<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1998
REGISTRATION NO. 333-53433
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
IDG BOOKS WORLDWIDE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 2731 04-3078409
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
919 E. HILLSDALE BLVD., SUITE 400
FOSTER CITY, CA 94404
(650) 655-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOHN J. KILCULLEN
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
IDG BOOKS WORLDWIDE, INC.
919 E. HILLSDALE BLVD., SUITE 400
FOSTER CITY, CA 94404
(650) 655-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
ALAN K. AUSTIN, ESQ. WINTHROP B. CONRAD, JR., ESQ.
BRIAN C. ERB, ESQ. DAVIS POLK & WARDWELL
WILSON SONSINI GOODRICH & ROSATI 450 LEXINGTON AVENUE
PROFESSIONAL CORPORATION NEW YORK, NY 10017
650 PAGE MILL ROAD (212) 450-4000
PALO ALTO, CA 94304-1050
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
- ------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock, $0.001
par value........................ 3,657,000 shares $16.50 $60,340,500 $17,800
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(a)
(2) The Company paid $14,750 of the registration fee in connection with the
initial filing.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued July 10, 1998
3,180,000 Shares
IDG Books Worldwide, Inc.
CLASS A COMMON STOCK idg logo
------------------------
IDG Books Worldwide, Inc. is offering shares of its Class A common stock. This
is our initial public offering and no public market currently exists for our
shares. We anticipate that the initial public offering price will be between
$14.50 and $16.50 per share.
------------------------
The Class A common stock has been approved for quotation on the Nasdaq
National Market under the symbol "IDGB".
------------------------
INVESTING IN THE CLASS A COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 11.
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PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company
-------- ------------- -----------
<S> <C> <C> <C>
Per Share............................ $ $ $
Total................................ $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
IDG Books Worldwide, Inc. has granted the underwriters the right to purchase up
to an additional 477,000 shares of Class A common stock to cover
over-allotments. Morgan Stanley & Co. Incorporated expects to deliver the shares
of Class A common stock to purchasers on , 1998.
------------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
, 1998
<PAGE> 3
Front Artwork Page:
[Set forth on the outside panel of the front gatefold under the heading "How the
World Knows IDG Books Worldwide" are the Company's logo and photographs of some
of the books that the Company publishes.]
[Set forth on one inside panel of the front gatefold under the heading "The
People You Know" are photographs of some of the authors of the Company's books.]
[Set forth on one inside panel of the back gatefold under the heading "The
Quality Consumers Know" are certain awards the Company has received, a list of
best seller books published by the Company and press coverage related to the
Company.]
2
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
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PAGE
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Prospectus Summary..................... 5
Risk Factors........................... 11
Use of Proceeds........................ 16
Dividend Policy........................ 16
Certain Information.................... 16
Capitalization......................... 17
Dilution............................... 18
Selected Financial Data................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 21
Industry Overview...................... 28
Business............................... 29
Management............................. 37
Relationship with IDG and Certain
Transactions......................... 45
Principal Stockholders................. 47
Description of Capital Stock........... 48
Shares Eligible for Future Sale........ 51
Underwriters........................... 53
Legal Matters.......................... 54
Experts................................ 55
Additional Information................. 55
Index to Financial Statements.......... F-1
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of Class A common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the Class A common stock. In this prospectus, the
"Company," "IDG Books," "we," "us" and "our" refer to IDG Books Worldwide, Inc.
and its predecessor.
Until , 1998, all dealers that buy, sell or trade Class
A common stock, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
3
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(This page intentionally left blank)
4
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the Class A common stock being sold in
this offering and our financial statements and notes thereto appearing elsewhere
in this prospectus.
We are a leading publisher of computer, business and self-help books
designed to make learning accessible and fun. In 1997, we produced more number
one best-selling computer books than any other publisher, according to
Publishers Weekly. The computer book category has been the fastest growing
sector in the U.S. book industry in each of the past six years. We publish and
market 18 book series under well-known brand names, including our popular
". . . For Dummies(R)" series. These books have created widespread recognition
of our brands by consumers, enabling us to successfully publish across a variety
of categories in technology, business and self-help. Our portfolio of brand
names includes more than 700 active titles. We have approximately 65 million
English-language books in print and have translated our books into 36 languages.
We believe that our readers value and trust our products and brands to help
obtain computer proficiency and professional certification, general business
know-how, career growth and personal enrichment.
Since our founding in 1990, we have grown rapidly. During the last four
completed fiscal years, our net revenue grew at a compound annual growth rate of
46.2%, and our net income grew at a compound annual growth rate of 20.2%. Our
net revenue was $120.7 million in our most recently completed fiscal year, and
our net income was $7.0 million during that time. Our net revenue increased
86.3% in 1994, 47.4% in 1995, 34.9% in 1996 and 23.3% in 1997 compared to the
prior year. Our net income increased 71.3% in 1994, decreased 2.0% in 1995, and
increased 1.9% and 8.4% in 1996 and 1997 compared to the prior year. For the six
months ended March 31, 1998, our net revenue was $71.9 million, and our net
income was $6.9 million. During that time, our net revenue increased 15.1% from
the comparable period in the previous year, and our net income increased by
37.8%.
We publish our books in two general publishing groups, ". . . For
Dummies(R)" and IDG Books Technology, which target the distinct needs of
readers. Our ". . . For Dummies(R)" series is a best-selling line of computer,
business, personal finance, study aids, cooking, gardening, do-it-yourself,
health and fitness, and self-help books. The group consists of more than 350
active titles and approximately 50 million copies in print, as well as
extensions into multimedia, music, on-line information and board games. Windows
For Dummies(R) has more than six million copies in print across all editions,
and the current edition was the best-selling computer book in 1997 according to
Publishers Weekly and USA Today. Other best-selling ". . . For Dummies(R)"
titles include Internet for Dummies(R), Personal Finance For Dummies(R), Golf
For Dummies(R) and Cooking For Dummies(R). Sales of our ". . . For Dummies(R)"
books accounted for approximately 68% of our net revenue in our fiscal year
ended September 30, 1997.
The IDG Books Technology group includes an expanding collection of
information technology books published in multiple book series under a variety
of brand names. These series and brands include 3-D Visual(R), One Step at a
Time, Bible, ". . . Secrets(R)", MCSE Study and Novell Press. These books appeal
to a wide range of readers, from beginners to knowledgeable professionals. For
the fiscal year ended September 30, 1997, sales from our IDG Books Technology
group represented approximately 32% of our net revenue.
The market for computer related books has increased for many reasons.
First, the number of new computer users, both at work and at home, has increased
dramatically. Also, computer hardware and software continues to become more
complex, and manufacturers are not providing users with sufficient guidance on
these products. The market for books devoted to the use of computer hardware and
software grew from $678.0 million in 1995 to $844.0 million in 1997.
5
<PAGE> 7
Our books compete in the general interest book market covering most
categories, other than fiction, biography and children's books. As demands on
people's time increase and life in general becomes more complex, we believe
people are turning to self-help and similar books to increase personal
productivity, enhance career success and provide competitive advantages in a
rapidly changing economy, as well as to provide personal enrichment.
OPERATING STRATEGY
We strive to provide a consistent, accessible and rewarding learning
experience to our readers. To achieve these objectives, we have adopted the
following operating strategies:
Focus on Branded Content and Mass Marketing. We create quality products
which we market extensively. This helps build brand recognition. We believe that
our valuable name recognition generates repeat demand for our books and that the
strength of our brand names enables us to extend these brands into additional
licensed products and services.
Make Knowledge Accessible and Enjoyable. We believe millions of
individuals, businesses and families are challenged by technologies or are
trying to acquire new skills or enrich their lives. We specifically design our
products to make learning accessible and fun.
Maintain Efficient and Proven Publication Process. We have developed a
successful process to conceive, acquire and produce new and revised titles on a
timely and cost-effective basis. Our staff of creative personnel identifies and
develops new titles and subject areas and draws on a highly recognized and
respected list of leading authorities, media celebrities and experienced
computer/Internet authors. This collaboration, in conjunction with our
experienced editorial team, assures brand consistency through high quality,
easy-to-read publications. In addition, our close working relationships with
technology industry leaders enable us to release high quality and well supported
products and services in a timely manner.
GROWTH STRATEGY
Building on our operating strategy and upon industry trends, we have
pursued the following strategies to expand our business:
Expand Technology, Business and Self-Help Publishing Programs. We have
identified numerous opportunities to take advantage of our market position in
the technology, business and self-help markets by adding new titles to existing
categories and expanding into new categories. For example, we are releasing
about 20 new and revised books in concert with Microsoft's release of Windows
98. These books will be supported by aggressive retail incentives and marketing
programs. We have also expanded our ". . . For Dummies(R)" branded products into
other successful categories, such as the best-selling Golf For Dummies(R) title.
We expect to expand this category into other golf-related book topics.
Increase Distribution Penetration and Expand Network. We are working to
increase our shelf space among our existing retailers and distributors and to
add new retailers, distributors and distribution channels. We have developed
sales and marketing programs that provide additional compensation to
distributors for sales to the ultimate consumer, the reader, in an effort to
increase shelf space devoted to our books at existing retail customers. To
expand our sales network, we are also establishing new distribution channels,
such as on-line retailers and other nontraditional channels for the distribution
of our books.
6
<PAGE> 8
Develop Business-to-Business Opportunities. We intend to sell our core
products directly to businesses for training purposes. In addition, we plan to
expand our custom publishing activities, including production of documentation
and booklets, corporate training and special projects, for a broad range of
customers.
Develop Brand Ventures. We believe that there are numerous opportunities to
extend our brands through domestic and international licensing arrangements,
strategic joint ventures, retail alliances and on-line services.
Selectively Acquire Titles and Companies in the U.S. and
Internationally. We believe that opportunities exist to acquire selected
technology, business and self-help properties that will complement and enhance
our existing portfolio.
RELATIONSHIP WITH IDG
We are owned by a subsidiary of International Data Group, Inc. ("IDG"), a
leading global provider of information technology media, research, conferences
and expositions. IDG's publications include more than 280 magazines and
newspapers, including PC World, Computerworld and Infoworld, in over 75
countries. In addition, through its International Data Corporation division, IDG
is one of the world's leading providers of information technology data, analysis
and consulting. IDG also produces more than 110 globally branded conferences and
expositions in 33 countries. After completion of this offering, IDG will own
approximately 74.97% of the outstanding shares of our Class A common stock and
Class B common stock, combined, and will control 77.77% of our voting power.
7
<PAGE> 9
THE OFFERING
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Class A common stock offered................ 3,180,000 shares(1)
Common stock to be outstanding after this
offering:
Class A common stock................... 14,080,000 shares(1)(2)
Class B common stock................... 200,000 shares(3)
Total............................. 14,280,000 shares(1)(2)(3)
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Over-allotment option....................... 477,000 shares
Voting rights
Class A common stock................... One vote per share
Class B common stock................... Ten votes per share(3)
Use of proceeds............................. The Company will receive net proceeds from
this offering of approximately $44.0
million. Approximately $38.4 million of the
proceeds will be paid to International Data
Group, Inc., our parent company. We intend
to use the remaining net proceeds for
working capital and capital expenditures.
Dividend policy............................. We do not intend to pay dividends on our
common stock. We plan to retain any earnings
for use in the operation of our business and
to fund future growth.
Nasdaq National Market symbol............... IDGB
</TABLE>
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(1) Unless otherwise specifically stated, the information throughout this
prospectus does not take into account the possible issuance of additional
shares of Class A common stock to the underwriters pursuant to their rights
to purchase additional shares to cover over-allotments.
(2) Based on shares outstanding as of March 31, 1998. Excludes (i) 2,850,000
shares of Class A common stock that have been set aside for stock options
under our 1998 Stock Plan, of which we have granted options to purchase
1,500,900 shares to our employees, and (ii) 350,000 shares of Class A common
stock that have been set aside for those employees who elect to participate
in our Employee Stock Purchase Plan. See "Management -- 1998 Stock Plan,"
"-- Employee Stock Purchase Plan," "Description of Capital Stock" and note 8
of notes to financial statements.
(3) Holders of our Class B common stock can choose to convert their shares into
shares of Class A common stock at any time. In addition, the Class B common
stock will be automatically converted into Class A common stock in certain
circumstances. See "Description of Capital Stock."
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<PAGE> 10
SUMMARY FINANCIAL AND OTHER DATA
The following statement of income data for the years ended September 30,
1995, 1996 and 1997 are derived from our audited financial statements included
elsewhere in this prospectus. The summary financial data for the years ended
September 30, 1993 and 1994 have been derived from our accounting records and
are unaudited. The statement of income data for the six-month periods ended
March 31, 1997 and 1998 and the balance sheet data as of March 31, 1998 are
derived from our unaudited financial statements which, in our opinion, have been
prepared on the same basis as the audited financial statements and reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of our results of operations and financial position. Results
for the six months ended March 31, 1998 are not necessarily indicative of
results that may be expected for the entire year. The financial data set forth
below should be read in conjunction with, and are qualified by reference to,
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,(1) MARCH 31,(1)
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1993 1994 1995 1996 1997 1997 1998
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenue.............................. $26,419 $49,218 $72,523 $97,847 $120,688 $62,464 $71,916
------- ------- ------- ------- -------- ------- -------
Cost of sales............................ 13,115 23,497 40,598 55,703 63,064 32,075 37,856
Selling, general and administrative
expenses............................... 6,913 13,984 19,573 28,369 42,032 20,218 21,240
Parent corporate services fee............ 277 939 1,464 2,779 3,669 1,836 1,175(2)
------- ------- ------- ------- -------- ------- -------
Total operating costs and expenses..... 20,305 38,420 61,635 86,851 108,765 54,129 60,271
------- ------- ------- ------- -------- ------- -------
Income before provision for income
taxes.................................. 6,114 10,798 10,888 10,996 11,923 8,335 11,645
Provision for income taxes............... 2,321 4,301 4,522 4,508 4,888 3,348 4,775
------- ------- ------- ------- -------- ------- -------
Net income............................... $ 3,793 $ 6,497 $ 6,366 $ 6,488 $ 7,035 $ 4,987 $ 6,870
======= ======= ======= ======= ======== ======= =======
Basic and diluted net income per
share(3)............................... $ .34 $ .59 $ .57 $ .58 $ .63 $ .45 $ .62
======= ======= ======= ======= ======== ======= =======
Weighted average common shares
outstanding(3)......................... 11,100 11,100 11,100 11,100 11,100 11,100 11,100
Pro forma basic and diluted net income
per share(4)........................... $ .51 $ .50
Pro forma weighted average common shares
outstanding(4)......................... 13,873 13,873
OTHER DATA:
EBITDA(5)................................ $ 6,167 $10,978 $11,270 $12,351 $ 13,586 $ 9,047 $13,313
Capital expenditures..................... 302 1,061 1,250 2,430 3,246 681 1,514
Net cash provided (used) by operating
activities............................. 1,625 3,253 (1,858) 1,855 7,820 (1,647) 974
Net cash used in investing activities.... (302) (1,061) (1,250) (2,430) (3,246) (681) (4,953)
Net cash provided (used) by financing
activities............................. (1,229) (2,200) 3,066 614 (4,583) 2,323 3,951
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
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PRO FORMA
ACTUAL AS ADJUSTED(6)
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash...................................................... $ 46 $ 6,062
Working capital........................................... 25,025 31,041
Total assets.............................................. 73,688 79,704
Stockholder's equity...................................... 37,264 43,280
</TABLE>
(footnotes appear on following page)
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(1) Our fiscal year ends on the Saturday closest to September 30. Fiscal years
1995, 1996 and 1997 ended on September 30, 1995, September 28, 1996 and
September 27, 1997, respectively. For convenience, fiscal year-ends are
denoted as September 30. Similarly, the 26-week periods ended March 29, 1997
and March 28, 1998 are referred to as the six months ended March 31, 1997
and March 31, 1998, respectively.
(2) Effective January 1, 1998, we assumed responsibility for certain corporate
administrative functions, as well as for our own strategic marketing and
brand-building, the costs for which had constituted a significant portion of
the parent corporate services fee. Accordingly, the parent corporate
services fee decreased to $150,000 per quarter as of January 1, 1998.
(3) See note 2 of notes to financial statements for an explanation of shares
used to compute basic and diluted net income per share.
(4) In May 1998, we paid a $38.4 million dividend by issuance of a note payable
to IDG. We intend to pay such note using a portion of the proceeds from this
offering. Unaudited pro forma basic and diluted net income per share amounts
are calculated using common stock outstanding plus the number of shares
whose proceeds are to be used to pay the note.
(5) "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 our operating performance or to cash flows as
a measure of liquidity. We believe that EBITDA is a standard measure
commonly reported and widely used by analysts, investors and other
interested parties in the publishing and media industries, however, EBITDA
as presented herein may not be comparable to similarly titled measures
reported by other companies.
(6) Pro forma as adjusted amounts give effect to the issuance and sale of
3,180,000 shares of Class A common stock in the offering at an assumed
initial public offering price of $15.50 per share, the midpoint of the range
set forth on the cover page of this Prospectus, and the application of the
net proceeds therefrom (after deducting estimated underwriting discounts and
commissions and offering expenses payable by us) as set forth under "Use of
Proceeds," including the payment of a $38.4 million dividend paid by us to
IDG and a payment in settlement of the intercompany balance by IDG to us, as
though such payments had been paid as of March 31, 1998. See "Use of
Proceeds" and "Capitalization."
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also impair our business
operations.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of our Class A common stock could decline, and you
may lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus.
DEPENDENCE ON THE COMPUTER INDUSTRY
We write many of our books for users of information technology,
particularly personal computers and software. Our technology-related books
accounted for a substantial majority of our net revenue in fiscal 1997, and we
expect that technology books will continue to account for a substantial majority
of our book sales for the foreseeable future. As a result, our future success
depends on the growth and development of the market for personal computers and
related applications. If this market grows at a rate that is less than we
expect, or if consumer demand for technology-related books declines for any
reason, our future financial results could be adversely affected.
DEPENDENCE ON MICROSOFT PRODUCTS AND COMPETITION WITH MICROSOFT PRESS
Sales of our books devoted to the use of software products sold by
Microsoft Corporation ("Microsoft"), including its Windows operating system,
accounted for approximately half of our net revenue in fiscal 1997. As a result,
our future financial results will depend in large part on continued consumer
demand for Microsoft products. A decline in the use of Microsoft products would
likely result in decreased demand for our books and could adversely affect our
future financial results. Prospective investors should be aware that Microsoft
released its Windows 98 operating system in mid 1998. We have devoted
substantial time and resources to developing and writing books in anticipation
of the release of Windows 98.
Federal and various state regulators have filed lawsuits against Microsoft
claiming that certain practices by Microsoft with respect to Windows 98 in its
current form violate antitrust laws. Windows 98 was released in late June 1998.
A hearing regarding the federal regulators' request for an injunction relating
to Windows 98 is currently scheduled for September 1998. We have printed our
Windows 98 products for Windows 98 in its current form. If Microsoft is required
to make significant modifications to Windows 98 as a result of these lawsuits,
we may be required to revise our Windows 98 books which could adversely affect
our financial results. In addition, any failure of Windows 98 to gain market
acceptance, due to these lawsuits or for any other reason would adversely affect
sales of our Windows 98 books. In such event, our financial results could be
adversely effected.
In addition to relying on the sales of our books devoted to Microsoft
products, we compete with Microsoft's publishing division, Microsoft Press, for
readers of computer-related books, including books covering Microsoft products.
Microsoft Press has substantially greater financial resources than we do and,
because it is owned by Microsoft, may have better access to planned and new
Microsoft products. As a result, Microsoft Press may have a competitive
advantage over us in providing books devoted to the use of software products
sold by Microsoft.
DEPENDENCE ON " . . . FOR DUMMIES(R)" PUBLICATIONS
We derive a substantial proportion of our net revenue from the sale of our
" . . . For Dummies(R)" family of books. In addition, we have devoted
substantial resources to the publication of these books and the development of
our " . . . For Dummies(R)" brand name. As a result, any change in reader
preferences leading to a decline in demand for our " . . . For Dummies(R)" books
would likely have a material adverse effect on our future financial results.
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RISKS OF NEW PRODUCT INTRODUCTIONS
Generally, as a particular book gets older, we sell fewer copies of that
book. Consequently, our future success depends on our ability to identify trends
in the technology and business and self-help markets and to offer new titles, as
well as other products and services, that address the changing needs of our
target audiences. To establish market acceptance of a new publication, we must
dedicate significant resources to research and editorial development, production
and sales and marketing. We incur significant costs in developing, publishing
and selling a new book, which often significantly precede meaningful revenues
from its sale. Consequently, new publications can require significant time and
investment to achieve profitability. Prospective investors should note, however,
that there can be no assurance that our efforts to introduce new publications or
other products or services will be successful or profitable.
We record as an expense the costs related to the development of new
publications and products, other than author advances, as they are incurred. As
a result, our profitability from quarter-to-quarter and from year-to-year may be
adversely affected by the number and timing of new publications and product
launches in any period and the level of acceptance gained by such publications
and products.
RISKS ASSOCIATED WITH FLUCTUATIONS IN PAPER COSTS; DEPENDENCE ON SIGNIFICANT
SUPPLIER
Paper is the principal raw material used in our business. We generally
purchase paper from merchants representing the paper mills. We do not have
long-term paper supply contracts with these paper merchants. Our arrangements
with merchants are negotiated each year and provide for quarterly price
adjustments. Paper prices have been volatile over the past several years and are
affected by many factors, including demand, mill capacity, pulp supply, energy
costs and general economic conditions. Consequently, our cost of producing books
can vary from period-to-period. In the past, paper has also been difficult to
obtain due to industry-wide shortages. Significant paper price increases,
sustained over a period of time, could adversely affect our future financial
condition or operating results.
We rely on a number of printing companies to print our books. Our largest
printing supplier, Banta Corporation, accounted for more than 25% of our total
printing and binding purchases in fiscal 1997. If the relationship with this
vendor were to be interrupted, or service from this or any other significant
supplier were to be delayed for any reason, our future financial or operating
results could be adversely affected.
FLUCTUATIONS IN QUARTERLY RESULTS AND CYCLICALITY OF REVENUE
Our operating expenses, which include product development costs and
selling, general and administrative expenses, are relatively fixed in the
short-term. If we sell fewer books or otherwise have lower revenue than we
expect, we may not be able to quickly reduce our spending in response. Any
shortfall in our revenue would have a direct impact on our results of
operations, and fluctuations in quarterly results could affect the market price
of our Class A common stock in a manner unrelated to our long-term operating
performance. We typically sell more books during our first and second quarters
because of increased sales during the Christmas season. In addition, we sell
more books in quarters in which software manufacturers release new or updated
versions of popular software products. Because a substantial portion of our
selling, general and administrative expenses is incurred evenly throughout the
year, we generally experience relatively lower net profit during quarters not
impacted by increases in net revenue due to seasonal or other factors discussed
above.
In addition, we typically publish books relating to new trends and
technologies. Accordingly, if general economic conditions worsen, people may
defer spending on these new trends and technologies, which could reduce the
number of books that we sell.
RISKS ASSOCIATED WITH PRODUCT DISTRIBUTION CHANNELS
We sell our books primarily to large retail chains, large wholesalers,
warehouse clubs, office superstores and computer and electronics superstores. In
fiscal 1997, our three largest customers, Barnes & Noble, Inc., Ingram Book
Company and Borders, Inc., accounted for approximately 14.8%, 12.4% and 10.1% of
net revenue. Our future financial results depend in large part on our
relationship with our customers. Any disruption in our relationships with
customers could adversely affect our financial performance.
12
<PAGE> 14
RISK OF PRODUCT RETURN
Our sales policy generally permits our book customers to return any unsold
or damaged books for full credit. We record as revenue all books sold to our
customers in a particular quarter and, at the same time, record a provision for
estimated returns. During our fiscal year 1997, we recorded a provision for
returns of approximately 21.0% of our gross sales. If, during any period, our
customers return more books than we previously estimated, our financial results
in that period would be adversely affected.
COMPETITION
We face competition directly from other book publishers and indirectly from
nonprint media. Competition in book publishing mainly stems from editorial
quality, timely introduction of new titles, product positioning, pricing and
brand name recognition. In addition to our company, Simon & Schuster, Microsoft
Press and McGraw-Hill all have a strong market presence in the United States and
internationally in technology publishing. The principal competitors for our
business and self-help titles include Random House, Simon & Schuster and
HarperCollins. Each of these competitors has substantially greater financial
resources than we do.
Nonprint media, such as the Internet and CD-ROMs, may also present
substantial competition. If computer users increase their reliance on
instruction and other information disseminated on-line, our business could be
adversely affected.
RISKS ASSOCIATED WITH SEPARATION FROM IDG
We are owned by a subsidiary of IDG, and we have never operated as a
stand-alone company. As a result, we have historically depended on IDG for
corporate administrative functions, as well as for strategic marketing and brand
building, financing, cash management, tax and payroll administration,
property/casualty insurance, employee benefits administration and certain other
services. We have entered into agreements with IDG for the continued provision
of certain of these services after the offering. If we are no longer able to
obtain these services from IDG, we would be required to provide such services
internally or find a third-party provider of these services. There can be no
assurance that, if required, we will be able to secure the provision of these
services on acceptable terms. If we are unsuccessful in obtaining acceptable
provision of services upon termination of the transitional service agreements,
our future financial performance could be adversely affected.
CONTROL BY IDG; POTENTIAL CONFLICTS OF INTERESTS; BENEFITS TO IDG; POTENTIAL
COMPETITION WITH IDG
IDG owns all of the shares of the Class B common stock, each share of which
entitles its holder to ten votes on most stockholder actions, and IDG will have
77.77% of the combined voting power of both classes of common stock after this
offering. The purchasers of the shares of Class A common stock offered hereby
will be entitled to one vote per share and will have 19.78% of the combined
voting power. After the offering, IDG will have two representatives on our Board
of Directors and will have enough votes to elect all members of the Board of
Directors. As a result of its stock ownership after this offering, IDG will be
in a position, without the approval of our public stockholders, to:
- amend our charter or approve a merger, sale of assets or other major
corporate transaction;
- defeat any non-negotiated takeover attempt that might otherwise benefit
the public stockholders;
- determine the amount and timing of dividends paid to itself and to our
public stockholders; and
- otherwise control our management and operations and the outcome of all
matters submitted for a stockholder vote that could conflict with the
interests of our public stockholders.
IDG publishes magazines and on-line services and, to a lesser extent, books
that may be competitive with our publications. Certain of IDG's current
publications and products compete with our books. As a result, we may compete
with IDG for certain readers. IDG has substantially greater resources than we
do. Any increased competition from IDG for readers could have an adverse impact
on our business and operating results.
In May 1998, we paid a dividend to IDG in the amount of $38.4 million. This
dividend represented substantially all of our retained earnings through April
1998.
13
<PAGE> 15
DEPENDENCE ON KEY PERSONNEL
We rely, and will continue to rely, on our senior executive officers and
other key management personnel. If any of these people leaves our company, the
relationships that these people have with our authors, customers or
manufacturers could be lost, and we would need to find people that could develop
new relationships. In addition, we expect that we will need to hire additional
employees, including senior executive officers for marketing, worldwide sales
and information systems. The competition for employees at all levels of the book
publishing industry is intense and is increasing. In our Northern California
operations, in particular, we have experienced increased turnover of employees
and are experiencing difficulty in attracting new employees. If we do not
succeed in attracting new employees or retaining and motivating our current
employees, our business could suffer significantly.
TRANSITION TO NEW COMPUTER SYSTEM AND NEW DISTRIBUTION SERVICE
We are in the process of upgrading our existing computer system. We expect
the total cost for this upgrade to be $3.6 million, of which $1.2 million had
been spent through March 31, 1998. We outsource distribution and fulfillment
functions to retail and wholesale customers through two vendors. Our contracts
with these vendors expire in September 1999. One of these vendors accounted for
approximately 60% of our distribution and order fulfillment costs in each of
fiscal 1996 and 1997 and in the six months ended March 31, 1998. We expect to
select a single-source vendor for distribution and fulfillment, but have not
done so at this time. Any difficulties in implementing our new computer system
or transitioning to a new distribution vendor could adversely impact our
day-to-day operating performance and future financial results.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
As part of our growth strategy, we may buy, or make investments in,
complementary companies, publications or products. If we buy a company, we could
have difficulty assimilating the personnel and operations of the acquired
company. This may cause a disruption of our ongoing business, distraction of
management and other resources, and difficulty in maintaining our uniform
standards, controls and procedures. There can be no assurance that we would
succeed in overcoming these risks or any other problems encountered in
connection with any acquisitions we may make. In addition, we may be required to
incur debt or issue equity to pay for any future acquisitions.
SHARES ELIGIBLE FOR FUTURE SALE
After this offering, we will have outstanding 14,080,000 shares of Class A
common stock (14,557,000 shares if the underwriters exercise their option to
purchase additional shares of Class A common stock in the offering) and will
have reserved an additional 3,200,000 shares of Class A common stock for
issuance pursuant to our stock option and stock purchase plans. We intend to
register for resale the shares of Class A common stock reserved for issuance
under our stock option and stock purchase plans approximately 180 days after the
date of this prospectus. The federal securities laws impose certain restrictions
on the ability of stockholders to resell their shares. In addition, IDG and the
holders of options to purchase our Class A common stock have agreed that, for a
period of 180 days from the date of this prospectus, they will not sell their
shares. Accordingly, on January , 1999, all of the 10,705,749 shares of our
common stock held by IDG will be available for immediate resale (subject to
certain volume restrictions imposed on IDG by the securities laws).
We and IDG have entered into a registration rights agreement which permits
IDG to include shares of common stock in offerings of common stock made by us in
the future. Sales of a substantial number of shares of common stock into the
public market after this offering, or the perception that such sales could
occur, could materially and adversely affect our stock price or could impair our
ability to obtain capital through an offering of equity securities.
14
<PAGE> 16
ABSENCE OF PRIOR MARKET FOR THE SHARES; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined through negotiations
between the underwriters and us. You may not be able to resell your shares at or
above the initial public offering price due to a number of factors, including:
- actual or anticipated fluctuations in our operating results;
- changes in expectations as to our future financial performance or changes
in financial estimates of securities analysts;
- announcements of new publications or technological innovations; and
- the operating and stock price performance of other comparable companies.
In addition, the stock market in general has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These broad market and industry fluctuations may adversely affect the
trading price of our Class A common stock, regardless of our actual operating
performance.
You should read the "Underwriters" section for a more complete discussion
of the factors to be considered in determining the initial public offering
price.
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
The initial public offering price is substantially higher than the net
tangible book value per share of the outstanding common stock immediately after
the offering. Accordingly, if you purchase Class A common stock in the offering,
you will incur immediate dilution of approximately $12.76 in the net tangible
book value per share of Class A common stock from the price you pay for the
Class A common stock.
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Class A
common stock in the offering, after deducting estimated expenses of $1.8 million
and underwriting discounts and commissions, are estimated to be approximately
$44.0 million (approximately $50.9 million if the underwriters exercise their
over-allotment option in full), at an assumed initial public offering price of
$15.50 per share, the midpoint of the range set forth on the cover page of this
Prospectus. The principal purposes of this offering are to repay certain
indebtedness owed to IDG, to obtain additional capital, to create a public
market for the Company's Class A common stock and to facilitate future access by
the Company to public equity markets.
The Company will use approximately $38.4 million (plus or minus any
advances owed to or due from IDG on the date of payment) of the net proceeds
from this offering to pay indebtedness owed to IDG. The Company incurred the
indebtedness in connection with the dividend paid by the Company prior to this
offering in the form of a promissory note. See "Dividend Policy" and
"Relationship with IDG and Certain Transactions -- Pre-Offering Dividend." The
Company currently expects to use the remaining $5.6 million of net proceeds for
general corporate purposes, including approximately $3.6 million for working
capital and approximately $2.0 million to complete the Company's computer system
upgrade. A portion of the net proceeds from this offering may also be used to
acquire or invest in complementary businesses, publications or products, or to
invest in geographic expansion. The Company has no agreements or commitments
with respect to any such transactions. Pending use of the net proceeds for the
above purposes, the Company intends to invest such funds in short-term,
interest-bearing, investment grade obligations.
DIVIDEND POLICY
Although the Company has paid dividends with respect to its capital stock
to IDG from time to time, the Company does not intend to pay any cash dividends
with respect to its common stock for the foreseeable future after this offering.
After consummation of the offering, the Company intends to retain any earnings
for use in the operation of its business and to fund future growth. Prior to
this offering, the Company paid a $38.4 million dividend to its sole
stockholder, IDG. Any determination to pay dividends in the future will be at
the discretion of the Company's Board of Directors and will depend upon the
Company's financial condition and results of operations and capital
requirements. See "Use of Proceeds" and "Relationship with IDG and Certain
Transactions -- Pre-Offering Dividend."
CERTAIN INFORMATION
The Company's principal executive offices are located at 919 E. Hillsdale
Blvd., Suite 400, Foster City, California 94404 and the Company's telephone
number is (650) 655-3000. The Company maintains World Wide Web site addresses at
www.idgbooks.com and www.dummies.com. The reference to these World Wide Web site
addresses does not constitute incorporation by reference of the information
contained therein.
The Company's logo and certain titles and logos of the Company's
publications and products mentioned in this prospectus are either (i) the
Company's trademarks or (ii) trademarks of International Data Group, Inc. that
have been licensed to the Company. Each trademark, trade name or service mark of
any other company appearing in this prospectus belongs to its holder.
This prospectus includes statistical data regarding the publishing sector
which was obtained from industry publications, including reports generated by
International Data Corporation, the Company's market research affiliate,
Cowles/Simba Information ("Simba") and Publishers Weekly. These industry
publications generally indicate that they have obtained information from sources
believed to be reliable, but do not guarantee the accuracy and completeness of
such information. While the Company believes these industry publications to be
reliable, the Company has not independently verified such data. The Company also
has not sought the consent of any of these organizations to refer to their
reports in this prospectus.
Unless otherwise specifically stated, the information in this prospectus
has been adjusted to reflect the exchange in May 1998 of all of the Company's
unclassified common stock for Class A common stock and Class B common stock, but
does not take into account the possible issuance of additional shares of Class A
common stock to the underwriters pursuant to their right to purchase additional
shares to cover over-allotments.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the total capitalization of the Company at
March 31, 1998: (i) on an actual basis; (ii) on a pro forma basis after giving
retroactive effect to a dividend paid in May 1998 to IDG in the form of a note
payable, amended share authorizations effected May 1998, and planned share
exchanges and conversions to occur simultaneously with the offering; and (iii)
pro forma as adjusted to reflect the issuance and sale of 3,180,000 shares of
Class A common stock offered hereby by the Company at an assumed initial public
offering price of $15.50 per share, the midpoint of the range set forth on the
cover page of this Prospectus, after deducting underwriting discounts and
commissions and estimated offering expenses, and the application of the
estimated net proceeds therefrom to pay the note payable to IDG and settle the
intercompany balance with IDG. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." This
table should be read in conjunction with the Financial Statements and Notes
thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable to IDG(1)................................... $ -- $38,400 $ --
======= ======= =======
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized actual, no shares authorized or
outstanding pro forma and pro forma as adjusted..... $ -- $ -- $ --
Undesignated common stock, $.001 par value; 25,000,000
shares authorized and 11,100,000 shares outstanding
actual, no shares authorized or outstanding pro
forma and pro forma adjusted........................ 11 -- --
Class A common stock, $.001 par value; no shares
authorized or outstanding actual, 25,000,000 shares
authorized pro forma and pro forma as adjusted;
10,900,000 shares outstanding pro forma, 14,080,000
shares outstanding pro forma as adjusted............ -- 11 14
Class B common stock, $.001 par value; no shares
authorized or outstanding actual, 400,000 shares
authorized pro forma and pro forma as adjusted;
200,000 shares outstanding pro forma and pro forma
as adjusted......................................... -- -- --
Additional paid-in capital............................. -- -- 44,032
Retained earnings (deficit)............................ 37,634 (766) (766)
Advances due (from) Parent(2).......................... (381) (381) --
------- ------- -------
Total stockholders' equity (deficit).............. 37,264 (1,136) 43,280
------- ------- -------
Total capitalization........................... $37,264 $(1,136) $43,280
======= ======= =======
</TABLE>
- ---------------
(1) In May 1998, the Company paid a $38.4 million dividend by issuance of a note
payable to IDG. The Company intends to pay such note using a portion of the
proceeds from this offering. This dividend represented substantially all of
the Company's retained earnings through April 1998.
(2) Advances due (from) Parent are included as a component of stockholder's
equity, as no interest was charged for such balances and there was no
scheduled repayment. The Company intends to settle such balance in
connection with this offering.
17
<PAGE> 19
DILUTION
The pro forma net tangible book value (deficit) of the Company as of March
31, 1998 was $(4,969,000) or $(.45) per share of common stock. Pro forma net
tangible book value per share is determined by dividing the tangible net worth
of the Company (total assets less intangible assets of $3,833,000 for publishing
rights and less total liabilities) after giving retroactive effect to the
dividend paid to IDG in the form of a note payable by the aggregate number of
shares of common stock outstanding. After giving effect to the sale by the
Company of the 3,180,000 shares of Class A common stock offered hereby (at an
assumed initial public offering price of $15.50 per share, the midpoint of the
range set forth on the cover page of this Prospectus) and the receipt and
application of the net proceeds therefrom, the Company's pro forma net tangible
book value at March 31, 1998 would have been $39,066,000 or $2.74 per share.
This represents an immediate increase in pro forma net tangible book value to
existing stockholders of $3.19 per share and an immediate dilution to new
investors of $12.76 per share. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $15.50
Pro forma net tangible book value (deficit) per share as
of March 31, 1998...................................... $(.45)
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 3.19
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.74
------
Dilution per share to new investors(1)...................... $12.76
======
</TABLE>
- ---------------
(1) Dilution is determined by subtracting pro forma net tangible book value per
share after the offering from the initial public offering price per share.
The following table sets forth, on a pro forma basis, as of March 31, 1998,
the number of shares of common stock purchased from the Company, the total
consideration paid (or to be paid), and the average price per share paid (or to
be paid) by existing stockholders and by the new investors, at an assumed
initial public offering price of $15.50 per share (the midpoint of the range set
forth on the cover page of this Prospectus), before deducting estimated
underwriting discounts and commissions and offering expenses payable by the
Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)................ 11,100,000 78% $ 0 0% $ 0
New investors........................... 3,180,000 22 49,290,000 100 15.50
----------- --- ----------- ---
Total......................... 14,280,000 100% $49,290,000 100%
=========== === =========== ===
</TABLE>
- ---------------
(1) As of March 31, 1998, the Company was owned by a subsidiary of IDG. On May
21, 1998, 394,251 shares of the Company's common stock were transferred by
IDG to the Company's employee stock ownership plan in exchange for shares of
IDG common stock owned by the employee stock ownership plan. See
"Relationship with IDG and Certain Transactions -- Share Exchange
Agreement." No cash was paid by IDG or its subsidiary in consideration for
the common stock of the Company, including such shares of common stock
transferred to the employee stock ownership plan. Accordingly, the cash
consideration related to existing stockholders is reported as zero in the
above table.
The foregoing table assumes no exercise of the underwriters' over-allotment
option. See "Underwriters." The foregoing table also excludes (i) 2,850,000
shares of Class A common stock reserved for issuance pursuant to the Company's
1998 Stock Plan, of which options to purchase 1,500,900 shares are currently
outstanding but not exercisable, and (ii) 350,000 shares of Class A common stock
reserved for issuance pursuant to the Company's Employee Stock Purchase Plan.
See "Management -- 1998 Stock Plan," "-- Employee Stock Purchase Plan,"
"Description of Capital Stock" and note 8 of notes to financial statements.
18
<PAGE> 20
SELECTED FINANCIAL DATA
The following statement of income data for the years ended September 30,
1995, 1996 and 1997 and the balance sheet data as of September 30, 1996 and 1997
are derived from the financial statements of the Company included elsewhere in
this prospectus, which have been audited by Deloitte & Touche LLP, independent
auditors. The balance sheet data as of September 30, 1995 are derived from
audited financial statements not included herein. The selected financial data as
of and for the years ended September 30, 1993 and 1994 have been derived from
the accounting records of the Company and are unaudited. The statement of income
data for the six-month periods ended March 31, 1997 and 1998 and the balance
sheet data as of March 31, 1998 are derived from the Company's unaudited
financial statements which, in the opinion of management, have been prepared on
the same basis as the audited financial statements and reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the Company's results of operations and financial position.
