<PAGE>
As filed with the Securities and Exchange Commission on May 23, 2000
Registration No. 333-36828
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KEY3MEDIA GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 7389
(State or Other (Primary Standard Industrial 95-4799962
Jurisdiction of Classification Code Number) (I.R.S. Employer
Incorporation or Identification Number)
Organization)
5700 Wilshire Blvd., Suite 305
Los Angeles, CA 90036
[Telephone Number]
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Ned S. Goldstein
Executive Vice President and General Counsel
5700 Wilshire Blvd., Suite 305
Los Angeles, CA 90036
[Telephone Number]
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Duncan C. McCurrach
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
(212) 558-4000
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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If 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 the delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on the date or
dates as may be necessary to delay its effective date until the Registrant
will file a further amendment which specifically states that this Registration
Statement will thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement will become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion.
Dated May , 2000
Key3Media Group, Inc.
60,000,000 SHARES
COMMON STOCK
We are a new company that was formed by Ziff-Davis Inc. to hold its portfolio
of business-to-business tradeshows, conferences and other events for the
information technology industry. Ziff-Davis currently owns all of our
outstanding shares and is distributing them to the holders of its Ziff-Davis
common stock. We refer to this as the "Distribution". When Ziff-Davis makes the
Distribution, we will offer and sell a total of 5 million of our new shares for
cash to members of our management team and other investors at a price per share
between $4.00 and $6.00. We refer to this as the "Offering". On or prior to the
Distribution and the Offering, we will grant to our directors and employees
options that will give them the right to acquire a total of 18 million of our
shares.
If you own Ziff-Davis common stock, you are receiving this prospectus because
you will receive our shares in the Distribution. You will receive one of our
shares for every two shares of Ziff-Davis common stock that you own of record
at the close of business on June , 2000. The Distribution will not change the
number of shares of Ziff-Davis common stock that you own and you do not need to
surrender your certificates for these shares. You will not be required to pay
anything, vote or take any other action in order to receive our shares in the
Distribution. Please do not send any proxies, share certificates or other
documents to us or Ziff-Davis.
If you do not own Ziff-Davis common stock, you are receiving this prospectus in
connection with the Offering. We will sell all of the new shares sold in the
Offering directly and receive all of the proceeds. There will be no
underwriting discounts or commissions. We will receive from the Offering
aggregate cash proceeds between $20 and $30 million.
The Distribution and the Offering will occur at the same time. We currently
expect that they will occur at 11:59 p.m., New York time, on June , 2000,
although they could occur at a later time and date.
Affiliates of SOFTBANK Corp. will receive 65.1% of our shares in the
Distribution. We refer to these affiliates together as SOFTBANK. After the
Offering, SOFTBANK will own about 59.7% of our shares or 45.9% if all our stock
options are exercised.
There is currently no public trading market for our shares and we do not
believe a "when-issued" trading market will develop before we complete the
Distribution and the Offering. Our shares will trade on the [Nasdaq National
Market/New York Stock Exchange], subject to official notice of issuance, under
the symbol "[KEME/KME]."
You should carefully consider the risk factors described in this prospectus
beginning on page 11.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the shares of our common stock that
will be distributed in the Distribution or sold in the Offering or determined
whether this prospectus is truthful or complete. It is illegal for anyone to
tell you otherwise.
The date of this prospectus is , 2000.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE
DISTRIBUTION AND THE OFFERING....... 1
SUMMARY.............................. 3
SELECTED HISTORICAL COMBINED
FINANCIAL DATA...................... 8
SUMMARY UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA...................... 9
RISK FACTORS......................... 11
USE OF PROCEEDS...................... 17
DIVIDEND POLICIES.................... 17
DILUTION............................. 18
THE DISTRIBUTION AND THE OFFERING.... 19
FEDERAL INCOME TAX CONSEQUENCES OF
THE DISTRIBUTION.................... 22
OUR RELATIONSHIP WITH ZIFF-DAVIS
FOLLOWING THE DISTRIBUTION.......... 27
FINANCING............................ 28
COMBINED AND PRO FORMA COMBINED
CAPITALIZATION...................... 30
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS AND BALANCE
SHEET............................... 31
NOTES TO UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS AND BALANCE
SHEET............................... 33
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<TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 34
DESCRIPTION OF OUR BUSINESS......... 41
OUR BOARD OF DIRECTORS AND EXECUTIVE
OFFICERS........................... 54
EXECUTIVE COMPENSATION.............. 57
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS.................. 64
BENEFICIAL OWNERSHIP OF MANAGEMENT.. 65
DESCRIPTION OF OUR CAPITAL STOCK.... 66
CERTAIN ANTI-TAKEOVER PROVISIONS OF
OUR CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW............ 68
LIMITATIONS ON LIABILITY AND
INDEMNIFICATION OF OFFICERS AND
DIRECTORS.......................... 71
EXPERTS............................. 71
ADDITIONAL INFORMATION.............. 72
REPORT OF INDEPENDENT ACCOUNTANTS... F-1
HISTORICAL COMBINED FINANCIAL
STATEMENTS......................... F-2
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"COMDEX", "INTEROP", "N+I" and "Seybold Seminars" are registered service
marks of Key3Media Group, Inc. "JavaOne" is a registered service mark of
Sun Microsystems, Inc. "NETWORLD" is a registered service mark of Novell,
Inc.
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QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION AND THE OFFERING
The following section answers various questions that you may have about the
Distribution and the Offering.
Q:Why am I receiving this prospectus?
A: If you own Ziff-Davis common stock, you are receiving this prospectus
because you will receive our shares in the Distribution. If you do not own
Ziff-Davis common stock, you are receiving this prospectus because you are a
prospective or actual purchaser in the Offering.
Q: When will the Distribution and the Offering occur?
A: The Distribution and the Offering will occur at the same time. We
currently expect that they will occur at 11:59 p.m., Eastern Daylight Time, on
June , 2000, although they could occur at a later time and date. We refer to
the time and date on which the Distribution and the Offering actually occur as
the "Distribution Date".
Q: What will I receive as a result of the Distribution?
A: If you own Ziff-Davis common stock, you will receive one of our shares
for every two shares of Ziff-Davis common stock which you own of record at the
close of business on June , 2000. For example, if you are the record holder
of 120 shares of Ziff-Davis common stock on the record date, then you will
receive 60 of our shares. We will not issue any fractional shares in the
Distribution. The distribution agent will combine all the fractional shares
which all Ziff-Davis common stockholders would be eligible to receive and sell
those shares in the open market. Each fractional stockholder will receive a
check for its share of the net proceeds from this sale.
Q: What do I have to do to receive my shares in the Distribution?
A: Nothing. If you own Ziff-Davis common stock, you will not be required to
pay anything, vote or take any other action to receive our shares in the
Distribution. The number of shares of Ziff-Davis common stock that you own
will not change and you do not need to surrender your certificates for those
shares. Please do not send any proxies, share certificates or other documents
to us or Ziff-Davis.
Q: How and when will I receive my Key3Media shares in the Distribution?
A: Ziff-Davis will not distribute any certificates for our shares in the
Distribution. Instead, Ziff-Davis will create a book-entry account for each
record holder of Ziff-Davis common stock at the close of business on ,
2000 and will credit to that account the whole number of our shares that
person is entitled to receive in the Distribution. An account statement will
be mailed to you on or about the Distribution Date. As noted above, we
currently believe that the Distribution Date will be , 2000, but it could
be a different date and you should allow several days for the mail to reach
you.
If you hold your shares of Ziff-Davis common stock through a stockbroker,
bank or other nominee, then you will not receive any of our shares directly in
the Distribution because you are not the record holder. In that case, your
right to receive our shares in the Distribution will depend upon your
arrangements with the stockbroker, bank or other nominee that is the record
holder of your shares of Ziff-Davis common stock. We anticipate that nominees
generally will credit their customers' accounts with our shares on or about
the Distribution Date, but you should check with your nominee.
Q: How will the Distribution and the Offering affect the market price of my
Ziff-Davis common stock?
A: All else being equal, the Distribution will probably cause the trading
price of shares of Ziff-Davis common stock immediately following the
Distribution to be lower than immediately before the Distribution. The
Distribution and the Offering will not change the number of shares of Ziff-
Davis common stock that you own and after the Distribution and the Offering
your shares of Ziff-Davis common stock will continue to be listed and traded
on the New York Stock Exchange under the symbol "ZD". Shortly after the
Distribution and the Offering, Ziff-Davis will merge with one of its wholly
owned subsidiaries to eliminate its existing tracking stock structure and
change its name to ZDNet Inc. In the merger, all outstanding shares of ZDNet
common stock will be converted into Ziff-Davis common stock.
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Q: What if I want to sell my shares of Key3Media or Ziff-Davis common stock?
A: You should consult with your own financial advisors, such as your
stockbroker, bank or tax advisor. Neither we nor Ziff-Davis is making any
recommendations on the purchase, retention or sale of your shares of our
common stock or Ziff-Davis common stock. If you do decide to sell any shares,
you should make sure your stockbroker, bank or other nominee understands
whether you want to sell your shares of our common stock or Ziff-Davis common
stock, or both. The following information may be helpful in discussions with
your stockbroker, bank or other nominee.
Beginning on or about and continuing through the Distribution Date,
[Nasdaq's/NYSE's] practices should generally allow you to sell your shares of
Ziff-Davis common stock either with or without the right to receive the shares
of our common stock that you will receive in the Distribution. If you sell
your shares of Ziff-Davis common stock with the right to receive our shares,
then you (or your stockbroker, bank or other nominee) will be required to
deliver to the buyer the shares of our common stock that you receive in the
Distribution. You should also be able to sell your right to receive our shares
without selling your shares of Ziff-Davis common stock.
Sales of shares of Ziff-Davis common stock with the right to receive our
shares should generally settle in the three business day settlement period.
Sales of shares of Ziff-Davis common stock without the right to receive our
shares and sales of the right to receive our shares without a sale of shares
of Ziff-Davis common stock are expected to settle four business days following
the date on which account statements for our shares are mailed. Check with
your stockbroker, bank or other nominee. Beginning on or about days before
the Distribution Date, you may only sell your shares of Ziff-Davis common
stock and our shares separately. Once again, check with your stockbroker, bank
or other nominee.
Q: Who is selling the Key3Media shares in the Offering? What will the proceeds
be and who will receive them?
A: We will sell all of the new shares sold in the Offering directly and
receive all of the proceeds. There will be no underwriting discounts or
commissions. We will receive between $20 and $30 million in cash from the
Offering.
Q: Where can I get more information?
A: If you have any questions relating to the mechanics of the Distribution
and the delivery of account statements or the trading of the shares of
Key3Media or Ziff-Davis common stock before the Distribution, you should
contact the distribution agent referred to below:
[Contact Person]
The Bank of New York
One Wall Street
New York, NY 10286
[Telephone Number]
For other questions related to the Distribution, us or Ziff-Davis, please
contact:
[Address of Information Agent to come]
After the Distribution, if you have any questions relating to your
investment in our company you should contact:
Peter Knepper
Key3Media Group, Inc.
300 First Avenue
Needham, MA 02494
(781) 449-6600
After the Distribution, if you have any questions relating to your
investment in Ziff-Davis you should contact:
Robert Borchert
ZDNet Inc.
28 East 28th Street
New York, NY 10016
(212) 503-3500
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SUMMARY
This summary highlights important information about our business, the
Distribution and the Offering. Because it is only a summary, it does not
contain all the information you should consider before making an investment
decision with respect to our common stock. Please read the entire prospectus.
Key3Media Group, Inc.
We produce, manage and promote a portfolio of tradeshows, conferences and
other events for the information technology, or IT, industry. Our events
provide community, content and commerce for vendors, resellers, large volume
end users and others involved in the IT industry, including consultants and
other advisors. In 1999, we provided face-to-face marketplaces for business-to-
business marketing, sales and education in the IT industry for more than one
million participants at 44 events, including co-located events. Because of the
broad market and media exposure we can provide, IT vendors often use our events
to launch their new products and services. Our leading COMDEX and
NETWORLD+INTEROP events are the top two IT industry tradeshows in the United
States measured by both revenue and net square feet of exhibit space rentals.
We also produce customized events for specific IT vendors and segments of the
IT industry. In 1999, our revenue was $251.4 million and our earnings before
interest, depreciation and amortization, or EBITDA, was $90.3 million.
We derive approximately 75% of our revenue from exhibitor services revenue,
which consists of the fees we receive from IT vendors to rent exhibit space at
our events and commissions and discounts we receive from third-parties who
provide services to our exhibitors. We derive the balance of our revenue from
the fees paid by attendees to participate in conferences that we offer at our
events and from advertising and sponsorship fees. We have events which focus on
the full spectrum of the IT industry and others that target particular segments
of the industry. We believe that we can enhance our revenue by creating
multiple revenue streams from a portfolio of events with different targeted
audiences and limited attendee overlap. Our customized events allow us to build
close relationships with individual IT vendors and better understand their
products and marketing needs. These relationships also help us identify and
keep current with emerging trends in the IT industry.
Our COMDEX tradeshows cover the full spectrum of the IT industry. Our
COMDEX/Fall tradeshow is the largest tradeshow in the United States for any
industry when measured by revenue. In 1999, we offered 17 COMDEX events in 12
countries and our owned and operated COMDEX events generated about 37% of our
revenue. Our NETWORLD+INTEROP, or N+I, tradeshows focus on the networking,
Internet and telecommunications sectors of the IT industry. In 1999, we held
six N+I tradeshows in five countries and these events generated approximately
33% of our revenue.
We are a new company that was formed by Ziff-Davis to hold its portfolio of
business-to-business tradeshows, conferences and other events. Ziff-Davis will
distribute our shares to the holders of its Ziff-Davis common stock in the
Distribution as part of its restructuring process. As an independent public
company with a new management team, we believe that we will have a greater
ability to grow our business and take full advantage of our marketing
opportunities.
3
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The Distribution and the Offering
Ziff-Davis currently owns all of our outstanding shares and is distributing
them to the holders of Ziff-Davis common stock in the Distribution. When Ziff-
Davis makes the Distribution, we will sell a total of 5 million new shares of
our common stock for cash to members of our management team and other investors
at a price per share between $4.00 and $6.00. On or prior to the Distribution
and the Offering, we will grant to our directors and employees options to
acquire a total of 18 million of our shares.
The Distribution
Distributing Company........ Ziff-Davis Inc., a Delaware corporation.
Distributed Company......... Key3Media Group, Inc., a Delaware corporation.
Reasons for the Ziff-Davis currently divides its operations
Distribution................ between its ZD division, which is or has been
engaged in the print publishing, events,
education and television businesses, and its
ZDNet division, which provides online content and
other Internet-related services. Ziff-Davis has
two classes of common stock corresponding to its
divisional structure: Ziff-Davis common stock and
ZDNet common stock. The Distribution is part of a
restructuring of Ziff-Davis that is designed to
transform it into a company focused almost
exclusively on Internet-related businesses.
In this restructuring, Ziff-Davis will dispose of
all of the businesses in its ZD division by:
. distributing our shares in the
Distribution; and
. selling all of the other businesses in the
ZD division.
Ziff-Davis' board of directors decided not to
sell our business because it was not satisfied
with the bids it received in the auction
conducted as part of the restructuring.
Once Ziff-Davis has disposed of all of the
businesses in its ZD division, it will repay its
existing indebtedness and distribute most of the
ZD Division's remaining cash to the holders of
the ZD common stock. Ziff-Davis will then replace
its existing tracking stock structure with a
single class of ordinary common stock and change
its name to ZDNet Inc. For a more detailed
discussion of the reasons for the restructuring,
including the Distribution, see "The
Distribution--Reasons for the Distribution".
Record Date................. The record date for the Distribution is the close
of business, New York time, on , 2000. We
sometimes refer to this as the "record date."
Distribution Date........... We currently expect that the Distribution will
occur at 11:59 p.m., New York time, on ,
2000, although the actual Distribution Date could
be different.
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If you own Ziff-Davis common stock, you will
Distribution Ratio.......... receive one of our shares for every two shares of
Ziff-Davis common stock that you own of record on
the record date.
No Fractional Shares........ We will not issue any fractional shares in the
Distribution. If you would be entitled to receive
a fractional share, the distribution agent will
combine your fractional share with those of all
other stockholders and sell the whole shares
resulting from this combination in the open
market. You will receive a check for your share
of the net proceeds of this sale.
Total Shares to be
Distributed.................
The total number of our shares that Ziff-Davis
will distribute in the Distribution will depend
upon the number of shares of Ziff-Davis common
stock that are outstanding on the record date. As
of April 30, 2000, there were approximately 110
million shares of Ziff-Davis common stock
outstanding on a fully diluted basis. If this
number of shares were outstanding on the record
date, Ziff-Davis would distribute a total of 55
million shares of our common stock in the
Distribution. When Ziff-Davis makes the
Distribution, we will issue a total of 5 million
of our shares in the Offering, and grant options
to our directors and employees to acquire a total
of 18 million of our shares.
Book-Entry Delivery.........
Ziff-Davis will distribute our shares by creating
a book-entry account for each record holder of
Ziff-Davis common stock at the close of business
on the record date and crediting to that account
the number of whole shares such holder receives
in the Distribution. An account statement will be
mailed to you on or about the Distribution Date,
but you should allow several days for the mail to
reach you. Ziff-Davis will not distribute
physical certificates for our shares.
If you hold your shares of Ziff-Davis common
stock through a stockbroker, bank or other
nominee, then you are not a record holder of
those shares and will not receive any of our
shares directly in the Distribution.
Trading Market and There is currently no trading market for our
Listing..................... shares of common stock and we do not believe that
a "when-issued" trading market will develop
before we complete the Distribution. Our shares
will trade on the [Nasdaq National Market/NYSE],
subject to official notice of issuance, under the
symbol "[KEME/KME]".
Tax Consequences............
If you are a U.S. Stockholder (as defined) of
Ziff-Davis common stock, you will be subject to
tax at ordinary income rates on the fair market
value of our shares that you receive in the
Distribution to the extent of your share of Ziff-
Davis' current or accumulated tax earnings and
profits. [Based on Ziff-Davis' analysis of its
earnings and profits and assuming that the value
of our common stock at the time of the
Distribution is not greater than $ per share,
we
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expect that you will have no more than $ of
dividend income per share of your Ziff-Davis
common stock.] To the extent the value of our
shares you receive exceeds your share of Ziff-
Davis earnings and profits, you will be required
to reduce your basis in your shares of Ziff-Davis
common stock. If your basis in your shares of
Ziff-Davis common stock is reduced to zero and
you are a U.S. Stockholder you will recognize
capital gain in the amount of any remaining value
of the Key3Media shares that you receive. See
"Federal Income Tax Considerations".
If you are not a U.S. Stockholder you will
generally be subject to withholding of U.S.
federal income tax at a rate of 30% of the fair
market value of our shares that you receive in
the Distribution to the extent of your share of
Ziff-Davis current or accumulated tax earnings
and profits, or at a lower rate as may be
specified by an income tax treaty that applies to
you, unless your receipt of our shares is
effectively connected with your conduct of a
trade or business within the United States.
[Based on Ziff-Davis' analysis of its earnings
and profits and assuming that the value of the
Ziff-Davis common stock at the time of the
Distribution is not greater than $ per share,
we expect that you will have no more than $ of
dividend income per share of your Ziff-Davis
common stock.]
Relationship with Ziff-
Davis After the Immediately before the Distribution Date, we will
Distribution............... enter into an agreement with Ziff-Davis under
which:
. Ziff-Davis will transfer to us all of the
assets and liabilities related to our
business;
. We and Ziff-Davis will agree to share
taxes incurred before the Distribution and
give each other certain tax
indemnification rights;
. Ziff-Davis will indemnify us against all
liabilities not related to our business;
and
. We will indemnify Ziff-Davis against all
liabilities related to our business.
After the Distribution, we will not have any
other material contracts or other arrangements
with Ziff-Davis. See "Our Relationship with Ziff-
Davis Following the Distribution".
Distribution Agent.......... The distribution agent for our common stock is
The Bank of New York.
Transfer Agent and
Registrar for the The transfer agent and registrar for our common
Company's Shares........... stock is The Bank of New York.
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The Offering
Number of Shares to be We will sell 5 million of our shares in the
Sold....................... Offering.
Price....................... The purchasers in the Offering will pay between
$4.00 and $6.00 per share in cash.
The aggregate proceeds that we will receive from
Total Proceeds.............. the Offering will be between $20 and $30 million.
Plan of Distribution...
We will offer and sell shares of our common stock
directly to investors and solely through the
selling efforts of some of our senior executives.
We will not pay any underwriting fees, discounts,
commissions or other remuneration to our senior
executives or any other person in connection with
the Offering.
Use of Proceeds............. We will retain the proceeds from the Offering and
use them for general corporate purposes and
acquisitions.
Dividend Policy
Except for the dividend that we expect to pay to Ziff-Davis prior to the
Distribution, our board of directors does not presently intend to pay any
dividends on our shares. Instead, we intend to retain any future earnings to
finance the operation and expansion of our business. In addition, our ability
to pay dividends in the future will be restricted by the terms of our credit
facility and by the indenture pursuant to which we will issue senior
subordinated notes.
Principal Stockholder
SOFTBANK will receive 65.1% of our shares in the Distribution. After the
Offering, SOFTBANK will hold approximately 59.7% of our outstanding shares or
45.9% if all of our stock options were exercised.
Financing
Prior to the Distribution, we will enter into a credit facility with a
syndicate of banks and, subject to market conditions, we will issue senior
subordinated notes due 2010. The credit facility will consist of two term loan
facilities and a revolving credit facility. We will borrow a total of $230
million under the term loan facilities prior to the Distribution and will have
up to $50 million available for future borrowings under the revolving credit
facility. We expect that the aggregate principal amount of the senior
subordinated notes will be $200 million. The credit facility and the indenture
pursuant to which the senior subordinated notes will be issued will include
customary affirmative and negative covenants that will, among other things,
require that we satisfy certain financial tests and maintain certain financial
ratios and will limit our ability to pay dividends. See "Financing".
Dividend to Ziff-Davis
Prior to the Distribution, we will pay a dividend to Ziff-Davis of $
million. After we receive the proceeds of our term loan borrowings under the
credit facility, the sale of our senior subordinated notes and the Offering,
pay off our existing indebtedness and pay this dividend to Ziff-Davis, we will
retain cash and accounts receivable of approximately $ million.
Risk Factors
You should review the risk factors relating to the Distribution, the
Offering and an investment in our company described in "Risk Factors" beginning
on page 11.
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SELECTED HISTORICAL COMBINED FINANCIAL DATA
The following selected financial data should be read in conjunction with,
and are qualified by reference to, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our combined financial
statements and the notes to our combined financial statements, each of which is
included elsewhere in this prospectus. The selected combined financial data
presented are for the five-year period ended December 31, 1999 and for the
three months ended March 31, 1999 and 2000. The combined statement of
operations data for the years ended December 31, 1997, 1998 and 1999 and the
combined balance sheet data as of December 31, 1998 and 1999 are derived from
our audited combined financial statements, which have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are included elsewhere
in this prospectus. The combined statement of operations data for the years
ended December 31, 1995 and 1996 and the balance sheet information as of
December 31, 1995, 1996 and 1997 are derived from our unaudited combined
financial statements, which are not included in this prospectus. The combined
statements of operations data for the three months ended March 31, 1999 and
2000 and the combined balance sheet information as of March 31, 2000 and March
31, 1999 are derived from our unaudited combined financial statements, which
are included elsewhere in this prospectus.
Our unaudited combined financial statements for the three months ended March
31, 1999 and 2000 have been prepared on the same basis as our audited combined
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, which management considers necessary for the fair
presentation of that financial information. The unaudited results for interim
periods are not necessarily indicative of results to be expected for any other
interim period or the full year. In addition, our historical financial
information may not be indicative of our future performance as an independent
company. Unaudited pro forma net income per share has been calculated using the
shares that will be outstanding at the completion of the Distribution and
Offering.
<TABLE>
<CAPTION>
Three months ended
Years ended December 31 March 31
---------------------------------------------------------- -----------------------
1995(1) 1996 1997 1998 1999 1999 2000
----------- ----------- ---------- ---------- -------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Combined Statement of
Operations Data:
Net revenue............. $ 206,454 $ 271,166 $ 276,254 $ 269,135 $251,411 $ $
Operating expenses:
Cost of production..... 68,810 87,373 95,324 75,445 74,131
Selling, general &
administrative........ 46,489 73,496 79,781 76,760 88,588
Depreciation &
amortization.......... 24,305 32,886 35,619 41,180 38,132
---------- ---------- ---------- ---------- --------
Operating income........ 66,850 77,411 65,530 75,750 50,560
Interest income......... 932 1,992 1,841 2,816 487
Interest expense(2) .... (44,937) (48,367) (65,971) (45,860) (23,300)
Equity in income of
joint venture.......... -- 839 1,695 2,658 1,649
Gain on the sale of
joint venture
interest(3) ........... -- -- -- -- 13,746
Other, net.............. 24 16 (40) (28) (71)
---------- ---------- ---------- ---------- --------
Income before income
taxes.................. 22,869 31,891 3,055 35,336 43,071
---------- ---------- ---------- ---------- --------
Provision for income
taxes.................. 11,924 5,565 5,406 16,080 17,082
---------- ---------- ---------- ---------- --------
Net income (loss)....... $ 10,945 $ 26,326 $ (2,351) $ 19,256 $ 25,989
========== ========== ========== ========== ========
Unaudited pro forma net
income (loss) per share $
Unaudited pro forma
shares outstanding.....
Other Data:
EBITDA(4).............. $ 91,179 $ 111,152 $ 102,804 $ 119,560 $ 90,270
Combined Statement of Cash Flows
Data:
Net cash provided by
operating activities... $ 26,168 $ 19,614 $ 27,057 $ 81,559 $ 87,812
Net cash used in
investing activities... (817,887) (22,527) (9,378) (11,663) (5,150)
Net cash provided by
(used in) financing
activities............. 815,408 (6,526) (20,115) (75,635) (86,526)
Combined Balance Sheet
Data: (at period end)
Cash and cash
equivalents............ $ 27,908 $ 18,469 $ 16,285 $ 10,385 $ 5,570
Property and equipment,
net.................... 7,308 11,789 15,394 11,488 10,028
Intangible assets....... 992,046 962,387 934,835 907,048 875,526
Total assets............ 1,090,981 1,143,522 1,039,506 1,014,526 978,345
Total long-term debt
(including current
portion)............... 575,450 875,450 852,239 382,002 382,002
Total shareholders'
equity................. 397,881 117,511 47,921 452,916 396,392 $ $
</TABLE>
- -------
(1) Reflects operations of Softbank Forums for the year and COMDEX from the
date of acquisition by SOFTBANK on April 1, 1995.
(2) Interest expense related to debt payable to Ziff-Davis.
(3) Represents gain on sale of Expo Comm.
(4) EBITDA represents income before taxes plus depreciation and amortization,
interest expense net of interest income and excluding any gain on the sale
of joint venture interest. EBITDA should not be considered as an
alternative to, or more meaningful than, operating income as determined in
accordance with GAAP, cash flows from operating activities as determined
in accordance with GAAP, or as a measure of liquidity. Our management
believes EBITDA provides meaningful additional information on our
operating results and on our ability to service our long-term debt and
other obligations and to fund our operations. Because EBITDA is not
calculated in the same manner by all companies, the representation herein
may not be comparable to other similarly titled measures of other
companies.
8
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary pro forma combined financial data
about our company and is derived from our unaudited pro forma combined
statements of operations and balance sheet which are contained elsewhere in
this prospectus. We have prepared our summary pro forma combined financial data
by adjusting our historical combined financial statements to give effect to the
following transactions as if they had occurred as of the balance sheet date or
on the first day of the period presented:
. the Distribution;
. the Offering;
. our borrowing of $230 million under our credit agreement;
. our issuance and sale of $200 million principal amount of our senior
subordinated notes; and
. our repayment of our existing indebtedness and payment of the dividend
to Ziff-Davis.
In the opinion of our management, these are all of the adjustments necessary
to fairly present this pro forma data. We believe that the assumptions used
provide a reasonable basis for presenting the significant effects directly
attributable to the transactions discussed above. Our pro forma information may
not be indicative of our future performance as an independent company and are
not necessarily indicative of the results that would have been reported had
such transactions actually occurred on the dates specified, nor are they
indicative of our future results. We have not presented pro forma earnings per
share and share data because we were not a publicly held company during the
periods presented. See "Unaudited Pro Forma Combined Statements of Operations
and Balance Sheet" for additional detail.
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1999 March 31, 2000
----------------- --------------------
(in thousands)
(unaudited)
<S> <C> <C>
Combined Statement of Operations Data:
(1)
Total net revenue...................... $251,411
Operating income....................... 50,560
Income before income taxes............. 16,053
Net income............................. 9,632
Combined Statement of Cash Flows Data:
(2)
Net cash provided by operating
activities............................ $ 76,265
Net cash used in investing activities.. (5,150)
Net cash used in financing activities.. (61,526)
Other Data:
EBITDA (3)............................. $ 90,270
Combined Balance Sheet Data: (4) As of March 31, 2000
--------------------
Cash and cash equivalents.............. $
Property and equipment, net............
Intangible assets......................
Total assets...........................
Total long-term debt (including current
portion)..............................
Division equity........................
Total liabilities and division equity..
