1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 8, 2000
REGISTRATION NO. 333-43900
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CNET NETWORKS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 7812 13-3696170
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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150 CHESTNUT STREET
SAN FRANCISCO, CA 94111
(415) 395-7800
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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SHELBY BONNIE
CHIEF EXECUTIVE OFFICER
CNET NETWORKS, INC.
150 CHESTNUT STREET
SAN FRANCISCO, CA 94111
(415) 395-7800
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
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Copies to:
RICHARD CAPELOUTO, ESQ. ALAN J. SINSHEIMER, ESQ.
DANIEL CLIVNER, ESQ. SULLIVAN & CROMWELL
SIMPSON THACHER & BARTLETT 125 BROAD STREET
3373 HILLVIEW AVENUE NEW YORK, NEW YORK 10004
PALO ALTO, CALIFORNIA 94304 (212) 558-4000
(650) 251-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the proposed merger described herein have been satisfied or
waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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(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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER PROPOSED MAXIMUM MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE AGGREGATE PRICE(2) REGISTRATION FEE(2)
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Common Stock, par value $0.0001
per share........................ 55,308,016 Not applicable Not applicable $201,357
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(1) Based on the maximum number of shares of CNET common stock to be issued in
connection with the merger, calculated as the sum of (i) the product of (A)
109,848,823, the aggregate number of shares, par value $0.01 per share, of
ZD common stock outstanding as of August 8, 2000, assuming exercise of all
stock options, and (B) 0.3397, the number of shares of common stock of the
Registrant issuable in respect of each share of ZD common stock and (ii) the
product of (A) 30,331,036, the aggregate number of shares, par value $0.01
per share, of ZDNet common stock outstanding as of August 8, 2000, assuming
exercise of all stock options, and (B) 0.5932, the number of shares of
common stock of the Registrant issuable in respect of each share of ZDNet
common stock.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rules 457(f) and 457(c) of the Securities Act of 1933, as amended, and
based upon (i) the average of the high and low per share prices of ZD common
stock as reported on the New York Stock Exchange ($13.40) on August 11, 2000
and (ii) the average of the high and low per share prices of ZDNet common
stock as reported on the New York Stock Exchange ($14.60) on August 11,
2000.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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[CNET LOGO]
CNET NETWORKS, INC.
150 CHESTNUT STREET
SAN FRANCISCO, CALIFORNIA 94111
September 6, 2000
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
CNET Networks, Inc., which we will hold on October 17, 2000, at 9:00 a.m., local
time at 150 Chestnut Street, San Francisco, California.
At the special meeting, you will be asked to vote on the issuance of CNET
common stock under an Agreement and Plan of Merger pursuant to which a wholly
owned subsidiary of CNET will merge into Ziff-Davis Inc., with Ziff-Davis
continuing as the surviving corporation and becoming a wholly owned subsidiary
of CNET. We will continue to be called CNET Networks, Inc. after the merger. You
will also be asked to vote for the approval of the CNET 2000 Stock Option Plan.
CNET's acquisition of Ziff-Davis will create the leading online provider of
technology information focused on products and services, with operations in 23
countries and 16 languages. The combined company is projected to be a top-ten
web property.
When the merger is completed, each share of ZD common stock will be
converted into 0.3397 of a share of CNET common stock and each share of ZDNet
common stock will be converted into 0.5932 of a share of CNET common stock.
After the merger, the current stockholders of CNET will own approximately 65% of
the combined company.
ZD common stock is listed on the New York Stock Exchange under the trading
symbol "ZD". On September 1, 2000, ZD common stock closed at $11.19 per share.
ZDNet common stock is listed on the New York Stock Exchange under the trading
symbol "ZDZ". On September 1, 2000, ZDNet common stock closed at $19.88 per
share.
We cannot complete the merger or adopt the CNET 2000 Stock Option Plan
unless holders of a majority of the CNET shares represented in person or by
proxy and entitled to vote at the special meeting at which a quorum is present
vote for these proposals. Halsey Minor, the Chairman of our Board, and I have
agreed to vote our CNET shares, which represent approximately 23% of the
outstanding CNET common stock, in favor of the issuance of CNET common stock in
the merger.
BEFORE VOTING, YOU SHOULD CAREFULLY REVIEW ALL THE INFORMATION CONTAINED IN
THE ATTACHED PROXY STATEMENT/ PROSPECTUS AND IN PARTICULAR YOU SHOULD CONSIDER
THE MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 21.
After careful consideration, your board of directors has unanimously
determined that the merger is in the best interests of CNET and its
stockholders. Further, your board of directors has unanimously approved and
adopted the CNET 2000 Stock Option Plan. YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE ISSUANCE OF CNET SHARES IN THE MERGER AND FOR
THE APPROVAL OF THE CNET 2000 STOCK OPTION PLAN.
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Whether or not you expect to attend the meeting, please complete, date,
sign and promptly return the accompanying proxy in the enclosed postage paid
envelope so that your shares may be represented at the meeting, regardless of
the number of shares you own.
Sincerely,
/s/ SHELBY BONNIE
Shelby Bonnie
Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the merger described in this proxy
statement/prospectus or the CNET capital stock to be issued in connection with
the merger, or determined if this proxy statement/prospectus is accurate or
adequate. Any representation to the contrary is a criminal offense.
THIS PROXY STATEMENT/PROSPECTUS IS DATED SEPTEMBER 6, 2000 AND IS FIRST
BEING MAILED TO STOCKHOLDERS ON OR ABOUT SEPTEMBER 8, 2000.
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CNET NETWORKS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 17, 2000
To the Stockholders of CNET Networks, Inc.:
A special meeting of stockholders of CNET Networks, Inc. will be held at
150 Chestnut Street, San Francisco, California 94111, on October 17, 2000 at
9:00 a.m. local time, for the following purposes:
1. To consider and vote upon a proposal to approve the issuance of
CNET common stock in connection with an Agreement and Plan of Merger, dated
as of July 19, 2000, among TD Merger Sub, Inc. a wholly owned subsidiary of
CNET, Ziff-Davis Inc. and CNET under which:
- TD Merger Sub will be merged into Ziff-Davis, with Ziff-Davis continuing
as the surviving corporation and becoming a subsidiary of CNET;
- each issued and outstanding share of ZD common stock will be canceled
and converted into the right to receive 0.3397 of a share of CNET common
stock; and
- each issued and outstanding share of ZDNet common stock will be canceled
and converted into the right to receive 0.5932 of a share of CNET common
stock.
2. To consider and vote upon a proposal to approve the CNET Networks,
Inc. 2000 Stock Option Plan.
Our board of directors has unanimously approved the merger agreement and
the merger and recommends that you vote FOR approval of the issuance of shares
of CNET common stock in the merger. Further, our board of directors has
unanimously approved and adopted the CNET 2000 Stock Option Plan and recommends
that you vote FOR approval of the CNET 2000 Stock Option Plan. The proposals are
described in more detail in the accompanying proxy statement/prospectus, which
you should read in its entirety before voting. A copy of the merger agreement is
attached as Annex A to the accompanying proxy statement/prospectus. A copy of
the CNET Networks, Inc. 2000 Stock Option Plan is attached as Annex B to the
accompanying proxy statement/prospectus.
Only stockholders of record at the close of business on September 5, 2000
are entitled to notice of the special meeting, and to vote at the special
meeting and at any adjournments thereof. For ten days prior to the special
meeting, a complete list of CNET stockholders entitled to vote at the special
meeting will be available for examination by any stockholder for any purpose
germane to the special meeting, during ordinary business hours at the principal
executive offices of CNET located in San Francisco, California.
All CNET stockholders are cordially invited to attend the special meeting
in person. However, to ensure your representation at the special meeting, I urge
you to complete, sign and return the enclosed proxy card as promptly as possible
in the enclosed postage-prepaid envelope. You may revoke your proxy in the
manner described in the accompanying proxy statement/prospectus at any time
before it is voted at the special meeting.
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We cannot complete the merger or adopt the CNET 2000 Stock Option Plan
unless holders of a majority of the CNET shares represented in person or by
proxy and entitled to vote at the special meeting at which a quorum is present
vote for these proposals. Halsey Minor, the Chairman of our Board, and I have
agreed to vote the CNET shares we own, which on the record date represent
approximately 23% of the outstanding CNET common stock, in favor of the issuance
of CNET common stock in the merger.
By order of the board of directors,
/s/ SHELBY BONNIE
Shelby Bonnie
Chief Executive Officer
San Francisco, California
September 6, 2000
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REFERENCE TO ADDITIONAL INFORMATION
This proxy statement/prospectus "incorporates by reference" important
business and financial information about CNET and Ziff-Davis from documents that
are not included in or delivered with this proxy statement/prospectus. You may
obtain documents incorporated by reference in this proxy statement/ prospectus
without charge by requesting them in writing or by telephone from the
appropriate company at the following addresses:
CNET Networks, Inc. Ziff-Davis Inc.
150 Chestnut Street 28 East 28th Street
San Francisco, California 94111 New York, New York 10016
Tel: (415) 364-8000 Tel: (212) 503-3579
Attn: Corporate Secretary Attn: Corporate Secretary
IF YOU ARE A ZIFF-DAVIS STOCKHOLDER AND YOU WOULD LIKE TO REQUEST ANY
DOCUMENTS RELATED TO ZIFF-DAVIS, PLEASE DO SO BY SEPTEMBER 29, 2000 IN ORDER TO
RECEIVE THEM BEFORE THE ZIFF-DAVIS SPECIAL MEETING. IF YOU ARE A CNET
STOCKHOLDER AND YOU WOULD LIKE TO REQUEST ANY DOCUMENTS RELATED TO CNET, PLEASE
DO SO BY OCTOBER 3, 2000 IN ORDER TO RECEIVE THEM BEFORE THE CNET SPECIAL
MEETING.
For a more detailed description of the information incorporated by
reference into this proxy statement/prospectus and how you may obtain it, see
"Summary of the Proxy Statement/Prospectus -- Where You Can Find More
Information" on page 11.
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[ZIFF-DAVIS LOGO]
ZIFF-DAVIS INC.
28 EAST 28TH STREET
NEW YORK, NEW YORK 10016
September 6, 2000
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders
of Ziff-Davis Inc., which we will hold on October 13, 2000, at 10:00 a.m., local
time, at 28 East 28th Street, New York, New York.
At the special meeting, you will be asked to vote on the approval of an
Agreement and Plan of Merger pursuant to which a wholly owned subsidiary of CNET
will merge into Ziff-Davis, with Ziff-Davis continuing as the surviving
corporation and becoming a wholly owned subsidiary of CNET. The combined company
will continue to be called CNET Networks, Inc.
CNET's merger with Ziff-Davis will create the leading online provider of
technology information focused on products and services, with operations in 23
countries and 16 languages. The combined company is projected to be a top-ten
web property.
When the merger is completed, each share of ZD common stock will be
converted into 0.3397 of a share of CNET common stock and each share of ZDNet
common stock will be converted into 0.5932 of a share of CNET common stock.
After the merger, Ziff-Davis stockholders will own approximately 35% of the
shares of the combined company.
CNET common stock is listed on NASDAQ under the trading symbol "CNET". On
September 1, 2000, CNET common stock closed at $33.81 per share.
We cannot complete the merger unless holders of shares of ZD common stock
and ZDNet common stock representing a majority of the votes entitled to be cast
at the special meeting at which a quorum is present, voting together as a single
class, vote to adopt the merger agreement. Softbank America, Inc., which owns ZD
common stock entitled to cast a majority of the total votes at the special
meeting, has agreed to vote to adopt the merger agreement. Thus, we expect the
merger agreement to be adopted by our stockholders regardless of how other
stockholders vote.
BEFORE VOTING, YOU SHOULD CAREFULLY REVIEW ALL THE INFORMATION CONTAINED IN
THE ATTACHED PROXY STATEMENT/PROSPECTUS AND IN PARTICULAR YOU SHOULD CONSIDER
THE MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 21.
After careful consideration, your board of directors has unanimously
determined that the merger is in the best interests of Ziff-Davis and its
stockholders. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
ADOPTION OF THE MERGER AGREEMENT.
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Whether or not you expect to attend the meeting, please complete, date,
sign and promptly return the accompanying proxy in the enclosed postage paid
envelope so that your shares may be represented at the meeting, regardless of
the number of shares you own. If you do not vote, it will have the same effect
as voting against the merger.
Sincerely,
/s/ ERIC HIPPEAU
Eric Hippeau
Chairman, Chief Executive
Officer and Director
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the merger described in this proxy
statement/prospectus or the CNET capital stock to be issued in connection with
the merger, or determined if this proxy statement/prospectus is accurate or
adequate. Any representation to the contrary is a criminal offense.
THIS PROXY STATEMENT/PROSPECTUS IS DATED SEPTEMBER 6, 2000 AND IS FIRST
BEING MAILED TO STOCKHOLDERS ON OR ABOUT SEPTEMBER 8, 2000.
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ZIFF-DAVIS INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 13, 2000
To the Stockholders of Ziff-Davis Inc.:
A special meeting of stockholders of Ziff-Davis Inc. will be held at 28
East 28th Street, New York, New York on October 13, 2000 at 10:00 a.m. local
time, for the following purposes:
1. To consider and vote upon a proposal to adopt an Agreement and Plan of
Merger, dated as of July 19, 2000, among CNET Networks, Inc., TD Merger Sub,
Inc., a wholly owned subsidiary of CNET, and Ziff-Davis under which:
- TD Merger Sub will be merged into Ziff-Davis, with Ziff-Davis continuing
as the surviving corporation and becoming a wholly-owned subsidiary of
CNET;
- each issued and outstanding share of ZD common stock will be canceled and
converted into the right to receive 0.3397 of a share of CNET common
stock; and
- each issued and outstanding share of ZDNet common stock will be canceled
and converted into the right to receive 0.5932 of a share of CNET common
stock.
2. To transact any other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
Our board of directors has unanimously approved the merger agreement and
the merger and recommends that you vote FOR adoption of the merger agreement.
The proposal is described in more detail in the accompanying proxy
statement/prospectus, which you should read in its entirety before voting. A
copy of the merger agreement is attached as Annex A to the accompanying proxy
statement/ prospectus.
Only stockholders of record at the close of business on September 5, 2000
are entitled to notice of the special meeting, and to vote at the special
meeting and at any adjournments thereof.
Holders of ZD common stock and ZDNet common stock are not entitled to
appraisal rights under Section 262 of the Delaware General Corporation Law
because the conditions set forth in Section 262 have not been met.
All Ziff-Davis stockholders are cordially invited to attend the special
meeting in person. However, to ensure your representation at the special
meeting, we urge you to complete, sign and return the enclosed proxy card as
promptly as possible in the enclosed postage-prepaid envelope. You may revoke
your proxy in the manner described in the accompanying proxy
statement/prospectus at any time before it is voted at the special meeting. If
you fail to return a properly executed proxy card or to vote in person at the
special meeting, the effect will be a vote against the proposal to adopt the
merger agreement.
We cannot complete the merger unless holders of shares of ZD common stock
and ZDNet common stock representing a majority of the votes entitled to be cast
at the special meeting at which a quorum is present, voting together as a single
class, vote to adopt the merger agreement. Softbank America, Inc., which owns ZD
common stock entitled to cast a majority of the total votes at the special
meeting, has
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agreed to vote to adopt the merger agreement. Thus, we expect the merger
agreement to be adopted by our stockholders regardless of how other stockholders
vote.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
By order of the board of directors,
/s/ LAUREN B. BONFIELD
Lauren B. Bonfield
Secretary
New York, New York
September 6, 2000
THE INFORMATION IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE
AND MAY BE CHANGED. CNET MAY NOT SELL ITS SECURITIES PURSUANT TO THE PROPOSED
MERGER UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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TABLE OF CONTENTS
PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS................... 5
The Companies............................................. 5
Summary of the Merger..................................... 5
Summary of the CNET 2000 Stock Option Plan................ 10
Where You Can Find More Information....................... 11
CNET Networks, Inc.
Selected Historical Financial Data..................... 13
Ziff-Davis Inc.
Selected Historical Financial Data..................... 14
Selected Unaudited Pro Forma Condensed Combined Financial
Information............................................ 16
Unaudited Comparative per Share Data...................... 17
Comparative per Share Market Price Information............ 19
RISK FACTORS................................................ 21
THE CNET SPECIAL MEETING.................................... 37
THE ZIFF-DAVIS SPECIAL MEETING.............................. 40
PROPOSAL ONE -- THE MERGER AND RELATED MATTERS.............. 44
THE PROPOSED MERGER......................................... 44
Structure of the merger; merger consideration............. 44
Background of the merger.................................. 44
Joint reasons for the merger.............................. 49
CNET's reasons for the merger............................. 50
Recommendation of CNET's board of directors............... 52
Opinion of CNET's financial advisor....................... 52
Ziff-Davis' reasons for the merger........................ 58
Recommendation of Ziff-Davis' board of directors.......... 60
Opinion of Ziff-Davis' financial advisor.................. 60
Material United States federal income tax consequences.... 65
Exchange of Ziff-Davis stock certificates for CNET stock
certificates........................................... 66
No dividends.............................................. 67
Regulatory matters........................................ 67
Accounting treatment...................................... 67
Restrictions on sales of shares by affiliates............. 67
Interests of certain directors, officers and affiliates in
the merger............................................. 68
Material contacts between Ziff-Davis and CNET............. 68
Indemnification and insurance............................. 68
No appraisal rights....................................... 69
Listing on NASDAQ of CNET common stock to be issued in the
merger................................................. 69
Delisting and deregistration of ZD common stock and ZDNet
common stock after the merger.......................... 69
THE MERGER AGREEMENT........................................ 70
General................................................... 70
Representations and warranties............................ 70
Conditions to the completion of the merger................ 71
No solicitation........................................... 72
Termination............................................... 73
Termination fees.......................................... 74
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PAGE
----
Conduct of business pending the merger.................... 76
Other agreements.......................................... 77
Amendment; extension and waiver........................... 78
Expenses.................................................. 78
AGREEMENTS RELATED TO THE MERGER............................ 79
CNET stockholders voting agreements....................... 79
Softbank voting agreement................................. 79
Softbank stockholder agreement............................ 80
Stockholder agreements of Mr. Bonnie and Mr. Minor........ 82
Affiliate agreement....................................... 82
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 83
COMPARISON OF RIGHTS OF HOLDERS OF CNET COMMON STOCK AND
ZIFF-DAVIS COMMON STOCK................................... 89
PROPOSAL TWO -- APPROVAL OF THE CNET 2000 STOCK OPTION
PLAN...................................................... 102
General Information....................................... 102
Administration............................................ 102
Eligibility............................................... 102
Terms of options.......................................... 103
Other stock-based awards.................................. 103
Adjustments............................................... 104
No right to continued employment.......................... 104
Nontransferability of awards.............................. 105
Amendments................................................ 105
Certain federal income tax consequences................... 105
Interests of certain persons in matters to be acted
upon................................................... 106
PRINCIPAL STOCKHOLDERS OF CNET NETWORKS, INC................ 107
PRINCIPAL STOCKHOLDERS OF ZIFF-DAVIS INC.................... 108
Certain Beneficial Owners................................. 108
Management................................................ 109
EXECUTIVE COMPENSATION...................................... 110
Summary compensation table................................ 110
Director compensation..................................... 111
Employment agreements..................................... 111
Incentive plan............................................ 111
Compensation Committee interlocks and insider
participation.......................................... 112
Compensation Committee's report on executive
compensation........................................... 112
SUBMISSION OF STOCKHOLDER PROPOSALS......................... 113
EXPERTS..................................................... 113
LEGAL MATTERS............................................... 113
ANNEX A (Agreement and Plan of Merger, dated as of July 19,
2000, among the Registrant, Ziff-Davis Inc., and TD Merger
Sub, Inc.)................................................ A-1
ANNEX B (CNET 2000 Stock Option Plan)....................... B-1
ANNEX C (Opinion of Lazard Freres & Co.).................... C-1
ANNEX D (Opinion of Morgan Stanley & Co. Incorporated)...... D-1
ii
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE MERGER?
A: The merger will combine the business of CNET and Ziff-Davis. Upon
consummation of the merger, Ziff-Davis will become a wholly-owned
subsidiary of CNET. After the merger, the current stockholders of
Ziff-Davis will own approximately 35% of the combined company.
Q: WHY ARE ZIFF-DAVIS AND CNET PROPOSING THE MERGER?
A: CNET's merger with Ziff-Davis will create the leading online provider of
technology information focused on products and services, with operations
in 23 countries and 16 languages. The combined company is projected to be
a top-ten web property, according to the Media Metrix statistics for May
2000. We believe that the combined company will be uniquely positioned to
address the technology information needs of all segments of technology
users, from new technology buyers to mainstream computer enthusiasts to
active participants in the technology industry. By combining the
complementary strengths and management teams of the two leading
interactive technology companies, we believe that we will be able to
broaden our audience of users, realize opportunities to enhance revenues
and content, leverage our respective strengths to enhance revenues and
EBITDA, and capitalize on potential business development opportunities.
The combination provides the potential for stronger combined operating and
financial results than either company could achieve on its own.
Q: WHAT WILL ZIFF-DAVIS STOCKHOLDERS RECEIVE IN THE MERGER?
A: If we complete the merger, holders of ZD common stock will receive, in
exchange for each share of ZD common stock held by them on the date of the
merger, 0.3397 of a share of CNET common stock and holders of ZDNet common
stock will receive, in exchange for each share of ZDNet common stock held
by them on the date of the merger, 0.5932 of a share of CNET common stock.
We will make a cash payment in lieu of issuing fractional shares in the
merger.
Q: WILL CNET ISSUE TRACKING STOCK IN THE MERGER?
A: No. CNET will issue only one class of common stock. The shares of both ZD
common stock and ZDNet common stock will be canceled and exchanged for
shares of CNET common stock.
Q: WILL ZIFF-DAVIS ELIMINATE ITS TRACKING STOCK STRUCTURE BEFORE THE MERGER?
A. No. Ziff-Davis will not eliminate its tracking stock structure prior to
completion of the merger. If the merger is abandoned prior to its
completion, Ziff-Davis expects to eliminate its tracking stock structure
as soon as possible after termination of the merger agreement on the terms
described in its proxy statement dated February 7, 2000.
Q: WILL ZIFF-DAVIS STOCKHOLDERS RECOGNIZE A TAXABLE GAIN OR LOSS FOR UNITED
STATES FEDERAL INCOME TAX PURPOSES IN THE MERGER?
A: We expect that, if the merger is completed, you would not recognize gain
or loss for United States federal income tax purposes, except with respect
to the cash, if any, received instead of fractional shares of CNET common
stock. However, we strongly encourage you to consult your own tax advisor
to determine your particular tax consequences.
For a more complete description of the tax consequences of the merger, see
the section titled "The Proposed Merger -- Material United States federal
income tax consequences" on page 65.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER AGREEMENT AND THE MERGER OR THE ISSUANCE OF CNET COMMON STOCK?
A: Yes. In evaluating the merger agreement and the merger or the issuance of
CNET common stock, you should carefully read this proxy
statement/prospectus and especially consider the factors discussed in the
section entitled "Risk Factors" on page 21.
1
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Q: WHAT VOTE IS REQUIRED BY CNET STOCKHOLDERS TO APPROVE THE ISSUANCE OF CNET
COMMON STOCK?
A: The affirmative vote of the holders of a majority of the CNET shares
represented in person or by proxy and entitled to vote at the CNET special
meeting at which a quorum is present is required to approve the issuance
of CNET common stock in the merger. As of the record date, CNET directors
and executive officers and their affiliates, including Mr. Bonnie and Mr.
Minor, owned approximately 24% of the CNET common stock entitled to vote
at the CNET special meeting. Mr. Bonnie and Mr. Minor have agreed with
Ziff-Davis to vote all of their CNET common stock in favor of the issuance
of CNET common stock in the merger. As of the record date, Mr. Bonnie's
and Mr. Minor's CNET common stock represented approximately 23% of the
outstanding CNET common stock.
Q: WHAT VOTE IS REQUIRED BY ZIFF-DAVIS STOCKHOLDERS TO ADOPT THE MERGER
AGREEMENT?
A: The affirmative vote of holders of ZD common stock and ZDNet common stock
representing a majority of the votes entitled to be cast at the Ziff-Davis
special meeting at which a quorum is present, voting together as a single
class, is required to adopt the merger agreement. Softbank, which owns ZD
common stock entitled to cast a majority of the total votes at the
Ziff-Davis special meeting, has agreed with CNET to vote to adopt the
merger agreement. Thus, we expect the merger agreement to be adopted by
Ziff-Davis stockholders regardless of how other Ziff-Davis stockholders
vote.
Q: DOES CNET'S BOARD OF DIRECTORS RECOMMEND VOTING IN FAVOR OF THE ISSUANCE
OF CNET COMMON STOCK IN THE MERGER AND THE APPROVAL OF THE CNET 2000 STOCK
OPTION PLAN?
A: Yes. After careful consideration, CNET's board of directors unanimously
determined that the merger and adoption of the CNET 2000 Stock Option Plan
are in the best interests of CNET and its stockholders and has declared
the merger and the CNET 2000 Stock Option Plan advisable. CNET's board of
directors unanimously recommends that you vote FOR the issuance of CNET
common stock in the merger and FOR the CNET 2000 Stock Option Plan.
Q: DOES ZIFF-DAVIS' BOARD OF DIRECTORS RECOMMEND VOTING FOR ADOPTION OF THE
MERGER AGREEMENT?
A: Yes. After careful consideration, Ziff-Davis' board of directors
unanimously determined that the merger is in the best interests of
Ziff-Davis and its stockholders and has declared the merger advisable.
Ziff-Davis' board of directors unanimously recommends that Ziff-Davis
stockholders vote FOR adoption of the merger agreement.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We are working to complete the merger as quickly as possible. We expect to
complete the merger during the fourth calendar quarter of 2000.
For a description of the conditions to completion of the merger, see the
section titled "The Merger Agreement -- Conditions to the completion of
the merger" on page 71.
Q: ARE ZIFF-DAVIS STOCKHOLDERS ENTITLED TO APPRAISAL RIGHTS?
A: No. Under Delaware law, holders of Ziff-Davis stock do not have the right
to an appraisal of the value of their shares of ZD common stock or ZDNet
common stock in connection with the merger. See "The Proposed Merger -- No
appraisal rights" on page 69.
Q. ARE CNET STOCKHOLDERS ENTITLED TO APPRAISAL RIGHTS?
A: No. Under Delaware law, holders of CNET stock do not have the right to an
appraisal of the value of their shares of CNET common stock in connection
with the merger. See "The Proposed Merger -- No appraisal rights" on page
69.
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Q: WHAT IS THE CNET 2000 STOCK OPTION PLAN?
A: The CNET 2000 Stock Option Plan is designed to make available a sufficient
number of shares in order to attract and retain the best available
personnel for positions of substantial responsibility and provide
incentives to such personnel to promote the success of our business. A
total of 5,000,000 shares of common stock have been authorized and
reserved for issuance upon exercise of options granted under the CNET 2000
Stock Option Plan.
Q: WHAT VOTE IS REQUIRED BY CNET STOCKHOLDERS TO APPROVE THE CNET 2000 STOCK
OPTION PLAN?
A: The affirmative vote of the holders of a majority of the CNET shares
represented in person or by proxy and entitled to vote at the CNET special
meeting at which a quorum is present is required to approve the CNET 2000
Stock Option Plan. As of the record date, CNET directors and executive
officers and their affiliates owned approximately 24% of the CNET common
stock outstanding.
Q: WHY IS CNET PROPOSING THE CNET 2000 STOCK OPTION PLAN?
A: At the May 24, 2000 CNET annual meeting, stockholders approved an
amendment to the 1997 Stock Option Plan to increase the number of CNET
shares available under the plan by 5,000,000. Due to an administrative
error in the amendment, the increase was deemed to be void and the plan
remains at its previous limit which is insufficient to meet current
requirements. In order to ensure that sufficient stock options are
available to reward and motivate existing CNET employees and to attract
new employees, the CNET board has approved the issuance of 5,000,000
shares of CNET common stock pursuant to the CNET 2000 Stock Option Plan.
Further, we are seeking stockholder approval in order to enable grants
under the CNET 2000 Stock Option Plan to qualify as incentive stock
options and to avoid limitations on tax deductibility of options granted
under the plan.
Q: IS THE APPROVAL OF THE ISSUANCE OF CNET COMMON STOCK IN CONNECTION WITH
THE MERGER CONDITIONED ON THE APPROVAL OF THE CNET 2000 STOCK OPTION PLAN?
A: No. The approval of the issuance of CNET common stock in the merger and
the approval of the CNET 2000 Stock Option Plan are not conditioned on
each other. Therefore, a vote for or against one proposal will have no
effect on the approval of the other proposal.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
proxy statement/ prospectus, please complete and sign your proxy card and
return it in the enclosed return envelope as soon as possible so that your
shares may be represented at your special meeting.
Q: SHOULD ZIFF-DAVIS STOCKHOLDERS SEND IN THEIR STOCK CERTIFICATES NOW?
A: No, Ziff-Davis stockholders should not send in their stock certificates
now. After the merger is completed we will send Ziff-Davis stockholders
written instructions for exchanging their Ziff-Davis stock certificates.
CNET stockholders will keep their existing stock certificates.
Q: HOW DO I VOTE?
A: Simply indicate on your proxy card how you want to vote, and sign and mail
your proxy card in the enclosed return envelope as soon as possible so
that your shares may be represented at the special meeting. If you return
your proxy card but do not include instructions on how to vote your proxy,
we will vote your shares FOR the proposals being made at your special
meeting unless your shares are held in "street name" in a brokerage
account. CNET stockholders may also vote by telephone as described on the
enclosed proxy card.
The Ziff-Davis special meeting will take place on October 13, 2000 and the
CNET special meeting will take place on October 17, 2000. You may attend
your special meeting and vote your shares in person rather than voting by
proxy.
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Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote in accordance with the information and procedures provided to you
by your broker. If you are a holder of ZD common stock and/or ZDNet common
stock and you do not instruct your broker to vote your shares, it will be
equivalent to voting against the proposals being made at your special
meeting.
For a more complete description of voting shares held in "street name,"
see the section titled "The CNET Special Meeting" on page 37 and "The
Ziff-Davis Special Meeting" on page 40.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: If you want to change your vote, send the secretary of CNET or Ziff-Davis,
as relevant, a later-dated, signed proxy card before the special meeting
or attend the applicable special meeting and vote in person. You may also
revoke your proxy by sending written notice to the relevant secretary
before the meeting or by calling the toll free number on the enclosed
proxy card and changing your vote.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have any questions about the merger or if you need additional
copies of this proxy statement/ prospectus or the enclosed proxy, you
should contact:
CNET STOCKHOLDERS: ZIFF-DAVIS STOCKHOLDERS:
------------------ ------------------------
Corporate Investor Communications, Inc. Corporate Investor Communications, Inc.
111 Commerce Road 111 Commerce Road
Carlstadt, New Jersey 07072-2586 Carlstadt, New Jersey 07072-2586
Tel: (201) 896-1900 Tel: (201) 896-1900
or or
CNET Networks, Inc. Ziff-Davis Inc.
150 Chestnut Street 28 East 28th Street
San Francisco, California 94111 New York, New York 10016
Tel: (415) 364-8000 Tel: (212) 503-3579
Attn: Corporate Secretary Attn: Corporate Secretary
You may also obtain additional information about CNET and Ziff-Davis from
documents filed with the Securities and Exchange Commission by following the
instructions in the section entitled "Summary of the Proxy
Statement/Prospectus -- Where You Can Find More Information" on page 11.
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SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
We are sending this proxy statement/prospectus to CNET and Ziff-Davis
stockholders. This summary highlights selected information from this proxy
statement/prospectus and may not contain all the information that is important
to you. To better understand the merger, you should read this entire document
carefully, including the Agreement and Plan of Merger attached as Annex A, the
opinion of Lazard Freres & Co. ("Lazard") attached as Annex C, the opinion of
Morgan Stanley & Co. Incorporated ("Morgan Stanley") attached as Annex D, and
the other documents to which we refer. In addition, we incorporate by reference
in this proxy statement/prospectus important business and financial information
about CNET and Ziff-Davis. You may obtain the information incorporated by
reference into this proxy statement/prospectus without charge by following the
instructions in the section entitled "-- Where You Can Find More Information" on
page 11. We have included page references parenthetically to direct you to a
more complete description of the topics presented in this summary.
THE COMPANIES
CNET NETWORKS, INC.
150 Chestnut Street
San Francisco, CA 94111
Tel: (415) 364-8000
CNET Networks, Inc. is a global media company, producing a branded Internet
network, a computer product database and television and radio programming for
both consumers and businesses. Using unbiased content as its platform, CNET has
built marketplaces for technology products, and serves millions of users every
day. Through its CNET Data Services subsidiary, CNET provides information
powering the computer and electronics sales and distribution channels. CNET Data
Services licenses its multi-lingual product database to U.S. and European online
computer retailers, resellers and e-commerce companies. CNET television
programming airs on CNBC and in national syndication, and in nearly 100
countries worldwide. CNET Radio airs in the San Francisco Bay Area on KNEW 910
AM.
ZIFF-DAVIS INC.
28 East 28th Street
New York, NY 10016
(212) 503-3579
Ziff-Davis Inc. owns ZDNet, a leading online content site focused on
technology products and services. Ziff-Davis currently has two series of common
stock: ZDNet common stock and ZD common stock. The ZDNet common stock is
intended to track the performance of ZDNet, which is the online business
division of Ziff-Davis. The ZD common stock is intended to track the performance
of ZD, which is the division of Ziff-Davis that historically engaged in a
variety of offline media and marketing businesses. ZD has disposed of
substantially all of its businesses, and now owns only Computer Shopper, Smart
Planet, an investment in Red Herring Communications Inc. and a retained interest
in ZDNet which is currently the equivalent of 60 million shares of ZDNet common
stock.
SUMMARY OF THE MERGER (SEE PAGE 44)
The Merger
In the merger, TD Merger Sub, a newly-formed wholly owned subsidiary of
CNET, will merge into Ziff-Davis, and Ziff-Davis will be the surviving
corporation. As a result, Ziff-Davis will become a wholly owned subsidiary of
CNET. At the effective time of the merger, each share of ZD common stock will be
exchanged for 0.3397 of a share of CNET common stock, and each share of ZDNet
common stock will be exchanged for 0.5932 of a share of CNET common stock. After
the merger, each share of CNET common stock will remain outstanding.
5
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Holders of ZD common stock and ZDNet common stock will receive cash for any
fractional shares they would otherwise be entitled to receive in the merger. The
amount of cash paid will be calculated by multiplying the fractional share
interest each holder of ZD common stock or ZDNet common stock would otherwise be
entitled to receive by the closing price per share of CNET common stock on the
trading day following completion of the merger.
Based on the number of shares of ZD common stock, ZDNet common stock and
CNET common stock outstanding on the date of this proxy statement/prospectus,
Ziff-Davis stockholders will be entitled to receive shares of CNET common stock
representing approximately 35.5% of the total number of shares of CNET common
stock outstanding following the merger, based on shares and share equivalents
outstanding. On September 1, 2000, the last trading day before the date of this
proxy statement/ prospectus, CNET common stock closed at $33.81 per share on
NASDAQ.
We have attached the merger agreement, which is the legal document that
governs the merger, as Annex A to this proxy statement/prospectus. We
incorporate the merger agreement by reference into this proxy
statement/prospectus. We encourage you to read the merger agreement carefully.
Vote Required for Approval of the Merger
The holders of a majority of the shares of CNET common stock present in
person or by proxy and entitled to vote at the special meeting at which a quorum
is present must approve the issuance of CNET common stock in the merger. CNET
stockholders are entitled to cast one vote per share of CNET common stock owned
as of the record date. The approval of the CNET 2000 Stock Option Plan and the
approval of the issuance of CNET common stock in the merger are not conditioned
on each other. Therefore, a vote for or against one proposal will not have an
effect on the approval of the other proposal.
The holders of shares of ZD common stock and ZDNet common stock
representing a majority of the votes entitled to be cast at the special meeting
at which a quorum is present in person or by proxy, voting together as a single
class, must adopt the merger agreement. Holders of ZD common stock are entitled
to cast one vote per share of ZD common stock owned as of the record date.
Holders of ZDNet common stock are entitled to cast 1.84740 votes per share of
ZDNet common stock owned as of the record date.
CNET Stockholders Voting Agreements (see page 79)
As more fully described in this proxy statement/prospectus, Shelby Bonnie
and Halsey Minor, who on the record date for the CNET special meeting together
owned approximately 23% of CNET's outstanding common stock, have entered into
voting agreements with Ziff-Davis under which they agreed to vote their CNET
common stock in favor of the issuance of CNET common stock in the merger.
We have filed these voting agreements as exhibits to CNET's registration
statement for the shares of CNET common stock to be issued in the merger. Please
see the section titled "-- Where You Can Find More Information," on page 11, for
instructions on how to obtain copies of these agreements.
Softbank Voting Agreement (see page 79)
As more fully described in this proxy statement/prospectus, Softbank
America Inc. ("Softbank"), a principal stockholder of Ziff-Davis that owns
approximately 70 million shares of ZD common stock, which at the special meeting
will represent approximately 51.7% of the aggregate voting power of all
Ziff-Davis capital stock, has entered into a voting agreement with CNET under
which Softbank has agreed to vote its shares of ZD common stock in favor of
adoption of the merger agreement. Because Softbank owns shares of ZD common
stock representing a majority of the voting power of Ziff-Davis capital stock,
we expect the merger agreement to be adopted by Ziff-Davis stockholders
regardless of how other stockholders vote.
We have filed this voting agreement as an exhibit to CNET's registration
statement for the shares of CNET common stock to be issued in the merger. Please
see the section titled "-- Where You Can Find More Information," on page 11, for
instructions on how to obtain a copy of this agreement.
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Conditions to Completion of the Merger (see page 71)
CNET's and Ziff-Davis' obligations to complete the merger are subject to
satisfaction or waiver of closing conditions, including the following:
- Ziff-Davis stockholders must adopt the merger agreement and CNET
stockholders must approve the issuance of CNET common stock in the merger
- the waiting period applicable to the merger under the Hart-Scott-Rodino
Act must have expired or been terminated
- there must not be any injunction or order in effect that makes the merger
illegal or otherwise prohibits the completion of the merger
- the shares of CNET common stock issued in the merger must be approved for
listing on NASDAQ, subject to official notice of issuance
In addition, CNET's and Ziff-Davis' obligation to complete the merger is
further subject to the satisfaction or waiver of the following additional
conditions:
- the representations and warranties of the other party in the merger
agreement must be true and correct in all material respects
- the other party must have complied in all material respects with all
agreements and covenants in the merger agreement
- each party must have received an opinion from its tax counsel to the
effect that for federal income tax purposes the merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code
- with respect only to CNET's obligation to effect the merger, Ziff-Davis
must have delivered to CNET reasonably satisfactory evidence to the
effect that the spin-off of Key3Media did not render that entity
insolvent
- each of Ziff-Davis' affiliates must have entered into an affiliate
agreement
If either Ziff-Davis or CNET waives any condition, we will each consider
the facts and circumstances at that time and make a determination whether a
resolicitation of proxies from its stockholders is necessary or appropriate.
Termination of the Merger Agreement (see page 73)
CNET and Ziff-Davis have the right to terminate the merger agreement before
the merger is completed:
- by mutual written consent of CNET and Ziff-Davis
- by CNET or Ziff-Davis, if the merger has not been completed by January
31, 2001
- by CNET or Ziff-Davis, if the shareholders of either CNET or Ziff-Davis
have not approved the merger proposal at its special meeting
- by CNET or Ziff-Davis, if (A) any governmental entity enjoins or
prohibits completion of the merger or (B) any approval of the merger by
the Department of Justice or the Federal Trade Commission is not obtained
- by CNET or Ziff-Davis, if the other party has breached or failed to
perform any of its representations, warranties, covenants or other
agreements contained in the merger agreement, and such breach has not
been or cannot be cured on or before January 31, 2001
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- by CNET, if Ziff-Davis' board fails to make the recommendation to its
stockholders to adopt the merger agreement or fails to call the
Ziff-Davis special meeting, or to prepare and mail to its stockholders
this proxy statement/prospectus
- by Ziff-Davis, if CNET's board fails to make the recommendation to its
stockholders to approve the issuance of CNET common stock or fails to
call the CNET special meeting or to prepare and mail to its stockholders
this proxy statement/prospectus
Termination Fees (see page 74)
CNET or Ziff-Davis may be required to pay a termination fee to the other as
follows:
- if the stockholders of Ziff-Davis adopt the merger agreement but the
stockholders of CNET do not approve the issuance of CNET common stock in
the merger, then CNET must pay Ziff-Davis a termination fee of $60
million and make a $15 million unsecured loan to Ziff-Davis unless Ziff-
Davis is in material breach of the merger agreement
- CNET may be obligated to pay to Ziff-Davis a termination fee of $105
million if the merger agreement is terminated in connection with a
proposal for an alternative transaction involving CNET. The payment of
the $105 million fee will depend on the particular circumstances of the
termination and will be reduced by the amount of any other termination
fee paid by CNET to Ziff-Davis
- if the stockholders of CNET approve the issuance of CNET common stock in
the merger but the stockholders of Ziff-Davis do not adopt the merger
agreement, then Ziff-Davis must pay CNET a termination fee of $33 million
unless CNET is in material breach of the merger agreement
- Ziff-Davis may be obligated to pay to CNET a termination fee of $58
million if the merger agreement is terminated in connection with a
proposal for an alternative transaction involving Ziff-Davis. The payment
of the $58 million fee will depend on the particular circumstances of the
termination and will be reduced by the amount of any other termination
fee paid by Ziff-Davis to CNET
The Softbank Stockholder Agreement (see page 80)
Softbank and CNET entered into a stockholder agreement under which, among
other things, Softbank will have the right to designate one member to the board
of directors of CNET and will have registration rights with respect to shares of
CNET common stock received by Softbank in the merger. The stockholder agreement
also imposes certain restrictions on the sale of the CNET common stock to be
acquired by Softbank in the merger and limits the ability of Softbank to acquire
more than 20% of CNET's common stock or to propose a merger or other business
combination of CNET.
We have filed this stockholder agreement as an exhibit to CNET's
registration statement for the shares of CNET common stock to be issued in the
merger. Please see the section titled "-- Where You Can Find More Information,"
on page 11, for instructions on how to obtain a copy of this agreement.
Directors and Executive Officers of the Combined Company after the Merger (see
page 68)
After the merger, the board of directors of CNET will consist of seven
members, including five current members of CNET's board of directors, one member
of the board designated by Ziff-Davis, and one member selected by Softbank,
Ziff-Davis' principal stockholder. We currently expect that Ziff-Davis will
designate Daniel Rosensweig, currently a Ziff-Davis director. In addition,
Softbank will designate one director. In connection with the merger, Douglas
Woodrum, one of CNET's directors, has agreed to resign from the CNET board of
directors.
After the merger, Shelby Bonnie, the current chief executive officer of
CNET, will continue as chief executive officer of CNET and Halsey Minor, the
current chairman of the board of directors of CNET, will continue as chairman of
the board of directors of CNET. In addition, Daniel Rosensweig, the current
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chief executive officer of ZDNet and a member of the Ziff-Davis board of
directors, will be president of CNET Networks, Inc.
Opinions of CNET's and Ziff-Davis' Financial Advisors (see pages 52 and 60)
In deciding to approve the issuance of CNET common stock in the merger,
CNET's board of directors considered the opinion of Lazard, its financial
advisor, as to the fairness, from a financial point of view, to the holders of
CNET common stock, of the consideration to be paid in the merger. In deciding to
adopt the merger agreement, Ziff-Davis' board of directors considered an opinion
from Morgan Stanley, its financial advisor, as to the fairness, from a financial
point of view, to the holders of ZD common stock and ZDNet common stock, of the
consideration to be received by such holders in the merger pursuant to the
merger agreement. The written opinions of the financial advisors are attached to
this proxy statement/ prospectus as Annex C and Annex D, and should be read
carefully in their entireties for a description of the assumptions made, matters
considered and limitations on the review undertaken. The opinion of Lazard is
directed to the CNET board, and the opinion of Morgan Stanley is directed to the
Ziff-Davis board. These opinions do not address the prices at which CNET common
stock will trade after the proposed merger, nor do they constitute a
recommendation as to how any stockholder should vote with respect to any matter
relating to the proposed merger.
Material United States Federal Income Tax Consequences (see page 65)
We have structured the merger so that Ziff-Davis stockholders who exchange
their ZD common stock and ZDNet common stock for shares of CNET common stock
will not recognize gain or loss for United States federal income tax purposes in
connection with the merger, except for taxes payable because of cash received by
Ziff-Davis stockholders instead of fractional shares.
Accounting Treatment of the Merger (see page 67)
The merger will be accounted for using the purchase method of accounting
with CNET having acquired Ziff-Davis.
Interests of Certain Persons in the Merger (see page 68)
When considering the recommendation of Ziff-Davis' boards of directors, you
should be aware that certain Ziff-Davis directors, officers and stockholders
have interests in the merger that are different from, or are in addition to,
yours. These interests include options held by various executive officers and
directors and the acceleration of those options upon completion of the merger,
the post-merger membership of up to two current Ziff-Davis directors on the
board of directors of the combined company, and the indemnification of directors
and officers of Ziff-Davis against certain liabilities both before and after the
merger.
No Appraisal Rights (see page 69)
Under Delaware law, neither stockholders of CNET nor stockholders of
Ziff-Davis are entitled to appraisal rights in connection with the merger.
Restrictions on the Ability to Sell CNET Stock (see page 67)
All shares of CNET common stock received by Ziff-Davis stockholders in
connection with the merger will be freely transferable unless the holder is
considered an affiliate of either CNET or Ziff-Davis under the Securities Act of
1933. Shares of CNET held by affiliates may only be sold pursuant to Rule 144 or
145 of the Securities Act or pursuant to a registration statement or an
exemption from the requirements of the Securities Act. The sale by Softbank of
shares of CNET common stock acquired by Softbank in the merger will be subject
to additional restrictions contained in the Softbank stockholder agreement.
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Comparative Market Price Information (see page 19)
CNET common stock is listed on NASDAQ. On July 18, 2000, the last full
trading day prior to the public announcement of the proposed merger, CNET's
common stock closed at $32.1875 per share. On September 1, 2000, the last
trading day prior to the date of this proxy statement/prospectus, CNET's common
stock closed at $33.75 per share.
Shares of ZD common stock and ZDNet common stock are listed on the New York
Stock Exchange. On July 18, 2000, the last full trading day prior to the public
announcement of the proposed merger, ZD common stock closed at $11.375 per share
and shares of ZDNet common stock closed at $12.875. On September 1, 2000, the
last trading day prior to the date of this proxy statement/prospectus, ZD common
stock closed at $11.19 per share and ZDNet common stock closed at $19.88 per
share.
Stockholders of both companies should obtain current market quotations.
Recommendation of CNET's Board of Directors (see page 52)
After careful consideration, CNET's board of directors unanimously
determined that the merger is in the best interests of CNET and its stockholders
and has declared the merger advisable. CNET's board of directors unanimously
recommends that you vote FOR the issuance of CNET common stock in the merger.
Recommendation of Ziff-Davis' Board of Directors (see page 60)
After careful consideration, Ziff-Davis' board of directors unanimously
determined that the merger is in the best interests of Ziff-Davis and its
stockholders and has declared the merger advisable. Ziff-Davis' board of
directors unanimously recommends that you vote FOR adoption of the merger
agreement.
Nasdaq Listing
It is a condition to the closing of the merger that the shares of CNET
common stock that will be issued in the merger be authorized for listing on
NASDAQ, subject to official notice of issuance.
SUMMARY OF THE CNET 2000 STOCK OPTION PLAN (SEE PAGE 102)
CNET stockholders will be asked to approve the adoption of the CNET 2000
Stock Option Plan. This plan authorizes the future grant of options and other
incentive compensation rights with respect to up to 5,000,000 shares of common
stock of CNET.
