<PAGE>
As filed with the Securities and Exchange Commission on August 10, 2000
Registration No. 333-36828
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 5
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
KEY3MEDIA GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 7389 95-4799962
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
5700 Wilshire Blvd., Suite 325
Los Angeles, CA 90036
(323) 954-3000
(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 325
Los Angeles, CA 90036
(323) 954-3000
(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. [_]
----------------
CALCULATION OF REGISTRATION FEE
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--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Aggregate Aggregate Amount of
Title of Each Class of Offering Price Offering Registration
Securities to be Registered Per Share(1) Price(1)(2) Fee
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, par value $0.01
per share................... $6.00 $390,000,000 $102,960(3)
</TABLE>
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--------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933 based on the
price at which shares will be sold in the Offering described herein.
(2) Based on the aggregate number of shares of Common Stock to be issued in
the Distribution and sold in the Offering.
(3) Of this amount, $100,584 was paid with prior filings.
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.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
LOGO
Key3Media Group, Inc.
65,000,000 SHARES
COMMON STOCK
We are a new company that Ziff-Davis Inc. formed to hold its portfolio of
tradeshow and other event businesses. Ziff-Davis is distributing all of our
outstanding shares to the holders of its Ziff-Davis common stock. At the same
time, we are offering and selling new shares of our common stock for cash at a
price per share of $6.00. This prospectus relates to both the distribution by
Ziff-Davis and the offering by us.
We will issue a total of 65.0 million of our shares in the distribution and
the offering. The number of our shares that Ziff-Davis will distribute in the
distribution will depend upon the number of shares of ZD common stock that are
outstanding at the close of business on August 14, 2000, the record date for
the distribution. The maximum number of our shares that Ziff-Davis will
distribute in the distribution will be 55.0 million and the minimum will be
53.5 million. In the offering we will sell the number of shares required so
that there will be 65.0 million shares outstanding immediately after the
distribution and the offering. Accordingly, the maximum number of shares that
we will sell in the offering will be 11.5 million and the minimum will be 10.0
million. For purposes of this prospectus, we have assumed that Ziff-Davis will
distribute 55.0 million of our shares in the distribution and that we will sell
10.0 million shares in the offering, although in each case the actual amounts
will be within the ranges specified above.
If you are a record holder of Ziff-Davis common stock at the close of
business on August 14, 2000, you will receive in the distribution one share of
our common stock for every two shares of Ziff-Davis common stock that you own.
We will sell all the shares in the offering directly to investors through
the sales efforts of some of our senior executives and we will receive all of
the proceeds. We will not pay any commissions, underwriting discounts or other
compensation in connection with the offering.
We currently intend to complete the distribution and the offering at 5:00
p.m., New York time, on August 18, 2000.
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. After the distribution and the offering, our
shares will trade on the New York Stock Exchange, subject to official notice of
issuance, under the symbol "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 August 10, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY............................. 1
SELECTED HISTORICAL COMBINED
FINANCIAL DATA..................... 7
SUMMARY UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA..................... 8
RISK FACTORS........................ 11
USE OF PROCEEDS..................... 16
DIVIDEND POLICIES................... 16
DILUTION............................ 17
THE DISTRIBUTION.................... 18
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE DISTRIBUTION... 20
RELATED PARTY TRANSACTIONS.......... 25
FINANCING........................... 27
COMBINED AND PRO FORMA COMBINED
CAPITALIZATION..................... 29
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS AND BALANCE
SHEET.............................. 30
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
AND BALANCE SHEET.................. 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 34
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
DESCRIPTION OF OUR BUSINESS.......... 42
OUR BOARD OF DIRECTORS AND EXECUTIVE
OFFICERS............................ 54
EXECUTIVE COMPENSATION............... 58
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS................... 68
BENEFICIAL OWNERSHIP OF MANAGEMENT... 69
DESCRIPTION OF OUR CAPITAL STOCK..... 70
ANTI-TAKEOVER PROVISIONS OF OUR
CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW.................... 72
LIMITATIONS ON LIABILITY AND
INDEMNIFICATION OF OFFICERS AND
DIRECTORS........................... 75
PLAN OF DISTRIBUTION................. 75
EXPERTS.............................. 76
VALIDITY OF THE COMMON STOCK......... 76
ADDITIONAL INFORMATION............... 76
REPORT OF INDEPENDENT ACCOUNTANTS.... F-1
HISTORICAL COMBINED FINANCIAL
STATEMENTS.......................... F-2
</TABLE>
"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.
<PAGE>
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 are a new company that Ziff-Davis formed to hold its portfolio of
tradeshow and other event businesses. 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.
Our leading COMDEX and NETWORLD+INTEROP events are the top two IT industry
tradeshows in the United States measured by revenue from exhibit space rentals.
We also produce customized events for specific IT vendors and segments of the
IT industry. At our events, we rent space to exhibitors and receive commissions
from third parties who provide services to our exhibitors. We also charge fees
for conferences and sell advertising and sponsorships. In 1999, our revenue was
$251.4 million, our net income was $26.0 million and our earnings before
interest, depreciation and amortization, or EBITDA, were $90.3 million. After
making the pro forma adjustments described in this prospectus, our net income
for 1999 would have been $4.5 million.
1
<PAGE>
The Distribution and the Offering
In the distribution, Ziff Davis will distribute all of our outstanding
shares to the holders of its Ziff-Davis common stock. In the offering, we will
offer and sell new shares of our common stock for cash at a price per share of
$6.00. The distribution and the offering will only occur if each is completed
and if we are able to complete the financing and make the payments to Ziff-
Davis described below.
The Distribution
Distributing Company........ Ziff-Davis Inc., a Delaware corporation.
Distributed Company......... Key3Media Group, Inc., a Delaware corporation.
Reasons for the
Distribution................ The distribution is part of a restructuring of
Ziff-Davis designed to transform it into a
company focused almost exclusively on the
Internet. Ziff-Davis currently conducts its
Internet businesses through its ZDNet division,
and its other businesses, including our
businesses, through its ZD division, and has two
different classes of common stock that are
designed to correspond to these two divisions:
ZDNet common stock and Ziff-Davis common stock.
In the restructuring, Ziff-Davis has disposed of
substantially all of the businesses in its ZD
division other than our businesses and will
dispose of our businesses through the
distribution.
Ziff-Davis' board of directors decided not to
sell our businesses because it was not satisfied
with the bids it received in an auction conducted
as part of the restructuring.
Before the distribution, Ziff-Davis will
discharge the remaining obligations of the ZD
division and, at the same time as the
distribution, Ziff-Davis will distribute most of
the ZD Division's remaining cash to the holders
of Ziff-Davis common stock.
Ziff-Davis recently announced that it signed a
merger agreement with CNET Networks, Inc. under
which CNET will acquire all of the outstanding
shares of Ziff-Davis common stock and ZDNet
common stock in exchange for shares of CNET
common stock.
Record Date................. The record date for the distribution is the close
of business, New York time, on August 14, 2000.
Distribution Date........... We currently expect that the distribution will
occur at 5:00 p.m., New York time, on August 18,
2000, although the actual distribution date could
be different.
Distribution Ratio.......... One of our shares for every two shares of Ziff-
Davis common stock outstanding on the record
date.
2
<PAGE>
No Fractional Shares........ We will not issue any fractional shares in the
distribution. Our distribution agent will combine
all fractional shares and sell the whole shares
resulting from this combination in the open
market. If you would otherwise be entitled to
receive a fractional share, you will receive a
check for your share of the net proceeds of this
sale after deducting the sale expenses.
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 August 8, 2000, there were approximately 107
million shares of Ziff-Davis common stock
outstanding and outstanding options to acquire
approximately three million shares of ZD common
stock. As a result, the maximum number of our
shares that Ziff-Davis will distribute in the
distribution will be 55.0 million and the minimum
will be 53.5 million. For purposes of this
prospectus, we have assumed that Ziff-Davis will
distribute 55.0 million of our shares in the
distribution, although the actual amount will be
within the range specified above.
Delivery of Shares.......... Ziff-Davis will distribute share certificates to
each record holder of Ziff-Davis common stock at
the close of business on the record date
representing the number of whole shares such
holder receives in the distribution. These
certificates will be mailed to you on or about
the distribution date, but 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 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 NYSE, subject to official
notice of issuance, under the symbol "KME".
Tax Consequences............ If you are a U.S. stockholder 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.
Ziff-Davis expects that it will have sufficient
current earnings and profits at the end of 2000
so that a substantial part of the distribution
will be a taxable dividend. The exact amount of
earnings and profits depends on a variety of
factors and cannot be determined until the end of
2000. 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
3
<PAGE>
remaining value of the Key3Media shares that you
receive. Ziff-Davis expects to report to U.S.
stockholders the portion of the distribution that
should be treated as a dividend in January 2001.
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, 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. In
order to comply with this withholding
requirement, Ziff-Davis plans to sell common
stock that would have otherwise been distributed
to you. For more information about the tax
consequences of the distribution or to determine
whether you are a U.S. stockholder, see "Federal
Income Tax Considerations".
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 allocate
taxes incurred before the distribution;
. Ziff-Davis will indemnify us against all
liabilities not related to our businesses;
and
. we will indemnify Ziff-Davis against all
liabilities related to our businesses.
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.
4
<PAGE>
The Offering
Number of Shares to be
Sold....................... We will issue as many shares in the offering as
are required so that there will be 65 million of
our shares outstanding immediately after the
distribution and the offering. Accordingly, the
exact number of shares that we will sell in the
offering will depend on the number of our shares
that Ziff-Davis actually distributes in the
distribution, which will not be determined until
August 14, 2000, the record date for the
distribution. The maximum number of shares that
we will sell in the offering will be 11.5 million
and the minimum will be 10.0 million. For
purposes of this prospectus, we have assumed that
we will sell 10.0 million shares in the offering,
although the actual amount will be within the
range specified above.
Price....................... The purchasers in the offering will pay $6.00 per
share in cash. The offering price was determined
solely by the board of directors of Ziff-Davis
based primarily on their valuation of our
businesses, the bids they received in the
unsuccessful auction of our businesses as part of
Ziff-Davis' restructuring and general advice they
received from external advisors.
We expect to receive aggregate proceeds from the
Total Proceeds.............. offering of approximately $69 million, although
the exact amount will depend upon the number of
shares we actually issue in the offering.
Plan of Distribution........ We will offer and sell shares of our common stock
directly to investors solely through the selling
efforts of some of our senior executives. The
investors may include members of our senior
management. We will not pay any commissions,
underwriting discounts or other compensation in
connection with the offering.
Use of Proceeds............. We will use a portion of the proceeds from the
offering to make the payments described below and
retain the balance for general corporate purposes
and acquisitions.
Dividends
Immediately prior to the distribution, we will pay a dividend to Ziff-Davis
of approximately $43 million from the proceeds of the offering and the
financings described below. Except for this dividend, 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 the debentures described
below.
Principal Stockholder
Affiliates of SOFTBANK Corp. will receive 65.0% of our shares in the
distribution. We refer to these affiliates together as "SOFTBANK". After the
offering, SOFTBANK will hold approximately 55.0% of our outstanding shares or
38.5% if all of our stock options and warrants were exercised.
Financing
Prior to the distribution, our wholly owned subsidiary, Key3Media Events,
Inc., will enter into a credit facility with a syndicate of banks. The credit
facility will consist of two term loan facilities and a revolving
5
<PAGE>
credit facility. Key3Media Events will borrow a total of $330 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 intend
to issue zero coupon senior debentures with an initial principal amount of $75
million. The purchasers of the debentures will also receive warrants to
purchase our shares at $6 per share. The aggregate number of our shares that
may be purchased upon exercise of the warrants initially will be 6.8 million
shares, but this will increase over time if the debentures remain outstanding
for more than two years, up to a maximum of 13.3 million shares. The credit
facility and the debentures will include customary affirmative and negative
covenants that will, among other things, limit our ability to pay dividends and
require that we and Key3Media Events satisfy financial tests, including maximum
ratios of debt to EBITDA and EBITDA to interest expense. Key3Media Events'
ability to borrow under the credit facility, and the purchasers' agreement to
purchase our debentures and warrants, are subject to customary closing
conditions, including the completion of the distribution, the offering and the
other borrowings and the absence of any material adverse change in our
business, assets, results of operations or financial condition. See
"Financing".
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.
6
<PAGE>
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, 1999 and March
31, 2000 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 (loss) per share has been calculated
using the 65,000,000 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 except
(in thousands except per share data) per share data)
<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 $ 18,968 $ 21,147
Operating expenses:
Cost of production..... 68,810 87,373 87,822 75,445 74,131 8,057 8,412
Selling, general &
administrative........ 46,489 73,496 87,283 76,760 88,588 17,870 20,861
Depreciation &
amortization.......... 24,305 32,886 35,619 41,180 38,132 11,095 9,192
---------- ---------- ---------- ---------- -------- ---------- --------
Operating income........ 66,850 77,411 65,530 75,750 50,560 (18,054) (17,318)
Interest income......... 932 1,992 1,841 2,816 487 108 90
Interest expense(2) .... (44,937) (48,367) (65,971) (45,860) (23,300) (5,811) (5,661)
Equity in income of
joint venture.......... -- 839 1,695 2,658 1,649 642 --
Gain on the sale of
joint venture
interest(3) ........... -- -- -- -- 13,746 -- --
Other, net.............. 24 16 (40) (28) (71) 1 70
---------- ---------- ---------- ---------- -------- ---------- --------
Income (loss) before
income taxes........... 22,869 31,891 3,055 35,336 43,071 (23,114) (22,819)
---------- ---------- ---------- ---------- -------- ---------- --------
Provision (benefit) for
income taxes........... 11,924 13,841 5,406 16,080 17,082 (9,167) (9,059)
---------- ---------- ---------- ---------- -------- ---------- --------
Net income (loss)....... $ 10,945 $ 18,050 $ (2,351) $ 19,256 $ 25,989 $ (13,947) $(13,760)
========== ========== ========== ========== ======== ========== ========
Unaudited pro forma
basic net income (loss)
per common share....... $0.41 $(0.21)
Unaudited pro forma
diluted net income
(loss) per common
share.................. $0.29 $(0.21)
Shares used in computing
pro forma basic net
income (loss) per
common share........... 65,000 65,000
Shares used in computing
pro forma diluted net
income (loss) per
common share........... 92,849 92,849
Other Data:
EBITDA(4).............. $ 91,179 $ 111,152 $ 102,804 $ 119,560 $ 90,270 $ (6,316) $ (8,056)
Combined Statement of Cash Flows
Data:
Net cash provided by
operating activities... $ 26,168 $ 19,614 $ 27,057 $ 81,559 $ 87,812 $ 15,338 $ 3,979
Net cash used in
investing activities... (817,887) (22,527) (9,378) (11,663) (5,150) (1,126) (481)
Net cash provided by
(used in) financing
activities............. 815,408 (6,526) (20,115) (75,635) (86,526) (4,615) 7,945
Combined Balance Sheet
Data: (at period end)
Cash and cash
equivalents............ $ 27,908 $ 18,469 $ 16,285 $ 10,385 $ 5,570 $ 19,429 $ 17,206
Property and equipment,
net.................... 7,308 11,789 15,394 11,488 10,028 10,391 9,152
Intangible assets....... 992,046 962,387 934,835 907,048 875,526 898,176 867,690
Total assets............ 1,090,981 1,143,522 1,039,506 1,014,526 978,345 1,013,282 987,966
Total long-term debt
(including current
portion)............... 575,450 875,450 852,239 382,002 382,002 382,002 382,002
Total shareholders'
equity................. $ 397,881 $ 117,511 $ 47,921 $ 452,916 $396,392 $ 437,566 $383,302
</TABLE>
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(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 debts payable to Ziff-Davis and SOFTBANK.