</TABLE>
(Notes following)
9
<PAGE>
- --------
(1) The unaudited pro forma combined statement of operations data give effect
to the following items, as if they had been in effect since December 31,
1998 and do not purport to represent our results of operations for any
future period:
. interest expense of $20,913 associated with the borrowing of $230
million under our credit facility and interest expense of $27,000
associated with the issuance and sale of $200 million in senior
subordinated notes. Interest expense calculated at a 9.5% rate for the
$230 million under a credit facility and 13.5% for the $200 million
senior subordinated rates produced an increase in interest expense of
$47,913 which is offset by a reduction in interest expense of $23,300
recorded in our historical combined statement of operations for our
existing indebtedness to Ziff-Davis;
. amortization expense resulting from the issuance costs incurred as a
result of borrowing $230 million under our credit facility and issuance
of $200 million in senior subordinated notes. The issuance costs are
estimated to be approximately $12,370; and
. the effective tax rate derived from our income tax expense for the year
ended December 31, 1999 was applied to the pro forma adjustments to
determine the income tax benefit of $10,661 associated with the pro
forma adjustments.
(2) The unaudited pro forma combined statement of cash flow data give effect to
the following items, as if they had been in effect since December 31, 1998
and do not purport to represent our cash flows for any future period:
. a decrease in net cash provided by operating activities as a result of a
net increase in interest expenses and amortization of issuance costs net
of a related tax benefit; and
. a decrease in the net cash used in financing activities as a result of
the proceeds of $ raised in the offering based on number of
shares of our common stock at $ per share.
(3) EBITDA represents income before taxes plus depreciation and amortization,
interest expense net of interest income and excluding any gain on sale of
joint venture interest. EBITDA should not be considered as an alternative
to, or more meaningful than, operating income as determined in accordance
with GAAP, cash flows from operating activities as determined in accordance
with GAAP, or as a measure of liquidity. Our management believes EBITDA
provides meaningful additional information on its operating results and on
our ability to service our long-term debt and other obligations and to fund
our operations. Because EBITDA is not calculated in the same manner by all
companies, the presentation herein may not be comparable to other similarly
titled measures of other companies.
(4) The unaudited pro forma combined balance sheet data give effect to the
following items, as if they had occurred as of the balance sheet date and
do not purport to represent our financial position for any future periods;
. The proceeds associated with the borrowing of $230 million under our
credit facility;
. The proceeds associated with the issuance and sale of $200 million in
senior subordinated notes;
. The proceeds associated with the offering of number of shares of our
common stock at $ per share; and
. The use of proceeds to repay $ of our existing indebtedness and to
pay a dividend of $ to Ziff-Davis.
10
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors related to the
Distribution, the Offering and an investment in our company.
Risks Relating to the Distribution and the Offering
The Trading Price of Ziff-Davis Common Stock May Fluctuate as a Result of
the Distribution
As a result of the Distribution, the trading price of Ziff-Davis common
stock immediately following the Distribution will likely be lower than the
trading price of Ziff-Davis common stock immediately before the Distribution.
The combined trading prices of Ziff-Davis common stock and our common stock
after the Distribution may be less than, equal to or greater than the trading
price of Ziff-Davis common stock immediately before the Distribution and may
fluctuate significantly.
There Is No Trading Market for Our Shares
There is no trading market for our shares and we do not believe that a
"when-issued" trading market will develop before we complete the Distribution
and the Offering. We do not know whether shares of our common stock will be
actively traded or at what prices they will trade. In addition, those who
receive shares in the Distribution may decide to sell those shares. This may
delay the development of an orderly trading market in our shares for a period
of time following the Distribution. Until our shares are fully distributed and
an orderly market develops, the prices at which our shares trade may fluctuate
significantly and may be lower or higher than the price that would be expected
for a fully distributed issue. Prices for our shares will be determined in the
marketplace and may be influenced by many factors, including the depth and
liquidity of the market for our shares, our financial condition and results of
operations, investors' perceptions about us and our industry, changes in
economic and market conditions generally and in the events and tradeshow
industry in particular.
Actual or Potential Significant Sales of Our Shares May Adversely Affect
the Trading Price of Our Shares
SOFTBANK has entered into an agreement which prohibits it from selling the
shares it will receive in the Distribution for [180] days after the
Distribution. After the expiration of the lock-up period, SOFTBANK may sell
our shares in accordance with an effective registration statement or an
applicable exemption from registration. In addition, investors who receive our
shares that are not affiliates of us or Ziff-Davis may resell those shares in
the public market immediately after the Distribution. We cannot predict
whether SOFTBANK will sell its shares of our common stock or whether others
will resell large amounts of our shares in the public market after the
Distribution. If a large amount of our shares are sold over a short period of
time, or if investors anticipate those sales, the trading price of our shares
could be adversely affected. See "The Distribution--Listing and Trading of our
Shares".
Risks Relating to Our Company
Our Results of Operations are Dependent on a Few Important Tradeshows
Historically, we have derived a significant portion of our revenue from a
few of our tradeshows, and we expect that our reliance on these shows will
continue in the future. In 1999, we derived about 37% of our revenue from
tradeshows owned and operated under our COMDEX brand name and approximately
28% of our revenue from COMDEX/Fall in particular. In addition, we derived
approximately 33% of our revenue from trade shows operated under our N+I brand
name and 29.1% from our two largest N+I trade shows. Although we will seek to
diversify our portfolio of tradeshows, our results of operations depend
substantially on the success of COMDEX/Fall and the top two N+I tradeshows.
There have been some adverse trends with respect to these shows. See "--We
Have Experienced a Decline in Exhibitor Participation and Attendance at Our
Events" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
11
<PAGE>
We Have Experienced a Decline in Exhibitor Participation and Attendance at
Our Events
In recent years, most of our events have experienced a decline in exhibit
space rentals, exhibitors and attendees. We have been able to more than offset
the adverse impact of these trends on our revenue from most of our events
other than our COMDEX events by increasing our exhibit space rental fees and
advertising and sponsorship revenue. We have not been able to offset the
adverse revenue impact of these trends at our COMDEX events and revenue from
those events and our total revenue has declined. If these trends continue, we
may continue to experience declining revenue and for our non-COMDEX events we
may not be able to continue to offset their adverse revenue impact by raising
our exhibit space rentals and increasing our advertising and sponsorship
revenues. This would adversely affect our results of operations.
Our Revenue and Results of Operations Are Seasonal
Although we receive the majority of fees we generate from our events in
advance, we record them as revenue only when the events occur. Because of the
timing of our largest tradeshows, our revenue is seasonal. Our revenue is
usually higher during the second and fourth quarters of each calendar year,
primarily because our largest N+I event occurs in the second quarter and our
largest COMDEX event occurs in the fourth quarter. This seasonality causes our
operating results to vary considerably from quarter to quarter and these
fluctuations could adversely affect the market price of our common stock.
We Will Face New Challenges Operating Our Business as an Independent Public
Company
Our business has not operated as an independent public company since its
components were acquired by SOFTBANK in 1995 and 1996. Ziff-Davis acquired the
business from SOFTBANK in 1998. Since 1995, the business has relied on
SOFTBANK and Ziff-Davis for various financial, administrative and managerial
assistance in conducting its operations. Following the Distribution, we will
maintain our own credit and banking relationships and perform our own
financial, administrative and investor relations functions. Additionally,
there can be no assurance that we will be able to successfully put in place
the financial, administrative and managerial structure necessary to operate as
an independent public company, or that the development of that structure will
not require a significant amount of management time and other resources.
Although we have been profitable as a subsidiary of Ziff-Davis, there can be
no assurance that we will remain profitable as an independent company.
Our Historical and Pro Forma Financial Information May Be of Limited
Relevance
The historical financial information included in this prospectus does not
reflect what our results of operations, financial position and cash flows
would have been had we been a separate, stand-alone entity during the periods
presented and may not be indicative of what our results of operations,
financial position and cash flows will be in the future. This is because:
. Ziff-Davis and SOFTBANK provided our predecessors with various services
and allocated expenses for these services in amounts that may not have
been the same as the expenses our predecessors would have incurred had
they performed or acquired these services themselves; and
. the information does not reflect other events and changes that will
occur as a result of our separation from Ziff-Davis, including, in the
case of the historical financial information, the establishment of our
new capital structure, the incurrence of debt and our increased interest
expense, and, in the case of both the historical and the pro forma
financial information, changes in our expenses as a result of new
employees, taxes and other structures and matters; and
. we may engage in new or different business activities and practices
after the Distribution and the Offering.
12
<PAGE>
Our Credit Facility and Other Indebtedness May Restrict Certain Activities
and Adversely Affect Our Financial Condition
Before the Distribution, we will borrow approximately $230 million under a
credit facility and, subject to market conditions, we expect to issue senior
subordinated notes with an aggregate principal amount of $200 million. After
we receive these proceeds and the proceeds from the Offering, pay off our
existing indebtedness and pay the cash dividend of $ to Ziff-Davis, we will
retain cash and accounts receivables equal to $ million. The terms of the
credit facility and the indenture pursuant to which the notes will be issued
will include customary affirmative and negative covenants that will, among
other things, require us to satisfy certain financial tests and maintain
certain financial ratios, and will limit our ability to declare and pay
dividends on our common stock. We may also incur additional indebtedness from
time to time for general corporate purposes, including working capital
requirements, capital expenditures and future acquisitions.
Our indebtedness could have important consequences for you. For example, it
could:
. increase our vulnerability to general adverse economic conditions or
difficulties that may arise in our business;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing the availability of
funds for working capital, capital expenditures and other general
corporate requirements;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate or in taking advantage of
significant business opportunities that may arise; and
. limit our ability to engage in certain business activities, including
our ability to borrow additional funds or make certain investments, due
to the financial and restrictive covenants in our credit facility.
In addition, our level of indebtedness could increase our vulnerability to
general adverse economic conditions or adverse trends in our business. If we
cannot service our debt, we will be forced to pursue one or more alternative
strategies, such as reducing our capital expenditures, selling assets,
restructuring or refinancing our indebtedness or seeking additional equity
capital (which may substantially dilute the ownership interest of holders of
our shares). Any of these consequences could have a material adverse affect on
our business, results of operations and financial condition.
We Are Dependent on Certain Key Personnel
Our success depends to a significant extent on the continued service of
certain key management personnel including Fredric D. Rosen and Jason E.
Chudnofsky. Under our contract with Mr. Chudnofsky, he has the contractual
right in December 2000 to terminate his employment with us and receive two
years' compensation. The loss or interruption of the services of our senior
management personnel or the inability to attract and retain other qualified
management, sales, marketing and technical employees could also have an
adverse effect on our financial condition or results of operations. We do not
have any key man insurance.
We Have Licenses of Limited Duration for Some of Our Important Brands
We generate significant revenue and earnings from our NETWORLD+INTEROP
tradeshows and JavaOne conferences. We believe that the brand names of these
events are well established in the market and are important to our ability to
attract both exhibitors and attendees. Although we own the service mark
"INTEROP", we license the "NETWORLD" service mark from Novell under a license
which expires on December 31, 2001, subject to automatic renewal unless Novell
terminates the license upon 15 months' notice. We own the "N+I" service mark
jointly with Novell. We also license the name "JavaOne" from Sun Microsystems
under a license which expires in July 2001. If these licenses terminate and
are not renewed, we would not be able to produce events using these service
marks and that could adversely affect our revenue and results of operations.
13
<PAGE>
Our Industry Is Highly Competitive
The IT events industry is highly competitive. We compete with various
established tradeshows, including those produced by the Hanover Messe, a
German public authority (CeBIT), Miller Freeman, Inc., a division of United
News & Media Company (PC Expo); Advanstar Communications, Inc. (Telexpo
Brazil); IDG World Expo, a division of International Data Group (Comnet); and
Penton Media, Inc. (Internet World). We also face competition from a growing
number of new small and mid-sized regional events and events focusing on
particular segments of the IT industry. At most tradeshows, participation by
exhibitors is important because it helps attract other exhibitors and
attendees. If we were to lose any of our key exhibitors to our competitors, it
could make our events less attractive to other exhibitors and attendees. We
also compete for advertising dollars with other forms of media, including
print publishing and the Internet. We must make our events more attractive to
exhibitors and attendees than the other alternatives available to them or our
business will suffer.
We Will Be Controlled by SOFTBANK
After the completion of the Distribution and Offering, SOFTBANK will own
approximately 59.7% of our outstanding shares. As long as SOFTBANK owns a
majority of our shares, other stockholders will be unable to affect the
outcome of stockholder voting. SOFTBANK will continue to be able to elect our
entire board of directors and generally to determine the outcome of all
corporate actions requiring stockholder approval. As a result, SOFTBANK will
be in a position to continue to control all matters affecting us, including:
. a change of control, including a merger;
. the acquisition or disposition of assets by us;
. further issuances by us of common stock or other securities;
. our incurrence of debt; and
. the payment of dividends on our common stock.
SOFTBANK has indicated that it does not currently intend to sell the shares
of our common stock that it will receive in the Distribution. Nevertheless,
SOFTBANK may do so in accordance with an effective registration statement or
an applicable exemption from registration.
We Are Subject to Risks Related to International Operations
We operate a multinational business and, accordingly, we are subject to
risks inherent in international operations, including:
. the difficulty of enforcing agreements and collecting receivables
through some foreign legal systems;
. tax rates in some foreign countries may exceed those of the United
States and foreign earnings may be subject to withholding requirements
or the imposition of tariffs, exchange controls or other restrictions;
and
. general economic and political conditions in the countries in which we
operate may have an adverse effect on our operations in those countries.
Non-U.S. dollar net revenue accounted for approximately 6.8% of our 1999
revenue and approximately 7.3% of our 1998 revenue, compared to our non-U.S.
dollar expenses which accounted for approximately 6.8% of our 1999 expenses
and approximately 8.8% of our 1998 expenses. We do not hedge our foreign
currency exchange rate risk. As we continue to expand our business globally,
our success will depend, in part, on our ability to anticipate and effectively
manage these and other risks.
14
<PAGE>
We Intend to Make Acquisitions Selectively and Acquisitions Pose
Integration and Other Risks
We intend to selectively acquire other exposition businesses which may or
may not be focused on the IT industry. As a result of these acquisitions, we
may:
. have difficulty assimilating their customers and personnel, particularly
if the acquired events are not focused on the IT industry;
. create goodwill that would impair our operating results as it is
amortized;
. face difficulties related to the significant strain on our financial,
management and operational resources, including the distraction of our
management team in identifying potential acquisition targets, conducting
due diligence and negotiating acquisition agreements;
. pay too much, especially if our industry consolidates and an active
bidding process develops;
. dilute existing stockholders if we use our stock to make acquisitions;
and
. borrow additional funds if we use cash to make acquisitions.
We May Expand into New Businesses in Which We Have No Experience
We may expand our event portfolio to include events focusing on industries
other than the IT industry. In addition, we may enter into non-event
businesses, including the Internet and e-commerce. We have no recent
experience in producing events outside the IT industry and no experience in
businesses other than events. If we decide to pursue these opportunities, we
may not be successful and our revenue and results of operations may be
adversely affected.
Certain Provisions of Our Certificate of Incorporation and Bylaws May
Discourage Takeovers
Our certificate of incorporation and bylaws contain provisions that may
make more difficult or expensive, or may discourage, a tender offer, change in
control or takeover attempt that is opposed by our board of directors. In
particular, our certificate of incorporation and bylaws:
. classify our board of directors into three groups, so that stockholders
elect only one-third of the board each year;
. permit stockholders to remove directors only for cause, although for so
long as SOFTBANK owns more than 50% of our voting shares, it may remove
directors with or without cause;
. permit a special stockholders' meeting to be called only by a majority
of the board of directors, although for so long as SOFTBANK owns more
than 50% of our voting shares, it may call a special stockholders'
meeting;
. do not permit stockholders to take action by written consent unless
SOFTBANK owns more than 50% of our voting shares;
. require stockholders to give us advance notice to nominate candidates
for election to our board of directors or to make stockholder proposals
at a stockholders' meeting;
. permit our board of directors to issue, without stockholder approval,
preferred stock with terms as the board may determine; and
. require the vote of the holders of at least 80% of our voting shares for
stockholder amendments to our bylaws.
15
<PAGE>
In addition, Delaware law generally restricts mergers and other business
combinations between us and any holder of 15% or more of our shares, unless
the transaction is approved in advance by our board of directors.
These provisions of our certificate of incorporation and bylaws and
Delaware law could discourage potential acquisition proposals and could delay
or prevent a change in control, even though a majority of our stockholders may
consider those types of proposals desirable. These provisions could also make
it more difficult for third parties to remove and replace the members of our
board of directors. Moreover, these provisions could diminish the
opportunities for you and your fellow stockholders to participate in tender
offers, including tender offers at prices above the then-current market value
of our common stock, and may also inhibit increases in the trading price of
the common stock that could result from takeover attempts or speculation.
16
<PAGE>
USE OF PROCEEDS
We will receive total net proceeds from the Offering of between $20 and $30
million. There will be no underwriting discounts or commissions. We intend to
use the proceeds from the Offering for general corporate purposes and
acquisitions.
DIVIDEND POLICIES
Except for the dividend that we expect to pay to Ziff-Davis prior to the
Distribution, our board of directors does not intend to pay any dividends in
the foreseeable future. Instead, we will retain any future earnings to finance
the operation and expansion of our business. In addition, our ability to pay
dividends in the future will be restricted by the terms of our credit facility
and by the indenture under which our senior subordinated notes will be issued.
17
<PAGE>
DILUTION
Our net tangible book value as of March 31, 2000 was approximately $
million, our pro forma net tangible book value per share as of such date would
have been $ per share based on the assumptions that there were 110 million
shares of Ziff-Davis common stock outstanding on the record date and the
Distribution occurred on March 31, 2000. Net tangible book value per share is
equal to our total tangible assets minus our total liabilities divided by the
number of shares of our common stock to be issued in the Distribution (based
on the foregoing assumptions). Assuming we had sold 5 million shares of common
stock in the Offering at an assumed Offering price of $5.00 per share, and
after deducting and paying an estimated dividend of $ million to Ziff-
Davis, our pro forma net tangible book value at March 31, 2000 would have been
approximately million, or $ per share. This represents an immediate
decrease in net tangible book value per share of $ to Ziff-Davis and an
immediate dilution of $ per share to new investors. Dilution is determined
by subtracting the pro forma net tangible book value per share after the
Offering from the amount of cash paid by a new investor for a share of common
stock. The following table illustrates the substantial and immediate per share
dilution to new investors:
<TABLE>
<CAPTION>
Per share
-----------
<S> <C> <C>
Assumed public offering price...................................... $
Pro forma net tangible book value as of March 31, 2000........... $
Dividend to Ziff-Davis........................................... ( )
Increase in pro forma net tangible book value attributable to new
investors.......................................................
-----
Pro forma net tangible book value after the Offering...............
----
Dilution to new investors.......................................... $
====
</TABLE>
The following table summarizes as of March 31, 2000 the number of our
shares of common stock purchased from us, the total consideration paid to us
and the average price per share paid by Ziff-Davis and by new investors at an
assumed public offering price of $5.00 per share and without giving effect to
the estimated Offering expenses:
<TABLE>
<CAPTION>
Shares Total Average price
purchased consideration per share
-------------- -------------- -------------
Number Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Existing stockholders.............
New investors.....................
--- ----- --- ----- ------ ------
Total........................... 100.0% 100.0%
=== ===== === ===== ====== ======
</TABLE>
18
<PAGE>
THE DISTRIBUTION AND THE OFFERING
The Restructuring of Ziff-Davis
The Distribution and the Offering are part of a restructuring that will
transform Ziff-Davis into a company focused almost exclusively on Internet-
related businesses and replace Ziff-Davis' existing tracking stock structure
with a single class of ordinary common stock. Ziff-Davis now divides its
operations between its ZD division, which is or has been engaged in the print
publishing, events, education and television businesses, and its ZDNet
division, which provides online content and other Internet-related services.
Ziff-Davis has two classes of common stock corresponding to its divisional
structure: Ziff-Davis common stock and ZDNet common stock. Each of these
series is what is commonly referred to as "tracking stock." ZDNet common stock
is intended to track the performance of Ziff-Davis' ZDNet division and Ziff-
Davis common stock is intended to track the performance of Ziff-Davis' ZD
division. The ZD division also has a retained interest in the ZDNet division
that is currently equivalent to 60 million shares of ZDNet common stock.
In the restructuring, Ziff-Davis will dispose of all of the businesses
included in the ZD division, including our company and our subsidiaries. All
of the assets of the ZD division other than our company and our subsidiaries
have been sold to third parties or, in certain limited cases, will be sold to
the ZDNet division in exchange for an increase in the ZD division's retained
interest in the ZDNet division. Ziff-Davis used the cash proceeds from the
sales to third parties to repay indebtedness attributable to the ZD division.
Before the Distribution, we will borrow approximately $230 million under
the credit facility and, subject to market conditions, issue $200 million
principal amount of our senior subordinated notes due 2010. After we receive
these proceeds and the proceeds from the Offering, pay off our existing
indebtedness, and pay the cash dividend to Ziff-Davis of $ , we will
retain cash and accounts receivables equal to $ million. Ziff-Davis will use
the proceeds to fund a cash dividend to the holders of Ziff-Davis common
stock. This cash dividend will be $ per share of Ziff-Davis common stock.
The cash dividend will be paid on to holders of record on .
Following the cash dividend and the Distribution, Ziff-Davis will merge
with a newly formed subsidiary to eliminate its tracking stock structure. The
surviving company will be renamed ZDNet Inc. As a result of the merger, each
outstanding share of Ziff-Davis common stock will remain outstanding as one
share of common stock of the newly named ZDNet Inc., and each outstanding
share of ZDNet common stock will convert into between 1.7 and 1.9 shares of
ZDNet Inc. common stock.
Reasons for the Restructuring of Ziff-Davis
Ziff-Davis' board of directors implemented the restructuring because it
believed that the recent market prices for the Ziff-Davis common stock and
ZDNet common stock did not fully reflect the underlying values of its
businesses because of the diversity of those businesses, the level of its debt
and its tracking stock structure. Ziff-Davis' board also wanted Ziff-Davis to
focus more narrowly on its Internet businesses because the board believes the
opportunity for growth in these businesses is greater than in the ZD division
businesses.
The restructuring will:
. allow holders of Ziff-Davis common stock to realize value from Ziff-
Davis' non-Internet assets;
. allow Ziff-Davis to focus on its Internet businesses;
. allow Ziff-Davis to pay down all of its debt; and
. eliminate Ziff-Davis' tracking stock structure.
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For the reasons discussed above, Ziff-Davis' board of directors concluded
that the restructuring, including the Distribution, would enhance stockholder
value and was in Ziff-Davis' best interest and in the best interest of you and
your fellow stockholders. The restructuring was approved by the holders of
Ziff-Davis common stock and ZDNet common stock at a special meeting held on
February 29, 2000.
Reasons for the Distribution of Our Shares
Ziff-Davis' disposition of ZD Events and its subsidiaries is an integral
part of the restructuring. As Ziff-Davis did with the other assets of the ZD
division, it attempted to sell our company's subsidiaries through an open
auction process conducted by Morgan Stanley Dean Witter, Ziff-Davis' financial
advisor. Though Ziff-Davis received a number of firm bids and engaged in
significant negotiations, its board of directors ultimately concluded that the
prices and terms of the proposals that Ziff-Davis received were not attractive
enough to justify a sale of the subsidiaries. Ziff-Davis' board also concluded
that in the absence of a sale, the Distribution, and the related borrowings
and cash dividend to holders of Ziff-Davis common stock, represented the best
way to maximize stockholder value. In reaching these decisions, the board
considered the advice of Morgan Stanley Dean Witter and its opinion that the
Distribution is fair, from a financial point of view, to the holders of Ziff-
Davis common stock. This opinion is attached as an Annex to this prospectus
and we encourage you to read it in its entirety.
Ziff-Davis' board of directors was fully aware of the interests of
management and directors described in the next section.
The foregoing discussion of the information and factors that were given
weight by Ziff-Davis' board of directors is not exhaustive, but includes all
material factors it considered. Ziff-Davis' board of directors did not assign
specific weights to the foregoing factors and individual directors may have
given different weights to different factors. The board of directors did,
however, unanimously determine that the Distribution is in Ziff-Davis' best
interest and in the best interest of the holders of Ziff-Davis common stock.
Interests of Management and Directors in the Restructuring
You should be aware that some of Ziff-Davis' executive officers and
directors, as well as some of our own, have interests in the restructuring and
some of these interests may be different from yours. These interests include
the following:
. most of Ziff-Davis', and some of our, executive officers and directors
have unvested options to acquire Ziff-Davis common stock at prices
significantly below the current market price which will vest as a result
of the restructuring;
. some of Ziff-Davis' executive officers and directors that were part of
the management of businesses that Ziff-Davis divested became employees
of the buyer and received significant financial inducements from the
buyer to do so;
. one of Ziff-Davis' directors and executive officers is a director and
executive officer of Key3Media and will receive significant financial
inducements to remain a director and executive officer;
. most of Ziff-Davis', and some of our, executive officers have unvested
options to acquire ZDNet common stock which may become more valuable as
a result of the restructuring; and
. some of Ziff-Davis', and some of our, executive officers and directors
are affiliated with SOFTBANK.
SOFTBANK is the largest holder of Ziff-Davis common stock and has a greater
economic interest in the ZD division than in the ZDNet division.
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Manner of Effecting the Distribution
The general terms and conditions on which the Distribution will be made
will be set forth in a distribution agreement between us and Ziff-Davis. See
"Our Relationship With Ziff-Davis Following the Distribution--Distribution
Agreement".
In the Distribution one of our shares will be distributed for every two
shares of Ziff-Davis common stock outstanding on the record date. The total
number of our shares that will be distributed will depend on the number of
shares of Ziff-Davis common stock outstanding. Based upon the 110 million
shares of Ziff-Davis common stock outstanding on April 30, 2000, 55 million of
our shares will be distributed in the Distribution. The common stock to be
distributed, together with the common stock issued in the Offering, will
constitute all of our outstanding common stock on the Distribution Date.
However, in connection with the Distribution, we have adopted the Key3Media
2000 Employee Option Plan and the Key3Media 2000 Director Option Plan and
granted stock options to our directors and employees. See "Executive
Compensation--Compensation and Benefit Plans". Our common stock will be fully
paid and non-assessable and the holders will not be entitled to preemptive
rights. See "Description of Our Capital Stock".
Ziff-Davis will deliver our shares in the Distribution in book-entry form,
and will not issue any physical share certificates for those shares. Shortly
after the Distribution Date, each record holder of Ziff-Davis common stock
will receive from the distribution agent a statement of its book-entry account
from our transfer agent which will reflect the number of our shares issued to
it in the Distribution. Following the Distribution, you may request physical
stock certificates, and instructions for making that request will be furnished
with the book-entry account statements. If you are not a record holder of
Ziff-Davis common stock because your shares are held on your behalf by your
stockbroker or other nominee, your shares of our common stock should be
credited to your account with your stockbroker or other nominee on or about
the Distribution Date.
Ziff-Davis will not distribute any fractional shares of our common stock.
The distribution agent will combine all fractional shares that would otherwise
have been distributed into whole shares, and sell those whole shares in the
open market at then prevailing prices on behalf of all stockholders entitled
to receive fractional shares. Those stockholders will receive cash in the
amount of their proportional share of the total sale proceeds, net of
brokerage commissions. These sales are expected to be made as soon as
practicable after the mailing of your account statements to you.
You will not be required to pay any cash or other consideration or take any
other action to receive our shares in the Distribution, or to surrender or
exchange your shares of Ziff-Davis common stock. The Distribution will not
affect the number of outstanding shares of Ziff-Davis common stock. We are not
seeking your vote in connection with the Distribution, and you will not have
any appraisal rights in connection with the Distribution.
In order to receive our shares in the Distribution, you must be a record
holder of Ziff-Davis common stock on , 2000.
Results of the Distribution and the Offering
After the Distribution and the Offering, we will be a separate public
company operating our tradeshow and events business. Immediately after the
Distribution and the Offering, we expect to have approximately 60 million
shares outstanding, based on the number of outstanding shares of Ziff-Davis
common stock on April 30, 2000 and the distribution ratio of one share of our
common stock for every two shares of Ziff-Davis common stock. The actual
number of our shares that will be distributed will be determined as of the
, 2000. The Distribution will not affect the number of outstanding shares
of Ziff-Davis common stock.
Listing and Trading of Our Common Stock
Our shares will trade on the [Nasdaq National Market/NYSE], subject to
official notice of issuance, under the symbol "[KEME/KME]". If you decide to
sell any of our shares or shares of Ziff-Davis common stock you
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should make sure that your stockbroker, bank or other nominee understands
whether you want to sell our shares, shares of Ziff-Davis common stock or
both. Beginning on or about and continuing through , [Nasdaq/NYSE]
practices should generally allow sales of shares of Ziff-Davis common stock
either together with or without the right to receive our shares in the
Distribution. If you sell shares of Ziff-Davis common stock with the right to
receive our shares you must deliver our shares to the buyer. You should also
be able to sell your rights to receive our shares without selling shares of
Ziff-Davis common stock.
Sales of shares of Ziff-Davis common stock with the right to receive our
shares should generally settle in the three business day settlement period.