Vote Required for Approval of the CNET 2000 Stock Option Plan
The holders of a majority of the shares of CNET common stock represented in
person or by proxy and entitled to vote at the CNET special meeting at which a
quorum is present must approve the CNET 2000 Stock Option Plan. CNET
stockholders are entitled to cast one vote per share of CNET common stock owned
as of the record date. The approval of the CNET 2000 Stock Option Plan and the
approval of the issuance of CNET common stock in connection with the merger are
not conditioned on each other. Therefore, a vote for or against one proposal
will not have an effect on the approval of the other proposal.
Recommendation of CNET's Board of Directors with Respect to the CNET 2000
Stock Option Plan
CNET's board of directors unanimously approved and adopted the CNET 2000
Stock Option Plan and unanimously recommends that you vote FOR the approval of
the CNET 2000 Stock Option Plan.
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WHERE YOU CAN FIND MORE INFORMATION
CNET and Ziff-Davis file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms at the following locations:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center Room 1024
Washington, D.C. 20549 Suite 1300 500 West Madison Street
New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. CNET's and Ziff-Davis' SEC filings are also available to the
public from commercial document retrieval services and at the Internet world
wide web site maintained by the SEC at www.sec.gov.
As allowed by SEC rules, this proxy statement/prospectus does not contain
all the information you can find in the registration statement or the exhibits
to the registration statement.
The SEC allows us to "incorporate by reference" information into this proxy
statement/prospectus, which means that we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be a part of this proxy
statement/prospectus, except for any information superseded by information
contained directly in this proxy statement/prospectus. This proxy
statement/prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about our companies and their financial condition.
CNET SEC FILINGS PERIOD
- ---------------- ------
(FILE NO. 0-20939)
Annual Report on Form 10-K...................... Year ended December 31, 1999, as filed March 30,
2000
Quarterly Report on Form 10-Q................... Quarter ended March 31, 2000, as filed May 15, 2000
Quarterly Report on Form 10-Q................... Quarter ended June 30, 2000, as filed August 14,
2000
Current Reports on Form 8-K..................... Filed:
- January 24, 2000
- March 3, 2000
- March 13, 2000
- April 27, 2000
- July 21, 2000
- August 31, 2000
- September 5, 2000
The description of CNET common stock set forth
in CNET's Registration Statement on Form
8-A........................................... Filed July 2, 1996
Press release filed pursuant to Rule 425........ Filed September 5, 2000
ZIFF-DAVIS SEC FILINGS PERIOD
- ---------------------- ------
(FILE NO. 001-14055)
Proxy Statement for the Special Meeting of
Shareholders.................................. Filed February 9, 2000
Annual Report on Form 10-K...................... Year Ended December 31, 1999, as filed April 13,
2000
Quarterly Report on Form 10-Q................... Quarter ended March 31, 2000, as filed May 15, 2000
Quarterly Report on Form 10-Q................... Quarter ended June 30, 2000, as filed August 14,
2000
Current Reports on Form 8-K..................... Filed:
- April 14, 2000
- April 19, 2000
- July 21, 2000
- August 31, 2000
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CNET and Ziff-Davis also incorporate by reference into this proxy
statement/prospectus additional documents that may be filed with the SEC from
the date of this proxy statement/prospectus to the date of the special meetings.
These include periodic reports, such as Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
CNET has supplied all information contained or incorporated by reference in
this proxy statement/ prospectus relating to CNET and Ziff-Davis has supplied
all information contained or incorporated by reference in this proxy
statement/prospectus relating to Ziff-Davis.
You may have previously received some of the documents incorporated by
reference in this proxy statement/prospectus, but you can obtain any of them
through us, the SEC or the SEC's Internet world wide web site as described
above. Documents incorporated by reference are available from us without charge,
excluding all exhibits, unless we have specifically incorporated by reference an
exhibit in this proxy statement/prospectus. You may obtain documents
incorporated by reference in this proxy statement/ prospectus by requesting them
in writing or by telephone from the appropriate company at the following
addresses:
CNET NETWORKS, INC. ZIFF-DAVIS INC.
150 Chestnut Street 28 East 28th Street
San Francisco, California 94111 New York, New York 10016
Tel: (415) 364-8000 Tel: (212) 503-3579
Attn: Corporate Secretary Attn: Corporate Secretary
If you would like to request documents from us, please do so by September 29,
2000 to receive them before the special meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON ADOPTION OF THE MERGER
AGREEMENT OR THE ISSUANCE OF CNET COMMON STOCK IN CONNECTION WITH THE MERGER AND
APPROVAL OF THE CNET 2000 STOCK OPTION PLAN. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED SEPTEMBER
6, 2000. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR THE
ISSUANCE OF CNET COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE
CONTRARY.
INFORMATION ON CNET'S WEB SITE
Information on any CNET Internet web site or the web site of any subsidiary
of CNET is not part of this document, and you should not rely on that
information in deciding whether to approve the issuance of CNET common stock in
the merger or the CNET 2000 Stock Option Plan unless that information is also in
this document or in a document that is incorporated by reference into this
document.
INFORMATION ON ZIFF-DAVIS WEB SITES
Information on any Ziff-Davis Internet web site or the web site of any
subsidiary of Ziff-Davis is not part of this document, and you should not rely
on that information in deciding whether to adopt the merger agreement unless
that information is also in this document or in a document that is incorporated
by reference into this document.
12
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CNET NETWORKS, INC.
SELECTED HISTORICAL FINANCIAL DATA
In the table below, we provide you with selected historical consolidated
financial data of CNET. CNET prepared this information using its consolidated
financial statements and for each of the fiscal years in the five-year period
ended December 31, 1999 and for the six-month periods ended June 30, 2000 and
1999. CNET derived the consolidated statement of operations data below for each
of the five years ended December 31, 1999, and the consolidated balance sheet
data at the end of each of the five years ended December 31, 1999, from
financial statements audited by KPMG LLP, independent certified public
accountants. CNET derived the remaining data from unaudited consolidated
financial statements. This information is only a summary and you should read it
together with the financial information we incorporate by reference in this
proxy statement/prospectus. For copies of the information we incorporate by
reference, see "-- Where You Can Find More Information" on page 11.
SIX MONTH PERIOD ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----------- --------- ---------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues............ $ 96,605 $ 45,628 $ 112,345 $57,477 $ 33,640 $ 14,830 $ 3,500
Gross profit (deficit).... 63,607 27,797 68,385 27,173 6,923 (503) (2,133)
Total operating
expenses*............... 151,144 21,712 129,523 24,216 41,061 15,032 6,337
Operating income (loss)... (87,537) 6,085 (61,138) 2,957 (34,138) (15,535) (8,470)
Total other income
(expense)............... 69,584 24,999 735,361 66 9,410 (1,413) (137)
Net income (loss)......... (48,345) 31,084 416,908 3,023 (24,728) (16,949) (8,607)
Basic net income (loss)
per share............... $ (0.59) $ 0.44 $ 5.80 $ 0.05 $ (0.44) $ (0.52) $ (0.23)
Diluted net income (loss)
per share............... $ (0.59) $ 0.40 $ 5.05 $ 0.04 $ (0.44) $ (0.52) $ (0.23)
Shares used in basic per
share calculation....... 81,536 70,556 71,820 65,783 55,819 32,890 37,381
Shares used in diluted per
share calculation....... 81,536 78,534 83,373 71,623 55,819 32,890 37,381
CONSOLIDATED BALANCE SHEET
DATA (AT PERIOD END):
Cash and cash
equivalents............. $ 102,825 $ 99,081 $ 53,063 $51,537 $ 22,554 $ 20,156 $ 703
Working capital........... 376,931 379,175 603,709 59,657 19,431 20,223 719
Total assets.............. 1,487,883 502,806 1,230,311 88,357 58,262 39,842 4,657
Non-current portion of
long-term debt.......... 197,257 178,665 179,114 569 2,612 281 467
Stockholders' equity...... 1,127,586 250,576 705,838 76,473 40,643 33,098 2,799
- ---------------
* Operating expenses included unusual items consisting of an expense reversal of
$922,000 in 1998 related to a real estate reserve and expenses of $9.0 million
in 1997 comprised of warrant compensation expense of $7.0 million, a real
estate reserve and a write-off of certain domain names.
The statement of operations data excluding per share date for 1998 includes
the historical financial results of the company and the retroactive effect of
material pooling-of-interests transaction.
The shares used in calculating the basic and diluted net income (loss) per
share have been adjusted in prior periods to reflect the Sumo, NetVentures,
AuctionGate, and KillerApp pooling-of-interests transactions as outstanding
for all periods, and the two-for-one stock splits on March 8, 1999 and May 10,
1999.
13
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ZIFF-DAVIS INC.
SELECTED HISTORICAL FINANCIAL DATA
In the table below, we provide you with selected historical consolidated
financial data of Ziff-Davis. Ziff-Davis prepared this information using its
consolidated financial statements as of the dates indicated and for each of the
fiscal years in the five-year period ended December 31, 1999 and for the
six-month periods ended June 30, 2000 and 1999. Ziff-Davis derived the
consolidated statement of operations data below for each of the five years in
the period ended December 31, 1999, and the consolidated balance sheet data at
the end of each of the five years in the period ended December 31, 1999, from
financial statements audited by PricewaterhouseCoopers LLP, independent
accountants. Ziff-Davis derived the remaining data from unaudited consolidated
financial statements. An affiliate of Ziff-Davis Inc. acquired a print
publishing business, "ZDI", on February 29, 1996; the data does not include
results from the acquired business for periods before the date of acquisition.
However, because ZDI represented Ziff-Davis Inc.'s principal operations, the
following table also presents selected historical consolidated financial data
for ZDI as of and for the year ended December 31, 1995 and as of and for the two
month period ended February 28, 1996. The data as of and for the year ended
December 31, 1995 and as of and for the two months ended January 28, 1996 was
derived from the unaudited consolidated financial statements of ZDI. On May 4,
1998, Ziff-Davis Inc. completed a reorganization described in Note 2 of the
notes to the consolidated financial statements of Ziff-Davis Inc. incorporated
by reference in this proxy statement/ prospectus; results for periods before the
reorganization are not directly comparable to results for periods after the
reorganization. The selected historical consolidated financial data has been
restated to reflect Ziff-Davis Inc.'s market intelligence, education, television
and events businesses as discontinued operations. This information is only a
summary and you should read it together with the financial information we
incorporate by reference in this proxy statement/prospectus. For copies of the
information we incorporate by reference, see "-- Where You Can Find More
Information" on page 11.
14
27
SIX MONTH PERIOD
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- ------------------------
2000 1999 1999 1998
---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue, net................... $ 229,140 $ 333,978 $ 702,458 $ 704,058
Loss from continuing operations
before tax and extraordinary
item.......................... (89,398) (49,377) (1,145,958) (129,268)
Income (loss) from continuing
operations before
extraordinary
item.......................... 10,386 (44,389) (1,014,847) (93,648)
Net income (loss) from
discontinued operations....... 109,664 3,472 18,151 15,839
Net income (loss).............. 96,770 (40,917) (996,696) (77,809)
ZD earnings (loss) per basic
share(3)...................... 0.94 (0.40) (9.71) (0.78)
ZD earnings per diluted
share(3)...................... 0.91 N/A N/A N/A
ZDNET earnings (loss) per pro
forma basic share(3).......... (0.06) 0.01 0.03 --
ZDNET earnings per pro forma
diluted share(3).............. N/A 0.01 0.02 --
CONSOLIDATED BALANCE SHEET DATA
(AT PERIOD END):
Cash and cash equivalents...... 63,616 32,529 10,207 32,566
Working capital................
Total assets................... 1,165,892 3,459,972 1,987,845 3,433,803
Non-current portion of
long-term debt................ 500(4) 1,276,692 1,164,775 1,539,322
Stockholders' equity........... 909,640 1,581,166 708,265 1,352,598
ZDI(1)
---------------------------
TWO MONTH
PERIOD
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
---------------------------------- FEBRUARY 28, DECEMBER 31,
1997 1996(2) 1995(2) 1996 1995
---------- ---------- -------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue, net................... $ 743,848 $ 595,280 $ -- $ 108,174 $ 667,316
Loss from continuing operations
before tax and extraordinary
item.......................... (81,963) (70,934) -- (8,132) (40,250)
Income (loss) from continuing
operations before
extraordinary
item.......................... (72,469) (94,498) -- (6,082) (26,002)
Net income (loss) from
discontinued operations....... 1,290 42,417 10,945 1,535 (12,944)
Net income (loss).............. (71,179) (52,081) 10,945 (4,547) (38,946)
ZD earnings (loss) per basic
share(3)...................... -- -- --
ZD earnings per diluted
share(3)...................... N/A N/A N/A N/A N/A
ZDNET earnings (loss) per pro
forma basic share(3).......... -- -- --
ZDNET earnings per pro forma
diluted share(3).............. -- -- --
CONSOLIDATED BALANCE SHEET DATA
(AT PERIOD END):
Cash and cash equivalents...... 30,301 29,915 -- 13,669 10,083
Working capital................
Total assets................... 3,546,646 3,584,173 397,881 1,619,905 1,623,906
Non-current portion of
long-term debt................ 2,408,240 2,522,252 -- 964,153 964,153
Stockholders' equity........... 126,130 447,756 397,881 360,717 365,150
- ---------------
(1) An affiliate of Ziff-Davis Inc. acquired ZDI on February 29, 1996. Because
ZDI represented Ziff-Davis Inc.'s principal operations, ZDI data has been
presented for periods before this date.
(2) An affiliate of Ziff-Davis Inc. acquired ZDI on February 29, 1996;
Ziff-Davis Inc. data does not include results from the acquired business for
periods before the date of acquisition.
(3) No historical earnings per share or share data are presented prior to 1998
as Ziff-Davis Inc. does not consider such data meaningful. ZD loss per share
for 1998 is presented on a pro forma basis as if the ZD shares issued in
connection with the reorganization and initial public offering of Ziff-Davis
Inc., which occurred on May 4, 1998, were outstanding as of January 1, 1998.
For more information about this reorganization and initial public offering,
see note 2 of the notes to the consolidated financial statements appearing
in Ziff-Davis Inc.'s 1999 Annual Report on Form 10-K. ZDNet earnings per
share for 1999 is presented on a pro forma basis as if the ZDNet shares
issued in connection with the ZDNet common stock initial public offering
described in note 2 to the notes to such consolidated financial statements,
which occurred on March 31, 1999, were outstanding as of January 1, 1999.
(4) In addition, ZD Events owed $150,000 of short-term bank debt at June 30,
2000, which was repaid on August 18, 2000 in connection with the Key3Media
spin-off.
15
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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
In the table below, we provide you with selected unaudited pro forma
condensed combined financial information for CNET as if the following
transactions had been completed at the beginning of the applicable period for
income statement purposes and on June 30, 2000 for balance sheet purposes:
- CNET's acquisition of mySimon
- the disposition by Ziff-Davis of its market intelligence, education,
television and events businesses and most of its print publishing
business
- the repayment by Ziff-Davis of all but $500,000 of its debt
- the merger of TD Merger Sub into Ziff-Davis
For more information about the assumptions made in determining this pro forma
information, see the notes to "Unaudited Pro Forma Condensed Combined Financial
Statements" appearing later in this proxy statement/prospectus.
This selected unaudited pro forma condensed combined financial information
is derived from the more detailed unaudited pro forma financial statements
appearing later in this proxy statement/prospectus and should be read together
with the separate historical financial statements and accompanying notes of CNET
and of Ziff-Davis, which we incorporate by reference in this proxy
statement/prospectus. You should not rely on the selected unaudited pro forma
financial information as an indication of the results of operations or financial
position that CNET would have achieved if the merger had taken place earlier or
of the results of operations or financial position of CNET after completion of
the merger.
CNET'S SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
SIX MONTHS
PERIOD ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Total revenues............................................ $ 197,873 $ 288,362
Gross profit.............................................. 128,411 186,600
Total operating expenses.................................. 555,131 1,031,338
Operating loss............................................ (426,720) (844,738)
Total other income........................................ 70,443 737,469
Net loss.................................................. (386,679) (364,584)
Basic net loss per share.................................. $ (2.88) $ (2.83)
Diluted net loss per share................................ $ (2.88) $ (2.83)
Shares used in basic per share calculation................ 134,353 128,751
Shares used in diluted per share calculation.............. 134,353 128,751
UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents................................. $ 170,441
Working capital........................................... 326,906
Total assets.............................................. 3,335,503
Non-current portion of long-term debt..................... 197,757
Total stockholders' equity................................ 2,793,154
16
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UNAUDITED COMPARATIVE PER SHARE DATA
In the first table below, we provide you with CNET's historical book value
and income (loss) per share information as of and for the six months ended June
30, 2000 and the year ended December 31, 1999. In addition, in the column
labeled "CNET Pro Forma Excluding Ziff-Davis" we provide CNET pro forma
information which assumes that CNET had completed the mySimon acquisition
(excluding the impact of the Ziff-Davis merger) as of and for the six months
ended June 30, 2000 and for the year ended December 31, 1999. In the column
labeled "CNET Pro Forma Including Ziff-Davis," we have assumed that CNET had
completed the following transactions at the beginning of the applicable period
for income statement purposes and on June 30, 2000 for balance sheet purposes:
- CNET's acquisition of mySimon
- the disposition by Ziff-Davis of its market intelligence, education,
television and events businesses and most of its print publishing
business
- the repayment by Ziff-Davis of all but $500,000 of its debt
- the merger of TD Merger Sub into Ziff-Davis
For more information about the assumptions made in determining this pro forma
information, see the notes to "Unaudited Pro Forma Condensed Combined Financial
Information" appearing later in this proxy statement/prospectus. Following the
merger, Ziff-Davis will be a subsidiary of CNET.
In the second table below, we provide you with pro forma book value and
income (loss) per share information for the ZD common stock and the ZDNet common
stock as of and for the six months ended June 30, 2000 and the year ended
December 31, 1999. In the columns labeled "ZD Pro Forma" and "ZDNet Pro Forma"
we have assumed that Ziff-Davis had completed the disposition of its market
intelligence, education, television and events business and most of its print
publishing business, and that Ziff-Davis had repaid all but $500,000 of its
debt, at the beginning of the applicable period for income statement purposes
and as of June 30, 2000 for balance sheet purposes. The column labeled "ZD Pro
Forma Equivalent" presents the per share data set forth in the column labeled
"CNET Pro Forma Including Ziff-Davis" multiplied by 0.3397 and the column
labeled "ZDNet Pro Forma Equivalent" presents the per share data set forth in
the column labeled "CNET Pro Forma Including Ziff-Davis" multiplied by 0.5932.
It is important that when you read this information, you also should read
the selected pro forma condensed financial information of CNET, as well as the
consolidated financial statements and accompanying notes of each of CNET and
Ziff-Davis included in the documents that are described under "-- Where You Can
Find More Information" on page 11 and incorporated in this proxy statement/
prospectus by reference. You should not rely on the unaudited comparative per
share data as an indication of the results of operations or the financial
position that would have been achieved if the proposed CNET/ Ziff-Davis merger
had taken place earlier, or as an indication of the results of operations or
financial position of CNET after the completion of the proposed transaction.
17
30
CNET CNET
PRO FORMA PRO FORMA
CNET EXCLUDING INCLUDING
HISTORICAL ZIFF-DAVIS ZIFF-DAVIS
---------- ----------- -----------
Book value per common share:
June 30, 2000............................................. $13.09 $13.09 $21.13
December 31, 1999......................................... 9.55 16.36 23.33
Income (loss) per common share:
Basic:
Six months ended June 30, 2000......................... $(0.59) (1.33) (2.89)
Year Ended December 31, 1999........................... $ 5.80 2.18 (2.83)
Diluted:
Six months ended June 30, 2000......................... $(0.59) (1.33) (2.89)
Year Ended December 31, 1999........................... $ 5.05 1.91 (2.83)
ZD ZDNET
ZD PRO FORMA ZDNET PRO FORMA
PRO FORMA EQUIVALENT PRO FORMA EQUIVALENT
--------- ----------- --------- -----------
Book value per common share:
June 30, 2000................................... $ 2.32 $ 7.18 $ 2.57 $12.53
December 31, 1999............................... 1.13 7.93 2.24 13.84
Income (loss) per common share:
Basic:
Six months ended June 30, 2000............... (0.09) (0.98) (0.06) (1.71)
Year Ended December 31, 1999................. (0.10) (0.96) 0.03 (1.68)
Diluted:
Six months ended June 30, 2000............... NA NA NA NA
Year Ended December 31, 1999................. NA NA 0.02 NA
18
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COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Shares of CNET's common stock are listed on NASDAQ. Shares of ZD common
stock and ZDNet common stock are listed on the New York Stock Exchange. Public
trading of CNET's common stock commenced on July 8, 1996. Public trading of ZD
common stock commenced on May 4, 1998 and of ZDNet stock commenced on March 31,
1999.
The following table sets forth, for the fiscal quarters indicated, the high
and low sales prices for a share of:
- CNET's common stock as reported on NASDAQ
- ZD common stock and ZDNet common stock as reported on the New York Stock
Exchange Composite Transaction Tape
CNET ZD ZDNET
COMMON STOCK COMMON STOCK COMMON STOCK
------------- ------------- -------------
HIGH LOW HIGH LOW HIGH LOW
----- ----- ----- ----- ----- -----
1998
First Quarter................................... 10.03 5.84 -- -- -- --
Second Quarter.................................. 17.75 6.31 19 12 13/16 -- --
Third Quarter................................... 18.63 7.75 16 3/8 5 3/8 -- --
Fourth Quarter.................................. 16.50 7.25 23 15/16 3 5/8 -- --
1999
First Quarter................................... 61.69 12.00 29 15 13/16 40 29
Second Quarter.................................. 79.75 38.63 25 5/16 11 55 1/2 16 5/8
Third Quarter................................... 57.50 27.50 19 1/8 13 3/4 26 5/8 13 3/8
Fourth Quarter.................................. 79.88 43.25 19 1/2 14 5/16 25 11/16 18
2000
First Quarter................................... 75 45.25 21 1/4 14 13/16 34 9/16 19 7/8
Second Quarter.................................. 51.56 22.50 15 7/16 8 1/8 22 1/8 8 7/8
The following table sets forth the closing prices per share of CNET's
common stock as reported on NASDAQ, and the closing prices per share of ZD
common stock and ZDNet common stock as reported on the New York Stock Exchange,
on:
- July 18, 2000, the last full trading day prior to the public announcement
of the proposed merger
- September 1, 2000, the last full trading day for which closing prices
were available prior to the printing of this proxy statement/prospectus
The closing price per share of ZD common stock for July 18, 2000 has been
reduced by $5.50, the value of the August 18, 2000 Key3Media spin-off and cash
dividend. The reduction for the spin-off was computed based on the closing price
of the Key3Media stock on the first day of trading.
19
32
The following table also sets forth the equivalent prices per share of ZD
common stock and ZDNet common stock. The equivalent price per share of ZD common
stock is equal to the closing price of a share of CNET common stock on the
applicable date multiplied by 0.3397, the number of shares of CNET common stock
to be issued in the merger in exchange for each share of ZD common stock. The
equivalent price per share of ZDNet common stock is equal to the closing price
of a share of CNET common stock on the applicable date multiplied by 0.5932, the
number of shares of CNET common stock to be issued in the merger in exchange for
each share of ZDNet common stock. These equivalent per share prices reflect the
market value of CNET common stock that Ziff-Davis stockholders would receive for
each share of ZD common stock or ZDNet common stock, as the case may be, if the
merger were completed on the specified dates. Because the market price of CNET
common stock may increase or decrease before the merger is completed, Ziff-Davis
stockholders are urged to obtain current market quotations.
EQUIVALENT PRICE EQUIVALENT PRICE
CNET ZD PER SHARE OF ZD ZDNET PER SHARE OF ZDNET
DATE COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
- ---- ------------ ------------ ---------------- ------------ ------------------
July 18, 2000........ $32.1875 5.875(1) 10.9350 12.875 19.0936
September 1, 2000 ... 33.81 11.19 11.4853 19.88 20.0561
- ---------------
(1) Actual closing price on July 18, 2000 was $11.375, but this number has been
reduced in the table by $5.50, the value of the August 18, 2000 Key3Media
spin-off and cash dividend. The reduction for the spin-off was computed
based on the closing price of the Key3Media stock on the first day of
trading.
Each of CNET's and Ziff-Davis' fiscal year ends on December 31 of each
year. Dividends have never been paid with respect to CNET common stock or with
respect to ZDNet common stock. The only dividends paid with respect to ZD common
stock were the August 18, 2000 Key3Media spin-off and cash dividend.
20
33
RISK FACTORS
The proposed merger involves a high degree of risk. By voting in favor of
the merger, current Ziff-Davis stockholders will be choosing to invest in CNET
common stock, and current CNET stockholders will face dilution of their
ownership interest in CNET. An investment in CNET common stock involves a high
degree of risk. In addition to the other information contained in this proxy
statement/prospectus or incorporated by reference, you should carefully consider
the following risk factors in deciding whether to vote for the merger or for the
issuance of CNET common stock in connection with the merger.
GENERAL RISKS RELATING TO THE PROPOSED MERGER
ZIFF-DAVIS AND CNET MAY NOT ACHIEVE THE BENEFITS THEY EXPECT FROM THE MERGER
WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON THE COMBINED COMPANY'S BUSINESS,
FINANCIAL CONDITION AND OPERATING RESULTS AND/OR COULD RESULT IN LOSS OF KEY
PERSONNEL.
The combined company will need to overcome significant issues in order to
realize any benefits or synergies from the merger, including the timely,
efficient and successful execution of a number of post-merger events, including:
- integrating the operations of the two companies
- retaining and assimilating the key personnel of each company
- retaining existing advertisers on both companies' Internet sites and
attracting additional advertisers
- developing new Internet sites and services that benefit from the assets
and resources of both companies
- retaining strategic partners of each company
- creating uniform standards, controls, procedures, policies and
information systems
The successful execution of these post-merger events will involve
considerable risk and may not be successful. These risks include:
- the potential disruption of the combined company's ongoing business and
distraction of its management
- the difficulty of incorporating acquired technology and rights into the
combined company's Internet sites and services
- unanticipated expenses and potential delays related to integration of
technology and other resources of the two companies
- the impairment of relationships with employees and advertisers as a
result of any integration of new management personnel
- the possibility that businesses that have advertised on both CNET's and
Ziff-Davis' Internet sites may reduce their advertising purchases from
the combined company
- potential unknown liabilities associated with the merger and the recent
disposition of Ziff-Davis' non-Internet operations
The combined company may not succeed in addressing these risks or any other
problems encountered in connection with the merger.
ZIFF-DAVIS STOCKHOLDERS WILL RECEIVE A FIXED NUMBER OF SHARES OF CNET COMMON
STOCK DESPITE CHANGES IN MARKET VALUE OF CNET COMMON STOCK.
Upon completion of the merger, each share of ZD common stock will be
exchanged for 0.3397 of a share of CNET common stock, and each share of ZDNet
common stock will be exchanged for 0.5932 of
21
34
a share of CNET common stock. We will not adjust the exchange ratios for changes
in the market price of CNET common stock. In addition, neither Ziff-Davis nor
CNET may terminate the merger agreement or "walk away" from the merger solely
because of changes in the market price of CNET common stock. As a result, the
specific dollar value of CNET common stock that Ziff-Davis stockholders will
receive and that CNET stockholders will retain upon completion of the merger
will depend on the market value of CNET common stock when the merger is
completed and may increase or decrease from the date you submit your proxy. The
share prices of CNET common stock, ZD common stock and ZDNet common stock are
subject to the general price fluctuations in the market for publicly-traded
equity securities and have experienced significant volatility. We urge you to
obtain recent market quotations for CNET common stock, ZD common stock and ZDNet
common stock. We cannot predict or give you any assurances as to the market
price of CNET common stock at any time before or after the completion of the
merger.
THE MERGER COULD ADVERSELY AFFECT COMBINED FINANCIAL RESULTS.
Ziff-Davis and CNET expect to incur direct transaction costs of
approximately $17.5 million in connection with the merger. If the benefits of
the merger do not exceed the associated costs, including any dilution to CNET's
stockholders resulting from the issuance of shares in connection with the
merger, the combined company's financial results, including earnings per share,
could be materially and adversely affected.
CNET will account for the merger using the purchase method of accounting.
After the completion of the merger, the results of operations of Ziff-Davis will
be included in the consolidated financial statements of CNET. The purchase price
will be allocated to Ziff-Davis' assets and liabilities based on the fair values
of the assets acquired and the liabilities assumed. Any excess of cost over the
fair value of the net tangible assets of Ziff-Davis acquired will be recorded as
goodwill and other intangible assets and will be amortized by charges against
results of operations under generally accepted accounting principles. These
allocations will be made based upon valuations and other studies that have not
yet been finalized. However, it is expected that the amortization associated
with the merger will be approximately $535 million per year, which will have a
material adverse effect on CNET's results of operations.
THE MARKET PRICE OF THE COMBINED COMPANY'S COMMON STOCK MAY DECLINE AS A RESULT
OF THE MERGER.
The market price of the combined company's common stock may decline as a
result of the merger for a number of reasons including if:
- the integration of Ziff-Davis and CNET is unsuccessful
- the combined company does not achieve the perceived benefits of the
merger as rapidly or to the extent anticipated by the combined company or
by financial or industry analysts
- the effect of the merger on the combined company's financial results is
not consistent with the expectations of the combined company or of
financial or industry analysts
ZIFF-DAVIS' OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY INFLUENCE
THEM TO SUPPORT OR APPROVE THE MERGER.
The directors and officers of Ziff-Davis participate in arrangements and
have continuing indemnification against liabilities that provide them with
interests in the merger that are different from yours including the following:
- Current Ziff-Davis directors and officers will have all of the Ziff-Davis
options granted to them prior to July 1, 2000 fully accelerated upon
completion of the merger
- CNET has agreed to indemnify each present and former Ziff-Davis officer
and director against liabilities arising out of such person's services as
an officer or director. CNET will maintain officers' and directors'
liability insurance to cover any such liabilities for the next six years
- Ziff-Davis and CNET have agreed that Ziff-Davis shall be entitled to
designate one individual to the combined company's board of directors,
and Softbank, a principal stockholder of Ziff-Davis, will
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also have the right to designate one member to the CNET board of
directors. CNET has agreed to increase the size of its board by one
directorship to seven and Douglas Woodrum, a current CNET director, has
agreed to resign from CNET's board
- Ziff-Davis and CNET have agreed that Daniel Rosensweig, ZDNet's chief
executive officer, will be president of the combined company
For the above reasons, the directors and officers of Ziff-Davis could be
more likely to vote to adopt the merger agreement than if they did not hold
these interests. Ziff-Davis stockholders should consider whether these interests
may have influenced these directors and officers to support or recommend the
merger.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT ZIFF-DAVIS' AND/OR CNET'S
STOCK PRICE, FUTURE BUSINESS AND OPERATIONS.
If the merger is not completed for any reason, Ziff-Davis and CNET may be
subject to a number of material risks, including the following:
- if the stockholders of Ziff-Davis approve the merger agreement but the
stockholders of CNET do not approve the issuance of CNET common stock in
the merger, then CNET must pay Ziff-Davis a termination fee of $60
million and make a $15 million loan to Ziff-Davis unless Ziff-Davis is in
material breach of the merger agreement
- CNET may be obligated to pay to Ziff-Davis a termination fee of $105
million if the merger agreement is terminated in connection with a
proposal for an alternative transaction involving CNET. The payment of
the $105 million fee will depend on the particular circumstances of the
termination and such fee will be reduced by the amount of any other
termination fee paid by CNET to Ziff-Davis
- if the stockholders of CNET approve the issuance of CNET common stock in
the merger but the stockholders of Ziff-Davis do not approve the merger
agreement, then Ziff-Davis must pay CNET a termination fee of $33 million
unless CNET is in material breach of the merger agreement
- Ziff-Davis may be obligated to pay to CNET a termination fee of $58
million if the merger agreement is terminated in connection with a
proposal for an alternative transaction involving Ziff-Davis. The payment
of the $58 million fee will depend on the particular circumstances of the
termination and such fee will be reduced by any other termination fee
paid by Ziff-Davis to CNET
- costs related to the merger, such as legal, accounting, financial advisor
and printing fees, must be paid even if the merger is not completed
In addition, Ziff-Davis' and/or CNET's advertisers and strategic partners,
in response to the announcement of the merger, may delay or defer decisions,
which could have a material adverse effect on the business of the relevant
company, regardless of whether the merger is ultimately completed. Similarly,
current and prospective Ziff-Davis and/or CNET employees may experience
uncertainty about their future roles with the combined company. This may
adversely affect Ziff-Davis' and/or CNET's ability to attract and retain key
management, sales, marketing and technical personnel. In addition, covenants in
the merger agreement may impede the ability of Ziff-Davis to make acquisitions
or complete other transactions that are not in the ordinary course pending
completion of the merger, and if the merger is terminated this may put
Ziff-Davis at a competitive disadvantage to CNET. Further, if the merger is
terminated and either company's board of directors determines to seek another
merger or business combination, there can be no assurance that it will be able
to find a partner on terms as attractive as those provided for in the merger
agreement. In addition, while the merger agreement is in effect and subject to
very narrowly defined exceptions, each party is prohibited from soliciting,
initiating or encouraging or entering into certain extraordinary transactions,
such as a merger, sale of assets or other business combination, with any third
party.
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RISKS RELATING TO THE COMBINED COMPANY
CNET AND ZDNET HAVE LIMITED OPERATING HISTORIES AND HISTORIES OF NET LOSSES,
WHICH MAKE YOUR EVALUATION OF THE COMBINED COMPANY DIFFICULT AND WILL AFFECT
MANY ASPECTS OF THE COMBINED COMPANY'S BUSINESS, AND WE CANNOT ASSURE YOU THAT
THE COMBINED COMPANY WILL REPORT NET INCOME IN THE FUTURE.
CNET and ZDNet each have a limited operating history. The combined
company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in developing industries,
particularly companies in the relatively new and rapidly evolving market for
Internet products, content and services. These risks include:
- an evolving and unpredictable business model
- uncertain acceptance of new services
- competition
- management of growth
We cannot assure you that the combined company will succeed in addressing
these risks. If the combined company fails to do so, its revenues and operating
results could be materially reduced.
Ziff-Davis has operated as a standalone company only since May 1998. In
addition, a significant part of its infrastructure has been transferred along
with the non-Internet businesses disposed of as part of its restructuring.
Ziff-Davis' success and the success of the combined company will depend on
management's ability to manage the combined company with the resources available
to it.
Additionally, the combined company's limited operating history, the
evolving nature of the Internet and the emerging nature of the markets in which
it competes makes prediction of future operating results difficult or
impossible. We cannot assure you that the combined company's revenues will
increase or even continue at their current level or that it will maintain
operating profitability or generate cash from operations in future periods. CNET
and ZDNet have each incurred significant operating losses since inception. The
combined company may incur additional losses in the future. In view of the
rapidly evolving nature of the combined company's business and the limited
operating history of CNET and the newly restructured Ziff-Davis, the
period-to-period comparisons of operating results are not necessarily meaningful
and you should not rely on them as indicating what the combined company's future
performance will be.
We expect that the combined company will continue to incur significant
sales and marketing, product development and administrative expenses, as well as
significant amortization of goodwill created in the merger. As a result, the
combined company will need to generate significant revenue to maintain
profitability before amortization of goodwill, and it is unlikely to generate
profits after inclusion of the goodwill amortization until the goodwill is fully
amortized. The combined company cannot be certain that it will achieve, sustain
or increase profitability in the future, with or without goodwill amortization.
Any failure to significantly increase its revenue as the combined company
implements its product and distribution strategies would materially adversely
affect the combined company's business, operating results and financial
condition.
THE RECENT DISPOSITIONS OF ZIFF-DAVIS' NON-INTERNET BUSINESSES MAY ADVERSELY
AFFECT THE COMBINED COMPANY'S FUTURE BUSINESS, FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND PROSPECTS.
It is possible that the dispositions of Ziff-Davis' non-Internet businesses
as part of its recent restructuring may materially and adversely affect the
combined company's future business, financial condition, results of operations
and prospects in a number of ways, including the following:
- the remaining Ziff-Davis businesses will no longer be able to leverage
the Ziff-Davis brand and cross-market across all of the platforms that
were formerly part of the company
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- ZDNet historically has relied on content that it licenses from ZD
Publishing on an exclusive basis online. Under the agreement for the sale
of ZD Publishing, ZDNet has retained the rights to this content online
only through April 5, 2005 and those rights will remain exclusive to
ZDNet only through April 5, 2003. After the three year exclusivity period
expires, the entity that bought ZD Publishing will be free to use the
content to compete with Ziff-Davis' ZDNet division on the Internet, and
after four years the buyer will be free to license it to other online
competitors
- the buyer of ZD Publishing has asserted that Ziff-Davis has violated
this license, claiming that the buyer will terminate the license on
March 1, 2001. Ziff-Davis believes that the buyer's assertion that it
is entitled to terminate the license is completely without merit and
does not believe that this matter will have a material adverse effect
on the combined company
- the buyer of ZD Publishing acquired the "Ziff-Davis" brand name and is
receiving a license for the "ZD" brand name, in each case, for use in
print publishing and its future actions may adversely affect the ZD brand
- Ziff-Davis' costs of services may increase significantly due to the loss
of certain large volume discounts or other special pricing arrangements
it received before it disposed of its non-Internet businesses
- Ziff-Davis has retained certain tax and other liabilities relating to its
former non-Internet businesses and may also be liable for certain
contingent liabilities relating to such businesses. While Ziff-Davis
believes that it has established adequate reserves for such liabilities,
contingent liabilities are inherently uncertain and it is possible that
such liabilities could be materially greater than expected and have a
material adverse effect on the combined company's financial condition and
results of operations.
THE COMBINED COMPANY MAY EXPERIENCE FLUCTUATIONS IN OPERATING RESULTS AND MAY
NOT BE ABLE TO ADJUST SPENDING IN TIME TO COMPENSATE FOR ANY UNEXPECTED REVENUE
SHORTFALL.
The combined company's operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside its
control. The combined company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall in revenues in relation to planned expenditures could
materially reduce the combined company's operating results and materially and
adversely affect its financial condition.
Factors that may adversely affect operating results include:
- demand for Internet advertising
- the addition or loss of advertisers, and the advertising budgeting cycles
of individual advertisers
- the level of traffic on the Internet and the combined company's network
of Internet channels in particular
- seasonal trends in Internet use and advertising
- the amount and timing of capital expenditures and other costs, including
marketing costs, relating to the combined company's Internet, television
and radio operations and costs relating to the expansion of the combined
company's operations and the introduction of new sites and services
- competition
- the combined company's ability to manage effectively its development of
new business segments and markets
- the combined company's ability to successfully manage the integration of
operations and technology acquisitions and other business combinations
- the combined company's ability to upgrade and develop its systems and
infrastructure
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- technical difficulties, system downtime, Internet brownouts or denial of
service or other similar attacks
- general economic conditions and economic conditions specific to the
Internet and Internet media
Due to all of the foregoing factors, the combined company's operating
results may fall below its expectations or the expectations of securities
analysts or investors. If this happens, the trading price of the combined
company's common stock would likely be materially and adversely affected.
THE COMBINED COMPANY'S INTERNET, TELEVISION AND RADIO CONTENT AND SERVICES MAY
NOT BE ACCEPTED, WHICH COULD ADVERSELY AFFECT ITS PROFITABILITY.
The combined company's future success depends upon its ability to deliver
original and compelling content and services that attract and retain users. We
cannot assure you that the combined company's content and services will be
attractive to a sufficient number of users to generate revenues sufficient to
sustain operations. Costs related to developing new content and services are
expensed as they are incurred, while revenue related to new content and services
typically builds over time. As a result, the combined company's profitability
from year to year may be materially and adversely affected by the number and
timing of new launches. In addition, we cannot assure you that any new content
or services will be developed in a timely or cost-effective manner.
The successful development and production of content is subject to numerous
uncertainties, including the ability to:
- anticipate and successfully respond to rapidly changing consumer tastes
and preferences
- obtain favorable distribution rights
- fund new program development
- attract and retain qualified editors, producers, writers, technical
personnel and television and radio hosts
If the combined company is unable to develop content and services that
allow it to attract, retain and expand a loyal user base that is attractive to
advertisers and sellers of technology products, the combined company will be
unable to generate revenue.
COMPETITION IS INTENSE AND IS EXPECTED TO INCREASE SIGNIFICANTLY. THE COMBINED
COMPANY'S FAILURE TO COMPETE SUCCESSFULLY COULD ADVERSELY AFFECT ITS PROSPECTS
AND FINANCIAL RESULTS.
The market for Internet content and services is new, intensely competitive
and rapidly evolving and we expect the competition to increase significantly. It
is not difficult to enter this market and current and new competitors can launch
new Internet sites at relatively low cost. The combined company will derive its
revenue primarily from advertising, for which it competes with various media
including newspapers, television, radio and various Internet sites that offer
consumers information similar to that to be provided by the combined company. We
cannot assure you that the combined company will compete successfully with
current or future competitors. Moreover, increased competition could result in
price reductions, reduced margins or loss of market share, any of which could
have a material adverse effect on our future revenue and profits.
If the combined company does not compete successfully for new users and
advertisers, its financial results may be materially and adversely affected.
TO REMAIN COMPETITIVE, THE COMBINED COMPANY MUST EXPAND ITS OPERATIONS. FAILURE
TO EFFECTIVELY MANAGE GROWTH COULD RESULT IN THE COMBINED COMPANY'S INABILITY TO
SUPPORT AND MAINTAIN ITS OPERATIONS.
Each of CNET and Ziff-Davis have rapidly and significantly expanded their
operations. We anticipate that further expansion of the combined company's
operations may be required in order to address potential
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market opportunities. This rapid growth has placed, and we expect it to continue
to place, a significant strain on our management, operational and financial
resources. We cannot assure you that:
- CNET's and Ziff-Davis' current personnel, systems, procedures and
controls will be adequate to support the combined company's future
operations
- management will be able to identify, hire, train, motivate or manage
required personnel
- management will be able to successfully identify and exploit existing and
potential market opportunities
In addition, the combined company could experience a materially negative
impact on earnings as a results of expenses associated with growing its
operations, whether through internal development or through acquisitions.
IF THE COMBINED COMPANY IS UNABLE TO CONTINUE LICENSING THE CNET DATA SERVICES
TRANSACTIVE PRODUCTS DATABASE IT COULD FAIL TO ACHIEVE EXPECTATIONS FOR REVENUE
GROWTH.
CNET receives license fees for the license of the CNET Data Services
transactive product database to manufacturers, distributors and resellers of
computer products. The combined company's ability to meet expectations for
revenue growth may depend in part upon its ability to continue to license this
product to new customers. If the combined company is unable to attract new
customers for this product, it could fail to achieve revenue growth
expectations.
IF THE COMBINED COMPANY'S INTERNET USER BASE DOES NOT CONTINUE TO GROW, IT MAY
FAIL TO ACHIEVE EXPECTATIONS FOR REVENUE GROWTH.
The rapid growth in the use of and interest in the Internet is a recent
phenomenon. We cannot assure you that acceptance and use of the Internet will
continue to develop or that the combined company will be able to attract a
sufficient number of users to support growth expectations for its business.
We also cannot assure you that the Internet infrastructure will be able to
support the demands placed upon it by:
- an increase in the number of users
- an increase in frequency of use
- an increase in bandwidth requirements of users
If use of the Internet does not continue to grow or grows more slowly than
expected, if the combined company does not attract more users despite Internet
growth, or if the Internet infrastructure does not effectively support growth
that may occur, the combined company's revenues and financial condition would be
materially and adversely affected.
THE COMBINED COMPANY WILL DEPEND ON ADVERTISING AS A PRINCIPAL SOURCE OF ITS
REVENUE. THE COMBINED COMPANY'S FINANCIAL RESULTS WILL BE ADVERSELY AFFECTED IF
IT FAILS TO SUSTAIN ADVERTISING REVENUES OR LEAD FEES.
CNET's and Ziff-Davis' revenues through December 31, 1999 were derived in
large part from the sale of advertising and other fees, such as lead fees, from
sellers of technology products on their Internet channels and from advertising
and license fees from producing television programs. It is expected that the
combined company will derive its revenue in a similar manner. Most of the
combined company's advertising contracts will be subject to termination by the
customer at any time on very short notice or it may be difficult to obtain
performance from advertisers who have longer term contracts. If the combined
company loses advertising customers, fails to attract new customers or is forced
to reduce advertising rates in order to retain or attract customers, its
revenues and financial condition will be materially and adversely
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affected. The combined company's ability to generate advertising revenue will
depend on several factors, including:
- the continued development of the Internet as an advertising medium
- the pricing of advertising on other Internet sites
- the amount of traffic on the combined company's network of sites
- pricing pressures, delays and new product launches
- the combined company's ability to achieve, demonstrate and maintain
attractive user demographics
- the combined company's ability to develop and retain a skilled
advertising sales force.
THE COMBINED COMPANY WILL DEPEND ON, AND RECEIVE A SIGNIFICANT PERCENTAGE OF ITS
REVENUE FROM, A LIMITED NUMBER OF ADVERTISERS.
A relatively small number of advertisers contribute a significant
percentage of the combined company's pro forma revenue. Top advertising clients,
and other advertising clients, may not continue to use the combined company's
services to the same extent, or at all, in the future. A significant reduction
in advertising by one or more of the combined company's largest advertisers
could have a material adverse effect on the combined company's profits and
liquidity.
THE COMBINED COMPANY'S ADVERTISING AND OTHER OPERATING REVENUES MAY BE SUBJECT
TO SEASONALITY AND CYCLICALITY, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON
ITS REVENUES AND OPERATING RESULTS.
We believe that advertising sales in traditional media, such as television,
are generally lower in the first and third calendar quarters of each year than
in other quarters and that advertising expenditures fluctuate significantly with
economic cycles. Depending on the extent to which the Internet is accepted as an
advertising medium, seasonality and cyclicality in the level of advertising
expenditures generally could become more pronounced for Internet advertising.
Seasonality and cyclicality in advertising expenditures generally, or with
respect to Internet-based advertising specifically, could have a material
adverse effect on the combined company's business, prospects, financial
condition and operating results because advertising expenditures will account
for substantially all of the combined company's revenues.
The combined company may also experience seasonality in its operating
results, particularly in connection with its shopping services, which may
reflect seasonal trends in the retail industry. The level of consumer retail
spending generally decreases in the first and third calendar quarters.
INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD ADVERSELY AFFECT THE
COMBINED COMPANY'S ABILITY TO OPERATE.
The combined company's success depends to a large extent on the continued
services of Halsey M. Minor, Shelby W. Bonnie, Dan Rosensweig and the other
members of CNET's and Ziff-Davis' senior management team. In particular, the
loss of the services of Mr. Minor or Mr. Bonnie, CNET's founders, could have an
adverse effect on the combined company due to their crucial role in its
strategic development. The combined company's success is also dependent on our
ability to identify, attract, retain and motivate other highly skilled officers,
key employees and personnel in a very competitive job environment. CNET and
Ziff-Davis do not have long-term employment agreements with any of their key
personnel and do not maintain "key person" life insurance policies on any of
their officers or other employees. The production of our Internet, television
and radio content and services requires highly skilled writers and editors and
personnel with sophisticated technical expertise. CNET and Ziff-Davis have
encountered difficulties in attracting qualified software developers for their
Internet channels and related technologies and we cannot assure you that we will
be able to attract or retain such personnel. If the combined company does not
attract, retain and motivate the necessary technical, managerial, editorial and
sales personnel, there could be a material adverse effect on its business and
operating results.
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THE COMBINED COMPANY MAY NEED TO SPEND SIGNIFICANTLY MORE MONEY ON ADVERTISING
IN THE FUTURE.
