The decrease as a percentage of revenue
primarily reflects the increased profitability of ZDNet.

Selling, general and administrative expenses

Selling, general and administrative expenses were $458.6 million for the nine
months ended September 30, 1999 compared to $425.8 million for the nine months
ended September 30, 1998, an increase of $32.8 million or 7.7%. The increase
was primarily related to the acquisition of ZDTV and increased cost to support
ZDNet's growth, offset by cost savings realized from the October 1998
restructuring. Selling, general and administrative expenses were 60.9% and
58.3% of revenue for the nine months ended September 30, 1999 and 1998,
respectively. The percentage increase primarily represents increased personnel
costs related to the growth of ZDNet.

Stock-based compensation

Stock-based compensation increased by $4.7 million from $0.2 million for the
first nine months of 1998 to $4.9 million for the same period of 1999. The
increase was a result of the issuance of certain options of ZDNet Stock and the
conversion of certain SOFTBANK Corp. stock options to Ziff-Davis Inc. stock
options in December 1998, both of which resulted in compensation. In addition,
$0.4 million of stock compensation was incurred in 1999 relating to the
issuance of ZDNet stock options as part of completing the GameSpot minority
interest acquisition.

Depreciation and amortization

Total depreciation and amortization expense was $127.9 million for the nine
months ended September 30, 1999 compared to $114.6 million for the nine months
ended September 30, 1998, an increase of $13.3 million

III-8
<PAGE>

or 11.6%. The primary reason for the increase was depreciation and amortization
of assets acquired through acquisitions of ZDTV, Sky TV, Updates.com and
SoftSeek, as well as assets associated with Ziff-Davis Inc.'s new headquarters.
These increases were partially offset by the absence of amortization related to
intangible assets written off as part of the October 1998 restructuring.

Interest expense, net

Net interest expense declined by $21.6 million or 19.4% from $111.2 million
for the nine months ended September 30, 1998 to $89.6 million for the nine
months ended September 30, 1999. This was primarily due to a significant
reduction in Ziff-Davis Inc.'s outstanding debt through the reorganization and
initial public offering completed in May 1998 and the ZDNet Stock offering
completed in April 1999, partially offset by higher average interest rates in
the 1999 period and non cash interest charges related to the amortization of
fees paid in connection with the December 1998 amendment to the credit
facility.

Other non-operating income, net

Income of $26.8 million for the nine months ended September 30, 1999 was
$18.3 million higher than the income for the same period in 1998 of $8.5
million, primarily due to $20.4 million of one-time gains from the sale of
several business units, partially offset by lower joint venture and management
fee income. The sale of these business units is not expected to have a material
impact on Ziff-Davis Inc.'s future results of operations or cash flows.

Minority interest in losses of subsidiaries

Losses attributable to minority stockholders of Ziff-Davis Inc.'s
subsidiaries increased $15.4 million from $0.3 million to $15.7 million. This
increase is primarily due to the sale of a one-third interest in ZDTV in
February 1999, creating a minority interest in the losses of ZDTV.

Income taxes

The consolidated tax benefit for the nine months ended September 30, 1999 was
$31.7 million compared to $33.6 million in the nine months ended September 30,
1998. The effective tax rate for the nine months ended September 30, 1999 was
36.1% compared to 28.0% for the 1998 period. These rates are based on estimates
for annual earnings and taxes available at the time. The actual annual
effective tax rate for 1998 was 25.4%.

Net loss

As a result of the factors discussed above, the net loss decreased from $86.2
million for the nine months ended September 30, 1998 to $55.9 million for the
nine months ended September 30, 1999.

EBITDA

EBITDA for the nine months ended September 30, 1999 was $130.6 million
compared to $106.2 million for the nine months ended September 30, 1998, an
increase of $24.4 million or 23.0%. This increase is primarily due to the shift
in timing of events, one-time gains from the sale of businesses and
improvements at ZDNet, partly offset by the inclusion of ZDTV losses and a
decline in the publishing segment.

Liquidity and Capital Resources

At September 30, 1999, Ziff-Davis Inc.'s total outstanding debt was $1,272.7
million, excluding unamortized discount, and consisted of $72.7 million due to
Softbank and $1,200.0 million in notes.

Cash and cash equivalents were $29.8 million at September 30, 1999 compared
to $32.6 million at December 31, 1998. The change during the nine months ended
September 30, 1999 was due to the factors discussed below.

III-9
<PAGE>

Cash provided by operations was $63.9 million for the nine months ended
September 30, 1999 compared to $82.8 million for the nine months of 1998
primarily due to changes in working capital.

Cash used by investing activities was $96.7 million for the nine months ended
September 30, 1999 compared to $40.6 million for the nine months ended
September 30, 1998. The increase reflects higher capital spending of $37.2
million primarily due to one-time spending on relocation of the New York
operations. In addition, Ziff-Davis Inc. paid $9.4 million to the previous
owners of Inter@ctive Enterprises in connection with the contingent purchase
price adjustment. The remainder of the increase relates to an increase in the
cash paid for acquisitions of $39.0 million, primarily of ZDTV ($32.8 million),
partly offset by $29.1 million of proceeds from the sale of several business
units, principally the sale of Ziff-Davis Inc.'s 50.0% interest in the ExpoComm
joint venture.

Cash provided by financing activities was $30.0 million for the nine months
ended September 30, 1999 compared to a use of $45.3 million for the nine months
ended September 30, 1998. Financing activities in 1998 primarily represent
remittance of excess cash to Softbank to repay intercompany obligations prior
to ZD's initial public offering. Financing activities in 1999 include the ZDNet
Stock offering, proceeds of $54.0 million from Vulcan Programming Inc. for the
issuance of a one-third equity interest in ZDTV and $50.0 million for issuing
approximately 3 million shares of ZD Common Stock to Vulcan Ventures Inc., as
well as the partial use of these proceeds to repay indebtedness.

In connection with Ziff-Davis Inc.'s intention to pursue strategic
alternatives, programs have been put in place in order to retain employees. The
cost of such programs, which include enhanced severance packages, accelerated
vesting of stock options and employer contributions to the 401(k) plan, cannot
yet be estimated.

Ziff-Davis Inc. believes, based on it current level of operations and
anticipated growth, that its ability to generate cash, together with cash on
hand and available lines of credit, will be sufficient to make required
payments of principal and interest on its indebtedness and to fund anticipated
capital expenditures and working capital requirements. However, actual capital
expenditures may change, particularly as a result of any acquisitions Ziff-
Davis Inc. may pursue. The ability of Ziff-Davis Inc. to meet its debt service
obligations and reduce its total debt will depend on its future performance.

Swap Agreements

Ziff-Davis Inc.'s credit facility exposes it to market risk with respect to
changes in interest rates. Ziff-Davis Inc. manages this risk through the use of
interest rate swap agreements.

On June 15, 1999, Ziff-Davis Inc. amended a swap agreement (with a notional
amount of $100 million) by reducing the fixed rate paid to the counterparty and
providing the counterparty with a one-time option to cancel the swap agreement
on February 5, 2000 (or reduce the term of the agreement by 3 1/2 years). Ziff-
Davis Inc. entered into another swap agreement (with a notional amount of $50
million) on June 15, 1999. Under this swap agreement, Ziff-Davis Inc. will
receive a fixed rate of interest and pay a floating rate of interest based on 3
month LIBOR, which resets quarterly, for the term of the agreement.

Through the use of swap agreements, Ziff-Davis Inc. has effectively
established a fixed interest rate for $500 million of the outstanding credit
facility. Based on the $950 million outstanding under the credit facility as of
September 30, 1999, if the LIBOR rate were to increase by 1%, Ziff-Davis Inc.
would incur, after giving effect to the swap agreements, an additional $4.5
million of annual interest expense. The weighted average fixed rate Ziff-Davis
Inc. pays under these agreements is approximately 5.1%.

These swap agreements are viewed by Ziff-Davis Inc. as risk management tools
and are not used for trading or speculative purposes. The notional amount of
$500 million does not represent a real amount

III-10
<PAGE>

exchanged by the parties and therefore, is not a measure of Ziff-Davis Inc.'s
exposure through its use of swap agreements. The fair values of these swap
agreements were estimated by obtaining quotes from brokers. These quotes
represented the amounts that Ziff-Davis Inc. would pay if the agreements were
terminated at the balance sheet date. Although it is not Ziff-Davis Inc.'s
intention to terminate these swap agreements, these fair values indicated that
the termination of the swap agreements would have resulted in a gain of
approximately $8.1 million. By their nature, swap agreements involve credit
risk, due to the possible nonperformance by counterparties. To mitigate this
risk, Ziff-Davis Inc. enters into swap agreements with major financial
institutions and diversifies the counterparties used as a means to limit
counterparty exposure and concentration of risk.

Hedge transaction

In June 1999, Ziff-Davis Inc. entered into a short-sale to effect a hedge on
300,000 of its 438,057 shares of Beyond.com Corporation. These shares were sold
on behalf of Ziff-Davis Inc. by a third party, at a weighted average price of
$22.50 per share. In September 1999, Ziff-Davis Inc. delivered the shares
required to close the short position and repurchased the shares at a market
price of $14.00 per share. An unrealized gain of approximately $2,600,000 was
deferred in the period related to this hedge transaction.

Restructuring

In October 1998, Ziff-Davis Inc. announced a restructuring program with the
intent of significantly reducing its cost base. As a result, a charge of $52.2
million was recorded in the fourth quarter of 1998. The charge included asset
impairment costs ($37.9 million), employee termination costs ($8.6 million) and
costs to exit activities ($5.7 million). Approximately $3.7 million remains
accrued on the balance sheet related to the restructuring, primarily related to
the future costs of vacant lease space.

Year 2000 Readiness Disclosure

During 1997, Ziff-Davis Inc. began a review of its computer systems and
software to identify systems and software which might malfunction due to
misidentification of the Year 2000. Ziff-Davis Inc. is using both internal and
external resources to identify, test, correct and reprogram systems and
software for Year 2000 readiness.

At December 31, 1998, Ziff-Davis Inc. was in the research and validation
phase of its Year 2000 project for information technology, or IT systems and
non-IT systems. This phase consisted of research and validation of all
infrastructure, hardware and software, including platform, wide-area network
and local-area network components. Research for non-IT systems included
identifying systems that contained embedded technology, such as micro-
controllers, which were not Year 2000 compliant.

Ziff-Davis Inc. has identified critical systems and applications that have
been or are being validated for compliance through formal documentation,
vendors or testing. During the second quarter of 1999, Ziff-Davis Inc. entered
the testing phase of its infrastructure, hardware, software and databases and
plans to complete such phase by the fourth quarter of 1999. Contingency plans
are being finalized for any systems or platforms that remain in the testing
phase during the fourth quarter of 1999.

Some of Ziff-Davis Inc. computer systems and databases, including its
subscription fulfillment and payroll systems, are managed by third parties
under contractual arrangements. Ziff-Davis Inc. is not currently aware of any
Year 2000 compliance problems related to those third parties. In the second
quarter of 1999 Ziff-Davis Inc. had requested those third parties with which
Ziff-Davis Inc. has material relationships to advise it as to whether such
third parties anticipate difficulties in addressing Year 2000 compliance
problems, and if so, the nature of such difficulties. Such inquiries are
substantially completed and no material matters have been identified.

III-11
<PAGE>

In addition, Ziff-Davis Inc. is developing contingency plans in order to
compensate for any disruption or downtime that could result from a Year 2000
compliance problem. Ziff-Davis Inc. has replaced or is remediating IT and non-
IT systems that it determined were not Year 2000 compliant.

Ziff-Davis Inc. has incurred remediation costs associated with its Year 2000
readiness efforts. These remediation costs have been incurred in connection
with replacement of systems and hardware, modification of software and
consulting costs related to Year 2000 solution providers. The internal costs to
address Year 2000 issues, which have been included in the general and
administrative expenses of Ziff-Davis Inc., have not been tracked separately
and are therefore not determinable. However, management believes these expenses
have been substitutive rather than incremental to the recurring level of
general and administrative expenses. Total capitalized costs incurred in the
replacement of systems in connection with Ziff-Davis Inc.'s Year 2000 readiness
efforts as of December 31, 1997 and 1998 were $1.7 million and $3.8 million,
respectively. Ziff-Davis Inc. estimates that it will incur external selling,
general and administrative expenses of approximately $7.0 to $9.0 million and
capital costs of $5.0 to $6.0 million during 1999 related to its Year 2000
readiness efforts.

Ziff-Davis Inc. expects to complete testing and replacement of critical
systems in the fourth quarter of 1999. Ziff-Davis Inc.'s estimate of its most
reasonably likely "worst case scenario" would be the failure of its internal
applications and systems that process and store certain information and data.
Ziff-Davis Inc. would resolve the failure of such applications and systems one
by one, and management of Ziff-Davis Inc. does not believe that the impact on
its critical systems would be material. However, if Ziff-Davis Inc. or any of
its subscribers, advertisers, licensors, vendors or other third parties on whom
it relies experiences a Year 2000 compliance problem, this could have a
material adverse effect on Ziff-Davis Inc.'s profit and liquidity.

III-12
<PAGE>

ZIFF-DAVIS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1996, 1997 AND 1998

Revenue

Ziff-Davis Inc. had net revenue of $1.109 billion for 1998. A substantial
portion of Ziff-Davis Inc.'s revenue is derived from the sale of advertising,
which in 1998 accounted for 51.6% of total revenue. No single advertiser has
comprised more than 3.0% of Ziff-Davis Inc.'s advertising revenue during any of
the last three years. However, Ziff-Davis Inc.'s top 20 advertisers accounted
for 37.1% of total advertising revenue for 1998.

In the publishing segment, Ziff-Davis Inc.'s principal sources of revenue are
advertising (64.4% of 1998 total publishing revenue), circulation (18.7%) and
other (16.9%) for the year ended December 31, 1998. Circulation comprises both
paid subscriptions (10.9%) and newsstand sales (7.8%) while other includes
educational and training materials (7.4%) and market research studies (7.1%)
with the balance primarily consisting of royalties, reprints and other
miscellaneous sales. In the events segment, revenue is derived from two
principal sources: sale of exhibit space (66.8% of 1998 total segment revenue)
and attendee conference and seminar fees (14.1%). Unlike many trade show
producers, Ziff-Davis Inc. derives a significant portion of its trade show
revenue from other sources (19.1%), including advertising in show-related
publications, billboards, banners, fees from managing customer-sponsored events
and other show-related activities. Ziff-Davis Inc. believes these other sources
will continue to be an important growth area, particularly for its content-
focused events. In the Internet segment, Ziff-Davis Inc.'s principal source of
revenue is from advertising (86.0% of total Internet revenue for 1998). The
Internet segment also derives revenue from subscription-based fees and services
(14.0% of total Internet revenue in 1998).

Cost of operations

In the publishing business, the principal components of Ziff-Davis Inc.'s
production costs are raw materials, printing and distribution, which
represented 34.5%, 38.0% and 27.2%, respectively, of total 1998 publishing
production expenses. Ziff-Davis Inc.'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. The principal
components of production costs within the events business are the costs of
renting and preparing the facilities to hold the events (46.8% in 1998), direct
mail and the related costs for promotion of the events (37.0% in 1998) and
program development and presentation costs (13.4% in 1998). Production costs in
the Internet segment consist primarily of third party web hosting costs.

The other principal operating costs for Ziff-Davis Inc. are selling, general
and administrative expenses, including editorial costs. Included in these costs
are salaries, sales commissions and benefits (55.4% in 1998) along with
marketing and promotion expenses related to advertising and circulation (19.7%
in 1998).

Factors affecting future periods

Ziff-Davis Inc.'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 expenditures by Ziff-Davis Inc.'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 conferences and providers of other
technology information services). Accordingly, Ziff-Davis Inc. may experience
fluctuations in revenue from period to period. Many of Ziff-Davis Inc.'s large
customers concentrate their advertising expenditures around major new product
launches. Marketing expenditures by technology companies can also be affected
by factors affecting the computer industry generally, including pricing
pressures and temporary surpluses of inventory. Revenue and profitability

III-13
<PAGE>

are also influenced by product mix and the timing and frequency of Ziff-Davis
Inc.'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, Ziff-Davis Inc.'s revenue from year to year
may be affected by the number and timing of new product launches. If Ziff-Davis
Inc. concludes that a new publication, trade show or service will not achieve
certain milestones with regard to revenue, 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.

On February 4, 1999, Ziff-Davis Inc. purchased ZDTV. This purchase will
affect Ziff-Davis Inc.'s results in future periods. See "--ZDTV" below for
certain summary pro forma and other information about this purchase.

Ziff-Davis Inc. expects to recognize compensation expense of approximately
$21.3 million as a result of certain options granted on December 21, 1998 and
January 29, 1999. Such compensation expense will be recognized over the vesting
period of the options. The 1999 compensation expense related to these options
is expected to be approximately $5.5 million. See Note 13 to Ziff-Davis Inc.'s
Consolidated Financial Statements in this Annex.

Presentation of Financial Information

Ziff-Davis Inc. is comprised of certain operations which were acquired at
various times and completed a reorganization in May 1998. See Notes 1 and 2 to
the Consolidated Financial Statements in this Annex.

III-14
<PAGE>

Results of Operations

The table below presents the results of Ziff-Davis Inc. as if the assets and
operations acquired by affiliates of Ziff-Davis Inc. on February 29, 1996 (as
described in Note 1 to the Consolidated Financial Statements in this Annex) had
been acquired on January 1, 1995. Purchase accounting adjustments relating to
that acquisition have been reflected through pro forma amortization, interest
and income tax adjustments, as described in note (1) to the table. Although the
1996 presentation is not in accordance with generally accepted accounting
principles, management believes it presents the most meaningful basis of
comparison. The financial information presented below may not necessarily
reflect the results of operations which would have occurred had the February
29, 1996 acquisition been completed on January 1, 1995.

<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
Pro
Forma(1) Actual
---------- ----------------------
1996 1997 1998
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenue, net:
Publishing...................... $ 796,602 $ 834,015 $ 782,882
Events.......................... 264,884 287,528 269,867
Internet........................ 19,118 32,218 56,143
---------- ---------- ----------
1,080,604 1,153,761 1,108,892
---------- ---------- ----------
Cost of production................ 302,644 325,245 305,346
Selling, general and
administrative expenses.......... 528,636 564,344 567,683
Depreciation and amortization..... 161,259 154,940 152,544
Restructuring charge ............. -- -- 52,239
---------- ---------- ----------
Income from operations............ 88,065 109,232 31,080
Interest expense, net............. (135,500) (190,445) (143,547)
Other non-operating income, net... 6,106 8,722 8,231
---------- ---------- ----------
Loss before income taxes.......... (41,329) (72,491) (104,236)
Provision (benefit) for income
taxes............................ 25,682 (1,312) (26,427)
---------- ---------- ----------
Net loss.......................... $ (67,011) $ (71,179) $ (77,809)
========== ========== ==========
Other Data:
Cash and cash equivalents, end of
period........................... $ 29,915 $ 30,301 $ 32,566
Net cash provided (used) by
operating activities............. 65,681 (3,364) 95,776
Net cash used by investing
activities....................... (66,856) (44,196) (64,371)
Net cash provided (used) by
financing activities............. 6,768 47,946 (29,140)
EBITDA(2)......................... 255,430 272,894 244,094
</TABLE>
- --------
(1) The February 29, 1996 acquisition gave rise to different bases of
accounting for the period after the acquisition as compared to 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 above numbers assume that the acquisition took place on
January 1, 1995; therefore, depreciation and amortization, interest expense
and net loss have been increased by approximately $6,386,000, $824,000 and
$10,383,000, respectively for 1996.
(2) "EBITDA" is defined as income before provision for income taxes, interest
expense, depreciation and amortization. EBITDA for the year ended December
31, 1998 does not include a one-time restructuring charge of $52,239,000.
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 Ziff-
Davis Inc.'s operating performance or to cash flows as a measure of
liquidity. Although Ziff-Davis Inc. 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, the EBITDA
presented for Ziff-Davis Inc. may not be comparable to similarly titled
measures reported by other companies.

III-15
<PAGE>

Year ended December 31, 1998 compared with Year ended December 31, 1997

Revenue, net

Revenue decreased by $44.9 million or 3.9% from $1,153.8 million in 1997 to
$1,108.9 million in 1998.

Publishing--Revenue from publishing decreased by $51.1 million or 6.1% from
$834.0 million in 1997 to $782.9 million in 1998. This decline was primarily
due to the transfer of certain publications to a joint venture and the closure
of three publications due to the restructuring (as discussed below). The
remainder of the decrease was primarily due to lower advertising in business
publications partly offset by growth in advertising in consumer publications.
Advertising revenue was lower in business publications principally due to
factors affecting the computer technology industry during the year. Margin
pressure on computer equipment manufacturers, industry and product delays,
lower demand in Asia and a focus on the Year 2000 transition are contributing
to a reduced demand for advertising in Ziff-Davis Inc.'s magazines. Revenue
from international operations, which generated 10.2% of the segment's revenue,
increased by $2.1 million primarily due to the launch of IT Week in the UK,
partially offset by lower advertising in business publications.

Net revenue from MacUser and MacWeek magazines contributed to Mac Publishing
LLC were $32.5 million for 1997 but are no longer consolidated into Ziff-Davis
Inc.'s results for 1998. On May 1, 1998, Ziff-Davis Inc. acquired its joint
venture partner's 50% interest in FamilyPC magazine. Ziff-Davis Inc. now owns
100% of the magazine and its results are included in the consolidated results
from the acquisition date. Revenue from FamilyPC included in the 1998 results
was $11.1 million. Revenue related to the three publications closed as part of
the restructuring was $12.5 million lower in the fourth quarter of 1998 as
compared to the fourth quarter of 1997.

Events--Revenue from events decreased by $17.6 million or 6.1% from $287.5
million in 1997 to $269.9 million in 1998. The decrease was primarily due to a
decline in revenue due to the discontinuation of certain "one-time" shows that
were held in 1997, lower ancillary revenue at COMDEX/Fall and lower square
footage sold at COMDEX/Spring. This decrease was partially offset by increased
revenue from increased square footage sold at Networld+Interop Las Vegas and
Java One due to an increased number of attendees.

Internet-- Net revenue increased by $23.9 million or 74.2% from $32.2 million
for the year ended December 31, 1997 to $56.1 million for the year ended
December 31, 1998. Revenue from advertising was 86% of net revenue for the year
ended December 31, 1998 compared to 73% for the year ended December 31, 1997.
Revenue from advertising increased 104.2% to $48.2 million for the year ended
December 31, 1998 from $23.6 million for the prior year. The increase in
advertising revenue was attributed to an increase in volume as both the number
of advertisers and the average monthly revenue per advertiser increased.
Subscription-based fees and services decreased by 6.9% to $8.0 million for the
year ended December 31, 1998 from $8.6 million for the year ended December 31,
1997.

Cost of Production

Production costs decreased by 6.1% or $19.9 million from $325.2 million in
1997 to $305.3 million in 1998.

Publishing production costs decreased by $6.0 million or 2.7% from $221.4
million in 1997 to $215.3 million in 1998. The decrease was related to a
decline in the number of advertising pages produced.

The cost of producing events decreased by $17.4 million or 17.4% from $99.5
million in 1997 to $82.1 million in 1998. The decrease is a result of lower
operational costs and re-negotiated contracts as well as the discontinuation of
certain "one-time" shows that were held in 1997.

Internet production costs increased by $3.6 million or 83.7% from $4.3
million in 1997 to $7.9 million in 1998. The increase in production costs was
due to higher user traffic levels and increased editorial costs associated with
the launch of new content areas.

III-16
<PAGE>

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $3.3 million or
0.6% from $564.3 million in 1997 to $567.7 million in 1998. The increase was
due to expenditures to launch new products and increased advertising expenses.
The increase was partially offset by headcount reductions and efficiencies
attained through the integration of operations resulting from the
reorganization completed in May 1998, as well as costs eliminated by the
closure of three magazines in the fourth quarter of 1998.

Depreciation and amortization

Total depreciation and amortization decreased $2.4 million from $154.9
million in 1997 to $152.5 million in 1998. The decrease was a result of certain
assets being fully depreciated in 1997 and early 1998.

Restructuring

Margin pressure on computer equipment manufacturers, industry and product
delays, lower demand in Asia and a focus on the Year 2000 transition are
contributing to a reduced demand for advertising in Ziff-Davis Inc.'s magazines
(principally PC Magazine, PC/Computing, Computer Shopper and PC Week).

As a result of this reduced demand, in October 1998, Ziff-Davis Inc.
announced a restructuring program with the intent of significantly reducing its
cost base. Ziff-Davis Inc. incurred a pre-tax charge of $52.2 million for this
restructuring program. The charge was reported as a component of income from
operations for the fourth quarter of 1998. The charge included asset impairment
costs ($37.9 million), employee termination costs ($8.6 million) and costs to
exit activities ($5.7 million) principally resulting from the closing of three
publications (Windows Pro, Internet Business and Equip) and the reduction of
Ziff-Davis Inc.'s work force by 310 employees. The charge also included costs
resulting from the discontinuation of certain educational journals and trade
shows. The following sets forth additional detail concerning the principal
components of the charge:

. Asset impairment costs totalled $37.9 million. These costs included the
write-off of intangible assets associated with the discontinued
publications ($34.3 million) and trade shows ($2.9 million) as well as
deferred expenses associated with the discontinued educational journals
($0.7 million).

. Employee termination costs related to severed personnel at the closed
publications as well as a rationalization and resulting workforce
reduction of the remainder of Ziff-Davis Inc.'s operations. Employee
termination costs included payments for severance and earned vacation as
well as the costs of outplacement services and the provision of
continued benefits to personnel. As of December 31, 1998, $5.2 million
of the $8.6 million related to these employee terminations had been
paid.

. Costs to exit activities reflected the costs associated with the final
closure of the discontinued publications ($1.8 million) and the costs to
reduce office space under lease as a result of the reduced level of
employees ($3.8 million).

Interest expense, net

Interest expense decreased by $46.9 million or 24.6% from $190.4 in 1997 to
$143.5 million in 1998. The reduction was due primarily to lower levels of debt
outstanding throughout the year, as well as the capitalization of $908.7
million of intercompany debt as part of the reorganization.

Other non-operating income, net

Other non-operating income, net primarily reflects Ziff-Davis Inc.'s equity
share in earnings and losses from joint ventures and fees earned from
management of events not produced by Ziff-Davis Inc. This income decreased $0.5
million or 5.6% from $8.7 million in 1997 to $8.2 million in 1998 reflecting
reduced fees from managed events. The decline was partially offset by Ziff-
Davis Inc.'s equity share in earnings of MAC Publishing, LLC, an entity that
was formed in August 1997.

III-17
<PAGE>

Income taxes

The 1998 income tax benefit of $26.4 million increased from $1.3 million
reported in 1997. The increase was due primarily to the losses with respect to
the MAC Assets, which were not deductible until Ziff-Davis Inc. purchased the
MAC Assets from an affiliate on May 4, 1998. The income tax benefit was also
increased by a higher net loss for the year ended December 31, 1998 compared to
the net loss for the year ended December 31, 1997.

Net loss

As a result of the changes described above, the net loss for the period
increased $6.6 million or 9.3% from $71.2 million in 1997 to $77.8 million in
1998.

EBITDA

EBITDA for the year ended December 31, 1998 was $244.1 million compared to
$272.9 million for the year ended December 31, 1997. EBITDA for the year ended
December 31, 1998 does not include the $52.2 million restructuring charge.
Results were unfavorable as compared to last year due to a lower level of
earnings from advertising in the higher margin business publications partly
offset by improved results at the events segment and reduced losses in the
Internet segment. The improvement at the events segment was attributed to the
absence of losses from the discontinuance of certain "one-time" shows held in
1997 as well as continued costs savings. Reduced losses from the Internet
segment were the result of revenue growth exceeding increases in expenses. The
ratio of EBITDA to revenue was 22.0% for 1998 compared to 23.7% in 1997.

Year ended December 31, 1997 compared with Pro Forma Year ended December 31,
1996

Revenue, net

Net revenue increased by $73.2 million or 6.8% from $1,080.6 million in 1996
to $1,153.8 million in 1997.

Publishing--Net revenue from publishing grew by $37.4 million or 4.7% from
$796.6 million to $834.0 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. Increases in
advertising rates, generally ranging between 3.0% and 10.0%, 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.

Events--Net revenue from events 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.

Internet--Net revenue increased by $13.1 million or from $19.1 million for
the pro forma year ended December 31, 1996 to $32.2 million in 1997. An
increasing percentage of ZDNet's net revenue was derived from advertising for
the year ended December 31, 1997, accounting for 73.3% of net revenue, compared
to 37.7% for the same period in 1996. The increased percentage of net revenue
derived from advertising in the later period reflects a continuation of ZDNet's
strategic shift from a business model based on subscription-based fees and
services to one based on advertising.

Revenue from advertising increased $16.4 million or 227.8% from $7.2 million
for the pro forma year ended December 31, 1996 to $23.6 million in 1997. The
increase in advertising revenue was attributable to increases in the number of
advertisers, the average expenditures per advertiser and increasing advertising
rates. The increase was evenly attributable to rate and volume increases.
Subscription-based fees and services decreased by $3.3 million or 27.7% from
$11.9 million in 1996 to $8.6 million in 1997.

III-18
<PAGE>

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 in 1997. 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 events increased $12.2 million or 14.0% from $87.3
million in 1996 to $99.5 million in 1997 primarily as a result of costs related
to new events launched in 1997.

Internet production costs increased $1.3 million or 43.3% from $3.0 million
in 1996 to $4.3 million in 1997. The increase in production costs was due to
higher user traffic levels and increased editorial costs associated with the
launch of new content areas.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $35.7 million or 6.8%
from $528.6 million to $564.3 million. The increase was due to the addition of
employees to support base business volume growth and launches of new products
and services. Results included a one-time $6.0 million charge for the
consolidation and restructuring of the events business which was announced in
the fourth quarter of 1997. Costs for the publishing segment rose 1.2% while
those for the events 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, net primarily reflects Ziff-Davis Inc.'s equity
share of earnings and losses from joint ventures and fees earned from
management of events not produced by Ziff-Davis Inc. This 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 in 1997 and $77.2 million in 1996),
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 changes described above, net loss for the period increased
$4.2 million or 6.2% from $67.0 million to $71.2 million.

EBITDA

EBITDA for 1997 was $272.9 million, an increase of $17.5 million or 6.8% from
the $255.4 million generated in 1996. The increase was due to higher revenue
and management fee income, net of higher production costs and selling, general
and administrative expenses. The ratio of EBITDA to revenue remained relatively
constant at 23.7% for 1997 compared to the 1996 margin of 23.6%.

III-19
<PAGE>

Liquidity and Capital Resources

As a result of the May 4, 1998 reorganization, Ziff-Davis Inc.'s intercompany
debt owned to Softbank was reduced to $83.1 million. Such indebtedness bears
interest at 9.9% and matures in February 2010. Concurrently with Ziff-Davis
Inc.'s initial public offering, Ziff-Davis Inc. issued and sold $250 million
aggregate principal amount of notes. In addition, Ziff-Davis Inc. entered into
a $1.35 billion credit facility, and borrowed $1.25 billion under such
facility, to provide additional funds for the repayment of intercompany debt to
Softbank and to provide for Ziff-Davis Inc.'s working capital requirements. The
balance of intercompany obligations owed to Softbank was converted to equity.
See Note 2 to the Consolidated Financial Statements in this Annex.

At December 31, 1998, Ziff-Davis Inc.'s outstanding total debt was $1,547.9
million (excluding unamortized discount) which consisted of $77.9 million due
to Softbank, $250 million in notes and $1,220.0 million under the credit
facility.

Cash and equivalents were $32.6 million at December 31, 1998, an increase of
$2.3 million from $30.3 million at December 31, 1997. The increase was due to
factors described below:

Cash provided by operations was $95.8 million for the year ended December 31,
1998 compared to a use of $3.4 million for the year ended December 31, 1997.
The increase from 1997 to 1998 was attributed to Ziff-Davis Inc.'s lower losses
before the restructuring charge and a decrease in funding to affiliates for the
1998 period.

Cash used for investing activities for the year ended December 31, 1998
totaled $64.4 million compared to $44.2 million for the year ended December 31,
1997. The majority of these expenditures were for computer equipment and
leasehold improvements. Acquisitions and investments in the 1998 period relate
to Ziff-Davis Inc.'s acquisition of Sky TV, a tradeshow in Canada, an
additional 50% interest in Family PC magazine, a European marketing database
company as well as investments in Red Herring and Deja News. Acquisitions for
the year ended December 31, 1997 reflect the purchase of a 70% interest in
GameSpot.

Cash used in financing activities totaled $29.1 million for the year ended
December 31, 1998, representing proceeds from the reorganization and initial
public offering of $1,863.3 million, net of transaction costs, and funding from
Softbank of $20.4 million offset by the repayment of debt and amounts due to
affiliates of $1,916.1 million. Cash provided by financing activities in 1997
amounted to $47.9 million representing capital contributions partly offset by
repayments of intercompany debt.

Ziff-Davis Inc. had a working capital surplus of approximately $35.5 million
at December 31, 1998, compared to a working capital deficit of approximately
$371.1 million at December 31, 1997. Ziff-Davis Inc.'s balance sheet has
historically had a working capital deficit due to significant amounts due to
affiliates. Ziff-Davis Inc. also maintains a significant level of deferred
revenue generated from publication subscriptions paid in advance and
prepayments from trade show exhibitors. At December 31, 1998, Ziff-Davis Inc.
had deferred revenue of $152.1 million compared to $154.7 million at December
31, 1997. Deferred revenue does not represent a cash liability owed by Ziff-
Davis Inc., unless Ziff-Davis Inc. fails to deliver a magazine or cancels a
trade show, and generally does not affect Ziff-Davis Inc.'s ability to fund
day-to-day operations. Working capital increased as a result of the
reorganization and the initial public offering of Ziff-Davis Inc.'s common
stock which resulted in the repayment and conversion to equity of related party
obligations in connection therewith.

On December 11, 1998, Standard & Poors lowered its corporate credit and bank
loan ratings for Ziff-Davis Inc. to BB- from BB and its subordinated debt
rating for Ziff-Davis Inc. to B from B+. This downgrade had no impact on our
current borrowings. Although this downgrade may make future borrowings more
expensive, we do not believe this will have a material impact on our liquidity
or our access to credit markets.

III-20
<PAGE>

Ziff-Davis Inc. believes, based on its current level of operations and
anticipated growth, that Ziff-Davis Inc.'s ability to generate cash, together
with cash on hand and available lines of credit, will be sufficient to make
required payments of principal and interest on Ziff-Davis Inc.'s indebtedness
and fund anticipated capital expenditures and working capital requirements.
However, actual capital expenditures may change, particularly as a result of
any acquisitions Ziff-Davis Inc. may pursue. The ability of Ziff-Davis Inc. to
meet its debt service obligations and reduce its total debt will depend upon
the future performance of Ziff-Davis Inc.

Credit Facility

Ziff-Davis Inc.'s credit facility, as amended, consists of a seven-year $400
million reducing revolving credit facility, a seven-year $450 million term loan
and an eight-year $500 million term loan. There are no scheduled reductions in
the revolving credit commitment or amortization under the term loan until
September 2000.

For the reasons described under "--Restructuring" above, Ziff-Davis Inc.'s
debt to EBITDA ratios at December 31, 1998 would have been above the levels
that had originally been required by its credit facility. On December 16, 1998,
the lenders of the $1.35 billion credit facility agreed to amend certain
provisions of that facility. The amended provisions include an increase in the
allowed leverage ratios. In return, Ziff-Davis Inc. agreed to pay a one-time
fee of $3.375 million and increase the interest rates on amounts borrowed under
the facility to rates currently ranging from LIBOR plus 2.875% to LIBOR plus
3.375% depending on the type of loan. Had the increased interest rates been in
effect for the period from Ziff-Davis Inc.'s initial public offering on April
28, 1998 to December 31, 1998, interest expense would have increased by
approximately $11.9 million. Based on the $1,220.0 million outstanding on
December 31, 1998, the annualized incremental interest is $18.0 million. This
increase in interest expense would reduce the amount otherwise available to
fund ZD or ZDNet operations.

Ziff-Davis Inc.'s credit facility exposes it to market risk with respect to
changes in interest rates. Ziff-Davis Inc. manages this risk through the use of
interest rate swap agreements, as described below. Through the use of these
swap agreements, Ziff-Davis Inc. has effectively established a fixed interest
rate for $550 million of the outstanding credit facility. Based on the $1,220.0
million outstanding under the credit facility at December 31, 1998, if the
LIBOR rate were to increase by 1%, Ziff-Davis Inc. would incur, after giving
effect to the swap agreements, an additional $6.7 million of annual interest
expense.

Interest Rate Swaps

On June 10, 1998, Ziff-Davis Inc. entered into interest rate swap agreements,
with an aggregate notional amount of $550 million. Under these swap agreements,
which commenced on August 10, 1998, Ziff-Davis Inc. receives a floating rate of
interest based on three-month LIBOR, which resets quarterly, and Ziff-Davis
Inc. pays a fixed rate of interest each quarter for the terms of the respective
agreements. The weighted average fixed rate Ziff-Davis Inc. pays under these
agreements is 5.85%. Ziff-Davis Inc. has entered into these agreements solely
to hedge its interest rate risk. At December 31, 1998, the three-month LIBOR
rate was 5.06%.

These swap agreements are viewed by Ziff-Davis Inc. as risk management tools
and are not used for trading or speculative purposes. The notional amount of
$550 million does not represent a real amount exchanged by the parties, and
therefore, is not a measure of Ziff-Davis Inc.'s exposure through its use of
swap agreements. The fair values of these swap agreements were estimated by
obtaining quotes from brokers which represented the amounts that Ziff-Davis
Inc. would pay if the agreements were terminated at the balance sheet date.
While it is not Ziff-Davis Inc.'s intention to terminate these swap agreements,
these fair values indicated that the termination of the swap agreements would
have resulted in a loss of $15,627,000.

By nature, swap agreements involve credit risk, due to the possible
nonperformance by counterparties. To mitigate this risk, Ziff-Davis Inc. enters
into swap agreements with major financial institutions and diversifies the
counterparties used as a means to limit counterparty exposure and concentration
of risk.

III-21
<PAGE>

ZDTV

In July 1997, Ziff-Davis Inc. entered into a license and services agreement
to develop ZDTV for MAC Holdings America ("MHA"), a company that is wholly
owned by Mr. Masayoshi Son who is a director of Ziff-Davis Inc. and principal
stockholder of SOFTBANK Corp. Under this agreement, Ziff-Davis Inc. agreed to
fund ZDTV's operations through unsecured advances and was granted an option to
purchase ZDTV for a price equal to MHA's investment plus 10% per annum for the
period of investment. On January 15, 1999, Ziff-Davis Inc. exercised this
option and on February 4, 1999, purchased ZDTV at a purchase price of $81.4
million. Ziff-Davis Inc. paid approximately $32.8 million of the purchase price
in cash (funded on February 5, 1999) and paid the remainder by applying
approximately $48.6 million in advances owed to it by MHA through December 31,
1998. Ziff-Davis Inc. also agreed to be responsible for the funding of ZDTV
during the period in 1999 prior to the purchase which will be accounted for as
additional purchase price. The cash portion of the purchase price was funded by
an advance from ZDTV to Ziff-Davis Inc., pursuant to the ZDTV cash management
system, of the funds invested in ZDTV by Vulcan Programming described below. In
connection with its acquisition of ZDTV, Ziff Davis Inc. assumed MHA's
obligations under an option granted to DirectTV to purchase 5% of ZDTV for $15
million, subject to adjustment.

Ziff-Davis Inc. currently has certain long-term agreements to distribute ZDTV
via satellite. Historically, start-up cable television channels have required
substantial investment and there can be no assurance that ZDTV will ultimately
obtain sufficient cable carriage and commercial acceptance to be profitable.
The following unaudited summary pro forma information assumes that the
acquisition of ZDTV and the sale of a one-third interest in ZDTV to Vulcan
Programming referred to below had been consummated on January 1, 1998.
Adjustments for ZDTV transactions include the operating results of ZDTV,
amortization of the purchase price of ZDTV, Vulcan Programming's one-third
interest in the losses of ZDTV and the tax effect of these items. The pro forma
data is not necessarily indicative of actual results had the transaction
occurred on January 1, 1998. Further, pro forma results are not meant to
represent future financial results.

<TABLE>
<CAPTION>
Adjustments
Ziff-Davis for ZDTV
Inc. Transactions Pro forma
---------- ------------ ----------
(dollars in thousands except per
share data)
<S> <C> <C> <C>
Revenue.............................. $1,108,892 $ 5,585 $1,114,477
Income (loss) from operations........ 31,080 (55,049) (23,969)
Net loss............................. (77,809) (22,443) (100,252)
Pro forma basic loss per share....... $ (1.00)
</TABLE>

ZDTV's cash requirements are currently expected to be approximately $50
million for 1999. The $54 million invested in ZDTV by Vulcan Programming will
be used to fund ZDTV and thereafter cash requirements will be funded by the
partners or by third parties.

Ziff-Davis Inc. intends to file appropriate financial statements and pro
forma information regarding ZDTV on or before April 20, 1999 as set forth in
its Form 8-K filed with the SEC on February 19, 1999.

Vulcan Transactions

On February 5, 1999, Vulcan Programming, an entity owned by Paul G. Allen,
purchased a one-third interest in ZDTV for $54 million. On March 4, 1999,
Vulcan Ventures, the investment vehicle of Paul G. Allen, purchased
approximately three million shares of Ziff-Davis Inc. common stock for $50
million.

Seasonality

Historically, Ziff-Davis Inc.'s business has been seasonal as a significant
portion of annual revenue has occurred 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,
1998. In the opinion of Ziff-Davis Inc.'s management, this unaudited
information has been prepared on a basis consistent with the audited
Consolidated Financial Statements appearing elsewhere in this Annex and
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the information set

III-22
<PAGE>

forth therein when read in conjunction with the Consolidated 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
-----------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- ------------- ------------ --------- -------- ------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue, net:
Publishing............. $204,281 $211,333 $191,613 $226,788 $191,245 $198,419 $181,726 $211,492
Events................. 15,321 82,135 24,227 165,845 27,121 65,782 29,787 147,177
Internet............... 5,283 7,862 8,132 10,941 9,688 12,274 14,505 19,676
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue.......... 224,885 301,330 223,972 403,574 228,054 276,475 226,018 378,345
Percentage of total
year.................. 19.5% 26.1% 19.4% 35.0% 20.6% 24.9% 20.4% 34.1%
Cost of production..... 61,526 92,986 62,716 108,017 70,310 75,749 63,471 95,816
Selling, general and
administrative
expenses............... 139,980 143,243 143,131 137,990 144,239 140,063 139,516 143,865
Depreciation and
amortization.......... 38,966 39,032 39,699 37,243 37,475 39,276 37,843 37,950
Restructuring charge... -- -- -- -- -- -- -- 52,239
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations............ (15,587) 26,069 (21,574) 120,324 (23,970) 21,387 (14,812) 48,475
Income (loss) before
taxes................. (60,145) (17,715) (66,937) 72,306 (68,287) (12,032) (39,449) 15,532
Net income (loss)...... $(59,817) $(17,387) $(66,609) $ 72,634 $ (5,121) $(76,560) $ (4,498) $ 8,370
EBITDA(1).............. $ 25,534 $ 68,216 $ 20,486 $158,658 $ 15,127 $ 63,397 $ 27,487 $138,083
Percentage of total
year.................. 9.4% 25.0% 7.5% 58.1% 6.2% 26.0% 11.3% 56.5%
</TABLE>
- --------
(1) EBITDA is defined as income before provision for income taxes, interest
expense, depreciation and amortization. EBITDA for the quarter ended
December 31, 1998 does not include a one-time restructuring charge of
$52,239,000. 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 Ziff-Davis Inc.'s operating performance or to cash flows as a
measure of liquidity. Although Ziff-Davis Inc. 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, the
EBITDA presented for Ziff-Davis Inc. may not be comparable to similarly
titled measures reported by other companies.

Inflation and Fluctuations in Paper Prices and Postage Costs

Ziff-Davis Inc. continually assesses the impact of inflation and changes in
paper prices. Ziff-Davis Inc. 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 and then decreased in 1997.
During 1998, paper prices were relatively flat. Management anticipates that
paper prices will remain relatively stable in 1999. Ziff-Davis Inc. will
continue to monitor the impact of inflation and paper prices and will consider
these matters in setting its pricing policies. Ziff-Davis Inc. frequently
reviews its purchasing and manufacturing processes for opportunities to reduce
costs and mitigate the impact of paper price and postage rate increases (such
as purchasing lighter-grade paper stock or, when paper prices are at cyclical
lows, increasing paper inventory or entering into longer term contracts with
suppliers). However, Ziff-Davis Inc. had not entered, and does not currently
plan to enter, into long-term forward price or option contracts for paper.
Management estimates postage costs will increase approximately 3.5% in 1999.
See "ZD Description of Business--Print Publishing--Paper and Printing" set
forth in an Annex to this proxy statement.

Year 2000 Readiness Disclosure

During 1997, Ziff-Davis Inc., began a review of its computer systems and
software to identify systems and software which might malfunction due to
misidentification of the Year 2000. Ziff-Davis Inc. is using both internal and
external resources to identify, test, correct and reprogram systems and
software for Year 2000 readiness.

III-23
<PAGE>

At December 31, 1998, Ziff-Davis Inc. was in the research and validation
phase of its Year 2000 project for information technology ("IT") systems and
non-IT systems. This phase consists of research and validation of all
infrastructure, hardware and software, including platform, wide-area network
and local-area network components. Research for non-IT systems includes
identifying systems that include embedded technology, such as micro-
controllers, which are not Year 2000 compliant.

Ziff-Davis Inc. has identified critical systems and applications that will
either be validated for compliance though formal documentation, through vendors
or through testing. Ziff-Davis Inc. will enter the testing phase of its
infrastructure, hardware, software and databases in the first quarter of 1999
and plans to complete such phase by September 1, 1999. Contingency plans will
be developed for any systems or platforms that are known to be non-compliant as
of September 1, 1999.

Some of Ziff-Davis Inc.'s computer systems and databases, including its
subscription fulfillment and payroll systems, are managed by third parties
under contractual arrangements. Ziff-Davis Inc. currently has no Year 2000
compliance problems known to it relating to third parties. Ziff-Davis Inc. has
requested those third parties with which Ziff-Davis Inc. has material
relationships in the first quarter of 1999 to advise it as to whether such
third parties anticipate difficulties in addressing Year 2000 compliance
problems, and if so, the nature of such difficulties. Ziff-Davis Inc.
anticipates that such inquiries will be completed by April 30, 1999.

In addition, Ziff-Davis Inc. will develop contingency plans during the second
half of 1999 in order to compensate for any disruption or downtime that could
result from a Year 2000 compliance problem. Ziff-Davis Inc. plans to replace IT
and non-IT systems that it determines are not Year 2000 compliant prior to
October 1, 1999 in order to minimize any risk of a Year 2000 compliance
problem.

Ziff-Davis Inc. has incurred remediation costs associated with its Year 2000
readiness efforts. These remediation costs have been incurred in connection
with replacement of systems and hardware, modification of software and
consulting costs related to Year 2000 solution providers. The costs to address
Year 2000 issues which have been included in the general and administrative
expenses of Ziff-Davis Inc. have not been tracked separately and are therefore
not determinable. However, management believes these expenses have been
substitutive rather than incremental to the recurring level of general and
administrative expenses. Total capitalized costs incurred in the replacement of
systems in connection with Ziff-Davis Inc.'s Year 2000 readiness efforts as of
December 31, 1997 and 1998 were $1,692,000 and $3,837,000, respectively. Ziff-
Davis Inc. estimates that it will capitalize an additional $3,815,000 during
1999 related to its Year 2000 readiness efforts.

Ziff-Davis Inc. expects to complete testing and replacement of critical
systems by the beginning of the fourth quarter of 1999. Ziff-Davis Inc.'s
estimate of its most reasonably likely "worst case scenario" would be the
failure of its internal applications and systems that process and store certain
information and data. Ziff-Davis Inc. would resolve the failure of such
applications and systems one by one and management of Ziff-Davis Inc. does not
believe that the impact on its critical systems would be material. However, if
Ziff-Davis Inc. or any subscribers, advertisers, licensors, vendors or other
third parties on whom it relies experiences a Year 2000 compliance problem,
this could have a material adverse effect on Ziff-Davis Inc.'s profit and
liquidity.

Recently Issued Accounting Pronouncement

SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities
issued in June 1998, establishes accounting and reporting standards for
derivative instruments and for hedging activities and is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Ziff-Davis Inc.
does not expect the adoption of SFAS No. 133 to have a material impact on
Ziff-Davis Inc.'s results of operations.

Ziff-Davis Inc. expects to adopt this statement beginning with its 2000
financial statements.

III-24
<PAGE>

ZIFF-DAVIS INC.
DESCRIPTION OF BUSINESS

General

Ziff-Davis Inc. is a leading media and marketing company that provides
information on computing and technology, including the Internet. We provide
technology companies worldwide with marketing strategies for reaching key
decision-makers. From an accounting standpoint, we have separated our online
business division from the rest of our businesses, and we have allocated all of
our consolidated assets, liabilities, revenue, expenses and cash flow between
ZD and ZDNet. For additional information regarding our businesses and the
amounts allocated, see the Selected Financial and Other Data, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Description of Business and Financial Statements for ZD and ZDNet, set forth in
other Annexes to this proxy statement.

Relationship with Softbank

For information concerning the formation of Ziff-Davis Inc. and its
relationship with Softbank see Note 1 to the Consolidated Financial Statements
of Ziff-Davis Inc. included in this Annex.

III-25
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 29,791 $ 32,566
Accounts receivable, net........................... 218,437 227,325
Inventories........................................ 12,946 15,551
Prepaid expenses and other current assets.......... 37,407 34,543
Due from affiliates................................ 4,722 53,984
Deferred taxes..................................... 22,262 22,262
---------- ----------
Total current assets............................. 325,565 386,231
Securities available for sale....................... 7,916 --
Property and equipment, net......................... 116,917 91,189
Intangible assets, net.............................. 2,935,514 2,907,043
Other assets........................................ 58,024 49,340
---------- ----------
Total assets..................................... $3,443,936 $3,433,803
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 36,506 $ 75,863
Accrued expenses................................... 136,081 97,319
Unearned income, net............................... 195,613 152,081
Due to affiliates and management................... -- 4,618
Current portion of notes payable to affiliates..... 6,923 7,692
Other current liabilities.......................... 17,054 13,125
---------- ----------
Total current liabilities........................ 392,177 350,698
Notes payable to affiliates......................... 65,769 70,192
Notes payable, net of unamortized discount.......... 1,199,215 1,469,130
Deferred taxes...................................... 134,884 165,082
Due to management................................... 665 5,400
Other liabilities................................... 14,813 19,690
---------- ----------
Total liabilities................................ 1,807,523 2,080,192
---------- ----------
Commitments and contingencies (See Note 9)
Minority Interest................................... 31,255 1,013
---------- ----------
Stockholders' equity:
Preferred stock(1)................................. -- --
Common stock--Ziff-Davis Inc.--ZD Common
Stock(2).......................................... 1,033 1,000
Common stock--Ziff-Davis Inc.--ZDNet Common
Stock(3).......................................... 137 --
Additional paid-in capital......................... 1,874,312 1,571,681
Accumulated deficit................................ (253,185) (197,238)
Deferred compensation.............................. (17,606) (22,024)
Unrealized gain on securities available for sale... 989 --
Cumulative translation adjustment.................. (522) (821)
---------- ----------
Total stockholders' equity....................... 1,605,158 1,352,598
---------- ----------
Total liabilities and stockholders' equity....... $3,443,936 $3,433,803
========== ==========
</TABLE>
- --------
(1) September 30, 1999 and December 31, 1998: par value $.01 per share,
10,000,000 shares authorized, no shares issued and outstanding.
(2) September 30, 1999: par value $.01 per share, 210,000,000 shares
authorized (including Ziff-Davis Inc.--ZDNet Common Stock), 103,310,097
shares issued and outstanding; December 31, 1998: par value $.01 per share
120,000,000 shares authorized, 100,000,000 shares issued and outstanding.
(3) September 30, 1999: par value $.01 per share, 210,000,000 shares
authorized (including Ziff-Davis Inc.--ZD Common Stock), 13,706,063 shares
issued and outstanding; December 31, 1998: no shares authorized, issued or
outstanding.

The accompanying notes are an integral part of these financial statements.

III-26
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited--dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue, net:
Publishing............ $ 165,268 $ 181,727 $ 518,626 $ 571,391
Events................ 63,085 29,787 157,150 122,690
Internet.............. 26,291 14,504 67,791 36,466
Television............ 3,642 -- 9,343 --
------------ ------------ ------------ ------------
258,286 226,018 752,910 730,547
Cost of production...... 68,932 62,512 202,038 207,395
Selling, general and
administrative
expenses............... 157,557 140,412 458,593 425,764
Stock-based
compensation........... 1,474 63 4,861 189
Depreciation and
amortization of
property and
equipment.............. 8,583 7,870 25,558 22,597
Amortization of
intangible assets...... 36,160 29,973 102,308 91,997
------------ ------------ ------------ ------------
Loss from operations.... (14,420) (14,812) (40,448) (17,395)
Interest expense, net... (28,632) (29,093) (89,602) (111,185)
Other non-operating
income, net............ 15,271 4,396 26,762 8,482
Minority interest in
losses of
subsidiaries........... 5,491 60 15,686 330
------------ ------------ ------------ ------------
Loss before income
taxes.................. (22,290) (39,449) (87,602) (119,768)
Income tax benefit...... (7,259) (34,951) (31,655) (33,589)
------------ ------------ ------------ ------------
Net loss................ $ (15,031) $ (4,498) $ (55,947) $ (86,179)
============ ============ ============ ============
ZDNet
Pro forma net income
(loss) per basic common
share.................. $ (.01) $ .00 $ (.00) $ (.12)
Pro forma weighted
average basic common
shares outstanding..... 73,402,667 71,500,000 72,315,852 71,500,000
ZD Group
Pro forma net loss per
basic common share..... $ (.14) $ (.04) $ (.55) $ (.86)
Pro forma weighted
average basic common
shares outstanding..... 103,287,483 100,000,000 102,508,377 100,000,000
</TABLE>

The accompanying notes are an integral part of these financial statements.

III-27
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Three months
ended Nine months ended
September 30, September 30,
----------------- ------------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net loss................................ $(15,031) $(4,498) $(55,947) $(86,179)
Other comprehensive income (loss):
Foreign currency translation
adjustments.......................... 5,627 1,152 299 999
Unrealized (loss) gain on securities
available for sale................... (1,648) -- 989 --
-------- ------- -------- --------
Comprehensive loss...................... $(11,052) $(3,346) $(54,659) $(85,180)
======== ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

III-28
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------
1999 1998
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (55,947) $ (86,179)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization........................ 127,866 114,594
Amortization of debt issuance costs and discount..... 5,129 1,313
Stock-based compensation............................. 4,861 189
Gain from sale of business units..................... (20,420) --
Income from equity investments....................... (4,457) (4,688)
Deferred tax benefit................................. (31,655) (33,589)
Minority interest.................................... (15,686) --
Changes in operating assets and liabilities:
Accounts receivable................................ 11,554 28,622
Inventories........................................ 2,605 (591)
Accounts payable and accrued expenses.............. 12,043 6,703
Unearned income.................................... 38,495 62,770
Due to/from affiliates and management.............. -- 10,707
Other, net......................................... (10,465) (17,060)
--------- -----------
Net cash provided by operating activities............. 63,923 82,791
--------- -----------
Cash flows from investing activities:
Capital expenditures................................. (64,624) (27,399)
Proceeds from sale of business units................. 29,105 --
Investments and other................................ (19,195) (6,193)
Distributions from joint ventures.................... 4,000 --
Acquisitions, net of cash acquired................... (45,986) (6,999)
--------- -----------
Net cash used by investing activities................. (96,700) (40,591)
--------- -----------
Cash flows from financing activities:
Proceeds from sale of Ziff-Davis Inc.--ZD common
stock(1)............................................ 52,557 380,337
Proceeds from issuance of notes payable(1)........... -- 242,723
Proceeds from issuance of bank debt(1)............... -- 1,240,200
Proceeds from sale of Ziff-Davis Inc.--ZDNet common
stock(2)............................................ 198,537 --
Proceeds from sale of interest in ZDTV............... 54,000 --
Principal payments on notes payable to affiliates.... (5,192) (314,798)
Repayments of credit facility........................ (320,400) (45,000)
Borrowings under credit facility..................... 50,500 --
Payments of debt due to affiliate.................... -- (1,569,532)
Purchase of treasury shares.......................... -- (29,500)
Sale of treasury shares.............................. -- 29,500
Advance from majority shareholder.................... -- 20,377
Contributed capital.................................. -- 345
--------- -----------
Net cash provided (used) by financing activities...... 30,002 (45,348)
--------- -----------
Net decrease in cash and cash equivalents............. (2,775) (3,148)
Cash and cash equivalents at beginning of period...... 32,566 30,301
--------- -----------
Cash and cash equivalents at end of period............ $ 29,791 $ 27,153
========= ===========
Supplemental cash flow information:
Cash paid for income taxes........................... $ -- $ 642
Cash paid for interest............................... $ 74,298 $ 94,360
</TABLE>
- --------
(1) Net of transaction costs of $19,563; $9,800; and $7,277, respectively, for
the nine months ended September 30, 1998.
(2) Net of transaction costs of $19,897.

The accompanying notes are an integral part of these financial statements.

III-29
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
------------------------------------
Unrealized
gain on
ZD Stock ZD Net Stock Additional securities Cumulative Total
------------------ ----------------- Paid-in Accumulated Deferred available Translation Stockholders'
Shares Amount Shares Amount Capital Deficit Compensation for sale adjustment equity
----------- ------ ---------- ------ ---------- ----------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1998........... 100,000,000 $1,000 -- $-- $1,571,681 $(197,238) $ (22,024) $-- $(821) $1,352,598
Issuance of
common stock... 3,030,303 30 -- -- 49,970 -- -- -- -- 50,000
Sale of minority
interest in
subsidiary..... -- -- -- -- 7,176 -- -- -- -- 7,176
Stock-based
compensation
earned......... -- -- -- -- -- -- 4,861 -- -- 4,861
Issuance of
Ziff-Davis
Inc.--ZDNet
Common Stock,
net of offering
costs.......... -- -- 11,500,000 115 198,340 -- -- -- -- 198,455
Shares and
options issued
to acquire
minority
interest in
GameSpot....... -- -- 600,000 6 12,025 -- (443) -- -- 11,588
Shares issued
for
acquisitions... -- -- 1,573,564 16 32,484 -- -- -- -- 32,500
Sale of shares
under employee
stock purchase
plan........... 152,764 2 -- -- 1,775 -- -- -- -- 1,777
Stock options
exercised...... 127,030 1 32,499 -- 861 -- -- -- -- 862
Unrealized gain
on securities
available for
sale, net...... -- -- -- -- -- -- -- 989 -- 989
Net loss........ -- -- -- -- -- (55,947) -- -- -- (55,947)
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- -- 299 299
----------- ------ ---------- ---- ---------- --------- --------- ---- ----- ----------
Balance at
September 30,
1999
(unaudited).... 103,310,097 $1,033 13,706,063 $137 $1,874,312 $(253,185) $(17, 606) $989 $(522) $1,605,158
=========== ====== ========== ==== ========== ========= ========= ==== ===== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

III-30
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(numbers rounded to the nearest thousand, except share and per share amounts)

1. The Company and Basis of Presentation

Basis of presentation

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary to
present fairly the consolidated financial position of Ziff-Davis Inc. at
September 30, 1999 and the results of its consolidated operations for the three
and nine months ended September 30, 1999 and 1998 and cash flows for the nine
months ended September 30, 1999 and 1998 have been included. Operating results
for the periods presented are not necessarily indicative of the results that
may be expected for the year ended December 31, 1999. It is suggested that the
statements be read in conjunction with Ziff-Davis Inc.'s consolidated financial
statements and notes thereto included in Ziff-Davis Inc.'s December 31, 1998
Annual Report and Form 10-K.

Formation of Ziff-Davis Inc.

Ziff-Davis Inc. was formed through an initial public offering and a
reorganization that were completed on May 4, 1998 (see Note 2). Prior to that
date, the predecessors of Ziff-Davis Inc. were wholly owned indirect
subsidiaries of SOFTBANK Corp. (together with its non-Ziff-Davis Inc.
affiliates, "Softbank") or assets owned by MAC Inc., an affiliate of SOFTBANK
Corp. ("MAC Assets"). As such, financial statements for periods prior to May 4,
1998 have been prepared on a combined basis while the financial statements for
the periods after May 4, 1998 have been prepared on a consolidated basis.

The results of the MAC Assets, which were acquired in two tranches on October
31, 1997 and May 4, 1998, have been included in Ziff-Davis Inc.'s financial
statements from the time of their acquisition by MAC Inc. ("MAC") on February
29, 1996. These results have been included in a manner similar to a pooling of
interests, as the MAC Assets and predecessor companies of Ziff-Davis Inc. were
under common control at the time the MAC Assets were acquired by Ziff-Davis
Inc.