Sales of shares of Ziff-Davis common stock without the right to receive our
shares and sales of our shares without shares of Ziff-Davis common stock are
expected to settle four business days following the date account statements
for our shares are mailed. Beginning about , you should only be able to
sell shares of Ziff-Davis common stock and shares of our common stock
separately. You should check with your stockbrokers, banks or other nominees.
The shares of our common stock distributed to you will be freely
transferable unless you are one of our "affiliates" under the Securities Act.
Our affiliates generally include individuals or entities that control, are
controlled by, or are under common control with us, including SOFTBANK, and
may include certain of our directors, officers and significant stockholders.
Our affiliates will be permitted to sell our shares only in accordance with an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act, such as the exemptions
afforded by Section 4(1) of the Securities Act and the brokerage sales
provisions of Rule 144 thereunder. We believe that persons who may be deemed
to be our affiliates after the Distribution will beneficially own
approximately our shares, or % of our outstanding shares.
We cannot assure you that our shares will be actively traded or that they
will trade in a certain price range. Some holders of Ziff-Davis common stock
who receive our shares may decide that they do not want our shares, and may
sell them prior to or shortly after the Distribution. This may delay the
development of an orderly trading market in our shares for a period of time
following the Distribution. Until our shares are fully distributed and an
orderly market develops, the prices at which our shares trade may fluctuate
significantly and may be lower or higher than the price that would be expected
for a fully distributed issue. Prices for our shares will be determined in the
marketplace and may be influenced by many factors, including the depth and
liquidity of the market for our shares, our results of operations, what
investors think of us and our businesses and changes in economic market
conditions generally and in our businesses in particular.
Following the Distribution, Ziff-Davis common stock will continue to be
listed and traded on the New York Stock Exchange under the symbol "ZD". All
else being equal, the Distribution will probably cause the trading price of
Ziff-Davis common stock immediately after the Distribution to be lower than
the trading price of Ziff-Davis common stock immediately before the
Distribution.
The subsequent merger of Ziff-Davis with a newly-formed subsidiary will
have no immediate effect on the listing of Ziff-Davis common stock. As a
result of the merger, each outstanding share of Ziff-Davis common stock will
remain outstanding as one share of common stock of the newly named ZDNet Inc.,
and each outstanding share of ZDNet common stock will convert into between 1.7
and 1.9 shares of common stock of the newly named ZDNet Inc.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The following is a summary of some of the United States federal income tax
consequences regarding the Distribution. This summary does not purport to
address all material tax consequences of the Distribution and does not
consider the specific circumstances of any particular investors (such as tax-
exempt entities, certain insurance companies, broker-dealers, traders in
securities that elect to mark to market, investors liable for
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alternative minimum tax, investors that actually or constructively own 10% or
more of our voting stock or voting stock of Ziff-Davis, investors that hold
Ziff-Davis common stock or our common stock as part of a straddle or a hedging
or conversion transaction or investors whose functional currency is not the
U.S. dollar), some of which may be subject to special rules. This summary is
based on the tax laws of the United States (including the Internal Revenue
Code of 1986, as amended, its legislative history, existing and proposed
regulations thereunder, published rulings and court decisions) as in effect on
the date hereof, all of which are subject to change or changes in
interpretation, possibly with retroactive effect.
As used herein, the term "U.S. Stockholder" means a holder of Ziff-Davis
common stock or our common stock that is for United States federal income tax
purposes:
. a resident or citizen of the United States;
. a corporation, created or organized in or under the laws of the United
States or of any political subdivision thereof;
. an estate the income of which is subject to United States federal income
taxation regardless of its source; or
. a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust.
As used in this prospectus, the term "Foreign Stockholder" means a holder
of Ziff-Davis common stock or our common stock that is not a United States
person for United States federal income tax purposes.
Stockholders are urged to consult with their individual tax advisors
concerning the consequences of the Distribution and the ownership and sale of
our common stock and Ziff-Davis common stock under federal, state, local and
foreign tax laws, including the effect of possible changes in tax law.
The Distribution
U.S. Stockholders
If you are a U.S. Stockholder, you will include the fair market value of
the shares of our common stock received in the Distribution in gross income as
ordinary dividend income only to the extent of your share of Ziff-Davis'
current or accumulated tax earnings and profits through the end of 2000. The
exact amount of Ziff-Davis' earnings and profits depends upon a variety of
factors and cannot be determined until the end of 2000. [Based on Ziff-Davis'
analysis of its earnings and profits and assuming that the value of our common
stock at the time of the Distribution is not greater than $ per share, we
expect that if you are a U.S. Stockholder you will not have more than $ of
dividend income per share of your Ziff-Davis common stock.] To the extent the
value of our common stock on the Distribution Date exceeds Ziff-Davis' per
share earnings and profits, if you are a U.S. Stockholder, you will be
required to reduce your basis in your shares of the Ziff-Davis common stock by
the excess. If you are a U.S. Stockholder and your basis in your shares of
Ziff-Davis common stock is reduced to zero, you will recognize capital gain
equal to the amount of any remaining value of our common stock that you
receive. Your holding period in our common stock will begin on the day after
the Distribution Date. Ziff-Davis expects to report to U.S. Stockholders the
portion of the Distribution that should be treated as a dividend in January
2001.
A U.S. Stockholder that is a corporation will, subject to generally
applicable limitations, be entitled to a dividends received deduction in an
amount equal to 70% of the amount of the Distribution received by it that is a
dividend. If a dividend is deemed to be "extraordinary" under Section 1059 of
the Code, a corporate stockholder may be required to reduce its basis in Ziff-
Davis common stock by the nontaxed portion of the dividend.
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Foreign Stockholders
If you are a Foreign Stockholder you will be subject to United States
withholding tax equal to 30% of the gross amount to be received by you in the
Distribution (including amounts that are not treated as dividends for United
States federal income tax purposes) unless the receipt of our common stock is
effectively connected with the Foreign Stockholder's United States trade or
business (in which case you would be required to submit an Internal Revenue
Service Form 4224 to us) or you, if you are a Foreign Stockholder, are
eligible for a lower rate under an applicable treaty (in which case you would
be required to submit an Internal Revenue Service Form 1001 to us). [In order
to comply with this withholding requirement, Ziff-Davis plans to sell common
stock that would otherwise have been distributed to a Foreign Stockholder in
the amount necessary to generate a sufficient amount of cash so Ziff-Davis can
comply with its withholding obligation with respect to that Foreign
Stockholder. If the cash received by Ziff-Davis upon this kind of sale is in
excess of the amount required to be remitted to the United States taxing
authorities, this excess will be distributed to the Foreign Stockholder in the
Distribution.] A Foreign Stockholder who is subject to withholding tax upon
the Distribution may file a claim for refund to the extent of the withholding
tax that has been imposed on the portion of the Distribution representing
amounts in excess of our current and accumulated tax earnings and profits.
Ownership and Disposition of Common Stock
U.S. Stockholders
Distributions. Common stock distributions will be treated as dividends to
the extent of the U.S. Stockholder's share of our current or accumulated tax
earnings. Dividends paid to our U.S. Stockholders will be subject to income
tax at ordinary rates. To the extent the value of a distribution with respect
to our common stock exceeds the U.S. Stockholder's share of our current or
accumulated tax earnings, the U.S. Stockholder will be required to reduce its
basis in our shares by that excess. A U.S. Stockholder whose basis in our
shares is reduced to zero will recognize capital gain equal to the amount of
any remaining value of the distribution received.
Gain on Disposition. The sale or other disposition (including, in some
cases, redemption) of our shares by a U.S. Stockholder generally will result
in the recognition of capital gain or loss to the holder in an amount equal to
the difference between the amount realized and the U.S. Stockholder's adjusted
basis in our shares. A U.S. Stockholder's adjusted basis in our shares
generally will be the fair market value of those shares as of the Distribution
Date, reduced, but not below zero, by the amount of distributions with respect
to the stock that are not treated as dividends.
Foreign Stockholders
Distributions. A Foreign Stockholder will be subject to withholding of U.S.
federal income tax at a rate of 30% of the gross amount of distributions with
respect to our common stock or the lower rate as may be specified by an
applicable income tax treaty (in which case the Foreign Stockholder would be
required to submit to us an Internal Revenue Service Form 1001 or W-8BEN),
unless the distributions are effectively connected with the conduct of a trade
or business by the Foreign Stockholder within the United States (in which case
the Foreign Stockholder would be required to submit to us an Internal Revenue
Service Form 1001 or W-8ECI). Dividends that are effectively connected with
that holder's conduct of a trade or business in the United States (and, if a
treaty requires, are attributable to a permanent establishment maintained by
that holder in the U.S.) are subject to U.S. federal income tax on a net
income basis at applicable graduated individual or corporate rates, and are
not generally subject to withholding, if the holder complies with certain
certification and disclosure requirements. Any effectively connected
distributions received by a foreign corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or lower rate as may be specified by an applicable income tax treaty.
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Under current law, distributions paid to an address outside the United
States are presumed to be paid to a resident of the country of address (unless
the payer has knowledge to the contrary) for purposes of the withholdings
discussed above and for purposes of determining the applicability of a tax
treaty rate. Under certain recently finalized Treasury Regulations, which we
refer to as the "New Withholding Regulations", a Foreign Stockholder will be
required to satisfy certain certification and other requirements in order to
claim the benefit of a reduced withholding tax rate with respect to dividends
under an applicable treaty. In addition, under the New Withholding
Regulations, in the case of common stock held by a foreign partnership, the
certification requirement would generally be applied to the partners. The New
Withholding Regulations also provide look-through rules for tiered
partnerships. The New Withholding Regulations are generally effective for
payments made after December 31, 2000, subject to certain transition rules.
Foreign Stockholders are encouraged to consult with their own tax advisors
with respect to the application of the New Withholding Regulations.
A Foreign Stockholder that is eligible for a reduced rate of U.S.
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the
U.S. Internal Revenue Service.
Gain on Disposition. A Foreign Stockholder generally will not be subject to
U.S. federal income tax in respect of gain recognized on a disposition of our
shares unless:
. the gain is effectively connected with a trade or business of the
Foreign Stockholder in the United States or, if a tax treaty requires,
is attributable to a permanent establishment maintained by the Foreign
Stockholder in the United States,
. in the case of a Foreign Stockholder who is an individual and holds our
shares as a capital asset, that holder is present in the United States
for 183 or more days in the taxable year of the sale and certain other
conditions are met, or
. we are or have been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the five-year period
ending on the date of the disposition and the Foreign Stockholder owned
more than 5% of our shares at any time during that period.
We believe that we will not be a "U.S. real property holding corporation" for
U.S. federal income tax purposes. Different tax consequences would apply to
certain Foreign Stockholders if we were to become a "U.S. real property
holding corporation".
Federal Estate Taxes. Shares of our common stock owned or treated as owned
by a Foreign Stockholder at the time of death, or shares of which the Foreign
Stockholder made certain lifetime transfers, will be included in that holder's
gross estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise.
U.S. Information Reporting Requirements and Backup Withholding Tax. We must
report annually to the U.S. Internal Revenue Service and to each Foreign
Stockholder the amount of dividends paid to that holder (including the name
and address of that holder) and the tax withheld with respect to those
dividends, regardless of whether withholding was required. Copies of the
information returns reporting those dividends and withholding may also be made
available to the tax authorities in the country in which the Foreign
Stockholder resides under the provisions of an applicable income tax treaty.
Under current law, backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons who fail to furnish
certain information under the U.S. information reporting requirements)
generally will not apply to dividends paid to a Foreign Stockholder at an
address outside the United States unless that Foreign Stockholder is engaged
in a trade or business in the United States or unless the payer has knowledge
that the payee is a United States Person. However, under the New Withholding
Regulations (which are generally effective for dividends paid after December
31, 2000), dividend payments may be subject to backup withholding unless
applicable certification requirements are satisfied. See the discussion above
with respect to rules applicable to foreign partnerships under the New
Withholding Regulations.
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In general, backup withholding and information reporting will not apply to
a payment of the proceeds of a sale of our shares to or through a foreign
office of a broker. If, however, that broker is, for U.S. federal income tax
purposes:
. a United States person;
. a controlled foreign corporation;
. a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United
States; or
. effective for payments after December 31, 2000, a foreign partnership,
if at any time during its tax year, more than 50% of its income or
capital interests are owned by "U.S. persons" (as defined in U.S.
Treasury Regulations) or it is engaged in a United States trade or
business;
those payments will not be subject to backup withholding but will be subject
to information reporting, unless (a) that broker has documentary evidence in
its records that the beneficial owner is a Foreign Stockholder and certain
other conditions are met or (b) the beneficial owner otherwise establishes an
exemption.
Payments to or through a U.S. office of a broker of the proceeds of a sale
of our shares is generally subject to both backup withholding and information
reporting unless the beneficial owner certifies on a Form W-8 (or a suitable
substitute form) under penalties of perjury that it is a Foreign Stockholder,
or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against that holder's U.S. federal income tax liability
provided the required information is furnished to the U.S. Internal Revenue
Service.
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OUR RELATIONSHIP WITH ZIFF-DAVIS
FOLLOWING THE DISTRIBUTION
Distribution Agreement
We and Ziff-Davis will enter into a Distribution Agreement before the
Distribution Date, which will provide for, among other things, the principal
corporate transactions required to effect the Distribution and some other
agreements relating to our continuing relationship with Ziff-Davis after the
Distribution. The Distribution Agreement will be included as an exhibit to the
registration statement on Form S-1 that we have filed with the Securities and
Exchange Commission, and the following summary is qualified in its entirety by
reference to the agreement as so filed.
The Distribution Agreement will provide that on or prior to the
Distribution Date, we will issue to Ziff-Davis one share of our common stock
for every two shares of Ziff-Davis common stock outstanding on the record
date. Ziff-Davis will effect the Distribution by delivering a certificate
representing all of these shares of common stock to the Distribution Agent.
Under the Distribution Agreement, as of the Distribution Date, we will
assume, and agree to indemnify Ziff-Davis against, all liabilities, litigation
and claims, including related insurance costs, arising out of our business,
and Ziff-Davis will retain, and agree to indemnify us against, all
liabilities, litigation and claims, including related insurance costs, arising
out of its other businesses, including the class action and derivative
litigations described in Note 13 to our historical combined financial
statements. The foregoing obligations will not entitle an indemnified party to
recovery to the extent any of this liability is covered by proceeds received
by that party from any third party insurance policy.
The Distribution Agreement will provide for a cash dividend by us to Ziff-
Davis immediately before the Distribution. The aggregate amount of this cash
dividend will be $ million. After we receive the proceeds of our term loan
borrowings under the credit facility, the sale of our senior subordinated
notes and the Offering, repay our existing indebtedness and pay this cash
dividend to Ziff-Davis, we will retain cash and accounts receivable of
approximately $ million.
The Distribution Agreement will provide that we, along with Ziff-Davis,
will be granted access to some records and information in the possession of
the other, and will require our retention, along with that of Ziff-Davis for a
period of years following the Distribution Date of all information in its
possession.
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FINANCING
Credit Facility
Prior to the Distribution, we will enter into a credit facility with a
syndicate of banks which will consist of two term loan facilities and a
revolving credit facility. The principal amount of the first term loan will be
$75 million which will mature five years from the date we enter into the
credit facility. The first term loan will be repaid quarterly in annual
amounts equal to 10% of the original principal amount of the loan in the first
year, 15% in the second year, 20% in the third year, 25% in the fourth year
and the remaining 30% in the fifth and final year. The principal amount of the
second term loan will be $155 million which will mature six years from the
date we enter into the credit facility. The second term loan will be repaid in
equal quarterly amounts during the final year of its term, subject to
amortization of approximately 1% per year prior to the final year.
The revolving credit facility will commit the banks to lend up to $50
million to us for general corporate purposes. We may borrow, repay and re-
borrow under the revolving loan facility until the fifth anniversary of the
date on which we enter into the credit facility at which time we must repay
any amounts outstanding under the revolving credit facility.
At our election, loans under the credit facility will bear interest at a
margin over, (1) the higher of the federal funds rate plus 1/2% and Morgan
Stanley Senior Funding Inc.'s prime rate or (2) the London interbank offered
rate, or LIBOR. The margin we pay will vary between 1.0% and 3.5% depending on
(a) what we choose as our base rate and (b) the ratio of our total debt to
earnings before interest, taxes, depreciation and amortization.
The credit facility provides that we may prepay the loans at our election,
in whole or in part, at any time and without premium or penalty (other than
costs associated with the early termination of the interest period). In
addition, we may be required to prepay the loans under the credit facility
based upon net cash proceeds of asset sales outside the ordinary course of our
business, the net cash proceeds of additional debt and a portion of our excess
cash flow (as defined in the credit agreement).
The credit facility also contains customary maintenance covenants,
including the following financial covenants: a total leverage test, a senior
leverage test and an interest coverage test. We presently expect to be able to
comply with these covenants. The credit facility also imposes certain
restrictions on the incurrence of debt, payment of dividends, creation of
liens, sales of assets, mergers and consolidations, and other matters. Loans
incurred under the credit facility are guaranteed by each of our wholly owned
subsidiaries (with some exceptions) and will be secured by substantially all
of our and their assets, including accounts receivable and fixed assets.
The credit facility will contain standard events of default including, but
not limited to, (1) defaults in the payment of principal, premium or interest,
(2) defaults in the compliance with covenants contained in the credit
facility, (3) cross defaults on other indebtedness, (4) failure to pay
judgments that have not been stayed by appeal or otherwise and (5) certain
bankruptcy events.
Senior Subordinated Notes
Prior to the Distribution, subject to market conditions, we will offer
Senior Subordinated Notes due 2010 in an aggregate principal amount of $200
million. Interest on the notes will be payable semi-annually.
The notes are expected to be redeemable, at our election, beginning in 2005
at a premium to their principal amount, plus accrued interest. In addition, we
expect to have the right to redeem up to 35% of the aggregate principal amount
of the notes, with the net proceeds of one or more sales of common stock, at a
premium to their principal amount, plus accrued interest.
28
<PAGE>
The Indenture will restrict, among other things, our ability to incur
additional indebtedness, pay dividends or make certain other restricted
payments, incur liens, engage in any sale and lease-back transaction, sell
assets, enter into certain transactions with affiliates or engage in merger
transactions. There will be significant "carve-outs" and exceptions to these
covenants.
In the event of a change of control (as defined in the indenture), we may
be required to purchase all of the notes for cash, for 101% of the outstanding
principal amount, plus accrued interest. This could reduce the chance that we
will be acquired in a transaction where our stockholders receive a premium.
The Indenture will contain standard events of default including, but not
limited to, (1) defaults in the payment of principal, premium or interest, (2)
defaults in the compliance with covenants contained in the Indenture, (3)
cross defaults on other indebtedness, (4) failure to pay judgments that have
not been stayed by appeal or otherwise and (5) certain bankruptcy events.
29
<PAGE>
COMBINED AND PRO FORMA COMBINED CAPITALIZATION
The following table shows our combined cash, short-term debt and
capitalization and pro forma combined debt and capitalization at March 31,
2000. This data should be read in conjunction with our combined balance sheet
and the included notes, our unaudited pro forma combined balance sheet, and
the introduction to the unaudited pro forma combined financial statements
appearing elsewhere in this prospectus. For a summary of the assumptions we
made to produce our pro forma financial statements, see "Unaudited Pro Forma
Combined Statement of Operations and Balance Sheet". Our pro forma information
may not be indicative of our cash, short-term debt and capitalization in the
future.
<TABLE>
<CAPTION>
March 31, 2000
--------------------
Historical Pro Forma
---------- ---------
(in thousands)
<S> <C> <C>
Cash and cash equivalents................................. $ $
Current liabilities.......................................
Current portion of long-term liabilities..................
Long-term liabilities.....................................
Shareholder Equity:
Preferred stock, par value $0.01; authorized 100,000,000
shares; issued none....................................
Common stock, par value $0.01; authorized 200,000,000
shares; issued shares..............................
Non-voting common stock value $0.01; authorized
200,000,000 shares; issued none........................
Additional paid-in-capital..............................
Retained earnings.......................................
Accumulated comprehensive income (loss).................
Total shareholder equity..............................
Total capitalization.................................. $ $
</TABLE>
30
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND BALANCE SHEET
We have prepared our pro forma combined statement of operations and balance
sheet by adjusting our historical combined statement of operations and balance
sheet to give effect to the following transactions as if they had occurred as
of the balance sheet date or on the first day of the periods presented below:
. the Distribution;
. the Offering;
. our borrowing of $230 million under our credit facility;
. our issuance and sale of $200 million principal amount of our senior
subordinated notes; and
. our repayment of our existing indebtedness and payment of the dividend
to Ziff-Davis.
This unaudited pro forma combined statement of operations and balance sheet
should be read in connection with, and are qualified by reference to, our
Combined Financial Statements, related notes as well as "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained elsewhere in this prospectus. We believe that the assumptions used
provide a reasonable basis for presenting the significant effects directly
attributable to the transactions discussed above. The unaudited pro forma
combined statement of operations and balance sheet are presented for
informational purposes only and may not necessarily reflect our future
financial position, future earnings or results of operations or what our
financial position, earnings or results of operations would have been had we
operated as an independent company for the periods indicated and are not
necessarily indicative of the results that would have been reported had such
transactions actually occurred on the dates specified, nor are they indicative
of our future financial position or results.
31
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------
Unaudited
Pro Forma Unaudited
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Unaudited Pro Forma Combined Statement
of Operations
Net revenues........................... $251,411 $251,411
Operating expenses..................... 200,851 -- (d) 200,851
-------- --------
Operating income....................... 50,560 50,560
Other income (expense):
Interest expense..................... (23,300) (27,018)(a),(b) (50,318)
Interest income...................... 487 487
Gain on sale of joint venture........ 13,746 13,746
Equity in income of joint venture.... 1,649 1,649
Other, net........................... (71) (71)
-------- --------
(7,489) (34,507)
Income before taxes.................... 43,071 16,053
Provision for income taxes............. 17,082 (10,661)(c) 6,421
-------- --------
Net income............................. $ 25,989 $ 9,632
======== ========
Unaudited pro forma net income per
share (e).............................
Unaudited pro forma weighted average
shares outstanding (e)................
Unaudited Pro Forma Combined Balance
Sheet
Cash and cash equivalents.............. $ 5,570 -- (f)
-- (g)
-- (h)
Other current assets................... 87,143
-------- --------
Total current assets................... 92,713
Property and equipment, net............ 10,028
Intangible assets, net................. 875,526 -- (f)
Other long-term assets................. 78
-------- --------
Total assets........................... 978,345
======== ========
Current liabilities.................... 130,017
Current portion of long-term debt...... -- (f)
-------- --------
Total current liabilities.............. 130,017
Long-term debt......................... -- (f)
Note payable to affiliate.............. 382,002 -- (h)
Other long-term liabilities............ 69,934
Division equity........................ 396,392 -- (f)
-- (g)
-- (h)
-------- --------
Total liabilities and division equity.. $978,345
======== ========
</TABLE>
(Notes following)
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND BALANCE
SHEET
(a) Reflects interest expense of $20,913 associated with the borrowing of
$230 million under our credit facility and interest expense of $27,000
associated with the issuance and sale of $200 million in senior
subordinated notes. Interest expense calculated at a 9.5% rate for the
$230 million under a credit agreement and 13.5% for the $200 million
senior subordinated notes produced an increase in interest expense of
$47,913 which is offset by a reduction in interest expense of $23,300
recorded in our historical combined statement of operations for our
existing indebtedness to Ziff-Davis.
(b) Reflects amortization expense resulting from the issuance costs incurred
as a result of borrowing $230 million under our credit facility and
issuance of $200 million in senior subordinated notes. The issuance costs
are estimated to be approximately $12,370.
(c) The effective tax rate derived from our income tax expense for the year
ended December 31, 1999 was applied to the pro forma adjustments to
determine the income tax benefit of $10,661 associated with the pro forma
adjustments.
(d) We have operated as a wholly owned division of Ziff-Davis. We believe
that our general and administrative expenses could decrease as a result
of being a stand-alone entity. However, decreases may be offset by an
increase in compensation expense as we add a full management team and
enter into employment agreements with key management personnel. To date,
we have entered into new employment agreements with total base salaries
of approximately $3,050,000, which will be partially offset by recent and
future departures. We have not fully quantified the impact of these
increases and decreases.
(e) Unaudited pro forma net income per share has been calculated assuming
that one of our shares will be distributed for every two shares of Ziff-
Davis common stock outstanding at the date of distribution assuming 110
million shares of Ziff-Davis stock, or 55 million of our shares. In
addition, unaudited pro forma net income per share reflects an offering
of million new shares at the offering date and million of options
for our shares granted to directors and employees.
(f) Reflects proceeds associated with the borrowing of the $230 million under
a credit facility and proceeds from issuance and sale of $200 million in
senior subordinated notes and the issuance costs of approximately $12,370
associated with the $230 million under a credit facility and $200 million
in senior subordinated notes that are being paid by Ziff-Davis.
(g) Reflects proceeds associated with the offering of number of shares of
our common stock at $ per share net of stock issuance costs.
(h) Reflects the repayment of $ of our existing indebtedness and to pay a
dividend of $ to Ziff-Davis.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion below should be read in conjunction with our historical
combined financial statements, the notes thereto and the comparative summary
of selected historical financial data contained elsewhere in this prospectus.
Our historical results may not be indicative of future results and we may
engage in new or different business activities and practices in the future. In
addition to historical information, the following discussion 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 those set forth under
"Risk Factors" and elsewhere in this prospectus.
Overview
We produce, manage and promote a portfolio of tradeshows, conferences and
other events for the IT industry. Our events provide community, content and
commerce for vendors, resellers, large volume end users and others involved in
the IT industry, including consultants and other advisors. In 1999, we
provided face-to-face marketplaces for business-to-business marketing, sales
and education in the IT industry for more than one million participants at 44
events, including co-located events. In 1999, our revenue was $251.4 million
and our earnings before interest, depreciation and amortization or EBITDA were
$90.3 million.
We are a subsidiary of Ziff-Davis, and Ziff-Davis has provided us with
certain administrative services including legal, tax and financial accounting,
management information, telecommunications, and human resources services. In
general, Ziff-Davis charges us for these services based upon our utilization;
however, where measuring utilization is impractical, Ziff-Davis uses other
methods it believes to be reasonable. In addition, Ziff-Davis manages most of
our treasury activities. After the Distribution, we will no longer rely on
Ziff-Davis for these services and will have to provide them ourselves. While
we currently estimate that we can provide these services for less than what
Ziff-Davis has charged us in the past, this is just an estimate and we could
be wrong. In addition, we will have new expenses as an independent public
company that we did not have in the past. We may also incur new or different
expenses as our business changes over time.
Revenue
To date, our revenue has been derived principally from:
. exhibitor services revenue, which consists of the fees we receive from
IT vendors to rent exhibit space at our events and the commissions and
discounts we receive from third parties who provide services to our
exhibitors;
. fees paid by attendees to participate in conferences that we offer at
our events; and
. advertising and sponsorship fees.
Historically, exhibitor services revenue has accounted for approximately
75% of our total revenue. Exhibit space rental revenue accounts for a
substantial majority of exhibitor services revenue and fluctuates as a result
of changes in the amount of net square feet of exhibit space rentals and our
rental rates. The balance of exhibitor services revenue depends upon the
demand for and pricing of the third-party services that we promote to our
exhibitors. At most of our annual events, we rent a majority of the exhibit
space for the next year's event. We give exhibitors who renew each year
preferential location and treatment. Exhibitors are contractually required to
pay for exhibit space rentals in advance in two or three installments. The
last installment is usually due six months from the contract date or, if the
contract is signed after this date, the date of the contract. We recognize
exhibitor services revenue when the related event occurs. As a result, a
significant portion of our cash and cash
34
<PAGE>
equivalents and accounts receivable represent deferred revenues for events to
occur at a later date. We maintain insurance on our three largest events
sufficient to cover a substantial portion of lost exhibit space rental revenue
for event cancellations beyond our control.
Conference fees account for approximately 15% of our total revenue and
consist of the fees we charge attendees to participate in the conferences we
offer at our events and, to a very minor extent, the fees paid by attendees to
attend our events. While attendees must obtain tickets for our events, these
tickets are usually distributed on a complimentary basis and only permit
attendees to visit the exhibit floor and other generally available portions of
the events.
Advertising and sponsorship fees paid by our exhibitors generate
approximately 10% of our total revenue. This revenue comes primarily from the
following sources:
. advertising in Preview, a newspaper distributed before some of our
larger events to pre-registrants and certain prior year attendees;
. advertising in Program Exhibits Guide, a guide to the exhibitors
distributed before and during our events;
. advertising in Show Daily, a daily newspaper we distribute during some
of our larger events;
. advertising on billboards and banners at and around our event venues;
and
. sponsorships of key areas and promotional materials throughout our event
venues.
We currently sell advertising and sponsorships almost exclusively to our
exhibitors on an event-by-event basis. We believe that with the strength of
our brands and audiences, we can expand these sales beyond our exhibitor base
and the IT industry. We also believe we have significant opportunities to
generate additional revenue by selling advertising and sponsorships across
multiple events and brands and by introducing promotional activities at our
events.
We market our events under a limited number of brands. The table below
presents revenue for our principal brands over the last three years, excluding
international contract events discussed below under "Description of Business--
International Expositions".