Results for the six months ended March 31, 1998 are not necessarily indicative
of results that may be expected for the entire year. The selected financial data
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements, including the notes thereto, appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30,(1) MARCH 31,(1)
------------------------------------------------ -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- ------- -------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net revenue............................ $26,419 $49,218 $72,523 $97,847 $120,688 $62,464 $71,916
------- ------- ------- ------- -------- ------- -------
Cost of sales.......................... 13,115 23,497 40,598 55,703 63,064 32,075 37,856
Selling, general and administrative
expenses............................. 6,913 13,984 19,573 28,369 42,032 20,218 21,240
Parent corporate services fee.......... 277 939 1,464 2,779 3,669 1,836 1,175(2)
------- ------- ------- ------- -------- ------- -------
Total operating costs and expenses... 20,305 38,420 61,635 86,851 108,765 54,129 60,271
------- ------- ------- ------- -------- ------- -------
Income before provision for income
taxes................................ 6,114 10,798 10,888 10,996 11,923 8,335 11,645
Provision for income taxes............. 2,321 4,301 4,522 4,508 4,888 3,348 4,775
------- ------- ------- ------- -------- ------- -------
Net income............................. $ 3,793 $ 6,497 $ 6,366 $ 6,488 $ 7,035 $ 4,987 $ 6,870
======= ======= ======= ======= ======== ======= =======
Basic and diluted net income per
share(3)............................. $ .34 $ .59 $ .57 $ .58 $ .63 $ .45 $ .62
======= ======= ======= ======= ======== ======= =======
Weighted average common shares
outstanding(3)....................... 11,100 11,100 11,100 11,100 11,100 11,100 11,100
Pro forma basic and diluted net income
per share(4)......................... $ .51 $ .50
Pro forma weighted average common
shares outstanding(4)................ 13,873 13,873
OTHER DATA:
EBITDA(5).............................. $ 6,167 $10,978 $11,270 $12,351 $ 13,586 $ 9,047 $13,313
Capital expenditures................... 302 1,061 1,250 2,430 3,246 681 1,514
Net cash provided (used) by operating
activities........................... 1,625 3,253 (1,858) 1,855 7,820 (1,647) 974
Net cash used in investing
activities........................... (302) (1,061) (1,250) (2,430) (3,246) (681) (4,953)
Net cash provided (used) by financing
activities........................... (1,229) (2,200) 3,066 614 (4,583) 2,323 3,951
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,(1)
------------------------------------------------ AS OF
1993 1994 1995 1996 1997 MARCH 31, 1998
------- ------- ------- ------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................... $ 94 $ 86 $ 44 $ 83 $ 74 $ 46
Working capital........................ 2,911 5,377 13,662 18,778 18,708 25,025
Total assets........................... 8,549 20,199 39,101 43,636 57,163 73,688
Stockholder's equity................... 3,160 7,457 16,889 23,991 26,443 37,264
</TABLE>
(footnotes appear on following page)
19
<PAGE> 21
- ---------------
(1) The Company's fiscal year ends on the Saturday closest to September 30.
Fiscal years 1995, 1996 and 1997 ended on September 30, 1995, September 28,
1996 and September 27, 1997, respectively. For convenience, fiscal year-ends
are denoted as September 30. Similarly, the 26-week periods ended March 29,
1997 and March 28, 1998 are referred to as the six months ended March 31,
1997 and March 31, 1998, respectively.
(2) Effective January 1, 1998, the Company assumed responsibility for certain
corporate administrative functions, as well as for its own strategic
marketing and brand-building, the costs for which had constituted a
significant portion of the parent corporate services fee. Accordingly, the
parent corporate services fee decreased to $150,000 per quarter as of
January 1, 1998.
(3) See note 2 of notes to financial statements for an explanation of shares
used to compute basic and diluted net income per share.
(4) In May 1998, the Company paid a $38.4 million dividend by issuance of a note
payable to IDG. The Company intends to pay such note using a portion of the
proceeds from this offering. Unaudited pro forma basic and diluted net
income per share amounts are calculated using common shares outstanding plus
the number of shares whose proceeds are to be used to pay such note.
(5) "EBITDA" is defined as income before provision for income taxes, interest
expense, depreciation and amortization. EBITDA is not intended to represent
cash flows from operations and should not be considered as an alternative to
net income as an indicator of the Company's operating performance or to cash
flows as a measure of liquidity. The Company believes that EBITDA is a
standard measure commonly reported and widely used by analysts, investors
and other interested parties in the publishing and media industries,
however, EBITDA as presented herein may not be comparable to similarly
titled measures reported by other companies.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
IDG Books is a leading publisher of computer, business and self-help books
designed to make learning accessible and fun. In 1997, the Company produced more
number one best-selling computer books than any other publisher, according to
Publishers Weekly. The Company publishes and markets 18 book series under
well-known brand names, including its popular ". . . For Dummies(R)" series.
These books have created widespread recognition of the Company's brands by
consumers enabling it to successfully publish across a variety of categories in
technology, business and self-help. The Company's portfolio of brand names
includes more than 700 active titles. The Company has approximately 65 million
English-language books in print and has translated its books into 36 languages.
The Company believes that its readers value and trust its products and brands to
help obtain computer proficiency and professional certification, general
business know-how, career growth and personal enrichment. The computer book
category grew 8.2% in 1997 according to Simba and has been the fastest growing
sector in the U.S. book industry in each of the past six years.
The Company's principal source of revenue is from sales of books through
its two general publishing groups, ". . . For Dummies(R)" and IDG Books
Technology. For the six months ended March 31, 1998, the Company derived
approximately 63.9% of its net revenue from sales of books through its
". . . For Dummies(R)" group and approximately 32.9% from sales through the IDG
Books Technology group. For the six months ended March 31, 1998, other revenue,
principally licensing, accounted for 3.2% of total revenue.
Sales of technology-related books account for a substantial majority of the
Company's net revenue. In this regard, sales of books devoted to the use of
software products sold by Microsoft, including its Windows operating system,
accounted for approximately one-half of the Company's net revenue in fiscal
1997. The Company expects to continue to depend upon sales of technology books,
particularly those related to Microsoft products, for a substantial majority of
the Company's net revenue for the foreseeable future. Federal and various state
regulators have raised legal issues with respect to Windows 98 in its current
form. The Company has printed Windows 98 products for Windows 98 in its current
form. A hearing regarding the federal regulators' request for an injunction
relating to Windows 98 is currently scheduled for September 1998. Any
significant modification in Windows 98 as a result of these regulatory concerns
could require the Company to revise its Windows 98 books which could have an
adverse effect on the Company's financial results.
The Company's customers consist principally of national retail chain
booksellers, wholesale distributors, office superstores, membership clubs and
computer/electronic superstores located primarily in the United States and
Canada. Over the last several years, there has been significant consolidation in
the distribution channels for books, including retail outlets, although
alternative distribution channels have emerged. As a result, the Company expects
that this trend will lead to increased concentration within each distribution
channel. During the six months ended March 31, 1998, the Company's top three
customers accounted for approximately 40.0% of the Company's net revenue, and
the Company's top ten customers accounted for approximately 65.7% of the
Company's net revenue.
The Company's sales policy, consistent with industry practice, generally
permits book distributors to return any unsold or damaged books for full credit.
The Company records a provision for estimated returns using historical
experience and other industry factors. Net revenue includes gross product sales,
less a provision for estimated future returns. For the six months ended March
31, 1998 and for the year ended September 30, 1997, the Company's provision for
returns and allowances accounted for approximately 23.0% and 21.0% of gross
sales, respectively.
The principal components of the Company's cost of net revenue are paper and
printing, royalty expense, product development, fulfillment and inventory
obsolescence costs. Paper is the principal raw material used in the Company's
business. The Company does not have long-term paper supply contracts, and its
arrangements are negotiated each year and provide for quarterly price
adjustments. Paper prices have been volatile over the past several years and are
affected by many factors, including demand, mill capacity, pulp supply, energy
costs,
21
<PAGE> 23
and general economic conditions. Consequently, the Company's cost of paper,
relative to net revenue, can vary from period-to-period. Product development
comprises editorial, production and pre-publication costs. The Company generally
must dedicate significant resources to research and editorial development,
production and sales and marketing. The Company incurs significant costs in
developing, publishing and selling a new book, which often significantly precede
meaningful revenues from its sale. Consequently, new publications can require
significant time and investment to achieve profitability. The Company
anticipates that product development costs will increase as a percentage of the
total cost of net revenue, as the volume of both new and revised products
increases due to accelerated changes in technology and related software. The
other principal operating costs for the Company are selling, general and
administrative expenses, which include applicable salaries, benefits, sales
commissions, travel and entertainment, advertising and promotion, customer
incentives, occupancy and depreciation. Selling, general and administrative
expenses comprised approximately 35% of the Company's total operating expenses
for the six months ended March 31, 1998.
The Company has historically depended on IDG, the Company's parent, for
corporate administrative functions, as well as for strategic marketing and brand
building, financing, cash management, tax and payroll administration, insurance,
employee benefits administration and certain other services. The fees for these
services have been charged to the Company through a corporate services fee based
on a percentage of budgeted net revenue plus a fixed charge. These costs were
1.9% of the Company's total operating expenses for the six months ended March
31, 1998. The Company and IDG have agreed to continue certain of these services
on a cost-for-services basis after the offering. The Company will perform the
remainder of these services independently after the offering. The Company
currently expects that the amount it will pay to IDG for these services will
initially be approximately $600,000 per year. Because IDG has provided the
Company with cash management and financing requirements, the Company has
historically not had interest income or expense. The Company anticipates that
its seasonal working capital requirements may require short-term borrowings and
that it will earn interest income on cash balances. See "Relationship with IDG
and Certain Transactions -- Intercompany Agreements."
The Company's fiscal year ends on the Saturday closest to September 30.
Fiscal years 1995, 1996 and 1997 ended on September 30, 1995, September 28, 1996
and September 27, 1997, respectively. For convenience, throughout this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, fiscal year-ends are denoted as September 30. Similarly, the 26-week
periods ended March 29, 1997 and March 28, 1998 are referred to as the six
months ended March 31 and the 13-week periods comprising each fiscal quarter are
denoted by the last day of the calendar month.
RESULTS OF OPERATIONS
The following table summarizes historical results of operations as a
percentage of net revenue for the periods shown.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Revenue:
". . . For Dummies(R)"............................. 67.6% 69.9% 68.1% 72.0% 65.2%
IDG Books Technology............................... 32.4 30.1 31.9 28.0 34.8
----- ----- ----- ----- -----
Total Net Revenue.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Cost of sales...................................... 56.0% 56.9% 52.3% 51.3% 52.6%
Selling, general and administrative expenses....... 27.0 29.0 34.8 32.4 29.5
Parent corporate services fee...................... 2.0 2.8 3.0 2.9 1.6
Income before provision for income taxes........... 15.0 11.2 9.9 13.3 16.2
Net income......................................... 8.8 6.6 5.8 8.0 9.6
</TABLE>
22
<PAGE> 24
SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
Net Revenue. Net revenue increased $9.5 million, or 15.1%, to $71.9 million
for the six months ended March 31, 1998 from $62.4 million for the six months
ended March 31, 1997. This increase was primarily the result of an increase in
net sales of $6.3 million, or 35.3%, for the IDG Technology Group and $2.7
million, or 6.4%, for the ". . . For Dummies(R)" group. Of the Company's net
revenue in the first six months of 1998, $10.2 million was attributable to sales
of new titles first published during that period as compared to $6.7 million for
new titles first published during the same period for 1997.
Cost of Sales. Cost of sales increased $5.8 million, or 18.0%, to $37.9
million for the six months ended March 31, 1998 from $32.1 million for the six
months ended March 31, 1997. Cost of sales as a percentage of net revenue was
52.6% and 51.3% for the six month periods ended March 31, 1998 and March 31,
1997, respectively. Product development costs increased as a percentage of net
revenue to 11.3% for the six months ended March 31, 1998 from 9.7% for the six
months ended March 31, 1997, reflecting the Company's planned increase in title
output for the remainder of 1998. Paper and printing costs as a percentage of
net revenue remained unchanged at approximately 17.0% for both periods.
Fulfillment expense decreased as a percentage of net revenue to 7.0% for the six
months ended March 31, 1998 from 8.1% for the six months ended March 31, 1997 as
a result of efficiencies achieved in the Company's distribution facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.0 million, or 5.1%, to $21.2 million for
the six months ended March 31, 1998 from $20.2 million for the six months ended
March 31, 1997. This increase was primarily attributable to increased general
and administrative expenses, primarily depreciation of fixed assets and
amortization of publishing rights. Selling expenses were relatively unchanged in
absolute dollars on a period-to-period basis. Selling, general and
administrative expenses decreased as a percentage of net revenue to 29.5% for
the six months ended March 31, 1998 from 32.4% for the six months ended March
31, 1997. The Company's selling and marketing costs decreased to 17.0% of net
revenue for the six months ended March 31, 1998 compared to 19.6% for the same
period the prior year primarily as a result of increased efficiencies.
Parent Corporate Services Fee. Parent corporate services fee decreased $.6
million, or 36.0%, to $1.2 million for the six months ended March 31, 1998 from
$1.8 million for the six months ended March 31, 1997. Effective January 1, 1998,
the Company assumed responsibility for certain corporate administrative
functions, as well as for its own strategic marketing and brand-building, the
costs for which had constituted a significant portion of the parent corporate
services fee.
Income before Provision for Income Taxes. Income before provision for
income taxes increased $3.3 million, or 39.7%, to $11.6 million for the six
months ended March 31, 1998 from $8.3 million for the six months ended March 31,
1997. Income before provision for income taxes increased as a percentage of net
revenue to 16.2% in the six months ended March 31, 1998 from 13.3% for the same
period the prior year due to an increase in sales and decrease in selling,
general and administrative expense as a percentage of net revenue, offset by an
increase in cost of sales as a percentage of net revenue, as described above.
Net Income. Net income of $6.9 million for the six months ended March 31,
1998 increased $1.9 million, or 37.8%, from net income of $5.0 million for the
six months ended March 31, 1997. This increase was primarily the result of an
increase in sales and decrease in selling, general and administrative expenses
as a percentage of net revenue, offset by an increase in cost of sales as a
percentage of net revenue, as described above.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
Net Revenue. Net revenue increased $22.8 million, or 23.3%, to $120.7
million for the year ended September 30, 1997 from $97.8 million for the year
ended September 30, 1996. This increase was primarily the result of an increase
in net sales of $8.4 million, or 28.6%, for the IDG Technology group and $14.7
million, or 22.9%, for the ". . . For Dummies(R)" group. Of the Company's net
revenue in fiscal 1997, $19.6 million was attributable to sales of new titles
first published during that period, as compared to $25.8 million for new titles
first published during fiscal 1996.
23
<PAGE> 25
Cost of Sales. Cost of sales increased $7.4 million, or 13.2%, to $63.0
million for the year ended September 30, 1997 from $55.7 million for the year
ended September 30, 1996. Cost of sales as a percentage of net revenue was 52.3%
and 56.9% for the years ended September 30, 1997 and September 30, 1996,
respectively. Costs of sales as a percentage of net revenue decreased primarily
because paper costs, fulfillment expenses and inventory obsolescence all
decreased as a percentage of net revenue, though royalty expenses and, to a
lesser extent, product development costs increased as a percentage of net
revenue. Royalty expense increased as a percentage of net revenue to 10.6% for
the year ended September 30, 1997 from 9.7% for the year ended September 30,
1996, reflecting additions to reserves for paid but unearned author advances.
Product development costs increased as a percentage of net revenue to 11.3% for
the year ended September 30, 1997 from 11.2% for the year ended September 30,
1996. Paper and printing costs as a percentage of net revenue decreased to 15.9%
for the year ended September 30, 1997 from 18.1% for the year ended September
30, 1996 due to lower paper costs and better printing rates resulting from
higher volumes. Fulfillment expenses decreased as a percentage of net revenue to
8.3% for the year ended September 30, 1997 from 9.8% for the prior year as a
result of efficiencies achieved in distribution, including increased shipments
in carton quantities, a renegotiated fulfillment contract with a third party
vendor and lower returns and related handling fees. Inventory obsolescence
decreased to 4.3% of net revenue for the year ended September 30, 1997 from 6.9%
for the year ended September 30, 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $13.6 million, or 48.2%, to $42.0 million
for the year ended September 30, 1997 from $28.4 million for the year ended
September 30, 1996. This increase was attributable to increased selling expenses
of approximately $9.3 million, resulting primarily from more aggressive customer
incentive programs, and increased general and administrative expenses of
approximately $4.3 million, which reflected increased investments in
infrastructure (salaries and bonuses for additional headcount, occupancy and
depreciation). Selling, general and administrative expenses as a percentage of
net revenue increased to 34.8% for the year ended September 30, 1997 from 29.0%
for the year ended September 30, 1996. Selling expenses increased as a
percentage of net revenue to 20.5% for the year ended September 30, 1997 from
15.7% for the year ended September 30, 1996, and general and administrative
expenses increased to 14.3% of net revenue for the year ended September 30, 1997
from 13.3% for the year ended September 30, 1996.
Parent Corporate Services Fee. Parent corporate services fee increased $.9
million, or 32.0% to $3.7 million for the year ended September 30, 1997 from
$2.8 million for the year ended September 30, 1996, primarily as a result of the
increase in net sales.
Income before Provision for Income Taxes. Income before provision for
income taxes increased $.9 million, or 8.4%, to $11.9 million for the year ended
September 30, 1997 from $11.0 million for the year ended September 30, 1996.
Income before provision for income taxes decreased as a percentage of net
revenue to 9.9% from 11.2% for the same periods due to an increase in sales more
than offset by higher selling, general and administrative expenses.
Net Income. Net income of $7.0 million for the year ended September 30,
1997 increased $.5 million, or 8.4%, from net income of $6.5 million for the
year ended September 30, 1996. This increase was primarily the result of
increased sales partially offset by increased selling, general and
administrative expenses as described above.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Net Revenue. Net revenue increased $25.3 million, or 35%, to $97.8 million
for the year ended September 30, 1996 from $72.5 million for the year ended
September 30, 1995. This increase was primarily the result of an increase in net
sales of $5.8 million, or 24.9%, for the IDG Technology Group and $17.9 million,
or 38.6%, for the ". . . For Dummies(R)" group. Of the Company's net revenue in
fiscal 1996, $25.8 million was attributable to sales of new titles first
published during that period as compared to $20.8 million for new titles first
published during fiscal 1995.
Cost of Sales. Cost of sales increased by $15.1 million, or 37%, to $55.7
million for the year ended September 30, 1996 from $40.6 million for the year
ended September 30, 1995. Cost of sales as a percentage
24
<PAGE> 26
of net revenue was 56.9% and 56.0% for the years ended September 30, 1996 and
September 30, 1995, respectively. Paper and printing costs as a percentage of
net revenue decreased to 18.1% for the year ended September 30, 1996 from 18.7%
for the year ended September 30, 1995 due to a decrease in paper prices in 1996.
Product development costs increased to 11.2% of net revenue for the year ended
September 30, 1996 from 9.8% for the prior year as a result of the Company's
efforts to increase title output in 1996. Fulfillment expenses increased as a
percentage of net revenue to 9.8% for the year ended September 30, 1996 from
8.7% for the year ended September 30, 1995 primarily due to a large increase in
book returns and the related processing costs in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $8.8 million, or 44.9%, to $28.3 million
for the year ended September 30, 1996 from $19.5 million for the year ended
September 30, 1995. This increase was attributable to increased general and
administrative expenses of approximately $5.5 million, reflecting increased
investments in infrastructure (salaries and bonuses for additional headcount,
occupancy and depreciation) and increased selling expenses of approximately $3.3
million. Selling, general and administrative expenses as a percentage of net
revenue increased to 29.0% for the year ended September 30, 1996 from 27.0% for
the year ended September 30, 1995. General and administrative expenses increased
to 13.3% of net revenue for the year ended September 30, 1996 from 10.3% for the
year ended September 30, 1995. Selling and marketing expenses decreased to 15.7%
of net revenue for the year ended September 30, 1996 from 16.6% for the year
ended September 30, 1995, primarily as a result of a bad debt write-off for a
bankrupt wholesaler of the Company's books in 1995.
Parent Corporate Services Fee. Parent corporate services fee increased $1.3
million, or 89.8% to $2.8 million for the year ended September 30, 1996 from
$1.5 million for the year ended September 30, 1995, primarily as a result of the
increase in net sales.
Income before Provision for Income Taxes. Income before provision for
income taxes increased by $.1 million, or 1.0%, to $11.0 million for the year
ended September 30, 1996 from $10.9 million for the year ended September 30,
1995.
Net Income. Net income of $6.5 million for the year ended September 30,
1996 increased by $.1 million, or 1.9%, from net income of $6.4 million for the
year ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the financing requirements of the Company were funded through
intercompany advances from IDG, the Company's parent, while excess cash
generated by the Company was remitted to IDG. Accordingly, the Company
maintained minimal cash balances. In addition, balances owed to or due from IDG
were non-interest bearing and periodic settlements of the net amounts have not
been made. Accordingly, such amounts are reflected as a component of
stockholders' equity. The Company intends to settle any outstanding balance owed
to or due from IDG concurrently with this offering.
Working capital was $25.0 million and $18.7 million at March 31, 1998 and
September 30, 1997, respectively. The increase in working capital at March 31,
1998 was seasonal in nature and reflected a $7.0 million increase in accounts
receivable resulting from increased billings due to increased selling volume
during the Company's first and second quarters of fiscal 1998.
The Company's net cash provided by operations was $1.0 million for the six
months ended March 31, 1998 compared to net cash used by operations of $1.6
million for the six months ended March 31, 1997. The increase in cash provided
by operations was primarily due to increased net income and a smaller increase
in accounts receivable and inventory partially offset by a smaller increase in
accrued liabilities. Net cash provided by operations was $7.8 million for the
year ended September 30, 1997, which was primarily the result of net income of
$7.0 million and an increase of accrued liabilities ($10.9 million) partially
offset by increases in accounts receivable ($5.6 million), inventory ($1.8
million) and deferred tax assets ($4.0 million). The Company's net cash provided
by operations was $1.9 million in fiscal year 1996 and net cash used by
operations was $1.9 million in fiscal year 1995.
25
<PAGE> 27
The Company's net cash used in investing activities for the six months
ended March 31, 1998 was $4.9 million and included $3.4 million used to acquire
certain publishing rights and $1.5 million used for capital expenditures,
including computer equipment and leasehold improvements. The Company's net cash
used in investing activities was $3.2 million, $2.4 million and $1.3 million in
fiscal year 1997, 1996 and 1995, respectively.
The Company's cash flows from financing activities related solely to
changes in the net amount of intercompany advances from IDG or excess cash
generated by the Company and retained by IDG. The Company's net cash used by
financing activities was $4.6 million in fiscal year 1997, and the Company's net
cash provided by financing activities was $.6 million and $3.1 million in fiscal
years ended 1996 and 1995, respectively. Subsequent to March 31, 1998, the
Company paid a dividend of $38.4 million to IDG in the form of a promissory
note, which the Company intends to pay with a portion of the net proceeds from
the offering. See "Use of Proceeds" and "Relationship with IDG and Certain
Transactions -- Pre-Offering Dividend."
The Company is currently in discussion with banks regarding a proposed
revolving credit facility in an amount of up to $20.0 million, which would be
available to the Company for seasonal working capital requirements and general
corporate purposes.
The net proceeds to be received by the Company from the sale of the Class A
common stock in the offering, after deducting estimated expenses of $1.8 million
and underwriting discounts and commissions, are estimated to be approximately
$44.0 million (approximately $50.9 million if underwriters' over-allotment
option is exercised in full), at an assumed initial public offering price of
$15.50 per share, the midpoint of the range set forth on the cover page of this
Prospectus. The Company will use approximately $38.4 million (plus or minus any
advances owed to or due from IDG as of the date of payment) of the net proceeds
from this offering for the payment of indebtedness owed to IDG. The Company
currently expects to use the remaining $5.6 million of net proceeds for general
corporate purposes, including approximately $3.6 million for working capital and
approximately $2.0 million to complete the Company's computer system upgrade.
The Company believes that the net proceeds from this offering, together with any
cash generated from operations and any funds available under any future credit
facilities, will be sufficient to meet the liquidity requirements of the Company
for the foreseeable future. The Company's future capital requirements will
depend on many factors, including, but not limited to, the levels at which the
Company maintains inventory, the market acceptance of the Company's products,
the levels of promotional activities and advertising required to launch the
Company's products and any future acquisitions. To the extent that the funds
generated by this offering, together with existing resources and future
earnings, are insufficient to fund the Company's future activities, the Company
may need to raise additional funds through public or private financing. No
assurance can be given that any such additional funding will be available or
that, if available, it can be obtained on terms favorable to the Company.
SEASONALITY AND FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Historically, the Company's business has been seasonal. The Company's net
revenue and net income has been higher during fiscal quarters when major
software manufacturers release new or revised versions of popular products, as
exemplified by the Company's fiscal quarter ending December 31, 1995 and the
fiscal quarter ending March 31, 1997, corresponding to the release of
Microsoft's Office 95 and Office 97 products. In addition, personal computer
sales, especially to entry-level users, are traditionally higher during the
Christmas selling season, and the Company has benefited from increased purchases
of its products during the Christmas season, as well as in the immediately
following months, generally resulting in higher net revenue and net income
during the Company's first two fiscal quarters. Because a substantial portion of
the Company's selling, general and administrative expenses are incurred evenly
throughout the year, the Company generally experiences relatively lower net
profit during quarters not impacted by increases in sales due to seasonal or
other factors discussed above.
26
<PAGE> 28
The following table sets forth certain unaudited quarterly statement of
operations data for each of the ten quarters in the period ended March 31, 1998.
In the opinion of the Company's management, the unaudited information has been
prepared on a basis consistent with the audited financial statements of the
Company appearing elsewhere in this prospectus 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 financial
statements and notes thereto.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1996 1996 1996 1996 1997 1997
-------- -------- -------- --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenue........... $25,065 $24,534 $23,568 $24,680 $26,676 $35,788 $26,210
Percent of total net
revenue year ended
September 30........ 25.6% 25.1% 24.1% 25.2% 22.1% 29.7% 21.7%
Net Income............ $ 1,941 $ 1,851 $ 1,438 $ 1,258 $ 1,536 $ 3,381 $ 1,236
Percent of total net
income year ended
September 30........ 29.9% 28.5% 22.2% 19.4% 21.8% 48.1% 17.6%
<CAPTION>
QUARTERS ENDED
-------------------------------
SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1998
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Revenue........... $32,014 $32,971 $38,945
Percent of total net
revenue year ended
September 30........ 26.5% -- --
Net Income............ $ 882 $ 2,535 $ 4,335(1)
Percent of total net
income year ended
September 30........ 12.5% -- --
</TABLE>
- ------------------------
(1) The net income for the quarter ended March 31, 1998 was favorably impacted
by the reduction in the parent corporate services fee.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, which requires that an enterprise report, by
major components and as a single total, the change in its net assets during the
period from nonowner sources; and No. 131, Disclosures about Segments of an
Enterprise and Related Information, which establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Management has not yet determined the Company's SFAS 131 reporting segments.
These statements will not affect the Company's financial position, results of
operations or cash flows. Both statements are effective for the Company in
fiscal year 1999, with earlier application permitted.
YEAR 2000 COMPLIANCE
The Company uses and is installing a number of computer software programs
and operating systems, including applications for its internal electronic
communications network and for various administrative and billing functions. The
Company has assessed the scope of the Company's risks related to problems these
computer systems may have related to the year 2000 and believes such risks are
not significant.
The Company has identified all of its significant internal software
applications which contain source codes that may be unable to appropriately
interpret the year 2000 and has already begun to modify or replace those
applications. The estimated costs to modify or replace these applications are
not material to the Company.
In addition, the Company is in the process of inquiring of its vendors and
business partners about their progress in identifying and addressing problems
related to the year 2000. All major vendors with whom the Company exchanges
electronic information or on whose internal software applications the Company
may be dependent have committed to the Company that plans are in place to be
compliant before processing of information related to calendar year 2000 would
be required. No assurance can be given that all of these third party systems
will be year 2000 compliant.
FORWARD-LOOKING STATEMENTS
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other sections of this prospectus contain forward-looking
statements which are subject to various risks and uncertainties. Actual results
could differ materially from those discussed herein. Important factors that
could cause or contribute to such differences include those discussed under
"Risk Factors" as well as those discussed elsewhere in this prospectus.
27
<PAGE> 29
INDUSTRY OVERVIEW
The increase in the market for computer-related books is attributable to
the increase in the size of the personal computer market, an increase in the
number of new users of computers at home and on-the-job, the continued
complexity of computer hardware and software applications and an inadequate
supply of information by technology manufacturers. The Company believes that the
number of personal computers in use in the United States has increased
approximately 50% from 88.6 million in 1995 to 133.8 million in 1997, and the
percentage of households in the United States owning computers grew from 35% to
43% during the same period, based on studies by the Company's market research
affiliate. As a consequence, the market for books devoted to the use of computer
hardware and software grew from $678.0 million in 1995 to $844.0 million in
1997. The Company believes that the increase in the numbers of new and generally
inexperienced personal computer users is the result of falling personal computer
prices, expanding technology requirements in the workplace and the mass appeal
of the Internet. Although much computer-related technology is becoming more
user-friendly, it remains complex for new users and the abundance of new
technology products with added features is often too complex even for the more
experienced users. Due to cost considerations, many technology suppliers have
ceased or reduced their supply of product documentation. Moreover, typical
product documentation provided by technology manufacturers is itself often too
complex to be of much help to the end user. In addition, software more
frequently reaches end users through organization-wide installation, pre-
installation by the OEM and downloading from the Internet than through retail
purchases where software is generally accompanied with better explanatory
information.
The Company's books compete in the general interest book market covering
most categories, other than fiction, biography and children's books. Because of
the increasing demand on people's time and the increasing complexity of life in
general, the Company believes people are turning to self-help and similar books
to increase personal productivity, enhance career success and provide
competitive advantages in a rapidly changing economy, as well as to provide
personal enrichment.
Books are traditionally distributed to large distributors and directly to
retail chains and independent book stores. More recently, books are being
distributed through the Internet, as well as to new outlets such as general mass
merchant retailers. As a result of the continuing trend of consolidation among
book distributors and retailers, increased competition will force these
distributors and retailers to focus more sharply on ways to increase
profitability.
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<PAGE> 30
BUSINESS
OVERVIEW
IDG Books is a leading publisher of computer, business and self-help books
designed to make learning accessible and fun. In 1997, the Company produced more
number one best-selling computer books than any other publisher, according to
Publishers Weekly. The Company publishes and markets 18 book series under
well-known brand names, including its popular ". . . For Dummies(R)" series.
These books have created widespread recognition of the Company's brands by
consumers enabling it to successfully publish across a variety of categories in
technology, business and self-help. The Company's portfolio of brand names
includes more than 700 active titles. The Company has approximately 65 million
English-language books in print and has translated its books into 36 languages.
The Company believes that its readers value and trust its products and brands to
help obtain computer proficiency and professional certification, general
business know-how, career growth and personal enrichment. The computer book
category grew 8.2% in 1997 according to Simba and has been the fastest growing
sector in the U.S. book industry in each of the past six years.
The Company publishes its books in two general publishing groups,
". . . For Dummies(R)" and IDG Books Technology, which target the distinct needs
of readers.
". . . For Dummies(R)." The ". . . For Dummies(R)" series is a best-selling
line of computer, business, personal finance, study aids, cooking, gardening,
do-it-yourself, health and fitness, and self-help books. The group consists of
more than 350 active titles and approximately 50 million copies in print, as
well as extensions into multimedia, music, on-line information and board games.
Windows For Dummies(R) has more than six million copies in print across all
editions, and the current edition was the best-selling computer book in 1997
according to Publishers Weekly and USA Today. Other best-selling ". . . For
Dummies(R)" titles include The Internet for Dummies(R), Personal Finance For
Dummies(R), Golf For Dummies(R) and Cooking For Dummies(R). Sales of the
Company's ". . . For Dummies(R)" books accounted for approximately 68% of the
Company's net revenue in the Company's fiscal year ended September 30, 1997.
IDG Books Technology. The IDG Books Technology group is comprised of an
expanding collection of information technology books published in multiple book
series under a variety of brands names. These books appeal to a wide range of
readers, from beginners to knowledgeable professionals, including:
- 3-D Visual(R) -- an exclusive, award winning, four-color computer
hardware and software learning system packaged primarily in the
". . . Simplified(TM)" series and the Teach Yourself . . . VISUALLY(TM)
and Master . . . VISUALLY(TM) sub-series;
- One Step at a Time series -- self-paced, step-by-step lessons in a book
combined with a computer-based training CD ROM;
- Bible series -- comprehensive tutorial/reference on all major computing
topics; positioned as "100% comprehensive, 100% authoritative, 100% of
what you need";
- ". . . Secrets(R)" -- featuring key leading authorities targeted to
knowledgeable information technology professionals with over 20 titles
and two million books in print;
- Certification Study Guide series -- quality books and learning materials
for both core courses and electives for Microsoft certification training;
and
- Novell Press(TM) series -- the only official series of Novell product
training and user guides authorized and approved by Novell.
For the year ended September 30, 1997, IDG Books Technology group book sales
accounted for approximately 32% of the Company's net revenue.
The Company's revenue is principally derived from sales in the United
States, which accounted for approximately 84% of sales in fiscal 1997. The
Company also markets its books in numerous countries throughout the world and
licenses its established brands and titles to third parties. Export sales of
English-
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<PAGE> 31
language books accounted for approximately 13% of the Company's sales in fiscal
1997, while licensing and custom publishing revenue contributed 3% of sales in
fiscal 1997.
OPERATING STRATEGY
The Company strives to provide a consistent, accessible and rewarding
learning experience to readers by offering quality products supported by mass
marketing which is timed to coincide with the introduction of new technology or
the emergence of new trends. To implement these objectives, the Company has
adopted the following operating strategies:
Focus on Branded Content and Mass Marketing. The Company creates quality
products, supported by extensive marketing campaigns which help build brand
recognition. The Company believes its valuable name recognition generates repeat
demand for its books and enables it to extend these brands into additional
licensed products and services.
Make Knowledge Accessible and Enjoyable. The Company believes millions of
individuals, businesses and families are challenged by technologies or are
trying to acquire new skills or enrich their lives. The Company specifically
designs its products to make learning accessible and fun.
Maintain Efficient and Proven Publication Process. The Company has
developed a successful process to conceive, acquire and produce new and revised
titles on a timely and cost-effective basis. The Company's staff of creative
personnel identifies and develops new titles and subject areas and draws on a
recognized and highly respected list of leading authorities, media celebrities
and experienced computer/Internet authors. This collaboration, in conjunction
with the Company's experienced editorial team, assures brand consistency through
high quality, easy-to-read publications. The Company's close working
relationships with technology industry leaders enable the Company to release
high quality and well supported products and services in a timely manner. The
Company believes this strategic focus has created a competitive advantage for
its technology books by enabling the Company to anticipate and meet customer
needs and to bring new and updated titles concurrently with the introduction of
new technologies. In addition, because of the popularity and demand for its
flagship brands, the Company can easily integrate new title and brand launches
into its existing marketing programs.
GROWTH STRATEGY
Building on its operating strategy and on industry trends, the Company has
pursued the following strategies:
Expand Technology, Business and Self-Help Publishing Programs. The Company
has identified numerous opportunities to take advantage of its market position
in technology, business and self-help markets by adding new titles to existing
categories and expanding into new categories. For example, the Company is
releasing approximately 20 new and revised books in concert with Microsoft's
release of Windows 98. These books will be supported by aggressive retail
incentives and marketing programs. The Company has also expanded its ". . . For
Dummies(R)" branded products into other successful categories, such as the
best-selling Golf For Dummies(R) title. The Company expects to expand this
category into other golf-related book topics. The Company believes that the
existing audiences for its brands and brand extensions, together with its
publishing, branding and operating experience, gives it a competitive advantage
in conceiving, identifying, acquiring and developing new brands, products and
services. For example, the Company launched its One Step at a Time series and,
as a result of the success of the first book, has expanded the imprint to eight
titles, and additional titles in that series are planned by mid-1999.
Increase Distribution Penetration and Expand Network. The Company is
working to increase its shelf space among its existing retailers and
distributors and to add new retailers, distributors and distribution channels.
The Company has developed sales and marketing programs that provide additional
compensation to distributors for sales to the ultimate consumer, the reader, in
an effort to increase shelf space devoted to the Company's books at existing
retail customers. Based on its industry experience, the Company believes that
its incentive compensation programs that reward retailers for sale to their
customers are unlike programs of most
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<PAGE> 32
competitors which generally reward volume of purchases rather than sales to
readers. The Company has identified opportunities for further expansion in other
retail outlets, including retail stores that do not traditionally sell books. To
expand its sales network, the Company is also establishing new distribution
channels, such as on-line retailers and other nontraditional channels for the
distribution of the Company's books. For example, the Company recently developed
a cross promotion with John Deere's Homelite division to sell and merchandise
Lawn Care For Dummies(R) through John Deere's distribution network, which
includes outlets for gardening equipment, hardware stores and nurseries.
Develop Business-to-Business Opportunities. The Company intends to expand
sales of its core products directly to businesses for training purposes. The
Company also plans to expand its custom publishing activities, including
production of documentation and booklets, corporate training and special
projects, for a broad range of customers. For example, in late 1997 the Company
produced a custom book for Siemens to be included as the primary documentation
with Siemens's PCS cellular phones.
Develop Brand Ventures. The Company believes that there are numerous
opportunities to extend its brands through domestic and international licensing
arrangements, strategic joint ventures, retail alliances and online services.
The Company has recently licensed the ". . . For Dummies(R)" brand name to
Angel/EMI Records for use on compact disc multimedia music recordings and to
Pressman Toy for board games.
Selectively Acquire Titles and Companies in the U.S. and
Internationally. Management believes that opportunities exist to acquire
selected technology, business and self-help properties that will complement and
enhance its existing portfolio. Such acquisitions would enable the Company to
take advantage of its efficient operating structure and the Company's focus on
brand development. For example, in December 1997, the Company acquired the
rights for MIS:Press and M&T Books, specialty technology book series. These
imprints include two successful series, the Teach Yourself (R) and In Plain
English series, and hundreds of other popular titles covering a variety of
computer networking, operating systems and programming topics.
PUBLICATIONS
The Company publishes 18 branded computer and general interest book series
and sub-series for readers at a variety of learning levels and styles.
Technology titles in the Company's flagship ". . . For Dummies(R)" series
offer practical, fun and easy-to-use reference books that present topics with
humor and entertainment and are filled with "plain English" explanations,
helpful icons and cartoons. Sub-series include: "MORE . . . For Dummies(R)"
(sequel titles); Dummies 101(R) (tutorial); ". . . For Dummies(R) Quick
Reference"; Dummies Guides to Family Computing(TM) and ". . . For Teachers(TM)".