Ziff-Davis Inc. operates in four business segments: (1) publishing, (2)
events, (3) Internet and (4) television.

Publishing

The publishing segment is engaged in publishing magazines, journals,
newsletters, electronic information products, training manuals and market
research about computer technology and the Internet. The publishing segment's
principal operations are in the U.S. and Europe, although it also licenses or
syndicates its editorial content to over 50 publications distributed worldwide.
The market research division was sold on October 1, 1999 (see Note 12).

Events

The events segment is engaged in the organization, production and management
of trade shows, conferences and seminars for the computer technology and
Internet industries. The events segment's principal operations are in the U.S.
and to a lesser extent in Europe and Asia.

Internet

The Internet segment is engaged in providing computer technology and internet
related news and information to Internet users worldwide. The Internet
segment's principal operations are in the U.S. and to a lesser extent in
Europe.

III-31
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Television

The television segment, which was acquired in February 1999 (see Note 4), is
engaged in the production and distribution of television broadcasting for and
about the computer technology and the Internet industries. The television
segment's principal operations are in the U.S. although it licenses or
syndicates programming worldwide.

Sale of Common Stock

On March 4, 1999, Vulcan Ventures Inc., the investment vehicle of Paul G.
Allen, purchased 3,030,303 shares of Ziff-Davis Inc. common stock for
$50,000,000 in cash.

On April 6, 1999, the Company completed a public offering of 11,500,000
shares of a new class of common stock called Ziff-Davis Inc.--ZDNet Common
Stock (see Note 3).

Reclassifications

Certain amounts have been reclassified, where appropriate, to conform to the
current financial statement presentation.

2. Reorganization and Initial Public Offering

On May 4, 1998, SOFTBANK Corp., through its wholly owned subsidiary SOFTBANK
Holdings Inc. ("SBH"), completed a reorganization whereby the common stock of
the predecessor companies to Ziff-Davis Inc. was contributed to Ziff-Davis Inc.
in exchange for 73,619,355 shares of Ziff-Davis Inc.'s common stock. Concurrent
with the reorganization, Ziff-Davis Inc. (1) completed an initial public
offering of 25,800,000 common shares at an initial public offering price of
$15.50 per share, (2) issued $250,000,000 of 8 1/2% subordinated notes due
2008, (3) entered into a $1,350,000,000 credit facility with a group of banks
under which $1,250,000,000 was borrowed and (4) converted $908,673,000 of
intercompany indebtedness to equity. In addition, Ziff-Davis Inc. received
approximately $9,107,000 of fixed assets from Kingston Technology Company
("Kingston"), a related party, in exchange for 580,645 shares of Ziff-Davis
Inc.'s common stock and $107,000 in cash. These assets were subsequently leased
back to Kingston. Total shares of common stock issued to Softbank were
74,200,000. The transactions described above are hereafter referred to as the
"Reorganization".

Proceeds, net of transaction costs, from the initial public offering and
funding transactions in the Reorganization of $1,863,260,000 were used to
complete the purchase of the MAC Assets for $370,000,000 and repay intercompany
indebtedness.

3. ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on March
30, 1999, to authorize the issuance of a new series of common stock, designated
as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), which is intended to
reflect the performance of Ziff-Davis Inc.'s Internet business division
("ZDNet"). When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis Inc.'s
existing common stock was re-classified as Ziff-Davis Inc.--ZD Common Stock
("ZD Stock"), which is intended to reflect the performance of Ziff-Davis Inc.'s
other businesses and a retained interest in ZDNet. The businesses represented
by ZD Stock are referred to as "ZD".

The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc.
issued 11,500,000 shares of ZDNet Stock, at $19.00 per share, including
1,500,000 shares issued in conjunction with the underwriters' exercise of their
option to purchase additional shares to cover over-allotments. Net proceeds of
approximately $198,600,000 were received on April 6, 1999 and were used to
repay indebtedness under the revolving credit agreement.

III-32
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

The following pro forma information has been prepared as if the ZDNet Stock
offering had been consummated on January 1, 1999. The pro forma adjustments
include a $4,215,000 reduction of interest expense and the tax effect of this
adjustment at a statutory rate of 41.0%. There is no pro forma impact for the
three month period ended September 30, 1999.

<TABLE>
<CAPTION>
Nine months ended
September 30, 1999
----------------------
(dollars in thousands)
<S> <C>
Revenue, net....................................... $752,910
Loss from operations............................... (40,448)
Interest expense, net.............................. (85,387)
Loss before taxes.................................. (83,387)
Income tax benefit................................. (29,927)
Net loss........................................... (53,460)
</TABLE>

Pro forma loss per share is not shown since subsequent to the ZDNet offering,
Ziff-Davis Inc. reports earnings for each class of stock in its related
financial statements (i.e. ZD or ZDNet). The pro forma data is not necessarily
indicative of actual results had the transaction occurred on January 1, 1999.
Further, pro forma results are not meant to represent future financial results.

4. ZDTV

On February 4, 1999, Ziff-Davis Inc. purchased ZDTV, LLC ("ZDTV") from MAC
Holdings (America) Inc., a related party, for a purchase price of approximately
$81,400,000. Ziff-Davis Inc. paid approximately $32,800,000 of the purchase
price in cash (settled on February 5, 1999) and paid the remainder by applying
approximately $48,600,000 in advances owed to it by MAC Holdings (America) Inc.
Ziff-Davis Inc. also agreed to fund ZDTV during the period in 1999 prior to the
purchase which was accounted for as additional purchase price. Such funding
amounted to approximately $4,200,000.

On February 5, 1999, Vulcan Programming Inc., an entity owned by Paul G.
Allen, acquired a one-third equity interest in ZDTV for $54,000,000 in cash. In
March 1999, an additional 4.0% equity interest was acquired by ZDTV's
president. In both cases, the acquisitions were effected by issuing additional
equity.

The following unaudited summary pro forma information assumes that the
acquisition of ZDTV and the acquisition of a one-third equity interest in ZDTV
by Vulcan Programming Inc. had been consummated on January 1, 1999. Adjustments
for ZDTV transactions include the operating results of ZDTV, amortization of
the purchase price of ZDTV, Vulcan Programming Inc.'s one-third interest in the
losses of ZDTV and the tax effects of these items. Pro forma loss per share is
not shown since subsequent to the ZDNet Stock offering, Ziff-Davis Inc. reports
earnings for each class of stock in its related financial statements (i.e. ZD
or ZDNet). The pro forma data is not necessarily indicative of actual results
had the transaction occurred on January 1, 1999. Further, pro forma results are
not meant to represent future financial results. There is no pro forma impact
for the three months ended September 30, 1999.

<TABLE>
<CAPTION>
Nine months ended September
30, 1999
-------------------------------
Ziff- Adjustments
Davis for ZDTV Pro
Inc. transactions Forma
-------- ------------ --------
(dollars in thousands)
<S> <C> <C> <C>
Revenue.................................. $752,910 $ 316 $753,226
Loss from operations..................... (40,448) (2,546) (42,994)
Net loss................................. (55,947) (1,006) (56,953)
</TABLE>

III-33
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

ZDTV 1999 Profits Interest Plan

On May 11, 1999, ZDTV's Board of Directors adopted and approved the ZDTV 1999
Profits Interest Plan. Under such plan, ZDTV's Board of Directors may issue
interests in ZDTV for incentive purposes to employees, directors and
consultants covered by the plan. At September 30, 1999, there were 10,724,200
units issued under the plan.

5. Acquisitions and Dispositions

GameSpot Inc.

On April 7, 1999, Ziff-Davis Inc. completed the acquisition of the remaining
30.0% interest in GameSpot Inc. in exchange for 600,000 newly issued shares of
ZDNet Stock valued at approximately $11,400,000. This acquisition was accounted
for under the purchase method of accounting.

Updates.com Inc.

On July 2, 1999, ZDNet acquired Updates.com Inc. for a purchase price of
approximately $18,500,000. Consideration was in the form of $5,000,000 in cash
and 582,526 shares of ZDNet Stock valued at $13,500,000. This acquisition was
accounted for under the purchase method of accounting.

SoftSeek Inc.

On July 30, 1999, ZDNet acquired SoftSeek Inc. for a purchase price of
approximately $26,000,000. Consideration was in the form of $7,000,000 in cash
and 991,038 shares of ZDNet Stock valued at $19,000,000. This acquisition was
accounted for under the purchase method of accounting.

Sale of Business Units

Ziff-Davis Inc. has completed the sale of its 50.0% interest in ExpoComm LLC
along with other smaller business units from the ZD Market Intelligence and ZD
Education platforms. The proceeds from the sale of these business units totaled
$29,105,000 and are reflected as investing activities in the statement of cash
flows.

6. Investments

On February 19, 1999 Ziff-Davis Inc. acquired warrants to purchase 2,005,400
shares of Series E preferred stock of BuyDirect.com Inc. ("Series E shares") at
an exercise price of $1.65 per share. On March 25, 1999, Ziff-Davis Inc.
exercised its warrants and received 1,510,020 Series E shares in a cashless
exercise by exchanging 495,380 warrants in lieu of payment of the exercise
price. On March 30, 1999, BuyDirect.com Inc. was acquired by Beyond.com
Corporation and these Series E shares were converted to 438,057 shares of
Beyond.com Corporation and at September 30, 1999 are reflected in the balance
sheet as Securities Available for Sale.

The warrants were granted in connection with an agreement by BuyDirect.com
Inc. to advertise on certain ZDNet sites. As a result, the fair value of the
warrants at February 19, 1999 was recorded as deferred revenue and will be
recognized as income over the life of the advertising agreement. The fair value
of the warrants was determined to be $6,240,000.

In June 1999, Ziff-Davis Inc. entered into an agreement to hedge a portion of
the unrealized gain associated with these shares. (See Note 9).

III-34
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

7. Income Taxes

Income taxes are provided based on Ziff-Davis Inc.'s projected annual
effective tax rate which differs from the U.S. federal statutory rate of 35.0%
due to (i) certain items which are not deductible for income tax purposes,
primarily nondeductible goodwill amortization, and (ii) the effect of state and
local taxes. The tax benefit recorded for the nine months ended September 30,
1999 has been reflected as a reduction of the deferred tax liability as it is
anticipated that the benefit will be realizable in future periods.

8. Earnings per share

Ziff-Davis Inc. reports earnings per share for its two classes of common
stock, ZD Stock and ZDNet Stock.

The pro forma weighted average common shares outstanding and the pro forma
loss per share related to ZD Stock has been prepared assuming the
reorganization and initial public offering of ZD Stock (see Note 2) occurred on
January 1, 1998. ZD's earnings include its retained interest in ZDNet's
results. Diluted earnings per share are not shown as the impact of stock
options would be anti-dilutive.

The pro forma weighted average common shares outstanding and the pro forma
income (loss) per share related to ZDNet Stock has been prepared assuming the
reorganization and initial public offering of ZDNet Stock (see Note 3) occurred
on January 1, 1998. Diluted earnings per share are not shown as the impact of
stock options would be anti-dilutive.

9. Commitments and Contingencies

Strategic Alternatives

On July 14, 1999, Ziff-Davis Inc. announced that it had retained the
investment banking firm of Morgan Stanley Dean Witter ("Morgan Stanley") to
explore strategic alternatives to maximize shareholder value. The Ziff-Davis
Inc. Board of Directors has not embraced any particular alternatives and will
investigate all possible alternatives, including strategic alliances, mergers
and the sale or joint venture of all or some of Ziff-Davis Inc.'s businesses.
No assurances can be given that any transaction will result from the
exploration process that Morgan Stanley has been retained to manage.

On May 24, 1999, Ziff-Davis Inc. announced that it had retained Morgan
Stanley to explore strategic alternatives for its ZD Market Intelligence Unit,
the sale of which was completed on October 1, 1999. (See Note 12).

Class action and derivative litigations

Ziff-Davis Inc. is subject to various claims and legal proceedings arising in
the normal course of business.

Following a decline in the price per share of Ziff-Davis Inc.'s common stock
in October 1998, eight securities class action suits were filed against Ziff-
Davis Inc. and certain of its directors and officers in the United States
District Court for the Southern District of New York.

The complaints alleged that defendants violated Sections 11, 12(a) (2) and 15
of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of Ziff-Davis Inc.'s stock completed on May 4,
1998 (the "IPO"). More particularly, the complaints alleged that the
registration statement contained false and misleading statements and failed to
disclose facts that could have indicated an impending decline in Ziff-Davis
Inc.'s revenue. The complaints sought on behalf of a class of purchasers of
Ziff-Davis Inc.'s common stock from the date of the IPO through October 8, 1998
unspecified damages, interest, fees and costs, rescission, and injunctive
relief such as the imposition of a constructive trust upon the proceeds of the
IPO.

III-35
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

On January 28, 1999, the court entered an order consolidating the actions,
appointing lead plaintiff's counsel and requiring the filing of a consolidated
amended complaint. The consolidated amended complaint was filed on June 15,
1999 and only alleges claims under Section 11 of the Securities Act of 1933. On
May 20, 1999, Ziff-Davis Inc. moved to dismiss the consolidated amended
complaint. In July 1999, plaintiff filed their response to the motion. Ziff-
Davis Inc. filed a reply on August 11, 1999. The motion has not been decided.

In addition, two derivative suits have been filed by stockholders against
Ziff-Davis Inc. and all of its directors in the Court of Chancery of the State
of Delaware for New Castle County. The complaints allege that the directors
breached their fiduciary duties to Ziff-Davis Inc. by repricing the stock
options awarded to certain directors and demand the nullification of the
repricing and an injunction against exercise by the directors of any repriced
option. Plaintiffs filed an amended complaint on February 17, 1999 (which is
substantially similar to the original complaints, except that the amended
complaint also addresses the granting of "new options" at an allegedly "reduced
exercise price") and the actions have been consolidated. Answers to the amended
complaint on behalf of both Ziff-Davis Inc. and its directors were filed on
April 12, 1999. Discovery is proceeding.

Other legal proceedings

Ziff-Davis Inc. was named as a defendant in an action, filed on April 17,
1998 in the Supreme Court of the State of New York, by minority stockholders of
SOFTBANK Interactive Marketing Inc. ("SIM"), formerly an indirect subsidiary of
SOFTBANK Corp. The complaint alleged, among other things, that SBH, SIM's
majority stockholder, acting with Ziff-Davis Inc. and two of its senior
officers and directors who were directors of SIM (and who were also named as
defendants), had conflicts of interest between SIM and other Softbank
investments (including investments in Ziff-Davis Inc.) and failed to act in the
best interests of SIM and the minority stockholders by taking actions which
benefited Ziff-Davis Inc. The complaint stated claims based on common law
fraud, breach of fiduciary duty and aiding and abetting theories and seeks in
excess of $200,000,000 in damages. Upon motion of Ziff-Davis Inc. and the other
defendants, all of the claims against them other than a breach of contract
claim which is solely against SBH, were dismissed on February 26, 1999. On
April 1, 1999, plaintiffs filed a notice of appeal of the dismissal. On
September 2, 1999, the remaining claim, which was solely against SBH, was
dismissed. On October 6, 1999, plaintiffs filed a notice of appeal of this
dismissal.

Ziff-Davis Inc. and ZDTV, L.L.C. ("ZDTV"), a majority owned affiliate of
Ziff-Davis Inc., were named as defendants in an action filed on November 10,
1999 in the U.S. District Court, Southern District of New York, by plaintiff.
In October, 1998 ZDTV through a subsidiary purchased certain assets from
corporations owned by plaintiff and two other individuals. In addition to a
cash payment at the closing of the sale, ZDTV agreed to pay additional purchase
price, contingent on the future operating profits of the SkyTV division. Ziff-
Davis Inc. guaranteed the obligations of ZDTV. The complaint alleges, among
other things, that ZDTV and Ziff-Davis Inc. breached their covenants of good
faith and fair dealing by failing to act in the best interests of the SkyTV
division, to support and procure business for the SkyTV division, and to
provide public relations, marketing assistance and corporate sales team
support, thereby lessening plaintiff's opportunity to earn additional purchase
price. The complaint seeks an amount to be determined at trial, but not less
than $60,000,000 in damages.

Although the outcome of these cases cannot be predicted, Ziff-Davis Inc.
believes that there are substantial defenses to the claims. Ziff-Davis Inc.
currently cannot estimate its ultimate liability, if any, with respect to such
pending litigations. Accordingly, no provision for such matters has been
included in the financial statements.

III-36
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Interest rate swap

On June 15, 1999, Ziff-Davis Inc. amended a swap agreement (with a notional
amount of $100,000,000) by reducing the fixed rate paid to the counterparty and
providing the counterparty with a one-time option to cancel the swap agreement
on February 5, 2000. Ziff-Davis Inc. entered into another swap agreement (with
a notional amount of $50,000,000) on June 15, 1999. Under this swap agreement,
Ziff-Davis Inc. will receive a fixed rate of interest and pay a floating rate
of interest based on 3 months LIBOR, which resets quarterly, for the term of
the agreement.

Beyond.com hedge

In June 1999, Ziff-Davis Inc. entered into a short-sale to effect a hedge on
300,000 of its 438,057 shares of Beyond.com. These shares were sold on behalf
of Ziff-Davis Inc. by a third party at a weighted average price of $22.50 per
share. In September 1999, Ziff-Davis Inc. delivered the shares required to
close the short position by repurchasing the shares at a market price of $14.00
per share. A gain of approximately $2,600,000 was deferred in the period
relating to this hedge transaction.

10. Registration Statement

On August 5, 1999, Ziff-Davis Inc. filed a registration statement on Form S-3
(File No. 333-84555), which became effective on August 11, 1999, with the
Securities and Exchange Commission to register 1,180,173 shares of ZDNet Stock
in connection with the acquisition of Updates.com Inc. and SoftSeek Inc.

11. Segment Information

Ziff-Davis Inc. operates in four reportable business segments: (1)
publishing, (2) events, (3) Internet and (4) television. All material inter-
segment revenue has been eliminated. The following table presents information
about each of the reported segments:

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenue:
Publishing....................... $ 165,268 $ 181,727 $518,626 $571,391
Events........................... 63,085 29,787 157,150 122,690
Internet......................... 26,291 14,504 67,791 36,466
Television....................... 3,642 -- 9,343 --
--------- --------- -------- --------
Total.......................... $ 258,286 $ 226,018 $752,910 $730,547
========= ========= ======== ========
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
EBITDA:
Publishing....................... $ 17,475 $ 23,558 $ 80,185 $ 88,544
Events........................... 35,962 2,135 60,164 21,879
Internet......................... 4,621 1,857 11,177 (4,223)
Television....................... (7,030) -- (20,924) --
--------- --------- -------- --------
Total.......................... $ 51,028 $ 27,550 $130,602 $106,200
========= ========= ======== ========
</TABLE>

III-37
<PAGE>

ZIFF-DAVIS INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(dollars in thousands)
<S> <C> <C>
Total Assets:
Publishing..................................... $1,944,663 $2,192,099
Events......................................... 1,195,191 1,144,018
Internet....................................... 179,650 97,686
Television..................................... 124,432 --
---------- ----------
Total........................................ $3,443,936 $3,433,803
========== ==========
</TABLE>

A reconciliation of EBITDA to loss before income taxes is below:

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- -------------------
1999 1998 1999 1998
--------- --------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Total segment EBITDA............ $ 51,028 $ 27,550 $130,602 $ 106,200
Depreciation and amortization of
property and equipment......... (8,583) (7,870) (25,558) (22,597)
Amortization of intangible
assets......................... (36,160) (29,973) (102,308) (91,997)
Stock-based compensation........ (1,474) (63) (4,861) (189)
Minority interest in ZDTV's non-
EBITDA losses.................. 1,531 -- 4,125 --
Interest expense, net........... (28,632) (29,093) (89,602) (111,185)
--------- --------- -------- ---------
Loss before income taxes........ $ (22,290) $ (39,449) $(87,602) $(119,768)
========= ========= ======== =========
</TABLE>

12. Subsequent Events

Sale of Market Intelligence Unit

On October 1, 1999, Ziff-Davis Inc. completed the sale of its Market
Intelligence unit for $101,000,000 in cash plus $5,000,000 in assumed deferred
revenue obligations.

Registration Statement

On October 22, 1999, Ziff-Davis Inc. filed a registration statement on Form
S-3 (File No. 333-89597), which became effective on October 29, 1999, with the
Securities and Exchange Commission to register 180,000 shares of ZDNet Stock
acquired by three selling shareholders of GameSpot in connection with its
merger with Ziff-Davis Inc.

Smart Planet Inc.

In September 1999, the Company formed Smart Planet Inc. to conduct the
operations of its consumer based educational website. In conjunction with the
launch of this business a stock option plan was adopted. On October 25, 1999,
the Company granted options to purchase approximately 2,468,000 shares of Smart
Planet Inc. The exercise price of the options was based on an estimate of the
fair value of the underlying shares.

III-38
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Ziff-Davis Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, cash flows and changes in stockholders'
equity, present fairly, in all material respects, the financial position of
Ziff-Davis Inc. and its subsidiaries (the "Company") at December 31, 1997 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, 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.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
New York, NY
February 22, 1999

III-39
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 30,301 $ 32,566
Accounts receivable, net.............................. 221,310 227,325
Inventories........................................... 17,853 15,551
Prepaid expenses and other current assets............. 37,900 34,543
Due from affiliates................................... 131,290 53,984
Deferred taxes........................................ 8,794 22,262
---------- ----------
Total current assets.................................... 447,448 386,231
Property and equipment, net............................. 53,536 91,189
Intangible assets, net.................................. 3,030,333 2,907,043
Other assets............................................ 15,329 49,340
---------- ----------
Total assets............................................ $3,546,646 $3,433,803
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 55,468 $ 75,863
Accrued expenses...................................... 80,094 97,319
Unearned income, net.................................. 154,682 152,081
Due to affiliates and management...................... 398,332 4,618
Current portion of notes payable to affiliates........ 125,790 7,692
Other current liabilities............................. 4,222 13,125
---------- ----------
Total current liabilities............................... 818,588 350,698
Notes payable to affiliates............................. 2,408,240 70,192
Notes payable, net of unamortized discount.............. -- 1,469,130
Deferred taxes.......................................... 180,117 165,082
Due to management....................................... -- 5,400
Other liabilities....................................... 12,390 19,690
---------- ----------
Total liabilities....................................... 3,419,335 2,080,192
---------- ----------
Commitments and contingencies (Notes 17 and 18)
Minority interest....................................... 1,181 1,013
---------- ----------
Stockholders' equity:
Preferred stock(1).................................... -- --
Common stock(2)....................................... -- 1,000
Additional paid-in capital............................ 248,330 1,571,681
Accumulated deficit................................... (119,429) (197,238)
Deferred compensation................................. (996) (22,024)
Cumulative translation adjustment..................... (1,775) (821)
---------- ----------
Total stockholders' equity.............................. 126,130 1,352,598
---------- ----------
Total liabilities and stockholders' equity.............. $3,546,646 $3,433,803
========== ==========
</TABLE>
- --------
(1) December 31, 1998: par value $.01 per share, 10,000,000 shares authorized,
no shares issued and outstanding; December 31, 1997: no shares authorized,
issued and outstanding.
(2) December 31, 1998: par value $.01 per share, 120,000,000 shares authorized,
100,000,000 shares issued and outstanding; December 31, 1997: par value
$.01 per share, 2,000 shares authorized, 200 shares issued and outstanding.

The accompanying notes are an integral part of these financial statements.

III-40
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Revenue, net:
Publishing............................... $ 674,040 $ 834,015 $ 782,882
Events................................... 264,884 287,528 269,867
Internet................................. 16,215 32,218 56,143
--------- --------- -----------
955,139 1,153,761 1,108,892
--------- --------- -----------
Cost of production......................... 271,532 325,245 305,346
Selling, general and administrative
expenses.................................. 456,690 564,344 567,683
Depreciation and amortization of property
and equipment............................. 32,303 30,379 29,885
Amortization of intangible assets.......... 107,433 124,561 122,659
Restructuring charge....................... -- -- 52,239
--------- --------- -----------
Income from operations..................... 87,181 109,232 31,080
Interest expense, net--related party....... (120,646) (190,445) (65,935)
Interest expense, net...................... -- -- (77,612)
Other non-operating income, net............ 6,341 8,722 8,231
--------- --------- -----------
Loss before income taxes................... (27,124) (72,491) (104,236)
Provision (benefit) for income taxes....... 24,957 (1,312) (26,427)
--------- --------- -----------
Net loss................................... $ (52,081) $ (71,179) $ (77,809)
========= ========= ===========
Pro forma basic loss per common share...... $ (0.78)
===========
Pro forma weighted average common shares
outstanding............................... 100,000,000
===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

III-41
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1996 1997 1998
----------- -------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $ (52,081) $(71,179) $ (77,809)
Adjustments to reconcile net loss to net
cash provided
(used) by operating activities:
Depreciation and amortization............. 139,736 154,940 152,544
Amortization of debt issuance costs and
discount................................. -- -- 2,430
Restructuring charge...................... -- -- 52,239
Income from equity investments............ (115) (2,030) (7,483)
Deferred tax provision (benefit).......... 24,957 (1,312) (28,974)
Changes in operating assets and liabili-
ties:
Accounts receivable...................... (38,086) (18,899) (4,899)
Inventories.............................. 7,788 (853) 2,923
Accounts payable and accrued expenses.... 12,850 (7,376) (1,121)
Unearned income.......................... 1,392 (20,194) (5,326)
Due to affiliates and management......... (29,303) (38,543) (3,348)
Other, net............................... (5,595) 2,082 14,600
----------- -------- ----------
Net cash provided (used) by operating
activities................................ 61,543 (3,364) 95,776
----------- -------- ----------
Cash flows from investing activities:
Capital expenditures..................... (22,365) (30,196) (36,599)
Investments and acquisitions, net of cash
acquired................................ (2,124,823) (14,000) (27,772)
----------- -------- ----------
Net cash used by investing activities...... (2,147,188) (44,196) (64,371)
----------- -------- ----------
Cash flows from financing activities:
Proceeds from equity offering............ -- -- 380,337
Proceeds from issuance of notes payable.. -- -- 242,723
Proceeds from issuance of bank debt...... -- -- 1,240,200
Proceeds from notes payable to affili-
ates.................................... 1,080,000 10,000 --
Payments of amounts due to affiliates.... -- -- (314,798)
Repayments of credit facility ........... -- -- (95,504)
Borrowings under credit facility......... -- -- 65,504
Principal payments on notes payable to
affiliates.............................. -- (31,420) (1,571,264)
Payment of deferred financing fee........ -- -- (3,375)
Purchase of treasury shares.............. -- -- (29,500)
Sale of treasury shares.................. -- -- 29,500
Advance from majority shareholder........ -- -- 20,377
Contributed capital...................... 1,015,652 69,366 6,660
Payment of dividends..................... (8,000) -- --
----------- -------- ----------
Net cash provided (used) by financing
activities................................ 2,087,652 47,946 (29,140)
Net increase in cash and cash equivalents.. 2,007 386 2,265
Cash and cash equivalents at beginning of
period.................................... 27,908 29,915 30,301
----------- -------- ----------
Cash and cash equivalents at end of peri-
od........................................ $ 29,915 $ 30,301 $ 32,566
=========== ======== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

III-42
<PAGE>

ZIFF-DAVIS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands)

<TABLE>
<CAPTION>
Ziff-Davis Inc. ZDI ZDCF Additional Retained Cumulative
------------------- Treasury ------------- ------------- paid-in earnings Deferred translation
Shares Amount Stock Shares Amount Shares Amount capital (deficit) compensation adjustment
----------- ------ -------- ------ ------ ------ ------ ---------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995........... -- $ -- $ -- -- $ -- 100 $ -- $ 379,586 $ 11,831 $ -- $ 111
Acquisition of
Ziff-Davis
Holdings Corp. .. 100 -- 1,014,178
Return of
capital........ (899,948)
Capital
contribution... 1,474
Dividend paid... (8,000)
Shares
contributed to
restricted
stock plan..... 3,528 (3,528)
Compensation
earned on
restricted
stock.......... 1,080
Net loss........ (52,081)
Foreign currency
translation
adjustment..... (475)
----------- ------ ------- ---- ----- ---- ----- ---------- --------- -------- ------
Balance at
December 31,
1996........... -- -- -- 100 -- 100 -- 498,818 (48,250) (2,448) (364)
Return of
capital........ (381,434)
Capital
contribution... 128,482
Shares
contributed to
restricted
stock plan..... 2,464 (2,464)
Compensation
earned on
restricted
stock.......... 3,916
Net loss........ (71,179)
Foreign currency
translation
adjustment..... (1,411)
----------- ------ ------- ---- ----- ---- ----- ---------- --------- -------- ------
Balance at
December 31,
1997........... -- -- -- 100 -- 100 -- 248,330 (119,429) (996) (1,775)
Capital
contribution... 9,007
Capitalization
of amounts due
to affiliates.. 908,673
Contribution of
subsidiaries
from SBH to
Ziff-Davis
Inc............ 73,619,355 736 (100) -- (100) --
Initial public
offering....... 25,800,000 258 375,235
Acquisition of
fixed assets
from an
affiliate...... 580,645 6 8,994
Purchase of
treasury shares
from SBH....... (2,000,000) (20) (29,480)
Sale of treasury
shares to the
public......... 2,000,000 20 29,480
Stock options
vested as
severance...... 162
Conversion of
Softbank stock
options........ 3,018 (3,018)
Issuance of
ZDNet options.. 18,262 (18,262)
Net loss........ (77,809)
Compensation
earned on
restricted
stock.......... 252
Foreign currency
translation
adjustment..... 954
----------- ------ ------- ---- ----- ---- ----- ---------- --------- -------- ------
Balance at
December 31,
1998........... 100,000,000 $1,000 $ -- -- $ -- -- $ -- $1,571,681 $(197,238) $(22,024) $ (821)
=========== ====== ======= ==== ===== ==== ===== ========== ========= ======== ======
<CAPTION>
Total
stockholders'
equity
--------------
<S> <C>
Balance at
December 31,
1995........... $ 391,528
Acquisition of
Ziff-Davis
Holdings Corp. .. 1,014,178
Return of
capital........ (899,948)
Capital
contribution... 1,474
Dividend paid... (8,000)
Shares
contributed to
restricted
stock plan..... --
Compensation
earned on
restricted
stock.......... 1,080
Net loss........ (52,081)
Foreign currency
translation
adjustment..... (475)
--------------
Balance at
December 31,
1996........... 447,756
Return of
capital........ (381,434)
Capital
contribution... 128,482
Shares
contributed to
restricted
stock plan..... --
Compensation
earned on
restricted
stock.......... 3,916
Net loss........ (71,179)
Foreign currency
translation
adjustment..... (1,411)
--------------
Balance at
December 31,
1997........... 126,130
Capital
contribution... 9,007
Capitalization
of amounts due
to affiliates.. 908,673
Contribution of
subsidiaries
from SBH to
Ziff-Davis
Inc............ 736
Initial public
offering....... 375,493
Acquisition of
fixed assets
from an
affiliate...... 9,000
Purchase of
treasury shares
from SBH....... (29,500)
Sale of treasury
shares to the
public......... 29,500
Stock options
vested as
severance...... 162
Conversion of
Softbank stock
options........ --
Issuance of
ZDNet options..
Net loss........ (77,809)
Compensation
earned on
restricted
stock.......... 252
Foreign currency
translation
adjustment..... 954
--------------
Balance at
December 31,
1998........... $1,352,598
==============
</TABLE>

The accompanying notes are an integral part of these financial statements.

III-43
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(numbers rounded to the nearest thousand, except share and per share amounts)

1. The Company and Basis of Presentation

Formation of Ziff-Davis Inc.

Ziff-Davis Inc. was formed through an initial public offering and a
reorganization that were completed on May 4, 1998. (See Note 2.) Prior to that
date, the predecessors of Ziff-Davis Inc. (currently named ZD Inc. ("ZDI") and
ZD Events Inc.) were wholly owned indirect subsidiaries of SOFTBANK Corp.
(together with its non-Ziff-Davis Inc. affiliates "Softbank"). As such,
financial statements for periods prior to May 4, 1998 have been prepared on a
combined basis while financial statements for periods after May 4, 1998 have
been prepared on a consolidated basis.

As further described below, the consolidated financial statements include the
accounts of ZDI from its date of acquisition (February 29, 1996), and ZD Events
for all periods presented. In addition, the results of the MAC Assets (defined
below) which were acquired in two tranches on October 31, 1997 and May 4, 1998
have been included in Ziff-Davis Inc's financial statements from the time of
their acquisition by MAC Inc. ("MAC") (February 29, 1996). These results have
been included in a manner similar to a pooling of interests, as the MAC Assets,
ZDI and ZD Events Inc. were under common control at the time the MAC Assets
were acquired by Ziff-Davis Inc. (See relationship with Softbank and MAC
below).

Relationship with Softbank and MAC

SOFTBANK Corp. is the indirect majority stockholder of Ziff-Davis Inc.
SOFTBANK Corp. is a Japanese corporation which at the time of the acquisition
of the MAC Assets was majority owned directly and indirectly by its president,
Mr. Son. As of December 31, 1998, Mr. Son owned approximately 45% of SOFTBANK
Corp. (50.2% as of December 31, 1997). MAC, also a Japanese corporation, was
wholly owned by Mr. Son.

Operations and acquisitions

Ziff-Davis Inc. operates in three business segments: (1) publishing, (2)
events and (3) Internet.

Publishing

The publishing segment is engaged in publishing magazines, journals,
newsletters, electronic information products, training manuals and market
research about the computer industry. The publishing segment's principal
operations are in the U.S. and Europe, although it also licenses or syndicates
its editorial content to over 50 other publications distributed worldwide.

Events

The events segment is engaged in the organization, production and management
of trade shows, conferences and seminars for the computer industry. The events
segment's principal operations are in the U.S. and to a lesser extent in Europe
and Asia.

Internet

The Internet segment is engaged in providing technology related information
to Internet users worldwide. The Internet segment's principal operations are in
the U.S. and to a lesser extent in Europe.

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 $1,800,000,000
plus transaction costs. Concurrent with the

III-44
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

acquisition, in a separate agreement, MAC, 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 $302,000,000.

These acquisitions 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 $1,922,000,000 and
$285,000,000, respectively.

Subsequent to the acquisition, Holdings and ZDI were merged with ZDI being
the surviving corporation.

Purchase of the MAC Assets

In 1997, ZDI agreed to purchase certain of the MAC Assets for $370,000,000.
The acquisition was effected in two tranches, the first of which closed on
October 31, 1997 and the second of which closed upon completion of the initial
public offering of Ziff-Davis Inc.'s common stock (further described below). At
December 31, 1997, ZDI had accrued the $370,000,000 purchase price which was
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 were under common
control at the time of acquisitions. Accordingly, the accompanying consolidated
financial statements include the results of operations of 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 $27,500,000, plus transaction costs. The
acquisition was accounted for as a purchase and accordingly, Sendai's results
are included in the consolidated financial statements since the date of
acquisition. The excess of the purchase price over assets acquired approximated
$33,378,000. The operations of Sendai did not have a material effect on the
consolidated results of operations for the year ended December 31, 1996.

Acquisition of Sky TV

On October 28, 1998, Ziff-Davis Inc. acquired the assets of Sky TV Inc. and
certain affiliates for approximately $12,150,000 in cash plus contingent
payments related to earnings performance payable in 2002. Sky TV is a media
company that produces video content for distribution principally through
airline in-flight, cable and broadcast television. The acquisition was
accounted for as a purchase and accordingly Sky TV's results are included in
the consolidated financial statements since the date of acquisition. The excess
of the purchase price over assets acquired approximated $11,318,000. The
operations of Sky TV did not have a material effect on consolidated results of
operations for the year ended December 31, 1998.

2. Reorganization, Initial Public Offering and ZDNet Stock Proposal

On February 4, 1998, a nonstock corporation, ZD Inc., was formed in
contemplation of a reorganization and initial public offering of Ziff-Davis
Inc. Upon completion of the initial public offering (described below),
Ziff-Davis Inc. was renamed ZD Inc. and ZDCF was renamed ZD Events Inc. and ZD
Inc. was renamed Ziff-Davis Inc.

On May 4, 1998 SOFTBANK Corp., through its wholly owned subsidiary SOFTBANK
Holdings Inc. ("SBH"), completed a reorganization whereby the common stock of
ZD Inc. and ZD Events Inc. were

III-45
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

contributed to Ziff-Davis Inc. in exchange for 73,619,355 shares of Ziff-Davis
Inc.'s common stock. Concurrent with the reorganization, Ziff-Davis Inc. (1)
completed an initial public offering of 25,800,000 common shares at an initial
public offering price of $15.50 per share, (2) issued $250,000,000 of 8 1/2%
subordinated notes due 2008, (3) entered into a $1,350,000,000 credit facility
with a group of banks under which $1,250,000,000 was borrowed and (4) converted
$908,673,000 of intercompany indebtedness to equity. In addition, Ziff-Davis
Inc. received approximately $9,107,000 of fixed assets from Kingston Technology
Company ("Kingston"), a related party, in exchange for 580,645 shares of Ziff-
Davis Inc.'s common stock and $107,000 in cash. These assets have been
subsequently leased back to Kingston. Total shares of common stock issued to
Softbank were 74,200,000. The transactions described above are hereafter
referred to as the "Reorganization".

Proceeds, net of transaction costs, from the initial public offering and
funding transactions in the Reorganization of $1,863,260,000 were used to
complete the purchase of certain assets from MAC for $370,000,000 and repay
intercompany indebtedness.

On May 28, 1998, Ziff-Davis Inc.'s U.S. underwriters exercised their option
to purchase 2.0 million additional shares of common stock to cover over-
allotments. Ziff-Davis Inc. purchased the additional shares from SBH resulting
in no change to the total number of shares outstanding. On December 31, 1998,
SBH contributed 71,619,355 shares of Ziff-Davis Inc.'s common stock to SOFTBANK
America Inc., an affiliate of SOFTBANK Corp.

Unaudited pro forma financial information

The following summary pro forma information has been prepared as if the
Reorganization and initial public offering described above, had been
consummated on January 1, 1998. The pro forma adjustments include a $5,219,000
reduction of interest expense, a $900,000 increase in depreciation expense and
a $900,000 reduction of selling, general and administrative expenses, as well
as the tax effect of these items recorded at an effective tax rate of 40%.

<TABLE>
<CAPTION>
Year ended
December 31, 1998
---------------------
(dollars in thousands
except share and
per share amounts)
<S> <C>
Revenue, net:.......................................... $ 1,108,892
Depreciation and amortization ......................... 153,444
Income from operations................................. 31,080
Interest expense, net.................................. 138,328
Loss before income taxes............................... (99,017)
Income tax benefit..................................... 24,339
Net loss............................................... $ (74,678)
Net loss per basic common share........................ $ (0.75)
Weighted average common shares outstanding............. 100,000,000
</TABLE>

ZDNet Stock Proposal (Unaudited)

III-46
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

be re-classified as Ziff-Davis Inc.--ZD Common Stock ("ZD Stock") and that
stock will be intended to reflect the performance of Ziff-Davis Inc.'s other
businesses and a "Retained Interest" in ZDNet (i.e., Ziff-Davis Inc.'s interest
in ZDNet excluding the interest intended to be represented by outstanding
shares of ZDNet Stock) (collectively, "ZD").

ZD currently has a 100% Retained Interest in ZDNet. Following approval of the
Tracking Stock Proposal, Ziff-Davis Inc. currently plans to offer to the
public, for cash, 10,000,000 shares of ZDNet Stock intended to represent
approximately 14% of the equity value attributed to ZDNet. Ziff-Davis Inc.
expects to offer ZDNet Stock to the public sometime in the first or second
quarter of 1999. However, Ziff-Davis Inc. could choose to conduct the offering
at a later time, or not to make the offering at all, depending on the
circumstances at the time. In addition to or instead of the offering, Ziff-
Davis Inc. reserves the right to distribute ZDNet Stock to stockholders of
Ziff-Davis Inc.

3. Summary of Significant Accounting Policies

Principles of combination and consolidation

Prior to the Reorganization, the financial statements were prepared on a
combined basis to include the accounts of ZDI and ZD Events including, as
discussed above, the MAC Assets. The financial statements of Ziff-Davis Inc.
prepared subsequent to the Reorganization described above have been prepared on
a consolidated basis. All significant transactions between these entities have
been eliminated in combination and consolidation.

Investments in companies in which Ziff-Davis Inc.'s ownership interests range
from 20% to 50% and in which Ziff-Davis Inc. has the ability to exercise
significant influence over the operating and financial policies of such
companies are accounted for under the equity method.

Cash and cash equivalents

Ziff-Davis Inc. considers all highly liquid investments with an original
maturity of 3 months or less to be cash equivalents.

Concentration of credit risk

Ziff-Davis Inc. places its temporary cash investments with high credit
quality financial institutions. At times, such investments may be in excess of
federally insured limits. Ziff-Davis Inc. has not experienced losses in such
accounts.

Ziff-Davis Inc. advertisers and exhibitors include principally customers who
represent a variety of technology companies in the U.S. and other countries.
Ziff-Davis Inc. extends credit to its customers and distributors 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 cost or estimated fair value at
the date of acquisition. Depreciation is computed using the straight-line
method, half-year convention, over the estimated useful lives of the assets
which range from 3 to 30 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.

III-47
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

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.

Debt issuance costs and discount on senior subordinated notes

The cost to issue debt is recorded in the balance sheet in other assets and
amortized to interest expense over the life of the debt. The discount on the
senior subordinated notes is recorded in the balance sheet as a reduction of
long term-debt and is amortized to interest expense over the life of the notes.
All amounts are amortized utilizing the effective-interest method.

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 estimated useful lives.
Identifiable 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. (See Note 7.) Ziff-Davis Inc. assesses the recoverability of 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 value of
assets, an impairment loss is recognized to reduce the carrying value of the
intangibles to estimated recoverable value.

Revenue recognition

Advertising revenue for Ziff-Davis Inc.'s 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.

Online revenue is derived principally from the sale of advertisements on
short-term contracts. Online revenue is recognized ratably in the period in
which the advertisement is displayed, provided that no significant obligations
remain and collection of the resulting receivable is probable. Ziff-Davis
Inc.'s obligations typically include guarantees of minimum number of
"impressions", or times that an advertisement appears in pages viewed by users
of Ziff-Davis Inc.'s online properties. To the extent minimum guaranteed
impressions are not met, Ziff-Davis Inc. defers recognition of the
corresponding revenues until the remaining guaranteed impression levels are
achieved.

Operating costs and expenses

Cost of production includes the direct costs of producing magazines, online
content, 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

III-48
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except per share amounts)

development costs are expensed as incurred. Product development costs include
the cost of artwork, graphics, prepress, plates and photography for new
products.

Reportable segments

In 1998, Ziff-Davis Inc. adopted Statement of Financial Accounting Standards
("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 131 supersedes SFAS No. 14, Financial Reporting for
Segments of a Business Enterprise, replacing the "industry segment" approach
with the "management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of Ziff-Davis Inc.'s reportable segments.
SFAS No. 131 also requires disclosures about products and services, geographic
areas and major customers. The adoption of SFAS No. 131 did not affect results
of operations or financial position but did affect the disclosure of segment
information. (See Note 19.)

Foreign currency

The effect of translating foreign currency financial statements into U.S.
dollars is included in the cumulative translation adjustments account in
stockholders' equity. Gains and losses on foreign currency transactions, which
are not significant to operations, have been included in selling, general and
administrative expenses. Ziff-Davis Inc. has not historically entered into
forward currency contracts.

Other non-operating income

Other non-operating income includes management fee income and Ziff-Davis
Inc.'s equity share of income or loss from joint ventures.

Income taxes

Ziff-Davis Inc. 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.

Fair value of financial instruments

Ziff-Davis Inc's financial instruments recorded on the balance sheet include
cash and cash equivalents, accounts receivable, accounts payable and debt.
Because of their short maturity, the carrying amount of cash and cash
equivalents, accounts receivable and accounts payable approximate fair value.
Fair value of long-term bank debt is based on rates available to Ziff-Davis
Inc. for debt with similar terms and maturities. Fair value of public debt is
based on market prices.

Ziff-Davis Inc. uses interest rate swap agreements to manage risk on its
floating rate debt portfolio. Fair value of these instruments is based on
estimated current settlement cost.

Interest rate swaps

Ziff-Davis Inc. periodically uses interest rate swaps to manage its exposure
to interest rate fluctuations on its floating rate debt. These interest rate
swaps are entered into for hedging purposes and as such, must be designated and
effective as a hedge against the risk of increased interest rates. Under the
terms of the agreements Ziff-Davis Inc. pays a fixed interest rate on a
notional amount and receives a variable interest rate

III-49
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

on the same notional amount. The differential between the amounts paid and
received is recorded in interest expense. Interest rate swaps designated but no
longer effective as a hedge would be reported at market value and the related
gains and losses would be recognized in earnings. Gains or losses on
termination of interest rate swaps would be recognized in earnings in the
period of termination.

Stock-based compensation

Ziff-Davis Inc. has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), to account for stock
options. Effective January 1, 1996, Ziff-Davis Inc. adopted the disclosure-only
provisions of Statement of Financial Accounting Standard ("SFAS") No. 123,
Accounting for Stock-Based Compensation.

Earnings per share

Earnings per share data for 1996 and 1997 have been omitted on the basis that
they are not meaningful due to the insignificant number of shares outstanding.
Earnings per share data for 1998 is calculated on a pro forma basis as if the
shares issued in connection with the Reorganization and initial public offering
described in Note 2 were outstanding as of January 1, 1998, but does not
otherwise give pro forma effect to the Reorganization and initial public
offering. Options to purchase Ziff-Davis Inc. common stock that could
potentially dilute basic earnings per share in the future were not included in
the computation of diluted loss per share because they were anti-dilutive.
There were options to purchase 6,691,305 shares of Ziff-Davis Inc. common stock
outstanding at December 31, 1998.

Comprehensive income

Ziff-Davis Inc. implemented SFAS No. 130 Reporting Comprehensive Income,
effective January 1, 1998. This standard requires Ziff-Davis Inc. to report the
total changes in stockholders' equity that do not result directly from
transactions with stockholders, including those which do not affect retained
earnings. These changes are not material to Ziff-Davis Inc.'s consolidated
financial statements.

New accounting pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Ziff-Davis Inc. does not expect the adoption of
SFAS No. 133 to have a material impact on Ziff-Davis Inc.'s results of
operations. Ziff-Davis Inc. will adopt SFAS No. 133 beginning with its 2000
financial statements.

Reclassifications

Certain amounts have been reclassified, where appropriate, to conform to the
current financial statement presentation.

4. Restructuring

Margin pressure on computer equipment manufacturers, industry and product
delays, lower demand in Asia and a focus on the Year 2000 transition are
contributing to a reduced demand for advertising in Ziff-Davis Inc.'s
magazines, principally PC Magazine, PC/Computing, Computer Shopper and PC Week.
Ziff-Davis Inc. believes these factors are continuing.

III-50
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

As a result of this reduced demand, in October 1998 Ziff-Davis Inc. announced
a restructuring program with the intent of significantly reducing its cost
base. Ziff-Davis Inc. incurred a pre-tax charge of $52,239,000 for this
restructuring program. The charge included asset impairment costs
($37,890,000), employee termination costs ($8,668,000) and costs to exit
activities ($5,681,000) principally resulting from the closing of three
publications (Windows Pro, Internet Business and Equip) and the reduction of
Ziff-Davis Inc.'s work force by 310 employees. The charge also included costs
resulting from the discontinuation of certain educational journals and trade
shows. The following sets forth additional detail concerning the principal
components of the charge:

. Asset impairment costs totaled $37,890,000. These costs, which are non-
cash, included the write-off of intangible assets, primarily subscriber
lists, advertising lists, tradenames and goodwill, associated with the
discontinued publications ($34,245,000) and trade shows ($2,930,000) as
well as deferred marketing expenses associated with the discontinued
educational journals ($715,000).

. Employee termination costs related to severed personnel at the closed
publications as well as a rationalization and resulting workforce
reduction of the remainder of Ziff-Davis Inc.'s operations. Employee
termination costs included payments for severance and earned vacation as
well as the costs of outplacement services and the provision of
continued benefits to personnel. As of December 31, 1998, $5,200,000 of
the $8,668,000 million related to these employee terminations had been
paid.

. Costs to exit activities reflect the costs associated with the final
closure of the discontinued publications ($1,837,000) and the costs to
reduce office space under lease as a result of the reduced level of
employees ($3,844,000).

Included in accrued expenses is $7,260,000 related to this restructuring
which Ziff-Davis Inc. believes will be paid during the first half of 1999.

5. Accounts Receivable, Net

Accounts receivable, net consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Accounts receivable................................. $309,565 $312,706
Allowance for doubtful accounts, returns and
cancellations...................................... (88,255) (85,381)
-------- --------
$221,310 $227,325
======== ========
</TABLE>

6. Property and Equipment, Net

Property and equipment, net, consist of the following:

<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
-------- -------
(dollars in
thousands)
<S> <C> <C>
Computers and equipment................................ $ 50,170 $78,587
Leasehold improvements................................. 40,033 62,672
Furniture and fixtures................................. 17,619 29,646
-------- -------
107,822 170,905
Accumulated depreciation and amortization.............. (54,286) (79,716)
-------- -------
$ 53,536 $91,189
======== =======
</TABLE>

III-51
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

7. Intangible Assets, Net

Intangible assets, net, consists of the following:

<TABLE>
<CAPTION>
Range of December 31,
Useful Lives ----------------------
(years) 1997 1998
------------ ---------- ----------
(dollars in
thousands)
<S> <C> <C> <C>
Advertising lists.................... 7-34 $ 888,100 $ 872,400
Exhibitor relationships.............. 4-27 154,070 154,070
Trademarks/trade names............... 30-40 735,595 709,306
License agreements................... 6-14 11,212 11,212
Subscriber lists..................... 3-10 51,475 51,375
Other................................ 2-20 57,599 58,837
Goodwill............................. 5-40 1,387,556 1,419,892
---------- ----------
3,285,607 3,277,092
Accumulated amortization............. (255,274) (370,049)
---------- ----------
$3,030,333 $2,907,043
========== ==========
</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, the purchase price of these
acquisitions 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 estimated fair value as determined by an income approach. Trademarks/trade
names were recorded at estimated fair value using a relief from royalty
approach.

All intangible assets are being amortized using the straight-line method over
estimated useful lives, up to 40 years. In determining the estimated useful
lives, Ziff-Davis, Inc. considered its competitive position in the markets in
which it operates, 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. In connection with the restructuring described in Note 4, Ziff-
Davis Inc. recorded a $37,175,000 write-down of intangible assets associated
with discontinued publications and events.

8. Accrued Expenses

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
(dollars in
thousands)
<S> <C> <C>
Payroll and related employee benefits..................... $29,112 $26,351
Accrued interest.......................................... 6,226 13,678
Restructuring reserve .................................... -- 7,260
Other taxes payable....................................... 2,822 2,674
Other..................................................... 41,934 47,356
------- -------
$80,094 $97,319
======= =======
</TABLE>

III-52
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

9. Unearned Income

Unearned income consists of the following:

<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Unexpired subscriptions................................ $ 82,167 $ 66,018
Prepaid conference fees................................ 80,706 95,706
Reserve for cancellations.............................. (8,191) (9,643)
-------- --------
$154,682 $152,081
======== ========
</TABLE>

10. Income Taxes

Prior to the Reorganization and initial public offering described in Note 2,
the subsidiaries of Ziff-Davis Inc. had 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 consolidated statements of operations and tax
liabilities reflected in the consolidated balance sheet have been prepared on a
separate return basis as though Ziff-Davis Inc. 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 Ziff-Davis Inc. Following the
Reorganization, Ziff-Davis Inc. will no longer be included in the consolidated
U.S. federal income tax returns filed by Softbank.

Income (loss) before income taxes is attributable to the following
jurisdictions:

<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1997 1998
-------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C>
U.S. ....................................... $(22,095) $(74,638) $(101,132)
Foreign..................................... (5,029) 2,147 (3,104)
-------- -------- ---------
Total..................................... $(27,124) $(72,491) $(104,236)
======== ======== =========
</TABLE>

Components of the provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1997 1998
------- ------- --------
(dollars in thousands)
<S> <C> <C> <C>
U.S. federal income taxes:
Current...................................... $ -- $ -- $ --
Deferred..................................... 19,338 (1,017) (21,595)
State and local income taxes:
Current...................................... -- -- --
Deferred..................................... 5,619 (295) (7,377)
Foreign income taxes:
Current...................................... -- -- 2,545
Deferred..................................... -- -- --
------- ------- --------
Total provision (benefit) for income taxes... $24,957 $(1,312) $(26,427)
======= ======= ========
</TABLE>

III-53
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

A reconciliation of the U.S. federal statutory tax rate to Ziff-Davis Inc.'s
effective tax rate on income (loss) before income taxes is as follows:

<TABLE>
<CAPTION>
December 31,
--------------------
1996 1997 1998
------ ----- ----
<S> <C> <C> <C>
Federal statutory tax
rate................... 35.0% 35.0% 35.0%
State and local taxes
(net of federal tax
benefit)............... 6.0 6.0 4.6
Non-recognition of
combined losses of MAC
Assets................. (116.6) (32.2) (4.4)
Amortization of non-
deductible goodwill.... (13.1) (5.8) (3.4)
Other................... (3.3) (1.2) (6.4)
------ ----- ----
Effective tax rate...... (92.0)% 1.8% 25.4%
====== ===== ====
</TABLE>

The effective tax rate differs from the federal statutory tax rate primarily
as a result of Ziff-Davis Inc.'s inability to deduct losses of the MAC Assets
prior to May 4, 1998. The amortization of non-deductible goodwill resulted
primarily from the acquisition of 100% of the stock of Holdings in 1996.

Following is a summary of the components of the deferred tax accounts at
December 31, 1997 and 1998:

<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
--------- ---------
(dollars in
thousands)
<S> <C> <C>
Current deferred tax assets and (liabilities):
Allowance for doubtful accounts................... $ 8,750 $ 15,769
Unearned income................................... 965 6,309
Other............................................. (921) 184
--------- ---------
Current deferred net tax assets................. 8,794 22,262
--------- ---------
Noncurrent deferred tax assets and (liabilities):
Basis difference in intangible assets............. (288,286) (247,832)
Basis difference in property and equipment........ 7,394 12,274
Net operating loss and other carryforwards........ 133,314 91,637
Other............................................. 6,317 15,149
--------- ---------
Noncurrent deferred tax liabilities............. (141,261) (128,772)
Valuation allowance................................. (38,856) (36,310)
--------- ---------
Net noncurrent deferred tax liabilities......... (180,117) (165,082)
--------- ---------
Net deferred tax liabilities........................ $(171,323) $(142,820)
========= =========
</TABLE>

As of December 31, 1997 and 1998 Ziff-Davis Inc. had total deferred tax
assets of $116,963,000 and $105,012,000, respectively, and total deferred tax
liabilities of $288,286,000 and $247,832,000, respectively. The December 31,
1997 and 1998 net deferred tax assets are reduced by a valuation allowance of
$38,856,000 and $36,310,000, 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 1998 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,
inasmuch as such losses will not be available to Ziff-Davis Inc.

III-54
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

At December 31, 1998, Ziff-Davis Inc. had U.S. and foreign net operating loss
carryforwards of approximately $195,943,000, which will begin to expire in
1999. Ziff-Davis Inc.'s utilization of certain net operating loss
carryforwards, of approximately $122,549,000, is subject to limitations, due to
the change of ownership resulting from the Softbank acquisition of the Holdings
stock on February 29, 1996. Management believes that such limitations will not
significantly affect Ziff-Davis Inc.'s 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, Ziff-Davis Inc. has alternative minimum tax credit
carryforwards of $385,000 which may be carried forward indefinitely until used.

Undistributed earnings of foreign subsidiaries for which no deferred taxes
have been provided approximate $2,789,000 at December 31, 1998. Any additional
U.S. taxes payable on these foreign earnings, if remitted, would be
substantially offset by credits for foreign taxes already paid.

11. Notes Payable

A summary of Ziff-Davis Inc.'s notes payable at December 31, 1997 and 1998 is
as follows:

<TABLE>
<CAPTION>
1997 1998
---------- ----------
(dollars in
thousands)
<S> <C> <C>
Notes payable to
affiliates (Note 12)..... $2,534,030 $ 77,884
---------- ----------
8 1/2% Senior Subordinated
Notes (1)................ -- 249,130
Credit Facility
Revolving credit........ -- 270,000
Term Loan A............. -- 450,000
Term Loan B............. -- 500,000
---------- ----------
Third party notes
payable.................. -- 1,469,130
---------- ----------
Total notes payable....... 2,534,030 1,547,014
Less current portion notes
payable to affiliates.... (125,790) (7,692)
---------- ----------
$2,408,240 $1,539,322
========== ==========
</TABLE>
- --------
(1)Net of unamortized discount of $870.

8 1/2% senior subordinated notes

On May 4, 1998 Ziff-Davis Inc. issued 8 1/2% Senior Subordinated Notes due
2008 (the "Notes") in the aggregate principal amount of $250,000,000. The Notes
were issued at a discount of $915,000 which is being amortized to interest
expense over the term of the Notes. Included in the balance sheet at December
31, 1998 as a reduction of long-term debt is $870,000 representing the
unamortized discount on the Notes. Interest on the Notes is payable semi-
annually on May 1 and November 1 of each year. Redemption of the Notes by Ziff-
Davis Inc. is subject to certain limitations. The Notes are subordinated to all
existing and future senior indebtedness.

Credit facility

Ziff-Davis Inc. is party to a secured guaranteed credit agreement with The
Bank of New York, Morgan Stanley Senior Funding, DLJ Capital Funding and The
Chase Manhattan Bank, as agents, to provide a $1,350,000,000 term credit
facility. The amount outstanding under this facility at December 31, 1998 was
$1,220,000,000. The credit facility consists of (1) a seven-year $400,000,000
reducing revolving credit facility,

III-55
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

with $270,000,000 drawn as of December 31, 1998, (2) a seven-year $450,000,000
term loan ("Term Loan A") and (3) an eight-year $500,000,000 term loan ("Term
Loan B"). Under the credit facility, Ziff-Davis Inc. paid interest at rates
ranging from LIBOR plus 1.5% to LIBOR plus 1.75%. See "--Amendment to credit
facility" below.

There are various customary conditions to draw-downs under the revolving
commitments. The revolving credit commitments will be reduced and the $450
million Term Loan A will be amortized, beginning in September 2000, by:

. 10% in 2000, in two equal quarterly installments,

. 20% in each of 2001, 2002, 2003 and 2004 in four equal quarterly
installments and

. 10% at final maturity in March 2005.

The $500 million Term Loan B will be amortized, beginning in September 2000,
by:

. $2 million in 2000, in two equal quarterly installments,

. $4 million in each of 2001, 2002, 2003, 2004 and 2005 in four equal
quarterly installments and

. $478 million at final maturity in March 2006.

The Notes and the credit facility are secured, in part, by a first priority
security interest in capital stock of certain subsidiaries of Ziff-Davis Inc.
and are guaranteed by certain wholly owned domestic subsidiaries of Ziff-Davis
Inc., in each case, including ZD Inc. and ZD Events.

Under its most restrictive covenant, Ziff-Davis Inc. could have borrowed an
additional $28,800,000 under the credit facility at December 31, 1998.

Covenants

The Notes and the credit facility contains certain customary affirmative and
negative covenants, including covenants with respect to limitations on
dispositions of assets, changes of business and ownership, mergers or
acquisitions, restricted payments, indebtedness, loans and investments, and
transactions with affiliates. The Notes and the credit facility also contains
certain financial covenants including levels of debt to EBITDA and EBITDA to
interest ratios.

The failure to satisfy any of the covenants would constitute an event of
default under the credit facility. The credit facility also includes 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. At December 31, 1998,
management believes that Ziff-Davis Inc. was in compliance with all covenants
under its debt agreements.

Amendment to credit facility

On December 16, 1998, the lenders on Ziff-Davis Inc.'s $1,350,000,000 credit
facility agreed to amend certain provisions of that facility. The amended
provisions include an increase in allowed leverage ratios. In return, Ziff-
Davis Inc. agreed to pay a one-time fee of $3,375,000 and increase rates on
amounts borrowed under the facility to rates currently ranging from LIBOR plus
2.875% to LIBOR plus 3.375%, depending on the type of loan. The fee has been
capitalized and will be amortized to interest expense over the remaining term
of the facility.

III-56
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Related-party debt

In March 1995, Ziff-Davis Inc. entered into a $100,000,000 note payable to
Softbank due in quarterly installments, maturing on February 28, 2010 and
bearing interest at 9.9% per annum. (See Note 12).