(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.
7
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary pro forma and pro forma, as adjusted,
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 and pro
forma, as adjusted, 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;
. Key3Media Events' borrowing of $330 million under our credit facility;
. our issuance and sale of $75 million initial principal amount of our
debentures and warrants;
. Key3Media Events' repayment of its existing indebtedness of $382 million
and our payment of a $43 million dividend to Ziff-Davis; and
. our issuance of 21,049,233 stock options under the Key3Media 2000 Stock
Option and Incentive Plan.
The distribution and the offering will only occur if each is completed and
if we are able to complete the financing and make the payments to Ziff-Davis
described in this prospectus.
In the opinion of our management, these are all of the adjustments necessary
to fairly present this pro forma and pro forma, as adjusted, 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. Unaudited pro forma,
as adjusted basic net income (loss) per share has been calculated using the
65,000,000 shares that will be outstanding at the completion of the
distribution and offering and the 92,849,000 shares that will be outstanding on
a fully diluted basis. See "Unaudited Pro Forma Combined Statements of
Operations and Balance Sheet" for additional detail.
<TABLE>
<CAPTION>
December 31, 1999 March 31, 2000
-------------------------------- --------------------------------
Pro Forma Pro Forma
Actual Pro Forma as adjusted Actual Pro Forma as adjusted
-------- --------- ----------- -------- --------- -----------
(in thousands except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Combined Statement of
Operations Data: (1)
Total net revenue....... $251,411 $251,411 $251,411 $ 21,147 $ 21,147 $ 21,147
Operating income........ 50,560 47,344 47,344 (17,318) (18,122) (18,122)
Income before income
taxes.................. 43,071 7,491 7,491 (22,819) (31,879) (31,879)
Net income.............. 25,989 4,517 4,517 (13,760) (19,223) (19,223)
Unaudited pro forma, as
adjusted basic net
income (loss) per
common share........... -- -- $ 0.07 -- -- $ (0.30)
Unaudited pro forma, as
adjusted diluted net
income (loss) per
common share........... -- -- $ 0.05 -- -- $ (0.30)
Combined Statement of
Cash Flows Data: (2)
Net cash provided by
operating activities... $ 87,812 $ 77,024 $ 77,024 $ 3,979 $ 1,118 $ 1,118
Net cash used in
investing activities... (5,150) (5,150) (5,150) (481) (481) (481)
Net cash provided by
(used in) financing
activities............. (86,526) (115,354) (46,354) 7,945 (20,883) 39,117
Other Data:
EBITDA (3).............. $ 90,270 $ 87,054 $ 87,054 $ (8,056) $ (8,860) $ (8,860)
Combined Balance Sheet
Data: (4)
Cash and cash
equivalents............ $ 17,206 $(14,483) $ 45,517
Property and equipment,
net.................... 9,152 9,152 9,152
Intangible assets....... 867,690 877,481 877,481
Total assets............ 987,966 966,068 1,026,068
Total long-term debt
(including current
portion)............... 382,002 390,484 390,484
Division equity......... 383,302 352,145 412,145
Total liabilities and
division equity........ $987,966 $966,068 $1,026,068
</TABLE>
(Notes following)
8
<PAGE>
--------
(1) The unaudited pro forma combined statement of operations data give effect
to the following items, as if they had been in effect on the first day of
the period presented and do not purport to represent our results of
operations for any future period:
. interest expense of $34,088 for December 31, 1999 and of $8,522 for the
three months ended March 31, 2000 associated with the borrowing of $330
million under Key3Media Events' credit facility and interest expense of
$17,495 for December 31, 1999 and of $4,374 for the three months ended
March 31, 2000 associated with our issuance and sale of $75 million in
debentures and warrants. Interest expense calculated at a rate of 10.33%
for the $330 million under Key3Media Events' credit facility and a
stated rate of 12% for the $75 million debentures produced an increase
in interest expense of $28,283 for December 31, 1999 and $7,235 for the
three month period ended March 31, 2000 which is offset by a reduction
in interest expense of $23,300 for December 31, 1999 and $5,661 for the
three month period ended March 31, 2000 recorded in our historical
combined statement of operations for Key3Media Events' existing
indebtedness to Ziff-Davis;
. amortization expense resulting from the issuance costs incurred as a
result of borrowing $330 million under Key3Media Events' credit facility
and our issuance of $75 million in debentures and warrants; the issuance
costs which are estimated to be approximately $10,328; and the value
ascribed to the warrants of $15,000;
. 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 $14,108 for December 31, 1999 and
$3,597 for the three months ended March 31, 2000 associated with the pro
forma adjustments; and
. the compensation expense of $3,216 for December 31, 1999 and $804 for
the three months ended March 31, 2000 resulting from the issuance of
stock options under the Key3Media 2000 Stock Option and Incentive Plan
with a strike price of $5.00.
(2) The unaudited pro forma and pro forma, as adjusted combined statement of
cash flow data give effect to the following items, as if they had been in
effect since the first day of the period presented 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 net of a related tax benefit;
. a decrease in the net cash used in financing activities as a result of
the proceeds of $60 million raised in the offering based on 10.0 million
shares of our common stock at $6.00 per share; and
(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 and pro forma, as adjusted 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 $330 million under
Key3Media Events' credit facility;
. the proceeds associated with our issuance and sale of $75 million in
debentures and warrants;
9
<PAGE>
. the proceeds associated with the offering of 10.0 million of shares of
our common stock at $6.00 per share;
. the use of proceeds to repay $382 million of Key3Media Events' existing
indebtedness and to pay a dividend of approximately $43 million to Ziff-
Davis; and
. the deferred compensation expense associated with the issuance of
21,049,233 stock options under the Key3Media 2000 Stock Option and
Incentive Plan.
--------
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
Our shares have no trading history and the market prices for our shares may
fluctuate significantly unless and until an orderly trading market develops
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.
Significant sales of our shares by SOFTBANK and the possibility that they
may occur may adversely affect the market prices for 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 sell 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 depend significantly upon a few important tradeshows which have
recently experienced adverse trends
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. In
recent years, these events have experienced a decline in exhibit space
rentals, exhibitors and attendees. At COMDEX, we believe these declines are
attributable primarily to consolidation in the IT industry, adverse economic
conditions in Asia, the commoditization of personal computers and the shift
away from personal computing to the Internet, networks and wireless
communications. COMDEX traditionally highlighted the personal computer sector
of the IT industry. See "--Exhibitor participation and attendance have
recently declined at most of our events and if these trends continue it will
adversely affect our revenue and results of operations" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
11
<PAGE>
Exhibitor participation and attendance have recently declined at most of
our events and if these trends continue it will adversely affect our
revenue and results of operations
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.
The seasonality of our revenue may adversely affect the market prices for
our shares
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 have never operated as an independent company and if we have
difficulties doing so our results of operations could be adversely affected
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 not be indicative of
our future results of operations or financial condition
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>
Key3Media Events' credit facility, our debentures and other indebtedness
may restrict certain activities and adversely affect our financial
condition
Before the distribution, Key3Media Events will borrow approximately $330
million under a credit facility and we expect to issue debentures with an
initial principal amount of $75 million. See "Financing". We may also incur
additional indebtedness from time to time for general corporate purposes,
including working capital requirements, capital expenditures and future
acquisitions.
The terms and amount of our and Key3Media Events' indebtedness could:
. increase our vulnerability to general adverse economic conditions or
difficulties that may arise in our business;
. require a substantial portion of our cash flow from operations and
reduce the funds that we have available for working capital, capital
expenditures and other 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;
. 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; and
. if we cannot service our debt, we may be forced to reduce our capital
expenditures, sell assets, restructure or refinance our indebtedness or
seek 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, financial condition and cash flows.
If we cannot retain key personnel it may adversely affect our results of
operations
Our success depends to a significant extent on the continued service of key
management personnel including Fredric D. Rosen and Jason E. Chudnofsky. Under
our contract with Mr. Chudnofsky, he has the contractual right to terminate
his employment effective at any time between December 1, 2000 and March 31,
2001 upon 90 days' written notice 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.
If our licenses to use "NETWORLD" or "JavaOne" terminate and are not
renewed it may adversely affect our results of operations
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.
The IT events industry is highly competitive and we may lose exhibitors,
attendees and advertising and sponsorship revenue to our competitors, which
would adversely affect our results of operations
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
13
<PAGE>
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
key 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.
Because it will own a majority of our outstanding shares, SOFTBANK will be
able to control the outcome of any stockholder vote and this could
adversely affect the market prices for our shares
After the completion of the distribution and offering, SOFTBANK will own
approximately 55.0% 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's ability to control the outcome of stockholders vote could adversely
affect the market prices for our shares.
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.
We may acquire other event businesses and these could present difficulties
that could adversely affect our results of operations, financial condition
and the market prices for our shares
We may 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;
14
<PAGE>
. 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.
Some or all of the foregoing could adversely affect our results of operations,
financial condition, cash flows and/or the market prices for our shares.
We may expand into new businesses in which we have no experience and our
inexperience may adversely affect our results of operations
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 by-laws may
discourage takeovers and this may depress the market prices for our shares
Our certificate of incorporation and by-laws 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 by-laws:
. 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;
. permit a special stockholders' meeting to be called only by a majority
of the board of directors;
. do not permit stockholders to take action by written consent;
. 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 to
amend the provisions described above.
Our certificate of incorporation and by-laws permit the removal of directors
for cause, the calling of special meetings by stockholders and stockholder
action by written consent at any time during which SOFTBANK and our directors
and executive officers together hold shares that entitle them to cast votes
representing more than 50% of the total voting power in the election of
directors generally.
In addition to the provisions described above, 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 by-laws 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.
15
<PAGE>
USE OF PROCEEDS
We expect to receive total net proceeds from the offering of $60.0 million,
although the exact amount will depend upon the number of shares we actually
issue in the offering. There will be no underwriting discounts or commissions.
We will use a portion of the proceeds from the offering to make the
contribution to Key3Media Events and to pay the dividend to Ziff-Davis
described in the next paragraph. We will retain the balance of the proceeds for
general corporate purposes and acquisitions.
In addition to the approximately $60.0 million of aggregate net proceeds
from the offering, we will receive aggregate net proceeds from the sale of our
debentures and warrants of $72.9 million. We will contribute all but $47.5
million of the combined aggregate net proceeds from these transactions to
Key3Media Events, who will use the funds and the $323.2 million of aggregate
net proceeds it receives from its term loan borrowings under the credit
facility to repay its current borrowings of $150.0 million from external
lenders and $232.0 million from Ziff-Davis. From the $47.5 million we retain,
we will pay a cash dividend to Ziff-Davis of $43.0 million.
DIVIDEND POLICIES
Except for the $43.0 million cash dividend that we will 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 the debentures we will issue.
16
<PAGE>
DILUTION
Our net tangible book value as of March 31, 2000 was approximately $(484.4)
million or $(8.81) per share, based on the assumption that there were 110
million shares of Ziff-Davis common stock outstanding on the record date which
would result in the distribution of 55.0 million shares of our common stock if
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 55.0 million shares of our common stock to be issued in the distribution
(based on the foregoing assumptions). Assuming we had sold 10.0 million shares
of common stock in the offering at an assumed offering price of $ 6.00 per
share, and after deducting and paying an estimated dividend of $43 million to
Ziff-Davis, our pro forma net tangible book value at March 31, 2000 would have
been approximately $(467.4) million, or $(7.19) per share. This represents a
book value per share immediate dilution of $13.19 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.................................. $ 6.00
Net tangible book value as of March 31, 2000................. $(8.81)
Increase in pro forma net tangible book value attributable to
new investors, after payment of dividend to Ziff-Davis...... 1.62
------
Pro forma net tangible book value after the offering........... (7.19)
------
Dilution to new investors...................................... $13.19
======
</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 $6.00 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>
Existing stockholders............. 55,000 84.6 $345,525 85.2 $6.28
New investors..................... 10,000 15.4 60,000 14.8 $6.00
------ ----- -------- -----
Total........................... 65,000 100.0% $405,525 100.0%
====== ===== ======== =====
</TABLE>
17
<PAGE>
THE DISTRIBUTION
The Restructuring of Ziff-Davis
The distribution was planned as a part of a restructuring that would
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 currently conducts its
Internet businesses through its ZDNet division and conducted all of its other
businesses, including our businesses, in its ZD division. Ziff-Davis has two
classes of common stock that are designed to relate to its two divisions: ZDNet
common stock and Ziff-Davis common stock. Each of these classes 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 has disposed of substantially all of the
businesses included in the ZD division other than our businesses. Most of these
assets have been sold to third parties for cash, but a few have been 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.
In addition to the approximately $60.0 million of aggregate net proceeds
from the offering, we will receive aggregate net proceeds from the sale of our
debentures and warrants of $72.9 million. We will contribute all but $47.5
million of the combined aggregate net proceeds from these transactions to
Key3Media Events, who will use the funds and the $323.2 million of aggregate
net proceeds it receives from its term loan borrowings under the credit
facility to repay its current borrowings of $150.0 million from external
lenders and $232.0 million from Ziff-Davis. From the $47.5 million we retain,
we will pay a cash dividend to Ziff-Davis of $43.0 million.
Ziff-Davis will use the cash it receives from us to fund a cash dividend to
the holders of Ziff-Davis common stock of $2.50 per share. The cash dividend
will be paid on August 18, 2000 to holders of record on August 14, 2000.
On July 19, 2000 CNET Networks, Inc. and ZDNet announced that they had
signed a definitive merger agreement under which CNET will acquire all of the
outstanding Ziff-Davis common stock and ZDNet common stock. Under the terms of
the merger agreement, each share of Ziff-Davis common stock will be converted
into 0.3397 shares of CNET common stock and each share of ZDNet common stock
will be converted into 0.5932 shares of CNET common stock. CNET expects to
issue approximately 50 million shares of its common stock in the transaction,
valued at approximately $1.4 billion based on the closing price of CNET common
stock on August 2, 2000. As a result, holders of Ziff-Davis stock will hold
approximately 35% of the combined equity.
The transaction is subject to customary terms and conditions, including the
approval of the shareholders of both companies and termination of the waiting
period under the Hart-Scott-Rodino Act. SOFTBANK has agreed to vote its shares
in favor of the transaction. Members of CNET's management representing
approximately 20% of CNET's stock have also agreed to vote for the merger. The
parties expect the transaction to close in the fourth quarter of 2000.