The following list sets forth the top ten best-selling books, each of which has
more than one million copies in print over the past six years, in the ". . . For
Dummies(R)" series:
<TABLE>
<CAPTION>
TITLE EDITIONS
----- --------
<S> <C>
Windows(R) For Dummies(R)........................... 5
DOS For Dummies(R).................................. 3
Internet For Dummies(R)............................. 5
PCs For Dummies(R).................................. 5
Windows(R) For Dummies(R) Quick Reference........... 5
WordPerfect(R) For Dummies(R)....................... 5
Word For Dummies(R)................................. 4
Excel For Dummies(R)................................ 4
Macs(R) For Dummies(R).............................. 5
Microsoft(R) Office For Dummies(R).................. 3
</TABLE>
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<PAGE> 33
Business and self-help ". . . For Dummies(R)" titles cover personal
finance, business, real estate, study aids, automotive, health and fitness,
cooking, do-it-yourself, and other self-help and reference topics. Reference
titles are the fastest growing category of books in the ". . . For Dummies(R)"
line. The top ten best-selling books in the Company's first three years of
publishing books in the business and self-help market, each of which has been
printed in excess of 150,000 copies, are set forth below:
<TABLE>
<CAPTION>
TITLE EDITIONS
----- --------
<S> <C>
Personal Finance For Dummies(R)..................... 2
Golf For Dummies(R)................................. 1
Taxes For Dummies(R)................................ 4
Investing For Dummies(R)............................ 1
Wine For Dummies(R)................................. 1
Gardening For Dummies(R)............................ 1
Sex For Dummies(R).................................. 1
Cooking For Dummies(R).............................. 1
Mutual Fund$ For Dummies(R)......................... 1
Selling For Dummies(R).............................. 1
</TABLE>
IDG Books Technology titles target a broad range of computer users, and
each series is positioned to meet the needs of a specific target audience, from
beginning through advanced level users, including information technology
professionals and software developers. Set forth below are the Company's top ten
IDG Books Technology publications, each of which has more than 200,000 copies in
print over the past eight years:
<TABLE>
<CAPTION>
TITLE EDITIONS
----- --------
<S> <C>
Windows(R) Secrets(R)............................... 4
Windows(R) Simplified(R)............................ 3
Computers Simplified(R)............................. 3
Teach Yourself Windows(R) VISUALLY(TM).............. 2
Internet and WWW Simplified(R)...................... 2
Macworld(R) Macs(R) Secrets(R)...................... 4
Word Simplified(R).................................. 4
Photoshop(R) Bible(R)............................... 5
Excel Simplified(R)................................. 3
Windows(R) Visual Pocket Guide(R)................... 2
</TABLE>
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The following presents a list of the Company's IDG Books Technology
brands/services, a description of the distinguishing features of the product
line and the target audience:
<TABLE>
<CAPTION>
SERIES/BRAND DESCRIPTION/KEY FEATURES USER LEVEL
------------ ------------------------ ----------
<S> <C> <C>
3-D Visual(TM)
- ". . . Simplified(TM)"...... Full color visual learning Beginner
system; topics explained simply
- Teach . . . Yourself
VISUALLY(TM)............... Full color visual learning Beginner to intermediate
system; step-by-step graphics
- Master . . . VISUALLY(TM)... Comprehensive visual learning Beginner to advanced
system
Teach Yourself(R)............... Tutorial and reference guide to Beginner to intermediate
popular software
One Step at a Time.............. Step-by-step lessons with Beginner to intermediate
interactive software support
Bible........................... Comprehensive reference/tutorial Intermediate
with software
". . . In Plain English"........ Quick reference for Intermediate to professional
professionals with A-Z directory
". . . Studio Secrets(TM)"...... Full color undocumented tips on Intermediate to advanced
graphic design from the pros
". . . Secrets(R)".............. Comprehensive undocumented tips Intermediate to advanced
and techniques from the pros
Certification Study Guides
(MCSE, MCSD).................. Study guides and exam question Intermediate to professional
preparation
Novell Press(TM)................ Authorized test preparation Intermediate to professional
guides for CNE and CNA
certification; user and
administrator guides
Professional Guides............. In-depth examination of advanced Advanced to professional
topics with software code
</TABLE>
EXPORT AND FOREIGN EDITIONS
The Company has licensed more than 3,400 of its titles for translation and
publication by third-party publishers in 36 languages throughout the world. The
Company serves the international English-language market and exports U.S.
editions through third-party distributors and booksellers throughout the world
and by licensing reprint rights to a third-party publisher in India. The
Company's publication of special editions for English markets outside the United
States has been initiated with Personal Finance For Dummies(R) For Canadians.
SALES AND MARKETING
The Company organizes its sales and marketing activities around customer
types to implement the Company's operating and growth strategies, focus on
building brands and expand the breadth and depth of its distribution network.
More than one quarter of the Company's employees are employed in its sales and
marketing organization.
Sales
The Company's domestic sales force consists of: (i) a national account
group working directly with national bookstore chains; (ii) a wholesale and mass
market group working with the centralized buying offices of national
wholesalers, memberships clubs, office superstores, mass merchandisers and
computer/electronic superstores; (iii) a field sales and new business
development group servicing regional and independent booksellers and wholesalers
who develop new channels of distribution for selected titles; and (iv) a special
markets group which services the education, corporate, government, on-line
retailer, catalog and custom
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<PAGE> 35
publishing channels. With respect to certain customers, primarily non-bookstore
accounts, the Company also utilizes commissioned sales representatives to
support its own sales force.
The Company believes that booksellers have not traditionally been rewarded
for sales of books to the consumer, but rather on their purchases from book
publishers. The Company's sales and marketing efforts take advantage of the
Company's brand recognition with the consumer to create innovative sales
programs directed to the readers of the Company's books. Accordingly, the
Company has developed sales and marketing programs that, unlike those of other
book publishers, reward distributors and retailers for sales to the ultimate
consumer, the reader.
During fiscal 1997, Barnes and Noble, Inc., Ingram Book Company and Borders
Group, Inc. each accounted for more than 10%, and together accounted for
approximately 37%, of the Company's net revenue.
Marketing
The Company organizes its marketing activities around its brands to support
its sales efforts and brand identity. The Company's marketing professionals
engage in a variety of marketing promotions and activities, including: (i)
developing consumer-focused point of purchase and display materials; (ii)
creating account-focused promotional programs; (iii) coordinating cooperative
advertising spending strategies; and (iv) maximizing media exposure. In
addition, the Company's marketing staff hosts three sales and training seminars
per year and produces eight product catalogs annually.
Sales and Marketing Awards
The Company's marketing activities have earned numerous industry awards
including:
- The 1997 Publisher's Marketing Association Award for "Overall Excellence
in Editorial, Design and Independent Publishing";
- The 1997 Inc. magazine Marketing Masters Award in the Communications
Services Category; and
- Being listed by Advertising Age magazine as one of the Top 100 Companies
in the United States for Marketing Excellence.
In addition to its traditional sales and marketing efforts, the Company
maintains World Wide Web sites (www.idgbooks.com and www.dummies.com) where
individual consumers can learn about and purchase the Company's titles.
PRODUCTION, DISTRIBUTION AND FULFILLMENT
The Company's own staff edits the manuscripts of the authors of the books
it publishes. Freelance resources are utilized when workload exceeds in-house
capacity. Outside experts are used when necessary to ensure technical accuracy
of content and compatibility with final published software. The Company employs
state-of-the-art desktop publishing technology to graphically design book
content, create graphics and prepare the typographic layout for the book. Final
electronic files for all text and cover material are delivered to printers for
reproduction via direct line and Internet connection.
Distribution and fulfillment services to both retail and wholesale
customers are outsourced by the Company to two vendors. The Company's contracts
with these vendors expire in September 1999. One of these vendors accounted for
more than 60% of the Company's distribution and fulfillment costs in each of
fiscal 1996 and 1997 and in the six months ended March 31, 1998. It is
anticipated that a single-source vendor will be selected for distribution and
fulfillment services to take advantage of the efficiencies provided by the
Company's new management information system and order entry function.
PRINTING AND RAW MATERIALS
The Company utilizes a number of outside printers to print and bind its
books. Printing prices are negotiated annually with vendors who perform all
printing and binding in their plants. Due to the significant
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<PAGE> 36
increase in printing volume from year-to-year, the Company does not believe it
is strategically beneficial to negotiate multi-year printing contracts.
The Company's principal raw material is paper. The Company purchases paper
as needed from intermediaries representing paper mills and supplies it to its
printers. Paper accounts for approximately 50% of total inventory costs. Prior
to 1996, printers supplied paper to the Company for the books they printed. The
Company currently purchases paper from suppliers as needed and does not maintain
significant inventories of paper. Paper prices have been volatile over the past
several years and are affected by many factors, including demand, mill capacity,
pulp supply, energy, and general economic conditions. In the past, paper has
been difficult to obtain due to industry-wide shortages. Paper supply agreements
are negotiated annually. Paper prices have been volatile over the past several
years. Currently, the Company has quarterly "price protection" (prices cannot be
increased within a quarter after an initial increase) and price caps per
quarter. Significant increases in paper prices could adversely affect the
Company's future financial condition or results of operations. The Company
believes that the existing arrangements providing for the supply of paper are
adequate and that, in any event, alternative sources are available.
INTELLECTUAL PROPERTY
The Company regards its copyrights, trademarks, trade dress, trade secrets
and similar intellectual property rights in general, and its ". . . For
Dummies(R)" related trademarks, logos and trade dress in particular, as critical
to its success. The Company relies on copyright, trademark and trade secrets
laws and licensing and confidentiality agreements to protect its intellectual
property rights.
The Company registers each of its publications with the United States
Copyright Office, and all of the Company's publications are protected by
copyright laws. The Company pursues the registration of its material trademarks
in the United States and, based upon anticipated use, in certain other
countries. Effective trademark, copyright and trade secret protection, however,
may not be available in every country in which the Company's products are
available. Although individual book titles are generally not subject to
trademark protection, the Company has registered trademarks of certain series of
its books, such as ". . . For Dummies(R)", ". . . Simplified(TM)", Teach
Yourself. . . VISUALLY(TM), 3-D Visual(R) and ". . . Secrets(R)" in the United
States and numerous other countries.
The Company has licensed in the past, and it expects that it may license in
the future, elements of its trademarks, trade dress and similar proprietary
rights to third parties, including in connection with the international editions
of the Company's books that may be controlled operationally by third parties.
While the Company attempts to ensure that the quality of its brands is
maintained by such licensees, there can be no assurance that such licensees will
not take actions that might materially and adversely affect the value of the
Company's proprietary rights or the reputation of its products, either of which
could have a material adverse effect on the Company's business. Moreover, while
the Company believes that it has the right to use ". . . For Dummies(R)" and its
other marks in connection with its business and generally to prohibit others
from using such marks in certain fields of use, there can be no assurance that
the Company will be able to maintain such rights.
The Company may be subject to claims of alleged infringement by it or its
licensees of trademarks and other intellectual property rights from time to time
in the ordinary course of business. The Company does not believe there are any
such legal proceedings or claims that are likely to have, individually or in the
aggregate, a material adverse effect on the Company's business, financial
condition or results of operations.
Certain of the trademarks and trade names used by the Company are the
property of and are licensed from IDG. See "Relationship with IDG and Certain
Transactions."
EMPLOYEES AND AUTHORS
As of March 31, 1998, the Company had a total of 436 employees. None of the
Company's employees is represented by a labor union, and the Company has never
experienced a work stoppage. The Company considers its relations with employees
to be good. The Company also relies on a recognized and highly
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<PAGE> 37
respected author list of leading authorities, media celebrities and
computer/Internet experts. The Company generally does not have long-term
contracts with its authors.
COMPETITION
The Company faces competition in each of its areas of publication directly
from other publishers and indirectly from nonprint media and expects that
competition will remain intense in the future.
The Company competes on the basis of editorial quality, timely introduction
of new titles, product positioning, pricing and brand name recognition. In
addition to the Company, Simon & Schuster, Microsoft Press and McGraw-Hill all
share a strong market presence in the United States and internationally in
technology publishing. The principal competitors for the Company's
business/self-help/lifestyle titles include Random House, Simon & Schuster and
HarperCollins. Each of these competitors has substantially greater financial
resources than the Company.
Nonprint media, such as the Internet, CD-ROMs and instructional video
tapes, may also present substantial competition to the Company. If computer
users increase their reliance on instructions and information disseminated
on-line, the Company's business could be adversely affected.
FACILITIES
The Company's headquarters are in Foster City, California, and the Company
has editorial, production and sales offices in Indianapolis, Chicago and New
York. The Company leases all of its offices pursuant to leases terminating in
1998 through 2000. The Company believes that its properties are in good
operating condition and adequately serve the Company's current business
operations. The Company also anticipates that suitable additional or alternative
space, including those under lease options, will be available at commercially
reasonable terms for future expansion.
LEGAL PROCEEDINGS
The Company from time to time is a party to various litigation matters
incidental to the conduct of its business. There is no pending or threatened
legal proceeding to which the Company is a party that, in the opinion of the
Company's management, is likely to have a material adverse effect on the
Company's future financial results.
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<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of May 22, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John J. Kilcullen....... 39 Chairman of the Board of Directors and Chief
Executive Officer
Steven H. Berkowitz..... 39 President and Publisher
John P. Ball............ 51 Executive Vice President, Operations and
Administration, and Secretary
Brenda L. McLaughlin.... 37 Senior Vice President and Group Publisher --
Technology
James A. Doehrman....... 41 Vice President and Chief Financial Officer
Patrick J. McGovern..... 60 Director
James A. Casella........ 49 Director
</TABLE>
John J. Kilcullen. Mr. Kilcullen has served as Chief Executive Officer of
the Company since July 1991 and has been a director of the Company and Chairman
of the Board since March 1998. Prior to that, Mr. Kilcullen served as Vice
President, Sales and Marketing and Publisher of the Company from April 1990 to
July 1991. For the nine years prior to joining the Company, Mr. Kilcullen worked
in various sales and marketing capacities for two publishing industry leaders,
Bantam/Doubleday, Dell, Inc. and Prentice-Hall, and computer book publisher Que
Corporation.
Steven H. Berkowitz. Mr. Berkowitz has served as President and Publisher of
the Company since October 1996. Prior to that, Mr. Berkowitz served as Chief
Operating Officer and Publisher from October 1995 to September 1996, as
Executive Vice President, Worldwide Publishing Operations, from October 1994 to
September 1995, and as Chief Financial Officer and Vice President, Finance, from
June 1994 to October 1994. Prior to joining the Company, Mr. Berkowitz served as
Publisher of MIS:Press and M&T Books, a division of Henry Holt and Company, from
June 1991 to May 1994. Prior to 1991, Mr. Berkowitz worked for eight years at
Macmillan Publishing Company in numerous financial capacities including Vice
President of Finance and Administration during the period 1988 to 1991 and
before joining Macmillan Publishing Company he had three years of finance
experience with Paramount Pictures, Inc.
John P. Ball. Mr. Ball has served as Executive Vice President, Operations
and Administration, of the Company since joining the Company in April 1996 and
as Secretary of the Company since March 1998. Prior to joining the Company, Mr.
Ball acted as an independent publishing and graphic arts consultant from March
1995 to March 1996. From December 1986 to February 1994, Mr. Ball served as
Senior Vice President of Macmillan Publishing Company. Prior to joining
Macmillan Publishing Company, Mr. Ball worked in the publishing industry in a
senior production and manufacturing capacity for over 22 years, including the
last 17 years of the period as Vice President -- Production and Manufacturing
for William Morrow & Company, a leading publisher of trade and reference books.
Brenda L. McLaughlin. Ms. McLaughlin has served as Senior Vice President
and Group Publisher -- Technology, of the Company since joining the Company in
September 1994. Prior to joining the Company, Ms. McLaughlin served as Associate
Publisher of MIS:Press and M&T Books from August 1993 to September 1994. From
August 1989 to July 1993, Ms. McLaughlin served as Acquisitions Editor,
Editor-in-Chief and Associate Publisher of M&T Books. Prior to joining M&T
Books, Ms. McLaughlin worked for five years in various editorial capacities in
the technology magazine businesses of Ziff-Davis, Inc. and McGraw-Hill, Inc.
James A. Doehrman. Mr. Doehrman has served as Vice President and Chief
Financial Officer of the Company since March 1998. Prior to that, Mr. Doehrman
served as Vice President and General Manager, International Division, from July
1997 to March 1998. Prior to joining the Company, Mr. Doehrman served as Vice
President and Business Manager of the Latin American Division of Simon &
Schuster from January
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1996 to April 1997. From October 1993 to January 1996, Mr. Doehrman served as
Vice President and International Controller of Simon & Schuster, Inc. Mr.
Doehrman joined Simon & Schuster, Inc. as Vice President -- Accounting Services
in April 1992. Prior to joining Simon & Schuster, Inc., Mr. Doehrman had four
years of financial experience with Federated Department Stores, Inc., serving as
Operating Vice President -- Capital Control from 1989 to 1992. Prior thereto,
Mr. Doehrman had nine years of financial experience which included seven years
of experience in public accounting with Arthur Andersen & Co.
Patrick J. McGovern. Mr. McGovern has been a director of the Company since
its inception in February 1990. Mr. McGovern is the founder and chairman of the
board of the directors of International Data Group, Inc., the parent company of
the Company. Mr. McGovern has served as the Chairman and Chief Executive Officer
of IDG and its predecessor since February 1964. Mr. McGovern also serves on the
boards of directors of the Massachusetts Institute of Technology, the Magazine
Publishers Association and a number of IDG subsidiaries.
James A. Casella. Mr. Casella has been a director of the Company since May
1998. Mr. Casella has served as the Chief Operating Officer of IDG since March
1995. From March 1992 to March 1995, Mr. Casella served as the President of
Infoworld Media Group, Inc., a subsidiary of IDG. Mr. Casella also serves on the
board of directors of BPA International, a privately-held company.
Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board. There are no family relationships
among any of the directors or executive officers of the Company.
BOARD COMPOSITION
Directors of the Company are currently elected annually by its stockholders
to serve during the ensuing year and until their respective successors are duly
elected and qualified. The Company's Board of Directors is currently set at five
directors and has two vacancies, which the Company's Bylaws authorize the Board
of Directors to fill. The Company intends to appoint two people who are not
officers or employees of the Company or of IDG to the Board of Directors within
90 days after consummation of this offering and is required to do so to maintain
its listing on the Nasdaq National Market.
The Company's Bylaws provide that the authorized number of directors may be
changed by an amendment to the Bylaws adopted by the Board of Directors or by
the stockholders. Vacancies on the Board may be filled either by holders of a
majority of the Company's voting stock or a majority of directors in office,
although less than a quorum.
BOARD COMMITTEES
The Company's Board of Directors currently has no committees. After this
offering, the Board of Directors intends to create an Audit Committee and a
Compensation Committee.
The Audit Committee will be comprised of two independent directors. The
Audit Committee will review and, as it deems appropriate, recommend to the Board
of Directors the internal accounting and financial controls for the Company and
the accounting principles and auditing practices and procedures to be employed
in preparation and review of the financial statements of the Company. The Audit
Committee will also make recommendations to the Board concerning the engagement
of independent public auditors and the scope of the audit to be undertaken by
such auditors.
The Compensation Committee will be comprised of two independent directors.
The Compensation Committee will review and, as it deems appropriate, recommend
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 Committee will
also exercise all authority under the Company's employee equity incentive plans
and advise and consult with the officers of the Company as may be requested
regarding managerial personnel policies.
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DIRECTOR COMPENSATION
Effective upon consummation of this offering, the Company's directors who
are not officers or employees of the Company will be paid an annual retainer of
$10,000 and a fee of $1,000 for each meeting attended of the Board of Directors
or of a committee of the Board. The Company has recently established the 1998
Stock Plan which provides for automatic grants of options to non-employee
directors commencing upon consummation of this offering. See "-- 1998 Stock
Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors does not have, and has not in the past
had, a Compensation Committee. Decisions regarding compensation of officers and
employees of the Company have been made by the full Board of Directors. After
this offering, the Board of Directors intends to appoint a Compensation
Committee comprised of a majority of independent directors. Mr. McGovern, a
director of the Company, is Chairman of the Board of Directors of IDG. In
addition, Mr. Casella, a director of the Company, is an executive officer of
IDG.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
Section 102 of the Delaware General Corporation Law (the "DGCL") authorizes
a Delaware corporation to include a provision in its certificate of
incorporation limiting or eliminating the personal liability of its directors to
the corporation or its stockholders for monetary damages for breach of the
directors' fiduciary duty of care. The duty of care generally requires that,
when acting on behalf of the corporation, directors exercise an informed
business judgment based on all material information reasonably available to
them. Absent the limitations authorized by such provision, directors are
accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care.
Although Section 102 of the DGCL does not change a director's duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Company's Certificate of Incorporation and Bylaws
include provisions which limit or eliminate the personal liability of its
directors to the fullest extent permitted by Section 102 of the DGCL.
Consequently, a director or officer will not be personally liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for:
- any breach of the director's duty of loyalty to the Company 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 purchases, redemptions or
other distributions; and
- any transaction from which the director derived an improper personal
benefit.
The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify to the full extent permitted by law any person made or
threatened to be made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person or such person's testator or intestate is or was a director, officer or
employee of the Company or serves or served at the request of the Company as a
director, officer or employee. The Certificate of Incorporation and Bylaws
provide that expenses, including attorneys' fees, incurred by any such person in
defending any such action, suit or proceeding will be paid or reimbursed by the
Company promptly upon receipt by it of an undertaking of such person to repay
such expenses if it is ultimately determined that such person is not entitled to
be indemnified by the Company.
The Company has entered into agreements to indemnify its directors and
executive officers, in addition to indemnification provided for in the Company's
Certificate of Incorporation and Bylaws. These agreements, among other things,
indemnify the Company's directors and executive officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred by
any such person in any action or proceeding, including any action by or in the
right of the Company, arising out of such person's services as a director or
executive officer of the Company, any subsidiary of the Company or any other
company or enterprise to which the person provides services at the request of
the Company. In addition, the Company intends to obtain directors' and officers'
insurance providing indemnification for certain of the Company's
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<PAGE> 41
directors, officers and employees for certain liabilities. The Company believes
that these indemnification provisions and agreements are necessary to attract
and retain qualified directors and officers.
The limited liability and indemnification provisions in the Company's
Certificate of Incorporation and Bylaws 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 benefit the
Company and its stockholders. Furthermore, a stockholder's investment in the
Company may be adversely affected to the extent the Company pays the costs of
settlement and damage awards against directors and officers of the Company
pursuant to the indemnification agreements and the indemnification provisions in
the Company's Certificate of Incorporation and Bylaws.
At present, there is no pending litigation or proceeding involving any
director, officer or employee of the Company where indemnification is expected
to be required or permitted, and the Company is not aware of any threatened
litigation or proceeding that might result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
to the Company's Chief Executive Officer and the Company's four other most
highly compensated executive officers (collectively, the "Named Executive
Officers") during the Company's fiscal year ended September 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
---------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) AWARDS(1) COMPENSATION($)
--------------------------- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
John J. Kilcullen............................ $260,000 $336,975 $21,000 $559,012(2)
Chief Executive Officer
Steven H. Berkowitz.......................... 200,000 281,358 21,000 88,783(3)
President and Publisher
John P. Ball................................. 175,000 114,775 21,000 --
Executive Vice President, Operations and
Administration, and Secretary
Brenda L. McLaughlin......................... 144,769 66,675 21,000 --
Senior Vice President and Group
Publisher --
Technology
James A. Doehrman............................ 28,558(4) -- 16,773 50,000(5)
Vice President and Chief Financial Officer
</TABLE>
- ---------------
(1) Represents contribution by the Company to its Employee Stock Ownership Plan.
(2) Consists of $468,378 of deferred compensation and $90,634 of relocation
expense reimbursement. The deferred compensation programs pursuant to which
Mr. Kilcullen received such amounts will be terminated at the end of fiscal
1998.
(3) Consists of deferred compensation. The deferred compensation programs
pursuant to which Mr. Berkowitz received such amount will be terminated at
the end of fiscal 1998.
(4) Represents compensation from July to September 1997 based on an annual
salary of $165,000.
(5) Represents Mr. Doehrman's relocation expense allowance.
The Company did not grant stock options to any of the Named Executive
Officers or any other officer or employee during the calendar year ended
December 31, 1997 and no options were exercised during 1997 or outstanding as of
December 31, 1997. In May 1998, the Company granted options to purchase 250,000,
250,000, 100,000, 75,000 and 50,000 shares of Class A common stock at an
exercise price of $11.88 per share to Mr. Kilcullen, Mr. Berkowitz, Mr. Ball,
Ms. McLaughlin and Mr. Doehrman, respectively, under the 1998 Stock Plan. See
"--1998 Stock Plan."
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<PAGE> 42
EMPLOYMENT AGREEMENTS
In July 1998, the Company entered into three-year employment agreements
with each of Messrs. Kilcullen and Berkowitz. Mr. Kilcullen's agreement entitles
him to a base salary of $289,000 per year effective October 1, 1998 and a bonus
if the Company meets certain performance targets. Mr. Kilcullen's agreement also
requires IDG to use its best efforts to elect him as a director of the Company
and requires Mr. Kilcullen to continue to serve as a director without
compensation. Mr. Kilcullen is currently the Chairman of the Company's Board of
Directors. Mr. Berkowitz's agreement entitles him to a base salary of $235,000
per year effective October 1, 1998 and a bonus if the Company meets certain
performance targets.
In addition, each agreement provides certain benefits upon the termination
of the employment of the respective executive. If the Company terminates the
executive without cause (as defined in the agreement), or if the executive
terminates voluntarily for good reason (as defined in the agreement and
including any change in position or responsibilities or any voluntary
termination following a change in control), the executive is entitled to any
accrued but unpaid salary and bonus, plus a year of salary (or, if terminated
within the first year, an amount equal to such executive's salary for the
remainder of the three year term), his maximum target bonus for the fiscal year
in which he leaves (or, if terminated within the first year, an amount equal to
such executive's maximum target bonus for the remainder of the three year term)
and credit for twenty-four additional months of vesting of his options. If
within 12 months after a change in control, the Company terminates the
employment of the executive without cause or the executive terminates
voluntarily for good reason, the executive is entitled to accrued but unpaid
salary and bonus plus an amount equal to two hundred percent of his yearly base
salary and of his maximum target bonus for the fiscal year in which he leaves.
In addition, all of the executive's unvested options shall vest. If the Company
terminates the employment of the executive for cause, or if the executive
terminates voluntarily without good reason, the Company will not be obligated to
pay any termination benefits or accelerate vesting of any of the executive's
options. The employment agreements also include provisions regarding the
protection of confidential information of the Company, non-solicitation of other
employees of the Company and indemnification of the executives by the Company.
In July 1998, the Company entered into compensation agreements with each of
Messrs. Ball and Doehrman and Ms. McLaughlin. Mr. Ball's agreement entitles him
to a base salary of $200,000 per year effective October 1, 1998 and a bonus if
the Company meets certain performance targets. Mr. Doehrman's agreement entitles
him to a base salary of $178,000 per year effective October 1, 1998 and a bonus
if the Company meets certain performance targets. Ms. McLaughlin's agreement
entitles her to a base salary of $178,000 per year effective October 1, 1998 and
a bonus if the Company meets certain performance targets.
In addition, each agreement provides certain benefits upon the termination
of the employment of the respective executive. If the Company terminates the
executive without cause (as defined in the agreement), or if the executive
terminates voluntarily, the executive is entitled to any accrued but unpaid
salary and bonus, plus a year of salary (or, if terminated within the first
year, an amount equal to such executive's salary for the remainder of the three
year term), the maximum target bonus for the fiscal year in which he or she
leaves (or, if terminated within the first year, an amount equal to such
executive's maximum target bonus for the remainder of the three year term) and
credit for twenty-four additional months of vesting of options. If within 12
months after a change in control, the Company terminates the employment of the
executive without cause, the executive is entitled to accrued but unpaid salary
and bonus plus an amount equal to two hundred percent of his or her yearly base
salary and of the maximum target bonus for the fiscal year in which he or she
leaves. In addition, all of the executive's unvested options shall vest. If the
Company terminates the employment of the executive for cause, or if the
executive terminates voluntarily without good reason, the Company will not be
obligated to pay any termination benefits or accelerate vesting of any of the
executive's options. The compensation agreements also include provisions
regarding the protection of confidential information of the Company,
non-solicitation of other employees of the Company and indemnification of the
executives by the Company.
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<PAGE> 43
1998 STOCK PLAN
The Company's 1998 Stock Plan (the "1998 Stock Plan") was approved by the
Board of Directors and the stockholders of the Company in May 1998. The 1998
Stock Plan provides for the grant of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
employees (including officers and employee directors) and for the grant of
nonstatutory stock options and stock purchase rights ("SPRs") to employees,
directors and consultants. A total of 2,850,000 shares of Class A common stock
are currently reserved for issuance pursuant to the 1998 Stock Plan. Unless
terminated sooner, the 1998 Stock Plan will terminate automatically in 2008. On
May 6, 1998, the Company granted options to purchase an aggregate of 1,500,900
shares of Class A common stock at an exercise price of $11.88 per share under
the 1998 Stock Plan.
The 1998 Stock Plan will be administered by the Board of Directors or a
committee of the Board of Directors (as applicable, the "Administrator"). The
Administrator has the power to determine the terms of the options or SPRs
granted, including the exercise price of the option or SPR, the number of shares
subject to each option or SPR, the exercisability thereof, and the form of
consideration payable upon such exercise. In addition, the Administrator has the
authority to amend, suspend or terminate the 1998 Stock Plan, provided that no
such action may affect any share of Class A common stock previously issued and
sold or any option or SPR previously granted under the 1998 Stock Plan.
The exercise price of all incentive stock options granted under the 1998
Stock Plan must be at least equal to the fair market value of the Class A common
stock on the date of grant. The exercise price of nonstatutory stock options and
SPRs granted under the 1998 Stock Plan will be determined by the Administrator,
but with respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the exercise price must at least be equal to the fair market value of the
Class A common stock on the date of grant. With respect to any participant who
owns stock representing more than 10% of the voting power of all classes of the
Company's outstanding capital stock, the exercise price of any incentive or
nonstatutory stock option granted must equal at least 110% of the fair market
value on the grant date and the term of such incentive or nonstatutory stock
option must not exceed five years. The term of all other options granted under
the 1998 Stock Plan may not exceed ten years. Options and SPRs granted under the
1998 Stock Plan are not generally transferable by the optionee, and each option
and SPR is exercisable during the lifetime of the optionee only by such
optionee. Options granted under the 1998 Stock Plan that are vested must
generally be exercised within 30 days after the end of the optionee's status as
an employee, director or consultant of the Company, or within 30 days after such
optionee's termination by death or disability, but in no event later than the
expiration of the option's term.
The 1998 Stock Plan provides that in the event of a merger of the Company
with or into another corporation, or a sale of all or substantially all of the
Company's assets, each option and SPR shall be assumed or an equivalent option
or SPR substituted for by the successor corporation. If the outstanding options
or SPRs are not assumed or substituted for by the successor corporation, the
Administrator, in its discretion, may provide, unless otherwise provided in any
employment, compensation or other agreement with an optionee, for the optionee
to have the right to exercise the option or SPR as to all of the optioned stock,
including shares underlying options or SPRs that would not otherwise be vested
or exercisable.
The 1998 Stock Plan also provides that, upon consummation of this offering,
each director that is not also an officer or employee of the Company (a
"non-employee director") shall be automatically granted an option to purchase
10,000 shares of Class A common stock on the date on which such person first
becomes a non-employee director. Each non-employee director shall also be
automatically granted an option to purchase 5,000 shares on March 1 of each
year, provided he or she is then a non-employee director and, as of such date,
he or she shall have served on the Board of Directors for at least the preceding
six months. Options granted to non-employee directors vest in three annual
installments commencing on the first anniversary of the date of grant and have a
term of ten years. The exercise price of options granted to non-employee
directors shall be 100% of the fair market value per share of the Class A common
stock on the date of grant. The 1998 Stock Plan provides that options issuable
to directors of the Company who are also officers or directors of IDG will, at
the election of IDG, be issued to IDG or an officer, director or employee of IDG
designated by IDG.
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<PAGE> 44
Section 162(m) of the Code may limit the Company's ability to deduct for
United States federal income tax purposes compensation in excess of $1,000,000
paid to the Company's Chief Executive Officer and its four other most highly
compensated executive officers in any one fiscal year. Certain grants of option
or SPRs to employees under the 1998 Stock Plan will not be subject to the
deduction limitation if such grants are approved by stockholders or are provided
for in a plan that has been previously approved by stockholders. In order to
preserve the Company's ability to deduct the compensation associated with
options and SPRs granted to such persons, the 1998 Stock Plan, as approved by
the Company's stockholders, provides that no employee may be granted options and
SPRs to purchase more than 500,000 shares of Class A common stock in any one
fiscal year. Notwithstanding this limit, however, in connection with an
employee's initial employment, he or she may be granted options or SPRs to
purchase up to an additional 500,000 shares of Class A common stock.
EMPLOYEE STOCK PURCHASE PLAN
In May 1998, the Board of Directors adopted the Employee Stock Purchase
Plan (the "Purchase Plan") covering an aggregate of 350,000 shares of Class A
common stock which became effective upon its adoption. The Purchase Plan, which
is intended to qualify as an employee stock purchase plan within the meaning of
Section 423 of the Code, is administered by the Board of Directors or by a
committee appointed by the Board. Employees of the Company are eligible to
participate in the Purchase Plan if they are employed by the Company or a
subsidiary of the Company designated by the Board for at least 20 hours per week
and are customarily employed for more than five months in any calendar year. The
Purchase Plan permits eligible employees to purchase Class A common stock
through payroll deductions, which may not exceed 10% of an employee's
compensation, subject to certain limitations. The Purchase Plan will be
implemented in a series of consecutive offering periods, each of approximately
24 months duration. Offering periods will begin on the first trading day on or
after February 15 and August 15 each year and terminate on the last trading day
in the periods 24 months later. Each participant in the Purchase Plan will be
granted an option on the first day of the offering period and such option will
be automatically exercised on the last date of each offering period. The
purchase price of the Class A common stock under the Purchase Plan will be equal
to 85% of the lesser of the fair market value per share of Class A common stock
on the start date of the offering period or on the last day of the offering
period. Employees may end their participation in the offering at any time during
the offering period, and participation ends automatically on termination of an
employee's employment with the Company. The Purchase Plan will terminate in 2008
unless earlier terminated by the Board of Directors.
EMPLOYEE STOCK OWNERSHIP PLAN
Prior to May 6, 1998, eligible employees of the Company participated in an
employee stock ownership plan of IDG (the "IDG Plan"). On that date, the Company
adopted its own employee stock ownership plan (the "IDG Books Plan") and the
accounts of the active employees of the Company as of that date were transferred
from the IDG Plan to the IDG Books Plan, together with the shares of IDG common
stock held in the IDG Plan that were allocated to the accounts of such Company
employees. In May 1998, the IDG common stock held in the IDG Books Plan was
exchanged for 394,251 shares of Class B common stock of the Company, pursuant to
an appraisal of each class of stock by the financial advisor to the trustee of
the IDG Books Plan. On the effective date of the offering, the IDG Books Plan's
shares of Class B common stock will be transferred to IDG Enterprises, Inc., a
wholly-owned subsidiary of IDG, in return for an equal number of shares of Class
A common stock.
The Company may make future contributions to the IDG Books Plan for the
accounts of Company employees who are then qualified for participation in the
plan, in amounts determined by the Board of Directors from year to year
(subject, however, to certain limits contained in the IDG Books Plan and in the
Code). Contributions are at the discretion of the Board and depend, in part, on
the amount of Company profits during a plan year. Any such contributions may be
made in Class A common stock, or may be made in cash with the intent that the
cash contribution be used to purchase Class A common stock. Benefits from the
IDG Books Plan, in the form of Class A common stock allocated to the account of
a participant, are generally distributable to the participant upon retirement,
disability, death or over a period beginning on termination of employment of the
participant by the Company. The IDG Books Plan provides that employees become
eligible to participate when hired and are vested in their employer-provided
account balances over seven years.
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<PAGE> 45
The IDG Books Plan is intended to qualify as an employee stock ownership plan
under Section 4975(e)(7) of the Code.
The Company's employees presently participate in a Section 401(k) plan of
IDG. After the offering, the Company expects to amend and restate the IDG Books
Plan to provide participants with the benefits of Section 401(k) of the Code, by
permitting them to make elective contributions to the IDG Books Plan. On October
1, 1998, the Company intends to have the accounts of its employees transferred
from the IDG 401(k) plan to the IDG Books Plan, as so amended and restated.
Thereafter, an eligible participating employee may make elective cash
contributions to the IDG Books Plan in the amount of a maximum of 8% of his or
her compensation (as defined in the IDG Books Plan) for any plan year (the
12-month period ending September 30 of each year), but not to exceed $10,000
(subject to adjustment each year based on cost of living adjustments determined
by the Internal Revenue Service) for any calendar year. The Company expects to
match employee contributions to the IDG Books Plan. The percentage of the match
will be set by the Company's Board of Directors each plan year, and the matching
contribution may, at the discretion of the Board, be made in cash or in Class A
common stock.
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RELATIONSHIP WITH IDG AND CERTAIN TRANSACTIONS
PRINCIPAL STOCKHOLDER; CONTROL OF THE COMPANY
The Company is a wholly-owned subsidiary of IDG Enterprises, Inc., a
Delaware corporation and wholly-owned subsidiary of IDG Holdings, Inc., a
Delaware corporation. IDG Holdings, Inc. is a wholly-owned subsidiary of
International Data Group, Inc., a Massachusetts corporation ("IDG"), the
majority of the capital stock of which is owned by Mr. Patrick J. McGovern, its
founder and chairman of the board of directors and a director of the Company.
Upon completion of this offering, IDG, through its subsidiaries, will own
10,505,749 shares of the Class A common stock and all of the 200,000 shares of
Class B common stock, together representing 77.77% of the voting power of the
Company, and the public will own 3,180,000 shares of Class A common stock,
representing 19.78% of the voting power of the Company.
As a result of its ownership of Class A common stock and Class B common
stock, IDG will be able to influence significantly matters affecting the Company
and will be in a position to control all actions that require the approval of a
majority of the voting share capital of the Company, including amendments to the
Company's Certificate of Incorporation and any business combinations, and to
direct the election of all members of the Board of Directors. Nonetheless,
Delaware law requires that the members of the Board of Directors and officers
owe a fiduciary duty to the Company regardless of conflicting interests of any
other entity with which they may be affiliated.
INTERCOMPANY AGREEMENTS
In connection with the offering, the Company and IDG have entered into
certain agreements for the purpose of defining their ongoing relationship. These
agreements were developed in the context of a parent/subsidiary relationship and
therefore are not the result of arms-length negotiations between independent
parties. Although there can be no assurance that these agreements or the
transactions contemplated by these agreements have been effected on terms at
least as favorable to the Company as could have been obtained from unaffiliated
third parties, the Company believes that such agreements taken as a whole are
fair to both parties and that the amount of the expenses contemplated by the
agreements would not be materially different if the Company operated on a
stand-alone basis.
Corporate Services Agreement. The Company and IDG have entered into a
Corporate Services Agreement (the "Corporate Services Agreement") pursuant to
which IDG will provide certain administrative services to the Company following
the offering. Pursuant to the agreement, IDG will provide tax services,
accounting, insurance, employee benefits, corporate record keeping, payroll and
trademark maintenance services to the Company. The initial monthly fee under the
Corporate Services Agreement is $44,000. After an initial period of service, the
Company will be entitled to have these services provided on a monthly basis at
the same monthly fee. In addition, the Company may request certain additional
services, including legal, corporate development and public relations services,
to be provided from time-to-time in the future.
The Corporate Services Agreement may be terminated by either the Company on
90 days notice or may be terminated by IDG when it ceases to own a majority of
the outstanding voting stock of the Company. There can be no assurance that, if
required, the Company will be able to secure the provision of these services
from others on acceptable terms. If the Company is unsuccessful in obtaining
acceptable provision of services upon termination of the transitional service
agreements, its future financial performance could be adversely affected.
Registration Rights Agreement. The Company and IDG Enterprises, Inc., an
indirect wholly-owned subsidiary of IDG, have entered into a Registration Rights
Agreement (the "Registration Rights Agreement") in connection with the offering.
The Registration Rights Agreement entitles IDG Enterprises, Inc. to include its
shares of common stock of the Company in any future registration of common stock
made by the Company. The Company has agreed pursuant to the terms of the
Registration Rights Agreement to pay all costs and expenses, other than
underwriting discounts and commissions related to shares to be sold by IDG
Enterprises, Inc. and expenses of legal counsel for IDG Enterprises, Inc., in
connection with any such registration.
Trademark License Agreement. In connection with the offering, IDG will
transfer to the Company certain trademarks owned by IDG that relate to
publications and products of the Company. The Company agreed to pay all costs,
consisting primarily of required filing fees, in connection with such transfer.
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<PAGE> 47
In addition, the Company and IDG have entered into a Trademark License
Agreement (the "Trademark License Agreement") pursuant to which IDG has granted
to the Company a royalty-free license to use certain trademarks in conjunction
with publications and products currently produced and held by the Company.
Currently all of the Company's publications use trademarks covered by the
Trademark License Agreement. These trademarks generally include references to
"IDG," but do not include the ". . . For Dummies" trademark or the names of the
Company's other publications, which are owned by the Company. The Trademark
License Agreement provides that if IDG's voting interest in the Company is
reduced to less than 30%, the parties will negotiate in good faith to reach an
agreement providing for the continued use of the trademarks, including the IDG
Books mark. If the parties were unable to reach such an agreement, the Company
would be required to cease using marks covered by the Trademark License
Agreement. The license also may be terminated by IDG upon a breach of the
Trademark License Agreement or the insolvency of the Company. The Company does
not believe that the termination of the Trademark License Agreement would have a
material adverse impact on its business, financial position or results of
operations.