We cannot assure you that our advertising campaigns, or any other
advertising campaign the combined company may launch in the future, will be
effective. To remain competitive, the combined company may need to spend
significantly more money on advertising in the future and such additional costs
could materially and adversely affect the combined company's profits.
IF THE COMBINED COMPANY DOES NOT RESPOND ADEQUATELY TO THE INDUSTRY'S EVOLVING
TECHNOLOGY STANDARDS OR DOES NOT CONTINUE TO MEET THE SOPHISTICATED NEEDS OF ITS
CUSTOMERS, SALES OF ITS PRODUCTS AND SERVICES MAY DECLINE.
The market for Internet products and services is characterized by:
- rapid technological developments
- frequent new product introductions
- evolving industry standards
The emerging character of these products and services and their rapid
evolution requires that the combined company continually improve the
performance, features and reliability of its network infrastructure and Internet
content, particularly in response to competitive offerings and changing customer
demands. We cannot assure you that the combined company will be successful in
responding quickly, cost effectively or adequately to these developments. In
addition, the widespread adoption of new Internet technologies or standards
could require the combined company to make substantial expenditures to modify or
adapt its Internet channels and services and could fundamentally affect the
character, viability and frequency of Internet-based advertising. Finally,
technologies adopted by the combined company could fail to perform according to
expectations, resulting in system performance problems and increased costs. Any
of these events could have a material adverse effect on the combined company's
financial condition and operating results.
THE COMBINED COMPANY WILL DEPEND ON ARRANGEMENTS WITH THIRD PARTIES FOR INTERNET
TRAFFIC TO ITS SITES AND ITS FAILURE TO DEVELOP AND MAINTAIN RELATIONSHIPS WITH
THIRD PARTIES COULD ADVERSELY AFFECT THE COMBINED COMPANY'S FINANCIAL CONDITION.
Both CNET and Ziff-Davis rely on the cooperation of owners and operators of
other Internet sites with whom they have syndication and other arrangements to
generate traffic for their Internet sites. The combined company's ability to
advertise on other Internet sites and the willingness of the owners of these
sites to direct users to the combined company's Internet channels through
hypertext links will continue to be critical to the success of the combined
company's Internet operations. If the combined company is unable to develop and
maintain satisfactory relationships with such third parties on acceptable
commercial terms, or if the combined company's competitors are better able to
capitalize on these relationships, the combined company's financial condition
and operating results will be materially and adversely affected.
THE COMBINED COMPANY MAY HAVE DIFFICULTIES WITH ITS ACQUISITIONS AND
INVESTMENTS, WHICH COULD ADVERSELY AFFECT ITS GROWTH AND FINANCIAL CONDITION.
From time to time, the combined company may consider new business
opportunities and ventures, including acquisitions, in a broad range of areas.
Any decision by the combined company to pursue a significant business expansion
or new business opportunity would be accompanied by risks, including, among
others:
- requiring the combined company to invest a substantial amount of capital,
which could have a material adverse effect on its financial condition and
its ability to implement its existing business strategy
- requiring the combined company to issue additional equity interests,
which would be dilutive to its current stockholders
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- placing additional, substantial burdens on the combined company's
management personnel and our financial and operational systems
- the difficulty of assimilating the operations, technology and personnel
of the combined companies
- the potential disruption of our ongoing business
- the possible inability to retain key technical and managerial personnel
- additional expenses associated with amortization of goodwill and other
purchased intangible assets
- additional operating losses and expenses associated with the activities
and expansion of acquired businesses
- the possible impairment of relationships with existing employees and
advertising customers
In addition, we cannot assure you that the combined company will be
successful in overcoming these risks or any other problems encountered in
connection with any transaction or that any transaction will be profitable.
THE COMBINED COMPANY PLANS TO EXPAND ITS INTERNATIONAL OPERATIONS AND MAY
ENCOUNTER A NUMBER OF PROBLEMS DOING SO. THERE ARE ALSO A NUMBER OF RISKS
ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD ADVERSELY AFFECT THE
COMBINED COMPANY'S BUSINESS.
EXPANSION OF INTERNATIONAL OPERATIONS. One component of the combined
company's growth strategy will be to further expand into international markets.
The combined company's international operations will be expanded into markets
where technology and online industries are less well developed than in the U.S.,
which may adversely affect the combined company's results of operations.
RISK OF INTERNATIONAL OPERATIONS. There are certain risks inherent in doing
business in international markets, such as the following:
- uncertainty of product acceptance by different cultures
- unforeseen changes in regulatory requirements
- difficulties in staffing and managing multinational operations
- state-imposed restrictions on the repatriation of funds
- currency fluctuations
- difficulties in finding appropriate foreign licensees or joint venture
partners
- potential adverse tax consequences
There is a risk that such factors will have an adverse effect on the combined
company's ability to successfully operate internationally and on its profits and
liquidity.
THE COMBINED COMPANY MAY NOT BE ABLE TO ACQUIRE OR MAINTAIN DOMAIN NAMES, WHICH
COULD ADVERSELY AFFECT ITS ABILITY TO OPERATE ITS ONLINE SITES.
CNET and Ziff-Davis currently hold various Web domain names relating to
their brand and sites. The acquisition and maintenance of domain names generally
is regulated by government agencies and their designees. The regulation of
domain names in the United States and in foreign countries is subject to change.
We cannot assure you that the combined company will be able to acquire or
maintain relevant domain names in all countries where it will conduct business.
Any inability to acquire or maintain domain names could have a material adverse
effect on the combined company's business.
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CHANGES IN REGULATIONS COULD ADVERSELY AFFECT THE WAY THAT THE COMBINED COMPANY
OPERATES.
It is possible that new laws and regulations in the U.S. and elsewhere will
be adopted covering issues affecting the combined company's business, including:
- privacy
- copyrights, trademarks and domain names
- obscene or indecent communications
- pricing, characteristics and quality of Internet products and services
Increased government regulation, or the application of existing laws to
online activities, could:
- decrease the growth of the Internet
- reduce the combined company's revenues
- increase the combined company's operating expenses
- expose the combined company to significant liabilities
Any of these occurrences could have a material adverse effect on the combined
company's profits and liquidity.
We cannot be sure what effect any future material noncompliance by the
combined company with these laws and regulations or any material changes in
these laws and regulations could have on the combined company's business.
THE COMBINED COMPANY MAY HAVE CAPACITY CONSTRAINTS AND MAY BE SUBJECT TO SYSTEM
DISRUPTIONS, WHICH COULD ADVERSELY AFFECT ITS REVENUES.
The combined company's ability to attract and maintain relationships with
users, advertisers, merchants and strategic partners will depend on the
satisfactory performance, reliability and availability of its Internet channels
and network infrastructure. The combined company's Internet advertising revenues
will relate directly to the number of advertisements delivered to its users.
System interruptions or delays that result in the unavailability of Internet
channels or slower response times for users would reduce the number of
advertisements and sales leads delivered to such users and reduce the
attractiveness of the combined company's Internet channels to users, strategic
partners and advertisers or reduce the number of impressions delivered and
thereby reduce revenue. CNET and Ziff-Davis have experienced periodic system
interruptions in the past and the combined company will continue to suffer
future interruptions from time to time. System interruptions or slower response
times could have a material adverse effect on the combined company's revenues
and financial condition.
The combined company's Internet, television and radio systems and
operations will be vulnerable to interruption by fire, earthquake, power loss,
telecommunications failure, computer hacking and other events beyond the
combined company's control. Most of CNET's servers and television production
equipment are currently located in the Bay Area of California, an area that is
susceptible to earthquakes. CNET and Ziff-Davis have experienced system downtime
for limited periods due to power loss and telecommunications failures, and such
interruptions in service by the combined company may materially and adversely
affect the combined company's operations in the future. The combined company
will also rely on web browsers and online service providers to provide Internet
access to its sites. The combined company will have only a limited amount of
redundant facilities or systems, no formal disaster recovery plan and will not
carry sufficient business interruption insurance nor earthquake insurance to
compensate for losses that may occur. Any losses or damages incurred could have
a material adverse effect on the combined company's financial condition.
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THE COMBINED COMPANY'S BUSINESS WILL INVOLVE RISKS OF LIABILITY CLAIMS FOR
INTERNET, TELEVISION AND RADIO CONTENT OR TECHNOLOGY, WHICH COULD RESULT IN
SIGNIFICANT COSTS.
As a publisher and a distributor of content over the Internet, television
and radio, the combined company may face potential liability for:
- defamation
- negligence
- copyright, patent or trademark infringement
- other claims based on the nature and content of the materials published
or distributed
These types of claims have been brought, sometimes successfully, against
online services and publishers of television and radio content. In addition, the
combined company could be exposed to liability in connection with material
indexed or offered on the combined company's Internet sites or for information
collected from and about its users. There has been a recent increase in the
granting and attempted enforcement of business process patents that cover
practices that may be widely employed in the Internet industry. If the combined
company is found to violate any such patent and it is unable to enter into a
license agreement on reasonable turns, its ability to offer services could be
materially and adversely affected. We cannot assure you that third parties or
users will not bring claims against the combined company relating to proprietary
rights or use of personal information. Although the combined company will carry
general liability insurance, its insurance may not cover potential claims of
defamation, negligence and similar claims, and it may or may not apply to a
particular claim or be adequate to reimburse the combined company for all
liability that may be imposed. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could have a material adverse
effect on the combined company's financial condition.
THE COMBINED COMPANY'S NETWORKS MAY BE VULNERABLE TO UNAUTHORIZED PERSONS
ACCESSING ITS SYSTEMS, WHICH COULD DISRUPT ITS OPERATIONS AND RESULT IN THE
THEFT OF ITS PROPRIETARY INFORMATION.
A party who is able to circumvent the combined company's security measures
could misappropriate proprietary information or cause interruptions or
malfunctions in its Internet operations. The combined company may be required to
expend significant capital and resources to protect against the threat of
security breaches or to alleviate problems caused by breaches in security. For
example, so-called "spiders" have and can be used in efforts to copy the
combined company's databases, including the combined company's database of
technology products and prices.
Concerns over the security of Internet transactions and the privacy of
users may also inhibit the growth of the Internet, particularly as a means of
conducting commercial transactions. To the extent that the combined company's
activities or the activities of third party contractors involve the storage and
transmission of proprietary information, such as computer software or credit
card numbers, security breaches could expose the combined company to a risk of
loss or litigation and possible liability. We cannot assure you that contractual
provisions attempting to limit the combined company's liability in these areas
will be successful or enforceable, or that other parties will accept such
contractual provisions as part of the combined company's agreements.
THE COMBINED COMPANY WILL DEPEND ON LICENSED TECHNOLOGY FROM THIRD PARTIES AND
ITS FAILURE TO MAINTAIN THESE ARRANGEMENTS COULD ADVERSELY AFFECT ITS
OPERATIONS.
CNET and Ziff-Davis rely on technology licensed from third parties for use
in operating and managing their Internet sites and providing related services to
users and advertisers. The combined company's ability to generate revenue from
Internet commerce may also depend on data encryption and authentication
technologies that it may be required to license from third parties. We cannot
assure you that these third party technology licenses will be available at all
or will continue to be available to the combined company on acceptable
commercial terms or that they will operate as intended.
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CNET'S DEBT OBLIGATIONS EXPOSE THE COMBINED COMPANY TO RISKS THAT COULD
ADVERSELY AFFECT ITS FINANCIAL CONDITION.
CNET's debt outstanding at June 30, 2000 was approximately $184.9 million.
CNET may incur substantial additional debt in the future. The level of CNET's
indebtedness, among other things, could:
- make it difficult for the combined company to make payments on its debt
as described below
- make it difficult for the combined company to obtain any necessary
financing in the future for working capital, capital expenditures, debt
service, acquisitions or general corporate purposes
- limit the combined company's flexibility in planning for or reacting to
changes in its business
- reduce funds available to use for our operations
- impair our ability to incur additional debt because of financial and
other restrictive covenants
- make the combined company more vulnerable in the event of a downturn in
its business or an increase in interest rates
If the combined company experiences a decline in revenues due to any of the
factors described in this Risk Factors section or otherwise, it could have
difficulty paying interest and other amounts due on its indebtedness. If the
combined company is unable to generate sufficient cash flow or otherwise obtain
funds necessary to make required payments, or if it fails to comply with the
various requirements of its indebtedness, the combined company would be in
default, which would permit the holders of its indebtedness to accelerate the
maturity of the indebtedness and could cause defaults under its other
indebtedness. Any default under its indebtedness could have a material adverse
effect on the combined company's financial condition.
THE PRICE OF CNET COMMON STOCK IS SUBJECT TO WIDE FLUCTUATION.
The trading price of CNET common stock is subject to wide fluctuations.
Trading prices of CNET common stock may fluctuate in response to a number of
events and factors, including:
- quarterly variations in operating results
- announcements of innovations
- new products, strategic developments or business combinations by CNET or
its competitors
- changes in CNET's expected operating expense levels or losses
- changes in financial estimates and recommendations of securities analysis
- the operating and securities price performance of other companies that
investors may deem comparable to CNET
- news reports relating to trends in the Internet
- other events or factors
In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme volatility
that often has been unrelated to the operating performance of these companies.
These broad market and industry fluctuations may adversely affect the trading
price of CNET common stock.
These fluctuations may make it more difficult to use stock as currency to
make acquisitions that might otherwise be advantageous, or to use stock options
as a means to attract and retain employees.
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CNET HAS A SUBSTANTIAL NUMBER OF SHARES OF COMMON STOCK THAT MAY BE SOLD, WHICH
COULD AFFECT THE TRADING PRICE OF CNET COMMON STOCK.
CNET has a substantial number of shares of common stock subject to stock
options, and CNET's notes may be converted into shares of CNET common stock. In
addition, as of the record date for the CNET special meeting, CNET has over
265,647,000 shares of authorized but unissued shares of CNET common stock that
are available for future sale. We cannot predict the effect, if any, that future
sales of shares of CNET common stock or notes, or the availability of shares of
CNET common stock or notes for future sale, will have on the market price of
CNET's common stock. In addition, after 180 days from the closing of the merger,
Softbank will have a right, pursuant to registration rights granted under the
stockholder agreement, to require the combined company to register for public
sale CNET common stock owned by Softbank. In addition, our founding stockholders
might sell shares of CNET common stock from time to time. Sales of substantial
amounts of CNET common stock, including shares issued in connection with
acquisitions, upon the exercise of stock options or warrants or the conversion
of debt securities, or the perception that such sales could occur, may adversely
affect prevailing market prices for CNET's common stock.
PROVISIONS OF CNET'S CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW COULD
DETER TAKEOVER ATTEMPTS.
Some provisions in CNET's certificate of incorporation and bylaws could
delay, prevent or make more difficult a merger, tender offer, proxy contest or
change of control. CNET's stockholders might view any transaction of this type
as being in their best interest since the transaction could result in a higher
stock price than the current market price for our common stock. Among other
things, CNET's certificate of incorporation and bylaws:
- authorize its board of directors to issue preferred stock with the terms
of each series to be fixed by our board of directors
- divide CNET's board of directors into three classes so that only
approximately one-third of the total number of directors is elected each
year
- permit directors to be removed only for cause
- specify advance notice requirements for stockholder proposals and
director nominations
In addition, with some exceptions, the Delaware General Corporation Law
restricts or delays mergers and other business combinations between CNET and any
stockholder that acquires 15% or more of CNET's voting stock.
THERE ARE SEVERAL LAWSUITS IN WHICH CNET OR ZIFF-DAVIS ARE A DEFENDANT WHICH
COULD MATERIALLY AND ADVERSELY AFFECT THE BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE COMBINED COMPANY.
In August 1999, the Simon Property Group filed a complaint against mySimon,
Inc., which became CNET's subsidiary on February 29, 2000. The Simon Property
Group is a real estate investment trust that owns and develops mall properties
nationwide. The complaint, which was filed in the Southern District of Indiana
at Indianapolis, alleged that our "mySimon" mark infringes the Simon Property
Group's "SIMON" mark. On August 31, 2000 the jury found that the "mySimon" mark
infringes the "SIMON" mark. The jury awarded Simon Property Group damages of
$26.8 million. We believe that the jury verdict was not supported by the law or
the facts and we plan to appeal the verdict. The judge presiding over the case
has not yet entered judgment on the jury's verdict, nor has he ruled on Simon
Property Group's request that mySimon relinquish its name. Unless the verdict is
overturned on appeal or unless the judge does not require mySimon to relinquish
its name, there could be a material adverse effect on the business, financial
condition and results of operations of the combined company from the loss of the
mySimon mark.
In connection with the initial public offering of ZD common stock on April
28, 1998 and the subsequent repricing of certain stock options, Ziff-Davis has
been named as a defendant in several lawsuits. While Ziff-Davis believes there
are substantial defenses to all claims, we cannot assure you that
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Ziff-Davis will prevail. Defense costs and/or settlement costs relating to these
actions could be substantial, and the defense of these actions may divert
management's attention and resources. If the plaintiffs prevail in these
actions, any judgments awarded by the courts could have a material adverse
effect on the combined company's financial condition. For more information
regarding the lawsuits in which Ziff-Davis is a defendant, see Note 18 of the
notes to Ziff-Davis' consolidated financial statements, which are included in
its 1999 Annual Report on Form 10-K.
OWNERSHIP OF CNET COMMON STOCK WILL BE CONCENTRATED IN A SMALL GROUP OF
STOCKHOLDERS WHOSE INTERESTS MAY DIFFER FROM THOSE OF OTHER STOCKHOLDERS.
After the merger, Softbank, Halsey Minor, the chairman of CNET, and Shelby
Bonnie, the chief executive officer of CNET, will together control approximately
33% of the outstanding common stock of the combined company. The concentration
of ownership of the common stock of the combined company may delay, prevent or
deter a change in control, could deprive other stockholders of an opportunity to
receive a premium for their common stock as part of a sale of the combined
company or its assets and may adversely affect the market price of CNET common
stock. Also, these stockholders can exert significant control over actions
requiring the approval of a majority of the voting stock, including amendments
to our charter. Commercial and other transactions between the combined company,
on the one hand, and the directors, officers and major stockholders of the
combined company and their affiliates, on the other, create potential for, or
could result in, conflicting interests. We intend that the combined company
enter into all related party transactions on an arm's length basis (measured
against terms that would be offered by an unaffiliated third party).
In addition, after 180 days from the closing of the merger, Softbank will
have a right, pursuant to registration rights granted under the stockholder
agreement, to require the combined company to register for public sale CNET
common stock owned by Softbank. Also, Halsey Minor and Shelby Bonnie might sell
shares of CNET common stock from time to time.
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FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements relate to the financial condition, results of
operations, cash flows, dividends, financing plans, business strategies,
operating efficiencies or synergies, budgets, capital and other expenditures,
competitive positions, growth opportunities for existing products, benefits from
new technology, plans and objectives of management, markets for Ziff-Davis' and
CNET's stock, and other matters. Statements in this document that are not
historical facts are identified as "forward-looking statements" for the purpose
of the safe harbor provided by Section 21E of the Securities Exchange Act of
1934 and Section 27A of the Securities Act of 1933.
These forward-looking statements, including statements relating to future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs and income, wherever they occur in this proxy
statement/prospectus, are estimates reflecting the best judgment of the senior
management of CNET and Ziff-Davis, respectively. These forward-looking
statements involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the forward-looking
statements. Forward-looking statements should, therefore, be considered in light
of various important factors, including those set forth in this proxy
statement/prospectus. Important factors that could cause actual results to
differ materially from estimates or projections contained in the forward-looking
statements include, without limitation:
- the effects of vigorous competition in the markets in which CNET and
Ziff-Davis operate, including the potential for additional competition
from major Internet service providers and the content consumers that are
currently customers of CNET and Ziff-Davis
- the ability to enter into agreements, and the cost of entering new
territories necessary, to provide nationwide services
- changes in technology that may increase the number of competitors CNET or
Ziff-Davis faces or require significant capital expenditures to provide
competitive services
- general economic or business conditions that may be less favorable than
expected, resulting in, among other things, lower than expected revenues
- costs or difficulties related to the integration of the businesses of
CNET and Ziff-Davis that may be greater than expected
- legislative or regulatory changes that may adversely affect the
businesses in which CNET and Ziff-Davis are engaged
- adverse changes in the securities markets
- the other risk factors described under "Risk Factors" in this proxy
statement/prospectus and
- other factors, including, but not limited to, economic, key employee,
competitive, regulatory, governmental and technological factors, which
may affect CNET or Ziff-Davis
When we use the words "estimate," "project," "intend," "expect," "believe"
and similar expressions, we are making forward-looking statements. These
forward-looking statements are found at various places throughout this proxy
statement/prospectus and the other documents we incorporate by reference in this
proxy statement/prospectus. We caution you not to place undue reliance on these
forward-looking statements, which speak only as of the date they were made. We
do not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this proxy statement/prospectus or to reflect the occurrence of unanticipated
events.
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THE CNET SPECIAL MEETING
We are furnishing this proxy statement/prospectus to stockholders of CNET
as part of the solicitation of proxies by CNET's board of directors. The CNET
board will use the proxies at the CNET special meeting and at any adjournment or
postponement thereof. We are first mailing this proxy statement/ prospectus and
the accompanying form of proxy card to CNET stockholders on or about September
8, 2000.
DATE, TIME AND PLACE
We will hold the CNET special meeting on October 17, 2000, at 9:00 a.m.,
local time, at 150 Chestnut Street, San Francisco, California.
PURPOSE OF CNET SPECIAL MEETING
At the CNET special meeting, we are asking holders of CNET common stock to
(1) approve the issuance of CNET common stock in a merger pursuant to which a
newly formed, wholly owned CNET subsidiary will merge into Ziff-Davis, with
Ziff-Davis continuing as the surviving corporation and becoming a wholly owned
subsidiary of CNET, and (2) approve the CNET 2000 Stock Option Plan.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of CNET common stock at the close of business on
September 5, 2000, the CNET record date, are entitled to notice of and to vote
at the CNET special meeting. On the CNET record date, there were approximately
87,102,690 shares of CNET common stock issued and outstanding and held by
approximately 76,000 holders of record.
PERSON MAKING THE SOLICITATION
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the CNET board of directors for use at the CNET special meeting.
QUORUM AND VOTING REQUIRED
At the CNET special meeting, holders of CNET common stock on the CNET
record date will be entitled to one vote per share of common stock on the
proposals to approve the issuance of shares of CNET common stock in the merger
and to approve the CNET 2000 Stock Option Plan.
A quorum of stockholders is necessary to hold a valid meeting. Attendance
at the meeting in person or by proxy of a majority of the outstanding CNET
common stock is required for a quorum to be present. If a quorum is not present
at the CNET special meeting, we expect that the meeting will be adjourned or
postponed to solicit additional proxies. Abstentions and "broker non-votes"
count as being present and are included to establish a quorum. A "broker
non-vote" occurs when a broker is not permitted to vote because the broker has
not received instructions from the beneficial owner of the shares.
The issuance of shares of CNET common stock in the merger and the approval
of the CNET 2000 Stock Option Plan requires the affirmative vote of a majority
of the CNET shares represented in person or by proxy and entitled to vote at the
special meeting.
As of the CNET record date, directors and executive officers of CNET
beneficially owned an aggregate of approximately 24% of the outstanding shares
of CNET common stock. Halsey Minor, the chairman of CNET's board, and Shelby
Bonnie, CNET's chief executive officer, have entered into voting agreements with
Ziff-Davis that obligate them to vote all the shares of CNET common stock that
they own in favor of the issuance of shares of CNET common stock in the merger.
Together, Mr. Minor and Mr. Bonnie owned approximately 23% of CNET's common
stock outstanding as of the record date.
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VOTING OF PROXIES
All shares represented by properly executed proxies received in time for
the CNET special meeting (and not revoked) will be voted at the CNET special
meeting in the manner specified by the grantors of those proxies. Properly
executed proxies that do not contain voting instructions will be voted FOR the
approval of the issuance of CNET common stock in connection with the merger and
FOR the approval of the CNET 2000 Stock Option Plan.
If you are a record holder of shares of CNET common stock, in order for
your shares to be included in the vote, you must vote your shares by one of the
following means:
- in person
- by proxy by completing, signing and dating the enclosed proxy card and
returning it in the enclosed postage-paid envelope
- by telephone by following the instructions printed on the enclosed proxy
card
Shares of CNET common stock represented at the CNET special meeting but not
voting, including shares of CNET common stock for which proxies have been
received but for which holders of shares have abstained, will be treated as
present at the CNET special meeting to determine the presence or absence of a
quorum for the transaction of all business.
Only shares affirmatively voted for approval of the issuance of shares of
CNET common stock in the merger and for approval of the CNET 2000 Stock Option
Plan, including properly executed proxies that do not contain voting
instructions, will be counted as votes in favor of the approval of the issuance
of such shares of CNET common stock and the approval of the CNET 2000 Stock
Option Plan. Brokers who hold shares of CNET common stock in street name for
customers who are the beneficial owners of those shares may not give a proxy to
vote those shares without specific instructions from those customers.
The persons named as proxies by CNET stockholders may propose and vote for
one or more adjournments of the CNET special meeting, including adjournments to
permit further solicitations of proxies. Proxies voted against the proposal to
issue CNET common stock in the merger will not be voted in favor of any such
adjournment or postponement.
EXPENSES; SOLICITATION OF PROXIES
CNET will mail a copy of this proxy statement/prospectus to each holder of
record of CNET common stock on the CNET record date.
CNET will pay the expenses of soliciting proxies to be voted at the
meeting, except that Ziff-Davis will share equally the expenses incurred in
connection with filing and printing this proxy statement/ prospectus. Following
the original mailing of the proxies and other soliciting materials, CNET will
request brokers, custodians, nominees and other record holders of CNET common
stock to forward copies of the proxy and other soliciting materials to persons
for whom they hold shares of CNET common stock and to request authority for the
exercise of proxies. In such cases, upon the request of the record holders, CNET
will reimburse such holders for their reasonable expenses.
In addition to solicitation by mail, directors, officers and key employees
of CNET may solicit proxies in person or by telephone, telegram or other means
of communication. These persons will not receive additional compensation for
solicitation of proxies, but may be reimbursed for reasonable out-of-pocket
expenses.
Corporate Investor Communications, Inc. ("CIC") will assist in the
solicitation of proxies by CNET. CNET will pay CIC's fees estimated at $8,000,
plus reimbursement of out-of-pocket expenses, and will indemnify CIC against any
losses arising out of its proxy soliciting services on behalf of CNET.
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PROXIES; REVOCABILITY
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the CNET board of directors for use at the CNET special meeting.
Please complete, date and sign the accompanying proxy and promptly return it in
the enclosed envelope or otherwise mail it to CNET. You may also vote by
telephone, as described in the enclosed proxy card. All properly signed proxies
that CNET receives prior to the vote at the meeting that are not revoked will be
voted at the meeting according to the instructions indicated on the proxies or,
if no direction is indicated, to approve the issuance of CNET common stock in
the merger and the CNET 2000 Stock Option Plan. You may revoke your proxy at any
time before it is exercised by taking any of the following actions:
- delivering a written notice to the secretary of CNET by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked
- signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting
- attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that
if your shares are held of record by a broker, bank or other nominee and
you wish to vote at the meeting, you must bring to the meeting a letter
from the broker, bank or other nominee confirming your beneficial
ownership of the shares
- calling the toll-free number on the enclosed proxy and changing your
vote, even if you did not previously vote by telephone
CNET's board of directors does not know of any matter that is not referred
to in this proxy statement/prospectus to be presented for action at the meeting.
If any other matters are properly brought before the meeting, the persons named
in the proxies will have discretion to vote on such matters in accordance with
their best judgment.
NO APPRAISAL RIGHTS
Appraisal rights are not available to holders of CNET common stock.
RECOMMENDATION OF CNET'S BOARD OF DIRECTORS
CNET's board of directors has adopted the merger agreement and approved the
issuance of CNET common stock in the merger, and has determined that the merger
is in the best interests of CNET and its stockholders. Further, CNET's board of
directors has adopted the CNET 2000 Stock Option Plan. The CNET board of
directors recommends that CNET stockholders vote FOR the issuance of shares of
CNET common stock in the merger and that CNET stockholders vote FOR approval of
the CNET 2000 Stock Option Plan.
To assure that your shares of CNET common stock are represented at the CNET
special meeting, please complete, date and sign the enclosed proxy card and mail
it promptly in the postage-paid envelope provided, whether or not you plan to
attend the meeting. You may also vote by telephone, as described on the enclosed
proxy card. You may revoke your proxy at any time before it is voted.
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THE ZIFF-DAVIS SPECIAL MEETING
We are furnishing this proxy statement/prospectus to stockholders of
Ziff-Davis Inc. as part of the solicitation of proxies by the Ziff-Davis board
of directors. Ziff-Davis' board will use the proxies at the Ziff-Davis special
meeting and at any adjournment or postponement thereof. We are first mailing
this proxy statement/prospectus and the accompanying form of proxy card to
Ziff-Davis stockholders on or about September 8, 2000.
DATE, TIME AND PLACE
We will hold the Ziff-Davis special meeting on Friday, October 13, 2000, at
10:00 a.m., local time, at 28 East 28th Street, New York, New York.
PURPOSE OF ZIFF-DAVIS SPECIAL MEETING
At the special meeting, we are asking holders of ZD common stock and ZDNet
common stock to adopt the merger agreement pursuant to which a newly formed,
wholly owned subsidiary of CNET will merge into Ziff-Davis, with Ziff-Davis
continuing as the surviving corporation and becoming a wholly owned subsidiary
of CNET.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of ZD common stock and ZDNet common stock at the
close of business on September 5, 2000, the Ziff-Davis record date, are entitled
to notice of and to vote at the Ziff-Davis special meeting. On the Ziff-Davis
record date, approximately 107,000,000 shares of ZD common stock were issued and
outstanding and held by approximately 350 holders of record and approximately
17,000,000 shares of ZDNet common stock were issued and outstanding and held by
approximately 165 holders of record.
PERSON MAKING THE SOLICITATION
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the Ziff-Davis board of directors for use at the Ziff-Davis special
meeting.
QUORUM AND VOTING REQUIRED
At the Ziff-Davis special meeting, holders of record of ZD common stock on
the Ziff-Davis record date will be entitled to cast one vote per share of ZD
common stock owned as of the record date on the proposal to adopt the merger
agreement. At the Ziff-Davis special meeting, holders of ZDNet common stock on
the Ziff-Davis record date will be entitled to cast 1.84740 votes per share of
ZDNet common stock owned as of the record date, which is a number of votes per
share calculated in accordance with the Amended and Restated Certificate of
Incorporation of Ziff-Davis to equal the average market value of a share of
ZDNet common stock divided by the average market value of a share of ZD common
stock during the 20 consecutive trading day period ending on (and including) the
fifth trading day before the Ziff-Davis record date, subject to adjustment to
take into account the special cash and stock dividend paid to holders of record
of ZD common stock on August 14, 2000.
A quorum of stockholders is necessary to hold a valid meeting. A quorum
will be present at the Ziff-Davis special meeting if shares representing a
majority of the votes entitled to be cast are represented in person or by proxy.
If a quorum is not present at the Ziff-Davis special meeting, we expect that the
meeting will be adjourned or postponed to solicit additional proxies.
Abstentions and "broker non-votes" count as being present to establish a quorum.
A "broker non-vote" occurs when a broker is not permitted to vote because the
broker does not have instructions from the beneficial owner of the shares.
As of August 8, 2000, directors and executive officers of Ziff-Davis as a
group beneficially owned an aggregate of approximately 59% of the outstanding
shares of Ziff-Davis. Softbank, which owns Ziff-Davis common stock entitled to
cast a majority of the total votes at the Ziff-Davis special meeting, has agreed
to
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vote in favor of the adoption of the merger agreement. Thus, we expect that the
merger agreement will be adopted by Ziff-Davis stockholders regardless of how
other Ziff-Davis stockholders vote.
The adoption of the merger agreement requires the affirmative vote of
holders of shares representing a majority of the total voting power of ZD common
stock and ZDNet common stock entitled to vote at the special meeting, voting
together as a single group. IF A ZIFF-DAVIS STOCKHOLDER ABSTAINS FROM VOTING OR
DOES NOT VOTE (EITHER IN PERSON OR BY PROXY), IT WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST THE ADOPTION OF THE MERGER AGREEMENT. THE SHARES OF ZD COMMON STOCK
WHICH ARE SUBJECT TO THE VOTING AGREEMENT ENTERED INTO BY SOFTBANK WILL BE
SUFFICIENT TO ADOPT THE MERGER AGREEMENT AT THE SPECIAL MEETING.
VOTING OF PROXIES
All shares represented by properly executed proxies received in time for
the Ziff-Davis special meeting (and not revoked) will be voted at the Ziff-Davis
special meeting in the manner specified by the grantors of those proxies.
Properly executed proxies that do not contain voting instructions will be voted
FOR the adoption of the merger agreement, and the proxy holder may vote the
proxy in its discretion as to any other matter which may properly come before
the meeting.
If you are a record holder of shares of ZD common stock and/or ZDNet common
stock, in order for your shares to be included in the vote, you must vote your
shares by one of the following means:
- in person
- by proxy by completing, signing and dating the enclosed proxy card and
returning it in the enclosed postage-paid envelope
Shares of ZD common stock and ZDNet common stock represented at the
Ziff-Davis special meeting but not voted, including shares of ZD common stock
and ZDNet common stock for which proxies have been received but for which
holders of shares have abstained, will be treated as present at the Ziff-Davis
special meeting to determine the presence or absence of a quorum for the
transaction of all business.
Only shares affirmatively voted for the adoption of the merger agreement,
including properly executed proxies that do not contain voting instructions,
will be counted as votes in favor of the adoption of the merger agreement.
Brokers who hold shares of ZD common stock and/or ZDNet common stock in street
name for customers who are the beneficial owners of those shares may not give a
proxy to vote those shares without specific instructions from those customers.
These non-voted shares are referred to as "broker non-votes" and have the same
effect as a vote against the approval of the merger agreement.
The persons named as proxies by a Ziff-Davis stockholder may propose and
vote for one or more adjournments of the Ziff-Davis special meeting, including
adjournments to permit further solicitations of proxies. No proxy voted against
the proposal to adopt the merger agreement will be voted in favor of any such
adjournment or postponement.
Ziff-Davis does not expect that any matter other than the proposal to adopt
the merger agreement will be brought before the Ziff-Davis special meeting. If,
however, Ziff-Davis' board of directors properly presents other matters, the
persons named as proxies will vote in accordance with their judgment.
EXPENSES; SOLICITATION OF PROXIES
Ziff-Davis will mail a copy of this proxy statement/prospectus to each
holder of record of ZD common stock and/or ZDNet common stock on the Ziff-Davis
record date.
Ziff-Davis will pay the expenses of soliciting proxies to be voted at the
meeting, except that CNET will share equally the expenses incurred in connection
with filing and printing this proxy statement/ prospectus. Following the
original mailing of the proxies and other soliciting materials, Ziff-Davis will
request brokers, custodians, nominees and other record holders of ZD common
stock and/or ZDNet common stock to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of ZD common stock
and/or ZDNet common stock and to request authority for the exercise of
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proxies. In such cases, upon the request of the record holders, Ziff-Davis will
reimburse such holders for their reasonable expenses.
In addition to solicitation by mail, directors, officers and key employees
of Ziff-Davis may solicit proxies in person or by telephone, telegram or other
means of communication. These persons will receive no additional compensation
for solicitation of proxies, but may be reimbursed for reasonable out-of-pocket
expenses.
Ziff-Davis stockholders should not send stock certificates with their proxy
cards. A transmittal form with instructions for the surrender of ZD common stock
and/or ZDNet common stock certificates will be mailed to Ziff-Davis stockholders
as soon as is practicable after the completion of the merger.
PROXIES; REVOCABILITY
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the Ziff-Davis board of directors for use at the Ziff-Davis special
meeting. Please complete, date and sign the accompanying proxy card and promptly
return it in the enclosed envelope or otherwise mail it to Ziff-Davis. All
properly signed proxies that Ziff-Davis receives prior to the vote at the
meeting that are not revoked will be voted at the meeting according to the
instructions indicated on the proxies or, if no direction is indicated, to adopt
the merger agreement. You may revoke your proxy at any time before it is
exercised by taking any of the following actions:
- delivering a written notice to the secretary of Ziff-Davis by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked
- signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting
- attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy. Please note, however, that
if your shares are held of record by a broker, bank or other nominee and
you wish to vote at the meeting, you must bring to the meeting a letter
from the broker, bank or other nominee confirming your beneficial
ownership of the shares
Ziff-Davis' board of directors does not know of any matter that is not
referred to in this proxy statement/prospectus to be presented for action at the
meeting. If any other matters are properly brought before the meeting, the
persons named in the proxies will have discretion to vote on such matters in
accordance with their best judgment.
NO APPRAISAL RIGHTS
Appraisal rights are not available to holders of ZD common stock or ZDNet
common stock.
DIRECTORS OF THE SURVIVING CORPORATION
Upon completion of the merger, Shelby Bonnie, Daniel Rosensweig and Richard
Marino will be the sole directors of Ziff-Davis. Shelby Bonnie is currently the
Chief Executive Officer of CNET, and Richard Marino is currently CNET's
President. Daniel Rosensweig is currently the Chief Executive Officer of ZDNet.
After the merger, CNET's board of directors will be increased by one
directorship and will consist of seven directors. In addition, Douglas Woodrum,
one of CNET's current directors, will resign from the board. The two vacancies
created on CNET's board will be filled by one designee of Ziff-Davis and by one
designee of Softbank.
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RECOMMENDATION OF ZIFF-DAVIS' BOARD OF DIRECTORS
Ziff-Davis' board of directors has approved the merger agreement, and has
determined that the merger is in the best interests of Ziff-Davis and its
stockholders. The Ziff-Davis board of directors recommends that Ziff-Davis
stockholders vote FOR adoption of the merger agreement.
To assure that your shares of ZD common stock and ZDNet common stock are
represented at the Ziff-Davis special meeting, please complete, date and sign
the enclosed proxy card and mail it promptly in the postage-paid envelope
provided, whether or not you plan to attend the meeting. You may revoke your
proxy at any time before it is voted.
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PROPOSAL ONE
THE MERGER AND RELATED MATTERS
THE PROPOSED MERGER
STRUCTURE OF THE MERGER; MERGER CONSIDERATION
THE MERGER
In accordance with the merger agreement and Delaware law, TD Merger Sub
will be merged with and into Ziff-Davis. As a result of the merger, the separate
corporate existence of TD Merger Sub will cease and Ziff-Davis will survive the
merger as a wholly owned subsidiary of CNET.
MERGER CONSIDERATION
In the merger, Ziff-Davis stockholders will receive 0.3397 of a share of
CNET common stock for each share of ZD common stock they hold and 0.5932 of a
share of CNET common stock for each share of ZDNet common stock they hold. The
number of shares of CNET common stock that Ziff-Davis stockholders will receive
in the merger will be appropriately adjusted for any stock splits, combinations
and other similar events that occur between the date of the merger agreement and
the completion of the merger. We will not issue fractional shares of CNET common
stock in the merger. Instead, each Ziff-Davis stockholder otherwise entitled to
a fractional share will receive cash, without interest, in lieu of a fraction of
a share of CNET common stock. Specifically, the exchange agent in the merger
will, as promptly as practicable after the determination of the amount of cash,
if any, to be paid to holders of fractional interests, notify CNET of such
amount, and CNET will deposit such amount with the exchange agent and will cause
the exchange agent to forward payments to the owners of fractional interests.
EFFECTIVE TIME OF THE MERGER
The merger will become effective when a certificate of merger is filed with
the Delaware Secretary of State or at a later time as may be specified in the
certificate of merger. The effective time of the merger will occur as soon as
practicable after the last of the conditions in the merger agreement has been
satisfied or waived. We expect the merger to occur in the fourth quarter of
2000. However, because the merger is subject to governmental approvals and other
customary conditions, we cannot predict the exact timing.
TREATMENT OF ZIFF-DAVIS STOCK OPTIONS
At the effective time of the merger, each outstanding Ziff-Davis stock
option will cease to represent a right to acquire shares of ZD common stock or
ZDNet common stock, as the case may be, and will be converted into (i) in the
case of an option to purchase shares of ZD common stock, an option to purchase a
number of shares of CNET common stock equal to the number of shares of ZD common
stock subject to such option times 0.3397, at a per share exercise price equal
to the per share exercise price of such option divided by 0.3397, and (ii) in
the case of an option to purchase shares of ZDNet common stock, an option to
purchase a number of shares of CNET common stock equal to the number of shares
of ZDNet common stock subject to such option times 0.5932, at a per share
exercise price equal to the per share exercise price of such option divided by
0.5932.
BACKGROUND OF THE MERGER
CNET continually evaluates opportunities that could help it improve its
service offerings, gain new users of its services and expand the scale of its
operations. Accordingly, CNET representatives and its financial and legal
advisors met with Ziff-Davis representatives and its financial and legal
advisors in December 1998 for extremely preliminary discussions about the
possibility of engaging in a transaction that would combine the CNET and ZDNet
online businesses. No specific proposals were made and these discussions never
evolved beyond the preliminary stage.
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In mid-1999, Ziff-Davis retained Morgan Stanley and Sullivan & Cromwell to
help it explore strategic alternatives to maximize stockholder value. As a
result of this exploration, Ziff-Davis determined to dispose of substantially
all of its non-Internet assets and eliminate its tracking stock structure.
Separately, members of CNET's senior management followed the Ziff-Davis
announcements concerning the disposition of Ziff-Davis' non-Internet assets. In
September 1999 Shelby Bonnie, CNET's Chief Executive Officer, and Halsey Minor,
the Chairman of CNET's board of directors, met with representatives of Lazard to
discuss the actions announced by Ziff-Davis. At such meeting, the
representatives of Lazard reviewed the non-Internet businesses of Ziff-Davis and
discussed the potential values for such businesses and the possible process and
timing relating to their sale.
During the Ziff-Davis restructuring process, CNET and Lazard periodically
communicated to Ziff-Davis and Morgan Stanley that CNET might have an interest
in pursuing a transaction that would result in a combination of Ziff-Davis'
online assets with CNET.
On January 18, 2000 representatives of Lazard reviewed with Mr. Bonnie the
announced results of Ziff-Davis' disposition process and plan to eliminate
Ziff-Davis' tracking stock structure. On February 28, 2000, Mr. Bonnie met again
with representatives of Lazard. At that meeting such representatives analyzed
and compared the recently announced fourth quarter financial results of
Ziff-Davis and CNET and discussed their view of the potential synergies that
could be achieved by combining Ziff-Davis with CNET.
On March 15, 2000, representatives of Lazard met with Mr. Bonnie, Douglas
Woodrum, CNET's Chief Financial Officer, and Richard Marino, CNET's President.
At that meeting, Lazard reviewed the strategic rationale for considering an
acquisition of Ziff-Davis, including their view of potential synergies from
combining the two companies. Lazard also reviewed a preliminary financial
analysis related to such a transaction.
By April 2000, Ziff-Davis had completed the sale of its market
intelligence, television and education businesses and most of its print
publishing business. In addition, Ziff-Davis had announced that it intended to
recapitalize and spin off its trade show and conference business (now known as
Key3Media) to the holders of ZD common stock and simultaneously pay those
holders a cash dividend. In this document, we sometimes refer to those
transactions as the Key3Media spin-off and cash dividend.
In late May, as Ziff-Davis neared completion of the disposition of its
non-Internet businesses, Mr. Bonnie met with Daniel Rosensweig, ZDNet's Chief
Executive Officer. At that meeting, Messrs. Bonnie and Rosensweig discussed the
business and operations of their two companies and the potential synergies and
other benefits that might result from a combination of CNET and Ziff-Davis.
Messrs. Bonnie and Rosensweig also discussed the potential process for
considering a transaction between the two companies but did not discuss any
specific terms.
During the three week period after the May meeting of Messrs. Bonnie and
Rosensweig, members of CNET's senior management and Lazard prepared a more
comprehensive financial analysis of an acquisition of Ziff-Davis and a more
detailed review of the strategic rationale and potential synergies and other
benefits and potential risks that might result from such a transaction. During
the week of June 11, 2000, CNET engaged Simpson Thacher & Bartlett as its legal
counsel in connection with the proposed transaction.
At a meeting of the CNET board of directors on June 21, 2000, Mr. Bonnie
briefed the board on his discussions with Mr. Rosensweig. In addition, Mr.
Bonnie, Mr. Marino, Sharon Le Duy, CNET's Vice President -- Legal and Business
Affairs, April Walden, Associate Vice President -- Investor Relations, and
representatives of Lazard reviewed the strategic rationale, potential synergies
and other benefits and potential risks associated with an acquisition of
Ziff-Davis. Lazard also reviewed a preliminary financial analysis related to the
proposed transaction. Following discussion, the CNET board authorized senior
management and its advisors to indicate to Ziff-Davis that CNET was interested
in discussing a potential stock-for-stock acquisition of Ziff-Davis in which
Ziff-Davis' stockholders would own 30-33% of the combined company. Prior to
completion of such transaction, Ziff-Davis would be permitted to spin-off
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Key3Media and, subject to receipt of sufficient cash from Key3Media, pay the
previously contemplated cash dividend of $2.50 per share of ZD common stock.
Following the June 21, 2000, meeting of the CNET board, Mr. Bonnie called
Mr. Rosensweig and Lazard spoke with representatives of Morgan Stanley. Both Mr.
Rosensweig and representatives of Morgan Stanley stated that while Ziff-Davis
would not be prepared to enter into a transaction at the valuation level
proposed by CNET, Ziff-Davis was prepared to allow CNET to conduct a more
thorough due diligence review of Ziff-Davis and to further evaluate the
potential synergies and other benefits that might result from combining the two
companies.
On June 28, 2000, CNET and Ziff-Davis executed a confidentiality agreement
in connection with the ongoing discussions.
On June 28, 2000, Mr. Bonnie, Mr. Marino, Mr. Woodrum, Ms. Le Duy, Ms.
Walden, and representatives of Lazard met in New York City with Mr. Rosensweig,
Lauren Bonfield, Vice President -- General Counsel of ZDNet, Masimo DeNadai,
Vice President -- Business Operations of ZDNet, and representatives of Morgan
Stanley. At that meeting, the participants discussed each of CNET's and Ziff-
Davis' operations, financial results, contingent liabilities and prospects as
well as the potential synergies and other benefits that could result from a
merger of the two companies. During the week of July 3, 2000, CNET and its
counsel began to prepare a draft of the merger agreement and the other documents
required for the transaction and each party and its legal and financial advisors
continued their due diligence review of the other party. On July 6, 2000, CNET's
and Ziff-Davis' legal and financial advisors discussed the structural
alternatives for the potential transaction being discussed and agreed that any
acquisition of Ziff-Davis would be pursuant to a merger of a subsidiary of CNET
into Ziff-Davis. Members of senior management of the two companies met again in
New York City on July 7, 2000, to conduct further due diligence and analyze the
potential synergies and benefits from the proposed transaction.
On July 9, 2000, Mr. Bonnie met with Eric Hippeau, the Chairman of
Ziff-Davis and an officer of Softbank, to discuss the potential transaction.
During the week of July 9, 2000, CNET and Ziff-Davis continued their due
diligence of each other and began to negotiate the terms of the merger
agreement, the Softbank stockholder agreement and the other agreements relating
to the merger. The parties remained significantly apart on a number of issues,
particularly the exchange ratios, the circumstances under which a termination
fee would be payable, the amount of any termination fee and the various
agreements that CNET sought from Softbank. CNET's board of directors met again
on July 12, 2000, and was updated on the status of negotiations between the
parties, the due diligence review of Ziff-Davis conducted by CNET's management
and its legal and financial advisors, management's and Lazard's analyses of the
potential synergies and benefits from the proposed transaction and Lazard's
financial analyses. After discussion, the CNET board authorized CNET's
management to indicate to Ziff-Davis that CNET would consider an acquisition in
which Ziff-Davis' stockholders would own 35% of the combined company, subject to
satisfactory completion of CNET's due diligence review of Ziff-Davis, and
negotiation of a satisfactory merger agreement and other documents.