Background of the Distribution
As part of the restructuring, Ziff-Davis attempted to sell all of the
businesses in its ZD division through several auctions conducted by Morgan
Stanley Dean Witter, its financial advisor. Although it received a number of
bids and engaged in significant negotiations in an auction that was conducted
for our businesses, the board of directors of Ziff-Davis ultimately concluded
that the prices and contractual terms offered by the bidders were
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not sufficient to justify a sale. While it never reached agreement with a
bidder on price and the terms of the various proposals all contained a number
of purchase price adjustments that made it difficult to ascertain the final
price, the board of directors believes the highest potentially viable bid that
it received valued our company as of February 2000 without any debt and with
minimal working capital at around $640 million. However, this bid was received
in February 2000 and there were a number of issues besides price on which no
agreement was reached with the bidder, including the extent of contractual
recourse to Ziff-Davis after the completion of the sale. Ziff-Davis sought to
limit this recourse significantly because it is winding up its ZD division.
In light of the circumstances, the board of directors of Ziff-Davis
concluded that 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 this decision, the board of directors
considered, among other things, the matters described above and the advice of
Morgan Stanley Dean Witter and other financial advisors.
Manner of Effecting the Distribution
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 on the record date. Based upon
the approximately 110 million shares on a fully diluted basis of Ziff-Davis
common stock outstanding on August 8, 2000, 55.0 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 Stock Option and Incentive
Plan and granted stock options to our directors and employees. See "Executive
Compensation--Compensation and Benefit Plans". We will also issue warrants to
the purchasers of our debentures. See "Financing".
Shortly after the distribution date, Ziff-Davis will deliver share
certificates to each record holder of Ziff-Davis common stock representing the
number of whole shares issued to it in the distribution.
In order to receive our shares in the distribution, you must be a record
holder of Ziff-Davis common stock on August 14, 2000. 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 will be
issued in the name of 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 and other sale expenses. These sales are expected to be made as
soon as practicable after the mailing of share certificates 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.
Listing and Trading
Our common stock will trade on the NYSE, subject to official notice of
issuance, under the symbol "KME". We do not expect a "when-issued" trading
market to develop before the distribution date because the distribution will be
conditioned upon our receipt of the proceeds from the financing described in
this prospectus. Instead, under the normal NYSE trading practices, we expect
that Ziff-Davis common stock will begin to trade with due-bills beginning on
August 10, 2000 and that this will continue through and including the first day
on which our shares trade on the NYSE, which we currently expect to be August
21, 2000. These
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due-bills will entitle the holder to receive the cash dividend and our shares
in the distribution, and they will become payable on the fourth trading day of
our shares on the NYSE. As a result of the due-bills, if you own Ziff-Davis
common stock you will only be able to trade those shares during the period from
and including August 10, 2000 through and including the first trading day for
our shares together with your related right to receive the cash dividend and
our shares in the distribution. However, if you own Ziff-Davis common stock on
the first trading day for our shares, you may trade our shares separately on
and after that trading day.
As a result of the distribution, the trading price of Ziff-Davis common
stock immediately following the first trading day for our shares on the NYSE
distribution will likely be lower than the closing price of Ziff-Davis common
stock on that first trading day. The combined trading prices of Ziff-Davis
common stock and our common stock after the first trading day for our shares on
the NYSE may be less than, equal to or greater than the closing price of Ziff-
Davis common stock on that first trading day and may fluctuate significantly.
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 some 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 and the offering will beneficially own
approximately 70.2% 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 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" until
the merger with CNET described above.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The following is a discussion of the material United States federal income
tax consequences regarding the distribution. This discussion 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 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;
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. 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 Ziff-Davis'
2000 tax year. Although Ziff-Davis does not expect that it will have any
accumulated earnings and profits at the end of its 2000 tax year, Ziff-Davis
expects that it will have sufficient current earnings and profits so that a
substantial part of the distribution will be a taxable dividend. The exact
amount of Ziff-Davis' earnings and profits depends upon a variety of factors
and cannot be determined until the end of its 2000 tax year. 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.
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 or W-8ECI 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 or W-8BEN 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
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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. Our board of directors does not presently intend to declare
any other distribution on our common stock. But if we do make another
distribution on our common stock, it will be treated as a dividend 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. Our board of directors does not presently intend to declare
any other distributions on our common stock. But if we do make additional
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 4224 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 4224 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.
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.
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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.
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
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. 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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RELATED PARTY TRANSACTIONS
Distribution Agreement
We, Key3Media Events and Ziff-Davis will enter into a distribution agreement
which will provide for the principal corporate transactions required to effect
the distribution and indemnities for liabilities relating to our respective
businesses. The following summary addresses all of the material provisions of
the distribution agreement but is qualified in its entirety by the complete
text of the distribution agreement which is attached as an exhibit to our
registration statement.
Pursuant to the distribution agreement, Ziff-Davis will transfer to
Key3Media Events all of the subsidiaries through which it conducts it tradeshow
and other event businesses and in exchange we will issue to Ziff-Davis the
shares to be distributed in the distribution. Ziff-Davis will deliver these
shares to the distribution agent. The distribution agreement will also provide
that, on or before the distribution date:
. Key3Media Events will borrow $330 million under a credit facility;
. we will issue and sell $75 million initial principal amount of
debentures and warrants;
. Key3Media Events will repay its existing external borrowings of $150
million and the $232 million it owes to Ziff-Davis; and
. we will pay a dividend of approximately $43 million to Ziff-Davis.
Under the distribution agreement, we will indemnify Ziff-Davis against
third-party claims to the extent they arise out of or result from:
. our businesses;
. pending litigation against us;
. a breach of the distribution agreement; or
. any misstatements in or omissions from the registration statement that
relate to us or our subsidiaries, the offering, the debentures, the
warrants or Key3Media Events' borrowings under the credit facility.
Under the distribution agreement, Ziff-Davis will indemnify us against
third-party claims to the extent they arise out of or result from:
. any of Ziff-Davis' businesses other than our businesses;
. the class actions and derivative suits described in Note 13 to our
historical combined financial statements or any shareholder derivative
suits that relate to or arise out of the distribution or restructuring;
. any failure of the ZD Retirement & Savings Plan to be fully funded as of
the distribution date;
. any breach of the distribution agreement;
. any misstatements in or omissions from the registration statement that
relate to Ziff-Davis or its subsidiaries (other than us or our
subsidiaries) or the distribution; or
. the distribution.
The distribution agreement will also include an allocation of taxes and
related cross-indemnities.
Agreement to Produce our Japanese Events
SOFTBANK Forums KK, a subsidiary of SOFTBANK Corp., owns our events in
Japan, including among others COMDEX/Japan and N+I Japan. In particular,
SOFTBANK Forums owns the profit or loss from our Japanese events and all venue
leases and contractual rights against third parties associated with our
Japanese events.
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We provide technical assistance and accounting and administrative services
to SOFTBANK Forums and we have licensed it to use our trademarks in Japan. We
negotiate a fee for our technical assistance each year depending on the level
of services we have provided. For our accounting and administrative services,
we receive a fee equal to 25% of all of the money that we collect in the United
States on behalf of SOFTBANK Forums. SOFTBANK Forums also pays us a royalty of
10% of gross revenues from our events in Japan. All of the royalty and service
fees that we receive from SOFTBANK Forums are capped at the lesser of 20% of
gross margins and 5% of gross revenues.
Affiliated Company Notes
As of January 1, 1999, we owed Ziff-Davis $382 million. Interest is payable
on this debt at 6% per annum. On April 13, 2000 we borrowed $150 million from
two commercial banks and used the proceeds from this borrowing to reduce our
debt to Ziff-Davis to its current level of $232 million. Ziff-Davis agreed to
pay all expenses relating to this borrowing, including commitment fees, legal
and other fees and interest.
Ziff-Davis Administrative Services
In the past, Ziff-Davis provided us with various administrative services.
After the distribution, we will have to provide these services ourselves. For
historical information about these services, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Operating Costs--
Selling, General and Administrative Expenses".
Registration Rights Agreement
We have granted to SOFTBANK and its affiliates customary registration rights
with respect to the shares they will receive in the distribution.
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FINANCING
Credit Facility
Prior to the distribution, Key3Media Events 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
Key3Media Events enters 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 $255 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. Key3Media Events will borrow $330 million under the term loan
facilities on or before this distribution date.
The revolving credit facility will commit the banks to lend up to $50
million to Key3Media Events for general corporate purposes. Key3Media Events
may borrow, repay and re-borrow under the revolving loan facility until the
fifth anniversary of the date on which Key3Media Events enters into the credit
facility at which time Key3Media Events must repay any amounts outstanding
under the revolving credit facility. Key3Media Events will not borrow any money
under the revolving credit facility on or before the distribution date.
At Key3Media Events' 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 Citibank, N.A.'s base rate or (2) the London interbank offered rate, or
LIBOR. The margin Key3Media Events pay will vary between 0.75% and 3.75%
depending on (a) what Key3Media Events chooses as our base rate and (b) the
ratio of our total debt to EBITDA.
The credit facility provides that Key3Media Events may prepay the loans at
its 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, Key3Media Events may be required to prepay the loans
under the credit facility based upon net cash proceeds of asset sales outside
the ordinary course of its business, the net cash proceeds of additional debt
and a portion of its 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 and an interest
coverage test. We presently expect Key3Media Events to be able to comply with
these covenants. The credit facility also imposes 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 Key3Media Events' wholly owned subsidiaries
and will be secured by substantially all of Key3Media Events' and their assets,
including accounts receivable and fixed assets, in each case subject to some
exceptions.
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.
Zero Coupon Senior Debentures
Prior to the distribution, we will issue zero coupon senior debentures with
an initial principal amount of $75 million. The purchasers will pay $72,937,500
for the debentures and the warrants described below. The principal amount of
the debentures will accrete at a rate of 12% per year, compounded quarterly,
for the first five years and 15% per year, compounded quarterly, after that. If
our consolidated ratio of debt to EBITDA in the previous four quarters is
higher than 4.50:1.00, the accretion rate will increase by 1.25% until the
ratio falls below 4.50:1.00 for the previous four quarters. The debentures will
mature seven years and nine months after they are issued.
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We can redeem the debentures at any time before the first anniversary of the
issuance of the debentures at 112% of the initial principal amount. On or after
the first but before the fifth anniversary of the issuance, we can redeem the
debentures at 100% of their accreted principal amount. On or after the fifth
anniversary, we cannot redeem the debentures.
If a change of control occurs as defined in the debentures, the purchasers
of the debentures have the right to sell them back to us at the redemption
prices described above.
The debentures impose restrictions on the issuance of equity, incurrence of
debt, payment of dividends, creation of liens, sales of assets, mergers and
consolidations and other matters. The debentures will also contain standard
events of default including, but not limited to:
. defaults in the payment of principal, premium or interest,
. defaults in the compliance with covenants contained in the debentures,
. cross defaults on other indebtedness,
. failure to pay judgments that have not been stayed by appeal or
otherwise; and
. certain bankruptcy events.
The original purchasers of the debentures will also have the right to
appoint one of our directors so long as any of them or their affiliates owns
any of the debentures.
Warrants
The purchasers of our debentures will receive warrants to purchase 6.8
million shares of our common stock at $6.00 per share subject to customary
anti-dilution rights. Cashless exercise is permitted and the warrants will
expire seven years after they are issued, except that if the number of shares
that may be purchased upon exercise of the warrants increases on any
anniversary of the issue date, then the warrants will expire as to those
additional shares seven years after that anniversary.
If the debentures are redeemed within 22 months after they are issued, the
number of shares that must be issued upon exercise of the warrants will
decrease by 523,000. If the debentures are still outstanding on those
anniversaries, the number of shares that must be issued upon exercise of the
warrants will increase by 1.5 million on the second and third anniversaries of
the issuance of the debentures and by 1.75 million on the fourth and fifth
anniversaries.
The warrant holders may require that we register for public sale our common
stock issuable upon exercise of the warrants but cannot require that we
register more than once in any six-month period. In addition, if we otherwise
choose to register our common stock, the warrant holders can require that we
include in the registration statement any common stock issuable upon exercise
of the warrants. Except for underwriting discounts and commissions, we will
bear all expenses related to these registrations.
Conditions Precedent
We will issue as many shares in the offering as are required so that there
will be 65 million of our shares outstanding immediately after the distribution
and the offering. We currently expect to issue approximately 11.5 million of
our shares in the offering. In this prospectus, we have assumed this number of
shares will be issued in the offering.
28
<PAGE>
COMBINED AND PRO FORMA COMBINED CAPITALIZATION
The following table shows our combined cash, short-term debt and
capitalization and pro forma and pro forma, as adjusted 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 and
pro forma, as adjusted combined balance sheet, and the introduction to the
unaudited pro forma and pro forma, as adjusted combined financial statements
appearing elsewhere in this prospectus. For a summary of the assumptions we
made to produce our pro forma and pro forma, as adjusted financial statements,
see "Unaudited Pro Forma Combined Statement of Operations and Balance Sheet".
Our pro forma and pro forma, as adjusted information may not be indicative of
our cash, short-term debt and capitalization in the future.
<TABLE>
<CAPTION>
March 31, 2000
--------------------------------
Pro Forma
Actual Pro Forma as adjusted
-------- --------- -----------
(in thousands)
(unaudited)
<S> <C> <C> <C>
Cash and cash equivalents...................... $ 17,206 $(14,483) $45,517
Current portion of long-term debt.............. -- 10,050 10,050
Long-term debt, less current portion........... 382,002 380,434 380,434
Stockholders' equity
Division equity.............................. 328,777 -- --
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 55,000 pro forma,
65,000 pro forma, as adjusted shares........ -- 550 650
Non-voting common stock value $0.01;
authorized 200,000,000 shares; issued none.. -- -- --
Additional paid-in-capital................... -- 355,876 424,761
Retained earnings............................ 59,486 11,841 11,841
Deferred compensation........................ (851) (11,997) (11,997)
Accumulated comprehensive income (loss)...... (4,110) (4,110) (4,110)
Total shareholder equity................... 383,302 352,145 412,145
Total capitalization....................... $765,304 $742,629 $802,629
</TABLE>
29
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND BALANCE SHEET
We have prepared our pro forma and pro forma, as adjusted 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;
. Key3Media Events' borrowing of $330 million under its credit facility;
. our issuance and sale of $75 million initial principal amount of our
debentures and warrants;
. Key3Media Events' repayment of its existing indebtedness of $282 million
and our payment of a $43 million dividend to Ziff-Davis; and
. our issuance of 21,049,233 stock options under the Key3Media 2000 Stock
Option and Incentive Plan.
The distribution and the offering will only occur if each is completed and
if we are able to complete the financing and make the payments to Ziff-Davis
described in this prospectus.
This unaudited pro forma and pro forma, as adjusted 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 and pro forma, as adjusted 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.