Noncompetition Agreement. In connection with the offering, IDG has agreed
that, until the earlier of five years after the offering or such time as IDG
ceases to own at least a majority of the voting power of the Company, it will
not, directly or indirectly, as a partner, stockholder, investor or otherwise,
own a majority share or be responsible for the management of any corporation or
other entity the business objectives or activities of which are carried on
anywhere in the world and consist primarily of book publishing.
Tax Allocation Agreement. IDG and the Company have entered into a Tax
Allocation Agreement (the "Tax Allocation Agreement") that will provide for the
allocation between IDG and the Company of all responsibilities, liabilities and
benefits relating to taxes paid or payable by either IDG or the Company for all
taxable periods, whether beginning before, on, or after this offering. Prior to
the consummation of this offering, the Company has been included in the
consolidated tax returns of IDG. The Company intends to pay to IDG, in cash, its
share of IDG's consolidated income tax liability for the period from October 1,
1997 through the date on which IDG owns less than 80% of the Company (which will
occur upon the consummation of this offering). For the post-offering period, the
Company will file its own federal and most state income tax returns.
SHARE EXCHANGE AGREEMENT
Employees of the Company were historically covered by the IDG Employee
Stock Ownership Plan (the "IDG ESOP"), pursuant to which their accounts were
invested primarily in common stock of IDG. The IDG Books Plan was adopted
effective May 6, 1998 with respect to the eligible employees of the Company as
of October 1, 1997. Participants in the IDG ESOP who were then employees of the
Company then became participants in the IDG Plan.
As of May 21, 1998, the accounts of the employees of the Company and the
shares of common stock of IDG attributable to such accounts were transferred
from the IDG ESOP to the IDG Books Plan. As of May 21, 1998 all of the common
stock of IDG held by the IDG Books Plan was exchanged for an aggregate of
394,251 shares of Class B common stock of the Company on behalf of employees of
the Company pursuant to the terms of a Share Exchange Agreement among the
Company, IDG and a subsidiary of IDG. In connection with the exchange of the
shares of common stock of IDG for shares of Class B common stock of the Company,
the trustee of the IDG Books Plan received an opinion of an independent
valuation firm to the effect that the consideration to be received by the IDG
Books Plan in exchange for the IDG shares was no less than the fair market
value, within the meaning of ERISA, of such IDG shares, and that the exchange
was fair to the IDG Books Plan from a financial point of view. In connection
with the offering, 194,251 shares of the Company's Class B common stock held by
the IDG Books Plan will be transferred to IDG Enterprises, Inc. in exchange for
an equal number of shares of the Company's Class A common stock held by IDG
Enterprises, Inc. and will be immediately converted into 194,251 shares of Class
A common stock. Subsequently, the remaining 200,000 shares of Class B common
stock held by the IDG Books Plan will be transferred to IDG Enterprises, Inc. in
exchange for an equal number of the Company's Class A common stock held by IDG
Enterprises, Inc. The Company may be obligated in certain circumstances to
repurchase shares from the IDG Books Plan or register shares for resale under
the federal securities laws.
PRE-OFFERING DIVIDEND
In May 1998, the Company paid a $38.4 million dividend to IDG in the form
of a promissory note which will be paid out of the proceeds of the offering. See
"Use of Proceeds."
46
<PAGE> 48
PRINCIPAL STOCKHOLDERS
The Company is a wholly-owned subsidiary of IDG Enterprises, Inc., a
Delaware corporation and wholly-owned subsidiary of IDG Holdings, Inc., a
Delaware corporation. IDG Holdings, Inc. is a wholly-owned subsidiary of
International Data Group, Inc., a Massachusetts corporation, a majority of the
capital stock of which is owned by Mr. Patrick J. McGovern, its founder and
chairman of the board of directors and a director of the Company. IDG's address
is One Exeter Plaza, Boston, Massachusetts 02116. The following table sets
forth, as of March 31, 1998, the beneficial ownership of the Company's common
stock by the Company's principal stockholder, each of the Named Executive
Officers, each of the Company's directors and by all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
CLASS B
COMMON
CLASS A COMMON STOCK STOCK COMMON STOCK
---------------------------------- ------------ -------------------
PERCENT OF PERCENT OF TOTAL
OWNERSHIP VOTING POWER
SHARES ------------------- SHARES -------------------
BENEFICIALLY BEFORE AFTER BENEFICIALLY BEFORE AFTER
NAME OWNED(1) OFFERING OFFERING OWNED(1) OFFERING OFFERING
---- ------------ -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
IDG Enterprises, Inc.(2)..................... 10,505,749 96.38% 74.61% 200,000 96.94% 77.77%
John J. Kilcullen............................ -- -- -- -- -- --
Steven H. Berkowitz.......................... -- -- -- -- -- --
John P. Ball................................. -- -- -- -- -- --
Brenda L. McLaughlin......................... -- -- -- -- -- --
James A. Doehrman............................ -- -- -- -- -- --
Patrick J. McGovern(3)....................... 10,505,749 96.38 74.61 200,000 96.94 77.77
James A. Casella............................. -- -- -- -- -- --
All executive officers and directors as a
group (7 persons)(3)....................... 10,505,749 96.38 74.61 200,000 96.94 77.77
</TABLE>
- ---------------
(1) The number and percentage of shares beneficially owned are based on
11,100,000 shares of common stock outstanding as of March 31, 1998.
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. Shares of Class A
common stock subject to options that are currently exercisable or
exercisable within 60 days of March 31, 1998 are deemed to be outstanding
and beneficially owned by the person holding such options for the purpose of
computing the number of shares beneficially owned and the percentage
ownership of such person, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. Except as
indicated in the footnotes to this table, and subject to applicable
community property laws, such persons have sole voting and investment power
with respect to all shares of the Company's common stock shown as
beneficially owned by them.
(2) Gives effect to the exchange by IDG Enterprises, Inc. at the time of the
offering of (i) 194,251 shares of Class A common stock held by it for an
equal number of shares of Class B common stock held by the IDG Books Plan,
which Class B common stock will be immediately converted by IDG Enterprises,
Inc. into 194,251 shares of Class A common stock, and (ii) 200,000 shares of
Class A common stock held by it for an equal number of shares of Class B
common stock held by the IDG Books Plan.
(3) Represents shares of Class A common stock and Class B common stock owned by
IDG Enterprises, Inc., an indirect, wholly-owned subsidiary of International
Data Group, Inc. of which Mr. McGovern is chairman of the board of directors
and of which Mr. McGovern owns a majority of the issued and outstanding
capital stock.
As a result of its ownership of common stock, IDG will be able to influence
significantly matters affecting the Company and will be in a position to direct
the election of all members of the Board of Directors and to control all actions
that require the approval of a majority of the voting share capital of the
Company, including amendments to the Company's Certificate of Incorporation and
any business combinations. See "Risk Factors -- Control by IDG; Potential
Conflicts of Interest; Benefits to IDG; Potential Competition with IDG" and
"Description of Capital Stock -- Certain Provisions of the Company's Certificate
of Incorporation and Bylaws."
47
<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Company's capital stock
describes all material provisions of the Company's Certificate of Incorporation
and Bylaws. This summary, however, does not purport to be complete and is
subject to, and qualified in its entirety by, the Certificate of Incorporation
and Bylaws, copies of which have been filed as exhibits to the Registration
Statement of which this prospectus is a part and by the provisions of applicable
law.
GENERAL
The authorized capital stock of the Company is 25,400,000 shares of common
stock, par value $0.001 per share, consisting of 25,000,000 shares of Class A
common stock and 400,000 shares of Class B common stock. Upon consummation of
this offering, 14,280,000 shares of common stock will be issued and outstanding,
consisting of 14,080,000 shares of Class A common stock and 200,000 shares of
Class B common stock.
COMMON STOCK
The shares of Class A common stock and Class B common stock are identical
in all respects, except for voting rights and certain conversion rights, as
described below.
Voting Rights. Each holder of Class A common stock outstanding is entitled
to one vote per share on all matters submitted to a vote of the Company's
stockholders, including the election of directors, and each share of Class B
common stock entitles the holder to ten votes on each such matter. Except as
required by applicable law, holders of the Class A common stock and Class B
common stock vote together as a single class on all matters submitted to a vote
of the stockholders of the Company. There is no cumulative voting in the
election of directors. See "Risk Factors -- Control by IDG; Potential Conflicts
of Interest; Benefits to IDG; Potential Competition with IDG"; "-- Certain
Anti-Takeover Effects of Delaware Law" and "-- Certain Provisions of the
Company's Certificate of Incorporation and Bylaws."
Any action that may be taken at a meeting of the stockholders may be taken
by written consent in lieu of a meeting if the Company receives consents signed
by stockholders having the minimum number of votes that would be necessary to
approve the action at a meeting at which all shares entitled to vote on the
matter were present and voted. This could permit IDG to take action regarding
certain matters without providing other stockholders the opportunity to voice
dissenting views or raise other matters.
Dividends, Distributions and Stock Splits. Holders of Class A common stock
and Class B common stock are entitled to receive dividends out of assets legally
available therefor at the same rate, at such time and in such amounts as the
Board of Directors may from time to time determine. See "Dividend Policy."
In the case of dividends or distributions payable in Class A common stock
or Class B common stock, only shares of Class A common stock will be distributed
with respect to the Class A common stock and only shares of Class B common stock
will be distributed with respect to the Class B common stock. In the case of
dividends or other distributions consisting of other voting shares of the
Company, the Company will declare and pay such dividends in two separate classes
of such voting securities, identical in all respects, except that the voting
rights of each such security paid to the holders of the Class A common stock
shall be one-tenth of the voting rights of each such security paid to the
holders of Class B common stock, and such security paid to the holders of Class
B common stock shall convert into the security paid to the holders of the Class
A common stock upon the same terms and conditions applicable to the Class B
common stock. In the case of dividends or other distributions consisting of
nonvoting securities convertible into, or exchangeable for, voting securities of
the Company, the Company will provide that such convertible or exchangeable
securities and the underlying securities be identical in all respects, except
that the voting rights of each security underlying the convertible or
exchangeable security paid to the holders of the Class A common stock shall be
one-tenth of the voting rights of each security underlying the convertible or
exchangeable security paid to the holders of Class B common stock, and such
underlying securities paid to the holders of Class B common stock shall convert
into the security paid to the holders of the Class A common stock upon the same
terms and conditions applicable to the conversion of Class B common stock into
Class A common stock.
48
<PAGE> 50
Neither the Class A common stock nor the Class B common stock may be
subdivided or combined in any manner unless the other class is subdivided or
combined in the same proportion.
Conversion. The shares of Class A common stock are not convertible.
The Class B common stock is convertible into Class A common stock, in whole
or in part, at any time and from time to time at the option of the holder, on
the basis of one share of Class A common stock for each share of Class B common
stock converted. Each share of Class B common stock will also automatically
convert into one share of Class A common stock upon the sale or transfer of such
share of Class B common stock by the initial holder thereof, other than to a
person or entity controlling, controlled by or under common control with the
initial holder or a qualified employee stock ownership plan. The holders of
Class B common stock shall have, upon conversion of their shares of Class B
common stock into Class A common stock, one vote per share of Class A common
stock held on all matters submitted to a vote of the Company's stockholders.
Liquidation. In the event of any dissolution, liquidation, or winding up of
the affairs of the Company, whether voluntary or involuntary, after payment of
the debts and other liabilities of the Company, the remaining assets of the
Company will be distributed ratably among the holders of the Class A common
stock and the Class B common stock, treated as a single class.
Mergers and Other Business Combinations. Upon a merger, combination, or
other similar transaction of the Company in which shares of common stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, holders of the Class A common stock and Class B common stock will be
entitled to receive an equal per share amount of stock, securities, cash, and/or
any other property, as the case may be, into which or for which each share of
any other class of common stock is exchanged or changed; provided that in any
transaction in which shares of capital stock are distributed, such shares so
exchanged for or changed into may differ as to voting rights and certain
conversion rights to the extent and only to the extent that the voting rights
and certain conversion rights of Class A common stock and Class B common stock
differ at that time.
Other Provisions. The holders of the Class A common stock and Class B
common stock are not entitled to preemptive rights. There are no redemption
provisions or sinking fund provisions applicable to the Class A common stock or
the Class B common stock.
All shares of Class A common stock and Class B common stock outstanding are
fully paid and nonassessable, and all of the shares of Class A common stock and
Class B common stock to be outstanding upon completion of this offering will be
fully paid and nonassessable.
CERTAIN ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
Following consummation of this offering, the Company will be subject to the
"business combination" provisions of Section 203 of the DGCL. In general, such
provisions prohibit a publicly held Delaware corporation from engaging in
various "business combination" transactions with any interested stockholder for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless
- the transaction is approved by the board of directors prior to the date
the interested stockholder obtained such status;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the stockholder owned at least 85% of
the shares of stock entitled to vote generally in the election of
directors (the "voting stock") of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (a) persons who are
directors and also officers and (b) employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
49
<PAGE> 51
- on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested
stockholder. A "business combination" is defined to include mergers,
asset sales and other transactions resulting in financial benefit to a
stockholder. In general, an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did
own) 15% or more of a corporation's voting stock. The statute could
prohibit or delay mergers or other takeover or change in control attempts
with respect to the Company and, accordingly, may discourage attempts to
acquire the Company even though such a transaction may offer the
Company's stockholders the opportunity to sell their stock at a price
above the prevailing market price.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Certificate of Incorporation and Bylaws provide that any
action required or permitted to be taken by the stockholders of the Company may
be effected at a duly called annual or special meeting of the stockholders or
may be taken by a consent in writing by stockholders. The Company's Bylaws also
provide that special meetings of the stockholders of the Company may be called
by the Board of Directors, the Chairman of the Board, the Chief Executive
Officer of the Company or by any person or persons holding shares representing
at least 20% of the voting power of the outstanding capital stock. The Company's
Bylaws require advance written notice by a stockholder of a proposal or director
nomination which such stockholder desires to present at an annual or special
meeting of stockholders. No business other than that stated in the notice shall
be transacted at any special meeting. As a result of these provisions, IDG, as
holder of 74.61% of the Company's Class A common stock and all of the shares of
Class B common stock, together representing 77.77% of the voting power of the
Company after the offering, will be able to take any action to be taken by
stockholders without the necessity of holding a stockholder meeting and will be
able to call a special meeting of stockholders to consider certain corporate
actions.
The Company's Bylaws also provide that unanimous board approval, including
the approval of all non-employee directors and directors selected by IDG, will
be required to approve the incurrence of indebtedness by the Company in an
aggregate amount that exceeds five times the Company's EBITDA in its most
recently completed fiscal year.
Amendments to certain provisions of the Company's Bylaws, including those
provisions relating to stockholder action by written consent, the ability of
stockholders to call a special meeting and the requirement of unanimous board
approval for certain borrowings, require the approval of stockholders holding a
majority of the voting power of the outstanding common stock.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation limits the liability of
directors to the fullest extent permitted by the DGCL. In addition, the
Certificate of Incorporation and Bylaws provide that the Company shall indemnify
directors and officers of the Company to the fullest extent permitted by
Delaware law. The Company has entered into separate indemnification agreements
with its directors and executive officers which provide such persons
indemnification protection in the event the Certificate of Incorporation is
subsequently amended. See "Management -- Limitation on Liability and
Indemnification Matters."
TRANSFER AGENT AND REGISTRAR
BankBoston, N.A. has been appointed as transfer agent and registrar for the
Company's Class A common stock.
LISTING
The Class A common stock has been approved for quotation on the Nasdaq
National Market under the symbol "IDGB," subject to official notice of issuance.
50
<PAGE> 52
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common
stock of the Company. The Company cannot predict the effect, if any, that sales
of shares of the Class A common stock to the public or the availability of
shares for sale to the public will have on the market price of the Class A
common stock prevailing from time to time. Nevertheless, sales of a significant
number of shares of Class A common stock in the public market, or the perception
that such sales may occur, could adversely affect the prevailing market price of
the Class A common stock.
Upon consummation of this offering, the Company will have 14,080,000 shares
of Class A common stock outstanding (14,557,000 shares if the underwriters'
over-allotment is exercised in full) and 200,000 shares of Class B common stock
outstanding. Of the shares outstanding after the offering, the 3,180,000 shares
of Class A common stock sold in the offering will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the "Securities Act"),
except for any such shares which may be acquired by an "affiliate" of the
Company, which shares will be subject to the volume limitations of Rule 144
under the Securities Act. As defined in Rule 144, an "affiliate" of an issuer is
a person who, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, such issuer. The
remaining 11,100,000 shares of Class A common stock and Class B common stock,
10,705,749 of which immediately after this offering will be owned by a
subsidiary of IDG, will be "restricted securities" (as that phrase is defined in
Rule 144) and may not be resold in the absence of registration under the
Securities Act or pursuant to an exemption from such registration, including the
exemption provided by Rule 144 under the Securities Act.
Subject to the foregoing and to the lock-up agreements described below,
under Rule 144 as currently in effect, beginning 180 days after the date of this
prospectus, IDG will be entitled to sell a number of shares of common stock
within any three-month period equal to the greater of 1% of the then outstanding
shares of the common stock (approximately 142,800 shares immediately after the
offering) or the average weekly reported volume of trading of the common stock
on the Nasdaq National Market during the four calendar weeks preceding such
sale, provided that certain manner of sale and notice requirements and
requirements as to the availability of current public information concerning the
Company are satisfied.
Immediately after the offering, there will be options to purchase
approximately 1,500,900 shares of Class A common stock outstanding. Subject to
the provisions of the lock-up agreements described below, holders of these
options may rely on the resale provisions of Rule 701 under the Securities Act,
which permits nonaffiliates to sell their shares without having to comply with
the current public information, holding period, volume limitation or notice
provisions of Rule 144 and permits affiliates to sell their shares without
having to comply with the holding period provision of Rule 144, in each case
beginning 90 days after the consummation of this offering. In addition,
immediately after this offering, the Company intends to file a registration
statement on Form S-8 covering all options granted under the 1998 Stock Plan.
Shares of Class A common stock registered under such registration statement
will, subject to Rule 144 volume limitations applicable to affiliates, be
available for sale in the open market, unless such shares are subject to vesting
restriction with the Company or the lock-up agreements described below. See
"Management -- 1998 Stock Plan."
The Company and IDG have entered into a Registration Rights Agreement in
connection with the offering which provides IDG with the right, subject to
certain exceptions, to include its common stock in any registration of common
stock made by the Company for its own account or for the account of other
stockholders of the Company. The Company does not currently have any other
registration rights outstanding. See "Relationship with IDG and Certain
Transactions."
Notwithstanding the foregoing, in connection with this offering, each of
the Company, IDG and the Company's directors and officers has agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the underwriters, during the period ending 180 days after the date of this
prospectus, it will not, directly or indirectly:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
51
<PAGE> 53
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock (whether
such shares or any such securities are then owned by such person or are
thereafter acquired directly from the Company); or
- enter into any swap or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of the common stock.
The above 180-day restriction does not apply, however, to the following:
- the sale to the underwriters of the shares of common stock under the
underwriting agreement (as described below);
- the issuance by the Company of shares of common stock upon the exercise
of an option or warrant or the conversion of any security outstanding on
the date of this prospectus of which the underwriters have been advised
in writing; or
- transactions by any person other than the Company relating to shares of
common stock or other securities acquired in open market transactions
after completion of the offering of the shares of common stock. See
"Underwriters."
52
<PAGE> 54
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date hereof (the "underwriting agreement"), the underwriters
named below, for whom Morgan Stanley & Co. Incorporated, Goldman, Sachs & Co.
and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as
representatives, have severally agreed to purchase, and the Company has agreed
to sell to them, severally, the respective number of shares of Class A common
stock set forth opposite the names of such underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Goldman, Sachs & Co.........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
--------
Total............................................. 3,180,000
========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from the Company and subject to prior sale. The underwriting agreement
provides that the obligations of the several underwriters to pay for and accept
delivery of the shares of Class A common stock offered hereby are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The underwriters are obligated to take and pay for all of the shares
of Class A common stock offered hereby (other than those covered by the over-
allotment option described below) if any such shares are taken.
The underwriters initially propose to offer part of the shares of Class A
common stock directly to the public at the public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other underwriters or to certain other dealers. After the
initial offering of the shares of Class A common stock, the offering price and
other selling terms may from time to time be varied by the representatives of
the underwriters.
Pursuant to the underwriting agreement, the Company has granted to the
underwriters an option, exercisable for 30 days from the date of this
prospectus, to purchase up to an aggregate of 477,000 additional shares of Class
A common stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares of Class A common stock offered
hereby. To the extent such option is exercised, each underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Class A common stock as the number set
forth next to such underwriter's name in the preceding table bears to the total
number of shares of Class A common stock set forth next to the names of all
underwriters in the preceding table.
At the request of the Company, the underwriters have reserved up to 159,000
shares of Class A common stock to be issued by the Company and offered hereby
for sale, at the initial public offering price, to directors, officers,
employees, business associates and related persons of the Company. The number of
shares of Class A common stock available for sale to the general public will be
reduced to the extent such individuals purchase such reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered hereby.
Each of the Company, IDG and the Company's directors and officers has
agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, during the period ending 180 days
after the date of this prospectus, it will not, directly or indirectly (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Class A common stock or any securities convertible into or exercisable
or exchangeable for Class A common stock (whether such shares or any such
securities are then owned by such person or are thereafter acquired directly
53
<PAGE> 55
from the Company), or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of Class A common stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Class A common stock or
such other securities, in cash or otherwise. The restrictions described in this
paragraph do not apply to (a) the sale to the underwriters of the shares of
Class A common stock under the underwriting agreement, (b) the issuance by the
Company of shares of Class A common stock upon the exercise of an option or a
warrant or the conversion of a security outstanding on the date of this
prospectus of which the underwriters have been advised in writing, or (c)
transactions by any person other than the Company relating to shares of Class A
common stock or other securities acquired in open market transactions after the
completion of the offering of the shares of Class A common stock.
The underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Class A common stock offered by them.
The Class A common stock has been approved for quotation on the Nasdaq
National Market under the symbol "IDGB," subject to official notice of issuance.
In order to facilitate the offering of the Class A common stock, the
underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Class A common stock. Specifically, the underwriters may
over-allot in connection with the offering, creating a short position in the
Class A common stock for their own account. In addition, to cover
over-allotments or to stabilize the price of the Class A common stock, the
underwriters may bid for, and purchase, shares of Class A common stock in the
open market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an underwriter or a dealer for distributing the Class A common stock
in the offering if the syndicate repurchases previously distributed shares of
Class A common stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Class A common stock above independent
market levels. The underwriters are not required to engage in these activities
and may end any of these activities at any time.
The Company and the underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
Certain of the underwriters have in the past performed various banking
services for IDG, for which such underwriters received customary compensation.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares of
Class A common stock. Consequently, the initial public offering price for the
shares of Class A common stock will be determined by negotiations between the
Company and the representatives of the underwriters. Among the factors to be
considered in determining the initial public offering price will be the
Company's record of operations, the Company's current financial position and
future prospects, the experience of its management, the economics of the
publishing industry in general, the general condition of the equity securities
markets, sales, earnings and certain other financial and operating information
of the Company in recent periods, the price-earnings ratios, price-sales ratios,
market prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. The estimated
initial public offering price range set forth on the cover page of this
prospectus is subject to change as a result of market conditions and other
factors.
LEGAL MATTERS
The validity of the issuance of the shares of Class A common stock offered
hereby will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Davis
Polk & Wardwell, New York, New York.
54
<PAGE> 56
EXPERTS
The financial statements of the Company as of September 30, 1997 and 1996,
and for each of the three years in the period ended September 30, 1997 included
in this prospectus and the related financial statement schedule included
elsewhere in the registration statement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein and
elsewhere in the registration statement, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a registration statement on Form S-1 under the Securities Act,
and the rules and regulations promulgated thereunder, with respect to the Class
A common stock offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto. Statements
contained in this prospectus as to the contents of any contract or other
document that is filed as an exhibit to the registration statement are not
necessarily complete and each such statement is qualified in all respects by
reference to the full text of such contract or document. For further information
with respect to the Company and the Class A common stock, reference is hereby
made to the registration statement and the exhibits and schedules thereto, which
may be inspected and copied at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies of all or any part thereof may be obtained at
prescribed rates from the Commission's Public Reference Section at such
addresses. Also, the Commission maintains a World Wide Web site on the Internet
at http://www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. Upon approval of the Class A common stock for quotation on the
Nasdaq National Market, such reports, proxy and information statements and other
information also can be inspected at the office of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
Upon completion of this offering, the Company will become subject to the
information and periodic reporting requirements of the Securities and Exchange
Act, as amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the Commission. Such periodic reports,
proxy statements and other information will be available for inspection and
copying at the regional offices, public reference facilities and Web site of the
Commission referred to above.
55
<PAGE> 57
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of September 30, 1996 and 1997 and
(Unaudited) March 31, 1998............................. F-3
Statements of Income for the Years Ended September 30,
1995, 1996 and 1997 and (Unaudited) the Six Months
Ended March 31, 1997 and March 31, 1998................ F-4
Statements of Stockholder's Equity for the Years Ended
September 30, 1995, 1996 and 1997 and (Unaudited) the
Six Months Ended March 31, 1998........................ F-5
Statements of Cash Flows for the Years Ended September 30,
1995, 1996 and 1997 and (Unaudited) the Six Months
Ended March 31, 1997 and March 31, 1998................ F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 58
INDEPENDENT AUDITORS' REPORT
IDG Books Worldwide, Inc.:
We have audited the accompanying balance sheets of IDG Books Worldwide,
Inc., an indirect subsidiary of International Data Group, Inc., as of September
30, 1996 and 1997, and the related statements of income, stockholder's equity,
and cash flows for the each of the three years in the period ended September 30,
1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of IDG Books Worldwide, Inc. at September 30,
1996 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended September 30, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
March 31, 1998
(May 6, 1998 as to the twelfth paragraph of Note 2,
May 22, 1998 as to Note 8 and
June 1, 1998 as to the last paragraph of Note 9)
San Jose, California
F-2
<PAGE> 59
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30, SEPTEMBER 30, MARCH 31, MARCH 31,
1996 1997 1998 1998
------------- ------------- ----------- -----------
(UNAUDITED)
(UNAUDITED) (NOTE 2)
<S> <C> <C> <C> <C>
Current Assets:
Cash................................... $ 83 $ 74 $ 46 $ 46
Accounts receivable -- net............. 20,915 26,561 33,553 33,553
Inventory -- net....................... 6,119 7,927 8,735 8,735
Other current assets................... 446 6 598 598
Deferred tax assets.................... 10,860 14,860 18,517 18,517
------- ------- ------- -------
Total current assets........... 38,423 49,428 61,449 61,449
Royalty Advances -- net.................. 2,139 3,078 3,736 3,736
Property and Equipment -- net............ 3,074 4,657 4,670 4,670
Publishing Rights (Note 11) -- net....... 3,833 3,833
------- ------- ------- -------
TOTAL.......................... $43,636 $57,163 $73,688 $73,688
======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable....................... $ 2,960 $ 3,128 $ 4,697 $ 4,697
Accrued liabilities.................... 16,685 27,592 31,727 31,727
Note payable to Parent (Note 2)........ 38,400
------- ------- ------- -------
Total current liabilities...... 19,645 30,720 36,424 74,824
------- ------- ------- -------
Commitments and Contingencies (Note 10)
Stockholder's Equity (Deficit):
Preferred stock, $.001 par value;
authorized: 5,000,000
shares -- actual; issued and
outstanding: 0 shares -- actual and
pro forma...........................
Common stock, $.001 par value;
authorized: 25,000,000
shares -- actual, 25,000,000 Class A
shares and 400,000 Class B
shares -- pro forma; issued and
outstanding: 11,100,00
shares -- actual, 10,900,000 shares
Class A and 200,000 shares Class
B -- pro forma...................... 11 11 11 11
Retained earnings (deficit)............ 23,729 30,764 37,634 (766)
Advances due to (from) Parent.......... 251 (4,332) (381) (381)
------- ------- ------- -------
Total stockholder's equity
(deficit).................... 23,991 26,443 37,264 (1,136)
------- ------- ------- -------
Total.......................... $43,636 $57,163 $73,688 $73,688
======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-3
<PAGE> 60
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Net sales................................. $69,712 $93,435 $116,488 $60,561 $69,583
Licensing revenues and other.............. 2,811 4,412 4,200 1,903 2,333
------- ------- -------- ------- -------
Net revenue............................ 72,523 97,847 120,688 62,464 71,916
------- ------- -------- ------- -------
Operating Costs and Expenses:
Cost of sales............................. 40,598 55,703 63,064 32,075 37,856
Selling, general and administrative....... 19,573 28,369 42,032 20,218 21,240
Parent corporate services fee............. 1,464 2,779 3,669 1,836 1,175
------- ------- -------- ------- -------
Total operating costs and
expenses........................ 61,635 86,851 108,765 54,129 60,271
------- ------- -------- ------- -------
Income Before Provision for Income Taxes.... 10,888 10,996 11,923 8,335 11,645
Provision for Income Taxes.................. 4,522 4,508 4,888 3,348 4,775
------- ------- -------- ------- -------
Net Income.................................. $ 6,366 $ 6,488 $ 7,035 $ 4,987 $ 6,870
======= ======= ======== ======= =======
Basic and Diluted Net Income per Share...... $ 0.57 $ 0.58 $ 0.63 $ 0.45 $ 0.62
======= ======= ======== ======= =======
Pro Forma Basic and Diluted Net Income per
Share (Note 2)............................ $ .51 $ .50
======== =======
Shares Used in per Share Calculations:
Basic and diluted net income.............. 11,100 11,100 11,100 11,100 11,100
======= ======= ======== ======= =======
Pro forma basic and diluted net income.... 13,873 13,873
======== =======
</TABLE>
See notes to financial statements.
F-4
<PAGE> 61
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADVANCES
DUE
COMMON STOCK TO
---------------- RETAINED (FROM)
SHARES AMOUNT EARNINGS PARENT TOTAL
------ ------ --------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1994................... 11,100 $11 $10,875 $(3,429) $ 7,457
Net income............................... 6,366 6,366
Change in Advances due to (from)
Parent................................ 3,066 3,066
------ --- ------- ------- -------
Balance, September 30, 1995................ 11,100 11 17,241 (363) 16,889
Net income............................... 6,488 6,488
Change in Advances due to (from)
Parent................................ 614 614
------ --- ------- ------- -------
Balance, September 30, 1996................ 11,100 11 23,729 251 23,991
Net income............................... 7,035 7,035
Change in Advances due to (from)
Parent................................ (4,583) (4,583)
------ --- ------- ------- -------
Balance, September 30, 1997................ 11,100 11 30,764 (4,332) 26,443
Net income*.............................. 6,870 6,870
Change in Advances due to (from) Parent*... -- -- -- 3,951 3,951
------ --- ------- ------- -------
Balance, March 31, 1998*................... 11,100 $11 $37,634 $ (381) $37,264
====== === ======= ======= =======
</TABLE>
- ---------------
* unaudited
See notes to financial statements.
F-5
<PAGE> 62
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
--------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................ $ 6,366 $ 6,488 $ 7,035 $ 4,987 $ 6,870
------- ------- ------- -------- -------
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Depreciation and amortization........ 382 1,355 1,663 712 1,668
Deferred income taxes................ (3,308) (2,017) (4,000) (2,784) (3,657)
Changes in operating assets and
liabilities:
Accounts receivable............... (7,615) (3,460) (5,646) (11,929) (7,942)
Inventory......................... (7,230) 3,378 (1,808) (2,332) (308)
Royalty advances.................. (279) (910) (939) (614) (258)
Other current assets.............. 355 (412) 440 207 (592)
Accounts payable.................. 1,786 (1,075) 168 2,553 1,569
Accrued liabilities............... 7,685 (1,492) 10,907 7,553 3,624
------- ------- ------- -------- -------
Net cash provided (used) by
operating activities............ (1,858) 1,855 7,820 (1,647) 974
------- ------- ------- -------- -------
Cash Flows from Investing Activities:
Capital expenditures...................... (1,250) (2,430) (3,246) (681) (1,514)
Acquisition of publishing rights and
related assets......................... -- -- -- -- (3,439)
------- ------- ------- -------- -------
Net cash used in investing
activities...................... (1,250) (2,430) (3,246) (681) (4,953)
------- ------- ------- -------- -------
Cash Flows from Financing Activities:
Advances due to (from) Parent -- net
change................................. 3,066 614 (4,583) 2,323 3,951
------- ------- ------- -------- -------
Net Increase (Decrease) in Cash............. (42) 39 (9) (5) (28)
Cash, Beginning of Period................... 86 44 83 83 74
------- ------- ------- -------- -------
Cash, End of Period......................... $ 44 $ 83 $ 74 $ 78 $ 46
======= ======= ======= ======== =======
Noncash Investing Activity:
Acquisition of publishing rights and
related assets (Note 11):
Current assets......................... $ 1,400
Publishing rights...................... 4,000
Less cash paid......................... (3,439)
-------
Liabilities assumed.................... $ 1,961
=======
</TABLE>
See notes to financial statements.
F-6
<PAGE> 63
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997 AND
SIX MONTHS ENDED MARCH 31, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE SIX MONTHS ENDED MARCH 31, 1997
AND MARCH 31, 1998 IS UNAUDITED)
1. BASIS OF PRESENTATION
Organization and Description of Business -- IDG Books Worldwide, Inc., a
Massachusetts company ("Books-Massachusetts"), was founded in 1990 as a
wholly-owned subsidiary (through intermediate companies) of International Data
Group, Inc. ("Parent"). On March 24, 1998, the Parent formed a new intermediate
subsidiary, IDG Books Worldwide, Inc., a Delaware company ("Books-Delaware"), to
be the holding company of Books-Massachusetts. Subsequently Books-Massachusetts
was merged into Books-Delaware.
The formation of the Books-Delaware and subsequent merger with
Books-Massachusetts was a combination of companies under common control by the
Parent and is accounted for similar to a pooling of interests. Accordingly, the
accompanying financial statements report the operations of Books-Massachusetts
for periods prior to the formation of Books-Delaware. Books-Delaware and
Books-Massachusetts are collectively referred to in the accompanying financial
statements as "IDG Books Worldwide, Inc." or "the Company."
The Company is a publisher of computer, business, personal finance, study
aids, cooking, gardening, do-it-yourself, health and fitness and self-help
books. The Company publishes and markets its books under brand names, including
the ". . . For Dummies(R)" series.
Basis of Presentation and Transactions with Parent -- The Company has
conducted its business as an operating division of the Parent, with separate
management, personnel, facilities and accounting records. The Company has
historically depended on the Parent (or affiliates thereof) for corporate
administrative functions, as well as for strategic marketing and brand-building,
financing, cash management, tax and payroll administration, property/casualty
insurance, employee benefits administration, and certain other services. The
fees for these services have been charged to the Company, and reflected in the
accompanying financial statements, through a Parent corporate services fee based
on a percentage of budgeted net sales plus a fixed charge which is consistent
with the method that the Parent charges its other controlled subsidiaries.
Effective January 1, 1998, the Company assumed responsibility for certain
corporate administrative functions, as well as for the Company's strategic
marketing and brand-building, the costs for which had constituted a significant
portion of the parent corporate services fee. Accordingly, the parent corporate
services fee decreased to $150,000 per quarter. In the opinion of management,
the parent corporate services fees included in the accompanying financial
statements reflect a reasonable amount for the services received; however, such
amounts were not established on an arm's-length basis and may not be the same as
would have been incurred had the Company operated independent of its Parent (see
Note 9). Nevertheless, management does not believe the Company would have
incurred materially different operating expenses as an independent company.
2. SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year -- The Company's fiscal year ends on the Saturday closest to
September 30. Fiscal years 1995, 1996 and 1997 ended on September 30, 1995,
September 28, 1996, and September 27, 1997, respectively, and each consisted of
52 weeks. For convenience, fiscal year-ends are denoted in the accompanying
financial statements as September 30. Similarly, the twenty-six-week periods
ended March 29, 1997 and March 28, 1998 are referred to as the six-month periods
ended March 31, 1997 and 1998, respectively.
Revenue Recognition -- Sales are recorded upon shipment of products, net of
provisions for estimated returns and allowances, which are estimated based on
historical experience by type of book. For the years
F-7
<PAGE> 64
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
ended September 30, 1995, 1996 and 1997 and the six months ended March 31, 1997
and 1998, the provision for returns and allowances represented approximately
19.9%, 22.3%, 20.9%, 20.5% and 22.7% of gross sales for the respective period.
The accompanying income statements do not reflect any material adjustments for
actual returns and allowances as compared to amounts estimated in prior periods.
Revenue from the licensing of titles, editorial content and design are
recognized when received.
Concentrations of Credit Risk -- Financial instruments which potentially
expose the Company to concentrations of credit risk consist primarily of
accounts receivable. The Company's customers consist principally of retail chain
booksellers, wholesale distributors, office superstores, membership clubs and
computer/electronic superstores located primarily in the United States and
Canada. Certain customers account for over 10% of sales (Note 12). The Company
performs ongoing credit evaluations of its customers and maintains allowances
for estimated probable credit losses.
Use of Estimates -- The preparation of financial statements in accordance
with generally accepted accounting principles requires the use of estimates. The
primary estimates underlying the Company's financial statements include
allowances for sales returns, doubtful accounts, inventory obsolescence,
reserves for royalty advances and the recoverability of deferred tax assets.
Actual results could differ from those estimates.
Inventory -- Inventory is stated at lower of cost or market. Cost is
determined using the first-in, first-out method.
Royalty Advances -- Royalty advances are recorded as cash is advanced to
authors and are expensed as earned by authors or reserved when future recovery
appears doubtful. Royalty advances are reported net of reserves of $993,000,
$1,999,000 and $2,699,000 at September 30, 1996 and 1997, and March 31, 1998,
respectively.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is provided using the straight- line method over the estimated
useful lives of the assets ranging from three to five years. Leasehold
improvements are amortized over the shorter of the lease term or the remaining
useful life of the related assets. The Company capitalizes internal-use software
in accordance with AICPA Statement of Position 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. As of March 31, 1998,
such software had not been placed into service and accordingly, no depreciation
has been provided.
Long-Lived Assets -- Long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. For purposes of
evaluating the recoverability of long-lived assets, the Company evaluates the
carrying value of its long-lived assets on an ongoing basis and recognizes an
impairment when the estimated future undiscounted cash flows from operations are
less than the carrying value of the related assets.
Advances due to (from) Parent are included as a component of stockholder's
equity, as no interest was charged for such balances and there was no scheduled
repayment. The Company intends to settle such balance in connection with a
planned initial public offering.
Income Taxes -- The Company's taxable income has been included in the
Parent's consolidated tax returns. The accompanying financial statements include
a charge in lieu of taxes paid which approximates the current income tax
provision, as if the Company were a separate taxpayer. Amounts which would
represent current income taxes payable are included in Advances due to (from)
Parent. The Company accounts for deferred income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, which requires that
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial statement carrying
amount and the tax bases of assets and liabilities. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts, more
likely than not, to be realized.
F-8
<PAGE> 65
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Net Income Per Share -- Net income per share is computed using the basic
and diluted weighted average number of common shares outstanding during the year
in accordance with SFAS No. 128, Earnings Per Share. Basic net income per share
excludes dilution and is computed using the weighted average number of common
shares outstanding for the period. Diluted net income per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock (stock options) were exercised or converted into common stock.
Shares used in the basic and diluted calculations are identical for the periods
presented and, accordingly, no separate amounts for diluted net income per share
are reported. No stock options have been granted through March 31, 1998.
Unaudited Pro Forma Balance Sheet and Earnings Per Share -- On May 6, 1998,
the Company declared a $38,400,000 dividend, which was paid on that date by
issuance of a non-interest bearing note payable to the Parent. The Company
intends to repay such note using a portion of the proceeds from its planned
initial public offering. The unaudited pro forma balance sheet as of March 31,
1998 gives retroactive effect to such dividend, as though it had been declared
as of that date. Unaudited pro forma basic and diluted net income per share
amounts are calculated using common shares outstanding (11,100,000) plus the
number of shares (2,773,000) whose proceeds are to be used to repay the note
payable, assuming a $15.50 offering price reduced by expected per share offering
costs. The unaudited pro forma balance sheet also gives effect to the amended
share authorizations discussed in Note 8, as well as planned share exchanges and
conversions to be effected by the Parent and the Company's ESOP in connection
with such initial public offering, as also discussed in Note 8.