During the period from July 13, 2000 through July 18, 2000, CNET and
Ziff-Davis continued their due diligence reviews and negotiated the terms of the
merger agreement and related documents. During this period CNET and Softbank
also negotiated the terms of the Softbank stockholder agreement. On the
afternoon of July 18, 2000, the parties reached agreement on the remaining
issues, including the restrictions to be imposed on Ziff-Davis' operations prior
to completion of the merger, the circumstances under which a termination fee
would become payable and the amount of such fee and the rights and restrictions
of Softbank arising from its ownership of CNET common stock.
Also on the afternoon of July 18, 2000, the parties decided that, if they
agreed to a merger, the holders of Ziff-Davis stock and options would receive
35.5% of the stock of the combined company. In making this calculation, the
parties agreed to count CNET options (including options to be issued in
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exchange for Ziff-Davis options) as share equivalents under the treasury method
based on the then current price for the shares of CNET common stock.
In order to implement this decision, the parties then decided that, if they
agreed to a merger, each share of ZD common stock should convert into 0.3397 of
a share of CNET common stock and each share of ZDNet common stock should convert
into 0.5932 of a share of CNET common stock. We call the relationship between
the exchange ratio for the shares of ZD common stock and the exchange ratio for
the shares of ZDNet common stock the ZD/ZDNet equivalency ratio, and in this
case that ratio turned out to be approximately 0.57.
The parties and their advisors arrived at this ZD/ZDNet equivalency ratio
using a methodology similar to the methodology described in the Ziff-Davis proxy
statement dated February 7, 2000 for determining an equivalency ratio for
purposes of eliminating the Ziff-Davis tracking stock structure. Broadly
speaking, the parties hypothetically transferred the remaining assets and
liabilities of the ZD division (other than the assets and cash that Ziff-Davis
planned to transfer to holders of shares of ZD common stock as part of the
Key3Media spin-off and cash dividend) to the ZDNet division in return for a
hypothetical increase in ZD's retained interest in shares of ZDNet common stock.
After giving effect to that hypothetical transfer, ZD's only remaining asset
would be its increased retained interest in shares of ZDNet common stock. For
this reason, each share of ZD common stock would be hypothetically equivalent
to:
- the number of shares of ZDNet common stock in ZD's increased retained
interest, divided by
- the number of shares (and share equivalents) of ZD common stock then
outstanding.
The actual calculation worked as follows:
- First, Ziff-Davis estimated the net value of ZD's remaining assets and
liabilities at $55 million.
- This estimate INCLUDED Computer Shopper, Smart Planet, an investment in
Red Herring Communications Inc. and various other assets and
liabilities.
- This estimate EXCLUDED stock option liabilities as well as all of the
assets and cash that Ziff-Davis planned to transfer to holders of shares
of ZD common stock as part of the Key3Media spin-off and cash dividend.
- Ziff-Davis then subtracted from this $55 million estimate about $12.8
million to reflect the amount by which the options to purchase ZDNet
common stock that had been granted to ZD employees were in-the-money
(based on the price for a share of ZDNet common stock implied by the
merger), resulting in an estimated net value of about $43.2 million.
- This amount was subtracted because ZD was responsible for compensating
ZDNet for any options to purchase ZDNet common stock granted to ZD
employees.
- The parties assumed that the price of a share of ZDNet common stock
implied by the merger equaled the per share closing price of the CNET
common stock on July 18, 2000 ($32.1875) times the ZDNet common stock
exchange ratio of 0.5932, or $19.08.
- The parties then hypothetically transferred those remaining ZD assets and
liabilities to ZDNet in return for a hypothetical increase in ZD's
retained interest in shares of ZDNet common stock.
- The parties calculated the hypothetical increase in ZD's retained
interest in shares of ZDNet common stock by dividing the $43.2 million
estimated net value of the transferred assets and liabilities by the
price of a share of ZDNet common stock implied by the merger (again,
$19.08).
- The hypothetical increase amounted to about 2.3 million shares of ZDNet
common stock, and as a result, the number of retained interest shares
hypothetically increased from 60 million to about 62.3 million.
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- Next the parties estimated the value of the Key3Media spin-off and cash
dividend at $5.50 per share of ZD common stock and used that estimated
value, as well as the post-spin-off, post-dividend price of a share of ZD
common stock implied by the merger, to estimate the expected adjustment
to the options to purchase ZD common stock that would be triggered by
that spin-off and dividend.
- The parties assumed that the post-spin-off, post-dividend price of a
share of ZD common stock implied by the merger equaled the per share
closing price of the CNET common stock on July 18, 2000 ($32.1875) times
the exchange ratio for the ZD common stock of 0.3397, or $10.94.
- The parties then calculated at about 108.7 million the number of shares
(and share equivalents) of ZD common stock that would be outstanding
after giving effect to the expected adjustment to the options to purchase
ZD common stock that would be triggered by the Key3Media spin-off and
cash dividend.
- For this purpose, the parties counted the adjusted options to purchase
ZD common stock as share equivalents under the treasury method based on
the post-spin-off, post-dividend price for a share of ZD common stock
implied by the merger (again, $10.94).
- Finally, the parties calculated the ZD/ZDNet equivalency ratio by
dividing ZD's hypothetical increased retained interest of about 62.3
million shares by the number of post-spin-off, post-dividend shares (and
share equivalents) of ZD common stock then outstanding of about 108.7
million. The result was approximately 0.57.
Because the determination of the appropriate ZD/ZDNet equivalency ratio
involves a conflict between the interests of the holders of shares of ZD common
stock and the holders of shares of ZDNet common stock, Jonathon Lazarus acted as
a one-man special committee of the Ziff-Davis board of directors to review the
methodology and calculation of that ratio and make a recommendation to the full
board. Mr. Lazarus is the only Ziff-Davis director who is not part of management
and has no material ties to Softbank, which owns a majority of the shares of ZD
common stock. The special committee engaged Hambrecht & Quist as financial
advisors and Preston Gates & Ellis LLP as legal advisors to assist it in its
work. The special committee met frequently with its financial and legal advisors
as well as members of management of Ziff-Davis and Ziff-Davis' financial and
legal advisors to perform this function. The special committee, with the help of
its advisors, carefully considered the methodology for the calculation described
above and the inputs to that calculation (including the estimated value of ZD's
remaining assets and liabilities and the estimated value of the Key3Media
spin-off and cash dividend). The special committee reported its findings to the
board of directors of Ziff-Davis at the July 17, 2000 and July 18, 2000 meetings
of the Ziff-Davis board of directors referred to below and recommended that the
board adopt the methodology and calculation described above. The Ziff-Davis
board of directors followed the special committee's recommendation in all
respects.
On July 18, 2000, the CNET board of directors met beginning at 4:00 p.m.
San Francisco time at the offices of CNET. At this meeting, a representative of
Simpson Thacher & Bartlett discussed the board's fiduciary duties when
considering the proposed merger and reviewed the material terms of the merger
agreement, the Softbank stockholder agreement and related documents.
Representatives of Lazard presented to CNET's board a summary of its financial
analyses related to the proposed transaction. In addition, Lazard delivered its
opinion that the consideration to be paid was fair, from a financial point of
view, to CNET. Upon completing its deliberations, the CNET board by unanimous
vote of those present approved the merger agreement and the related agreements
and the transactions contemplated by those agreements, declared then advisable
and in the best interests of CNET and its stockholders and resolved to recommend
that CNET's stockholders approve the issuance of CNET common stock in the
merger.
On July 17, 2000 and again on July 18, 2000, the Ziff-Davis board met to
discuss the merger proposal. At these meetings, a representative of Sullivan &
Cromwell discussed the board's fiduciary duties when considering the proposed
merger and reviewed the material terms of the merger agreement and the
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other transaction documents. Members of management presented their views as to
the prospects for the combined company as well as their views about strategic
alternatives to the merger, including the possibility of remaining independent
and the possibility of a merger with another company. Representatives of Morgan
Stanley presented to the board a summary of its financial analysis related to
the proposed merger and delivered its opinion on July 18, 2000 that, as of July
18, 2000 and are based on and subject to the various considerations set forth in
its opinion, the consideration to be received by the holders of ZD common stock
and ZDNet common stock pursuant to the merger agreement was fair, from a
financial point of view, to such holders. Upon completing its deliberations, the
Ziff-Davis board, by unanimous vote of those present, approved the merger
agreement, declared it advisable and in the best interests of Ziff-Davis and its
stockholders and resolved to recommend that the Ziff-Davis stockholders adopt
the merger agreement.
On the early morning of July 19, 2000, Ziff-Davis and CNET entered into a
definitive merger agreement pursuant to which a subsidiary of CNET will merge
into Ziff-Davis, with Ziff-Davis as the surviving entity. As a result of the
merger, each share of ZD common stock will convert into 0.3397 of a share of
CNET common stock and each share of ZDNet common stock will convert into 0.5932
of a share of CNET common stock. The merger supersedes an alternative
transaction for eliminating Ziff-Davis' tracking stock structure described by
the Ziff-Davis proxy statement dated February 7, 2000.
Before the market opened on July 19, 2000, the parties issued a joint press
release announcing the transaction.
The merger agreement specifically authorized Ziff-Davis to complete the
Key3Media spin-off and pay a cash dividend within specified parameters. On
August 18, 2000, Ziff-Davis completed the Key3Media spin-off and paid a cash
dividend of $2.50 per share of ZD common stock, as permitted by the merger
agreement.
JOINT REASONS FOR THE MERGER
CNET's merger with Ziff-Davis will create the leading online provider of
technology information and related services. We believe that the following
strengths of the combined company will make it uniquely positioned to address
the technology information needs of all segments of technology users as well as
participants in the technology product supply channel:
- 16.6 million monthly unique users, making it the eighth largest web
property according to Media Metrix statistics published in May 2000
- a global presence, with operations in 23 countries and 16 languages
- established brand names in CNET and ZDNet that we believe are known and
trusted for providing technology advice
- multiple platforms to distribute our information including online and
through wireless devices, television, radio and print
- management teams with many years of experience in the technology industry
The combination provides the potential for stronger combined operating and
financial results than either company could achieve on its own.
The combined company will be a leading online provider of technology
information, with approximately:
- 30,000,000 page views per day
- 20,000,000 subscriptions to different e-mail lists
- 300,000 products with information, pricing and availability
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- 20,000 expert reviews of technology products
- 80 technology related news stories each day
The following are key specific reasons why we believe the merger will be
beneficial to stockholders of the combined company:
CREATE OPERATING SYNERGIES AND NEW BUSINESS OPPORTUNITIES. We believe that
the combined company will benefit from operating synergies as well as new
business development opportunities. The following are representative of the
potential revenue growth opportunities and cost synergies from the combination:
- the largely unduplicated user and advertiser bases of CNET and ZDNet
create revenue opportunities and synergies, such as providing companies
with "one-stop" shopping for their online, print and broadcast media
advertising campaigns directed at all segments of the technology user
audience
- the increased scale of the combined company will enable it to further the
development of existing businesses, such as CNET's IT supply channel
services, and will enhance new business development opportunities
- cost synergies in areas such as selling, general and administrative
expenses and advertising expenses, are expected to result from economies
of scale and cross promotion opportunities, and lower the cost of future
growth
CNET'S REASONS FOR THE MERGER
In connection with its approval of the merger, its determination that the
merger is fair to and in the best interest of CNET's stockholders and its
recommendation that stockholders approve the issuance of the CNET common stock
in the merger, the board of directors of CNET consulted with its legal advisors,
including its Vice President -- Legal and Business Affairs and representatives
of Simpson Thacher & Bartlett, outside counsel on the transaction, regarding the
duties of the members of the board, as well as with members of management and
Lazard, its financial advisor. The CNET board also considered the following
material information and factors in reaching its determination to approve the
merger, to conclude that the merger is fair to and in the best interests of
CNET's stockholders, and to recommend that stockholders approve the issuance of
shares of CNET common stock in connection with the merger:
- the reasons described under "-- Joint reasons for the merger;"
- the exchange ratio being used in the merger and the continuing
approximately 65% ownership interest in CNET by CNET stockholders
resulting from the merger and the history of the negotiations between
CNET and Ziff-Davis
- presentations by senior members of CNET's management regarding the
strategic advantages of combining with Ziff-Davis, operational aspects of
the transaction, and the results of management's operational and legal
due diligence review
- historical information concerning CNET's and Ziff-Davis' respective
businesses, financial performance and condition, operations, technology,
management, competitive position and stock performance, including reports
concerning results of operations during the most recent fiscal quarter
for each company as filed with the SEC
- CNET management's view as to the financial condition, results of
operations and businesses of CNET and Ziff-Davis before and after giving
effect to the merger based on management's due diligence and publicly
available earnings estimates
- the strategic fit of CNET and Ziff-Davis, including the belief that the
merger has the potential to enhance stockholder value through synergies
resulting from combining the two companies's complementary strengths and
assets, including additional opportunities for e-commerce and advertising
revenues, growth in subscribers, cross promotion and operating
efficiencies
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- the opportunities and alternatives available to CNET if the merger were
not undertaken, including pursuing an acquisition of or business
combination or joint venture with entities other than CNET and the
conclusion that a combination with Ziff-Davis is expected to result in
greater benefits than the alternatives
- the analyses and presentations of Lazard on the financial aspects of the
merger, and their written opinion to the effect that, as of July 18,
2000, and based on and subject to the various considerations set forth in
its opinion, the consideration to be paid was fair from a financial point
of view to CNET
- the terms and conditions of the merger agreement, including the fact the
exchange ratios are fixed, the agreement of Softbank to vote in favor of
the merger, the conditions to consummation of the merger, the limitations
on the interim business operations of CNET and Ziff-Davis, the right of
the parties to the merger agreement, under certain circumstances, to
respond to, evaluate and negotiate with respect to other business
combination proposals, and the circumstances under which the merger
agreement could be terminated and the size and impact of termination fees
associated with a termination, as well as the advice of CNET's financial
and legal advisors that these provisions were reasonable in the context
of the transaction
- the corporate governance arrangements established for the transaction,
including the board composition, continuity of CNET senior management and
the rights granted to Softbank under the terms of the stockholders
agreement between CNET and Softbank
- the fact that the merger likely will be completed, including the fact
that Softbank has agreed to vote its shares in favor of the merger and
the likelihood that the merger will receive the necessary regulatory
approvals
- the expected tax-free treatment of the merger for U.S. federal income tax
purposes
- the interests of the officers and directors of CNET and Ziff-Davis in the
merger, including the matters described under "-- Interests of certain,
directors, officers and affiliates in the merger," and the impact of the
merger on CNET's stockholders, customers and employees
The CNET board also considered the potential adverse consequences of other
factors on the proposed merger, including:
- the accounting treatment of the transaction as a purchase transaction,
including the negative effect on future earnings per share that will
result from amortizing goodwill and other intangibles that will be
recorded on the financial statements of CNET
- the challenges of combining the businesses, assets and workforces of two
independent companies and the risks of not achieving the expected
operating efficiencies or growth
- the risk of contingent liabilities associated with the businesses
previously owned by Ziff-Davis
- the risk of management and employee disruption associated with the
merger, including the risk of diverting management focus and resources
from other strategic opportunities while working to implement the merger
and the risk that despite the efforts of the management of the combined
company, key technical, sales and management personnel might choose not
to remain employed by the combined company
- the risk that, despite the efforts of Ziff-Davis and CNET, key management
and technical personnel might not continue with the combined company
- the risk that the merger may not be consummated, even if approved by
CNET's and Ziff-Davis' stockholders
- the risks that the benefits sought to be achieved by the merger will not
be realized
- the other risks described under "Risk Factors"
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The discussion of the information and factors considered by CNET is not
intended to be exhaustive, but includes the material factors considered. The
CNET board did not assign particular weight or rank to the factors it considered
in approving the merger. In considering the factors described above, individual
members of the CNET board may have given different weight to various factors.
The CNET board considered all of these factors as a whole, and concluded that,
on balance, the potential benefits of the merger to CNET and its stockholders
outweighed the risks.
RECOMMENDATION OF CNET'S BOARD OF DIRECTORS
After careful consideration, CNET's board of directors unanimously
determined that the merger is in the best interests of CNET and its stockholders
and declared the merger advisable. CNET's board of directors unanimously
approved the merger agreement and unanimously recommends that CNET stockholders
vote in favor of the issuance of CNET common stock in the merger.
OPINION OF CNET'S FINANCIAL ADVISOR
On July 18, 2000, Lazard delivered its oral opinion to the CNET board of
directors to the effect that, as of the date of its opinion, based upon and
subject to the various assumptions and limitations set forth in the opinion, the
consideration being paid by CNET in the merger was fair to CNET from a financial
point of view. Lazard subsequently confirmed its opinion in writing as of that
date.
A copy of the full text of the opinion of Lazard, dated July 18, 2000,
which sets forth the assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached to this proxy
statement/prospectus as Annex C. This summary discussion of Lazard's opinion is
qualified in its entirety by reference to the full text of the opinion. The
engagement of Lazard and its opinion are solely for the benefit of the CNET
board of directors in connection with the CNET board of directors' consideration
of the merger. Lazard's opinion is directed only to the fairness to CNET, from a
financial point of view, of the consideration being paid by CNET, and does not
address any other aspect of the merger. The opinion is not intended to, and does
not, constitute a recommendation to any holder of CNET's common stock as to how
any such holder should vote in connection with the merger. Holders of CNET's
common stock are urged to read the opinion of Lazard carefully and in its
entirety.
In connection with its opinion, dated July 18, 2000, to the CNET board of
directors, Lazard:
- reviewed the financial terms and conditions of the draft merger agreement
as of July 18, 2000, the terms and conditions of draft stockholders
agreements as of July 18, 2000 between CNET and Softbank, as a
stockholder of Ziff-Davis, and between Ziff-Davis and certain
stockholders of CNET, and the terms and conditions of the draft voting
agreement between Softbank and CNET as of July 18, 2000
- analyzed certain historical business and financial information relating
to CNET and Ziff-Davis
- reviewed various publicly available forecasts prepared by nationally
recognized research analysts who report on CNET and Ziff-Davis and
various financial projections provided to Lazard by CNET and Ziff-Davis
relating to their respective businesses
- held discussions with members of senior management of CNET and Ziff-Davis
with respect to the businesses and prospects of CNET and Ziff-Davis,
respectively, and the strategic objectives of each
- reviewed public information with respect to certain other companies
Lazard deemed to be generally comparable to those of CNET and Ziff-Davis
- reviewed the financial terms of certain business combinations involving
companies Lazard deemed to be generally comparable to those of CNET and
Ziff-Davis, and in other industries generally
- reviewed the historical stock prices and trading volumes of CNET common
stock, Ziff-Davis common stock and ZDNet common stock
- conducted other financial studies, analyses and investigations as Lazard
deemed appropriate
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Lazard relied upon the accuracy and completeness of the foregoing
information and did not assume any responsibility for any independent
verification of that information or any independent valuation or appraisal of
any of the assets or liabilities of CNET or Ziff-Davis, or concerning the
solvency or fair value of either CNET or Ziff-Davis. With the consent of CNET,
Lazard relied upon publicly available forecasts prepared by nationally
recognized research analysts who report on CNET and Ziff-Davis and relied on the
statements of the managements of CNET and Ziff-Davis that those forecasts were
consistent with the currently available estimates and judgments of the
managements of CNET and Ziff-Davis as to the future financial performance of
CNET and Ziff-Davis. With respect to the preliminary projections provided to
Lazard by CNET and Ziff-Davis, Lazard assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of CNET and Ziff-Davis as to the future financial
performance of CNET and Ziff-Davis. Lazard assumed no responsibility for, and
expressed no view as to, such forecasts or the assumptions on which they were
based.
The opinion of Lazard was necessarily based on economic, monetary, market
and other conditions as in effect on, and the information made available to it
as of, July 18, 2000. In rendering its opinion, Lazard did not express any
opinion as to the prices at which any securities of either CNET or Ziff-Davis
could actually trade at any time or as to the relative merits of the merger or
any other business strategies that the companies might have considered.
In rendering its opinion, Lazard assumed that the merger would be
consummated on the terms described in the merger agreement, without any waiver
of any material term or condition by CNET and that obtaining the necessary
regulatory approvals, if any, for the merger would not have an adverse effect on
CNET. Lazard also assumed that the definitive merger agreement would not differ
in any material respects from the draft furnished to it. Lazard also assumed
that the merger would qualify as a tax-free reorganization for United States
federal income tax purposes.
The following is a summary of the material financial and comparative
analyses performed by Lazard in connection with providing its opinion to the
CNET board of directors and reviewing that opinion with the board at the July 18
board of directors meeting. Unless otherwise indicated, the following
quantitative information, to the extent that it is based on market data, is
based on market data as it existed on or about July 18, 2000 and is not
necessarily indicative of current market conditions. In addition, all future
estimates of revenues, growth and earnings are based on publicly available
forecasts prepared by nationally recognized research analysts who report on CNET
and Ziff-Davis, and all such estimates for Ziff-Davis, and all historical
financial information for Ziff-Davis, relate solely to the online activities of
ZDNet and do not include the impact of Ziff Davis's investments in Computer
Shopper, Smart Planet or Red Herring unless otherwise indicated. You should
understand that the order of analyses (and results of those analyses) described
below is not intended to indicate any relative importance given to those
analyses by Lazard. The summary of financial analyses includes information
presented in tabular format, which should be read together with the text that
accompanies those tables.
SUMMARY OF PROPOSED TRANSACTION. Lazard reviewed the proposed terms of the
merger, including the structure, the exchange ratios, the implied per share
value of ZD common stock and ZDNet common stock, approximate relative ownership
composition, board composition and the accounting and tax treatment of the
merger. Lazard noted that, based upon the exchange ratios and CNET's closing
stock price on the Nasdaq National Market of $32.19 on July 18, 2000, the
implied value per share of ZD common stock was approximately $10.93 and the
implied value per share of ZDNet common stock was approximately $19.09. Lazard
further noted that, based upon the exchange ratios and the July 18 closing
price, CNET stockholders would own approximately 64.5% of the combined company
and Ziff-Davis stockholders would own approximately 35.5% (including 17.1% to be
held by Softbank based on Softbank's current ownership of Ziff-Davis) of the
combined company on a fully diluted basis (counting options under the treasury
method) following the merger.
Lazard also noted that pursuant to the merger agreement CNET would expand
its board of directors to include one director selected by Softbank and
reasonably acceptable to CNET and another selected by Ziff-Davis and reasonably
acceptable to CNET. Lazard further noted that, in connection with entering into
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the merger agreement, Softbank, CNET and certain stockholders of CNET had
entered into voting and shareholder agreements relating to voting on the merger,
and to Softbank's ability to increase its percentage ownership of CNET following
the merger.
Finally, Lazard reviewed the breakup fee payable by CNET under certain
circumstances, the January 31, 2001 termination date, the accounting and tax
treatment of the merger and the conditions to the parties' respective
obligations to effect the merger, including the condition to CNET's obligation
that Ziff-Davis complete the recapitalization and spin-off of its trade show and
conference subsidiary.
HISTORICAL TRADING ANALYSIS. Lazard reviewed the closing prices per share
of CNET common stock and ZDNet common stock for each trading day from January
10, 2000 through July 18, 2000. Lazard also calculated the implied exchange
ratio of ZDNet common stock based on the closing prices per share of ZDNet
common stock relative to the closing prices per share of CNET common stock for
each trading day over the same period. The results of the implied exchange ratio
analysis are as follows:
IMPLIED PREMIUM
EXCHANGE (DISCOUNT) TO
RATIO DATE MARKET
-------- ---- -------------
Low............................................. 0.283 May 31, 2000 107.3%
Median.......................................... 0.442 32.7%
High............................................ 0.673 February 9, 2000 (12.9%)
Average for 30 Trading Days ending July 18,
2000.......................................... 0.421 39.4%
Average for 60 Trading Days ending July 18,
2000.......................................... 0.384 52.7%
Average for 90 Trading Days ending July 18,
2000.......................................... 0.412 42.3%
Current......................................... 0.400 July 18, 2000 46.7%
PRO FORMA ANALYSIS. Based upon the fully diluted number of shares of CNET
common stock, ZD common stock and ZDNet common stock, the closing stock prices
of CNET, ZD and ZDNet, CNET and Ziff-Davis net debt (or cash and cash
equivalents) and certain assumptions regarding the value of CNET and Ziff-Davis
investments, Lazard derived enterprise values for CNET and Ziff-Davis, as well
as for the combined company on a pro forma basis. The enterprise values
determined under that analysis were $2.494 billion for CNET, $1.005 billion for
Ziff-Davis and $3.499 billion for the combined company on a pro forma basis. The
pro forma value calculation did not take into consideration qualitative factors
such as market conditions, potential investor reaction to the merger, potential
operating synergies or any other factors not expressly described above.
CURRENT PRICE VALUATIONS. Based on publicly available forecasts prepared by
nationally recognized analysts who report on CNET and ZDNet and the enterprise
values determined under Lazard's pro forma analysis, Lazard compared certain
stand-alone financial and other data for CNET and Ziff-Davis. The results of
that analysis were as follows:
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CNET ZDNET
------- -------
Enterprise Value (dollars in millions)...................... $ 2,494 $ 1,055
Enterprise Value/Revenue for:
LQA*...................................................... 13.7x 7.0x
2000 Estimated............................................ 11.6x 6.1x
2001 Estimated............................................ 7.9x 4.6x
Enterprise Value/EBITDA** for:
LQA*...................................................... 160.8x 56.2x
2000 Estimated............................................ 91.3x 35.4x
2001 Estimated............................................ 31.1x 17.7x
Enterprise Value/Unique Visitor***.......................... $ 268 $ 98
Projected Revenue Growth:
2000 Estimated vs. 1999 Actual............................ 88.8% 58.1%
2001 Estimated vs. 2000 Estimated......................... 46.4% 33.2%
- ---------------
* As used in this description of Lazard's opinion and CNET's board
presentation, "LQA" means the results for the last quarter annualized (i.e.,
results for the most recent fiscal quarter multiplied by four).
** As used in this description of Lazard's opinion and CNET's board
presentation, "EBITDA" means earnings before interest expense, income tax,
depreciation and amortization.
*** As used in this description of Lazard's opinion and CNET's board
presentation, "Unique Visitors" means the total number of different
individuals that accessed the content of the Internet sites of the
applicable company during the month of March, 2000, as estimated by the
applicable company.
CONTRIBUTION ANALYSIS. Lazard analyzed the relative contributions by CNET
and ZDNet to certain pro forma financial and other data of the combined company.
Lazard's analysis revealed the following regarding the relative contributions of
CNET and ZDNet to the pro forma results of the combined company's revenues,
EBITDA, unique visitors and daily pageviews:
RELATIVE
CONTRIBUTION
--------------
PRO FORMA CNET ZDNET
- --------- ----- -----
Revenues:
1999 Actual............................................... 52.3% 47.7%
LQA....................................................... 55.8% 44.2%
2000 Estimated............................................ 56.7% 43.3%
2001 Estimated............................................ 59.0% 41.0%
EBITDA:
LQA....................................................... 46.4% 53.6%
2000 Estimated............................................ 49.0% 51.0%
2001 Estimated............................................ 58.6% 41.4%
Unique Visitors............................................. 47.6% 52.4%
Daily Pageviews*............................................ 54.1% 45.9%
Market Value (millions):
30 Day Average............................................ 63.5% 36.5%
60 Day Average............................................ 66.6% 33.4%
90 Day Average............................................ 66.2% 33.8%
Current (July 18)......................................... 64.5% 35.6%
Implied Pro Forma Fully Diluted Ownership................... 64.5% 35.5%
- ---------------
* As used in this description of Lazard's opinion and CNET's board presentation,
"daily pageviews" means the average number of total pages of content
downloaded on a daily basis over the three month period ending March 31, 2000,
as reported by the applicable company.
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COMPARABLE PUBLICLY TRADED COMPANIES ANALYSIS. Lazard reviewed selected
publicly available financial and other data of certain companies that it deemed
reasonably comparable to ZDNet and compared the enterprise value of those
companies and ZDNet as multiples of revenue and in terms of dollars per unique
visitor. The results of that analysis were as follows:
ENTERPRISE VALUE
--------------------------------------
REVENUE
--------------------- DOLLARS PER
LQA 2000E 2001E UNIQUE VISITOR
----- ----- ----- --------------
Lycos.................................................... 17.6x 14.6x 10.5x $ 198
LookSmart................................................ 24.7x 20.6x 12.5x $ 242
Go-com................................................... 4.8x 4.3x 3.3x $ 212
Go2Net................................................... 22.2x 18.2x NA $ 483
Ticketmaster Online...................................... 9.1x 8.6x 6.3x $ 467
Citysearch
Goto.com................................................. 11.6x 9.5x NA $ 110
Internet.Com............................................. 15.1x 12.9x 8.5x $ 681
Ask Jeeves............................................... 7.9x 5.5x 2.5x $ 64
About.com................................................ 6.0x 4.1x NA $ 38
Marketwatch.Com.......................................... 6.4x 6.0x 4.2x $ 78
SportsLine............................................... 2.9x 2.6x 1.9x $1,009
Women.Com Networks....................................... 3.0x 2.7x 2.0x $ 50
iVillage................................................. 1.5x 1.3x 0.8x $ 27
Earthweb................................................. 2.9x 2.1x 1.3x NA
Thestreet.Com............................................ 3.1x 2.2x 1.1x $ 54
Average.................................................. 9.3x 7.7x 4.6x $ 265
ZDNet*................................................... 14.7x 9.3x 7.0x $ 150
- ---------------
* Using an implied enterprise value based on the July 18, 2000 closing stock
price of CNET, the ZDNet Exchange Ratio and the fully diluted number of ZDNet
shares outstanding as of July 18, 2000.
SELECTED PRECEDENT TRANSACTIONS ANALYSIS. Lazard reviewed selected publicly
available financial and other data for five merger transactions that it deemed
reasonably comparable to the merger and compared the transaction value of those
combinations and ZDNet as a multiple of revenue and in terms of dollars per
unique visitor and pageviews. The results of that analysis are as follows:
TRANSACTION VALUE/TARGET
-------------------------------------------------------
TRANSACTION MONTHLY
TRANSACTION (ACQUIROR/TARGET) VALUE* LQA REVENUE UNIQUE VISITORS PAGEVIEWS
- ----------------------------- ----------- ----------- --------------- ---------
Terra Networks/Lycos......................... $12,707 31.5x $337 $ 3.53
CMGI/Alta Vista.............................. $ 2,252 29.4x $261 $14.91
Yahoo!/GeoCities............................. $ 4,345 144.3x $229 $ 4.31
AtHome/Excite................................ $ 6,425 36.5x $387 $ 6.67
America Online/Netscape...................... $ 4,393 6.8x $259 $ 8.08
Mean......................................... -- 54.3x $284 $ 8.50
CNET/ZDNet*.................................. $ 1,534 10.7x $150 $10.16
- ---------------
* The transaction value for the CNET/ZDNet transaction is based on the July 18,
2000 closing stock price of CNET, the ZDNet Exchange Ratio and the fully
diluted number of ZDNet shares outstanding as of July 18, 2000.
PREMIUMS PAID ANALYSIS. Lazard reviewed publicly available information
regarding the premiums paid in eight selected acquisition transactions in the
web portal and content industry during 1998, 1999 and 2000. The transactions
that Lazard reviewed included (acquiror/target): Terra Networks/Lycos,
MedicaLogic/Medscape Inc., VA Linux Systems/Andover.net Inc., Multex.com/Market
Guide Inc., Yahoo!/Broadcast.Com Inc., Yahoo!/GeoCities, At Home/Excite Inc.,
America Online/Netscape Communications. The following table shows the low,
median, mean and high premiums to the target's
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closing stock price on the day prior to announcement, the week prior to
announcement and four weeks prior to announcement relative to the comparable
information for the proposed CNET/Ziff-Davis transaction:
PREMIUM TO TARGET CLOSING STOCK PRICE
PRIOR TO ANNOUNCEMENT:
-------------------------------------
ONE DAY ONE WEEK FOUR WEEKS
--------- ---------- ------------
Low......................................................... 26.8% 39.2% 45.5%
Median...................................................... 56.3% 68.3% 98.5%
Mean........................................................ 60.0% 73.9% 110.3%
High........................................................ 120.8% 138.9% 250.9%
ZDNet....................................................... 34.0% 75.6% 61.1%
PRO FORMA ACCRETION/(DILUTION) ANALYSIS. Lazard analyzed the pro forma
impact of the merger on CNET's pro forma estimated 2001 per share EBITDA based
upon a range of potential merger synergies. Lazard also computed implied pro
forma share prices of the combined company across the same range of potential
merger synergies and a range of theoretical trading multiples of estimated 2001
EBITDA to those prices.
OTHER ANALYSES. Lazard also performed such other analyses as it deemed
appropriate, including, among others, an analysis of the implied enterprise
value of ZDNet as a percentage of the theoretical enterprise value of CNET's
technology business and an analysis of the impact of the trading value of the
Ziff-Davis trade show and conference business subsidiary being spun-off prior to
the merger on the number of outstanding ZD options and the resulting impact on
the pro forma fully diluted ownership of CNET.
The summary set forth above does not purport to be a complete description
of the analyses performed by Lazard, although it is a summary of the material
financial and comparative analyses performed by Lazard in arriving at its
opinion. The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, is not necessarily susceptible to partial analysis
or summary description. Selecting portions of the analyses or the summary set
forth above without considering the analyses as a whole could create an
incomplete or misleading view of the process underlying the opinion of Lazard.
In arriving at its opinion, Lazard considered the results of all of its analyses
and did not attribute any particular weight to any factor or analysis considered
by it; rather, Lazard made its determination as to fairness on the basis of its
experience and professional judgment after considering the results of all of its
analyses. No company or transaction used in the above analyses as a comparison
is directly comparable to CNET, Ziff-Davis or the transactions contemplated by
the merger agreement. The analyses were prepared solely for the purpose of
Lazard providing its opinion to the CNET board of directors in connection with
the CNET board of directors' consideration of the merger and do not purport to
be appraisals or necessarily reflect the prices at which businesses or
securities actually may be sold, which may be significantly more or less
favorable than as set forth in these analyses. You should understand that
estimates of values and forecast of future results contained in the analyses,
whether publicly available or provided by the managements of CNET and
Ziff-Davis, were based upon numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of CNET and Ziff-Davis, and are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses.
In performing its analyses, Lazard made numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters. Because those analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their advisors, none of CNET, Ziff-Davis, Lazard or any other
person assumes responsibility if future results or actual values are materially
different from those forecasts or estimates contained in the analyses.
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As described above, the opinion and presentation of Lazard to the CNET
board of directors was only one of many factors taken into consideration by the
CNET board of directors in making its determination to approve the merger
agreement. Consequently, the analyses described above should not be viewed as
determinative of the CNET board of directors opinion with respect to the value
of Ziff-Davis or the merger.
Lazard is an internationally recognized investment banking firm providing a
full range of financial advisory and securities services. Lazard was selected to
act as investment banker to the CNET board of directors because of its
qualifications, expertise and reputation in investment banking and mergers and
acquisitions.
Lazard, as part of its investment banking business, is continually engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements, leveraged buyouts, and valuations
for estate, corporate and other purposes. Lazard provides a full range of
financial advisory and securities services and, in the ordinary course of its
normal trading activities, may from time to time effect transactions and hold
securities, including derivative securities, of CNET and Ziff-Davis for its own
account and for the accounts of its customers.
CNET agreed to pay Lazard a transaction fee in connection with its services
as CNET's financial advisor, a substantial portion of which is contingent upon
the completion of the merger. CNET also agreed to reimburse Lazard for its
reasonable out-of-pocket expenses (including attorneys' fees) and to indemnify
Lazard and certain related parties against certain liabilities that may arise
out of the rendering of the opinion, including certain liabilities under the
U.S. federal securities laws.
ZIFF-DAVIS' REASONS FOR THE MERGER
In connection with its approval of the merger agreement, its determination
that the merger and the merger agreement are advisable, fair to and in the best
interest of Ziff-Davis and its stockholders and its recommendation that
Ziff-Davis stockholders adopt the merger agreement, the board of directors of
Ziff-Davis consulted with members of management and financial and legal advisors
and considered the following material items:
- the Ziff-Davis board's belief about the potential of the combined
company, as described under "-- Joint reasons for the merger"
- the Ziff-Davis board's belief that the merger offered better short and
long-term value for the Ziff-Davis stockholders than any of the available
alternatives, including the possibility of remaining independent or the
possibility of a merger with another company
- information concerning Ziff-Davis' and CNET's respective businesses,
prospects, strategic business plans, financial condition, results of
operations, technology positions, managements and competitive positions
- the results of the due diligence investigation conducted by Ziff-Davis
management, financial advisors and legal advisors
- current financial market conditions and historical stock market prices,
volatility and trading information
- the exchange ratio for each of the ZD common stock and the ZDNet common
stock, and the resulting percentage ownership interest that the
Ziff-Davis stockholders would have in the combined company (in light of
the businesses being contributed to the combined company)
- the fact that, based on the pre-announcement price per share for the CNET
common stock and the exchange ratios for the ZD common stock and ZDNet
common stock, those exchange ratios represented a substantial premium to
the pre-announcement price per share of ZD common stock and ZDNet common
stock
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- the belief of the Ziff-Davis board and the special committee of that
board, after consulting with their financial and legal advisors, that the
methodology used to calculate the relationship between the exchange ratio
for the ZD common stock and the exchange ratio for the ZDNet common stock
(as described under "-- Background of the merger") is fair to the holders
of ZD common stock and holders of ZDNet common stock
- the fact that the proposed Key3Media spin-off and cash dividend would be
completed as planned
- the impact of the merger on the stockholders, customers and employees of
Ziff-Davis
- the analyses and presentation of Morgan Stanley and its opinion to the
effect that, as of July 18, 2000, and based on and subject to the various
considerations set forth in its opinion, the consideration to be received
by the holders of shares of ZD common stock and ZDNet common stock
pursuant to the merger agreement was fair from a financial point of view
to such holders
- the terms and conditions of the merger agreement and related documents,
including the fact the exchange ratios are fixed, the agreement of
Softbank to vote to adopt the merger agreement, the agreements of Mr.
Bonnie and Mr. Minor to vote in favor of the issuance of CNET common
stock in the merger, the conditions to consummation of the merger, the
limitations on the interim business operations of CNET and Ziff-Davis,
the circumstances under which CNET would have the right to respond to,
evaluate and negotiate with respect to other business combination
proposals, the circumstances under which the merger agreement could be
terminated and the size and impact of termination fees associated with a
termination
- the corporate governance arrangements established for the transaction,
including the board composition, and the rights granted to Softbank under
the terms of the stockholder agreement between CNET and Softbank
- the fact that merger likely will be completed, including the fact that
each of Softbank, Mr. Bonnie and Mr. Minor each has agreed to vote its
shares in favor of the merger and the likelihood that the merger will
receive the necessary regulatory approvals
- the expected tax-free treatment of the merger for U.S. federal income tax
purposes
The Ziff-Davis board also considered a number of potentially negative
factors in its deliberations concerning the merger, including:
- the risk that, because the exchange ratios under the merger agreement
will not be adjusted for changes in the market price of CNET common
stock, the per share values of the consideration to be received by
Ziff-Davis stockholders might be significantly less than the per share
values implied by the exchange ratios immediately prior to the
announcement of the merger
- the risk of management and employee disruption associated with the merger
and integrating the operations of the companies
- the risk that, despite the efforts of Ziff-Davis and CNET, key management
and technical personnel might not continue with the combined company
- the fact that, because Softbank has agreed to vote for the merger but
there is no controlling stockholder of CNET to enter into a similar
agreement, the Ziff-Davis stockholder approval is assured while the CNET
stockholder approval is not
- the potential adverse impact of the public announcement of the merger on
Ziff-Davis' ability to attract and retain customers and employees and,
more generally, on Ziff-Davis' overall competitive position, particularly
if the merger does not occur
- the potential loss of business opportunities for Ziff-Davis as a result
of covenants in the merger agreement, particularly if the merger does not
occur
- the risks that the benefits sought to be achieved by the merger will not
be realized
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- the loss of control over the future operations of Ziff-Davis following
the merger
- the impact of the loss of Ziff-Davis' status as an independent company on
its stockholders and employees
- the other risks described under "Risk Factors"
The foregoing discussion of the items that the Ziff-Davis board considered
is not intended to be exhaustive, but includes all material items that the
Ziff-Davis board considered. In view of the complexity and wide variety of
factors, both positive and negative, that the Ziff-Davis board considered, the
Ziff-Davis board did not find it practical to quantify, rank or otherwise weight
the factors considered. In considering the various factors, individual members
of the Ziff-Davis board considered all of these factors as a whole, and
concluded that, on balance, the positive factors outweighed the negative ones.
RECOMMENDATION OF ZIFF-DAVIS' BOARD OF DIRECTORS
After careful consideration, Ziff-Davis' board of directors unanimously
determined that the merger is in the best interests of Ziff-Davis and its
stockholders and has declared the merger advisable. Ziff-Davis' board
unanimously approved the merger agreement and unanimously recommends that
Ziff-Davis' stockholders vote for adoption of the merger agreement.
In considering the recommendation of Ziff-Davis' board of directors
relating to the merger agreement, Ziff-Davis stockholders should be aware that
some of its directors and officers have interests in the merger that are
different from, or are in addition to, the interests of Ziff-Davis stockholders
generally. Please see the section titled "-- Interests of certain directors,
officers and affiliates in the merger" below for additional information
regarding these interests.
OPINION OF ZIFF-DAVIS' FINANCIAL ADVISOR
Under an engagement letter dated July 14, 1999, and subsequently amended on
March 29, 2000 and July 18, 2000, Ziff-Davis retained Morgan Stanley to provide
it with financial advisory services and a financial fairness opinion in
connection with the merger. The Ziff-Davis board of directors selected Morgan
Stanley to act as its financial advisor based on Morgan Stanley's
qualifications, expertise and reputation and its knowledge of the business and
affairs of Ziff-Davis.
At the meeting of the Ziff-Davis board of directors on July 18, 2000,
Morgan Stanley rendered its oral opinion, subsequently confirmed in writing,
that as of July 18, 2000, based upon and subject to the various considerations
set forth in the opinion, the consideration to be received by holders of shares
of ZD common stock and ZDNet common stock pursuant to the merger agreement was
fair from a financial point of view to such holders.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY, DATED AS OF JULY
18, 2000, IS ATTACHED AS ANNEX D TO THIS PROXY STATEMENT/PROSPECTUS. THE OPINION
SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY
MORGAN STANLEY IN RENDERING ITS OPINION. WE URGE YOU TO READ THE ENTIRE OPINION
CAREFULLY. MORGAN STANLEY'S OPINION IS DIRECTED TO THE ZIFF-DAVIS BOARD OF
DIRECTORS AND ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE
CONSIDERATION TO BE RECEIVED PURSUANT TO THE MERGER AGREEMENT BY THE HOLDERS OF
SHARES OF ZD COMMON STOCK AND ZDNET COMMON STOCK AS OF THE DATE OF THE OPINION.
IT DOES NOT ADDRESS ANY OTHER ASPECTS OF THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF ZD COMMON STOCK OR ZDNET COMMON STOCK AS TO HOW
TO VOTE AT THE ZIFF-DAVIS SPECIAL MEETING. THE SUMMARY OF THE OPINION OF MORGAN
STANLEY SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
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In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of Ziff-Davis, ZDNet and CNET
- reviewed certain internal financial statements and other financial and
operating data concerning Ziff-Davis and ZDNet prepared by the management
of Ziff-Davis
- reviewed certain publicly available financial projections for ZDNet and
CNET contained in certain securities analysts' research reports that were
recommended for review by the managements of Ziff-Davis and CNET,
respectively
- discussed the past and current operations and financial condition and the
prospects of Ziff-Davis and ZDNet, including information relating to the
strategic, financial and operational benefits anticipated from the
merger, with senior executives of Ziff-Davis and ZDNet
- discussed the past and current operations and financial condition and the
prospects of CNET, including information relating to the strategic,
financial and operational benefits anticipated from the merger, with
senior executives of CNET
- reviewed the reported prices and trading activity for the ZD common
stock, the ZDNet common stock and the CNET common stock
- compared the financial performance of ZDNet and CNET and the prices and
trading activity of the ZDNet common stock and CNET common stock with
that of certain other comparable publicly-traded companies and their
securities
- reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions
- participated in discussions and negotiations among representatives of
Ziff-Davis and CNET and their financial and legal advisors
- reviewed the merger agreement and certain related documents
- considered such other factors and performed such other analyses as Morgan
Stanley deemed appropriate
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion. Morgan Stanley was not provided with projections or forecasts of
future financial performance of ZDNet or CNET. Instead, for purposes of its
analysis, Morgan Stanley relied, with the consent Ziff-Davis, on the estimates
of certain securities analysts' research reports that were recommended for
review by the managements of Ziff-Davis and CNET, respectively. Morgan Stanley
relied upon the assessment by the managements of Ziff-Davis and CNET of their
ability to retain key employees of Ziff-Davis. Morgan Stanley also relied upon,
without independent verification, the assessment by the managements of
Ziff-Davis and CNET of: (i) the strategic, financial and other benefits expected
to result from the merger; (ii) the timing and risks associated with the
integration of ZDNet and CNET; and (iii) the validity of, and risks associated
with, ZDNet's and CNET's existing and future technologies, services or business
models. Morgan Stanley did not make any independent valuation or appraisal of
the assets or liabilities or technology of Ziff-Davis or ZDNet, nor has Morgan
Stanley been furnished with any such appraisals. Morgan Stanley assumed that in
connection with the receipt of all the necessary regulatory approvals for the
proposed merger, no restrictions will be imposed that would have a material
adverse effect on the contemplated benefits expected to be derived from the
merger. In addition, Morgan Stanley assumed that the merger will be consummated
in accordance with the terms set forth in the merger agreement, including that
(i) the Spin-Off and the Cash Dividend (each as defined in the merger agreement)
will be consummated prior to the merger and (ii) the merger will be treated as a
tax-free reorganization pursuant to Section 368(a) of the Internal Revenue Code
of 1986. With Ziff-Davis' consent, Morgan Stanley assumed for purposes of
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considering the relationship between the exchange ratio for the ZD common stock
and the exchange ratio for the ZDNet common stock that the net value of all of
the assets and liabilities of the ZD division of Ziff-Davis (excluding ZD's
retained interest in ZDNet and the impact of stock options) was equal to $55
million (i.e., the amount determined by the Ziff-Davis board of directors and
the special committee of the Ziff-Davis board of directors). With Ziff-Davis'
consent, Morgan Stanley also assumed that there would be no tax consequences to
holders of shares of ZD common stock and ZDNet common stock in connection with
the merger. Morgan Stanley's opinion is necessarily based on financial,
economic, market and other conditions as in effect on, and the information made
available to it as of, July 18, 2000.
The following is a brief summary of the material financial analyses
performed by Morgan Stanley in connection with its oral opinion and the
preparation of its written opinion letter dated July 18, 2000. Some of these
summaries of financial analyses include information presented in tabular format.
In order to fully understand the financial analyses used by Morgan Stanley, the
tables must be read together with the text of each summary. The tables alone do
not constitute a complete description of the financial analyses.