30
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------------------------------------
Unaudited
Unaudited Pro Forma, Unaudited
Pro Forma Unaudited As Adjusted Pro Forma,
Historical Adjustments Pro Forma Adjustments As Adjusted
---------- ----------- --------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Unaudited Pro Forma, As
Adjusted Combined
Statement of Operations
Net revenues............ $251,411 $251,411 $251,411
Operating expenses...... 200,851 -- (d) 204,067 204,067
3,216 (i)
-------- -------- --------
Operating income........ 50,560 47,344 47,344
Other income (expense):
Interest expense...... (23,300) (32,364)(a),(b) (55,664) (55,664)
Interest income....... 487 487 487
Gain on sale of joint
venture.............. 13,746 13,746 13,746
Equity in income of
joint venture........ 1,649 1,649 1,649
Other, net............ (71) (71) (71)
-------- -------- --------
(7,489) (39,853) (39,853)
Income before taxes..... 43,071 7,491 7,491
Provision for income
taxes.................. 17,082 (14,108)(c) 2,974 2,974
-------- -------- --------
Net income.............. $ 25,989 $ 4,517 $ 4,517
======== ======== ========
Unaudited pro forma, as
adjusted, basic net
income (loss) per
common share (e)....... $ 0.07
Unaudited pro forma, as
adjusted diluted net
income (loss) per
common share (e)....... $ 0.05
Shares used in computing
pro forma, as adjusted
basic net income (loss)
per common share (e)... 65,000
Shares used in computing
pro forma, as adjusted
diluted net income
(loss) per common share
(e).................... 92,849
</TABLE>
(notes following)
31
<PAGE>
<TABLE>
<CAPTION>
March 31, 2000
------------------------------------------------------------------
Unaudited
Unaudited Pro Forma Unaudited
Unaudited Pro Forma Unaudited As Adjusted Pro Forma
Historical Adjustments Pro Forma Adjustments As Adjusted
---------- ----------- --------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Unaudited Pro Forma, As
Adjusted Combined
Statement of Operations
Net revenues............ $ 21,147 $ 21,147 $ 21,147
Operating expenses...... 38,465 -- (d) 39,269 39,269
804 (i)
-------- -------- ----------
Operating income
(loss)................. (17,318) (18,122) (18,122)
Other income (expense):
Interest expense...... (5,661) (8,256)(a),(b) (13,917) (13,917)
Interest income....... 90 90 90
Gain on sale of joint
venture.............. -- -- --
Equity in income of
joint venture........ -- -- --
Other, net............ 70 70 70
-------- -------- ----------
(5,501) (13,757) (13,757)
Income (loss) before
taxes.................. (22,819) (31,879) (31,879)
Benefit for income
taxes.................. (9,059) (3,597)(c) (12,656) (12,656)
======== ======== ==========
Net income (loss)....... $(13,760) $(19,223) $ (19,223)
======== ======== ==========
Unaudited pro forma, as
adjusted basic net
income (loss) per
common share (e)....... $(0.30)
Unaudited pro forma, as
adjusted diluted net
income (loss) per
common share (e)....... $(0.30)
Shares used in computing
pro forma, as adjusted
basic net income (loss)
per common share (e)... 65,000
Shares used in computing
pro forma, as adjusted
diluted net income
(loss) per common
share (e).............. 92,300
Unaudited Pro Forma, As
Adjusted Combined
Balance Sheet
Cash and cash $ 17,206 $ (2,861)(a) $(14,483) $60,000(g) $ 45,517
equivalents............ 396,172 (f)
(425,000)(h)
Other current assets.... 93,782 93,782 93,782
-------- -------- ----------
Total current assets.... 110,988 79,299 139,299
Property and equipment,
net.................... 9,152 9,152 9,152
Intangible assets, net.. 867,690 (537)(b) 877,481 877,481
8,828 (f)
1,500 (j)
Other long-term assets.. 136 136 136
-------- -------- ----------
Total assets............ $987,966 $966,068 $1,026,068
======== ======== ==========
Current liabilities..... 162,181 162,181 162,181
Current portion of long-
term debt.............. -- 10,050 (f) 10,050 10,050
-------- -------- ----------
Total current
liabilities............ 162,181 172,231 172,231
Long-term debt.......... -- 484 (b) 380,434 380,434
379,950 (f)
Note payable to
affiliate.............. 382,002 (382,002)(h) -- --
Other long-term
liabilities............ 60,481 4,374 (a) 61,258 61,258
(3,597)(c)
Division equity......... 383,302 (8,256)(a),(b) 352,145 60,000 (g) 412,145
3,597 (c) 1,500 (j)
15,000 (f) (1,500)(j)
(42,998)(h)
-- (i)
(1,500)(j)
-------- -------- ----------
Total liabilities and
division equity........ $987,966 $966,068 $1,026,068
======== ======== ==========
</TABLE>
(Notes following)
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND BALANCE SHEET
(a) Reflects interest expense of $34,088 for December 31, 1999 and $8,522 for
the three months ended March 31, 2000 associated with the borrowing of
$330 million under Key3Media Events' credit facility and interest expense
of $17,495 for December 31, 1999 and $4,374 for the three months ended
March 31, 2000 associated with our issuance and sale of $75 million in
debentures and warrants. Interest expense calculated at a rate of 10.33%
for the $330 million under a credit agreement and a stated rate of 12% for
the $75 million debentures produced an increase in interest expense of
$28,283 for December 31, 1999 and $7,235 for the three months ended March
31, 2000 which is offset by a reduction in interest expense of $23,300 for
December 31, 1999 and $5,661 for the three months ended March 31, 2000
recorded in our historical combined statement of operations for Key3Media
Events' existing indebtedness to Ziff-Davis.
(b) Reflects amortization expense of $4,081 for December 31, 1999 and $1,021
for the 3 months ended March 31, 2000 resulting from the issuance costs
incurred as a result of borrowing $330 million under Key3Media Events'
credit facility and our issuance of $75 million in debentures and
warrants. The issuance costs are estimated to be approximately $10,328 and
the value ascribed to the warrants of $15,000.
(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 $14,108 for December 31, 1999 and
$3,597 for the three months ended March 31, 2000.
(d) We have operated as a wholly owned division of Ziff-Davis. In the past,
SG&A has included charges from Ziff-Davis for administrative services
including legal, tax and financial accounting, management information,
telecommunications and human resource services. In addition, Ziff-Davis
managed most of our treasury activities. After the distribution, we will
no longer rely on Ziff-Davis for these services and we will have to
provide them ourselves. 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.
(e) Unaudited pro forma, as adjusted, 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 55.0 million of our
shares. In addition, unaudited pro forma, as adjusted basic net income per
share reflects an offering of 10.0 million new shares at the offering date
and for unaudited pro forma, as adjusted diluted net income per share
reflects 21.0 million options for our shares granted to directors and
employees and 6.8 million warrants.
(f) Reflects proceeds associated with the borrowing of the $330 million under
Key3Media Events' credit facility and proceeds from issuance and our sale
of $75 million in debentures and warrants and the issuance costs of
approximately $8,828 associated with the $330 million under Key3Media
Events' credit facility and our $75 million in debentures and warrants.
(g) Reflects proceeds associated with the offering of 10.0 million shares of
our common stock at $6.00 per share net of stock issuance costs.
(h) Reflects the repayment of $382 million of Key3Media Events' existing
indebtedness and to pay a dividend of approximately $43 million to Ziff-
Davis.
(i) Reflects deferred compensation and compensation expense associated with the
issuance of 21.0 million stock options under the Key3Media 2000 Stock
Option and Incentive Plan amortized ratably over a four year period.
Approximately 12.8 million of these stock options were granted with a
strike price of $5.00 resulting in deferred compensation expense of
$12,863. As a result pro forma non cash compensation expense of $3,216 and
$804 has been recorded for the year ended December 31, 1999 and quarter
ended March 31, 2000, respectively. The remaining 8.2 million stock options
issued have a strike price of $11.00 on their grant date.
(j) Reflects $1,500 of stock issuance costs and $1,500 of debt issuance costs
paid by ZDI and recorded by us.
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.
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 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.
34
<PAGE>
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................................................ $126,856 $112,501 $89,915
NETWORLD+INTEROP...................................... 76,068 83,329 86,685
Seybold Seminars...................................... 15,539 18,128 19,463
JavaOne............................................... 7,619 11,925 16,954
</TABLE>
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)....................... 2,053 1,724 1,265
Total exhibitors........................................... 4,718 4,280 3,126
Total conference participants.............................. 10,044 9,206 8,575
Estimated total attendees (in thousands)................... 519 462 417
NETWORLD+INTEROP
Total net square feet (in thousands)....................... 1,072 1,092 1,034
Total exhibitors........................................... 1,812 2,018 1,744
Total conference participants.............................. 10,712 9,025 7,909
Estimated total attendees (in thousands)................... 164 179 183
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.
In recent years, our COMDEX and N+I events have experienced a decline in
exhibit space rentals, exhibitors and attendees. See "Risk Factors--Risks
Relating to our Company--Our results depend significantly on a few important
tradeshows which have recently experienced adverse trends". While we have taken
steps to reverse these trends, we cannot predict whether we will be successful.
35
<PAGE>
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 administrative services, including legal,
tax and financial accounting, management information, telecommunications, and
human resources services. In general, Ziff-Davis charged us for these services
based upon our utilization; however, where measuring utilization was
impractical, Ziff-Davis apportioned these charges among the businesses in its
ZD division based upon relative headcount or revenue. In addition, Ziff-Davis
managed 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. 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.
Depreciation and Amortization
As of March 31, 2000, we had $867.6 million, net, of intangibles which we
are amortizing over periods ranging from five to 40 years. These intangibles
consist primarily of goodwill and trade names 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.
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 $9.6 million of property and equipment,
net.
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 debentures.
Recent Developments
While financial statements for the three months and six months ended June
30, 2000 are not yet available, we expect that our revenues, cash flows and
EBITDA for both these periods will be greater in 2000 than in the corresponding
periods in 1999. During the second quarter of 2000, the total net square feet
of exhibit space rentals at our COMDEX/Spring event was up 7% and at our N&I
Las Vegas event was up almost 17% compared with the same events in 1999.
Attendance at our JavaOne event during the second quarter of 2000 was up over
30% compared with the same event in 1999. On May 31, 2000, the Ziff-Davis Board
of Directors accelerated the vesting of all unvested Ziff-Davis and ZD Net
stock options granted in 1998 and half of the unvested Ziff-Davis and ZD Net
stock options granted in 1999 for our employees. As a result, we will recognize
a compensation charge of approximately $1 million during the quarter ended June
30, 2000.
36
<PAGE>
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>
Three months
Year ended December ending March
31, 31,
----------------------- -----------------
1997 1998 1999 1999 2000
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net revenue
Exhibitor services............. 77.66 % 77.14% 70.43% 65.71 % 59.88 %
Conference fees................ 15.36 % 14.89% 17.85% 24.52 % 24.45 %
Advertising & sponsorships..... 6.99 % 7.97% 11.72% 9.77 % 15.68 %
------ ------ ------ ------- -------
Total net revenue............ 100.00 % 100.00% 100.00% 100.00 % 100.00 %
====== ====== ====== ======= =======
Cost of production............... 31.79 % 28.03% 29.49% 42.48 % 39.78 %
Selling, general & administrative
expense......................... 31.59 % 28.52% 35.24% 94.21 % 98.65 %
Depreciation & amortization...... 12.89 % 15.30% 15.17% 58.49 % 43.47 %
Operating income (loss).......... 23.72 % 28.15% 20.11% (95.18)% (81.89)%
Interest expense, net............ 23.21 % 15.99% 9.07% (30.07)% (26.34)%
Gain on the sale of joint venture
interest........................ 5.47%
Income (loss) before income
taxes........................... 1.11 % 13.13% 17.13% (121.86)% (107.91)%
Provision (benefit) for income
taxes........................... 1.96 % 5.97% 6.79% (48.33)% (42.84)%
Net (loss) income................ (0.85)% 7.15% 10.34% (73.53)% (65.07)%
====== ====== ====== ======= =======
EBITDA........................... 37.21 % 44.42% 35.91% (33.30)% (38.10)%
</TABLE>
Three Months Ended March 31, 2000 Compared with Three Months Ended March 31,
1999
Our total revenue increased $2.2 million, or 11.5%, to $21.1 million in the
first quarter of 2000 from $19.0 million in the comparable period in 1999.
Exhibitor services revenue increased by $199,000, or 1.6%, to $12.7 million in
the first quarter of 2000 from $12.5 million in the comparable period in 1999.
This increase was attributable to a 15.7% increase in the average rental rate
per square foot paid by exhibitors to $63.81 from $55.17. This increase was
offset by a decrease of 12.6% in net square feet of exhibit space rented at our
events, to 198,443 in the first quarter of 2000 from 225,917 in the comparable
period in 1999 and an 11.0% decrease in the number of exhibitors at our events
to 680 from 764.
Conference fees increased $519,000, or 11.2%, to $5.2 million in the first
quarter of 2000 from $4.7 million in the comparable period in 1999. This
increase was attributable to a 17.4% increase in the number of participants at
the conferences that we offer at our events to 6,043 from 5,146. This increase
was partially offset by a 5.3% decrease in the average revenue per conference
attendee in the first quarter of 2000 of $856 compared with $904 in the
comparable period in 1999. In the first quarter of 2000, we produced two
regional conference events that were not produced in 1999, and these events
represent all of the increase in attendance. Furthermore, these conferences
were offered at slightly reduced prices to stimulate attendance.
Advertising and sponsorship revenues increased $1.5 million, or 78.9%, to
$3.3 million in the first quarter of 2000 from $1.9 million in the comparable
period in 1999. This increase is attributable to the increased advertising and
sponsorship opportunities at the two regional conference events mentioned
above.
Costs of production increased $355,000, or 4.4%, to $8.4 million in the
first quarter of 2000 from $8.1 million in the comparable period in 1999. As a
percentage of revenue these costs represented 39.8% of revenue compared to
42.5%. Our cost of production decreased as a percentage of our revenue because
of the low fixed cost component of the two regional conference events mentioned
above.
37
<PAGE>
SG&A expenses increased $3.0 million, or 16.7%, to $20.9 million in the
first quarter of 2000 from $17.9 million in the comparable period in 1999. As a
percentage of revenue, SG&A represented 98.7% of revenue in the first quarter
of 2000 compared to 94.2% in the comparable period in 1999. These percentages
are typically much higher during our first quarter than for our full year
because of the seasonality of our events and revenues most of which occur in
the second and fourth quarters. The increase in SG&A as a percentage of revenue
is primarily attributed to increased levels of employment at our business
locations in Massachusetts and California and the addition of certain new
senior managers in March of 2000.
As a result of the foregoing, EBITDA decreased by $1.7 million, or 27.6%
from ($6.3) million in the first quarter of 1999 to ($8.1) million in the same
period in 2000.
Depreciation and amortization decreased $1.9 million, or 17.1%, to $9.2
million in the first quarter of 2000 from $11.1 million in the comparable
period in 1999. This decrease is primarily due to certain property and
equipment and intangible assets becoming fully depreciated or amortized in
1999.
The provision for income tax benefit decreased $108,000, or 1.2%, to $9.1
million in the first quarter of 2000 from $9.2 million in the comparable period
in 1999. This decrease is attributed to lower losses subject to taxation as a
result of lower deductions for depreciation and amortization offset by higher
deductions for SG&A expenses.
As a result of the foregoing, our net loss decreased $187,000, or 1.4%, to
$13.7 million in the first quarter of 2000 from $13.9 million in the comparable
period in 1999.