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- -------
(in thousands)
<S> <C> <C> <C>
COMDEX................................................ $121,413 $107,828 $84,753
NETWORLD+INTEROP...................................... 75,367 81,722 82,956
Seybold Seminars...................................... 15,518 17,996 18,984
JavaOne............................................... $ 7,552 $ 11,840 $16,589
</TABLE>
35
<PAGE>
The table below presents the total net square feet of exhibit space
rentals, the number of exhibitors, the number of conference participants and
the estimated number of attendees for our largest events within each of our
principal brands over the last three years.
<TABLE>
<CAPTION>
1997 1998 1999
------ ----- -----
<S> <C> <C> <C>
COMDEX
Total net square feet (in thousands)....................... 1,923 1,617 1,225
Total exhibitors........................................... 4,170 3,889 2,917
Total conference participants.............................. 9,106 8,800 8,195
Estimated total attendees (in thousands)................... 475 432 402
NETWORLD+INTEROP
Total net square feet (in thousands)....................... 1,260 1,092 1,034
Total exhibitors........................................... 2,149 2,018 1,744
Total conference participants.............................. 10,712 9,025 7,767
Estimated total attendees (in thousands)................... 255 179 183
Seybold Seminars
Total net square feet (in thousands)....................... 263 261 219
Total exhibitors........................................... 639 652 463
Total conference participants.............................. 5,510 5,227 5,077
Estimated total attendees (in thousands)................... 64 63 54
JavaOne(1)
Total conference participants.............................. 5,589 7,237 8,600
Estimated total attendees (in thousands)................... 12 14 20
</TABLE>
- --------
(1) Unlike our tradeshows, JavaOne is a conference from which we derive most
of our revenue from the fees attendees pay to attend the conference.
Although we do derive secondary revenue from exhibit space rental fees,
it is not material and, accordingly, exhibitor information has been
omitted from this table.
Operating Costs
Costs of Production
We record as costs of production all costs we pay to third parties that are
directly associated with an event. The largest components of these costs are
event specific advertising and attendee marketing, venue rental, costs of
temporary personnel, conference content and other costs related to event
production including hospitality and lodging. For our largest events, we
generally have the venue under contract for the next three years on a rolling
basis. In the case of COMDEX/Fall, we currently have the Las Vegas Convention
Center and The Sands Expo under contract through 2005. Although we do not have
a contractual right to use the venues beyond the contract period, we believe
that venue owners will generally give us the first chance to rent the space in
the ensuing years. While we have experienced recent increases in the venue
rental rates, we have been generally able to pass these increased costs on to
our exhibitors.
Selling, General and Administrative Expenses
SG&A consists of payroll and benefit costs for our employees, office rental
expenses, legal, accounting and all other expenses not directly associated
with an event (other than depreciation and amortization). In the past, SG&A
has included charges from Ziff-Davis for various services. After the
Distribution, we will obtain these services ourselves.
Depreciation and Amortization
As of March 31, 2000, we had $ million of intangibles which we are
amortizing over periods ranging from five to 40 years. These intangibles
consist primarily of goodwill from our acquisition of COMDEX in 1995 and ZD
Expos in 1994. This non-cash expense could increase in future periods if we
make more acquisitions.
36
<PAGE>
Our other depreciation and amortization relates for the most part to the
depreciation of property and equipment, principally computers and similar
equipment. As of March 31, 2000, we had $ million of property and
equipment.
Interest Expense
In prior periods, this expense related to amounts owed to affiliates of
SOFTBANK and Ziff-Davis. After the Distribution, this expense will increase
and will relate to our bank debt and senior subordinated notes.
Results of Operations
The following table sets forth our combined income statement data expressed
as a percentage of revenue for the periods presented:
<TABLE>
<CAPTION>
Year ended December
31,
-----------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Net revenue
Exhibitor services................................... 77.28% 77.22% 70.75%
Conference fees...................................... 15.67% 14.89% 17.85%
Advertising & sponsorships........................... 7.05% 7.89% 11.40%
------ ------ ------
Total net revenue.................................. 100.00% 100.00% 100.00%
====== ====== ======
Cost of production..................................... 34.51% 28.03% 29.49%
Selling, general & administrative expense.............. 28.88% 28.52% 35.24%
Depreciation & amortization............................ 12.89% 15.30% 15.17%
Operating income....................................... 23.72% 28.15% 20.11%
Interest expense, net.................................. 23.21% 15.99% 9.07%
Gain on the sale of joint venture interest............. 5.47%
Income before income taxes............................. 1.11% 13.13% 17.13%
Provision for income taxes............................. 1.96% 5.97% 6.79%
Net income............................................. (0.85)% 7.15% 10.34%
====== ====== ======
EBITDA................................................. 37.21% 44.42% 35.91%
</TABLE>
Three Months Ended March 31, 2000 Compared with Three Months Ended March 31,
1999
[To come]
1999 Compared with 1998
Our total revenue decreased $17.7 million, or 6.6%, to $251.4 million in
1999 from $269.1 million in 1998. Exhibitor services revenue decreased by
$29.9 million, or 14.4%, to $177.9 million in 1999 from $207.8 million in
1998. The decrease is primarily attributable to a 17.8% decrease in net square
feet of exhibit space rented at our events, from 3.4 million to 2.8 million
square feet. The largest decrease for an individual event occurred at
COMDEX/Fall where the net square feet rented decreased by approximately
244,000 square feet from 1.190 million to 0.946 million square feet. In
addition, the total number of exhibitors at our events decreased by 1,360, or
17.3%, to 6,488 in 1999 compared with 7,848 in 1998, including a 19%, or 463
exhibitor, decrease at COMDEX/Fall from 2,374 to 1,911. These decreases in net
square feet rented and number of exhibitors were partially offset by an
increase in the average rental rate of 6.4% to $55.14 in 1999 from $51.83 in
1998. The overall decrease in exhibitor services revenue is the result of
several factors, including a consolidation of IT vendors, adverse economic
conditions in Asia, the commoditization of personal computers and the
significant shift in the IT industry away from mainframe and personal
computing towards the Internet, networks and wireless communications.
37
<PAGE>
Conference fees increased $4.8 million, or 12.0%, to $44.9 million in 1999
from $40.1 million in 1998. The increase is attributable to a 1.3% increase in
the number of participants at the conferences that we offer at our events to
40,213 in 1999 from 39,692 in 1998 along with a 10.6% increase in the average
revenue per conference attendee in 1999 of $1,116 compared with $1,009 in
1998. We believe that our ability to raise prices reflects the demand of our
attendees for quality content and educational opportunities in the changing IT
industry.
Advertising and sponsorship revenues increased $7.4 million, or 35.0%, to
$28.7 million in 1999 from $21.2 million in 1998, primarily attributable to
increases at our N+I events. We adopted new event marketing strategies at N+I,
including significantly increasing banner space and sponsorships.
Costs of production decreased $1.3 million, or 1.7%, to $74.1 million in
1999 from $75.4 million in 1998. As a percentage of revenue these costs
represented 29.5% of revenue in 1999 compared to 28.0% in 1998. Our cost of
production increased as a percentage of our revenue because our revenue
declined more than our costs, reflecting the significant fixed cost component
of our business and our decision to maintain temporary personnel staffing and
other variable costs at levels sufficient to maintain the quality of our
service.
SG&A expenses increased $11.8 million, or 15.4%, to $88.6 million in 1999
from $76.8 million in 1998. As a percentage of revenue, SG&A represented 35.2%
of revenue in 1999 compared to 28.5% in 1998. These increases are primarily
attributable to increased use of temporary personnel and contract labor at our
business locations in Massachusetts and California as well as increases in
personnel costs for information technology services incurred for our benefit
in New York by Ziff-Davis.
As a result of the foregoing, EBITDA decreased by $29.3 million, or 24.5%,
from $119.6 million in 1998 to $90.3 million in 1999.
Other expense decreased $32.9 million, or 81.5%, to $7.5 million in 1999
from $40.4 million in 1998 due primarily to a $22.6 million reduction in the
interest we paid to our affiliates and the $13.7 million gain on our sale of
Expo Comm in 1999.
Depreciation and amortization decreased $3.0 million, or 7.4%, to $38.1
million in 1999 from $41.1 million in 1998. This decrease resulted from
certain property and equipment and intangible assets becoming fully
depreciated or amortized in 1998 and additional amortization recorded in 1998
to recognize a decline in value of an event acquired in 1996.
The provision for income taxes increased $1.0 million, or 6.2%, to $17.0
million in 1999 from $16.0 million in 1998. This increase is attributable to
higher levels of domestic taxable income offset by declines in taxable income
in foreign jurisdictions having higher effective rates of tax than in the
United States.
As a result of the foregoing, our net income increased $6.7 million, or
35.0%, to $26.0 million.
1998 Compared with 1997
Our total revenue decreased $7.1 million, or 2.6%, to $269.1 million in
1998 from $276.3 million in 1997. Exhibitor services revenue decreased by $5.7
million, or 2.6%, to $207.8 million in 1998 from $213.5 million in 1997. This
decrease is attributable to a 7.0% decrease in net square feet of exhibition
space sold at our events (from 3.6 million to 3.4 million square feet). The
largest decrease for an individual event occurred at COMDEX/Fall where square
footage sold decreased approximately 157,000 square feet from 1.347 million to
1.190 million square feet. Additionally, the total number of exhibitors
decreased by 383, or 4.7%, to 7,848 in 1998 compared with 8,231 in 1997,
including a 106 exhibitor decrease at COMDEX/Fall from 2,480 to 2,374. These
decreases in net square feet sold and number of exhibitors were partially
offset by an increase in the average price per square foot sold of 5.5% to
$51.83 in 1998 from $49.13 in 1997. The overall decrease in exhibitor services
revenue is the result of several factors, including a consolidation of IT
vendors, the commoditization of personal computers and the significant shift
in the IT industry away from mainframe and personal computing towards the
Internet, networks and wireless communications.
38
<PAGE>
Conference fees decreased $3.2 million, or 7.4%, to $40.1 million in 1998
from $43.3 million in 1997. The decrease is attributable to a 10.3% decrease
in the number of paid participants at the seminars and workshops presented at
our events to 39,692 in 1998 from 44,241 in 1997. This decrease was partially
offset by a 3.2% increase in the average revenue per attendee in 1998 of
$1,009 compared to $978 in 1997.
Advertising and sponsorship revenue increased $1.7 million, or 9.0%, to
$21.2 million in 1998 from $19.5 million in 1997.
Costs of production decreased $19.9 million, or 20.9%, to $75.4 million in
1998 from $93.3 million in 1997. This decrease resulted primarily from
negotiated reductions in the cost of decorator services. As a percentage of
total revenue, our costs of production decreased to 28.0% in 1998 from 34.5%
in 1997.
SG&A expenses decreased $3.0 million, or 3.8%, to $76.8 million in 1998
from $79.8 million in 1997. This decrease is attributable to staffing
reductions undertaken when we merged with Ziff-Davis in May 1998. As a
percentage of revenue, there was no material change in our SG&A.
As a result of the foregoing, EBITDA increased $16.8 million, or 16.3%, to
$119.6 million in 1998 from $102.8 million in 1997.
Depreciation and amortization increased $5.6 million, or 15.6%, to $41.2
million in 1998 from $35.6 million in 1997. This increase is attributable to
additional amortization recorded in 1998 to recognize a decline in value
associated with an event acquired in 1996.
Interest expense decreased $21.1 million, or 32.9%, to $43.0 million in
1998 from $64.1 million in 1997. This decrease is attributed to a decrease in
debt to an affiliate that occurred as a result of the merger with Ziff-Davis
in May 1998.
The provision for income taxes increased $10.7 million, or 197.4%, to $16.1
million in 1998 from $5.4 million in 1997. The increase is attributable to
higher levels of taxable domestic income due to significantly lower event
production costs and interest expense deductions previously discussed.
As a result of the foregoing, our net income increased $21.6 million to
$19.3 million in 1998 from a net loss of $2.4 million in 1997.
Liquidity and Capital Resources
Historically, the cash we generated from operating activities has exceeded
the cash we used in investing activities by significant amounts. We have used
cash in investing activities primarily to fund investments in property and
equipment and intangibles. In 1999, we generated net cash from operations of
$87.8 million and used $5.2 million of net cash in investing activities, and
in 1998, we had $81.6 million net cash provided by our operations and used
$11.7 million of net cash in investing activities. However, as a wholly owned
subsidiary of Ziff-Davis, we remitted our excess cash to Ziff-Davis which used
it to fund its other businesses. We remitted $81.3 million to Ziff-Davis in
1999 and $83.2 million in 1998. As a result of these practices, we have
historically had a working capital deficit and low cash balances. As of
March 31, 2000, we had a working capital deficit of $ million and cash and
cash equivalents of $ million.
Our cash flows are not as volatile as our revenues, because we receive
payments for events during the year but recognize them as revenue only when
the corresponding event occurs.
We anticipate our capital expenditures for 2000 to total approximately $15
million, including $2 million for tenant upgrades in our newly leased
corporate headquarters in Los Angeles and existing facilities located in
Needham, Massachusetts and Foster City, California, $5 million for
replacements and upgrades of property and equipment, $3 million for expanded
data center capacity to replace certain services that were previously provided
by Ziff-Davis and $5 million for our new Internet initiatives. We may use a
portion of our cash flow for other opportunities when they arise, including
for acquisitions.
39
<PAGE>
We have made substantial commitments for repayment of our term loans. We
currently do not have any committed source of capital other than our revolving
credit facility. Up to $50.0 million will be available under the revolving
credit facility, subject to certain conditions. Under our term loan facility,
we have scheduled principal repayments in the following amounts: $9.05 million
in the first year of the loans, $12.80 million in the second year, $16.55
million in the third year, $20.30 million in the fourth year, $24.05 million
in the fifth year and $147.25 million in the sixth year. However, we must
prepay the term loans sooner if we sell assets not in the ordinary course of
business, issue additional debt or have excess cash flow during the term of
the loans. We will also have to pay interest on our term loans, our revolving
credit loans and our senior subordinated notes. Our term and revolving loans
will bear interest at floating rates. Accordingly, our liquidity and financial
condition will be affected by changes in prevailing interest rates.
After we receive the $455 million of aggregate proceeds from our borrowings
under the credit facility, the sale of our senior subordinated notes and the
Offering, pay off our existing indebtedness and pay the $ cash dividend
to Ziff-Davis, we will retain cash and accounts receivable equal to $
million. Based upon current and anticipated levels of operations, management
believes that cash on hand and cash flow from operations will be sufficient to
enable us to meet current and anticipated cash operating requirements
including venue rental payments, scheduled interest and principal payments on
debt and capital expenditures. We will, however, be subject to general
economic conditions and to financial, business and other factors, including
factors beyond our control.
Seasonality
Our revenue is seasonal, but our cash flows are stable. This is because our
customers pay us for an event during the 12 months preceding the event, but we
do not recognize the payments we receive as revenue until the event occurs.
Historically, our largest events occur in the second quarter (N+I, Las Vegas)
and the fourth quarter (COMDEX/Fall). As a result, the majority of our revenue
is recorded in these quarters. We may also experience seasonal fluctuations as
events held in one quarter in the current year may be held in a different
quarter in future years.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. This statement also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS 133 will be effective for our fiscal
year ending December 31, 2001. Since we do not engage in hedging nor own any
derivatives, we believe that the adoption of SFAS 133 will not have a material
effect on our financial statements or results of operations.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101"), which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with SEC. We are required to be in conformity with the provisions of SAB
101 by the quarter ended June 30, 2000 and do not expect a material change in
our financial condition or results of operations as a result of SAB 101.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB No. 25 and among other issues clarifies the
following: the definition of an employee for purposes of applying APB No. 25;
the criteria for determining whether a plan qualifies as a noncompensating
plan; the accounting consequence of various modifications to the terms of
previously fixed stock options or awards; and the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 is effective
July 1, 2000, but certain conclusions in FIN 44 cover specific events that
occurred after either December 15, 1998 or January 12, 2000. We do not expect
the application of FIN 44 to have a material impact on our financial position
or results of operations.
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DESCRIPTION OF OUR BUSINESS
We produce, manage and promote a portfolio of tradeshows, conferences and
other events for the information technology, or IT, industry. Our events
provide community, content and commerce for vendors, resellers, large volume
end users and others involved in the IT industry, including consultants and
other advisors. In 1999, we provided face-to-face marketplaces for business-
to-business marketing, sales and education in the IT industry for more than
one million participants at 44 events, including co-located events. Because of
the broad market and media exposure we can provide, IT vendors often use our
events to launch their new products and services. Our leading COMDEX and
NETWORLD+INTEROP events are the top two IT industry tradeshows in the United
States when measured by both revenue and net square feet of exhibit space
rentals. We also produce customized events for specific IT vendors and
specific segments of the IT industry. In 1999, our revenue was $251.4 million
and our earnings before interest, depreciation and amortization or EBITDA were
$90.3.
We derive approximately 71 to 77% of our revenue from exhibitor services
revenue, which consists of the fees we receive from IT vendors to rent exhibit
space at our events and commissions and discounts we receive from third-
parties who provide services to our exhibitors. We derive the balance of our
revenue from the fees paid by attendees to participate in conferences that we
offer at our events and from advertising and sponsorships. We have events
which focus on the full spectrum of the IT industry and others that target
particular segments of the industry. We believe that we can enhance our
revenue by creating multiple revenue streams from a portfolio of events with
different targeted audiences and limited attendee overlap. Our customized
events allow us to build close relationships with individual IT vendors and
better understand their products and marketing needs. These relationships also
help us identify and keep current with emerging trends in the IT industry.
Our COMDEX tradeshows cover the full spectrum of the IT industry. Our
COMDEX/Fall tradeshow is the largest tradeshow in the United States for any
industry when measured by revenue. In 1999, we offered 17 COMDEX events in 12
countries and our owned and operated COMDEX events generated about 37% of our
revenue. Our NETWORLD+INTEROP, or N+I, tradeshows focus on the networking,
Internet and telecommunications sectors of the IT industry. In 1999, we held
six N+I tradeshows in five countries and these events generated approximately
34% of our revenue.
We are a new company that was formed by Ziff-Davis to hold its portfolio of
business-to-business tradeshows, conferences and other events. Ziff-Davis will
distribute our shares to the holders of its Ziff-Davis common stock in the
Distribution as part of its restructuring process. As an independent public
company with a new management team, we believe that we will have a greater
ability to grow our business and take full advantage of our marketing
opportunities.
Industry Overview
Tradeshows, conferences and other business-to-business events provide face-
to-face interaction between buyers and sellers and offer educational and
networking opportunities for attendees. Tradeshow Week, a leading industry
publication, has estimated that there are over 13,000 trade and consumer
events held annually worldwide. The North American events industry has
experienced steady growth in total exhibit space, the number of exhibitors and
attendance over the past ten years. The spectrum of the trade shows is fairly
broad with individual shows distinguishing themselves by their style, the
nature and level of sophistication of their content, organizational efficiency
and, most importantly, by their attendance record.
The IT industry has been one of the fastest growing segments of the U.S.
events industry, with the number of IT events growing from 325 in 1995 to an
estimated 477 in 2000. This represents a compound average annual growth rate
of 8.0%, compared to only 1.4% for all U.S. events regardless of industry.
This growth in IT tradeshows business has been driven by the emergence of new
small and mid-sized regional events and the proliferation of events which
focus on particular segments of the IT industry.
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Although the total amount exhibitors spend on IT events has increased, with
the increase in the number of IT events, exhibitors have become more selective
in choosing events and more sensitive to the returns they can generate from
their marketing investments. Exhibitors consider not only exhibit space rental
costs, but also other event-related costs such as exhibit design and
production, transportation, travel, lodging and entertainment costs and event-
related promotions. We believe that in economic downturns exhibitors are more
likely to cut back on these other costs than to miss shows entirely. As an
alternative to exhibiting at events, some IT vendors host private events such
as regional conferences, product demonstrations, user-group meetings, road
shows and educational demonstrations. While these allow vendors to engage
customers in a more controlled environment, they typically involve much
smaller audiences than attend larger industry events. Many exhibitors feel
they need to exhibit at leading events in order to launch their new products
and services, establish and enhance their brands with customers and the media
and to remain competitive. The "see and be seen" aspect of events is very
important to exhibitors who are seeking to maximize the returns from their
sales and marketing efforts.
Our Competitive Strengths
We believe that our business has several important competitive strengths.
We Are the Industry Leader in IT Events
We are the largest producer of events for the IT industry in the United
States and we have the leading brands in our industry. Our leading COMDEX and
N+I events are the top two IT industry tradeshows in the United States in
terms of revenue and net square feet of exhibit space rentals. Our COMDEX and
N+I brands are among the most distinctive and recognizable brand names in the
IT event industry. We also have a portfolio of other events with strong market
and brand positions in specific segments of the IT industry. We believe that
our size and portfolio of leading brands helps us consistently attract the
biggest names in the IT industry as exhibitors, conference participants and
keynote speakers. We believe our size, reputation and relationships with
exhibitors, attendees and venue owners create barriers to entry for
competitors.
Strong Cash Flow and Attractive Cost Structure
Our events generate strong cash flows. Our variable costs are low and our
fixed costs are predictable. Our primary fixed cost is rent for event venues,
which we have under contract for the next three years for most of our events.
Due to our cost structure, most of the incremental revenue we generate from
profitable shows translates into increased cash flow, EBITDA and net income.
We can generate incremental revenue from additional exhibit space rentals,
increases in exhibitor space rental fees and additional sales of advertising
and sponsorships. In 1999, our operating margin, which is our EBITDA as a
percentage of our revenues, was 36.2%.
Comprehensive Portfolio of IT Brands
We believe we have a broader and more extensive portfolio of IT brands than
any other events company. We have brands for horizontal events that cover the
full spectrum of the IT industry and brands for vertical events that target
particular segments of the industry. Our portfolio of IT event brands allows
us to provide for the needs of almost every participant in the IT industry in
the United States and to generate multiple revenue streams from the industry
with limited audience overlap. For example, we believe that the attendee
overlap between our fall and spring COMDEX events is only about 6% and that
the overlap between our largest COMDEX and N+I events is only about 12%. We
believe that our well known brands contribute to stable pricing and help us to
attract exhibitors and attendees.
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Extensive Database of Exhibitors and Attendees
We have an extensive database of participants in the IT industry. Our
database contains more than 1.8 million names in the United States and more
than 800,000 names outside the United States. Our database allows us to
identify and target both exhibitors and attendees. Our database contains
important demographic information for each participant, including items like
job function, company size and type, product interests, purchasing habits and
installed operating systems. We believe that our ability to use our database
to target and attract the attendees that our exhibitors most want to reach
gives us an important competitive advantage. We also use our database to
create new events, to increase paid conference attendance at our events and as
a source of revenue when we rent out our lists.
International Presence and Opportunities
We have been able to successfully export our leading brands through a
combination of events we own and operate and international contract events in
which we license our brand to other operators and typically receive guaranteed
minimum payments and a return based on the performance of the licensed event.
Our international events extend our brands and reputation globally and take
advantage of our U.S. experience and leverage our costs. In 1999, we had eight
owned and operated events and 12 contract events outside the United States. Of
these, there were 15 COMDEX events (four owned and operated and 11 contract
events), three owned and operated N+I events and our owned and operated
"Government in Technology Week" event held in Ottawa, Canada.
New Management Team
As part of the Distribution, Ziff-Davis added a new chairman & chief
executive and other senior management personnel to strengthen our management
team. Most of the new executives worked together most recently at Ticketmaster
Group, Inc., where they had a proven record of growing revenues, cash flow and
profits and integrating acquisitions. Each member of management has received
options to acquire a significant number of our shares which vest over four
years.
Our Strategy
We are seeking to increase our revenue, cash flow and earnings by pursuing
the following strategies.
Focus on Key Revenue Drivers
We generate multiple streams of revenue from our events and will focus on
the following key revenue drivers:
Increase Exhibit Space Rentals. We will seek to increase revenue from our
exhibit space rentals by increasing both the amount of space we rent and the
fees we charge to our exhibitors for such rentals. For many of our continuing
shows, we have raised exhibit space rental fees in each of the last two years
and believe we will be able to raise them further in the future.
Increase Advertising, Sponsorships and Promotions. One of our key
initiatives is to increase our advertising and sponsorships revenue and to
generate additional revenue by introducing promotional activities at our
events. We currently sell advertising and sponsorships almost exclusively to
our exhibitors on an event-by-event basis. We believe that with the strength
of our brands and audiences, we can expand these sales beyond our exhibitor
base and the IT industry. We also believe we have significant opportunities to
generate additional revenue by selling advertising and sponsorships across
multiple events and brands and by introducing promotional activities at our
events.
Emphasize Conferences and Content. We intend to continue to create,
organize and promote the conferences that we offer to attendees at our events
for an additional fee. In addition to generating additional
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revenue, the content and educational opportunities offered by these programs
help us attract quality attendees to our events. We will also continue to use
leading executives and experts in the IT industry as keynote speakers at our
events in order to provide the most current and relevant information to our
attendees. By increasing quality attendance, we make our events more
attractive to exhibitors.
Maintain and Extend COMDEX/Fall's Industry Leading Position
We believe that as an independent company with new management we can
maintain and extend COMDEX/Fall's industry leading position by:
. shifting its focus so that it highlights the emerging and fastest
growing sectors of the IT industry;
. expanding its exhibitor and attendee base;
. increasing its advertising and sponsorships revenues and introducing
promotional activities; and
. increasing attendee participation in its conferences.
Leverage our Customized Events
In our Studios division, we produce customized events for individual IT
vendors which enable them to reach audiences in a targeted and controlled
environment. We work closely with our clients at these events and we use these
events to demonstrate our marketing expertise and gain a better understanding
of our clients' business and marketing needs. We believe we can use the close
relationships we build with our clients and the information we gain about them
through these events to increase their use of our other product lines. These
events also help us identify and keep current with most important emerging
trends in the IT industry.
Take Advantage of Internet Opportunities
We plan to significantly increase our presence on the Internet, which we
believe we can use to extend the communities that attend our events into
online communities that gather 365 days a year, 24 hours a day, 7 days a week.
We expect to launch several new or redesigned websites this year, featuring
graphics, content and interactive community elements distinctly targeted to
the demographics of high volume IT sellers and buyers. Our sites will offer
advertising and sponsorships opportunities to participants in the IT and other
industries. The sites will be linked to our Key3Media website and will offer
links to chat rooms, message boards, e-commerce locations and co-branded
affinity programs. In the future, we may also expand our sites to incorporate
e-commerce between IT vendors and buyers. We believe that we can use the
Internet to strengthen and capitalize on the value of our brands.
Pursue Acquisitions Selectively
We may acquire other producers of events if we believe they fit with our
existing businesses and are available on reasonable terms. We may use such
acquisitions to strengthen and expand our event portfolio and to expand our
product offerings outside the IT industry. We believe that we can create
operating efficiencies by applying our expertise and experience.
Expand Internationally
We have extended our leading brands to select international markets and
intend to expand our international operations. In 2000, we will hold first-
year events in Saudi Arabia, Greece, South Africa and Switzerland. The IT
industry is becoming increasingly global and we believe that we are well
positioned to expand our international presence due to the strength of our
brands and our presence and experience in the United States. See "--Our
Events--International Expositions".
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Our Events
We produce 44 events, including co-located events. In 1999 these events
were attended by a total of more than one million participants. In addition to
the events we own and operate, we license our brands to foreign tradeshow
operators for use in connection with nine events held outside of the United
States. We refer to these as our international contract events. Most of our
international contract events are operated under the COMDEX or N+I brands.
Each of our events have three features in common, though the emphasis may
vary:
. an exposition floor on which exhibitors and attendees interact face-to-
face;
. conferences designed to inform and educate IT professionals; and
. keynote speakers and product launches.
We produce events under a number of different brand names, including
COMDEX, N+I, Seybold Seminars and JavaOne. Our two most important brands in
terms of revenues are COMDEX and N+I. We classify our events as "horizontal"
events if they cover the full spectrum of the IT industry and "vertical"
events if they focus only on particular segments of the IT industry. Our
COMDEX tradeshows are horizontal events and all our other events are vertical.
N+I and Seybold Seminars are our largest vertical events. Consistent with
industry trends, our vertical events have grown significantly and performed
better than our horizontal events.
In addition to our branded events, we conduct a series of customized
vertical events through our Studios division. Our JavaOne conference is our
largest customized event.
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The following table summarizes the scope and reach of our principal branded
and customized events:
<TABLE>
<CAPTION>
Name Type Target Audience Focus 1999 Locations
---- ---- --------------- ----- --------------
<S> <C> <C> <C> <C>
COMDEX Horizontal Chief information Full spectrum of IT Beijing, Buenos
officers, chief industry Aires, Cairo,
technology Chicago, Las Vegas,
officers, business Mexico City, Miami,
managers and Montreal, New
corporate consumers Delhi, Paris, Sao
Paolo, Seoul,
Sydney, Tel Aviv,
Tokyo, Toronto,
Vancouver,
NETWORLD + Vertical Network engineers Computer Atlanta, Las Vegas,
INTEROP and developers networking, the Paris, Sydney,
Internet and Tokyo,
telecommunications
Seybold Seminars Vertical Publishing Web and desktop Boston, San
professionals and print publishing Francisco, Tokyo
web designers
JavaOne Vertical Independent and Java technology San Francisco
enterprise software platform
developers
Support Services Vertical Business managers Help desk and San Francisco,
Conference and technical support Washington, D.C.