EXCHANGE RATIO PREMIUM ANALYSIS. Morgan Stanley reviewed the ratios of the
closing prices of ZDNet common stock divided by the corresponding closing prices
of CNET common stock over various periods ending July 17, 2000. These ratios are
referred to as period average ZDNet exchange ratios. Morgan Stanley examined the
premiums represented by the exchange ratios set forth in the merger agreement
over the averages of these period average ZDNet exchange ratios, and found them
to be as follows:
PERIOD TRANSACTION PREMIUM TO
PERIOD ENDING AVERAGE ZDNET PERIOD AVERAGE
JULY 17, 2000 EXCHANGE RATIO ZDNET EXCHANGE RATIO
- ------------- -------------- ----------------------
Since ZDNet IPO (March 31, 1999)................... 0.4475x 33%
Last one year...................................... 0.4266x 39%
Last six months.................................... 0.4450x 33%
Last three months.................................. 0.3839x 54%
Last one month..................................... 0.4352x 36%
Current (July 14, 2000)............................ 0.4551x 30%
PRECEDENT TRANSACTION ANALYSIS. Morgan Stanley reviewed 29 Internet-related
merger transactions similar to the merger and with an aggregate value greater
than $100 million since January 1999 and compared the premiums paid in these
precedent transactions with the premium to the price of the ZDNet common stock
implied by the merger. These transactions were: (acquiree/acquiror)
ISOCOR/Critical Path, Spyglass/OpenTV, Time Warner/AOL, Verio/NTT Corporation,
Exactis.com/24-7 Media, Lycos/ Terra Networks, Excite/@Home Corporation,
Geocities/Yahoo, Network Solutions/Verisign, Shopping.com/Compaq Computer,
N2K/CDNow, Telebanc Financial/E*Trade Group, Active Software/webMethods, MEDE
America/Healtheon, Ondisplay/Vignette, Market Guide/Multex.com, Flycast/CMGI,
Abacus Direct/DoubleClick, Earthlink/Mindspring, INTERVU Inc./Akamai
Technologies, Jupiter/Media Metrix, Homegrocer.com/Webvan, Moviefone Inc./AOL,
Broadcast.com Inc./Yahoo, AdForce/CMGI, iMall, Inc./Excite@Home Corporation,
Onsale/ Egghead.com, NetGravity/DoubleClick, and Mapquest/AOL. Morgan Stanley
noted that the median premium paid in these Internet-related precedent
transactions was 35.1%, with a high of 132.4% and a low of (16.1)%. Morgan
Stanley noted that the price per share of ZDNet common stock implied by the
0.5932 exchange ratio and a CNET trading price of $31.31 (July 14, 2000) was
$18.57. This figure represents a 30.3% premium to the price per share of ZDNet
common stock of $14.25 on July 14, 2000 (three trading days prior to
announcement). Morgan Stanley also noted that the price per share of ZDNet
common stock implied by the 0.5932 exchange ratio and a CNET trading price of
$32.19 (July 18, 2000) was $19.09, representing a 48.3% premium to the price per
share of ZDNet common stock of $12.88 on July 18, 2000 (last day prior to
announcement). Morgan Stanley noted that the premium implied by the merger to
the price per share of ZDNet common stock as of July 14, 2000 was within the
range of the premiums paid in the Internet related precedent transactions but
below the median premium paid in such
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Internet related transactions, and the premium implied by the merger to the
price per share of ZDNet common stock as of July 18, 2000 was within that same
range but above such median premium.
In addition, Morgan Stanley compared the premium implied by the merger to
the price per share of ZDNet common stock as of June 14, 2000 (30 calendar days
prior to the time of the analysis and 35 calendar days prior to announcement) to
those premiums paid in 13 precedent vertical consolidation transactions. These
transactions include: (acquiror/acquiree) Vivendi/Seagram, SantaFe Snyder/Devon,
Daimler-Benz/Chrysler, Baker Hughes/Western Atlas, AT&T/TCI, Burlington
Resources/LL&E, Berkshire Hathaway/General Re, Exxon/Mobil, AIG/SunAmerica,
BP/Amoco, Haliburton/Dresser, BancOne/First Chicago, and Boeing/McDonnell
Douglas. Morgan Stanley noted that the median premium paid to the thirty-day
prior price in these vertical consolidation precedent transactions was 27.2%,
with a high of 53.5% and a low of 10.8%. Morgan Stanley noted that the above
referenced $18.57 price per share of ZDNet common stock implied by the merger as
of July 14, 2000 represented a premium of 42.0% to the price per share of ZDNet
common stock of $13.00 as of June 14, 2000 (30 calendar days prior to the time
of the analysis and 35 calendar days prior to announcement). Morgan Stanley
noted that the premium implied by the merger to the price per share of ZDNet
common stock as of June 14, 2000 was at the high end of the range of the
premiums paid in the vertical consolidation precedent transactions and above the
median premium paid in such vertical consolidation transactions.
No company or transaction utilized as a comparison in the precedent
transaction analysis is identical to Ziff-Davis, CNET or the merger. In
evaluating the transactions listed above, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Ziff-Davis or CNET, such as the impact of competition on Ziff-Davis,
CNET or the industry generally, industry growth and the absence of any material
adverse change in the financial condition and prospects of Ziff-Davis, CNET or
the industry or the financial markets in general. Mathematical analyses such as
determining the average or median is not in itself a meaningful method of using
comparable transaction data.
EQUITY RESEARCH ANALYST PRICE TARGETS ANALYSIS. Morgan Stanley noted that
there are ten equity research analysts from major financial institutions that
publish research reports on CNET and there are seven equity research analysts
from major financial institutions who publish research reports on ZDNet. Morgan
Stanley noted that the average of the most recent price targets published for
CNET was $70 per share and the average of the most recent price targets
published for the ZDNet common stock was $37 per share. Morgan Stanley noted
that the pro forma ZDNet ownership in the combined company implied by the ratio
of the two average price targets per share is 32.6% and that this is below the
35.5% Ziff-Davis pro forma ownership agreed upon in the merger. With respect to
three specific equity research analysts who publish price targets for both
companies, Morgan Stanley further noted that the implied ZDNet ownership levels
utilizing the price targets for each company published by the same equity
research analyst range from a low of 24.2% to a high of 35.7%.
RELATIVE CONTRIBUTION ANALYSIS. Morgan Stanley compared ZDNet's and CNET's
respective percentage contribution to the combined company using revenues and
EBITDA, or earnings before interest, taxes, deductions or amortization, over
various applicable periods based on projections utilized for purposes of this
analysis (and adjusting for other assets of Ziff-Davis and CNET). Morgan Stanley
noted that ZDNet's implied pro forma ownership percentage is 39.7% and 37.7%
using estimated revenues for 2000 and 2001, respectively, and 43.9% using
estimated EBITDA for 2001. Morgan Stanley noted that the pro forma Ziff-Davis
ownership of the combined company of 35.5% agreed upon in the merger was less
than most of the implied pro forma ownership percentages calculated by Morgan
Stanley based on the relative contribution analyses. However, Morgan Stanley
noted that CNET's financial statistics are expected to grow at a more rapid rate
than ZDNet, thus decreasing the ZDNet implied ownership from near term levels,
and that CNET is valued at a higher multiple of revenues and EBITDA in the
public equity markets than ZDNet.
CORE BUSINESS PARITY ANALYSIS. Morgan Stanley analyzed the implied pro
forma ZDNet ownership in the combined entity by assuming a level of parity for
the core CNET Internet business and ZDNet's
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business as a whole. Morgan Stanley calculated the core Internet business value
of CNET by subtracting from CNET's total equity value the assumed value of the
mySimon, television & radio, and CNET Data Services businesses and the value of
cash and cash equivalents and investments in private and public securities.
Assuming that this is the value which is most comparable to ZDNet's business,
Morgan Stanley calculated the implied ownership assuming that the ratio of CNET
to ZDNet's core Internet business is from 60%/40% to 55%/45% and adjusting for
the above mentioned CNET other assets and other assets owned by Ziff-Davis.
Morgan Stanley noted that the implied ZDNet ownership under this analysis is
32.0% and 36.3% assuming that the ratio of CNET to ZDNet's core Internet
business is 60%/40% and 55%/45%, respectively.
In connection with the review of the merger by the Ziff-Davis board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of rendering its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to a partial
analysis or summary description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any analysis or factor it considered. Morgan Stanley
believes that selecting any portion of its analyses, without considering all
analyses as a whole, would create an incomplete view of the process underlying
its analyses and opinion. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and factors, and
may have deemed various assumptions more or less probable than other
assumptions. As a result, the ranges of valuations resulting from any particular
analysis described above should not be taken to be Morgan Stanley's view of the
actual value of Ziff-Davis and CNET. In performing its analyses, Morgan Stanley
made numerous assumptions with respect to industry performance, general business
and economic conditions and other matters. Many of these assumptions are beyond
the control of Ziff-Davis and CNET. Any estimates contained in Morgan Stanley's
analyses are not necessarily indicative of future results or actual values,
which may be significantly more or less favorable than those suggested by such
estimates.
Morgan Stanley conducted the analyses described above solely as part of its
analysis of the fairness of the consideration pursuant to the merger agreement
from a financial point of view to holders of shares of ZD common stock and ZDNet
common stock and in connection with the delivery of its opinion to the
Ziff-Davis board of directors. These analyses do not purport to be appraisals or
to reflect the prices at which shares of ZD common stock, ZDNet common stock or
CNET common stock might actually trade.
The consideration pursuant to the merger agreement was determined through
arm's length negotiations between Ziff-Davis and CNET and was approved by the
Ziff-Davis board of directors and a special committee of the Ziff-Davis board of
directors. Morgan Stanley provided advice to Ziff-Davis during these
negotiations. Morgan Stanley did not, however, recommend any specific level of
consideration to Ziff-Davis or that any specific level of consideration
constituted the only appropriate consideration for the merger.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking and financial
advisory business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate, estate and
other purposes. In the past, Morgan Stanley and its affiliates have provided
financial advisory and financing services to Ziff-Davis and CNET and have
received customary fees for the rendering of these services. In the ordinary
course of business, Morgan Stanley or its affiliates may at any time hold long
or short positions, may trade or otherwise effect transactions, for its own
account, for the accounts of its investment funds and other clients under
management of Morgan Stanley or for the account of customers in the equity and
other securities of Ziff-Davis, CNET or any other parties involved in the
merger.
Under the engagement letter, Morgan Stanley provided financial advisory
services and a financial fairness opinion in connection with the merger, and
Ziff-Davis agreed to pay Morgan Stanley a fee of $6.0 million upon consummation
of the merger. Ziff-Davis has also agreed to reimburse Morgan Stanley
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for its expenses incurred in performing its services. Ziff-Davis has also agreed
to pay Morgan Stanley customary fees for its financial advisory services in
connection with the overall restructuring of Ziff-Davis, including the sale or
distribution of all the divisions of Ziff-Davis. In addition, Ziff-Davis has
agreed to indemnify Morgan Stanley and its affiliates, their respective
directors, officers, agents and employees and each person, if any, controlling
Morgan Stanley or any of its affiliates against certain liabilities and
expenses, including certain liabilities under the federal securities laws,
related to or arising out of Morgan Stanley's engagement.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a description of the material United States federal income
tax consequences of the merger. This discussion does not address any tax
consequences arising under the laws of any state, locality or foreign
jurisdiction. This discussion is not a comprehensive description of all of the
tax consequences that may be relevant to you. For example, we have not described
tax consequences that arise from rules that apply generally to all taxpayers or
to some classes of taxpayers. We have also not described tax consequences that
we assume to be generally known by investors. This discussion is based upon the
Internal Revenue Code, the regulations of the U.S. Treasury Department and court
and administrative rulings and decisions in effect on the date of this
prospectus. These laws may change, possibly retroactively, and any change could
affect the continuing validity of this discussion.
This discussion assumes that you hold your shares of ZD common stock or
ZDNet common stock as a capital asset and does not address the tax consequences
that may be relevant to you in light of your particular circumstances. In
addition, it does not present a description of the United States federal income
tax laws applicable to you if you are subject to special treatment under the
United States federal income tax laws, including if you are:
- a bank
- a tax-exempt organization
- an S corporation or other pass-through entity
- an insurance company
- a dealer in securities or foreign currencies
- a trader in securities that elects to use a mark to market method of
accounting for federal income tax purposes
- a Ziff-Davis stockholder who received your ZD common stock or ZDNet
common stock through the exercise of employee stock options or otherwise
as compensation
- not a U.S. person
- a Ziff-Davis stockholder who holds ZD common stock or ZDNet common stock
as part of a hedge, straddle or conversion transaction
It is a condition to the merger that each of CNET and Ziff-Davis receive an
opinion from its tax counsel that the merger qualifies as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code. The opinions
will be based on customary assumptions and factual representations and will
assume that the merger will be completed according to the terms of the merger
agreement. The following discussion of United States federal income tax
consequences of the merger assumes that, if completed, the merger will qualify
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code for United States federal income tax purposes. Accordingly, if we complete
the merger:
- you will not recognize gain or loss when you exchange your ZD common
stock or ZDNet common stock solely for CNET common stock
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- you will generally recognize capital gain or loss on any cash received in
lieu of a fractional share of CNET common stock equal to the difference
between the amount of cash received and the basis allocated to such
fractional share
- the aggregate tax basis of CNET common stock you receive will be the same
as the aggregate tax basis of the ZD common stock or ZDNet common stock
you surrender in exchange, decreased by the tax basis allocated to any
fractional share interest exchanged for cash
- the holding period of CNET common stock you receive will include the
holding period of shares of ZD common stock or ZDNet common stock you
surrender in the exchange and
- you may be required to retain records and file with your United States
federal income tax return a statement setting forth facts relating to the
merger
CNET and Ziff-Davis have not and will not seek any ruling from the Internal
Revenue Service regarding any matters relating to the merger, and as a result,
there can be no assurance that the IRS will not disagree with or challenge any
of the conclusions described above. The IRS has announced that it will not issue
advance rulings on the classification of an instrument similar to the ZDNet
common stock. In addition, there are no court decisions or other authorities
bearing directly on the classification of instruments with characteristics
similar to those of ZDNet common stock.
BACKUP WITHHOLDING. If you are a noncorporate holder of ZD common stock or
ZDNet common stock you may be subject to backup withholding at a 31% rate on any
cash payments received in lieu of a fractional share interest in CNET common
stock. You will not be subject to backup withholding, however, if you:
- furnish a correct taxpayer identification number and certify that you are
not subject to backup withholding on the substitute Form W-9 or successor
form included in the letter of transmittal to be delivered to you
following the completion of the merger
- provide a certification of foreign status on Form W-8 or a successor form
- are otherwise exempt from backup withholding
Any amounts withheld under the backup withholding rules will be allowed as
a refund or credit against your United States federal income tax liability,
provided you furnish the required information to the Internal Revenue Service.
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND UPON THE FACTS OF YOUR PARTICULAR SITUATION. WE ENCOURAGE YOU TO
CONSULT YOUR OWN TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY OF
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND THE EFFECT OF ANY CHANGE IN THE
TAX LAWS.
EXCHANGE OF ZIFF-DAVIS STOCK CERTIFICATES FOR CNET STOCK CERTIFICATES
When the merger is completed, CNET's exchange agent will mail to Ziff-Davis
stockholders a letter of transmittal and instructions for use in surrendering ZD
common stock certificates and ZDNet common stock certificates in exchange for
CNET stock certificates. When Ziff-Davis stockholders deliver their ZD common
stock certificates and ZDNet common stock certificates to the exchange agent
along with an executed letter of transmittal and any other required documents,
the ZD common stock certificates and ZDNet common stock certificates will be
canceled and holders of ZD stock common certificates and ZDNet common stock
certificates will receive the number of shares of CNET common stock and any cash
payment in lieu of fractional shares that they are entitled to receive under the
merger agreement.
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Holders of ZD common stock and ZDNet common stock should not submit their
stock certificates for exchange until they receive the transmittal instructions
and a letter of transmittal from the exchange agent.
NO DIVIDENDS
Until they have exchanged their certificates for CNET stock certificates,
Ziff-Davis stockholders are not entitled to receive any dividends or other
distributions on CNET common stock.
Subject to applicable laws, promptly following the surrender of ZD common
stock certificates and ZDNet common stock certificates, Ziff-Davis stockholders
will be paid the amount of any dividends or other distributions declared on
shares of CNET common stock held of record after the effective date of the
merger, without interest.
CNET will only issue CNET stock certificates or checks in lieu of
fractional shares to the person in whose name the surrendered ZD common stock
certificate or ZDNet common stock certificate is registered. If Ziff-Davis
stockholders wish to have their certificates issued in the name of a transferee
that has not been recorded in the transfer records of Ziff-Davis, they must
present the exchange agent with all documents required to show and effect the
unrecorded transfer of ownership and show that any applicable stock transfer
taxes have been paid.
REGULATORY MATTERS
The merger is subject to the requirements of the Hart-Scott Rodino
Antitrust Improvements Act of 1976, as amended ("Hart-Scott-Rodino Act"), and
the rules promulgated under that act by the Federal Trade Commission, which
prevent some transactions from being completed until required information and
materials are furnished to the Antitrust Division of the U.S. Department of
Justice and the U.S. Federal Trade Commission and the waiting periods end or
expire. On August 1, 2000, we filed the requisite Pre-Merger Notification and
Report Forms with the U.S. Federal Trade Commission and the U.S. Department of
Justice. The waiting periods under the Hart-Scott-Rodino Act terminated on
August 31, 2000 without any inquiry from the U.S. Department of Justice or the
U.S. Federal Trade Commission.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting,
with CNET treated as the acquiror. As a result, CNET will record the assets and
liabilities of Ziff-Davis at their estimated fair values and will record as
goodwill the excess of the purchase price over the estimated fair values. From
the date of the merger, the operating results of Ziff-Davis will be combined
with the results of CNET. See "Unaudited Pro Forma Condensed Combined Financial
Information".
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES
The shares of CNET common stock to be issued in the merger will be
registered under the Securities Act. These shares will be freely transferable
under the Securities Act, except for shares of CNET common stock issued to any
person who is an affiliate of Ziff-Davis. Persons who may be deemed to be
affiliates include individuals or entities that control, are controlled by, or
are under common control with Ziff-Davis and may include some of their
respective officers and directors, as well as their respective principal
stockholders. Affiliates may not sell their shares of CNET common stock acquired
in the merger except pursuant to (i) an effective registration statement under
the Securities Act covering the resale of those shares, (ii) an exemption under
paragraph (d) of Rule 145 under the Securities Act or (iii) any other applicable
exemption under the Securities Act.
As an inducement to CNET to enter into the merger agreement, Ziff-Davis has
agreed to use its reasonable best efforts to cause its affiliates to execute
affiliate agreements not less than 30 days prior to the closing of the merger.
Pursuant to these affiliate agreements, CNET will be entitled to place
appropriate legends on the certificates evidencing any CNET common stock to be
received by these
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persons, or entities, and to issue stop transfer instructions to the transfer
agent for the CNET common stock received by the affiliates. Further, these
individuals have also acknowledged the resale restrictions imposed by Rule 145
under the Securities Act on shares of CNET common stock to be received by them
in the merger.
INTERESTS OF CERTAIN DIRECTORS, OFFICERS AND AFFILIATES IN THE MERGER
When considering the recommendation of Ziff-Davis' boards of directors, you
should be aware that certain Ziff-Davis directors, officers and stockholders
have interests in the merger that are different from, or are in addition to,
yours. These interests include options held by various executive officers and
directors and the acceleration of those options upon completion of the merger,
the post-merger membership of up to two current Ziff-Davis directors on the
board of directors of CNET, and the indemnification of directors and officers of
Ziff-Davis against certain liabilities both before and after the merger.
Ziff-Davis and CNET have agreed that Ziff-Davis shall be entitled to
designate one individual to the combined company's board of directors, and
Softbank, a principal stockholder of Ziff-Davis, will also have the right to
designate one member to the CNET board of directors. CNET has agreed to increase
the size of its board by one directorship and Douglas Woodrum, a current CNET
director, has agreed to resign from CNET's board.
Ziff-Davis and CNET have agreed that Daniel Rosensweig, chief executive
officer of ZDNet, will be president of the combined company.
STOCK OPTIONS
Ziff-Davis' directors and employees hold options to purchase ZD common
stock and ZDNet common stock. As described above under "--Structure of the
merger; merger consideration--Treatment of Ziff-Davis stock options", at the
effective time of the merger, each outstanding Ziff-Davis stock option will be
converted into an option to purchase shares of CNET common stock.
As a result of completing the merger, all unvested outstanding options to
purchase shares of ZD common stock and ZDNet common stock that were granted
before July 1, 2000 will vest and become fully exercisable. As of August 8,
2000, employees and directors of Ziff-Davis collectively held unvested options
to purchase an aggregate of 1,480,896 shares of ZD common stock and 10,437,213
shares of ZDNet common stock.
EMPLOYEE STOCK PURCHASE PLAN
Ziff-Davis' employees hold options to purchase ZDNet common stock under the
Ziff-Davis 1998 Employee Stock Purchase Plan. Prior to the effectiveness of the
merger, such options shall be exercised to purchase ZDNet common stock. As
described above under "-- Structure of the merger; merger
consideration -- Merger consideration", at the effective time of the merger,
each such share of ZDNet common stock will be exchanged for 0.5932 of a share of
CNET common stock.
MATERIAL CONTACTS BETWEEN ZIFF-DAVIS AND CNET
As of the date of this proxy statement/prospectus, neither Ziff-Davis nor
CNET is aware of any past, present or proposed material relationship between
Ziff-Davis or its directors, executive officers or affiliates, on the one hand,
and CNET or its directors, executive officers or affiliates, on the other hand,
except as contemplated by the merger, since the beginning of 1996.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that, following the merger:
- CNET will indemnify and hold harmless, and advance expenses, including
fees of counsel to Ziff-Davis' present and former officers and directors,
against all liabilities for acts or omissions in
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those capacities occurring at or prior to the completion of the merger,
to the fullest extent permitted under applicable law.
- For at least six years after the merger is completed, CNET will maintain
in effect Ziff-Davis' existing officers' and directors' liability
insurance, or will provide insurance containing terms and conditions
which are not materially less advantageous, covering matters or events
occurring prior to completion of the merger. However, CNET is not
required to pay an annual premium for this insurance in excess of
$750,000.
NO APPRAISAL RIGHTS
Appraisal rights under Delaware law are not available to stockholders of a
Delaware corporation if:
- the securities of the corporation are listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc.
- in the case of stockholders of the corporation who are required to take
consideration different from that previously held by them, such
stockholders accept in exchange for their stock (a) stock in the
surviving corporation and (b) cash in lieu of fractional shares
Ziff-Davis' stockholders will not have appraisal rights under Delaware law
with respect to the merger because:
- ZD common stock and ZDNet common stock are traded on the NYSE
- Ziff-Davis stockholders are being offered only shares of common stock of
CNET, and cash in lieu of fractional shares
CNET's stockholders will not have appraisal rights under Delaware law with
respect to the merger because:
- CNET's common stock is traded on NASDAQ
- CNET stockholders will continue to hold their shares after the merger
LISTING ON NASDAQ OF CNET COMMON STOCK TO BE ISSUED IN THE MERGER
CNET has agreed to cause the shares of common stock to be issued in the
merger to be approved for listing on NASDAQ, subject to official notice of
issuance prior to the effective time of the merger.
DELISTING AND DEREGISTRATION OF ZD COMMON STOCK AND ZDNET COMMON STOCK AFTER THE
MERGER
If the merger is completed, ZD common stock and ZDNet common stock will be
delisted from the NYSE and will no longer be registered under the Securities and
Exchange Act of 1934.
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THE MERGER AGREEMENT
The following description summarizes the material provisions of the merger
agreement. You are urged to read carefully the merger agreement in its entirety,
a copy of which is attached as Annex A and incorporated by reference in this
proxy statement/prospectus.
GENERAL
The merger agreement provides that TD Merger Sub, Inc., a wholly owned
subsidiary of CNET, will merge with and into Ziff-Davis. Ziff-Davis will survive
the merger as a wholly owned subsidiary of CNET.
The closing of the merger will occur on the second business day after the
last of the conditions to the merger have been satisfied or waived, or at
another time as Ziff-Davis and CNET agree. As soon as practicable after the
closing, Ziff-Davis and CNET will deliver certificates of merger to the
Secretary of State of the State of Delaware for filing. The merger will become
effective upon the filing of these certificates or at another time as CNET, TD
Merger Sub and Ziff-Davis agree. Although no assurances can be given, we
currently expect that the closing of the merger will take place in the fourth
calendar quarter of 2000. However, because the merger is subject to governmental
approvals and other customary conditions, we cannot predict the exact timing.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
Ziff-Davis and CNET relating to, among other things:
- corporate organization and power and similar corporate matters
- subsidiaries
- capital structure
- authorization, execution, delivery, performance and enforceability of,
and required consents, approvals, orders and authorizations of
governmental authorities or third parties relating to, the merger
agreement and related matters
- the absence of any conflicts or violations of each party's governing
documents or agreements as a result of the merger or the merger agreement
- documents filed with the Securities and Exchange Commission, the accuracy
of information contained in those documents and the absence of
undisclosed liabilities
- the accuracy of information supplied in connection with this proxy
statement/prospectus and the registration statement of which it is a part
- the approval of the merger and related matters by the boards of directors
of CNET, TD Merger Sub and Ziff-Davis
- absence of material changes or events
- compliance with applicable laws
- filing of tax returns and payment of taxes
- required stockholder votes
- the engagement and payment of fees of brokers, investment bankers,
finders and financial advisors
- the receipt of fairness opinions from financial advisors
- intellectual property
- pending litigation
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The merger agreement also contains customary representations and warranties
exclusive to Ziff-Davis relating to, among other things:
- the disclosure to CNET of and validity of material contracts to which
Ziff-Davis or its subsidiaries are a party and the absence of conflicts
between such contracts and the merger
- employee benefits and related matters
- maintenance of insurance
- ownership and condition of material properties and assets
- disclosure to CNET of affiliate transactions
- the terms on which Ziff-Davis has disposed of its non-Internet businesses
and related matters
- the valuation methodology used to establish the relationship between the
exchange ratios for ZD common stock and ZDNet common stock
The representations and warranties made by the parties to the merger
agreement will not survive the merger, but their accuracy forms the basis of one
of the conditions to the obligations of CNET and Ziff-Davis to complete the
merger.
CONDITIONS TO THE COMPLETION OF THE MERGER
Each party's obligation to effect the merger is subject to the satisfaction
or waiver of various conditions which include the following:
- holders of shares of CNET common stock representing a majority of the
votes present and entitled to vote at the CNET special meeting at which a
quorum is present having approved the issuance of CNET common stock
pursuant to the merger
- holders of shares of ZD common stock and ZDNet common stock representing
a majority of all the votes entitled to be cast at the Ziff-Davis special
meeting at which a quorum is present having voted, together as a single
class, to adopt the merger agreement
- the waiting period applicable to the merger under the Hart-Scott-Rodino
Act having expired or having been terminated
- no laws being adopted or promulgated and no temporary restraining order,
preliminary or permanent injunction or other order issued by any court or
other governmental entity of competent jurisdiction being in effect that
makes the merger illegal or otherwise prohibits the consummation of the
merger
- the shares of CNET common stock to be issued in the merger and such other
shares of CNET common stock to be reserved for issuance in connection
with the merger having been approved for listing on NASDAQ, subject to
official notice of issuance and
- the registration statement on Form S-4, of which this proxy
statement/prospectus is a part, having been declared effective by the
Securities and Exchange Commission under the Securities Act of 1933 and
not having been the subject of any stop order and no proceedings seeking
a stop order having been initiated or threatened
In addition, each party's obligation to effect the merger is further
subject to the satisfaction or waiver of the following additional conditions:
- the representations and warranties of the other party set forth in the
merger agreement that are qualified as to material adverse effect (as
defined in the merger agreement) being true and correct with the same
force and effect as if made on the date of the merger agreement and on
the date on which the merger is to be completed or, if such
representations and warranties expressly relate to an earlier date, then
as of that earlier date
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- the representations and warranties of the other party set forth in the
merger agreement that are not qualified as to material adverse effect
being true and correct in all respects on the date of the merger
agreement and on the date on which the merger is to be completed or, if
such representations and warranties expressly relate to an earlier date,
then as of that earlier date, except where the failure of these
representations and warranties (other than Ziff-Davis' representation and
warranty as to its capital structure, which shall be true and correct in
all material respects) to be true and correct, individually or in the
aggregate, does not have, and is not reasonably expected to have, a
material adverse effect on the party making the representations and
warranties, and the party making the representations and warranties
having provided to the other party a certificate of a senior executive
and a senior financial officer to that effect
- the other party to the merger agreement having performed or complied in
all material respects with all material agreements and covenants required
to be performed or complied with by it on or before the date on which the
merger is to be completed, and that party having provided to the other
party a certificate of a senior executive and a senior financial officer
to that effect
- with respect only to CNET's obligation to effect the merger, CNET having
received from Simpson Thacher & Bartlett, counsel to CNET, on the date on
which the merger is to be completed, a written opinion to the effect
that, for federal income tax purposes, the merger will qualify as a
reorganization within the meaning of section 368(a) of the Internal
Revenue Code
- with respect only to Ziff-Davis' obligation to effect the merger,
Ziff-Davis having received from Sullivan & Cromwell, counsel to
Ziff-Davis, on the date on which the merger is to be completed, a written
opinion to the effect that, for federal income tax purposes, the merger
will qualify as a reorganization within the meaning of section 368(a) of
the Internal Revenue Code
- with respect only to Ziff-Davis' obligation to effect the merger, the
conditions set forth in the merger agreement regarding additional
conditions to obligations of CNET to consummate the merger having been
satisfied or waived by CNET
Each of the conditions listed in the previous two paragraphs is waivable by
the party or parties whose obligations to complete the merger are so
conditioned, except to the extent the condition must be satisfied in order to
comply with applicable law.
The merger agreement provides that a "material adverse effect" means, when
used with respect to Ziff-Davis or CNET, any event, change, circumstance or
effect that is or is reasonably likely to be materially adverse to (i) the
business, assets, liabilities, financial condition or results of operation of
such entity and its subsidiaries taken as a whole or (ii) the ability of such
entity to consummate the transactions contemplated by the merger agreement.
NO SOLICITATION
In the merger agreement, each of Ziff-Davis and CNET has agreed that it
will not, nor will it permit any of its subsidiaries nor any of the officers and
directors of it or its subsidiaries to, and it shall direct and use its
reasonable best efforts to cause its and its subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its subsidiaries) not to, directly or indirectly
through another person:
- solicit, initiate, encourage or knowingly facilitate an acquisition
proposal (as defined in the merger agreement)
- have a discussion with or provide confidential information or engage in
negotiations regarding an acquisition proposal
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- approve or recommend or publicly propose an acquisition proposal
- approve, recommend, propose or enter into a letter of intent or similar
arrangement relating to an acquisition proposal
The foregoing restrictions will not restrict CNET's or Ziff-Davis' board of
director's ability to comply with applicable securities laws.
An "acquisition proposal" includes:
- a transaction to effect a merger, reorganization, share exchange,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Ziff-Davis or CNET or any of
either company's significant subsidiaries
- any purchase or sale of 20% or more of the consolidated assets of either
CNET or Ziff-Davis and their subsidiaries, taken as a whole
- any purchase or sale of, or tender or exchange offer for, the equity
securities of such party that, if consummated, would result in any person
(or the stockholders of such person) beneficially owning securities that
represent 20% or more of the total voting power of Ziff-Davis or CNET (or
of the surviving parent entity in such transaction) or any of their
significant subsidiaries
Further, each of CNET and Ziff-Davis or their respective board of directors
will be permitted to (i) have a discussion with or provide confidential
information or engage in negotiations regarding an acquisition proposal, (ii)
approve or recommend or publicly propose an acquisition proposal or (iii)
approve or recommend, or propose to approve or recommend an acquisition proposal
to the extent that: (x) such acquisition proposal was not solicited by such
party and such party's board of directors, after consultation with outside
counsel, concludes that such action is necessary in order for it to comply with
its fiduciary obligations; (y) provides notice to the other party to this merger
of any inquiries, proposals or offers received before furnishing any information
or data, including the name of the third party and the material terms and
conditions of such inquiries, proposals or offers and (z) obtains a customary
confidentiality agreement covering any nonpublic information to be disclosed to
the third party.
The merger agreement also provides that each party will promptly advise the
other of the status and terms of any competing proposal or any inquiry or
request for information relating to that competing proposal and the status and
terms of any such discussions or negotiations.
In addition, CNET may pursue a transaction that its board concludes will
not materially delay or interfere with the consummation of the proposed
CNET/Ziff-Davis merger, which does not require rescission of the merger
agreement and where the other party to the proposed transaction expressly
supports the proposed CNET/Ziff-Davis merger.
TERMINATION
The merger agreement may be terminated at any time before the completion of
the merger, whether before or after the stockholder approvals have been obtained
at the special meetings:
- by mutual written consent of CNET and Ziff-Davis
- by CNET or Ziff-Davis, if the merger has not been completed by January
31, 2001; but this right to terminate the merger agreement will not be
available to any party whose failure to fulfill its obligations under the
merger agreement is the reason that the merger cannot be completed by
January 31, 2001
- by CNET or Ziff-Davis, if the shareholders of CNET have not approved the
issuance of CNET common stock in the merger or if the shareholders of
Ziff-Davis have not approved the merger agreement, in each case at the
applicable shareholders meeting or at any adjournment or postponement of
the applicable meeting
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- by CNET or Ziff-Davis, if (A) any governmental entity issues an order,
decree or ruling or takes any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by the
merger agreement and such order, decree, ruling or other action has
become final and nonappealable, or (B) any governmental entity has failed
to issue an order, decree or ruling or take any other action, in each
case which is necessary to fulfill the conditions to the merger with
respect to the HSR Act, approval of shares for listing on NASDAQ and the
effectiveness of the registration statement on Form S-4 of which this
proxy statement/prospectus forms a part and such denial of a request to
issue such order, decree, ruling or take such other action shall have
become final and nonappealable. The right to terminate the merger
agreement under this provision will not be available to any party whose
failure to comply with its obligations under the merger agreement has
caused or resulted in such action or inaction
- by CNET or Ziff-Davis, if the other party has breached or failed to
perform any of its representations, warranties, covenants or other
agreements contained in the merger agreement, and such breach has not
been or cannot be cured on or before January 31, 2001
- by CNET, if Ziff-Davis' board has failed to make the recommendation to
its stockholders for adoption of the merger agreement or materially
breached its obligations under the merger agreement by failing to call
the Ziff-Davis special meeting of stockholders, or to prepare and mail to
its stockholders this proxy statement/prospectus
- by Ziff-Davis, if CNET's board has failed to make the recommendation to
its stockholders of the approval of the issuance of CNET common stock or
materially breached its obligations under the merger agreement by failing
to call the CNET special meeting of stockholders or to prepare and mail
to its stockholders this proxy statement/prospectus
TERMINATION FEES
FEES PAYABLE BY ZIFF-DAVIS
If the merger agreement is terminated by CNET because any of the following
events occurs, Ziff-Davis will pay CNET a termination fee of $58 million:
- the Ziff-Davis board of directors fails to recommend the merger to its
stockholders
- Ziff-Davis materially breaches its obligation by failing to call the
Ziff-Davis special meeting of stockholders
- Ziff-Davis fails to prepare and mail to its stockholders this proxy
statement/prospectus
Ziff-Davis will also pay CNET a termination fee of $58 million if either
party terminates the merger agreement because the merger is not consummated by
January 31, 2001 and the Ziff-Davis stockholders meeting has not been held by
that date or if Ziff-Davis' stockholders do not approve the merger agreement
and:
- prior to the termination of the merger agreement, a third party has
publicly announced an intention to:
- acquire or purchase more than 20% of the consolidated assets of
Ziff-Davis,
- initiate any tender offer or exchange offer that would result in any
person or group beneficially owning 20% or more of Ziff-Davis, or
- solicit, initiate, encourage or knowingly facilitate an alternative
transaction with Ziff-Davis and
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- within 12 months following the termination of the merger agreement one of
the following transactions is consummated or Ziff-Davis enters into a
definitive agreement providing for one of the following transactions:
- a merger or similar transaction involving Ziff-Davis,
- a sale of assets of Ziff-Davis representing more than 40% of the
consolidated assets of Ziff-Davis just prior to the proposed sale, or
- a tender offer or exchange offer by any person or group that would
result in the beneficial ownership or a right to acquire beneficial
ownership of more than 40% of the voting power of Ziff-Davis
If the merger agreement is terminated by CNET or Ziff-Davis because
Ziff-Davis' shareholders fail to adopt the merger agreement, Ziff-Davis will pay
CNET $33 million, provided that the $58 million termination fee described above
has not been paid.
FEES PAYABLE BY CNET
If the merger agreement is terminated by Ziff-Davis because any of the
following events occurs, CNET will pay Ziff-Davis a termination fee of $105
million:
- the CNET board of directors fails to recommend the issuance of CNET
common stock to its stockholders
- CNET materially breaches its obligation by reason of a failure to call
the CNET special meeting of stockholders or
- CNET fails to prepare and mail to its stockholders this proxy
statement/prospectus. CNET will also pay to Ziff-Davis a termination fee
of $105 million if either party terminates the merger agreement because
the merger is not consummated by January 31, 2001 or if CNET's
stockholders do not approve the issuance of CNET common stock in the
merger and:
- prior to the termination of the merger agreement, a third party has
publicly announced an intention to:
- acquire or purchase more than 20% of the consolidated assets of CNET,
- initiate any tender offer or exchange offer that would result in any
person or group beneficially owning 20% or more of CNET, or
- solicit, initiate, encourage or knowingly facilitate an alternative
transaction with CNET and
- within 12 months following the termination of the merger agreement one of
the following transactions is consummated or CNET enters into a
definitive agreement providing for one of the following transactions:
- a merger or similar transaction involving CNET,
- a sale of assets of CNET representing more than 40% of the consolidated
assets of CNET just prior to the proposed sale, or
- a tender offer or exchange offer by any person or group that would
result in the beneficial ownership or a right to acquire beneficial
ownership of more than 40% of the voting power of CNET
CNET may, however, pursue a transaction that its board concludes will not
materially delay or interfere with the consummation of the proposed
CNET/Ziff-Davis merger, which does not require rescission of the merger
agreement and where the other party to the proposed transaction expressly
supports the proposed CNET/Ziff-Davis merger.
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If the merger agreement is terminated by CNET or Ziff-Davis because CNET's
shareholders fail to approve the issuance of CNET common stock in the merger,
CNET will pay Ziff-Davis $60 million. In addition, CNET will make an unsecured
loan to Ziff-Davis in the principal amount of $15 million if CNET's shareholders
fail to approve the issuance of common stock in the merger. Such loan will be
due and payable in full at the option of Ziff-Davis in cash or Ziff-Davis common
stock on the earlier of the second anniversary of the making of the loan or the
consummation by any person of an acquisition proposal with respect to
Ziff-Davis. CNET will not make such payment or loan if CNET pays Ziff-Davis a
termination fee for another reason. In addition, this fee will only be paid if
Ziff-Davis' shareholders approve the merger agreement and Ziff-Davis is not in
material breach of the merger agreement.
CONDUCT OF BUSINESS PENDING THE MERGER
Both CNET and Ziff-Davis agreed that they will:
- confer on a reasonable basis with the other
- report to the other to the extent permitted by law or regulation or any
applicable confidentiality agreement on operational matters
- file all reports required to be filed with the SEC and
- if requested by the other party and to the extent permitted by law or
regulation or any applicable confidentiality agreement, deliver to the
other party copies of all reports, announcements and publications
promptly after such request.
CNET agreed that it will:
- carry on its business diligently and consistent with past practice
- preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings
- maintain for a period of one year, starting upon the completion of the
merger, employment compensation and benefit plans that will provide
benefits to each employee of Ziff-Davis who continues employment with
CNET after the merger that are no less favorable than those provided to
similarly situated CNET employees
CNET also agreed that it would conduct its business in compliance with
certain specific restrictions relating to:
- dividends or other distributions
- any split, combination or reclassification of any of its capital stock
- its ability to repurchase, redeem or otherwise acquire any shares of its
capital stock
- any modification of its charter documents and bylaws
- any merger, consolidation or similar transaction with another entity or
the acquisition of assets or other entities
- actions jeopardizing the tax-free status of the merger
- income tax elections that would be material to CNET
Ziff-Davis agreed that it will:
- carry on its business diligently and consistent with past practice,
except with respect to the transactions in connection with the Key3Media
spin-off and cash dividend
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- use its reasonable best efforts to preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others with
which it has business dealings, to the extent necessary to prevent any
material impairment of its business
- use its reasonable best efforts to retain the services of its officers,
key employees and consultants, to the extent necessary to prevent any
material impairment of its business
Ziff-Davis agreed that it would conduct its business in compliance with
certain specific restrictions relating to:
- entrance into a new material line of business
- commitment to any capital expenditures, obligations or liabilities
- dividends or other distributions or changes in share capital, other than
the transactions in connection with the Key3Media spin-off
- any split, combination or reclassification of any of its capital stock
- its ability to repurchase, redeem or otherwise acquire any shares of its
capital stock
- the issuance of securities, other than in connection with
previously-issued and certain newly-issued options, issuances by a wholly
owned subsidiary to such subsidiary's parent or another wholly owned
subsidiary, or the Key3Media spin-off
- any modification of charter documents and bylaws
- any merger, consolidation or similar transaction with another entity or
the acquisition of assets of other entities
- the sale, lease and disposition of assets, except for the transactions in
connection with the Key3Media spin-off and the cash dividends, and for
sales in the ordinary course of business
- the incurrence or guarantee of indebtedness
- actions jeopardizing the tax-free status of the merger
- compensation of any executive officer or employee of Ziff-Davis or any
subsidiary of Ziff-Davis
- actions affecting accounting methods and tax elections
- the entrance into agreements which grant exclusive rights to third
parties or which could reasonably be expected to limit or restrict CNET
or any of its affiliates from engaging or competing in any line of
business or in any geographic area
- settlement of material claims
- actions jeopardizing the validity of the representations and warranties
pertaining to Key3Media
OTHER AGREEMENTS
Each of CNET and Ziff-Davis has agreed to use its reasonable best efforts
to:
- take all actions and do all things necessary, proper or advisable under
applicable laws and regulations to complete the merger
- obtain and maintain all approvals, consents, waivers, registrations,
permits, authorizations, clearances and other confirmations required to
be obtained from any third party and/or any governmental entity that are
reasonably necessary to complete the merger
- cooperate in all respects with each other in connection with any filing
or submission and in connection with any investigation or other inquiry,
including any proceeding initiated by a private party
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- promptly inform the other party of any communication received from or
given by such party to the Antitrust Division of the Department of
Justice (the "DOJ"), the Federal Trade Commission (the "FTC") or any
other governmental entity and of any material communication received or
given in connection with any proceeding by a private party, in each case
regarding any transactions contemplated by the merger agreement
- consult with each other in advance of any meeting or conference with the
DOJ, FTC or other governmental entity to the extent practicable and to
the extent permitted by the DOJ, FTC or other governmental entity
- contest and resist any administrative or judicial action or proceeding,
including any proceeding by a private party, that is instituted, or
threatened to be instituted, challenging any transaction contemplated by
the merger agreement or any statute, rule, regulation, executive order,
decree, injunction or administrative order that is enacted, entered,
promulgated or enforced by a governmental entity which would make the
merger illegal or would otherwise prohibit or materially impair or delay
the completion of the merger and
- if any state takeover statute or similar statute becomes applicable to
this merger, ensure that the merger and other transactions contemplated
by the merger agreement are consummated as promptly as practicable on the
terms contemplated by the merger or otherwise minimize the effect of such
statute or regulation would have on the merger.
AMENDMENT; EXTENSION AND WAIVER
Subject to applicable law:
- the merger agreement may be amended by the parties in writing at any
time, except that after the merger agreement has been approved by the
CNET and Ziff-Davis shareholders, no amendment which by law or in
accordance with the rules of the NASDAQ or the New York Stock Exchange
requires further approval by CNET or Ziff-Davis shareholders shall be
made without such further approval
- at any time prior to the completion of the merger, a party may, by
written instrument signed on behalf of such party, extend the time for
performance of any of the obligations or acts of the other party to the
merger agreement, waive any inaccuracies in the representations and
warranties of the other party contained in the merger agreement or in any
related document and waive compliance with any agreement or condition in
the merger agreement
EXPENSES
Whether or not the merger is completed, all fees and expenses incurred in
connection with the merger, the merger agreement and the transactions
contemplated by the merger agreement will be paid by the party incurring such
fees or expenses, except that (i) Ziff-Davis will pay any and all property or
transfer taxes imposed in connection with the merger upon consummation of the
merger and (ii) CNET and Ziff-Davis will share equally the expenses incurred in
connection with filing, printing and mailing of this proxy statement/prospectus
and the registration statement of which it is a part.
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AGREEMENTS RELATED TO THE MERGER
This section of the proxy statement/prospectus describes certain agreements
related to the merger agreement, including the CNET stockholders' voting
agreements, the Ziff-Davis stockholder voting agreement and the stockholder
agreement among CNET, Softbank America, Inc., which we refer to as Softbank, and
Softbank Corp. While we believe that these descriptions cover the material terms
of these agreements, these summaries may not contain all of the information that
is important to you.
CNET STOCKHOLDERS VOTING AGREEMENTS
As an inducement for Ziff-Davis to enter into the merger agreement, each of
Shelby Bonnie and Halsey Minor have entered into voting agreements with
Ziff-Davis. By entering into voting agreements, each of these CNET stockholders
has agreed to vote his shares of CNET common stock in favor of the issuance of
CNET common stock in the merger. Each stockholder has also granted Ziff-Davis a
proxy (in case that stockholder fails for any reason to vote his shares in favor
of the merger) with the limited right to vote the shares of CNET common stock
owned by such stockholder (including any additional shares of CNET common stock
acquired after the date of the voting agreements), in favor of the approval of
the issuance of CNET common stock in the merger, of which this proxy
statement/prospectus is a part.
As of July 19, 2000, these stockholders together owned 18,667,336 shares of
CNET common stock, all of which shares, representing approximately 23% of the
outstanding CNET common stock, are subject to the voting agreements. None of the
CNET stockholders who are parties to the voting agreements were paid additional
consideration in connection with the voting agreements.
Pursuant to the voting agreements, each of these stockholders agrees not to
sell the CNET common stock and options owned, controlled or acquired, either
directly or indirectly, by that person until the earlier of the termination of
the merger agreement or the completion of the merger, unless the transfer is in
accordance with the voting agreement and each person to whom any shares or any
interest in any shares is transferred agrees to be bound by the terms and
provisions of the voting agreement. The voting agreements will terminate upon
the earlier to occur of the termination of the merger agreement and the
completion of the merger.
We have filed these voting agreements as exhibits to CNET's registration
statement for the shares of CNET common stock to be issued in the merger, of
which this proxy statement/prospectus is a part. Please see the section titled
"Summary of the Proxy Statement/Prospectus -- Where You Can Find More
Information," on page 11 for instructions on how to obtain copies of these
agreements.
SOFTBANK VOTING AGREEMENT
As an inducement for CNET to enter into the merger agreement, CNET and
Softbank entered into a voting agreement in which Softbank agreed to vote its
shares of ZD common stock in favor of the merger agreement and the merger.
Softbank also granted CNET a proxy with the limited right to vote the shares of
ZD common stock beneficially owned by Softbank if Softbank fails for any reason
to vote its shares (including any additional shares of ZD common stock acquired
after the date of the voting agreement) in favor of the approval of the merger
agreement.
As of July 19, 2000, Softbank beneficially owned 71,619,355 shares of ZD
common stock, all of which shares, representing approximately 69.10% of the
outstanding ZD common stock and a majority of the aggregate voting power of all
Ziff-Davis capital stock entitled to vote at the Ziff-Davis special meeting, are
subject to the voting agreement. The votes represented by the Softbank shares
will be sufficient to constitute a quorum and to adopt the merger agreement at
the special meeting regardless of the votes cast by any other stockholder of
Ziff-Davis. Softbank was not paid additional consideration in connection with
the voting agreement.