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 $30.5
million, or 14.7%, to $177.1 million in 1999 from $207.6 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 19.5%, 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 5.4% to $54.77 in 1999 from $51.96 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 and the
commoditization of personal computers. The significant shift in the IT industry
away from personal computing towards the Internet, networks and wireless
communications also contributed to the overall decrease in exhibitor services
revenue because historically COMDEX/Fall highlighted the personal computer
sector of the IT industry.
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 $8.0 million, or 37.3%, to
$29.5 million in 1999 from $21.5 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.
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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 $6.9
million, or 3.2%, to $207.6 million in 1998 from $214.5 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 8.58% to
$51.96 in 1998 from $47.85 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.
Conference fees decreased $2.4 million, or 5.6%, to $40.1 million in 1998
from $42.4 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 5.3% increase in the average revenue per attendee in 1998 of $1,009
compared to $959 in 1997.
Advertising and sponsorship revenue increased $2.1 million, or 11.1%, to
$21.5 million in 1998 from $19.3 million in 1997.
Costs of production decreased $12.4 million, or 14.1%, to $75.4 million in
1998 from $87.8 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 32.0% in
1997.
SG&A expenses decreased $10.5 million, or 12.06%, to $76.8 million in 1998
from $87.3 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, SG&A expenses decreased to 28.5% in 1998 from 31.6% in
1997.
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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 197.5%, 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 lower event production costs,
SG&A expenses 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 most of the cash we did not use in our
businesses 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 $51.2 million and cash and cash equivalents of $17.2 million. As an
independent public company, we will no longer remit cash to Ziff-Davis,
although we will use some of our cash to make payments in respect of our
borrowings. Unless we decide to prepay our borrowings, we do not expect to have
material working capital deficits in the future.
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 administrative services that were previously provided by
Ziff-Davis and $5 million for our new Internet initiatives. We do not have any
material commitments for capital expenditures beyond 2000. We may use a portion
of our cash flow for other opportunities when they arise, including for
acquisitions.
We have made substantial commitments for repayment of our term loans. We
currently do not have any committed source of capital other than Key3Media
Events' revolving credit facility. Up to $50.0 million will be available to
Key3Media Events and its subsidiaries under the revolving credit facility,
subject to certain conditions. Under Key3Media Events' term loan facility, it
has scheduled principal repayments in the following amounts: $10.05 million in
the first year of the loans, $13.80 million in the second year, $17.55 million
in the third year, $21.30 million in the fourth year, $25.05 million in the
fifth year and $242.25 million in the sixth year. However, Key3Media Events
must prepay the term loans sooner if it sells assets not in the ordinary course
of business, issues additional debt or has excess cash flow during the term of
the loans. Under similar circumstances, we may also be required to redeem the
debentures. See "Financing". We will also have to pay interest on our term
loans, our revolving credit loans and our debentures. Key3Media Events' 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.
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After we and Key3Media Events receive the $456 million of aggregate net
proceeds from our borrowings under the credit facility, the issuance of our
debentures and the offering, Key3Media Events will repay its existing
indebtedness and we will pay a cash dividend to Ziff-Davis of approximately $43
million. Based upon current and anticipated levels of operations, management
believes that in both the short and long term our cash on hand and cash flow
from operations will be sufficient to enable us to meet our 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.
However, Staff Accounting Bulletin No. 101B, "Second Amendment: Revenue
Recognition in Financial Statements" was issued to defer adoption of SAB 101 to
quarter ending December 31, 2000. We believe the adoption of SAB 101 will not
result in a material change in our financial condition or our results of
operations.
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 are a new company that Ziff-Davis formed to hold its portfolio of
tradeshow and other event businesses. 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.
In 1999, our leading COMDEX and NETWORLD+INTEROP events were the top two IT
industry tradeshows in the United States when measured by revenue from exhibit
space rentals. We also produce customized events for specific IT vendors and
specific segments of the IT industry. At our events, we rent space to
exhibitors and receive commissions from third parties who provide services to
our exhibitors. We also charge fees for conferences and sell advertising and
sponsorships. In 1999, our revenue was $251.4 million, our net income was $26.0
million and our earnings before interest, depreciation and amortization, or
EBITDA, were $90.3 million. After making the pro forma adjustments described in
this prospectus, our net income for 1999 would have been $4.5 million.
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 from exhibit space rentals and attendance
(including exhibitor personnel). 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.
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. We have not benefitted from much of
this growth because we generally do not produce small or mid-sized regional
events, the number of competing IT events has increased and the recent trends
we have experienced at our large COMDEX events.
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
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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 Believe We Are the Industry Leader in IT Events
We believe we are the largest producer of events for the IT industry in the
United States when measured by revenue from exhibit space rentals and we have
the leading brands in our industry. In 1999, our leading COMDEX and N+I events
were the top two IT industry tradeshows in the United States in terms of
revenue from exhibit space rentals. We believe 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 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.
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,
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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. 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 and 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. Each member of our new management team 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 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.
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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".
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.
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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.
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>
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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 from exhibitor
space rentals and attendance (including exhibitor personnel). 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.
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 the IT industry in
the United States for the past ten years when measured by net square feet of
exhibit space rentals. 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 approximately
200,000 attendees. In 1999, exhibitors for COMDEX/Fall included: Microsoft
Corporation, Toshiba Corporation, Philips Electronics N.V., Matsushita Electric
Industrial Co., Ltd. (owner of the Panasonic brand), 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
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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 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, in 1999, was the second largest IT tradeshow in the United States
when measured by revenue from 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 approximately
36,000 attendees. We also hold Seybold Seminars events in Boston in the
spring.
Major exhibitors at the Seybold Seminars include Adobe Systems
Incorporated, Apple Computer, Inc., Intel Corporation and Macromedia, Inc.
JavaOne
We believe 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
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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.
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 primary 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.
Our events in Japan are owned by an affiliate of SOFTBANK Corp. For more
information about these events, see "Related Party Transactions--Agreement to
Produce our Japanese Events".
In 2000, we expect to produce COMDEX and/or N+I events in 19 countries
outside North America and over 30 international Studios events.
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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.
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.
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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.
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 $10.4 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 17, 2000, we filed a claim against GES because it
has been withholding commissions that it owes to us. On June 19, we gave GES
notice of our intent to terminate our contract effective August 18, 2000.
See "--Legal Proceedings".
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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 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 believe we are the largest producer of events for the IT
industry in the United States when measured by revenue from exhibit space
rentals, 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.
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Legal Proceedings
On March 17, 2000, we sued GES Exposition Services, Inc. for breach of
contract in the United States District Court for the District of Massachusetts.
GES is withholding commissions that we believe it is required to pay to us
under our contract and as a result we have retained certain amounts that GES
believes we owe it under the contract. We believe that GES owed us
approximately $10 million as of June 30, 2000, and this balance is increasing.
See "Key Vendors". On June 19, GES filed an answer, counterclaim and jury
demand. Its counterclaim alleges that we breached the contract, violated our
fiduciary duty toward GES and converted GES property to our use and benefit.
GES has asked the court to award unspecified damages as well as declaratory and
injunctive relief. We received subsequent correspondence from GES' counsel
alleging damages of at least $30 million and additional unspecified damages on
a variety of different legal theories. We believe that these claims are
excessive and lack merit and intend to vigorously defend them. While we cannot
predict the ultimate outcome of this litigations, we do not believe it is
likely to have a material adverse effect on our financial condition, results of
operations or cash flows. On June 19, we gave GES notice of our intent to
terminate our contract effective August 18, 2000.
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.
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
Our headquarters are in Los Angeles, California. We also have office space
in Massachusetts, California, France and Australia. We lease all of our
material offices.
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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 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 ten directors, of whom two are also our officers. While any of the
original purchasers of our debentures own the debentures, they will be entitled
to nominate one director. Initially, Gian Andrea Botta will serve in this
capacity.
<TABLE>
<CAPTION>
Person Age Positions
------ --- ---------
<S> <C> <C>
Fredric D. Rosen...... 56 Chairman and Chief Executive Officer
Jason E. Chudnofsky... 56 Director and Chief Operating Officer
Edward A. Bennett..... 53 Director
Pamela C. Alexander... 45 Director
Gian Andrea Botta..... 47 Director
Eric Hippeau.......... 48 Director
Ronald D. Fisher...... 52 Director
James F. Moore........ 51 Director
John A. Pritzker...... 46 Director
Michael B. Solomon.... 53 Director
Peter B. Knepper...... 51 Executive Vice President and Chief Financial Officer
Ned S. Goldstein...... 45 Executive Vice President and General Counsel
Robert Priest-Heck.... 33 Chief Operating Officer, Key3Media Events, Inc.
</TABLE>
Biographies Of Directors
Set forth below is the biography of each of the Class A, Class B and Class C
directors, each of whom will become a director prior to the offering and
distribution, except for Mr. Rosen, who has been a director of our company
since May 11, 2000.
Class A Directors--Term Expires in 2001
Pamela C. Alexander. Pamela C. Alexander founded Alexander Communications, a
firm that focuses on information technology, in 1987. In 1998 Ogilvy Public
Relations acquired the assets of Alexander Communications and formed Alexander
Ogilvy. At the time of the acquisition, Ms. Alexander became President and CEO
of Alexander Ogilvy Public Relations Worldwide. Ms. Alexander is also a member
of the board of directors of the Technology Network.
G. Andrea Botta. G. Andrea Botta is a Managing Director of Morgan Stanley
Dean Witter and Head of the Private Investment Department, as well as President
of PG Investors III, Inc., the general partner of Princes Gate Investors III,
L.P. Mr. Botta joined Morgan Stanley Dean Witter in 1999. Prior to joining
Morgan Stanley Dean Witter, Mr. Botta was President of Exor America, part of
the Agnelli Group. Mr. Botta is also a member of the board of directors of
Riverwood International.
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Jason E. Chudnofsky. Jason E. Chudnofsky has been President of Key3Media
Events since October 1997. He has been a director of Ziff-Davis since 1998.
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, tradeshow and conference industry. Mr. Chudnofsky is a member of the
board of directors of Tech Corporation, Folio Exhibits, Inc., and Quantum
Clicks, Inc.
James F. Moore. James F. Moore became the General Partner of GeoPartners
Ventures, an Internet business development corporation, in 1999. Since January
1990, he has also been the Chairman and Chief Executive Officer of GeoPartners
Research, Inc., a company specializing in providing corporate strategy advice
to high technology companies. Mr. Moore is also a member of the board of
directors of NaviSite, Inc. and XOSoft.
Class B Directors--Term Expires in 2002
Edward A. Bennett. Edward A. Bennett co-founded the 212 Ventures/Investcorp
Technology Fund in 2000 and is currently a partner of the venture capital fund.
In addition, Mr. Bennett is Chairman of Mobilelogic, a wireless solutions
company. Prior to founding 212 Ventures, Mr. Bennett was President and CEO of
Prodigy Services. Mr. Bennett is also a member of the boards of directors of
SoftNet Systems, Inc., Engage, Inc. and Real Names Corp.
John A. Pritzker. John A. Pritzker founded Red Sail Companies in 1988, which
includes Red Sail Sports and Mandara Spa, LLC. Mr. Pritzker has served as Red
Sail's President since its inception. Mr. Pritzker is also President of Hyatt
Ventures, Inc. and worked for Hyatt Hotels Corporation for more than 23 years.
He serves on the board of directors of Ventro Corporation.
Michael B. Solomon. Michael B. Solomon is the Managing Principal of Gladwyne
Partners, LLC, a private equity fund manager. Prior to founding Gladwyne
Partners in July 1998, Mr. Solomon was affiliated with Lazard Freres & Co. LLC.
Mr. Solomon joined Lazard Freres in 1981 becoming a Partner in 1983.
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 and Chief Executive Officer. In the 18 months preceding his
employment by Ziff-Davis, he was a consultant 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 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 and Go-Coop, Inc., a
private company that offers business-to-business applications for hotel chains.
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. 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.
Eric Hippeau. Eric Hippeau has been Chairman and Chief Executive Officer of
Ziff-Davis since 1998 and of ZD Inc. since 1993. Mr. Hippeau has been a
director of Ziff-Davis since 1998. 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.
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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.
Robert Priest-Heck. Robert Priest-Heck has been with our subsidiary,
Key3Media Events, Inc., formerly ZD Events, since 1991, serving in a variety of
positions including: Executive Vice President of Operations and Director of
International Operations. Prior to joining Key3Media Events, Mr. Priest-Heck
held a variety of management positions with Hyatt Hotels.
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.
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 salary compensation of our
officers other than Fredric D. Rosen, Jason E. Chudnofsky, Peter B. Knepper,
Ned S. Goldstein, Robert Priest-Heck 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
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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 by-laws
establish requirements concerning stockholder nominations for election of
directors, including that notice of those nominations be delivered to the
Secretary not less than 90 nor more than 120 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 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
fees of $1,000 for each meeting of the board of directors and $1,000 for each
meeting of any committee of the board of directors that they attend. Non-
employee directors will also be granted options to purchase 30,000 shares of
our common stock with a vesting schedule of 10,000 shares per year under the
Key3Media 2000 Stock Option and Incentive Plan for each year they serve as a
director.
Compensation Committee Interlocks and Insider Participation
We did not have a compensation committee or any other committee serving a
similar function in 1999. Decisions as to the compensation of our executive
officers were made by Ziff-Davis.
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<PAGE>
EXECUTIVE COMPENSATION
The following table contains certain compensation information for Jason
Chudnofsky, who served as Key3Media Events's chief executive officer during our
last completed fiscal year, and the four other most highly compensated
executive officers who were serving as our executive officers at the end of our
last completed fiscal year. All of the information in this and the next two
tables reflects compensation paid in accordance with Ziff-Davis' compensation
and benefit plans. In connection with the distribution and the offering, we
have established our own compensation and benefit plans. See "--Compensation
and Benefit Plans".
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------- -------------
Securities All other
Name and Principal Underlying Compensation
Position Year Salary($) 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 80,887 160,194(5b) 26,904
ZD Events 1997 228,612 148,734 58,944 --
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 (taking into
account a 3 for 1 split in 2000) (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 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 58,944
Repriced Softbank Options.
58
<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 $31,442.
(8) Messrs. de Lencquesaing and Herbert left the employ of Key3Media Events
Inc. in March 2000.
Option Grants in 1999
The following table summarizes stock option grants to each of the persons
named in the Summary Compensation Table during 1999.
<TABLE>
<CAPTION>
Potential Realized Value
Number of Percent of at Assumed Annual Rate of
Securities Total Options Exercise Stock Price Appreciation
Underlying Granted to of Base for Option Term
Name and Principal Options Employees in Price Expiration -------------------------
Position Granted(#) 1999(%) ($/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,
Key3Media 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
Key3Media Events
Aymar de Lencquesaing... -- -- -- -- -- --
Executive Vice-Presi- 7,000(2) 6.46 31.0625 April 20, 2009 136,745 346,540
dent,
Key3Media 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
Key3Media 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,
Key3Media 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
Key3Media Events
Charles D. Forman....... -- -- 8,750(1) 37,250 85,859 158,036
Executive Vice- -- -- -- 14,000 -- --
President,
Key3Media 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,
Key3Media Events 20,700(3) 4,206,574 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
Key3Media 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,
Key3Media 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
The following summaries address all of the material provisions of our
employment contracts with Messrs. Rosen, Chudnofsky, Knepper, Goldstein and
Priest-Heck but are qualified in their entirety by the complete text of those
agreements which are attached as exhibits to our registration statement.