Exposition
Customer Relationship Vertical Business managers Customer San Francisco,
Management Conference relationship Washington, D.C.
and Exposition management
Proprietary Product Vertical Developers Emerging Various
Group marketplace and
technology
developments
Custom Program Group Vertical Various Vendor-specified Various
Vertical Market Group Vertical Various IT needs of Various
specific industries
</TABLE>
COMDEX
Our COMDEX tradeshows cover the full spectrum of IT industry. Our
COMDEX/Fall tradeshow, which we hold every November in Las Vegas, is the
largest tradeshow in the United States when measured by revenue, net square
feet of exhibit space rentals and attendees. In 1999, we offered 17 COMDEX
tradeshows in 12 countries.
Our COMDEX tradeshows cover a broad range of new technologies at every
stage, from their development and introduction to commercial maturity. Many of
the most significant computer products launches over the past 19 years
occurred at COMDEX tradeshows, including the launch of the IBM PC, Lotus 1-2-
3, Windows 3.1 and DVD.
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Internet and IT technologies form an integral part of our COMDEX
tradeshows. While maintaining our coverage of the full spectrum of the IT
industry, we are currently highlighting four key technology areas:
. networking and communications products that provide the broadband
infrastructure for the delivery of data, voice and video, while focusing
on such issues as network security and virtual private networking;
. e-commerce solutions, for the delivery of products and services through
the Internet dealing with subjects such as storage, security,
applications, platforms and servers;
. software platforms and operating systems, including the tools to build
applications and applets, for Windows 2000, Java, Linux and Apache; and
. new information appliances that provide access to data and the Internet,
including handheld devices and smart cell phones.
Our COMDEX/Fall tradeshow is a five-day tradeshow we hold in Las Vegas in
November of each year. Although we offer other COMDEX shows, COMDEX/Fall is
the single tradeshow that brings the entire IT industry together. Tradeshow
Week has ranked COMDEX/Fall as the most successful tradeshow in any industry
in the United States for the past ten years when measured by revenue. Although
held in Las Vegas, COMDEX/Fall has international appeal. It includes a large
number of country- and region-sponsored pavilions designed to introduce
attendees to the products and technologies from their local regions and it was
attended by more than 35,000 foreign attendees. In total, COMDEX/Fall 1999 was
attended by more than 1,900 exhibitors occupying 975,000 square feet of
exhibitor space and 200,000 attendees. In 1999, exhibitors for COMDEX/Fall
included: Microsoft Corporation, Toshiba Corporation, Philips Electronics
N.V., Panasonic, and Xerox Corporation.
While it continues to be the leading IT industry tradeshow in the United
States, in recent years our COMDEX/Fall tradeshow has experienced a decline in
revenues, exhibit space rentals and attendees. We believe that this is due
primarily to the consolidation of IT vendors, adverse economic conditions in
Asia, the commodization of personal computers and the significant shift in the
IT industry away from mainframe and personal computing and towards the
Internet, networks and wireless communications. We believe that as an
independent company with new management we can revitalize COMDEX/Fall and
extend its market leadership through the following initiatives:
. Highlight the Emerging and Fastest Growing Sectors of the IT
Industry. COMDEX/Fall has always covered the full spectrum of the IT
industry and we do not intend to change that. In the past, however,
COMDEX/Fall highlighted the personal computer sector of the IT industry.
We are in the process of shifting the areas we highlight at COMDEX/Fall
away from personal computers and towards the emerging and fastest
growing sectors of the IT industry, including the Internet, e-commerce,
network computing and wireless communications and new information
appliances.
. Expand our Audience. Even though COMDEX/Fall currently attracts more
participants than any other IT tradeshow in the United States, we
believe that we can expand both our exhibitor and attendee base by using
our industry experience and portfolio of events to identify, target and
attract the full spectrum of buyers and sellers in the IT industry. We
believe that by increasing the size, quality and diversity of our
COMDEX/Fall audience, we will be able to attract more exhibitors and
increase our advertising and sponsorship revenues.
. Increase Advertising, Sponsorships and Promotions. One of our key
initiatives is to increase our advertising and sponsorships revenue and
to generate additional revenue by introducing promotional activities at
COMDEX/Fall. In the past we have sold advertising and sponsorships only
to our exhibitors. We believe we can expand these sales outside our
exhibitor base and the IT industry.
. Increase Participation in Special Conferences. We are seeking to
increase our attendees' participation in the conferences that we offer
at COMDEX/Fall. Because we charge attendees separate fees to attend
these special conference programs, they are an important source of
additional revenue. We believe that
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we can increase participation by improving the variety, relevance and
information and educational content of our special conference programs.
NETWORLD+INTEROP
Our N+I tradeshows are our largest branded vertical events. They focus on
the rapidly growing and converging fields of computer networking, the Internet
and telecommunications. Our largest N+I tradeshow is held each year in Las
Vegas and is the second largest IT tradeshow in the United States when
measured by revenue and net square feet of exhibit space rentals. In 1999 our
N+I tradeshows generated approximately 33% of our revenues. In 2000, our N+I
tradeshow in Las Vegas had approximately 850 exhibiting companies occupying
approximately 525,000 net square feet of exhibit rental space and more than
55,000 attendees.
Our N+I tradeshows have a large technical customer base and educating our
attendees is a very important part of N+I. Consequently, conference fees
represent a larger portion of N+I's revenues than for our other events.
N+I has always focused on new and emerging networking technologies. We are
continuing this tradition by offering at our N+I 2000 events conferences
highlighting the construction of new public networks with integrated
voice/data/video delivery systems and the emergence of new embedded networks
with software that can be used to update the network's circuits and chips
remotely without physical upgrade.
Each N+I tradeshow features InteropNet, a live, multi-platform, vendor-
sponsored network that interconnects exhibitors and attendees to one another
and to the Internet. Exhibitors at our 1999 N+I tradeshows included: Novell,
Inc., Lucent Technologies, Inc., Computer Associates International, Inc.,
Microsoft Corporation and Nortel Networks Corporation.
Seybold Seminars
Our Seybold Seminars are vertical events that target the latest
technologies and products, design tools and applications for web and desktop
print publishing. We hold our largest Seybold Seminars each fall in San
Francisco. In 1999, our Seybold Seminars in San Francisco had 266 exhibiting
companies occupying 133,000 net square feet of exhibit space and 36,000
attendees. We also hold Seybold Seminars events in Boston in the spring and in
Tokyo in conjunction with COMDEX/Fall.
Major exhibitors at the Seybold Seminars include Adobe Systems
Incorporated, Apple Computer, Inc., Intel Corporation and Macromedia, Inc.
JavaOne
Our JavaOne event is the largest software developer conference in the world
and the premier source of technical education on the latest developments for
the Java technology platform. Attendees at JavaOne are typically either
independent or enterprise software developers. JavaOne is unlike our other
events in that the number and identity of exhibitors and the size of their
exhibits is determined by Sun Microsystems, Inc. In 1999, Sun Microsystems
limited the number of exhibitors to 328 and the size of each exhibit to 25
square feet. As a result, most of our revenue from JavaOne is from conference
fees, with secondary revenue derived from sales of sponsorships and exhibitor
space fees. We had approximately 20,000 attendees at our 2000 event.
Exhibitors at JavaOne 1999 included: Apple Computer, Inc., Fujitsu Software
Corporation, Hewlett-Packard Company-Network Services, International Business
Machines Corporation, and Mitsubishi Electric Corporation.
We own and produce the JavaOne event under an exclusive license agreement
from Sun Microsystems, the inventor and developer of Java technology which
expires on July 2001. See "--Trademarks and Licenses". Sun Microsystems has
not used any other producer for the event, and recently asked us to propose an
expanded Java program that would incorporate JavaOne into a year-round,
worldwide program with a minimum of four events.
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Studios
Our Studios division consists of three groups:
. our Proprietary Product Group, which develops vertical events focusing
on the emerging marketplace and technology developments;
. our Custom Program Group, which works with individual vendor clients to
create events which meet the vendor's individual strategic and
community-building objectives; and
. our Vertical Market Group, which develops events addressing the IT needs
of specific industries, such as "IT for Wall Street" and Windows for
HealthCare.
In 1999, Studios' clients included: International Business Machines
Corporation, Oracle Corporation, Sun Microsystems, Inc., Netscape
Communications Corporation, and 3Com Corp.
International Expositions
Internationally, we have two different methods of operation. We own and
operate some of our largest international events and operate the others as
international contract events. We own and operate N+I events in France and
Australia and COMDEX events in Canada and Mexico. We also own and operate the
Government in Technology Week event in Ottawa, Canada. We run our owned and
operated international shows essentially in the same manner as our U.S. shows,
although we modify our offerings and procedures to fit the local environment.
The arrangements for our international contract events differ by event, but
have some common characteristics. Typically, we have no equity interest in
these events, but instead receive a guaranteed minimum fee and a portion of
the profits above agreed benchmark amounts. We license the brands to the
foreign operator and provide it with branding, sales and marketing services,
but we usually do not have a direct management role. The contracts typically
give each party the right to terminate after one year's notice, and upon
termination the license is revoked and both parties are subject to a
prohibition on competing within the market for two years.
In 2000, we expect to produce COMDEX and/or N+I events in 19 countries
outside North America and over 30 international Studios events.
Management of Events
We manage all of our events on a decentralized basis. We assign a general
manager for each event who is responsible for all aspects of the event
including the profitability of the event. Each event has dedicated employee
teams consisting of both direct reports and shared centralized resources in
each of the following areas:
. sales;
. marketing communications and media; and
. operations.
The employee teams report directly to the general manager for the event as
well as to the heads of their respective departments.
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Sales
Our events provide a face-to-face forum for business-to-business sales,
business marketing, and professional education for the IT industry. We
maintain three groups of sales professionals to maximize event revenue in each
of these areas.
Exhibit Space Rentals. We maintain a staff of approximately 55 dedicated
sales professionals that report directly to our event general managers. These
professionals attend their respective events to ensure client satisfaction and
to accept reservations for exhibit space at the following year's event by
participating exhibitors. Historically, between 60% and 70% of the ensuing
year's exhibit space is contracted at the current year's event. Throughout the
year, our exhibition sales staff is responsible for encouraging exhibitor
upgrades, reducing exhibitor churn and ensuring timely payment of remaining
installments. Our exhibition sales staff also prospects for new clients and
sells remaining exhibit space using telemarketing or, for larger customers,
in-person sales calls.
Advertising and Sponsorships. Our event marketing staff is responsible for
selling advertising and sponsorships to participating exhibitors at our events
including banner advertising, brochure and program advertising, website
advertising, and keynote, luncheon and other event sponsorships. This group is
centralized and individual sales professionals assigned to one or more events.
Our advertising and sponsorship sales are performed by a 16 person staff.
Conferences. We also have a 14 person sales team at our head office that is
responsible for selling the special conferences we provide at our events
directly to the attendees. A team of conference sales professionals is
dedicated to each event for the two months preceding that event.
Marketing Communications and Media
Our marketing department oversees all aspects of creating and delivering
brand and product messaging including creative production, direct response
marketing, public relations and market research. This group works with all
forms of media presentation.
Direct Response Marketing Group. Our direct response marketing group's goal
is to maximize event attendance while ensuring attendee quality. Using
proprietary and other direct marketing lists, this group develops mailing and
telemarketing lists for our conference sales persons.
Conference Content Staff. Our content staff is responsible for developing
the themes and topics comprising conference programs at all of our events,
including the recruitment of all speakers and other panel participants.
Creative Production. Our creative production staff works with our event
general managers and content staff to create the layout of and produce all
event-related publications.
Operations
Our operations staff is responsible for all event logistics, including:
Venue Management. Our venue management group contracts with hotels or
convention centers for exhibition space and meeting rooms. This group is
responsible for identifying appropriate venues, negotiating per square foot
rates and for ongoing contract maintenance. We maintain long-term, renewable
contracts for our larger events and contract several months to a year in
advance for non-recurring events.
Vendor Management. We maintain agreements with several professional vendors
including florists, booth architects and designers, travel agencies and moving
companies who assist our exhibitors in creating and transporting their exhibit
space. We collect a commission each time an exhibitor uses one of our
preferred vendors. Our vendor management group is primarily responsible for
facilitating introductions between our vendors and exhibitors and collecting
fees from chosen vendors.
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Housing. We collect commissions for rooms rented by event participants in
surrounding area hotels and also, to a far lesser extent, purchase local hotel
rooms in advance at discounts and resell them. Our housing group is
responsible for negotiating all housing rental and commission rates and
guaranteeing room availability for the length of the event.
Registration. Our registration group tracks the number and other
characteristics of exhibitors attendees and paid conference attendees,
including tutorial participants.
Logistics. Our logistics staff runs the floor at all events including
setting up, maintaining and closing down the event. They are present at every
event to handle floor space allocation issues and interface directly with
vendors, exhibitors and venue staff to ensure the smooth running of any event.
Media Specialists. We also maintain an audiovisual staff to set up
conference and other meeting rooms with appropriate media.
Our operations group also handles exhibitor contract administration with
respect to our responsibilities in each of these areas.
Key Vendors
We have one-year contracts with most of our third party suppliers. Under
these contracts, we usually agree to promote the services offered by the
suppliers to our exhibitors in exchange for the suppliers' agreement to give
us a certain percentage of their revenue. The size of the commissions we
receive varies between 10% and 25%.
We only have one long-term contract with one third-party supplier. In 1998
we signed a contract with GES Exposition Services, Inc. that expires in 2008.
GES is what is known in the industry as a "decorator" and it offers to provide
various services to our exhibitors to assist them create, set up, maintain and
remove their exhibits. We recommend and promote GES' services to our
exhibitors at most of our United States and Canadian events. At the signing of
this contract GES paid us $10 million. They also pay us a commission equal to
a percentage of the revenues they earn from providing services to exhibitors
at our events and provide free services to us. The services that GES provides
to us and to exhibitors include shipping, installation and dismantling of
booth structures and contents, furniture and fixture rental, trash removal and
similar services. On March 7, 2000, we filed a claim against GES because it
has been withholding commissions that it owes to us. See "--Legal
Proceedings".
Trademarks and Licenses
Because we have developed strong brand awareness for our principal events,
we believe our trademarks and service marks are critical to our success. We
rely on trademark law, as well as licensing agreements, to protect our
intellectual property rights. We have registered our material trademarks in
the United States and in certain other key countries. For example, "COMDEX" is
registered in the United States and 24 other countries. Effective trademark
protection may not be available in every country in which we operate.
We share intellectual property rights to the trademark "NETWORLD+INTEROP"
with Novell, Inc. Novell owns the trademark "NETWORLD" and we own the
trademark "INTEROP". Since 1992, we have licensed the Networld mark from
Novell, and have produced the NETWORLD+INTEROP event. The event is sometimes
referred to as "N+I" and we own that mark jointly with Novell. In exchange for
the Networld license, we pay a fee of $1 million per year to Novell and
provide it with free booth and discounted overflow space, marketing
opportunities, and other benefits at a discount. We also share our attendee
database with Novell subject to some restrictions. Our license expires on
December 31, 2001, but renews automatically for successive one-year terms
51
<PAGE>
until either party gives 15 months' notice of nonrenewal. Upon termination, we
would not be entitled to use the NETWORLD or N+I trademarks, but we could
continue to use Interop. Interop is registered in the United States and 39
other countries.
Sun Microsystems owns the trademarks "Java" and "JavaOne" and has licensed
them to us until July 2001. We own and operate the JavaOne conferences and are
entitled to all revenue from the conferences. Sun Microsystems occupies
substantial space at the conferences, helps secure sponsors, and is
responsible for the special conference content. We jointly own the attendee
database. Our current arrangement terminates after the conference in July
2001, but we are currently in discussions to extend this arrangement.
Competition
Although we are the largest IT tradeshow management company in the United
States, we face competition from tradeshow management companies that operate
in other and more diverse industries, including the following companies:
. the Hanover Messe, a public authority, which owns and operates the CeBIT
tradeshow held annually in Hanover, Germany;
. Miller Freeman, Inc., a division of United News & Media Company, that
services over 50 industry sectors, including IT, and owns PC Expo;
. Advanstar Communications, Inc., which publishes newspapers and magazines
and manages tradeshows in 19 countries, including IT Telexpo Brazil;
. IDG World Expo, the tradeshow division of International Data Group, a
publisher of computer magazines, which owns Comnet; and
. Penton Media, Inc., which produces tradeshows and publications
addressing various industries including IT and owns Internet World.
CeBIT is the largest tradeshow in the world for the IT industry. In 1999,
according to their published results, CeBIT had 7,412 exhibitors occupying
4,292,000 net square feet of exhibit space and 698,000 attendees. We may also
face competition from our former affiliates, ZDNet and the former ZD
Publishing (now Ziff Davis Media Inc.) These entities are not restricted from
entering into the tradeshow business and Ziff Davis Media Inc. has indicated
that it intends to do so.
We also compete for advertising dollars with other forms of media,
including print publishing and the Internet. We must make our events more
attractive to exhibitors and attendees than the other alternatives available
to them or we will lose advertising dollars to our competitors.
Legal Proceedings
On March 7, 2000, we sued GES Exposition Services, Inc. for breach of
contract in the United States District Court for the District of
Massachusetts. We believe that GES is withholding commissions that it is
required to pay to us under our contract. We believe that GES owed us
approximately $6.975 million as of May 4, 2000, and this balance is
increasing. See "Key Vendors". In our opinion, this litigation is not likely
to have a material adverse effect on our financial condition, results of
operations or cash flows.
From time to time, as a normal incident of the nature and kind of business
in which we are engaged, various claims or charges may be asserted and
litigation commenced against us. In our opinion, no current claim or
litigation is likely to have a material adverse effect on our financial
condition or results of operations.
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<PAGE>
Employees
We employ approximately 500 people worldwide, including sales, marketing,
operational and corporate service personnel. None of our United States
employees are covered by a collective bargaining agreement. We believe that we
have good relations with our employees.
Properties
After the Distribution, we will establish a headquarters in Los Angeles,
California. We will also maintain our existing office space in Needham,
Massachusetts and Foster City, California. We lease all of our material
offices. We also have offices in France and Australia.
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OUR BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The following table contains information about the people we expect to
serve as our directors and executive officers after the Distribution. As
provided in our certificate of incorporation, our board of directors will be
divided into three classes. The table contains the names, class and original
term of each director. Directors in each class initially will serve until the
annual meeting of stockholders held in the year in which the term for that
class expires and will serve thereafter for three-year terms. We intend
initially to have a board of directors that will consist of directors, of
whom are also our officers.
<TABLE>
<CAPTION>
Person Age Positions
------ --- ---------
<S> <C> <C>
Fredric D. Rosen...... 56 Chairman and Chief Executive Officer
Jason E. Chudnofsky... 56 Chief Operating Officer
Eric Hippeau.......... 48 Director
Ronald D. Fisher...... 52 Director
[Other directors]
Peter B. Knepper...... 51 Chief Financial Officer and Executive Vice President
Ned S. Goldstein...... 45 Executive Vice President and General Counsel
John A. Pritzker...... 46 Executive Vice President, Business Development
</TABLE>
Biographies Of Directors
Set forth below is the biography of each of the Class A, Class B and Class
C directors, all of whom have been a director of our company since ,
2000.
Class A Directors--Term Expires in 2001
Class B Directors--Term Expires in 2002
Class C Directors--Term Expires in 2003
Fredric D. Rosen. Fredric D. Rosen was hired by Ziff-Davis in March 2000 to
become our Chairman & Chief Executive Officer. In the 18 months preceding his
employment by Ziff-Davis, he was a philanthropist and private investor. Mr.
Rosen was previously President & Chief Executive Officer of Ticketmaster
Group, Inc., a position he held for more than 16 years, from 1982 to 1998. Mr.
Rosen is currently a director of King World Productions, Inc., Engage
Technologies, Inc. and Casden Properties, Inc. Mr. Rosen is also a member of
the board of directors of M.Cam, Inc. a private company, specializing in
intellectual property valuation.
Jason E. Chudnofsky. Jason E. Chudnofsky has been President of ZD Events
since October 1997. He has been a director of Ziff-Davis since 1998 and his
current term will expire in 2002. From 1988 to 1997, Mr. Chudnofsky was
President of the Trade Show Division of The Interface Group which was renamed
SOFTBANK COMDEX when that division was acquired by SOFTBANK in 1995. In
addition, Mr. Chudnofsky served as President and Chief Executive Officer of
the Sands Expo and Convention Center Division from 1990 to 1995. Mr.
Chudnofsky has over 15 years of experience in the events, trade show and
conference industry.
Ronald D. Fisher. Ronald D. Fisher has been the Vice Chairman of SOFTBANK
Holdings Inc. since 1995 and the Vice Chairman of SOFTBANK America Inc. since
1998. Mr. Fisher has been a director of Ziff-Davis since 1998 and his current
term will expire in 2002. From 1990 to 1995, Mr. Fisher was the Chief
Executive Officer of Phoenix Technologies Ltd., a leading developer and
marketer of system software products for personal computers. From 1984 through
1989, Mr. Fisher was the President of Interactive Systems Corporation. His
prior experience also includes senior management positions at Visicorp, TRW
and ICL (USA). In addition to being a director of SOFTBANK Corp., Mr. Fisher
serves on the board of directors of INSWEB Corporation.
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<PAGE>
Eric Hippeau. Eric Hippeau has been Chairman and Chief Executive Officer of
Ziff-Davis since 1998 and of ZD Inc. since 1993. On or before the
restructuring of Ziff-Davis, Mr. Hippeau will resign as Chief Executive
Officer, but is expected to remain as a non-executive Chairman of Ziff-Davis.
Mr. Hippeau has been a director of Ziff-Davis since 1998 and his current term
will expire in 2001. He joined ZD Inc. in 1989 as Publisher of PC Magazine,
was named Executive Vice President of ZD Inc. in 1990, and President and Chief
Operating Officer in February 1991. Prior to joining ZD Inc., Mr. Hippeau held
a number of positions with IDG, including Vice President of computer
publications in Latin America and Publisher of IDG's InfoWorld magazine. Mr.
Hippeau is currently a Director of Global Crossing Ltd., Asia Global Crossing
Ltd., Odimo.com, Electron Economy, Yahoo! Inc. and [Starwood Hotels and
Resorts Worldwide, Inc.] Mr. Hippeau is also President and Executive Managing
Director of Softbank International Ventures.
Biographies of Executive Officers
Peter B. Knepper. Peter B. Knepper was hired by Ziff-Davis in March to be
our Executive Vice President and Chief Financial Officer. In the year
preceding his employment by Ziff-Davis, he was a private investor and
consultant providing strategic planning and financial management services. Mr.
Knepper was previously Senior Vice President and Chief Financial Officer of
Ticketmaster Group, Inc., a position he held for more than ten years, from
1988 to 1998.
Ned S. Goldstein. Ned S. Goldstein was hired by Ziff-Davis in March to be
our Executive Vice President and General Counsel. In 1998, Mr. Goldstein co-
founded The Etechnology Companies, L.L.C. ("Etech"), a consulting, investment
and lobbying firm specializing in new economy companies and issues. Before co-
founding Etech, Mr. Goldstein was previously Senior Vice President and General
Counsel of Ticketmaster Group, Inc., a position he held for more than 11
years, from 1987 to 1998. Mr. Goldstein is a member of the board of directors
of M.Cam, Inc. a private company, specializing in intellectual property
valuation.
John A. Pritzker. John A. Pritzker has been Executive Vice President for
Business Development of Key3Media Events, Inc. since March 2000 and will also
serve in this capacity for our company after the Distribution and Offering.
Mr. Pritzker founded Red Sail Companies in 1988, which includes Red Sail
Sports and Red Sail Merchandising/The Corporate Choice, and Mandara Spa, LLC.
Mr. Pritzker has served as Red Sail's president since its inception. Before
founding Red Sail, Mr Pritzker was president of Hyatt Ventures, Inc. and
worked for Hyatt Hotels Corporation for more than 23 years.
Committees of the Board Of Directors
Our board of directors will establish three standing committees to help it
meet its responsibilities. The principal functions of each committee are
described below.
Audit Committee
The Audit Committee will help the board of directors to ensure that our
financial, auditing and reporting practices, procedures and controls are
within acceptable limits of sound practice and in accordance with applicable
laws and regulations. The Audit Committee will meet periodically with the
independent auditors, together with representatives of management, as
appropriate, for the purpose of reviewing the scope and results of the audit
of the annual financial statements and reviews of the quarterly financial
statements and the recommendations of the auditors. The Audit Committee will
also evaluate the professional competency of the financial staff, review the
nature and extent of non-audit professional services performed by the auditors
and annually recommend to the board of directors the firm of independent
public accountants to be selected as our auditors. From time to time the Audit
Committee may also undertake special projects.
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<PAGE>
Nominating and Compensation Committee
The Nominating and Compensation Committee will review and evaluate plans
for the development, training and utilization of our management resources;
review our compensation philosophy and establish the compensation of our
officers other than Fredric D. Rosen, Jason E. Chudnofsky, Peter B. Knepper,
Ned S. Goldstein, John Pritzker and Charles D. Forman, each of whom is party
to an employment contract with us. The Nominating and Compensation Committee
will also administer our stock incentive and stock-based compensation plans
and other incentive plans. The Nominating and Compensation Committee will also
oversee the financial administration and operation of our various retirement
and pension plans, including the selection and review of the performance of
the investment funds and the independent investment advisors for the plans.
The Nominating and Compensation Committee will manage succession at the
executive officer level and identify and promote candidates for and to
executive positions; identify, evaluate and recommend director nominees to the
board of directors to fill vacancies and to be elected at the annual meeting
of the stockholders; recommend directors' compensation and benefit plans to
the board of directors; recommend committees of the board of directors and
committee members; set meeting schedules for the board of directors and
recommend meeting schedules for the committees; and facilitate the board of
directors' evaluation of its effectiveness. The committee will consider
suggestions for director nominees from all sources, including stockholders.
Any stockholder suggestion, together with an appropriate biographical summary,
should be sent to our Secretary. In addition, our bylaws establish certain
requirements concerning stockholder nominations for election of directors,
including that notice of those nominations be delivered to the Secretary not
less than nor more than days prior to the date of the annual meeting
of stockholders. Each notice of nomination is required to contain the name and
address of the stockholder who intends to make the nomination; the name,
address and written consent of the nominee and other nominee information as
would be required to be disclosed in a proxy solicitation.
Executive Committee
The Executive Committee will be authorized to evaluate and review our
financial position, capital structure, significant capital asset transactions,
major acquisitions and divestitures, and during the intervals between the
meetings of the board of directors, to the extent permitted by law, to
exercise all of the powers of the board of directors (except for certain
matters reserved for the board of directors) in the management of our
business.
Compensation of Directors
Directors who are also our employees receive no additional compensation for
their services as directors. Directors who are not our employees will receive
an annual retainer fee of $25,000 for their services and an additional fee of
$2,000 for each meeting of the board of directors or any committee that they
attend. Non-employee directors are also enrolled in the Non-Employee
Directors' Plan. See "Non-Employee Directors' Plan".
Compensation Committee Interlocks and Insider Participation
We did not have a compensation committee or any other committee serving a
similar function in 1999. Decisions as to the compensation of our executive
officers were made by Ziff-Davis.
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<PAGE>
EXECUTIVE COMPENSATION
The following table contains certain compensation information for Jason
Chudnofsky, who served as ZD Events Inc.'s chief executive officer during our
last completed fiscal year, and our four other most highly compensated
executive officers who were serving as our executive officers at the end of
our last completed fiscal year. All of the information in this and the next
two tables reflects compensation paid in accordance with Ziff-Davis'
compensation and benefit plans. In connection with the Distribution and the
Offering, we have established our own compensation and benefit plans. See "--
Compensation and Benefit Plans".
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------- -------------
Securities All other
Name and Principal Underlying Compensation
Position Year Salary($) Bonus($) Options(#)(1) ($)(2)
- ------------------ ---- --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Jason E. Chudnofsky...... 1999 800,000 91,200 45,000(3a) 28,720
President and Chief Exec-
utive 1998 800,000 288,493 430,185(3b) 95,023(3c)
Officer, ZD Events 1997 800,000 300,000 30,000 28,269
Charles D. Forman........ 1999 370,000 63,000 35,000(4a) 19,783
Executive Vice-President, 1998 370,000 76,876 63,838(4b) 66,446(4c)
ZD Events 1997 370,000 57,238 15,000 14,307
Aymar de
Lencquesaing(8)......... 1999 300,000 109,156 7,000(5a) 15,642
Executive Vice-President, 1998 266,671 80,887 175,194(5b) 26,904
ZD Events 1997 228,612 82,497 58,944 66,237(5c)
Milton Herbert(8)........ 1999 272,916 91,409 40,000(6a) 21,952
Chief Operating Officer, 1998 225,000 63,371 55,545(6b) 27,784
ZD Events 1997 175,000 18,060 11,250 11,964
Robert Priest-Heck....... 1999 245,833 89,369 35,000(7a) 49,505(7c)
Executive Vice-President, 1998 200,000 95,324 38,868(7b) 13,541
ZD Events 1997 175,000 97,956 23,868 10,505
</TABLE>
- --------
(1) The options granted in 1997 are options to purchase SOFTBANK Corp. common
stock under the SOFTBANK Group Executive Stock Option Plans (the
"Softbank Options"). The options listed for 1998 include Softbank Options
granted in 1996 and 1997 that we repriced in 1998 to (Yen)1333.33 (the
"Repriced Softbank Options"). No additional Softbank Options were granted
in 1998 to any of the persons named in the table above.