Scheduled principal payments

Scheduled principal payments due on long-term debt at December 31, 1998 are
as follows:

<TABLE>
<CAPTION>
(dollars in thousands)
----------------------
<S> <C>
1999............................ $ 7,692
2000............................ 53,923
2001............................ 100,923
2002............................ 100,923
2003............................ 100,923
Thereafter...................... 1,183,500
----------
Total........................... $1,547,884
Less unamoritized discount...... (870)
----------
Notes payable, net.............. $1,547,014
==========
</TABLE>

Interest rate swaps

On June 10, 1998 Ziff-Davis Inc entered into interest rate swap agreements,
with an aggregate notional amount of $550,000,000. Under these swap agreements,
which took effect on August 10, 1998, Ziff-Davis Inc. receives a floating rate
of interest based on three-month LIBOR, which resets quarterly, and Ziff-Davis
Inc. pays a fixed rate of interest, each quarter, for the terms of the
respective agreements. The terms of these agreements range from 3 to 7 years
and the weighted average fixed rate Ziff-Davis Inc. pays is 5.85%. Ziff-Davis
Inc. has entered into these agreements solely to hedge its interest rate risk
under its floating rate bank debt.

For the year ended December 31, 1998, these interest rate swaps did not have
a material impact on the financial statements.

12. Related Party Transactions

Ziff-Davis Inc is a member of a group of companies affiliated through common
ownership with Softbank and has various transactions and relationships with
members of the group. Due to 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

Due from affiliates consist of the following:

<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
----------- -----------
(dollars in thousands)
<S> <C> <C>
Due from:
MAC .............................................. $ 42,687 $ 50,704
Softbank.......................................... 84,365 1,557
Other affiliates.................................. 4,238 1,723
----------- ----------
$ 131,290 $ 53,984
=========== ==========
</TABLE>

III-57
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Due to affiliates and management consist of the following:

<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
----------- -----------
(dollars in thousands)
<S> <C> <C>
Due to:
Management (including long-term portion)......... $ -- $ 9,900
MAC ............................................. 270,000 --
Softbank......................................... 126,371 --
Other affiliates................................. 1,961 118
----------- ----------
$ 398,332 $ 10,018
=========== ==========
</TABLE>

As part of the 1996 acquisition of ZDI, Ziff-Davis Inc. agreed to assume
certain obligations to management arising out of prior employment arrangements
with previous owners. In January 1997, Ziff-Davis Inc. paid all amounts due,
including accrued interest, through the payment date.

Prior to the Reorganization and initial public offering, Ziff-Davis Inc. was
a member of Softbank's central cash management system. Under this system, Ziff-
Davis Inc. would periodically transfer excess cash to Softbank for cash
management purposes and in turn receive cash advances from Softbank to fund
Ziff-Davis Inc.'s short-term working capital requirements. Interest was accrued
based on the net balance outstanding at the end of each month. Interest income
was earned at the 30-day LIBOR rate for the applicable month. Interest expense
was incurred at the 30-day LIBOR rate plus 0.5%.

As a result of contingent purchase price adjustments related to its
acquisition of Inter@ctive Enterprises, Ziff-Davis Inc. is obligated to pay the
prior owners of Inter@ctive Week $10,850,000 which was recorded as an increase
to intangible assets. The purchase price payments of $950,000, $4,500,000 and
$5,400,000 are due in 1998, 1999 and 2000, respectively. The 1999 and 2000
payments have been classified as current and long-term due to management.

Other affiliated arrangements

During the years ended December 31, 1996, 1997 and 1998, Ziff-Davis Inc.
incurred $2,000,000 $1,631,000, and $270,000, respectively, in advertising
expense with Yahoo!, Inc. ("Yahoo!"), an affiliated company.

Ziff-Davis Inc. sells advertising space and exhibition services to Kingston.
During the years ended December 31, 1996, 1997 and 1998, Ziff-Davis Inc.
recorded revenue of $882,000, $2,667,000 and $3,070,000 respectively, from
sales to Kingston. These services were provided under terms consistent with
those provided to unaffiliated customers.

In addition, on May 4, 1998 Ziff-Davis Inc. purchased $9,107,000 of fixed
assets from Kingston in exchange for cash and common stock of Ziff-Davis Inc.
Such fixed assets were subsequently leased back to Kingston. Rental income
included as a reduction of selling, general and administrative expenses related
to this transaction was $2,400,000 in 1998.

Ziff-Davis Inc. has entered into an agreement to manage certain trade shows
and expositions owned by Softbank, whereby Ziff-Davis Inc. earns management,
royalty and licensing fees. The fees earned for the years ended December 31,
1996, 1997 and 1998 were $3,394,000, $4,057,000 and $1,117,000 respectively.

III-58
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

In 1996 and 1997, Ziff-Davis Inc. had an arrangement with SOFTBANK
Interactive Marketing ("SIM"), an affiliated company, for the provision of
interactive media sales. Ziff-Davis Inc. paid commissions to SIM of $600,000
and $1,800,000 during the years ended December 31, 1996 and 1997, respectively.
The relationship for provision of interactive media sales was terminated in
1997 and on December 31, 1997, SIM was acquired by an unrelated third party.

Ziff-Davis Inc. has an arrangement with SOFTBANK Services, an affiliated
company, whereby Ziff-Davis Inc. is charged for administrative services
provided plus a management fee. For the years ended December 31, 1996, 1997 and
1998, the Ziff-Davis Inc. incurred services fees of $359,000, $1,259,000 and
$810,000 respectively, in relation to this agreement. During 1998, SOFTBANK
Services was sold to an unrelated third party and the arrangement was
terminated.

Ziff-Davis Inc. has entered into certain licensing agreements with Softbank
for the publishing and distribution of Japanese language editions of certain
publications. The fees earned by Ziff-Davis Inc. for the years ended December
31, 1996, 1997 and 1998 were approximately $964,000 $1,818,000 and $709,000,
respectively.

Certain Ziff-Davis Inc. employees have been granted options to purchase
SOFTBANK Corp. common stock (the "Softbank Options"). Further, on January 29,
1999 options to purchase Ziff-Davis Inc. common stock were granted in
connection with the cancellation of certain Softbank Options. (See Note 13.)

In July 1997, Ziff-Davis Inc. entered into a license and services agreement
to develop ZDTV for MAC Holdings (America) Inc. ("MHA"), a company that is
wholly owned by Mr. Masayoshi Son, who is a director of Ziff-Davis Inc. and
principal stockholder of SOFTBANK Corp. Under this agreement, Ziff-Davis Inc.
agreed to fund ZDTV's operations through unsecured advances and was granted an
option to purchase ZDTV for a price equal to MHA's investment plus 10% per
annum for the period of investment. The cumulative advances, which through
December 31, 1997, totaled $14.4 million net of $10.1 million in repayments
were repaid concurrently with the Reorganization. Advances in 1998 totaled
$48.6 million and were repaid upon completion of Ziff-Davis Inc.'s acquisition
of ZDTV. (See Notes 2 and 21.)

Ziff-Davis Inc. 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 $1,161,000
through 2003.

Notes payable to affiliates

See Note 2 for a discussion of Ziff-Davis Inc.'s restructuring of its debt
and equity structures through the Reorganization and initial public offering.

III-59
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Ziff-Davis Inc.'s long-term debt payable to Softbank consists of the
following:

<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
---------- -------
(dollars in
thousands)
<S> <C> <C>
Notes payable to affiliate(1)......................... $1,080,000 $ --
Notes payable to affiliate(2)......................... 900,000 --
Notes payable to affiliate(3)......................... 375,027 --
Note payable to affiliate(4).......................... 94,231 77,884
Note payable to affiliate(5).......................... 74,772 --
Note payable to affiliate(6).......................... 10,000 --
---------- -------
Total............................................... 2,534,030 77,884
Less Current portion.................................. (125,790) (7,692)
---------- -------
$2,408,240 $70,192
========== =======
</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. Notes bear interest at a rate of
7.8% per annum.
(2) 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 and bear interest at a rate of 8.0% per
annum.
(4) Note matures on February 28, 2010 and bears interest at 9.9% per annum.
(5) Note is payable in 52 equal quarterly installments commencing March 31,
1997 and bears interest at a rate of 8.0% per annum.
(6) Note is payable on January 1, 2007 and bears interest at a rate of 8.0% per
annum.

During 1996, 1997 and 1998, Ziff-Davis Inc. incurred $120,646,000,
$190,445,000 and $65,935,000 respectively, of interest expense due to Softbank
related to the above notes payable.

Guarantee of Softbank's U.S. debt

In April 1996, Softbank signed a line of credit agreement totaling
$50,000,000 with an independent lender for which Ziff-Davis Inc., along with
certain other SOFTBANK Corp. affiliates, is a guarantor. In January 1997,
October 1997 and March 1998, this line of credit was increased to $75,000,000,
$150,000,000 and $450,000,000, respectively. On May 4, 1998, Ziff-Davis Inc.
was released from this guarantee.

Return of capital and dividends

On December 15, 1996, Ziff-Davis Inc. declared a return of capital of
approximately $900,000,000 paid through the issuance of a note payable to a
subsidiary of Softbank and a cash dividend of $8,000,000 to Softbank. In 1997,
Ziff-Davis Inc. recorded a return of capital of $381,434,000 in connection with
the purchase price of companies under common control.

13. Stock Compensation Plans

SOFTBANK Executive Stock Option Plans

III-60
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

(market price denominated in Japanese yen) on the date of grant. As of December
31, 1998, 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. On January 19, 1998, the exercise price of
all of the shares outstanding under option agreements was reset to (Yen)4,000,
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 could only be exercised after July 19, 1998. The repricing
did not result in compensation expense to Ziff-Davis Inc.

1998 Incentive Compensation Plan and the 1998 Non-Employee Directors' Stock
Option Plan

In 1998, Ziff-Davis Inc. adopted the 1998 Incentive Compensation Plan (the
"Incentive Plan") and the 1998 Non-Employee Directors' Stock Option Plan (the
"Non-Employee Directors' Plan"). The Incentive Plan provides for the grant of
options, stock appreciation rights, stock awards and other interests in Ziff-
Davis Inc.'s common stock to key employees of Ziff-Davis Inc. and its
affiliates and consultants. The Non-Employee Directors' Plan provides for the
grant of stock options to non-employee directors. Ziff-Davis Inc. has reserved
8,500,000 shares of common stock for issuance under the Incentive Plan and
200,000 shares of common stock for issuance under the Non-Employee Directors'
Plan. During 1998, Ziff-Davis Inc. granted options to purchase 6,757,495 shares
with exercise prices ranging from $6.00 to $16.00 per share representing the
fair value of such options at that date. Such options vest ratably over five
years.

On September 23, 1998, the Board approved the reduction of the exercise price
of all options outstanding under the Incentive Plan from $16.00 to $6.00, the
closing market price of Ziff-Davis Inc.'s common stock on that date. In
addition, the vesting period of the options was extended by three months. The
repricing did not result in compensation expense to Ziff-Davis Inc.

On December 21, 1998 the Board approved an amendment to the Incentive Plan to
permit grants of options and other stock-based awards with respect to any
series of common stock of Ziff-Davis Inc. and to increase the number of shares
available for issuance from 8,500,000 shares to 17,827,500 shares.

In addition, on December 21, 1998, the Board approved the grant of options to
acquire an aggregate of approximately 5,729,000 shares of ZDNet Stock to
certain employees, at a price of $7.50 per share. As a result of the grant
Ziff-Davis Inc. has recorded deferred compensation expense of $18,262,000 for
the difference between the exercise price and the deemed fair value of the
underlying shares. This amount has been recorded as a component of
stockholders' equity offset by an addition to paid-in capital. Ziff-Davis Inc.
expects to recognize non-cash compensation for accounting purposes of
$18,262,000 ratably over the vesting period of the options. These options are
currently scheduled to vest and become exercisable on the fifth anniversary of
the date of grant.

The terms of the options described in the preceding paragraph require an
adjustment in the number of shares of ZDNet Stock that holders may purchase and
the per share purchase price thereof if the initial Number of Shares Issuable
with Respect to ZD's Retained Interest in ZDNet is different from 40,000,000.
This adjustment is similar to the adjustment that would generally be made to
the terms of employee stock options in the event of a stock split. Ziff-Davis
Inc. currently expects that the initial Number of Shares Issuable with Respect
to ZD's Retained Interest in ZDNet will be 70,000,000. Assuming that this is
so, the total number of shares of ZDNet Stock that holders may purchase upon
exercise of these options will increase to approximately 10,026,000 and the per
share purchase price thereof will decrease to approximately $4.29.

The December 21, 1998 Board actions described above are subject to
stockholder approval. The majority stockholder of Ziff-Davis Inc. has committed
to vote for these actions.

III-61
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

an affiliate of SOFTBANK Corp. has agreed with Ziff-Davis Inc. that, if and
when any of these options are exercised, (1) that affiliate will cause the
shares of Ziff-Davis Inc. common stock issuable upon such exercise to be
supplied to Ziff-Davis Inc. and (2) Ziff-Davis Inc. will deliver to that
affiliate or its designee the exercise price paid upon such exercise. Thus, the
exercise of these options will not increase the number of shares of Ziff-Davis
Inc. common stock outstanding or Ziff-Davis Inc.'s stockholders' equity.
However, Ziff-Davis Inc. expects to recognize compensation expense for
accounting purposes of approximately $3,018,000 over three years as a result of
these grants. As such, this amount has been recorded in the Financial
Statements as additional paid in capital offset by a reduction to stockholders'
equity as deferred compensation.

GameSpot Inc. 1997 Stock Option Plan

Ziff-Davis Inc. adopted the GameSpot Inc. 1997 Stock Option Plan (the
"GameSpot Plan") to provide long-term incentives for key employees of GameSpot
and to enhance stockholder value. The GameSpot Plan provides for the grant of
options to purchase shares of GameSpot Inc.'s common stock. GameSpot had
reserved 800,000 shares of GameSpot Inc.'s common stock for issuance under the
GameSpot Plan. In 1997, 780,000 options were granted to certain employees under
the GameSpot Plan. Such options vest ratably over 3 years.

Option grants

Information relating to the Softbank options during 1996, 1997 and 1998 is as
follows:

<TABLE>
<CAPTION>
Number Weighted Average
of Option Price
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
Granted................................... 258,215 31.03
Exercised................................. (75,982) 31.03
Converted to Ziff-Davis Inc. options...... (83,578) 31.03
Forfeited/cancelled....................... (309,936) 31.03
--------
Shares outstanding under options at
December 31, 1998........................ 755,705 $31.03
========
Shares exercisable as of:
At December 31, 1996.................... -- --
At December 31, 1997 (price range
$44.26-$87.15)......................... 107,630 $82.06
At December 31, 1998 (price $31.03)..... 255,060 $31.03
</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.
The 1998 activity reflects the repricing of all options outstanding as of
January 19, 1998 to (Yen)4,000.
(2)Adjusted for a 1.4:1 stock split during 1996 and a 1.3:1 stock split during
1997.

III-62
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Information relating to Ziff-Davis Inc. stock options issued during 1998 is
as follows:

<TABLE>
<CAPTION>
Weighted Average
Number of Option Price
Shares Per Share
--------- ----------------
<S> <C> <C>
Shares outstanding under options at December
31, 1997................................... -- --
Granted..................................... 6,757,495 $ 6.09
Exercised................................... -- --
Converted from Softbank options............. 327,400 8.89
Forfeited................................... (393,590) 6.00
---------
Shares outstanding under options at December
31, 1998................................... 6,691,305 $ 6.22
=========

Information relating to ZDNet stock options issued during 1998 is as follows:

<CAPTION>
Weighted Average
Number of Option Price
Shares* Per Share*
--------- ----------------
<S> <C> <C>
Shares outstanding under options at December
31, 1997................................... -- --
Granted..................................... 5,729,300 $ 7.50
Exercised................................... -- --
Forfeited................................... -- --
---------
Shares outstanding under options at December
31, 1998................................... 5,729,300 $ 7.50
=========
</TABLE>
- --------
* The number of shares and price per share will be adjusted if the initial
Number of Shares Issuable with Respect to ZD's Retained Interest in ZDNet is
different from 40,000,000.

At December 31, 1998, no shares of either the Ziff-Davis Inc. or ZDNet
options were exercisable.

Information relating to GameSpot, Inc. stock options is as follows:

<TABLE>
<CAPTION>
Number Weighted Average
of Option Price
Shares Per Share
-------- ----------------
<S> <C> <C>
Shares outstanding under options at December
31, 1996.................................... -- --
Granted...................................... 780,000 $0.44
Exercised.................................... -- --
Forfeited.................................... (61,000) 0.44
--------
Shares outstanding under options at December
31, 1997.................................... 719,000 $0.44
Granted...................................... -- --
Exercised.................................... -- --
Forfeited.................................... (167,000) 0.44
--------
Shares outstanding under options at December
31, 1998.................................... 552,000 $0.44
========
Shares exercisable as of:
December 31, 1997 (price of $0.44)........... 400,610 $0.44
December 31, 1998 (price of $0.44)........... 497,639 $0.44
</TABLE>

III-63
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except per share amounts)

As permitted by SFAS No. 123, Ziff-Davis Inc. has 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, 1997 or 1998. Pro forma information regarding net income is
required by SFAS No. 123 and has been determined as if Ziff-Davis Inc. 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, 1997 and 1998:

Softbank options
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate......................... 5.89% 6.35% 5.46%
Dividend yield.................................. 0.26% 0.22% 1.50%
Volatility factor............................... 54.03% 51.35% 77.72%
Expected life................................... 6 years 6 years 6 years

Ziff-Davis Inc. options
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate......................... n/a n/a 5.03%
Dividend yield.................................. n/a n/a 0.00%
Volatility factor............................... n/a n/a 54.70%
Expected life................................... n/a n/a 6 years

ZDNet options
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate......................... n/a n/a 4.67%
Dividend yield.................................. n/a n/a 0.00%
Volatility factor............................... n/a n/a 54.70%
Expected life................................... n/a n/a 6 years

GameSpot Inc. options
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate......................... n/a 6.35% 6.44%
Dividend yield.................................. n/a 0.00% 0.00%
Volatility factor............................... n/a 100.27% 100.27%
Expected life................................... n/a 4 years 4 years

The weighted average fair value of options granted in 1996, 1997 and 1998, is
as follows:

<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Softbank options................................ $ 64.30 $ 34.05 $ 19.81
Ziff-Davis Inc. options......................... n/a n/a 5.21
ZDNet options................................... n/a n/a 4.25
GameSpot options................................ n/a 0.32 0.32
</TABLE>

For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over 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, 1997 and 1998, consistent
with the provisions of SFAS No. 123, the Ziff-Davis Inc.'s net loss would have
been increased by approximately $3,100,000, $4,200,000, and $15,130,000,
respectively.

III-64
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Other stock compensation plans

During 1996, 1997 and 1998, employees of Ziff-Davis Inc. were granted 45,760,
61,940 and 27,223 shares of common stock of SOFTBANK Corp., respectively,
(adjusted for a 1.4:1 stock split 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 3 to 5-year period from the date of grant. The
granting of the shares to Ziff-Davis Inc.'s employees has been recorded as
additional paid-in capital offset by a reduction to stockholders' 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
$1,080,000 was charged to expense related to the restricted stock awards.
During 1997, restrictions on 75,210 shares expired, 2,150 shares were forfeited
and $3,916,000 was charged to expense related to these restricted stock awards.
During 1998, restrictions on 22,361 shares expired, 5,736 shares were forfeited
and $252,000 was charged to expense related to these restricted stock awards.

Employee Stock Purchase Plan

In 1998, Ziff-Davis Inc. adopted the Employee Stock Purchase Plan (the "Stock
Purchase Plan") whereby eligible employees may purchase Ziff-Davis Inc.'s
common stock with after-tax payroll deductions of 1% to 10% of their base pay.
The price at which shares of common stock will be purchased is the lesser of
85% of the fair market value of a share of common stock on (1) the first
business day of a purchase period or (2) the last business day of a purchase
period. Ziff-Davis Inc. has reserved 1,500,000 shares of common stock for
issuance under the Stock Purchase Plan.

On December 21, 1998 the Board approved an amendment to the Stock Purchase
Plan, subject to stockholder approval, to permit grant of options with respect
to any series of common stock of Ziff-Davis Inc. and increase the number of
shares available for sale to participants from 1,500,000 shares to 2,500,000
shares.

14. Employee Benefit Plans

Pension plan

Certain employees of Ziff-Davis Inc. who have met eligibility requirements
were covered by a noncontributory defined benefit pension plan. The benefits
are based on years of service and average compensation at the time of
retirement. Ziff-Davis Inc.'s 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.

During 1997, Ziff-Davis Inc. 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 amounts below reflect the effects of such termination.
All accrued obligations were settled during 1998 and a gain of $156,000 was
recognized in 1998 as a result of the plan settlement.

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%.

III-65
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Net periodic pension cost includes the following components:

<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Service cost.................................... $ 700 $ 391 $ --
Interest cost................................... 472 456 --
Expected return on plan assets.................. (300) (445) --
Amortization of transition obligation........... 199 75 --
-------- ------- ------
Net periodic pension cost....................... $ 1,071 $ 477 $ --
======== ======= ======
</TABLE>

The following table sets forth the funded status and amounts recognized in
the balance sheet:

<TABLE>
<CAPTION>
1997 1998
------------ -----------
(dollars in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation..................... $ 5,721 $ --
------------ ----------
Accumulated benefit obligations............... 5,721 --
============ ==========
Projected benefit obligations................... 5,721 --
Plan assets at fair value....................... (6,004) --
------------ ----------
Projected benefit obligation less than plan
assets......................................... (283) --
Unrecognized net transition asset .............. 1,279 --
------------ ----------
Pension liability included in balance sheet..... $ 996 $ --
============ ==========
</TABLE>

Retirement plans

Ziff-Davis Inc. maintains various defined contribution retirement plans.
Substantially all of Ziff-Davis Inc.'s employees are eligible to participate in
one of the plans under which annual contributions may be made by Ziff-Davis
Inc. 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 Ziff-Davis Inc. up to certain
specified percentages. Employees are generally eligible to participate in a
plan upon joining Ziff-Davis Inc. and receive matching contributions after one
year of employment. Ziff-Davis Inc. made contributions to the plans totaling
$10,470,000, $13,725,000 and $13,004,000 in 1996, 1997 and 1998, respectively.

15. Investments

Ziff-Davis Inc. has investments in the following companies/joint ventures:

<TABLE>
<CAPTION>
Carrying value
at December 31,
Ownership ---------------
Equity investments Percentage 1997 1998
------------------ ---------- ------- -------
(dollars in
thousands)
<S> <C> <C> <C>
MAC Publishing LLC............................. 50% $16,244 $19,268
ExpoComm LLC................................... 50 7,758 8,571
Family PC G.P.................................. 50 9,342 --
Cost Investments
----------------
Red Herring Communications, Inc................ -- $ 5,000
Deja News, Inc. ............................... -- 5,000
</TABLE>

III-66
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except per share amounts)

The entities listed above are engaged primarily in the publication or
distribution of print media and the organization, production and management of
trade shows and providing interactive information and programming to
technology-oriented Internet users. Other investments and joint ventures are
not material to Ziff-Davis Inc.'s financial statements.

Ziff-Davis Inc.'s equity income (loss) was $(796,000), $335,000 and
$7,483,000 in 1996, 1997 and 1998, respectively.

16. Supplemental Cash Flow Information

<TABLE>
<CAPTION>
1996 1997 1998
---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest ................................. $ 99,509 $185,447 $129,976
Income taxes.............................. 360 4 1,000
Noncash investing and financing activities:
Fair value of assets acquired............. $2,508,603 $ 20,749 $ 60,473
Liabilities assumed....................... 370,518 6,749 32,701
---------- -------- --------
Cash paid................................. 2,138,085 14,000 27,772
Less--cash acquired....................... 13,262 -- --
---------- -------- --------
Net cash paid for investments and
acquisitions............................. $2,124,823 $ 14,000 $ 27,772
========== ======== ========
Return of capital dividends............... $ 899,948 $381,434 $ --
========== ======== ========
Capital contributions..................... $ 5,002 $ 61,580 $926,096
========== ======== ========
</TABLE>

17. Operating Lease Commitments

Ziff-Davis Inc. is obligated under various operating leases which expire at
various dates through 2021. Future minimum rental commitments under
noncancelable operating leases are as follows:

<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
1999..................................................... $ 32,740
2000..................................................... 34,094
2001..................................................... 31,882
2002..................................................... 29,957
2003..................................................... 28,655
Thereafter............................................... 232,974
--------
Total.................................................. $390,302
========
</TABLE>

Netted in the above totals is approximately $5,000,000 for which Ziff-Davis
Inc. has noncancelable subleases in place. Total sublease income approximates
Ziff-Davis Inc.'s required payments under the related leases. Rent expense
amounted to approximately $23,015,000, $29,994,000 and $24,695,000 for the
years ended December 31, 1996, 1997 and 1998, respectively.

18. Contingencies

Ziff-Davis Inc. is subject to various claims and legal proceedings arising in
the normal course of business.

Class action and derivative litigations

Following a decline in the price per share of Ziff-Davis Inc.'s common stock
in October, 1998, eight securities class action suits were filed against Ziff-
Davis Inc. and certain of its directors and officers in the United States
District Court for the Southern District of New York.

III-67
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

The complaints allege that defendants violated Sections 11, 12(a) (2) and 15
of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of Ziff-Davis Inc.'s stock on April 29, 1998
(the "IPO"). More particularly, the complaints allege that the registration
statement contained false and misleading statements and failed to disclose
facts that could have indicated an impending decline in Ziff-Davis Inc.'s
revenue. The complaints seek on behalf of a class of purchasers of Ziff-Davis
Inc.'s common stock from the date of the IPO through October 8, 1998
unspecified damages, interest, fees and costs, rescission, and injunctive
relief such as the imposition of a constructive trust upon the proceeds of the
IPO.

On January 28, 1999, the court entered an order consolidating the actions,
appointing lead plaintiff's counsel and requiring the filing of a consolidated
amended complaint within 45 days. Thereafter, Ziff-Davis Inc. will have 45 days
to respond to the consolidated amended complaint.

In addition, two derivative suits have been filed by stockholders against
Ziff-Davis Inc. and all of its directors in the Court of Chancery of the State
of Delaware for New Castle County. The complaints allege that the directors
breached their fiduciary duties to Ziff-Davis Inc. by repricing the stock
options awarded to certain directors and demand the nullification of the
repricing and an injunction against exercise by the directors of any repriced
option. Plaintiffs filed an amended complaint on February 17, 1999 (which is
substantially similar to the original complaints, except that the amended
complaint also addresses the granting of "new options" at an allegedly "reduced
exercise price") and have indicated their intent to seek consolidation of the
actions. A response to the amended complaint has not yet been filed.

Other legal proceedings

Ziff-Davis Inc. was named as a defendant in an action, filed on April 17,
1998 in the Supreme Court of the State of New York, by minority stockholders of
SOFTBANK Interactive Marketing Inc. ("SIM"), formerly an indirect subsidiary of
SOFTBANK Corp. The complaint alleges, among other things, that SBH, SIM's
majority stockholder, acting with Ziff-Davis Inc. and two of its senior
officers and directors who were directors of SIM (and who were also named as
defendants), had conflicts of interest between SIM and other Softbank
investments (including investments in Ziff-Davis Inc.) and failed to act in the
best interests of SIM and the minority stockholders by taking actions which
benefited Ziff-Davis Inc. The complaint states claims based on common law
fraud, breach of fiduciary duty and aiding and abetting theories and seeks in
excess of $200,000,000 in damages. Ziff-Davis Inc. and the other defendants
have moved to dismiss all of the claims against them other than a breach of
contract claim which is solely against SBH, and the motion was granted, with
the result that all of the claims against Ziff-Davis Inc. and its officers were
dismissed, and most of the claims against SBH were dismissed, leaving only a
claim against SBH concerning the alleged failure of SBH to give plaintiffs
adequate notice of the sale of its stock to SIM.

19. Segment Information

Ziff-Davis Inc. has adopted the provisions of SFAS No. 131 Disclosures about
Segments of an Enterprise and Related Information. As such, prior years data
has been restated in accordance with SFAS No. 131.

III-68
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Business segment information

Ziff-Davis Inc.'s reportable segments are based on its method of internal
reporting, which segregates its business by product lines. Management measures
operating performance of the business segments based on "EBITDA". EBITDA is
defined as income before provision for income taxes, interest expense,
depreciation and amortization and restructuring charges. 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 Ziff-Davis Inc.'s operating
performance or to cash flows as a measure of liquidity. Although Ziff-Davis
Inc. believes that EBITDA is a standard measure commonly reported and widely
used by analysts, investors and other interested parties in the publishing
business and media industries, the EBITDA presented for Ziff-Davis Inc. may not
be comparable to similarly titled measures reported by other companies.

Ziff-Davis Inc.'s reportable segments are:

Publishing

The publishing segment is engaged in publishing magazines, journals,
newsletters, online content, 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.

Events

The events segment is engaged in the organization, production and management
of trade shows, conferences and seminars for the computer industry. The events
segment's principal operations are in North America and to a lesser extent in
Europe, Asia and Latin America.

Internet

The Internet segment is engaged in providing technology-related information
to Internet users worldwide. The Internet segment's principal operations are in
the U.S. and to a lesser extent Europe.

III-69
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

The accounting policies of the segments are the same as those described in
Note 3 "Summary of Significant Accounting Policies". Ziff-Davis Inc. evaluates
the performance of its segments and allocates resources to them based on
EBITDA. Any inter-segment revenue included in segment data are not material.
The following presents information about the reported segments for the years
ending December 31:

<TABLE>
<CAPTION>
1996 1997 1998
-------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Revenue:
Publishing............................... $674,040 $ 834,015 $ 782,882
Events................................... 264,884 287,528 269,867
Internet................................. 16,215 32,218 56,143
-------- ---------- ----------
Total.................................. $955,139 $1,153,761 $1,108,892
======== ========== ==========

<CAPTION>
1996 1997 1998
-------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
EBITDA:
Publishing............................... $136,395 $ 183,545 $ 125,320*
Events................................... 108,791 103,749 119,698
Internet................................. (11,928) (14,400) (924)
-------- ---------- ----------
Total.................................. $233,258 $ 272,894 $ 244,094
======== ========== ==========
</TABLE>
- --------
* Before restructuring charge of $52,239,000.

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Total Assets:
Publishing................................ $2,358,144 $2,335,034 $2,192,099
Events.................................... 1,143,522 1,124,286 1,144,018
Internet.................................. 82,507 87,326 97,686
---------- ---------- ----------
Total................................... $3,584,173 $3,546,646 $3,433,803
========== ========== ==========
</TABLE>

A reconciliation of total segment EBITDA to total consolidated loss before
income taxes, for the years ended December 31, 1996, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C>
EBITDA:
Total segment EBITDA.................... $ 233,258 $ 272,894 $ 244,094
Restructuring charge.................... -- -- (52,239)
Depreciation & amortization............. (32,303) (30,379) (29,885)
Amortization of intangible assets....... (107,433) (124,561) (122,659)
Interest expense, net................... (120,646) (190,445) (143,547)
--------- --------- ---------
Consolidated loss before income
taxes................................ $ (27,124) $ (72,491) $(104,236)
========= ========= =========
</TABLE>

Equity in income of investees included in the publishing segment EBITDA for
the years ended December 31, 1996, 1997 and 1998 was $(796,000), $335,000 and
$2,044,000, respectively. Equity in income of investees included in the events
segment EBITDA for the years ended December 31, 1996, 1997 and 1998 was $0,
$1,695,000 and $5,439,000, respectively.

III-70
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Publishing's investment in equity method investees for the years ended
December 31, 1996, 1997 and 1998 was $10,138,000, $25,586,000 and $19,268,000,
respectively. Events' investment in equity method investees for the years ended
December 31, 1996, 1997 and 1998 was $7,698,000, $7,758,000 and $8,571,000
respectively.

During the years ended December 31, 1996, 1997 and 1998, publishing spent
$2,123,651,000, $19,026,000 and $42,324,000, respectively, for additions to
long-lived assets. Events spent $22,527,000 $19,798,000 and $12,565,000 for
additions to long-lived assets during the years ended December 31, 1996, 1997
and 1998, respectively. Internet spent $1,010,000, $5,372,000 and $9,483,000
for additions to long-lived assets during the years ended December 31, 1996,
1997 and 1998, respectively.

The following is sales information by geographic area as of and for the
respective years ended December 31.

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Revenue:
U.S....................................... $ 854,666 $1,040,297 $ 990,096
Foreign................................... 100,473 113,464 118,796
---------- ---------- ----------
Total................................... $ 955,139 $1,153,761 $1,108,892
========== ========== ==========

Foreign revenue is based on the country in which the sales originate. Revenue
from no single foreign country was material to the consolidated revenues of ZD.

The following is long-lived asset information by geographic area as of and
for the years ended December 31, 1996, 1997 and 1998:

<CAPTION>
1996 1997 1998
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Long-lived assets:
U.S....................................... $3,202,981 $3,090,643 $3,034,002
Foreign................................... 9,538 8,555 13,570
---------- ---------- ----------
Total................................... $3,212,519 $3,099,198 $3,047,572
========== ========== ==========
</TABLE>

No single customer accounted for more than 10% of total revenue for each of
the years ended December 31, 1996, 1997 and 1998.

20. Fair Value of Financial Instruments

Ziff-Davis Inc.'s accounting policies with respect to financial instruments
are discussed in Note 3.

The carrying amounts and fair values of Ziff-Davis Inc.'s significant on
balance sheet financial instruments at December 31, 1997 and 1998 are as
follows:

<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
1997 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Values Amount Values
---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents......... $ 30,301 $ 30,301 $ 32,566 $ 32,566
Accounts receivable............... 221,310 221,310 227,325 227,325
Accounts payable.................. 55,468 55,468 74,397 74,397
Long-term debt (including current
portion)......................... 2,534,030 2,534,030 1,547,014 1,543,839
</TABLE>

III-71
<PAGE>

ZIFF-DAVIS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Interest rate swaps

Ziff-Davis Inc. utilizes interest rate swaps to reduce the impact on interest
expense of fluctuating interest rates on its variable rate debt. Under Ziff-
Davis Inc.'s interest rate swap agreements, Ziff-Davis Inc. agreed with the
counterparties to exchange, at quarterly intervals, the difference between
Ziff-Davis Inc.'s fixed pay rate and the counterparties' variable pay rate on
three-month LIBOR. At December 31, 1998, Ziff-Davis Inc. was a fixed payor of
5.85% on an aggregate notional amount of $550,000,000.

The fair values of these interest rate swaps were estimated by obtaining
quotes from brokers which represented the amounts that Ziff-Davis Inc. would
pay if the agreements were terminated at the balance sheet date. While it is
not Ziff-Davis Inc.'s intention to terminate these interest rate swaps, these
fair values indicated that the termination of the interest rate swap agreements
would have resulted in a loss of $15,627,000.

21. Subsequent Events

ZDTV

On February 4, 1999, Ziff-Davis Inc. purchased ZDTV at a purchase price of
approximately $81,400,000. (See Note 12.) Ziff-Davis Inc. paid approximately
$32,800,000 of the purchase price in cash (settled on February 5, 1999) and
paid the remainder by applying approximately $48,600,000 in advances owed to it
by MAC Holdings America. Ziff-Davis Inc. also agreed to be responsible for the
funding of ZDTV during the period in 1999 prior to the purchase which will be
accounted for as additional purchase price. Other than advances to ZDTV which
are reported on Ziff-Davis Inc.'s balance sheet, the results of operations of
ZDTV are not included in Ziff-Davis Inc.'s results for any of the periods
presented. This acquisition will be accounted for in 1999 under the purchase
method of accounting.

Vulcan transactions

On February 5, 1999, Vulcan Programming, an entity owned by Paul G. Allen,
purchased a one-third interest in ZDTV for $54,000,000 in cash. On March 4,
1999, Vulcan Ventures, the investment vehicle of Paul G. Allen, purchased
approximately three million shares of Ziff-Davis Inc. common stock for
$50,000,000 in cash.

Unaudited summary pro forma information

The following unaudited summary pro forma information assumes that the
acquisition of ZDTV and the sale of a one-third interest in ZDTV to Vulcan
Programming had been consummated on January 1, 1998. Adjustments for ZDTV
transactions include the operating results of ZDTV, amortization of the
purchase price of ZDTV, Vulcan Programming's one-third interest in the losses
of ZDTV and the tax effects of these items. The pro forma data is not
necessarily indicative of actual results had the transaction occurred on
January 1, 1998. Further, pro forma results are not meant to represent future
financial results.

<TABLE>
<CAPTION>
Adjustments
Ziff-Davis for acquisition
Inc. of ZDTV Pro forma
---------- --------------- ----------
(dollars in thousands except per
share amounts)
<S> <C> <C> <C>
Revenue........................... $1,108,892 $ 5,585 $1,114,477
Income (loss) from operations..... 31,080 (55,049) (23,969)
Net loss.......................... (77,809) (22,443) (100,252)
Pro forma basic loss per share.... $ (1.00)
</TABLE>

Other

On March 4, 1999, the Board approved an amendment to the Incentive Plan,
subject to stockholder approval, which increased the number of shares available
for issuance under the Incentive Plan to 23,327,500 shares.

III-72
<PAGE>

ANNEX IV

INDEX TO ANNEX IV

<TABLE>
<CAPTION>
Page
-----
<S> <C>
ZD Selected Historical Combined Financial and Other Data................ IV-2
ZD Management's Discussion and Analysis of Financial Condition and
Results of Operations for the three and nine month periods ended
September 30, 1998 and 1999............................................ IV-4
ZD Management's Discussion and Analysis of Financial Condition and
Results of Operations for the years ended December 31, 1996, 1997 and
1998................................................................... IV-13
ZD Description of Business.............................................. IV-25
ZD Unaudited Combined Financial Statements for the three and nine month
periods ended September 30, 1998 and 1999
Unaudited Combined Balance Sheets as of December 31, 1998 and
September 30, 1999 .................................................. IV-36
Unaudited Combined Statements of Operations for the three and nine
month periods ended September 30, 1998 and 1999...................... IV-37
Unaudited Combined Statements of Comprehensive Income (Loss) for the
three and nine month periods ended September 30, 1998 and 1999 ...... IV-38
Unaudited Combined Statements of Cash Flows for the nine month periods
ended September 30, 1998 and 1999.................................... IV-39
Unaudited Combined Statements of Changes in Division Equity for the
nine month period ended September 30, 1999........................... IV-40
Notes to Unaudited Combined Financial Statements...................... IV-41
ZD Combined Financial Statements for the years ended December 31, 1996,
1997 and 1998
Report of Independent Accountants..................................... IV-49
Combined Balance Sheets as of December 31, 1997 and 1998.............. IV-50
Combined Statements of Operations for the years ended December 31,
1996, 1997 and 1998.................................................. IV-51
Combined Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998.................................................. IV-52
Combined Statements of Changes in Division Equity for the years ended
December 31, 1996, 1997 and 1998..................................... IV-53
Notes to Combined Financial Statements................................ IV-54
</TABLE>

IV-1
<PAGE>

SELECTED HISTORICAL COMBINED FINANCIAL AND OTHER DATA

The following table presents selected historical combined data for ZD as of
and for the years ended December 31, 1995, 1996, 1997 and 1998 and as of and
for the nine months ended September 30, 1998 and 1999. This data was derived
from the Combined Financial Statements of ZD. The data as of and for the nine
months ended September 30, 1998 and 1999 are unaudited.

An affiliate of Ziff-Davis Inc. acquired a print publishing business (ZD
Publishing) on February 29, 1996; the data does not include results from the
acquired business for the period before the date of acquisition. However,
because ZD Publishing represents ZD's principal operations, the following table
also presents selected historical combined data for ZD Publishing as of and for
the years ended December 31, 1994 and 1995 and as of and for the two months
ended February 28, 1996. The data as of and for the year ended December 31,
1995 and as of and for the two months ended February 28, 1996 was derived from
the audited Combined Financial Statements of ZD Publishing. The data as of and
for the year ended December 31, 1994 was derived from ZD Publishing's unaudited
combined financial statements.

On May 4, 1998, Ziff-Davis Inc. completed a reorganization described in Note
2 to the unaudited Combined Financial Statements of ZD and on April 6, 1999
Ziff-Davis Inc. completed a public offering of ZDNet stock described in Note 3
to the unaudited Combined Financial Statements of ZD. Results for periods
before the reorganization and public offering are not directly comparable to
results for periods after those events. No historical earnings per share or
share data are presented as Ziff-Davis Inc. does not consider such data
meaningful.

For information concerning the pro forma effect of the reorganization and the
public offering of ZDNet stock, see Notes 2 and 3 referred to in the preceding
paragraph. For information concerning the pro forma effect of those
transactions and the restructuring described in this proxy statement, see
"Unaudited Pro Forma Consolidated Financial Statements of Ziff-Davis Inc."
included earlier in this proxy statement.

IV-2
<PAGE>

This table should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Combined
Financial Statements for ZD included later in this Annex as well as
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements for Ziff-Davis Inc. and ZDNet included
in other Annexes to this proxy statement.

<TABLE>
<CAPTION>
ZD Publishing(1) ZD
------------------------------------- ---------------------------------------------------------------------
Nine month
Two month period ended
Year ended December 31, period ended Year ended December 31, September 30,
----------------------- February 28, --------------------------------------------- ----------------------
1994 1995 1996 1995(2) 1996 1997 1998 1998 1999
----------- ----------- ------------ ---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations
Data:
Revenue, net.... $ 698,030 $ 755,419 $ 122,562 $ 202,729 $ 938,924 $1,121,543 $1,052,749 $ 694,081 $ 685,119
Depreciation and
amortization... 33,045 87,506 14,540 24,305 134,251 147,259 146,096 109,814 120,076
Income (loss)
from
operations..... 85,134 65,283 8,540 62,675 104,594 131,713 38,586 (8,062) (40,764)
Interest
expense, net... 17,887 92,609 14,030 44,005 120,646 190,445 143,547 111,185 90,545
Income (loss)
before income
taxes.......... 82,176 (36,472) (6,539) 22,869 (26,636) (71,648) (104,748) (119,456) (89,089)
Net income
(loss)(3)(4)... 82,176 (26,002) (4,547) 10,945 (52,081) (71,179) (77,809) (86,179) (55,947)
Balance Sheet
Data (at period
end):
Cash and cash
equivalents.... $ 1,064,174 $ 10,083 $ 13,669 $ 27,908 $ 29,915 $ 30,273 $ 32,274 $ 26,728 $ 29,300
Total assets.... 2,747,968 1,625,426 1,622,438 1,090,981 3,584,963 3,548,108 3,429,938 3,405,300 3,432,951
Total long-term
debt........... 1,034,000 964,153 964,153 575,450 2,522,252 2,408,240 1,539,322 1,526,047 1,264,984
Division
equity......... 387,718 365,150 360,717 397,881 447,756 126,130 1,352,598 1,344,048 1,592,637
Other Data:
Capital
expenditures... $ 14,606 $ 12,573 $ 384 $ 3,367 $ 21,355 $ 27,822 $ 32,117 $ 24,218 61,861
Capital
contributions
to ZDNet....... -- 7,106 2,350 -- 13,630 20,664 14,269 13,242 --
Investments and
acquisitions,
net of cash
acquired....... -- -- -- 814,520 2,124,823 11,002 22,772 8,192 46,563
</TABLE>
- --------
(1) A third party acquired ZD Publishing as of January 1, 1995. An affiliate of
Ziff-Davis Inc. acquired ZD Publishing on February 29, 1996. Because ZD
Publishing represents ZD's principal operations, ZD Publishing data has
been presented for periods before these dates.
(2) An affiliate of Ziff-Davis Inc. acquired ZD Publishing on February 29,
1996; ZD data does not include results from the acquired business for
periods before the date of acquisition.
(3) During 1994, ZD Publishing conducted its operations through various
partnerships. Accordingly, there was no income tax provision for 1994.
(4) No historical earnings per share or share data are presented as Ziff-Davis
Inc. does not consider such data meaningful.

IV-3
<PAGE>

ZD
(A Division of Ziff-Davis Inc.)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30,
1998 AND 1999

Overview

ZD is the division of Ziff-Davis Inc. which focuses on the businesses of
print publishing, trade shows and conferences, market research, education and
television, and holds a retained interest in ZDNet, Ziff-Davis Inc.'s Internet
business. The market research division was sold on October 1, 1999.

Historically, ZD's business has been seasonal, earning a significant portion
of its revenue in the second and fourth quarters. In addition, the shift in
timing of a tradeshow or conference may result in material differences in
comparison to prior periods.

ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on March
30, 1999, to authorize the issuance of a new series of common stock, designated
as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), which is intended to
reflect the performance of Ziff-Davis Inc.'s Internet business division, ZDNet.
When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis Inc.'s existing
common stock was reclassified as Ziff-Davis Inc.--ZD Common Stock ("ZD Stock"),
which is intended to reflect the performance of Ziff-Davis Inc.'s other
businesses and a retained interest in ZDNet. The businesses represented by ZD
Stock are referred to as "ZD".

Prior to the ZDNet Stock offering, ZD held a 100% retained interest in ZDNet.
The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc. issued
11.5 million shares of ZDNet stock at $19.00 per share, including 1.5 million
shares issued in conjunction with the underwriters' exercise of their option to
purchase additional shares to cover over-allotments. Ziff-Davis Inc. attributed
to ZDNet 1.5 million of the sold shares in a manner analogous to a primary
offering and attributed to ZD 10 million of the sold shares in respect of its
retained interest in ZDNet, in a manner analogous to a secondary offering. ZD
received net proceeds of approximately $172.7 million and ZDNet received net
proceeds of approximately $25.9 million. The ZDNet net proceeds were loaned to
ZD as an intercompany loan which bears interest at the rate at which funding is
available to Ziff-Davis Inc. After giving effect to the ZDNet Stock offering,
there were 11.5 million shares of ZDNet Stock outstanding and another 60
million notional shares of ZDNet Stock intended to represent ZD's retained
interest in ZDNet, which was approximately 83.9% immediately following the
offering.

IV-4
<PAGE>

Acquisitions and Sale of Common Stock

ZDTV

On February 4, 1999, ZD purchased ZDTV, LLC ("ZDTV") from MAC Holdings
(America) Inc., a related party, for a purchase price of approximately $81.4
million. ZD paid approximately $32.8 million of the purchase price in cash
(settled on February 5, 1999) and paid the remainder by applying approximately
$48.6 million in advances owed to it by MAC Holdings (America) Inc. ZD also
agreed to be responsible for the funding of ZDTV during the period in 1999
prior to the purchase which was accounted for as additional purchase price.
Such funding amounted to approximately $4.2 million.

As a result of the acquisition, ZD recorded an increase in intangible assets
of $76.1 million which will be amortized over 10 years. ZDTV's cash
requirements are currently expected to be approximately $50.0 million for 1999.
The $54.0 million invested in ZDTV by Vulcan Programming Inc. will be used to
fund ZDTV and thereafter cash requirements will be funded by the members or by
third parties.

Sale of Common Stock

On March 4, 1999, Vulcan Ventures Inc., the investment vehicle of Paul G.
Allen, purchased 3,030,303 shares of ZD common stock for $50.0 million in cash.

Presentation of Financial Information

ZD is comprised of certain operations which were acquired at various times
and completed a reorganization in May 1998. See Notes 1 and 2 to ZD's Combined
Financial Statements included in Ziff-Davis Inc.'s Current Report on Form 8-K
(File No. 001-14055).

Results of Operations

Comparison of the three months ended September 30, 1999 and 1998 (unaudited)

Revenue

Revenue for the third quarter of 1999 was $232.0 million compared to $211.5
million for the third quarter of 1998, an increase of $20.5 million or 9.7%.
Revenue by segment is summarized in the following table:

<TABLE>
<CAPTION>
Three months
ended
September 30,
-----------------
1999 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Revenue:
Publishing.............................................. $165,268 $181,727
Events.................................................. 63,085 29,787
Television.............................................. 3,642 --
-------- --------
Total................................................. $231,995 $211,514
======== ========
</TABLE>

IV-5
<PAGE>

Revenue from the television segment was $3.6 million for 1999. The television
segment was acquired on February 4, 1999 when ZD purchased ZDTV from MAC
Holdings (America) Inc. for an aggregate purchase price of $81.4 million. (See
Note 4 in the ZD Unaudited Consolidated Financial Statements).

Cost of production

The cost of production increased by $4.6 million or 7.3% from $62.9 million
in the third quarter of 1998 to $67.5 million in the third quarter of 1999. The
increase was driven by the acquisition of ZDTV and the shift in timing of
certain events partly offset by a decline in publishing production costs
related to a decline in advertising pages and the absence of costs related to
the closure of three magazines in October 1998. Cost of production was 29.1%
and 29.7% of revenue for the third quarter of 1999 and 1998, respectively.

Selling, general and administrative expenses

Selling, general and administrative expenses were $137.3 million for the
third quarter of 1999 compared to $127.3 million in the third quarter of 1998,
an increase of $10.0 million or 7.9%. The increase was primarily related to the
acquisition of ZDTV partly offset by the reduced costs as a result of the
fourth quarter 1998 restructuring. Selling, general and administrative expenses
were 59.2% and 60.2% of revenue for the third quarter of 1999 and 1998,
respectively.

Stock-based compensation

Stock-based compensation is a non-cash charge which is recorded over the
vesting period of certain stock option and restricted stock grants. Stock-based
compensation increased by $0.5 million from $0.1 million in the third quarter
of 1998 to $0.6 million for the third quarter of 1999. The increase was a
result of the issuance of certain options of ZDNet Stock and the conversion of
certain SOFTBANK Corp. stock options to ZD stock options in December 1998, both
of which resulted in compensation.

Depreciation and amortization

Total depreciation and amortization expense was $40.5 million for the third
quarter of 1999 compared to $36.2 million for the third quarter of 1998, an
increase of $4.3 million or 11.9%. The primary reason for the increase was
depreciation and amortization of assets associated with the acquisition of
ZDTV, along with depreciation at ZD's new offices. These increases were
partially offset by the absence of amortization related to intangible assets
written off as part of the October 1998 restructuring.

Interest expense, net

Net interest expense remained flat at $29.0 million for the third quarter of
1999. This reflects the net impact of lower debt levels offset by higher
interest rates and non cash interest charges related to amortization of fees
paid in connection with the December 1998 amendment to the credit facility.

Income (loss) related to retained interest in ZDNet

The retained interest in ZDNet decreased from an income of $0.2 million in
the third quarter of 1998 to a loss of $0.6 million in the third quarter of
1999. The change is due to the performance of the ZDNet business which had an
EBITDA increase of $2.7 million from $1.9 million to $4.6 million that was
offset by higher non-cash charges of stock-based compensation, depreciation,
amortization and taxes. See "ZDNet--Management's Discussion and Analysis of
Financial Condition and Results of Operations". Ziff-Davis Inc. completed an
initial public offering of the ZDNet Stock on April 6, 1999. As a result of the
ZDNet Stock

IV-6
<PAGE>

Offering, ZD's retained interest in ZDNet decreased from 100% to approximately
83.9%. During the quarter, ZDNet acquired Updates.com and SoftSeek, in part by
issuing ZDNet Stock, thus, reducing ZD's retained interest to 81.5%.

Other non-operating income, net

Other non-operating income primarily reflects ZD's equity share of earnings
and losses from joint ventures, fees earned from management of events not
produced by ZD and gains or losses realized on the disposition of businesses.
Income of $15.3 million for the quarter ended September 30, 1999 was $10.9
million more than the income for the same period in 1998 of $4.4 million due
primarily to $13.3 million of one-time gains from the sale of several business
units, principally the sale of ZD's 50% interest in the ExpoComm joint venture,
partially offset by lower joint venture and management fee income. The sale of
these business units is not expected to have a material impact on ZD's future
results of operations or cash flows.

Minority interest in losses of subsidiaries

Losses attributable to minority stockholders of ZD's subsidiaries increased
$5.4 million from a zero balance in 1998. The reason for this increase is the
sale of a one-third interest in ZDTV in February 1999, creating a minority
interest in the losses of ZDTV.

Income taxes

The tax benefit for the third quarter of 1999 was $7.9 million compared to
$35.0 million in the third quarter of 1998. The difference is due to changes in
the projected annual effective tax rate for the respective years. The effective
tax rate for the three months ended September 30, 1999 was 34.8% compared to
88.6% for the 1998 quarter. These rates reflect adjustments to record year-to-
date income tax benefit or expense at a revised rate of 36.1% and negative 1.7%
for the 1999 and 1998 periods, respectively. These rates are based on estimates
for annual earnings and taxes available at the time. The actual annual
effective tax rate for 1998 was 25.7%.

Income taxes are provided based on ZD's projected annual effective tax rate
which differs from the U.S. federal statutory rate of 35.0% due to certain
items which are not deductible for income tax purposes, primarily (i) losses
the MAC Assets prior to their purchase by ZD, (ii) non-deductible goodwill
amortization, and (iii) the effect of state and local taxes. The deferred tax
benefit for the three months ended September 30, 1999 has been reflected as a
reduction of the long-term deferred tax liability.

Net loss

As a result of the factors discussed above, the net loss increased from $4.5
million for the three months ended September 30, 1998 to $14.9 million for the
three months ended September 30, 1999.

EBITDA

EBITDA is defined as income before provision for income taxes, interest
expense, depreciation and other non-cash charges. These non-cash charges
include amortization of intangible assets and stock-based compensation expense.
EBITDA as reported for ZD includes its interests in the EBITDA of ZDTV and
ZDNet. At September 30, 1999, ZD's interest in ZDTV and ZDNet were
approximately 64.0% and 81.5%, respectively.

EBITDA for the third quarter of 1999 was $50.2 million compared to $27.6
million for the third quarter of 1998, an increase of $22.6 million or 81.9%.
Increases due to the shift in timing of events, one-time gains from the sale of
business units and increases at ZDNet were partially offset by the inclusion of
losses from ZDTV and declines in the publishing segment. EBITDA from ZDNet
increased $1.9 million from $1.9 million in the 1998 period to $3.8 million in
the 1999 period.

IV-7
<PAGE>

Comparison of the nine months ended September 30, 1999 and 1998 (unaudited)

Revenue

Revenue for the nine months ended September 30, 1999 was $685.1 million
compared to $694.1 million for the nine months ended September 30, 1998, a
decrease of $9.0 million or 1.3%. Revenue by segment is summarized in the
following table:

<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------
1999 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Revenue:
Publishing.............................................. $518,626 $571,391
Events.................................................. 157,150 122,690
Television.............................................. 9,343 --
-------- --------
Total................................................. $685,119 $694,081
======== ========
</TABLE>

Revenue from the publishing segment decreased by $52.8 million or 9.2% from
$571.4 million for the nine months ended September 30, 1998 to $518.6 million
for the nine months ended September 30, 1999. Excluding the effect of the three
magazines that were closed in October 1998 as part of a restructuring,
publishing segment revenue decreased by $28.7 million or 5.2%. Revenue from
newer business publications and consumer publications increased by 53.8% and
43.8%, respectively, but were more than offset by a decline from the major
business publications, most significantly at Computer Shopper. Margin pressure
on computer equipment manufacturers, industry consolidation, product delays,
and a focus on Year 2000 transition contributed to reduced demand for
advertising in these publications.

Revenue from the events segment increased by $34.5 million or 28.1% from
$122.7 million for the nine months ended September 30, 1998 to $157.2 million
for the nine months ended September 30, 1999. This increase is primarily due to
the shift in timing of two events from the fourth quarter of 1998 to the third
quarter of 1999. This increase was partially offset by declines related to
discontinuation of certain smaller shows.

Revenue from the television segment was $9.3 million for 1999. The television
segment was acquired on February 4, 1999 when ZD purchased ZDTV from MAC
Holdings (America) Inc. for an aggregate purchase price of $81.4 million. (See
Note 4 in the ZD Unaudited Combined Financial Statements).

Cost of production

The cost of production decreased by $8.7 million or 4.2% from $206.7 million
for the nine months ended September 30, 1998 to $198.0 million for the nine
months ended September 30, 1999. The decline was consistent with the decrease
in revenue attributed to the discontinuation of three magazines in October 1998
as well as the decline in advertising pages in the business magazines. These
cost reductions were partially offset by production costs incurred from the
acquisition of ZDTV and the shift in timing of certain events. Cost of
production was 28.9% and 29.8% of revenue for the nine months ended September
30, 1999 and 1998, respectively.

Selling, general and administrative expenses

Selling, general and administrative expenses were $405.9 million for the nine
months ended September 30, 1999 compared to $385.5 million for the nine months
ended September 30, 1998, an increase of $20.4 million or 5.3%. The increase
primarily related to the acquisition of ZDTV, partially offset by savings
realized from the restructuring action taken during the fourth quarter of 1998.
Selling, general and administrative expenses were 59.2% and 55.5% of revenue
for the nine months ended September 30, 1999 and 1998, respectively. The
percentage increase primarily represents the impact of acquiring ZDTV.

IV-8
<PAGE>

Stock-based compensation

Stock-based compensation increased by $1.7 million from $0.2 million for the
nine months ended September 30, 1998 to $1.9 million for the nine months ended
September 30, 1999. The increase was a result of the issuance of certain
options of ZDNet Stock and the conversion of certain SOFTBANK Corp. stock
options to ZD stock options in December 1998, both of which resulted in
compensation.

Depreciation and amortization

Total depreciation and amortization expense was $120.1 million for the nine
months ended September 30, 1999 compared to $109.8 million for the nine months
ended September 30, 1998, an increase of $10.3 or 9.3%. The primary reason for
the increase was depreciation and amortization of assets acquired through the
acquisition of ZDTV along with depreciation at ZD's new offices. These
increases were partially offset by the absence of amortization related to
intangible assets written off as part of the October 1998 restructuring.

Interest expense, net

Net interest expense declined by $20.6 million or 18.6% from $111.2 million
for the nine months ended September 30, 1998 to $90.5 million for the nine
months ended September 30, 1999. This was primarily due to a significant
reduction in ZD's outstanding debt through the reorganization and initial
public offering completed in May 1998 and the ZDNet Stock offering completed in
April 1999, partially offset by higher average interest rates in the 1999
period and non cash interest charges related to amortization of fees paid in
connection with the December 1998 amendment to the credit facility.

Income (loss) related to retained interest in ZDNet

The retained interest in ZDNet decreased from a loss of $8.7 million in the
first nine months of 1998 to a loss of $0.1 million in the first nine months of
1999. The difference is due primarily to a significant improvement in the
performance of the ZDNet business. See "ZDNet--Management's Discussion and
Analysis of Financial Condition and Results of Operations". Ziff-Davis Inc.
completed an initial public offering of the ZDNet Stock on April 6, 1999. As a
result of the ZDNet Stock offering and the acquisitions of GameSpot, SoftSeek
and Updates.com, ZD's retained interest in ZDNet decreased from 100% to
approximately 81.5%.

Other non-operating income, net

Income of $26.8 for the nine months ended September 30, 1999 was $18.3
million more than the income for the same period in 1998 of $8.5, primarily due
to $20.4 million of one-time gains from the sale of several business units,
partially offset by lower joint venture and management fee income. The sale of
these business units is not expected to have a material impact on ZD's future
results of operations and cash flows.

Minority interest in losses of subsidiaries

Losses attributable to minority stockholders of ZD's subsidiaries increased
$15.6 million from a zero balance in 1998. This increase is due to the sale of
a one-third interest in ZDTV in February 1999, creating a minority interest in
the losses of ZDTV.

Income taxes

The tax benefit for the nine months ended September 30, 1999 was $33.1
million compared to $33.3 million for the nine months ended September 30, 1998.
The effective tax rate for the nine months ended September 30, 1999 was 37.2%
compared to 27.9% for the 1998 period. These rates are based on estimates for
annual earnings and taxes available at the time. The actual annual effective
rate for 1998 was 25.4%.

IV-9
<PAGE>

Net loss

As a result of the factors discussed above, the net loss decreased from $86.2
million for the nine months ended September 30, 1998 to $55.9 million for the
nine months ended September 30, 1999.

EBITDA

EBITDA for the nine months ended September 30, 1999 was $129.0 million
compared to $106.2 million for the same period of 1998, an increase of $22.8
million or 21.5%. The increase was due to one-time gains from the sale of
business units, the shifting of events and improvement at ZDNet were partly
offset by the inclusion of ZDTV losses and declines in the publishing business.
EBITDA from ZDNet increased $13.8 million from a loss of $4.2 million in 1998
to $9.6 million in 1999.

Liquidity and Capital Resources

At September 30, 1999, ZD's total outstanding debt was $1,272.7 million,
excluding unamortized discount, and consisted of $72.7 million due to Softbank,
$1,200.0 million in notes.

Cash and cash equivalents were $29.3 million at September 30, 1999 and $32.3
million at December 31, 1998. The change during the nine months ended September
30, 1999 was due to the factors discussed below.

Cash provided by operations was $48.9 million for the nine months ended
September 30, 1999 compared to $87.5 million for the nine months ended
September 30, 1998. This change was primarily due to changes in working
capital.

Cash used by investing activities was $75.3 million for the nine months ended
September 30, 1999 compared to $45.7 million for the nine months ended
September 30, 1998. The increase reflects higher capital spending of $37.6
million primarily due to one time spending on relocation of the New York
operations and higher spending of $27.0 million on acquisitions (ZDTV in 1999),
partially offset by $29.1 million of proceeds received from the sale of several
business units. In addition, ZD paid $9.4 million to the previous owners of
Inter@ctive Enterprises in connection with the contingent purchase price
adjustment. Finally, in 1998 ZD paid $13.2 million to fund the business of
ZDNet, which required no such funding in 1999.