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
growth in "EBITDA";
. a discretionary bonus in an amount to be determined by our Board of
Directors or its 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 Key3Media 2000 Stock Option and
Incentive Plan;
. a term life insurance policy in the amount of $5 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
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<PAGE>
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 non-recurring items;
. exclude charges related to his performance bonus, similar bonuses paid
to other executive officers and any other earnings-related bonuses
exceeding $150,000 per year; and
. exclude any charges to earnings attributable to payments to affiliates
that are in excess of the fair market value of goods sold or services
rendered.
If there is a change in control, as defined in his contract, of our
company, Mr. Rosen's options will vest immediately and become immediately
exercisable or he may elect a cash payment in place of the options. The amount
of the cash payment for the options will be determined based on the manner of
the change of control. In addition, Mr. Rosen will, upon a change of control,
receive an amount which, on an after-tax basis (including federal income and
excise taxes, and state and local income taxes) is equal to the excise tax, if
any, imposed by the Internal Revenue Code.
Our contract with Mr. Rosen expires on February 28, 2005. We may terminate
his employment for cause or disability (each as defined in his contract),
without cause, or upon his death. Mr. Rosen may terminate his employment for
good reason (as defined in his contract) upon 30 days' written notice. Any
termination of his employment is subject to the following conditions:
. Regardless of the reason for such termination, we will pay him his base
salary through the date of the termination.
. 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 after February 28, 2001, we terminate his employment other than for
disability or cause or he terminates his employment for good reason,
then we will pay him both twice his then current salary and twice his
most recent performance bonus, spread over the succeeding two years, and
all of his options to purchase our stock 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.
Jason E. Chudnofsky. We have entered into an employment agreement with
Jason E. Chudnofsky pursuant to which he is entitled to:
. a base salary of at least $800,000 per year, subject to periodic review
for increases;
. a base bonus equal to $24,000 for each 1% of "EBITDA" above 90% of the
target established by our Board of Directors and a supplemental bonus of
up to $60,000 or more if non-EBITDA performance goals set by the Board
of Directors are met; provided, however, that in no event shall the
aggregate bonus for 2000 be less than $300,000;
. options to purchase 3,000,000 shares of our common stock in accordance
with the Key3Media 2000 Stock Option and Incentive Plan; and
. a term life insurance policy in the amount of $1 million and a
disability insurance policy in the amount of $200,000.
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<PAGE>
If there is a change in control, as defined in his contract, of our company,
Mr. Chudnofsky's options will vest immediately and become immediately
exercisable or he may elect to receive a cash payment in place of the options.
The amount of the cash payment for the options will be determined based on the
manner of the change of control.
Our contract with Mr. Chudnofsky expires on March 31, 2001. We may terminate
his employment for cause (as defined in his contract) at any time, without
cause at the end of the term of his contract, or upon disability (as defined in
his contract). Mr. Chudnofsky may terminate his employment effective at any
time between December 1, 2000 and March 31, 2001 upon 90 days' written notice
or at any time for good reason (as defined in his contract). Any termination of
his employment is subject to the following conditions:
. Regardless of the reason for such termination, we will pay him his base
salary through the date of the termination.
. If his employment is terminated as a result of his disability or death,
we will pay to him or his estate 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 Mr. Chudnofsky voluntarily
terminates his own employment without good reason prior to December 1,
2000, we will have no additional obligations to him.
. If we terminate his employment at the end of the term of his contract
other than for disability or cause, Mr. Chudnofsky terminates his
employment at any time for good reason, or Mr. Chudnofsky terminates his
employment effective between December 1, 2000, and March 31, 2001, upon
at least 90 days' prior written notice, then: (1) we will pay Mr.
Chudnofsky (a) his salary through the date of his termination of
employment and any benefits owed to him, (b) the prorated portion of any
bonus he would have received for the year of such termination and (c) a
severance payment equal to two years' base salary plus two times the
average annual bonus he received in the three years before termination;
(2) Mr. Chudnofsky will be entitled to participate in our medical,
health insurance, and life insurance plans without cost to him until
November 30, 2002; (3) we will make the maximum allowable contribution
to Mr. Chudnofsky's account under the applicable 401(k) plan through the
date of termination on a pro rata basis, provided that such contribution
may legally be made; and (4) all of Mr. Chudnofsky's options to purchase
Ziff-Davis common stock, ZDNet common stock and SOFTBANK Corp. common
stock will fully vest and he shall be vested with either options to
purchase 750,000 shares of our common stock or such options as are
already vested under the Key3Media 2000 Stock Option and Incentive Plan,
whichever is greater.
Mr. Chudnofsky'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, dated as of
March 1, 2000, with Peter B. Knepper pursuant to which Mr. Knepper is entitled
to:
. a base annual salary of at least $525,000 in the first three contract
years and $550,000 during the final two contract years;
. a performance bonus in an amount to be determined by our Board of
Directors or its Nominating and Compensation Committee; provided,
however, that in no event shall the bonus be less than $125,000 for the
first contract year and $150,000 for the final four contract years;
. options to purchase 1,000,000 of the shares of our common stock in
accordance with the Key3Media 2000 Stock Option and Incentive Plan; and
. a term life insurance policy in the amount of $2 million.
62
<PAGE>
If there is a change in control, as defined in his contract, of our company,
Mr. Knepper's options will vest immediately and become immediately exercisable
or he may elect to receive a cash payment in place of the options. The amount
of the cash payment for the options will be determined based on the manner of
the change in control. In addition, Mr. Knepper will, upon a change in control,
receive an amount which, on an after-tax basis (including federal income and
excise taxes, and state and local income taxes) equal to the excise tax, if
any, imposed by the Internal Revenue Code.
Our contract with Mr. Knepper expires on February 28, 2005. We may terminate
his employment for cause or without cause (as defined in his contract) or if he
has a disability (as defined in his contract). Mr. Knepper may terminate his
employment at any time for good reason (as defined in his contract). Any
termination of his employment is subject to the following conditions:
. Regardless of the reason for such termination, we will pay him his base
salary through the date of the termination.
. 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 performance bonus he would have
received for the year of such termination.
. If we terminate his employment for cause or Mr. Knepper voluntarily
terminates his own employment, but without good reason, we will have no
additional obligations to him.
. If we terminate his employment, other than for disability or cause, or
Mr. Knepper terminates his employment for good reason, then we will pay
him both twice his then current salary and twice his most recent
performance bonus, spread over the succeeding two years, and all of his
options to purchase our common stock will fully vest.
Mr. Knepper'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.
Ned S. Goldstein. We have entered into an employment agreement, dated as of
March 1, 2000, with Ned S. Goldstein pursuant to which Mr. Goldstein is
entitled to:
. a base salary of at least $525,000 per year in the first three contract
years and $550,000 during the final two contract years;
. a performance bonus in an amount to be determined by our Board of
Directors or its Nominating and Compensation Committee; provided,
however, that in no event shall the bonus be less than $125,000 for the
first contract year and $150,000 for the final four contract years;
. options to purchase 1,000,000 of the shares of our common stock in
accordance with the Key3Media 2000 Stock Option and Incentive Plan; and
. a term life insurance policy in the amount of $2 million.
If there is a change in control, as defined in his contract, of our company,
Mr. Goldstein's options will vest immediately and become immediately
exercisable or he may elect to receive a cash payment in place of the options.
The amount of the cash payment for the options will be determined based on the
manner of the change in control. In addition, Mr. Goldstein will, upon a change
in control, receive an amount which, on an after-tax basis (including federal
income and excise taxes, and state and local income taxes) is equal to the
excise tax, if any, imposed by the Internal Revenue Code.
Our contract with Mr. Goldstein expires on February 28, 2005. We may
terminate his employment for cause or disability (each as defined in his
contract), without cause, or upon his death. Mr. Goldstein may
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<PAGE>
terminate his employment at any time for good reason (as defined in his
contract). Any termination of his employment is subject to the following
conditions:
. Regardless of the reason for such termination, we will pay him his base
salary through the date of the termination.
. 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 performance 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 other than for disability or cause, or he
terminates his employment for good reason, then we will pay him both
twice his then current base salary and twice his most recent performance
bonus, spread over the succeeding two years, and all of his options to
purchase our common stock will fully vest.
Mr. Goldstein'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.
Robert Priest-Heck. We have entered into an employment agreement, dated as
of July , 2000, with Robert Priest-Heck pursuant to which Mr. Priest-Heck is
entitled to:
. a base salary of $500,000 per year;
. a performance bonus in an amount to be determined by our Board of
Directors or its Nominating and Compensation Committee; provided,
however, that in no event shall the bonus for a full year be less than
$125,000;
. options to purchase 500,000 of the shares of our common stock in
accordance with the Key3Media 2000 Stock Option and Incentive Plan.
Our contract with Mr. Priest-Heck expires on June 30, 2004. We may terminate
his employment for cause, for disability (each as defined in his contract),
without cause, or in the event of death. Mr. Priest-Heck may terminate his
employment at any time for good reason (as defined in his contract). Any
termination of his employment is subject to the following conditions:
. Regardless of the reason for such termination, we will pay him all
compensation through the date of the termination, including (unless the
termination is for cause) a pro rata portion of the performance bonus.
. If Mr. Priest-Heck's employment terminates for any reason other than for
or by virtue of cause, death, disability, or his voluntary termination,
we will pay the base salary and performance bonus for the remainder of
the contract.
Mr. Priest-Heck'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.
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 Stock Option and Incentive Plan. To the extent necessary or
advisable under applicable law, Ziff-Davis, as our sole stockholder, will
approve this plan before the distribution and the offering.
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<PAGE>
Prospective Compensation of Executive Officers
The following table sets forth the salary and minimum bonuses that we will
pay in 2000 to Fredric D. Rosen, our current Chairman and Chief Executive
Officer, and our four other most highly compensated executive officers.
<TABLE>
<CAPTION>
Minimum
Bonus
Name and Principal Position Salary($) ($) Total
--------------------------- --------- ------- ---------
<S> <C> <C> <C>
Fredric D. Rosen.......................... 1,500,000 (1) 1,500,000
Chairman and Chief Executive Officer,
Key3Media Group, Inc.
Jason E. Chudnofsky....................... 800,000 300,000 1,100,000
Chief Operating Officer,
Key3Media Group, Inc.,
Peter B. Knepper.......................... 525,000 125,000 650,000
Executive Vice President and Chief
Financial Officer,
Key3Media Group, Inc.
Ned S. Goldstein.......................... 525,000 125,000 650,000
Executive Vice President and General
Counsel,
Key3Media Group, Inc.
Robert Priest-Heck........................ 500,000 125,000 625,000
Chief Operating Officer,
Key3Media Events, Inc.
</TABLE>
--------
(1) Mr. Rosen is not entitled to a minimum bonus.
Key3Media 2000 Stock Option and Incentive Plan
Prior to the completion of this offering, we will adopt the Key3Media 2000
Stock Option and Incentive Plan, which Ziff-Davis, as our sole stockholder,
will approve. The following description of certain features of the plan is
qualified in its entirety by reference to the full text of the plan.
General; Shares Available for Issuance under the Plan. The Key3Media 2000
Stock Option and Incentive Plan will enable us to make awards of options to
eligible employees, directors, 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 23,933,333 million shares, at least 8,186,666 of which may only be issued
upon the exercise of options the exercise price of which is at least $11.00. In
the event that we issue additional shares of common stock (other than the 65
million shares to be issued in connection with the distribution, the shares
issued upon exercise of the warrants and the offer and the 23,933,333 million
shares already available for issuance under the plan), the maximum number of
shares that may be issued under the plan will be increased by 33 1/3% of the
additional shares that we issue. 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 Key3Media 2000 Stock Option and
Incentive Plan will be administered by our full board or our Nominating and
Compensation Committee, consisting of at least two members of our board of
directors. However, if required by law, this committee will consist of at least
two
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<PAGE>
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. Our directors, advisers and consultants (including
advisors and consultants of our subsidiaries) may also receive awards under the
plan.
Stock Options. The Nominating and Compensation Committee may grant stock
options under the Key3Media 2000 Stock Option and Incentive Plan. Stock options
enable the holder of the option to purchase shares of our common stock at a
price specified by the Nominating and 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
Nominating and 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. The
Nominating and Compensation Committee will determine when an option may be
exercised and its term, but the term may not exceed ten years.
Other Equity Awards. The Nominating and Compensation Committee may also
grant stock appreciation rights, restricted stock, restricted stock units,
performance shares, performance share units, dividend equivalent rights and
other stock based awards under the Key3Media 2000 Stock Option and Incentive
Plan. The Nominating and Compensation Committee will determine the terms and
conditions of such awards.
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 Nominating
and 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. In the event of our merger into another company, a
sale of all of our common stock, our sale of substantially all of our assets or
our liquidation, outstanding awards will generally either be assumed by such
acquiror or immediately vest and be cashed out. If there is a merger or sale
and awards are assumed and the holder is terminated without cause or leaves for
good reason, then all his awards vest, are exercisable for at least 12 months
and are not subject to a right of recapture.
Amendment and Termination. The Nominating and 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.
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Grants under the Key3Media 2000 Stock Option and Incentive Plan
In connection with the offering and the distribution, we will make initial
grants of stock options to certain members of our management team, including
our executive officers, under the Key3Media 2000 Stock Option and Incentive
Plan. An aggregate of 21,049,233 million shares of our common stock will be
issuable upon the exercise of these options. The exercise price of one-half of
the options granted to members of our management team who will receive options
to purchase 125,001 or more shares of our common stock will be $5.00 per share
and the exercise price of the remaining one-half will be $11.00 per share. The
exercise price of the options granted to members of our management team who
will receive options to purchase fewer than 125,001 shares of our common stock
will be $5.00 per share. The following table sets forth the number of shares of
our common stock underlying options granted to Fredric D. Rosen, our current
Chairman and Chief Executive Officer, and our four other most highly
compensated executive officers.
<TABLE>
<CAPTION>
Number of Securities
Underlying Options
Name and Principal Position Granted
--------------------------- --------------------
<S> <C>
Fredric D. Rosen.................................. 9,573,333
Chairman and Chief Executive Officer,
Key3Media Group, Inc.
Jason E. Chudnofsky............................... 3,000,000
Chief Operating Officer,
Key3Media Group, Inc.,
Peter B. Knepper.................................. 1,000,000
Executive Vice President and Chief Financial
Officer,
Key3Media Group, Inc.
Ned S. Goldstein.................................. 1,000,000
Executive Vice President and General Counsel,
Key3Media Group, Inc.
Robert Priest-Heck................................ 500,000
Chief Operating Officer,
Key3Media Events, Inc.