(2) All Other Compensation reflects contributions to Ziff-Davis' defined
contribution plan, group term life insurance and reimbursement of certain
medical expenses.
(3a) Includes options to purchase 27,000 shares of Ziff-Davis common stock
and options to purchase 18,000 shares of ZDNet common stock.
(3b) Includes options to purchase 300,000 shares of Ziff-Davis common stock
and options to purchase 52,500 shares of ZDNet common stock and 77,685
Repriced Softbank Options.
(3c) Includes a payment of $75,735 relating to the termination of a defined
benefit plan.
(4a) Includes options to purchase 21,000 shares of Ziff-Davis common stock
and options to purchase 14,000 shares of ZDNet common stock.
(4b) Includes options to purchase 25,000 shares of Ziff-Davis common stock
and 38,838 Repriced Softbank Options.
(4c) Includes a payment of $57,238 relating to the termination of a defined
benefit plan.
(5a) Options to purchase ZDNet common stock.
(5b) Includes options to purchase 75,000 shares of Ziff-Davis common stock,
options to purchase 26,250 shares of ZDNet common stock and 73,944
Repriced Softbank Options.
(5c) Includes a payment of $63,114 pursuant to the Softbank Forums profit-
sharing plan.
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<PAGE>
(6a) Includes options to purchase 24,000 shares of Ziff-Davis common stock
and options to purchase 16,000 shares of ZDNet common stock.
(6b) Includes options to purchase 25,000 shares of Ziff-Davis common stock,
options to purchase 8,750 shares of ZDNet common stock and 21,795
Repriced Softbank Options.
(7a) Includes options to purchase 21,000 shares of Ziff-Davis common stock
and options to purchase 14,000 shares of ZDNet common stock.
(7b) Includes options to purchase 15,000 shares of ZDNet common stock and
23,868 Repriced Softbank Options.
(7c) Includes a retroactive salary increase of $31,442.
(8) Messrs. de Lencquesaing and Herbert left the employ of ZD Events Inc. in
March 2000.
Option Grants in 1999
The following table summarizes stock option grants to each of the persons
named in the Summary Compensation Table during 1999.
<TABLE>
<CAPTION>
Potential Realized Value
Number of Percent of at Assumed Annual Rate of
Securities Total Options Exercise Stock Price Appreciation
Underlying Granted to of Base for Option Term
Name and Principal Options Employees in Price Expiration -------------------------
Position Granted(#) 1999(%) ($/Sh) Date 5%($) 10%($)
------------------ ---------- ------------- -------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jason E. Chudnofsky..... 27,000(1) 7.00 15.8750 April 20, 2009 269,560 683,118
President and Chief Ex-
ecutive 18,000(2) 16.61 31.0625 April 20, 2009 351,631 891,101
Officer,
ZD Events
Charles D. Forman....... 21,000(1) 5.45 15.8750 April 20, 2009 209,658 531,314
Executive Vice-Presi-
dent, 14,000(2) 12.92 31.0625 April 20, 2009 273,491 693,079
ZD Events
Aymar de Lencquesaing... -- -- -- -- -- --
Executive Vice-Presi- 7,000(2) 1.81 31.0625 April 20, 2009 136,745 346,540
dent,
ZD Events
Milton Herbert.......... 24,000(1) 6.23 15.8750 April 20, 2009 239,609 607,216
Chief Operating Officer, 16,000(2) 14.76 31.0625 April 20, 2009 312,856 792,090
ZD Events
Robert Priest-Heck...... 21,000(1) 5.45 15.8750 April 20, 2009 209,658 531,314
Executive Vice-Presi- 14,000(2) 12.92 31.0625 April 20, 2009 273,491 693,079
dent,
ZD Events
</TABLE>
- --------
(1) Options to purchase shares of Ziff-Davis common stock.
(2) Options to purchase shares of ZDNet common stock.
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<PAGE>
Aggregated Option Exercises in 1999 and Year-End Option Values
The following table summarizes aggregate option exercises by each of the
persons named in the Summary Compensation Table during 1999 and the value of
the options held by them as December 31, 1999:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money Options at
Shares Options at Year-End(#) Year-End($)
Name and Principal Acquired on Value -------------------------- -------------------------
Position Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jason E. Chudnofsky..... -- -- 90,000(1) 237,000 883,125 2,060,625
President and Chief -- -- 13,125(2) 57,375 219,319 657,956
Executive
Officer, 42,000(3) 6,225,402 1,611 34,074 493,106 10,429,597
ZD Events
Charles D. Forman....... -- -- 8,750(1) 37,250 85,859 158,036
Executive Vice- -- -- -- 14,000 -- --
President,
ZD Events 18,804(3) 1,718,991 3,000 17,034 957,420 5,436,231
Aymar de Lencquesaing... -- -- 26,250(1) 48,750 257,578 478,359
Executive Vice- -- -- 6,563(2) 26,687 109,667 342,970
President,
ZD Events 35,700(3) 8,098,906 11,793 26,451 3,763,618 8,441,572
Milton Herbert.......... -- -- 8,750(1) 40,250 85,859 157,833
Chief Operating Officer, -- -- 2,188(2) 22,526 36,561 109,049
ZD Events 9,192(3) 206,603 -- 12,603 -- 4,022,121
Robert Priest-Heck...... -- -- 5,250(1) 30,750 51,515 94,254
Executive Vice- -- -- -- 14,000(2) -- --
President,
ZD Events 4,773(3) 707,598 -- 11,271 -- 3,597,027
</TABLE>
- --------
(1) Options to purchase shares of Ziff-Davis common stock.
(2) Options to purchase shares of ZDNet common stock.
(3) Options to purchase shares of SOFTBANK Corp. common stock.
Employment Contracts, Termination of Employment and Change-of-Control
Arrangements
Fredric D. Rosen We have entered into an employment agreement with Fredric
D. Rosen pursuant to which Mr. Rosen is entitled to:
. a base salary of at least $1,500,000 per year;
. a performance bonus equal to an escalating percentage of incremental
"EBITDA";
. a discretionary bonus in an amount to be determined by our Board of
Directors or the Nominating and Compensation Committee; and
. options to purchase 10% of the shares of our common stock on a fully
diluted basis in accordance with our Employee Option Plan;
. a term life insurance policy in the amount of $3 million.
The amount of the performance bonus for each year will be based on a
percentage of the incremental growth in EBITDA for that year over the prior
year (or earlier prior year if there has been an interim decrease in EBITDA).
The percentage by which Mr. Rosen's performance bonus will be calculated will
vary depending on the rate of the growth in EBITDA but will not exceed 5%. For
this purpose "EBITDA" means our consolidated reported earnings for that year,
as adjusted to:
. add back interest, taxes, depreciation and amortization, all as
determined by our independent auditors;
. exclude unusual or non-recurring items;
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. exclude charges related to his performance bonus or similar bonuses paid
to other executive officers or any other earnings-related bonuses
exceeding $150,000 per year; and
. exclude any charges to earnings attributable to payments to affiliates
which are in excess of the fair market value of goods sold or services
rendered.
Our contract with Mr. Rosen expires on February 28, 2005. We may terminate
his employment for cause (as defined in his contract) or if he has a
disability (as defined in his contract). Mr. Rosen may terminate his
employment at any time for a good reason (as defined in his contract). Any
termination of his employment is subject to the following conditions:
. If his employment is terminated as a result of his disability or death,
we will pay to him or his estate one year's worth of base compensation
plus the prorated portion of any annual incentive bonus he would have
received for the year of such termination.
. If we terminate his employment for cause or he voluntarily terminates
his own employment, but without good reason, we will have no additional
obligations to him.
. If we terminate his employment after February 28, 2001, other than for
disability or cause, or he terminates his employment for good reason,
then we will pay him a salary and bonus for the succeeding two years and
all of his options will fully vest.
Mr. Rosen's employment contract prohibits him, without our written consent,
from competing with us or our subsidiaries for a period of two years
commencing upon the termination of his employment.
Peter B. Knepper We have entered into an employment agreement with Peter B.
Knepper pursuant to which Mr. Knepper is entitled to: [to come]
Ned S. Goldstein We have entered into an employment agreement with Ned S.
Goldstein pursuant to which Mr. Goldstein is entitled to: [to come]
John Pritzker We have entered into an employment agreement with John
Pritzker pursuant to which Mr. Pritzker is entitled to: [to come]
Jason E. Chudnofsky We have entered into an employment agreement with Jason
E. Chudnofsky pursuant to which he is entitled to: [To come]
Charles D. Forman We have entered into an employment agreement with Charles
D. Forman pursuant to which he is entitled to: [To come]
Compensation and Benefits Plans
We have adopted various compensation and benefit plans in order to provide
compensation and employee benefits to our employees, including our executive
officers, after the Distribution and the Offering. These plans include the
Key3Media 2000 Employee Option Plan and the Key3Media 2000 Director Option
Plan. To the extent necessary or advisable under applicable law, Ziff-Davis,
as our sole stockholder, will approve these plans before the Distribution and
the Offering.
Employee Option Plan
Prior to the completion of this offering, we will adopt the Key3Media 2000
Employee Option Plan, and Ziff-Davis, as our sole stockholder, will approve
the plan. The following description of certain features of the plan is
qualified in its entirety by reference to the full text of the plan.
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General; Shares Available for Issuance under the Plan. The 2000 Employee
Option Plan will enable us to make awards of options to eligible employees,
consultants and advisers of our company and our affiliates. We believe that
the plan will also provide us with flexibility in designing and providing
incentive compensation in order to attract and retain individuals who are in a
position to make significant contributions to our success, to reward
individuals for past contributions and to encourage individuals to take into
account our long-term interests through ownership of our common stock. Subject
to adjustment for stock splits and similar events, the maximum number of
shares of common stock that may be issued under the plan is million shares,
% of which may only be issued at a price that is at least 2 1/4 times the
initial option price. This number does not include shares which will become
available under the plan because of events such as tax withholdings, methods
of cashless exercise and open market repurchases. Because options issued under
the plan will not be exercisable until after the spin-off, the issuance of
these options will not require us to issue any of our common stock until that
date.
Administration; Eligible Grantees. The 2000 Employee Option Plan will be
administered by our full board or our compensation committee, consisting of at
least [one] member of our board of directors. However, if required by law,
this committee will consist of at least two members of our board, neither of
whom may be one of our employees. All of our employees (including employees of
our subsidiaries) are eligible to receive awards under the plan[, but no
employee may receive awards under the plan in any calendar year covering more
than shares of common stock.] Our advisers and consultants (including
advisors and consultants of our subsidiaries) may also receive awards under
the plan.
Stock Options. The compensation committee may grant stock options under the
2000 Employee Option Plan. Stock options enable the holder of the option to
purchase shares of our common stock at a price specified by the compensation
committee at the time the award is made. The plan permits the granting of
stock options that qualify as incentive stock options under Section 422 of the
Internal Revenue Code and stock options that do not qualify for incentive
stock option treatment. The compensation committee determines the per share
exercise price of all stock options and, as a general rule, this price may not
be less than the fair market value of a share of common stock at the time of
grant. Options granted in connection with this offering will be granted either
at the initial public offering price or at a price that is at least
approximately 2 1/4 times the initial option price. The compensation committee
will determine when an option may be exercised and its term, but the term may
not exceed ten years.
Effect of Termination of Employment. As a general rule, the effect that a
termination of employment will have on a holder's awards will be set forth in
his or her award agreement. We expect that most terminations will result in
the forfeiture of unvested options.
Adjustments for Changes in Capitalization; Change in Control. The
compensation committee will make appropriate adjustments to the maximum number
of shares of common stock that may be delivered under the plan and to
outstanding awards to reflect stock dividends, stock splits, and similar
changes in capitalization. When granting awards under the plan, the
compensation committee may provide for the accelerated vesting of options, in
the event of our merger into another company, or sales of substantially all of
our assets or our liquidation.
Amendment and Termination. The compensation committee may at any time
discontinue granting awards under the plan or amend the plan or terminate the
plan as to any further grants of awards. However, none of these actions may,
without the approval of our stockholders, increase the maximum number of
shares of common stock available under the plan. Nor may any of these actions
adversely affect the rights of a holder of any previously granted award.
Director Option Plan
Prior to the completion of this offering, we will adopt the Key3Media
Director Option Plan, and Ziff-Davis, as our sole stockholder, will approve
the plan. The following description of certain features of the plan is
qualified in its entirety by reference to the full text of the plan.
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General; Shares Available for Issuance under the Plan. The 2000 Director
Option Plan will enable us to make awards of options to our outside directors.
We believe that the plan will also provide us with flexibility in providing
incentive compensation in order to attract and retain individuals who are in a
position to make significant contributions as outside directors and to
encourage individuals to take into account our long-term interests through
ownership of our common stock. Subject to adjustment for stock splits and
similar events, the maximum number of shares of common stock that may be
issued under the plan is thousand shares. This number does not include
shares which will become available under the plan because of events such as
tax withholding, methods of cashless exercise and open market repurchases.
Because options issued under the plan will not be exercisable until after the
spin-off, the issuance of these options will not require us to issue any of
our common stock until that date.
Administration; Eligible Grantees. The 2000 Director Option Plan will be
administered by [our full board]. All outside directors (directors that are
not also employees) will receive awards under the plan, but no outside
director may receive awards under the plan in any calendar year covering more
than shares of common stock.
Stock Options. The [full board] may grant stock options under the 2000
Director Option Plan. Stock options enable the holder of the option to
purchase shares of our common stock at a price specified by the [full board]
at the time the award is made. The plan permits the granting of stock options
that do not qualify for incentive stock option treatment. The [full board]
determines the per share exercise price of all stock options and this price
may not be less than fair market value of a share of common stock at the time
of the grant. Options granted in connection with this offering will be granted
at the initial public offering price.
Effect of Termination of Service. As a general rule, the effect that a
termination of employment will have on a holder's awards will be set forth in
his or her award agreement. We expect that most terminations will result in
the forfeiture of unvested options.
Adjustments of Changes in Capitalization; Change in Control. The [full
board] will make appropriate adjustments to the maximum number of shares of
common stock that may be delivered under the plan and to outstanding awards to
reflect stock dividends, stock splits, and similar changes in capitalization.
When granting awards under the plan, the [full board] may provide for the
accelerated vesting of options, in the event we merge into another company, or
we sell substantially all of our assets or we liquidate our company.
Amendment and Termination. The [full board] may at any time discontinue
granting awards under the plan or amend the plan or terminate the plan as to
any further grants of awards. However, none of these actions may, without the
approval of our stockholders, increase the maximum number of shares of common
stock available under the plan. Nor may any of these actions adversely affect
the rights of a holder of any previously granted award.
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Grants under the Key3Media 2000 Employee Option Plan
In connection with the Offering and the Distribution, we have made initial
grants of stock options to certain members of our management team, including
our executive officers, under the Key3Media 2000 Employee Option Plan. An
aggregate of 18 million shares of our common stock are issuable upon the
exercise of these options, and the options were granted as follows: 50% at an
exercise price per share of $ and 50% at an exercise price per share of
$ . The following table sets forth the number of shares of our common stock
underlying options granted to our current Chief Executive Officer and the four
other most highly compensated executive officers who are now serving as
executive officers.
<TABLE>
<CAPTION>
Number of Securities
Underlying Options
Name and Principal Position Granted
--------------------------- --------------------
<S> <C>
Fredric D. Rosen.................................. 8,000,000
Chairman and Chief Executive Officer,
Key3Media Group, Inc.
Jason E. Chudnofsky............................... 3,000,000
Chief Operating Officer,
Key3Media Group, Inc.,
Peter B. Knepper.................................. 700,000
Executive Vice President and Chief Financial
Officer,
Key3Media Group, Inc.
Ned S. Goldstein.................................. 700,000
Executive Vice President and General Counsel,
Key3Media Group, Inc.
John A. Pritzker.................................. 600,000
Executive Vice President--Business Development,
Key3Media Group, Inc.
</TABLE>
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
All of our outstanding common stock is, and before the Distribution and the
Offering will be, held beneficially and of record by Ziff-Davis. The following
table sets forth each person or entity that is expected to own beneficially
more than 5% of our outstanding common stock immediately after the
Distribution and the Offering, based on our knowledge of the ownership of
Ziff-Davis common stock [the identity of those who will purchase our shares in
the Offering and how many shares they will purchase].
<TABLE>
<CAPTION>
Before the Distribution and After the Distribution and
the Offering the Offering
--------------------------- ---------------------------
Number of Shares Number of Shares
of Ziff-Davis Percent of of Key3Media Percent of
Beneficial Owner(1) Common Stock(#) Class(%) Common Stock(#) Class(%)
- ------------------- ---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
SOFTBANK America
Inc.(2)................ 71,619,355 65.12 35,809,678 59.68
SOFTBANK Holdings
Inc.(3)................ 71,620,000 65.12 35,810,000 59.68
SOFTBANK Corp.(4)....... 71,620,000 65.12 35,810,000 59.68
Masayoshi Son(5)........ 71,620,000 65.12 35,810,000 59.68
</TABLE>
- --------
(1) For purposes of this table, "beneficial ownership" is determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
pursuant to which a person or group of persons is deemed to have
"beneficial ownership" of common stock that such person or group has the
right to acquire within 60 days after , 2000. For purposes of
computing the percentage of outstanding common stock held by each person
or group, any shares that such person or group has the right to acquire
within 60 days after , 2000 are deemed outstanding but are not
deemed outstanding for purposes of computing the percentage of any other
person or group.
(2) SOFTBANK America Inc.'s address is 10 Langley Road, Suite 403, Newton
Center, MA 02459.
(3) Includes shares owned by SOFTBANK America Inc. and 645 shares owned by
SOFTBANK Kingston Inc., all of which may be deemed to be beneficially
owned by SOFTBANK Holdings Inc. SOFTBANK Holdings Inc.'s address is 10
Langley Road, Suite 403, Newton Center, MA 02459.
(4) Includes shares owned by SOFTBANK America Inc. and SOFTBANK Kingston Inc.,
all of which may be deemed to be beneficially owned by SOFTBANK Corp.
SOFTBANK Corp.'s address is 24-1 Nihonbashi-Hakozakicho, Chuo-ku, Tokyo
103, Japan.
(5) Includes shares owned by SOFTBANK America Inc. and SOFTBANK Kingston Inc.,
all of which may be deemed to be beneficially owned by Mr. Son (who owns
37.95% of SOFTBANK Corp. and is its President). Mr. Son's address is c/o
SOFTBANK Corp., 24-1 Nihonbashi-Hakozakicho, Chuo-ku, Tokyo 103, Japan.
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<PAGE>
BENEFICIAL OWNERSHIP OF MANAGEMENT
All of our outstanding common stock is, and before the Distribution and the
Offering will be, held beneficially and of record by Ziff-Davis and none of
our directors or executive officers owns any of our shares. The following
table contains information about the common stock that is projected to be
beneficially owned after the Distribution and the Offering by each of the
executive officers named in the Summary Compensation Table and by all of our
directors and executive officers as a group based on their ownership of Ziff-
Davis common stock [the identity of those who will purchase our shares in the
Offering and how many shares they will purchase].
<TABLE>
<CAPTION>
Before the Distribution and After the Distribution and
the Offering the Offering
--------------------------- --------------------------
Number
Number of Shares of Shares
of Ziff-Davis Percent of of Key3Media Percent of
Beneficial Owner(1) Common Stock(#) Class(%) Common Stock(#) Class(%)
- ------------------- ---------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Fredric D. Rosen........
Jason E. Chudnofsky.....
Eric Hippeau............
Ronald D. Fisher........
Charles D. Forman.......
Aymar de Lencquesaing...
Milton Herbert..........
Robert Priest-Heck......
All directors and
executive officers as a
group..................
</TABLE>
- --------
* Less than one percent.
(1) For purposes of this table, "beneficial ownership" is determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934,
pursuant to which a person or group of persons is deemed to have
"beneficial ownership" of common stock that such person or group has the
right to acquire within 60 days after , 2000. For purposes of
computing the percentage of outstanding common stock held by each person
or group, any shares that such person or group has the right to acquire
within 60 days after , 2000 are deemed outstanding but are not deemed
outstanding for purposes of computing the percentage of any other person
or group.
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<PAGE>
DESCRIPTION OF OUR CAPITAL STOCK
At the time of the Distribution and the Offering, the total amount of
authorized capital stock of our company will be [300] million shares,
consisting of [100] million shares of common stock, par value $.01 per share,
[100] million shares of non-voting common stock, par value $.01 per share, and
[100] million shares of preferred stock, par value $.01 per share. Upon
completion of the Distribution and the Offering, 60 million shares of our
common stock and no shares of non-voting common or preferred stock will be
issued and outstanding. As of , there were no shares of our common stock
outstanding. Before the Distribution and the Offering, there has been no
public market for our common stock.
The discussion that follows describes our certificate of incorporation and
bylaws, as anticipated to be in effect upon consummation of the Distribution
and the Offering, and their effect on our common stock.
Common Stock and Non-Voting Common Stock
Our shares that will be issued in the Distribution will be validly issued,
fully paid and non-assessable. The holders of our shares will be entitled to
receive dividends out of assets legally available at the time and in the
amounts as our board of directors may from time to time determine. Our shares
are not convertible and our stockholders have no preemptive or subscription
rights to purchase any of our securities. Upon the liquidation, dissolution or
winding up of our company, our stockholders will be entitled to receive pro
rata the assets of our company that are legally available for distribution,
after payment of all of our debts and other liabilities. Each of our
outstanding shares of common stock is entitled to one vote on all matters
submitted to a vote of the stockholders, including election of directors.
There is no cumulative voting. Except as otherwise required by law or the
certificate of incorporation, the holders of our common stock will vote on all
matters submitted to a vote of the stockholders, including election of
directors.
The powers, preferences and rights and the qualifications, limitations and
restrictions of our common stock and our non-voting common stock are identical
in all respects, except that holders of non-voting common stock do not have
any voting power and are not entitled to receive notice of meetings of
stockholders unless otherwise required by law.
Preferred Stock
Our certificate of incorporation provides that shares of preferred stock
may be issued in one or more series from time to time by our board of
directors, and our board of directors is expressly authorized to fix by
resolution or resolutions the designations and the powers, preferences and
rights, and the qualifications, limitations and restrictions of the shares of
each series of preferred stock, including, without limitation, the following:
. the distinctive serial designation of the series which will distinguish
it from other series;
. the number of shares included in that series;
. the dividend rate (or method of determining that rate) payable to the
holders of the shares of those series, any conditions upon which those
dividends will be paid and the date or dates upon which those dividends
will be payable;
. whether dividends on the shares of those series will be cumulative and,
in the case of shares of any series having cumulative dividend rights,
the date or dates or method of determining the date or dates from which
dividends on the shares of those series will be cumulative;
. the amount or amounts which will be payable out of our assets to the
holders of the shares of those series upon voluntary or involuntary
liquidation, dissolution or winding up our company, and the relative
rights of priority, if any, of payment of the shares of those series;
. the price or prices at which, the period or periods within which and the
terms and conditions upon which the shares of those series may be
redeemed, in whole or in part, at our option or at the option of the
holder or holders thereof or upon the happening of a specified event or
events;
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. our obligation, if any, to purchase or redeem shares of those series in
accordance with a sinking fund or otherwise and the price or prices at
which, the period or periods within which and the terms and conditions
upon which the shares of those series will be redeemed or purchased, in
whole or in part, pursuant to that obligation;
. whether or not the shares of those series will be convertible or
exchangeable, at any time or times at the option of the holder or
holders thereof or at our option or upon the happening of a specified
event or events, into shares of any other class or classes or any other
series of the same or any other class or classes of our stock, and the
price or prices, or rate or rates of exchange or conversion and any
adjustments applicable thereto; and
. whether or not the holders of the shares of those series will have
voting rights, in addition to the voting rights provided by law, and if
so, the terms of those voting rights.
. Subject to the rights of the holders of any series of preferred stock,
the number of authorized shares of any class or series of preferred
stock may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote, irrespective of the
provisions of Section 242(b)(2) of the General Corporation Law of
Delaware or any corresponding provision later enacted.
Listing
Our common stock will trade on the [Nasdaq National Market/NYSE] under the
symbol ["KEME/KME"], subject to official notice of issuance.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is The Bank of New
York.
No holder of any stock of our company of any class authorized at the
Distribution Date will have any preemptive right to subscribe to any
securities of our company of any kind or class.
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<PAGE>
CERTAIN ANTI-TAKEOVER PROVISIONS OF OUR CERTIFICATE
OF INCORPORATION, BYLAWS AND DELAWARE LAW
General
Our certificate of incorporation and bylaws and the General Corporation Law
of Delaware, or DGCL, contain certain provisions that could delay or make more
difficult a hostile acquisition of our company, whether by means of a tender
offer, open-market purchases, a proxy contest or otherwise. These provisions
have been implemented to enable us, particularly (but not exclusively) in the
initial years of our existence as an independent, publicly owned company, to
develop our business in a manner which will foster our long-term growth
without disruption caused by the threat of a takeover deemed by our board of
directors not to be in the best interests of our company and our stockholders.
These provisions could have the effect of discouraging third parties from
making proposals involving an acquisition or change of control of our company,
although that type of proposal, if made, might be considered desirable by a
majority of our stockholders. These provisions may also have the effect of
making it more difficult for third parties to cause the replacement of our
current management without the concurrence of our board of directors. Set
forth below is a description of the provisions contained in our certificate of
incorporation and bylaws and the DGCL that could impede or delay an
acquisition of control of our company that our board of directors has not
approved. This description is intended as a summary only and is qualified in
its entirety by reference to our certificate of incorporation and bylaws, the
forms of which are included as exhibits to the Registration Statement, as well
as the DGCL.
Certain Provisions of Our Certificate of Incorporation and Bylaws
Staggered Board of Directors
Following the Distribution and the Offering, our board of directors will
consist of members. Our certificate of incorporation provides that the
directors will be divided into three classes, as nearly equal in number as
reasonably possible, as determined by our board of directors. The initial term
of office of the first class of directors will expire at our first annual
meeting of stockholders, the initial term of office of the second class of
directors will expire at our second annual meeting of stockholders and the
initial term of office of the third class of directors will expire at our
third annual meeting of stockholders, with each class of directors to hold
office until their successors have been duly elected and qualified. At each
annual meeting of our stockholders, the directors elected to succeed the
directors whose terms expire at the annual meeting will be elected to hold
office for a term expiring at the annual meeting of our stockholders in the
third year following the year of their election and until their successors
have been duly elected and qualified. The classification of the board of
directors will have the effect of making it more difficult for stockholders to
change the composition of our board of directors, because only a minority of
our directors will be up for election at each annual meeting, and our board of
directors may not be replaced by vote of the stockholders at any one time.
Number of Directors; Removal; Filling Vacancies
Our certificate of incorporation provides that the number of members of the
board of directors will be fixed from time to time by resolution of the board
of directors. Our certificate of incorporation and bylaws provide that in the
event of any increase or decrease in the authorized number of directors, (1)
each director then serving as such will nevertheless continue as a director of
the class of which he is a member until the expiration of his current term, or
his earlier death, retirement, resignation or removal, and (2) the newly
created or eliminated directorships resulting from that increase or decrease
will be apportioned by the board of directors among the three classes of
directors so as to maintain those classes as nearly equal in number as
reasonably possible. The certificate of incorporation and bylaws provide that
directors may be removed only for cause, except that at any time when SOFTBANK
owns shares that give it more than 50% of the total voting power in the
election of our directors, our directors may be removed with or without cause.
Vacancies, whether arising through death, retirement, resignation or removal
of a director or through an increase in the authorized number of directors of
any class, may only be filled by a majority vote of the remaining directors of
the class in which that vacancy
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<PAGE>
occurs, or by the sole remaining director of that class if one director
remains, or by the majority vote of the directors of the remaining classes if
no director remains, except that if the vacancies result from a removal by our
stockholders, such vacancies may only be filled by the stockholders. A
director elected to fill a vacancy will serve for the remainder of the then
current term of office of the class to which he is elected. These provisions
may prevent any stockholder from enlarging the board of directors and then
filling the new directorships with that stockholder's own nominees.
Stockholder Action by Written Consent; Special Meetings
Our certificate of incorporation and bylaws provide that any action
required or permitted to be taken by the stockholders may be taken only at a
duly called annual or special meeting of those holders, except that at any
time that SOFTBANK owns shares that give it more than 50% of the total voting
power in the election of our directors stockholders may act by written consent
in lieu of a meeting. Our certificate of incorporation and bylaws provide that
special meetings of stockholders may be called only by the Chairman of our
board of directors or by our board of directors pursuant to a resolution
stating the purpose or purposes thereof, and any power of stockholders to call
a special meeting is specifically denied. However, SOFTBANK may call special
meetings at any time when it owns shares that give it more than 50% of the
total voting power in the election of our directors. No business other than
that stated in the notice will be transacted at any special meeting. These
provisions will have the effect of delaying consideration of a stockholder
proposal until the next annual meeting unless a special meeting is called by
the Chairman or our board of directors for consideration of the proposal.
Advance Notice for Stockholder Nominations and Proposals of New Business
The bylaws require notice of any proposal to be presented by any
stockholder or of the name of any person to be nominated by any stockholder
for election as a director at a meeting of stockholders to be delivered to our
Secretary not less than 60 nor more than 90 days prior to the date of the
meeting. Accordingly, if a stockholder did not comply with the notice
provisions the stockholder would not be able to nominate directors or propose
new business.