Cash provided by financing activities was $23.4 million for the nine months
ended September 30, 1999 compared to a use of $45.3 million for the nine months
ended September 30, 1998. During the first quarter of 1999, ZD received
proceeds of $54.0 million from Vulcan Programming Inc. for the issuance of a
one-third equity interest in ZDTV and $50.0 million for issuing approximately 3
million shares of ZD Common Stock to Vulcan Ventures Inc. ZD also paid down
approximately $275.1 million of net indebtedness during the first nine months
of 1999. Financing activities in 1998 primarily represent remittance of excess
cash to Softbank to repay intercompany obligations prior to ZD's initial public
offering. Prior to the ZDNet Stock offering, ZD also received a return of
capital of approximately $2.7 million from ZDNet.

Upon completion of the offering of the ZDNet Stock, ZD received net proceeds
of approximately $172.5 million plus an additional $25.9 million advance from
ZDNet on April 6, 1999. These proceeds were used to repay indebtedness under
ZD's revolving credit agreement. The advance from ZDNet represents ZDNet's
proceeds from the ZDNet Stock offering and bears interest at the rate which
funding is available to Ziff-Davis Inc.

ZD believes, based on its current level of operations and anticipated growth,
that ZD's ability to generate cash, together with cash on hand and available
lines of credit will be sufficient to make required payments of principal and
interest on ZD's indebtedness and to fund anticipated capital expenditures and
working capital

IV-10
<PAGE>

requirements. However, actual capital expenditures may change, particularly as
a result of any acquisitions ZD may pursue. The ability of ZD to meet its debt
service obligations and reduce its total debt will depend on its future
performance.

Swap Agreements

Ziff-Davis Inc.'s credit facility exposes it to market risk with respect to
changes in interest rates. Ziff-Davis Inc. manages this risk through the use of
interest rate swap agreements.

These swap agreements are viewed by Ziff-Davis Inc. as risk management tools
and are not used for trading or speculative purposes. The notional amount of
$500 million does not represent a real amount exchanged by the parties and
therefore, is not a measure of Ziff-Davis Inc.'s exposure through its use of
swap agreements. The fair values of these swap agreements were estimated by
obtaining quotes from brokers. These quotes represented the amounts that Ziff-
Davis Inc. would pay if the agreements were terminated at the balance sheet
date. Although it is not Ziff-Davis Inc.'s intention to terminate these swap
agreements, these fair values indicated that the termination of the swap
agreements would have resulted in a gain of approximately $8.1 million. By
their nature, swap agreements involve credit risk, due to the possible
nonperformance by counterparties. To mitigate this risk, Ziff-Davis Inc. enters
into swap agreements with major financial institutions and diversifies the
counterparties used as a means to limit counterparty exposure and concentration
of risk.

Hedge transaction

Restructuring

In October 1998, ZD announced a restructuring program with the intent of
significantly reducing its cost base. As a result, a charge of $52.2 million
was recorded in the fourth quarter of 1998. The charge included assets
impairment costs ($37.9 million), employee termination costs ($8.6 million) and
costs to exit activities ($5.7 million). Approximately $3.7 million remains
accrued on the balance sheet related to the restructuring, primarily related to
the future costs of vacant lease space.

Year 2000 Readiness Disclosure

IV-11
<PAGE>

IV-12
<PAGE>

ZD
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

Revenue

ZD had net revenue of $1.053 billion for 1998. A substantial portion of ZD's
revenue is derived from the sale of advertising, which in 1998 accounted for
49.8% of total revenue. No single advertiser has comprised more than 4.0% of
ZD's advertising revenue during any of the last three years. However, ZD's top
20 advertisers accounted for 37.5% of total advertising revenue for 1998.

In the publishing segment, ZD's principal sources of revenue are advertising
(64.4% of 1998 total publishing revenue), circulation (18.7%) and other (16.9%)
for the year ended December 31, 1998. Circulation comprises both paid
subscriptions (10.9%) and newsstand sales (7.8%) while other includes
educational and training materials (7.4%) and market research studies (7.1%)
with the balance primarily consisting of royalties, reprints and other
miscellaneous sales. In the events segment, revenue is derived from two
principal sources: sale of exhibit space (66.8% of 1998 total segment revenue)
and attendee conference and seminar fees (14.1%). Unlike many trade show
producers, ZD derives a significant portion of its trade show revenue from
other sources (19.1%), including advertising in show-related publications,
billboards, banners, fees from managing customer-sponsored events and other
show-related activities. ZD believes these other sources will continue to be an
important growth area, particularly for its content-focused events.

ZD provides certain editorial content and brands for ZDNet for which ZDNet
pays a royalty to ZD based on ZDNet's revenue. See Note 5 to ZD's Combined
Financial Statements in this Annex.

Cost of operations

In the publishing business, the principal components of ZD's production costs
are raw materials, printing and distribution, which represented 34.5%, 38.0%
and 27.2%, respectively, of total 1998 publishing production expenses. ZD'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. The principal components of production costs within
the events business are the costs of renting and preparing the facilities to
hold the events (46.8% in 1998), direct mail and the related costs for
promotion of the events (37.0% in 1998) and program development and
presentation costs (13.4% in 1998).

The other principal operating costs for ZD are selling, general and
administrative expenses, including editorial costs. Included in these costs are
salaries, sales commissions and benefits (56.6%) along with marketing and
promotion expenses related to advertising and circulation (20.2%).

Ziff-Davis Inc. provides certain selling, general and administrative services
and shared services on a centralized basis and the costs of these central
services are allocated between ZD and ZDNet. See Note 5 to ZD's Combined
Financial Statements in this Annex.

Factors affecting future periods

ZD'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 expenditures by ZD'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, ZD may experience fluctuations in revenue from period to period.
Many of ZD's large customers concentrate their advertising

IV-13
<PAGE>

expenditures around major new product launches. Marketing expenditures by
technology companies can also be affected by factors affecting the computer
industry generally, including pricing pressures and temporary surpluses of
inventory. Revenue and profitability are also influenced by product mix and the
timing and frequency of ZD'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, ZD's revenue from year to
year may be affected by the number and timing of new product launches. If ZD
concludes that a new publication, trade show or service will not achieve
certain milestones with regard to revenue, 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.

On February 4, 1999, ZD purchased ZDTV. This purchase will affect ZD's
results in future periods. See "--ZDTV" below for certain summary pro forma and
other information about this purchase.

ZD expects to recognize compensation expense of approximately $7.9 million as
a result of certain options granted on December 21, 1998 and January 29, 1999.
Such compensation expense will be recognized over the vesting period of the
options. The 1999 compensation expense related to these options is expected to
be approximately $2.2 million. See Note 15 to ZD's Combined Financial
Statements in this Annex.

Presentation of Financial Information

ZD is comprised of certain operations which were acquired at various times
and completed a reorganization in May 1998. See Notes 1 and 2 to ZD's Combined
Financial Statements in this Annex.

In order to create financial statements that separately present ZD's assets,
liabilities, revenue, expenses and cash flow while still reflecting ZD's 100%
Retained Interest in ZDNet's division equity and net losses, ZD has accounted
for its interest in ZDNet in a manner similar to the manner prescribed by APB
No. 18, The Equity Method of Accounting for Investments in Common Stock. Thus,
ZD's historical balance sheets reflect ZD's 100% Retained Interest in ZDNet's
division equity as "Retained interest in ZDNet". Similarly, ZD's historical
statements of operations reflect ZD's 100% Retained Interest in ZDNet's
division losses as "Loss related to Retained Interest in ZDNet".

Since ZD and ZDNet together constitute all of Ziff-Davis Inc. and since ZD's
financial statements have historically reflected 100% of ZDNet's division
equity and losses, ZD's division equity and net income or loss has historically
been equal to Ziff-Davis Inc.'s total stockholders' equity and net income or
loss.

However, ZD's 100% Retained Interest will decline in the future to reflect,
among other things, the ZDNet Stock sold in the offering. When ZD's Retained
Interest declines to a percentage below 100%, ZD's net income or loss will,
going forward, reflect only that reduced percentage of ZDNet's division income
or loss.

The book value associated with ZD's Retained Interest will increase or
decrease to, among other things, reflect ZD's proportionate Retained Interest
in ZDNet's division income or loss and will be adjusted from time to time as
set forth under Note 3 to ZD's Combined Financial Statements in this Annex.

IV-14
<PAGE>

Results of Operations

The table below presents the results of ZD as if the assets and operations
acquired by affiliates of Ziff-Davis Inc. on February 29, 1996 (as described in
Note 1 to the Combined Financial Statements in this Annex) had been acquired on
January 1, 1995. Purchase accounting adjustments relating to that acquisition
have been reflected through pro forma amortization, interest and income tax
adjustments, as described in note (1) to the table. Although the 1996
presentation is not in accordance with generally accepted accounting
principles, management believes it presents the most meaningful basis of
comparison. The financial information presented below may not necessarily
reflect the results of operations which would have occurred had the February
29, 1996 acquisition been completed on January 1, 1995.

<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
Pro Forma Actual
---------- ----------------------
1996(1) 1997 1998
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Revenue, net:
Publishing.............................. $ 796,602 $ 834,015 $ 782,882
Events.................................. 264,884 287,528 269,867
---------- ---------- ----------
1,061,486 1,121,543 1,052,749
---------- ---------- ----------
Cost of production:
Publishing.............................. 212,287 221,367 215,336
Events.................................. 87,373 99,533 82,143
---------- ---------- ----------
299,660 320,900 297,479
Selling, general and administrative
expenses................................. 499,901 521,671 518,349
Depreciation and amortization............. 154,855 147,259 146,096
Restructuring charge...................... -- -- 52,239
---------- ---------- ----------
Income from operations.................... 107,070 131,713 38,586
Interest expense, net..................... (135,500) (190,445) (143,547)
Loss related to Retained Interest in
ZDNet.................................... (17,933) (21,238) (7,884)
Other non-operating income, net........... 6,107 8,322 8,097
---------- ---------- ----------
Loss before income taxes.................. (40,256) (71,648) (104,748)
Provision (benefit) for income taxes...... 26,755 (469) (26,939)
---------- ---------- ----------
Net loss.................................. $ (67,011) $ (71,179) $ (77,809)
========== ========== ==========
Other Data:
Cash and cash equivalents, end of period.. $ 29,915 $ 30,273 $ 32,274
Net cash provided by operating
activities............................... 80,483 11,900 100,299
Net cash used by investing activities..... (65,678) (59,488) (69,158)
Net cash provided (used) by financing
activities............................... (9,212) 47,946 (29,140)
EBITDA(2)................................. 255,430 272,894 244,094
</TABLE>
- --------
(1) The February 29, 1996 acquisition gave rise to different bases of
accounting for the period after the acquisition as compared to 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 above numbers assume that the acquisition took place on
January 1, 1995; therefore, depreciation and amortization, interest expense
and net loss have been increased by approximately $6,064,000, $824,000, and
$10,383,000 for 1996.
(2) "EBITDA" is defined as income before provision for income taxes, interest
expense, depreciation and amortization. ZD's EBITDA is calculated by adding
(a) ZD's EBITDA before losses related to its retained interest in ZDNet and
(b) ZD's proportionate interest (currently 100%) in ZDNet's EBITDA. EBITDA
for the year ended December 31, 1998 does not include a one-time
restructuring charge of $52,239,000. 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 ZD's operating performance or to cash
flows as a measure of liquidity. Although ZD 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, the
EBITDA presented for ZD may not be comparable to similarly titled measures
reported by other companies.

IV-15
<PAGE>

Year ended December 31, 1998 compared with year ended December 31, 1997

Revenue, net

Revenue decreased by $68.8 million or 6.1% from $1,121.5 million in 1997 to
$1,052.7 million in 1998.

Publishing--Revenue from publishing decreased by $51.1 million or 6.1% from
$834.0 million in 1997 to $782.9 million in 1998. This decline was primarily
due to the transfer of certain publications to a joint venture and the closure
of three publications due to the restructuring (as discussed below). The
remainder of the decrease was primarily due to lower advertising in business
publications partly offset by growth in advertising in consumer publications.
Advertising revenue was lower in business publications principally due to
factors affecting the computer technology industry during the year. Margin
pressure on computer equipment manufacturers, industry and product delays,
lower demand in Asia and a focus on the Year 2000 transition are contributing
to a reduced demand for advertising in Ziff-Davis Inc.'s magazines. Revenue
from international operations, which generated 10.2% of the segment's revenue
increased by $2.1 million due to the launch of IT Week in the UK, partially
offset by lower advertising in business publications.

Events--Revenue from events decreased by $17.7 million or 6.1% from $287.5
million in 1997 to $269.9 million in 1998. The decrease was primarily due to a
decline in revenue due to the discontinuation of certain "one-time" shows that
were held in 1997, lower ancillary revenue at COMDEX/Fall and lower square
footage sold at COMDEX/Spring. This decrease was partially offset by increased
revenue from increased square footage sold at Networld+Interop Las Vegas and
Java One due to an increased number of attendees.

Cost of production

Production costs decreased by 7.3% or $23.5 million from $320.9 million in
1997 to $297.4 million in 1998.

Publishing production costs decreased by $6.1 million or 2.7% from $221.4
million in 1997 to $215.3 million in 1998. The decrease was related to a
decline in the number of advertising pages produced.

The cost of producing events decreased by $17.4 million or 17.4% from $99.5
million in 1997 to $82.1 million in 1998. The decrease is a result of lower
operational costs and re-negotiated contracts as well as the discontinuance of
certain "one-time" shows that were held in 1997.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $3.4 million or
0.7% from $521.7 million in 1997 to $518.3 million in 1998. The decrease was
due primarily to the headcount reduction and efficiencies attained through the
integration of operations resulting from the reorganization completed in May
1998, as well as costs eliminated by the closure of three magazines in the
fourth quarter of 1998. This decrease was partially offset by increased costs
relating to the launch of new products and services and increased advertising
expenses.

Depreciation and amortization

Total depreciation and amortization decreased $1.2 million from $147.3
million in 1997 to $146.1 million in 1998. The decrease was a result of certain
assets being fully depreciated in 1997 and early 1998.

IV-16
<PAGE>

Restructuring

Margin pressure on computer equipment manufacturers, industry and product
delays, lower demand in Asia and a focus on the Year 2000 transition are
contributing to a reduced demand for advertising in ZD's magazines (principally
PC Magazine, PC/Computing, Computer Shopper and PC Week). ZD believes these
factors are continuing.

. Asset impairment costs totaled $37.9 million. These costs included the
write-off of intangible assets associated with the discontinued
publications ($34.3 million) and trade shows ($2.9 million) as well as
deferred expenses associated with the discontinued educational journals
($0.7 million).

. Costs to exit activities reflect the costs associated with the final
closure of the discontinued publications ($1.8 million) and the costs to
reduce office space under lease as a result of the reduced level of
employees ($3.8 million).

Interest expense, net

Loss related to retained interest in ZDNet

The loss related to the retained interest in ZDNet decreased by $13.4 million
from $21.2 million in 1997 to $7.9 million in 1998. This decrease is due to
improved performance of that business. See "ZDNet Management's Discussion and
Analysis of Financial Condition and Results of Operations" set forth in an
Annex to this proxy statement.

Other non-operating income, net

Other non-operating income, net primarily reflects ZD's equity share in
earnings and losses from joint ventures and fees earned from management of
events not produced by ZD. This income decreased $0.2 million or 2.4% from $8.3
million in 1997 to $8.1 million in 1998 reflecting reduced fees from managed
events. The decline was partially offset by ZD's equity share in earnings of
MAC Publishing, LLC, an entity that was formed in August 1997.

Income taxes

The 1998 income tax benefit of $26.9 million increased from $0.5 million
reported in 1997. The increase was due primarily to income tax benefits
generated from the losses with respect to the MAC Assets, which were not
deductible until ZD purchased the MAC Assets from an affiliate on May 4, 1998.
The income tax benefit was also increased by a higher net loss for the year
ended December 31, 1998 compared to the net loss for the year ended December
31, 1997.

IV-17
<PAGE>

Net loss

As a result of the changes described above, the net loss for the period
increased $6.6 million or 9.3% from $71.2 million in 1997 to $77.8 million in
1998.

EBITDA

EBITDA for the year ended December 31, 1998 was $244.1 million compared to
$272.9 million for the year ended December 31, 1997. EBITDA for the year ended
December 31, 1998 does not include the $52.2 million restructuring charge.
Results were unfavorable as compared to last year due to a lower level of
earnings from advertising in the higher margin business publications partly
offset by improved results in the events segment and reduced losses from ZD's
retained interest in ZDNet. The improvement at the events segment was
attributed to the absence of losses from the discontinuance of certain "one-
time" shows held in 1997 as well as continued costs savings. Reduced losses
from ZDNet were the result of revenue growth exceeding increases in expenses.
The ratio of EBITDA to revenue was 23.2% for 1998 compared to 24.3% in 1997.

Year ended December 31, 1997 compared with Pro Forma Year ended December 31,
1996

Revenue, net

Net revenue increased by $60.0 million or 5.7% from $1,061.5 million in 1996
to $1,121.5 million in 1997.

Publishing--Net revenue from publishing grew by $37.4 million or 4.7% from
$796.6 million to $834.0 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. Increases in
advertising rates, generally ranging between 3.0% and 10.0%, and a 5.1%
increase in advertising pages contributed $11.5 million. Revenue from
international operations, which generated 9.5% of the segment's revenue,
decreased by $1.5 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.

Cost of production

Production costs increased $21.2 million or 7.1% from $299.7 million to
$320.9 million.

Publishing production costs increased $9.1 million or 4.3% from $212.3
million in 1996 to $221.4 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 events increased $12.2 million or 14.0% from $87.3
million in 1996 to $99.5 million in 1997 primarily as a result of costs related
to new events launched in 1997.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $21.8 million or 4.4%
from $499.9 million to $521.7 million. The increase was due to the addition of
employees to support base business volume growth and launches of new products
and services. Results included a one-time $6.0 million charge for the
consolidation and restructuring of the events business which was announced in
the fourth quarter of 1997. Costs for the publishing segment rose 1.2% while
those for the events segment rose 22.1% due to the number of new launches and
the one-time restructuring charge.

IV-18
<PAGE>

Depreciation and amortization

Total depreciation and amortization decreased $7.6 million to $147.3 million
in 1997. The reduction in depreciation and amortization expense was a result of
certain assets being fully depreciated in 1996.

Interest expense, net

Loss related to retained interest in ZDNet

The loss from ZD's Retained Interest in ZDNet increased to $21.2 million in
1997 from $17.9 in 1996 due to the operating performance of that business. See
"ZDNet Management's Discussion and Analysis of Financial Condition and Results
of Operations" set forth in an Annex to this proxy statement.

Other non-operating income, net

Other non-operating income, net primarily reflects ZD's equity share in
earnings and losses from joint ventures and fees earned from management of
events not produced by ZD. This income increased $2.2 million from $6.1 million
in 1996 to $8.3 million or 36.1% primarily due to a $2.2 million or 36.3%
increase in ZD's share of Mac Publishing, LLC's earnings.

Income Taxes

The 1997 combined income tax benefit of $0.5 million compares to a pro forma
income tax provision of $26.8 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 ($42.0 million in 1997 and $63.0 million in 1996),
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 $2.1 million as a result of pro forma
adjustments related to the ZDI acquisition.

Net loss

As a result of the changes described above, net loss for the period increased
$4.2 million or 6.2% from $67.0 million to $71.2 million.

EBITDA

EBITDA for 1997 was $272.9 million, an increase of $17.5 million or 6.9% 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 24.3% for 1997 compared to the 1996 margin of 24.1%.

Liquidity and Capital Resources

Sources and uses of cash

As a result of the May 4, 1998 reorganization, ZD's intercompany debt owed to
Softbank was reduced to $83.1 million. Such indebtedness bears interest at 9.9%
and matures in February 2010. Concurrently with Ziff-Davis Inc.'s initial
public offering, Ziff-Davis Inc. (on behalf of ZD) issued and sold $250 million
aggregate principal amount of notes. In addition, Ziff-Davis Inc. (on behalf of
ZD) entered into a $1.35 billion credit facility, and borrowed $1.25 billion
under such facility, to provide additional funds for the repayment of
intercompany debt to Softbank and to provide for ZD's working capital
requirements. The balance of intercompany obligations owed to Softbank was
converted to equity. (See Note 2 to the Combined Financial Statements included
in this Annex.)

IV-19
<PAGE>

At December 31, 1998, ZD's outstanding total debt was $1,547.9 million
(excluding unamortized discount) which consisted of $77.9 million due to
Softbank, $250 million in notes and $1,220.0 million under the credit facility.

Cash and cash equivalents were $32.3 million at December 31, 1998, an
increase of $2.0 million from $30.3 million at December 31, 1997. The increase
was due to the factors discussed below:

Cash provided by operations was $100.3 million for the year ended December
31, 1998 compared to $11.9 million for the year ended December 31, 1997. The
increase from 1997 to 1998 was attributed to ZD's lower losses before the
restructuring charge, lower working capital and a decrease in funding to
affiliates and to ZDNet for the 1998 period.

Cash used in investing activities for the year ended December 31, 1998
totaled $69.2 million compared to $59.5 million for the year ended December 31,
1997. The majority of these expenditures were for computer equipment and
leasehold improvements as well as for funding the operation of ZDNet.
Acquisitions and investments in the 1998 period relate to ZD's acquisition of
Sky TV, a tradeshow in Canada, an additional 50% interest in Family PC
magazine, a European marketing database company as well as an investment in Red
Herring. Acquisitions for the 1997 period reflected the purchase of a 70%
interest in GameSpot, Inc.

ZD had a working capital surplus of approximately $22.6 million at December
31, 1998, compared to a working capital deficit of approximately $379.8 million
at December 31, 1997. Ziff-Davis Inc.'s balance sheet has historically had a
working capital deficit due to significant amounts due to affiliates. ZD also
maintains a significant level of deferred revenue generated from publication
subscriptions paid in advance and prepayments from trade show exhibitors. At
December 31, 1998, Ziff-Davis Inc. had deferred revenue of $151.0 million
compared to $154.7 million at December 31, 1997. Deferred revenue does not
represent a cash liability owed by Ziff-Davis Inc., unless Ziff-Davis Inc.
fails to deliver a magazine or cancels a trade show, and generally does not
affect Ziff-Davis Inc.'s ability to fund day-to-day operations. Working capital
increased as a result of the reorganization and the initial public offering of
Ziff-Davis Inc's common stock which resulted in the repayment and conversion to
equity of related party obligations in connection therewith.

On December 11, 1998, Standard & Poors lowered its corporate credit and bank
loan ratings for Ziff-Davis Inc. to BB- from BB and its subordinated debt
rating for Ziff-Davis Inc., to B from B+. This downgrade had no impact on our
current borrowings. Although this downgrade may make future borrowings more
expensive, we do not believe this will have a material impact on our liquidity
or our access to credit markets.

ZD believes, based on its current level of operations and anticipated growth,
that ZD's ability to generate cash, together with cash on hand and available
lines of credit, will be sufficient to make required payments of principal and
interest on ZD's indebtedness and fund anticipated capital expenditures and
working capital requirements. However, actual capital requirements may change,
particularly as a result of any acquisitions ZD may pursue. The ability of ZD
to meet its debt service obligations and reduce its total debt will depend upon
the future performance of ZD.

Funding for ZDNet

In the financial statements of ZD and ZDNet, whenever ZDNet had a cash need
(other than cash needs of ZDNet's foreign operations or cash needs of ZDNet's
operations that are not wholly owned), that cash need was funded by ZD and
accounted for as a capital contribution (i.e., as an increase in ZDNet's
division equity and ZD's Retained Interest in ZDNet). Accordingly, no interest
income from ZDNet has been reflected in the

IV-20
<PAGE>

financial statements of ZD. Each of ZD and ZDNet is sometimes referred to
herein as a "Group". After the date on which ZDNet Stock is first issued, Ziff-
Davis Inc. will account for all cash transfers from one Group to or for the
account of the other Group (other than transfers in return for assets or
services rendered or transfers in respect of ZD's Retained Interest that
correspond to dividends paid on ZDNet Stock) as inter-Group revolving credit
advances (bearing interest at the rate at which Ziff-Davis Inc. could borrow
such funds on a revolving credit basis) (as the Board determines in its sole
discretion) unless the Board determines that a given transfer (or type of
transfer) should be accounted for as a long-term loan, a capital contribution
increasing ZD's Retained Interest in ZDNet or a return of capital reducing ZD's
Retained Interest in ZDNet.

Credit Facility

ZD's credit facility, as amended, consists of a seven-year $400 million
reducing revolving credit facility, a seven-year $450 million term loan and an
eight-year $500 million term loan. There are no scheduled reductions in the
revolving credit commitment or amortization under the term loan until September
2000.

For the reasons described under "--Restructuring" above, Ziff-Davis Inc.'s
debt to EBITDA ratios at December 31, 1998 would have been above the levels
that originally had been required by its credit facility. On December 16, 1998,
the lenders of the $1.35 billion credit facility agreed to amend certain
provisions of that facility. The amended provisions include an increase in the
allowed leverage ratios. In return, ZD agreed to pay a one-time fee of $3.375
million and increase rates on amounts borrowed under the credit facility to
rates currently ranging from LIBOR plus 2.875% to LIBOR plus 3.375% depending
on the type of loan. Had the increased interest rates been in effect for the
period from Ziff-Davis Inc.'s initial public offering on April 28, 1998 to
December 31, 1998, interest expense would have increased by approximately $11.9
million. Based on the $1,220.0 million outstanding on December 31, 1998, the
annualized incremental interest is $18.0 million. This increase in interest
expense would reduce the amount otherwise available for funding ZD or ZDNet
operations.

ZD's credit facility exposes it to market risk with respect to changes in
interest rates. ZD manages this risk through the use of interest rate swap
agreements, as described below. Through the use of these swap agreements, ZD
has effectively established a fixed interest rate for $550 million of the
outstanding credit facility. Based on the $1,220.0 million outstanding under
the credit facility at December 31, 1998, if the LIBOR rate were to increase by
1%, ZD would incur, after giving effect to the swap agreements, an additional
$6.7 million of annual interest expense.

Interest Rate Swaps

On June 10, 1998, ZD entered into interest rate swap agreements, with an
aggregate notional amount of $550 million. Under these swap agreements, which
commenced on August 10, 1998, ZD receives a floating rate of interest based on
three-month LIBOR, which resets quarterly, and ZD pays a fixed rate of interest
each quarter for the terms of the respective agreements. The weighted average
fixed rate ZD pays under these agreements is 5.85%. ZD has entered into these
agreements solely to hedge its interest rate risk. At December 31, 1998, the
three-month LIBOR rate was 5.06%.

These swap agreements are viewed by ZD as risk management tools and are not
used for trading or speculative purposes. The notional amount of $550 million
does not represent a real amount exchanged by the parties, and therefore, is
not a measure of Ziff-Davis Inc.'s exposure through its use of swap agreements.
The fair values of these swap agreements were estimated by obtaining quotes
from brokers which represented the amounts that ZD would pay if the agreements
were terminated at the balance sheet date. While it is not ZD's intention to
terminate these swap agreements, these fair values indicated that the
termination of these swap agreements would have resulted in a loss of
$15,627,000.

IV-21
<PAGE>

ZDTV

In July 1997, Ziff-Davis Inc. entered into a license and services agreement
to develop ZDTV for MHA, a company that is wholly owned by Mr. Masayoshi Son
who is a director of Ziff-Davis Inc. and principal stockholder of SOFTBANK
Corp. Under this agreement, Ziff-Davis Inc. agreed to fund ZDTV's operations
through unsecured advances and was granted an option to purchase ZDTV for a
price equal to MHA's investment plus 10% per annum for the period of
investment. On January 15, 1999, Ziff-Davis Inc. exercised this option and on
February 4, 1999, purchased ZDTV at a purchase price of $81.4 million. Ziff-
Davis Inc. paid approximately $32.8 million of the purchase price in cash
(funded on February 5, 1999), and paid the remainder by applying approximately
$48.6 million in advances owed to it by MHA through December 31, 1998. Ziff-
Davis Inc. also agreed to be responsible for the funding of ZDTV during the
period in 1999 prior to the purchase, which will be accounted for as additional
purchase price. The cash portion of the purchase price was funded by an advance
from ZDTV to Ziff-Davis Inc., pursuant to the ZDTV cash management system, of
the funds invested in ZDTV by Vulcan Programming described below. In connection
with its acquisition of ZDTV, Ziff Davis Inc. assumed MHA's obligations under
an option granted to DirectTV to purchase 5% of ZDTV for $15 million, subject
to adjustment.

<TABLE>
<CAPTION>
Adjustments
for ZDTV
ZD Transactions Pro forma
---------- ------------ ----------
(dollars in thousands)
<S> <C> <C> <C>
Revenue............................... $1,052,749 $ 5,585 $1,058,334
Income (loss) from operations......... 38,586 (55,049) (16,463)
Net loss.............................. (77,809) (22,443) (100,252)
</TABLE>

Vulcan Transactions

Seasonality

Historically, ZD's business has been seasonal as a significant portion of
annual revenue has occurred 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, 1998. In
the opinion of Ziff-Davis Inc.'s management, this unaudited information has
been prepared on a basis consistent with the audited Combined Financial
Statements of ZD appearing elsewhere in this Annex and includes all adjustments

IV-22
<PAGE>

(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
-----------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- ------------- ------------ --------- -------- ------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue, net:
Publishing............. $204,281 $211,333 $191,613 $226,788 $191,246 $198,419 $181,726 $211,491
Events................. 15,321 82,135 24,227 165,845 27,121 65,782 29,787 147,177
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue........... 219,602 293,468 215,840 392,633 218,367 264,201 211,513 358,668
Percentage of total
year.................. 19.6% 26.2% 19.2% 35.0% 20.7% 25.1% 20.1% 34.1%
Cost of production...... 60,842 91,152 61,710 107,196 69,048 74,710 62,898 90,823
Selling, general and
administrative expenses 130,837 132,015 131,633 127,186 131,177 127,114 127,382 132,676
Depreciation and
amortization........... 37,196 37,173 37,804 35,086 35,748 37,859 36,207 36,282
Restructuring charge.... -- -- -- -- -- -- -- 52,239
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations............. (9,273) 33,128 (15,307) 123,165 (17,606) 24,518 (14,974) 46,648
Income (loss) before
taxes.................. (59,901) (17,448) (66,703) 72,404 (68,058) (11,940) (39,458) 14,708
Net income (loss)....... $(59,817) $(17,387) $(66,609) $ 72,634 $ (5,121) $(76,560) $ (4,498) $ 8,370
EBITDA (1).............. $ 25,534 $ 68,216 $ 20,486 $158,658 $ 15,127 $ 63,397 $ 27,487 $138,083
Percentage of total
year.................. 9.4% 25.0% 7.5% 58.1% 6.2% 26.0% 11.3% 56.5%
</TABLE>
- --------
(1) EBITDA is defined as income before provision for income taxes, interest
expense, depreciation and amortization. ZD's EBITDA is calculated by adding
(a) ZD's EBITDA before losses related to its retained interest in ZDNet and
(b) ZD's proportionate interest (currently 100%) in ZDNet's EBITDA. EBITDA
for the quarter ended December 31, 1998 does not include a one-time
restructuring charge of $52,239,000. 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 ZD's operating performance or to cash
flows as a measure of liquidity. Although ZD 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, the
EBITDA presented for ZD may not be comparable to similarly titled measures
reported by other companies.

Inflation and Fluctuations in Paper and Postage Costs

ZD continually assesses the impact of inflation and changes in paper prices.
ZD 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 and then decreased in 1997. During 1998, paper
prices were relatively flat. Management anticipates that paper prices will
remain relatively stable in 1999. ZD will continue to monitor the impact of
inflation and paper prices and will consider these matters in setting its
pricing policies. ZD frequently reviews its purchasing and manufacturing
processes for opportunities to reduce costs and mitigate the impact of paper
price and postage rate increases (such as purchasing lighter-grade paper stock
or, when paper prices are at cyclical lows, increasing paper inventory or
entering into longer term contracts with suppliers). However, ZD has not
entered, and does not currently plan to enter, into long-term forward price or
option contracts for paper. Management estimates postage costs will increase
approximately 3.5% in 1999. See "Risk Factors--Other Ziff-Davis Inc. Risks--
Ziff-Davis Inc. May Be Adversely Affected By Fluctuations In Paper And Postage
Costs" and "--ZD Description of Business--Print Publishing--Paper and
Printing".

Year 2000 Readiness Disclosure

During 1997, Ziff-Davis Inc., including the businesses comprising ZD, began a
review of its computer systems and software to identify systems and software
which might malfunction due to misidentification of the

IV-23
<PAGE>

Year 2000. Ziff-Davis Inc. is using both internal and external resources to
identify, test, correct and reprogram systems and software for Year 2000
readiness.

Ziff-Davis Inc. has incurred remediation costs associated with its Year 2000
readiness efforts. These remediation costs have been incurred in connection
with replacement of systems and hardware, modification of software and
consulting costs related to Year 2000 solution providers. The costs to address
Year 2000 issues which have been included in the general and administrative
expenses of Ziff-Davis Inc. have not been tracked separately and are therefore
not determinable. However, management believes these expenses have been
substitutive rather than incremental to the recurring level of general and
administrative expenses. Total capitalized costs incurred in the replacement of
systems in connection with Ziff-Davis Inc.'s Year 2000 readiness efforts as of
December 31, 1997 and 1998 were $1,692,000 and $3,837,000, respectively. Ziff-
Davis Inc. estimates that it will capitalize an additional $3,815,000 during
1999 related to its Year 2000 readiness efforts.

Ziff-Davis Inc. expects to complete testing and replacement of critical
systems by the beginning of the fourth quarter of 1999. Ziff-Davis Inc.'s
estimate of ZD's most reasonably likely "worst case scenario" would be the
failure of its internal applications and systems that process and store certain
information and data. Ziff-Davis Inc. would resolve the failure of such
applications and systems one by one and management of Ziff-Davis Inc. does not
believe that the impact on its critical systems would be material. However, if
Ziff-Davis Inc. or any subscribers, advertisers, licensors, vendors or other
third parties on whom it relies experiences a Year 2000 compliance problem,
this could have a material adverse effect on ZD's profit and liquidity.

Recently Issued Accounting Pronouncements

ZD expects to adopt this statement beginning with its 2000 financial
statements.

IV-24
<PAGE>

DESCRIPTION OF BUSINESS

Ziff-Davis Inc. is a leading media and marketing company that provides
information on computing and technology, including the Internet. ZD is the
division of Ziff-Davis Inc. focused on the businesses of print publishing,
trade shows and conferences and education (including ZDU, our Internet-based
educational service). ZD provides technology companies worldwide with marketing
strategies for reaching key decision-makers. As described in greater detail
earlier in this proxy statement, we plan to sell substantially all of ZD's
assets other than its retained interest in ZDNet. In furtherance of this plan,
we have already sold our market intelligence business and our equity interest
in ZDTV and entered into agreements to sell ZD Publishing and ZD Education, and
these agreements are described elsewhere in this proxy statement.

ZD's PC Magazine, PC Week and Computer Shopper magazines were 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 1997. In 1998, ZD was the largest technology
publisher in terms of magazine revenue (with at least 50% more magazine revenue
than its closest competitor). In 1997, ZD accounted for 36.8% of all
advertising and circulation dollars spent in computer periodicals. ZD believes
its publications provide readers and advertisers with comprehensive market and
product coverage and quality editorial content.

Through ZD Events, ZD also produces some of the world's most important trade
shows serving vendors, resellers, buyers and users of computer technology and
the Internet. In 1998, ZD produced over 50 trade shows and conferences
worldwide with over two million estimated attendees. In 1998, ZD's COMDEX/Fall
event was 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.

ZD's other media and marketing platforms include education and publication of
computer-related newsletters and training manuals. ZD also has a retained
interest in ZDNet which is currently the equivalent of 60 million shares of
ZDNet Stock.

Industry Background

Technology continues to be one of the largest and fastest growing sectors of
the U.S. economy. The market for technology goods and services is rapidly
expanding due to increased integration of computers into the workplace and
home, shortened product life cycles and increased use of the Internet. The
demand for computer technology to enhance productivity and the increasing
number of applications in the areas of education, entertainment and
communications has dramatically increased the number of computers in use
worldwide (from 150 million in 1993 to over 300 million in 1997). This increase
in computer usage has significantly broadened the consumer and business markets
for computer technology. In addition, rapid technological advances have
shortened product life cycles. In 1998, the estimated marketable product life
of a PC was less than six months as compared to five years in 1981. The
Internet has also become a widely accepted information tool. Forrester Research
Inc. estimates that the number of adult Web users will reach 51 million in the
U.S. by the end of 1998 and will grow to 99 million by the end of 2001.

These factors have led to increased demand among buyers and users of computer
technology product for objective, up-to-date information and analysis. To meet
this demand, sellers of computer technology products need to effectively
advertise to increase sales, educate consumers, improve end-user satisfaction
and build brand loyalty. Computer technology-focused media enables sellers to
communicate their message effectively by targeting a focused customer base. As
a result of a broadening consumer base containing favorable demographics,
computer technology publications and other media are becoming increasingly
attractive as a platform for consumer product advertising.

Computer Technology Print Publications Market

Advertising and circulation revenue for computer-oriented print publications
grew on average 10% a year from 1994 to 1997, totaling $1.7 billion in 1997.
However, in 1998 computer advertising pages decreased 8%

IV-25
<PAGE>

as compared to 1997, according to Adscope and CMR. Ziff-Davis Inc. believes the
decline in the technology advertising market is due mainly to continuing margin
pressure on computer equipment manufacturers, industry and product delays,
lower demand in Asia and a focus on the Year 2000 transition.

Computer Technology Trade Shows

Trade show attendees 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 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 and Cisco Systems, Inc. use 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 an increasingly important marketing strategy for information
technology vendors and can be an effective medium for generating and closing
sales. In 1998 estimated exhibit space revenue from North American computer-
product trade shows was approximately $686 million, exhibit square footage rose
17% from 1997, the number of exhibiting firms increased 26% from 1997 and
attendance at such shows rose 20% from 1997.

Print Publishing

ZD is a leading computer-related magazine publisher, with 26 primary U.S. and
international titles, including its joint ventures, and over 50 licensed
publications, totaling more than 75 publications distributed worldwide. In
1998, ZD's publications had a combined circulation of approximately seven
million primary readers worldwide. Approximately 61.5% of ZD's total revenue
for the year ended December 31, 1998 was attributable to its print publishing
business. ZD's magazines are designed to appeal to a target audience of
sophisticated customers in the business and consumer markets by providing high-
quality editorial content. ZD produces monthly magazines that provide
comparative, laboratory-based product reviews and news weeklies that provide
product and industry news and analysis. ZD also serves the developing market
for lifestyle and entertainment publications that focus on technology. ZD's
publications also include magazines related to the electronic gaming industry
that ZD acquired from Sendai Publishing Group, Inc. in May 1996.

ZD believes its leading position in the computer publishing market is based
upon:

. Leading Brands in Key Categories. In 1997, ZD's PC Magazine, PC Week and
Computer Shopper magazines were the top three computer magazines in the
U.S. and among the top 25 U.S. magazines, each as measured by total
revenue.

. Strength in Advertising, Circulation and Newsstand Sales. In 1997, ZD
accounted for 36.8% of all advertising and circulation dollars spent in
computer periodicals. In 1998, ZD's U.S. publications had a total
circulation of approximately six million primary readers, and ZD had a
worldwide circulation of approximately seven million primary readers. In
1998, PC Magazine's circulation was greater than that of Business Week,
Fortune or Forbes. With respect to newsstand sales, ZD's publications
accounted for 50.1% of all computer magazines sold in the first six
months of 1998.

. High Quality Editorial Content. ZD's top editors and columnists are
supported by laboratory-testing facilities, producing widely acknowledged
authoritative benchmarks for determining product quality. ZD's
comprehensive content attracts focused audiences, thereby attracting
leading advertisers and exhibitors to its products and services.

. Successful Development of New Publications for Emerging Sectors. ZD has
successfully introduced or acquired publications targeted at the consumer
market (FamilyPC and Computer Gaming World), technology lifestyle (Yahoo!
Internet Life), Internet professionals (Inter@ctive Week) and resellers
(Sm@rt Reseller).

IV-26
<PAGE>

The following table sets forth information relating to ZD's primary
publications for 1998.

<TABLE>
<CAPTION>
1998
Circulation Publication 1998
First ----------------- Frequency Advertising
Publication Issue Type(1) Amount(2) (Per Year) Pages(3)
----------- ----- ------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
U.S. Business
PC Magazine................... 1981 P 1,182,181 22x 5,381
PC/Computing.................. 1988 P 1,044,252 12x 2,557
Computer Shopper.............. 1979 P 560,267 12x 6,525
PC Week....................... 1983 C 400,144 51x 5,447
Inter@ctive Week.............. 1994 C 150,150 45x 2,173
Macworld(4)................... 1985 P 532,702 12x 1,296
Sm@rt Reseller................ 1998 C 65,520 22x 890
U.S. Consumer
Electronic Gaming Monthly..... 1988 P 398,219 12x 1,428
Yahoo! Internet Life.......... 1995 P 453,433 12x 722
Computer Gaming World......... 1981 P 286,978 12x 2,416
Expert Gamer(5)............... 1988 P 191,083 12x 688
Official U.S. PlayStation
Magazine..................... 1995 P 179,472 12x 864
FamilyPC(6)................... 1994 P 401,163 12x 1,161
International
PC Professionell (Germany).... 1991 P 209,257 12x 1,570
PC Direkt (Germany)........... 1992 P 170,067 12x 2,285
Internet Professionell
(Germany).................... 1997 P 35,171 12x 176
PC Magazine (UK).............. 1992 P 135,002 12x 3,472
PC Direct (UK)................ 1992 P 121,032 12x 6,606
PC Gaming World (UK).......... 1997 P 40,385 12x 405
IT Week (UK).................. 1998 C 55,000 45x 635
PC Expert (France)............ 1992 P 102,000 12x 1,587
PC Direct (France)............ 1992 P 82,640 12x 2,922
PC Week (China)(7)............ 1996 C 70,000 51x 3,264
PC/Computing (China)(7)....... 1994 P 70,000 12x 215
PC Magazine (China)(7)........ 1994 P 103,000 12x 988
Sm@rt Reseller (China)(7)..... 1998 C 50,000 26x 178
</TABLE>
- --------
(1) P = Paid, C = Controlled.
(2) Based on circulation information provided by ZD to the Audit Bureau of
Circulations for paid publications and BPA International for controlled
publications for the six months ended December 31, 1998 for domestic
publications and based on ZD data for international publications.
(3) As reported by AdScope, Inc., Eugene, OR for the year ended December 31,
1998 for domestic publications and based on ZD data for international
publications.
(4) Joint venture with International Data Group, Inc.
(5) Formerly EGM/2/.
(6) Operated as a joint venture with an affiliate of The Walt Disney Company
through April 30, 1998; 100% owned by ZD thereafter.
(7) Joint venture with Richina Media Holdings and other local agencies in
China.

IV-27
<PAGE>

Editorial, Laboratory Testing and Benchmark Software

ZD seeks to develop and maintain a high level of technical expertise to
provide quality technology content. ZD's editorial personnel includes award-
winning editors and experts. ZD believes its publications are widely regarded
as a reliable source of objective product evaluations and industry news because
of the quality and reputation of its laboratory tests. To maintain impartiality
and objectivity in its product reviews, ZD has policies governing separation of
editorial functions from advertising sales functions and restricts trading in
securities of technology-related companies by its journalists.

ZD is committed to laboratory-based product testing as an integral part of
its editorial mission. For the year ended December 31, 1998, ZD spent over $11
million in laboratory testing. The ZD Labs staff works with testers from many
of ZD's different publications to provide comprehensive, objective test results
to assist buying decisions. In addition to the core ZD Labs staff, the PC
Magazine, PC Week, Computer Shopper and PC/Computing publications maintain
their own staff and/or testing space. The ZD Labs testing facility tests
thousands of products and systems each year and conducts large-scale tests to
simulate corporate installations. ZD believes ZD Labs gives it a competitive
advantage in terms of staffing, equipment and access to the technology
necessary to effectively evaluate products.

ZD Labs produces the core, publicly available and widely distributed
benchmark software that its publications use to measure the performance of PCs,
Macintosh systems and servers. ZD's benchmarks have become industry standards
among major buyers of computer and Internet-related technology.

Sources of Print Publishing Revenue

ZD's publications are generally either paid-circulation magazines--which
generate revenue from newsstand sales, subscriptions and advertising--or
controlled-circulation publications--which are distributed free of charge to
qualified information technology professionals, generate revenue principally
from advertising sales and provide valuable demographic information to ZD.

Advertising Sales. ZD seeks to assist its advertisers in maximizing the
return on their marketing investment. Advertising sales accounted for 77.6% of
ZD's total print publishing revenue for the year ended December 31, 1998. The
ZD sales force uses market research tools, such as ZD's BrandTrak and ZDNet's
ZDNetTrack services, to inform clients about overall industry trends. BrandTrak
is a survey that is conducted every six months of subscribers to five ZD
publications and three European publications in order to track purchasing
behavior by brand. ZDNetTrak is a quarterly marketing survey of Web users in
the U.S. that tracks ZDNet Web users and their online activities, including
their purchasing behavior. ZD's sales staff provides customer service,
research, promotional support and value-added programs for advertisers.

Circulation. ZD maintains centralized circulation operations, enabling it to
capitalize on its successful practices on a timely basis across all
publications. ZD strives to increase its readership by building relationships
with distributors, retailers and subscribers. Revenue from circulation of ZD's
paid-circulation magazines accounted for 19.6% of ZD's total print publishing
revenue in 1998. This was comprised of subscription sales (10.2% in 1998) and
newsstand sales (9.4% in 1998). In 1998, ZD's publications had a total
circulation of approximately seven million primary readers worldwide.

ZD's newsstand strategy focuses on developing strong relationships with key
distributors and large retail accounts. For example, ZD is the principal
supplier of computer technology publications to Warner Publisher Services, a
division of Time Warner Inc. In addition, ZD has preferred distribution
arrangements with large retailers including WalMart, Staples and Barnes &
Noble. These arrangements, which are terminable at will without notice, include
prominent magazine displays to strengthen ZD's brand identity.

ZD's subscription strategy is to maintain a highly focused readership and
increase subscriber loyalty and renewal rates. This strategy provides ZD's
advertisers with access to a precisely focused target audience.

IV-28
<PAGE>

Licensing and Joint Ventures. In its international publications, ZD seeks to
maximize global reach, maintain content quality and reduce the cost of entering
new markets. Through subsidiaries, ZD currently has publishing operations in
France, the United Kingdom and Germany. ZD also has over 50 licensed
publications worldwide. ZD's licenses are generally three to five year
agreements that provide for a minimum annual royalty against a percentage of
revenue. ZD also operates with a number of joint venture partners, including
IDG in the U.S., local agencies in China and APN Computing Group in Australia.

U.S. Publications

Business Magazines. In the U.S. market, ZD publishes seven computer
publications directed to business buyers, including four paid-circulation
magazines and three controlled-circulation weeklies or bi-weeklies. Each
publication produces authoritative, independent guidance that ZD believes is
generally considered to be the primary product resource in its market segment.
Macworld is published by Mac Publishing L.L.C., a ZD joint venture with 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 37.8% of all computer
advertising revenue in directly competitive U.S. publications in 1998. PC
Magazine also produces two newsstand-only specials: Your New PC (buying advice
for less sophisticated computer buyers) and InternetUser (reviews of Internet
products).

PC/Computing offers reviews of computer products, focusing 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.

Computer Shopper provides buying advice, product evaluations and technology
coverage, including availability, pricing, specifications and configurations of
thousands of computer products. Computer Shopper has a newsstand circulation of
approximately 230,000 (the largest newsstand sales of any computer
publication).

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. In 1998, PC Week has a
controlled circulation of over 400,000.

Inter@ctive Week provides Internet and telecommunications professionals with
information on products, events, services, strategies, alliances and key
players. With a controlled circulation of over 150,000 in 1998, 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 publication, provides value-added resellers,
system integrators, distributors, Web developers and Internet service providers
with in-depth news and analysis on business and technology. In 1998, Sm@rt
Reseller had a controlled circulation of over 65,000.

Macworld provides Macintosh buyers with comparative, laboratory-based product
evaluations, reviews and information about Macintosh products, supported by a
product testing facility which ZD believes is the most advanced in the
Macintosh industry. In 1998, Macworld had a qualified circulation of over
500,000.

Consumer Magazines. ZD publishes six magazines that serve the rapidly growing
consumer market in order to meet the varying needs of computer enthusiasts, net
surfers, family buyers and gamers.

Electronic Gaming Monthly targets video game enthusiasts and offers news,
information and product reviews about the latest games on ten different game
systems. In 1998, this monthly publication had a paid

IV-29
<PAGE>

circulation of more than 390,000. Expert Gamer (formerly known as EGM/2/), a
companion publication to Electronic Gaming Monthly which had a paid circulation
of more than 190,000 in 1998, offers in-depth strategies, exclusive tips and
tricks and comprehensive maps and walk-throughs of the latest games.

Yahoo! Internet Life is a leading Internet consumer magazine. In 1998, Yahoo!
Internet Life had a paid circulation of more than 450,000 readers. It is
designed to be an entertaining and authoritative guide to the Internet,
targeting an influential, affluent and early-adopting group of readers. ZD 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. In 1998, Computer Gaming World served more than
280,000 game enthusiasts and is 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 game consoles by providing up-to-date news, interviews
and insights. In 1998, this publication had a paid circulation of over 175,000
PlayStation game fans.

FamilyPC is specifically targeted to households with children and had a paid
circulation of over 400,000 in 1998. Written by parents for parents in easy to
understand language, its purpose is to assist families in selecting computers
and software and thereafter ensure that they get a rewarding, productive and
educational experience from them.

International Publications

ZD publishes in the United Kingdom PC Magazine, PC Direct, PC Gaming World
and 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, PC Magazine and Sm@rt Reseller through a venture with 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 ZD's U.S. publication, Computer Shopper. IT Week includes
material from Inter@ctive Week and ZDNet News in addition to local content.

Paper and Printing

ZD maintains strong relationships with its paper suppliers and printing
companies. ZD's main paper suppliers for its U.S. publications are Bowater,
Blandin, Champion, Consolidated and Fraser, which provided 8%, 13%, 38%, 15%
and 12%, respectively, of ZD's paper supply in 1998 as measured by tonnage. Its
paper supply contracts are generally 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. ZD has relationships with a number of
printing companies, including R.R. Donnelley, Brown, Quadgraphics and Quebecor.
In 1998, approximately 46% of ZD'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.

Trade Shows and Conferences

ZD is a leading producer of trade shows, conferences and customized marketing
and educational programs for the computer industry in the U.S. Approximately
25.6% of ZD's total revenue in 1998 was attributable to its trade show and
conference business. ZD produces the industry-wide COMDEX events, which ZD's
predecessor acquired in April 1995, other segment-focused trade shows and
conferences and customized events for specific clients. ZD produced over 50
trade shows and conferences in 1998.

IV-30
<PAGE>

The COMDEX/Fall event, held in the fourth quarter of each year, has been held
for 19 years and was ranked in 1998 as the number one trade show for all
industries in the U.S. as measured by total revenue, total exhibit space and
number of attendees. In 1998, ZD estimates that over two million people
attended its trade shows and conferences worldwide. In addition to COMDEX/Fall,
held annually in Las Vegas, ZD produced 18 other COMDEX events in 13 countries
that year.

In 1998, ZD produced 11 segment-focused "NetWorld+Interop" and "Seybold
Seminars" trade shows in 9 countries. The NetWorld+Interop trade shows focus on
the networking/interconnectivity segment of the computer industry and the
Seybold Seminars focus on technologies for publishing and graphic
communications. ZD also produced the following segment-focused trade shows in
1998:

. WINDOWS WORLD, in conjunction with Microsoft Corporation,

. EXPO COMM, servicing the worldwide telecommunications industry,

. CommUnity, for the emerging corporate integrated data, voice and video
segments,

. COMDEX/Enterprise, focusing on solutions for the large corporate
information technology infrastructures,

. Java SM Business Expo SM, sponsored by Sun Microsystems, Inc. and
focusing on the full range of Java(TM) technology for information
technology professionals and

. Support Services Conference & Expo, focusing on technology for help desk
and information technology support services.

ZD also produces customized conferences that are designed to meet the marketing
needs of specific clients. For example, ZD produced the JavaOne series of
conferences for Sun Microsystems, Inc., which were designed to introduce Java
technology software to the developer community.

Attendees at ZD's trade shows and conferences cover a wide range of
participants from the computer industry, including manufacturers, distributors,
dealers, retailers, as well as value-added and other resellers and large
corporate end-users. Each event includes an extensive conference program,
providing a forum to exchange 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. ZD estimates that in 1998 over 8,000
companies participated as exhibitors in its trade shows and conferences.

IV-31
<PAGE>

The following table sets forth information relating to ZD's principal trade
shows and conferences, including joint ventures, for 1998. Substantially all of
ZD's international COMDEX events are joint ventures and substantially all
NetWorld+Interop events are owned by ZD.

<TABLE>
<CAPTION>
1998 Actual
-------------------------------------
Total Net Estimated
Launch Square Total Total
Year Footage Exhibitors Attendees
------ --------- ---------- ---------
<S> <C> <C> <C> <C>
EVENT
North America
COMDEX/Fall............................. 1979 1,229,062 1,556 202,000
COMDEX/Spring, WINDOWS WORLD & EXPO COMM
USA.................................... 1981 180,259 563 85,750
COMDEX/Canada incl. WINDOWS WORLD and
Connected Computing.................... 1992 140,648 334 57,110
COMDEX/PacRim........................... 1995 65,762 211 30,500
COMDEX/Quebec........................... 1996 34,770 129 17,825
COMDEX/Miami & EXPO COMM Miami.......... 1996 65,600 261 20,000
NetWorld+Interop & CommUnity Las Vegas.. 1986 475,484 705 55,000
NetWorld+Interop & CommUnity Atlanta.... 1992 383,048 576 44,000
Seybold San Francisco Publishing........ 1986 153,324 356 38,570
Seybold Seminars New York............... 1982 122,920 293 23,970
International
COMDEX/SUCESU-SP Brazil................. 1992 306,134 393 130,000
COMDEX & WINDOWS WORLD Mexico(1)........ 1993 68,874 199 39,000
COMDEX/INFOCOM & WINDOWS WORLD
Argentina.............................. 1997 89,252 250 32,000
COMDEX IT France........................ 1997 118,116 560 60,000
COMDEX/Japan & Object World Tokyo(2).... 1996 96,706 139 80,970
COMDEX/China............................ 1996 164,689 175 91,265
COMDEX/Korea............................ 1997 40,689 127 81,685
COMDEX/Asia at Singapore Informatics.... 1995 32,830 205 19,075
COMDEX/IT INDIA......................... 1996 43,057 125 70,000
NetWorld+Interop Paris.................. 1992 194,015 400 48,770
NetWorld+Interop Tokyo(2)............... 1993 169,800 258 99,320
Seybold Seminars Tokyo(2)............... 1996 3,400 23 24,135
Windows NT Intranet Solutions Japan(2).. 1994 36,500 59 38,020
</TABLE>
- --------
(1)These international COMDEX events are wholly owned by ZD.
(2)Trade shows in Japan are owned by Softbank and managed by ZD.

Sources of Trade Show and Conference Revenue

Exhibitor space fees accounted for 66.8% of ZD's total trade show and
conference revenue for 1998. ZD believes most trade show producers receive
virtually all of their revenue from the sale of exhibitor space fees. ZD has
actively sought to increase its revenue from other sources, including attendee
fees, which accounted for 33.2% of all trade show and conference revenue in
1998.

All exhibitors pay the same price per square foot of booth space, regardless
of the exhibit hall selected or the location or size of the booth. Typically, a
majority of exhibitors at each trade show commit to booth space for the next
year's show. ZD encourages this commitment through a prioritized booth
selection procedure based upon seniority. 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.

IV-32
<PAGE>

Attendee fees accounted for 14.1% of ZD's trade show and conference revenue
for 1998, primarily from NetWorld+Interop and Seybold Seminars events. Most
COMDEX attendees are invited guests of exhibitors who receive complimentary
admission tickets from ZD for their customers and key prospects. This helps
exhibitors ensure that their best customers and prospects will attend.

Advertising revenue from ZD's trade shows and conferences is derived
principally from five products:

. a daily newspaper distributed during the show,

. the Program Exhibits Guide,

. the Preview, a newspaper distributed to pre-registrants and certain prior
year attendees before the show,

. advertising billboards and banners and

. exhibitor logo products that are sold to exhibitors to increase booth
traffic and name recognition.

ZD also maintains a continuously updated database containing the names and
certain demographic information on its 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
from their development and introduction to commercial maturity. Many of the
most significant computer product launches over the past 19 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 1998, COMDEX/Fall had approximately 1,500 exhibiting companies occupying 1.2
million net square feet of exhibit space and 200,000 attendees. COMDEX/Spring,
which was launched in 1981, is a smaller version of the fall event. In 1998, it
was held in Chicago and had approximately 560 exhibiting companies and over
85,000 attendees. For the last eight years, ZD, in cooperation with Microsoft
Corporation, has produced a WINDOWS WORLD trade show concurrently with
COMDEX/Spring.

In 1993, ZD began launching additional COMDEX events in order to capitalize
on the international recognition of the COMDEX brand name. In 1998, other
COMDEX events were held 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

NetWorld+Interop is the largest of ZD's segment-focused trade shows and is
the leading show for professionals in the rapidly growing field of computer
networking. NetWorld+Interop places strong emphasis on the quality of its
conference programs and has become a leading educational forum for the Internet
and enterprise computing communities. The largest NetWorld+Interop event is
held annually in May in Las Vegas. Each NetWorld+Interop trade show features
InteropNet, a live, multi-platform network that interconnects exhibitors to one
another and to the Internet. In 1998, the NetWorld+Interop Las Vegas event had
approximately 700 exhibiting companies occupying 475,000 net square feet of
exhibit space and 55,000 attendees. The NetWorld + Interop Atlanta event, held
in October each year, is only slightly smaller in all categories. In 1998,
NetWorld + Interop events were held in Las Vegas, Atlanta, Singapore, Tokyo,
London, Sao Paulo, Paris and Sydney.

Seybold Seminars

ZD's Seybold Seminars are also segment-focused trade shows, providing
information and education for traditional and new media publishing industries.
These shows focus on the latest technologies and products,

IV-33
<PAGE>

design tools and desktop applications. The largest of the Seybold Seminars
series is held annually each Fall in San Francisco. In 1998, this Seybold
Seminars show had approximately 350 exhibiting companies occupying 150,000 net
square feet of exhibit space and 38,000 attendees. Other Seybold Seminars
events are held in New York and Tokyo.

Education

ZD publishes 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. ZD believes its education offerings extend ZD's reach and
brand reputation while permitting it to attract and retain customers.

ZD produces software-specific newsletters and technology information, with
approximately 30 titles. 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.

ZDU is an Internet-based technology educational service through which ZD
provides interactive instructor-led training to subscribers.

Competition

ZD competes with a wide range of companies for each of its products and
services. The magazine publishing business is highly competitive. ZD faces
broad competition from other technology publishers and from other media
companies such as business, news and general interest magazines. Computer and
technology publishers that directly compete with ZD in the U.S. include IDG,
CMP and Imagine Media. ZD also competes with various computer and technology
publishers in the international markets where it conducts business. A
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.

ZD also faces competition in its trade show and conference business,
primarily from several significant trade show management companies. These
include Miller Freeman, Mecklermedia and IDG. Competitive factors in this
business include quality of conference content, organizational efficiency and
quality and number of exhibitors and attendees.

ZD's education division competes with a variety of education providers,
including vendor-supplied training materials, traditional classroom-based
computer training and web-based training providers.

Trademarks

ZD has developed strong brand awareness for its principal publications, trade
shows and other products and services. Accordingly, ZD 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. ZD generally registers its material trademarks in
the U.S. 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 where ZD's publications and services are available.

ZD 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. ZD 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 its business, financial condition or
results of operations.

IV-34
<PAGE>

Employees

As of December 31, 1998, ZD had a total of 2,889 employees. Of these
employees, 621 were engaged in U.S. magazine publishing activities, 397 in
international publishing activities, 505 in trade shows and conferences, 407 in
education activities, 436 in market research and 523 in central services. None
of ZD's U.S. employees is represented by a labor union. ZD considers its
relationships with its employees to be satisfactory.

Facilities

ZD's world headquarters are located in New York and ZD has over 50 editorial,
production and sales offices and computer labs in many other cities in the U.S.
and around the world. ZD's other principal offices are located in the Boston
and San Francisco metropolitan areas. ZD and Ziff-Davis Inc. do not own real
property that is material to its business and Ziff-Davis Inc. leases all but
one of its offices from third parties. ZD believes that its properties, taken
as a whole, are in good operating condition and are suitable and adequate for
its current operations, and that suitable additional or alternative space,
including space available under lease options, will be available at
commercially reasonable terms for future expansion.

Legal Proceedings

For information concerning certain legal proceedings to which Ziff-Davis Inc.
is a party, see "ZDNet Description of Business" set forth in an Annex to this
proxy statement.