</TABLE>
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<PAGE>
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 and 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)................ 71,489,737 66.9 35,809,678 56.4
SOFTBANK Holdings
Inc.(3)................ 71,493,382 66.9 35,810,000 56.4
SOFTBANK Corp.(4)....... 71,493,382 66.9 35,810,000 56.4
Masayoshi Son(5)........ 71,493,382 66.9 35,810,000 56.4
</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 August 9, 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 August 9, 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 our common stock and the SOFTBANK Corp. 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, by Fredric D. Rosen, our current Chairman and Chief Executive Officer,
and our four other most highly compensated executive officers, by each of our
directors and by all of our directors and executive officers as a group based
on our knowledge of their ownership of Ziff-Davis common stock and how many
shares they will purchase in the offering.
<TABLE>
<CAPTION>
Before the distribution and After the distribution and
the offering the offering
--------------------------- --------------------------
Number
Number of shares of
Number of Shares of Shares SOFTBANK Corp.
of Ziff-Davis Percent of of Key3Media Percent of Common Percent of
Beneficial Owner(1) Common Stock(#) Class(%) Common Stock(#) Class(%) Stock(#) Class(%)
------------------- ---------------- ---------- --------------- ---------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Executive officers named
in summary compensation
table:
Jason E. Chudnofsky..... 150,125 * 375,000 * 43,043 *
Charles D. Forman....... 23,750 * 43,750 * 9,267 *
Aymar de Lencquesaing... -- * -- * 11,400 *
Milton Herbert.......... 7,739 * -- * -- *
Robert Priest-Heck...... 15,654 * 2,000 * 11,160 *
Our five most highly
compensated executive
officers:
Fredric D. Rosen........ -- * 1,616,667 2.44% -- *
Jason E. Chudnofsky..... 310,250 * 375,000 * 43,043 *
Peter B. Knepper........ -- * 259,000 * -- *
Ned S. Goldstein........ -- * 259,000 * -- *
Robert Priest-Heck...... 15,654 * 2,000 * -- *
Our directors:
Fredric D. Rosen........ -- * 1,616,667 2.44% -- *
Edward A. Bennett....... -- * 41,667 * -- *
Jason E. Chudnofsky..... 310,250 * 375,000 * 43,043 *
Ronald D. Fisher........ 105,000 * -- * 631,038 *
Eric Hippeau............ 288,101 * -- * 183,222 *
James F. Moore.......... -- * -- * -- *
John A. Pritzker........ -- * 482,500 * -- *
Michael B. Solomon...... -- * -- * -- *
Andrea Botta............ -- * 6,800,000 9.47% -- *
Pamela C. Alexander..... -- * -- * -- *
Our directors and
executive officers as a
group.................. 558,880 * 9,835,834 13.33% 857,303 *
</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 August 9, 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 August 9, 2000 are deemed outstanding but are not deemed
outstanding for purposes of computing the percentage of any other person or
group.
(2) Mr. Botta is a Managing Director of Morgan Stanley Dean Witter and Head of
the Private Investment Department, as well as President of PG Investors
III, Inc., the general partner of Princes Gate Investors III, L.P. The
table includes 6.8 million shares of common stock which will be exercisable
pursuant to warrants to be held by Princes Gate Investors III, L.P. and
certain other entities (collectively, the "Princes Gate Entities") that
pursuant to partnership or investment management agreements, have given
sole investment management authority to PG Investors III, Inc., which is a
direct, wholly-owned subsidiary of Morgan Stanley Dean Witter & Co. Mr.
Botta disclaims beneficial ownership of the shares held by the Princes Gate
Entities.
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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 600 million shares, consisting
of 200 million shares of common stock, par value $.01 per share, 200 million
shares of non-voting common stock, par value $.01 per share, and 200 million
shares of preferred stock, par value $.01 per share. Upon completion of the
distribution and the offering, 65 million shares of our common stock and no
shares of non-voting common or preferred stock will be issued and outstanding.
As of July 28, 2000, 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
by-laws, 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 and the offering will be
validly issued, fully paid and non-assessable and an opinion of Sullivan &
Cromwell to that effect has been filed as an exhibit to the registration
statement of which this prospectus forms a part. 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 material 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;
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<PAGE>
. 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;
. 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 a resolution adopted by our board of directors and approved by
the affirmative vote of the holders of a majority of the voting power of all
outstanding shares of our common stock and all the outstanding shares of our
other stock entitled to vote thereon irrespective of the provisions of Section
242(b)(2) of the Delaware General Corporation Law, with the outstanding shares
of our common stock and other stock considered for this purpose as a single
class. No vote of the holders of any series of preferred stock, voting as a
separate class, shall be required.
Listing
Our common stock will trade on the NYSE under the symbol "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>
ANTI-TAKEOVER PROVISIONS OF OUR CERTIFICATE
OF INCORPORATION, BYLAWS AND DELAWARE LAW
General
Our certificate of incorporation and by-laws and the General Corporation Law
of Delaware, or DGCL, contain 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 all of the provisions contained in our certificate of
incorporation and by-laws and the DGCL that could materially 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 by-laws, the
forms of which are included as exhibits to the Registration Statement, as well
as the DGCL.
Provisions of Our Certificate of Incorporation and By-Laws
Staggered Board of Directors
Following the distribution and the offering, our board of directors will
consist of ten 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 only by resolution of the board of directors
from time to time. Our certificate of incorporation and by-laws 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 by-laws provide that
directors may be removed only for cause, except that at any time that SOFTBANK,
our directors and our executive officers (as defined in Rule 405 under the
Securities Act of 1934) together hold outstanding shares of our common stock
and/or shares of our other stock entitled to vote generally in the election of
directors that together entitle them to cast votes
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<PAGE>
representing more than 50% of the voting power in the election of directors
generally considered for this purpose as a single class, the holders of the
outstanding shares of our common stock and shares of our other stock entitled
to vote thereon may remove directors with or without cause. We refer to periods
like that described above as "Qualifying Ownership Periods". 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 of the directors then in office, although less
than a quorum, or by the sole remaining director or, if the vacancies result
from the removal of any director or directors, the holders of the outstanding
shares of our common stock and shares of our other stock that were entitled to
vote on such removal. 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 by-laws 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
during a Qualifying Ownership Period, the holders of the outstanding shares of
our common stock and shares of our other stock entitled to vote on such actions
may take any action required or permitted to be taken by our stockholders by a
consent or consents in writing setting forth the action so taken signed by the
holders of the outstanding shares of our common stock and shares of our other
stock entitled to vote on such action having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which holders of all our outstanding shares were present and voted. Our
certificate of incorporation and by-laws provide that special meetings of
stockholders may be called only by our board of directors, to be held at the
date, time and place stated in the notice of meeting, except that at any time
during a Qualifying Ownership Period, SOFTBANK shall be entitled to call a
special meeting of stockholders to be held at the date, time and place stated
in its notice of meeting and to specify the purpose of the meeting. Any special
meeting of stockholders will be confined to the purposes stated in the notice
of 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 by-laws require notice of any proposal to be presented by any
stockholder or of the name of any person to be nominated by any stockholder for
election as a director at a meeting of stockholders to be delivered to our
Secretary not less than 90 nor more than 120 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.
Blank Check Preferred Stock
Our certificate of incorporation provides for 200,000,000 authorized shares
of preferred stock. The existence of authorized but unissued shares of
preferred stock may enable our board of directors to render more difficult or
to discourage an attempt to takeover Key3Media. For example, if in the exercise
of its fiduciary obligations the board of directors were to determine that a
takeover proposal is not in our best interests, it could cause shares of
preferred stock to be issued without stockholder approval in one or more
private offerings or other transactions that might dilute the voting or other
rights of the proposed acquirer. In this regard, the certificate of
incorporation grants our board of directors broad power to establish the rights
and preferences of authorized and unissued shares of preferred stock. The board
of directors currently does not intend to seek stockholder approval before any
issuance of preferred stock unless required by law.
Other Constituencies
Our certificate of incorporation provides that, when taking action including
responding to a takeover, our directors may, but are not required to, consider
the effects that our actions may have on interests and persons other than our
shareholders, including our employees and the community.
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<PAGE>
Amendments
Our certificate of incorporation provides the provisions described above
shall not be amended, modified or repealed unless such amendment, modification
or repeal is approved by the affirmative vote of the holders of not less than
80% of the voting power of the outstanding shares of our common stock and all
shares of our other stock entitled to vote on such matter, with the outstanding
shares of common stock and other stock considered for this purpose as a single
class.
Our certificate of incorporation also provides that no adoption, amendment
or repeal of a by-law shall be effective unless approved by our board of
directors or the affirmative vote of the holders of not less than 80% of the
voting power of the outstanding shares of our common stock and all shares of
our other stock entitled to vote on such matter, with the outstanding shares of
common stock and other stock considered for this purpose as a single class.
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
mergers, asset sales and other transactions resulting in financial benefit to a
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years, did own) 15% or
more of a corporation's voting stock. The statute could prohibit or delay
mergers or other takeover or change in control attempts with respect to our
company and, accordingly, may discourage attempts to acquire our company.
Section 203 and the provisions of our certificate of incorporation and by-
laws 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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<PAGE>
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 by-laws 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 by-laws 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 by-laws
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 by-laws 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 by-laws may discourage
stockholders from bringing a lawsuit against directors for breach of their
fiduciary duty (including breaches resulting from grossly negligent conduct)
and may have the effect of reducing the likelihood of derivative litigation
against directors and officers, even though 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 by-laws. 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 members of our
management team and other investors. Offers will be made in person and by
telephone by some of our senior executives to persons with whom they have an
existing relationship. 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 and we will not enter into any transactions
designed to stabilize, maintain or otherwise affect the market price of our
shares during the offering.
The public offering price was set solely by the board of directors of Ziff-
Davis based primarily on their valuation of our company and the bids they
received in the auction for our businesses conducted as part of Ziff-Davis'
restructuring. See "This Distribution--Background of the Distribution" for
further information concerning the bids received in the auction. The board also
received advice from external advisors.
Ziff-Davis will pay all of the expenses of the offering other than the
commitment fees on the credit facility, the discount on the debentures and the
cost of listing our shares on the NYSE.
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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.
VALIDITY OF THE COMMON STOCK
The validity of the common stock offered hereby will be passed upon for
Ziff-Davis and Key3Media by Sullivan & Cromwell, New York, New York. Sullivan &
Cromwell has also provided legal services to Ziff-Davis, SOFTBANK and their
affiliates from time to time in the past.
ADDITIONAL INFORMATION
If you have any questions relating to the mechanics of the distribution and
the delivery of account statements or the trading of Ziff-Davis common stock
before the distribution, please contact:
The Bank of New York
101 Barclay Street
New York, NY 10286
1-800-524-4458
If you have any other questions relating to the distribution, Ziff-Davis or
Key3Media, please contact:
Morrow & Co., Inc.
445 Park Avenue
New York, NY 10022
1-800-662-5200
You may also examine the registration statement that we have filed with the
SEC. The registration contains information about us not contained in this
prospectus. For example, in this prospectus we have summarized or referred to
some contracts, agreements and other documents that have been filed as exhibits
to the registration statement. Our registration statement may be inspected and
copied at the SEC's principal offices 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. Copies of the registration statement can also be obtained by mail
at prescribed rates. Requests should be directed to the Public Reference
Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Our registration statement is also available on the SEC's website at
www.sec.gov. For more information about the retrieval of our registration
statement from the SEC, please contact the SEC at 1-800-SEC-0330.
After the distribution, we will be subject to the reporting requirements of
the Securities Exchange Act of 1934 and will file reports, proxy statements and
other information with the SEC. When filed, our reports, proxy statements and
other information may be inspected and copied at the offices of the SEC, or
downloaded from the SEC website as described above. Alternatively, you may
inspect them at the NYSE's offices at 20 Broad Street, New York, New York
10005.
76
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS
ZD Events (A Division of Ziff-Davis Inc.)
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Accountants...................................... F-1
Combined Financial Statements:
Combined Balance Sheets at December 31, 1998 and 1999 and March 31,
2000 (unaudited).................................................... F-2
Combined Statements of Operations for the years ended December 31,
1997, 1998 and 1999 and the quarters ended March 31, 1999 and 2000
(unaudited)......................................................... F-3
Statements of Cash Flows for the years ended December 31, 1997, 1998
and 1999 and the quarters ended March 31, 1999 and 2000
(unaudited)......................................................... F-4
Combined Statements of Changes in Division Equity for the years ended
December 31, 1997, 1998 and 1999 and the quarter ended March 31,
2000 (unaudited).................................................... F-5
Notes to Combined Financial Statements............................... F-6-24
</TABLE>
Key3Media Group, Inc.(/1/)
(/1/) Key3Media Group, Inc. will be a newly formed holding company as described
in Note 17 to the ZD Events Combined Financial Statements. As a newly
formed holding company, Key3Media Group, Inc. has no assets or
liabilities.