Amendments
Our certificate of incorporation provides that the affirmative vote of the
holders of at least 80% of the stock entitled to vote generally in the
election of directors, voting together as a single class, or a majority of the
board of directors is required to amend provisions of the bylaws relating to
stockholder action without a meeting; the calling of special meetings; the
number (or manner of determining the number), election and term of directors;
the filling of vacancies; and the removal of directors.
Certain Provisions of Delaware Law
Following the consummation of the Distribution and the Offering, we will be
subject to the "Business Combination" provisions of Section 203 of the DGCL.
In general, these 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:
(i) the transaction is approved by the board of directors prior to the date
the "interested stockholder" obtained that status; (ii) upon consummation of
the transaction which resulted in the stockholder's becoming an "interested
stockholder", the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by (a) persons who are directors and also officers and (b)
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or subsequent to the 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
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<PAGE>
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. SOFTBANK's acquisition of more
than 15% of our shares in the Distribution has been approved by our Board of
Directors and thus it will not be subject to Section 203. The statute could
prohibit or delay mergers or other takeover or change in control attempts with
respect to our company and, accordingly, may discourage attempts to acquire
our company.
Section 203 and the provisions of our certificate of incorporation and
bylaws described above may make it more difficult for a third party to
acquire, or discourage bids for, our company. Section 203 and these provisions
could also have the effect of inhibiting attempts to change the membership of
our board of directors.
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LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 102 of the DGCL authorizes a Delaware corporation to include a
provision in its certificate of incorporation limiting or eliminating the
personal liability of its directors to the corporation and its stockholders
for monetary damages for breach of the directors' fiduciary duty of care. The
duty of care requires that, when acting on behalf of the corporation,
directors exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitations authorized by
that 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. Our certificate
of incorporation and bylaws include provisions which limit or eliminate the
personal liability of our directors to the fullest extent permitted by Section
102 of the DGCL. Consequently, a director or officer will not be personally
liable to our company or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for (1) any breach of the director's duty
of loyalty to our company or our stockholders, (2) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) unlawful payments of dividends or unlawful stock repurchases,
redemptions or other distributions and (4) any transaction from which the
director derived an improper personal benefit.
Our bylaws provide that we 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 the person or the person's testator or intestate is or
was one of our directors, officers or employees or serves or served at our
request as a director, officer or employee. Our certificate of incorporation
and bylaws provide that we will pay or reimburse expenses, including
attorneys' fees, incurred by that person in defending any action, suit or
proceeding promptly upon our receipt of an undertaking by that person to repay
those expenses if it is ultimately determined that that person is not entitled
to be indemnified by us. The inclusion of these indemnification provisions in
our certificate of incorporation and bylaws is intended to enable us to
attract qualified persons to serve as directors and officers who might
otherwise be reluctant to do so.
Our directors and officers are insured under policies of insurance that we
maintain, subject to the limits of the policies, against certain losses
arising from any claim made against them by reason of being or having been
those officers or directors. In addition, the limited liability and
indemnification provisions in our 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 an action, if
successful, might otherwise have benefited our company and our stockholders.
Furthermore, a stockholder's investment in our company may be adversely
affected to the extent we pay the costs of settlement and damage awards
against our directors and officers in accordance with the indemnification
provisions in our bylaws. The limited liability provisions in the certificate
of incorporation will not limit the liability of directors under federal
securities laws.
PLAN OF DISTRIBUTION
We will offer and sell shares of our common stock directly to investors and
solely through the selling efforts of some of our senior executives. We will
not pay any underwriting fees, discounts, commissions or other remuneration to
our senior executives or any other person in connection with the Offering.
Prior to this Offering, there has been no public market for our shares. The
public offer price has been determined by the board of directors of Ziff-Davis
based upon many factors, including their valuation of our business, the advice
of Morgan Stanley Dean Witter, the results of the auction process conducted by
Morgan Stanley Dean Witter and external valuations. We will not enter into any
transactions designed to stabilize, maintain or otherwise affect the market
price of our common stock during the Offering.
We estimate that our share of the total expenses of the Offering will be
approximately $ million.
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EXPERTS
The financial statements as of December 31, 1999 and 1998 and for each of
the three years in the period ended December 31, 1999 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, as given on the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed our registration statement on Form S-1 with the SEC. This
prospectus does not contain all the information contained in the registration
statement. You will find additional information about us and our common stock
in the registration statement. For example, in this prospectus we and Ziff-
Davis have summarized or referred to some contracts, agreements, and other
documents that have been filed as exhibits to the registration statement. The
registration statement, including its exhibits and schedules, may be inspected
without charge at the SEC's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained from that office, upon
payment of the applicable fees. The registration statement, including its
exhibits and schedules, are also available on the SEC's website at
www.sec.gov.
After the Distribution, we will be subject to the information requirements
of the Securities Exchange Act of 1934, and accordingly we will file reports,
proxy statements, and other information with the SEC. These materials can be
inspected and copied at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional offices
at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World
Trade Center, Suite 1300, New York, New York 10048. And copies of these
materials can be obtained from the SEC's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Some information
about us is also available on the SEC's website at www.sec.gov.
72
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Accountants...................................... F-1
Combined Financial Statements:
Combined Balance Sheets at December 31, 1998 and 1999................ F-2
Combined Statements of Operations for the years ended December 31,
1997, 1998 and 1999................................................. F-3
Statements of Cash Flows for the years ended December 31, 1997, 1998
and 1999............................................................ F-4
Combined Statements of Changes in Division Equity for the years ended
December 31, 1997, 1998 and 1999.................................... F-5
Notes to Combined Financial Statements............................... F-6-23
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Ziff-Davis Inc.:
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, cash flows and changes in division equity
present fairly, in all material respects, the financial position of ZD Events
as defined in Note 1 to the financial statements (the "Business"), at December
31, 1998 and 1999, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Business' management; our
responsibility is to express an opinion on these financial statements based
upon our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluation of the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed, in Notes 1 and 10, certain costs and expenses presented in
the combined financial statements represent allocations and estimates of the
costs of services provided to ZD Events by management of Ziff-Davis Inc. As a
result, the combined financial statements presented may not be indicative of
the financial position, results of operations or cash flows that would have
been achieved had ZD Events operated as a nonaffiliated entity.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
April 12, 2000, except for Note 16,
for which the date is April 13, 2000
F-1
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
COMBINED BALANCE SHEETS
December 31, 1998 and 1999
(In Thousands)
<TABLE>
<CAPTION>
1998 1999
---------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................... $ 10,385 $ 5,570
Accounts receivable, net................................ 61,716 76,164
Prepaid event expenses.................................. 7,424 4,584
Deferred tax asset...................................... 3,846 4,443
Other current assets.................................... 3,863 1,952
---------- --------
Total current assets.................................. 87,234 92,713
Property and equipment, net............................... 11,488 10,028
Intangible assets, net.................................... 907,048 875,526
Other assets.............................................. 8,756 78
---------- --------
Total assets.......................................... $1,014,526 $978,345
========== ========
Liabilities and Division Equity
Current liabilities:
Accounts payable........................................ $ 6,368 $ 15,558
Bank overdraft.......................................... 7,557 2,351
Accrued expenses........................................ 24,404 23,178
Deferred revenue........................................ 80,053 85,799
Other current liabilities............................... 4,582 3,131
---------- --------
Total current liabilities............................. 122,964 130,017
Deferred taxes............................................ 47,483 61,553
Note payable to affiliate................................. 382,002 382,002
Other long-term liabilities............................... 9,161 8,381
Commitments and contingencies (Notes 13, 14 and 16)
Division equity:
Division capital........................................ 409,493 328,022
Retained earnings....................................... 47,257 73,246
Deferred compensation................................... (1,655) (982)
Other comprehensive income (loss)....................... (2,179) (3,894)
---------- --------
Total division equity................................. 452,916 396,392
---------- --------
Total liabilities and division equity................. $1,014,526 $978,345
========== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-2
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
COMBINED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1998 and 1999
(In Thousands)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net revenues...................................... $276,254 $269,135 $251,411
Operating expenses:
Cost of production.............................. 95,324 75,445 74,131
Selling, general and administrative............. 79,781 76,760 88,588
Depreciation and amortization................... 35,619 41,180 38,132
-------- -------- --------
210,724 193,385 200,851
-------- -------- --------
Income from operations........................ 65,530 75,750 50,560
Other income (expense):
Interest expense--related party................. (65,971) (45,860) (23,300)
Interest income................................. 1,841 2,816 487
Equity in earnings from joint venture........... 1,695 2,658 1,649
Gain on sale of joint venture interest.......... -- -- 13,746
Other income (expense), net..................... (40) (28) (71)
-------- -------- --------
(62,475) (40,414) (7,489)
-------- -------- --------
Income before income tax provision................ 3,055 35,336 43,071
Income tax provision.............................. 5,406 16,080 17,082
-------- -------- --------
Net income (loss)................................. $ (2,351) $ 19,256 $ 25,989
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-3
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1998 and 1999
(In Thousands)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ (2,351) $ 19,256 $ 25,989
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization.................. 35,619 41,180 38,132
Stock-based compensation....................... 3,916 252 522
Loss on disposal of fixed asset................ 55 500 --
Foreign exchange gain/(loss)................... 15 (1) 126
Deferred income taxes.......................... 4,689 15,490 13,473
Provision for uncollectible accounts
receivable.................................... 398 250 1,508
Changes in operating assets and liabilities:
Increase/(decrease) in accounts receivable.... (3,995) (5,103) (16,647)
Increase/(decrease) in prepaid event
expenses..................................... 2,111 (480) 2,840
Increase/(decrease) in other current assets... (1,248) (2,231) 1,911
Decrease/(increase) in other assets........... (19) (998) 8,678
Decrease/(increase) in accounts payable....... (318) (4,126) 9,190
Decrease/(increase) in accrued expenses....... (4,177) 6,076 (1,226)
Decrease/(increase) in deferred revenue....... (11,383) 2,038 5,547
Decrease/(increase) in other liabilities...... 3,745 9,456 (2,231)
-------- -------- --------
Total adjustments............................. 29,408 62,303 61,823
Net cash provided by operating activities..... 27,057 81,559 87,812
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment.............. (8,678) (4,371) (3,131)
Purchase of intangible assets................... (700) (7,292) (2,019)
-------- -------- --------
Net cash used for investing activities........ (9,378) (11,663) (5,150)
-------- -------- --------
Cash flows from financing activities:
Net transactions with Softbank, ZDI and
affiliates..................................... (20,115) (83,192) (81,320)
Increase/decrease in bank overdraft............. -- 7,557 (5,206)
-------- -------- --------
Net cash used in financing activities......... (20,115) (75,635) (86,526)
-------- -------- --------
Effects of exchange rate changes on cash......... 251 (161) (951)
-------- -------- --------
Net (decrease) in cash and cash equivalents...... (2,185) (5,900) (4,815)
Cash and cash equivalents at beginning of year... 18,470 16,285 10,385
-------- -------- --------
Cash and cash equivalents at end of year......... $ 16,285 $ 10,385 $ 5,570
======== ======== ========
Supplemental cash flow disclosures:
Transfer of assets to an affiliate.............. $ -- $ 1,676 $ --
Reduction in notes payable to affiliates........ $291,788 $470,237 $ --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-4
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
COMBINED STATEMENTS OF CHANGES IN DIVISION EQUITY
For the Years Ended December 31, 1997, 1998 and 1999
(In Thousands)
<TABLE>
<CAPTION>
Accumulated
other Total
Division Retained comprehensive comprehensive Deferred
capital earnings income (loss) income (loss) compensation Total
--------- -------- ------------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... $(253,924) $33,352 $(1,249) $(2,448) $(224,269)
Net transactions with
affiliates............. 271,673 -- -- -- 271,673
Foreign currency
translation
adjustment............. -- -- (1,048) $(1,048) -- (1,048)
Issuance of restricted
stock under employee
compensation plans..... 2,464 -- -- (2,464) --
Amortization of deferred
compensation........... -- -- -- 3,916 3,916
Net loss................ -- (2,351) -- (2,351) -- (2,351)
--------- ------- ------- ------- ------- ---------
Total comprehensive
income (loss).......... $(3,399)
=======
Balance at December 31,
1997................... 20,213 31,001 (2,297) (996) 47,921
--------- ------- ------- ------- ---------
Net transactions with
affiliates............. 388,369 -- -- -- 388,369
Dividends............... -- (3,000) -- -- (3,000)
Foreign currency
translation
adjustment............. -- -- 118 $ 118 -- 118
Issuance of ZD net stock
options under employee
compensation plans..... 408 -- -- (408) --
Amortization of deferred
compensation........... -- -- -- 252 252
Conversion of Softbank
stock options to ZDI
stock options.......... 503 -- -- (503) --
Net income.............. -- 19,256 -- 19,256 -- 19,256
--------- ------- ------- ------- ------- ---------
Total comprehensive
income (loss).......... $19,374
=======
Balance at December 31,
1998................... 409,493 47,257 (2,179) (1,655) 452,916
--------- ------- ------- ------- ---------
Net transactions with
affiliates............. (81,320) -- -- -- (81,320)
Foreign currency
translation
adjustment............. -- -- (1,715) $(1,715) -- (1,715)
Forfeiture of stock
options................ (151) -- -- 151 --
Amortization of deferred
compensation........... -- -- -- 522 522
Net income.............. -- 25,989 -- 25,989 -- 25,989
--------- ------- ------- ------- ------- ---------
Total comprehensive
income (loss).......... $24,274
=======
Balance at December 31,
1999................... $ 328,022 $73,246 $(3,894) $ (982) $ 396,392
========= ======= ======= ======= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-5
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except share and per share amounts)
1. Organization and Nature of Operations
ZD Events (the "Business"), a division of Ziff-Davis Inc. ("ZDI"), is a
leading producer of business-to-business events, principally trade shows,
conferences, and customized marketing and education programs with operations
in the United States, Canada, Europe, Mexico and the Far East.
The Business was formed through the merger of Softbank Forums, Inc. and
Softbank COMDEX that were two separate organizations each directly owned and
controlled by or through affiliates of Softbank Corp. ("Softbank"), a Japanese
corporation. Softbank acquired Softbank Forums, Inc. and Softbank COMDEX for
approximately $930,000, plus transaction costs in two separate transactions in
1994 and 1995, respectively. The acquisitions were accounted for using the
purchase method of accounting, resulting in the recording of intangibles (see
Note 2).
On May 4, 1998 the Business merged into Ziff-Davis Inc. ("ZDI"), a separate
publicly traded entity whose indirect majority owner is Softbank. Prior to
that date and concurrent with the acquisition of ZDI by Softbank, MAC Inc., an
affiliate of Softbank, acquired certain assets and liabilities of ZDI.
Softbank remains the majority owner of ZDI and, therefore, ZD Events.
The Business' financial statements reflect the application of certain cash
management and allocation policies. ZDI manages most treasury activities on a
centralized basis. These activities include the investment of surplus cash and
the issuance, repayment and repurchase of short-term and long-term debt. The
Business generally remits its cash receipts (other than receipts of foreign
operations or operations that are not wholly owned) to ZDI, and ZDI generally
funds the Business' cash disbursements (other than disbursements of foreign
operations or operations that are not wholly owned), on a daily basis. The
cash funding described above has been accounted for within Division Equity.
ZDI provides certain centralized administrative services including but not
limited to legal, tax and financial accounting, management information,
telecommunications and human resources. Charges for these services are
generally based upon utilization; however, where measuring utilization is
impractical, ZDI uses other methods and criteria it believes to be equitable
and reasonable in determining charges for these services. Additionally, ZDI
has provided financing to the Business in the form of a note payable (see Note
9).
The combined financial statements include the accounts attributed to the
Business. ZDI has allocated all revenue, expense and cash flows between the
Business and ZDI's other businesses in order to prepare the combined financial
statements. The combined financial statements present the financial position,
results of operations, and cash flows as if Softbank Forums, Inc. and Softbank
COMDEX were combined as of January 1, 1997. All significant intercompany
accounts and transactions have been eliminated in combination.
The financial statements are not necessarily indicative of results that
would have occurred if ZD Events had been a separate stand-alone entity during
the periods presented or the future results of ZD Events.
Acquisitions and Joint Ventures
The Business purchased a 50% interest in the trade show Expo Comm during
1996. The carrying value of the investment at December 31, 1998 was $8,571 and
is included in other assets. In September 1999, the Business sold its 50%
interest in Expo Comm back to the original owner for $20,750 resulting in a
gain of $13,746.
F-6
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
The Business purchased all of the outstanding shares of common stock of
Object World Corporation during 1996 for approximately $6,700. In addition, if
Object World achieves certain performance levels, contingent purchase payments
up to $1,454 may be made through 2001.
The Business purchased the assets of a tradeshow COMEXPO (subsequently
known as Comdex, Mexico) during 1995 for $1,100.
The Business has an investment in which the ownership interest is 50
percent and the Business has the ability to exercise significant influence
over the operating and financial policies of the company and this investment
is accounted for under the equity method of accounting.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents include cash on deposit and highly liquid
investments with original maturities at time of purchase of three months or
less.
Concentrations of Risk
Financial instruments which potentially subject the Business to
concentrations of credit risk are principally cash and cash equivalents. The
Business maintains its cash and cash equivalents with various high credit
financial institutions. At times, such cash and cash equivalents may be in
excess of federally insured limits or, with respect to international
operations, there may be no insurance. The Business has not experienced losses
in such accounts.
Significant revenue and earnings are generated from our NETWORLD+INTEROP
tradeshows and JavaOne conference brands. Each brand is subject to licenses
for its use. While the business owns the service mark "INTEROP" the business
licenses the "NETWORLD" service mark from Novell under a license expiring on
December 31, 2001 which is subject to automatic renewals unless terminated by
Novell upon 15 months notice. We also license the name "JavaOne" from Sun
Microsystems which expires in July 2001. If these licenses terminate and are
not renewed, the business would not be able to produce events using these
service marks and that could adversely affect revenues and results of
operations.
Fair Value of Financial Instruments
The Business' financial instruments recorded on the combined balance sheets
include cash and cash equivalents, accounts receivable and accounts payable.
The carrying amount of these financial instruments approximates fair value
because of their short-term maturity. The recorded amount of the Business'
note payable to affiliates also approximates fair value based upon the current
rates available to the Business for debt with similar maturities.
Property and Equipment
Property and equipment have been recorded at cost. Major replacements and
improvements are capitalized while general repairs and maintenance costs are
charged to expense as incurred. Depreciation is computed using the straight-
line method over the estimated useful lives of the assets as follows:
computers and equipment three to seven years, furniture and fixtures five to
ten years and leasehold improvements shorter of their estimated useful life or
lease periods.
F-7
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
Intangible Assets
Intangible assets consist principally of trade names, advertiser and
exhibitor lists, and goodwill. Intangible assets primarily relate to the
acquisitions of Softbank Forums and Softbank COMDEX, as discussed in Note 1.
The acquisitions were accounted using the purchase method of accounting. As
such, the purchase price was allocated to tangible and identifiable intangible
assets with the remaining amount allocated to goodwill. Trade names are
recorded at their estimated fair value using the "relief from royalty"
approach. Advertiser and exhibitor lists are recorded at their estimated fair
value as determined by an "income" approach. Amortization of intangible assets
is computed on a straight-line basis over their estimated useful lives.
The Business assesses the recoverability of its intangible assets whenever
events or changes in circumstances indicate that expected future cash flows
(undiscounted and without interest charges) may not be sufficient to support
its carrying value. If undiscounted cash flows are not sufficient to support
the recorded value, an impairment loss is recognized to reduce the carrying
value of the intangibles to its estimated recoverable amount. The impairment
loss would be measured as the amount by which the carrying amount of the asset
exceeds the fair value of the asset.
Revenue Recognition
Trade show, conference, customized marketing and education program revenue,
less agency commissions, cash discounts, and noncash discounts are recognized
when the events are conducted. Payments received in advance of trade shows,
conferences and customized marketing and education programs are initially
reported on the balance sheet as deferred revenue.
The Business enters into barter transactions with certain vendors where
booth space at trade shows or conferences is exchanged for advertising or the
Business and the vendor exchange advertising. These transactions are not
included in the combined statements of operations. If these transactions had
been included, the Business would have recorded revenue and expense of
approximately $7,502, $9,057, and $6,849 for the years ended December 31,
1997, 1998, and 1999, respectively.
Operating Costs and Expenses
Cost of production includes the direct costs of organizing, producing and
managing trade shows, seminars, conferences and expositions. Prepaid expenses
primarily consisting of prepaid show and conference expenses are expensed in
the month in which the event is conducted. Selling, general and administrative
costs include the centralized administrative services allocated from Ziff-
Davis Inc. (See Note 1)
Equity in Earnings from Joint Ventures
Equity in earnings from joint ventures includes the Business' equity share
of income or loss from the Business' investments in joint ventures.
Foreign Currency Translation
The assets and liabilities of foreign operations are translated at the
current exchange rate and elements of division's equity are translated at
historical exchange rates at year-end. Revenue and expense accounts are
translated at the average exchange rate during the periods presented. Gains or
losses from foreign currency transactions are included in earnings as
incurred. Translation adjustments are included as a separate component of
division equity.
F-8
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
Income Taxes
The Business utilizes the liability method of accounting for income taxes.
Under the liability method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse. Net deferred tax assets are recorded when
it is more likely than not that such tax benefits will be realized.
The Business is included in the consolidated federal income tax return
filed by Softbank (for 1997 and through May 3, 1998) and by ZDI (from May 4,
1998 through December 31, 1999). However, the tax provision shown on the
combined statements of operations and the tax assets and liabilities shown on
the combined balance sheets have been prepared as though the Business filed
its income tax returns on a stand-alone basis. The effect of recording an
income tax provision on a stand-alone basis results in reporting a reduction
in Division Equity.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amount reported in the financial
statements. Actual results may differ from these estimates.
Stock-Based Compensation
On January 1, 1996, the Business elected the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting
for Stock-Based Compensation." SFAS 123 encourages, but does not require,
companies to adopt a fair value based method for determining the expense
related to stock-based compensation. The Business continues to account for
stock-based compensation using the intrinsic value method as prescribed under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations and is presented in Note 13.
Comprehensive Income
Effective January 1, 1998, the Business adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement
requires that certain items recognized under generally accepted accounting
principles as separate components of stockholders' equity be reported as
comprehensive income in an annual financial statement that is displayed with
the same prominence as the other annual financial statements. This statement
also requires that an entity classify items of other comprehensive income by
their nature in an annual financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings and
accumulated deficit in the Division Equity section of the balance sheet.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," ("SFAS No.
133"). SFAS No. 133 establishes accounting and reporting standards requiring
that every derivative instrument be recorded in the balance sheet as either an
asset or liability measured at its fair value. This statement also requires
that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 30, 1999. However, Statement
of Financial Accounting Standards No. 137, "Deferral of the Effective Date of
SFAS No. 133" was issued to defer adoption of SFAS No. 133 to fiscal years
beginning after June 30, 2000. Management believes that the adoption of SFAS
No. 133 will have no material effect on the Business' financial statements.
F-9
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101 ("SAB 101"), which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with SEC. The Business is required to be in conformity with the
provisions of SAB 101 by the quarter ended June 30, 2000 and does not expect a
material change in its financial condition or results of operations as a
result of SAB 101.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB No. 25 and among other issues clarifies the
following: the definition of an employee for purposes of applying APB No. 25;
the criteria for determining whether a plan qualifies as a noncompensating
plan; the accounting consequence of various modifications to the terms of
previously fixed stock options or awards; and the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 is effective
July 1, 2000, but certain conclusions in FIN 44 cover specific events that
occurred after either December 15, 1998 or January 12, 2000. The Business does
not expect the application of FIN 44 to have a material impact on the
Business' financial position or results of operations.
3. Accounts Receivable
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- -------
<S> <C> <C>
Accounts receivable....................................... $64,117 $80,048
Less: allowance for doubtful accounts and cancellations... (2,401) (3,884)
------- -------
$61,716 $76,164
======= =======
</TABLE>
4. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Computers and equipment.................................. $ 19,900 $ 23,069
Leasehold improvements................................... 1,960 2,118
Furniture and fixtures................................... 3,305 3,682
Other.................................................... 1,653 1,080
-------- --------
26,818 29,949
Less: accumulated depreciation and amortization.......... (15,330) (19,921)
-------- --------
$ 11,488 $ 10,028
======== ========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1997, 1998 and 1999 was $5,018, $6,101, and $4,591, respectively.
F-10
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
5. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
Range of December 31,
lives in ----------------------
years 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Trade names................................. 5 to 40 $ 418,960 $ 418,960
Goodwill.................................... 5 to 40 444,181 448,494
Advertiser and exhibitor lists.............. 3 to 27 155,355 153,061
---------- ----------
1,018,496 1,020,515
Less: accumulated amortization.............. (111,448) (144,989)
---------- ----------
$ 907,048 $ 875,526
========== ==========
</TABLE>
Amortization expense for the years ended December 31, 1997, 1998, and 1999
was, $30,601, $35,079 and $33,541, respectively.
In 1998 as part of ZDI's restructuring program, the Business recorded an
asset impairment charge of $2,930 related to trade show intangible assets. In
1999, an additional charge of $2,306 has been recorded to reflect management's
decision to discontinue these trade shows.
6. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------- -------
<S> <C> <C>
Payroll and related employee benefits....................... $ 2,972 $ 4,987
Other taxes payable......................................... 1,712 164
Other accrued expenses...................................... 19,720 18,027
------- -------
$24,404 $23,178
======= =======
</TABLE>
F-11
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
7. Deferred Revenue
Deferred revenue consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------- -------
<S> <C> <C>
COMDEX Fall................................................. $17,264 $14,815
COMDEX Spring............................................... 7,347 4,954
IT for Wall Street.......................................... 1,473 1,171
Java Business Expo.......................................... 478 --
Java One.................................................... 331 1,092
N + I Atlanta............................................... 4,070 8,451
N + I France................................................ 1,211 --
N + I Las Vegas............................................. 27,455 33,541
Seybold New York/Boston..................................... 3,664 4,425
Seybold San Francisco....................................... 2,706 1,630
Support Services Spring..................................... 2,113 2,109
Support Services Fall....................................... 514 582
Greyhound Expo.............................................. 1,015 1,015
Other....................................................... 10,412 12,014
------- -------
Total....................................................... $80,053 $85,799
======= =======
</TABLE>
8. Income Taxes
Income before income taxes is attributable to the following jurisdictions:
<TABLE>
<CAPTION>
Years ended December
31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
United States...................................... $ 4,818 $37,911 $41,473
Foreign............................................ (1,763) (2,575) 1,598
------- ------- -------
Total............................................ $ 3,055 $35,336 $43,071
======= ======= =======
</TABLE>
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Years ended December
31,
----------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
U.S. federal income taxes:
Current............................................ $ -- $ -- $ 2,730
Deferred........................................... 4,435 14,653 12,744
State and local income taxes:
Current............................................ -- -- 156
Deferred........................................... 253 837 728
Foreign income taxes................................. 718 540 724
------ ------- -------
Total income tax provision......................... $5,406 $16,030 $17,082
====== ======= =======
</TABLE>
F-12
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
A reconciliation of the U.S. federal statutory tax rate to the Business'
effective tax rate on income before income taxes is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Federal statutory tax rate..................... 35.0% 35.0% 35.0%
State and local taxes (net of federal tax
benefit)...................................... 2.0 2.0 2.0
Effect of foreign operations................... 44.8 4.2 0.3
Amortization of nondeductible goodwill......... 8.0 3.8 2.0
Nonrecognition of combined losses of
predecessor entity............................ 65.4 -- --
Other, primarily meals and entertainment....... 21.8 0.4 0.4
-------- ------- -------
Effective tax rate............................. 177.0% 45.4% 39.7%
======== ======= =======
</TABLE>
The 1997 effective tax rate differs from the federal statutory tax rate
primarily as a result of the Business' inability to deduct losses attributable
to a predecessor entity and the effect of foreign operations. The 1998 and
1999 effective tax rates differ from the federal statutory tax rate primarily
as a result of goodwill not deductible for U.S. federal tax purposes and the
effect of foreign operations. In addition, tax benefits attributable to losses
in foreign jurisdictions are subject to a valuation allowance because these
loss carryforwards are not expected to be utilized in the future.
Following is a summary of the components of the deferred tax accounts:
<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Current deferred tax asset............................... $ 3,846 $ 4,443
-------- --------
Noncurrent deferred tax asset and (liability):
Basis difference in intangible assets.................. (67,047) (78,549)
Net operating loss and other carryforwards............. 16,136 11,428
Other.................................................. 5,738 7,472
-------- --------
Gross noncurrent deferred tax liability.............. (45,173) (59,649)
Valuation allowance...................................... (2,310) (1,904)
-------- --------
Net noncurrent deferred tax liability.................. $(47,483) $(61,553)
======== ========
</TABLE>
As of December 31, 1998 and 1999, the Business had total deferred tax
assets of $25,720 and $23,343, respectively, and total deferred tax
liabilities of $69,357 and $80,453, respectively.
As of December 31, 1999, the Business has a foreign net operating loss
carryforward of approximately $5,146 which begins to expire in the year 2000.