Pursuant to the voting agreement, Softbank agreed not to sell the ZD common
stock and options owned, controlled or acquired, either directly or indirectly,
by it until the earlier of the termination of the merger agreement or the
completion of the merger, unless the transfer is in accordance with the voting
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agreement and each person to which any shares or any interest in any shares is
transferred agrees to be bound by the terms and provisions of the voting
agreement. The voting agreement will terminate upon the earlier to occur of the
termination of the merger agreement and the completion of the merger.
We have filed the Softbank voting agreement as an exhibit to CNET's
registration statement for the shares of CNET common stock to be issued in the
merger, of which this proxy statement/prospectus is a part. Please see the
section titled "Summary of the Proxy Statement/Prospectus -- Where You Can Find
More Information," on page 11 for instructions on how to obtain copies of these
agreements.
SOFTBANK STOCKHOLDER AGREEMENT
As an inducement for CNET to enter into the merger agreement, CNET,
Softbank and Softbank Corp. entered into a stockholder agreement. The following
description summarizes the material provisions of the Softbank stockholder
agreement. We have filed the Softbank stockholder agreement as an exhibit to
CNET's registration statement for the shares of CNET common stock to be issued
in the merger, of which this proxy statement/prospectus is a part. Please see
the section titled "Summary of the Proxy Statement/Prospectus -- Where You Can
Find More Information," on page 11 for instructions on how to obtain a copy of
this agreement.
BOARD OF DIRECTORS OF CNET
At the closing of the merger, CNET will appoint to its board of directors
one nominee of Softbank. As long as Softbank and its subsidiaries own at least
7.5% of CNET's voting stock, to the extent that any designee of Softbank to the
CNET board of directors is up for election or a designee of Softbank is not then
serving on the CNET board of directors, Softbank will have a right to designate
one member of the management slate nominated by CNET for election as directors.
CNET must provide the Softbank designee with the same support as CNET provides
to other persons nominated for election as directors as part of the management
slate. Any person designated by Softbank for election as a CNET director will be
subject to the reasonable approval of a majority of the members of the CNET
board of directors. As long as Softbank has the right to designate at least one
nominee to the CNET board of directors, each committee of the CNET board of
directors (other than the audit and compensation committees and any committee
established due to a Softbank conflict of interest) shall at all times include
at least one Softbank designee.
VOTING OF CNET SHARES BY SOFTBANK
As long as Softbank can designate a nominee for election as a CNET
director, Softbank will vote all of the shares of CNET owned by Softbank at
Softbank's discretion either (i) for the entire slate of directors proposed by
CNET's board of directors or (ii) in the same proportion as all votes cast by
disinterested stockholders on such matters.
STANDSTILL AGREEMENT
Subject to certain exceptions, during the standstill period described below
Softbank Corp. and its subsidiaries are restricted from:
- offering to acquire any businesses or assets of CNET having a fair market
value in excess of 10% of CNET assets
- owning more than 20% of CNET's common stock
- making or participating in any solicitation of proxies to vote CNET
voting securities
- joining a group with respect to the ownership or voting of any CNET
voting securities, other than a group that consists solely of Softbank,
Softbank Corp. and their direct and indirect subsidiaries
- financing any third party's purchase of voting securities of CNET
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- proposing or assisting any person in connection with a merger or other
change of control transaction relating to CNET
- nominating any person as a director (other than the director nominee to
which it is entitled) or proposing any matter to be voted on by the
stockholders of CNET
- soliciting, initiating or encouraging any affiliate of Softbank to take
any action that Softbank is prohibited from taking
The standstill period is the period ending on the earliest of the
following:
- the four year anniversary of the effective date of the merger
- the date on which a change of control of CNET occurs or CNET enters into
a definitive agreement providing for a change in control of CNET
- the date on which a third party tender offer is commenced for a majority
of CNET's common stock, other than an offer by Softbank or its affiliates
- the date on which Softbank owns less than 7.5% of CNET's voting
securities
The standstill period is subject to reinstatement if the circumstances
relating to a change in control of CNET or a third party tender offer are no
longer present and certain other conditions are satisfied.
TRANSFER RESTRICTIONS
During the 180 day period after the merger, Softbank may not transfer any
CNET common stock owned by it or enter into any hedging transaction relating to
such stock other than transfers:
- to a subsidiary of Softbank or Softbank Corp. that agrees to be bound by
the Softbank stockholder agreement
- with the consent of CNET
- pursuant to a third party tender offer that is either recommended by the
CNET board or is not prohibited by any CNET stockholder rights plan
- pursuant to a merger, consolidation or reorganization to which CNET is a
party
During the period commencing on the 180-day anniversary of the merger and
ending on the earlier of the four year anniversary of the merger, or the date on
which Softbank owns less than 7.5% of CNET's voting securities, Softbank may not
transfer CNET common stock owned by it other than transfers:
- to a subsidiary of Softbank Corp. that agrees to be bound by the Softbank
stockholder agreement
- with the consent of CNET
- pursuant to a third party tender offer that is either recommended by the
CNET board or is not prohibited by any CNET stockholder rights plan
- pursuant to a merger, consolidation or reorganization to which CNET is a
party
- in an underwritten public offering o pursuant to Rule 144 or Rule 145
under the Securities Act of 1933 as long as such transfers are not made
to any person that would own more than 7.5% of CNET's common stock. In
addition, the amount of all such transfers in any three month period
cannot exceed 2.5% of the shares of CNET common stock outstanding at the
beginning of that period
- in private sales not made through any securities exchange, as long as the
purchaser is not acquiring the shares for resale and will not own more
than 7.5% of CNET's common stock
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REGISTRATION RIGHTS
Commencing on the six month anniversary of the merger and subject to
certain restrictions, Softbank may make up to four demands for registration
under the Securities Act of its shares of CNET common stock for sale in
underwritten offerings. In addition, subject to customary limitations, Softbank
will have the right to require that their shares be included in other
underwritten offerings of CNET common stock. CNET will pay all expenses related
to any such registration other than underwriting discounts and commissions and
transfer taxes, if any. CNET will also indemnify Softbank against various
liabilities associated with such registration.
STOCKHOLDER AGREEMENTS OF MR. BONNIE AND MR. MINOR
As an inducement for Ziff-Davis to enter into the Merger Agreement, each of
Mr. Bonnie and Mr. Minor entered into a stockholder agreement with Softbank in
which they agreed to vote in favor of any nominee for election as a director of
CNET that is nominated by Softbank pursuant to the Softbank stockholder
agreement.
AFFILIATE AGREEMENT
As a condition to CNET's obligation to complete the merger, each of
Ziff-Davis' affiliates must execute an affiliate agreement. Under this type of
affiliate agreement, CNET will be entitled to place appropriate legends on the
certificates evidencing any CNET common stock to be received by these persons
and to issue stop transfer instructions to the transfer agent for CNET common
stock. Further, these persons have also acknowledged the resale restrictions
imposed by Rule 145 under the Securities Act of 1933 on shares of CNET common
stock to be received by them in the merger. Ziff-Davis has agreed to use its
reasonable best efforts to cause its affiliates to execute affiliate agreements
not less than 30 days prior to the closing of the merger.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information for CNET
set forth below gives effect to the acquisitions of MySimon Inc. and Ziff-Davis.
The columns labeled "CNET and MySimon pro forma" give pro forma effect to
the CNET acquisition of MySimon on February 29, 2000. The columns labeled
"Ziff-Davis pro forma" give pro forma effect to the sale of its market
intelligence business in the fourth quarter of 1999, the sale of Ziff-Davis'
education, television and print publishing businesses (except for Computer
Shopper, Smart Planet and an investment in Red Herring Communications, Inc.) in
the first six months of 2000, the repayment of all but $500,000 of Ziff-Davis'
debt in the first six months of 2000, and the Key3Media spin-off and cash
dividend paid on August 18, 2000. The unaudited pro forma condensed combined
balance sheet as of June 30, 2000 gives pro forma effect to the CNET acquisition
of Ziff-Davis and certain post June 30, 2000 transactions as if they had
occurred on June 30, 2000. The unaudited pro forma condensed combined statement
of operations for the six months ended June 30, 2000 gives pro forma effect to
the CNET acquisition of Ziff-Davis and certain post December 31, 1999
transactions as if they had occurred immediately prior to January 1, 1999. The
unaudited pro forma condensed combined statement of operations for the year
ended December 31, 1999 gives pro forma effect to the CNET acquisition of
Ziff-Davis and all of the previously mentioned transactions as if they had
occurred immediately prior to January 1, 1999. These statements, including the
notes thereto, should be read in conjunction with the Form 8-K's filed by CNET
and Ziff-Davis on August 31, 2000, and the consolidated financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for CNET and Ziff-Davis, all of which we incorporate by reference in
this proxy statement/ prospectus. For copies of the information we incorporate
by reference, see "Summary of Proxy Statement/ Prospectus -- Where You Can Find
More Information" on page 11.
The pro forma condensed combined financial information does not purport to
represent what the consolidated results of operations or financial condition of
CNET would actually have been if the MySimon and Ziff-Davis acquisitions had in
fact occurred on such dates or the future consolidated results of operations or
financial condition of CNET.
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CNET NETWORKS, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED -- IN THOUSANDS)
JUNE 30, 2000
PRO FORMA
CNET/ZIFF-
DAVIS
ZIFF-DAVIS ACQUISITION
CNET PRO FORMA ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ----------
ASSETS
Current Assets:
Cash and cash equivalents................ $ 102,825 $ 67,616 $ -- $ 170,441
Investments in marketable debt
securities............................ 126,237 -- -- 126,237
Investments in marketable equity
securities............................ 259,421 7,653 -- 267,074
Accounts receivable, net................. 29,349 45,906 -- 75,255
Prepaid expenses and other current
assets................................ 22,139 14,148 (3,796)(a) 32,491
---------- ----------- ---------- ----------
Total current assets............. 539,971 135,323 (3,796) 671,498
Investments in marketable debt
securities............................... 108,904 -- -- 108,904
Investments in marketable equity
securities............................... 15,704 -- -- 15,704
Property and equipment, net................ 42,619 9,853 -- 52,472
Goodwill and other intangible assets....... 685,015 175,808 1,429,190(a) 2,290,013
Other assets............................... 95,670 68,758 32,484(a) 196,912
---------- ----------- ---------- ----------
Total assets..................... $1,487,883 $ 389,742 $1,457,878 $3,335,503
========== =========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable......................... $ 10,737 $ 3,569 $ -- $ 14,306
Accrued liabilities...................... 30,833 89,158 75,800(a) 195,791
Due to affiliates and management......... -- 13,025 -- 13,025
Current portion of long-term debt........ 6,389 -- -- 6,389
Tax related liabilities.................. 115,081 -- -- 115,081
---------- ----------- ---------- ----------
Total current liabilities........ 163,040 105,752 75,800 344,592
Long-term debt............................. 197,257 500 -- 197,757
Stockholders' equity:
CNET-Common stock........................ 9 -- 5(a) 14
ZD common stock.......................... -- 1,061 (1,061)(a) --
ZDNet common stock....................... -- 165 (165)(a) --
Additional paid-in capital............... 922,843 1,413,104 252,459(a) 2,588,406
Other comprehensive income, net of tax... (89,697) 1,032 (1,032)(a) (89,697)
Retained earnings (deficit).............. 317,406 (1,118,897) 1,118,897(a) 317,406
Treasury stock, at cost.................. (22,975) -- -- (22,975)
Deferred compensation.................... -- (12,975) 12,975(b) --
---------- ----------- ---------- ----------
Total stockholders' equity....... 1,127,586 283,490 1,382,078 2,793,154
---------- ----------- ---------- ----------
Total liabilities and
stockholders' equity........... $1,487,883 $ 389,742 $1,457,878 $3,335,503
========== =========== ========== ==========
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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CNET NETWORKS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED -- IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED JUNE 30, 2000
PRO FORMA
CNET/
CNET AND ZIFF-DAVIS
MYSIMON ZIFF-DAVIS ACQUISITION
PRO FORMA PRO FORMA ADJUSTMENTS PRO FORMA
--------- ---------- ----------- ---------
Revenues:
Internet..................................... $ 92,338 $ 76,213 $ -- $ 168,551
Publishing................................... -- 23,995 -- 23,995
Broadcast.................................... 5,327 -- 5,327
--------- -------- --------- ---------
Total revenues....................... 97,665 100,208 -- 197,873
--------- -------- --------- ---------
Cost of revenues:
Internet..................................... 27,084 28,791 -- 55,875
Publishing................................... -- 8,772 -- 8,772
Broadcast.................................... 4,815 -- -- 4,815
--------- -------- --------- ---------
Total cost of revenues............... 31,899 37,563 -- 69,462
--------- -------- --------- ---------
Gross profit......................... 65,766 62,645 -- 128,411
--------- -------- --------- ---------
Operating expenses:
Other operating expenses..................... 60,449 56,524 116,973
Stock-based compensation..................... -- 3,002 (3,002)(b) --
Depreciation and amortization of property and
equipment................................. 2,973 1,765 -- 4,738
Amortization of goodwill and intangible
assets.................................... 150,074 10,299 267,500(c) 427,873
Restructuring charge......................... -- 5,547 -- 5,547
--------- -------- --------- ---------
Total operating expenses............. 213,496 77,137 264,498 555,131
--------- -------- --------- ---------
Operating loss....................... (147,730) (14,492) (264,498) (426,720)
Other income (expense):........................ --
Gain on investments.......................... 69,584 -- -- 69,584
Other income (expense), net.................. 96 (17) -- 79
Minority interest............................ -- 780 -- 780
--------- -------- --------- ---------
Total other income (expense)......... 69,680 763 -- 70,443
--------- -------- --------- ---------
Loss before income taxes....................... (78,050) (13,729) (264,498) (356,277)
Income tax benefit (expense)................... (30,402) 3,648 (3,648)(d) (30,402)
--------- -------- --------- ---------
Net loss.................................. $(108,452) $(10,081) $(268,146) $(386,679)
========= ======== ========= =========
Basic net loss per share....................... $ (1.33) $ (2.88)
========= =========
Diluted net loss per share..................... $ (1.33) $ (2.88)
========= =========
Shares used in calculating basic per share
data......................................... 81,536 134,353
========= =========
Shares used in calculating diluted per share
data......................................... 81,536 134,353
========= =========
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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CNET NETWORKS, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED -- IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1999
PRO FORMA
CNET/
CNET AND ZIFF-DAVIS
MYSIMON ZIFF-DAVIS ACQUISITION
PRO FORMA PRO FORMA ADJUSTMENTS PRO FORMA
--------- ---------- ----------- ----------
Revenues:
Internet................................... $ 106,570 $107,317 $ -- $ 213,887
Publishing................................. -- 67,017 -- 67,017
Broadcast.................................. 7,458 -- -- 7,458
--------- -------- --------- ----------
Total revenues..................... 114,028 174,334 -- 288,362
--------- -------- --------- ----------
Cost of revenues:
Internet................................... 33,756 35,531 -- 69,287
Publishing................................. -- 24,654 -- 24,654
Broadcast.................................. 7,821 -- -- 7,821
--------- -------- --------- ----------
Total cost of revenues............. 41,577 60,185 -- 101,762
--------- -------- --------- ----------
Gross profit....................... 72,451 114,149 -- 186,600
--------- -------- --------- ----------
Operating expenses:
Other operating expenses................... 126,057 102,194 -- 228,251
Stock-based compensation................... -- 4,535 (4,535)(b) --
Depreciation and amortization of property
and equipment........................... 7,874 10,406 -- 18,280
Amortization of goodwill and other
intangible assets....................... 236,800 13,008 534,999(c) 784,807
--------- -------- --------- ----------
Total operating expenses........... 370,731 130,143 530,464 1,031,338
--------- -------- --------- ----------
Operating loss..................... (298,280) (15,994) (530,464) (844,738)
Other income (expense):
Gain (loss) on investments................. 734,138 -- -- 734,138
Interest income (expense), net............. 1,742 1,472 -- 3,214
Minority interest.......................... -- 117 -- 117
--------- -------- --------- ----------
Total other income................. 735,880 1,589 -- 737,469
--------- -------- --------- ----------
Income (loss) before income taxes............ 437,600 (14,405) (530,464) (107,269)
Income tax benefit (expense)................. (257,315) 4,295 (4,295)(d) (257,315)
--------- -------- --------- ----------
Net income (loss).................. $ 180,285 $(10,110) $(534,759) $ (364,584)
========= ======== ========= ==========
Basic net income (loss) per share............ $ 2.18 $ (2.83)
========= ==========
Diluted net income (loss) per share.......... $ 1.91 $ (2.83)
========= ==========
Shares used in calculating basic per share
data....................................... 82,545 128,751
========= ==========
Shares used in calculating diluted per share
data....................................... 94,332 128,751
========= ==========
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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CNET NETWORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The unaudited pro forma condensed combined balance sheet as of June 30,
2000 gives pro forma effect to the CNET acquisition of Ziff-Davis and the post
June 30, 2000 transactions referred to in the next paragraph as if they had
occurred on June 30, 2000. The unaudited pro forma condensed combined statement
of operations for the six months ended June 30, 2000 gives pro forma effect to
the CNET acquisition of Ziff-Davis and the post December 31, 1999 transactions
referred to in the next paragraph as if they had occurred immediately prior to
January 1, 2000. The unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1999 gives pro forma effect to the
CNET acquisition of Ziff-Davis and the transactions referred to in the next
paragraph as if they had occurred immediately prior to January 1, 1999. These
statements, including the notes thereto, should be read in conjunction with the
consolidated financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations for CNET and Ziff-Davis, which we
incorporate by reference in this proxy statement/prospectus. For copies of the
information we incorporate by reference, see "Summary of Proxy
Statement/Prospectus -- Where You Can Find More Information" on page 11.
The columns labeled "CNET and mySimon pro forma" in the statements set
forth above are derived from unaudited pro forma combined financial statements
of CNET filed on August 31, 2000 in a CNET Form 8-K and incorporated herein by
reference. The columns labeled "Ziff-Davis pro forma" in the statements set
forth above are derived from unaudited pro forma consolidated financial
statements of Ziff-Davis filed on August 31, 2000 in a Ziff-Davis Form 8-K and
incorporated herein by reference. The CNET and MySimon pro forma columns give
pro forma effect to the CNET acquisition of MySimon on February 29, 2000 in a
manner described in more detail in the CNET Form 8-K. The Ziff-Davis pro forma
columns give pro forma effect to the sale of its market intelligence business in
the fourth quarter of 1999, the sale of its education, television and print
publishing businesses (except for Computer Shopper, Smart Planet and an
investment in Red Herring Communications Inc.) in the first six months of 2000,
the repayment of all but $500,000 of Ziff-Davis' debt in the first six months of
2000 and the Key3Media spin-off and cash dividend paid on August 18, 2000, in
each case in a manner described in more detail in the Ziff-Davis Form 8-K.
The CNET and mySimon pro forma columns do not give effect to CNET's
acquisitions of Apollo Solutions Inc., Winfiles.com, GDT, Nordby International,
SavvySearch Limited, MSSI, and Digital Media Services, Inc. because, both
individually and in aggregate, they are immaterial.
Certain CNET and Ziff-Davis pro forma amounts have been reclassified to
conform with CNET's expected presentation upon consummation of the proposed
merger.
CNET expects that it may incur additional costs to integrate the merged
entities over the course of the next several years. Such costs have not been
considered in the pro forma financial statements and will be recorded as
operating expenses if and when they are determined.
These statements are not necessarily indicative of CNET's actual financial
position or results of operations as of the date or for the periods indicated or
the financial position or results of operations that CNET would have experienced
if the transactions for which the statements give pro forma effect had in fact
occurred at the times assumed. Also, the statements do not purport to represent
CNET's future financial position or results of operations.
(2) PRO FORMA ADJUSTMENTS
(a) Reflects the issuance of shares of CNET common stock in the merger, an
allocation of the purchase price to the assets and liabilities acquired and
elimination of Ziff-Davis' common stock, other comprehensive deficit and
retained deficit. The purchase price was allocated based on the estimated fair
value of the assets and liabilities acquired in the merger. This allocation is
subject to change pending a
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CNET NETWORKS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
final analysis of the value of the assets acquired and liabilities assumed. The
preliminary allocation is as follows (in thousands):
Purchase price.............................................. $1,696,568
Assets acquired
Cash...................................................... $71,116
Accounts receivable, net.................................. 45,906
Property and equipment, net............................... 9,853
Other assets.............................................. 119,247
-------
246,122
Liabilities assumed......................................... 154,552
------- ----------
Net assets acquired......................................... 91,570
----------
Goodwill and other intangible assets........................ $1,604,998
==========
The purchase price reflects the 46,205,000 shares of CNET's common stock
expected to be issued in the merger, the fair value of options to purchase
8,291,000 shares of CNET's common stock that will be exchanged in the merger for
outstanding Ziff-Davis stock options, and an estimated $27.5 million in
merger-related transaction and anticipated direct costs.
(b) Reflects the elimination of deferred stock-based compensation.
(c) Reflects amortization of increased goodwill and other intangible assets
during the period.
(d) Reflects an adjustment to tax expense.
(3) PRO FORMA NET INCOME (LOSS) PER SHARE
The pro forma basic and diluted net income (loss) per share calculation
assumes that the 10,725,927 and 46,205,000 shares of CNET common stock issued in
the mySimon and Ziff-Davis acquisitions, respectively, were outstanding for the
entire year in 1999 and for the six-month period ended June 30, 2000. The
options issued in connection with these acquisitions are not included in the per
share calculation because their effect is anti-dilutive.
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COMPARISON OF RIGHTS OF HOLDERS OF
CNET COMMON STOCK AND
ZIFF-DAVIS COMMON STOCK
This section of the proxy statement/prospectus describes certain
differences between CNET common stock, on the one hand, and ZD common stock and
ZDNet common stock, on the other hand. While we believe that the description
covers the material differences between the two, this summary may not contain
all of the information that is important to both CNET and Ziff-Davis
stockholders, including the certificate of incorporation and bylaws of CNET and
the certificate of incorporation and bylaws of Ziff-Davis. CNET and Ziff-Davis
stockholders should read this entire document and the other documents referred
to carefully for a more complete understanding of the differences between CNET
common stock and ZD common stock and ZDNet common stock.
Ziff-Davis' certificate of incorporation and bylaws currently govern the
rights of stockholders of Ziff-Davis. After the completion of the merger, ZD
common stockholders and ZDNet common stockholders will become stockholders of
CNET. As a result, former Ziff-Davis stockholders' rights will be governed by
CNET's certificate of incorporation and bylaws. The following table summarizes
certain differences between the rights of CNET stockholders and Ziff-Davis
stockholders under the certificate of incorporation and bylaws of CNET and of
Ziff-Davis.
CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
COMMON STOCK................. One class issued and Two classes of common stock:
outstanding. Holders have one - ZD common stock
vote per share on all matters - ZDNet common stock
submitted to a vote of
stockholders, including ZDNet common stock is
election of directors. intended to reflect the
Holders do not have performance of ZDNet,
cumulative voting rights. Ziff-Davis' online business
division. The ZD common stock
is intended to track the
performance of ZD, which is
the division of Ziff-Davis
that historically engaged in
a variety of non-online media
and marketing businesses. ZD
has disposed of substantially
all of its businesses, and
now owns only Computer
Shopper, Smart Planet, an
investment in Red Herring
Communications Inc. and a
retained interest in ZDNet
that is currently the
equivalent of 60 million
ZDNet shares.
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CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
At every meeting of the
stockholders, the holders of
ZD common stock and the
holders of ZDNet common stock
vote together as a class on
all matters as to which
common stockholders generally
are entitled to vote, unless
a separate vote is required
by applicable law. On all
matters for which no separate
vote is required, holders of
ZD common stock are entitled
to one vote for each share of
stock held and holders of
ZDNet common stock are
entitled to a number of votes
per share equal to the
average market value of a
share of ZDNet common stock
divided by the average market
value of a share of ZD common
stock during the twenty
consecutive trading day
period ending on (and
including) the fifth trading
day before the applicable
record date subject to
certain adjustments.
DIVIDENDS.................... Holders of CNET common stock Holders of ZD common stock
are entitled to dividends or and ZDNet common stock
other distributions when, as receive dividends if, as and
and if declared by the board when the board declares them
of directors. The right of out of legally available
the board of directors to funds, and the board may
declare dividends is subject declare dividends in equal or
to the rights of holders of unequal amounts on each
preferred stock and the series (or may declare
availability of funds. dividends on one series and
not the other), but the
dividends on ZD common stock
and the ZDNet common stock
cannot be greater than the
amount that the corresponding
Ziff-Davis divisions could
pay if those divisions were
separate corporations.
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CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
SALE OF ALL OR SUBSTANTIALLY
ALL ASSETS................. CNET is not permitted to sell If Ziff-Davis disposes of all
all or substantially all of or substantially all of the
its assets unless it receives assets of its ZD division, it
stockholder approval to do is required to distribute to
so. holders of its ZD common
stock their proportionate
interest in the net proceeds
or issue ZDNet common stock
for ZD common stock at a 10%
premium. Similarly, if
Ziff-Davis disposes of all or
substantially all of the
assets of its ZDNet division,
it is required to distribute
to holders of ZDNet common
stock their proportionate
interest in the net proceeds
or issue ZD common stock for
ZDNet common stock at a 10%
premium. In addition,
Ziff-Davis is not permitted
to sell all or substantially
all of the assets of
Ziff-Davis Inc. unless it
receives stockholder approval
to do so.
OPTIONAL EXCHANGE............ The CNET certificate of Ziff-Davis is permitted in
incorporation does not certain circumstances to
contain an analogous exchange ZD common stock for
provision. ZDNet common stock or vice
versa, to redeem ZD common
stock in return for stock of
a subsidiary holding all of
the assets and liabilities of
the ZD division or to redeem
ZDNet common stock in return
for the stock of a subsidiary
holding all of the assets and
liabilities of ZDNet.
LIQUIDATION.................. CNET's certificate of If Ziff-Davis liquidates,
incorporation does not holders of ZD common stock
contain a provision for and ZDNet common stock will
liquidation. share in the assets remaining
after satisfaction in full of
the prior rights of creditors
and payment of the aggregate
liquidation preference for
all outstanding shares of
preferred stock, pro rata in
relation to the aggregate
market value of their
holdings over a specified
averaging period prior to
announcement of the
liquidation.
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CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
PREFERRED STOCK.............. The CNET certificate of Ziff-Davis preferred stock
incorporation authorizes the may be issued from time to
board to issue preferred time in one or more series.
stock in one or more series Ziff-Davis' board of
and to set the designations directors is authorized to
and powers, liquidation fix the designations and the
preferences, conversion and powers, preferences and
other rights, qualifications, rights, and the
voting power, limitations and qualifications, limitations
restrictions, and the terms and restrictions of each
of redemption of preferred series of preferred stock.
stock. The CNET certificate The Ziff-Davis certificate of
of incorporation authorizes incorporation authorizes the
the board to issue up to board to issue up to
5,000,000 shares of preferred 10,000,000 shares of
stock. CNET does not preferred stock. Ziff-Davis
currently have any shares of does not currently have any
preferred stock outstanding. shares of preferred stock
outstanding.
PREEMPTIVE AND PREFERENTIAL
RIGHTS..................... CNET stockholders do not have Ziff-Davis' certificate of
preemptive or preferential incorporation does not
rights to purchase or contain a provision for
subscribe for additional preemptive and preferential
shares of any class of CNET rights.
capital stock. The board of
directors may issue shares of
any class of stock, or any
notes, debentures, bonds or
other securities convertible
into or warrants, rights or
options to purchase shares of
any class of stock, without
offering any shares of any
class, to the existing
holders.
SPECIAL MEETING OF
STOCKHOLDERS............... Under Delaware law, a special Ziff-Davis' bylaws authorize
meeting of stockholders may only the chairman or vice
be called by the board of president of the board of
directors or any other person directors, the president or
authorized to do so in the the board of directors to
certificate of incorporation call a special meeting of
or the bylaws. CNET's stockholders. Any power of
certificate of incorporation stockholders to call a
and bylaws authorize only the special meeting is explicitly
chief executive officer or a denied.
majority of the members of
the board to call a special
meeting of stockholders.
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CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
ACTION BY WRITTEN CONSENT IN
LIEU OF A STOCKHOLDERS'
MEETING.................... Under Delaware law, Under Delaware law,
stockholders may take action stockholders may take action
by written consent in lieu of by written consent in lieu of
voting at a meeting. Delaware voting at a meeting. Delaware
law allows corporations to law allows corporations to
eliminate this provision from eliminate this provision from
its certificate of its certificate of
incorporation. CNET's incorporation. Ziff-Davis'
certificate of incorporation certificate of incorporation
does not eliminate the eliminates the ability of a
ability of a stockholder to stockholder to act by written
act by written consent. consent. Any action required
CNET's bylaws allow for any or permitted to be taken by
action that may be taken at the stockholders of
any annual or special meeting Ziff-Davis must be taken at a
of stockholders to be taken duly called annual or special
without a meeting, without meeting of such holders.
prior notice and without a
vote, if CNET obtains the
written consent of a majority
of the holders of outstanding
stock that would be entitled
to vote at a duly convened
meeting.
VOTING BY WRITTEN BALLOT..... Under Delaware law, the right Under Delaware law, the right
to vote by written ballot may to vote by written ballot may
be restricted if the be restricted if the
certificate of incorporation certificate of incorporation
so provides. CNET's so provides. Ziff-Davis'
certificate of incorporation certificate of incorporation
does not allow holders the does not allow holders the
right to vote by written right to vote by written
ballot. ballot.
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CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
RECORD DATE FOR DETERMINING
STOCKHOLDERS............... CNET's bylaws provide that Ziff-Davis' bylaws provide
the board of directors may that the board of directors
fix a record date that is not may fix a record date that is
more than 60 days nor less not more than 60 days nor
than 10 days before the date less than 10 days before the
of the meeting. If the board date of the meeting. If the
does not fix a record date, board does not fix a record
then the record date to date, then the record date to
determine the stockholders determine the stockholders
entitled to receive notice of entitled to receive notice of
the meeting will be the close the meeting will be the close
of business on the day of business on the day
preceding the day the notice preceding the day the notice
is given, or, if the is given, or, if the
stockholders waive notice, stockholders waive notice,
the close of business on the the close of business on the
day preceding the date of the day preceding the date of the
meeting. A determination of meeting. A determination of
stockholders of record stockholders of record
entitled to notice or to vote entitled to notice or to vote
at a meeting also applies to at a meeting also applies to
any adjournment of the any adjournment of the
meeting, unless the board of meeting, unless the board of
directors fixes a new date. directors fixes a new date.
The bylaws also provide that The record date to determine
the record date for the stockholders entitled to
determining the stockholders receive a dividend payment or
entitled to consent to other distribution of rights
corporate action without a or for any other action, is a
stockholder meeting will be date that is not more than 60
no more than 10 days prior to days prior to any such
the date the subject action action.
is taken. If the board does
not fix a record date, the If the board does not fix a
record date to determine record date for the payment
stockholders entitled to vote of a dividend, the record
without a stockholder meeting date is the day on which the
is the first date on which board of directors adopts the
CNET receives a signed resolution relating to the
written consent setting forth subject matter.
the action taken or proposed
to be taken.
If a record date is not set
as described above and a
statute requires prior action
by the board, the record date
for determining stockholders
entitled to consent to
corporate action in writing
is the close of business on
the date the board adopts the
resolution taking such
action.
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CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
The record date to determine
the stockholders entitled to
receive a dividend payment or
other distribution of rights
or for any other action, is a
date that is not more than 60
days prior to any such
action.
ADVANCE NOTICE PROVISIONS FOR
BOARD NOMINATIONS AND OTHER
STOCKHOLDER BUSINESS --
ANNUAL MEETINGS............ Any stockholder that The Ziff-Davis bylaws provide
beneficially has owned for at stockholders may nominate
least one year at least persons for election to the
$1,000 of CNET securities board of directors and
entitled to vote at an annual propose business at an annual
meeting may request or special meeting of
consideration of a matter to stockholders only by giving
be submitted to a vote at a advance notice to the
duly convened annual meeting secretary of Ziff-Davis not
if the secretary of CNET less than 60 days nor more
receives written notice that than 90 days prior to the
complies with federal date set for the meeting.
securities laws, by certified However, if the date of the
mail from the stockholder, no meeting is first publicly
later than 120 days in announced less than 70 days
advance of the date set for prior to the date of the
CNET's annual meeting as meeting, the stockholder will
disclosed in the prior year's be required to give notice
proxy statement. within 10 days after the
public announcement.
If a stockholder wants to
nominate a person for
election to the board, the
stockholder must submit a
notice that sets forth the
name, principal business or
occupation during the past
five years, and any
affiliation with or material
interest in Ziff-Davis or any
transaction involving Ziff-
Davis.
If a stockholder wants to
propose other business, the
stockholder must provide a
description of such business,
the reasons for conducting
such business at the meeting
and any material interest the
stockholder may have in
bringing the matter before
the meeting.
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CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
ADVANCE NOTICE PROVISIONS FOR
BOARD NOMINATION AND OTHER
STOCKHOLDER BUSINESS --
SPECIAL MEETINGS........... CNET's bylaws provide that at The same provisions apply as
special meetings of for annual meetings.
stockholders the only
business that can be
conducted will be the items
of business set forth in the
notice of special meeting.
NUMBER OF DIRECTORS.......... CNET's bylaws provide that The Ziff-Davis bylaws provide
the board of directors shall that the board of directors
be fixed by resolution of the shall be fixed by resolution
board. Any decrease in the of the board but in any case
number of directors will not must consist of at least one
shorten the term of any director. Any decrease in the
incumbent director. Any new number of directors will not
directorship resulting from shorten the term of any
an increase in the number of incumbent director. Any new
directors is to be directorship resulting from
apportioned by the board an increase in the number of
among the three classes of directors is to be
directors so as to maintain apportioned by the board
such classes as nearly equal among the three classes of
in number as possible. directors so as to maintain
such classes as nearly equal
in number as possible.
CLASSIFIED BOARD............. Delaware law provides that a Delaware law provides that a
corporation's board of corporation's board of
directors may be divided into directors may be divided into
various classes with various classes with
staggered terms of office. staggered terms of office.
CNET's certificate of Ziff-Davis' certificate of
incorporation provides for a incorporation provides for a
classified board of classified board of
directors, with the board directors, with the board
divided into three classes. divided into three classes.
Each class of directors shall Each class of directors shall
have as close as possible to have as close as possible to
the same number of directors. the same number of directors.
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CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
REMOVAL OF DIRECTORS......... CNET's certificate of Ziff-Davis' certificate of
incorporation provides for incorporation provides for
the removal of a director the removal of a director
only upon showing cause and only upon showing cause,
only by the affirmative vote provided that a director who
of a majority of the is also an officer of
stockholders then entitled to Ziff-Davis will resign or be
vote in the election of removed upon termination of
directors. employment as an officer. The
article in the certificate of
incorporation governing the
removal of directors may only
be amended, modified or
repealed by the affirmative
vote of at least 80% of the
outstanding shares of capital
stock of Ziff-Davis entitled
to vote in the election of
directors.
BOARD OF DIRECTOR
VACANCIES.................. Under Delaware law, vacancies Under Delaware law, vacancies
and newly created and newly created
directorships may be filled directorships may be filled
by a majority of the by a majority of the
directors then in office, directors then in office,
even if less than a quorum, even if less than a quorum,
unless the certificate of unless the certificate of
incorporation or bylaws incorporation or bylaws
provide otherwise. CNET's provide otherwise.
bylaws provide that whenever Ziff-Davis' bylaws provide
a vacancy occurs or the that if a vacancy occurs or
number of directors is the number of directors is
increased, a majority of the increased, the directorship
remaining directors may may be filled only by the
choose a successor to fill vote of the remaining
the new directorship who will directors of the class in
hold office for the unexpired which the vacancy occurs, or
term of the director in by a majority of the
respect of which such vacancy directors in the other
occurred and in the case of a classes if no directors of
new directorship, until the the class remain, or by the
next annual meeting of the stockholders at an annual
stockholders at which members stockholders' meeting. Any
of the director's class are director elected or appointed
elected. to fill a vacancy will hold
office until the next
election of the class of
directors.
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CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
NOTICE OF SPECIAL MEETINGS OF
THE BOARD OF DIRECTORS..... CNET's bylaws provide that Ziff-Davis' bylaws provide
special meetings of the board that special meetings of the
of directors may be called by board of directors may be
the President or the Chairman called by the Chairman or the
of the board on 24 hours Vice Chairman of the board or
notice to each director by any 2 directors, upon
delivered personally or by reasonable notice to each
mail, telegram or telecopier. other director by the person
Special meetings may also be or persons calling the
called by the President or meeting.
the Secretary of the board
upon written request of one
director.
INDEMNIFICATION.............. The CNET certificate of The Ziff-Davis bylaws provide
incorporation and bylaws for indemnification of its
provide that the agents, directors, officers and
directors and officers shall employees, to the fullest
be indemnified to the fullest extent authorized by law,
extent authorized by law against any action,
against any action, proceeding or suit brought
proceeding or suit brought against such a person by
against such a person by reason of the fact that he or
reason of the fact that he or she (i) is or was an agent of
she (i) is or was an agent of Ziff-Davis; (ii) was a
CNET; (ii) was a director or director or officer of a
officer of a corporation that corporation that was a
was a predecessor corporation predecessor corporation of
of CNET or of another Ziff-Davis or of another
enterprise at the request of enterprise at the request of
such predecessor corporation; such predecessor corporation;
or (iii) serves or served at or (iii) serves or served at
any other enterprise at the any other enterprise at the
request of CNET. request of Ziff-Davis.
The CNET certificate of The bylaws allow Ziff-Davis
incorporation authorizes CNET to maintain insurance, at its
to maintain insurance, at its expense, to protect itself
expense, to protect itself and any director, officer,
and any director, officer, employee or agent of
employee or agent of CNET Ziff-Davis against any
against any expense, expense, liability or loss
liability or loss. permitted under the Delaware
General Corporation Law.
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CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
LIMITATIONS ON LIABILITY..... The CNET certificate of The Ziff-Davis certificate of
incorporation limits, to the incorporation provides that a
fullest extent permitted by director shall not be liable
Delaware law, the personal to Ziff-Davis or its
liability of a director of stockholders for monetary
CNET to CNET or its damages for breach of a
stockholders as a director fiduciary duty as a director,
for monetary damages for to the fullest extent
breach of a fiduciary duty as permitted by Delaware law.
a director. Under Delaware Under Delaware law, such
law, such provision may not provision may not eliminate
eliminate or limit director or limit director monetary
monetary liability for: liability for:
- breaches of the director's - breaches of the director's
duty of loyalty to CNET or duty of loyalty to Ziff-Davis
its stockholders; or its stockholders;
- acts or omissions not in - acts or omissions not in
good faith or involving good faith or involving
intentional misconduct or intentional misconduct or
knowing violations of law; knowing violations of law;
- payment of unlawful - payment of unlawful
dividends or unlawful stock dividends or unlawful stock
repurchases or redemptions; repurchases or redemptions;
or or
- any transaction in which - any transaction in which
the director received the director received
improper personal benefit. improper personal benefit.
Ziff-Davis' certificate of
incorporation provides that
if Delaware law is amended to
further limit the liability
of a director, the director
will not be liable to the
fullest extent permitted by
the amended law.
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CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
STOCKHOLDER APPROVAL OF
CERTAIN BUSINESS
COMBINATIONS............... Under Delaware law, "business Same.
combinations" by corporations
with "interested
stockholders", or certain
stockholders that own more
than 15% of the corporation's
outstanding voting stock, are
subject to a moratorium of
three years unless specified
conditions are met. The
prohibited transactions
include a merger with,
disposition of assets to, or
the issuance of stock to, the
interested stockholder, or
certain transactions that
have the effect of increasing
the proportionate share of
the outstanding securities
held by the interested
stockholder. Under Delaware
law, an interested
stockholder may avoid the
prohibition against effecting
certain significant
transactions with the
corporation if the board of
directors, prior to the time
such stockholder becomes an
interested stockholder,
approves such transaction or
the transaction by which such
stockholder becomes an
interested stockholder or if
at or subsequent to such time
the board of directors and at
least 66 2/3% of the
stockholders other than the
interested stockholders
approve such transaction.
These provisions of Delaware
law apply to a Delaware
corporation unless the
corporation "opts out" of the
provisions in its certificate
of incorporation or bylaws.
CNET has not opted out of
these provisions in its
certificate of incorporation
or bylaws and consequently is
subject to these provisions.
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CNET (DELAWARE) ZIFF-DAVIS (DELAWARE)
--------------- ---------------------
APPRAISAL RIGHTS............. Such rights are not available Same.
with respect to a merger or
consolidation by a
corporation the shares of
which are either listed on a
national securities exchange
or held of record by more
than 2,000 stockholders if
such stockholders are
required to receive only
shares of the surviving
corporation, shares of any
other corporation which are
either listed on a national
securities exchange or held
of record by more than 2,000
holders, cash in lieu of
fractional shares or a
combination of the foregoing.
STOCKHOLDER DERIVATIVE
SUITS...................... Under Delaware law, a Same.
stockholder may only bring a
derivative action on behalf
of the corporation if the
stockholder was a stockholder
at the time of the
transaction in question or
his or her stock thereafter
devolved upon him or her by
operation of law.
LISTING...................... CNET common stock is listed ZD common stock is listed on
on NASDAQ under the symbol The New York Stock Exchange
"CNET". under the symbol "ZD".
ZDNet common stock is listed
on The New York Stock
Exchange under the symbol
"ZDZ".
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PROPOSAL TWO
APPROVAL OF THE CNET 2000 STOCK OPTION PLAN
GENERAL INFORMATION
At the May 24, 2000 annual meeting, stockholders approved an amendment to
CNET's 1997 Stock Option Plan to increase the number of available shares by
5,000,000. Due to an administrative error in the amendment, the increase was
deemed to be void and the plan remains at its previous limit, which is
insufficient to meet current requirements. In order to ensure that sufficient
stock options are available to reward and motivate existing employees and to
attract new employees and in order to have a sufficient number of shares
available after the merger to accommodate key Ziff-Davis employees, the CNET
board has approved the issuance of 5,000,000 shares pursuant to the CNET 2000
Stock Option Plan (the "2000 Plan") in lieu of the increase under the 1997 Plan.
Without stockholder approval, any grants under the 2000 Plan would not be
eligible for treatment as Incentive Stock Options ("ISOs"). In addition, without
stockholder approval, grants under the 2000 Plan would lose the benefit of the
"qualified performance based compensation" rule which allows us to obtain full
tax deductibility with respect to options granted to certain executive officers.
Therefore, the board believes that the approval of the 2000 Plan is in our best
interests and in the best interests of CNET's stockholders and is seeking
stockholder approval of the 2000 Plan.
The 2000 Plan is not subject to the Employee Retirement Income Security Act
of 1974 ("ERISA").
The total number of shares which may be issued under the 2000 Plan is
5,000,000. Under the 2000 Plan, a maximum of 800,000 shares may be granted in
options during a calendar year to any participant. The shares may consist, in
whole or in part, of unissued shares or treasury shares. Shares that are subject
to awards which terminate or lapse may be granted again under the 2000 Plan.
The principal features of the 2000 Plan are summarized below, but this
summary is only an overview and you should refer to the 2000 Plan for complete
information. We have attached the 2000 Plan as Annex B to this proxy
statement/prospectus.
ADMINISTRATION
The 2000 Plan will be administered and interpreted by a Committee of CNET's
board of directors. Currently this is CNET's Compensation Committee. The
Compensation Committee may delegate its duties and powers to any subcommittee
consisting solely of at least two individuals who are each "non-employee
directors" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, as amended, and "outside directors" within the meaning of Section 162(m)
of the Internal Revenue Code.
The Compensation Committee has the authority to interpret the 2000 Plan.
The Compensation Committee may also adopt, amend or rescind any rules and
regulations it considers to be helpful or necessary to carry out the purpose of
the 2000 Plan. Any interpretation of the 2000 Plan and any award by the
Compensation Committee is final. The Compensation Committee will require payment
if, under federal, state or local tax laws, the participant owes any taxes due
to the exercise or settlement of an award.
ELIGIBILITY
Employees, directors or consultants selected by the Compensation Committee
("participants") are eligible to participate in the 2000 Plan. The Compensation
Committee will determine the number of shares of CNET common stock that are
covered by awards granted to a participant. No award may be granted under the
2000 Plan after the tenth anniversary of the effective date of the 2000 Plan.
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115
TERMS OF OPTIONS
The Compensation Committee has the responsibility to determine the terms
and conditions of each option granted under the 2000 Plan. The options may be
non-qualified, incentive or other stock options and their terms and conditions
are set forth in the related award agreements. Stock options granted under the
2000 Plan are subject to the terms and conditions in the 2000 Plan, and to any
other terms and conditions that the Compensation Committee may determine,
including the following:
- the exercise price of each option will be determined by the Compensation
Committee. The minimum exercise price will be the fair market value of
the shares subject to the option on the date that the option is granted
- options granted under the 2000 Plan will be exercisable as determined by
the Compensation Committee. However, an option may not be exercised more
than ten years after it was granted, except in the case of CNET Europe,
S.A., in which case options may be exercised up to 15 years from the date
of grant
- an option may be exercised for all or, from time-to-time, any part of the
shares to which it relates. The exercise date of an option is the later
of the date the notice of exercise of an option is received by CNET and,
if applicable, the date payment is received by CNET pursuant to clause
(i), (ii), (iii) or (iv) in the following sentence. The purchase price
for the CNET common stock purchased upon exercise of an option is to be
paid in full to CNET at the time of exercise. Payment may be made (i) in
cash; (ii) in CNET common stock; (iii) partly in cash and partly in CNET
common stock or (iv) by instructing a stockbroker to deliver to CNET an
amount equal to the option price.
The Compensation Committee may grant ISOs which comply with Section 422 of
the Internal Revenue Code. Participants who own more than 10% of the total
voting power of all classes of stock of CNET or any affiliate may not be granted
ISOs unless the option price for such ISO is at least 110% of the ISO's fair
market value and the ISO terminates no later than the day preceding the fifth
anniversary of the day on which such ISO was granted. If a participant disposes
of shares acquired upon the exercise of an ISO within two years after the grant
of such ISO or within one year after such shares were transferred to the
participant, such participant must notify CNET of the disposition and of the
amount realized upon disposition.
OTHER STOCK-BASED AWARDS
GENERALLY. The Compensation Committee has the sole discretion to grant any
of the following awards:
- CNET common stock
- restricted shares and
- awards valued in reference to the fair market value of CNET common stock
The Compensation Committee may determine the terms and conditions of all
stock-based awards including:
- the form of the award
- the right and manner in which a participant can receive an award
- the timing of the award
- to whom an award will be granted and
- the amount of an award
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PERFORMANCE-BASED AWARDS. These stock-based awards may be granted in a
manner which is deductible by CNET under Section 162(m) of the Internal Revenue
Code. A "performance-based award" is based on the participant's reaching certain
written performance goals set by the Compensation Committee. Performance goals
are based on certain financial criteria, such as net income, stock price and
return on stockholders' equity, as described in the 2000 Plan. These criteria
may relate to CNET, its affiliates, divisions or units, or any combination
thereof, as determined by the Compensation Committee. The maximum amount of a
performance-based award will be 800,000 shares annually for any participant. The
Compensation Committee will determine whether particular performance goals have
been met and will certify the amount of the performance-based award. No
performance-based award will be paid without the certification of the
Compensation Committee. At the discretion of the Compensation Committee, the
amount paid may be less than the amount determined by the performance goal
formula. The amount of the performance-based award will be paid at a time
determined by the Compensation Committee; however, to the extent permitted by
the Compensation Committee and consistent with Section 162(m) of the Internal
Revenue Code, a participant may choose to defer payment of a performance-based
award.