Stock-Based Compensation is accounted for using the intrinsic value method
in accordance with the provisions of APB Opinion No. 25, Accounting for Stock
Issued to Employees, as allowed by SFAS No. 123, Accounting for Stock-Based
Compensation.
New Accounting Pronouncements -- In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, Reporting Comprehensive Income, which
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from nonowner sources; and No.
131, Disclosures about Segments of an Enterprise and Related Information, which
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas,
and major customers. Management has not yet determined its SFAS 131 reporting
segments. These Statements will not affect the Company's financial position,
results of operations or cash flows. Both statements are effective for the
Company in fiscal year 1999, with earlier application permitted.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable......................................... $37,805 $47,859 $62,847
Allowance for doubtful accounts............................. (1,500) (3,465) (3,555)
Allowance for sales returns................................. (15,390) (17,833) (25,739)
------- ------- -------
Total............................................. $20,915 $26,561 $33,553
======= ======= =======
</TABLE>
F-9
<PAGE> 66
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- MARCH 31,
1996 1997 1998
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Books (finished goods)................................... $13,505 $ 17,038 $ 18,924
Paper.................................................... 822 2,823 3,374
------- -------- --------
Total inventory................................ 14,327 19,861 22,298
Reserve for obsolescence................................. (8,208) (11,934) (13,563)
------- -------- --------
Net inventory............................................ $ 6,119 $ 7,927 $ 8,735
======= ======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computers and equipment................................... $ 3,469 $ 5,094 $ 5,470
Furniture and fixtures.................................... 1,330 1,334 1,337
Leasehold improvements.................................... 304 1,286 1,891
Internal-use software..................................... -- 635 1,164
------- ------- -------
Total........................................... 5,103 8,349 9,862
Less accumulated depreciation and amortization............ (2,029) (3,692) (5,192)
------- ------- -------
Property and equipment -- net............................. $ 3,074 $ 4,657 $ 4,670
======= ======= =======
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued royalties......................................... $ 6,559 $ 9,403 $11,075
Accrued compensation and benefits......................... 3,896 6,389 6,584
Accrued promotion......................................... 3,329 7,518 10,689
Other accrued liabilities................................. 2,901 4,282 3,379
------- ------- -------
Total........................................... $16,685 $27,592 $31,727
======= ======= =======
</TABLE>
F-10
<PAGE> 67
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The provision for federal, state and foreign income taxes consisted of the
following for the years ended September 30 (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal................................................... $ 6,500 $ 5,325 $ 7,200
State..................................................... 1,209 1,048 1,539
Foreign................................................... 121 152 149
------- ------- -------
Total current............................................. 7,830 6,525 8,888
------- ------- -------
Deferred:
Federal................................................... (3,025) (1,662) (3,227)
State..................................................... (283) (355) (773)
------- ------- -------
Total deferred............................................ (3,308) (2,017) (4,000)
------- ------- -------
Total..................................................... $ 4,522 $ 4,508 $ 4,888
======= ======= =======
</TABLE>
Federal and state income tax expense is allocated to the Company by the
Parent through the Advances due to (from) Parent account.
Deferred tax assets were comprised of the following at September 30 (in
thousands):
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Reserve for returns......................................... $ 5,902 $ 6,842
Reserve for obsolescence.................................... 3,123 4,558
Loss accruals............................................... 1,014 2,221
Uniform capitalization...................................... 486 582
Other....................................................... 335 657
------- -------
Deferred tax assets......................................... $10,860 $14,860
======= =======
</TABLE>
The differences between the effective income tax rate and the statutory
federal income tax rate were as follows for the years ended September 30:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal tax rate.................................. 35.0% 35.0% 35.0%
State taxes net of federal tax.............................. 5.5 4.1 4.2
Other....................................................... 1.0 1.9 1.8
---- ---- ----
Effective tax rate.......................................... 41.5% 41.0% 41.0%
==== ==== ====
</TABLE>
8. STOCKHOLDER'S EQUITY AND BENEFIT PLANS
Capital Stock
As of March 31, 1998, the Company had authorized capital of 30,000,000
shares, par value $.001 per share, consisting of 5,000,000 shares of preferred
stock and 25,000,000 shares of common stock, of which 11,100,000 shares of
common stock were outstanding. On May 19, 1998, the Company amended its
certificate of incorporation to change the total amount of authorized capital
stock to 25,400,000, consisting of 25,000,000 shares of Class A common stock and
400,000 shares of Class B common stock. All outstanding shares were converted to
Class A common stock on a share-for-share basis except for 394,251 shares which
were converted to Class B common stock on a share-for-share basis.
F-11
<PAGE> 68
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
No amounts have been paid in by the Parent for common stock since inception
of the Company in 1990. In connection with formation of the Delaware company
referred to in Note 1, $11,100 was allocated to common stock from retained
earnings.
Each outstanding share of Class A common stock is entitled to one vote and
each outstanding share of Class B common stock is entitled to ten votes. Holders
of Class A common stock and Class B common stock are entitled to receive
dividends at the same rate and in such amounts as the Board of Directors may
from time to time determine.
Class A common stock is not convertible. Class B common stock is
convertible at any time into Class A common stock on a share-for-share basis and
will automatically convert upon the transfer by the holder thereof.
In the event of any dissolution, liquidation, or winding up of the affairs
of the Company, whether voluntary or involuntary, after payment of the debts and
other liabilities of the Company, the remaining assets of the Company will be
distributed ratably among the holders of the Class A common stock and the Class
B common stock, treated as a single class.
Stock Option Plan
Effective May 6, 1998, the Company's Board of Directors approved a stock
option plan under which 2,850,000 shares of Class A common stock are reserved
for issuance to employees, consultants and directors. Under the plan, both
incentive and nonstatutory stock options may be granted to purchase Class A
common stock at not less than the fair market value of the common stock at the
date of grant. Effective May 6, 1998, the Company granted options to purchase
1,500,900 shares of Class A common stock at $11.88 per share. Options generally
vest over 4 years and expire ten years after date of grant.
Employee Stock Purchase Plan
Effective May 22, 1998, the Company adopted an employee stock purchase plan
and reserved a total of 350,000 shares of Class A common stock for issuance
thereunder. The purchase plan permits eligible employees to purchase common
stock through payroll deductions, subject to certain limitations, at a purchase
price of 85% of the lower of the fair market value of the common stock on the
first day of the offering period or on the last day of the purchase period.
Employee Stock Ownership Plan
The Company's employees have historically participated in the Parent's ESOP
("ESOP-P") and, as discussed in Note 9, the Company has recorded the applicable
plan contribution expense in its financial statements. As of May 6, 1998, the
Company adopted a new ESOP ("Books ESOP"). In connection therewith, the accounts
of the Company employees, and the shares of common stock of the Parent
attributable to such accounts, were transferred from ESOP-P to Books ESOP. Such
Parent common shares received by Books ESOP were tendered on May 21, 1998 to the
Parent in exchange for 394,251 shares of Company Class B common stock, based on
an exchange ratio determined by an independent valuation firm of the relative
fair value of one Company Class B common share to one Parent common share. In
connection with the Company's initial public offering, the shares of Class B
common stock owned by Books ESOP are to be transferred to an affiliate of the
Parent in exchange for 394,251 shares of Class A common stock held by such
affiliate (194,251 of which Class B shares such affiliate intends to immediately
convert to 194,251 shares of Class A common stock). Effective as of May 6, 1998,
employees of the Company no longer participate in ESOP-P.
The Company also participates in the Parent's defined 401(k) contribution
plan that covers substantially all U.S. employees of the Company who have been
employed for one year and have attained the age of 21. The plan provides that
eligible employees electing to become participants can contribute to the plan
through
F-12
<PAGE> 69
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
payroll deferrals up to 8% of their base compensation. The Company and Parent
make no contribution to the plan on the participant's behalf.
9. RELATED PARTY TRANSACTIONS
Net revenue from affiliated customers amounted to approximately $66,000,
$188,000 and $700,000 in 1995, 1996 and 1997, respectively.
Operating expenses allocated from the Parent, through the Advances due to
(from) Parent account, consist of (1) Parent Corporate Services Fee (Note 1),
(2) Employee Stock Ownership Plan expenses, which are based on the applicable
ESOP contribution rate applied to Company salaries, and (3) income tax
provisions, which are calculated as though the Company were a separate taxpayer.
Neither party pays interest on intercompany balances, and, accordingly, no such
interest income or expense has been recorded in the accompanying financial
statements.
A summary of activity in the Advances due to (from) Parent account, and the
average outstanding balance by period, is as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------ -----------------
1995 1996 1997 1997 1998
------- -------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period........... $(3,429) $ (363) $ 251 $ 251 $(4,332)
Parent corporate services fee............ 1,464 2,779 3,669 1,836 1,175
ESOP expense............................. 822 1,307 1,811 798 --
Total current federal and state income
tax provision.......................... 7,709 6,373 8,739 6,183 8,352
Cash transferred to Parent, net.......... (7,497) (10,861) (20,719) (7,067) (6,853)
Employee Benefits........................ 754 1,379 1,980 896 1,277
Other, primarily transactions with
affiliates, net........................ (186) (363) (63) (221) --
------- -------- ------- ------ -------
Balance at end of period................. $ (363) $ 251 $(4,332) $2,676 $ (381)
======= ======== ======= ====== =======
Average balance during period............ $(2,616) $ 2,224 $ 880 $2,006 $ 809
======= ======== ======= ====== =======
</TABLE>
Effective October 1, 1997, no further contributions were made to the
Parent's ESOP with respect to Company employees. During the six-month period
ended March 31, 1998, the Company accrued $850,000 of contributions to be made
to the newly established Books ESOP as described in Note 8.
In connection with the Company's planned initial public offering, the
Parent has agreed to transfer to the Company certain trademarks owned by the
Parent that relate to publications and products of the Company. The Company has
agreed to pay all costs, consisting primarily of required filing fees, in
connection with such transfer.
In addition, the Company and the Parent have entered into a Trademark
License Agreement (the "Agreement") pursuant to which the Parent has granted to
the Company a royalty-free license to use certain trademarks in conjunction with
publications and products currently produced and held by the Company. The
Agreement provides that if the Parent's voting interest in the Company is
reduced to less than 30%, the parties will negotiate in good faith to reach an
agreement providing for the continued use of the trademarks, including the IDG
Books mark. If the parties were unable to reach such an agreement, the Company
would be required to cease using marks covered by the Agreement. The Agreement
also may be terminated by the Parent upon a breach of the Agreement by the
Company or upon the insolvency of the Company. The Company does not believe that
the termination of the Trademark License Agreement would have a material adverse
impact on its business, financial position or results of operations.
F-13
<PAGE> 70
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
Leases -- The Company leases equipment and facilities under operating
leases which expire at various dates through January 2000. Total rental expense
for operating leases amounted to approximately $1,045,000, $1,861,000 and
$2,212,000 in 1995, 1996 and 1997, respectively.
At September 30, 1997, the aggregate minimum rental commitments under
noncancelable operating leases in excess of one year were as follows (in
thousands):
<TABLE>
<S> <C>
Years ending September 30,
1998...................................................... $2,990
1999...................................................... 2,440
2000...................................................... 483
------
Total............................................. $5,913
======
</TABLE>
The Company is subject to various legal actions and claims which have
arisen in the ordinary course of business. In the opinion of management and
counsel, the ultimate resolution of such legal proceedings and claims will not
have a material effect on the financial position or results of operations of the
Company.
11. PUBLISHING RIGHTS
On December 1, 1997, the Company acquired from Henry Holt and Company the
publishing rights for the books published under the names "MIS:Press" and "M&T
Books," and the related inventory and other assets, for $5,400,000 in cash and
assumed liabilities. The cost of this acquisition was allocated to the assets
acquired, including $4,000,000 allocated to publishing rights which is being
amortized over eight years.
12. MAJOR CUSTOMERS AND INTERNATIONAL SALES AND OPERATIONS
Net sales to individual customers representing greater than 10% of the
Company's net sales were as follows for the years ended September 30 (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Company A............................. $ 7,667 $10,876 $17,805
Company B............................. 11,104 11,854 14,942
Company C............................. 10,712 * *
Company D............................. * 10,303 12,204
</TABLE>
- ---------------
* Less than 10% of sales.
The Company operates in one business segment, namely publishing, and
develops, publishes and markets products including professional and reference
works, consumer books, for the educational, technical, professional and trade
markets around the world.
Net sales to unaffiliated international customers were as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Canada................................ $ 4,542 $ 5,481 $ 5,813
Europe................................ 2,984 3,965 5,191
Other................................. 2,476 3,734 4,418
------- ------- -------
Total................................. $10,002 $13,180 $15,422
======= ======= =======
</TABLE>
F-14
<PAGE> 71
IDG BOOKS WORLDWIDE, INC.
(AN INDIRECT SUBSIDIARY OF INTERNATIONAL DATA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. UNAUDITED INTERIM FINANCIAL STATEMENTS
Unaudited interim financial statements as of March 31, 1998 and for the
six-month periods ended March 31, 1997 and 1998 are unaudited but have been
prepared in accordance with generally accepted accounting principles for interim
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations of any interim period
are not necessarily indicative of the results of operations for the full year.
F-15
<PAGE> 72
Back Artwork Page:
[Set forth on the inside back cover under the heading "The Brand People Know"
are photographs of various ". . . For Dummies(R)" products and the ". . . For
Dummies(R)" logos.]
<PAGE> 73
idg logo
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates except
the Securities and Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Securities and Exchange Commission registration fee......... $ 17,800
NASD filing fee............................................. 6,535
Nasdaq National Market listing fee.......................... 90,500
Printing and engraving expenses............................. 305,000
Legal fees and expenses..................................... 536,800
Accounting fees and expenses................................ 500,000
Blue Sky fees and expenses.................................. 5,000
Transfer agent fees......................................... 10,000
Miscellaneous............................................... 333,365
----------
Total............................................. $1,805,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant. The
Delaware General Corporation Law provides that Section 145 is not exclusive of
other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Section 6.1 of the Registrant's Bylaws provides for indemnification by the
Registrant of its directors, officers and employees to the fullest extent
permitted by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases, redemptions or
other distributions, or (iv) for any transaction from which the director derived
an improper personal benefit. The Registrant's Certificate of Incorporation
provides for such limitation of liability.
The Registrant intends to obtain directors, and officers, insurance
providing indemnification for certain of the Registrant's directors, officers
and employees for certain liabilities.
Reference is also made to Section 7 of the Underwriting Agreement to be
filed as Exhibit 1.1 to the Registration Statement for information concerning
the underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 30, 1998, the Registrant issued 11,100,000 shares of its common
stock to IDG Enterprises, Inc., an indirect, wholly-owned subsidiary of
International Data Group, Inc., in return for all of the issued and
II-1
<PAGE> 75
outstanding capital stock of IDG Books Worldwide, Inc., a Massachusetts company
and the predecessor to the Registrant. The shares were issued in a private
placement in reliance on Section 4(2) of the Securities Act.
On May 6, 1998, the Registrant issued options to purchase 1,500,900 shares
of common stock to approximately 440 current employees of the Company at an
exercise price of $11.88 per share. The options were issued pursuant to Rule 701
of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
1.1+ Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation of the
Registrant.
3.2+ Bylaws of the Registrant.
4.1 Form of Registrant's Class A common stock certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding the legality of the securities being
issued.
10.1* Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive
officers.
10.2 1998 Stock Plan and forms of related agreements.
10.3+ 1998 Employee Stock Purchase Plan.
10.4 Form of Employment Agreement between the Registrant and John
J. Kilcullen dated as of July 1, 1998.
10.5 Form of Employment Agreement between the Registrant and
Steven H. Berkowitz dated as of July 1, 1998.
10.6 Form of Compensation Agreement between the Registrant and
John P. Ball dated as of July 1, 1998.
10.7 Form of Compensation Agreement between the Registrant and
James A. Doehrman dated as of July 1, 1998.
10.8 Form of Compensation Agreement between the Registrant and
Brenda L. McLaughlin dated as of July 1, 1998.
10.9+ Corporate Services Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.10+ Registration Rights Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.11 Form of Trademark License Agreement between the Registrant
and IDG dated June 1, 1998.
10.12+ Non-competition Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.13+ Tax Allocation Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.14+ Share Exchange Agreement between the Registrant and IDG
dated May 21, 1998.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent and Report on Schedule of Deloitte & Touche LLP,
independent auditors
(see page II-5).
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
27.2+ Financial Data Schedule.
</TABLE>
- ---------------
* To be supplied by amendment.
+ Previously filed.
(b)Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-2
<PAGE> 76
ITEM 17. UNDERTAKINGS
(a) The undersigned hereby undertakes to provide to the underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered hereunder, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Foster City, State of California, on this 9th day of July, 1998.
IDG Books Worldwide, Inc.
By: /s/ JOHN J. KILCULLEN
------------------------------------
John J. Kilcullen
Chairman of the Board and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JOHN J. KILCULLEN Chairman of the Board and July 9, 1998
- -------------------------------------------------------- Chief Executive Officer
John J. Kilcullen (Principal Executive Officer)
* President and Publisher July 9, 1998
- -------------------------------------------------------- (Principal Financial Officer)
Steven H. Berkowitz
* Vice President and Chief July 9, 1998
- -------------------------------------------------------- Financial Officer (Principal
James A. Doehrman Accounting Officer)
* Director July 9, 1998
- --------------------------------------------------------
Patrick J. McGovern
* Director July 9, 1998
- --------------------------------------------------------
James A. Casella
*By: /s/ JOHN J. KILCULLEN
---------------------------------------------------
John J. Kilcullen
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 78
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
IDG Books Worldwide, Inc.
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-53433 of IDG Books Worldwide, Inc. on Form S-1 of our report dated March 31,
1998 (May 6, 1998 as to the twelfth paragraph of Note 2, May 22, 1998 as to Note
8 and June 1, 1998 as to the last paragraph of Note 9) appearing in the
Prospectus, which is a part of such Registration Statement, and to the
references to us under the headings "Selected Financial Data" and "Experts" in
such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of IDG Books Worldwide,
Inc. listed in Item 16(b). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
July 6, 1998
San Jose, California
II-5
<PAGE> 79
SCHEDULE II
IDG BOOKS WORLDWIDE, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS-CHARGED NET DEDUCTIONS BALANCE AT END
DESCRIPTION BEGINNING OF PERIOD TO EXPENSE (RECOVERIES) OF PERIOD
----------- ------------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
Allowance for sales returns
1995...................... $ 9,900 $17,347 $12,087 $15,160
1996...................... 15,160 26,866 26,636 15,390
1997...................... 15,390 31,026 28,583 17,833
Allowance for doubtful accounts
1995...................... 1,001 1,459 1,439 1,021
1996...................... 1,021 557 78 1,500
1997...................... 1,500 1,811 (154) 3,465
Reserve for inventory obsolescence
1995...................... 2,564 4,764 3,158 4,170
1996...................... 4,170 6,779 2,741 8,208
1997...................... 8,208 5,194 1,468 11,934
Reserve for royalty advances
1995...................... 100 495 -- 595
1996...................... 595 398 -- 993
1997...................... 993 1,006 -- 1,999
</TABLE>
S-1
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ----------
<S> <C> <C>
1.1+ Form of Underwriting Agreement.
3.1+ Amended and Restated Certificate of Incorporation of the
Registrant.
3.2+ Bylaws of the Registrant.
4.1 Form of Registrant's Class A common stock certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding the legality of the securities being
issued.
10.1* Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive
officers.
10.2 1998 Stock Plan and forms of related agreements.
10.3+ 1998 Employee Stock Purchase Plan.
10.4 Form of Employment Agreement between the Registrant and John
J. Kilcullen dated as of July 1, 1998.
10.5 Form of Employment Agreement between the Registrant and
Steven H. Berkowitz dated as of July 1, 1998.
10.6 Form of Compensation Agreement between the Registrant and
John P. Ball dated as of July 1, 1998.
10.7 Form of Compensation Agreement between the Registrant and
James A. Doehrman dated as of July 1, 1998.
10.8 Form of Compensation Agreement between the Registrant and
Brenda L. McLaughlin dated as of July 1, 1998.
10.9+ Corporate Services Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.10+ Registration Rights Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.11 Form of Trademark License Agreement between the Registrant
and IDG dated June 1, 1998.
10.12+ Non-competition Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.13+ Tax Allocation Agreement between the Registrant and IDG
dated as of June 1, 1998.
10.14+ Share Exchange Agreement between the Registrant and IDG
dated May 21, 1998.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent and Report on Schedule of Deloitte & Touche LLP,
independent auditors
(see page II-5).
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
27.2+ Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
[IDG BOOKS WORLDWIDE LOGO]
CLASS A COMMON STOCK CLASS A COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN DEFINITIONS
IN BOSTON, MA OR NEW YORK, NY AND A STATEMENT OF RIGHTS AND
RESTRICTIONS, IF ANY
CUSIP 449384 10 6
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE CLASS A
COMMON STOCK, $.001 PAR VALUE PER SHARE, OF
IDG BOOKS WORLDWIDE, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ JOHN BALL /s/ JOHN J. KILCULLEN
EXECUTIVE VICE PRESIDENT, OPERATIONS CHAIRMAN OF THE BOARD OF DIRECTORS
AND ADMINISTRATION, AND SECRETARY AND CHIEF EXECUTIVE OFFICER
[SEAL]
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY /s/ MARY PENEZIC
AUTHORIZED SIGNATURE
<PAGE> 2
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established, from time to time, by the Certificate
of Incorporation of the Corporation and by any certificate of determination,
the number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ...................Custodian...............
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act........................................
in common (State)
COM PROP -- as community property UNIF TRF MIN ACT -- .............Custodian (until age.........)
(Cust)
....................under Uniform Transfers
(Minor)
to Minors Act..............................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,___________________________hereby sell(s), assign(s)
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the common stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated________________________
X_______________________________________________
X_______________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
NOTICE: FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed
By___________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 5.1
July 9, 1998
IDG Books Worldwide, Inc.
919 E. Hillsdale Blvd.
Suite 400
Foster City, CA 94404
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by you
with the Securities and Exchange Commission on May 22, 1998 (Registration No.
333-53433), as amended (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of up to 3,657,000
shares of your Class A Common Stock (the "Shares"), including an over-allotment
option granted to the underwriters of the offering to purchase up to 477,000
shares. We understand that you are selling the Shares to the underwriters for
resale to the public as described in the Registration Statement. As your legal
counsel, we have examined the proceedings taken, and are familiar with the
proceedings proposed to be taken, by you in connection with the sale and
issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken
or proposed to be taken by us, as your legal counsel, prior to the issuance of
the Shares, the Shares will be legally issued, fully paid and non-assessable
when sold in the manner described in the Registration Statement.
We are members of the Bar of the State of California only and express no
opinion as to any matter relating to the laws of any jurisdiction other than the
laws of the State of California and the federal laws of the United States.
Without limiting the foregoing, we express no opinion as to the securities laws
of the State of Delaware.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati, P.C.
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EXHIBIT 10.2
IDG BOOKS WORLDWIDE, INC.
1998 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1998 Stock Plan are:
- to attract and retain the best available personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means IDG Books Worldwide, Inc., a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
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(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Inside Director" means a Director who is an Employee of the
Company or any Subsidiary of the Company.
(p) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
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(q) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(r) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(u) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(w) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(x) "Outside Director" means a Director who is not an Employee of the
Company or a Subsidiary of the Company.
(y) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(z) "Plan" means this 1998 Stock Plan, as amended from time to time.
(aa) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(bb) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(cc) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(dd) "Section 16(b)" means Section 16(b) of the Exchange Act.
(ee) "Service Provider" means an Employee, Director or Consultant.
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(ff) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.
(gg) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(hh) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 14 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,850,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be administered
by different Committees with respect to different groups of Service Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
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(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may be exercised (which
may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to reduce the exercise price of any Option or Stock Purchase
Right to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or Stock Purchase Right shall have declined
since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii)to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 16(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
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(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xiii)to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) On the date grants of Options under the Plan are required to
comply with Section 162(m) of the Code, the following limitations shall apply to
grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 500,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 14.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 14), the canceled
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Option will be counted against the limits set forth in subsections (i) and (ii)
above. For this purpose, if the exercise price of an Option is reduced, the
transaction will be treated as a cancellation of the Option and the grant of a
new Option.
7. Term of Plan. Subject to Section 20 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 16 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement. Prior to the date the
Common Stock is listed on a national securities exchange or a national market
system which qualifies under Section 25100(o) of the Corporations Code of
California, the term of each Option shall be no more than ten (10) years from
the date of grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option granted:
(A) prior to the date the Common Stock is listed on a
national securities exchange or a national market system which qualifies under
Section 25100(o) of the Corporations Code of California:
(1) to a Service Provider who, at the time the
Nonstatutory Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
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(2) granted to any other Service Provider, the per
Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.
(B) to any Service Provider, on or after the date the Common
Stock is listed on a national securities exchange or a national market system
which qualifies under Section 25100(o) of the Corporations Code of California,
the per Share exercise price shall be determined by the Administrator. In the
case of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised; provided, however, that prior to the date the Common
Stock is listed on a national securities exchange or a national market system
which qualifies under Section 25100(o) of the Corporations Code of California,
except in the case of Options granted to Officers, Directors, and Consultants,
Options shall vest and become exercisable at a rate of no less than 20% per year
over five (5) years from the date the Options are granted.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
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(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted to Officers and Directors hereunder shall be tolled
during any unpaid leave of absence. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 14 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. Prior to the date the
Common Stock is listed on a national securities exchange or a national market
system which qualifies under Section 25100(o) of the Corporations Code of
California, such Option must remain exercisable for a period of at least thirty
(30) days after the Optionee ceases to be a Service Provider. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time
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specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. Prior to the date the Common Stock is listed on a national
securities exchange or a national market system which qualifies under Section
25100(o) of the Corporations Code of California, such Option must remain
exercisable for a period of at least six (6) months after the Optionee ceases to
be a Service Provider due to Optionee's disability. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. Prior
to the date the Common Stock is listed on a national securities exchange or a
national market system which qualifies under Section 25100(o) of the
Corporations Code of California, such Option must remain exercisable for a
period of at least six (6) months after the Optionee ceases to be a Service
Provider. If, at the time of death, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
immediately revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept
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such offer. The offer shall be accepted by execution of a Restricted Stock
Purchase Agreement in the form determined by the Administrator. Prior to the
date the Common Stock is listed on a national securities exchange or a national
market system which qualifies under Section 25100(o) of the Corporations Code of
California, the terms of the offer of Stock Purchase Rights under the Plan shall
comply in all respects with Section 260.140.42 of Title 10 of the California
Code of Regulations.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator; provided, however, that prior to the date the Common Stock is
listed on a national securities exchange or a national market system which
qualifies under Section 25100(o) of the Corporations Code of California, except
with respect to Shares purchased by Officers, Directors, and Consultants, the
repurchase option shall in no case lapse at a rate of less than 20% per year
over five (5) years from the date of purchase.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 14
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator (provided, however, that such
determination shall occur only on or after the date the Common Stock is listed
on a national securities exchange or a national market system which qualifies
under Section 25100(o) of the Corporations Code of California), an Option or
Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option or Stock
Purchase Right transferable, such Option or Stock Purchase Right shall contain
such additional terms and conditions as the Administrator deems appropriate.
13. Automatic Option Grants to Outside Directors.
(a) First Option. Each Outside Director shall be automatically granted
an Option to purchase 10,000 Shares (the "First Option") on the date on which
the later of the following events occurs: (A) the consummation of the Company's
initial public offering of Common Stock, or (B) the date on which such person
first becomes an Outside Director, whether through election by the stockholders
of the Company or appointment by the Board to fill a vacancy; provided, however,
that
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an Inside Director who ceases to be an Inside Director but who remains a
Director shall not receive a First Option.
(b) Subsequent Option. Each Outside Director shall be automatically
granted an Option to purchase 5,000 Shares (a "Subsequent Option") on March 1st
of each year provided he or she is then an Outside Director and if as of such
date, he or she shall have served on the Board for at least the preceding six
(6) months.
(c) Terms of Options. The term of First Options and Subsequent Options
granted hereunder shall be as follows:
(A) the term of the Option shall be ten (10) years.
(B) the exercise price per Share shall be 100% of the Fair Market
Value per Share on the date of grant. In the event that the date of grant is not
a trading day, the exercise price per Share shall be the Fair Market Value on
the next trading day immediately following the date of grant.
(C) one-third of the Shares subject to the Option shall vest on
the date of grant, and 1/3 of the Shares subject to the Option shall vest on the
anniversary of the date of grant in each year thereafter so that 100% of the
Shares subject to the Option shall be vested two (2) years from the grant date,
subject to the Optionee remaining a Service Provider as of such vesting dates.
(d) Special Provisions Relating to Parent Officers and Directors. The
provisions of this Section 13(d) shall apply to Outside Directors who are
officers or directors of a Parent ("Outside Parent Directors"). First Options
and Subsequent Options that would otherwise be issuable to Outside Parent
Directors pursuant to Section 13(a) or (b) ("Parent Options") shall be issued to
the Parent or its designee on the following terms and subject to the following
conditions and limitations:
(A) Each Parent Option shall be issued in accordance with the
written notice of the Parent to the Company (the "Parent Option Notice"),
delivered prior to the date of issuance of such Parent Option, pursuant to
action taken by the Parent's board of directors or an appropriate committee
thereof.
(B) Each Parent Option Notice may designate, in lieu of the
Outside Parent Director with respect to whose services the Parent Option is
being issued, one or more recipients of such Parent Option, or portions thereof,
provided that each such designee must be the Parent or a Service Provider.
(C) No Outside Parent Director shall be entitled to receive any
Parent Option or portion thereof unless he or she has been designated in a
Parent Option Notice to receive same.
(D) In the absence of a Parent Option Notice with respect to a
Parent Option, such Option shall be issued to the Parent.
-12-
<PAGE> 13
(E) No First Option shall be issued with respect to an Outside
Parent Director who replaces an Outside Parent Director with respect to whom a
First Option was issued.
(F) Notwithstanding the provisions of Section 13(c)(C), vesting
of a Parent Option held by the Parent shall be subject to the Outside Parent
Director with respect to whom the Option was issued, or a replacement Outside
Parent Director, remaining a Director as of the vesting dates of such Option.
(G) Notwithstanding the provisions of Section 12, each Parent
Option issued to the Parent shall be transferrable, but only to a Service
Provider. Further transfers of such Option shall be subject to Section 12.
14. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
-13-
<PAGE> 14
(c) Merger or Asset Sale. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, unless otherwise provided for in any employment, compensation or
other agreement with any Optionee, the Administrator shall determine in its sole
discretion, whether or not each Optionee shall fully vest in and have the right
to exercise, the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
the Administrator determines that the Options or Stock Purchase Rights become
fully vested and exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Administrator shall notify the Optionee in
writing or electronically that the Option or Stock Purchase Right shall be fully
vested and exercisable for a period of fifteen (15) days from the date of such
notice, and the Option or Stock Purchase Right shall terminate upon the
expiration of such period. For the purposes of this paragraph, the Option or
Stock Purchase Right shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option or Stock Purchase Right
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
15. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
16. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the
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<PAGE> 15
Optionee and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such termination.
17. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
18. Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
19. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
20. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
21. Information to Optionees and Purchasers. Prior to the date the Common
Stock is listed on a national securities exchange or a national market system
which qualifies under Section 25100(o) of the Corporations Code of California,
the Company shall provide to each Optionee and to each individual who acquires
Shares pursuant to the Plan, not less frequently than annually during the period
such Optionee or purchaser has one or more Options or Stock Purchase Rights
outstanding, and, in the case of an individual who acquires Shares pursuant to
the Plan, during the period such individual owns such Shares, copies of annual
financial statements. The Company shall not be required to provide such
statements to key employees whose duties in connection with the Company assure
their access to equivalent information.
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<PAGE> 16
IDG BOOKS WORLDWIDE, INC.
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
<TABLE>
<S> <C>
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $_________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
</TABLE>
Vesting Schedule:
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates.
<PAGE> 17
Termination Period:
This Option may be exercised for 30 days after Optionee ceases to be a
Service Provider; provided, however, that upon the first sale of Common Stock
pursuant to the Company's registration statement on Form S-1 (or any successor
form thereto) relating to its initial public offering being declared effective
by the Securities and Exchange Commission, such period shall be 90 days. In
addition, if the Company has effected such an initial public offering, upon the
death or Disability of the Optionee, this Option may be exercised for one year
after Optionee ceases to be a Service Provider. In no event shall this Option be
exercised later than the Term/Expiration Date as provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants to
the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the "Optionee") an option (the "Option") to purchase the number of Shares, as
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price"), subject to the terms and conditions
of the Plan, which is incorporated herein by reference. Subject to Section 16(c)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option under Section
422 of the Code. However, if this Option is intended to be an Incentive Stock
Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d)
it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option is exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Executive Vice President,
Operations/Administration of the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.
-2-
<PAGE> 18
No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
3. Optionee's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
at the time this Option is exercised, the Optionee shall, if required by the
Company, concurrently with the exercise of all or any portion of this Option,
deliver to the Company his or her Investment Representation Statement in the
form attached hereto as Exhibit B and shall read the applicable rules of the
Commissioner of Corporations attached to such Investment Representation
Statement.
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be by
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash; or
(b) check; or
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
(d) with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit D, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit C. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement.
-3-
<PAGE> 19
6. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by the Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
7. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option Agreement.
8. Tax Consequences. Some of the federal tax consequences relating to this
Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
(i) Nonstatutory Stock Option. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an ISO,
the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
(i) NSO. If the Optionee holds NSO Shares for at least one year,
any gain realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as
-4-
<PAGE> 20
long-term capital gain for federal income tax purposes. If the Optionee disposes
of ISO Shares within one year after exercise or two years after the grant date,
any gain realized on such disposition will be treated as compensation income
(taxable at ordinary income rates) to the extent of the excess, if any, of the
lesser of (A) the difference between the Fair Market Value of the Shares
acquired on the date of exercise and the aggregate Exercise Price, or (B) the
difference between the sale price of such Shares and the aggregate Exercise
Price. Any additional gain will be taxed as capital gain, short-term or
long-term depending on the period that the ISO Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the Optionee
sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on
or before the later of (i) two years after the grant date, or (ii) one year
after the exercise date, the Optionee shall immediately notify the Company in
writing of such disposition. The Optionee agrees that he or she may be subject
to income tax withholding by the Company on the compensation income recognized
from such early disposition of ISO Shares by payment in cash or out of the
current earnings paid to the Optionee.
9. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement, including the Exhibits attached
hereto constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
10. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
-5-
<PAGE> 21
OPTIONEE: IDG BOOKS WORLDWIDE, INC.
__________________________________ ____________________________________
Signature By
__________________________________ ____________________________________
Print Name Title
__________________________________
__________________________________
Residence Address
-6-
<PAGE> 22
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
____________________________________
Spouse of Optionee
<PAGE> 23
EXHIBIT A
IDG BOOKS WORLDWIDE, INC.
1998 STOCK PLAN
EXERCISE NOTICE
IDG Books Worldwide, Inc.
919 E. Hillsdale Blvd.
Suite 400
Foster City, CA 94404
Attention: Executive Vice President, Operations/Administration
1. Exercise of Option. Effective as of today, ________________, 199__, the
undersigned ("Purchaser") hereby elects to purchase ______________ shares (the
"Shares") of the Common Stock of IDG Books Worldwide, Inc. (the "Company") under
and pursuant to the 1998 Stock Plan (the "Plan") and the Stock Option Agreement
dated , 199__ (the "Option Agreement"). The purchase price for the Shares shall
be $_______________ , as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 14 of the
Plan.
5. Repurchase Option.
(a) General.
(i) In the event Purchaser ceases to be an employee of the
Company for any or no reason (including death or disability), or if the Shares
are transferred pursuant to a divorce or dissolution of marriage of the
Purchaser, the Company shall have an irrevocable, exclusive option to repurchase
the Shares (the "Repurchase Option") at any time between the 75th and 90th day
after the later to occur of (i) such termination and (ii) the exercise of the
Option.
<PAGE> 24
(ii) Shares shall be repurchased at their then Fair Market Value
determined in accordance with Section 2(m) of the Plan (the "Repurchase Price".)
(iii) The Company shall exercise the Repurchase Option by
delivering written notice to the Purchaser or the Purchaser's executor AND, at
the Company's discretion, (a) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (b) by the
Company canceling an amount of the Purchaser's indebtedness to the Company equal
to the aggregate Repurchase Price, or (c) by a combination of (a) and (b) so
that the combined payment and cancellation of indebtedness equals such aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price in any of the ways described above, the Company shall become
the legal and beneficial owner of the Shares being repurchased and all rights
and interests therein or relating thereto, and the Company shall have the right
to retain and transfer to its own name the number of Shares being repurchased by
the Company.
(iv) If the Company does not elect to exercise the Repurchase
Option conferred above by giving the requisite notice, the Repurchase Option
shall terminate.
(v) Whenever the Company shall have the right to repurchase
Shares hereunder, the Company may designate and assign one or more employees,
officers, directors or stockholders of the Company or other persons or
organizations to exercise all or a part of the Company's purchase rights under
this Exercise Notice and purchase all or a part of such Shares.
(b) Release of Shares From Repurchase Option. The Shares subject to
the Company's Repurchase Option, or subject in the future to the Company's
Repurchase Option, pursuant to Section 5(a) above shall be released from such
option upon the first sale of Common Stock pursuant to the Company's
registration statement on Form S-1 (or any successor form thereto) relating to
its initial public offering being declared effective by the Securities and
Exchange Commission.
(c) Restriction on Transfer. The Purchaser agrees that Purchaser shall
not sell or transfer any Shares until the earlier to occur of: (a) six months
after the Purchaser acquires the Shares pursuant to this Exercise Notice, or (b)
90 days after the Purchaser ceases to be a Service Provider, other than by will
or the laws of descent and distribution; any transferee pursuant to a will or
the laws of descent and distribution shall be bound by this Exercise Notice.
(d) Escrow of Shares.
(i) To ensure the availability for delivery of the Purchaser's
Shares upon repurchase by the Company pursuant to the Company's Repurchase
Option, the Purchaser shall, upon execution of this Exercise Notice, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Shares, together with a stock assignment
duly endorsed in blank (in such form as the Board approves, including the form
attached hereto as Exhibit A-2). The Shares and stock assignment shall be held
by the Escrow Holder pursuant to the Joint Escrow Instructions of the Company
and Purchaser (in such form as the Board approves, including the form attached
hereto as Exhibit A-2) until such time as the Company's
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<PAGE> 25
Repurchase Option terminates, is released or is exercised. As a further
condition to the Company's obligations, the spouse of the Purchaser, if any,
shall execute and deliver to the Company the Consent of Spouse attached hereto
as Exhibit A-4.
(ii) The Escrow Holder shall not be liable for any act it may do
or omit to do with respect to holding the Shares in escrow and while acting in
good faith and in the exercise of its judgment.
(iii) If the Company or any assignee exercises its Repurchase
Option hereunder, the Escrow Holder, upon receipt of written notice of such
option exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(iv) When the Repurchase Option is exercised, has terminated or
is released with respect to any Shares, upon Purchaser's request, the Escrow
Holder shall promptly cause such Shares to be issued and shall deliver such
Shares to the Company or the Purchaser, as the case may be.
(v) Subject to the terms hereof, the Purchaser shall have all the
rights of a stockholder with respect to such Shares while they are held in
escrow, including without limitation, the right to vote the Shares and receive
any cash dividends declared thereon. If, from time to time during the term of
the Company's Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Exercise Notice and the Company's Repurchase
Option.