The December 31, 1998 and 1999 deferred tax assets are reduced by valuation
allowances of $2,310 and $1,904, respectively relating to tax benefits of
foreign net operating loss carryforwards which are not expected to be
realized. As of December 31, 1998, the Business had a U.S. net operating loss
carryforward of approximately $11,628, which was fully utilized in 1999.
F-13
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
9. Note Payable to Affiliate
Note payable to affiliate consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
Note payable to Ziff-Davis Inc............................ $382,002 $382,002
======== ========
</TABLE>
The Business entered into a Loan Agreement with ZDI for $382,002 (the
"Loan"). The Loan states that interest payments are due on a quarterly basis
beginning June 1998 at a rate of 6% per annum. The Loan is payable on March
31, 2008 and contains no financial covenants. Prior to May 4, 1998, the
Business had various long-term notes payable to Softbank at varying interest
rates from 6.5% to 9.9% with an aggregate principal balance of $852,239 at
December 31, 1997. At May 4, 1998, the date ZDI went public, the Softbank
notes payable were reduced and replaced with the Loan payable to ZDI. The
Business incurred interest expense to related parties for the years ended
December 31, 1997, 1998, 1999 of $67,317, $42,781, and $30,803, respectively.
10. Related Party Transactions
As described in Note 1, ZDI manages certain costs and services on a
centralized basis and allocates a portion of such costs to the Business.
Included in selling, general and administrative expenses for the years ended
December 31, 1997, 1998 and 1999 were $4,177, $3,499 and $12,543, respectively
related to such charges.
The Business transacts business with a group of companies affiliated
through common ownership with Softbank and ZDI, and has various transactions
and relationships with members of the group. Due to these relationships, it is
possible that the terms of those transactions are not the same as those that
would result from transactions among unrelated parties.
Included in accounts receivable, net are receivables from joint venture
partners of $3,553 and $1,287 as of December 31, 1998 and 1999, respectively.
Included in accounts payable are payables to joint venture partners of
$3,902 and $1,620 as of December 31, 1998 and 1999, respectively.
Included in other income is interest earned on affiliated company notes
receivable of $1,094, $28 and $0 for the years ended December 31, 1997, 1998
and 1999, respectively.
The Business receives a royalty fee from Softbank. The Business recorded
$917, $1,108 and $1,267 for the years ended December 31, 1997, 1998, and 1999,
respectively, for management fees. The management fee revenue is recorded in
net revenues on the statements of operations.
11. Stock Compensation Plans
These combined financial statements and the disclosures described below
sets forth the various compensation plans implemented by Softbank and ZDI only
to the extent such plans affect the employees of the Business.
F-14
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
Softbank Executive Stock Option Plan
The Softbank Executive Stock Option Plans provide for the granting of
nonqualified stock options (the "Softbank Options") to purchase the common
stock of Softbank Corp. to officers, directors and key employees of ZDI,
including certain employees of the Business. Softbank Corp. is a publicly
traded company in Japan. Under the Plans, options have been granted at
exercise prices equal to the closing market price in Japan's public equities
market (market price denominated in Japanese yen) on the date of grant.
Substantially all options granted become exercisable in various installments
over the first six anniversaries of the date of grant and expire ten years
after the date of grant. On January 19, 1998, the exercise price of all of the
shares outstanding under option agreements was reset to (Yen)4,000, the
closing market price on Japan's Tokyo Stock Exchange First Section at that
date. In conjunction with the repricing, those options previously exercisable
on December 31, 1997 could only be exercised after July 19, 1998. The
repricing of the stock options did not result in compensation expense to the
Business.
1998 Incentive Compensation Plan and the 1998 Non-Employee Director's Stock
Option Plan
ZDI has two classes of common stock; ZD Inc.--ZD Common Stock ("ZD Stock")
and ZD Inc.--ZDNet Stock ("ZDNet Stock").
In 1998, ZDI adopted the 1998 Incentive Compensation Plan (the "Incentive
Plan") and the 1998 Non-Employee Directors' Stock Option Plan (the "Non-
Employee Directors Plan"). The Incentive Plan provides for the grant of
options, stock appreciation rights, stock awards and other interests in ZDI
common stock to key employees of ZDI and its affiliates and consultants. The
Non-Employee Directors' Plan provides for the grant of stock options to non-
employee directors. ZDI has reserved 8,500,000 shares of common stock for
issuance under the Non-Employee Directors' Plan. During 1998, ZDI granted
options to the Business' employees to purchase 1,140,245 shares with exercise
prices ranging from $6.00 to $16.00 per share representing the fair value of
such options on the date of grant. Such options vest ratably over five years.
On September 23, 1998, the ZDI Board of Directors approved the reduction of
the exercise price of all options outstanding under the Incentive Plan from
$16.00 to $6.00, the closing market price of ZDI common stock on that date. In
addition, the vesting period of the options was extended by three months. The
repricing did not result in compensation expense to the Business.
On December 21, 1998, the ZDI Board of Directors approved an amendment to
the Incentive Plan to permit grants of options and other stock--based awards
with respect to any services of common stock of ZDI and to increase the number
of shares available for issuance to all ZDI employees from 8,500,000 shares to
17,827,500 shares.
In addition, on December 21, 1998, ZDI's Board of Directors approved the
grant of options to acquire an aggregate of approximately 224,437 shares of
ZDNet Stock to certain employees of the Business at a price of $4.29 per
share. As a result of the grant the Business has recorded deferred
compensation expense of $408 for the difference between the exercise price and
the deemed fair value of the underlying shares. This amount has been recorded
as a component of division equity offset by an addition to paid-in capital.
The Business expects to recognize non-cash compensation for accounting
purposes of $102 ratably over the vesting periods of the options. These
options are currently scheduled to vest and become exercisable on the fifth
anniversary of the date of grant.
On January 29, 1999, ZDI granted options to a number of ZD Events employees
in connection with the cancellation of corresponding options to purchase stock
of SOFTBANK Corp. In connection with these grants,
F-15
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
an affiliate of SOFTBANK Corp. has agreed with ZDI that, if and when any of
these options are exercised, (1) that affiliate will cause the shares to ZDI
common stock issuable upon such exercise to be supplied to ZDI and (2) ZDI
will deliver to that affiliate of its designee the exercise price paid upon
such exercise. Thus, the exercise of these options will not increase the
number of shares of ZDI common stock outstanding or ZDI's stockholders'
equity. However, the Business expects to recognize compensation expense for
accounting purposes of approximately $168 over three years as a result of
these grants. As such, this amount has been recorded in the financial
statements as division capital offset by a reduction in division equity as
deferred compensation.
Option Grants
Information relating to the Softbank options for ZD Events employees during
1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Number Weighted average
of option price per
shares share(1)
-------- ----------------
<S> <C> <C>
Shares outstanding under options at December
31, 1996...................................... $103,914 $87.15
Granted........................................ 94,474 53.42
Exercised...................................... -- --
Forfeited...................................... (30,772) 75.04
--------
Shares outstanding under options at December
31, 1997...................................... 167,616 70.36
Granted........................................ 99,360 31.03
Exercised...................................... (28,151) 31.03
Converted to ZDI options....................... (1,800) 31.03
Forfeited...................................... (17,682) 31.03
--------
Shares outstanding under options at December
31, 1998...................................... 219,343 31.03
Granted........................................ -- --
Exercised...................................... (76,731) 31.03
Forfeited/cancelled............................ (31,772) 31.03
--------
Shares outstanding under options at December
31, 1999...................................... 110,840
========
Shares exercisable as of:
At December 31, 1997 (price range $87.15).... 16,028
At December 31, 1998 (price range $31.03).... 70,719
At December 31, 1999 (price range $31.03).... 14,000
</TABLE>
- --------
(1) The exercise price of the stock options is set in Japanese yen. The
exercise prices as shown above have been converted to U.S. dollars based
upon the exchange rate of the date of grant for the respective options.
The 1998 activity reflects the pricing of all options outstanding as of
January 19, 1998 to (Yen)4,000.
(2) Adjusted for a 1.4:1 stock split during 1996 and a 1.3:1 stock spilt
during 1997.
F-16
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
Information relating to the Ziff-Davis Inc.--ZD stock options for ZD Events
employees during 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Weighted
average
Number of option price
shares per share(1)
--------- ------------
<S> <C> <C>
Shares outstanding under options at December 31,
1997............................................. -- $ --
Granted........................................... 1,140,245 6.05
Exercised......................................... -- --
Converted from Softbank options................... -- --
Forfeited......................................... (92,750) 6.00
--------- -------
Shares outstanding under options at December 31,
1998............................................. 1,047,495 6.06
Granted........................................... 531,870 15.87
Exercised......................................... (38,195) 6.00
Forfeited......................................... (160,185) 9.46
--------- -------
Shares outstanding under options at December 31,
1999............................................. 1,380,985 $ 9.45
========= =======
Information relating to the Ziff-Davis Inc.--ZDNet stock options for ZD
Events employees during 1998 and 1999 is as follows:
<CAPTION>
Weighted
average
Number of option price
shares per share(1)
--------- ------------
<S> <C> <C>
Shares outstanding under options at December 31,
1997............................................. -- $ --
Granted........................................... 224,437 4.29
Exercised......................................... -- --
Forfeited......................................... -- --
--------- -------
Shares outstanding under options at December 31,
1998............................................. 224,437 4.29
Granted........................................... 165,055 30.23
Exercised......................................... (875) 4.29
Forfeited......................................... (32,187) 17.60
--------- -------
Shares outstanding under options at December 31,
1999............................................. 356,430 $ 15.10
========= =======
<CAPTION>
1998 1999
--------- ------------
<S> <C> <C>
Shares exercisable at December 31,
ZDNet............................................ -- 51,188
ZD............................................... -- 292,576
</TABLE>
F-17
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
As permitted by SFAS No. 123, the Business has chosen to continue to
account for stock options in accordance with the provisions of APB 25 and,
accordingly, no compensation expense related to stock option grants was
recorded in 1997, 1998 or 1999. Pro forma information regarding net income is
required by SFAS No. 123 and has been determined as if the Business had
accounted for stock options under the fair value method. The fair value of the
option grants was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions for 1997, 1998 and 1999:
Softbank Options
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... 6.15% 5.46% n/a
Dividend yield.................................... 0.22% 1.50% n/a
Volatility factor................................. 51.35% 77.72% n/a
Expected life..................................... 6 years 6 years n/a
Ziff-Davis Inc.--ZD Stock Options
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... n/a 5.29% 5.24%
Dividend yield.................................... n/a -- --
Volatility factor................................. n/a 54.70% 59.27%
Expected life..................................... n/a 6 years 6 years
Ziff-Davis Inc.--ZDNet Stock Options
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... n/a 4.67% 5.23%
Dividend yield.................................... n/a -- --
Volatility factor................................. n/a 54.70% 84.15%
Expected life..................................... n/a 6 years 6 years
The weighted average fair value of options granted in 1999, 1998 and 1997
is as follows:
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Softbank options.................................. $ 29.00 $ 50.34 $ n/a
Ziff-Davis Inc.--ZD Stock options................. n/a 7.27 9.69
Ziff-Davis inc.--ZDNet options.................... n/a 4.25 22.39
</TABLE>
For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to exposure over the options' vesting period. Had
compensation cost for the stock option plans been determined based upon fair
value at the grant date for awards during 1997, 1998 and 1999, consistent with
the provision of SFAS No. 123, the Business' net profit would have been
decreased by approximately $3,196, $3,631 and $3,479, respectively.
Employee Stock Purchase Plan
In 1998, ZDI adopted the Employee Stock Purchase Plan (the "Stock Purchase
Plan") whereby eligible employees may purchase ZDI's common stock with after-
tax payroll deductions of 1% to 10% of their base pay.
F-18
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
The price at which shares of common stock will be purchased is the lesser of
85% of the fair market value of a share of common stock on (1) the first
business day of a purchase period of (2) the last business day of a purchase
period. ZDI has reserved 1,500,000 shares of common stock for issuance under
the Stock Purchase Plan.
On December 21, 1998, the ZDI Board of Directors approved an amendment to
the Employee Stock Purchase Plan, subject to stockholder approval, to permit
grants of options with respect to any series of common stock of ZDI and
increase the number of shares available for sale to participate from 1,500,000
shares to 2,500,000 shares.
12. Employee Benefit Plans
Defined Contribution Plans
ZDI and its subsidiaries maintain various defined contribution retirement
plans. Substantially all of the Business' employees are eligible to
participate in one of these plans under which annual contributions may be made
by the Business. Employees may also make contributions to the plan in which
they participate that, subject to certain limitations, may be matched by the
Business up to certain specified percentages. Employees are generally eligible
to participate in a plan upon joining the Business and receive matching
contributions immediately upon commencement of employment. In addition,
employees become eligible to receive a discretionary contribution after one
year of employment. The Business made contributions to these plans of $593,
$1,106 and $2,450 for the years ended December 31, 1997, 1998 and 1999,
respectively.
Defined Benefit Plan
For the year 1997 certain employees of COMDEX who met eligibility
requirements were covered by a noncontributory defined benefit plan. The
benefits were based on years of service and average compensation at the time
of retirement. The funding policy was to contribute amounts sufficient to meet
the minimum funding requirements as set forth in the Employee Retirement
Income Security Act of 1974 ("ERISA"). Contributions to the plan were
determined in accordance with the projected unit credit cost method. Plan
assets consisted of U.S. equity securities, high grade corporate bonds and
commercial paper, and U.S. treasury notes.
The weighted average assumed discount rate of 7% and rate of increase in
future compensation levels of 6% was used in the determination of the
actuarial present value of the projected benefit obligation at December 31,
1997. The weighted average expected long-term rate of return on plan assets at
December 31, 1997 was 7%.
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Service cost.......................................................... $ 391
Interest cost......................................................... 456
Expected return on plan assets........................................ (445)
Amortization of transition obligations................................ 75
-----
Net periodic pension cost............................................. $ 477
=====
</TABLE>
F-19
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
The following table sets forth the funded status and amounts recognized in
the balance sheet:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Actuarial present value
of benefit obligations:
Vested benefit
obligation............. $ 5,721
-------
Accumulated benefit
obligations............ $ 5,721
=======
Projected benefit
obligations............. $ 5,721
Plan assets at fair
value................... (6,004)
-------
Projected benefit
obligation in excess
(less than) of plan
assets.................. (283)
Unrecognized net
transition asset
(liability)............. 1,279
-------
Pension liability
included in balance
sheet................... $ 996
=======
</TABLE>
During 1997, COMDEX decided to terminate the defined benefit pension plan
and pursuant to this decision, all accrued benefits became fully vested as of
August 31, 1997. The above amounts show the effect of this termination. All
accrued obligations were settled during 1998 and a gain of $156 was recognized
in 1998.
13. Commitments and Contingencies
On March 7, 2000, the Business sued GES Exposition Services, Inc. for
breach of contract in the United States District Court for the District of
Massachusetts. The Business believes that GES is withholding commissions that
it is required to pay to the Business under contract. In management's opinion,
this litigation is not likely to have a material adverse effect on the
financial condition, results of operations or cash flows.
The Business is subject to various claims and legal proceedings arising in
the normal course of business. Management believes that the ultimate
liability, if any, in the aggregate will not be material to the financial
position, results of operations or cash flows.
The litigation and other legal proceedings described below are disclosed
because ZD Events is a division of ZDI.
Class Action and Derivative Litigations
Following a decline in the price per share of Ziff-Davis Inc.'s common
stock in October 1998, eight securities class action suits were filed against
Ziff-Davis Inc. and certain of its directors and officers in the United States
District Court for the Southern District of New York.
The complaints allege that defendants violated Sections 11, 12(a)(2) and 15
of the Securities Act of 1933 in connection with the registration statement
filed by Ziff-Davis Inc. with the Securities and Exchange Commission relating
to the initial public offering of Ziff-Davis Inc.'s stock on April 29, 1998
(the "IPO"). More particularly, the complaints allege that the registration
statement contained false and misleading statements and failed to disclose
facts that could have indicated an impending decline in Ziff-Davis Inc.'s
revenue. The complaints seek on behalf of a class of purchasers of Ziff-Davis
Inc.'s common stock from the date of the IPO through October 8, 1998
unspecified damages, interest, fees and costs, rescission, and injunctive
relief such as the imposition of a constructive trust upon the proceeds of the
IPO.
On January 28, 1999, the court entered an order consolidating the actions,
appointing lead plaintiff's counsel and requiring the filing of a consolidated
amended complaint. The consolidated amended complaint was filed on March 15,
1999 and only alleges claims under Section 11 of the Securities Act of 1933.
On May 20, 1999, Ziff-Davis Inc. moved to dismiss the consolidated amended
complaint. In July 1999, plaintiffs filed their response to the motion. Ziff-
Davis Inc. filed a reply on August 11, 1999. The motion has not yet been
decided.
F-20
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
In addition, two derivative suits have been filed by stockholders against
Ziff-Davis Inc. and all of its directors in the Court of Chancery of the State
of Delaware for New Castle County. The complaints allege that the directors
breached their fiduciary duties to Ziff-Davis Inc. by repricing the stock
options awarded to certain directors and demand the nullification of the
repricing and an injunction against exercise by the directors of any repriced
option. Plaintiffs filed an amended complaint on February 17, 1999 (which is
substantially similar to the original complaints, except that the amended
complaint also addresses the granting of "new options" at an allegedly
"reduced exercise price") and the actions have been consolidated. Answers to
the amended compliant on behalf of both Ziff-Davis Inc. and its directors were
filed on April 12, 1999. Discovery is proceeding.
Other Legal Proceedings
Ziff-Davis Inc. was named as a defendant in an action, filed on April 17,
1998 in the Supreme Court of the State of New York, by minority stockholders
of SOFTBANK Interactive Marketing Inc., ("SIM"), formerly an indirect
subsidiary of Softbank Corp. The complaint alleged, among other things, that
Softbank, SIM's majority stockholder, acting with Ziff-Davis Inc. and two of
its senior officers and directors who were directors of SIM (and who were also
named as defendants), had conflicts of interest between SIM and other Softbank
investments (including investment in Ziff-Davis Inc.) and failed to act in the
best interests of SIM and the minority stockholders by taking actions which
benefited Ziff-Davis Inc. The complaint stated claims based on common law
fraud, breach of fiduciary duty and aiding and abetting theories and seeks in
excess of $200,000 in damages. Upon motion of Ziff-Davis Inc. and the other
defendants, all of the claims against them other than a breach of contract
claim, which is solely against Softbank Holdings, were dismissed on February
26, 1999. On April 1, 1999, plaintiffs filed a notice of appeal of the
dismissal. On September 2, 1999, the remaining claim, which was solely against
Softbank Holdings was dismissed. On October 6, 1999, plaintiffs filed a notice
of appeal of this dismissal. On March 28, 2000, the decisions of dismissal was
affirmed on appeal.
Ziff-Davis Inc. and ZDTV, L.L.C. ("ZDTV"), a majority owned affiliate of
Ziff-Davis Inc., were named as defendants in an action filed on November 10,
1999 in the U.S. District Court, Southern District of New York, by Mark
Bunting, Tom Hoitsma and SkyTV Inc. In October 1998 ZDTV through a subsidiary
purchased certain assets from corporations owned by plaintiff and two other
individuals. In addition to a cash payment at the closing of the sale, ZDTV
agreed to pay additional purchase price, contingent on the future operating
profits of the SkyTV division. Ziff-Davis Inc. guaranteed the obligations of
ZDTV. The complaint alleges, among other things, that ZDTV and Ziff-Davis Inc.
breached their covenants of good faith and fair dealing by failing to act in
the best interests of the SkyTV division, to support and procure business for
the SkyTV division, and to provide public relations, marketing assistance and
corporate sales team support, thereby lessening plaintiff's opportunity to
earn additional purchase price. The complaint seeks an amount to be determined
at trial, but not less than $60,000 in damages.
Although the outcome of these cases cannot be predicted, Ziff-Davis Inc.
believes that there are substantial defenses to the claims. Ziff-Davis Inc.
currently cannot estimate its ultimate liability, if any, with respect to such
pending litigations. Accordingly, no provision for such matters has been
included in the financial statements.
There are no other legal proceedings to which Ziff-Davis Inc. is a party,
other than ordinary routine litigation incidental to its business that is not
otherwise material to the business or financial condition of Ziff-Davis Inc.
F-21
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
14. Operating Lease Commitments
The Business' future minimum rental commitments under noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
2000................................................................. $ 4,964
2001................................................................. 4,796
2002................................................................. 4,817
2003................................................................. 2,335
2004................................................................. 1,067
Thereafter........................................................... 1,067
-------
Total.............................................................. $19,046
=======
</TABLE>
Rent expense amounted to approximately $4,805, $4,779 and $4,469 for the
years ended December 31, 1997, 1998 and 1999, respectively.
15. Financial Information by Industry Segment and Geographic Area
The Business had adopted SFAS No. 131, "Disclosure about Segment of an
Enterprise and Related Information" ("SFAS No. 131"), which was effective for
the year ended December 31, 1998.
The Business operates in one business segment--the production and
management of trade shows, conferences, and customized marketing and education
programs. The Business holds events, either directly or through international
contract events. International contract events are presented in the equity
basis on the other income (expense) line in the statements of operations.
Financial information by geographic areas is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1998 1999
---------- ---------- --------
<S> <C> <C> <C>
Net revenues:
North America............................ $ 258,254 $ 249,457 $234,412
Europe................................... 11,828 15,525 12,307
Far East................................. 6,172 4,153 4,692
---------- ---------- --------
Total.................................. $ 276,254 $ 269,135 $251,411
========== ========== ========
Other income (expense):
North America............................ $ (62,632) $ (41,254) $ (7,506)
Europe................................... 119 486 (132)
Far East................................. 38 354 149
---------- ---------- --------
Total.................................. $ (62,475) $ (40,414) $ (7,489)
========== ========== ========
Total assets:
North America............................ $1,031,817 $ 994,443 $963,064
Europe................................... 4,544 16,973 13,025
Far East................................. 3,145 3,110 2,256
---------- ---------- --------
Total.................................. $1,039,506 $1,014,526 $978,345
========== ========== ========
</TABLE>
Transactions between geographic areas are not significant.
F-22
<PAGE>
ZD Events
(A Division of Ziff-Davis Inc.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except share and per share amounts)
16. Subsequent Events
On April 13, 2000, the Business entered into a Revolving Credit Agreement
("Agreement") with two banks to borrow $150,000 which represented the maximum
amount available under the Agreement. The proceeds of this borrowing were used
to repay a portion of the Business' indebtedness to ZDI. Under the terms of
the Agreement, the Business is required to maintain certain financial and
operating covenants, which include: maximum leverage and minimum interest
coverage ratios and limits on capitalized leases and capital expenditures. The
Agreement bears interest at a base rate or eurodollar rate, at the option of
the Business. The base rate is equal to the higher of the lender's commercial
lending rate or 1/2 of 1% per annum above the federal funds rate. The
eurodollar rate is equal to the London Interbank Offered Rate divided by a
percentage equal to 100% minus the eurodollar rate reserve percentage, as
defined in the Agreement.
17. Unaudited Subsequent event
Ziff-Davis Inc. is proceeding to dispose of substantially all of its ZD
businesses including ZD Events as part of a comprehensive restructuring. On
March 7, 2000, ZDI announced that it intends to recapitalize and spin off the
Business to the holders of ZDI common stock. ZDI expects to form a new holding
company for the Business, Key3Media Group, Inc. Prior to the spin-off
Key3Media Group, Inc. will borrow approximately $430 million from bank
lenders, the capital markets, or a combination of both. The proceeds of that
borrowing will be used to retire ZDI's remaining indebtedness and to fund a
cash dividend to holders of ZDI common stock.
The spin-off contemplates that:
. ZDI will transfer to Key3Media Group Inc. all of the assets and
liabilities related to ZD Events;
. ZDI and Key3Media Group, Inc. will agree to share taxes incurred before
the spin off and give each other certain indemnification rights;
. ZDI will indemnify Key3Media Group, Inc. against all liabilities not
related to ZD Events' business; and
. Key3Media Group, Inc. will indemnify ZDI against all liabilities related
to ZD Events' business.
F-23
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF OFFERING AND DISTRIBUTION
The following is a statement of the estimated expenses to be incurred in
connection with the distribution of the securities registered under this
registration statement:
<TABLE>
<CAPTION>
Amount To
Be Paid
---------
<S> <C>
SEC registration fee.......................................... $
NASD fees and expenses........................................ *
Legal fees and expenses....................................... *
Fees and expenses of qualification under state securities laws
(including legal fees)....................................... *
[Nasdaq/NYSE] listing fees and expenses....................... *
Accounting fees and expenses.................................. *
Printing and engraving fees................................... *
Registrar and transfer agent's fees........................... *
Miscellaneous................................................. *
---------
Total..................................................... $ *
=========
</TABLE>
- --------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees
and individuals against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person
being or having been a director, officer, employee of or agent to the
Registrant. The statute provides that it is not exclusive of other rights to
which those seeking indemnification may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
Section of the Registrant's bylaws provides for indemnification by the
Registrant of any director or officer (as such term is defined in the bylaws)
of the Registrant who is or was a director of any of its subsidiaries or, at
the request of the Registrant, is or was serving as a director or officer of,
or in any other capacity for, any other enterprise, to the fullest extent
permitted by law. The bylaws also provide that the Registrant shall advance
expenses to a director or officer and, if reimbursement of such expenses is
demanded in advance of the final disposition of the matter with respect to
which such demand is being made, upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it is ultimately
determined that the director or officer is not entitled to be indemnified by
the Registrant. To the extent authorized from time to time by the board of
directors of the Registrant, the Registrant may provide to any one or more
employees of the Registrant, one or more officers, employees and other agents
of any other enterprise, rights of indemnification and to receive payment or
reimbursement of expenses, including attorneys' fees, that are similar to the
rights conferred in the bylaws of the Registrant on directors and officers of
the Registrant or any subsidiary or other enterprise. The bylaws do not limit
the power of the Registrant or its board of directors to provide other
indemnification and expense reimbursement rights to directors, officers,
employees, agents and other persons otherwise than pursuant to the bylaws. The
Registrant intends to enter into agreements with certain directors, officers
and employees are asked to serve in specified capacities at subsidiaries and
other entities.
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 (1) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (2) for acts or omissions not in
II-1
<PAGE>
good faith or which involve intentional misconduct or a knowing violation of
law, (3) for payments of unlawful dividends or unlawful stock repurchases or
redemptions, or (4) for any transaction from which the director derived an
improper personal benefit. The Registrant's amended and restated certificate
of incorporation provides for such limitation of liability.
Insurance policies are maintained by the Registrant under which its
directors and officers are insured, within the limits and subject to the
limitations of the policies, against certain expenses in connection with the
defense of, and certain liabilities which might be imposed as a result of
actions, suits or proceedings to which they are parties by reason of being or
having been such directors or officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of Key3Media Group, Inc.*
3.2 Form of Bylaws of Key3Media Group, Inc.*
4.1 Specimen of certificate representing Key3Media Group, Inc.'s common
stock, par value $0.01 per share.*
5.1 Opinion of Sullivan & Cromwell.*
Distribution Agreement, dated , 2000, between Ziff-Davis Inc. and
10.1 Key3Media Group, Inc.*
10.2 Key3Media 2000 Director Option Plan.*
10.3 Key3Media 2000 Employee Option Plan.*
Employment Agreement, dated March 1, 2000, between Ziff-Davis and Fredric
10.4 D. Rosin.*
10.5 Employment Agreement, dated , 2000, between Key3Media Group, Inc. and
Jason E. Chudnofsky.*
Employment Agreement, dated , 2000, between Key3Media Group, Inc. and
10.6 Peter B. Knepper.*
Employment Agreement, dated , 2000, between Key3Media Group, Inc. and
10.7 Ned S. Goldstein.*
Employment Agreement, dated , 2000, between Key3Media Group, Inc. and
10.8 Charles D. Forman.*
21.1 List of Subsidiaries of Key3Media Group, Inc.+
23.1 Consent of PricewaterhouseCoopers LLP.*
23.2 Consent of Sullivan & Cromwell.
23.3 Consent of Morgan Stanley Dean Witter.*
27.1 Financial Data Schedule.*
</TABLE>
- --------
*To be provided by amendment.
+Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
Condensed financial information of Key3Media Group, Inc. and report of
PricewaterhouseCoopers LLP thereon.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(a) 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 foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
II-2
<PAGE>
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
against the Registrant by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(b) (1) For purposes of determining any liability under the Securities
Act of 1933, 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 Securities Act
of 1933 shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement (No. 333-
36828) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, New York on the 23rd day of May, 2000.
Key3Media Group, Inc.
/s/ Peter B. Knepper
By: _________________________________
Name:Peter B. Knepper
Title:Executive Vice President
and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement (No. 333-36828) has been signed by the following
persons in the capacities indicated on the 23rd day of May, 2000.
Signature Title
<TABLE>
<S> <C>
/s/ Fredric D. Rosen Chairman of the Board
___________________________________________ and Chief Executive
Fredric D. Rosen Officer
/s/ Peter B. Knepper Executive Vice President
___________________________________________ and Chief Financial and
Peter B. Knepper Accounting Officer
</TABLE>
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to the Registration
Statement (File No. 333-36828) on Form S-1 of our report dated April 12, 2000,
except for Note 16 for which the date is April 13, 2000, relating to the
financial statements of ZD Events, which appear in such Registration Statement.
We also consent to the references to us under the headings "Experts" and
"Selected Historical Combined Financial Data" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
May 23, 2000