IV-35
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED BALANCE SHEETS
(dollars in thousands)

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 29,300 $ 32,274
Accounts receivable, net........................... 197,555 208,593
Inventories........................................ 12,946 15,551
Prepaid expenses and other current assets.......... 36,954 34,278
Due from affiliates................................ 4,722 53,984
Deferred taxes..................................... 22,262 21,483
---------- ----------
Total current assets............................. 303,739 366,163
Property and equipment, net.......................... 110,517 85,571
Retained interest in ZDNet........................... 149,053 89,547
Intangible assets, net............................... 2,823,236 2,844,317
Other assets......................................... 46,406 44,340
---------- ----------
Total assets..................................... $3,432,951 $3,429,938
========== ==========

LIABILITIES AND DIVISION EQUITY
Current liabilities::
Accounts payable................................... $ 32,411 $ 73,310
Accrued expenses................................... 130,623 93,824
Unearned income, net............................... 187,090 151,003
Due to ZDNet....................................... 16,729 --
Due to affiliates and management................... -- 4,618
Current portion of notes payable to affiliates..... 6,923 7,692
Other current liabilities.......................... 17,054 13,125
---------- ----------
Total current liabilities........................ 390,830 343,572
Notes payable to affiliates.......................... 65,769 70,192
Notes payable, net of unamortized discount........... 1,199,215 1,469,130
Deferred taxes....................................... 137,767 169,356
Due to management.................................... 665 5,400
Other liabilities.................................... 14,813 19,690
---------- ----------
Total liabilities................................ 1,809,059 2,077,340
---------- ----------
Commitments and contingencies (see Note 7)
Minority interest.................................... 31,255 --
Division equity...................................... 1,592,637 1,352,598
---------- ----------
Total liabilities and division equity............ $3,432,951 $3,429,938
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

IV-36
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF OPERATIONS
(Unaudited--dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue, net:
Publishing............ $ 165,268 $ 181,727 $ 518,626 $ 571,391
Events................ 63,085 29,787 157,150 122,690
Television............ 3,642 -- 9,343 --
------------ ------------ ------------ ------------
231,995 211,514 685,119 694,081
Cost of production...... 67,494 62,898 197,986 206,656
Selling, general and
administrative
expenses............... 137,325 127,319 405,913 385,484
Stock-based
compensation........... 635 63 1,908 189
Depreciation and
amortization of
property and
equipment.............. 7,724 7,253 23,527 21,235
Amortization of
intangible assets...... 32,784 28,953 96,549 88,579
------------ ------------ ------------ ------------
Loss from operations.... (13,967) (14,972) (40,764) (8,062)
Interest expense, net... (29,025) (29,093) (90,545) (111,185)
Income (loss) related to
retained interest in
ZDNet.................. (604) 212 (111) (8,691)
Other non-operating
income, net............ 15,271 4,396 26,762 8,482
Minority interest in
losses of
subsidiaries........... 5,491 -- 15,569 --
------------ ------------ ------------ ------------
Loss before income
taxes.................. (22,834) (39,457) (89,089) (119,456)
Income tax benefit...... (7,940) (34,959) (33,142) (33,277)
------------ ------------ ------------ ------------
Net loss................ $ (14,894) $ (4,498) $ (55,947) $ (86,179)
============ ============ ============ ============
Pro forma net loss per
basic common share..... $ (.14) $ (.04) $ (.55) $ (.86)
Pro forma weighted
average basic common
shares outstanding..... 103,287,483 100,000,000 102,508,377 100,000,000
</TABLE>

The accompanying notes are an integral part of these financial statements.

IV-37
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Three months
ended Nine months ended
September 30, September 30,
----------------- ------------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net loss................................ $(14,894) $(4,498) $(55,947) $(86,179)
Other comprehensive income, net of tax
Foreign currency translation
adjustments.......................... 5,627 1,152 299 999
Appreciation in equity of retained
interest in ZDNet.................... 26,022 -- 61,477 --
-------- ------- -------- --------
Comprehensive income (loss)............. $ 16,755 $(3,346) $ 5,829 $(85,180)
======== ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

IV-38
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CASH FLOWS
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1999 1998
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $ (55,947) $ (86,179)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization........................ 120,076 109,814
Amortization of debt discount........................ 5,129 1,313
Loss from retained interest in ZDNet................. 111 8,691
Loss from equity investments......................... (4,457) (4,688)
Gain from sale of business units..................... (20,420) --
Deferred tax provision............................... (33,142) (33,277)
Stock-based compensation............................. 1,908 189
Minority interest.................................... (15,569) --
Changes in operating assets and liabilities:
Accounts receivable................................ 13,285 32,334
Inventories........................................ 2,605 (591)
Accounts payable and accrued expenses.............. 9,120 3,836
Unearned income.................................... 37,290 62,036
Due to affiliates and management................... -- 10,707
Other, net......................................... (11,090) (16,730)
--------- -----------
Net cash provided by operating activities............. 48,899 87,455
--------- -----------
Cash flows from investing activities:
Capital expenditures................................. (61,861) (24,218)
Capital contributions to ZDNet....................... -- (13,242)
Proceeds from sale of business units................. 29,105 --
Distributions from joint ventures.................... 4,000 --
Investments and other................................ (12,577) (1,193)
Acquisitions, net of cash acquired................... (33,986) (6,999)
--------- -----------
Net cash used by investing activities................. (75,319) (45,652)
--------- -----------
Cash flows from financing activities:
Proceeds from sale of Ziff-Davis Inc.--ZD common
stock(1) 52,557 380,337
Proceeds from issuance of notes payable(1)........... -- 242,723
Proceeds from issuance of bank debt(1)............... -- 1,240,200
Proceeds from sale of Ziff-Davis Inc.--ZDNet common
stock(2)............................................ 172,572 --
Proceeds from sale of interest in ZDTV............... 54,000 --
Repayments of credit facility........................ -- --
Borrowings under credit facility..................... 50,500 --
Payments of notes payable to affiliates.............. -- (1,569,532)
Payments of bank debt................................ (320,400) (45,000)
Payments of debt due to affiliate.................... (5,192) (314,798)
Purchase of treasury shares.......................... -- (29,500)
Return of capital from ZDNet......................... 2,723
Sale of treasury shares.............................. -- 29,500
Advance from affiliate, net.......................... 16,686 20,377
Contributed capital.................................. -- 345
--------- -----------
Net cash provided (used) by financing activities...... 23,446 (45,348)
--------- -----------
Net decrease in cash and cash equivalents............. (2,974) (3,545)
Cash and cash equivalents at beginning of period...... 32,274 30,273
--------- -----------
Cash and cash equivalents at end of period............ $ 29,300 $ 26,728
========= ===========
Supplemental cash flow information:
Cash paid for income taxes........................... $ -- $ 642
Cash paid for interest............................... $ 74,298 $ 94,360
</TABLE>
- --------
(1)1998 amounts net of transaction costs of $19,563; $9,800; and $7,277,
respectively.
(2)Net of transaction costs of $19,897.

The accompanying notes are an integral part of these financial statements.

IV-39
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CHANGES IN DIVISION EQUITY
(dollars in thousands)

<TABLE>
<CAPTION>
Cumulative Total
Division Accumulated Deferred translation division
capital deficit compensation adjustment equity
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1998................... $1,559,336 $(197,238) $(8,679) $(821) $1,352,598
Issuance of common
stock.................. 50,000 50,000
Sale of minority
interest in
subsidiary............. 7,176 7,176
Stock-based compensation
earned................. 1,908 1,908
Issuance of ZDNet Stock,
net of offering cost... 172,572 172,572
Sale of stock under
employee stock purchase
plan................... 1,775 1,775
Stock options
exercised.............. 779 779
Appreciation in equity
of retained interest in
ZDNet.................. 61,477 61,477
Net loss................ (55,947) (55,947)
Foreign currency
translation
adjustment............. 299 299
---------- --------- ------- ----- ----------
Balance at September 30,
1999 (unaudited)....... $1,853,115 $(253,185) $(6,771) $(522) $1,592,637
========== ========= ======= ===== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

IV-40
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(numbers rounded to the nearest thousand, except share and per share amounts)

1. Organization and Basis of Presentation

Basis of presentation

The accompanying unaudited combined financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary to present fairly the
combined financial position of ZD at September 30, 1999 and the results of its
combined operations for the three and nine months ended September 30, 1999 and
1998 and cash flows for the nine months ended September 30, 1999 and 1998 have
been included. Operating results for the periods presented are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999. It is suggested that the statements be read in conjunction with ZD's
combined financial statements and notes thereto for the year ended December 31,
1998, included in Ziff-Davis Inc.'s Current Report on Form 8-K dated August 4,
1999 (File No. 001-14055).

Formation of Ziff-Davis Inc.

ZD is the division of Ziff-Davis Inc. focused on the business of print
publishing, tradeshows and conferences, television, market research and
education. ZDNet is the Internet business division of Ziff-Davis Inc. As of
September 30, 1999, ZD held a retained interest in ZDNet of approximately 81.5%
(see Note 3).

ZD operates in three business segments: (1) publishing, (2) events and (3)
television.

Publishing

Events

The events segment is engaged in the organization, production and management
of trade shows, conferences and seminars for computer technology and the
Internet industries. The events segment's principal operations are in the U.S.
and to a lesser extent in Europe and Asia.

IV-41
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Television

The television segment, which was acquired in February 1999 (see Note 4), is
engaged in the production and distribution of television broadcasting for and
about the computer technology and the Internet industries. The television
segment's principal operations are in the U.S although it licenses or
syndicates programming worldwide.

Sale of Common Stock

On March 4, 1999, Vulcan Ventures Inc., the investment vehicle of Paul G.
Allen, purchased 3,030,303 shares of Ziff-Davis Inc. common stock for
$50,000,000 in cash.

On April 6, 1999, ZD completed a public offering of 10,000,000 shares of a
new class of common stock called Ziff-Davis Inc.--ZDNet Stock. (See Note 3.)

Earnings per share

Pro forma net loss per basic common share and the associated weighted average
common shares outstanding in the 1998 period presented on the combined
statement of operations assumes the initial public offering of Ziff-Davis Inc.
common stock (see Note 2) was completed on January 1, 1998.

Pro forma net loss per basic common share presented elsewhere in these
financial statements is calculated based on pro forma net loss for the
transaction being described divided by the weighted average common shares
outstanding indicated on the statement of operations.

Diluted earnings per share are not shown as the impact of stock options would
be anti-dilutive.

Reclassifications

Certain amounts have been reclassified, where appropriate, to conform to the
current financial statement presentation.

2. Reorganization and Initial Public Offering

IV-42
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

3. ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on March
30, 1999, to authorize the issuance of a new series of common stock, designated
as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), which is intended to
reflect the performance of Ziff-Davis Inc.'s Internet business division
("ZDNet"). When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis Inc.'s
existing common stock was re-classified as Ziff-Davis Inc.--ZD Common Stock
("ZD Stock"), which is intended to reflect the performance of Ziff-Davis Inc.'s
other businesses and a retained interest in ZDNet (i.e., Ziff-Davis Inc.'s
interest in ZDNet excluding the interest intended to be represented by
outstanding shares of ZDNet Stock) (collectively, "ZD").

Prior to the ZDNet Stock offering, ZD held a 100% retained interest in ZDNet.
The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc. issued
11,500,000 shares at $19.00 per share, including 1,500,000 shares issued in
conjunction with the underwriters' exercise of their option to purchase
additional shares to cover over-allotments. Ziff-Davis Inc. attributed to ZDNet
1,500,000 of the sold shares in a manner analogous to a primary offering, and
attributed to ZD 10,000,000 of the sold shares in respect of its retained
interest in ZDNet, in a manner analogous to a secondary offering. ZD received
net proceeds of approximately $172,700,000 and ZDNet received net proceeds of
approximately $25,900,000. The ZDNet net proceeds were loaned to ZD as an
intercompany loan which bears interest at the rate at which funding is
available to Ziff-Davis Inc. After giving effect to the ZDNet Stock offering,
there were 11,500,000 shares of ZDNet Stock outstanding and another 60,000,000
notional shares of ZDNet Stock intended to represent ZD's retained interest in
ZDNet, which was approximately 83.9% immediately following the offering.

Prior to the ZDNet Stock offering, Ziff-Davis Inc. provided all funding for
ZD and ZDNet. Ziff-Davis Inc. continued with these practices until the ZDNet
Stock was issued. Accordingly, no interest expense or income to or from ZDNet
has been reflected in the financial statements of ZD for any period prior to
the date on which the ZDNet Stock was issued.

The following pro forma information has been prepared as if the ZDNet Stock
offering had been consummated on January 1, 1999. The pro forma adjustments
include a $3,666,000 reduction of interest expense and the tax effect of this
adjustment at a statutory tax rate of 41.0%. The pro forma data is not
necessarily indicative of actual results had the transaction occurred on
January 1, 1999. Further, pro forma results are not meant to represent future
financial results. There is no pro forma impact for the three-month period
ended September 30, 1999.

<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1999
--------------------
(in thousands except
per share amount)
<S> <C>
Revenue, net......................................... $685,119
Loss from operations................................. (40,764)
Interest expense, net................................ (86,879)
Loss before taxes.................................... (85,423)
Income tax benefit................................... (31,639)
Net loss............................................. (53,784)
Pro forma loss per basic common share................ (.52)
</TABLE>

IV-43
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

4. ZDTV

On February 4, 1999, ZD purchased ZDTV, LLC ("ZDTV") from MAC Holdings
(America) Inc., a related party, for a purchase price of approximately
$81,400,000. ZD paid approximately $32,800,000 of the purchase price in cash
(settled on February 5, 1999) and paid the remainder by applying approximately
$48,600,000 in advances owed to it by MAC Holdings (America) Inc. ZD also
agreed to fund ZDTV during the period in 1999 prior to the purchase which was
accounted for as additional purchase price. Such funding amounted to
approximately $4,200,000.

On February 5, 1999 Vulcan Programming Inc., an entity owned by Paul G.
Allen, acquired a one-third interest in ZDTV for $54,000,000 in cash. In March
1999, an additional 4.0% equity interest was acquired by ZDTV's president. In
both cases the acquisitions were effected by issuing additional equity.

The following unaudited summary pro forma information assumes that the
acquisition of ZDTV and the acquisition of a one-third equity interest in ZDTV
by Vulcan Programming Inc. had been consummated on January 1, 1999. Adjustments
for ZDTV transactions include the operating results of ZDTV, amortization of
the purchase price of ZDTV, Vulcan Programming's one-third interest in the
losses of ZDTV and the tax effects of these items. The pro forma data is not
necessarily indicative of actual results had the transaction occurred on
January 1, 1999. Further, pro forma results are not meant to represent future
financial results. There is no pro forma impact for the three months ended
September 30, 1999.

<TABLE>
<CAPTION>
Nine months ended September
30, 1999
-------------------------------
Adjustments
for
ZDTV Pro
ZD transactions Forma
-------- ------------ --------
(in thousands except per share
amounts)
<S> <C> <C> <C>
Revenue................. $685,119 $ 316 $685,435
Loss from operations.... (40,764) (2,546) (43,310)
Net loss................ (55,947) (1,006) (56,953)
Pro forma loss per basic
common share........... (0.56)
</TABLE>

ZDTV 1999 Profits Interest Plan

5. Income Taxes

Income taxes are provided based on ZD's projected annual effective tax rate
which differs from the U.S. federal statutory rate of 35.0% due to (i) certain
items which are not deductible for income tax purposes, primarily losses of the
MAC Assets prior to their purchase by ZD and nondeductible goodwill
amortization, and (ii) the effect of state and local taxes. The tax benefit
recorded for the three and nine months ended September 30, 1999 has been
reflected as a reduction of the deferred tax liability as it is anticipated
that the benefit will be realizable in future periods.

IV-44
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

6. Sale of Business Units

ZD has completed the sale of its 50.0% interest in ExpoComm LLC along with
other smaller business units from the ZD Market Intelligence and ZD Education
platforms. The proceeds from the sale of these business units totaled
$29,105,000 and are reflected as investing activities in the statement of cash
flows.

7. Commitments and Contingencies

Strategic Alternatives

On July 14, 1999, Ziff-Davis Inc. announced that it had retained the
investment banking firm of Morgan Stanley Dean Witter ("Morgan Stanley") to
explore strategic alternatives to maximize shareholder value. The Ziff-Davis
Inc. Board of Directors has not embraced any particular strategic alternatives
and will investigate all possible alternatives, including strategic alliances,
mergers, and the sale or joint venture of all or some of Ziff-Davis Inc.'s
businesses (including the businesses which make up ZD). No assurances can be
given that any transaction will result from the exploration process that Morgan
Stanley has been retained to manage.

On May 24, 1999, Ziff-Davis Inc. announced that it had retained Morgan
Stanley to explore strategic alternatives for its ZD Market Intelligence unit,
the sale of which was completed on October 1, 1999. (See Note 9).

Class action and derivative litigations

ZD and Ziff-Davis Inc. are subject to various claims and legal proceedings
arising in the normal course of business.

The complaints alleged that defendants violated Sections 11, 12(a) (2) and 15
of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of Ziff-Davis Inc.'s stock completed on May 4,
1998 (the "IPO"). More particularly, the complaints alleged that the
registration statement contained false and misleading statements and failed to
disclose facts that could have indicated an impending decline in Ziff-Davis
Inc.'s revenue. The complaints sought on behalf of a class of purchasers of
Ziff-Davis Inc.'s common stock from the date of the IPO through October 8,
1998, unspecified damages, interest, fees and costs, rescission, and injunctive
relief such as the imposition of a constructive trust upon the proceeds of the
IPO.

IV-45
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

directors and demand the nullification of the repricing and an injunction
against exercise by the directors of any repriced option. Plaintiffs filed an
amended complaint on February 17, 1999 (which is substantially similar to the
original complaints, except that the amended complaint also addresses the
granting of "new options" at an allegedly "reduced exercise price") and the
actions have been consolidated. Answers to the amended complaint on behalf of
both Ziff-Davis Inc. and its directors were filed on April 12, 1999. Discovery
is proceeding.

Other legal proceedings

Ziff-Davis Inc. was named as a defendant in an action, filed on April 17,
1998 in the Supreme Court of the State of New York, by minority stockholders
of SOFTBANK Interactive Marketing Inc. ("SIM"), formerly an indirect
subsidiary of SOFTBANK Corp. The complaint alleged, among other things, that
SBH, SIM's majority stockholder, acting with Ziff-Davis Inc. and two of its
senior officers and directors who were directors of SIM (and who were also
named as defendants), had conflicts of interest between SIM and other Softbank
investments (including investments in Ziff-Davis Inc.) and failed to act in
the best interests of SIM and the minority stockholders by taking actions
which benefited Ziff-Davis Inc. The complaint stated claims based on common
law fraud, breach of fiduciary duty and aiding and abetting theories and seeks
in excess of $200,000,000 in damages. Upon motion of Ziff-Davis Inc. and the
other defendants, all of the claims against them other than a breach of
contract claim which is solely against SBH, were dismissed on February 26,
1999. On April 1, 1999, plaintiffs filed a notice of appeal of the dismissal.
On September 2, 1999, the remaining claim, which was solely against SBH, was
dismissed. On October 6, 1999, plaintiffs filed a notice of appeal of this
dismissal.

Ziff-Davis Inc. and ZDTV, L.L.C. ("ZDTV"), a majority owned affiliate of
Ziff-Davis Inc., were named as defendants in an action filed on November 10,
1999 in the U.S. District Court, Southern District of New York, by plaintiff.
In October, 1998 ZDTV through a subsidiary purchased certain assets from
corporations owned by plaintiff and two other individuals. In addition to a
cash payment at the closing of the sale, ZDTV agreed to pay additional
purchase price, contingent on the future operating profits of the SkyTV
division. Ziff-Davis Inc. guaranteed the obligations of ZDTV. The complaint
alleges, among other things, that ZDTV and Ziff-Davis Inc. breached their
covenants of good faith and fair dealing by failing to act in the best
interests of the SkyTV division, to support and procure business for the SkyTV
division, and to provide public relations, marketing assistance and corporate
sales team support, thereby lessening plaintiff's opportunity to earn
additional purchase price. The complaint seeks an amount to be determined at
trial, but not less than $60,000,000 in damages.
Although the outcome of these cases cannot be predicted, Ziff-Davis Inc.
believes that there are substantial defenses to the claims. Ziff-Davis Inc.
currently cannot estimate its ultimate liability, if any, with respect to such
pending litigations. Accordingly, no provision for such matters has been
included in the financial statements.

Interest rate swap

On June 15, 1999, ZD amended a swap agreement (with a notional amount of
$100,000,000) by reducing the fixed rate paid to the counterparty and
providing the counterparty with a one-time option to cancel the swap agreement
on February 5, 2000. ZD entered into another swap agreement (with a notional
amount of $50,000,000) on June 15, 1999. Under this swap agreement, ZD will
receive a fixed rate of interest and pay a floating rate of interest based on
3 months LIBOR, which resets quarterly, for the term of the agreement.

IV-46
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

8. Segment Information

ZD operates in three reportable business segments: (1) publishing, (2) events
and (3) television. All material inter-segment revenue has been eliminated. The
following table presents information about each of the reported segments:

<TABLE>
<CAPTION>
Three months
ended Nine months ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenue:
Publishing............................. $165,268 $181,727 $518,626 $571,391
Events................................. 63,085 29,787 157,150 122,690
Television............................. 3,642 -- 9,343 --
-------- -------- -------- --------
Total................................ $231,995 $211,514 $685,119 $694,081
======== ======== ======== ========
<CAPTION>
Three months
ended Nine months ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
EBITDA:
Publishing............................. $ 21,253 $ 25,415 $ 89,745 $ 84,321
Events................................. 35,962 2,135 60,164 21,879
Television............................. (7,030) -- (20,924) --
-------- -------- -------- --------
Total................................ $ 50,185 $ 27,550 $128,985 $106,200
======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(dollars in thousands)
<S> <C> <C>
Total Assets:
Publishing.................................... $2,113,328 $2,285,920
Events........................................ 1,195,191 1,144,018
Television.................................... 124,432 --
---------- ----------
Total....................................... $3,432,951 $3,429,938
========== ==========
</TABLE>

A reconciliation of EBITDA to loss before income taxes is below:

<TABLE>
<CAPTION>
Three months
ended Nine months ended
June 30, June 30,
------------------ -------------------
1999 1998 1999 1998
-------- -------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Total segment EBITDA................. $ 50,185 $ 27,550 $128,985 $ 106,200
Depreciation and amortization of
property and equipment.............. (7,724) (7,253) (23,527) (21,235)
Amortization of intangible assets.... (32,784) (28,953) (96,549) (88,579)
Stock-based compensation............. (635) (63) (1,908) (189)
Retained interest in ZDNet's non-
EBITDA losses....................... (4,380) (1,645) (9,670) (4,468)
Minority interest in ZDTV's non-
EBITDA losses....................... 1,529 -- 4,125 --
Interest expense, net................ (29,025) (29,093) (90,545) (111,185)
-------- -------- -------- ---------
Loss before income taxes............. $(22,834) $(39,457) $(89,089) $(119,456)
======== ======== ======== =========
</TABLE>

IV-47
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

9. Subsequent Events

Sale of Market Intelligence Unit

On October 1, 1999, Ziff-Davis Inc. completed the sale of its Market
Intelligence unit for $101,000,000 in cash plus $5,000,000 in assumed deferred
revenue obligations.

Smart Planet Inc.

IV-48
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Ziff-Davis Inc.

In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, cash flows and changes in division equity,
present fairly, in all material respects, the financial position of ZD (a
division of Ziff-Davis Inc., the "Company") at December 31, 1997 and 1998, and
the results of its operations and cash flows for each of the three years in the
period ended December 31, 1998, 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 described in Note 1 to the financial statements, ZD is a division of Ziff-
Davis Inc.; accordingly the financial statements of ZD should be read in
conjunction with the audited financial statements of Ziff-Davis Inc.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
New York, NY
February 22, 1999

IV-49
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED BALANCE SHEETS
(dollars in thousands)

<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 30,273 $ 32,274
Accounts receivable, net............................... 209,914 208,593
Inventories............................................ 17,853 15,551
Prepaid expenses and other current assets.............. 37,872 34,278
Due from affiliates.................................... 131,290 53,984
Deferred taxes......................................... 8,725 21,483
---------- ----------
Total current assets..................................... 435,927 366,163
Property and equipment, net.............................. 50,391 85,571
Retained interest in ZDNet............................... 83,292 89,547
Intangible assets, net................................... 2,963,169 2,844,317
Other assets............................................. 15,329 44,340
---------- ----------
Total assets............................................. $3,548,108 $3,429,938
========== ==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable....................................... $ 54,823 $ 73,310
Accrued expenses....................................... 77,886 93,824
Unearned income, net................................... 154,682 151,003
Due to affiliates and management....................... 398,332 4,618
Current portion of notes payable to affiliates......... 125,790 7,692
Other current liabilities.............................. 4,222 13,125
---------- ----------
Total current liabilities................................ 815,735 343,572
Notes payable to affiliates.............................. 2,408,240 70,192
Notes payable, net of unamortized discount............... -- 1,469,130
Deferred taxes........................................... 185,613 169,356
Due to management........................................ -- 5,400
Other liabilities........................................ 12,390 19,690
---------- ----------
Total liabilities........................................ 3,421,978 2,077,340
---------- ----------
Commitments and contingencies (Notes 20 and 22)
Division equity.......................................... 126,130 1,352,598
---------- ----------
Total liabilities and division equity................ $3,548,108 $3,429,938
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

IV-50
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF OPERATIONS
(dollars in thousands)

<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Revenue, net:
Publishing............................... $ 674,040 $ 834,015 $ 782,882
Events................................... 264,884 287,528 269,867
--------- ---------- ----------
938,924 1,121,543 1,052,749
--------- ---------- ----------
Cost of production:
Publishing............................... 181,313 221,367 215,336
Events................................... 87,373 99,533 82,143
--------- ---------- ----------
268,686 320,900 297,479
Selling, general and administrative
expenses.................................. 431,393 521,671 518,349
Depreciation and amortization of property
and equipment............................. 31,647 28,884 27,875
Amortization of intangible assets.......... 102,604 118,375 118,221
Restructuring charge....................... -- -- 52,239
--------- ---------- ----------
Income from operations..................... 104,594 131,713 38,586
Interest expense, net--related party....... (120,646) (190,445) (65,935)
Interest expense, net...................... -- -- (77,612)
Loss related to retained interest in
ZDNet..................................... (16,925) (21,238) (7,884)
Other non-operating income, net............ 6,341 8,322 8,097
--------- ---------- ----------
Loss before income taxes................... (26,636) (71,648) (104,748)
Provision (benefit) for income taxes....... 25,445 (469) (26,939)
--------- ---------- ----------
Net loss................................... $ (52,081) $ (71,179) $ (77,809)
========= ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

IV-51
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CASH FLOWS
(dollars in thousands)

<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1996 1997 1998
---------- -------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... $ (52,081) $(71,179) $ (77,809)
Adjustments to reconcile net loss to net
cash provided
by operating activities:
Depreciation and amortization............. 134,251 147,259 146,096
Amortization of debt discount............. -- -- 2,430
Loss from retained interest in ZDNet...... 16,925 21,238 7,884
Income from equity investments............ (115) (2,030) (7,483)
Deferred tax provision (benefit).......... 25,445 (469) (29,484)
Restructuring charge...................... -- -- 52,239
Changes in operating assets and liabili-
ties:
Accounts receivable..................... (36,194) (14,375) 2,437
Inventories............................. 7,788 (853) 2,923
Accounts payable and accrued expenses... 10,503 (6,065) (4,316)
Unearned income......................... 1,299 (20,101) (6,404)
Due to affiliates and management........ (29,303) (38,543) (3,348)
Other, net.............................. (4,354) (2,982) 15,134
---------- -------- ----------
Net cash provided by operating activities... 74,164 11,900 100,299
---------- -------- ----------
Cash flows from investing activities:
Capital expenditures...................... (21,355) (27,822) (32,117)
Capital contributions to ZDNet............ (13,630) (20,664) (14,269)
Investments and acquisitions, net of cash
acquired................................. (2,124,823) (11,002) (22,772)
---------- -------- ----------
Net cash used by investing activities....... (2,159,808) (59,488) (69,158)
---------- -------- ----------
Cash flows from financing activities:
Proceeds from equity offering............. -- -- 380,337
Proceeds from issuance of notes payable... -- -- 242,723
Proceeds from issuance of bank debt....... -- -- 1,240,200
Proceeds from notes payable to affili-
ates..................................... 1,080,000 10,000 --
Payments of amounts due to affiliates..... -- -- (314,798)
Repayments of credit facility............. -- -- (95,504)
Borrowings under credit facility.......... -- -- 65,504
Payment of deferred financing fees........ -- -- (3,375)
Payments of notes payable to affiliates... -- (31,420) (1,571,264)
Purchase of treasury shares............... -- -- (29,500)
Sale of treasury shares................... -- -- 29,500
Advance from majority shareholder......... -- -- 20,377
Contributed capital....................... 1,015,651 69,366 6,660
Payment of dividends...................... (8,000) -- --
---------- -------- ----------
Net cash provided (used) by financing activ-
ities...................................... 2,087,651 47,946 (29,140)
---------- -------- ----------
Net increase in cash and cash equivalents... 2,007 358 2,001
Cash and cash equivalents at beginning of
period..................................... 27,908 29,915 30,273
---------- -------- ----------
Cash and cash equivalents at end of period.. $ 29,915 $ 30,273 $ 32,274
========== ======== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

IV-52
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CHANGES IN DIVISION EQUITY
(dollars in thousands)

<TABLE>
<CAPTION>
Retained Cumulative Total
Paid-in earnings Deferred translation division
capital (deficit) compensation adjustment equity
---------- --------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... $ 379,586 $ 11,831 $ -- $ 111 $ 391,528
Acquisition of Ziff-
Davis Holdings Corp. .. 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................... 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................... 248,330 (119,429) (996) (1,775) 126,130
Capital contribution.... 9,007 9,007
Capitalization of
amounts due to
affiliates............. 908,673 908,673
Contribution of
subsidiaries from SBH
to Ziff-Davis Inc...... 736 736
Initial public
offering............... 375,493 375,493
Acquisition of fixed
assets from an
affiliate.............. 9,000 9,000
Purchase of treasury
shares from SBH........ (29,500) (29,500)
Sale of treasury shares
to the public.......... 29,500 29,500
Stock options vested as
severance.............. 162 162
Conversion of Softbank
stock options.......... 2,942 -- (2,942) --
Issuance of ZDNet
options................ 4,993 -- (4,993) -- --
Net loss................ (77,809) (77,809)
Compensation earned on
restricted stock....... 252 252
Foreign currency
translation
adjustment............. 954 954
---------- --------- ------- ------ ----------
Balance at December 31,
1998 .................. $1,559,336 $(197,238) $(8,679) $ (821) $1,352,598
========== ========= ======= ====== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

IV-53
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS
(numbers rounded to the nearest thousand, except share and per share amounts)

1. Organization and Basis of Presentation

Formation of Ziff-Davis Inc.

Ziff-Davis Inc. was formed through an initial public offering and
reorganization that were completed on May 4, 1998. (See Note 2.) Prior to that
date, the predecessors of Ziff-Davis Inc. (currently named ZD Inc. and ZD
Events Inc.) were wholly owned indirect subsidiaries of SOFTBANK Corp.
(together with its non-Ziff-Davis Inc. affiliates, "Softbank").

As further described below, the combined financial statements include the
accounts of ZDI from its date of acquisition (February 29, 1996) and ZD Events.
Effective December 31, 1997, COMDEX and Forums merged and the surviving company
was renamed ZD COMDEX and Forums Inc. ("ZDCF"). In 1998, ZDCF was renamed ZD
Events Inc.

ZD is the division of Ziff-Davis Inc. (formerly ZD Inc.) focused on the
business of print publishing, trade shows and conferences, market research and
education. ZDNet is the online business division of Ziff-Davis Inc. Each of ZD
and ZDNet is sometimes referred to herein as a "Group".

In order to prepare separate financial statements for ZD and ZDNet (as
defined below), Ziff-Davis Inc. has allocated all of its consolidated assets,
liabilities, revenue, expenses and cash flow between ZD and ZDNet. Thus, the
financial statements of ZD and ZDNet, taken together, comprise all of the
accounts included in the corresponding consolidated financial statements of
Ziff-Davis Inc.

ZD's financial statements reflect the application of certain cash management
and allocation policies adopted by the Board of Directors of Ziff-Davis Inc.
(the "Board"). These policies are summarized in Note 5 under "Certain Cash
Management and Allocation Policies".

Even though Ziff-Davis Inc. has allocated all of its consolidated assets,
liabilities, revenue, expenses and cash flow between ZD and ZDNet, that
allocation and the division of Ziff-Davis Inc. common stock will not change the
legal title to any assets or responsibility for any liabilities and will not
affect the rights of any creditors. Holders of ZD Stock (as defined below) will
continue to be common stockholders of Ziff-Davis Inc. and, as such, will be
subject to all risks associated with an investment in Ziff-Davis Inc. and all
of its businesses, assets and liabilities.

Financial impacts which occur that affect Ziff-Davis Inc.'s consolidated
results of operations or financial position could affect the results of
operations or financial condition of ZD or the market price of ZD Stock. In
addition, net losses of ZDNet, and any dividends or distributions on, or
repurchases of, ZDNet Stock will reduce the assets of Ziff-Davis Inc. legally
available for dividends on ZD Stock. Accordingly, financial information for ZD
should be read in conjunction with financial information for ZDNet and
financial information for Ziff-Davis Inc.

Relationship with Softbank and MAC

SOFTBANK Corp. is the indirect majority stockholder of Ziff-Davis Inc.
SOFTBANK Corp. is a Japanese corporation which at the time of the acquisition
of the MAC Assets was majority owned directly and indirectly by its president,
Mr. Son. As of December 31, 1998 Mr. Son owned approximately 45% of SOFTBANK
Corp. (50.2% as of December 31, 1997). MAC, also a Japanese corporation, was
wholly owned by Mr. Son.

IV-54
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Operations and acquisitions

ZD operates in two business segments: (1) publishing and (2) events.

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 U.S. and Europe, although it also licenses or syndicates
its editorial content to over 50 other publications distributed worldwide. The
publishing segment includes a 100% retained interest in ZDNet. ZDNet is the
online business division of Ziff-Davis Inc.

Events

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 $1,800,000,000
plus transaction costs. Concurrent with the acquisition, in a separate
agreement, MAC, 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 $302,000,000.

Subsequent to the acquisition, Holdings and ZDI were merged with ZDI being
the surviving corporation.

Purchase of the MAC Assets

In 1997, ZD agreed to purchase certain of the MAC Assets for $370,000,000.
The acquisition was effected in two tranches, the first of which closed on
October 31, 1997 and the second of which closed upon completion of the initial
public offering of Ziff-Davis Inc.'s common stock (further described below). At
December 31, 1997, ZD had accrued the $370,000,000 purchase price which was
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 were under common
control at the time of the acquisitions. 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 ZD
includes ZDI, ZD Events and the MAC Assets (including ZD's 100% retained
interest in ZDNet) from February 29, 1996.

Acquisition of Sendai

On May 8, 1996, ZD 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 $27,500,000 plus transaction costs. The acquisition
was accounted for as a

IV-55
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

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 $33,378,000. 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 Sky TV

On October 28, 1998, ZD acquired the assets of Sky TV Inc. and certain
affiliates for approximately $12,150,000 in cash plus contingent payments
related to earnings performance payable in 2002. Sky TV is a media company that
provides video content for distribution principally through airline in-flight,
cable and broadcast television. The acquisition was accounted for as a purchase
and accordingly, Sky TV's results are included in the combined financial
statements since the date of acquisition. The excess of the purchase price over
assets acquired approximated $11,318,000. The operations of Sky TV did not have
a material effect on the combined results of operations for the year ended
December 31, 1998.

2. Reorganization and Initial Public Offering

On February 4, 1998, a nonstock corporation, ZD Inc., was formed in
contemplation of a reorganization and initial public offering of Ziff-Davis
Inc. Upon completion of the initial public offering (described below), Ziff-
Davis Inc. was renamed ZD Inc., ZDCF was renamed ZD Events Inc. and ZD Inc. was
renamed Ziff-Davis Inc.

On May 4, 1998, SOFTBANK Corp., through its wholly owned subsidiary SOFTBANK
Holdings Inc. ("SBH"), completed a reorganization whereby the common stock of
ZD Inc. and ZD Events Inc. were contributed to Ziff-Davis Inc. in exchange for
73,619,355 shares of Ziff-Davis Inc.'s common stock. Concurrent with the
reorganization, Ziff-Davis Inc. (1) completed an initial public offering of
25,800,000 common shares at an initial public offering price of $15.50 per
share, (2) issued $250,000,000 of 8 1/2% subordinated notes due 2008, (3)
entered into a $1,350,000,000 credit facility with a group of banks under which
$1,250,000,000 was borrowed and (4) converted $908,673,000 of intercompany
indebtedness to equity. In addition, Ziff-Davis Inc. received approximately
$9,107,000 of fixed assets from Kingston Technology Company ("Kingston"), a
related party, in exchange for 580,645 shares of Ziff-Davis Inc.'s common stock
and $107,000 in cash. These assets have been subsequently leased back to
Kingston. Total shares of common stock issued to Softbank were 74,200,000. The
transactions described above are herein referred to as the "Reorganization".

On May 28, 1998, Ziff-Davis Inc.'s U.S. underwriters exercised their option
to purchase 2.0 million additional shares of common stock to cover over-
allotments. ZD purchased the additional shares from SBH resulting in no change
to the total number of shares outstanding. On December 31, 1998, SBH
contributed 71,619,355 shares of Ziff-Davis Inc.'s common stock to SOFTBANK
America Inc., an affiliate of SOFTBANK Corp.

Unaudited pro forma financial information

The following summary pro forma information has been prepared as if the
Reorganization and initial public offering, described above, had been
consummated on January 1, 1998. The pro forma adjustments

IV-56
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

include a $5,219,000 reduction of interest expense, a $900,000 increase in
depreciation expense and a $900,000 reduction of selling, general and
administrative expenses, as well as the tax effect of these items recorded at
an effective tax rate of 40%.
<TABLE>
<CAPTION>
Year ended
December 31, 1998
----------------------
(dollars in thousands)
<S> <C>
Revenue, net........................................ $1,052,749
Depreciation and amortization....................... 146,996
Income from operations.............................. 38,586
Interest expense, net............................... 138,328
Loss before income taxes............................ (99,529)
Income tax benefit.................................. (24,851)
Net loss............................................ $ (74,678)
</TABLE>

3. ZDNet Stock Proposal (unaudited)

The stockholders of Ziff-Davis Inc. are scheduled to vote on a proposal (the
"Tracking Stock Proposal") to authorize the issuance of a new series of common
stock, to be designated as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"),
intended to reflect the performance of Ziff-Davis Inc.'s online business
division ("ZDNet"). The majority owner of the common stock of Ziff-Davis Inc.
has committed to vote for the Tracking Stock Proposal. Before the ZDNet Stock
is first issued, Ziff-Davis Inc.'s existing common stock will be re-classified
as Ziff-Davis Inc.--ZD Common Stock ("ZD Stock") and that stock will be
intended to reflect the performance of Ziff-Davis Inc.'s other businesses and a
"Retained Interest" in ZDNet (i.e., Ziff-Davis Inc.'s interest in ZDNet
excluding the interest intended to be represented by outstanding shares of
ZDNet Stock) (collectively, "ZD").

The book value associated with ZD's Retained Interest in ZDNet will be
increased proportionately for net income (or decreased proportionately for net
loss) of ZDNet. In addition, that book value will be adjusted from time to time
as set forth below.

Currently, Ziff-Davis Inc. provides all funding for ZD and ZDNet as described
in Note 5 under "Certain Cash Management and Allocation Policies". Ziff-Davis
Inc. intends to continue these practices until ZDNet Stock is first issued.
Accordingly, no interest income or expense from or to ZDNet has been reflected
in the financial statements of ZD for any period prior to the date on which
ZDNet Stock is first issued.

After the date on which ZDNet Stock is first issued, for financial statement
purposes, the following policies will apply except to the extent the Board
rescinds, modifies or adds to them:

(a) Ziff-Davis Inc. will attribute each future incurrence or issuance of
external debt or preferred stock (and the proceeds thereof) to ZD, except
in cases where the Board determines otherwise. The Board may determine from
time to time to attribute an incurrence or issuance of debt or preferred
stock (and the proceeds thereof) to ZDNet to the extent that Ziff-Davis
Inc. incurs or issues the debt or preferred stock for the benefit of ZDNet,
but the Board will not be required to do so.

IV-57
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

(b) Ziff-Davis Inc. will attribute each future issuance of ZD Stock (and
the proceeds thereof) to ZD. Ziff-Davis Inc. may attribute any future
issuance of ZDNet Stock (and the proceeds thereof) to ZD in respect of its
Retained Interest in ZDNet (in a manner analogous to a secondary offering
of common stock of a subsidiary owned by a corporate parent) or to ZDNet
(in a manner analogous to a primary offering of common stock). Dividends on
and repurchases of ZD Stock will be charged against ZD, and dividends on
and repurchases of ZDNet Stock will be charged against ZDNet. In addition,
at the time of any dividend on ZDNet Stock, Ziff-Davis Inc. will credit to
ZD, and charge against ZDNet, a corresponding amount in respect of ZD's
Retained Interest in ZDNet.

(c) Whenever ZDNet holds cash (other than cash of ZDNet's foreign
operations or cash of ZDNet's operations that are not wholly owned), ZDNet
will normally transfer that cash to ZD. Conversely, whenever ZDNet has a
cash need (other than cash needs of ZDNet's foreign operations or cash
needs of ZDNet's operations that are not wholly owned), ZD will normally
fund that cash need. However, the Board will determine, in its sole
discretion, whether to provide any particular funds to either Group. The
Board is not obligated to cause either Group to provide funds to the other
Group if the Board determines it is not in the best interest of Ziff-Davis
Inc. to do so.

(d) Ziff-Davis Inc. will account for all cash transfers from one Group to
or for the account of the other Group (other than transfers in return for
assets or services rendered or transfers in respect of ZD's Retained
Interest that correspond to dividends paid on ZDNet Stock) as inter-Group
revolving credit advances unless (1) the Board determines that a given
transfer (or type of transfer) should be accounted for as a long-term loan,
(2) the Board determines that a given transfer (or type of transfer) should
be accounted for as a capital contribution increasing ZD's Retained
Interest in ZDNet or (3) the Board determines that a given transfer (or
type of transfer) should be accounted for as a return of capital reducing
ZD's Retained Interest in ZDNet. There are no specific criteria to
determine when Ziff-Davis Inc. will account for a cash transfer as a long-
term loan, a capital contribution or a return of capital rather than an
inter-Group revolving credit advance. The Board would make such a
determination in the exercise of its business judgment at the time of such
transfer (or the first of such type of transfer) based upon all relevant
circumstances. Factors the Board would consider include (1) the current and
projected capital structure of each Group, (2) the relative levels of
internally generated funds of each Group, (3) the financing needs and
objectives of the recipient Group, (4) the investment objectives of the
transferring Group, (5) the availability, cost and time associated with
alternative financing sources and (6) prevailing interest rates and general
economic conditions.

(e) Any cash transfer accounted for as an inter-Group revolving credit
advance will bear interest at the rate at which Ziff-Davis Inc. could
borrow such funds on a revolving credit basis (as the Board determines in
its sole discretion). Any cash transfer accounted for as a long-term loan
will have interest rate, amortization, maturity, redemption and other terms
that generally reflect the then prevailing terms on which Ziff-Davis Inc.
could borrow such funds (as the Board determines in its sole discretion).

(f) Any cash transfer from ZD to ZDNet (or for its account) accounted for
as a capital contribution will correspondingly increase ZDNet's division
equity and ZD's Retained Interest in ZDNet. As a result, the number of
shares of ZDNet Stock that could be issued by Ziff-Davis Inc. for the
account of ZD in respect of its Retained Interest in ZDNet (the "Number of
Shares Issuable with Respect to ZD's Retained Interest in ZDNet") will
increase by (1) the amount of such capital contribution divided by (2) the
Market Value of ZDNet Stock on the date of transfer.

(g) Any cash transfer from ZDNet to ZD (or for its account) accounted for
as a return of capital will correspondingly reduce ZDNet's division equity
and ZD's Retained Interest in ZDNet. As a result, the Number of Shares
Issuable with Respect to ZD's Retained Interest in ZDNet will decrease by
(1) the amount of such return of capital divided by (2) the Market Value of
ZDNet Stock on the date of transfer.

IV-58
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

4. Summary of Significant Accounting Policies

Principles of combination

The combined financial statements include the accounts of ZD. All significant
transactions within the ZD division have been eliminated in combination.

Investments in companies in which ZD's ownership interests range from 20% to
50% and in which ZD has the ability to exercise significant influence over the
operating and financial policies of such companies are accounted for under the
equity method.

Cash and cash equivalents

ZD considers all highly liquid investments with an original maturity of 3
months or less to be cash equivalents.

Concentration of credit risk

ZD places its temporary cash investments with high credit quality financial
institutions. At times, such investments may be in excess of federally insured
limits. ZD has not experienced losses in such accounts.

ZD's advertisers and exhibitors include principally customers who represent a
variety of technology companies in the U.S. and other countries. ZD extends
credit to its customers and distributors and historically has not experienced
significant losses relating to receivables from individual customers or groups
of customers.

Property and equipment

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.

Investment in ZDNet

ZD's Retained Interest in 100% of the division equity of ZDNet is reflected
as "Retained Interest in ZDNet" in ZD's balance sheets. Similarly, ZD's
Retained Interest in 100% of the division net losses of ZDNet is reflected as
"Net loss related to retained interest in ZDNet" in ZD's combined statements of
operations.

Ziff-Davis Inc. accounts for ZD's retained interest in ZDNet in a manner
similar to the method prescribed under APB No. 18, The Equity Method of
Accounting for Investments in Common Stock.

IV-59
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Debt issuance costs and discount on senior subordinated notes

The cost to issue debt is recorded in the balance sheet in other assets and
amortized to interest expense over the life of the debt. The discount on the
senior subordinated notes is recorded in the balance sheet as a reduction of
long-term debt and is amortized to interest expense over the life of the notes.
All amounts are amortized using the effective-interest method.

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 estimated useful lives.
Identifiable 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. (See Note 9.) ZD assesses the recoverability of 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 value of assets, an
impairment loss is recognized to reduce the carrying value of the intangibles
to estimated recoverable value.

Revenue recognition

Advertising revenue for ZD's 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.

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.

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.

Reportable segments

In 1998, ZD adopted Statement of Financial Accounting Standards ("SFAS") No.
131, Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise, replacing the "industry segment" approach with the

IV-60
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of ZD's reportable segments. SFAS No. 131
also requires disclosures about products and services, geographic areas and
major customers. The adoption of SFAS No. 131 did not affect results of
operations or financial position but did affect the disclosure of segment
information. (See Note 21.)

Foreign currency

The effect of translating foreign currency financial statements into U.S.
dollars is included in the cumulative translation adjustments account in
division equity. Gains and losses on foreign currency transactions, which are
not significant to operations, have been included in selling, general and
administrative expenses. Ziff-Davis Inc. has not historically entered into
forward currency contracts.

Other non-operating income

Other non-operating income includes management fee income and ZD's equity
share of income or loss from joint ventures.

Income taxes

ZD uses the asset and liability approach for financial accounting and
reporting of deferred taxes.

Use of estimates

Fair value of financial instruments

ZD's financial instruments recorded on the balance sheet include cash and
cash equivalents, accounts receivable, accounts payable and debt. Because of
their short maturity, the carrying amount of cash and cash equivalents,
accounts receivable and accounts payable approximate fair value. Fair value of
long-term bank debt is based on rates available to ZD for debt with similar
terms and maturities. Fair value of public debt is based on market prices.

ZD uses interest rate swap agreements to manage risk on its floating rate
debt portfolio. Fair value of these instruments is based on estimated current
settlement cost.

Interest rate swaps

ZD periodically uses interest rate swaps to manage its exposure to interest
rate fluctuations on its floating rate debt. These interest rate swaps are
entered into for hedging purposes and, as such, must be designated and
effective as a hedge against the risk of increased interest rates. Under the
terms of the agreements ZD pays a fixed interest rate on a notional amount and
receives a variable interest rate on the same notional amount. The differential
between the amounts paid and received is recorded as additional interest
expense. Interest rate swaps designated but no longer effective as a hedge
would be reported at market value and the related gains and losses would be
recognized in earnings. Gains or losses on termination of interest rate swaps
would be recognized in earnings in the period of termination.

IV-61
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Stock-based compensation

ZD has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), to account for stock
options. Effective January 1, 1996, ZD Group adopted the disclosure-only
provisions of Statement of Financial Accounting Standard ("SFAS") No. 123,
Accounting for Stock-Based Compensation.

Comprehensive income

ZD implemented SFAS No. 130, Reporting Comprehensive Income, effective
January 1, 1998. This standard requires ZD to report the total changes in
division equity that do not result directly from transactions with
stockholders, including those which do not affect retained earnings. These
changes are not material to ZD's combined financial statements.

New accounting pronouncements

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. ZD does not expect that the adoption of SFAS No.
133 will have a material impact on ZD's results of operations. ZD will adopt
SFAS No. 133 beginning with its 2000 financial statements.

Reclassifications

Certain amounts have been reclassified, where appropriate, to conform to the
current financial statement presentation.

5. Certain Cash Management and Allocation Policies

ZD's financial statements reflect the application of certain cash management
and allocation policies summarized below. The Board may rescind, modify or add
to any of these policies.

Treasury activities

Ziff-Davis Inc. manages most treasury activities on a centralized,
consolidated basis. These activities include the investment of surplus cash,
the issuance, repayment and repurchase of short-term and long-term debt, and
the issuance and repurchase of common stock and preferred stock. Each of ZD and
ZDNet generally remits its cash receipts (other than receipts of foreign
operations or operations that are not wholly owned) to Ziff-Davis Inc., and
Ziff-Davis Inc. generally funds ZD's and ZDNet's cash disbursements (other than
disbursements of foreign operations or operations that are not wholly owned),
on a daily basis.

In the financial statements of ZD and ZDNet, (1) all external debt and equity
transactions (and the proceeds thereof) were attributed to ZD, (2) whenever
ZDNet held cash (other than cash of ZDNet's foreign operations or cash of
ZDNet's operations that are not wholly owned), that cash was transferred to ZD
and accounted for as a return of capital (i.e., as a reduction in ZDNet's
division equity and ZD's Retained Interest in ZDNet) and (3) whenever ZDNet had
a cash need (other than cash needs of ZDNet's foreign operations or cash needs
of ZDNet's operations that are not wholly owned), that cash need was funded by
ZD and accounted for as a capital contribution (i.e., as an increase in ZDNet's
division equity and ZD's Retained Interest in ZDNet).

IV-62
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Corporate general and administrative expenses

Ziff-Davis Inc. allocates the cost of certain corporate general and
administrative services and shared services (including certain legal,
accounting (tax and financial), information systems, telecommunications,
purchasing, marketing, intellectual property, public relations, corporate
office and travel expenses) (collectively, "Central Services") to ZD based on
utilization. Where determinations based on utilization alone are impracticable,
Ziff-Davis Inc. uses other methods and criteria that management believes to be
equitable and to provide a reasonable estimate of the cost attributable to ZD.

Taxes

Federal income taxes, which are determined on a consolidated basis, are
allocated to ZD (and reflected in its financial statements) in accordance with
Ziff-Davis Inc.'s tax allocation policy. In general, this policy provides that
the consolidated tax provision (and related tax payments or refunds) are
allocated between the Groups based principally upon the financial income,
taxable income, credits and other amounts directly related to the respective
Groups. Tax benefits that cannot be used by the Group generating such
attributes, but can be utilized on a consolidated basis, are allocated to the
Group that generated such benefits. As a result, the allocated Group amounts of
taxes payable or refundable are not necessarily comparable to those that would
have resulted if the Groups had filed separate tax returns. State income taxes
generally are computed on a separate company basis.

Royalty charges

ZD charges ZDNet an annual fee for the use of various brands and editorial
content. The current annual fee, which is reflected in ZD's financial
statements as a reduction of its selling, general and administrative costs, is
equal to 5% of the first $100,000,000 of ZDNet's revenue for the year, 4% of
the next $50,000,000 of ZDNet's revenue for that year and 3% of any incremental
revenue over $150,000,000 for that year. The Board may at some point in the
future change this fee as it, in its sole discretion, deems appropriate in
light of the circumstances from time to time.

6. Restructuring

Margin pressure on computer equipment manufacturers, industry and product
delays, lower demand in Asia and a focus on the Year 2000 transition are
contributing to a reduced demand for advertising in ZD's magazines, principally
PC Magazine, PC/Computing, Computer Shopper and PC Week. ZD believes these
factors are continuing.

IV-63
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

. Employee termination costs related to severed personnel at the closed
publications as well as a rationalization and resulting workforce
reduction of the remainder of Ziff-Davis Inc.'s operations. Employee
termination costs included payments for severance and earned vacation as
well as the costs of outplacement services and the provision of continued
benefits to personnel. As of December 31, 1998, $5,200,000 of the
$8,668,000 related to these employee terminations had been paid.

Included in accrued expenses is $7,260,000 related to this restructuring
which Ziff-Davis Inc. believes will be paid during the first half of 1999.

7. Accounts Receivable, Net

Accounts receivable, net, consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Accounts receivable.................................. $297,647 $292,108
Allowance for doubtful accounts, returns and
cancellations....................................... (87,733) (83,515)
-------- --------
$209,914 $208,593
======== ========
</TABLE>

8. Property and Equipment, Net

Property and equipment, net, consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
(dollars in
thousands)
<S> <C> <C>
Computers and equipment.................................. $45,896 $70,584
Leasehold improvements................................... 39,719 61,972
Furniture and fixtures................................... 16,911 28,570
------- -------
102,526 161,126
Accumulated depreciation and amortization................ (52,135) (75,555)
------- -------
$50,391 $85,571
======= =======
</TABLE>

IV-64
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

9. Intangible Assets, Net

Intangible assets, net, consist of the following:

<TABLE>
<CAPTION>
Range of December 31,
Useful Lives ---------------------------
(years) 1997 1998
------------ ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Advertising lists................ 7-34 $ 885,700 $ 870,000
Exhibitor relationships.......... 4-27 154,070 154,070
Trademarks/trade names........... 30-40 735,595 709,306
License agreements............... 6-14 11,212 11,212
Subscriber lists................. 3-10 47,175 47,075
Other............................ 2-20 57,599 58,837
Goodwill......................... 5-40 1,316,077 1,348,413
---------- ----------
3,207,428 3,198,913
Accumulated amortization......... (244,259) (354,596)
---------- ----------
$2,963,169 $2,844,317
========== ==========
</TABLE>

All intangible assets are being amortized using the straight-line method over
estimated useful lives, up to 40 years. In determining the estimated useful
lives, ZD considered its competitive position in the markets in which it
operates, 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. In connection with the restructuring described in Note 6, ZD
recorded a $37,175,000 write-down of intangible assets associated with
discontinued publications and events.

10. Accrued Expenses

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
(dollars in
thousands)
<S> <C> <C>
Payroll and related employee benefits..................... $27,672 $24,408
Accrued interest.......................................... 6,226 13,678
Restructuring reserve..................................... -- 7,260
Other taxes payable....................................... 2,633 2,386
Other..................................................... 41,355 46,092
------- -------
$77,886 $93,824
======= =======
</TABLE>

IV-65
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

11. Unearned Income

Unearned income consists of the following:

<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
(dollars in
thousands)
<S> <C> <C>
Unexpired subscriptions................................ $ 82,167 $ 64,940
Prepaid conference fees................................ 80,706 95,706
Reserve for cancellations.............................. (8,191) (9,643)
-------- --------
$154,682 $151,003
======== ========
</TABLE>

12. Income Taxes

Provision (benefit) for income taxes and related assets and liabilities
attributed to ZD are determined in accordance with Ziff-Davis Inc.'s tax
allocation policy. (See Note 5.)

Prior to the Reorganization and initial public offering described in Note 2,
ZD had 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 ZD 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 Ziff-Davis Inc.
Following the Reorganization, Ziff-Davis Inc. will no longer be included in the
consolidated U.S. federal income tax returns filed by Softbank.

Income (loss) before income taxes is attributable to the following
jurisdictions:

<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1997 1998
-------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C>
U.S........................................ $(21,607) $(73,795) $(101,644)
Foreign.................................... (5,029) 2,147 (3,104)
-------- -------- ---------
Total...................................... $(26,636) $(71,648) $(104,748)
======== ======== =========

Components of the provision (benefit) for income taxes are as follows:

<CAPTION>
December 31,
-----------------------------
1996 1997 1998
-------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C>
U.S. federal income taxes:
Current.................................. $ -- $ -- $ --
Deferred................................. 19,716 (364) (22,008)
State and local income taxes:
Current.................................. -- -- --
Deferred................................. 5,729 (105) (7,476)
Foreign income taxes:
Current.................................. -- -- 2,545
Deferred................................. -- -- --
-------- -------- ---------
Total provision (benefit) for income
taxes................................. $ 25,445 $ (469) $ (26,939)
======== ======== =========
</TABLE>

IV-66
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

A reconciliation of the U.S. federal statutory tax rate to ZD's effective tax
rate on income (loss) before income taxes is as follows:

<TABLE>
<CAPTION>
December 31,
-------------------
1996 1997 1998
----- ----- ----
<S> <C> <C> <C>
Federal statutory tax rate........................... 35.0% 35.0% 35.0%
State and local taxes (net of federal tax benefit)... 6.0 6.0 4.6
Loss related to retained interest in ZDNet........... (26.1) (12.2) (2.5)
Non-recognition of combined losses of MAC Assets..... (96.9) (22.2) (2.6)
Amortization of non-deductible goodwill.............. (13.3) (5.8) (3.2)
Other................................................ (0.2) (0.1) (5.6)
----- ----- ----
Effective tax rate................................... (95.5)% 0.7% 25.7%
===== ===== ====
</TABLE>

The effective tax rate differs from the federal statutory tax rate primarily
as a result of ZD's inability to deduct losses of the MAC Assets prior to May
4, 1998, and ZD's policy of recording the losses related to its 100% retained
interest in ZDNet on a net of tax basis. The amortization of non-deductible
goodwill resulted primarily from the acquisition of 100% of the stock of
Holdings in 1996.

Following is a summary of the components of the deferred tax accounts at
December 31, 1997 and 1998:

<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
--------- ---------
(dollars in
thousands)
<S> <C> <C>
Current deferred tax assets and (liabilities):
Allowance for doubtful accounts................... $ 8,713 $ 15,068
Unearned income................................... 965 6,309
Other............................................. (953) 106
--------- ---------
Current deferred net tax assets................. 8,725 21,483
--------- ---------
Noncurrent deferred tax assets and (liabilities):
Basis difference in intangible assets............. (288,286) (247,832)
Basis difference in property and equipment........ 7,394 12,274
Net operating loss and other carryforwards........ 124,233 81,909
Other............................................. 6,307 15,034
--------- ---------
Noncurrent deferred tax liabilities............. (150,352) (138,615)
Valuation allowance................................. (35,261) (30,741)
--------- ---------
Net noncurrent deferred tax liabilities......... (185,613) (169,356)
--------- ---------
Net deferred tax liabilities........................ $(176,888) $(147,873)
========= =========
</TABLE>

As of December 31, 1997 and 1998 ZD had total deferred tax assets of
$112,351,000 and $99,959,000 respectively, and total deferred tax liabilities
of $289,239,000 and $247,832,000, respectively. The December 31, 1997 and 1998
net deferred tax assets are reduced by a valuation allowance of $35,261,000 and
$30,741,000, 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 1998 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, inasmuch as
such losses will not be available to ZD.

IV-67
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

At December 31, 1998, ZD has U.S. and foreign net operating loss
carryforwards of approximately $172,943,000, which will begin to expire in
1999. ZD's utilization of certain net operating loss carryforwards, of
approximately $112,549,000, is subject to limitations, due to the change of
ownership resulting from the Softbank acquisition of the Holdings stock on
February 29, 1996. Management believes that such limitations will not
significantly affect ZD's 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, ZD
has alternative minimum tax credit carryforwards of $385,000 which may be
carried forward indefinitely until used.

Undistributed earnings of foreign subsidiaries for which no deferred taxes
have been provided approximated $2,789,000 at December 31, 1998. Any additional
U.S. taxes payable on these foreign earnings, if remitted, would be
substantially offset by credits for foreign taxes already paid.

13. Notes Payable

All of Ziff-Davis Inc.'s external debt has been attributed to ZD.

A summary of ZD's notes payable at December 31, 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
1997 1998
---------- ----------
(dollars in
thousands)
<S> <C> <C>
Notes payable to
affiliates (Note 14)..... $2,534,030 $ 77,884
---------- ----------
8 1/2% Senior Subordinated
Notes(1)................. -- 249,130
Credit Facility
Revolving credit........ -- 270,000
Term Loan A............. -- 450,000
Term Loan B............. -- 500,000
---------- ----------
Third party notes
payable.................. -- 1,469,130
---------- ----------
Total notes payable....... 2,534,030 1,547,014
Less current portion notes
payable to affiliates.... (125,790) (7,692)
---------- ----------
$2,408,240 $1,539,322
========== ==========
</TABLE>
- --------
(1)Net of unamortized discount of $870.