6. Company's Right of First Refusal. Before any Shares held by Purchaser
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
-3-
<PAGE> 26
(b) Exercise of Right of First Refusal. At any time within thirty (30)
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, or less than all, of
the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price (the "Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
(i) the Offered Price in the case of Shares that are not subject to the
Company's Repurchase Option or (ii) in the case of Shares that are subject to
the Company's Repurchase Option, the lower of the Offered Price or the
Repurchase Price as defined in Section 5 hereof. If the Offered Price includes
consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within thirty (30) days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within one hundred twenty (120) days after the date of the Notice
and provided further that any such sale or other transfer is effected in
accordance with any applicable securities laws and the Proposed Transferee
agrees in writing that the provisions of this Section shall continue to apply to
the Shares in the hands of such Proposed Transferee. If the Shares described in
the Notice are not transferred to the Proposed Transferee within such period, a
new Notice shall be given to the Company, and the Company and/or its assignees
shall again be offered the Right of First Refusal before any Shares held by the
Holder may be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
contained in this Section notwithstanding, but subject to the provisions of
Section 5, the transfer of any or all of the Shares during the Purchaser's
lifetime or on the Purchaser's death by will or intestacy to the Purchaser's
immediate family or a trust for the benefit of the Purchaser's immediate family
shall be exempt from the provisions of this Section provided that the Purchaser
notifies the Company in writing within thirty (30) days of said transfer.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Exercise Notice including, but not limited to this Section
and Section 5, and there shall be no further transfer of such Shares except in
accordance with the terms of this Exercise Notice.
-4-
<PAGE> 27
(g) Termination of Right of First Refusal. The Right of First Refusal
shall terminate as to any Shares upon the first sale of Common Stock pursuant to
the Company's registration statement on Form S-1 (or any successor form thereto)
relating to its initial public offering being declared effective by the
Securities and Exchange Commission.
7. Restrictive Legends and Stop-transfer Orders.
(a) Legends. Purchaser understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR,
IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST
REFUSAL OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS
SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND
THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH
TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE
BINDING ON TRANSFEREES OF THESE SHARES.
(b) Stop-transfer Notices. Purchaser agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Exercise Notice or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
-5-
<PAGE> 28
8. Tax Consultation. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
9. Entire Agreement; Governing Law. The Plan and Option Agreement are
incorporated herein by reference. This Exercise Notice, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This Exercise Notice is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: IDG BOOKS WORLDWIDE, INC.
__________________________________ ____________________________________
Signature By
__________________________________ ____________________________________
Print Name Its
Address: Address:
__________________________________ IDG Books Worldwide, Inc.
__________________________________ 919 E. Hillsdale Blvd.
Suite 400
Foster City, CA 94404
____________________________________
Date Received
-6-
<PAGE> 29
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: IDG BOOKS WORLDWIDE, INC.
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
California and any other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701
<PAGE> 30
at the time of the grant of the Option to the Optionee, the exercise will be
exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain public
information about the Company, (3) the amount of Securities being sold during
any three month period not exceeding the limitations specified in Rule 144(e),
and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
-------------------------------------
Date:__________________________, 19___
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<PAGE> 31
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. (a) The issuer of any security upon
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102
of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the
transferor's ancestors, descendants, or spouse; or to a transferee by a
trustee or custodian for the account of the transferee or the
transferee's ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the
knowledge of the broker-dealer, nor actually present in this state if
the sale of such securities is not in violation of any securities law of
the foreign state, territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate
or selling group;
(9) if the interest sold or transferred is a pledge or other
lien given by the purchaser to the seller upon a sale of the security
for which the Commissioner's written consent is obtained or under this
rule not required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113 or 25121 of the Code, of the securities to be transferred,
provided that no order under Section 25140 or subdivision (a) of Section
25143 is in effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112
or 25113 of the Code, provided that no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property
Law or to the administrator of the unclaimed property law of another
state; or
(15) by the State Controller pursuant to the Unclaimed Property
Law or by the administrator of the unclaimed property law of another
state if, in either such case, such person (i) discloses to potential
purchasers at the sale that transfer of the securities is restricted
under this rule, (ii) delivers to each purchaser a copy of this rule,
and (iii) advises the Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement
by subdivision (f) of Section 25102; provided that any such transfer is
on the condition that any certificate evidencing the security issued to
such transferee shall contain the legend required by this section.
<PAGE> 32
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY,
OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN
THE COMMISSIONER'S RULES."
-2-
<PAGE> 33
EXHIBIT C
SECURITY AGREEMENT
This Security Agreement is made as of __________, 19___ between IDG
Books Worldwide, Inc., a Delaware corporation ("Pledgee"), and
_________________________ ("Pledgor").
Recitals
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 1998 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
(c) Margin Regulations. In the event that Pledgee's Common Stock
is now or later becomes margin-listed by the Federal Reserve Board and Pledgee
is classified as a "lender" within the meaning of the regulations under Part 207
of Title 12 of the Code of Federal Regulations
<PAGE> 34
("Regulation G"), Pledgor agrees to cooperate with Pledgee in making
any amendments to the Note or providing any additional collateral as may be
necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial
number of Shares pledged hereunder as the payment of principal bears to the
initial full principal amount of the Note.
-2-
<PAGE> 35
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
governed under the internal substantive laws, but not the choice of law rules,
of California.
-3-
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
"PLEDGOR"
---------------------------------
Signature
---------------------------------
Print Name
Address:
---------------------------------
---------------------------------
"PLEDGEE" IDG BOOKS WORLDWIDE, INC.,
a Delaware corporation
--------------------------------
Signature
--------------------------------
Print Name
--------------------------------
Title
"PLEDGEHOLDER"
---------------------------------
Corporate Secretary of
IDG Books Worldwide, Inc.
-4-
<PAGE> 37
EXHIBIT D
NOTE
$_______________ City, State
______________, 19___
FOR VALUE RECEIVED, _______________ promises to pay to IDG Books
Worldwide, Inc., a Delaware corporation (the "Company"), or order, the principal
sum of _______________________ ($_____________), together with interest on the
unpaid principal hereof from the date hereof at the rate of _______________
percent (____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on __________, 19___.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
---------------------------------
---------------------------------
<PAGE> 38
IDG BOOKS WORLDWIDE, INC.
1998 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Notice of Grant.
Grantee's Name and Address
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE
OR IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.
By your signature and the signature of the Company's representative below, you
and the Company agree that this Stock Purchase Right is granted under and
governed by the terms and conditions of the 1998 Stock Plan and the Restricted
Stock Purchase Agreement, attached hereto as Exhibit A-1, both of which are made
a part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: IDG BOOKS WORLDWIDE, INC.
- ------------------------------- ------------------------------------
Signature By
- ------------------------------- ------------------------------------
Print Name Title
<PAGE> 39
EXHIBIT A-1
IDG BOOKS WORLDWIDE, INC.
1998 STOCK PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is
an Service Provider, and the Purchaser's continued participation is considered
by the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an
equity interest in the Company as an incentive for the Purchaser to participate
in the affairs of the Company, the Administrator has granted to the Purchaser a
Stock Purchase Right subject to the terms and conditions of the Plan and the
Notice of Grant, which are incorporated herein by reference, and pursuant to
this Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
(a) In the event the Purchaser ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
canceling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals the aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price, the Company shall become the legal and beneficial owner of the
Shares being repurchased and all
<PAGE> 40
rights and interests therein or relating thereto, and the Company shall have the
right to retain and transfer to its own name the number of Shares being
repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares to
be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. Release of Shares From Repurchase Option.
(a) _______________________ percent (______%) of the Shares shall
be released from the Company's Repurchase Option one year after the Date of
Grant and __________________ percent (______%) of the Shares at the end of each
month thereafter, provided that the Purchaser does not cease to be a Service
Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
-2-
<PAGE> 41
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Purchaser understands that the Purchaser
(and not the Company) shall be responsible for the Purchaser's own tax liability
that may arise as a result of the transactions contemplated by this Agreement.
The Purchaser understands that Section 83 of the Internal Revenue Code of 1986,
as amended (the "Code"), taxes as ordinary income the difference between the
purchase price for the Shares and the Fair Market Value of the
-3-
<PAGE> 42
Shares as of the date any restrictions on the Shares lapse. In this context,
"restriction" includes the right of the Company to buy back the Shares pursuant
to the Repurchase Option. The Purchaser understands that the Purchaser may elect
to be taxed at the time the Shares are purchased rather than when and as the
Repurchase Option expires by filing an election under Section 83(b) of the Code
with the IRS within 30 days from the date of purchase. The form for making this
election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of California. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. Subject to Section 16(c) of the Plan, in the event of a
conflict between the terms and conditions of the Plan and the terms and
conditions of this Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be
given by either the Company or the Purchaser pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this
Agreement shall not in any way be construed as a waiver of any such provision,
nor prevent that party from thereafter enforcing any other provision of this
Agreement. The rights granted both parties hereunder are cumulative and shall
not constitute a waiver of either party's right to assert any other legal remedy
available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
-4-
<PAGE> 43
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: _____________________
PURCHASER: IDG BOOKS WORLDWIDE, INC.
- ------------------------------ ----------------------------------
Signature By
- ------------------------------ ----------------------------------
Print Name Title
-5-
<PAGE> 44
EXHIBIT A-2
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign
and transfer unto (__________) shares of the Common Stock of IDG Books
Worldwide, Inc. standing in my name of the books of said corporation represented
by Certificate No. _____ herewith and do hereby irrevocably constitute and
appoint to transfer the said stock on the books of the within named corporation
with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between________________________ and
the undersigned dated ______________, 19__.
Dated: _______________, 19
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE> 45
EXHIBIT A-3
JOINT ESCROW INSTRUCTIONS
____________ , 19___
Corporate Secretary
IDG Books Worldwide, Inc.
919 E. Hillsdale Blvd.
Suite 400
Foster City, CA 94404
Dear___________________:
As Escrow Agent for both IDG Books Worldwide, Inc., a Delaware
corporation (the "Company"), and the undersigned purchaser of stock of the
Company (the "Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Restricted
Stock Purchase Agreement ("Agreement") between the Company and the undersigned,
in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE> 46
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
-2-
<PAGE> 47
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: IDG Books Worldwide, Inc.
919 E. Hillsdale Blvd.
Suite 400
Foster City, CA 94404
PURCHASER: _________________________________
_________________________________
_________________________________
ESCROW AGENT: Executive Vice President
Operations/Administration
IDG Books Worldwide, Inc.
919 E. Hillsdale Blvd.
Suite 400
Foster City, CA 94404
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
-3-
<PAGE> 48
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
IDG BOOKS WORLDWIDE, INC.
------------------------------------
By
------------------------------------
Title
PURCHASER:
------------------------------------
Signature
------------------------------------
Print Name
ESCROW AGENT:
- -------------------------------------
Corporate Secretary
-4-
<PAGE> 49
EXHIBIT A-4
CONSENT OF SPOUSE
I, ____________________, spouse of ___________________, have read and
approve the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of the Company's grant to my spouse of the right to purchase
shares of IDG Books Worldwide, Inc., as set forth in the Agreement, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement or any shares
issued pursuant thereto under the community property laws or similar laws
relating to marital property in effect in the state of our residence as of the
date of the signing of the foregoing Agreement.
Dated: _______________, 19
-----------------------------------
Signature of Spouse
<PAGE> 50
EXHIBIT A-5
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: __________ shares (the "Shares") of the Common Stock of IDG Books
Worldwide, Inc. (the "Company").
3. The date on which the property was transferred is: ______________, 19__.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon
certain events. This right lapses with regard to a portion of the Shares
based on the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will never
lapse, of such property is:
$
---------------.
6. The amount (if any) paid for such property is:
$
---------------.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: ___________________, 19____ ______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 19____ ______________________________________
Spouse of Taxpayer
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), is entered into by IDG
Books Worldwide, Inc. ("IDG BOOKS") and its parent company International Data
Group (collectively the "COMPANY") and John Kilcullen (the "EXECUTIVE") as of
this 1st day of July, 1998, and will be effective on such date.
IDG Books desires to employ the Executive and the Executive desires to
be employed by IDG Books. In consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Term of Employment: The term of employment of Executive by IDG Books
hereunder shall commence upon the date of this Agreement (the
"COMMENCEMENT DATE") and shall continue thereafter on the same terms and
conditions for a period of three years unless earlier terminated
pursuant to Section 6 (such term being hereinafter referred to as the
"EMPLOYMENT PERIOD"). The Employment Period shall be extended
automatically without further action by either party as of the first
anniversary of the Commencement Date for a period of one year, unless
prior to such date IDG Books or the Executive shall notify the other in
writing of its or his intention not to renew the Agreement, in which
case the Agreement shall terminate at the end of the original term. If
the Employment Period is extended, it shall thereafter be referred to as
the Employment Period.
2. Title; Duties: The Executive shall serve as Chief Executive Officer and
Chairman of the Board of IDG Books reporting to the Board of Directors
of IDG Books. Executive shall perform those duties and responsibilities
inherent in such position, including such duties and responsibilities as
the Board of Directors of IDG Books shall assign. The Executive agrees
to devote his full time and best efforts, attention and energies to the
business and interests of IDG Books. During the Employment Period, IDG
Books shall use its best efforts to continue to nominate and elect
Executive as a director, and Executive shall continue to serve in such
capacity without additional consideration. Executive shall serve IDG
Books faithfully and to the best of his ability in such capacities,
devoting his full business time, attention, knowledge, energy and skills
to such employment; provided, however, IDG Books acknowledges that
Executive may serve on the board of directors of other companies with
the prior approval of the Board. Executive shall travel as reasonably
required in connection with the performance of his duties hereunder.
3. Compensation: IDG Books shall pay and Executive shall accept as full
consideration for the his services hereunder, compensation consisting of
the following:
3.1 Base Salary. Effective October 1, 1998, $289,000 per year base
salary, payable in installments in accordance with IDG Books'
normal payroll practices, less such
<PAGE> 2
deductions or withholdings required by law, and until October 1,
1998, the base salary shall be the base salary in effect for
Executive on the Commencement Date.
3.2 Bonus. Participation in the IDG Books' Bonus Plan; the targets
for such Bonus Plan are attached hereto as Exhibit A. Such bonus
participation shall commence on October 1, 1998. The Bonus Plan
in place on the Commencement Date shall remain in effect for
fiscal 1998.
3.3 Stock Options. Executive was previously granted a stock option
for 250,000 shares (the "OPTION") under the IDG Books Stock
Option Plan (the "STOCK OPTION PLAN"). The Option shall become
vested to the extent of 25% on the first anniversary of the
Commencement Date and 2.08% monthly for thirty-six months
thereafter (the "OPTION EXERCISE PERIOD") on the last day of
each month during which Executive remains employed with IDG
Books.
4. Benefits: Subject to all applicable eligibility requirements, and legal
limitations, Executive will be able to participate in any and all ESOP,
401(k), vacation, medical, dental, life and long-term disability
insurance and/or other benefit plans which from time to time may be
established for other employees of IDG Books.
5. Reimbursement of Expenses: IDG Books will reimburse Executive for all
reasonable travel, entertainment and other expenses incurred or paid by
the Executive in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement subject to
review by the compensation committee of the Board of Directors of IDG
Books.
6. Benefit Upon Termination of Employment Period.
6.1 Disability. In the event of the permanent disability (as
hereinafter defined) of Executive during the Employment Period,
IDG Books shall have the right, upon written notice to
Executive, to terminate Executive's employment hereunder,
effective upon the 30th calendar day following the giving of
such notice (or such later day as shall be specified in such
notice). Upon the effectiveness of such termination, (i) IDG
Books shall have no further obligations hereunder, except to pay
and provide, subject to applicable withholding, (A) all amounts
of Base Salary accrued, but unpaid, at the effective date of
termination, less any amounts payable under the IDG Book's
short-term and long-term disability policies for any period
prior to termination, (B) Executive's maximum or "stretch"
target bonus set forth in Exhibit A attached hereto, and (C) all
reasonable unreimbursed business-related expenses, (ii)
Executive's Option shall immediately vest and become exercisable
to the extent of twelve additional months of vesting and shall
remain exercisable for twelve months following termination of
employment and (iii) Executive shall have no further obligations
hereunder other than those provided for in Sections 9 and 10
hereof. All amounts payable to Executive pursuant to this
Section 6(a) shall be payable within 30 days following the
2
<PAGE> 3
effectiveness of the termination of Executive's employment. For
purposes of this Agreement, "PERMANENT DISABILITY" shall be
determined in the same manner as such term is determined under
IDG Book's long-term disability insurance policy by the policy
provider; provided that termination shall occur only if
Executive is incapable in any material respect of performing the
services required of him in accordance with his obligations
under Section 2 for a period of 180 consecutive days, or for 180
days in any 360 day period.
6.2 Death. In the event of the death of Executive during the
Employment Period, this Agreement shall automatically terminate
and IDG Books shall have no further obligations hereunder,
except to pay and provide to Executive's beneficiary or other
legal representative, subject to applicable withholding, (i) all
amounts of Base Salary and bonus accrued but unpaid, at the date
of death, (ii) an amount equal to Executive's maximum or
"stretch" target bonus, (iii) Executive's Option shall
immediately vest and become exercisable to the extent of twelve
additional months of vesting and shall remain exercisable for
twelve months following termination of employment and (iv) all
reasonable unreimbursed business-related expenses. All amounts
payable to Executive pursuant to this Section 6(b) shall be
payable within 30 days following the date of death.
6.3 Termination Without Cause. In the event of the termination of
Executive's employment by IDG Books without Cause (as defined
below) or upon the Executive's voluntary termination of his
employment for Good Reason (as defined below), (i) all amounts
of Base Salary and bonus accrued but unpaid on the date of
termination, (ii) an amount equal to Executive's Base Salary on
the date of termination for a period of twelve months shall be
paid by IDG Books in twelve equal monthly installments, (iii) an
amount equal to Executive's maximum or "stretch" target bonus
set forth in Exhibit A attached hereto and (iv) the Option shall
immediately vest and become exercisable to the extent of
twenty-four additional months of vesting and shall remain
exercisable for 180 days following termination of employment;
provided that if Executive's employment terminates pursuant to
this Section 6.3 within in the first twelve months following the
Commencement Date, Executive shall receive an amount equal to
the Base Salary and maximum or "stretch" target bonus amount
that would be paid but for such termination for the remainder of
the Employment Period and such option vesting and exercisability
shall continue as set forth in subparagraph (iv) above. Such
payment and additional vesting shall be in lieu of any claims
Executive may have had with respect to termination benefits or
additional vesting.
6.4 Circumstances Under Which Termination Benefits Would Not Be
Paid. IDG Books shall not be obligated to pay Executive the
termination benefits or continue the option vesting described in
subparagraphs 6.3 (ii) through (iv) above if the Employment
Period is terminated for Cause or if Executive voluntarily
terminates his employment other than for Good Reason (as defined
below). For purposes of this Agreement, "CAUSE" shall be limited
to:
3
<PAGE> 4
(A) Willful failure by Executive to substantially perform
his duties hereunder, other than a failure resulting
from his complete or partial incapacity due to physical
or mental illness or impairment;
(B) A material and willful violation of a federal or state
law or regulation applicable to the business of the
company or that adversely affects the image of the
Company;
(C) Commission of a willful act by Executive which
constitutes gross misconduct and is injurious to the
Company;
(D) A willful breach of a material provision violation of
this Agreement; or
(E) Executive's death, or permanent disability pursuant to
Section 6 above.
6.5 Constructive Termination. Notwithstanding anything in Section 3
or in this Section 6 to the contrary, for purposes of this
Agreement the Employment Period will be deemed to have been
terminated and Executive will be deemed to have Good Reason for
voluntary termination of the Employment Period ("GOOD REASON"),
if there should occur in lieu of the provisions of Section 6.3:
(A) A material adverse change in Executive's position
causing it to be of materially less stature or
responsibility without Executive's written consent, and
such a materially adverse change shall in all events be
deemed to occur if Executive no longer serves as Chief
Executive Officer reporting to the Board of Directors of
IDG Books but shall not be deemed to occur if Executive
no longer serves as Chairman of the Board of IDG Books;
(B) A material reduction, without Executive's written
consent, in his level of base compensation (including
base salary and fringe benefits) by more than ten
percent (10%);
(C) A Change in Control (as defined below) of IDG Books
(other than IDG assuming control of IDG Books);
(D) A relocation of Executive's principal place of
employment (other than a relocation of the Company's
headquarters with the concurrence of Management) outside
the Bay Area without Executive's consent other than at
the recommendation of management.
6.6 Notwithstanding anything in this Section 6 to the contrary, upon
Executive's permanent disability, death or termination of
employment for any reason other than for Cause, all "long-term
executive bonuses", deferred compensation, phantom stock and
shadow equity arrangements for the benefit of Executive that are
in effect immediately prior to the Commencement Date shall
immediately become vested, and Executive shall be entitled to a
cash lump sum payment in an amount equal to the cash value of
such amounts either immediately following the
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Company's initial public offering or within thirty (30) days of
Executive's termination of employment hereunder for any reason,
the time of such payment to be determined by the Board of
Directors of IDG Books in its sole discretion.
7. Change in Control Benefits:
Should there occur a Change in Control (as defined below), then the
following provisions shall become applicable in lieu of the provisions of
Section 6.3:
(A) During the period (if any) following a Change in Control that
Executive shall continue to remain employed, then the terms and provisions of
this Agreement shall continue in full force and effect, and Executive shall
continue to vest in all of his unvested stock options; or
(B) In the event of (i) a termination of the Executive's employment by
IDG Books other than for Cause within twelve (12) months after a Change in
Control or (ii) Executive voluntarily terminates his employment for Good Reason
within twelve (12) months after a Change in Control:
(i) IDG Books shall pay to Executive an amount equal to
(A) all amounts of Base Salary and bonus accrued to the date of termination and
(B) two hundred percent (200%) of Executive's Base Salary and "stretch" target
bonus set forth in Exhibit A attached hereto on the date of termination in one
lump sum amount, on or before the fifth business day following the effective
date of Executive's termination; and
(ii) All of the unvested options held by Executive on the
date of such Change in Control shall immediately vest and become exercisable in
full and shall remain exercisable for the period of 180 days following
termination of employment.
For purposes of this Section 7, the term "CHANGE OF CONTROL" shall mean:
(x) The sale, lease, conveyance, liquidation or other
disposition of all or substantially all of IDG Books'
assets as an entirety or substantially as an entirety to
any person, entity or group of persons acting in concert
other than in the ordinary course of business;
(y) Any transaction or series of related transactions (as a
result of a tender offer, merger, consolidation or
otherwise) that results in any Person (as defined in
Section 13(h)(8)(E) under the Securities Exchange Act of
1934) becoming the beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of more than 50% of the aggregate voting
power of all classes of common equity of IDG Books, except
if such Person is (A) a subsidiary of IDG Books, (B) an
employee stock ownership plan for employees of IDG Books
or (C) a company formed to hold IDG Books' common equity
securities and whose shareholders constituted, at the time
such company became such holding company, substantially
all the shareholders of IDG Books; or
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(z) A change in the composition of IDG Books' Board of
Directors over a period of thirty-six (36) consecutive
months or less (other than in connection with IDG Books'
initial public offering) such that a majority of the then
current Board members ceases to be comprised of
individuals who either (a) have been Board members
continuously since the beginning of such period, or (b)
have been elected or nominated for election as Board
members during such period by at least a majority of the
Board members described in clause (a) who were still in
office at the time such election or nomination was
approved by the Board.
In the event that the severance and other benefits provided to
Executive pursuant to Section 6 of this Agreement (i) constitute
"parachute payments" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "CODE") and (ii) but for this
Section 7, such severance and benefits would be subject to the excise
tax imposed by Section 4999 of the Code, then Executive's severance
benefits under this Section 7 shall be payable either:
(a) in full,
(b) as to such lesser amount which would result in no portion
of such severance and other benefits being subject to
excise tax under Section 4999 of the Code, whichever of
the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax
imposed by Section 4999, results in the receipt by
Executive on an after-tax basis, of the greatest amount of
severance benefits under this Agreement. Unless IDG Books
and Executive otherwise agree in writing, any
determination required under this Section 7 shall be made
in writing by independent public accountants agreed to by
IDG Books and Executive (the "ACCOUNTANTS"), whose
determination shall be conclusive and binding upon
Executive and IDG Books for all purposes. For purposes of
making the calculations required by this Section 7, the
Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. IDG
Books and Executive shall furnish to the Accountants such
information and documents as the Accountants may
reasonably request in order to make a determination under
this Section 7. IDG Books shall bear all costs the
Accountants may reasonably incur in connection with any
calculations contemplated by this Section 7.
8. Arbitration: To the fullest extent permitted by law all controversies
between Executive and the Company including whether any termination is
with or without cause, will be submitted for resolution to binding
arbitration, in accordance with the attached Arbitration Agreement
attached hereto as Exhibit B. This means that except as otherwise
stated, both the Company and the Executive understand that arbitration
will be their exclusive forum for resolving disputes between them, and
that both parties waive their entitlement, if any, to have controversies
between them decided by a court or a jury.
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9. Cooperation with IDG Books After Termination of the Employment Period:
Following termination of the Employment Period by Executive, Executive
shall fully cooperate with IDG Books in all matters relating to the
winding up of his pending work on behalf of IDG Books and the orderly
transfer of any such pending work to other employees of IDG Books as may
be designated by IDG Books.
10. Confidentiality; Return of Property; NonSolicitation:
(a) The Executive acknowledges that during the Employment Period he
will receive confidential information from IDG Books and
subsidiaries of IDG Books and the respective clients thereof
(each a "RELEVANT ENTITY"). Accordingly, the Executive agrees
that during the Employment Period (as it may be extended from
time to time) and thereafter for a period of two years, the
Executive and his affiliates shall not, except in the
performance of his obligations to IDG Books hereunder or as may
otherwise be approved in advance by IDG Books, directly or
indirectly, disclose or use (except for the direct benefit of
IDG Books) any confidential information that he may learn or has
learned by reason of his association with any Relevant Entity.
Upon termination of this Agreement, the Executive shall promptly
return to IDG Books any and all properties, records or papers of
any Relevant Entity, that may have been in his possession at the
time of termination, whether prepared by the Executive or
others, including, but not limited to, confidential information
and keys. For purposes of this Agreement, "confidential
information" includes all data, analyses, reports,
interpretations, forecasts, documents and information concerning
a Relevant Entity and its affairs, including, without limitation
with respect to clients, products, policies, procedures,
methodologies, trade secrets and other intellectual property,
systems, personnel, confidential reports, technical information,
financial information, business transactions, business plans,
prospects or opportunities, (i) that IDG Books reasonably
believes are confidential or (ii) the disclosure of which could
be injurious to a Relevant Entity or beneficial to competitors
of a Relevant Entity, but shall exclude any information that the
Executive is required to disclose under any applicable laws,
regulations or directives of any government agency, tribunal or
authority having jurisdiction in the matter or under subpoena or
other process of law. For purposes of this Agreement,
"affiliate" means any entity that, directly or indirectly, is
controlled by, or under common control with, the Executive. For
purposes of this definition, the terms "controlled" and "under
common control with" means the possession, direct or indirect,
of the power to direct or cause the direction of the management
and policies of such person, whether through the ownership of
voting stock, by contract or otherwise.
(b) For a period of one (1) year following the termination of his
employment with IDG Books for any reason, he will not, without
IDG Books' express written consent, either on his own behalf or
on behalf of another, solicit employees of IDG Books or any
subsidiary of IDG Books for the purpose of hiring them.
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11. General:
11.1 Indemnification. In the event Executive is made, or threatened
to be made, a party to any legal action or proceeding, whether
civil or criminal, solely by reason of the fact that Executive
is or was a director or officer of IDG Books or serves or served
any other corporation fifty percent (50%) or more owned or
controlled by IDG Books in any capacity at IDG Books' request,
Executive shall be indemnified by IDG Books, and IDG Books shall
pay Executive's related expenses when and as incurred, all to
the fullest extent permitted by law.
11.2 Waiver. Neither party shall, by mere lapse of time, without
giving notice or taking other action hereunder, be deemed to
have waived any breach by the other party of any of the
provisions of this Agreement. Further, the waiver by either
party of a particular breach of this Agreement by the other
shall neither be construed as, nor constitute a, continuing
waiver of such breach or of other breaches by the same or any
other provision of this Agreement.
11.3 Severability. If for any reason a court of competent
jurisdiction or arbitrator finds any provision of this Agreement
to be unenforceable, the provision shall be deemed amended as
necessary to conform to applicable laws or regulations, or if it
cannot be so amended without materially altering the intention
of the parties, the remainder of the Agreement shall continue in
full force and effect as if the offending provision were not
contained herein.
11.4 Notices. All notices and other communications required or
permitted to be given under this Agreement shall be in writing
and shall be considered effective upon personal service or upon
transmission of a facsimile or the deposit with Federal Express
or in Express Mail and addressed to the Chairman of the Board of
IDG Books as its principal corporate address, and to Executive
at his most recent address shown on IDG Books' corporate
records, or at any other address which he may specify in any
appropriate notice to IDG Books.
11.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all
of which taken together constitutes one and the same instrument
and in making proof hereof it shall not be necessary to produce
or account for more than one such counterpart.
11.6 Entire Agreement. The parties hereto acknowledge that each has
read this Agreement, understands it, and agrees to be bound by
its terms. The parties further agree that this Agreement and the
referenced stock option agreements shall constitute the complete
and exclusive statement of the agreement between the parties and
supersedes all proposals (oral or written), understandings,
representations, conditions, covenants, and all other
communications between the parties relating to the subject
matter hereof.
11.7 Governing Law. This Agreement shall be governed by the law of
the State of California.
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11.8 Assignment and Successors. IDG Books shall have the right to
assign its rights and obligations under this Agreement to an
entity which acquires substantially all of the assets of IDG
Books. The rights and obligation of IDG Books under this
Agreement shall inure to the benefit and shall be binding upon
the successors and assigns of IDG Books.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
Dated:____________________________ _________________________________________
Executive
Dated:____________________________ IDG Books Worldwide, Inc.
By:______________________________________
Dated:____________________________ International Data Group
By:______________________________________
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<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), is entered into by IDG
Books Worldwide, Inc. ("IDG BOOKS") and its parent company International Data
Group (collectively the "COMPANY") and Steven Berkowitz (the "Executive") as of
this 1st day of July, 1998, and will be effective on such date.
IDG Books desires to employ the Executive and the Executive desires to
be employed by IDG Books. In consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Term of Employment: The term of employment of Executive by IDG Books
hereunder shall commence upon the date of this Agreement (the
"COMMENCEMENT DATE") and shall continue thereafter on the same terms
and conditions for a period of three years unless earlier terminated
pursuant to Section 6 (such term being hereinafter referred to as the
"EMPLOYMENT PERIOD"). The Employment Period shall be extended
automatically without further action by either party as of the first
anniversary of the Commencement Date for a period of one year, unless
prior to such date IDG Books or the Executive shall notify the other in
writing of its or his intention not to renew the Agreement, in which
case the Agreement shall terminate at the end of the original term. If
the Employment Period is extended, it shall thereafter be referred to
as the Employment Period.
2. Title; Duties: The Executive shall serve as President of IDG Books
reporting to the Chief Executive Officer of IDG Books. Executive shall
perform those duties and responsibilities inherent in such position,
including such duties and responsibilities as the Chief Executive
Officer of IDG Books shall assign. The Executive agrees to devote his
full time and best efforts, attention and energies to the business and
interests of IDG Books. Executive shall serve IDG Books faithfully and
to the best of his ability in such capacity, devoting his full business
time, attention, knowledge, energy and skills to such employment;
provided, however, IDG Books acknowledges that Executive may serve on
the board of directors of other companies with the prior approval of
the Board. Executive shall travel as reasonably required in connection
with the performance of his duties hereunder.
3. Compensation: IDG Books shall pay and Executive shall accept as full
consideration for the his services hereunder, compensation consisting
of the following:
3.1 Base Salary. Effective October 1, 1998, $235,000 per year base
salary, payable in installments in accordance with IDG Books'
normal payroll practices, less such deductions or withholdings
required by law, and until October 1, 1998, the base salary
shall be the base salary in effect for Executive on the
Commencement Date.
3.2 Bonus. Participation in the IDG Books' Bonus Plan; the targets
for such Bonus Plan are attached hereto as Exhibit A. Such
bonus participation shall commence
<PAGE> 2
on October 1, 1998. The Bonus Plan in place on the
Commencement Date shall remain in effect for fiscal 1998.
3.3 Stock Options. Executive was previously granted a stock option
for 250,000 shares (the "OPTION") under the IDG Books Stock
Option Plan (the "STOCK OPTION PLAN"). The Option shall become
vested to the extent of 25% on the first anniversary of the
Commencement Date and 2.08% monthly for thirty-six months
thereafter (the "OPTION EXERCISE PERIOD") on the last day of
each month during which Executive remains employed with IDG
Books.
4. Benefits: Subject to all applicable eligibility requirements, and legal
limitations, Executive will be able to participate in any and all ESOP,
401(k), vacation, medical, dental, life and long-term disability
insurance and/or other benefit plans which from time to time may be
established for other employees of IDG Books.
5. Reimbursement of Expenses: IDG Books will reimburse Executive for all
reasonable travel, entertainment and other expenses incurred or paid by
the Executive in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement subject to
review by the compensation committee of the Board of Directors of IDG
Books.
6. Benefit Upon Termination of Employment Period.
6.1 Disability. In the event of the permanent disability (as
hereinafter defined) of Executive during the Employment
Period, IDG Books shall have the right, upon written notice to
Executive, to terminate Executive's employment hereunder,
effective upon the 30th calendar day following the giving of
such notice (or such later day as shall be specified in such
notice). Upon the effectiveness of such termination, (i) IDG
Books shall have no further obligations hereunder, except to
pay and provide, subject to applicable withholding, (A) all
amounts of Base Salary accrued, but unpaid, at the effective
date of termination, less any amounts payable under IDG Book's
short-term and long-term disability policies for any period
prior to termination, (B) Executive's maximum or "stretch"
target bonus set forth in Exhibit A attached hereto, and (C)
all reasonable unreimbursed business-related expenses, (ii)
Executive's Option shall immediately vest and become
exercisable to the extent of twelve additional months of
vesting and shall remain exercisable for twelve months
following termination of employment and (iii) Executive shall
have no further obligations hereunder other than those
provided for in Sections 9 and 10 hereof. All amounts payable
to Executive pursuant to this Section 6(a) shall be payable
within 30 days following the effectiveness of the termination
of Executive's employment. For purposes of this Agreement,
"PERMANENT DISABILITY" shall be determined in the same manner
as such term is determined under IDG Book's long-term
disability insurance policy by the policy provider; provided
that termination shall occur only if Executive is incapable in
any material respect of performing the services required of
him in
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accordance with his obligations under Section 2 for a period
of 180 consecutive days, or for 180 days in any 360 day
period.
6.2 Death. In the event of the death of Executive during the
Employment Period, this Agreement shall automatically
terminate and IDG Books shall have no further obligations
hereunder, except to pay and provide to Executive's
beneficiary or other legal representative, subject to
applicable withholding, (i) all amounts of Base Salary and
bonus accrued but unpaid, at the date of death, (ii) an amount
equal to Executive's maximum or "stretch" target bonus, (iii)
Executive's Option shall immediately vest and become
exercisable to the extent of twelve additional months of
vesting and shall remain exercisable for twelve months
following termination of employment and (iv) all reasonable
unreimbursed business-related expenses. All amounts payable to
Executive pursuant to this Section 6(b) shall be payable
within 30 days following the date of death.
6.3 Termination Without Cause. In the event of the termination of
Executive's employment by IDG Books without Cause (as defined
below) or upon the Executive's voluntary termination of his
employment for Good Reason (as defined below), (i) all amounts
of Base Salary and bonus accrued but unpaid on the date of
termination, (ii) an amount equal to Executive's Base Salary
on the date of termination for a period of twelve months shall
be paid by IDG Books in twelve equal monthly installments,
(iii) an amount equal to Executive's maximum or "stretch"
target bonus set forth in Exhibit A attached hereto and (iv)
the Option shall immediately vest and become exercisable to
the extent of twenty-four additional months of vesting and
shall remain exercisable for 180 days following termination of
employment; provided that if Executive's employment terminates
pursuant to this Section 6.3 within in the first twelve months
following the Commencement Date, Executive shall receive an
amount equal to the Base Salary and maximum or "stretch"
target bonus amount that would be paid but for such
termination for the remainder of the Employment Period and
such option vesting and exercisability shall continue as set
forth in subparagraph (iv) above. Such payment and additional
vesting shall be in lieu of any claims Executive may have had
with respect to termination benefits or additional vesting.
6.4 Circumstances Under Which Termination Benefits Would Not Be
Paid. IDG Books shall not be obligated to pay Executive the
termination benefits or continue the option vesting described
in subparagraphs 6.3 (ii) through (iv) above if the Employment
Period is terminated for Cause or if Executive voluntarily
terminates his employment other than for Good Reason (as
defined below). For purposes of this Agreement, "CAUSE" shall
be limited to:
(A) Willful failure by Executive to substantially perform
his duties hereunder, other than a failure resulting
from his complete or partial incapacity due to
physical or mental illness or impairment;
(B) A material and willful violation of a federal or
state law or regulation applicable to the business of
the company or that adversely affects the
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<PAGE> 4
image of the Company;
(C) Commission of a willful act by Executive which
constitutes gross misconduct and is injurious to the
Company;
(D) A willful breach of a material provision violation of
this Agreement; or
(E) Executive's death, or permanent disability pursuant
to Section 6 above.
6.5 Constructive Termination. Notwithstanding anything in Section
3 or in this Section 6 to the contrary, for purposes of this
Agreement the Employment Period will be deemed to have been
terminated and Executive will be deemed to have Good Reason
for voluntary termination of the Employment Period ("GOOD
REASON"), if there should occur:
(A) A material adverse change in Executive's position
causing it to be of materially less stature or
responsibility without Executive's written consent,
and such a materially adverse change shall in all
events be deemed to occur if Executive no longer
serves as President reporting to the Chief Executive
Officer of IDG Books;
(B) A material reduction, without Executive's written
consent, in his level of base compensation (including
base salary and fringe benefits) by more than ten
percent (10%);
(C) A Change in Control (as defined below) of IDG Books
(other than IDG assuming control of IDG Books);
(D) A relocation of Executive's principal place of
employment (other than a relocation of the Company's
headquarters with the concurrence of Management)
outside the Bay Area without Executive's consent
other than at the recommendation of management.
6.6 Notwithstanding anything in this Section 6 to the contrary,
upon Executive's permanent disability, death or termination of
employment for any reason other than for Cause, all "long-term
executive bonuses", deferred compensation, phantom stock and
shadow equity arrangements for the benefit of Executive that
are in effect immediately prior to the Commencement Date shall
immediately become vested, and Executive shall be entitled to
a cash lump sum payment in an amount equal to the cash value
of such amounts either immediately following the Company's
initial public offering or within thirty (30) days of
Executive's termination of employment hereunder for any
reason, the time of such payment to be determined by the Board
of Directors of IDG Books in its sole discretion.
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<PAGE> 5
7. Change in Control Benefits:
Should there occur a Change in Control (as defined below), then the
following provisions shall become applicable in lieu of the provisions of
Section 6.3:
(A) During the period (if any) following a Change in Control
that Executive shall continue to remain employed, then the terms and provisions
of this Agreement shall continue in full force and effect, and Executive shall
continue to vest in all of his unvested stock options; or
(B) In the event of (i) a termination of the Executive's
employment by IDG Books other than for Cause within twelve (12) months after a
Change in Control or (ii) Executive voluntarily terminates his employment for
Good Reason within twelve (12) months after a Change in Control:
(i) IDG Books shall pay to Executive an amount equal
to (A) all amounts of Base Salary and bonus accrued to the date of termination
and (B) two hundred percent (200%) of Executive's Base Salary and "stretch"
target bonus set forth in Exhibit A attached hereto on the date of termination
in one lump sum amount, on or before the fifth business day following the
effective date of Executive's termination; and
(ii) All of the unvested options held by Executive
on the date of such Change in Control shall immediately vest and become
exercisable in full and shall remain exercisable for the period of 180 days
following termination of employment.
For purposes of this Section 7, the term "CHANGE OF CONTROL" shall
mean:
(x) The sale, lease, conveyance, liquidation or other
disposition of all or substantially all of IDG Books'
assets as an entirety or substantially as an entirety
to any person, entity or group of persons acting in
concert other than in the ordinary course of
business;
(y) Any transaction or series of related transactions (as
a result of a tender offer, merger, consolidation or
otherwise) that results in any Person (as defined in
Section 13(h)(8)(E) under the Securities Exchange Act
of 1934) becoming the beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of
1934), directly or indirectly, of more than 50% of
the aggregate voting power of all classes of common
equity of IDG Books, except if such Person is (A) a
subsidiary of IDG Books, (B) an employee stock
ownership plan for employees of IDG Books or (C) a
company formed to hold IDG Books' common equity
securities and whose shareholders constituted, at the
time such company became such holding company,
substantially all the shareholders of IDG Books; or
(z) A change in the composition of IDG Books' Board of
Directors over a period of thirty-six (36)
consecutive months or less (other than in connection
with IDG Books' initial public offering) such that a
majority of
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<PAGE> 6
the then current Board members ceases to be comprised
of individuals who either (a) have been Board members
continuously since the beginning of such period, or
(b) have been elected or nominated for election as
Board members during such period by at least a
majority of the Board members described in clause (a)
who were still in office at the time such election or
nomination was approved by the Board.