ADJUSTMENTS
If, after the effective date of the 2000 Plan, there is any change in the
outstanding shares of CNET's common stock due to any share dividend or split,
reorganization, recapitalization, merger, consolidation, spin-off, combination
or exchange of shares, other corporate exchange, any distribution to
stockholders of shares other than regular cash dividends or any similar event,
the Compensation Committee, in its sole discretion and without liability to any
person, may adjust:
- the number or kind of shares or other securities issued or reserved for
issuance pursuant to the 2000 Plan or pursuant to outstanding awards
- the option price or
- any other affected terms of such awards
CHANGE IN CONTROL. If there is a "change in control" (as defined below) of
CNET, the Compensation Committee has sole discretion to take such actions, if
any, as it deems necessary or desirable with respect to any award, such as (i)
the acceleration of an award, (ii) the payment of cash in exchange for the
cancellation of an award and/or (iii) requiring the issuance of substitute
awards to substantially preserve the value of any affected award, as of the date
of the change of control.
A "change in control" of CNET generally is deemed to occur if:
- any person becomes the owner of 50% of the voting power of CNET's voting
securities
- during any twenty-four month period the majority of the membership of the
board of directors changes without approval of two-thirds of the
directors who either were directors at the beginning of the period or
whose election was previously so approved;
- the consummation of a merger or consolidation with another company where
CNET's voting securities outstanding prior to the transaction do not
represent more than 50% of voting power of CNET or the surviving entity;
or
- CNET undergoes a complete liquidation or sale or disposition of all or
substantially all of CNET's assets.
NO RIGHT TO CONTINUED EMPLOYMENT
Receiving grants of awards under the 2000 Plan does not give a participant
any right to continued employment with CNET or with any of its subsidiaries.
Also, receiving grants of awards under the 2000 Plan does not limit the right of
CNET or any of its affiliates to terminate the employment of a participant with
CNET or with any of its affiliates.
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NONTRANSFERABILITY OF AWARDS
Unless otherwise determined by the Compensation Committee, awards may be
transferred only by the laws of descent and distribution. During a participant's
lifetime, the participant is the only person who may exercise an award. In
certain circumstances, this section may be waived by the Compensation Committee.
AMENDMENTS
The CNET board may amend, alter or discontinue the 2000 Plan from
time-to-time as it sees fit, except that:
- shareholder approval is required if such action increases the maximum
number of shares which may be issued under the 2000 Plan
- without the consent of a participant, no amendment will be allowed if it
diminishes rights of a participant under an award and
- the Compensation Committee may amend the 2000 Plan in any way it sees fit
in order for the awards to comply with the Internal Revenue Code or other
applicable law
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
rules with respect to the 2000 Plan and the awards granted thereunder. This
summary is not intended to be a complete description of all possible tax
consequences of the 2000 Plan and the awards, and participants will be urged to
consult their own tax advisor concerning the federal, state, local and other tax
implications of the 2000 Plan and of the awards granted thereunder.
INCENTIVE STOCK OPTIONS ("ISOS"). Under present law, participants will not
realize taxable income upon either the grant or the exercise of an ISO, and CNET
will not receive an income tax deduction at either time, if participants do not
sell the Shares acquired by exercising an ISO within either:
- two years after the date of grant of an ISO or
- one year after the date of exercise of an ISO
a subsequent sale will be taxed as mid-term or long-term capital gain or loss.
If, within either of the above periods, a participant disposes of the shares
acquired by exercising an ISO, a participant will, generally, realize as
ordinary income an amount equal to the lesser of:
- the gain realized on such disposition or
- the excess of the fair market value of the shares on the date of exercise
over the exercise price
In this instance, CNET generally would be entitled to an income tax deduction
equal to the amount recognized as ordinary income, subject to compliance with
Section 162(m) of the Internal Revenue Code. Any gain in excess of such amount
that a participant realizes as ordinary income will be taxed as a short-term or
long-term capital gain (depending on the holding period).
NONQUALIFIED STOCK OPTIONS ("NQSOS"). Under present law, a participant will
not realize taxable income upon the grant of a NQSO and CNET will not receive an
income tax deduction at such time. Upon exercise of a NQSO, a participant will
generally realize ordinary income in an amount equal to the excess of the fair
market value of the shares on the date of exercise over the exercise price. Upon
sale of the shares, a participant will recognize short-term or long-term capital
gain depending upon how long the participant held the shares. The Company is
generally allowed an income tax deduction equal to the amount recognized as
ordinary income, subject, where applicable, to compliance with Section 162(m) of
the Internal Revenue Code.
105
118
OTHER AWARDS. Amounts received upon the grant of other awards are
ordinarily taxed at ordinary rates when received. However, if the other awards
consist of property subject to a substantial risk of forfeiture the amounts
generally will not be taxed until the substantial risk of forfeiture lapses or
until an election is made under Section 83(b) of the Internal Revenue Code.
Under Section 162(m) of the Internal Revenue Code, CNET is generally allowed an
income tax deduction equal to the amount recognized as ordinary income.
COMPLIANCE WITH SECTION 162(M). The 2000 Plan should allow certain ISOs,
NQSOs and performance-based awards granted under the 2000 Plan to be treated as
qualified performance-based compensation under Section 162(m) of the Internal
Revenue Code. However, the Compensation Committee may, from time-to-time, award
compensation that is not deductible under Section 162(m) of the Internal Revenue
Code.
THE SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES UPON THE PARTICIPANTS IN
THE CNET 2000 STOCK OPTION PLAN CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
DOES NOT PURPORT TO BE COMPLETE.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
In considering whether to vote for approval of the 2000 Plan, stockholders
should be aware that each of our directors and executive officers will be
eligible for option grants under the 2000 Plan. If the proposal is not approved,
options granted under the 2000 Plan will not be eligible for ISO treatment,
which will have negative tax consequences to the recipients of such options.
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119
PRINCIPAL STOCKHOLDERS OF CNET NETWORKS, INC.
The following table shows the number of shares of common stock beneficially
owned as of August 8, 2000 by:
- each person who we know beneficially owns more than 5% of the common
stock
- each director
- each executive officer named in the Summary Compensation Table on page
110
- the directors and executive officers as a group
Unless otherwise indicated below, the address for each listed director and
executive officer is CNET Networks, Inc., 150 Chestnut Street, San Francisco,
California 94111.
AMOUNT AND
NATURE-OF PERCENT OF
BENEFICIAL OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) SHARES
- ------------------------------------ ------------- -----------
Halsey M. Minor........................................... 9,575,46(2) 11.3%
Shelby W. Bonnie.......................................... 10,123,284(3) 11.9
Eric Robison.............................................. 15,472(4) *
John C. "Bud" Colligan.................................... 115,416(5) *
Mitchell Kertzman......................................... 24,216(6) *
Richard J. Marino......................................... 112,499(7) *
Douglas N. Woodrum........................................ 395,200(8) *
Gilder Gagnon Howe & Co. LLC.............................. 8,216,451(9) 9.7
All executive officers and directors as a group (7
persons)................................................ 20,361,418(10) 24.0
- ---------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Percentages for each person are based
on the 84,676,456 shares outstanding at August 8, 2000, plus the total
number of outstanding options or warrants held by such person that are
exercisable within 60 days of such date. Shares issuable upon exercise of
outstanding options and warrants, however, are not deemed outstanding for
purposes of computing the percentage ownership of any other person. Except
as indicated in the footnotes to this table and pursuant to applicable
community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite
such stockholder's name.
(2) Also includes 996,664 shares subject to options that are exercisable within
60 days. Excludes 337,952 shares held in trust for the benefit of Mr.
Minor's descendants as to which he disclaims beneficial ownership.
(3) Includes 29,740 shares held by a trust of which Mr. Bonnie is a
beneficiary, and 25,000 shares subject to options that are exercisable
within 60 days.
(4) Consists of shares subject to options that are exercisable within 60 days.
(5) Consists of shares subject to options that are exercisable within 60 days.
(6) Consists of shares subject to options that are exercisable within 60 days.
(7) Consists of shares subject to options that are exercisable within 60 days.
(8) Includes 328,440 shares subject to options that are exercisable within 60
days.
(9) The address for Gilder Gagnon Howe & Co. LLC is 1775 Broadway, 26th Floor,
New York, New York 10019.
(10) Includes a total of 1,505,208 shares subject to options that are
exercisable within 60 days.
107
120
PRINCIPAL STOCKHOLDERS OF ZIFF-DAVIS INC.
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of ZD common stock as of August 8, 2000 by each person or
entity which beneficially owns more than five percent of the outstanding shares
of the ZD common stock of Ziff-Davis. As of August 8, 2000 (the latest practical
date on which the information was available prior to the date of this proxy
statement/prospectus) no person or entity beneficially owned more than five
percent of the outstanding shares of ZDNet common stock.
NUMBER OF SHARES
OF ZD COMMON PERCENT OF
BENEFICIAL OWNER STOCK CLASS(1)
- ---------------- ---------------- ----------
Softbank America Inc.(2).................................... 71,489,737 67.0%
Softbank Holdings Inc.(3)................................... 71,490,382 67.0%
Softbank Corp.(4)........................................... 71,490,382 67.0%
Masayoshi Son(5)............................................ 71,490,382 67.0%
- ---------------
(1) The percentage of ownership is based on 106,690,876 shares of ZD stock
outstanding as of August 8, 2000.
(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
37.86% of Softbank Corp. and is its President). Mr. Son's address is c/o
Softbank Corp., 24-1 Nihonbashi-Hakozakicho, Chuo-Ku, Tokyo 103, Japan.
As a result of its beneficial ownership of common stock, Softbank is able
to significantly influence matters affecting Ziff-Davis. Softbank is able to
elect all members of the board of directors and to control those actions that
require the approval of holders of a majority of the voting stock of Ziff-Davis,
including amendments to Ziff-Davis' charter and approval of any business
combinations, including the merger.
108
121
MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership (1) of ZD common stock and ZDNet common stock as of August
8, 2000 and (2) of the common stock of SOFTBANK Corp. as of August 8, 2000, in
each case by (x) each person who was an executive officer of Ziff-Davis as of
December 31, 1999, (y) each director of Ziff-Davis and (z) all such executive
officers and directors of Ziff-Davis as a group.
NUMBER OF
NUMBER OF NUMBER OF SHARES OF
SHARES OF ZD SHARES OF COMMON STOCK
COMMON PERCENT OF ZDNET COMMON PERCENT OF OF SOFTBANK
BENEFICIAL OWNER STOCK CLASS(1) STOCK CLASS(1) CORP.(2) PERCENT OF CLASS (1)
- ---------------- ------------ ---------- ------------ ---------- ------------ --------------------
Eric Hippeau(3)(10)...... 288,101 *% 267,500 1.57 183,222 *%
Jason E.
Chudnofsky(3)(10)...... 150,125 * 44,500 * 43,043 *
Timothy C.
O'Brien(3)(10)......... 32,166 * 71,750 * 34,464 *
Michael S.
Perlis(4)(10).......... 0 * 15,000 * 0 *
Terri S.
Holbrooke(4)(10)....... 1,000 * 500 * 3,422 *
Daniel L.
Rosensweig(3).......... 100,600 * 765,625 4.51 0 *
Masayoshi Son(5)......... 71,493,382 67.01 0 * 125,126,244 37.80
Ronald D. Fisher(6)...... 105,000 * 17,575 * 631,038 *
Jonathan D. Lazarus(7)... 43,921 * 19,608 * 0 *
Jerry Yang(8)............ 23,221 * 12,108 * 0 *
James J. Spanfeller,
Jr.(9)(10)............. 840 * 6,750 * 0 *
Jack Dolce(9)(10)........ 0 * 20,000 * 0 *
Officers and directors as
a group................ 72,238,356 67.07 1,240,916 7.31 126,021,433 38.07
- ---------------
* Less than one percent.
(1) The percentage of ownership is based on (a) 106,690,876 shares of ZD common
stock outstanding as of August 8, 2000; (b) 16,977,063 shares of ZDNet
common stock outstanding as of August 8, 2000 and (c) 331,035,292 shares of
common stock of Softbank Corp. outstanding as of July 31, 2000. Shares of
common stock subject to options which are currently exercisable or
exercisable within 60 days of the date referenced above are deemed
outstanding for computing the percentages of the person holding such
options, but are not deemed outstanding for computing the percentages of
any other person. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and includes voting and
investment power with respect to shares. Unless otherwise indicated, the
persons named in the table have sole voting and sole investment control
with respect to all shares beneficially owned.
(2) Includes options granted in 1996 and 1997 to purchase common stock of
Softbank Corp. under the Softbank Group Executive Stock Option Plans.
Reflects a 3 for 1 stock split in 2000.
(3) Both a director and an executive officer.
(4) An executive officer.
(5) Includes shares owned by Softbank America Inc. and Softbank Kingston Inc.,
all of which may be deemed to be beneficially owned by Mr. Son.
(6) Includes shares owned by 1995 Fisher Family Trust.
(7) Includes shares owned by Lazarus Family Investments LLC, all of which may
be deemed to be beneficially owned by Jonathan D. Lazarus, a member of such
LLC.
(8) Including shares owned by Red Husky Foundation.
(9) An officer of Ziff-Davis.
(10) No longer employed by Ziff-Davis Inc.
109
122
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the compensation
paid by CNET to its chief executive officer and to each other executive officer
of CNET who received at least $100,000 in salary and bonus during 1999.
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION(1) SECURITIES
FISCAL ------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS OPTIONS (#) COMPENSATION
- ---------------------------- ------ -------- -------- ------------ ------------
Halsey M. Minor........................ 1999 $225,000 $ 0 400,000 0
Chairman of the Board 1998 194,000 0 1,200,000 0
1997 175,000 0 0 0
Shelby W. Bonnie....................... 1999 160,000 0 100,000 0
Chief Executive Officer 1998 160,000 0 0 0
1997 160,000 0 0 0
Richard J. Marino...................... 1999 193,868 246,538 450,000 0
President and Chief Operating
Officer(2) 1998 -- -- -- --
1997 -- -- -- --
Douglas N. Woodrum..................... 1999 250,000 75,000 60,000 0
Executive Vice President and 1998 250,000 0 0 --
Chief Financial Officer(3) 1997 -- -- 740,000 --
- ---------------
(1) The aggregate value of perquisites and other personal benefits does not
exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for the Named Executive officer.
(2) Mr. Marino joined CNET in May 1999.
(3) Mr. Woodrum joined CNET in December 1997.
During 1999, options to purchase an aggregate of 5,061,920 shares of common
stock at fair market value on the date of grant were granted under our stock
options plans. The following table provides information regarding stock options
granted during 1999 to persons listed in the Summary Compensation Table.
OPTIONS GRANTED IN 1999
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED ANNUAL
------------------------------------------------------------- RATES OF STOCK PRICE
NUMBER OF % OF TOTAL APPRECIATION FOR OPTION
SECURITIES OPTIONS GRANTED EXERCISE TERM(1)
UNDERLYING OPTIONS TO EMPLOYEES PRICE EXPIRATION -------------------------
NAME GRANTED (#) DURING 1999 ($/SHARE) DATE 5% 5%
- ---- ------------------ --------------- --------- ---------- ----------- -----------
Halsey M. Minor............. 400,000 8.0% $58.6875 4/28/09 $14,763,301 $37,413,104
Shelby W. Bonnie............ 100,000 2.0% 58.6875 4/28/09 3,690,825 9,353,276
Richard J. Marino........... 448,006 9.0% 48.75 5/25/09 13,735,243 34,807,802
1,994 * 50.125 6/01/09 62,858 159,293
Douglas N. Woodrum.......... 60,000 1.2% 58.6875 4/28/09 2,214,495 5,611,966
- ---------------
* Less than 1%.
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are based on the closing price of $56.75 on December 31, 1999 and are
mandated by the rules of the Securities and Exchange Commission. The actual
value, if any, that an executive officer may realize will depend on the
excess of the stock price over the exercise price on the date the option is
exercised. There is no assurance the value realized by an executive officer
will be at or near the assumed 5% or 10% levels.
110
123
The following table sets forth information regarding the exercise of stock
options by persons named in the Summary Compensation Table and year-end option
values.
OPTION EXERCISES
AND YEAR END VALUE TABLE
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY
SHARES AT YEAR-END OPTIONS AT YEAR-END
ACQUIRED ON VALUE ----------------------------- ---------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ------------ -------------- ----------- -------------
Halsey M. Minor....... 0 $ 0 733,332 866,668 $35,704,102 $22,720,898
Shelby W. Bonnie...... -- -- 0 100,000 0 0
Richard J. Marino..... -- -- 0 450,000 0 3,597,258
Douglas N. Woodrum.... 38,280 $1,480,917 331,720 430,000 17,104,312 19,078,125
- ---------------
(1) Value based on $56.75 closing price per share of common stock on December
31, 1999, as required by the rules of the Securities and Exchange
Commission.
DIRECTOR COMPENSATION
We do not pay cash compensation to our directors, but we do reimburse
directors for expenses incurred in attending board and committee meetings. Under
our 1994 plan, each non- employee director received an automatic grant of
nonqualified stock options on June 5, 1996 to purchase 40,000 shares of common
stock at an exercise price of $7.00 per share. Non-employee directors elected to
the board in the future will automatically receive, upon such election,
nonqualified stock options to purchase 40,000 shares of common stock at an
exercise price equal to the fair market value of the common stock on the date of
grant. In addition, each non-employee director serving on June 30 of each year
(beginning on June 30, 1997) automatically receives nonqualified stock options
to purchase 10,000 shares of common stock. All of the options granted pursuant
to these provisions are immediately exercisable on the date of grant, but the
common stock issued upon exercise is subject to repurchase by us at original
cost. This repurchase right lapses, and the optionee's rights with respect to
each grant vest, in a series of 48 equal monthly installments following the date
of grant, for so long as the optionee remains a director of CNET. In addition,
vesting will automatically accelerate upon any sale of CNET through a merger,
recapitalization, reorganization, asset sale, tender offer or similar event. The
1997 plan contains identical terms and provisions with respect to automatic
grants of nonqualified stock options to non-employee directors; provided that,
to the extent a non-employee director receives option grants under the 1994
plan, such director will not receive a duplicate option grant under the 1997
plan.
EMPLOYMENT AGREEMENTS
We entered into an employment agreement with Mr. Woodrum in December 1997.
The term of the agreement expires on December 1, 2000 unless Mr. Woodrum's
employment is terminated earlier for cause. The agreement provides for an annual
base salary of $250,000 with a guaranteed bonus of $75,000 the first year of
employment and bonuses in the discretion of the board thereafter.
We entered into an employment agreement with Mr. Marino in April 1999. The
term of the agreement expires on May 24, 2003 unless Mr. Marino's employment is
terminated earlier for cause. The agreement provides for an annual base salary
of $350,000 with a guaranteed bonus of $150,000 the first year of employment and
bonuses in the discretion of the board thereafter.
INCENTIVE PLAN
The board of directors adopted our Incentive Plan on April 15, 1998.
Pursuant to the terms of the plan, certain of our key employees are eligible to
earn cash bonuses if we achieve certain financial targets.
111
124
In 1999, we paid an aggregate of approximately $1.8 million to employees with
respect to our financial performance in 1998 under the Incentive Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation decisions concerning our executive officers for 1999 were made
by the compensation committee, subject to the terms of any pre-existing
employment agreements between us and such executive officers. Mr. Kertzman and
Mr. Colligan served as members of the compensation committee during 1999. None
of the compensation committee members is or has been a company officer or
employee. None of our executive officers currently serves on the compensation
committee or any similar committee of another public company.
COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
The compensation committee is responsible for recommending to the full
board salary amounts for our executive officers and making the final
determination regarding bonus arrangements for such persons. The compensation
committee is also responsible for making the final determination regarding
awards of stock options to such persons.
COMPENSATION PHILOSOPHY. Compensation to executive officers is designed to
attract and retain highly capable executives, to motivate the performance of
executives in support of the achievement of our strategic financial and
operating performance objectives and to reward performance that meets this
standard. We are engaged in a highly competitive business and must attract and
retain qualified executives in order to be successful. In 1999, executive
compensation was comprised of the following elements:
- Base Salary and Bonuses. To the extent not determined pursuant to
pre-existing employment agreements, the base salary for our executive
officers was determined after review of publicly available information
concerning the base salaries of executives with similar responsibilities
in companies engaged in businesses similar to us, the responsibilities of
each executive officer and the subjective evaluation of each officer's
contribution and potential contribution to us. The compensation committee
also has the authority to grant year-end cash bonuses to motivate the
executive officers to achieve annual financial and other goals.
- Stock Option Plans. Our stock option plans form the basis of our
long-term incentive plan for executive officers and other key employees.
The compensation committee believes that a significant portion of
executive compensation should be dependent on value created for the
stockholders. In selecting recipients for option grants and in
determining the size of such grants, the compensation committee considers
various factors such as the performance of CNET and the contributions of
the individual recipient to CNET.
- Benefits. Executive officers also receive benefits typically offered to
executives by companies engaged in businesses similar to ours, as well as
various benefits generally available to our employees (such as health
insurance). The compensation committee intends to design our compensation
programs so that compensation paid to executive officers will qualify for
deductibility under applicable provisions of the Internal Revenue Code,
including Section 162(m). However, we may pay compensation which is not
deductible in limited circumstances when prudent management so requires.
- 1999 Compensation of Chief Executive Officer. Mr. Minor served as our
Chief Executive Officer during 1999. Mr. Minor's base salary for 1999 was
$225,000. In addition, in 1999 Mr. Minor received option grants totaling
400,000 shares. The board ratified decisions made by the committee with
respect to Mr. Minor's compensation. Mr. Minor's overall compensation
reflects a higher degree of responsibility with respect to the strategic
decision making authority and higher level of responsibility with respect
to our strategic direction and our financial and operational results. The
compensation committee believes that Mr. Minor's salary was substantially
below competitive salaries paid to executives with similar qualifications
and responsibilities.
112
125
SUBMISSION OF STOCKHOLDER PROPOSALS
Under CNET's certificate of incorporation and bylaws and under applicable
law, CNET stockholders may present proper proposals for inclusion in CNET's
proxy statement and for consideration at the next annual meeting of its
stockholders by submitting such proposals to CNET in a timely manner. In order
to be so included for the 2001 annual meeting, stockholder proposals must be
received by CNET by January 24, 2001 and must otherwise comply with the
requirements of CNET's certificate of incorporation and of applicable law.
Due to the contemplated completion of the merger, Ziff-Davis does not
currently expect to hold a 2000 annual meeting of stockholders. If the merger is
not completed and an annual meeting is held, stockholder proposals for inclusion
in proxy materials for the meeting must have been submitted to the Secretary of
Ziff-Davis in writing. Under Ziff-Davis' certificate of incorporation and bylaws
and under applicable law, Ziff-Davis stockholders may present proper proposals
for inclusion in Ziff-Davis's proxy statement and for consideration at the next
annual meeting of its stockholders by submitting such proposals to Ziff-Davis in
a timely manner and in compliance with the requirements of Ziff-Davis'
certificate of incorporation and of applicable law.
EXPERTS
The consolidated financial statements of CNET incorporated in this proxy
statement/prospectus by reference to the Annual Report on Form 10-K, filed on
March 30, 2000, for the year ended December 31, 1999, have been so incorporated
in reliance on the report of KPMG LLP, independent certified public accountants,
given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Ziff-Davis Inc. and the combined
financial statements of ZDNet (a division of Ziff-Davis Inc.) incorporated in
this proxy statement/prospectus by reference to the Annual Report on Form 10-K,
filed on April 13, 2000, for the year ended December 31, 1999, have been so
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
The validity of the shares of CNET common stock to be issued in the merger
and that are covered by this proxy statement/prospectus will be passed upon for
CNET by Simpson Thacher & Bartlett. In addition, Simpson Thacher & Bartlett will
pass upon certain United States federal tax consequences of the merger to CNET
stockholders.
Sullivan & Cromwell will pass upon certain United States federal tax
consequences of the merger to Ziff-Davis stockholders.
113
126
ANNEX A
MERGER AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 19, 2000
AMONG
ZIFF-DAVIS INC.,
CNET NETWORKS, INC.
AND
TD MERGER SUB, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
127
TABLE OF CONTENTS
PAGE
----
ARTICLE I
THE MERGER; CERTAIN RELATED MATTERS................................. A-2
1.1 The Merger.................................................. A-2
1.2 Closing..................................................... A-2
1.3 Effective Time.............................................. A-2
1.4 Effects of the Merger....................................... A-3
1.5 Charter and Bylaws.......................................... A-3
1.6 Officers and Directors...................................... A-3
1.7 Effect on Common Stock...................................... A-3
1.8 Treatment of Stock Options and Other Equity-Based Awards.... A-4
1.9 Certain Adjustments......................................... A-4
ARTICLE II
EXCHANGE OF CERTIFICATES............................................ A-4
2.1 Exchange Fund............................................... A-4
2.2 Exchange Procedures......................................... A-5
2.3 Distributions with Respect to Unexchanged Shares............ A-5
2.4 No Further Ownership Rights in Z-D Common Stock............. A-6
2.5 No Fractional Shares of CNET Common Stock................... A-6
2.6 Termination of Exchange Fund................................ A-6
2.7 No Liability................................................ A-6
2.8 Investment of the Exchange Fund............................. A-6
2.9 Lost Certificates........................................... A-7
2.10 Withholding Rights.......................................... A-7
2.11 Further Assurances.......................................... A-7
2.12 Stock Transfer Books........................................ A-7
ARTICLE III
REPRESENTATIONS AND WARRANTIES...................................... A-7
3.1 Representations and Warranties of CNET and Merger Sub....... A-7
3.2 Representations and Warranties of Z-D....................... A-13
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS........................... A-22
4.1 Covenants of CNET........................................... A-22
4.2 Covenants of Z-D............................................ A-24
4.3 Governmental Filings........................................ A-27
ARTICLE V
ADDITIONAL AGREEMENTS............................................... A-27
5.1 Preparation of Proxy Statement; Stockholders Meetings....... A-27
5.2 Access to Information....................................... A-29
5.3 Reasonable Best Efforts..................................... A-29
5.4 Acquisition Proposals....................................... A-31
5.5 Fees and Expenses........................................... A-32
5.6 Directors' and Officers' Indemnification and Insurance...... A-32
5.7 Public Announcements........................................ A-33
5.8 Accountant's Letters........................................ A-33
5.9 Board of Directors.......................................... A-33
5.10 Listing of Shares of CNET Common Stock...................... A-33
5.11 Affiliates.................................................. A-33
5.12 The Spin-Off and Cash Dividend.............................. A-34
A-i
128
PAGE
----
ARTICLE VI
CONDITIONS PRECEDENT................................................ A-34
Conditions to Each Party's Obligation to Effect the
6.1 Merger...................................................... A-34
6.2 Additional Conditions to Obligations of CNET................ A-35
6.3 Additional Conditions to Obligations of Z-D................. A-36
ARTICLE VII
TERMINATION AND AMENDMENT........................................... A-37
7.1 Termination................................................. A-37
7.2 Effect of Termination....................................... A-38
7.3 Amendment................................................... A-39
7.4 Extension; Waiver........................................... A-39
ARTICLE VIII
GENERAL PROVISIONS.................................................. A-39
Non-Survival of Representations, Warranties and
8.1 Agreements.................................................. A-39
8.2 Notices..................................................... A-40
8.3 Interpretation.............................................. A-40
8.4 Counterparts................................................ A-41
8.5 Entire Agreement; No Third Party Beneficiaries.............. A-41
8.6 Governing Law............................................... A-41
8.7 Severability................................................ A-41
8.8 Assignment.................................................. A-41
8.9 Submission to Jurisdiction; Waivers......................... A-41
8.10 Enforcement................................................. A-42
8.11 Further Assurances.......................................... A-42
8.12 Definitions................................................. A-42
A-ii
129
LIST OF EXHIBITS
EXHIBIT TITLE
- ------- -----
Exhibit A -- Form of Z-D Stockholder Voting Agreement
Exhibit B -- Form of CNET Stockholder Voting Agreement
Exhibit C -- Form of Stockholder Agreement
Exhibit D -- Form of Certificate of Incorporation of Surviving
Corporation
Exhibit 6.2(c)(1) -- Form of Representations Letter of CNET
Exhibit 6.2(c)(2) -- Form of Representations Letter of Z-D
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AGREEMENT AND PLAN OF MERGER, dated as of July 19, 2000 (this "Agreement"),
among Ziff-Davis Inc., a Delaware corporation ("Z-D"), CNET Networks, Inc., a
Delaware corporation ("CNET"), and TD MERGER SUB, INC., a Delaware corporation
("Merger Sub").
RECITALS
Merger Sub is a wholly owned direct subsidiary of CNET that was organized
by CNET solely as a vehicle to effect the Merger (as defined below) and has
engaged in no other business activities and has conducted its business
activities and operations only as contemplated hereby;
The Boards of Directors of Z-D, CNET and Merger Sub deem it advisable and
in the best interests of each corporation and its respective stockholders that
Merger Sub merge into Z-D, upon the terms and subject to the conditions of this
Agreement;
Approval of the Merger and this Agreement requires a vote for adoption of
this Agreement by the holders of shares of Ziff-Davis Inc. -- Z-D Common Stock,
par value $0.01 per share, of Z-D (the "Z-D Common Stock") and Ziff-Davis
Inc. -- Z-D Net Common Stock, par value $0.01 per share, of Z-D (the "Z-D Net
Common Stock"), entitled to cast a majority of the votes entitled to be cast by
the holders of all outstanding Z-D Common Stock and Z-D Net Common Stock, voting
together as a single class, at a meeting at which a quorum is present, in the
manner specified in the amended and restated certificate of incorporation of Z-D
and otherwise in accordance with the law of the State of Delaware (the "Z-D
Stockholder Approval"), and (y) the approval of the issuance of Common Stock,
par value $0.0001 per share, of CNET (the "CNET Common Stock") pursuant to this
Agreement, by the holders of a majority of the shares of CNET Common Stock
entitled to vote thereon represented, in person or by proxy, at a meeting at
which a quorum is present, in accordance with the rules of the NASDAQ Stock
Market and the law of the State of Delaware (the "CNET Stockholder Approval");
In furtherance thereof, the Board of Directors of each of Z-D, CNET and
Merger Sub have approved the Merger, upon the terms and subject to the
conditions set forth in this Agreement, pursuant to which each share of Z-D
Common Stock and Z-D Net Common Stock will be converted into the right to
receive the Merger Consideration (as defined below);
Key3Media Group, Inc., a subsidiary of Z-D ("Spin Co."), has filed, as part
of a registration statement on Form S-1 (as amended from time to time, the
"Spin-Off S-1"), a preliminary prospectus (such preliminary prospectus, as
amended through the date hereof, the "Preliminary Spin-Off Prospectus")
describing Z-D's current plans to recapitalize and spin off its trade show and
conference business (the "Spin-Off") and to pay a cash dividend to the holders
of Z-D Common Stock (the "Cash Dividend");
As a condition and inducement to CNET's willingness to enter into this
Agreement, SOFTBANK America Inc., a Delaware corporation ("Z-D Majority
Stockholder"), is entering into an agreement dated as of the date hereof
substantially in the form of Exhibit A (the "Z-D Stockholder Voting Agreement")
pursuant to which Z-D Majority Stockholder has agreed, among other things, to
vote all shares of Z-D Common Stock owned or acquired by it in favor of the
adoption of this Agreement and the transactions contemplated hereby;
As a condition and inducement of Z-D's willingness to enter into this
Agreement, certain stockholders of CNET are entering into an agreement dated as
of the date hereof substantially in the form of Exhibit B (the "CNET Stockholder
Voting Agreement" and collectively with the Z-D Stockholder Voting Agreement,
the "Voting Agreements") pursuant to which such stockholders have agreed, among
other things, to vote all shares of CNET Common Stock owned or acquired by them
in favor of approval of the issuance of CNET Common Stock pursuant to this
Agreement;
As a further condition and inducement to CNET and Z-D's willingness to
enter into this Agreement, Z-D Majority Stockholder and CNET desire to enter
into a stockholder agreement substantially in the form of Exhibit C (the
"Stockholder Agreement"); and
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For federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby and thereby, the parties
hereto agree as follows:
ARTICLE I
THE MERGER; CERTAIN RELATED MATTERS
1.1 THE MERGER.
Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the Delaware General Corporation Law (the "DGCL"), at the
Effective Time:
(a) The Surviving Corporation. Upon the terms and subject to the conditions
of this Agreement, Merger Sub shall merge with and into Z-D (the "Merger"), the
separate existence of Merger Sub shall cease and Z-D (sometimes hereinafter
referred to as the "Surviving Corporation") shall survive the Merger. The name
of the Surviving Corporation shall be "CNET Networks, Inc.". The Surviving
Corporation shall continue to be governed by the laws of the State of Delaware,
and the separate corporate existence of the Surviving Corporation with all its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger.
1.2 CLOSING.
Upon the terms and subject to the conditions set forth in Article VI and
the termination rights set forth in Article VII, the closing of the Merger (the
"Closing") will take place on the second Business Day after the satisfaction or
waiver (subject to applicable law) of the conditions (excluding conditions that,
by their nature, cannot be satisfied until the Closing Date (as defined below))
set forth in Article VI, unless this Agreement has been theretofore terminated
pursuant to its terms or unless another time or date is agreed to in writing by
the parties hereto (the actual time and date of the Closing being referred to
herein as the "Closing Date"). The Closing shall be held at the offices of
Simpson Thacher & Bartlett, 3373 Hillview Avenue, Palo Alto, California 94304,
unless another place is agreed to in writing by the parties hereto.
1.3 EFFECTIVE TIME.
As soon as practicable following the satisfaction or waiver (subject to
applicable law) of the conditions set forth in Article VI, at the Closing the
parties shall file a certificate of merger (the "Certificate of Merger") with
the Secretary of State of the State of Delaware in such form as is required by
and executed and acknowledged in accordance with the relevant provisions of the
DGCL and make all other filings or recordings required under the DGCL. The
Merger shall become effective at (i) the date and time the Certificate of Merger
is duly filed with the Secretary of State of the State of Delaware or (ii) such
subsequent time as CNET, Merger Sub and Z-D shall agree and as shall be
specified in the Certificate of Merger (such time as the Merger becomes
effective being the "Effective Time").
1.4 EFFECTS OF THE MERGER.
At and after the Effective Time, the Merger will have the effects set forth
in the applicable provisions of the DGCL.
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1.5 CHARTER AND BYLAWS.
(a) Certificate of Incorporation. At the Effective Time, and without any
further action on the part of CNET or Merger Sub, the certificate of
incorporation of Z-D as in effect at the Effective Time shall be amended and
restated to read in its entirety as set forth in Exhibit D, which shall be the
certificate of incorporation of the Surviving Corporation.
(b) Bylaws. At the Effective Time, and without any further action on the
part of CNET or Merger Sub, the bylaws of Merger Sub as in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law.
1.6 OFFICERS AND DIRECTORS.
The officers of Z-D immediately prior to the Effective Time shall be the
officers of the Surviving Corporation, until the earlier of their death,
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be. The directors of Merger Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation, until
the earlier of their death, resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
1.7 EFFECT ON COMMON STOCK.
As of the Effective Time, by virtue of the Merger and without any action on
the part of the holder of any shares of Z-D Common Stock, Z-D Net Common Stock
or of any shares of Merger Sub Common Stock (as defined below):
(a) Common Stock of Merger Sub. Each issued and outstanding share of common
stock, par value $0.01 per share, of Merger Sub (the "Merger Sub Common Stock")
shall, by virtue of the Merger, be converted into one share of common stock, par
value $0.01 per share, of the Surviving Corporation.
(b) Cancellation of Merger Sub-Owned Z-D Common Stock and Z-D Net Common
Stock. Each share of Z-D Common Stock and Z-D Net Common Stock that is owned by
CNET or Merger Sub shall automatically be canceled and retired and shall cease
to exist, and no cash, CNET Common Stock or other consideration shall be
delivered or deliverable in exchange therefore.
(c) Conversion of Z-D Common Stock and Z-D Net Common Stock. Subject to
Section 2.5, (i) each issued and outstanding share of Z-D Common Stock (other
than shares canceled pursuant to Section 1.7(b)), shall be converted into the
right to receive a fraction equal to the Z-D Exchange Ratio of a share of CNET
Common Stock and (ii) each issued and outstanding share of Z-D Net Common Stock
(other than shares canceled pursuant to Section 1.7(b)) shall be converted into
the right to receive a fraction equal to the Z-D Net Exchange Ratio of a share
of CNET Common Stock. The "Z-D Exchange Ratio" means 0.3397 and the "Z-D Net
Exchange Ratio" means 0.5932. The amount of CNET Common Stock into which each
such share of Z-D Common Stock and Z-D Net Common Stock, as the case may be, is
converted is referred to herein as the "Merger Consideration".
(d) Cancellation and Retirement of Z-D Common Stock and Z-D Net Common
Stock. As a result of the Merger and without any action on the part of the
holders thereof, at the Effective Time, all shares of Z-D Common Stock and Z-D
Net Common Stock shall cease to be outstanding and shall be canceled and retired
and shall cease to exist, and each holder of a certificate which immediately
prior to the Effective Time represented any such shares of Z-D Common Stock or
Z-D Net Common Stock (such certificate or other evidence of ownership, a
"Certificate") shall thereafter cease to have any rights with respect to such
shares of Z-D Common Stock or Z-D Net Common Stock, except the right (subject to
Section 1.9) to receive the applicable Merger Consideration (and cash in lieu of
fractional shares of CNET Common Stock) to be issued or paid in consideration
therefore upon surrender of such Certificate in accordance with Article II.
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(e) Cancellation of Treasury Stock. Subject to Section 2.5, each share of
Z-D Common Stock and Z-D Net Common Stock issued and owned or held by Z-D or any
Subsidiary of Z-D at the Effective Time shall, by virtue of the Merger, cease to
be outstanding and shall be canceled and retired, and no consideration shall be
delivered in exchange therefor.
1.8 TREATMENT OF STOCK OPTIONS AND OTHER EQUITY-BASED AWARDS.
Each outstanding option to purchase Z-D Common Stock (a "Z-D Common Stock
Option") or Z-D Net Common Stock (a "Z-D Net Stock Option") granted prior to the
Effective Time and which remains outstanding immediately prior to the Effective
Time shall cease to represent a right to acquire shares of Z-D Common Stock or
Z-D Net Common Stock, as the case may be, and shall be converted (each, as so
converted, a "Z-D Converted Option"), at the Effective Time, into an option to
acquire, on the same terms and conditions as were applicable under the Z-D
Common Stock Option or Z-D Net Stock Option, as the case may be (but taking into
account any change thereto, including the acceleration thereof provided for in
the Z-D Stock Option Plans (as defined in Section 3.2(b)) or in any award
agreement by reason of this Agreement or the transactions contemplated hereby)
that number of shares of CNET Common Stock determined by (i) in the case of each
Z-D Common Stock Option, multiplying the number of shares of Z-D Common Stock
subject to such Z-D Common Stock Option by the Z-D Exchange Ratio, rounded, if
necessary, to the nearest whole share of CNET Common Stock, at a price per share
(rounded to the nearest one-hundredth of a cent) equal to the per share exercise
price specified in such Z-D Common Stock Option divided by the Z-D Exchange
Ratio and (ii) in the case of each Z-D Net Stock Option, multiplying the number
of shares of Z-D Net Common Stock subject to such Z-D Net Stock Option by the
Z-D Net Exchange Ratio, rounded, if necessary, to the nearest whole share of
CNET Common Stock, at a price per share (rounded to the nearest one-hundredth of
a cent) equal to the per share exercise price specified in such Z-D Net Stock
Option divided by the Z-D Net Exchange Ratio; provided, however, that in the
case of any Z-D Common Stock Option or Z-D Net Stock Option to which Section 421
of the Code applies by reason of its qualification under Section 422 of the
Code, the option price, the number of shares subject to such option and the
terms and conditions of exercise of such option shall be determined in a manner
consistent with the requirements of Section 424(a) of the Code.
1.9 CERTAIN ADJUSTMENTS.
If, between the date of this Agreement and the Effective Time (and as
permitted by Sections 4.1 and 4.2), the outstanding shares of CNET Common Stock
or the outstanding shares of Z-D Common Stock or Z-D Net Common Stock shall have
been increased, decreased, changed into or exchanged for a different number of
shares or different class, in each case, by reason of any reclassification,
recapitalization, stock split, reverse stock split, split-up, combination or
exchange of shares or a stock dividend or dividend payable in any other
securities (other than the Spin-Off) shall be declared with a record date within
such period, or any similar event shall have occurred, the Merger Consideration
(as defined in Section 1.7(c)) shall be appropriately adjusted to provide to the
holders of Z-D Common Stock, Z-D Net Common Stock, Z-D Common Stock Options, Z-D
Net Stock Options and CNET Common Stock the same economic effect as contemplated
by this Agreement prior to such event.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 EXCHANGE FUND.
Prior to the Effective Time, CNET shall appoint a commercial bank or trust
company reasonably acceptable to Z-D, or a subsidiary thereof, to act as
exchange agent hereunder for the purpose of exchanging Certificates for the
applicable Merger Consideration (the "Exchange Agent"). At or prior to the
Effective Time, CNET shall deposit with the Exchange Agent, in trust for the
benefit of holders of shares of Z-D Common Stock and Z-D Net Common Stock,
certificates representing the shares of CNET
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Common Stock issuable pursuant to Section 1.7 in exchange for outstanding shares
of Z-D Common Stock and Z-D Net Common Stock, as the case may be. CNET agrees to
make available to the Exchange Agent from time to time, as needed, cash
sufficient to pay cash in lieu of fractional shares pursuant to Section 2.5 and
any dividends and other distributions pursuant to Section 2.3. Any cash and
certificates representing CNET Common Stock deposited with the Exchange Agent
shall hereinafter be referred to as the "Exchange Fund".
2.2 EXCHANGE PROCEDURES.
Promptly after the Effective Time, CNET shall cause the Exchange Agent to
mail to each holder of a Certificate (i) a letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent, and which letter shall be in customary form and have such other
provisions as Z-D may reasonably specify (such letter to be reasonably
acceptable to Z-D prior to the Effective Time) and (ii) instructions for
effecting the surrender of such Certificates in exchange for the applicable
Merger Consideration, together with any dividends and other distributions with
respect thereto and any cash in lieu of fractional shares. Upon surrender of a
Certificate to the Exchange Agent together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may reasonably be required by the Exchange Agent, the holder
of such Certificate shall be entitled to receive in exchange therefore (A) one
or more shares of CNET Common Stock representing, in the aggregate, the whole
number of shares that such holder has the right to receive pursuant to Section
1.7 (after taking into account all shares of Z-D Common Stock and Z-D Net Common
Stock then held by such holder) and (B) a check in the amount equal to the cash
that such holder has the right to receive pursuant to the provisions of this
Article II, including cash in lieu of any fractional shares of CNET Common Stock
pursuant to Section 2.5 and dividends and other distributions pursuant to
Section 2.3. No interest will be paid or will accrue on any cash payable
pursuant to Section 2.3 or Section 2.5. In the event of a transfer of ownership
of Z-D Common Stock or Z-D Net Common Stock which is not registered in the
transfer records of Z-D a certificate evidencing, in the aggregate, the proper
number of shares of CNET Common Stock, a check in the proper amount of cash in
lieu of any fractional shares of CNET Common Stock pursuant to Section 2.5 and
any dividends or other distributions to which such holder is entitled pursuant
to Section 2.3, may be issued with respect to such Z-D Common Stock or Z-D Net
Common Stock, as applicable, to such a transferee if the Certificate
representing such shares of Z-D Common Stock or Z-D Net Common Stock, as
applicable, is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
2.3 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES.
No dividends or other distributions with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of CNET Common Stock that such holder would be entitled to receive
upon surrender of such Certificate and no cash payment in lieu of fractional
shares of CNET Common Stock shall be paid to any such holder pursuant to Section
2.5 until such holder shall surrender such Certificate in accordance with
Section 2.2. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder thereof without
interest, (a) promptly after the time of such surrender, the amount of any cash
payable in lieu of fractional shares of CNET Common Stock to which such holder
is entitled pursuant to Section 2.5 and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of CNET Common Stock, and (b) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time and a payment date subsequent to such surrender payable
with respect to such shares of CNET Common Stock.
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2.4 NO FURTHER OWNERSHIP RIGHTS IN Z-D COMMON STOCK.
All shares of CNET Common Stock issued and cash paid upon conversion of
shares of Z-D Common Stock and Z-D Net Common Stock in accordance with the terms
of Article I and this Article II (including any cash paid pursuant to Sections
2.3 or 2.5) shall be deemed to have been issued or paid in full satisfaction of
all rights pertaining to the shares of Z-D Common Stock and Z-D Net Common
Stock, as the case may be.
2.5 NO FRACTIONAL SHARES OF CNET COMMON STOCK.
(a) No certificates or scrip or shares of CNET Common Stock representing
fractional shares of CNET Common Stock or book-entry credit of the same shall be
issued upon the surrender for exchange of Certificates and such fractional share
interests will not entitle the owner thereof to vote or to have any rights of a
stockholder of CNET or a holder of shares of CNET Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of Z-D Common Stock or Z-D Net Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of CNET Common Stock (determined after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to the product of (i) such fractional part of a
share of CNET Common Stock multiplied by (ii) the closing price for a share of
CNET Common Stock as reported on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") on the first trading day following the
date on which the Effective Time occurs. As promptly as practicable after the
determination of the amount of cash, if any, to be paid to holders of fractional
interests, the Exchange Agent shall so notify CNET, and CNET shall deposit such
amount with the Exchange Agent and shall cause the Exchange Agent to forward
payments to such holders of fractional interests subject to and in accordance
with the terms hereof.
2.6 TERMINATION OF EXCHANGE FUND.
Any portion of the Exchange Fund which remains undistributed to the holders
of Certificates for six months after the Effective Time shall, at CNET's
request, be delivered to CNET or otherwise on the instruction of CNET, and any
holders of the Certificates who have not theretofore complied with this Article
II shall after such delivery look only to CNET for the Merger Consideration with
respect to the shares of Z-D Common Stock and Z-D Net Common Stock formerly
represented thereby to which such holders are entitled pursuant to Sections 1.7
and 2.2, any cash in lieu of fractional shares of CNET Common Stock to which
such holders are entitled pursuant to Section 2.5 and any dividends or
distributions with respect to shares of CNET Common Stock to which such holders
are entitled pursuant to Section 2.3. Any such portion of the Exchange Fund
remaining unclaimed by holders of shares of Z-D Common Stock or Z-D Net Common
Stock, as the case may be, immediately prior to such time as such amounts would
otherwise escheat to or become property of any Governmental Entity (as defined
in Section 3.1(c)(iii)) shall, to the extent permitted by law, become the
property of CNET free and clear of any claims or interest of any Person
previously entitled thereto.
2.7 NO LIABILITY.
None of CNET, Merger Sub, Z-D, Z-D Majority Stockholder or the Exchange
Agent shall be liable to any Person in respect of any Merger Consideration from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.8 INVESTMENT OF THE EXCHANGE FUND.
The Exchange Agent shall invest any cash included in the Exchange Fund as
directed by CNET on a daily basis; provided that no such investment or loss
thereon shall affect the amounts payable to Z-D stockholders pursuant to Article
I and the other provisions of this Article II. Any interest and other income
resulting from such investments shall promptly be paid to CNET.
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2.9 LOST CERTIFICATES.
If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed and, if required by CNET, the posting by such
Person of a bond in such reasonable amount as CNET may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect to the shares of
Z-D Common Stock and Z-D Net Common Stock formerly represented thereby, any cash
in lieu of fractional shares of CNET Common Stock, and unpaid dividends and
distributions on shares of CNET Common Stock deliverable in respect thereof,
pursuant to this Agreement.
2.10 WITHHOLDING RIGHTS.
CNET shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Z-D
Common Stock such amounts as it is required to deduct and withhold with respect
to the making of such payment under the Code and the rules and regulations
promulgated thereunder, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by CNET, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of Z-D Common Stock or Z-D Net Common Stock in respect of which such
deduction and withholding was made by CNET.