8 1/2% senior subordinated notes

On May 4, 1998 ZD issued 8 1/2% Senior Subordinated Notes due 2008 (the
"Notes") in the aggregate principal amount of $250,000,000. The Notes were
issued at a discount of $915,000 which is being amortized to interest expense
over the term of the Notes. Included in the balance sheet as a reduction of
long-term debt at December 31, 1998 is $870,000 representing the unamortized
discount on the notes. Interest on the Notes is payable semi-annually on May 1
and November 1 of each year. Redemption of the Notes by ZD is subject to
certain limitations. The Notes are subordinated to all existing and future
senior indebtedness.

Credit facility

Ziff-Davis Inc. is party to a secured guaranteed credit agreement with The
Bank of New York, Morgan Stanley Senior Funding, DLJ Capital Funding and The
Chase Manhattan Bank, as agents, to provide a $1,350,000,000 term credit
facility. The amount outstanding under this facility at December 31, 1998 was
$1,220,000,000. The credit facility consists of: (1) a seven-year $400,000,000
reducing revolving credit facility,

IV-68
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

with $270,000,000 drawn as of December 31, 1998; (2) a seven-year $450,000,000
term loan; and (3) an eight-year $500,000,000 term loan. Under the credit
facility, Ziff-Davis Inc. paid interest at rates ranging from LIBOR plus 1.5%
to LIBOR plus 1.75%. See "--Amendment to credit facility" below.

There are various customary conditions to draw-downs under the revolving
commitments. The revolving credit commitments will be reduced and the $450
million term loan will be amortized, beginning in September 2000, by:

. 10% in 2000, in two equal quarterly installments,

. 20% in each of 2001, 2002, 2003 and 2004 in four equal quarterly
installments and

. 10% at final maturity in March 2005.

The $500 million term loan will be amortized, beginning in September 2000, by:

. $2 million in 2000, in two equal quarterly installments,

. $4 million in each of 2001, 2002, 2003, 2004 and 2005 in four equal
quarterly installments and

. $478 million at final maturity in March 2006.

Under its most restrictive covenant, ZD could have borrowed an additional
$28,800,000 under the credit facility at December 31, 1998.

Covenants

The Notes and the credit facility contain certain customary affirmative and
negative covenants, including covenants with respect to limitations on
dispositions of assets, changes of business and ownership, mergers or
acquisitions, restricted payments, indebtedness, loans and investments and
transactions with affiliates. The Notes and the credit facility also contain
certain financial covenants including levels of debt to EBITDA and EBITDA to
interest ratios.

The failure to satisfy any of the covenants would constitute an event of
default under the credit facility. The credit facility also includes 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. At December 31, 1998,
management believes that ZD was in compliance with all covenants under its debt
agreements.

Amendment to credit facility

IV-69
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Related-party debt

In March 1995, Ziff-Davis Inc. entered into a $100,000,000 note payable to
Softbank due in quarterly installments, maturing on February 28, 2010 and
bearing interest at 9.9% per annum. (See Note 14.)

Scheduled Principal Repayments

Scheduled principal payments due on long-term debt at December 31, 1998 are
as follows:

<TABLE>
<CAPTION>
(dollars in thousands)
----------------------
<S> <C>
1999............................................... $ 7,692
2000............................................... 53,923
2001............................................... 100,923
2002............................................... 100,923
2003............................................... 100,923
Thereafter......................................... 1,183,500
----------
Total.............................................. $1,547,884
Less unamortized discount.......................... (870)
----------
Notes payable, net................................. 1,547,014
==========
</TABLE>

Interest rate swaps

On June 10, 1998 ZD entered into interest rate swap agreements, with an
aggregate notional amount of $550,000,000. Under these swap agreements, which
took effect on August 10, 1998, ZD receives a floating rate of interest based
on three-month LIBOR, which resets quarterly, and ZD pays a fixed rate of
interest, each quarter, for the terms of the respective agreements. The terms
of these agreements range from 3 to 7 years and the weighted average fixed rate
ZD pays is 5.85%. ZD has entered into these agreements solely to hedge its
interest rate risk under its floating rate bank debt.

For the year ended December 31, 1998, these interest rate swaps did not have
a material impact on the financial statements.

14. Related Party Transactions

ZD transacts business with a group of companies affiliated through common
ownership with Softbank, and has various transactions and relationships with
members of the group. Due to 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

Due from affiliates consist of the following:

<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
----------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Due from:
MAC .......................................... $ 42,687 $ 50,704
Softbank...................................... 84,365 1,557
Other affiliates.............................. 4,238 1,723
----------- ----------
$ 131,290 $ 53,984
=========== ==========
</TABLE>

IV-70
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Due to affiliates and management consist of the following:

<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
-------- -------
(dollars in
thousands)
<S> <C> <C> <C>
Due to:
Management (including long-term portion)............ $ -- $ 9,900
MAC ................................................ 270,000 --
Softbank............................................ 126,371 --
Other affiliates.................................... 1,961 118
-------- -------
$398,332 $10,018
======== =======
</TABLE>

As part of the 1996 acquisition of ZDI, ZD agreed to assume certain
obligations to management arising out of prior employment arrangements with
previous owners. In January 1997, ZD paid all amounts due, including accrued
interest, through the payment date.

Prior to the Reorganization and initial public offering, ZD was a member of
Softbank's central cash management system. Under this system, ZD would
periodically transfer excess cash to Softbank for cash management purposes and
in turn receive cash advances from Softbank to fund ZD's short-term working
capital requirements. Interest was accrued based on the net balance outstanding
at the end of each month. Interest income was earned at the 30-day LIBOR rate
for the applicable month. Interest expense was incurred at the 30-day LIBOR
rate plus 0.5%.

As a result of contingent purchase price adjustments related to its
acquisition of Inter@ctive Enterprises, ZD is obligated to pay the prior owners
of Inter@ctive Week $10,850,000 which was recorded as an increase to intangible
assets. The purchase price payments of $950,000, $4,500,000 and $5,400,000 are
due in 1998, 1999 and 2000, respectively. The 1999 and 2000 payments have been
classified as current and long-term due to management.

Other affiliated arrangements

During the years ended December 31, 1996, 1997 and 1998, ZD incurred
$2,000,000, $1,631,000 and $169,000, respectively, in advertising expense with
Yahoo!, Inc. (Yahoo!), an affiliated company.

ZD sells advertising space and exhibition services to Kingston. During the
years ended December 31, 1996, 1997 and 1998, ZD recorded revenue of $882,000,
$2,667,000 and $2,472,000, respectively, from sales to Kingston. These services
were provided under terms consistent with those provided to unaffiliated
customers.

In addition, on May 4, 1998 Ziff-Davis Inc. purchased $9,107,000 of fixed
assets from Kingston in exchange for cash and common stock of Ziff-Davis Inc.
Such fixed assets were subsequently leased back to Kingston. Rental income
included as a reduction of selling, general and administrative expenses
relating to this transaction was $2,400,000 in 1998.

ZD has entered into an agreement to manage certain trade shows and
expositions owned by Softbank, whereby ZD earns management, royalty and
licensing fees. The fees earned by ZD for the years ended December 31, 1996,
1997 and 1998 were $3,394,000, $4,057,000, and $1,117,000, respectively.

IV-71
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

ZD has an arrangement with SOFTBANK Services, an affiliated company, whereby
ZD is charged for administrative services provided plus a management fee. For
the years ended December 31, 1996, 1997 and 1998 ZD incurred services fees of
$359,000, $1,259,000 and $810,000, respectively, in relation to this agreement.
During 1998, SOFTBANK Services was sold to an unrelated third party and the
arrangement was terminated.

ZD has entered into certain licensing agreements with Softbank for the
publishing and distribution of Japanese language editions of certain
publications. The fees earned by ZD for the years ended December 31, 1996, 1997
and 1998 were approximately $964,000, $1,818,000 and $709,000, respectively.

Certain ZD employees have been granted options to purchase Softbank common
stock (the "Softbank Options"). Further, on January 29, 1999, options to
purchase Ziff-Davis Inc. common stock were granted in connection with the
cancellation of certain Softbank options. (See Note 15.)

Included in selling, general and administrative expenses is an allocation for
Ziff-Davis Inc.'s Central Services amounting to $61,359,000, $85,739,000 and
$92,032,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
Also included as a reduction in selling, general and administrative expenses is
a royalty charge from ZDNet amounting to $811,000, $1,611,000 and $2,807,000
for the years ended December 31, 1996, 1997 and 1998, respectively. (See Note
5.)

ZD's publications sell advertising to ZDNet at discounts to market rates. Had
ZD charged market rates for such advertising, ZD's revenue would have increased
by $2,235,000, $2,671,000 and $1,429,000 for the years ended December 31, 1996,
1997 and 1998, respectively.

IV-72
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Notes payable to affiliates

See Note 2 for a discussion of ZD's restructuring of its debt and equity
structures through the Reorganization and initial public offering.

ZD's long-term debt payable to Softbank consists of the following:

(2) 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 and bear interest at a rate of 8.0% per
annum.

(4)Note matures on February 28, 2010 and bears interest at 9.9% per annum.

(5) Note is payable in 52 equal quarterly installments commencing March 31,
1997 and bears interest at a rate of 8.0% per annum.

(6)Note is payable on January 1, 2007 and bears interest at a rate of 8.0% per
annum.

During 1996, 1997 and 1998 ZD incurred $120,646,000, $190,445,000 and
$65,935,000 respectively, of interest expense due to Softbank related to the
above notes payable.

Guarantee of Softbank's U.S. debt

In April 1996, Softbank signed a line of credit agreement totaling
$50,000,000 with an independent lender for which ZD, along with certain other
SOFTBANK Corp. affiliates, is a guarantor. In January 1997, October 1997 and
March 1998, this line of credit was increased to $75,000,000, $150,000,000 and
$450,000,000 respectively. On May 4, 1998, ZD was released from this guarantee.

Return of capital and dividends

On December 15, 1996, ZD declared a return of capital of approximately
$900,000,000 paid through the issuance of a note payable to a subsidiary of
Softbank and a cash dividend of $8,000,000 to Softbank. In 1997, ZD recorded a
return of capital of $381,434,000 in connection with the purchase of companies
under common control.

IV-73
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

15. Stock Compensation Plans

SOFTBANK Executive Stock Option Plans

The Softbank Executive Stock Option Plans provide for the granting of
nonqualified stock options (the "Softbank Options") to purchase the common
stock of SOFTBANK Corp. to officers, directors and key employees of ZD.
SOFTBANK Corp. is a publicly traded company in Japan. 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, 1998, 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. On January 19,
1998, the exercise price of all of the shares outstanding under option
agreements was reset to (Yen)4,000, 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 could only be
exercised after July 19, 1998. The repricing of the stock options did not
result in compensation expense to ZD.

1998 Incentive Compensation Plan and the 1998 Non-Employee Directors' Stock
Option Plan

In 1998, Ziff-Davis Inc. adopted the 1998 Incentive Compensation Plan (the
"Incentive Plan") and the 1998 Non-Employee Directors' Stock Option Plan (the
"Non-Employee Directors' Plan"). The Incentive Plan provides for the grant of
options, stock appreciation rights, stock awards and other interests in Ziff-
Davis Inc.'s common stock to key employees of Ziff-Davis Inc. and its
affiliates and consultants. The Non-Employee Directors' Plan provides for the
grant of stock options to non-employee directors. Ziff-Davis Inc. has reserved
8,500,000 shares of common stock for issuance under the Incentive Plan and
200,000 shares of common stock for issuance under the Non-Employee Directors'
Plan. During 1998, Ziff-Davis Inc. granted options to purchase 6,418,495 shares
with exercise prices ranging from $6.00 to $16.00 per share representing the
fair value of such options on the date of grant. Such options vest ratably over
five years.

On December 21, 1998, the Board approved an amendment to the Incentive Plan
to permit grants of options and other stock-based awards with respect to any
series of common stock of Ziff-Davis Inc. and to increase the number of shares
available for issuance from 8,500,000 shares to 17,827,500 shares.

In addition, on December 21, 1998, the Board approved the grant of options to
acquire an aggregate of approximately 1,566,000 shares of ZDNet Stock, to
certain employees at a price of $7.50 per share. As a result of the grant ZD
has recorded deferred compensation expense of $4,993,000 for the difference
between the exercise price and the deemed fair value of the underlying shares.
This amount has been recorded as a component of division equity offset by an
addition to paid-in capital. ZD expects to recognize non-cash compensation for
accounting purposes of $4,993,000 ratably over the vesting period of the
options. These options are currently scheduled to vest and become exercisable
on the fifth anniversary of the date of grant.

IV-74
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

adjustment is similar to the adjustment that would generally be made to the
terms of employee stock options in the event of a stock split. Ziff-Davis Inc.
currently expects that the initial Number of Shares Issuable with Respect to
ZD's Retained Interest in ZDNet will be 70,000,000. Assuming that this is so,
the total number of shares of ZDNet Stock that holders may purchase upon
exercise of these options will increase to approximately 10,026,000 and the per
share purchase price thereof will decrease to approximately $4.29.

The December 21, 1998 Board actions described above are subject to
stockholder approval. The majority stockholder of Ziff-Davis Inc. has committed
to vote for these actions.

On January 29, 1999, Ziff-Davis Inc. granted options to a number of employees
in connection with the cancellation of corresponding options to purchase stock
of SOFTBANK Corp. In connection with these grants, an affiliate of SOFTBANK
Corp. has agreed with Ziff-Davis Inc. that, if and when any of these options
are exercised, (1) that affiliate will cause the shares of Ziff-Davis Inc.
common stock issuable upon such exercise to be supplied to Ziff-Davis Inc. and
(2) Ziff-Davis Inc. will deliver to that affiliate or its designee the exercise
price paid upon such exercise. Thus, the exercise of these options will not
increase the number of shares of Ziff-Davis Inc. common stock outstanding or
Ziff-Davis Inc.'s stockholders' equity. However, ZD expects to recognize
compensation expense for accounting purposes of approximately $2,942,000 over
three years as a result of these grants. As such, this amount has been recorded
in the Financial Statements as additional paid-in capital offset by a reduction
to division equity as deferred compensation.

Option grants

Information relating to the Softbank options during 1996, 1997 and 1998 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.................................. 714,777 (2) $87.15
Exercised................................ -- --
Forfeited................................ (12,740)(2) 87.15
--------
Shares outstanding under options at
December 31, 1996....................... 702,037 87.15
Granted.................................. 368,563 61.25
Exercised................................ -- --
Forfeited................................ (138,034) 78.89
--------
Shares outstanding under options at
December 31, 1997....................... 932,566 $78.14
Granted.................................. 258,215 $31.03
Exercised................................ (75,982) 31.03
Forfeited/cancelled...................... (309,936) 31.03
Converted to Ziff-Davis Inc. options..... (81,478) 31.03
--------
Shares outstanding under options at
December 31, 1998....................... 723,385 $31.03
========
Shares exercisable as of:
At December 31, 1996................... -- --
At December 31, 1997 (price range
$44.26-$87.15)........................ 102,510 $82.21
At December 31, 1998 (price $31.03).... 243,686 $31.03
</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. The 1998 activity reflects the repricing of all
options outstanding as of January 19, 1998 to (Yen) 4,000.

(2) Adjusted for a 1.4:1 stock split during 1996 and a 1.3:1 stock
split during 1997.

IV-75
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Information relating to the Ziff-Davis Inc. stock options during 1998 is as
follows:

<TABLE>
<CAPTION>
Weighted Average
Number Option Price
of Shares Per Share
--------- ----------------
<S> <C> <C>
Shares outstanding under options at December
31, 1997................................... -- --
Granted..................................... 6,418,495 $6.09
Exercised................................... -- --
Converted from Softbank options............. 319,174 8.89
Forfeited................................... (385,590) 6.00
---------
Shares outstanding under options at December
31, 1998................................... 6,352,079 $6.22
=========
</TABLE>

Information relating to the ZDNet stock options during 1998 is as follows:

<TABLE>
<CAPTION>
Weighted Average
Number Option Price
of Shares* Per Share*
---------- ----------------
<S> <C> <C>
Shares outstanding under options at December
31, 1997................................... -- --
Granted..................................... 1,566,357 $7.50
Exercised................................... -- --
Forfeited................................... -- --
---------
Shares outstanding under options at December
31, 1998................................... 1,566,357 $7.50
=========
</TABLE>
- --------

* The number of shares and price per share will be adjusted if the initial
Number of Shares Issuable with Respect to ZD's Retained Interest in ZDNet is
different from 40,000,000.

At December 31, 1998, no shares of either Ziff-Davis Inc. or ZDNet options
were exercisable.

IV-76
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

As permitted by SFAS No. 123, ZD has 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, 1997
or 1998. Pro forma information regarding net income is required by SFAS No. 123
and has been determined as if ZD 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, 1997 and 1998:

Softbank options
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... 5.89% 6.35% 5.46%
Dividend yield.................................... 0.26% 0.22% 1.50%
Volatility factor................................. 54.03% 51.35% 77.72%
Expected life..................................... 6 years 6 years 6 years

Ziff-Davis Inc. options
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... n/a n/a 5.03%
Dividend yield.................................... n/a n/a 0.00%
Volatility factor................................. n/a n/a 54.70%
Expected life..................................... n/a n/a 6 years

ZDNet options
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... n/a n/a 4.67%
Dividend yield.................................... n/a n/a 0.00%
Volatility factor................................. n/a n/a 54.70%
Expected life..................................... n/a n/a 6 years

The weighted average fair value of options granted in 1996, 1997 and 1998 is
as follows:

<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Softbank options.................................. $64.30 $34.05 $19.81
Ziff-Davis Inc. options........................... n/a n/a 5.21
ZDNet options..................................... n/a n/a 4.25
</TABLE>

For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over 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, 1997 and 1998, consistent
with the provisions of SFAS No. 123, ZD's net loss would have been increased by
approximately $3,000,000, $4,000,000 and $14,084,000, respectively.

Other stock compensation plans

During 1996, 1997 and 1998 employees of ZD were granted 45,760, 61,940 and
27,223 shares of common stock of SOFTBANK Corp., respectively, (adjusted for a
1.4:1 stock split 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 3 to 5-year period from the date of grant. The granting of the shares to
ZD's employees has been recorded as

IV-77
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

additional paid-in capital offset by a reduction to division 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 $1,080,000 was
charged to expense related to the restricted stock awards. During 1997,
restrictions on 75,210 shares expired, 2,150 shares were forfeited and
$3,916,000 was charged to expense related to these restricted stock awards.
During 1998, restrictions on 22,361 shares expired, 5,736 shares were forfeited
and $252,000 was charged to expense related to these restricted stock awards.

Employee Stock Purchase Plan

16. Employee Benefit Plans

Pension plan

Certain employees of ZD who have met eligibility requirements were covered by
a noncontributory defined benefit pension plan. The benefits are based on years
of service and average compensation at the time of retirement. ZD's 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.

During 1997, ZD 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 amounts below reflect the effects of such termination. All
accrued plan obligations were settled during 1998 and a gain of $156,000 was
recognized in 1998 as a result of the plan settlement.

Net periodic pension cost includes the following components:

<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Service cost................................... $ 700 $ 391 $ --
Interest cost.................................. 472 456 --
Expected return on plan assets................. (300) (445) --
Amortization of transition obligation.......... 199 75 --
-------- ------- -------
Net periodic pension cost...................... $ 1,071 $ 477 $ --
======== ======= =======
</TABLE>

IV-78
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

The following table sets forth the funded status and amounts recognized in the
balance sheet:

<TABLE>
<CAPTION>
1997 1998
------------ -----------
(dollars in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation..................... $ 5,721 $ --
------------ ----------
Accumulated benefit obligations............... 5,721 --
============ ==========
Projected benefit obligations................... 5,721 --
Plan assets at fair value....................... (6,004) --
============ ==========
Projected benefit obligation less than plan
assets......................................... (283) --
Unrecognized net transition asset............... 1,279 --
------------ ----------
Pension liability included in balance sheet..... $ 996 $ --
============ ==========
</TABLE>

Retirement plans

Ziff-Davis Inc. maintains various defined contribution retirement plans.
Substantially all of ZD's employees are eligible to participate in one of the
plans under which annual contributions may be made by Ziff-Davis Inc. 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 Ziff-Davis Inc. up to certain specified
percentages. Employees are generally eligible to participate in a plan upon
joining Ziff-Davis Inc. and receive matching contributions after one year of
employment. ZD made contributions to the plans totaling $10,023,000,
$12,974,000 and $11,893,000 in 1996, 1997 and 1998, respectively.

17. Investments

ZD has investments in the following companies/joint ventures/divisions:

<TABLE>
<CAPTION>
Carrying value at
December 31,
Ownership -----------------
Equity Investments Percentage 1997 1998
------------------ ---------- -------- --------
(dollars in
thousands)
<S> <C> <C> <C>
MAC Publishing LLC........................... 50% $ 16,244 $19,268
ExpoComm LLC................................. 50% 7,758 8,571
Family PC G.P................................ 50% 9,342 --
Cost Investments
----------------
Red Herring Communications, Inc. ............ -- $ 5,000
</TABLE>

The entities listed above are engaged primarily in the publication or
distribution of print media, the organization, production and management of
trade shows and providing interactive information and programming to
technology-oriented Internet users. Other investments and joint ventures are
not material to ZD's financial statements.

ZD has equity income (loss) from joint ventures of $(796,000), $335,000 and
$7,483,000 in 1996, 1997 and 1998, respectively. In addition, ZD had equity
losses of $16,925,000, $21,238,000 and $7,884,000 in 1996, 1997 and 1998,
respectively, from its 100% Retained Interest in ZDNet.

IV-79
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

18. Supplemental Cash Flow Information

<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1996 1997 1998
---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................... $ 99,509 $185,447 $129,976
Income taxes............................... 360 4 1,000
Noncash investing and financing activities:
Fair value of assets acquired.............. $2,508,603 $ 14,000 $ 55,473
Liabilities assumed........................ 370,518 -- 32,701
---------- -------- --------
Cash paid.................................. 2,138,085 14,000 22,772
Less--cash acquired........................ 13,262 -- --
Net cash paid for acquisitions............. $2,124,823 $ 14,000 $ 22,772
========== ======== ========
Return of capital dividends................ $ 899,948 $381,434 $ --
========== ======== ========
Capital contributions...................... $ 5,002 $ 61,580 $926,096
========== ======== ========
</TABLE>

19. Fair Value of Financial Instruments

ZD's accounting policies with respect to financial instruments are discussed
in Note 4.

The carrying amounts and fair values of ZD's significant on balance sheet
financial instruments at December 31, 1997 and 1998 are as follows:

<TABLE>
<CAPTION>
At December 31,
-------------------------------------------
1997 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Values Amount Values
---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents......... $ 30,273 $ 30,273 $ 32,274 $ 32,274
Accounts receivable............... 209,914 209,914 208,593 208,593
Accounts payable.................. 54,823 54,823 71,844 71,844
Long-term debt (including current
portion)......................... 2,534,030 2,534,030 1,547,014 1,543,839
</TABLE>

Interest rate swaps

ZD utilizes interest rate swaps to reduce the impact on interest expense of
fluctuating interest rates on its variable rate debt. Under ZD's interest rate
swap agreements, ZD agreed with the counterparties to exchange, at quarterly
intervals, the difference between ZD's fixed pay rate and the counterparties'
variable pay rate on three-month LIBOR. At December 31, 1998, ZD was a fixed
payor of 5.85% on an aggregate notional amount of $550,000,000.

The fair values of these interest rate swaps were estimated by obtaining
quotes from brokers which represented the amounts that ZD would pay if the
agreements were terminated at the balance sheet date. While it is not ZD's
intention to terminate these interest rate swaps, these fair values indicated
that the termination of the interest rate swap agreements would have resulted
in a loss of $15,627,000.

IV-80
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

20. Operating Lease Commitments

ZD utilizes equipment and space under lease to Ziff-Davis Inc. ZD's portion
of the minimum lease payments based on square feet utilized are as follows:

<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
1999..................................................... $ 31,408
2000..................................................... 32,601
2001..................................................... 30,371
2002..................................................... 28,893
2003..................................................... 27,579
Thereafter............................................... 225,952
--------
Total.................................................. $376,804
========
</TABLE>

Netted in the above totals is approximately $5,000,000 for which ZD has
noncancelable subleases in place. Total sublease income approximates ZD's
required payments under the related leases. Rent expense amounted to
approximately $22,347,000, $28,646,000 and $23,087,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.

21. Segment Information

ZD has adopted the provisions of SFAS No. 131, Disclosure about Segments of
an Enterprise and Related Information. As such, prior years data has been
restated in accordance with SFAS No. 131.

Business segment information

Reportable segments are based on ZD's method of internal reporting which
segregates its business by product lines. Management measures operating
performance of the business segments based on "EBITDA". EBITDA is defined as
income before provision for income taxes, interest expense, depreciation and
amortization and restructuring charge. ZD's EBITDA is calculated by adding (a)
ZD's EBITDA before losses related to its retained interest in ZDNet and (b)
ZD's proportionate interest in ZDNet's EBITDA. 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 ZD's operating performance or to
cash flows as a measure of liquidity. Although ZD believes that EBITDA is a
standard measure commonly reported and widely used by analysts, investors and
other interested parties, in the publishing business and media industries, the
EBITDA presented for ZD may not be comparable to similarly titled measures
reported by other companies.

ZD's reportable segments are:

Publishing

IV-81
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Events

The events segment is engaged in the organization, production and management
of trade shows, conferences and seminars for the computer industry. The events
segment's principal operations are in North America and to a lesser extent in
Europe, Asia and Latin America.

The accounting policies of the segments are the same as those described in
Note 3 under "Summary of Significant Accounting Policies". ZD evaluates the
performance of its segments and allocates resources to them based on EBITDA.
Any inter-segment revenues included in segment data are not material. The
following presents information about the reported segments for the years ending
December 31:

<TABLE>
<CAPTION>
1996 1997 1998
-------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Revenue:
Publishing................................. $674,040 $ 834,015 $ 782,882
Events..................................... 264,884 287,528 269,867
-------- ---------- ----------
Total.................................... $938,924 $1,121,543 $1,052,749
======== ========== ==========

<CAPTION>
1996 1997 1998
-------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
EBITDA:
Publishing................................. $124,467 $ 169,145 $ 124,396*
Events..................................... 108,791 103,749 119,698
-------- ---------- ----------
Total.................................... $233,258 $ 272,894 $ 244,094
======== ========== ==========
</TABLE>
- --------
* Before restructuring charge of $52,239,000

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Total Assets:
Publishing................................ $2,441,441 $2,423,822 $2,285,920
Events.................................... 1,143,522 1,124,286 1,144,018
---------- ---------- ----------
Total................................... $3,584,963 $3,548,108 $3,429,938
========== ========== ==========
</TABLE>

A reconciliation of total segment EBITDA to total combined loss before income
taxes, for the years ended December 31, 1996, 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C>
EBITDA:
Total segment EBITDA...................... $233,258 $272,894 $ 244,094
Restructuring charge...................... -- -- (52,239)
Depreciation & amortization............... (31,647) (28,884) (27,875)
Amortization of intangible assets......... (102,604) (118,375) (118,221)
Interest expense, net..................... (120,646) (190,445) (143,547)
Non EBITDA loss related to retained
interest in ZDNet........................ (4,997) (6,838) (6,960)
-------- -------- ---------
Combined loss before income taxes....... $(26,636) $(71,648) $(104,748)
======== ======== =========
</TABLE>

IV-82
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Publishing's investment in equity method investees for the years ended
December 31, 1996, 1997 and 1998 was $10,138,000, $25,586,000 and $19,268,000,
respectively. Events' investment in equity method investees for the year ended
December 31, 1996, 1997 and 1998 was $7,698,000, $7,758,000 and $8,571,000,
respectively.

The following is sales information by geographic area as of and for the
respective years ended December 31.

<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Revenue:
U.S....................................... $ 838,749 $1,008,681 $ 936,075
Foreign................................... 100,175 112,862 116,674
---------- ---------- ----------
Total................................... $ 938,924 $1,121,543 $1,052,749
========== ========== ==========

Foreign revenue is based on the country in which the sales originate. Revenue
from no single foreign country was material to the combined revenues of ZD.

The following is long-lived asset information by geographic area as of and
for the years ended December 31, 1996, 1997 and 1998:

<CAPTION>
1996 1997 1998
---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Long-lived assets:
U.S....................................... $3,211,881 $3,103,611 $3,049,645
Foreign................................... 9,580 8,570 14,130
---------- ---------- ----------
Total................................... $3,221,461 $3,112,181 $3,063,775
========== ========== ==========
</TABLE>

No single customer accounted for more than 10% of total revenue for each of
the years ended December 31, 1996, 1997 and 1998.

22. Contingencies

ZD is subject to various claims and legal proceedings arising in the normal
course of business.

Class action and derivative litigations

IV-83
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

The complaints allege that defendants violated Sections 11, 12(a) (2) and 15
of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of Ziff-Davis Inc.'s common stock on April 29,
1998 (the "IPO"). More particularly, the complaints allege that the
registration statement contained false and misleading statements and failed to
disclose facts that could have indicated an impending decline in Ziff-Davis
Inc.'s revenue. The complaints seek on behalf of a class of purchasers of Ziff-
Davis Inc.'s common stock from the date of the IPO through October 8, 1998
unspecified damages, interest, fees and costs, rescission and injunctive relief
such as the imposition of a constructive trust upon the proceeds of the IPO.

In addition, two derivative suits have been filed by stockholders against
Ziff-Davis Inc. and all of its directors in the Court of Chancery of the State
of Delaware for New Castle County. The complaints allege that the directors
breached their fiduciary duties to Ziff-Davis Inc. by repricing the stock
options awarded to certain directors and demand the nullification of the
repricing and an injunction against exercise by the directors of any repriced
option. The Plaintiffs filed an amended complaint on February 17, 1999 (which
is substantially similar to the original complaints, except that the amended
complaint also addresses the granting of "new options" at an allegedly "reduced
exercise price") and have indicated their intent to seek consolidation of the
actions. A response to the amended complaint has not yet been filed.

Other legal proceedings

Ziff-Davis Inc. was named as a defendant in an action, filed on April 17,
1998 in the Supreme Court of the State of New York, by minority stockholders of
SOFTBANK Interactive Marketing Inc. ("SIM"), formerly an indirect subsidiary of
SOFTBANK Corp. The complaint alleges, among other things, that SBH, SIM's
majority stockholder, acting with Ziff-Davis Inc. and two of its senior
officers and directors who were directors of SIM (and who were also named as
defendants), had conflicts of interest between SIM and other Softbank
investments (including investments in Ziff-Davis Inc.) and failed to act in the
best interests of SIM and the minority stockholders by taking actions which
benefited Ziff-Davis Inc. The complaint states claims based on common law
fraud, breach of fiduciary duty and aiding and abetting theories and seeks in
excess of $200,000,000 in damages. Ziff-Davis Inc. and the other defendants
have moved to dismiss all of the claims against them other than a breach of
contract claim which is solely against SBH, and the motion was granted, with
the result that all of the claims against Ziff-Davis Inc. and its officers were
dismissed, and most of the claims against SBH were dismissed, leaving only a
claim against SBH concerning the alleged failure of SBH to give plaintiffs
adequate notice of the sale of its stock to SIM.

23. Subsequent Events

ZDTV

On February 4, 1999, ZD purchased ZDTV at a purchase price of approximately
$81,400,000. (See Note 14.) ZD paid approximately $32,800,000 of the purchase
price in cash (settled on February 5, 1999) and paid

IV-84
<PAGE>

ZD
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

the remainder by applying approximately $48,600,000 in advances owed to it by
MAC Holdings America. ZD also agreed to be responsible for the funding of ZDTV
during the period in 1999 prior to the purchase which will be accounted for as
additional purchase price. Other than advances to ZDTV which are reported on
ZD's balance sheet, the results of operations of ZDTV are not included in ZD's
results for any of the periods presented. This acquisition will be accounted
for in 1999 under the purchase method of accounting.

Vulcan transactions

Unaudited summary pro forma information

The following unaudited summary pro forma information assumes that the
acquisition of ZDTV and the sale of a one-third interest in ZDTV to Vulcan
Programming had been consummated on January 1, 1998. Adjustments for ZDTV
transactions include the operating results of ZDTV, amortization of the
purchase price of ZDTV, Vulcan Programming's one-third interest in the losses
of ZDTV and the tax effect of these items. The pro forma data is not
necessarily indicative of actual results had the transaction occurred on
January 1, 1998. Further, pro forma results are not meant to represent future
financial results.

<TABLE>
<CAPTION>
Adjustments
for ZDTV
ZD Transactions Proforma
---------- ------------ ----------
(dollars in thousands)
<S> <C> <C> <C>
Revenue............................... $1,052,749 $ 5,585 $1,058,334
Income (loss) from operations......... 38,586 (55,049) (16,463)
Net loss.............................. (77,809) (22,443) (100,252)
</TABLE>

Other

IV-85
<PAGE>

ANNEX V

ZDNet

INDEX TO ANNEX V

<TABLE>
<CAPTION>
Page
----
<S> <C>
ZDNet Selected Historical Combined Financial and Other Data............... V-2
ZDNet Management's Discussion and Analysis of Financial Condition and
Results of Operations for the three and nine month periods ended
September 30, 1998 and 1999.............................................. V-4
ZDNet Management's Discussion and Analysis of Financial Condition and
Results of Operations for the years ended December 31, 1996, 1997 and
1998..................................................................... V-10
ZDNet Description of Business............................................. V-20
ZDNet Unaudited Combined Financial Statements for the nine month period
ended
September 30, 1999
Unaudited Combined Balance Sheets as of December 31, 1998 and September
30, 1999............................................................... V-30
Unaudited Combined Statements of Operations for the three and nine
months ended September 30, 1998 and 1999............................... V-31
Unaudited Combined Statements of Comprehensive Income (Loss) for the
three and nine month periods ended September 30, 1998 and 1999......... V-32
Unaudited Combined Statements of Cash Flows for the nine month periods
ended September 30, 1998 and 1999...................................... V-33
Combined Statements of Changes in Division Equity for the nine month
period ended September 30, 1999 ....................................... V-34
Notes to Unaudited Combined Financial Statements........................ V-35
ZDNet Combined Financial Statements for the years ended December 31, 1996,
1997 and 1998
Report of Independent Accountants....................................... V-41
Combined Balance Sheets as of December 31, 1997 and 1998................ V-42
Combined Statements of Operations for the period from February 29, 1996
to December 31, 1996 and for the years ended December 31, 1997 and
1998................................................................... V-43
Combined Statements of Cash Flows for the period from February 29, 1996
to December 31, 1996 and for the years ended December 31, 1997 and
1998................................................................... V-44
Combined Statements of Changes in Division Equity for the period from
February 29, 1996 to December 31, 1996 and for the years ended December
31, 1997 and 1998...................................................... V-45
Notes to Combined Financial Statements.................................. V-46
</TABLE>

V-1
<PAGE>

ZDNET

SELECTED HISTORICAL COMBINED FINANCIAL AND OTHER DATA

The following table presents selected historical combined data for ZDNet as
of and for the ten month period ended December 31, 1996, as of and for the
years ended December 31, 1997 and 1998 and as of and for the nine months ended
September 30, 1998 and 1999. This data was derived from the Combined Financial
Statements of ZDNet. The data as of and for the nine months ended September 30,
1998 and 1999 are unaudited.

An affiliate of Ziff-Davis Inc. acquired ZDNet on February 29, 1996; the
ZDNet data does not include results from ZDNet for the period before the date
of acquisition. However, the following table also presents selected historical
combined data for the predecessor of ZDNet as of and for the years ended
December 31, 1994 and 1995 and as of and for the two month period ended
February 28, 1996. The data as of and for the year ended December 31, 1995 and
as of and for the two months ended February 28, 1996 was derived from the
audited Combined Financial Statements of ZDNet's predecessor. The data as of
and for the year ended December 31, 1994 was derived from the unaudited
combined financial statements of ZDNet's predecessor.

On May 4, 1998, Ziff-Davis Inc. completed a reorganization described in Note
2 to the unaudited Combined Financial Statements of ZDNet and on April 6, 1999
Ziff-Davis Inc. completed a public offering of ZDNet stock described in Note 3
to the unaudited Combined Financial Statements of ZDNet. Results for periods
before the reorganization and public offering are not directly comparable to
results for periods after those events. No historical earnings per share or
share data are presented as Ziff-Davis Inc. does not consider such data
meaningful.

V-2
<PAGE>

This table should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Combined
Financial Statements for ZDNet included later in this Annex as well as
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Financial Statements for Ziff-Davis Inc. and ZD included in
other Annexes to this proxy statement.

<TABLE>
<CAPTION>
Predecessor(1) ZDNet
------------------------------ ------------------------------------------------
Two month Ten month Nine month
Year ended period ended period ended Year ended period ended
December 31, February 28, December 31, December 31, September 30,
1994 1995 1996 1996 1997 1998 1998 1999
------- ------- ------------ ------------ -------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue, net............ $13,349 $13,576 $ 2,903 $ 16,215 $ 32,218 $56,143 $36,466 $67,791
Cost of operations:
Production and
content............... 9,321 10,709 1,802 14,863 23,543 26,208 18,971 25,491
Selling, general and
administrative
expenses.............. 7,276 8,360 1,774 13,280 23,475 30,993 22,048 31,241
Stock-based
compensation expense.. -- -- -- -- -- -- -- 2,953
Depreciation and
amortization.......... 1,163 4,040 597 5,485 7,681 6,448 4,780 7,790
Income (loss) from
operations............. (4,411) (9,533) (1,270) (17,413) (22,481) (7,506) (9,333) 316
Interest income-related
party.................. -- -- -- -- -- -- -- 943
Minority interest....... -- -- -- -- 400 134 330 117
Income (loss) before
income taxes........... (4,411) (9,533) (1,270) (17,413) (22,081) (7,372) (9,003) 1,376
Net loss (2)............ (4,526) (5,755) (814) (16,925) (21,238) (7,884) (8,691) (111)
Balance Sheet Data (at period
end):
Total current assets.... $ 2,432 $ 3,992 $ 4,951 $ 7,852 $ 11,521 $20,068 $15,467 $38,555
Total assets............ 3,557 91,772 92,717 82,507 87,326 97,686 90,092 179,650
Total liabilities....... 8,083 2,090 1,492 3,932 4,034 8,139 7,401 18,076
Division equity
(deficit).............. (4,526) 89,682 91,225 78,575 83,292 89,547 82,691 161,574
Other Data:
Capital expenditures.... $ 513 $ 1,590 $ 168 $ 1,010 $ 2,374 $ 4,483 $ 3,181 $ 2,763
Investments and
acquisitions, net of
cash acquired.......... -- -- -- -- 2,998 5,000 5,000 18,618
</TABLE>
- --------
(1) A third party acquired ZDNet's predecessor as of January 1, 1995. An
affiliate of Ziff-Davis Inc. acquired ZDNet's predecessor on February 29,
1996. Data for ZDNet's predecessor has been presented for periods before
these dates.

(2) No historical earnings per share or share data are presented as ZDNet does
not consider such data meaningful.

V-3
<PAGE>

ZDNet
(A Division of Ziff-Davis Inc.)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30,
1998 AND 1999

Overview

ZDNet's objective is to be the leading online content site focused on
technology products and services for users and the preferred online platform
for advertisers and merchants. ZDNet's Web sites are designed to capitalize on
the market opportunities created by the increasing importance of technology,
the emergence of the Internet as a mass medium and the appealing demographics
of technology-oriented Web users. ZDNet focuses on content, community and
commerce, enabling users to research topics of interest, interact with other
users, download software and evaluate and purchase a wide range of products and
services at a single destination. Ziff-Davis Inc. was among the first content
providers to focus its efforts on the Internet, launching its zdnet.com service
in the fall of 1994.

ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on March
30, 1999, to authorize the issuance of a new series of common stock, designated
as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock'), which is intended to
reflect the performance of Ziff-Davis Inc.'s online business division, ZDNet.
When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis Inc.'s existing
common stock was reclassified as Ziff-Davis Inc.--ZD Common Stock ("ZD Stock"),
which is intended to reflect the performance of Ziff-Davis Inc.'s other
businesses and a retained interest in ZDNet.

Prior to the ZDNet Stock offering, ZD held a 100% Retained Interest in ZDNet.
The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc. issued
11.5 million shares of ZDNet Stock, including 1.5 million shares issued in
conjunction with the underwriters' exercise of their option to purchase
additional shares to cover over-allotments. Ziff-Davis Inc. attributed to ZDNet
1.5 million of the sold shares in a manner analogous to a primary offering and
attributed to ZD 10 million of the sold shares in respect of its retained
interest in ZDNet, in a manner analogous to a secondary offering. ZD received
net proceeds of approximately $172.7 million and ZDNet received net proceeds of
approximately $25.9 million. The ZDNet net proceeds were loaned to ZD as an
intercompany loan which will bear interest at the rate at which funding is
currently available to Ziff-Davis Inc. After giving effect to the ZDNet Stock
offering, there were 11.5 million shares of ZDNet Stock outstanding and another
60 million notional shares of ZDNet Stock intended to be represented by ZD's
retained interest in ZDNet, which was approximately 83.9% immediately following
the offering.

Prior to the ZDNet Stock offering, Ziff-Davis Inc. provided all funding for
ZD and ZDNet, which was accounted for as division equity contributions or a
return of capital. Ziff-Davis Inc. continued with these practices until the
ZDNet Stock was issued. Accordingly, no interest expense or income to or from
ZD has been reflected in the financial statements of ZDNet for any period prior
to the date on which the ZDNet Stock was issued.

Acquisition of GameSpot Inc.

On April 7, 1999, ZDNet closed on the acquisition of the remaining 30%
interest in GameSpot Inc. in exchange for 600,000 newly issued shares of ZDNet
Stock valued at approximately $11.4 million. This acquisition was accounted for
under the purchase method of accounting.

V-4
<PAGE>

Acquisition of Updates.com Inc.

On July 2, 1999, ZDNet acquired Updates.com Inc. for $5.0 million in cash and
582,526 shares of ZDNet stock valued at $13.5 million. This acquisition will be
accounted for under the purchase method of accounting.

Acquisition of SoftSeek Inc.

On July 30, 1999, Ziff-Davis Inc. acquired SoftSeek Inc. for $7.0 million in
cash and 991,038 shares of ZDNet Stock valued at $19.0 million. This
acquisition will be accounted for under the purchase method of accounting.

In connection with the acquisitions described in the preceding three
paragraphs, amortization expense for 1999 will increase by approximately $5.5
million.

Presentation of Financial Information

ZDNet is comprised of certain operations which were acquired at various times
and completed a reorganization in May 1998. See Note 1 to ZDNet's combined
financial statements included in Ziff-Davis Inc.'s Current Report on Form 8-K,
dated April 2, 1999 (File No. 001-14055).

Results of Operations

Comparison of the three months ended September 30, 1999 and 1998

Revenue

Revenue for the third quarter of 1999 increased by $11.8 million or 81.3%
from $14.5 million in 1998 to $26.3 million in 1999. Revenue from advertising
accounted for 92.7% of total revenue for 1999 compared to 86.4% for the same
period in 1998.

Revenue from advertising increased 94.5% to $24.4 million for the three
months ended September 30, 1999 from $12.5 million for the three months ended
September 30, 1998. The increase in advertising revenue was attributed to an
increase in rates and volume. During the period both the number of advertisers
and the average monthly revenue per advertiser increased as did the average
sale price per page. Subscription-based fees and services declined as expected
and were $1.9 million for the three months ended September 30, 1999 compared to
$2.0 million for the same period in 1998. These results reflect the continuing
shift from a subscription-based business model to an advertising based model.

Cost of operations

Production and content. Production and content expenses were $9.2 million or
35.0% of revenue compared to $5.9 million or 40.7% of revenue for the quarters
ended September 30, 1999 and 1998, respectively. The absolute dollar increase
was due to an increase in ZD's revenue-based royalty charge to ZDNet, as well
as an increase in production costs to support higher user traffic. The cost of
production and content decreased as a percentage of revenue due to economies of
scale and revenue growth significantly exceeding the growth of the cost base.
Royalty payments to ZD were $1.3 million and $0.7 million in the 1999 and 1998
periods, respectively.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $12.5 million or 47.4% of revenue compared to $6.8
million or 46.9% of revenue for the quarters ended September 30, 1999 and 1998,
respectively. The absolute dollar increase was due to additional personnel and
advertising costs required to support and strengthen the growth of ZDNet.
Included in the selling, general and administrative costs was an allocation
from Ziff-Davis Inc. relating to certain selling, general and administrative
services and shared services provided on a centralized basis which amounted to
$1.3 million and $0.7 million for the quarters ended September 30, 1999 and
1998, respectively.

V-5
<PAGE>

Stock-based compensation. As a result of the grant of certain stock options
in December 1998, ZDNet incurred a deferred compensation charge of $13.3
million. This non-cash charge will be recognized ratably over the vesting
period of the underlying options. The charge on a quarterly basis is $0.8
million. This charge did not exist in 1998 because the options were granted in
December 1998.

Depreciation. Depreciation expense was $0.9 million for the three months
ended September 30, 1999 compared to $0.6 million for the three months ended
September 30, 1998. The increase primarily relates to increased capital
expenditures made by ZDNet for equipment necessary to expand it network and
infrastructure in order to support its continued growth.

Amortization of intangible assets. Amortization was $3.4 million for the
three months ended September 30, 1999 compared to $1.0 million for the three
months ended September 30, 1998. The increase in amortization is a result of
the acquisitions of Updates.com, SoftSeek and the remaining interest in
GameSpot Inc.

Interest income. ZDNet's portion of the proceeds from the ZDNet Stock
offering have been advanced to ZD. Such advance bears interest at the rate at
which funds are available to ZD (currently approximately 8.5%). As a result of
such advance, interest income of $0.4 million was reported in the third quarter
of 1999. No such amounts were reported in prior periods.

Income taxes. ZDNet recorded an income tax provision of $0.7 million in 1999
and $8,000 million in 1998. Income taxes are provided based on ZDNet's
projected annual effective tax rate which differs from the U.S. federal
statutory rate of 35.0% due to certain items which are not deductible for
income tax purposes, primarily losses at GameSpot prior to acquisition of the
minority interest, and the effect of state and local taxes.

Net income loss. As a result of the items described above, ZDNet's net income
decreased from income of $0.2 million in 1998 to a loss of $0.7 million in
1999.

EBITDA

EBITDA for the three months ended September 30, 1999 was $4.6 million
compared to an EBITDA of $1.9 million for the three months ended September 30,
1998. The improvement was due primarily to higher revenue, offset to some
extent by higher production and content and selling, general and administrative
expenses.

Comparison of the nine months ended September 30, 1999 and 1998

Revenue

Revenue for the nine months ended September 30, 1999 increased by $31.3
million or 85.8% from $36.5 million in 1998 to $67.8 million for the nine
months ended September 30, 1999. Revenue from advertising accounted for 92.4%
of total revenue for 1999 compared to 83.1% for the same period in 1998.

Revenue from advertising increased 106.7% to $62.7 million for the nine
months ended September 30, 1999 from $30.3 million for the nine months ended
September 30, 1998. The increase in advertising revenue was attributed to an
increase in rates and volume. During the period both the number of advertisers
and the average monthly revenue per advertiser increased as did the average
sale price per page. Subscription-based fees and services declined as expected
and were $5.1 million for the nine months ended September 30, 1999 compared to
$6.2 million for the nine months ended September 30, 1998. These results
reflect the continuing shift from a subscription-based business model to an
advertising based model.

V-6
<PAGE>

Cost of operations

Production and content. Production and content expenses were $25.5 million or
37.6% of revenue compared to $19.0 million or 52.0% of revenue for the nine
months ended September 30, 1999 and 1998, respectively. The absolute dollar
increase was due to an increase in ZD's revenue-based royalty charge to ZDNet,
as well as an increase in production costs to support higher user traffic. The
cost of production and content decreased as a percentage of revenue due to
economies of scale and revenue growth significantly exceeding the growth of the
cost base. Royalty payments to ZD were $3.4 million and $1.8 million in the
1999 and 1998 periods, respectively.

Selling, general and administrative expenses. Selling, general and
administrative expenses were $31.2 million or 46.1% of revenue compared to
$22.0 million or 60.5% of revenue for the nine months ended September 30, 1999
and 1998, respectively. The absolute dollar increase was due to additional
personnel and advertising costs required to support and strengthen the growth
of ZDNet. Included in the selling, general and administrative costs was an
allocation from Ziff-Davis Inc. relating to certain selling, general and
administrative services and shared services provided on a centralized basis
which amounted to $4.0 million and $2.9 million for the nine months ended
September 30, 1999 and 1998, respectively. ZDNet has announced a significant
marketing campaign and anticipates spending $25 million over the next 18
months.

Stock-based compensation. The charge for the nine months ended September 30,
1999 was $3.0 million. This charge did not exist in 1998 because the options
were granted in December 1998. In addition, $0.4 million of stock compensation
was incurred in 1999 relating to the issuance of ZDNet stock options as part of
completing the GameSpot minority interest acquisition.

Depreciation. Depreciation expense was $2.0 million for the nine months ended
September 30, 1999 compared to $1.4 million for the nine months ended September
30, 1998. The increase related primarily to increased capital expenditures made
by ZDNet for equipment necessary to expand it network and infrastructure in
order to support its continued growth.

Amortization of intangible assets. Amortization was $5.8 million for the nine
months ended September 30, 1999 compared to $3.4 million for the nine months
ended September 30, 1998. The increase in amortization is primarily due to the
acquisitions of Updates.com, SoftSeek and the remaining interest in GameSpot
Inc., partly offset by certain intangible assets becoming fully amortized as of
March 1, 1998.

Interest income. ZDNet's portion of the proceeds from the ZDNet Stock
offering have been advanced to ZD. Such advance bears interest at the rate at
which funds are available to ZD (currently approximately 8.5%). As a result of
such advance, interest income of $0.9 million was reported for the nine months
ended September 30, 1999. No amounts were reported in prior periods.

Minority interest. The minority interest of $0.1 million in 1999 and $0.3
million in 1998 represents the losses attributed to the holders of the minority
interest in GameSpot Inc. The remaining minority interest was acquired in April
1999.

Income taxes. ZDNet recorded an income tax provision of $1.5 million in 1999
and a benefit of $0.3 in 1998. Income taxes are provided based on ZDNet's
projected annual effective tax rate which differs from the U.S. federal
statutory rate of 35.0% due to certain items which are not deductible for
income tax purposes, primarily losses at GameSpot prior to the acquisition of
the minority interest.

Net loss. As a result of the items described above, ZDNet's net loss improved
from $8.7 million 1998 to a loss of $0.1 million in 1999.

EBITDA

EBITDA for the nine months ended September 30, 1999 was $11.2 million
compared to an EBITDA loss of $4.2 million for the nine months ended September
30, 1998. The improvement was due primarily to higher revenue, offset to some
extent by higher production and content and selling, general and administrative
expenses.

V-7
<PAGE>

Liquidity and Capital Resources

Historically, the cash needs for ZDNet, excluding the cash needs of ZDNet's
foreign operations and operations that were not wholly owned, were funded by ZD
and accounted for as a capital contribution (i.e. as an increase in ZDNet's
division equity and ZD's retained interest in ZDNet). Accordingly, no interest
expense had been reflected in the financial statements of ZDNet. After the
completion of the ZDNet Stock offering, Ziff-Davis Inc. accounts for all cash
transfers between ZD and ZDNet, other than transfers in return of assets or
services rendered or transfers in respect of ZD's retained interest that
correspond to dividends paid on ZDNet stock, as inter-group revolving credit
advances. ZDNet received net proceeds of $25.9 million from the initial public
offering of the ZDNet Stock, which were loaned to ZD as an interest bearing
advance. These advances will bear interest at the rate at which Ziff-Davis Inc.
could borrow such funds on a revolving credit basis as the Board of Directors
determines in its sole discretion. Funding for ZDNet's future cash needs will
be provided by ZD through a reduction of the interest bearing advance and to
the extent necessary, as a revolving credit advance bearing interest.

Sources and uses of cash

Cash and cash equivalents were $0.5 million at September 30, 1999 compared to
$0.3 million at December 31, 1998. The increase was due to the factors
discussed below.

Cash provided by operations was approximately $15.0 million for the nine
months ended September 30, 1999 compared to a use of $4.7 million for the nine
months ended September 30, 1998. The improvement was due primarily to an
improvement in net loss from $8.7 million in 1998 to $0.1 million in 1999,
despite higher non-cash charges related to depreciation, amortization and
stock-based compensation expense.

Cash used by investing activities was $21.4 million in 1999 compared to $8.2
million in 1998. This increase is a result of ZDNet's continued investments and
acquisitions of other Internet related businesses.

Cash provided by financing in 1999 was $6.5 million compared to cash provided
by financing of $13.3 million in 1998. As a result of decreased losses, ZDNet
did not require the same level of funding from ZD in 1999 as was required in
1998. Financing activities in 1998 reflected advances from ZD to fund the
business prior to the ZDNet Stock offering. Financing activities in 1999
primarily represent the receipt of proceeds from the ZDNet Stock offering
partly offset by the advances of such funds to ZD, net of the amount used by
ZDNet to fund acquisitions and capital spending. In addition, prior to the
ZDNet Stock offering, ZDNet generated positive cash flow which was treated as a
return of capital to ZD in the first quarter of 1999.

Year 2000 Readiness Disclosure

V-8
<PAGE>

V-9
<PAGE>

ZDNET
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

Revenue

ZDNet's revenue consists of advertising revenue and revenue from
subscription-based fees and services. Advertising revenue consists primarily of
revenue derived from the sale of advertisements on pages delivered to users of
ZDNet's Internet sites. ZDNet recognizes the delivery of a single view of an
advertisement as an "impression". Advertising revenue is derived principally
from arrangements with ZDNet's advertising customers that provide for a
guaranteed number of impressions. Advertising rates vary depending primarily on
the total number of guaranteed impressions purchased, the length of the
advertiser's commitment, the location in which the advertisements are displayed
and the type of advertising. Advertising revenue is recognized in the period in
which the advertisements are delivered. For contracts/campaigns that are longer
than one accounting period, the revenue from the contract/campaign is
recognized ratably over the term of the contract/campaign.

Revenue from barter transactions is recognized during the period in which
advertisements are displayed. Barter transactions are recorded at the lower of
estimated fair value of goods or services received or the estimated fair value
of advertising given. To date, barter transactions have been immaterial to
revenue.

During 1995 and part of 1996, ZDNet was focused on generating revenue from
subscription-based fees and services. This revenue is generated primarily by
charging monthly membership fees to provide access to product reviews, software
reviews and shareware. During 1996, ZDNet shifted the focus of the business
model from the generation of subscription-based fees and services to the
generation of advertising revenue.

As a result of this shift, ZDNet's advertising revenue increased from 6.0% of
total revenue for the year ended December 31, 1995 to 86.0% of total revenue
for the year ended December 31, 1998. Over this period subscription-based fees
and services decreased correspondingly as a percentage of revenue.

No single advertiser accounted for more than 5.0% of ZDNet's total revenue
for the year ended December 31, 1997 or 1998. ZDNet's top 20 advertisers
accounted for 29.3% and 39.9% of total revenue for the years ended December 31,
1997 and 1998, respectively.

Cost of operations

Costs of production and content include costs to produce and edit content on
ZDNet's Internet sites as well as technical costs incurred to maintain ZDNet's
Internet sites. ZD provides certain editorial content and brand-marketing
services to ZDNet for which ZDNet pays a royalty to ZD based on revenue. This
charge is also included in production and content. See Note 4 to ZDNet's
Combined Financial Statements in this Annex.

The principal selling, general and administrative expenses of ZDNet are
payroll, sales commissions and related expenses, marketing and promotion. Ziff-
Davis Inc. provides certain selling, general and administrative services and
shared services on a centralized basis and the costs of these services are
allocated between ZD and ZDNet. See Note 4 to ZDNet's Combined Financial
Statements in this Annex.

ZDNet also incurs a substantial amount of amortization expense related to
intangible assets created as a result of the December 21, 1994 and February 29,
1996 acquisitions of Ziff-Davis Inc.'s predecessors by Forstmann Little and Co.
and SOFTBANK Corp., respectively. The February 1996 acquisition created
$72.7 million of intangible assets for ZDNet. In addition, $5.5 million of
intangible assets were created by ZDNet's January 1997 acquisition of a 70%
equity interest in GameSpot, Inc., formerly SpotMedia Communications, Inc.
("GameSpot").

V-10
<PAGE>

Factors affecting future periods

ZDNet'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 expenditures by ZDNet's advertisers, the
extent to which merchants elect to advertise using online media and competition
among other technology marketers.

Accordingly, ZDNet may experience fluctuations in revenue from period to
period. Marketing expenditures by technology companies can also be affected by
factors affecting the technology industry generally, including pricing
pressures and temporary surpluses of inventory. Revenue and profitability are
also influenced by product mix, the timing and frequency of ZDNet's new product
launches in new markets and acquisitions.

ZDNet has an extremely limited operating history upon which to base an
evaluation of ZDNet's prospects. ZDNet's prospects must be considered in light
of the risks, expenses and difficulties frequently encountered by start-up
companies in the new and rapidly evolving market for Internet products, content
and services. ZDNet's revenue and cost of operations have grown substantially
and ZDNet has incurred cumulative net losses since inception. These losses
reflect substantial expenditures to develop, launch and acquire ZDNet's
Internet sites and services. ZDNet believes that newly launched sites and
services require a certain period of growth before they begin to achieve
adequate revenue to support their operation.

ZDNet must, among other things, effectively develop new relationships and
maintain existing relationships with its advertisers, their advertising
agencies and other third parties, provide original and compelling content to
Internet users, develop and upgrade its technology, respond to competitive
developments and attract, retain and motivate qualified personnel. There can be
no assurance that ZDNet will succeed in addressing such risks and the failure
to do so could have a material adverse effect on ZDNet's business, financial
condition or results of operations. Additionally, ZDNet's limited operating
history makes the prediction of future operating results difficult or
impossible, and there can be no assurance that ZDNet's revenue will increase or
even continue at its current level, or that ZDNet will achieve or maintain
profitability or generate cash from operations in future periods. Since
inception, ZDNet has incurred significant losses and, for the period from
February 29, 1996 to December 31, 1998, had accumulated a deficit of $46.0
million. ZDNet may continue to incur losses in the future.

ZDNet expects to recognize compensation expense of approximately $13.4
million as a result of certain options granted on December 21, 1998 and January
29, 1999. Such compensation expense will be recognized over the vesting period
of the options. The 1999 compensation expense related to these options is
expected to be approximately $3.3 million. See Note 11 to ZDNet's Combined
Financial Statements in this Annex.

For a discussion of other factors that may affect results, see "Risk
Factors--Risk Factors Relating to the Restructuring" and "--Other Risk
Factors".

Presentation of Financial Information

ZDNet is comprised of certain operations which were acquired at various times
and completed a reorganization in May 1998. See Note 1 to ZDNet's Combined
Financial Statements in this Annex.

V-11
<PAGE>

Results of Operations

The table below presents the results of ZDNet as if the assets and operations
acquired by affiliates of Ziff-Davis Inc. on February 29, 1996 (as described in
Note 1 to the Combined Financial Statements in this Annex) had been acquired on
January 1, 1995. Purchase accounting adjustments relating to that acquisition
have been reflected through pro forma amortization and interest and income tax
adjustments, as described in note (1) to the table. Although the 1996
presentation is not in accordance with generally accepted accounting
principles, management believes it presents the most meaningful basis of
comparison. The financial information presented below may not necessarily
reflect the results of operations which would have occurred had the February
29, 1996 acquisition been completed on January 1, 1995.

<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
Pro
forma Actual
-------- -----------------
1996(1) 1997 1998
-------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenue, net.............................. $ 19,118 $ 32,218 $56,143
Cost of operations:
Production and content.................. 16,665 23,543 26,208
Selling, general and administrative
expenses............................... 15,054 23,475 30,993
Depreciation and amortization........... 693 1,495 2,010
Amortization of intangible assets....... 5,712 6,186 4,438
-------- -------- -------
Total operating expenses.............. 38,124 54,699 63,649
-------- -------- -------
Loss from operations...................... (19,006) (22,481) (7,506)
Minority interest......................... -- 400 134
-------- -------- -------
Loss before income taxes.................. (19,006) (22,081) (7,372)
Provision (benefit) for income taxes...... (1,073) (843) 512
-------- -------- -------
Net loss.................................. $(17,933) $(21,238) $(7,884)
======== ======== =======
Other data:
Capital expenditures.................... $ 1,178 $ 2,374 $ 4,483
Investments and acquisitions, net of
cash acquired.......................... $ -- $ 2,998 $ 5,000
EBITDA(2)............................... $(12,601) $(14,400) $ (924)
</TABLE>
- --------
(1) The February 29, 1996 acquisition gave rise to different bases of
accounting for the period after the acquisition as compared to the period
prior to the acquisition. The above numbers assume that the acquisition
took place on January 1, 1995; therefore amortization of intangible assets
and net loss have been increased by $323,000 and $194,000, respectively,
for the year ended December 31, 1996.
(2) "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 ZDNet's operating performance or to cash
flows as a measure of liquidity. Although ZDNet believes that EBITDA is a
standard measure commonly reported and widely used by analysts, investors
and other interested parties in the media industry, the EBITDA presented
for ZDNet may not be comparable to similarly titled measures reported by
other companies.