In the event that the severance and other benefits provided to
Executive pursuant to Section 6 of this Agreement (i) constitute
"parachute payments" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "CODE") and (ii) but for this
Section 7, such severance and benefits would be subject to the excise
tax imposed by Section 4999 of the Code, then Executive's severance
benefits under this Section 7 shall be payable either:
(a) in full,
(b) as to such lesser amount which would result in no
portion of such severance and other benefits being
subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into
account the applicable federal, state and local
income taxes and the excise tax imposed by Section
4999, results in the receipt by Executive on an
after-tax basis, of the greatest amount of severance
benefits under this Agreement. Unless IDG Books and
Executive otherwise agree in writing, any
determination required under this Section 7 shall be
made in writing by independent public accountants
agreed to by IDG Books and Executive (the
"ACCOUNTANTS"), whose determination shall be
conclusive and binding upon Executive and IDG Books
for all purposes. For purposes of making the
calculations required by this Section 7, the
Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999
of the Code. IDG Books and Executive shall furnish to
the Accountants such information and documents as the
Accountants may reasonably request in order to make a
determination under this Section 7. IDG Books shall
bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by
this Section 7.
8. Arbitration: To the fullest extent permitted by law all controversies
between Executive and the Company including whether any termination is
with or without cause, will be submitted for resolution to binding
arbitration, in accordance with the attached Arbitration Agreement
attached hereto as Exhibit B. This means that except as otherwise
stated, both the Company and the Executive understand that arbitration
will be their exclusive forum for resolving disputes between them, and
that both parties waive their entitlement, if any, to have
controversies between them decided by a court or a jury.
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<PAGE> 7
9. Cooperation with IDG Books After Termination of the Employment Period:
Following termination of the Employment Period by Executive, Executive
shall fully cooperate with IDG Books in all matters relating to the
winding up of his pending work on behalf of IDG Books and the orderly
transfer of any such pending work to other employees of IDG Books as
may be designated by IDG Books.
10. Confidentiality; Return of Property; Non Solicitation:
(a) The Executive acknowledges that during the Employment Period
he will receive confidential information from IDG Books and
subsidiaries of IDG Books and the respective clients thereof
(each a "RELEVANT ENTITY"). Accordingly, the Executive agrees
that during the Employment Period (as it may be extended from
time to time) and thereafter for a period of two years, the
Executive and his affiliates shall not, except in the
performance of his obligations to IDG Books hereunder or as
may otherwise be approved in advance by IDG Books, directly or
indirectly, disclose or use (except for the direct benefit of
IDG Books) any confidential information that he may learn or
has learned by reason of his association with any Relevant
Entity. Upon termination of this Agreement, the Executive
shall promptly return to IDG Books any and all properties,
records or papers of any Relevant Entity, that may have been
in his possession at the time of termination, whether prepared
by the Executive or others, including, but not limited to,
confidential information and keys. For purposes of this
Agreement, "confidential information" includes all data,
analyses, reports, interpretations, forecasts, documents and
information concerning a Relevant Entity and its affairs,
including, without limitation with respect to clients,
products, policies, procedures, methodologies, trade secrets
and other intellectual property, systems, personnel,
confidential reports, technical information, financial
information, business transactions, business plans, prospects
or opportunities, (i) that IDG Books reasonably believes are
confidential or (ii) the disclosure of which could be
injurious to a Relevant Entity or beneficial to competitors of
a Relevant Entity, but shall exclude any information that the
Executive is required to disclose under any applicable laws,
regulations or directives of any government agency, tribunal
or authority having jurisdiction in the matter or under
subpoena or other process of law. For purposes of this
Agreement, "affiliate" means any entity that, directly or
indirectly, is controlled by, or under common control with,
the Executive. For purposes of this definition, the terms
"controlled" and "under common control with" means the
possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of such
person, whether through the ownership of voting stock, by
contract or otherwise.
(b) For a period of one (1) year following the termination of his
employment with IDG Books for any reason, he will not, without
IDG Books' express written consent, either on his own behalf
or on behalf of another, solicit employees of IDG Books or any
subsidiary of IDG Books for the purpose of hiring them.
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<PAGE> 8
11. General:
11.1 Indemnification. In the event Executive is made, or threatened
to be made, a party to any legal action or proceeding, whether
civil or criminal, solely by reason of the fact that Executive
is or was a director or officer of IDG Books or serves or
served any other corporation fifty percent (50%) or more owned
or controlled by IDG Books in any capacity at IDG Books'
request, Executive shall be indemnified by IDG Books, and IDG
Books shall pay Executive's related expenses when and as
incurred, all to the fullest extent permitted by law.
11.2 Waiver. Neither party shall, by mere lapse of time, without
giving notice or taking other action hereunder, be deemed to
have waived any breach by the other party of any of the
provisions of this Agreement. Further, the waiver by either
party of a particular breach of this Agreement by the other
shall neither be construed as, nor constitute a, continuing
waiver of such breach or of other breaches by the same or any
other provision of this Agreement.
11.3 Severability. If for any reason a court of competent
jurisdiction or arbitrator finds any provision of this
Agreement to be unenforceable, the provision shall be deemed
amended as necessary to conform to applicable laws or
regulations, or if it cannot be so amended without materially
altering the intention of the parties, the remainder of the
Agreement shall continue in full force and effect as if the
offending provision were not contained herein.
11.4 Notices. All notices and other communications required or
permitted to be given under this Agreement shall be in writing
and shall be considered effective upon personal service or
upon transmission of a facsimile or the deposit with Federal
Express or in Express Mail and addressed to the Chairman of
the Board of IDG Books as its principal corporate address, and
to Executive at his most recent address shown on IDG Books'
corporate records, or at any other address which he may
specify in any appropriate notice to IDG Books.
11.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and
all of which taken together constitutes one and the same
instrument and in making proof hereof it shall not be
necessary to produce or account for more than one such
counterpart.
11.6 Entire Agreement. The parties hereto acknowledge that each has
read this Agreement, understands it, and agrees to be bound by
its terms. The parties further agree that this Agreement and
the referenced stock option agreements shall constitute the
complete and exclusive statement of the agreement between the
parties and supersedes all proposals (oral or written),
understandings, representations, conditions, covenants, and
all other communications between the parties relating to the
subject matter hereof.
11.7 Governing Law. This Agreement shall be governed by the law of
the State of California.
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11.8 Assignment and Successors. IDG Books shall have the right to
assign its rights and obligations under this Agreement to an
entity which acquires substantially all of the assets of IDG
Books. The rights and obligation of IDG Books under this
Agreement shall inure to the benefit and shall be binding upon
the successors and assigns of IDG Books.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
Dated:______________________________ ____________________________________
Executive
Dated:______________________________ IDG Books Worldwide, Inc.
By:_________________________________
Dated:______________________________ International Data Group
By:_________________________________
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<PAGE> 1
EXHIBIT 10.6
COMPENSATION AGREEMENT
THIS COMPENSATION AGREEMENT (the "AGREEMENT"), is entered into by IDG
Books Worldwide, Inc. ("IDG BOOKS") and its parent company International Data
Group (collectively the "COMPANY") and John Ball (the "EXECUTIVE") as of this
1st day of July, 1998, and will be effective on such date.
IDG Books desires to employ the Executive and the Executive desires to
be employed by IDG Books. In consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Term of Employment: The term of employment of Executive by IDG Books
hereunder shall commence upon the date of this Agreement (the
"COMMENCEMENT DATE") and shall continue thereafter on the same terms and
conditions for a period of three years unless earlier terminated
pursuant to Section 6 (such term being hereinafter referred to as the
"EMPLOYMENT PERIOD"). The Employment Period shall be extended
automatically without further action by either party as of the first
anniversary of the Commencement Date for a period of one year, unless
prior to such date IDG Books or the Executive shall notify the other in
writing of its or his intention not to renew the Agreement, in which
case the Agreement shall terminate at the end of the original term. If
the Employment Period is extended, it shall thereafter be referred to as
the Employment Period.
2. Title; Duties: The Executive shall serve as Executive Vice President and
Secretary reporting to the President and Publisher of IDG Books.
Executive shall perform those duties and responsibilities inherent in
such position, including such duties and responsibilities as the
President and Publisher of IDG Books shall assign. The Executive agrees
to devote his full time and best efforts, attention and energies to the
business and interests of IDG Books. Executive shall travel as
reasonably required in connection with the performance of his duties
hereunder.
3. Compensation: IDG Books shall pay and Executive shall accept as full
consideration for the his services hereunder, compensation consisting of
the following:
3.1 Base Salary. Effective October 1, 1998, $200,000 per year base
salary, payable in installments in accordance with IDG Books'
normal payroll practices, less such deductions or withholdings
required by law, and until October 1, 1998, the base salary
shall be the base salary in effect for Executive on the
Commencement Date.
3.2 Bonus. Participation in the IDG Books' Bonus Plan; the targets
for such Bonus Plan are attached hereto as Exhibit A. Such bonus
participation shall commence
<PAGE> 2
on October 1, 1998. The Bonus Plan in place on the Commencement
Date shall remain in effect for fiscal 1998.
3.3 Stock Options. Executive was previously granted a stock option
for 100,000 shares (the "OPTION") under the IDG Books Stock
Option Plan (the "STOCK OPTION PLAN"). The Option shall become
vested to the extent of 25% on the first anniversary of the
Commencement Date and 2.08% monthly for thirty-six months
thereafter (the "OPTION EXERCISE PERIOD") on the last day of
each month during which Executive remains employed with IDG
Books.
4. Benefits: Subject to all applicable eligibility requirements, and legal
limitations, Executive will be able to participate in any and all ESOP,
401(k), vacation, medical, dental, life and long-term disability
insurance and/or other benefit plans which from time to time may be
established for other employees of IDG Books.
5. Reimbursement of Expenses: IDG Books will reimburse Executive for all
reasonable travel, entertainment and other expenses incurred or paid by
the Executive in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement subject to
review by the compensation committee of the Board of Directors of IDG
Books.
6. Benefit Upon Termination of Employment Period.
6.1 Disability. In the event of the permanent disability (as
hereinafter defined) of Executive during the Employment Period,
IDG Books shall have the right, upon written notice to
Executive, to terminate Executive's employment hereunder,
effective upon the 30th calendar day following the giving of
such notice (or such later day as shall be specified in such
notice). Upon the effectiveness of such termination, (i) IDG
Books shall have no further obligations hereunder, except to pay
and provide, subject to applicable withholding, (A) all amounts
of Base Salary accrued, but unpaid, at the effective date of
termination, less any amounts payable under the IDG Book's
short-term and long-term disability policies for any period
prior to termination, (B) Executive's maximum or "stretch"
target bonus set forth in Exhibit A attached hereto, and (C) all
reasonable unreimbursed business-related expenses, (ii)
Executive's Option shall immediately vest and become exercisable
to the extent of twelve additional months of vesting and shall
remain exercisable for twelve months following termination of
employment and (iii) Executive shall have no further obligations
hereunder other than those provided for in Sections 9 and 10
hereof. All amounts payable to Executive pursuant to this
Section 6(a) shall be payable within 30 days following the
effectiveness of the termination of Executive's employment. For
purposes of this Agreement, "PERMANENT DISABILITY" shall be
determined in the same manner as such term is determined under
IDG Book's long-term disability insurance policy by the policy
provider; provided that termination shall occur only if
Executive is incapable in any material respect of performing the
services required of him in
2
<PAGE> 3
accordance with his obligations under Section 2 for a period of
180 consecutive days, or for 180 days in any 360 day period.
6.2 Death. In the event of the death of Executive during the
Employment Period, this Agreement shall automatically terminate
and IDG Books shall have no further obligations hereunder,
except to pay and provide to Executive's beneficiary or other
legal representative, subject to applicable withholding, (i) all
amounts of Base Salary and bonus accrued but unpaid, at the date
of death, (ii) an amount equal to Executive's maximum or
"stretch" target bonus, (iii) Executive's Option shall
immediately vest and become exercisable to the extent of twelve
additional months of vesting and shall remain exercisable for
twelve months following termination of employment and (iv) all
reasonable unreimbursed business-related expenses. All amounts
payable to Executive pursuant to this Section 6(b) shall be
payable within 30 days following the date of death.
6.3 Termination Without Cause. In the event of the termination of
Executive's employment by IDG Books without Cause (as defined
below) (i) all amounts of Base Salary and bonus accrued but
unpaid on the date of termination, (ii) an amount equal to
Executive's Base Salary on the date of termination for a period
of twelve months shall be paid by IDG Books in twelve equal
monthly installments, (iii) an amount equal to Executive's
maximum or "stretch" target bonus set forth in Exhibit A
attached hereto and (iv) the Option shall immediately vest and
become exercisable to the extent of twenty-four additional
months of vesting and shall remain exercisable for 180 days
following termination of employment. Such payment and additional
vesting shall be in lieu of any claims Executive may have had
with respect to termination benefits or additional vesting.
6.4 Circumstances Under Which Termination Benefits Would Not Be
Paid. IDG Books shall not be obligated to pay Executive the
termination benefits or continue the option vesting described in
subparagraphs 6.3 (ii) through (iv) above if the Employment
Period is terminated for Cause or if Executive voluntarily
terminates his employment. For purposes of this Agreement,
"CAUSE" shall be limited to:
(A) Willful failure by Executive to substantially perform
his duties hereunder, other than a failure resulting
from his complete or partial incapacity due to physical
or mental illness or impairment;
(B) A material and willful violation of a federal or state
law or regulation applicable to the business of the
company or that adversely affects the image of the
Company;
(C) Commission of a willful act by Executive which
constitutes gross misconduct and is injurious to the
Company;
(D) A willful breach of a material provision violation of
this Agreement; or
(E) Executive's death, or permanent disability pursuant to
Section 6 above.
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<PAGE> 4
7. Change in Control Benefits:
Should there occur a Change in Control (as defined below), then the
following provisions shall become applicable in lieu of the provisions of
Section 6.3:
(A) During the period (if any) following a Change in Control that
Executive shall continue to remain employed, then the terms and provisions of
this Agreement shall continue in full force and effect, and Executive shall
continue to vest in all of his unvested stock options; or
(B) In the event of (i) a termination of the Executive's employment by
IDG Books other than for Cause within twelve (12) months after a Change in
Control:
(i) IDG Books shall pay to Executive an amount equal to
(A) all amounts of Base Salary and bonus accrued to the date of termination and
(B) two hundred percent (200%) of Executive's Base Salary and "stretch" target
bonus set forth in Exhibit A attached hereto on the date of termination in one
lump sum amount, on or before the fifth business day following the effective
date of Executive's termination; and
(ii) All of the unvested options held by Executive on the
date of such Change in Control shall immediately vest and become exercisable in
full and shall remain exercisable for the period of 180 days following
termination of employment.
For purposes of this Section 7, the term "CHANGE OF CONTROL" shall mean:
(x) The sale, lease, conveyance, liquidation or other
disposition of all or substantially all of IDG Books'
assets as an entirety or substantially as an entirety to
any person, entity or group of persons acting in concert
other than in the ordinary course of business;
(y) Any transaction or series of related transactions (as a
result of a tender offer, merger, consolidation or
otherwise) that results in any Person (as defined in
Section 13(h)(8)(E) under the Securities Exchange Act of
1934) becoming the beneficial owner (as defined in Rule
13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of more than 50% of the aggregate voting
power of all classes of common equity of IDG Books, except
if such Person is (A) a subsidiary of IDG Books, (B) an
employee stock ownership plan for employees of IDG Books
or (C) a company formed to hold IDG Books' common equity
securities and whose shareholders constituted, at the time
such company became such holding company, substantially
all the shareholders of IDG Books; or
(z) A change in the composition of IDG Books' Board of
Directors over a period of thirty-six (36) consecutive
months or less (other than in connection with IDG Books'
initial public offering) such that a majority of the then
current Board members ceases to be comprised of
individuals who either (a) have been Board members
continuously since the beginning of such period, or (b)
have been elected or nominated for election as Board
members during such period by at least a majority of the
Board members
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<PAGE> 5
described in clause (a) who were still in office at the
time such election or nomination was approved by the
Board.
In the event that the severance and other benefits provided to
Executive pursuant to Section 6 of this Agreement (i) constitute
"parachute payments" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "CODE") and (ii) but for this
Section 7, such severance and benefits would be subject to the excise
tax imposed by Section 4999 of the Code, then Executive's severance
benefits under this Section 7 shall be payable either:
(a) in full,
(b) as to such lesser amount which would result in no portion
of such severance and other benefits being subject to
excise tax under Section 4999 of the Code, whichever of
the foregoing amounts, taking into account the applicable
federal, state and local income taxes and the excise tax
imposed by Section 4999, results in the receipt by
Executive on an after-tax basis, of the greatest amount of
severance benefits under this Agreement. Unless IDG Books
and Executive otherwise agree in writing, any
determination required under this Section 7 shall be made
in writing by independent public accountants agreed to by
IDG Books and Executive (the "ACCOUNTANTS"), whose
determination shall be conclusive and binding upon
Executive and IDG Books for all purposes. For purposes of
making the calculations required by this Section 7, the
Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. IDG
Books and Executive shall furnish to the Accountants such
information and documents as the Accountants may
reasonably request in order to make a determination under
this Section 7. IDG Books shall bear all costs the
Accountants may reasonably incur in connection with any
calculations contemplated by this Section 7.
8. Arbitration: To the fullest extent permitted by law all controversies
between Executive and the Company including whether any termination is
with or without cause, will be submitted for resolution to binding
arbitration, in accordance with the attached Arbitration Agreement
attached hereto as Exhibit B. This means that except as otherwise
stated, both the Company and the Executive understand that arbitration
will be their exclusive forum for resolving disputes between them, and
that both parties waive their entitlement, if any, to have controversies
between them decided by a court or a jury.
9. Cooperation with IDG Books After Termination of the Employment Period:
Following termination of the Employment Period by Executive, Executive
shall fully cooperate with IDG Books in all matters relating to the
winding up of his pending work on behalf of IDG Books and the orderly
transfer of any such pending work to other employees of IDG Books as may
be designated by IDG Books.
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<PAGE> 6
10. Confidentiality; Return of Property; NonSolicitation:
(a) The Executive acknowledges that during the Employment Period he
will receive confidential information from IDG Books and
subsidiaries of IDG Books and the respective clients thereof
(each a "RELEVANT ENTITY"). Accordingly, the Executive agrees
that during the Employment Period (as it may be extended from
time to time) and thereafter for a period of two years, the
Executive and his affiliates shall not, except in the
performance of his obligations to IDG Books hereunder or as may
otherwise be approved in advance by IDG Books, directly or
indirectly, disclose or use (except for the direct benefit of
IDG Books) any confidential information that he may learn or has
learned by reason of his association with any Relevant Entity.
Upon termination of this Agreement, the Executive shall promptly
return to IDG Books any and all properties, records or papers of
any Relevant Entity, that may have been in his possession at the
time of termination, whether prepared by the Executive or
others, including, but not limited to, confidential information
and keys. For purposes of this Agreement, "confidential
information" includes all data, analyses, reports,
interpretations, forecasts, documents and information concerning
a Relevant Entity and its affairs, including, without limitation
with respect to clients, products, policies, procedures,
methodologies, trade secrets and other intellectual property,
systems, personnel, confidential reports, technical information,
financial information, business transactions, business plans,
prospects or opportunities, (i) that IDG Books reasonably
believes are confidential or (ii) the disclosure of which could
be injurious to a Relevant Entity or beneficial to competitors
of a Relevant Entity, but shall exclude any information that the
Executive is required to disclose under any applicable laws,
regulations or directives of any government agency, tribunal or
authority having jurisdiction in the matter or under subpoena or
other process of law. For purposes of this Agreement,
"affiliate" means any entity that, directly or indirectly, is
controlled by, or under common control with, the Executive. For
purposes of this definition, the terms "controlled" and "under
common control with" means the possession, direct or indirect,
of the power to direct or cause the direction of the management
and policies of such person, whether through the ownership of
voting stock, by contract or otherwise.
(b) For a period of one (1) year following the termination of his
employment with IDG Books for any reason, he will not, without
IDG Books' express written consent, either on his own behalf or
on behalf of another, solicit employees of IDG Books or any
subsidiary of IDG Books for the purpose of hiring them.
6
<PAGE> 7
11. General:
11.1 Indemnification. In the event Executive is made, or threatened
to be made, a party to any legal action or proceeding, whether
civil or criminal, solely by reason of the fact that Executive
is or was a director or officer of IDG Books or serves or served
any other corporation fifty percent (50%) or more owned or
controlled by IDG Books in any capacity at IDG Books' request,
Executive shall be indemnified by IDG Books, and IDG Books shall
pay Executive's related expenses when and as incurred, all to
the fullest extent permitted by law.
11.2 Waiver. Neither party shall, by mere lapse of time, without
giving notice or taking other action hereunder, be deemed to
have waived any breach by the other party of any of the
provisions of this Agreement. Further, the waiver by either
party of a particular breach of this Agreement by the other
shall neither be construed as, nor constitute a, continuing
waiver of such breach or of other breaches by the same or any
other provision of this Agreement.
11.3 Severability. If for any reason a court of competent
jurisdiction or arbitrator finds any provision of this Agreement
to be unenforceable, the provision shall be deemed amended as
necessary to conform to applicable laws or regulations, or if it
cannot be so amended without materially altering the intention
of the parties, the remainder of the Agreement shall continue in
full force and effect as if the offending provision were not
contained herein.
11.4 Notices. All notices and other communications required or
permitted to be given under this Agreement shall be in writing
and shall be considered effective upon personal service or upon
transmission of a facsimile or the deposit with Federal Express
or in Express Mail and addressed to the Chairman of the Board of
IDG Books as its principal corporate address, and to Executive
at his most recent address shown on IDG Books' corporate
records, or at any other address which he may specify in any
appropriate notice to IDG Books.
11.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all
of which taken together constitutes one and the same instrument
and in making proof hereof it shall not be necessary to produce
or account for more than one such counterpart.
11.6 Entire Agreement. The parties hereto acknowledge that each has
read this Agreement, understands it, and agrees to be bound by
its terms. The parties further agree that this Agreement and the
referenced stock option agreements shall constitute the complete
and exclusive statement of the agreement between the parties and
supersedes all proposals (oral or written), understandings,
representations, conditions, covenants, and all other
communications between the parties relating to the subject
matter hereof.
7
<PAGE> 8
11.7 Governing Law. This Agreement shall be governed by the law of
the State of California.
11.8 Assignment and Successors. IDG Books shall have the right to
assign its rights and obligations under this Agreement to an
entity which acquires substantially all of the assets of IDG
Books. The rights and obligation of IDG Books under this
Agreement shall inure to the benefit and shall be binding upon
the successors and assigns of IDG Books.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
Dated:____________________________ _________________________________________
Executive
Dated:____________________________ IDG Books Worldwide, Inc.
By:______________________________________
Dated:____________________________ International Data Group
By:______________________________________
8
<PAGE> 1
EXHIBIT 10.7
COMPENSATION AGREEMENT
THIS COMPENSATION AGREEMENT (the "AGREEMENT"), is entered into by IDG
Books Worldwide, Inc. ("IDG BOOKS") and its parent company International Data
Group (collectively the "COMPANY") and Jim Doehrman (the "EXECUTIVE") as of this
1st day of July, 1998, and will be effective on such date.
IDG Books desires to employ the Executive and the Executive desires to
be employed by IDG Books. In consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Term of Employment: The term of employment of Executive by IDG Books
hereunder shall commence upon the date of this Agreement (the
"COMMENCEMENT DATE") and shall continue thereafter on the same terms
and conditions for a period of three years unless earlier terminated
pursuant to Section 6 (such term being hereinafter referred to as the
"EMPLOYMENT PERIOD"). The Employment Period shall be extended
automatically without further action by either party as of the first
anniversary of the Commencement Date for a period of one year, unless
prior to such date IDG Books or the Executive shall notify the other in
writing of its or his intention not to renew the Agreement, in which
case the Agreement shall terminate at the end of the original term. If
the Employment Period is extended, it shall thereafter be referred to
as the Employment Period.
2. Title; Duties: The Executive shall serve as Chief Financial Officer
reporting to the President and Publisher of IDG Books. Executive shall
perform those duties and responsibilities inherent in such position,
including such duties and responsibilities as the President and
Publisher of IDG Books shall assign. The Executive agrees to devote his
full time and best efforts, attention and energies to the business and
interests of IDG Books. Executive shall travel as reasonably required
in connection with the performance of his duties hereunder.
3. Compensation: IDG Books shall pay and Executive shall accept as full
consideration for the his services hereunder, compensation consisting
of the following:
3.1 Base Salary. Effective October 1, 1998, $178,000 per year base
salary, payable in installments in accordance with IDG Books'
normal payroll practices, less such deductions or withholdings
required by law, and until October 1, 1998, the base salary
shall be the base salary in effect for Executive on the
Commencement Date.
3.2 Bonus. Participation in the IDG Books' Bonus Plan; the targets
for such Bonus Plan are attached hereto as Exhibit A. Such
bonus participation shall commence
<PAGE> 2
on October 1, 1998. The Bonus Plan in place on the
Commencement Date shall remain in effect for fiscal 1998.
3.3 Stock Options. Executive was previously granted a stock option
for 50,000 shares (the "OPTION") under the IDG Books Stock
Option Plan (the "STOCK OPTION PLAN"). The Option shall become
vested to the extent of 25% on the first anniversary of the
Commencement Date and 2.08% monthly for thirty-six months
thereafter (the "OPTION EXERCISE PERIOD") on the last day of
each month during which Executive remains employed with IDG
Books.
4. Benefits: Subject to all applicable eligibility requirements, and legal
limitations, Executive will be able to participate in any and all ESOP,
401(k), vacation, medical, dental, life and long-term disability
insurance and/or other benefit plans which from time to time may be
established for other employees of IDG Books.
5. Reimbursement of Expenses: IDG Books will reimburse Executive for all
reasonable travel, entertainment and other expenses incurred or paid by
the Executive in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement subject to
review by the compensation committee of the Board of Directors of IDG
Books.
6. Benefit Upon Termination of Employment Period.
6.1 Disability. In the event of the permanent disability (as
hereinafter defined) of Executive during the Employment
Period, IDG Books shall have the right, upon written notice to
Executive, to terminate Executive's employment hereunder,
effective upon the 30th calendar day following the giving of
such notice (or such later day as shall be specified in such
notice). Upon the effectiveness of such termination, (i) IDG
Books shall have no further obligations hereunder, except to
pay and provide, subject to applicable withholding, (A) all
amounts of Base Salary accrued, but unpaid, at the effective
date of termination, less any amounts payable under the IDG
Book's short-term and long-term disability policies for any
period prior to termination, (B) Executive's maximum or
"stretch" target bonus set forth in Exhibit A attached hereto,
and (C) all reasonable unreimbursed business-related expenses,
(ii) Executive's Option shall immediately vest and become
exercisable to the extent of twelve additional months of
vesting and shall remain exercisable for twelve months
following termination of employment and (iii) Executive shall
have no further obligations hereunder other than those
provided for in Sections 9 and 10 hereof. All amounts payable
to Executive pursuant to this Section 6(a) shall be payable
within 30 days following the effectiveness of the termination
of Executive's employment. For purposes of this Agreement,
"PERMANENT DISABILITY" shall be determined in the same manner
as such term is determined under IDG Book's long-term
disability insurance policy by the policy provider; provided
that termination shall occur only if Executive is incapable in
any material respect of performing the services required of
him in
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accordance with his obligations under Section 2 for a period
of 180 consecutive days, or for 180 days in any 360 day
period.
6.2 Death. In the event of the death of Executive during the
Employment Period, this Agreement shall automatically
terminate and IDG Books shall have no further obligations
hereunder, except to pay and provide to Executive's
beneficiary or other legal representative, subject to
applicable withholding, (i) all amounts of Base Salary and
bonus accrued but unpaid, at the date of death, (ii) an amount
equal to Executive's maximum or "stretch" target bonus, (iii)
Executive's Option shall immediately vest and become
exercisable to the extent of twelve additional months of
vesting and shall remain exercisable for twelve months
following termination of employment and (iv) all reasonable
unreimbursed business-related expenses. All amounts payable to
Executive pursuant to this Section 6(b) shall be payable
within 30 days following the date of death.
6.3 Termination Without Cause. In the event of the termination of
Executive's employment by IDG Books without Cause (as defined
below) (i) all amounts of Base Salary and bonus accrued but
unpaid on the date of termination, (ii) an amount equal to
Executive's Base Salary on the date of termination for a
period of twelve months shall be paid by IDG Books in twelve
equal monthly installments, (iii) an amount equal to
Executive's maximum or "stretch" target bonus set forth in
Exhibit A attached hereto and (iv) the Option shall
immediately vest and become exercisable to the extent of
twenty-four additional months of vesting and shall remain
exercisable for 180 days following termination of employment.
Such payment and additional vesting shall be in lieu of any
claims Executive may have had with respect to termination
benefits or additional vesting.
6.4 Circumstances Under Which Termination Benefits Would Not Be
Paid. IDG Books shall not be obligated to pay Executive the
termination benefits or continue the option vesting described
in subparagraphs 6.3 (ii) through (iv) above if the Employment
Period is terminated for Cause or if Executive voluntarily
terminates his employment. For purposes of this Agreement,
"CAUSE" shall be limited to:
(A) Willful failure by Executive to substantially perform
his duties hereunder, other than a failure resulting
from his complete or partial incapacity due to
physical or mental illness or impairment;
(B) A material and willful violation of a federal or
state law or regulation applicable to the business of
the company or that adversely affects the image of
the Company;
(C) Commission of a willful act by Executive which
constitutes gross misconduct and is injurious to the
Company;
(D) A willful breach of a material provision violation of
this Agreement; or
(E) Executive's death, or permanent disability pursuant
to Section 6 above.
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7. Change in Control Benefits:
Should there occur a Change in Control (as defined below), then the
following provisions shall become applicable in lieu of the provisions of
Section 6.3:
(A) During the period (if any) following a Change in Control that
Executive shall continue to remain employed, then the terms and provisions of
this Agreement shall continue in full force and effect, and Executive shall
continue to vest in all of his unvested stock options; or
(B) In the event of a termination of the Executive's employment by IDG
Books other than for Cause within twelve (12) months after a Change in Control:
(i) IDG Books shall pay to Executive an amount equal
to (A) all amounts of Base Salary and bonus accrued to the date of termination
and (B) two hundred percent (200%) of Executive's Base Salary and "stretch"
target bonus set forth in Exhibit A attached hereto on the date of termination
in one lump sum amount, on or before the fifth business day following the
effective date of Executive's termination; and
(ii) All of the unvested options held by Executive on
the date of such Change in Control shall immediately vest and become exercisable
in full and shall remain exercisable for the period of 180 days following
termination of employment.
For purposes of this Section 7, the term "CHANGE OF CONTROL" shall
mean:
(x) The sale, lease, conveyance, liquidation or other
disposition of all or substantially all of IDG Books'
assets as an entirety or substantially as an entirety
to any person, entity or group of persons acting in
concert other than in the ordinary course of
business;
(y) Any transaction or series of related transactions (as
a result of a tender offer, merger, consolidation or
otherwise) that results in any Person (as defined in
Section 13(h)(8)(E) under the Securities Exchange Act
of 1934) becoming the beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of
1934), directly or indirectly, of more than 50% of
the aggregate voting power of all classes of common
equity of IDG Books, except if such Person is (A) a
subsidiary of IDG Books, (B) an employee stock
ownership plan for employees of IDG Books or (C) a
company formed to hold IDG Books' common equity
securities and whose shareholders constituted, at the
time such company became such holding company,
substantially all the shareholders of IDG Books; or
(z) A change in the composition of IDG Books' Board of
Directors over a period of thirty-six (36)
consecutive months or less (other than in connection
with IDG Books' initial public offering) such that a
majority of the then current Board members ceases to
be comprised of individuals who either (a) have been
Board members continuously since the beginning of
such period, or (b) have been elected or nominated
for election as Board members during such period by
at least a majority of the Board members
4
<PAGE> 5
described in clause (a) who were still in office at
the time such election or nomination was approved by
the Board.
In the event that the severance and other benefits provided to
Executive pursuant to Section 6 of this Agreement (i) constitute
"parachute payments" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "CODE") and (ii) but for this
Section 7, such severance and benefits would be subject to the excise
tax imposed by Section 4999 of the Code, then Executive's severance
benefits under this Section 7 shall be payable either:
(a) in full,
(b) as to such lesser amount which would result in no
portion of such severance and other benefits being
subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into
account the applicable federal, state and local
income taxes and the excise tax imposed by Section
4999, results in the receipt by Executive on an
after-tax basis, of the greatest amount of severance
benefits under this Agreement. Unless IDG Books and
Executive otherwise agree in writing, any
determination required under this Section 7 shall be
made in writing by independent public accountants
agreed to by IDG Books and Executive (the
"ACCOUNTANTS"), whose determination shall be
conclusive and binding upon Executive and IDG Books
for all purposes. For purposes of making the
calculations required by this Section 7, the
Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999
of the Code. IDG Books and Executive shall furnish to
the Accountants such information and documents as the
Accountants may reasonably request in order to make a
determination under this Section 7. IDG Books shall
bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by
this Section 7.
8. Arbitration: To the fullest extent permitted by law all controversies
between Executive and the Company including whether any termination is
with or without cause, will be submitted for resolution to binding
arbitration, in accordance with the attached Arbitration Agreement
attached hereto as Exhibit B. This means that except as otherwise
stated, both the Company and the Executive understand that arbitration
will be their exclusive forum for resolving disputes between them, and
that both parties waive their entitlement, if any, to have
controversies between them decided by a court or a jury.
9. Cooperation with IDG Books After Termination of the Employment Period:
Following termination of the Employment Period by Executive, Executive
shall fully cooperate with IDG Books in all matters relating to the
winding up of his pending work on behalf of IDG Books and the orderly
transfer of any such pending work to other employees of IDG Books as
may be designated by IDG Books.
5
<PAGE> 6
10. Confidentiality; Return of Property; NonSolicitation:
(a) The Executive acknowledges that during the Employment Period
he will receive confidential information from IDG Books and
subsidiaries of IDG Books and the respective clients thereof
(each a "RELEVANT ENTITY"). Accordingly, the Executive agrees
that during the Employment Period (as it may be extended from
time to time) and thereafter for a period of two years, the
Executive and his affiliates shall not, except in the
performance of his obligations to IDG Books hereunder or as
may otherwise be approved in advance by IDG Books, directly or
indirectly, disclose or use (except for the direct benefit of
IDG Books) any confidential information that he may learn or
has learned by reason of his association with any Relevant
Entity. Upon termination of this Agreement, the Executive
shall promptly return to IDG Books any and all properties,
records or papers of any Relevant Entity, that may have been
in his possession at the time of termination, whether prepared
by the Executive or others, including, but not limited to,
confidential information and keys. For purposes of this
Agreement, "confidential information" includes all data,
analyses, reports, interpretations, forecasts, documents and
information concerning a Relevant Entity and its affairs,
including, without limitation with respect to clients,
products, policies, procedures, methodologies, trade secrets
and other intellectual property, systems, personnel,
confidential reports, technical information, financial
information, business transactions, business plans, prospects
or opportunities, (i) that IDG Books reasonably believes are
confidential or (ii) the disclosure of which could be
injurious to a Relevant Entity or beneficial to competitors of
a Relevant Entity, but shall exclude any information that the
Executive is required to disclose under any applicable laws,
regulations or directives of any government agency, tribunal
or authority having jurisdiction in the matter or under
subpoena or other process of law. For purposes of this
Agreement, "affiliate" means any entity that, directly or
indirectly, is controlled by, or under common control with,
the Executive. For purposes of this definition, the terms
"controlled" and "under common control with" means the
possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of such
person, whether through the ownership of voting stock, by
contract or otherwise.
(b) For a period of one (1) year following the termination of his
employment with IDG Books for any reason, he will not, without
IDG Books' express written consent, either on his own behalf
or on behalf of another, solicit employees of IDG Books or any
subsidiary of IDG Books for the purpose of hiring them.
6
<PAGE> 7
11. General:
11.1 Indemnification. In the event Executive is made, or threatened
to be made, a party to any legal action or proceeding, whether
civil or criminal, solely by reason of the fact that Executive
is or was a director or officer of IDG Books or serves or
served any other corporation fifty percent (50%) or more owned
or controlled by IDG Books in any capacity at IDG Books'
request, Executive shall be indemnified by IDG Books, and IDG
Books shall pay Executive's related expenses when and as
incurred, all to the fullest extent permitted by law.
11.2 Waiver. Neither party shall, by mere lapse of time, without
giving notice or taking other action hereunder, be deemed to
have waived any breach by the other party of any of the
provisions of this Agreement. Further, the waiver by either
party of a particular breach of this Agreement by the other
shall neither be construed as, nor constitute a, continuing
waiver of such breach or of other breaches by the same or any
other provision of this Agreement.
11.3 Severability. If for any reason a court of competent
jurisdiction or arbitrator finds any provision of this
Agreement to be unenforceable, the provision shall be deemed
amended as necessary to conform to applicable laws or
regulations, or if it cannot be so amended without materially
altering the intention of the parties, the remainder of the
Agreement shall continue in full force and effect as if the
offending provision were not contained herein.
11.4 Notices. All notices and other communications required or
permitted to be given under this Agreement shall be in writing
and shall be considered effective upon personal service or
upon transmission of a facsimile or the deposit with Federal
Express or in Express Mail and addressed to the Chairman of
the Board of IDG Books as its principal corporate address, and
to Executive at his most recent address shown on IDG Books'
corporate records, or at any other address which he may
specify in any appropriate notice to IDG Books.
11.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and
all of which taken together constitutes one and the same
instrument and in making proof hereof it shall not be
necessary to produce or account for more than one such
counterpart.
11.6 Entire Agreement. The parties hereto acknowledge that each has
read this Agreement, understands it, and agrees to be bound by
its terms. The parties further agree that this Agreement and
the referenced stock option agreements shall constitute the
complete and exclusive statement of the agreement between the
parties and supersedes all proposals (oral or written),
understandings, representations, conditions, covenants, and
all other communications between the parties relating to the
subject matter hereof.
7
<PAGE> 8
11.7 Governing Law. This Agreement shall be governed by the law of
the State of California.
11.8 Assignment and Successors. IDG Books shall have the right to
assign its rights and obligations under this Agreement to an
entity which acquires substantially all of the assets of IDG
Books. The rights and obligation of IDG Books under this
Agreement shall inure to the benefit and shall be binding upon
the successors and assigns of IDG Books.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
Dated:____________________________ ____________________________________
Executive
Dated:____________________________ IDG Books Worldwide, Inc.
By:_________________________________
Dated:____________________________ International Data Group
By:_________________________________
8
<PAGE> 1
EXHIBIT 10.8
COMPENSATION AGREEMENT
THIS COMPENSATION AGREEMENT (the "AGREEMENT"), is entered into by IDG
Books Worldwide, Inc. ("IDG BOOKS") and its parent company International Data
Group (collectively the "COMPANY") and Brenda McLaughlin (the "EXECUTIVE") as of
this 1st day of July, 1998, and will be effective on such date.
IDG Books desires to employ the Executive and the Executive desires to
be employed by IDG Books. In consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Term of Employment: The term of employment of Executive by IDG Books
hereunder shall commence upon the date of this Agreement (the
"COMMENCEMENT DATE") and shall continue thereafter on the same terms
and conditions for a period of three years unless earlier terminated
pursuant to Section 6 (such term being hereinafter referred to as the
"EMPLOYMENT PERIOD"). The Employment Period shall be extended
automatically without further action by either party as of the first
anniversary of the Commencement Date for a period of one year, unless
prior to such date IDG Books or the Executive shall notify the other in
writing of its or her intention not to renew the Agreement, in which
case the Agreement shall terminate at the end of the original term. If
the Employment Period is extended, it shall thereafter be referred to
as the Employment Period.