<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
(In Thousands)
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1998 1999 2000
---------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................. $ 10,385 $ 5,570 $ 17,206
Accounts receivable, net.................. 61,716 76,164 67,687
Prepaid event expenses.................... 7,424 4,584 13,973
Deferred tax asset........................ 3,846 4,443 4,443
Other current assets...................... 3,863 1,952 7,679
---------- -------- --------
Total current assets.................... 87,234 92,713 110,988
Property and equipment, net................. 11,488 10,028 9,152
Intangible assets, net...................... 907,048 875,526 867,690
Other assets................................ 8,756 78 136
---------- -------- --------
Total assets............................ $1,014,526 $978,345 $987,966
========== ======== ========
Liabilities and Division Equity
Current liabilities:
Accounts payable.......................... $ 6,368 $ 15,558 $ 9,778
Bank overdraft............................ 7,557 2,351 9,541
Accrued expenses.......................... 24,404 23,178 16,690
Deferred revenue.......................... 80,053 85,799 121,046
Other current liabilities................. 4,582 3,131 5,126
---------- -------- --------
Total current liabilities............... 122,964 130,017 162,181
Deferred taxes.............................. 47,483 61,553 52,354
Note payable to affiliate................... 382,002 382,002 382,002
Other long-term liabilities................. 9,161 8,381 8,127
Commitments and contingencies (Notes 13, 14
and 16)
Division equity:
Division capital.......................... 409,493 328,022 328,777
Retained earnings......................... 47,257 73,246 59,486
Deferred compensation..................... (1,655) (982) (851)
Other comprehensive income (loss)......... (2,179) (3,894) (4,110)
---------- -------- --------
Total division equity................... 452,916 396,392 383,302
---------- -------- --------
Total liabilities and division equity... $1,014,526 $978,345 $987,966
========== ======== ========
</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
(In Thousands)
<TABLE>
<CAPTION>
Quarter Ended
Years Ended December 31, March 31,
---------------------------- ------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues................ $276,254 $269,135 $251,411 $ 18,968 $ 21,147
Operating expenses:
Cost of production........ 87,822 75,445 74,131 8,057 8,412
Selling, general and
administrative........... 87,283 76,760 88,588 17,870 20,861
Depreciation and
amortization............. 35,619 41,180 38,132 11,095 9,192
-------- -------- -------- -------- --------
210,724 193,385 200,851 37,022 38,465
-------- -------- -------- -------- --------
Income from operations.. 65,530 75,750 50,560 (18,054) (17,318)
Other income (expense):
Interest expense--related
party.................... (65,971) (45,860) (23,300) (5,811) (5,661)
Interest income........... 1,841 2,816 487 108 90
Equity in earnings from
joint venture............ 1,695 2,658 1,649 642 --
Gain on sale of joint
venture interest......... -- -- 13,746 -- --
Other income (expense),
net...................... (40) (28) (71) 1 70
-------- -------- -------- -------- --------
(62,475) (40,414) (7,489) (5,060) (5,501)
-------- -------- -------- -------- --------
Income (loss) before income
tax provision (benefit).... 3,055 35,336 43,071 (23,114) (22,819)
Income tax provision
(benefit).................. 5,406 16,080 17,082 (9,167) (9,059)
-------- -------- -------- -------- --------
Net income (loss)........... $ (2,351) $ 19,256 $ 25,989 $(13,947) $(13,760)
======== ======== ======== ======== ========
</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
(In Thousands)
<TABLE>
<CAPTION>
Quarter Ended
Year Ended December 31, March 31,
---------------------------- ------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)........... $ (2,351) $ 19,256 $ 25,989 $(13,947) $(13,760)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization.............. 35,619 41,180 38,132 11,095 9,192
Stock-based compensation... 3,916 252 522 131 131
Loss on disposal of fixed
asset..................... 55 500 -- -- 1
Foreign exchange
gain/(loss)............... 15 (1) 126 1 (69)
Deferred income taxes...... 4,689 15,490 13,473 (12,355) (9,199)
Provision for uncollectible
accounts receivable....... 398 250 1,508 533 --
Changes in operating assets
and liabilities:
Increase/(decrease) in
accounts receivable...... (3,995) (5,103) (16,647) 6,025 8,460
Increase/(decrease) in
prepaid event expenses... 2,111 (480) 2,840 (2,787) (9,389)
Increase/(decrease) in
other current assets..... (1,248) (2,231) 1,911 (2,397) (5,727)
Decrease/(increase) in
other assets............. (19) (998) 8,678 (410) (58)
Decrease/(increase) in
accounts payable......... (318) (4,126) 9,190 (1,292) (5,780)
Decrease/(increase) in
accrued expenses......... (4,177) 6,076 (1,226) (7,780) (6,488)
Decrease/(increase) in
deferred revenue......... (11,383) 2,038 5,547 35,225 34,924
Decrease/(increase) in
other liabilities........ 3,745 9,456 (2,231) 3,296 1,741
-------- -------- -------- -------- --------
Total adjustments......... 29,408 62,303 61,823 29,285 17,739
Net cash provided by
operating activities..... 27,057 81,559 87,812 15,338 3,979
-------- -------- -------- -------- --------
Cash flows from investing
activities:
Purchase of property and
equipment.................. (8,678) (4,371) (3,131) (137) (481)
Purchase of intangible
assets..................... (700) (7,292) (2,019) (989) --
-------- -------- -------- -------- --------
Net cash used for
investing activities..... (9,378) (11,663) (5,150) (1,126) (481)
-------- -------- -------- -------- --------
Cash flows from financing
activities:
Net transactions with
Softbank, ZDI and
affiliates excluding non-
cash transactions with
affiliates................. (20,115) (83,192) (81,320) (1,310) 755
Increase/(decrease) in bank
overdraft.................. -- 7,557 (5,206) (3,305) 7,190
-------- -------- -------- -------- --------
Net cash used in financing
activities............... (20,115) (75,635) (86,526) (4,615) 7,945
-------- -------- -------- -------- --------
Effects of exchange rate
changes on cash............. 251 (161) (951) (553) 193
-------- -------- -------- -------- --------
Net decrease in cash and cash
equivalents................. (2,185) (5,900) (4,815) 9,044 11,636
Cash and cash equivalents at
beginning of year........... 18,470 16,285 10,385 10,385 5,570
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of year................. $ 16,285 $ 10,385 $ 5,570 $ 19,429 $ 17,206
======== ======== ======== ======== ========
Supplemental cash flow
disclosures:
Non-cash financing
activities:
Transfer of assets to an
affiliate as a reduction
of division equity....... $ -- $ 1,676 $ -- $ -- $ --
Capital contribution of an
asset from an affiliate.. $ -- $ 3,000 $ -- $ -- $ --
Reduction in notes payable
to affiliates as an
increase in division
equity................... $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
and the Quarter Ended March 31, 2000 (Unaudited)
(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
(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 ZDNet 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................. $ 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................. $ 24,274
========
Balance at December 31,
1999................... 328,022 73,246 (3,894) (982) 396,392
Net transactions with
affiliates............. 755 -- -- -- 755
Foreign currency
translation
adjustment............. -- -- (216) $ (216) -- (216)
Amortization of deferred
compensation........... -- -- -- 131 131
Net loss................ -- (13,760) -- (13,760) -- (13,760)
--------- ------- ------- -------- ------- ---------
Balance at March 31,
2000 (unaudited)....... $ 328,777 $59,486 $(4,110) $(13,976) $ (851) $ 383,302
========= ======= ======= ======== ======= =========
</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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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 percentages based upon headcount or revenue in
determining charges for these services. Management of the Business believes the
allocated cost of the centralized administrative services approximates the cost
if the same administrative services were obtained from unaffiliated third
parties. 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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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. The "relief-from-royalty" approach is based upon the savings that an
intangible asset owner will realize from owning the intangible asset instead of
paying a rent or royalty for the use of that asset. 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; and $380 and $521 for the quarters ended March
31, 1999 and 2000, 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
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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.
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.
Interim Financial Statements
The financial statements of the Company as of March 31, 2000 and for the
quarters ended March 31, 1999 and 2000 and related footnote information are
unaudited. All adjustments consisting only of normal recurring adjustments,
have been made which, in the opinion of management, are necessary for a fair
presentation of the interim financial information. Results of operations for
the quarter ended March 31, 2000 are not necessarily indicative of the results
that may be expected for any future period.
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
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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.
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. However, Staff
Accounting Bulletin No. 101B, "Second Amendment: Revenue Recognition in
Financial Statements" was issued to defer adoption of SAB 101 to quarter end
December 31, 2000. Management believes that the adoption of SAB 101 will not
result in a material change in its financial condition or results of
operations.
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>
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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; and $1,234 and
$1,356 for the quarters ended March 31, 1999 and 2000, respectively.
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:
COMDEX................................... 40 $ 418,000 $ 418,000
---------- ----------
418,000 418,000
---------- ----------
Goodwill:
Softbank COMDEX.......................... 40 277,642 277,642
Softbank Forums, Inc. ................... 5 to 30 160,424 160,424
---------- ----------
438,066 438,066
---------- ----------
Advertiser and exhibitor lists:
COMDEX Fall.............................. 27 135,990 135,990
COMDEX Spring............................ 17 12,000 12,000
---------- ----------
147,990 147,990
---------- ----------
Other intangibles.......................... 2.5 to 15 14,440 16,459
---------- ----------
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; and $9,861 and $7,836 for the
quarters ended March 31, 1999 and 2000, respectively.
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
In 1998, the Business recorded increased amortization expenses of $2,930 as
a result of management's change in the estimated useful life of a tradeshow
name. During 1999 additional amortization of $2,306 has been recorded to reduce
the carrying value of this tradeshow to zero in recognition of its discontinued
usage.
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>
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>
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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>
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>
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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.
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 $65,971, $45,860, and $23,300, 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 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 royalty and service fees from Softbank. The Business
recorded $917, $1,108 and $1,267 for the years ended December 31, 1997, 1998,
and 1999, respectively, for such fees. This 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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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.
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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, 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 as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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. The price at which
shares of common stock will be purchased is the lesser of 85% of the fair
market value
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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 17, 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. (See note 17.)
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.
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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.
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
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000
and 1999 has not been audited)
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.
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.
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)
(Information as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
Financial information by geographic areas is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, March 31,
-------------------------------- -------------------
1997 1998 1999 1999 2000
---------- ---------- -------- ---------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues:
North America......... $ 258,254 $ 249,457 $234,412 $ 18,593 $ 20,481
Europe................ 11,828 15,525 12,307 116 346
Far East.............. 6,172 4,153 4,692 259 320
---------- ---------- -------- ---------- --------
Total............... $ 276,254 $ 269,135 $251,411 $ 18,968 $ 21,147
========== ========== ======== ========== ========
Other income (expense):
North America......... $ (62,632) $ (41,254) $ (7,506) -- --
Europe................ 119 486 (132) -- 70
Far East.............. 38 354 149 1 --
---------- ---------- -------- ---------- --------
Total............... $ (62,475) $ (40,414) $ (7,489) $ 1 $ 70
========== ========== ======== ========== ========
Total assets:
North America......... $1,031,817 $ 994,443 $963,064 $ 989,910 $974,234
Europe................ 4,544 16,973 13,025 20,173 12,818
Far East.............. 3,145 3,110 2,256 3,199 914
---------- ---------- -------- ---------- --------
Total............... $1,039,506 $1,014,526 $978,345 $1,013,282 $987,966
========== ========== ======== ========== ========
</TABLE>
Transactions between geographic areas are not significant.
16. Subsequent Events
On April 13, 2000, the Business entered into a Revolving Credit Agreement
("Agreement") with two banks to borrow $150 million 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 Events
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. As part of the spin-off
Key3Media Group, Inc. will borrow approximately $330 million from bank lenders,
and raise approximately $75 million through issuance of zero coupon senior
debentures with detachable common stock warrants and issuance of 11,500,000
common shares of Key3Media. The proceeds will be used to retire ZDI's remaining
indebtedness and to fund a cash dividend to holders of ZDI common stock.
F-23
<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 as of March 31, 2000 and for the quarters ended March 31, 2000 and
1999 has not been audited)
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 allocate taxes incurred
before the spin off;
. 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.
With respect to the lawsuit the Business filed against GES Exposition
Services, Inc. (see Note 13), the Business believes that GES owed it
approximately $10 million as of June 30, 2000, and that this balance is
increasing. On June 19, GES filed an answer, counterclaim and jury demand. Its
counterclaim alleges that the Business breached the contract, violated its
fiduciary duty toward GES and converted GES property to the benefit and use of
the Business. GES has asked the court to award unspecified damages as well as
declaratory and injunctive relief. The Business received subsequent
correspondence from GES' counsel alleging damages of at least $30 million and
additional unspecified damages on a variety of different legal theories.
Management believes that these claims are excessive and lack merit and intends
to vigorously defend them. 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. On June 19, 2000, the Business gave GES 60 days'
notice of intent to terminate the contract between the Business and GES.
On April 13, 2000, the Company borrowed $150 million from two commercial
banks and used the proceeds from the borrowing to reduce its debt to ZDI. ZDI
agreed to pay all expenses relating to this borrowing including commitment
fees, legal and other fees and interest.
On July 20, 1999, ZDI's Board of Directors amended their stock option plans
to accelerate vesting of all unvested ZDI and ZDNet stock options granted in
1998 and half of the unvested ZDI and ZDNet stock options granted in 1999, as
part of ZDI's strategic transaction process announced July 14, 1999. This
acceleration was to occur sixty days after the closing of a transaction of the
participant's business unit and would only be available to participants who
have not resigned their positions or been let go for cause prior to that date.
There was also an extension of the exercise period of the accelerated stock
options to June 30, 2000. On May 31, 2000, ZDI's Board of Directors voted to
accelerate the vesting of these stock options for ZD Event employees and allow
for exercise through June 30, 2000. The acceleration of the ZDI and ZDNet stock
options will result in a compensation charge recorded by the Business in the
second quarter of 2000 of approximately $1 million.
F-24
<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......................................... $ 102,960
NASD fees and expenses....................................... 0
Legal fees and expenses...................................... 2,500,000
Fees and expenses of qualification under state securities
laws (including legal fees)................................. 0
NYSE listing fees and expenses............................... 350,000
Accounting fees and expenses................................. 750,000
Printing and engraving fees.................................. 400,000
Registrar and transfer agent's fees.......................... 50,000
Miscellaneous................................................ 1,500,000
----------
Total.................................................... $5,653,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee 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
Prior to the distribution and the offering, we will grant to our directors
and employees options to acquire an aggregate of 12,862,567 shares of our
common stock at $5.00 per share and 8,186,666 shares of our common stock at
$11.00 per share. These grants will not be registered under the Securities Act
of 1933 because they will not involve an offer or sale for purposes of Section
2(a)(3) of the Securities Act of 1933, in reliance on the fact that the options
will be granted to a relatively broad class of employees who will provide no
consideration in exchange for their options. Simultaneously with the
distribution and offering we will issue and sell the zero coupon debentures and
warrants described in this Registration Statement. These sales will not be
registered under the Securities Act of 1933 in reliance upon the exemption from
registration provided by Section 4(2) of that Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of Key3Media Group,
Inc.+
3.2 Amended and Restated By-Laws of Key3Media Group, Inc.+
4.2 Credit Agreement+
5.1 Opinion of Sullivan & Cromwell.
10.1 Distribution Agreement, among Ziff-Davis Inc., Key3Media Group, Inc. and
Key3Media Events Inc.
10.2 NETWORLD License and Production Agreement, dated as of December 14,
1998, by and between Novell, Inc. and ZD Events Inc. (which was renamed
Key3Media Events Inc.)+
10.3 Letter of Intent for JavaOne 1999-2001, dated July 15, 1998, between Sun
Microsystems, Inc. and ZD Events Inc.+
10.5 Key3Media 2000 Stock Option and Incentive Plan.+
10.6 Employment Agreement, as amended, dated as of March 1, 2000, between
Ziff-Davis Inc. and Fredric D. Rosen.+
10.7 Employment Agreement, dated as of March 3, 2000, between ZD Events Inc.
(now Key3Media Events, Inc.) Ziff-Davis Inc. and Jason E. Chudnofsky.+
10.8 Employment Agreement, as amended, dated as of March 1, 2000, between ZD
Events Inc. (now Key3Media Events, Inc.) and Peter B. Knepper.+
10.9 Employment Agreement, as amended, dated as of March 1, 2000, between ZD
Events Inc. (now Key3Media Events, Inc.) and Ned S. Goldstein.+
10.10 Employment Agreement, dated as of July , 2000, between Key3Media
Events, Inc. and Robert Priest-Heck.+
21.1 List of Subsidiaries of Key3Media Group, Inc.+
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Sullivan & Cromwell (included in Exhibit 5.1).
23.3 Consents of persons to become directors.+
</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.
II-2
<PAGE>
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,
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.
(c) To furnish to the Securities and Exchange Commission, upon
request, a copy of the instruments defining the rights of holders
of the zero coupon debentures described in the prospectus.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 5 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 10th day of August, 2000.
Key3Media Group, Inc.
/s/ Peter B. Knepper
By: _________________________________
Name:Peter B. Knepper
Title:Executive Vice President
and Chief
Financial and Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 5 to the Registration Statement (No. 333-36828) has been signed by the
following persons in the capacities indicated on the 10th day of August, 2000.
Signature Title
<TABLE>
<S> <C>
/s/ Fredric D. Rosen Chairman of the Board,
___________________________________________ Chief Executive Officer
Fredric D. Rosen and Sole Director
/s/ Peter B. Knepper Executive Vice President
___________________________________________ and Chief Financial and
Peter B. Knepper Accounting Officer
</TABLE>