V-12
<PAGE>

The following table presents the foregoing amounts as a percentage of
revenue:

<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
Pro Forma Actual
----------- -----------------
1996 1997 1998
----------- ------- -------
<S> <C> <C> <C>
Revenue, net................ 100.0% 100.0% 100.0%
Cost of operations:
Production and content.... 87.2 73.1 46.7
Selling, general and
administrative expenses.. 78.7 72.9 55.2
Depreciation and
amortization............. 3.6 4.6 3.6
Amortization of intangible
assets................... 29.9 19.2 7.9
------- ------- -------
Total operating
expenses............... 199.4 169.8 113.4
------- ------- -------
Loss from operations........ (99.4) (69.8) (13.4)
Minority interest........... -- 1.2 0.3
------- ------- -------
Loss before income taxes.... (99.4) (68.6) (13.1)
Provision (benefit) for
income taxes............... (5.6) (2.7) 0.9
------- ------- -------
Net loss.................... (93.8)% (65.9)% (14.0)%
======= ======= =======
</TABLE>

Year ended December 31, 1998 compared with the year ended December 31, 1997

Revenue, net

Net revenue increased 74% to $56.1 million for the year ended December 31,
1998 from $32.2 million for the year ended December 31, 1997. Revenue from
advertising was 86% of net revenue for the year ended December 31, 1998
compared to 73% for the year ended December 31, 1997.

Revenue from advertising increased 104% to $48.1 million for the year ended
December 31, 1998 from $23.6 million for the prior year. The increase in
advertising revenue was attributed to an increase in volume as both the number
of advertisers and the average monthly revenue per advertiser increased.
Subscription-based fees and services decreased by 7% to $8.0 million for the
year ended December 31, 1998 from $8.6 million for the year ended December 31,
1997.

Cost of production

Production and content

Production and content expenses were $26.2 million or 46% of net revenue for
the year ended December 31, 1998, compared to $23.5 million or 73% of net
revenue for the year ended December 31, 1997. The absolute dollar increase in
production and content charges was due to an increase in ZD's revenue-based
royalty charge to ZDNet, as well as an increase in production costs to support
higher user traffic levels and increased editorial costs associated with the
launch of new content areas. The cost of production and content decreased as a
percentage of revenue primarily due to economies of scale. ZDNet expects this
trend to continue. Royalty payments to ZD were $2.8 million and $1.6 million
for the years ending December 31, 1998 and 1997, respectively.

Selling, general and administrative expenses

Selling, general and administrative expenses were $31.0 million or 55% of net
revenue for the year ended December 31, 1998, compared to $23.5 million or 73%
of net revenue for the year ended December 31, 1997. The absolute dollar
increase was primarily due to increased personnel and services required to
support the growth of ZDNet, offset to some extent by the cessation of
commission payments to SOFTBANK Interactive Marketing Inc. ("SIM"), as ZDNet
sales and marketing teams replaced SIM in these functions. Sales and marketing
costs were $21.2 million or 38% of net revenue for the year ended December 31,
1998 compared to

V-13
<PAGE>

$15.9 million or 49% of net revenue for the year ended December 31, 1997. ZDNet
intends to continue to increase the number of dollars spent on sales and
marketing and intends to launch a print ad campaign in the future. Sales and
marketing expenses are incurred both to drive traffic to ZDNet's Web site and
to increase the number of advertisers and advertising sales. Included in the
sales and marketing costs was an allocation from Ziff-Davis Inc. relating to
certain selling general and administrative services and shared services
provided on a centralized basis amounting to $0.9 million and $0.5 million for
the years ended December 31, 1998 and 1997, respectively.

Administrative and overhead costs were $9.7 million or 17% of net revenue for
the year ended December 31, 1998 compared to $7.6 million or 23% of net revenue
for the year ended December 31, 1997. Included in administrative and overhead
costs was an allocation of the cost of certain Ziff-Davis Inc. services
provided on a centralized basis amounting to $5.1 million and $3.4 million for
the years ended December 31, 1998 and 1997, respectively. The selling, general
and administrative costs decreased as a percentage of revenue primarily due to
economies of scale. ZDNet expects this trend to continue.

Depreciation

Depreciation expense was $2.0 million for the year ended December 31, 1998
compared to $1.5 million for the year ended December 31, 1997. The increase
related primarily to the increased capital expenditures made by ZDNet for
equipment necessary to expand its network and infrastructure in order to
support its continued growth.

Amortization of intangible assets

Amortization of intangible assets was $4.4 million for the year ended
December 31, 1998 compared to $6.2 million for the year ended December 31,
1997. The decrease in amortization related to the intangible assets of
advertising and subscription lists becoming fully amortized as of March 1,
1998. This resulted in only two months of the related amortization being
included in the year ended December 31, 1998 versus twelve months amortization
included in the year ended December 31, 1997. Annual amortization expense
related to the remaining goodwill balance will be approximately $4.1 million
before giving effect to any future increase in goodwill.

Minority interest

The minority interest of $0.1 million in 1998 and $0.4 million in 1997
represented losses attributed to the holders of the minority interest in
GameSpot.

Income taxes

Losses which were incurred prior to the completion of Ziff-Davis Inc.'s
reorganization on May 4, 1998, are non-deductible for Ziff-Davis Inc. as ZDNet
was under the ownership of MAC Inc. As such, ZDNet recorded income tax expense
of $0.5 million for the year ended December 31, 1998, primarily resulting from
taxable income being generated during the third and fourth quarters of 1998,
representing an effective tax rate of (6.9%). The effective rate in 1997 was
significantly lower than the statutory rate of 35.0% due to the substantial
level of non-deductible expenses which were incurred while ZDNet was owned by
MAC Inc.

Net loss

As a result of the items described above, ZDNet's net loss decreased to $7.9
million from $21.2 million for the years ended December 31, 1998 and 1997,
respectively.

EBITDA

EBITDA for the year ended December 31, 1998 was a loss of $0.9 million
compared to a loss of $14.4 million for the same period in 1997. The
improvement was due to substantially increased revenue, offset to some extent
by higher production and content costs and selling, general and administrative
expenses.

V-14
<PAGE>

Year ended December 31, 1997 compared with Pro Forma Year ended December 31,
1996

Revenue, net

Net revenue increased 69% to $32.2 million for the year ended December 31,
1997 from $19.1 million for the pro forma year ended December 31, 1996. An
increasing percentage of ZDNet's net revenue was derived from advertising for
the year ended December 31, 1997, accounting for 73% of net revenue, compared
to 37% for the same period in 1996. The increased percentage of net revenue
derived from advertising in the later period reflects a continuation of ZDNet's
strategic shift from a business model based on subscription-based fees and
services to one based on advertising.

Revenue from advertising increased 228% to $23.6 million for year ended
December 31, 1997 from $7.2 million for the pro forma year ended December 31,
1996. The increase in advertising revenue was attributable to increases in the
number of advertisers, the average expenditures per advertiser and increasing
advertising rates. The increase was evenly attributable to rate and volume
increases. Subscription-based fees and services decreased by 28% to $8.6
million from $11.9 million from the same period in 1996.

Cost of operations

Production and content

Production and content expenses were $23.5 million or 73% of net revenue for
year ended December 31, 1997, compared to $16.7 million or 87% of net revenue
for the pro forma year ended December 31, 1996. The absolute dollar increase in
production and content charges was due to an increase in Ziff-Davis Inc.'s
revenue based royalty charge to ZDNet, as well as an increase in production
costs to support higher user traffic levels, and increased editorial costs
associated with the launch of new content areas. The cost of production and
content decreased as a percentage of revenue primarily due to economies of
scale. Royalty charges from ZD were $1.6 million and $1.0 million for the year
ended December 31, 1997 and the pro forma year ended December 31, 1996,
respectively.

Selling, general and administrative expenses

Selling, general and administrative expenses were $23.5 million or 73% of net
revenue for the year ended December 31, 1997, compared to $15.1 million or 79%
of net revenue for the pro forma year ended December 31, 1996. The absolute
dollar increase in selling, general and administrative expenses was due to
higher sales commission costs paid to SIM and to the initial hiring of the
existing ZDNet sales and marketing teams. SIM was the exclusive sales team for
ZDNet prior to 1997. Sales and marketing costs were $15.9 million or 49% of net
revenue for the year ended December 31, 1997 compared to $11.0 million or 57%
of net revenue for the pro forma year ended December 31, 1996. Included in
sales and marketing costs was an allocation from Ziff-Davis Inc. relating to
certain selling, general and administrative services and shared services
provided on a centralized basis amounting to $0.5 million for the year ended
December 31, 1997. There was no such charge for the pro forma year ended
December 31, 1996.

Administrative and overhead costs were $7.6 million or 23% of net revenue for
the year ended December 31, 1997 from $4.1 million or 21% of net revenue for
the pro forma year ended December 31, 1996. Included in administrative and
overhead costs was an allocation of the cost of certain Ziff-Davis Inc.
services provided on a centralized basis amounting to $3.4 million and $2.7
million for the year ended December 31, 1997 and the pro forma year ended
December 31, 1996, respectively. Selling, general and administrative expenses
decreased as a percentage of revenue primarily due to economies of scale.

Depreciation and amortization

Depreciation and amortization expense was $1.5 million for the year ended
December 31, 1997, compared to $0.7 million for the pro forma year ended
December 31, 1996. The increase in depreciation expense primarily related to
the increased capital expenditures made by ZDNet for equipment necessary to
expand its network and infrastructure in order to support its continued growth.

V-15
<PAGE>

Amortization of intangible assets

Amortization of intangible assets was $6.2 million for the year ended
December 31, 1997 compared to $5.7 million for the pro forma year ended
December 31, 1996. In February 1997, ZDNet purchased a 70% interest in
GameSpot, which created intangible assets of approximately $5.5 million. The
1997 period included approximately $0.5 million of amortization related to this
acquisition.

Minority interest

The minority interest of $0.4 million for the year ended December 31, 1997,
represents losses attributed to the holders of the minority interest in
GameSpot which was acquired in January 1997.

Income taxes

The 1997 income tax benefit of $0.8 million compares to a pro forma tax
provision of $1.1 million in 1996. The benefit represents an effective tax rate
of approximately 3.8% and 5.6%, respectively, which is significantly less than
the federal statutory rate of 35.0% because ZDNet has a substantial level of
non-deductible expenses, as losses which were incurred while ZDNet was under
MAC ownership are non-deductible to Ziff-Davis Inc. As such, ZDNet does not
reflect any tax benefits associated with those losses.

Net loss

As a result of the items described above, ZDNet's net loss increased to $21.2
million for the year ended December 31, 1997 from $17.9 million for the pro
forma year ended December 31, 1996.

EBITDA

EBITDA for 1997 was a loss of $14,400,000 compared to a loss of $12,601,000
for the pro forma year ended December 31, 1996. The decrease was primarily due
to higher production and content costs and selling, general and administrative
expenses partially offset by increased revenue.

Liquidity and Capital Resources

Funding from ZD

In the financial statements of ZD and ZDNet, whenever ZDNet had a cash need,
other than cash needs of ZDNet's foreign operations or cash needs of ZDNet's
operations that are not wholly owned, that cash need was funded by ZD and
accounted for as a capital contribution (i.e., as an increase in ZDNet's
division equity and ZD's Retained Interest in ZDNet). Accordingly, no interest
expense has been reflected in the financial statements of ZDNet. Each of ZD and
ZDNet is sometimes referred to herein as a "Group". After the date on which
ZDNet Stock is first issued, Ziff-Davis Inc. will account for all cash
transfers from one Group to or for the account of the other Group (other than
transfers in return for assets or services rendered or transfers in respect of
ZD's Retained Interest that correspond to dividends paid on ZDNet Stock) as
inter-Group revolving credit advances (bearing interest at the rate at which
Ziff-Davis Inc. could borrow such funds on a revolving credit basis (as the
Board determines in its sole discretion)) unless the Board determines that a
given transfer (or type of transfer) should be accounted for as a long-term
loan, a capital contribution increasing ZD's Retained Interest in ZDNet or a
return of capital reducing ZD's Retained Interest in ZDNet. For a discussion
about the terms on which Ziff-Davis Inc. can now borrow on a short-term basis,
see "Ziff-Davis Inc. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Credit
Facility" set forth in an Annex to this proxy statement. There is no assurance,
however that ZDNet will continue to be able to obtain sufficient funding from
ZD.

Sources and uses of cash

Cash and cash equivalents were $0.3 million at December 31, 1998, an increase
of $0.3 million from $0.0 million at December 31, 1997. The increase was due to
the factors discussed below:

V-16
<PAGE>

Cash used by operations was $4.5 million for the year ended December 31, 1998
compared to $15.3 million for the year ended December 31, 1997. The improvement
from 1998 to 1997 was due primarily to a reduction in net loss. The loss for
the year ended December 31, 1998 was $7.9 million compared to $21.2 million for
the same period in 1997.

Cash used by investing activities totaled $9.5 million for the year ended
December 31, 1998 and $5.4 million for the year ended December 31, 1997. Cash
used for capital expenditures for the year ended December 31, 1998 increased by
$2.1 million to $4.5 million from $2.4 million for the year ended December 31,
1997. ZDNet intends to continue to invest in equipment as necessary to support
the increasing user traffic. Capital expenditures on equipment is expected to
be approximately $4.0 million in 1999. In addition, in July 1998, ZDNet
invested $5.0 million in preferred stock of Deja News, Inc., an Internet
discussion group. During the year ended December 31, 1997, ZDNet spent
approximately $3.0 million to acquire a 70% interest in GameSpot.

Cash provided by financing activities decreased to $14.3 million for the year
ended December 31, 1998 from $20.7 million for the year ended December 31,
1997, reflecting the improved operating performance of ZDNet. As discussed
under "--Funding from ZD" above, all funding from ZD was accounted for as a
capital contribution.

V-17
<PAGE>

Seasonality

Historically, ZDNet's business has been seasonal as a significant portion of
annual revenue has occurred in the fourth quarter. This fluctuation is a result
of seasonal changes common to the media industry. The following table sets
forth certain unaudited quarterly combined statement of operations data for
each of the eight quarters in the period ended December 31, 1998. In the
opinion of Ziff-Davis Inc.'s management, this unaudited information has been
prepared on a basis consistent with the audited Combined Financial Statements
of ZDNet appearing elsewhere in this Annex 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>
Quarter Ended
---------------------------------------------------------------------------------------
1997 1998
------------------------------------------- -------------------------------------------
March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31
-------- ------- ------------ ----------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
Revenue................. $ 5,283 $ 7,862 $ 8,132 $10,941 $ 9,688 $12,274 $14,504 $19,677
Cost of operations...... 11,597 14,921 14,401 13,780 16,050 15,405 14,344 17,850
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (6,314) (7,059) (6,269) (2,839) (6,362) (3,131) 160 1,827
Minority interest....... (46) (201) (189) 36 (125) (145) (60) 196
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
taxes.................. (6,268) (6,858) (6,080) (2,875) (6,237) (2,986) 220 1,631
Provision (benefit) for
taxes.................. (244) (267) (232) (100) (228) (92) 8 824
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(6,024) $(6,591) $(5,848) $(2,775) $(6,009) $(2,894) $ 212 $ 807
======= ======= ======= ======= ======= ======= ======= =======
EBITDA(1)............... $(4,498) $(4,999) $(4,185) $ (718) $(4,511) $(1,569) $ 1,857 $ 3,299
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------------
1997 1998
------------------------------------------- -------------------------------------------
March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31
-------- ------- ------------ ----------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of operations...... 219.5 189.8 177.1 125.9 165.7 125.5 98.9 90.7
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (119.5) (89.8) (77.1) (25.9) (65.7) (25.5) 1.1 9.3
Minority interest....... (0.9) (2.6) (2.3) 0.3 (1.3) (1.2) (0.4) 1.0
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
taxes.................. (118.6) (87.2) (74.8) (26.2) (64.4) (24.3) 1.5 8.3
Provision (benefit) for
taxes.................. (4.6) (3.4) (2.9) (0.9) (2.4) (0.7) 0.1 4.2
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... (114.0)% (83.8)% (71.9)% (25.3)% (62.0)% (23.6)% 1.4% 4.1%
======= ======= ======= ======= ======= ======= ======= =======
EBITDA(1)............... (85.1)% (63.6)% (51.5)% (6.6)% (46.6)% (12.8)% 12.8% 16.8%
</TABLE>
- --------
(1)"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 ZDNet's operating performance or to cash flows
as a measure of liquidity. Although Ziff-Davis Inc. believes that EBITDA is
a standard measure commonly reported and widely used by analysts, investors
and other interested parties in the media industry, the EBITDA presented for
ZDNet may not be comparable to similarly titled measures reported by other
companies.

V-18
<PAGE>

Year 2000 Readiness Disclosure

During 1997, Ziff-Davis Inc., including the businesses comprising ZDNet,
began a review of its computer systems and software to identify systems and
software which might malfunction due to misidentification of the Year 2000.
Ziff-Davis Inc. is using both internal and external resources to identify,
test, correct and reprogram systems and software for Year 2000 readiness.

Ziff-Davis Inc. has incurred remediation costs associated with its Year 2000
readiness efforts. These remediation costs have been incurred in connection
with replacement of systems and hardware, modification of software and
consulting costs related to Year 2000 solution providers. The costs to address
Year 2000 issues which have been included in the general and administrative
expenses of Ziff-Davis Inc. have not been tracked separately and are therefore
not determinable. However, management believes these expenses have been
substitutive rather than incremental to the recurring level of general and
administrative expenses. Total capitalized costs incurred in the replacement of
systems in connection with Ziff-Davis Inc.'s Year 2000 readiness efforts as of
December 31, 1997 and 1998 were $1.7 million and $3.8 million, respectively.
Ziff-Davis Inc. estimates that it will capitalize an additional $3.8 million
during 1999 related to its Year 2000 readiness efforts.

Ziff-Davis Inc. expects to complete testing and replacement of critical
systems by the beginning of the fourth quarter of 1999. Ziff-Davis Inc.'s
estimate of ZDNet's most reasonably likely "worst case scenario" would be the
failure of its internal applications and systems that process and store certain
information and data. Ziff-Davis Inc. would resolve the failure of such
applications and systems one by one and management of Ziff-Davis Inc. does not
believe that the impact on its critical systems would be material. However, if
Ziff-Davis Inc. or any subscribers, advertisers, licensors, vendors or other
third parties on whom it relies experiences a Year 2000 compliance problem,
this could have a material adverse effect on ZDNet's profit and liquidity.

Recently Issued Accounting Pronouncements

SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities
issued in June 1998 establishes accounting and reporting standards for
derivative instruments and for hedging activities and is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. Ziff-Davis Inc.
does not expect the adoption of SFAS No. 133 to have a material impact on the
ZDNet's results of operations.

ZDNet expects to adopt the above statement beginning with its 2000 financial
statements.

V-19
<PAGE>

ZDNET

DESCRIPTION OF BUSINESS

Introduction

ZDNet provides technology-related information to Internet users worldwide.
ZDNet focuses on content, community and commerce. ZDNet creates up-to-date,
reliable and comprehensive content divided broadly into "channels" that focus
on specific topics or audience groups. ZDNet's network of over 50
interconnected internet sites offers approximately 1,200 news stories per
month, 818,000 product listings and 44,000 downloadable programs. The community
of ZDNet users interacts through various online message systems, including
bulletin boards, chat rooms, moderated forums and e-mail. ZDNet facilitates
commerce by providing users of its sites with the ability to evaluate, compare
and purchase products and services and by providing advertisers and merchants
with access to a highly targeted user group with attractive demographics.

According to Media Metrix, in December 1999 zdnet.com ranked first among all
Web sites in the category of news, information and entertainment among people
who access the Internet from the workplace, ahead of such sites as cnet.com,
cnn.com, msnbc.com, Disney Online and espn.com. ZDNet estimates that its Web
sites served more than 371 million page views during December 1999, up from 202
million in December 1998. ZDNet delivered approximately 790 million ad-bearing
pages during the fourth quarter of 1999, up from 460 million during the same
period of 1998. In addition, ZDNet had localized foreign language editions in
more than 19 countries as of December 31, 1999.

ZDNet's objective is to be the leading online content site focused on
technology products and services and the preferred online platform for
advertisers and merchants. ZDNet's strategy is to:

. continue to offer differentiated technology-related content,

. grow ZDNet's user community,

. build ZDNet's brand strength,

. increase advertising and commerce revenue,

. strengthen and expand strategic alliances and

. extend ZDNet's international presence.

Industry Background

Growth of the Internet and Demand for Technology-Related Content

The Internet has emerged as a global mass medium, enabling millions of people
to access and share information and conduct business electronically. Jupiter
Communications Inc. forecasts that the number of online users in the U.S. will
grow to 157 million by the end of 2003, up from 83 million at the end of 1998.
Major factors driving this growth include the increasing familiarity and
acceptance of the Internet by businesses and consumers, the increasing number
of personal computers in homes and offices, the ease, speed and lower cost of
Internet access and improvements in network infrastructure.

As the Internet gains acceptance as an advertising and commerce medium and
Internet use continues to grow, technology will play an increasing role in
everyday life. According to Dataquest, worldwide end user spending for
information technology products and related services is expected to be
approximately $2 trillion in 1999 and grow 10% to 15% annually over the next
three years. With the growth of the Internet and the widespread use of personal
computers, cellular phones, pagers and personal digital assistants, technology
has become an area of broad general interest. Users of technology products and
services confront an increasingly complex marketplace due to the rapid pace of
technological change and the frequent introduction of new products and
services. The prevalence of technology and the growing number of technological
choices heighten the demand for up-to-date, comprehensive information about
technology-related products and services.

V-20
<PAGE>

Advertising and Commerce on the Internet

As the Internet and the technology industry continue to grow, the value of
the Internet to advertisers and merchants can be expected to increase as a
result of:

. the growth in the number of Web users,

. the Internet's global reach,

. the attractive demographic profile of Web users,

. the interactive nature of the medium,

. the increased willingness of users to conduct transactions online and

. the ability to effectively target user groups, customize promotions and
measure Web usage and viewer demographics.

ZDNet believes these characteristics allow Internet advertisers to build
valuable customer relationships through targeted advertising and sales
campaigns. The overall market for advertising on the Internet was approximately
$1.9 billion in 1998 and $693 million in the first three months of 1999, as
measured by the Internet Advertising Bureau. According to Forrester Research,
Inc., advertising spending on the Internet will exceed $4 billion in the year
2000 and double to more than $8 billion by 2002.

The Internet also provides an efficient means for merchants to sell their
products and services directly to consumers. Forrester Research, Inc. forecasts
that worldwide commerce revenue on the Internet will increase from
approximately $35 billion in 1998 to $1.4 trillion in 2003. Internet
transactions are expected to increase as merchants improve Web-based
transaction-processing technology and as consumers become more accustomed to
purchasing online.

ZDNet believes Internet sites focused on technology are particularly well-
suited to promote advertising and commerce because they offer a large user base
with attractive demographics for technology and general consumer product
companies. Historically, technology-focused sites have attracted primarily
technology advertisers, which, according to Internet Advertising Bureau,
accounted for approximately 20% of all U.S. online advertising dollars during
the first three months of 1999, down from 27% during the same period in 1998.
Recently, many of the largest advertisers on traditional media, including
consumer product companies, automobile manufacturers and travel-related
companies, have expanded their use of Internet advertising. Such consumer-
related advertising accounted for 27% of all U.S. online advertising in the
first quarter of 1999 according to the Internet Advertising Bureau, and ZDNet
believes Internet advertising will become an increasing percentage of consumer
product companies' overall advertising budgets in the future. Internet sites
with well-recognized brand names that focus on technology should be well-
positioned to capitalize on emerging Internet advertising and commerce
opportunities.

The ZDNet Solution

ZDNet's Web sites are designed to capitalize on the market opportunities
created by the increasing importance of technology, the emergence of the
Internet as a mass medium and the appealing demographics of technology-oriented
Web users. ZDNet focuses on content, community and commerce, enabling users to
research topics of interest, interact with other users, download software and
evaluate and purchase a wide range of products and services at a single
destination. Ziff-Davis Inc. was among the first content providers to focus its
efforts on the Internet, launching its zdnet.com service in the fall of 1994.
The ZDNet solution is based on the following distinguishing attributes:

Broad-Based Comprehensive Technology and Internet-Related Content

ZDNet's interconnected and easily navigable sites offer depth and breadth of
coverage on the technology industry as well as topics of general interest,
including financial information and general news. ZDNet divides

V-21
<PAGE>

its content broadly into "channels" that focus on specific topics or audience
groups. Approximately 50 sites can be reached through the zdnet.com home page
or through their own distinct domains, and sites are generally organized with
similar navigation and layout to ensure consistency throughout the network.
ZDNet's online editorial and technical staff of industry experts develops high-
quality original content specifically for online interactive use. ZDNet offers
approximately 1,200 news stories per month, 818,000 product listings and 44,000
downloadable programs. In addition, through ZDNet's relationship with ZD
Publishing, ZDNet currently has use of the content of all of ZD's computer and
technology publications, including PC Magazine, PC/Computing, PC Week and
Yahoo! Internet Life. See "--Relationship with ZD Publishing" below.

Strong Community Affinity

ZDNet has developed an extensive user community and encourages active
participation by enabling users to personalize their content and join user
groups based on common interests. ZDNet provides forums, chat groups and other
interactive online environments that allow users to express views and share
information. In addition, its industry personalities host interactive forums
that encourage user comments and feedback. To promote its community, ZDNet has
instituted a common registration system for chat, discussion and e-mail
capabilities. Registered users are able to access member-only software
downloads and are eligible for special offers. ZDNet makes a variety of e-mail
newsletter and alerts available to its users, allowing subscribers to select
those of interest. As of December 1999, ZDNet had an e-mail newsletter
subscription base of over 4 million and distributed over 126 million e-mail
newsletters and alerts to its users in that month.

Attractive Environment for Advertising and Commerce

ZDNet facilitates commerce on its sites by providing users with the ability
to evaluate, compare and purchase products and services and by providing
advertisers and merchants with access to a highly targeted user group with
attractive demographics. According to the Winter 2000 @Plan study, among users
of ZDNet's Internet sites:

. 58% have college degrees,

. 84% have an annual household income of at least $35,000 (and 21% in
excess of $100,000),

. 55% use the Internet every day and

. 68% purchased a product in the prior six months after gathering
information on the Internet.

In addition, ZDNet has developed an array of sales and marketing options
(banners, sponsorship wraps, buttons, text and graphical links, e-mail
sponsorships and custom microsites) designed to assist advertisers in crafting
unique and distinctive programs to target and reach their audiences. ZDNet was
also the first non-ad agency to win a prestigious "Creative Excellence in
Business Advertising" award, presented by the American Business Press.

The ZDNet Strategy

Continue to Offer Differentiated Technology and Internet-Related Content

ZDNet will continue to provide comprehensive and authoritative coverage of
the technology field in order to attract users and increase the value of its
sites to advertisers and merchants. Based on market research and user traffic
and feedback, ZDNet will continue to identify technology trends and develop
innovative sites that appeal to specific market segments and user interests.

V-22
<PAGE>

Grow the ZDNet Community

ZDNet seeks to further grow its membership base by continuing to provide
interesting forums, chat groups and user groups, developing additional
interactive capabilities, promoting new online personalities and offering
insights from a broad range of experts. In response to these efforts, ZDNet's
registered user community has increased from 1,844,571 on December 31, 1998 to
3,331,570 on December 31, 1999, an increase of 81%.

Build ZDNet Brand Strength

ZDNet seeks to reinforce its brand recognition and extend its reputation as a
preferred destination for users looking to buy, use and learn about technology.
ZDNet's brand-building initiatives include displaying the ZDNet brand on all
ZDNet site pages (including those accessed through the portals of its strategic
partners), providing consistent formats for easy navigation on all its sites
and promoting a common registration program for users.

In December 1999, ZDNet embarked on its first mass market consumer ad
campaign targeting the growing population of web users interested in
technology. The fifteen month, $25 million campaign includes marketing presence
in print media, broadcast and cable channels.

Increase Advertising and Commerce Revenue

ZDNet seeks to increase revenue generated from advertising and commerce by
continuing to develop innovative content, growing its user community, expanding
its base of technology advertisers, attracting consumer and other advertisers
and facilitating commerce opportunities. ZDNet continually refines its online
tracking reports to better enable advertisers and merchants to demonstrate
their advertising effectiveness, evaluate their marketing initiatives and
increase the rate of return on their advertising investments. ZDNet plans to
increase the number of its revenue-sharing commerce relationships with leading
technology and consumer product providers. ZDNet also plans to increase the
number of product listings on its ComputerShopper.com channel and expand its
ability to facilitate electronic commerce.

Strengthen and Expand Strategic Alliances

ZDNet seeks to increase brand awareness, traffic and revenue by entering into
strategic alliances with key Internet companies. ZDNet currently has alliances
with many of the Web's leading sites, including Yahoo!, Alta Vista, Go.com,
Lycos and iVillage and plans to establish new alliances as opportunities arise.
As part of these alliances, ZDNet typically provides selected branded content
for its partners' sites in return for a variety of benefits including revenue
and links back to ZDNet sites from the partner's site, providing ZDNet with
access to a broader base of consumers.

Extend International Presence

ZDNet had localized foreign language editions in more than 19 countries as of
December 31, 1999 and plans to continue to expand into selected overseas
markets through international launches as well as joint ventures and licensing
arrangements with local operating partners, as opportunities arise.

ZDNet Sites and Services

ZDNet offers approximately 50 interconnected and easily navigable sites
focused on providing comprehensive, authoritative and timely online technology
content, creating an active community environment for its users and providing
opportunities for commerce.

ZDNet considers its content to be the most thorough and interesting content
on technology that is available online. ZDNet estimates that it currently
offers more than 300,000 pages of content on its interconnected sites where
users can research, evaluate, learn, interact, download and shop. ZDNet creates
original content using its

V-23
<PAGE>

own skilled and dedicated team of 247 editors, online producers, developers and
operations staff and also uses content from ZD publications and various
strategic alliance partners. ZDNet's content is divided broadly into "channels"
that aggregate information from a variety of sources around a specific topic
area or audience focus, thereby facilitating accessibility. All channels can be
reached through the main zdnet.com home page or through their own distinct
domains, making browsing and searching easy.

ZDNet seeks to foster a sense of community and engage its users in an
interactive online experience where they can express opinions and share
information about technology-related products and issues. ZDNet offers a
variety of features and activities designed to facilitate its community growth
and build user loyalty and affinity. Users can personalize the content they
seek and join user groups with others who have similar interests. In addition,
users can activate the "talk-back" feature, which allows them to state their
views, and the "e-mail to a friend" feature, which allows them to easily send
articles of interest to others. During December 1999, ZDNet estimates that
275,000 e-mails were sent using the e-mail to a friend feature. Many of ZDNet's
channels provide moderated forums and chat events on a variety of current news
and segment topics and certain hosts of these forums have become popular
Internet personalities.

ZDNet seeks to facilitate commerce on the Internet by combining information
about hardware and software products and services with direct access to
merchants. ZDNet's primary computer commerce site, ComputerShopper.com, was one
of the first Web shopping services to integrate comparative pricing, how-to
guides, buying tips, specifications, product reviews and multiple direct
purchasing sources. ComputerShopper.com currently displays products from more
than 107 merchants in over 122 product categories and enables shoppers to both
evaluate products and directly make purchases online.

Select ZDNet Sites

ZDNet.com (www.zdnet.com) is the home page and gateway for all of ZDNet's
sites and was ranked first among all Web sites in the category of news,
information and entertainment (as measured by net reach) among people who
access the Internet from the workplace in December 1999 according to Media
Metrix.

ComputerShopper.com (www.computershopper.com) supplies users with a
comprehensive display of computer and technology products in one central
location with direct links to merchants to facilitate commerce transactions.
ZDNet shoppers can easily browse and search pricing and product information,
access expert recommendations and buying tips and complete their purchases
online for a unified shopping experience. Users of ComputerShopper.com can
purchase products directly on the site using a secured server or can place
orders through individual merchants (by clicking through to the merchants Web
sites, dialing the merchants' 1-800 numbers or faxing the orders to the
vendors).

ZDNet Products (www.zdproducts.com) is a comprehensive and authoritative
source for information on purchasing computer products and technology. This
site is organized with user-friendly search and compare capabilities and offers
readily available expert advice and reviews for a full range of users and
systems.

ZDNet Anchordesk (www.anchordesk.com) was one of the first Web sites to
provide a combination of opinionated analysis and news in an interactive e-mail
environment featuring a talk-back capability for its subscribers. This site
offers a companion e-mail newsletter which is distributed every business day to
a subscription base of over 2 million.

ZDNet News (www.zdnn.com) provides 24 hours a day, 7 days a week coverage for
computing and technology news and information. ZDNet News generates original
news content produced by its own staff. It also posts content from other
sources including ZD publications such as PC Week, Inter@ctive Week and Sm@rt
Reseller, ZDTV, ZD Radio and strategic partners such as MSNBC and the Wall
Street Journal. ZDNet News also publishes an e-mail newsletter six days a week
and provides news to the Wall Street Journal, MSN and Yahoo!, among others.

V-24
<PAGE>

GameSpot and Videogames.com (www.gamespot.com, www.videogames.com) offer
comprehensive news, reviews, previews and tips for all game categories.

ZDNet Help (www.zdhelp.com) offers comprehensive tips, advice and trouble-
shooting aids for a full range of hardware and software. Users can search,
browse or access experts in chat rooms and on bulletin boards.

ZDNet Downloads (www.hotfiles.com) offers over 44,000 files of shareware,
freeware and other downloadable software programs, nearly all of which are
tested for viruses and compatibility and approximately 33,000 of these files
are professionally reviewed and rated.

ZDNet Inter@ctive Investor (www.zdii.com) provides up-to-the-minute
proprietary financial news and commentary on the technology sector. It provides
access to multiple third-party information services such as Reuters, The Red
Herring magazine, Multex Systems Inc., ValueLine, Hoover's and Zack's
Investment Research. This site was ranked in the top 20 of Barron's annual
survey of the top Internet investment sites in 1998 and 1999.

Other ZDNet Channels

Ziff-Davis Print Publication Sites. Pursuant to an arrangement with ZD
Publishing, each of the Ziff-Davis print publications has a branded Web site
within ZDNet's interconnected sites. Each of the sites contains content adapted
from Ziff-Davis print media and original content developed specifically for
these sites. Among the print publication sites currently operated by ZDNet are
the companion sites of ZD's most successful print magazines, such as PC
Magazine, PC/Computing, PC Week and Yahoo! Internet Life. For a more detailed
description of the arrangement between the buyer of ZD Publishing and ZDNet for
the publication web sites, see "--Relationship with ZD Publishing" below.

Topical Channels. ZDNet also has ten topical channels that bring together one
or more sites with a common theme, such as Tech News, Business & Technology,
Tech Life and Reviews. The Tech Life channel, for example, is aimed at
consumers and includes content, community and commerce geared for personal use,
families, gamers, and music aficionados. The Business & Technology channel
aggregate sites aimed at information technology managers in large and medium
sized business as well as small business users.

ZDNet seeks to identify and monitor technology trends in order to effectively
launch and introduce new sites and channels that address the needs of its
audience.

Relationship with ZD Publishing

ZDNet believes that its current relationship with ZD Publishing provides it
with substantial advantages over other online technology content providers.

ZDNet currently has the exclusive right to use ZD Publishing's technology
content online and currently enjoys the benefits of cross promotion with ZD
Publishing. After completion of the pending sale of ZD Publishing described
earlier in this proxy statement, ZDNet will continue to have that right and to
enjoy the benefits of cross promotion under the terms of a five year license
agreement described under "Proposal 1--The Restructuring of Ziff-Davis--The
Sale Agreements--ZDNet License Agreement." See "Risk Factors--Risk Factors
Relating to the Restructuring--The Sale of ZD's Businesses May Adversely Affect
ZDNet's Future Business."

Strategic Alliances

ZDNet's strategic alliances are important sources of content exchange,
revenue, brand visibility and increased user traffic. ZDNet has strategic
alliances with many of the Web's leading sites, including Yahoo!, AltaVista,
Go.com, Lycos and iVillage pursuant to which selected ZDNet-branded content is
displayed on their

V-25
<PAGE>

sites in exchange for traffic, brand recognition, content or a percentage of
the revenue generated from those sites. These alliances are generally for 1 or
2 year terms, subject to renewal upon the agreement of both parties. In
addition, ZDNet content is distributed by various Internet service providers
such as Earthlink, MindSpring and BellSouth to individual and corporate
customers.

International

Through wholly owned sites and joint ventures, ZDNet currently operates
localized versions of certain of its Web sites in the United Kingdom, Germany,
France, China, Singapore and Australia. In addition, through licensing
arrangements with non-U.S. operators, localized foreign language versions of
ZDNet's Web sites were available as of December 31, 1999 in more than 12
additional regions, including Japan, Italy, Latin America, Russia, South
Africa, Spain and Switzerland. In order to deliver high-quality content
worldwide, each of ZDNet's international Web sites offers content tailored
specifically to its local market in addition to content from ZDNet's U.S. Web
sites translated into the local language. See "Risk Factors--Other Risk
Factors--ZDNet Intends To Expand Its International Operations And May Encounter
A Number Of Problems Doing So. There Are Also A Number Of Risks Associated With
International Operations That Could Adversely Affect ZDNet's Business".

Advertising Sales and Marketing

ZDNet derives the principal portion of its revenue from the sale of
advertisements. For the first nine months of 1999 advertising revenue
represented 92% of ZDNet's net revenue. Advertising revenue is generally
derived from short-term contracts on a per impression basis and by the number
of product listings in the ComputerShopper.com site.

ZDNet believes that its user demographics are attractive to technology and
general consumer product advertisers and merchants. ZDNet has developed
extensive sales and marketing programs designed to assist advertisers in
reaching their audiences through distinctive and customizable programs. ZDNet
sells display advertising in multiple formats (such as banners, sponsorship
wraps, buttons, text and graphical links and e-mail sponsorships) that allow
users to link directly to the advertisers' own Web sites or to special
promotional microsites created by ZDNet on behalf of its advertisers. In
addition, advertising can be purchased in selected areas or across ZDNet's
entire network of sites.

ZDNet believes that its focused and well-trained sales and marketing
organization is important to attaining and maintaining premium advertising
pricing and maximizing revenue. ZDNet's sales and marketing organization uses
market research tools, such as Media Metrix and ZDNetTrak services, to inform
clients about overall industry trends. ZDNetTrak is a quarterly marketing
survey that tracks ZDNet Web users and their online activities, including their
purchasing behavior. ZDNet's direct sales and marketing organization consisted
of 139 professionals as of December 31, 1999. Sales and marketing are generally
organized by geographic region.

During the fourth quarter of 1999, 588 companies advertised with ZDNet (as
compared to 377 in the fourth quarter of 1998). The following is a list of
ZDNet's top fifteen advertising customers (based on advertising revenue in the
first nine months of 1999):

<TABLE>
<S> <C> <C>
Active Home/X-10 Egghead Micron Computer
Beyond.com First USA Microsoft
Buy.com Gateway Seagate
Compaq/Digital Hewlett Packard Symantec
Dell Intel Toshiba
</TABLE>

No advertiser accounted for more than 6% of ZDNet's revenue during the first
nine months of 1999. ZDNet's 20 largest advertising customers accounted for
approximately 42.1% of net advertising revenue during the first nine months of
1999.

V-26
<PAGE>

Technology Infrastructure and Operations

ZDNet has developed an expandable operations infrastructure using open
standard hardware and software systems. ZDNet's network of sites is primarily
hosted on ZDNet servers maintained at multiple locations to facilitate load
balancing and reduce potential downtimes. Additionally, ZDNet outsources
certain hosting and related functions to Frontier Global Center, Real Networks
and InterStep, Inc. The primary data center is designed to minimize failures by
utilizing redundant equipment and connectivity paths.

ZDNet has developed systems allowing it to efficiently create new content
channels and build in personalization capabilities. With respect to
advertising, publishing and systems management tools, ZDNet has licensed
technology from:

. Vignette for its StoryServer publishing system,

. Thunderstone for its Texis search software and

. Deja.com for software relating to "threaded messages", which are user
originated messages that are organized under specific topics and subtopics
and then are presented to users for further discussion.

ZDNet also has developed complementary proprietary systems and solutions to
enhance traffic and advertising measurement functions.

Competition

Competition among Internet content sites is intense and is expected to
increase significantly in the future. The market for Internet content providers
is rapidly evolving and barriers to entry are low, enabling newcomers to launch
competitive sites at relatively low cost.

ZDNet competes for advertisers, merchants, users and strategic partners with
(1) Web sites specializing in technology information, such as sites provided by
c|net, CMP, IDG and Internet.com, (2) Internet portals, search sites and
content aggregators, such as Excite, Infoseek, Lycos and Yahoo!, (3) general
purpose online service providers, such as America Online and MSN, (4) general
news sites, such as those provided by CNN and ABC, (5) browser/software
companies offering information services, such as Microsoft and Netscape and (6)
large general-interest sites. In addition, ZDNet competes with traditional
media content businesses such as newspapers, magazines, radio and television.
Additionally, certain ZDNet channels compete with Web sites focused on a
particular corresponding content niche. For example, GameSpot competes with Web
sites such as those provided by snowball.com and c|net Gamecenter, and the
ZDNet Downloads compete with several software download sites.

Primary competitive factors in attracting users are quality, reliability,
brand recognition and depth, breadth and presentation of content. Primary
competitive factors in attracting advertisers are user demographics and volume,
ability to deliver interactive and focused advertising and cost-effectiveness.
ZDNet's success will depend on its ability to continue to provide
comprehensive, engaging content to attract and maintain both users and
advertisers.

Employees

As of December 31, 1999, ZDNet had 483 employees, including 247 in Web design
and content development, 139 in sales, marketing, customer support and audience
development, 84 in technical development and operations and 13 in
administration, planning and finance. ZDNet also uses independent contractors
and temporary employees. None of ZDNet's employees is represented by a labor
union. ZDNet considers its relationship with its employees to be satisfactory.

V-27
<PAGE>

Facilities

ZDNet's headquarters are located in San Francisco and its other principal
offices are located in the Boston metropolitan area, New York, Chicago, Los
Angeles, Seattle and Miami. Ziff-Davis Inc. leases all of the property and
offices occupied by ZDNet and as a result ZDNet pays an allocated portion of
Ziff-Davis Inc.'s lease payments. ZDNet believes that the properties it
occupies are adequate for its current operations, and that suitable additional
or alternative space, including space available under lease options, will be
available on reasonable commercial terms for future expansion.

Legal Proceedings

Class Action and Derivative Litigation

The complaints alleged that defendants violated Sections 11, 12(a) (2) and 15
of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of Ziff-Davis Inc.'s stock on April 28, 1998
(the "IPO"). More particularly, the complaints alleged that the registration
statement contained false and misleading statements and failed to disclose
facts that could have indicated an impending decline in Ziff-Davis Inc.'s
revenue. The complaints sought on behalf of a class of purchasers of Ziff-Davis
Inc. common stock from the date of the IPO through October 8, 1998, unspecified
damages, interest, fees and costs, recession and injunctive relief such as the
imposition of a constructive trust upon the proceeds of the IPO.

On January 28, 1999, the court entered an order consolidating the actions,
appointing lead plaintiff's counsel and requiring the filing of a consolidated
amended complaint. The consolidated amended complaint was filed on June 15,
1999 and only alleges claims under Section 11 of the Securities Act of 1933. On
May 20, 1999, Ziff-Davis Inc. moved to dismiss the consolidated amended
complaint. In July 1999, plaintiffs filed their response to the motion. Ziff-
Davis Inc. filed a reply on August 11, 1999. The motion has not yet been
decided.

Other Legal Proceedings

Ziff-Davis Inc. was named as a defendant in an action, filed on April 17,
1998 in the Supreme Court of the State of New York, by minority stockholders of
SOFTBANK Interactive Marketing Inc. ("SIM"), formerly an indirect subsidiary of
SOFTBANK Corp. The complaint alleged, among other things, that SBH, SIM's
majority stockholder, acting with Ziff-Davis Inc. and two of its senior
officers and directors who were directors of SIM (and who were also named as
defendants), had conflicts of interest between SIM and other Softbank
investments (including investment in Ziff-Davis Inc.) and failed to act in the
best interests of SIM and the minority stockholders by taking actions which
benefited Ziff-Davis Inc. The complaint stated claims based on common law
fraud, breach of fiduciary duty and aiding and abetting theories and seeks in
excess of $200,000,000 in damages. Upon motion of Ziff-Davis Inc. and the other
defendants, all of the claims against them other than a breach of contract
claim which is solely against SBH, were dismissed on February 26, 1999.

V-28
<PAGE>

On April 1, 1999, plaintiffs filed a notice of appeal of the dismissal. On
September 2, 1999, the remaining claim, which was solely against SBH, was
dismissed. On October 6, 1999, plaintiffs filed a notice of appeal of this
dismissal.

Ziff-Davis Inc. and ZDTV, L.L.C. ("ZDTV") were named as defendants in an
action filed on November 10, 1999 in the U.S. District Court, Southern District
of New York, by Mark Bunting, Tom Hoitsma and SkyTV Inc. In October, 1998 ZDTV
through a subsidiary purchased certain assets from corporations owned by
plaintiff and two other individuals. In addition to a cash payment at the
closing of the sale, ZDTV agreed to pay additional purchase price, contingent
on the future operating profits of the SkyTV division. Ziff-Davis Inc.
guaranteed the obligations of ZDTV. The complaint alleges, among other things,
that ZDTV and Ziff-Davis Inc. breached their covenants of good faith and fair
dealing by failing to act in the best interests of the SkyTV division, to
support and procure business for the SkyTV division, and to provide public
relations, marketing assistance and corporate sales team support, thereby
lessening plaintiff's opportunity to earn additional purchase price. The
complaint seeks an amount to be determined at trial, but not less than
$60,000,000 in damages.

There are no other legal proceedings to which Ziff-Davis Inc. is a party,
other than ordinary routine litigation incidental to its business that is not
otherwise material to the business or financial condition of Ziff-Davis Inc.

V-29
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

COMBINED BALANCE SHEETS
(dollars in thousands)

<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
</TABLE>
Current assets:
<TABLE>
<S> <C> <C>
Cash and cash equivalents................................... $ 491 $ 292
Accounts receivable, net.................................... 20,882 18,732
Receivable from ZD.......................................... 16,729 --
Deferred taxes.............................................. -- 779
Other current assets........................................ 453 265
-------- -------
Total current assets...................................... 38,555 20,068
Securities available for sale................................. 7,916 --
Property and equipment, net................................... 6,400 5,618
Investments, at cost.......................................... 11,618 5,000
Deferred taxes................................................ 2,883 4,274
Intangible assets, net........................................ 112,278 62,726
-------- -------
Total assets.............................................. $179,650 $97,686
======== =======
</TABLE>

<TABLE>
<S> <C> <C>
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable............................................ $ 4,095 $ 2,553
Accrued expenses............................................ 5,458 3,495
Unearned income............................................. 8,523 1,078
-------- -------
Total current liabilities................................. 18,076 7,126
Non-current liabilities....................................... -- 1,013
-------- -------
Total liabilities......................................... 18,076 8,139
-------- -------
Commitments and contingencies (see Note 9)
Division equity............................................... 161,574 89,547
-------- -------
Total liabilities and division equity..................... $179,650 $97,686
======== =======
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

V-30
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF OPERATIONS
(Unaudited--dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue, net............... $ 26,291 $ 14,504 $ 67,791 $ 36,466
Cost of operations:
Production and content... 9,205 5,906 25,491 18,971
Selling, general and
administrative
expenses................ 12,464 6,801 31,241 22,048
Stock-based
compensation............ 839 -- 2,953 --
Depreciation and
amortization of property
and equipment........... 860 617 2,031 1,362
Amortization of
intangible assets....... 3,376 1,020 5,759 3,418
----------- ----------- ----------- -----------
Income (loss) from
operations................ (453) 160 316 (9,333)
Interest income............ 393 -- 943 --
Minority interest.......... -- 60 117 330
----------- ----------- ----------- -----------
Income (loss) before income
taxes..................... (60) 220 1,376 (9,003)
Income tax provision
(benefit)................. 681 8 1,487 (312)
----------- ----------- ----------- -----------
Net income (loss).......... $ (741) $ 212 $ (111) $ (8,691)
=========== =========== =========== ===========
Pro forma net income (loss)
per basic common share.... $ (.01) $ .00 $ (.00) $ (.12)
Pro forma weighted average
basic common shares
outstanding............... 73,402,667 71,500,000 72,315,852 71,500,000
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

V-31
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Nine months
Three months ended ended
September 30, September 30,
--------------------- ---------------
1999 1998 1999 1998
---------- --------- ------ -------
<S> <C> <C> <C> <C>
Net (loss) income ...................... $ (741) $ 212 $ (111) $(8,691)
Other comprehensive income (loss), net
of tax:
Foreign currency translation
adjustments.......................... 118 (129) 864 (105)
Unrealized (loss) gain on securities
available for sale................... (1,648) -- 989 --
---------- -------- ------ -------
Comprehensive (loss) income ............ $ (2,271) $ 83 $1,742 $(8,796)
========== ======== ====== =======
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

V-32
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CASH FLOWS
(Unaudited--dollars in thousands)

<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
-----------------
1999 1998
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................. $ (111) $(8,691)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization of property and equipment.. 2,031 1,362
Amortization of intangible assets........................ 5,759 3,418
Minority interest........................................ (117) --
Deferred tax provision (benefit)......................... 1,487 (312)
Stock-based compensation................................. 2,953 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (1,731) (3,712)
Other current assets................................... (191) (1)
Accounts payable and accrued expenses.................. 2,923 2,867
Unearned income........................................ 1,205 734
Other, net............................................. 814 (329)
-------- -------
Net cash provided (used) by operating activities........... 15,022 (4,664)
-------- -------
Cash flows from investing activities:
Capital expenditures..................................... (2,763) (3,181)
Investments.............................................. (6,618) (5,000)
Acquisitions............................................. (12,000) --
-------- -------
Net cash used by investing activities...................... (21,381) (8,181)
-------- -------
Cash flows from financing activities:
Capital (distributions) contributions to from ZD......... (2,723) 13,242
Advances to ZD, net...................................... (16,686) --
Proceeds from stock offering(1).......................... 25,885 --
Proceeds from exercise of stock options.................. 82 --
-------- -------
Net cash provided by financing activities.................. 6,558 13,242
-------- -------
Net increase in cash and cash equivalents.................. 199 397
Cash and cash equivalents at beginning of period........... 292 28
-------- -------
Cash and cash equivalents at end of period................. $ 491 $ 425
======== =======
</TABLE>
- --------
(1) Net of transaction costs of $2,615.

The accompanying notes are an integral part of the combined financial
statements.

V-33
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CHANGES IN DIVISION EQUITY
(dollars in thousands)

<TABLE>
<CAPTION>
Unrealized gain Cumulative Total
Division Deferred Accumulated on securities translation division
capital compensation deficit available for sale adjustment equity
--------- ------------ ----------- ------------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998................... $ 148,975 $(13,345) $ (46,047) $-- $(36) $ 89,547
Return of capital to
parent................. (2,723) (2,723)
Stock-based compensation
earned................. 2,953 2,953
Unrealized gain on
securities available
for sale, net.......... 989 989
Issuance of ZDNet
Stock.................. 25,885 25,885
Acquisition of
GameSpot............... 12,031 (443) 11,588
Exercise of ZDNet
options................ 82 82
Stock issued for
acquisitions........... 32,500 32,500
Net income.............. (111) (111)
Foreign exchange
translation
adjustment............. 864 864
--------- -------- --------- ---- ---- --------
Balance at September 30,
1999 (unaudited)....... $ 216,750 $(10,835) $(46,158) $989 $828 $161,574
========= ======== ========= ==== ==== ========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

V-34
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(numbers rounded to the nearest thousand, except share and per share amounts)

1. Organization and Basis of Presentation

Basis of presentation

The accompanying unaudited combined financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary to present fairly the
combined financial position of ZDNet at September 30, 1999 and the results of
its combined operations for the three and nine months ended September 30, 1999
and 1998 and cash flows for the nine months ended September 30, 1999 and 1998
have been included. Operating results for the periods presented are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. It is suggested that the statements be read in conjunction
with ZDNet's combined financial statements for the year ended December 31,
1998, included in Ziff-Davis Inc.'s Current Report on Form 8-K dated August 4,
1999 (File No. 001-14055).

Formation of Ziff-Davis Inc.

Ziff-Davis Inc. was formed through an initial public offering and
reorganization that were completed on May 4, 1998 (see Note 2). Prior to that
date, the predecessors of Ziff-Davis Inc. were wholly owned indirect
subsidiaries of SOFTBANK Corp. (together with its non-Ziff-Davis Inc.
affiliates, "Softbank") or assets owned by MAC Inc., an affiliate of Softbank
("MAC Assets").

ZDNet is the Internet business division of Ziff-Davis Inc. ZD is the division
of Ziff-Davis Inc. focused on the business of print publishing, trade shows and
conferences, television, market research and education. At September 30, 1999,
ZD held a retained interest in ZDNet of approximately 81.5% (see Note 3).

Acquisition of GameSpot, Inc.

In January 1997, SOFTBANK Holdings Inc. ("SBH"), an affiliate of Ziff-Davis
Inc., acquired 70.0% of GameSpot Inc. ("GameSpot", formerly SpotMedia
Communications, Inc.) for approximately $3,000,000. Funds for this acquisition
were provided by Ziff-Davis Inc. to SBH. As part of the reorganization and
initial public offering that was completed on May 4, 1998 (See Note 2), the
70.0% interest in GameSpot was contributed to ZDNet. Because GameSpot and Ziff-
Davis Inc. were under common control at the time of the transaction, the
GameSpot acquisition has been accounted for in a manner similar to a pooling of
interests and GameSpot's results have been included in ZDNet's results since
the time of common ownership (January 1997).

On April 7, 1999, Ziff-Davis Inc. completed the acquisition of the remaining
30.0% interest in GameSpot in exchange for 600,000 newly issued shares of Ziff-
Davis Inc.--ZDNet Common Stock ("ZDNet Stock") valued at approximately
$11,400,000. This acquisition has been accounted for under the purchase method
of accounting.

Reclassifications

Certain amounts have been reclassified, where appropriate, to conform to the
current financial statement presentation.

V-35
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

2. Reorganization and Initial Public Offering

On May 4, 1998, SOFTBANK Corp., through its wholly owned subsidiary, SBH,
completed a reorganization whereby the common stock of the predecessor
companies to Ziff-Davis Inc. was contributed to Ziff-Davis Inc. in exchange for
73,619,355 shares of Ziff-Davis Inc.'s common stock. Concurrent with the
reorganization, Ziff-Davis Inc. (1) completed an initial public offering of
25,800,000 common shares at an initial public offering purchase price of $15.50
per share, (2) issued $250,000,000 of 8 1/2% subordinated notes due 2008, (3)
entered into a $1,350,000,000 credit facility with a group of banks under which
$1,250,000,000 was borrowed and (4) converted $908,673,000 of intercompany
indebtedness to equity. In addition, Ziff-Davis Inc. received approximately
$9,107,000 of fixed assets from Kingston Technology Company ("Kingston"), a
related party, in exchange for 580,645 shares of Ziff-Davis Inc.'s common stock
and $107,000 in cash. These assets have been subsequently leased back to
Kingston. Total shares of common stock issued to Softbank were 74,200,000. The
transactions described above are herein referred to as the "Reorganization".

3. ZDNet Stock

The stockholders of Ziff-Davis Inc. voted, at a Special Meeting held on March
30, 1999, to authorize the issuance of a new series of common stock, designated
as Ziff-Davis Inc.--ZDNet Common Stock ("ZDNet Stock"), which is intended to
reflect the performance of Ziff-Davis Inc.'s Internet business division
("ZDNet"). When the ZDNet Stock was issued on April 6, 1999, Ziff-Davis Inc.'s
existing common stock was re-classified as Ziff-Davis Inc.--ZD Common Stock
("ZD Stock"), which is intended to reflect the performance of Ziff-Davis Inc.'s
other businesses and a retained interest in ZDNet (i.e., Ziff-Davis Inc.'s
retained interest in ZDNet excluding the interest intended to be represented by
outstanding shares of ZDNet Stock)(collectively, "ZD").

Prior to the ZDNet Stock offering, ZD held a 100% retained interest in ZDNet.
The ZDNet Stock offering was completed on April 6, 1999. Ziff-Davis Inc. issued
11,500,000 shares at $19.00 per share including 1,500,000 shares issued in
conjunction with the underwriters' exercise of their option to purchase
additional shares to cover over-allotments. Ziff-Davis Inc. attributed to ZDNet
1,500,000 of the sold shares in a manner analogous to a primary offering and
the related net proceeds of approximately $25,900,000. The full amount of the
net proceeds was loaned to ZD as an intercompany loan which bears interest at
the rate at which funding is available to Ziff-Davis Inc. After giving effect
to the ZDNet Stock offering, there were 11,500,000 shares of ZDNet Stock
outstanding and another 60,000,000 notional shares of ZDNet Stock intended to
represent ZD's retained interest in ZDNet, which was approximately 83.9%
immediately following the offering.

Prior to the ZDNet Stock offering, Ziff-Davis Inc. provided all funding for
ZD and ZDNet. Ziff-Davis Inc. continued these practices until the ZDNet Stock
was issued. Accordingly, no interest expense or income to or from ZD has been
reflected in the financial statements of ZDNet for any period prior to the date
on which the ZDNet Stock was issued.

The following summary pro forma information has been prepared as if the ZDNet
Stock offering had been consummated on January 1, 1999. The pro forma
adjustments include the recognition of $550,000 of interest income from ZD and
the tax effect of this adjustment at a statutory tax rate of 41.0%. The pro
forma data is not

V-36
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

necessarily indicative of actual results had the transaction occurred on
January 1, 1999. Further, pro forma results are not meant to represent future
financial results. There is no pro forma impact for the three month period
ended September 30, 1999.

<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999
-----------------
(in thousands,
except share
amounts)
<S> <C>
Revenue, net.......................................... $67,791
Loss from operations.................................. 316
Interest income....................................... 1,493
Income before taxes................................... 1,926
Income tax provision.................................. 1,712
Net income............................................ 214
Pro forma net income per basic and diluted common
share................................................ 0.00
</TABLE>

4. Investments

BuyDirect.com Inc.

On February 19, 1999 ZDNet acquired warrants to purchase 2,005,400 shares of
Series E preferred stock of BuyDirect.com Inc. ("Series E shares") at a
exercise price $1.65 per share. On March 25, 1999, ZDNet exercised its warrants
and received 1,510,020 Series E shares in a cashless exercise by exchanging
495,380 warrants in lieu of payment of the exercise price. On March 30, 1999,
BuyDirect.com Inc. was acquired by Beyond.com Corporation and these Series E
shares were converted to 438,057 shares of Beyond.com Corporation and at
September 30, 1999 are reflected in the balance sheet as Securities Available
for Sale.

The warrants were granted in connection with an agreement by BuyDirect.com
Inc. to advertise on certain ZDNet sites. As a result, the fair value of the
warrants on February 19, 1999 was recorded as deferred revenue and will be
recognized as income over the life of the advertising agreement. The fair value
of the warrants was determined to be $6,240,000.

In June 1999, ZDNet entered into an agreement to hedge a portion of the
unrealized gain associated with these shares. (See Note 9).

Deja.com Inc.

On May 13, 1999, ZDNet made an additional investment in Deja.com Inc.
(formerly Deja News, Inc.) with the purchase of 386,939 shares of Series D
convertible non-voting preferred stock at a purchase price of $3.61 per share.
This investment is accounted for at cost.

Onebox.com, Inc.

On July 30, 1999, ZDNet made an investment in Onebox.com, Inc. with the
purchase of 346,650 shares of Series B preferred stock at a purchase price of
approximately $1,000,000. This investment is accounted for at cost.

Techies.com, Inc.

On September 14, 1999, ZDNet made an investment in Techies.com, Inc. ZDNet
paid $4,000,000 in cash for 655,738 shares of Series B convertible preferred
stock. This investment is accounted for at cost.

V-37
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

5. Acquisitions

Updates.com Inc.

On July 2, 1999, ZDNet acquired Updates.com Inc. for a purchase price of
approximately $18,500,000. Consideration was in the form of $5,000,000 in cash
and 582,526 shares of ZDNet Stock valued at $13,500,000. This acquistion was
accounted for under the purchase method of accounting.

SoftSeek Inc.

On July 30, 1999, ZDNet acquired SoftSeek Inc. for a purchase price of
approximately $26,000,000. Consideration was in the form of $7,000,000 in cash
and 991,038 shares of ZDNet stock valued at $19,000,000. This acquisition was
accounted for under the purchase method of accounting.