2. Title; Duties: The Executive shall serve as Senior Vice President
reporting to the President and Publisher of IDG Books. Executive shall
perform those duties and responsibilities inherent in such position,
including such duties and responsibilities as the President and
Publisher of IDG Books shall assign. The Executive agrees to devote her
full time and best efforts, attention and energies to the business and
interests of IDG Books. Executive shall travel as reasonably required
in connection with the performance of her duties hereunder.
3. Compensation: IDG Books shall pay and Executive shall accept as full
consideration for the her services hereunder, compensation consisting
of the following:
3.1 Base Salary. Effective October 1, 1998, $178,000 per year base
salary, payable in installments in accordance with IDG Books'
normal payroll practices, less such deductions or withholdings
required by law, and until October 1, 1998, the base salary
shall be the base salary in effect for Executive on the
Commencement Date.
3.2 Bonus. Participation in the IDG Books' Bonus Plan; the targets
for such Bonus Plan are attached hereto as Exhibit A. Such
bonus participation shall commence
<PAGE> 2
on October 1, 1998. The Bonus Plan in place on the
Commencement Date shall remain in effect for fiscal 1998.
3.3 Stock Options. Executive was previously granted a stock option
for 75,000 shares (the "OPTION") under the IDG Books Stock
Option Plan (the "STOCK OPTION PLAN"). The Option shall become
vested to the extent of 25% on the first anniversary of the
Commencement Date and 2.08% monthly for thirty-six months
thereafter (the "OPTION EXERCISE PERIOD") on the last day of
each month during which Executive remains employed with IDG
Books.
4. Benefits: Subject to all applicable eligibility requirements, and legal
limitations, Executive will be able to participate in any and all ESOP,
401(k), vacation, medical, dental, life and long-term disability
insurance and/or other benefit plans which from time to time may be
established for other employees of IDG Books.
5. Reimbursement of Expenses: IDG Books will reimburse Executive for all
reasonable travel, entertainment and other expenses incurred or paid by
the Executive in connection with, or related to, the performance of her
duties, responsibilities or services under this Agreement subject to
review by the compensation committee of the Board of Directors of IDG
Books.
6. Benefit Upon Termination of Employment Period.
6.1 Disability. In the event of the permanent disability (as
hereinafter defined) of Executive during the Employment
Period, IDG Books shall have the right, upon written notice to
Executive, to terminate Executive's employment hereunder,
effective upon the 30th calendar day following the giving of
such notice (or such later day as shall be specified in such
notice). Upon the effectiveness of such termination, (i) IDG
Books shall have no further obligations hereunder, except to
pay and provide, subject to applicable withholding, (A) all
amounts of Base Salary accrued, but unpaid, at the effective
date of termination, less any amounts payable under the IDG
Book's short-term and long-term disability policies for any
period prior to termination, (B) Executive's maximum or
"stretch" target bonus set forth in Exhibit A attached hereto,
and (C) all reasonable unreimbursed business-related expenses,
(ii) Executive's Option shall immediately vest and become
exercisable to the extent of twelve additional months of
vesting and shall remain exercisable for twelve months
following termination of employment and (iii) Executive shall
have no further obligations hereunder other than those
provided for in Sections 9 and 10 hereof. All amounts payable
to Executive pursuant to this Section 6(a) shall be payable
within 30 days following the effectiveness of the termination
of Executive's employment. For purposes of this Agreement,
"PERMANENT DISABILITY" shall be determined in the same manner
as such term is determined under IDG Book's long-term
disability insurance policy by the policy provider; provided
that termination shall occur only if Executive is incapable in
any material respect of performing the services required of
him in
2
<PAGE> 3
accordance with her obligations under Section 2 for a period
of 180 consecutive days, or for 180 days in any 360 day
period.
6.2 Death. In the event of the death of Executive during the
Employment Period, this Agreement shall automatically
terminate and IDG Books shall have no further obligations
hereunder, except to pay and provide to Executive's
beneficiary or other legal representative, subject to
applicable withholding, (i) all amounts of Base Salary and
bonus accrued but unpaid, at the date of death, (ii) an amount
equal to Executive's maximum or "stretch" target bonus, (iii)
Executive's Option shall immediately vest and become
exercisable to the extent of twelve additional months of
vesting and shall remain exercisable for twelve months
following termination of employment and (iv) all reasonable
unreimbursed business-related expenses. All amounts payable to
Executive pursuant to this Section 6(b) shall be payable
within 30 days following the date of death.
6.3 Termination Without Cause. In the event of the termination of
Executive's employment by IDG Books without Cause (as defined
below) (i) all amounts of Base Salary and bonus accrued but
unpaid on the date of termination, (ii) an amount equal to
Executive's Base Salary on the date of termination for a
period of twelve months shall be paid by IDG Books in twelve
equal monthly installments, (iii) an amount equal to
Executive's maximum or "stretch" target bonus set forth in
Exhibit A attached hereto and (iv) the Option shall
immediately vest and become exercisable to the extent of
twenty-four additional months of vesting and shall remain
exercisable for 180 days following termination of employment.
Such payment and additional vesting shall be in lieu of any
claims Executive may have had with respect to termination
benefits or additional vesting.
6.4 Circumstances Under Which Termination Benefits Would Not Be
Paid. IDG Books shall not be obligated to pay Executive the
termination benefits or continue the option vesting described
in subparagraphs 6.3 (ii) through (iv) above if the Employment
Period is terminated for Cause or if Executive voluntarily
terminates her employment. For purposes of this Agreement,
"CAUSE" shall be limited to:
(A) Willful failure by Executive to substantially perform
her duties hereunder, other than a failure resulting
from her complete or partial incapacity due to
physical or mental illness or impairment;
(B) A material and willful violation of a federal or
state law or regulation applicable to the business of
the company or that adversely affects the image of
the Company;
(C) Commission of a willful act by Executive which
constitutes gross misconduct and is injurious to the
Company;
(D) A willful breach of a material provision violation of
this Agreement; or
(E) Executive's death, or permanent disability pursuant
to Section 6 above.
3
<PAGE> 4
7. Change in Control Benefits:
Should there occur a Change in Control (as defined below),
then the following provisions shall become applicable in lieu of the provisions
of Section 6.3:
(A) During the period (if any) following a Change in Control that
Executive shall continue to remain employed, then the terms and provisions of
this Agreement shall continue in full force and effect, and Executive shall
continue to vest in all of her unvested stock options; or
(B) In the event of (i) a termination of the Executive's employment by
IDG Books other than for Cause within twelve (12) months after a Change in
Control:
(i) IDG Books shall pay to Executive an amount equal to
(A) all amounts of Base Salary and bonus accrued to the date of termination and
(B) two hundred percent (200%) of Executive's Base Salary and "stretch" target
bonus set forth in Exhibit A attached hereto on the date of termination in one
lump sum amount, on or before the fifth business day following the effective
date of Executive's termination; and
(ii) All of the unvested options held by Executive on the
date of such Change in Control shall immediately vest and become exercisable in
full and shall remain exercisable for the period of 180 days following
termination of employment.
For purposes of this Section 7, the term "CHANGE OF CONTROL" shall
mean:
(x) The sale, lease, conveyance, liquidation or other
disposition of all or substantially all of IDG Books'
assets as an entirety or substantially as an entirety
to any person, entity or group of persons acting in
concert other than in the ordinary course of
business;
(y) Any transaction or series of related transactions (as
a result of a tender offer, merger, consolidation or
otherwise) that results in any Person (as defined in
Section 13(h)(8)(E) under the Securities Exchange Act
of 1934) becoming the beneficial owner (as defined in
Rule 13d-3 under the Securities Exchange Act of
1934), directly or indirectly, of more than 50% of
the aggregate voting power of all classes of common
equity of IDG Books, except if such Person is (A) a
subsidiary of IDG Books, (B) an employee stock
ownership plan for employees of IDG Books or (C) a
company formed to hold IDG Books' common equity
securities and whose shareholders constituted, at the
time such company became such holding company,
substantially all the shareholders of IDG Books; or
(z) A change in the composition of IDG Books' Board of
Directors over a period of thirty-six (36)
consecutive months or less (other than in connection
with IDG Books' initial public offering) such that a
majority of the then current Board members ceases to
be comprised of individuals who either (a) have been
Board members continuously since the beginning of
such period, or (b) have been elected or nominated
for election as Board members during such period by
at least a majority of the Board members
4
<PAGE> 5
described in clause (a) who were still in office at
the time such election or nomination was approved by
the Board.
In the event that the severance and other benefits provided to
Executive pursuant to Section 6 of this Agreement (i) constitute
"parachute payments" within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the "CODE") and (ii) but for this
Section 7, such severance and benefits would be subject to the excise
tax imposed by Section 4999 of the Code, then Executive's severance
benefits under this Section 7 shall be payable either:
(a) in full,
(b) as to such lesser amount which would result in no
portion of such severance and other benefits being
subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into
account the applicable federal, state and local
income taxes and the excise tax imposed by Section
4999, results in the receipt by Executive on an
after-tax basis, of the greatest amount of severance
benefits under this Agreement. Unless IDG Books and
Executive otherwise agree in writing, any
determination required under this Section 7 shall be
made in writing by independent public accountants
agreed to by IDG Books and Executive (the
"ACCOUNTANTS"), whose determination shall be
conclusive and binding upon Executive and IDG Books
for all purposes. For purposes of making the
calculations required by this Section 7, the
Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations
concerning the application of Sections 280G and 4999
of the Code. IDG Books and Executive shall furnish to
the Accountants such information and documents as the
Accountants may reasonably request in order to make a
determination under this Section 7. IDG Books shall
bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by
this Section 7.
8. Arbitration: To the fullest extent permitted by law all controversies
between Executive and the Company including whether any termination is
with or without cause, will be submitted for resolution to binding
arbitration, in accordance with the attached Arbitration Agreement
attached hereto as Exhibit B. This means that except as otherwise
stated, both the Company and the Executive understand that arbitration
will be their exclusive forum for resolving disputes between them, and
that both parties waive their entitlement, if any, to have
controversies between them decided by a court or a jury.
5
<PAGE> 6
9. Cooperation with IDG Books After Termination of the Employment Period:
Following termination of the Employment Period by Executive, Executive
shall fully cooperate with IDG Books in all matters relating to the
winding up of her pending work on behalf of IDG Books and the orderly
transfer of any such pending work to other employees of IDG Books as
may be designated by IDG Books.
10. Confidentiality; Return of Property; NonSolicitation:
(a) The Executive acknowledges that during the Employment Period
he will receive confidential information from IDG Books and
subsidiaries of IDG Books and the respective clients thereof
(each a "RELEVANT ENTITY"). Accordingly, the Executive agrees
that during the Employment Period (as it may be extended from
time to time) and thereafter for a period of two years, the
Executive and her affiliates shall not, except in the
performance of her obligations to IDG Books hereunder or as
may otherwise be approved in advance by IDG Books, directly or
indirectly, disclose or use (except for the direct benefit of
IDG Books) any confidential information that he may learn or
has learned by reason of her association with any Relevant
Entity. Upon termination of this Agreement, the Executive
shall promptly return to IDG Books any and all properties,
records or papers of any Relevant Entity, that may have been
in her possession at the time of termination, whether prepared
by the Executive or others, including, but not limited to,
confidential information and keys. For purposes of this
Agreement, "confidential information" includes all data,
analyses, reports, interpretations, forecasts, documents and
information concerning a Relevant Entity and its affairs,
including, without limitation with respect to clients,
products, policies, procedures, methodologies, trade secrets
and other intellectual property, systems, personnel,
confidential reports, technical information, financial
information, business transactions, business plans, prospects
or opportunities, (i) that IDG Books reasonably believes are
confidential or (ii) the disclosure of which could be
injurious to a Relevant Entity or beneficial to competitors of
a Relevant Entity, but shall exclude any information that the
Executive is required to disclose under any applicable laws,
regulations or directives of any government agency, tribunal
or authority having jurisdiction in the matter or under
subpoena or other process of law. For purposes of this
Agreement, "affiliate" means any entity that, directly or
indirectly, is controlled by, or under common control with,
the Executive. For purposes of this definition, the terms
"controlled" and "under common control with" means the
possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of such
person, whether through the ownership of voting stock, by
contract or otherwise.
(b) For a period of one (1) year following the termination of her
employment with IDG Books for any reason, she will not,
without IDG Books' express written consent, either on her own
behalf or on behalf of another, solicit employees of IDG Books
or any subsidiary of IDG Books for the purpose of hiring them.
6
<PAGE> 7
11. General:
11.1 Indemnification. In the event Executive is made, or threatened
to be made, a party to any legal action or proceeding, whether
civil or criminal, solely by reason of the fact that Executive
is or was a director or officer of IDG Books or serves or
served any other corporation fifty percent (50%) or more owned
or controlled by IDG Books in any capacity at IDG Books'
request, Executive shall be indemnified by IDG Books, and IDG
Books shall pay Executive's related expenses when and as
incurred, all to the fullest extent permitted by law.
11.2 Waiver. Neither party shall, by mere lapse of time, without
giving notice or taking other action hereunder, be deemed to
have waived any breach by the other party of any of the
provisions of this Agreement. Further, the waiver by either
party of a particular breach of this Agreement by the other
shall neither be construed as, nor constitute a, continuing
waiver of such breach or of other breaches by the same or any
other provision of this Agreement.
11.3 Severability. If for any reason a court of competent
jurisdiction or arbitrator finds any provision of this
Agreement to be unenforceable, the provision shall be deemed
amended as necessary to conform to applicable laws or
regulations, or if it cannot be so amended without materially
altering the intention of the parties, the remainder of the
Agreement shall continue in full force and effect as if the
offending provision were not contained herein.
11.4 Notices. All notices and other communications required or
permitted to be given under this Agreement shall be in writing
and shall be considered effective upon personal service or
upon transmission of a facsimile or the deposit with Federal
Express or in Express Mail and addressed to the Chairman of
the Board of IDG Books as its principal corporate address, and
to Executive at her most recent address shown on IDG Books'
corporate records, or at any other address which he may
specify in any appropriate notice to IDG Books.
11.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and
all of which taken together constitutes one and the same
instrument and in making proof hereof it shall not be
necessary to produce or account for more than one such
counterpart.
11.6 Entire Agreement. The parties hereto acknowledge that each has
read this Agreement, understands it, and agrees to be bound by
its terms. The parties further agree that this Agreement and
the referenced stock option agreements shall constitute the
complete and exclusive statement of the agreement between the
parties and supersedes all proposals (oral or written),
understandings, representations, conditions, covenants, and
all other communications between the parties relating to the
subject matter hereof.
11.7 Governing Law. This Agreement shall be governed by the law of
the State of California.
7
<PAGE> 8
11.8 Assignment and Successors. IDG Books shall have the right to
assign its rights and obligations under this Agreement to an
entity which acquires substantially all of the assets of IDG
Books. The rights and obligation of IDG Books under this
Agreement shall inure to the benefit and shall be binding upon
the successors and assigns of IDG Books.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
Dated:
------------------------------ ---------------------------------
Executive
Dated: IDG Books Worldwide, Inc.
------------------------------
By:
------------------------------
Dated: International Data Group
------------------------------
By:
------------------------------
8
<PAGE> 1
EXHIBIT 10.11
TRADEMARK LICENSE AGREEMENT
THIS AGREEMENT made as of the 1st day of June, 1998 by and between
International Data Group, Inc., a Massachusetts corporation, with its principal
place of business at One Exeter Plaza, Boston, MA 02116 ("Licensor"), and IDG
Books Worldwide, Inc., a Delaware corporation, with its principal place of
business at 919 E. Hillsdale Blvd., Suite 400, Foster City, CA 94404
("Licensee"),
WITNESSETH:
WHEREAS, Licensor is the owner of the trademarks listed on Schedule A
hereto (individually a "Trademark" and collectively the "Trademarks"); and
WHEREAS, Licensee wishes to obtain a license to use the Trademarks; and
WHEREAS, Licensor wishes to grant to Licensee a license to use the
Trademarks upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises and the mutual covenants
and promises set forth herein, the parties hereto agree as follows:
1. License. Subject to the terms and conditions set forth herein, during
the term of this Agreement, Licensor hereby grants to Licensee a
worldwide, exclusive (except as hereinafter provided), royalty-free
license to use the Trademarks solely in connection with the creation,
production (including publication, if applicable), sale, marketing and
distribution (including electronic distribution) of the authorized goods
or services, including electronic versions thereof, as the case may be,
listed opposite such Trademark on Schedule A (the "Authorized Uses"), as
such Schedule may be amended from time to time by the parties. The
license granted hereby shall be exclusive except as follows: (a) with
respect to the four "Infoworld" and "PC World" Trademarks described on
the last page of Schedule A hereto (the "Infoworld/PC World Marks"), the
license granted hereby shall be non-exclusive and Licensor shall have
the right to grant further licenses in the Infoworld/PC World Marks to
any affiliated or non-affiliated person or business organization for any
purpose whatsoever; and (b) with respect to the "IDG Books Denmark"
trademark included in Schedule A (the "Danish Mark"), the license
granted hereby shall be non-exclusive.
2. License Fees. Until further amendment of this Agreement, there shall be
no royalties or license fees payable with respect to the licenses
granted by Licensor to Licensee pursuant to this Agreement.
<PAGE> 2
3. Rights in the Trademarks.
a. Ownership of Trademarks. All rights in the Trademarks, including
without limitation any and all registrations and applications
for registration thereof in any and every country or
jurisdiction, shall at all times belong to Licensor. Licensee
shall not under any circumstances assert rights in the
Trademarks, nor in any of them, nor shall Licensee take any
action that could in any way diminish, alter or affect adversely
Licensor's rights in the Trademarks or any of them. Licensee
hereby acknowledges the validity of the Trademarks and
Licensor's sole and exclusive ownership of the Trademarks.
Licensee acknowledges and agrees that it shall not acquire, by
virtue of this Agreement or any use of any Trademarks prior to
the date of this Agreement or pursuant to this Agreement, any
right or claim of ownership in or to any of the Trademarks for
any purpose whatsoever. Licensee shall not register or seek to
register, either alone or along with any other mark or word, the
Trademarks, or any of them, or any other mark or name
confusingly similar thereto, in respect of any class of goods or
services whatsoever, without Licensor's prior written consent,
which consent is hereby given with respect to Licensee's
registration of the mark "Get Smart with Dummies Books."
b. Maintenance and Protection of Trademarks. Licensor shall
maintain the Trademarks during the term of this Agreement in
such jurisdictions and in such manner as Licensor shall
determine or Licensee shall reasonably request. Licensee shall
reimburse Licensor for Licensor's costs and expenses incurred in
connection with the maintenance and protection of the Trademarks
within a reasonable time after Licensee's receipt of bills
evidencing such costs and expenses. Nothing in this Section 3(b)
shall require Licensor at its own expense to register or
maintain the Trademarks or any other trademarks used by Licensee
in connection with the Authorized Uses in any particular country
or jurisdiction other than registering and maintaining each of
the Trademarks in the country specified in Schedule A for such
Trademark. In the event that Licensee wishes to seek trademark
registration or protection in a country or jurisdiction in which
Licensor has not sought to protect the Trademarks, Licensee
shall notify Licensor in writing. Upon receipt of notice from
Licensee, Licensor agrees that, at Licensee's sole expense,
Licensor shall take all reasonable steps and make all filings
necessary to seek registration of, maintain and protect the
Trademarks as requested by Licensee. Upon filing of any new
application pursuant to this Section 3(b), the applicable
Trademark shall be deemed to be incorporated into Schedule A.
c. Failure to Obtain Registration. In the event that,
notwithstanding Licensor's reasonable efforts to obtain a
registration with respect to any Trademark listed as under
application on Schedule A, registration fails to issue or is
denied by the applicable governmental authority, Licensor shall
promptly notify Licensee. Thereafter, such Trademark shall be
deleted from Schedule A, and Licensor's indemnification pursuant
to Section 6(b) for the specific goods or services and in the
specific territory covered by such application shall apply only
with respect to periods prior to the date of such notification.
- 2 -
<PAGE> 3
d. Cooperation by Licensee/Further Assurances. Licensee agrees to
take all actions and to execute all documents, and to cause its
employees and other affiliates to take all actions and to
execute all documents, that Licensor reasonably requests to
create, record or perfect Licensor's sole and exclusive
ownership of the Trademarks, including without limitation
executing and filing of appropriate documents to qualify
Licensee as a registered user of the Trademarks or any of them
in any jurisdictions in which such qualification is necessary or
desirable, and to apply for or obtain, defend or protect any
rights or registrations relating to the Trademarks.
e. No Rights Other than those Granted by this Agreement. Licensee
hereby disclaims any right to use any of the Trademarks other
than by force of the rights granted herein.
f. Compliance with Trademark Laws. Licensee shall comply with all
applicable laws, rules, regulations and requirements of all
governments relating to the Trademarks.
4. Limitations on Use of the Trademarks.
a. No Unauthorized Use. Licensee hereby covenants and agrees that
it shall not (i) use any Trademark in connection with any
activities other than the Authorized Uses for that Trademark; or
(ii) except as specifically provided herein or with the prior
written consent of Licensor, use, register or maintain any
trademark that is confusingly similar to any of the Trademarks
or incorporates the term "IDG," or any term similar thereto. The
foregoing to the contrary notwithstanding, Licensor consents to
Licensee's use, registration and maintenance of the mark "Get
Smart with Dummies Books."
b. Instructions/Quality Control. Licensee shall conform the use of
the Trademarks so as to protect and maintain their
source-denoting function and shall comply in connection with its
use of the Trademarks with quality control standards for the
authorized goods and services listed in Schedule A that are
generally in use in connection with goods and services furnished
by Licensor under its marks or are otherwise communicated by
Licensor to Licensee.
c. Access to Premises. Upon reasonable notice and during normal
business hours, Licensee shall during the term of this Agreement
permit Licensor or any representative(s) duly authorized by
Licensor to enter any part or parts of any premises where any
Authorized Uses with which one or more of the Trademarks are
used take place to insure compliance with the terms of this
Agreement.
d. Samples. Licensee shall, when provided with reasonable notice
and called upon to do so by Licensor or its authorized
representative(s), supply Licensor or its authorized
representative(s), without cost to Licensor, with a sample of
any product or materials provided in connection with any service
with which one or more of the Trademarks are used. If any such
sample is found by Licensor or its
- 3 -
<PAGE> 4
authorized representative(s) not to meet the quality control
standards referred to in Section 4(b), or is found to use the
Trademarks other than in compliance with this Agreement, the
remainder of the batch from which the sample was drawn shall be
disposed of as Licensor may direct without any compensation to
Licensee.
e. Appointment of Authorized Representative. Licensor may by written
notice to Licensee appoint such person as Licensor deems
appropriate for purposes of exercising the quality control rights
described in Sections 4(b), (c) and (d) above.
f. Sub-licenses by Licensee. During the term of this Agreement,
Licensee may: (a) sub-license any of the Trademarks, other than
the Infoworld/PC World Marks, to any third party unaffiliated
with Licensor, so long as Licensee provides Licensor with advance
written notice of the proposed sub-license and Licensor does not
object within 10 business days of its receipt of such notice; (b)
sub-license any of the Trademarks, other than the Infoworld/PC
World Marks, to any corporation or business entity affiliated
with Licensor without Licensor's consent, provided that Licensee
shall notify Licensor in writing of any such sub-license within a
reasonable time after the grant thereof; and (c) renew any
presently existing sub-license, but only with the prior written
consent of Licensor, which consent shall not be unreasonably
withheld, if such existing sub-license is to a third party not
affiliated with Licensor. Any permitted sub-license, including
any renewal of a presently existing sub-license, shall by its
terms be expressly subject in all respects to this Agreement,
shall name Licensor as a third-party beneficiary of such
sub-license, shall specifically impose on the sub-licensee the
limitations set forth in this Section 4, and shall not permit any
of the rights sub-licensed thereunder to be transferrable or
further sub-licensed by the sub-licensee. Licensee shall remain
liable for, and shall enforce, all obligations to be performed by
it or the sub- licensee under any such permitted sub-license, and
shall indemnify and hold harmless Licensor from any failure by a
sub-licensee to comply with the terms and conditions of this
Agreement or the sub-license to which it is a party.
5. Term and Termination.
a. Term. This Agreement shall commence on the effective date of a
public offering by Licensee of its capital stock pursuant to a
Registration Statement under the Securities Act of 1933, as
amended, and shall continue until terminated in accordance with
this Section 5. In the event that Licensor shall not have closed
such a public offering of its capital stock by December 31, 1998,
this Agreement shall not become effective and shall no longer be
binding on either party hereto in any respect.
b. Termination for Breach. Licensor may terminate this Agreement
immediately upon notice to Licensee if Licensee breaches any
material provision of this Agreement and (i) allows such breach
to continue for or, if such breach is curable, fails to cure such
breach within, thirty (30) days after Licensor notifies Licensee
of the breach, or, (ii) if such breach cannot be cured within
thirty (30) days, Licensee
- 4 -
<PAGE> 5
fails to begin to implement a cure during such thirty (30) day
period or fails to diligently prosecute the cure.
c. Termination for Insolvency. Licensor may terminate this Agreement
immediately upon notice to Licensee if Licensee is insolvent, or
if there is filed by or against Licensee in any court a petition
in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of all or a portion of
Licensee's property and Licensee fails within thirty (30) days
thereof to secure a discharge therefor, or if Licensee makes an
assignment for the benefit of creditors or petitions for or
enters into an arrangement with creditors, or if Licensee ceases
to carry on its business.
d. Effect of Termination under Sections 5(a) and (b). Immediately
upon termination or expiration of this Agreement pursuant to
Section 5(a) or 5(b): (i) all rights and licenses granted
hereunder shall terminate; (ii) Licensee shall cease using the
Trademarks; (iii) Licensee shall either destroy or furnish to
Licensor, as Licensor may direct within its sole and exclusive
discretion, any and all products and materials bearing,
containing or featuring the Trademarks; (iv) Licensor may cancel
any registration of the license granted hereunder and any
registration of Licensee as registered user made pursuant to
Section 3(c) hereof, and shall have the full cooperation of
Licensee in effecting such cancellations; and (v) Licensor may
maintain or cancel, in its sole discretion, any sub-licenses in
effect upon the termination or expiration of this Agreement.
Notwithstanding the foregoing, Licensee and its sub-licensees may
dispose of their inventory of products and materials bearing,
containing or featuring the Trademarks in the ordinary course of
their businesses within six months after termination or
expiration of this Agreement.
e. Change of Ownership Matters. In the event of a transaction
pursuant to which Licensor will no longer own directly or
indirectly at least thirty percent (30%) of the outstanding
capital stock of Licensee, the parties shall prior to such
transaction negotiate in good faith with a view to terminating or
extending this Agreement on terms and conditions satisfactory to
each.
f. Survival. The provisions of Sections 3 (other than Section 3(b)),
4(a)(iii), 6, 7 and 8 of this Agreement shall survive any
non-renewal, expiration or termination of this Agreement
regardless of the cause, reason or circumstances of such
non-renewal, expiration or termination.
6. Infringement and Indemnification.
a. Third Party Infringement. Licensee shall not authorize, assist or
knowingly allow the use of any of the Trademarks by any third
party except as provided in this Agreement. Licensee agrees that
in the event it obtains information suggesting the possibility of
infringement or misuse of the Trademarks, it will promptly
communicate such information to Licensor and will promptly make
available to
- 5 -
<PAGE> 6
Licensor such data, information and assistance as may reasonably
be requested by Licensor in considering whether to take or in
taking action to terminate or prevent such alleged misuse or
infringement. Licensor shall decide in its sole and exclusive
discretion what action to take or not to take in response to any
such alleged misuse or infringement. Nothing in this Section 6(a)
or in any other section of this Agreement shall be construed to
require Licensor to take any action whatsoever with respect to
any particular misuse or infringement of any of the Trademarks,
whether such infringement or alleged infringement is by a
subsidiary or affiliate of Licensor or by an unrelated third
party. If Licensor does not intend to take action in response to
any such alleged misuse or infringement, Licensor shall promptly
notify Licensee. Without limiting the generality of the
foregoing, this Agreement shall constitute notice that Licensor
does not intend to take action with respect to any existing
alleged infringement of the Danish Trademark. Licensee shall take
no action in response to any such alleged misuse or infringement
unless instructed to do so by Licensor or until Licensor notifies
Licensee that Licensor does not intend to take action. Any action
taken by Licensee at the instruction of Licensor to protect the
Trademarks shall be deemed taken on behalf of and for the benefit
of Licensor and Licensor shall reimburse Licensee for any
expenses incurred by Licensee in connection with any such action.
If Licensor notifies Licensee that Licensor does not intend to
take action in response to any such alleged misuse or
infringement, Licensee may at its sole cost and expense take such
action to terminate or prevent such alleged misuse or
infringement as it determines in its sole discretion, in which
event any damages or other monetary award will accrue directly
and solely to Licensee.
b. Indemnification by Licensor. Licensor shall defend or, at its
option, settle, any claim, action or proceeding brought against
Licensee based upon an allegation that any Trademark infringes
the rights of any third party within an Indemnified Territory, as
hereinafter defined, and shall indemnify Licensee against all
claims and demands, and against damages, liability, judgments and
costs, including reasonable attorney's fees, incurred by or
awarded against Licensee in any such action or proceeding which
results from any such claim or arising out of the settlement of
any such claim. Licensor shall have no liability under this
Section 6(b) unless Licensee (a) promptly notifies Licensor in
writing of the claim, action or proceeding, (b) gives Licensor
full authority, information and assistance to defend such claim,
action or proceeding, and (c) gives Licensor sole control of the
defense of such claim, action or proceeding and all negotiations
for the compromise or settlement thereof. If a Trademark becomes,
or in Licensor's opinion is likely to become, the subject of a
valid claim of infringement or the like under any trademark law,
Licensor shall have the right, at its option, either to obtain a
license permitting the continued use of the Trademark or to
terminate the license granted herein for such Trademark. Licensor
shall consult with Licensee in good faith regarding actions taken
pursuant to this Section 6(b). Licensor shall have no liability
hereunder for any costs incurred or settlement entered into
without its prior written consent. The provisions of this Section
6(b) state the exclusive liability of Licensor and the exclusive
remedy of Licensee with respect to
- 6 -
<PAGE> 7
any claim relating to Licensee's use of the Trademarks, including
trademark infringement, and are in lieu of all other warranties,
express or implied, and indemnities with respect thereto.
c. Indemnification by Licensee. Licensee shall indemnify Licensor
and hold Licensor harmless against all claims and demands, and
against damages, liability, judgments and costs, including
reasonable attorneys' fees, incurred by or awarded against
Licensor in any action or proceeding resulting from any claim
that any Trademark infringes the rights of any third party within
a Non-Indemnified Territory, as hereinafter defined. If a
Trademark becomes, or in Licensor's opinion is likely to become,
the subject of a valid claim of infringement within a
Non-Indemnified Territory, Licensor shall have the right to
require Licensee to terminate the license granted herein for such
Trademark within such Non-Indemnified Territory. Licensee shall
also, at its option, have the right to sole control of the
defense of any such claim, action or proceeding and all
negotiations for the compromise or settlement thereof, subject to
consultations with Licensor in good faith regarding actions taken
pursuant to such right.
d. Definitions. As used in this Section 6: the term "Indemnified
Territory" shall mean, with respect to a particular Trademark,
the country specified in Schedule A for such Trademark, as the
same may be amended from time to time; and "Non- Indemnified
Territory" shall mean, with respect to a particular Trademark,
any other country or jurisdiction.
7. Limitation of Liability.
a. In no event shall Licensor have any liability, whether in
contract, tort, or otherwise, arising out of or in connection
with Licensee's use of the Trademarks or this Agreement, other
than liability under Section 6(b) hereof, if any.
b. IN NO EVENT SHALL LICENSOR BE LIABLE FOR SPECIAL, INCIDENTAL,
CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES, INCLUDING, WITHOUT
LIMITATION, ANY DAMAGES RESULTING FROM LOSS OF USE, LOSS OF
PROFITS OR LOSS OF BUSINESS ARISING OUT OF OR IN CONNECTION WITH
USE OF THE TRADEMARKS OR THIS AGREEMENT, WHETHER OR NOT LICENSOR
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
8. General.
a. Entire Agreement. This Agreement, including all Schedules
attached hereto, sets forth the entire agreement and
understanding between the parties with respect to the subject
matter hereof and supersedes all prior agreements and
understandings between the parties relating thereto.
- 7 -
<PAGE> 8
b. Modification/Waiver. No waiver, alteration, modification, or
cancellation of any of the provisions of this Agreement shall be
binding unless made in writing and signed by each of the parties
hereto. Licensor's failure at any time or times to require
performance of any provision hereof shall in no manner affect its
right at a later time to enforce such provision. No remedy
referred to in this Agreement is intended to be exclusive, but
each shall be cumulative and in addition to any other remedy
referred to herein or otherwise available at law, in equity or
otherwise.
c. Assignment and Sub-License. This Agreement shall be binding upon,
and inure to the benefit of, the parties, their legal
representatives, successors and permitted assigns. Except as
specifically permitted in this Agreement, Licensee may not assign
or sub-license its rights or delegate its duties hereunder, in
whole or in part, to any third party without the prior written
consent of Licensor.
d. Severability. If any of the provisions of this Agreement are
determined to be invalid, illegal, or unenforceable by a court of
competent jurisdiction, such provisions shall be severed from the
Agreement, and the remaining provisions shall remain in full
force and effect; provided, however, that with respect to any
material provision so severed, the parties shall negotiate in
good faith to achieve the original intent of such provision.
e. Applicable Law. This Agreement shall be governed by and construed
and enforced in accordance with, the substantive laws of The
Commonwealth of Massachusetts, without regard to its principles
of conflicts of laws.
f. Notices. Any notices required or permitted under this Agreement
shall be in writing and shall be sufficiently given if (i)
personally delivered, (ii) sent by Federal Express, DHL or other
overnight courier service, or (iii) sent by facsimile. Any such
notice shall be addressed to the party entitled or required to
receive such notice at the addresses specified below or at such
other address as either party may specify from time to time by
written notice in accordance herewith. Any notices given
hereunder shall be effective as of the earliest of (i) actual
receipt or (ii) twenty-four hours after deposit with the
overnight courier service or confirmation of transmission of the
facsimile.
If to Licensor:
International Data Group, Inc.
One Exeter Plaza
Boston, MA 02116
Attn: Vice President of Finance
Fax: 617-262-3636
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<PAGE> 9
If to Licensee:
IDG Books Worldwide, Inc.
919 E. Hillsdale Blvd., Suite 400
Foster City, CA 94404
Attn: Manager of Legal Services
Fax: 650-655-3299
g. Equitable Relief. The covenants and agreements of Licensee in
Sections 3, 4 and 5(d) hereof are of a special and unique
character, and Licensee acknowledges that money damages alone
will not reasonably or adequately compensate Licensor for any
breach of such covenants and agreements. Therefore, the parties
expressly agree that in the event of the breach or threatened
breach of any such covenants or agreements, in addition to other
rights or remedies which Licensor may have, at law, in equity, or
otherwise, Licensor shall be entitled to injunctive or other
equitable relief compelling specific performance of, and other
compliance with, such covenants or agreements.
h. Counterparts. This Agreement may be executed in counterparts,
each of which shall be considered an original.
IN WITNESS WHEREOF, the parties hereto have caused this Trademark
License Agreement to be executed by their duly authorized representatives as of
the date first above written.
INTERNATIONAL DATA GROUP, INC. IDG BOOKS WORLDWIDE, INC.
By: By:
------------------------------- --------------------------------------
Title: Vice President Title: Chairman
--------------------------- -----------------------------------
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<PAGE> 10
SCHEDULE A
LIST OF TRADEMARKS, INDEMNIFIED
TERRITORY AND AUTHORIZED USES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
TRADEMARK AND APPLICATION INT'L INDEMNIFIED AUTHORIZED GOODS AND
OR REGISTRATION NUMBER* CLASS TERRITORY SERVICES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GET SMART WITH IDG 16 United States Paper goods and printed
BOOKS! matter, namely books,
A74/683297 magazines, journals, manuals
on a wide variety of topics.
- ------------------------------------------------------------------------------------------------------
GET SMART WITH IDG 16 United States Stationery type portfolios.
BOOKS! (and design)
R2,080,930
- ------------------------------------------------------------------------------------------------------
GET SMART WITH IDG 18 United States Tote bags.
BOOKS! (and design)
R2,024,012
- ------------------------------------------------------------------------------------------------------
IDG'S INTROGRAPHIC SERIES 16 United States Books relating to computer
R1,948,564 hardware and software.
- ------------------------------------------------------------------------------------------------------
IDG BOOKS 16 United States Paper goods and printed
R2,013,270 matter, namely books,
magazines, newsletters,
journals, manuals on wide
variety of topics.
- ------------------------------------------------------------------------------------------------------
IDG BOOKS DENMARK 16, 41 Denmark Magazines, books and other
R2082/1997 printed publications.
- ------------------------------------------------------------------------------------------------------
IDG BOOKS WORLDWIDE (and 9 United States Mouse pads, computer
design) programs on disk and CD-
A75/284,056 Rom; audio cassettes on wide
variety of topics.
- ------------------------------------------------------------------------------------------------------
IDG BOOKS WORLDWIDE (and 11 United States Lamps.
design)
R2,077,759
- ------------------------------------------------------------------------------------------------------
</TABLE>
- --------
*A = application number
R = registration number
- 10 -
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
IDG BOOKS WORLDWIDE 16 United States Newsletters, catalogs,
(and design) brochures, booklets and
A75/284057 books on a wide variety of
topics; calendars; greeting
cards; plastic and paper bags
for packaging.
- ------------------------------------------------------------------------------------------------------
IDG BOOKS WORLDWIDE 22 United States Tote bags.
(and design)
R2,075,916
- ------------------------------------------------------------------------------------------------------
IDG BOOKS WORLDWIDE 25 United States Clothing, namely t-shirts,
(and design) polo shirts, sweatshirts and
A75/356,522 hats.
- ------------------------------------------------------------------------------------------------------
IDG BOOKS WORLDWIDE 28 United States Toy flying plastic discs, toy
(and design) whistles, balloons, sports
A75/217,051 balls, play figures and yo-yos.
- ------------------------------------------------------------------------------------------------------
IDG BOOKS WORLDWIDE 42 United States Online services and databases.
(and design)
A75/280,118
- ------------------------------------------------------------------------------------------------------
IDG BOOKS WORLDWIDE 16 United States Paper goods and printed
R2,033,383 matter; namely books,
magazines, newsletters,
journals, manuals on wide
variety of topics.
- ------------------------------------------------------------------------------------------------------
IDG BOOKS (and design) 16 United States A full line of books on a wide
R1,972,550 variety of topics.
- ------------------------------------------------------------------------------------------------------
IDG BOOKS (and design) 16 United States Paper goods and printed
R1,781,372 matter; namely books,
magazines, newsletters,
journals, manuals regarding
computers.
- ------------------------------------------------------------------------------------------------------
IDG BOOKS (and design) 9 United States Prerecorded computer
R1,990,703 programs relating to any
subject matter.
- ------------------------------------------------------------------------------------------------------
IDGBOOKS.COM 42 United States Computer services, namely
A75/360041 providing information on a
wide variety of topics by
means of a global computer
network.
- ------------------------------------------------------------------------------------------------------
</TABLE>
- 11 -
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
IDGBOOKS.COM 25 United States Men's and women's clothing,
A75/361051 including hats, knit shirts,
denim shirts, t-shirts, polo
shirts, golf shirts and
sweatshirts.
- ------------------------------------------------------------------------------------------------------
QUICK TIPS 16 United States Sections of books with tips,
R1,892,812 shortcuts and reference
information in the field of
computers and computer
software
- ------------------------------------------------------------------------------------------------------
INFOWORLD 9 United States Pre-recorded computer
R1,908,274 programs.
- ------------------------------------------------------------------------------------------------------
INFOWORLD 16 United States Books relating to computers,
R1,902,674 computing and computer
software.
- ------------------------------------------------------------------------------------------------------
PC WORLD 16 United States Books relating to computers,
R1,883,550 computing and computer
software.
- ------------------------------------------------------------------------------------------------------
PC WORLD 9 United States Computer programs in the
R1,923,417 nature of CDROM's, disks
and cassettes re: computers,
computing and software.
- ------------------------------------------------------------------------------------------------------
</TABLE>
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