6. Income Taxes

Income taxes are provided based on ZDNet's projected annual effective tax
rate which differs from the U.S. federal statutory rate of 35.0% due to (i)
certain items which are not deductible for income tax purposes, primarily
nondeductible goodwill amortization, and (ii) the effect of state and local
taxes. In addition, tax benefits attributable to losses in foreign
jurisdictions and certain U.S. losses are subject to the establishment of a
valuation allowance inasmuch as such loss carryforwards are not expected to be
utilized in the future. The tax benefit recorded for the nine months ended
September 30, 1999 has been reflected as a non-current deferred tax asset as it
is anticipated that the benefit will reverse in future periods when ZDNet
generates taxable income.

7. Earnings per share

Pro forma earnings per share and the related weighted average common shares
outstanding presented in the statement of operations assume that the ZDNet
Stock offering (see Note 3) occurred on January 1, 1998. Diluted earnings per
share are not shown as the impact of stock options would be anti-dilutive.

8. Registration Statement

9. Commitments and Contingencies

Strategic Alternatives

On July 14, 1999, Ziff-Davis Inc. announced that it has retained the
investment banking firm of Morgan Stanley Dean Witter ("Morgan Stanley") to
explore strategic alternatives to maximize shareholder value. The Ziff-Davis
Inc. Board of Directors has not embraced any particular strategic alternative
and will investigate all possible alternatives, including strategic alliances,
mergers, and the sale or joint venture of all or some of Ziff-Davis Inc.'s
businesses (including ZDNet). No assurances can be given that any transaction
will result from the exploration process that Morgan Stanley Dean Witter has
been retained to manage.

V-38
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Class action and derivative litigations

ZDNet and Ziff-Davis Inc. are subject to various legal proceedings arising in
the normal course of business.

The complaints alleged that defendants violated Sections 11, 12(a) (2) and 15
of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of Ziff-Davis Inc.'s stock completed on May 4,
1998 (the "IPO"). More particularly, the complaints alleged that the
registration statement contained false and misleading statements and failed to
disclose facts that could have indicated an impending decline in Ziff-Davis
Inc.'s revenue. The complaints sought on behalf of a class of purchasers of
Ziff-Davis Inc.'s common stock from the date of the IPO through October 8,
1998, unspecified damages, interest, fees and costs, rescission, and injunctive
relief such as the imposition of a constructive trust upon the proceeds of the
IPO.

Other legal proceedings

V-39
<PAGE>

ZDNet
(a division of Ziff-Davis Inc.)

NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Beyond.com Hedge

In June 1999, ZDNet entered into a short-sale to effect a hedge on 300,000 of
its 438,057 shares of Beyond.com. These shares were sold on behalf of ZDNet by
a third party at a weighted average price of $22.50 per share. In September
1999, ZDNet delivered the shares required to close the short position by
repurchasing the shares at a market price of $14.00 per share. A gain of
approximately $2,600,000 was deferred in the period related to this hedge
transaction.

10. Subsequent Events

Registration statement

V-40
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Ziff-Davis Inc.

In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, cash flows and changes in division equity,
present fairly, in all material respects, the financial position of ZDNet (a
division of Ziff-Davis Inc., the "Company") at December 31, 1997 and 1998, and
the results of its operations and its cash flows for the period from February
29, 1996 to December 31, 1996 and for the years ended December 31, 1997 and
1998, 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 described in Note 1 to the financial statements, ZDNet is a division of
Ziff-Davis Inc.; accordingly, the financial statements of ZDNet should be read
in conjunction with the audited financial statements of Ziff-Davis Inc.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
New York, NY
February 22, 1999

V-41
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

COMBINED BALANCE SHEETS
(dollars in thousands)

<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 28 $ 292
Accounts receivable, net of allowance for doubtful accounts
of $522 and $1,866, for 1997 and 1998, respectively.......... 11,396 18,732
Deferred taxes................................................ 69 779
Other current assets.......................................... 28 265
------- -------
Total current assets........................................ 11,521 20,068
Property and equipment, net..................................... 3,145 5,618
Investment, at cost............................................. -- 5,000
Deferred taxes.................................................. 5,496 4,274
Intangible assets, net.......................................... 67,164 62,726
------- -------
Total assets................................................ $87,326 $97,686
======= =======
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.............................................. $ 645 $ 2,553
Accrued expenses.............................................. 2,208 3,495
Unearned income............................................... -- 1,078
------- -------
Total current liabilities................................... 2,853 7,126
Non-current liabilities......................................... 1,181 1,013
------- -------
Total liabilities........................................... 4,034 8,139
------- -------
Commitments and contingencies (Notes 12 and 13)
Division equity................................................. 83,292 89,547
------- -------
Total liabilities and division equity....................... $87,326 $97,686
======= =======
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

V-42
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF OPERATIONS
(dollars in thousands)

<TABLE>
<CAPTION>
Period from Year ended
February 29, 1996 December 31,
to December 31, -----------------
1996 1997 1998
----------------- -------- -------
<S> <C> <C> <C>
Revenue, net.............................. $ 16,215 $ 32,218 $56,143
Cost of operations:
Production and content.................. 14,863 23,543 26,208
Selling, general and administrative
expenses............................... 13,280 23,475 30,993
Depreciation and amortization of
property and equipment................. 656 1,495 2,010
Amortization of intangible assets....... 4,829 6,186 4,438
-------- -------- -------
Total operating expenses.............. 33,628 54,699 63,649
-------- -------- -------
Loss from operations...................... (17,413) (22,481) (7,506)
Minority interest......................... -- 400 134
-------- -------- -------
Loss before income taxes.................. (17,413) (22,081) (7,372)
Provision (benefit) for income taxes...... (488) (843) 512
-------- -------- -------
Net loss.................................. $(16,925) $(21,238) $(7,884)
======== ======== =======
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

V-43
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CASH FLOWS
(dollars in thousands)

<TABLE>
<CAPTION>
Period from Year ended
February 29, 1996 December 31,
to December 31, -----------------
1996 1997 1998
----------------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $(16,925) $(21,238) $(7,884)
Adjustments to reconcile net loss to net
cash
used in operating activities:
Depreciation and amortization........... 656 1,495 2,010
Amortization of intangible assets....... 4,829 6,186 4,438
Minority interest....................... -- (400) (134)
Deferred tax benefit.................... (488) (843) 512
Changes in operating assets and
liabilities:
Accounts receivable................... (1,892) (4,524) (7,336)
Other current assets.................. (1,217) 4,093 (237)
Accounts payable and accrued
expenses............................. 2,347 (1,311) 3,195
Unearned income....................... 93 (93) 1,078
Other, net............................ (23) 1,371 (164)
-------- -------- -------
Net cash used in operating activities..... (12,620) (15,264) (4,522)
-------- -------- -------
Cash flows from investing activities:
Capital expenditures.................... (1,010) (2,374) (4,483)
Investments and acquisitions, net of
cash acquired.......................... -- (2,998) (5,000)
-------- -------- -------
Net cash used in investing activities..... (1,010) (5,372) (9,483)
-------- -------- -------
Cash flows from financing activities:
Capital contributions from ZD........... 13,630 20,664 14,269
-------- -------- -------
Net cash provided by financing
activities............................... 13,630 20,664 14,269
-------- -------- -------
Net increase in cash and cash
equivalents.............................. -- 28 264
Cash and cash equivalents at beginning of
period................................... -- -- 28
-------- -------- -------
Cash and cash equivalents at end of
period................................... $ -- $ 28 $ 292
======== ======== =======
Supplemental Cash Flow Information:
Non-cash capital contribution........... $ -- $ 5,167 $ --
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

V-44
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

COMBINED STATEMENTS OF CHANGES IN DIVISION EQUITY
(dollars in thousands)

<TABLE>
<CAPTION>
Cumulative Total
Paid-in Deferred Accumulated translation division
capital compensation deficit adjustment equity
-------- ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at February 29,
1996................... $ 81,900 $ -- $ -- $ -- $ 81,900
Capital contribution
from ZD................ 13,630 -- -- -- 13,630
Net loss................ -- -- (16,925) -- (16,925)
Foreign currency
translation
adjustment............. -- -- -- (30) (30)
-------- -------- -------- ----- --------
Balance at December 31,
1996................... 95,530 -- (16,925) (30) 78,575
Capital contribution
from ZD................ 25,831 -- -- -- 25,831
Net loss................ -- -- (21,238) -- (21,238)
Foreign currency
translation
adjustment............. -- -- -- 124 124
-------- -------- -------- ----- --------
Balance at December 31,
1997................... 121,361 -- (38,163) 94 83,292
Capital contribution
from ZD................ 14,269 -- -- -- 14,269
Conversion of Softbank
stock options.......... 76 (76) -- -- --
Issuance of ZDNet
options................ 13,269 (13,269) -- -- --
Net loss................ -- -- (7,884) -- (7,884)
Foreign currency
translation
adjustment............. -- -- -- (130) (130)
-------- -------- -------- ----- --------
Balance at December 31,
1998................... $148,975 $(13,345) $(46,047) $ (36) $ 89,547
======== ======== ======== ===== ========
</TABLE>

The accompanying notes are an integral part of the combined financial
statements.

V-45
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS
(numbers rounded to the nearest thousand, except share and per share amounts)

1. Organization and Basis of Presentation

Formation of Ziff-Davis Inc.

Ziff-Davis Inc. was formed through an initial public offering and
reorganization that were completed on May 4, 1998 (described below). Prior to
that date, the predecessors of Ziff-Davis Inc. (currently named ZD Inc. and ZD
Events Inc.) were wholly owned indirect subsidiaries of SOFTBANK Corp.
(together with its non-Ziff-Davis Inc. affiliates, "Softbank").

ZDNet is the online business division of Ziff-Davis Inc. ZD is the division
of Ziff-Davis Inc. (formerly ZD Inc.) focused on the business of print
publishing, trade shows and conferences, market research and education. Each of
ZD and ZDNet is sometimes referred to herein as a "Group".

In order to prepare separate financial statements for ZD and ZDNet, Ziff-
Davis Inc. has allocated all of its consolidated assets, liabilities, revenue,
expenses and cash flow between ZD and ZDNet. Thus, the financial statements of
ZD and ZDNet, taken together, comprise all of the accounts included in the
corresponding consolidated financial statements of Ziff-Davis Inc.

ZDNet's financial statements reflect the application of certain cash
management and allocation policies adopted by the Board of Directors of Ziff-
Davis Inc. (the "Board"). These policies are summarized in Note 4 "Certain Cash
Management and Allocation Policies".

Even though Ziff-Davis Inc. has allocated all of its consolidated assets,
liabilities, revenue, expenses and cash flow between ZD and ZDNet, that
allocation and the division of Ziff-Davis Inc.'s common stock will not change
the legal title to any assets or responsibility for any liabilities and will
not affect the rights of any creditors. Holders of ZDNet Stock (as defined
below) will continue to be common stockholders of Ziff-Davis Inc. and, as such,
will be subject to all risks associated with an investment in Ziff-Davis Inc.
and all of its businesses, assets and liabilities.

Financial impacts that occur at ZD that affect Ziff-Davis Inc.'s consolidated
results of operations or financial position could affect the results of
operations or financial condition of ZDNet or the market price of ZDNet Stock.
In addition, net losses of ZD, and any dividends or distributions on or
repurchases of ZD Stock, will reduce the assets of Ziff-Davis Inc. legally
available for dividends on ZDNet Stock. Accordingly, financial information for
ZDNet should be read in conjunction with financial information for ZD and
financial information for Ziff-Davis Inc.

Relationship with Softbank and MAC

SOFTBANK Corp. is the indirect majority stockholder of Ziff-Davis Inc.
SOFTBANK Corp. is a Japanese corporation which at the time of the acquisition
of the MAC Assets was majority owned directly and indirectly by its president,
Mr. Son. As of December 31, 1998 Mr. Son owned approximately 45% of SOFTBANK
Corp. (50.2% as of December 31, 1997). MAC, also a Japanese corporation, was
wholly owned by Mr. Son.

Acquisition of ZDNet

In February 1996, Softbank acquired the stock of Ziff-Davis Holdings Corp.
("Holdings") for an aggregate purchase price of approximately $1,800,000,000,
plus transaction costs. Concurrent with the acquisition, in a separate
agreement, MAC, directly or through wholly owned affiliates, acquired certain
assets and assumed certain liabilities of ZD Inc. (the "MAC Assets"), a wholly
owned subsidiary of Holdings (formerly Ziff-Davis Inc.), for an aggregate
purchase price of approximately $302,000,000. ZDNet comprised a portion of the
MAC Assets.

V-46
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Acquisition of GameSpot, Inc.

In January 1997, SOFTBANK Holdings Inc. an affiliate of Ziff-Davis Inc.,
("SBH") acquired 70% of GameSpot, Inc. ("GameSpot", formerly SpotMedia
Communications, Inc.) for approximately $3,000,000. Funds for this acquisition
were provided by Ziff-Davis Inc. to SBH. As part of the initial public offering
and reorganization that was completed on May 4, 1998 (described below),
GameSpot was contributed to ZDNet. Because GameSpot and Ziff-Davis Inc. were
under common control at the time of the transaction, the GameSpot acquisition
has been accounted for in a manner similar to a pooling of interests and
GameSpot's results have been included in ZDNet's results since the time of
common ownership (January 1997). The "pooling" of GameSpot results in a non-
cash capital contribution of $5,167,000, for the year ended December 31, 1997.

Reorganization and initial public offering

On February 4, 1998, a nonstock corporation, ZD Inc., was formed in
contemplation of a reorganization and initial public offering of Ziff-Davis
Inc. Upon completion of the initial public offering (described below), Ziff-
Davis Inc. was renamed ZD Inc., ZDCF was renamed ZD Events Inc. and ZD Inc. was
renamed Ziff-Davis Inc.

On May 4, 1998, SOFTBANK Corp., through its wholly owned subsidiary, SBH,
completed a reorganization whereby the common stock of ZD Inc. and ZD Events
Inc. were contributed to Ziff-Davis Inc. in exchange for 73,619,355 shares of
Ziff-Davis Inc.'s common stock. Concurrent with the reorganization, Ziff-Davis
Inc. (1) completed an initial public offering of 25,800,000 common shares at an
initial public offering purchase price of $15.50 per share, (2) issued
$250,000,000 of 8 1/2% subordinated notes due 2008, (3) entered into a
$1,350,000,000 credit facility with a group of banks under which $1,250,000,000
was borrowed and (4) converted $908,673,000 of intercompany indebtedness to
equity. In addition, Ziff-Davis Inc. received approximately $9,107,000 of fixed
assets from Kingston Technology Company ("Kingston"), a related party, in
exchange for 580,645 shares of Ziff-Davis Inc.'s common stock and $107,000 in
cash. These assets have been subsequently leased back to Kingston. Total shares
of common stock issued to Softbank were 74,200,000. The transactions described
above are herein referred to as the "Reorganization".

On May 28, 1998, Ziff-Davis Inc.'s U.S. underwriters exercised their option
to purchase 2.0 million additional shares of common stock to cover over-
allotments. Ziff-Davis Inc. purchased the additional shares from SBH resulting
in no change to the total number of shares outstanding. On December 31, 1998
SBH contributed 71,619,355 shares of Ziff-Davis Inc.'s common stock to SOFTBANK
America Inc., an affiliate of SOFTBANK Corp.

Investment in Deja News Inc.

On July 22, 1998, ZDNet purchased $5,000,000 in Series C, convertible, non-
voting preferred shares of Deja News Inc., an Internet discussion network. This
investment is being accounted for at cost.

2. ZDNet Stock Proposal (unaudited)

V-47
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Common Stock ("ZDNet Stock"), intended to reflect the performance of Ziff-Davis
Inc.'s online business division ("ZDNet"). The majority owner of the common
stock of Ziff-Davis Inc. has committed to vote for the Tracking Stock Proposal.
Before the ZDNet Stock is first issued, Ziff-Davis Inc.'s existing common stock
will be re-classified as Ziff-Davis Inc.--ZD Common Stock ("ZD Stock") and that
stock will be intended to reflect the performance of Ziff-Davis Inc.'s other
businesses and a "Retained Interest" in ZDNet (i.e., Ziff-Davis Inc.'s retained
interest in ZDNet excluding the interest intended to be represented by
outstanding shares of ZDNet Stock) (collectively, "ZD").

Currently, Ziff-Davis Inc. provides all funding for ZD and ZDNet as described
in Note 4 under "Certain Cash Management and Allocation Policies". Ziff-Davis
Inc. intends to continue these practices until ZDNet Stock is first issued.
Accordingly, no interest expense or income to or from ZD has been reflected in
the financial statements of ZDNet for any period prior to the date on which
ZDNet Stock is first issued.

After the date on which ZDNet Stock is first issued, for financial statement
purposes, the following policies will apply except to the extent the Board
rescinds, modifies or adds to them:

V-48
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Retained Interest that correspond to dividends paid on ZDNet Stock) as
inter-Group revolving credit advances unless (1) the Board determines that
a given transfer (or type of transfer) should be accounted for as a long-
term loan, (2) the Board determines that a given transfer (or type of
transfer) should be accounted for as a capital contribution increasing ZD's
Retained Interest in ZDNet or (3) the Board determines that a given
transfer (or type of transfer) should be accounted for as a return of
capital reducing ZD's Retained Interest in ZDNet. There are no specific
criteria to determine when Ziff-Davis Inc. will account for a cash transfer
as a long-term loan, a capital contribution or a return of capital rather
than an inter-Group revolving credit advance. The Board would make such a
determination in the exercise of its business judgment at the time of such
transfer (or the first of such type of transfer) based upon all relevant
circumstances. Factors the Board would consider include (1) the current and
projected capital structure of each Group, (2) the relative levels of
internally generated funds of each Group, (3) the financing needs and
objectives of the recipient Group, (4) the investment objectives of the
transferring Group, (5) the availability, cost and time associated with
alternative financing sources and (6) prevailing interest rates and general
economic conditions.

3. Summary of Significant Accounting Policies

Principles of combination

The combined financial statements include the accounts of ZDNet. All
significant transactions within the ZDNet division have been eliminated on
combination.

Cash and cash equivalents

ZDNet considers all highly liquid investments with an original maturity of 3
months or less to be cash equivalents.

Concentration of credit risk

ZDNet places its temporary cash investments with high credit quality
financial institutions. At times, such investments may be in excess of
federally insured limits. ZDNet has not experienced losses in such accounts.

V-49
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

ZDNet's customers represent a variety of technology companies in the U.S. and
other countries. ZDNet 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 cost or estimated fair value at
the date of acquisition. Depreciation is computed using the straight-line
method half-year convention over the estimated useful lives of the assets which
range from 3 to 8 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.

Intangible assets

Intangible assets consist principally of advertising lists, subscriber lists
and goodwill. Amortization of these assets is computed on a straight-line basis
over estimated useful lives. Identifiable intangible assets are amortized over
a period of 2 to 9 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 10 to 20 years. (See Note 6.) ZDNet assesses the
recoverability of 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 value of assets, an impairment loss is recognized to reduce the
carrying value of the intangibles to estimated recoverable value. ZDNet has not
experienced any impairment of its intangible assets.

Revenue recognition

ZDNet's revenue is derived principally from the sale of advertisements on
short-term contracts. Advertising revenue is recognized ratably in the period
in which the advertisement is displayed, provided that no significant
obligations remain and collection of the resulting receivable is probable.
ZDNet's obligations typically include guarantees of a minimum number of
"impressions," or times that an advertisement appears in pages viewed by users
of ZDNet's online properties. To the extent minimum guaranteed impressions are
not met, ZDNet defers recognition of the corresponding revenue until the
remaining guaranteed impression levels are achieved.

Revenue from subscription based fees and services is recognized evenly over
the term of the contract.

Revenue from barter transactions is recognized during the period in which the
advertisements are displayed. Barter transactions are recorded at the lower of
estimated fair value of the goods or services received or the estimated fair
value of the advertisements given. To date, barter transactions have been
insignificant.

Foreign currency

The effect of translating foreign currency financial statements into U.S.
dollars is included in the cumulative translation adjustment account in
division equity. Gains and losses on foreign currency transactions, which are
not significant to operations, have been included in selling, general and
administrative expenses. ZDNet has not historically entered into forward
currency contracts.

Income taxes

ZDNet uses the asset and liability approach for financial accounting and
reporting of deferred taxes.

V-50
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Use of 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.

Stock-based compensation

ZDNet has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), to account for stock
options. Effective January 1, 1996, ZDNet adopted the disclosure-only
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation.

Comprehensive income

ZDNet implemented SFAS No. 130 Reporting Comprehensive Income, effective
January 1, 1998. This standard requires ZDNet to report the total changes in
division equity that do not result directly from transactions with
stockholders, including those which do not affect retained earnings. These
changes are not material to ZDNet's combined financial statements.

New accounting pronouncement

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. ZDNet does not expect that the adoption of SFAS
No. 133 will have a material impact on ZDNet's results of operations. ZDNet
will adopt SFAS No. 133 beginning with its 2000 financial statements.

4. Certain Cash Management and Allocation Policies

ZDNet's financial statements reflect the application of certain cash
management and allocation policies summarized below. The Board may rescind,
modify or add to any of these policies.

Treasury activities

Ziff-Davis Inc. manages most treasury activities on a centralized,
consolidated basis. These activities include the investment of surplus cash,
the issuance, repayment and repurchase of short-term and long-term debt, and
the issuance and repurchase of common stock and preferred stock. Each of ZDNet
and ZD generally remits its cash receipts (other than receipts of foreign
operations or operations that are not wholly owned) to Ziff-Davis Inc., and
Ziff-Davis Inc. generally funds ZDNet's cash disbursements (other than
disbursements of foreign operations or operations that are not wholly owned),
on a daily basis.

V-51
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

operations or cash of ZDNet's operations that are not wholly owned), that cash
was transferred to ZD and accounted for as a return of capital (i.e., as a
reduction in ZDNet's division equity and ZD's Retained Interest in ZDNet) and
(3) whenever ZDNet had a cash need (other than cash needs of ZDNet's foreign
operations or cash needs of ZDNet's operations that are not wholly owned), that
cash need was funded by ZD and accounted for as a capital contribution (i.e.,
as an increase in ZDNet's division equity and ZD's Retained Interest in ZDNet).
Accordingly, no interest expense or income to or from ZD has been reflected in
the financial statements of ZDNet.

Corporate general and administrative expenses

Ziff-Davis Inc. allocates the cost of certain corporate general and
administrative services and shared services (including certain legal,
accounting (tax and financial), information systems, telecommunications,
purchasing, marketing, intellectual property, public relations, corporate
office and travel expenses) (collectively, "Central Services") to ZDNet based
on utilization. Where determinations based on utilization alone are
impracticable, Ziff-Davis Inc. uses other methods and criteria that management
believes to be equitable and to provide a reasonable estimate of the cost
attributable to ZDNet.

Taxes

Federal income taxes, which are determined on a consolidated basis, except
for GameSpot, are allocated to ZDNet (and reflected in its financial
statements) in accordance with Ziff-Davis Inc.'s tax allocation policy. In
general, this policy provides that the consolidated tax provision (and related
tax payments or refunds) are allocated between the Groups based principally
upon the financial income, taxable income, credits and other amounts directly
related to the respective Groups. Tax benefits that cannot be used by the Group
generating such attributes, but can be utilized on a consolidated basis, are
allocated to the Group that generated such benefits. As a result, the allocated
Group amounts of taxes payable or refundable are not necessarily comparable to
those that would have resulted if the Groups had filed separate tax returns.

Royalty charges

ZD charges ZDNet an annual fee for the use of various brands and editorial
content. The current annual fee, which is reflected in ZDNet's financial
statements as part of its production and content costs, is equal to 5% of the
first $100,000,000 of ZDNet's revenue for the year, 4% of the next $50,000,000
of ZDNet's revenue for that year and 3% of any incremental revenue over
$150,000,000 for that year. The Board may at some point in the future change
this fee as it, in its sole discretion, deems appropriate in light of the
circumstances from time to time.

5. Property and equipment, net

Property and equipment, net consists of the following:

<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
----------- -----------
(dollars in thousands)
<S> <C> <C>
Computers and equipment.......................... $ 4,274 $ 8,003
Furniture and fixtures........................... 708 1,076
Leasehold improvements........................... 314 700
----------- -----------
5,296 9,779
Accumulated depreciation and amortization........ (2,151) (4,161)
----------- -----------
$ 3,145 $ 5,618
=========== ===========
</TABLE>

V-52
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except per share and share amounts)

6. Intangible assets, net

Intangible assets, net consists of the following:

<TABLE>
<CAPTION>
December 31,
------------------------
Range of Useful
Lives
(years) 1997 1998
--------------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Subscription lists............... 2 $ 4,300 $ 4,300
Advertising lists................ 9 2,400 2,400
Goodwill......................... 10-20 71,479 71,479
----------- -----------
78,179 78,179
Accumulated amortization......... (11,015) (15,453)
----------- -----------
$ 67,164 $ 62,726
=========== ===========
</TABLE>

Intangible assets primarily relate to the acquisition of the MAC Assets. As
discussed in Note 1, the acquisition was accounted for under the purchase
method of accounting. As such, the purchase price of this acquisition was
allocated to tangible and identifiable intangible assets with the remaining
amount being allocated to goodwill.

Advertising lists and subscriber lists were recorded at estimated fair value
as determined by an income approach.

All intangible assets are being amortized using the straight-line method over
estimated useful lives, up to 20 years. In determining the estimated useful
lives, ZDNet considered its competitive position in the markets in which it
operates, the historical attrition rates of advertisers, subscribes and
exhibitors, legal and contractual obligations and other factors.

7. Accrued Expenses

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
(dollars in
thousands)
<S> <C> <C>
Payroll and related employee benefits....................... $1,440 $2,221
Licenses.................................................... 108 24
Other taxes................................................. 189 302
Other....................................................... 471 948
------ ------
$2,208 $3,495
====== ======
</TABLE>

V-53
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

8. Income Taxes

Provision (benefit) for income taxes and related assets and liabilities
attributed to ZDNet are determined in accordance with Ziff-Davis Inc.'s tax
allocation policy. (See Note 4.)

ZDNet (excluding GameSpot) has been included in a consolidated federal income
tax return, except for the periods in which it was owned by MAC Inc. (described
in Note 1). GameSpot is a 70% owned subsidiary and files separate federal and
state income tax returns on a stand-alone basis.

Loss before income taxes is attributable to the following jurisdictions:

<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1997 1998
-------- -------- -------
(dollars in thousands)
<S> <C> <C> <C>
U.S........................................... $(15,263) $(18,853) $(5,009)
Foreign....................................... (2,150) (3,228) (2,363)
-------- -------- -------
Total......................................... $(17,413) $(22,081) $(7,372)
======== ======== =======
</TABLE>

Components of the provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
December 31,
------------------
1996 1997 1998
----- ----- ----
(dollars in
thousands)
<S> <C> <C> <C>
U.S. federal income taxes:
Current............................................... $ -- $ -- $--
Deferred.............................................. (378) (653) 413
State and local income taxes:
Current............................................... -- -- --
Deferred.............................................. (110) (190) 99
Foreign income taxes.................................... -- -- --
----- ----- ----
Total provision (benefit) for income taxes ......... $(488) $(843) $512
===== ===== ====
</TABLE>

A reconciliation of the U.S. federal statutory tax rate to ZDNet's effective
tax rate on loss before income taxes is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal statutory tax
rate................... 35.0% 35.0% 35.0%
State and local taxes
(net of federal tax
benefit)............... 6.0 6.0 5.0
Non-recognition of
combined losses of MAC
Assets................. (33.3) (26.8) (29.3)
Change in valuation
allowance.............. (4.9) (9.5) (14.2)
Amortization of non-
deductible goodwill.... -- (0.9) (2.8)
Other................... -- -- (0.6)
----- ----- -----
Effective tax rate...... 2.8% 3.8% (6.9)%
===== ===== =====
</TABLE>

The effective tax rate differs from the federal statutory tax rate primarily
as a result of ZDNet's inability to deduct losses incurred by ZDNet while owned
by MAC. In addition, tax benefits attributable to losses in foreign
jurisdictions and certain U.S. losses are subject to the establishment of a
valuation allowance inasmuch as such loss carryforwards are not expected to be
utilized in the future.

V-54
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Following is a summary of the components of the deferred tax accounts at
December 31, 1997 and 1998:

<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ ------
(dollars in
thousands)
<S> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts............................. $ 37 $ 701
Other....................................................... 32 78
------ ------
Current deferred tax assets................................. 69 779
------ ------
Noncurrent deferred tax assets
Net operating loss and other carryforwards.................. 9,081 9,728
Other....................................................... 10 115
------ ------
Noncurrent deferred tax assets.............................. 9,091 9,843
Valuation allowance.......................................... (3,595) (5,569)
------ ------
Net noncurrent deferred tax assets.......................... 5,496 4,274
------ ------
Net deferred tax assets................................... $5,565 $5,053
====== ======
</TABLE>

The valuation allowance primarily relates to tax benefits of foreign net
operating loss carryforwards acquired in the MAC Asset purchase which are not
expected to be realized. No deferred tax asset has been established for the
U.S. losses generated by ZDNet while owned by MAC since these losses will not
be available for use by Ziff-Davis Inc.

ZDNet has U.S. and foreign net operating loss carryforwards at December 31,
1998 of approximately $23,000,000, which will begin to expire in 2000. The
utilization of certain net operating loss carryforwards of approximately
$10,000,000 is subject to limitations primarily due to the change of ownership
resulting from Softbank's acquisition of Holding's stock. Management believes
that such limitations will not significantly affect Ziff-Davis Inc.'s ability
to recognize the deferred tax asset relating to the carryforwards. Accordingly,
no valuation allowance to reduce the deferred tax asset relating to the
carryforwards has been established.

9. Related Party Transactions

ZDNet transacts business with a group of companies affiliated through common
ownership with Softbank and has various transactions and relationships with
members of the group. Due to those relationships, it is possible that the terms
of these transactions are not the same as those that would result from
transactions among unrelated parties.

ZD provides all necessary funding for the operations and investments of
ZDNet; this funding is accounted for as capital contributions. (See Notes 2 and
4.) For the period from February 29, 1996 to December 31, 1996 and for the
years ended December 31, 1997 and 1998, such capital contributions were
$13,630,000, $25,831,000 and $14,269,000, respectively.

V-55
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

The amounts receivable or payable to affiliated companies are included in
accounts receivable, net or accounts payable in the accompanying balance
sheets. Details of these amounts are:

<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
----------- -----------
(dollars in thousands)
<S> <C> <C>
Accounts receivable:
Softbank Kingston.................................... $ 60 $ 72
E-Trade.............................................. -- 367
US Web............................................... 7 --
Asia Communications Global Limited................... 61 --
Inquiry.com, Inc. ................................... 50 --
Trend Micro, Inc. ................................... 10 --
Sega Entertainment................................... 32 36
----------- -----------
Total.............................................. $ 220 $ 475
=========== ===========
Accounts payable:
SIM.................................................. $ 2 $ --
Yahoo!............................................... -- 60
GeoCities............................................ -- 12
PointCast............................................ 42 16
----------- -----------
Total.............................................. $ 44 $ 88
=========== ===========
</TABLE>

ZDNet purchases advertising in ZD's publications at discounts to market
rates. Had ZD charged market rates for such advertising, ZDNet's operating
expenses would have increased by $2,235,000, $2,671,000 and $1,429,000 for the
period from February 29, 1996 to December 31, 1996 and for the years ended
December 31, 1997 and 1998, respectively.

V-56
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Related party transactions included in the accompanying combined statements
of operations include the following:

<TABLE>
<CAPTION>
Period from Year ending
February 29, 1996 December 31,
to December 31, --------------
1996 1997 1998
----------------- ------ ------
(dollars in thousands)
<S> <C> <C> <C>
Revenue, net
ZD ......................................... $ -- $ 76 $ 160
ZDTV........................................ -- 11 36
GeoCities................................... -- 30 --
E-Trade..................................... -- -- 1,168
Kingston Technology Company................. 88 353 615
US Web...................................... 93 75 --
Asia Communications Global Limited.......... -- 61 --
Electric Minds, Inc. ....................... -- 15 --
Inquiry.com, Inc. .......................... 29 149 --
Trend Micro, Inc. .......................... 28 77 --
Sega Entertainment.......................... 4 248 94
------ ------ ------
Total..................................... $ 242 $1,095 $2,073
====== ====== ======
Expenses
ZD ......................................... $4,496 $8,330 $9,374
ZDTV........................................ -- (120) (532)
SIM......................................... 585 1,613 --
Yahoo!...................................... 27 -- 101
Geo Cities.................................. -- -- 108
PointCast................................... -- 42 144
------ ------ ------
Total....................................... $5,108 $9,865 $9,195
====== ====== ======
</TABLE>

Included in selling, general and administrative expenses is an allocation for
the Ziff-Davis Inc. Central Services amounting to $2,391,000, $3,877,000 and
$5,949,000 for the ten month period ended December 31, 1996 and the years ended
December 31, 1997 and 1998, respectively. Also included in selling, general and
administrative expenses is a royalty charge to ZD amounting to $811,000,
$1,611,000 and $2,807,000 for the ten month period ended December 31, 1996 and
the years ended December 31, 1997 and 1998, respectively. (See Note 4.)

ZDNet is reimbursed by certain affiliates for pre-determined costs incurred
by ZDNet on the affiliates' behalf. These reimbursements are reflected as a
reduction of expenses in the accompanying statements of operations.

10. Employee Benefit Plans

Ziff-Davis Inc. maintains various defined contribution retirement plans.
Substantially, all of ZDNet's employees are eligible to participate in one of
the plans under which annual contributions may be made by Ziff-Davis Inc. 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 ZDNet up to certain specified
percentages. Employees are generally eligible to participate in a plan upon
joining Ziff-Davis Inc. and receive matching contributions after one year of
employment. ZDNet made contributions to the plan totaling $447,000, $751,000
and $1,111,000 for the period from February 29, 1996 to December 31, 1996 and
the years ended December 31, 1997 and 1998, respectively.

V-57
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

11. Stock Compensation Plans

SOFTBANK Executive Stock Option Plans

The SOFTBANK Executive Stock Option Plans provide for the granting of
nonqualified stock options (the "Softbank Options") to purchase the common
stock of SOFTBANK Corp. to officers, directors and key employees of Ziff-Davis
Inc. SOFTBANK Corp. is a publicly traded company in Japan. 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, 1998, 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. On January 19,
1998, the exercise price of all of the shares outstanding under option
agreements was reset to (Yen)4,000, the closing market price on Japan's Tokyo
Stock Exchange First Section at that date. In conjunction with the repricing,
those options previously exercisable at December 31, 1997 could only be
exercised after July 19, 1998. The repricing of the stock options did not
result in compensation expense to ZDNet.

1998 Incentive Compensation Plan and the 1998 Non-Employee Directors' Stock
Option Plan

In 1998, Ziff-Davis Inc. adopted the 1998 Incentive Compensation Plan (the
"Incentive Plan") and the 1998 Non-Employee Directors' Stock Option Plan (the
"Non-Employee Directors' Plan"). The Incentive Plan provides for the grant of
options, stock appreciation rights, stock awards and other interests in Ziff-
Davis Inc.'s common stock to key employees of Ziff-Davis Inc. and its
affiliates and consultants. The Non-Employee Directors' Plan provides for the
grant of stock options to non-employee directors. Ziff-Davis Inc. has reserved
8,500,000 shares of common stock for issuance under the Incentive Plan and
200,000 shares of common stock for issuance under the Non-Employee Directors'
Plan. During 1998, Ziff-Davis Inc. granted options to purchase 339,000 shares
to ZDNet employees 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.

In addition, on December 21, 1998, the Board approved the grant of options to
acquire an aggregate of approximately 4,163,000 shares of ZDNet Stock to
certain employees, at a price of $7.50 per share. As a result of the grant
ZDNet has recorded deferred compensation expense of $13,269,000 for the
difference between the exercise price and the deemed fair value of the
underlying shares. This amount has been recorded as a component of division
equity offset by an additional to paid-in capital. ZDNet expects to recognize
non-cash compensation for accounting purposes of $13,269,000 ratably over the
vesting period of the options. These options are currently scheduled to vest
and become exercisable on the fifth anniversary of the date of grant.

V-58
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

The December 21, 1998 Board actions described above are subject to
stockholder approval. The majority stockholder of Ziff-Davis Inc. has committed
to vote for these actions.

On January 29, 1999, Ziff-Davis Inc. granted options to a number of employees
in connection with the cancellation of corresponding options to purchase stock
of SOFTBANK Corp. In connection with these grants, an affiliate of SOFTBANK
Corp. has agreed with Ziff-Davis Inc. that, if and when any of these options
are exercised, (1) that affiliate will cause the shares of Ziff-Davis Inc.
common stock issuable upon such exercise to be supplied to Ziff-Davis Inc. and
(2) Ziff-Davis Inc. will deliver to that affiliate or its designee the exercise
price paid upon such exercise. Thus, the exercise of these options will not
increase the number of shares of Ziff-Davis Inc. common stock outstanding or
Ziff-Davis Inc.'s stockholders' equity. However, ZDNet expects to recognize
compensation expense for accounting purposes of approximately $76,000 over
three years as a result of these grants. As such, this amount has been recorded
in the Financial Statements as additional paid in capital offset by a reduction
to division equity as deferred compensation.

GameSpot Inc. 1997 Stock Option Plan

Ziff-Davis Inc. adopted the GameSpot Inc. 1997 Stock Option Plan (the
"GameSpot Plan") to provide long-term incentives for key employees of GameSpot
and to enhance stockholder value. The GameSpot Plan provides for the grant of
options to purchase shares of GameSpot Inc.'s common stock. GameSpot has
reserved 800,000 shares of GameSpot Inc.'s common stock for issuance under the
GameSpot Plan. In 1997, 780,000 options were granted to certain employees under
the GameSpot Plan. Such options vest ratably over 3 years.

V-59
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Option grants

Information relating to the Softbank options during 1996, 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Option Price
Shares Per Share(1)
--------- ------------
<S> <C> <C>
Shares outstanding under options at December
31, 1995...................................... -- --
Granted...................................... 24,716(2) $87.15
Exercised.................................... -- --
Forfeited.................................... -- --
------
Shares outstanding under options at December
31, 1996...................................... 24,716 87.15
Granted...................................... 17,800 64.50
Exercised.................................... -- --
Forfeited.................................... (8,096) 78.76
------
Shares outstanding under options at December
31, 1997...................................... 34,420 77.41
Granted...................................... -- --
Exercised.................................... -- --
Forfeited.................................... -- --
Converted to Ziff-Davis Inc. options......... (2,100) 31.03
------
Shares outstanding under options at December
31, 1998...................................... 32,320 $31.03
======
Shares exercisable as of:......................
December 31, 1996............................ -- --
December 31, 1997 (price range $64.50 to
$87.15)..................................... 5,120 $78.97
December 31, 1998 (price $31.03)............. 11,374 $31.03
</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.
The 1998 activity reflects the repricing of all options outstanding as of
January 19, 1998 to (Yen)4000.
(2) Adjusted for a 1.4:1 stock split during 1996 and a 1.3:1 stock split during
1997.

Information relating to Ziff-Davis Inc. stock options issued during 1998 is
as follows:

<TABLE>
<CAPTION>
Weighted
Average
Number of Option Price
Shares Per Share
--------- ------------
<S> <C> <C>
Shares outstanding under options at December 31,
1997............................................ -- --
Granted........................................ 339,000 $6.00
Exercised...................................... -- --
Converted from Softbank options................ 8,226 8.89
Forfeited...................................... (8,000) 6.00
-------
Shares outstanding under options at December 31,
1998............................................ 339,226 $6.08
=======
</TABLE>

V-60
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Information relating to ZDNet stock options issued during 1998 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Option Price
Shares* Per Share*
--------- ------------
<S> <C> <C>
Shares outstanding under options at December 31,
1997............................................ -- --
Granted........................................ 4,162,943 $7.50
Exercised...................................... -- --
Forfeited...................................... -- --
---------
Shares outstanding under options at December 31,
1998............................................ 4,162,943 $7.50
=========
</TABLE>
- --------
* The number of shares and price per share will be adjusted if the initial
Number of Shares Issuable with Respect to ZD's Retained Interest in ZDNet is
different from 40,000,000.

At December 31, 1998, no shares of either Ziff-Davis Inc. or ZDNet options
were exercisable.

Information relating to GameSpot, Inc. stock options is as follows:

<TABLE>
<CAPTION>
Weighted
Average
Number of Option Price
Shares Per Share
--------- ------------
<S> <C> <C>
Share outstanding under options at December 31,
1996............................................ -- --
Granted........................................ 780,000 $0.44
Exercised...................................... -- --
Forfeited...................................... (61,000) 0.44
--------
Shares outstanding under options at December 31,
1997............................................ 719,000 0.44
Granted........................................ -- --
Exercised...................................... -- --
Forfeited...................................... (167,000) 0.44
--------
Shares outstanding under options at December 31,
1998............................................ 552,000 $0.44
========
Shares exercisable as of:
December 31, 1997................................ 400,610 $0.44
========
December 31, 1998................................ 497,639 $0.44
========
</TABLE>

V-61
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

As permitted by SFAS No. 123, ZDNet has 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, 1997
or 1998. Pro forma information regarding net income is required by SFAS No. 123
and has been determined as if ZDNet 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, 1997 and 1998:

Softbank options

<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................ 5.89% 6.35% 5.46%
Dividend yield..................................... 0.26% 0.22% 1.50%
Volatility factor.................................. 54.03% 51.35% 77.72%
Expected life...................................... 6 years 6 years 6 years

Ziff-Davis Inc. options

<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................ n/a n/a 5.03%
Dividend yield..................................... n/a n/a 0.00%
Volatility factor.................................. n/a n/a 54.70%
Expected life...................................... n/a n/a 6 years

ZDNet options

<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................ n/a n/a 4.67%
Dividend yield..................................... n/a n/a 0.00%
Volatility factor.................................. n/a n/a 54.70%
Expected life...................................... n/a n/a 6 years

GameSpot Inc. options

<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................ n/a 6.35% 6.44%
Dividend yield..................................... n/a 0.00% 0.00%
Volatility factor.................................. n/a 100.27% 100.27%
Expected life...................................... n/a 4 years 4 years

The weighted average fair value of options granted in 1996, 1997 and 1998 is
as follows:

<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Softbank options................................... $ 64.30 $ 34.05 $19.81
Ziff-Davis Inc. options............................ n/a n/a 5.21
ZDNet options...................................... n/a n/a 4.25
GameSpot options................................... n/a 0.32 0.32
</TABLE>

For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over 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, 1997 and 1998, consistent
with the provisions of SFAS No. 123, ZDNet's net loss would have increased by
approximately $156,000, $167,000 and $1,046,000, respectively.

V-62
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

Employee Stock Purchase Plan

Ziff-Davis Inc. adopted the Employee Stock Purchase Plan (the "Stock Purchase
Plan") whereby eligible employees may purchase Ziff-Davis Inc.'s common stock
with after-tax payroll deductions of 1% to 10% of their base pay. The price at
which shares of common stock will be purchased is the lesser of 85% of the fair
market value of a share of common stock on (1) the first business day of a
purchase period or (2) the last business day of a purchase period. Ziff-Davis
Inc. has reserved 1,500,000 shares of common stock for issuance under the Stock
Purchase Plan.

12. Operating Lease Commitments

ZDNet utilizes equipment and space under lease to Ziff-Davis Inc. ZDNet's
allocation of the minimum lease payments are as follows:

<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
1999.................. $ 1,332
2000.................. 1,493
2001.................. 1,511
2002.................. 1,064
2003.................. 1,076
Thereafter............ 7,022
-------
Total minimum
payments........... $13,498
=======
</TABLE>

Rental expense from operating leases amounted to $668,000, $1,348,000 and
$1,608,000 for the period from February 29, 1996 to December 31, 1996, and the
years ended December 31, 1997 and 1998, respectively.

13. Contingencies

ZDNet and Ziff-Davis Inc. are subject to various legal proceedings arising in
the normal course of business.

Class action and derivative litigations

The complaints allege that defendants violated Sections 11, 12(a) (2) and 15
of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of Ziff-Davis Inc.'s common stock on April 29,
1998 (the "IPO"). More particularly, the complaints allege that the
registration statement contained false and misleading statements and failed to
disclose facts that could have indicated an impending decline in Ziff-Davis
Inc.'s revenue. The complaints seek on behalf of a class of purchasers of Ziff-
Davis Inc.'s common stock from the date of the IPO through October 8, 1998
unspecified damages, interest, fees and costs, recission and injunctive relief
such as the imposition of a constructive trust upon the proceeds of the IPO.

V-63
<PAGE>

ZDNET
(a division of Ziff-Davis Inc.)

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(numbers rounded to the nearest thousand, except share and per share amounts)

In addition, two derivative suits have been filed by stockholders against
Ziff-Davis Inc. and all of its directors in the Court of Chancery of the State
of Delaware for New Castle County. The complaints allege that the directors
breached their fiduciary duties to Ziff-Davis Inc. by repricing the stock
options awarded to certain directors and demand the nullification of the
repricing and an injunction against exercise by the directors of any repriced
option. Plaintiffs filed an amended complaint on February 17, 1999 (which is
substantially similar to the original complaints, except that the amended
complaint also addresses the granting of "new options" at an allegedly "reduced
exercise price") and have indicated their intent to seek consolidation of the
actions. A response to the amended complaint has not yet been filed.

Other legal proceedings

Ziff-Davis Inc. was named as a defendant in an action, filed on April 17,
1998 in the Supreme Court of the State of New York, by minority stockholders of
SOFTBANK Interactive Marketing Inc. ("SIM"), formerly an indirect subsidiary of
SOFTBANK Corp. The complaint alleges, among other things, that SBH, SIM's
majority stockholder, acting with Ziff-Davis Inc. and two of its senior
officers and directors who were directors of SIM (and who were also named as
defendants), had conflicts of interest between SIM and other Softbank
investments (including investments in Ziff-Davis Inc.) and failed to act in the
best interests of SIM and the minority stockholders by taking actions which
benefited Ziff-Davis Inc. The complaint states claims based on common law
fraud, breach of fiduciary duty and aiding and abetting theories and seeks in
excess of $200,000,000 in damages. Ziff-Davis Inc. and the other defendants
have moved to dismiss all of the claims against them other than a breach of
contract claim which is solely against SBH, and the motion was granted, with
the result that all of the claims against Ziff-Davis Inc. and its officers were
dismissed, and most of the claims against SBH were dismissed, leaving only a
claim against SBH concerning the alleged failure of SBH to give plaintiffs
adequate notice of the sale of its stock to SIM.

14. Subsequent Events

V-64
<PAGE>

ANNEX VI
[Morgan Stanley Dean Witter Letter Head]

December 5, 1999

Board of Directors
Ziff-Davis Inc.
28 East 28th Street
New York, N.Y. 10016

Members of the Board:

We understand that ZD Inc. ("ZD" or the "Company") and Willis Stein & Partners
("Buyer") propose to enter into a Purchase Agreement substantially in the form
of the draft dated December 4, 1999 (the "Agreement") which provides for the
sale by ZD to Buyer of selected assets of ZD Publishing, an unincorporated
division of the Company ("ZD Publishing") for $780 Million in cash (subject to
post-closing adjustment based upon working capital and other factors). The
terms and conditions of the sale are more fully set forth in the Agreement.

You have asked for our opinion as to whether the consideration to be received
by the Company pursuant to the Agreement is fair from a financial point of view
to the Company.

For purposes of the opinion set forth herein, we have:

(i)reviewed certain publicly available financial statements and other
information of the Company;

(ii) reviewed certain internal financial statements and other financial and
operating data concerning the Company and ZD Publishing prepared by
the management of the Company and ZD Publishing;

(iii) analyzed certain financial projections prepared by the management of
the Company and ZD Publishing;

(iv) discussed the past and current operations and financial condition and
the prospects of the ZD Publishing with senior executives of the
Company and ZD Publishing;

(v) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;

(vi) participated in discussions and negotiations among representatives of
the Company and Buyer (and certain other parties) and their financial
and legal advisors;

(vii) reviewed the draft Purchase Agreement and supporting schedules dated
December 4, 1999, and certain related documents;

(viii)performed such other analyses as we have deemed appropriate.

We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of the Company. In
addition, we have assumed that the transaction will be consummated in
accordance with the terms of the Agreement. We have not made any independent
valuation or appraisal of the assets or liabilities of the Company, nor have we
been furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.

We have acted as financial advisor to the Board of Directors of the Company in
connection with this transaction as well as certain other transactions
undertaken by the Company and will receive a fee for our services. In the past,
Morgan Stanley & Co. Incorporated and its affiliates have provided financial
advisory and financing services for the Company and for the Buyer and have
received fees for the rendering of these services.

VI-1
<PAGE>

It is understood that this letter is for the information of the Board of
Directors of the Company only and may not be used for any other purpose without
our prior written consent.

Based on the foregoing, we are of the opinion on the date hereof that the
consideration to be received by the Company pursuant to the Agreement is fair
from a financial point of view to the Company.

Very truly yours,

Morgan Stanley & Co. Incorporated

By: /s/ Stuart J. Epstein

VI-2
<PAGE>

ZIFF-DAVIS INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD FEBRUARY 29, 2000

The undersigned, having received the Notice of Special Meeting of
Stockholders and Proxy Statement dated February 7, 2000 (the "Proxy
Statement") of Ziff-Davis Inc. (the "Company"), hereby appoints Eric Hippeau,
Timothy C. O'Brien and J. Malcolm Morris, and each of them, proxies of the
undersigned, with full power of substitution, to represent the undersigned at
the Special Meeting of Stockholders of the Company to be held on February 29,
2000 and at any adjournments or postponements thereof (the "Special Meeting")
and to vote all shares of Common Stock which the undersigned would be entitled
to vote if personally present at the Special Meeting in the manner the
undersigned specifies in this Proxy Card (or, if the undersigned does not
specify how to vote, to vote all such shares FOR all Proposals referred to in
this Proxy Card and to vote in the discretion of the proxies as to any other
matters coming before the Special Meeting).

Please promptly mark this Proxy Card to specify how you would like your
shares voted and date, sign and mail it in the enclosed envelope. No postage
is required. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ALL OF THE
PROPOSALS REFERRED TO IN THIS PROXY CARD.

Proposal 1. Proposal to adopt resolutions authorizing the restructuring in
the form attached as Annex 1 to the Proxy Statement.

[_] FOR [_] AGAINST [_] ABSTAIN

Proposal 2. Proposal to amend the Company's Amended 1998 Incentive
Compensation Plan in the manner described in the Proxy
Statement.

[_] FOR [_] AGAINST [_] ABSTAIN

Proposal 3. Proposal to amend the Company's Amended 1998 Non-Employee
Directors' Stock Option Plan in the manner described in the
Proxy Statement.

[_] FOR [_] AGAINST [_] ABSTAIN

In addition, the undersigned authorizes such proxies to vote such shares in
their discretion as to any other matters coming before the Special Meeting.

IF YOU EXECUTE AND RETURN THIS PROXY CARD BUT DO NOT SPECIFY THE MANNER IN
WHICH THE PROXIES SHOULD VOTE YOUR SHARES, THE PROXIES WILL VOTE YOUR SHARES
FOR ALL OF THE FOREGOING PROPOSALS AND IN THEIR DISCRETION AS TO ANY OTHER
MATTERS COMING BEFORE THE MEETING.

-------------------------------------
(Signature)

-------------------------------------
(Signature if held jointly)

Dated: ________________________, 2000

Please date this Proxy Card and sign
your name exactly as it appears
hereon. Where there is more than one
owner, each should sign. When
signing as an attorney,
administrator, executor, guardian or
trustee, please add your title as
such. If executed by a corporation,
this Proxy Card should be signed by
a duly authorized officer. If
executed by a partnership, please
sign in partnership name by
authorized persons.
<PAGE>

Appendix A

AMENDED 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 Ziff-Davis 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 (regardless of series), (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 Board of Directors of the Company (the
"Board"), or by a Compensation Committee (the "Committee") appointed by the
Board which shall, following the initial public offering of the Company's
Common Stock, solely to the extent required to comply with Rule 16b-3 as
promulgated under Section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act") and Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), be composed of "non-employee directors" within the
meaning of Rule 16b-3 as promulgated under the Exchange Act and "outside
directors" within the meaning of Section 162(m) of the Code. To the extent the
Plan is administered by the Board, the term "Committee" shall refer to the
Board. 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 (a) 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 (b) 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.

1
<PAGE>

not exceed forty (40) million shares and pursuant to Awards granted in each
fiscal year thereafter shall not exceed four percent (4%) of the issued and
outstanding shares of Common Stock, determined as of the last day of the
immediately preceding fiscal year, increased by the number of shares available
for Awards in previous fiscal years but not covered by Awards granted in such
years. Shares of Common Stock which may be delivered pursuant to Awards may be
authorized and unissued shares or treasury shares, as the Company may from time
to time determine. In addition, up to 327,500 shares supplied from outstanding
shares of Common Stock held by the majority stockholder of the Company will be
available for issuance in respect of Awards of stock options granted to certain
Participants in connection with the cancellation of such Participants'
corresponding options to purchase stock of SOFTBANK Corp. Notwithstanding the
foregoing, but subject to adjustment as provided in Section 9, no more than 40
million shares of Common Stock shall be delivered pursuant to the exercise of
incentive stock options within the meaning of Code Section 422. 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.

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). For purposes of the Plan, with respect to any Award granted under
the Plan, references to the term "Common Stock" shall be deemed to refer to the
applicable series of Common Stock with respect to which such Award is granted.

(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 generally not be less
than 100% of the Fair Market Value (as defined below) of the Common Stock
on the date of grant, unless otherwise specifically determined by the
Committee. 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; provided
that solely for the 1998 calendar year, no individual employee may receive
grants of options with respect to more than 2,600,000 shares of Common
Stock. 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.

2
<PAGE>

(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.

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 revenue, 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) (1) the Company's Chief Executive Officer (or an individual acting in
such capacity), (2) 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 (3) 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

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the Committee at time of grant, except that each restriction period shall
not be less than 12 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 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, (a)
"immediate family" shall mean the Participant's spouse and issue (including
adopted and stepchildren) and (b) "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.

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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, (1) all SARs which have not been
granted in tandem with stock options shall become exercisable in full, (2) 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, (3) all performance shares shall be
deemed to be earned at target level, (4) all performance shares granted in the
form of share units shall be paid in cash and (5) 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:

(A) 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;

(B) the stockholders 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; 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

(C) the stockholders 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 (1) 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 (2) 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 (1) any contract or agreement between such Participant and the
Company or any of its affiliates provides otherwise, or (2) 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

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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.

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; Approval of Stockholders.

The Plan shall be effective as of February 13, 1998 (the "Effective Date").
Subject to earlier termination pursuant to Section 13, the Plan shall have a
term of 10 years from its Effective Date. The Plan is conditioned upon the
approval of the stockholders 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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Appendix B

AMENDED 1998 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN

1. Purpose.

The purpose of the Ziff-Davis 1998 Non-Employee Directors Stock Option Plan
(the "Plan") is to promote the interests of Ziff-Davis Inc., a Delaware
corporation (the "Company") and its affiliates and stockholders, by allowing
the Company to attract and retain highly qualified directors who are not
employees of the Company, SOFTBANK Corp., SOFTBANK Holdings Inc. or SOFTBANK
America Inc. ("Non-Employee Directors") by permitting such Non-Employee
Directors to obtain or increase their ownership position in the Company through
the holding of common stock of the Company, par value $0.01 per share
(regardless of series, the "Common Stock"), and providing such Non-Employee
Directors with an interest in the Company parallel to that of the Company's
stockholders.

2. Plan Administration.

The Plan shall be administered by the Board of Directors of the Company (the
"Board") or by a Compensation Committee (the "Committee") appointed by the
Board. To the extent the Plan is administered by the Board, the term
"Committee" shall refer to the Board. 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
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 option 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 option granted
hereunder, and may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any option agreement 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, Non-Employee Directors 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
Securities Exchange Act of 1934, as amended (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.

Each Non-Employee Director is eligible to receive awards of stock options
("Awards") under Section 5.

4. Shares Subject to the Plan.

Subject to adjustment as provided in Section 9, the total number of shares
of Common Stock which may be delivered pursuant to Awards granted under the
Plan through the Company's fiscal year ending in 2000 shall not exceed 300,000
shares and pursuant to Awards granted in each fiscal year thereafter shall not
exceed one-tenth of one percent (0.1%) of the issued and outstanding shares of
Common Stock determined as of the last day of the immediately preceding fiscal
year, increased by the number of shares available for Awards in previous fiscal
years but not covered by Awards granted in such years. 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.

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5. Awards.

(a) Non-Discretionary Grants. Each Non-Employee Director shall receive upon
election as a member of the Board an initial grant of stock options ("Initial
Grant") to purchase 15,000 shares of Common Stock which, in the event of a
reclassification of the Common Stock into (x) a series of Common Stock that is
intended to reflect the performance of the ZDNet division of the Company
("ZDNet Common Stock"), and (y) a series of Common Stock that is intended to
reflect the performance of the business of the Company other than the ZDNet
division, plus a retained interest in the ZDNet division ("ZD Common Stock")
(the "Reclassification"), shall be composed of 15,000 shares of ZD Common
Stock; provided, that following an initial public offering of the ZDNet Common
Stock, the Initial Grant shall be composed of shares of ZD Common Stock and
shares of ZDNet Common Stock in such proportion as determined by the Committee;
provided, that each Non-Employee Director who is on the Board on the date of
the initial public offering of Common Stock (prior to the Reclassification)
shall receive such Initial Grant on the date of such initial public offering;
provided, further, that each Non-Employee Director who is on the Board on the
date of the initial public offering of ZDNet Common Stock shall receive a grant
of stock options to purchase 25,000 shares of ZDNet Common Stock on the date of
such offering at the initial public offering price, which will vest and become
exercisable with respect to 25% of the shares on December 31 of the year in
which the consummation of the offering occurs, and an additional 6.25% of the
shares at the end of each three-month period thereafter. On the date of each
annual shareholders meeting thereafter, each Non-Employee Director shall
automatically receive an annual grant of stock options to purchase 7,500
additional shares of Common Stock which, following the Reclassification, shall
be composed of 7,500 shares of ZD Common Stock; provided, that following an
initial public offering of the ZDNet Common Stock, such annual grant shall be
composed of shares of ZD Common Stock and shares of ZDNet Common Stock in such
proportion as determined by the Committee; provided, that a Non-Employee
Director shall not receive such annual grant of options to purchase 7,500
shares of common stock in any year in which such Non-Employee Director also
receives the Initial Grant. Except as otherwise provided above in this Section
5(a), and unless otherwise determined by the Committee in its discretion, the
terms of each stock option granted under this Section 5(a) shall provide that
(1) the option price shall be equal to 100% of the Fair Market Value of the
Common Stock on the date of grant, (2) such option shall not be exercisable for
a period more than 10 years following the date of grant, and (3) such option
shall vest and become exercisable with respect to 20% of the shares on the
first anniversary of the date of grant, and an additional 5% of the shares at
the end of each three-month period thereafter. 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. Unless otherwise determined by the Committee in its
discretion, if an optionee ceases to be a Non-Employee Director, options
granted under this Section 5(a) 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 Non-Employee Director
resulted from any reason other than death, disability or cause, 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. For purposes of the Plan, with
respect to any stock option granted under the Plan, references to the term
"Common Stock" shall be deemed to refer to the applicable series of Common
Stock with respect to which such option is granted.

(b) Method of Exercise. 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 Non-Employee Director 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.

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(c) Discretionary Grants. In addition, each Non-Employee Director shall be
eligible to receive additional grants of stock options to purchase Common Stock
from time to time on such terms and conditions as the Committee shall
determine.

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, in addition to the terms and conditions specified in the Plan. In
the sole discretion of the Committee, a Non-Employee Director may be permitted
to defer, on such terms and conditions as the Committee shall specify, the
receipt of Common Stock otherwise deliverable under any Award.

7. Nontransferability; Forfeiture.

No Award shall be assignable or transferable, and no right or interest of
any Non-Employee Director shall be subject to any lien, obligation or liability
of the Non-Employee Director, 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 Non-Employee
Director to transfer any 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 Non-Employee Director and/or one or more of
such immediately family members. During the lifetime of the Non-Employee
Director, stock options shall be exercisable only by the Non-Employee Director
or by the immediate family member or trust to whom such stock options have been
transferred in accordance with this Section 7. For purposes of this Plan,
"immediate family" shall mean the Non-Employee Director's spouse and issue
(including adopted and step children). 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 (as determined by the Committee).

8. 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.

9. Change of Control.

(a) In the event of a Change of Control, 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 stockholders 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; 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 stockholders 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 Non-Employee Director shall receive in
cancellation of such Non-Employee Director's outstanding and

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unexercised stock options, a cash payment in an amount equal to the difference
between the option price of such stock options 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.

10. Governmental Compliance.

11. 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 9, no amendment shall be made that would
adversely affect the rights of a Non-Employee Director under any Award
previously granted, without such Non-Employee Director's written consent.

12. Effective Date; Approval of Stockholders.

The Plan shall be effective as of February 13, 1998. Subject to earlier
termination pursuant to Section 11, the Plan shall have a term of ten years
from its Effective Date. The Plan is conditioned upon the approval of the
stockholders 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.