2.11 FURTHER ASSURANCES.
At and after the Effective Time, the officers and directors of CNET will be
authorized to execute and deliver, in the name and on behalf of Merger Sub or
Z-D, any deeds, bills of sale, assignments or assurances and to take and do, in
the name and on behalf of Merger Sub or Z-D, any other actions and things to
vest, perfect or confirm of record or otherwise in CNET any and all right, title
and interest in, to and under any of the rights, properties or assets acquired
or to be acquired by CNET as a result of, or in connection with, the Merger.
2.12 STOCK TRANSFER BOOKS.
The stock transfer books of Z-D shall be closed immediately upon the
Effective Time and there shall be no further registration of transfers of shares
of Z-D Common Stock or Z-D Net Common Stock thereafter on the records of Z-D. On
or after the Effective Time, any Certificates presented to the Exchange Agent or
CNET for any reason shall be converted into the right to receive the applicable
Merger Consideration with respect to the shares of Z-D Common Stock or Z-D Net
Common Stock formerly represented thereby (including any cash in lieu of
fractional shares of CNET Common Stock to which the holders thereof are entitled
pursuant to Section 2.5 and any dividends or other distributions to which the
holders thereof are entitled pursuant to Section 2.3).
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF CNET AND MERGER SUB.
Except as disclosed in the CNET Filed SEC Reports (as defined in Section
3.1(d)(ii)) or as set forth in the CNET Disclosure Schedule delivered by CNET to
Z-D prior to the execution of this Agreement (the "CNET Disclosure Schedule"),
CNET and Merger Sub jointly and severally represent and warrant to Z-D as
follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) CNET is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite power and
authority to own, lease and operate its properties and to
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carry on its business as now being conducted. Each Subsidiary (as defined in
Section 8.12) of CNET, including Merger Sub, is a corporation or other
organization duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, has the requisite
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect (as defined in Section 8.12) on CNET or Merger Sub. CNET and each
Subsidiary of CNET is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary other than in such
jurisdictions where the failure so to qualify or to be in good standing,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on CNET or Merger Sub. The copies of the certificate of
incorporation and bylaws of CNET and Merger Sub that were previously furnished
or made available to Z-D are true, complete and correct copies of such documents
as in effect on the date of this Agreement.
(ii) Exhibit 21 to CNET's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 includes all the Subsidiaries of CNET which as of the
date of this Agreement are Significant Subsidiaries (as defined in Rule 1-02 of
Regulation S-X of the Securities and Exchange Commission (the "SEC")). All the
outstanding shares of capital stock of, or other equity interests in, each such
Significant Subsidiary have been duly authorized, validly issued and are fully
paid and nonassessable and are, except as set forth in such Form 10-K, owned
directly or indirectly by CNET, free and clear of all pledges, claims, liens,
charges, encumbrances and security interests of any kind or nature whatsoever
(collectively "Liens") and free of any other restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests), except for restrictions imposed by
applicable securities laws.
(b) Capital Structure.
(i) As of July 17, 2000, the authorized capital stock of CNET consists of
(A) 400,000,000 shares of CNET Common Stock, of which (v) 85,451,249 shares were
issued and outstanding, (w) no shares were held in treasury, (x) 13,343,501
shares were reserved for future issuance pursuant to outstanding stock options
and shares reserved under stock option plans, (y) 1,400,000 shares were reserved
for issuance pursuant to an employee stock purchase plan, and (z) 4,622,623
shares were reserved for issuance upon conversion of CNET's 5% convertible notes
due 2006; and (B) 5,000,000 shares of preferred stock, par value $0.01 per
share, of which no shares are issued and outstanding. Except as described in
this Section 3.1(b), as of the date of this Agreement, no shares of capital
stock of CNET are reserved for any purpose. All issued and outstanding shares of
capital stock of CNET are duly authorized, validly issued, fully paid and
nonassessable, and have not been issued in violation of (nor are any of the
authorized shares of capital stock of CNET subject to) any preemptive or similar
rights created by statute, the certificate of incorporation or bylaws of CNET,
or any agreement to which CNET is a party or bound.
(ii) No bonds, debentures, notes or other indebtedness of CNET having the
right to vote on any matters on which holders of capital stock of CNET may vote
are issued or outstanding.
(iii) Except as set forth in this Section 3.1(b), as of the date of this
Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which CNET or any of its
Significant Subsidiaries is a party relating to the issued or unissued capital
stock of CNET or any of its Significant Subsidiaries or obligating CNET or any
of its Significant Subsidiaries to grant, issue or sell any shares of the
capital stock of CNET or any of its Significant Subsidiaries, by sale, lease,
license or otherwise. As of the date of this Agreement, there are no
obligations, contingent or otherwise, of CNET or any of its Significant
Subsidiaries to repurchase, redeem or otherwise acquire any shares of CNET
Common Stock or other capital stock of CNET or any of its Significant
Subsidiaries. As of July 17, 2000, there were 10,614,999 CNET Stock Options
outstanding with an exercise price below $32.1875 per share and those options
have an average exercise price of $13.3148 per share.
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(iv) Shareholders of CNET Common Stock have the right to vote on all
matters put forth to the shareholders of CNET.
(v) The authorized capital stock of Merger Sub consists of 1,000 shares of
Merger Sub Common Stock. As of the date of this Agreement, 100 shares of Merger
Sub Common Stock were issued and outstanding and held by CNET, all of which are
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, Merger Sub's certificate of incorporation
or bylaws or any agreement to which Merger Sub is a party or is bound.
(vi) The shares of CNET Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, CNET's certificate of
incorporation or bylaws or any agreement to which CNET is a party or is bound.
(c) Authority; No Conflicts.
(i) CNET and Merger Sub have all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated hereby
and thereby, subject, in the case of the consummation of the Merger, to the
approval by the CNET Stockholder Approval. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of CNET and Merger
Sub and no other corporate proceedings on the part of CNET or Merger Sub are
necessary to authorize the execution and delivery of this Agreement or to
consummate the Merger and the other transactions contemplated hereby, subject in
the case of the consummation of the Merger, to the CNET Stockholder Approval.
This Agreement has been duly executed and delivered by CNET and Merger Sub and
constitutes a valid and binding agreement of CNET and Merger Sub, enforceable
against each of CNET and Merger Sub in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws relating to or affecting creditors
generally or by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement by CNET and Merger Sub do
not, and the consummation by CNET and Merger Sub of the Merger and the other
transactions contemplated hereby will not, conflict with, or result in any
violation of, or constitute a default (with or without notice or lapse of time,
or both) under, or give rise to a right of, or result by its terms in the
termination, amendment, cancellation or acceleration of any obligation or the
loss of a material benefit under, or the creation of a Lien, charge, "put" or
"call" right or other encumbrance on, or the loss of, any assets, including
Intellectual Property (any such conflict, violation, default, right of
termination, amendment, cancellation or acceleration, loss or creation, a
"Violation") pursuant to: (A) any provision of the certificate of incorporation
or bylaws or similar organizational document of CNET, Merger Sub or any
Significant Subsidiary of CNET, or (B) except as (1) individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
CNET or Merger Sub or (2) would not prevent or materially delay the consummation
of the Merger, subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in paragraph
(iii) below, and except with respect to employee stock options and other awards,
any loan or credit agreement, note, mortgage, bond, indenture, lease, benefit
plan or other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to CNET, Merger Sub or any Subsidiary of CNET or their respective
properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any supranational, national, state, municipal, local
or foreign government, any instrumentality, subdivision, court, administrative
agency or commission or other authority thereof, or any quasi-governmental or
private body exercising any regulatory, taxing, importing or other governmental
or quasi-governmental authority (a "Governmental Entity") or any other Person,
is required by or with respect to CNET, Merger Sub or any Subsidiary of CNET in
connection with the execution and delivery of this Agreement by CNET or Merger
Sub, as applicable, or the consummation by CNET and Merger Sub of the Merger and
the other transactions contemplated hereby, except for those required under or
in relation to (A) the Hart-Scott-
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Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (B) state
securities or "blue sky" laws (the "Blue Sky Laws"), (C) the Securities Act of
1933, as amended (the "Securities Act"), (D) the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (E) the DGCL with respect to the filing
of the Certificate of Merger, (F) the rules and regulations of the NASDAQ or of
The New York Stock Exchange, (G) antitrust or other competition laws of other
jurisdictions and (H) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or obtain,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on CNET. Consents, approvals, orders, authorizations,
registrations, declarations and filings required under or in relation to any of
the foregoing clauses (A) through (G) are hereinafter referred to as "Necessary
Consents".
(d) Reports and Financial Statements of CNET.
(i) CNET has filed all required registration statements, prospectuses,
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC since December 31, 1997 (collectively, the "CNET SEC
Reports"). No Subsidiary of CNET is required to file any form, report,
registration statement, prospectus or other document with the SEC. None of the
CNET SEC Reports, as of their respective dates (and, if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such filing),
contained or will contain any untrue statement of a material fact or omitted or
will omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the financial statements (including the related
notes) included or incorporated by reference in the CNET SEC Reports presents
fairly, in all material respects, the consolidated financial position and
consolidated results of operations and cash flows of CNET and its consolidated
Subsidiaries as of the respective dates or for the respective periods set forth
therein, all in conformity with United States generally accepted accounting
principles ("GAAP") consistently applied during the periods involved except as
otherwise noted therein, and subject, in the case of the unaudited interim
financial statements of CNET, to the absence of notes and normal year-end
adjustments that have not been and are not expected to be material in amount.
All of such CNET SEC Reports, as of their respective dates (and as of the date
of any amendment to the respective CNET SEC Report), complied as to form in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder.
(ii) Except as disclosed in the CNET SEC Reports filed and publicly
available prior to the date hereof (the "CNET Filed SEC Reports"), CNET and its
Subsidiaries have not incurred any liabilities that are of a nature that would
be required to be disclosed on a balance sheet of CNET and its Subsidiaries or
the footnotes thereto prepared in conformity with GAAP, other than (A)
liabilities incurred in the ordinary course of business, (B) liabilities
incurred in accordance with Section 4.1 or (C) liabilities that, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect on CNET.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by CNET for
inclusion or incorporation by reference in (A) the Form S-4 (as defined in
Section 5.1) will, at the time the Form S-4 is filed with the SEC, at any time
it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (B) the Joint Proxy Statement/Prospectus (as defined in
Section 5.1) will, on the date it is first mailed to Z-D stockholders or CNET
stockholders or at the time of the Z-D Stockholders Meeting or the CNET
Stockholders Meeting (each as defined in Section 5.1), contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Form S-4 and
the Joint Proxy Statement/Prospectus will comply as to form in
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all material respects with the requirements of the Exchange Act and the
Securities Act and the rules and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 3.1(e), no
representation or warranty is made by CNET with respect to statements made or
incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by Z-D for inclusion or
incorporation by reference therein.
(f) Board Approvals.
(i) CNET Board Approval. The Board of Directors of CNET, by resolutions
duly adopted by unanimous vote of those voting at a meeting duly called and held
and not subsequently rescinded or modified in any way (the "CNET Board
Approval"), has duly (A) determined that this Agreement and the Merger are fair
to and in the best interests of CNET and its stockholders and declared the
Merger to be advisable, (B) approved this Agreement, the CNET Stockholders
Voting Agreement and the Merger and the consummation of the transactions
contemplated hereby, (C) approved the acquisition of CNET Common Stock by Z-D
Majority Stockholder pursuant to the Merger for purposes of Section 203 of the
DGCL and (D) recommended that the stockholders of CNET approve the issuance of
CNET Common Stock pursuant to this Agreement and directed that such matter be
submitted for consideration by CNET's stockholders at the CNET Stockholders
Meeting. The CNET Board Approval constitutes approval of this Agreement and the
Merger and the transactions contemplated hereby for purposes of Section 203 of
the DGCL. To the knowledge of CNET, except for Section 203 of the DGCL (which
has been rendered inapplicable by the approval described in clause (C) above),
no state takeover statute is applicable to this Agreement or the Merger or the
other transactions contemplated hereby.
(ii) Merger Sub Board Approval. The Board of Directors of Merger Sub, by
resolutions duly adopted by unanimous vote of those voting at a meeting duly
called and held and not subsequently rescinded or modified in any way (the
"Merger Sub Board Approval"), has duly (A) determined that this Agreement and
the Merger are fair to and in the best interests of Merger Sub and its
stockholders and declared the Merger to be advisable, and (B) approved this
Agreement, the Merger, the CNET Stockholders Voting Agreement and the
consummation of the transactions contemplated hereby. The Merger Sub Board
Approval constitutes approval of this Agreement and the Merger and the
transactions contemplated hereby for purposes of Section 203 of the DGCL. To the
knowledge of Merger Sub, except for Section 203 of the DGCL (which has been
rendered inapplicable by the approval described in clause (ii)(B) above), no
state takeover statute is applicable to this Agreement or the Merger or the
other transactions contemplated hereby.
(g) Vote Required. The CNET Stockholder Approval as required by the rules
of the NASDAQ is the only vote of the holders of any class or series of CNET
capital stock necessary to approve or adopt this Agreement and the Merger and to
consummate the Merger and the other transactions contemplated hereby.
(h) Litigation; Compliance with Laws.
(i) There are no suits, actions, judgments or proceedings (collectively,
"Actions") pending or, to the knowledge of CNET, threatened, against or
affecting CNET or any Subsidiary of CNET or any property or asset of CNET or any
Subsidiary of CNET which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on CNET, nor are there any judgments,
decrees, injunctions, rules or orders of any Governmental Entity or arbitrator
outstanding against CNET or any Subsidiary of CNET which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
CNET.
(ii) Except as, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on CNET, CNET and its Subsidiaries
hold all permits, licenses, franchises, variances, exemptions, orders and
approvals of all Governmental Entities which are necessary for the operation of
the businesses as now being conducted of CNET and its Subsidiaries, taken as a
whole (the "CNET Permits"), and no suspension or cancellation of any of the CNET
Permits is pending or, to the knowledge
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of CNET, threatened. CNET and its Subsidiaries are in compliance with the terms
of the CNET Permits, except where the failure to so comply, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect on CNET. Neither CNET nor its Subsidiaries is in violation of, and CNET
and its Subsidiaries have not received any notices of violations with respect
to, any laws, statutes, ordinances, rules or regulations of any Governmental
Entity, except for violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on CNET.
(i) Absence of Certain Changes or Events.
Except for liabilities permitted to be incurred in accordance with this
Agreement or the transactions contemplated hereby, since December 31, 1999, CNET
and its Subsidiaries (including Merger Sub) have conducted their business only
in the ordinary course and in a manner consistent with past practice and, since
December 31, 1999, there have not been any changes, circumstances or events
which, individually or in the aggregate, have had, or would reasonably be
expected to have, a Material Adverse Effect on CNET.
(j) Intellectual Property.
Except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on CNET: (i) CNET and each of its
Subsidiaries owns, or is licensed to use (in each case, free and clear of any
Liens), all Intellectual Property (as defined below) used in or necessary for
the conduct of its business as currently conducted; (ii) to the knowledge of
CNET, the use of any Intellectual Property by CNET and its Subsidiaries does not
infringe on or otherwise violate the rights of any Person; (iii) the use of the
Intellectual Property by CNET or any Subsidiary of CNET is in accordance with
applicable licenses pursuant to which CNET or any Subsidiary of CNET acquired
the right to use any such Intellectual Property; and (iv) to the knowledge of
CNET, no Person is challenging, infringing on or otherwise violating any right
of CNET or any of its Subsidiaries with respect to any Intellectual Property
owned by and/or licensed to CNET or its Subsidiaries or has received notice of
any alleged infringement. As of the date of this Agreement except as would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on CNET, neither CNET nor any of its Subsidiaries has knowledge
of any pending claim, order or proceeding with respect to any Intellectual
Property used by CNET and its Subsidiaries and to its knowledge no Intellectual
Property owned and/or licensed by CNET or its Subsidiaries is being used or
enforced in a manner that would reasonably be expected to result in the
abandonment, cancellation or unenforceability of such Intellectual Property. For
purposes of this Agreement, "Intellectual Property" shall mean trademarks,
service marks, internet domain names, brand names, certification marks, trade
dress and other indications of origin, the goodwill associated with the
foregoing and registrations in any jurisdiction of, and applications in any
jurisdiction to register, the foregoing, including any extension, modification
or renewal of any such registration or application; inventions, discoveries and
ideas, whether patentable or not, in any jurisdiction; patents, applications for
patents (including, without limitation, divisions, continuations, continuations
in part and renewal applications), and any renewals, extensions or reissues
thereof, in any jurisdiction; nonpublic information, trade secrets and
confidential information and rights in any jurisdiction to limit the use or
disclosure thereof by any person; writings and other works, whether
copyrightable or not, in any jurisdiction; registrations or applications for
registration of copyrights in any jurisdiction, and any renewals or extensions
thereof; any similar intellectual property or proprietary rights.
(k) Opinion of CNET Financial Advisor.
CNET has received the opinion of Lazard Freres & Co., dated the date of
this Agreement, to the effect that, as of such date, the Z-D Exchange Ratio and
the Z-D Net Exchange Ratio are fair to CNET, from a financial point of view, a
copy of which opinion will be made available to Z-D promptly after the date of
this Agreement.
(l) Taxes.
(i) Each of CNET and its Subsidiaries has filed all Tax Returns required to
have been filed (or extensions have been duly obtained), has paid all Taxes
required to have been paid by it (whether or not shown as due on any Tax
Return), and has established an appropriate accrual for all Taxes not yet paid
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through March 31, 2000; (ii) all Tax Returns filed by CNET and its Subsidiaries
are true, complete and correct in all material respects; (iii) no material claim
for unpaid Taxes has become a lien against the property of CNET or any of its
Subsidiaries or is being asserted against CNET or any of its Subsidiaries; (iv)
no material audit or other proceeding with respect to any Taxes due from CNET or
any of its Subsidiaries or any Tax Return of CNET or any of its Subsidiaries is
pending or threatened in writing, or being conducted by a Tax authority; (v)
none of CNET or any of its Subsidiaries (A) has, since January 1, 1997, been a
member of a Consolidated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was CNET) or had any liability
arising from the application of Treasury Regulation section 1.1502-6 or any
analogous provision of state, local or foreign law, or (B) has any other
liability for the Taxes of any person as a transferee or successor, by contract,
or otherwise; (vi) no consent under Section 341(f) of the Code has been filed
with respect to CNET or any of its Subsidiaries; (vii) all material Taxes
required to be withheld, collected or deposited by or with respect to CNET and
each of its Subsidiaries have been timely withheld, collected or deposited, as
the case may be, and, to the extent required, have been paid to the relevant
taxing authority; (viii) none of CNET or any of its Subsidiaries has been a
party to any distribution occurring during the last two years in which the
parties to such distribution treated the distribution as one to which section
355 of the Code is applicable; (ix) none of CNET or any of its Subsidiaries has
agreed to make or is required to make any adjustment under section 481(a) of the
Code by reason of a change in accounting method or otherwise or is otherwise
required to include any amounts in income for a period following the Closing
that was economically accrued in a period prior to the Closing; (x) none of CNET
or any of its Subsidiaries is a party to, is bound by or has any obligation
under, any Tax sharing agreement or similar contract or arrangement; and (xi) no
closing agreement pursuant to section 7121 of the Code (or any similar provision
of state, local or foreign law) has been entered into by or with respect to CNET
or any of its Subsidiaries.
(m) Brokers or Finders.
No agent, broker, investment banker, financial advisor or other firm or
Person is or will be entitled to any broker's or finder's fee or any other
similar commission or fee in connection with any of the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
CNET, except Lazard Freres & Co., whose fees and expenses will be paid by CNET.
CNET has provided to Z-D a true, correct and complete copy of CNET's agreement
with Lazard Freres & Co. relating to this Agreement and the Merger.
3.2 REPRESENTATIONS AND WARRANTIES OF Z-D.
Except as disclosed in the Z-D Filed SEC Reports (as defined in Section
3.2(d)(ii)) or as set forth in the Z-D Disclosure Schedule delivered by Z-D to
CNET prior to the execution of this Agreement (the "Z-D Disclosure Schedule"),
Z-D represents and warrants to CNET as follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Z-D is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each Subsidiary of Z-D is a corporation or other
organization duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, has the requisite
power and authority to own, lease and operate its properties and to carry on its
business as is now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect on Z-D. Each of Z-D and its Subsidiaries is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification necessary
other than in such jurisdictions where the failure so to qualify or to be in
good standing, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Z-D. The copies of the certificate
of incorporation and bylaws of Z-D which were previously furnished or made
available to CNET are true, complete and correct copies of such documents as in
effect on the date of this Agreement.
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(ii) Section 3.2(a)(ii) of the Z-D Disclosure Schedule lists all the
Subsidiaries of Z-D as of the date of this Agreement. Except as set forth in
Schedule 3.2(a)(ii) of the Z-D Disclosure Schedule, all the outstanding shares
of capital stock of, or other equity interests in, each such Significant
Subsidiary have been duly authorized, validly issued and are fully paid and
nonassessable and are owned directly or indirectly by Z-D, free and clear of all
Liens and free of any other restriction (including any restriction on the right
to vote, sell or otherwise dispose of such capital stock or other ownership
interests), except for restrictions imposed by applicable securities laws. Other
than as set forth on Schedule 3.2(a)(ii), as of the date of this Agreement,
neither Z-D nor any of its Subsidiaries directly or indirectly owns any equity
or similar interest in, or any interest convertible into or exchangeable or
exercisable for, any corporation, partnership, joint venture or other business
association or entity (other than Subsidiaries).
(b) Capital Structure.
(i) As of July 17, 2000, the authorized capital stock of Z-D consists of
(A) 210,000,000 shares of Z-D Common Stock of which (1) 106,620,886 shares of
Z-D Common Stock were issued and outstanding and (2) 16,834,581 shares of Z-D
Net Common Stock were issued and outstanding and (B) 10,000,000 shares of
preferred stock, par value $0.01 per share, none of which are issued or
outstanding. From July 17, 2000 to the date of this Agreement, there have been
no issuances of shares of the capital stock of Z-D or any other securities of
Z-D other than issuances of shares pursuant to options or rights outstanding as
of July 17, 2000. All issued and outstanding shares of the capital stock of Z-D,
including the Z-D Net Common Stock, are duly authorized, validly issued, fully
paid and nonassessable, and free of any preemptive rights. None of the
Subsidiaries of Z-D own any shares of Z-D capital stock. As of July 17, 2000
there were no options, warrants or other rights outstanding to acquire capital
stock from Z-D other than the Z-D Stock Options (as defined in the next
sentence). The options and other rights to acquire Z-D Common Stock or Z-D Net
Common Stock from Z-D representing the right to purchase shares of Z-D Common
Stock or Z-D Net Common Stock, as the case may be, together with other employee
stock options issued by Z-D after the date hereof in accordance with the Z-D
Stock Option Plans (as defined in the next sentence) and Section 4.2, are
referred to herein collectively as the "Z-D Stock Options"). The Z-D Stock
Options have been granted under the Z-D 1998 Incentive Compensation Plan (the
"Z-D Stock Option Plans"). As of July 17, 2000, (i) there were 9,101,828 options
to purchase Z-D Net Common Stock outstanding with an exercise price below
$19.0936 per share and those options have an average exercise price of $6.5806
per share and (ii) there were 3,007,914 options to purchase Z-D Common Stock
outstanding with an exercise price below $16.4350 per share and those options
have an average exercise price of $8.7994 per share.
(ii) No bonds, debentures, notes or other indebtedness of Z-D having the
right to vote on any matters on which holders of capital stock of Z-D may vote
("Z-D Voting Debt") are issued or outstanding.
(iii) Except as set forth in this Section 3.2(b) and Section 3.2(b) of the
Z-D Disclosure Schedule, and other than in connection with the Spin-Off, as of
the date of this Agreement, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character to which Z-D or any of
its Subsidiaries is a party relating to the issued or unissued capital stock of
Z-D or any of its Significant Subsidiaries or obligating Z-D or any of its
Subsidiaries to grant, issue or sell any shares of the capital stock of Z-D or
any of its Significant Subsidiaries, by sale, lease, license or otherwise. As of
the date of this Agreement, except as set forth in Section 3.2(b) of the Z-D
Disclosure Schedule, there are no obligations, contingent or otherwise, of Z-D
or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares
of Z-D Common Stock or Z-D Net Common Stock or other capital stock of Z-D or any
of its Significant Subsidiaries.
(iv) As of the date hereof, assuming the number of votes per share of Z-D
Net Common Stock at the Z-D Stockholders Meeting (as determined in accordance
with the Amended and Restated Certificate of Incorporation of Z-D) equals the
Z-D Net Exchange Ratio divided by the Z-D Exchange Ratio, Z-D Majority
Stockholder will for purposes of the Z-D Stockholders Meeting own of record at
least a majority
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of the voting power of the shares of Z-D Common Stock and Z-D Net Common Stock
entitled to vote at the Z-D Stockholders Meeting.
(c) Authority; No Conflicts.
(i) Z-D has all requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby, subject, in
the case of the consummation of the Merger, to the Z-D Stockholder Approval. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Z-D and no other corporate proceedings on the
part of Z-D are necessary to authorize the execution and delivery of the
Agreement or to consummate the Merger and the other transactions contemplated
hereby, subject in the case of the consummation of the Merger, to the Z-D
Stockholder Approval. This Agreement has been duly executed and delivered by Z-D
and constitutes a valid and binding agreement of Z-D, enforceable against Z-D in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws relating to or affecting creditors generally or by general equity
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(ii) The execution and delivery of this Agreement by Z-D does not, and the
consummation by Z-D of the Merger and the other transactions contemplated hereby
will not, conflict with, or result in a Violation pursuant to: (A) any provision
of the certificate of incorporation or bylaws or similar organizational document
of Z-D or any Significant Subsidiary of Z-D or (B) except as (1) individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect on Z-D or (2) would not prevent or materially delay the consummation of
the Merger, subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in paragraph
(iii) below and except with respect to employee stock options and other awards,
any loan or credit agreement, note, mortgage, bond, indenture, lease, benefit
plan or other agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Z-D or any Subsidiary of Z-D or their respective properties or
assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity or any other Person is
required by or with respect to Z-D or any Subsidiary of Z-D in connection with
the execution and delivery of this Agreement by Z-D or the consummation of the
Merger and the other transactions contemplated hereby, except the Necessary
Consents and such consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect on Z-D.
(iv) For so long as this Agreement may be in effect, Z-D will not
consummate the merger contemplated by the Agreement and Plan of Merger dated as
of February 7, 2000, between Z-D and Z-D Merger Subsidiary Inc.
(d) Reports and Financial Statements.
(i) Z-D has filed all required registration statements, prospectuses,
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC since December 31, 1997 (collectively, the "Z-D SEC
Reports"). No Subsidiary of Z-D is required to file any form, report,
registration statement, prospectus or other document with the SEC other than in
connection with the Spin-Off. None of the Z-D SEC Reports, as of their
respective dates (and, if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing), contained or will contain any
untrue statement of a material fact or omitted or will omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Each
of the financial statements (including the related notes) included or
incorporated by reference in the Z-D SEC Reports presents fairly, in all
material respects, the consolidated financial position and consolidated results
of operations and cash flows of Z-D and its consolidated Subsidiaries as of the
respective dates or for the respective periods set forth therein, all in
conformity with
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GAAP consistently applied during the periods involved except as otherwise noted
therein, and subject, in the case of the unaudited interim financial statements
of Z-D, to the absence of notes and normal year-end adjustments that have not
been and are not expected to be material in amount. All of such Z-D SEC Reports,
as of their respective dates (and as of the date of any amendment to the
respective Z-D SEC Report), complied as to form in all material respects with
the applicable requirements of the Securities Act and the Exchange Act and the
rules and regulations promulgated thereunder.
(ii) Except as disclosed in the Z-D SEC Reports filed and publicly
available prior to the date hereof (the "Z-D Filed SEC Reports"), Z-D and its
Subsidiaries have not incurred any liabilities that are of a nature that would
be required to be disclosed on a balance sheet of Z-D and its Subsidiaries or
the footnotes thereto prepared in conformity with GAAP, other than (A)
liabilities incurred in the ordinary course of business, (B) liabilities
incurred in accordance with Section 4.2, or (C) liabilities that, individually
or in the aggregate, would not reasonably be expected to have a Material Adverse
Effect on Z-D.
(iii) A registration statement on Form S-1, as amended through the date
hereof and as may be subsequently amended (the "Spin Co. S-1"), with respect to
the common stock, par value $.01 per share (the "Spin Co. Common Stock"), of
Spin Co. to be offered in connection with the Spin-Off have (i) been prepared by
Spin Co. in conformity with the requirements of the Securities Act and the rules
and regulations (the "Rules and Regulations") of the SEC thereunder, and (ii)
been filed with the SEC under the Securities Act. Copies of the Spin Co. S-1
have been delivered by Z-D to CNET. The Spin Co. S-1 conforms (and any
prospectus and any further amendments or supplements to the Spin Co. S-1, when
they become effective or are filed with the SEC, as the case may be, will
conform) in all material respects with the applicable requirements of the
Securities Act and the Rules and Regulations and do not and will not, as of the
applicable effective date (as to the Spin Co. S-1 and any amendment thereto) and
as of the applicable filing date (as to any prospectus and any amendment or
supplement thereto) contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.
(iv) The financial statements (including the related notes filed as part of
the Spin Co. S-1 or included in any prospectus) present fairly, in all material
respects, the combined financial condition and combined results of operations of
Spin Co., at the dates and for the periods indicated, and have been prepared in
conformity with GAAP applied on a consistent basis throughout the periods
involved, except as otherwise noted therein.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by Z-D for inclusion
or incorporation by reference in (A) the Form S-4 will, at the time the Form S-4
is filed with the SEC, at any time it is amended or supplemented or at the time
it becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (B) the Joint Proxy
Statement/Prospectus will, on the date it is first mailed to Z-D stockholders or
CNET stockholders or at the time of the Z-D Stockholders Meeting or the CNET
Stockholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Joint Proxy Statement/Prospectus will comply as to
form in all material respects with the requirements of the Exchange Act and the
Securities Act and the Rules and Regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 3.2(e), no
representation or warranty is made by Z-D with respect to statements made or
incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by or on behalf of CNET for
inclusion or incorporation by reference therein.
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(f) Board Approval.
The Board of Directors of Z-D, by resolutions duly adopted by unanimous
vote of those voting at a meeting duly called and held and not subsequently
rescinded or modified in any way (the "Z-D Board Approval"), has duly (i)
determined that this Agreement and the Merger are fair to and in the best
interests of Z-D, the holders of Z-D Common Stock and the holders of Z-D Net
Common Stock and declared the Merger to be advisable, (ii) approved this
Agreement, the Merger and the consummation of the transactions contemplated
hereby and (iii) recommended that the stockholders of Z-D adopt this Agreement
and directed that such matter be submitted for consideration by Z-D's
stockholders at the Z-D Stockholders Meeting. The Z-D Board Approval constitutes
approval of this Agreement, the Merger and the consummation of the transactions
contemplated hereby (including, without limitation, the Z-D Stockholder Voting
Agreement) for purposes of Section 203 of the DGCL. To the knowledge of Z-D,
except for Section 203 of the DGCL (which has been rendered inapplicable by the
approval in clause (ii) above), no state takeover statute is applicable to this
Agreement or the Merger or the other transactions contemplated hereby (including
the Z-D Stockholder Voting Agreement).
(g) Vote Required.
The Z-D Stockholder Approval is the only vote of the holders of any class
or series of Z-D capital stock necessary to approve or adopt this Agreement and
the Merger and to consummate the Merger and the other transactions contemplated
hereby.
(h) Litigation; Compliance with Laws.
(i) Except as set forth in Section 3.2(h) of the Z-D Disclosure Schedule,
there are no Actions pending or, to the knowledge of Z-D, threatened, against or
affecting Z-D or any Subsidiary of Z-D or any property or asset of Z-D or any
Subsidiary of Z-D which, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on Z-D, nor are there any judgments,
decrees, injunctions, rules or orders of any Governmental Entity or arbitrator
outstanding against Z-D or any Subsidiary of Z-D which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
Z-D.
(ii) Except as, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Z-D, Z-D and its Subsidiaries hold
all permits, licenses, franchises, variances, exemptions, orders and approvals
of all Governmental Entities which are necessary for the operation of the
businesses as now being conducted of Z-D and its Subsidiaries, taken as a whole
(the "Z-D Permits"), and no suspension or cancellation of any of the Z-D Permits
is pending or, to the knowledge of Z-D, threatened. Z-D and its Subsidiaries are
in compliance with the terms of the Z-D Permits, except where the failure to so
comply, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on Z-D. Neither Z-D nor its Subsidiaries is in
violation of, and Z-D and its Subsidiaries have not received any notices of
violations with respect to, any laws, statutes, ordinances, rules or regulations
of any Governmental Entity, except for violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
Z-D.
(i) Absence of Certain Changes or Events.
Except for liabilities permitted to be incurred in accordance with this
Agreement or the transactions contemplated hereby and except as described in the
Z-D SEC Reports, since December 31, 1999, Z-D and its Subsidiaries have
conducted their business only in the ordinary course and in a manner consistent
with past practice and, since December 31, 1999, there have not been any
changes, circumstances or events which, individually or in the aggregate, have
had, or would reasonably be expected to have, a Material Adverse Effect on Z-D.
(j) Intellectual Property.
Except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Z-D: (i) Z-D and each of its
Subsidiaries owns, or is licensed to use (in each case, free and clear of any
Liens), all Intellectual Property used in or necessary for the conduct of its
business as
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currently conducted; (ii) to the knowledge of Z-D, the use of any Intellectual
Property by Z-D and its Subsidiaries does not infringe on or otherwise violate
the rights of any Person; (iii) the use of the Intellectual Property by Z-D or
any Subsidiary of Z-D is in accordance with applicable licenses pursuant to
which Z-D or any Subsidiary of Z-D acquired the right to use any such
Intellectual Property; and (iv) to the knowledge of Z-D, no Person is
challenging, infringing on or otherwise violating any right of Z-D or any of its
Subsidiaries with respect to any Intellectual Property owned by and/or licensed
to Z-D or its Subsidiaries or has received notice of any alleged or threatened
infringement. As of the date of this Agreement, except as would not reasonably
be expected, individually or in the aggregate, to have a Material Adverse Effect
on Z-D, neither Z-D nor any of its Subsidiaries has knowledge of any pending
claim, order or proceeding with respect to any Intellectual Property used by Z-D
and its Subsidiaries and to its knowledge no Intellectual Property owned and/or
licensed by Z-D or its Subsidiaries is being used or enforced in a manner that
would reasonably be expected to result in the abandonment, cancellation or
unenforceability of such Intellectual Property. Section 3.2(j) of the Z-D
Disclosure Schedule sets forth (i) a list of any written claim that Intellectual
Property used by Z-D and its Subsidiaries infringes on or otherwise violates the
rights of any Person; and (ii) a list of any written claim by Z-D that another
Person is infringing on or otherwise violating, any right of Z-D or any of its
Subsidiaries with respect to any Intellectual Property owned by and/or licensed
to Z-D or its Subsidiaries.
(k) Opinion of Z-D Financial Advisor.
Z-D has received the opinion of Morgan Stanley Dean Witter, dated the date
of this Agreement, to the effect that, as of such date, the Z-D Exchange Ratio
is fair, from a financial point of view, to the holders of Z-D Common Stock, and
the Z-D Net Exchange Ratio is fair, from a financial point of view, to the
holders of the Z-D Net Common Stock. A copy of such opinion will be made
available to CNET promptly after the date of this Agreement.
(l) Taxes.
(i) Except as set forth in Section 3.2(l) of the Z-D Disclosure Schedule,
each of Z-D and its Subsidiaries has filed all Tax Returns required to have been
filed (or extensions have been duly obtained), has paid all Taxes required to
have been paid by it (whether or not shown as due on any Tax Return), and has
established an appropriate accrual for all Taxes not yet paid through March 31,
2000; (ii) all Tax Returns filed by Z-D and its Subsidiaries are true, complete
and correct in all material respects; (iii) no material claim for unpaid Taxes
has become a lien against the property of Z-D or any of its Subsidiaries or is
being asserted against Z-D or any of its Subsidiaries; (iv) no material audit or
other proceeding with respect to any Taxes due from Z-D or any of its
Subsidiaries or any Tax Return of Z-D or any of its Subsidiaries is pending or
threatened in writing, or being conducted by a Tax authority; (v) none of Z-D or
any of its Subsidiaries (A) has, since January 1, 1997, been a member of a
Consolidated Group filing a consolidated federal income Tax Return (other than a
group the common parent of which was Z-D) or had any liability arising from the
application of Treasury Regulation section 1.1502-6 or any analogous provision
of state, local or foreign law, or (B) has any other liability for the Taxes of
any person as a transferee or successor, by contract, or otherwise; (vi) no
consent under Section 341(f) of the Code has been filed with respect to Z-D or
any of its Subsidiaries; (vii) all material Taxes required to be withheld,
collected or deposited by or with respect to Z-D and each of its Subsidiaries
have been timely withheld, collected or deposited, as the case may be, and, to
the extent required, have been paid to the relevant taxing authority; (viii)
none of Z-D or any of its Subsidiaries has been a party to any distribution
occurring during the last two years in which the parties to such distribution
treated the distribution as one to which section 355 of the Code is applicable;
(ix) none of Z-D or any of its Subsidiaries has agreed to make or is required to
make any adjustment under section 481(a) of the Code by reason of a change in
accounting method or otherwise or is otherwise required to include any amounts
in income for a period following the Closing that was economically accrued in a
period prior to the Closing; (x) none of Z-D or any of its Subsidiaries is a
party to, is bound by or has any obligation under, any Tax sharing agreement or
similar contract or arrangement; (xi) no closing agreement pursuant to section
7121 of the Code (or any similar provision of state, local or foreign law) has
been entered into by or with respect to Z-D or any of its Subsidiaries.
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(m) Certain Contracts.
As of the date hereof, except as disclosed in the Z-D Filed SEC Reports or
on Schedule 3.2(m) of the Z-D Disclosure Schedule, neither Z-D nor any of its
Subsidiaries (other than Z-D Events, Inc.) is a party to or bound by (i) any
"material contracts" (as such term is defined in Item 601(b)(10) of Regulation
S-K of the SEC); (ii) any joint ventures, partnerships, or similar arrangements;
(iii) other agreements or arrangements that give rise to a right of the other
parties thereto to terminate such material contract or to a right of first
refusal or similar right thereunder as a result of the execution and delivery of
this Agreement and the consummation by Z-D of the Merger and the other
transactions contemplated hereby; or (iv) any agreements, licenses or other
arrangements that contain exclusive grants of rights that could, after the
Effective Time, restrict CNET or any of its Affiliates or any successor thereto,
from engaging in or competing with any line of business or in any geographic
area (collectively, the "Z-D Material Contracts"). All Z-D Material Contracts
are valid and in full force and effect except to the extent they have previously
expired in accordance with their terms or if the failure to be in full force and
effect, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect on Z-D. Neither Z-D nor any of its Subsidiaries
has violated any provision of, or committed or failed to perform any act which,
with or without notice, lapse of time or both, would constitute a default under
the provisions of, any Z-D Material Contract, except in each case for those
violations and defaults which, individually or in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect on Z-D.
(n) Employee Benefits.
(i) Section 3.2(n) of the Z-D Disclosure Schedule contains a true and
complete list of each "employee benefit plan" (within the meaning of section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including, without limitation, multiemployer plans within the meaning
of ERISA section 3(37)), stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus, incentive,
deferred compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not subject to ERISA
(including any funding mechanism therefore now in effect or required in the
future as a result of the transaction contemplated by this Agreement or
otherwise), whether legally binding or not, under which any employee or former
employee of Z-D or any of its Subsidiaries has any present or future right to
benefits and under which Z-D or any of its Subsidiaries has any present or
future liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "Z-D Benefit Plans".
Section 3.2(n)(i) of the Z-D Disclosure Schedule lists each employment agreement
in effect on the date of this Agreement.
(ii) With respect to each Z-D Benefit Plan, Z-D has delivered or made
available to CNET a current, accurate and complete copy (or, to the extent no
such copy exists, an accurate description) thereof and, to the extent
applicable: (A) any related trust agreement or other funding instrument; (B) the
most recent determination letter, if applicable; (C) any current summary plan
description and other written communications (or a description of any oral
communications) by Z-D or any of its Subsidiaries within the last year or any
communication that modifies or amends benefits under a Z-D Benefit Plan to their
employees concerning the extent of the benefits provided under a Z-D Benefit
Plan; and (D) for the two most recent years the Form 5500 and attached
schedules, audited financial statements, actuarial valuation reports and
attorney's response to an auditor's request for information.
(iii) (A) Each Z-D Benefit Plan has been established and administered in
accordance with its terms, and in substantial compliance with the applicable
provisions of ERISA, the Code and other applicable laws, rules and regulations;
(B) each Z-D Benefit Plan which is intended to be qualified within the meaning
of Code section 401(a) is so qualified and has received a favorable
determination letter as to its qualification, and nothing has occurred, whether
by action or failure to act, that could reasonably be expected to cause the loss
of such qualification; (C) no event has occurred and no condition exists that
would subject Z-D or any of its Subsidiaries, either directly or by reason of
their affiliation with any member of their "Controlled Group" (defined as any
organization which is a member of a controlled
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group of organizations within the meaning of Code sections 414(b), (c), (m) or
(o)), to any material tax, fine, lien, penalty or other liability imposed by
ERISA, the Code or other applicable laws, rules and regulations; (D) for each
Z-D Benefit Plan with respect to which a Form 5500 has been filed, no material
change has occurred with respect to the matters covered by the most recent Form
since the date thereof; (E) no "reportable event" (as such term is defined in
ERISA section 4043), or "accumulated funding deficiency" (as such term is
defined in ERISA section 302 and Code section 412 (whether or not waived)) has
occurred with respect to any Z-D Benefit Plan; (F) neither Z-D nor any of its
Subsidiaries has engaged in a transaction with respect to any Z-D Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, could subject the Company or any subsidiary to a tax or penalty imposed
by either Section 4975 of the Code or Section 502(i) of ERISA in an amount which
would be material; (G) no Z-D Benefit Plan provides retiree welfare benefits and
neither Z-D nor any of its Subsidiaries have any obligation to provide any
retiree welfare benefits other than as required by Section 4980B of the Code;
(H) neither Z-D nor any member of its Controlled Group has engaged in, or is a
successor or parent corporation to an entity that has engaged in, a transaction
described in Sections 4069 or 4212(c) of ERISA; and (I) the compensation of each
employee of Z-D or any of its Subsidiaries has been, or will be, fully
deductible by Z-D or any of its Subsidiaries notwithstanding the provisions of
Section 162(m) of the provisions of the Code and the regulations promulgated
thereunder.
(iv) No Z-D Benefit Plan is subject to Title IV of ERISA (including without
limitation any multiemployer plan within the meaning of section 4001(a)(3) of
ERISA, and none of Z-D, its Subsidiaries or any member of their Controlled Group
has incurred any liability under Title IV of ERISA that remains unsatisfied.
(v) With respect to any Z-D Benefit Plan, (A) no actions, suits or claims
(other than routine claims for benefits in the ordinary course) are pending or,
to the knowledge of Z-D, threatened, (B) no facts or circumstances exist to the
knowledge of Z-D that could reasonably be expected to give rise to any such
actions, suits or claims, and (C) no written or oral communication has been
received from the PBGC in respect of any Z-D Benefit Plan subject to Title IV of
ERISA concerning the funded status of any such plan or any transfer of assets
and liabilities from any such plan in connection with the transactions
contemplated herein.
(vi) Except as set forth on Schedule 3.2(n), no Z-D Benefit Plan exists
that could result in the payment to any present or former employee of Z-D or any
of its Subsidiaries of any money or other property or accelerate or provide any
other rights or benefits to any present or former employee of Z-D or any of its
Subsidiaries as a result of the transaction contemplated by this Agreement.
Except as set forth on Schedule 3.2(n), there is no contract, plan or
arrangement (written or otherwise) covering any employee or former employee of
Z-D or any of its Subsidiaries that, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to the
terms of Section 280G of the Code.
(o) Insurance.
All primary, excess and umbrella policies, bonds and other forms of
insurance currently owned or held by or on behalf of and/or providing insurance
coverage to Z-D and its Subsidiaries and their respective directors, officers,
agents and employees are in full force and effect, except for any such forms of
insurance the absence of which would not likely have a Material Adverse Effect
on Z-D. Z-D has not received a notice of default under any such policy and has
not received written notice of any pending or threatened termination or
cancellation, coverage limitation or reduction, or material premium increase
with respect to any such policy. Except as set forth in Section 3.2(o) of the
Z-D Disclosure Schedule, no letters of credit have been posted and no cash has
been restricted to support any reserves for insurance.
(p) Properties.
Except for properties and assets disposed of in the ordinary course of
business consistent with past practices, since December 31, 1999, Z-D and its
Significant Subsidiaries have good and marketable title, free and clear of all
liabilities and liens, to all their material properties and assets, whether
tangible or
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intangible, real, personal or mixed. All material buildings, fixtures, equipment
and other property and assets held under leases by Z-D or any of its Significant
Subsidiaries are held under valid instruments enforceable by Z-D or such
Significant Subsidiary in accordance with their respective terms. Substantially
all of Z-D's and its Significant Subsidiaries' equipment in regular use has been
well maintained and is in good and serviceable condition, reasonable wear and
tear excepted.
(q) Affiliate Transactions.
Except as set forth on Section 3.2(q) of the Z-D Disclosure Schedule there
is no agreement, arrangement or transaction between Z-D or any Subsidiary of Z-D
(other than Z-D Events, Inc.) and Z-D Majority Stockholder or any Subsidiary of
Z-D Majority Stockholder. Z-D has no loans in excess of $25,000 of principal and
interest outstanding to any of its employees, officers or directors, except as
disclosed in the Z-D Filed SEC Reports.
(r) Restructuring Transactions.
(i) In accordance with the plan of restructuring previously approved by the
Board of Directors and stockholders of Z-D, prior to the date hereof Z-D has
sold all of the businesses listed on Section 3.2(r) of the Z-D Disclosure
Schedule (the "Divested Businesses"). Set forth on Section 3.2(r) of the Z-D
Disclosure Schedule is a list of all agreements, arrangements and understandings
to which Z-D or any of its Subsidiaries is a party or pursuant to which they may
have any obligations or liabilities (whether absolute, contingent or otherwise
and whether or not required to be set forth or reflected in a consolidated
balance sheet of Z-D prepared in accordance with GAAP) relating to the Divested
Businesses or the sale thereof other than obligations or liabilities against
which Z-D is indemnified by the buyer thereof (the "Divestiture Agreements").
Z-D has provided to CNET true and correct copies of the Divestiture Agreements.
All of the Divestiture Agreements are in full force and effect and are
unmodified. Except for obligations and liabilities arising under or described in
the Divestiture Agreements, neither Z-D nor any of its Subsidiaries has any
liabilities or obligations of any nature (whether absolute, contingent or
otherwise and whether or not required to be set forth or reflected in a
consolidated balance sheet of Z-D prepared in accordance with GAAP) arising out
of or relating to the Divested Businesses or their respective businesses,
assets, liabilities or obligations or the sale thereof other than obligations or
liabilities against which Z-D is indemnified by the buyer thereof. Except as set
forth in Section 3.2(r) of the Z-D Disclosure Schedule, no claims have been
asserted or threatened against Z-D or any of its Subsidiaries under any of the
Divestiture Agreements (including, without limitation, any claims in respect of
a breach of any term of any such agreement or for any indemnification provided
by Z-D or any of its Subsidiaries in any Divestiture Agreement) nor to the
knowledge of Z-D is there any basis for any such claim, in each case other than
immaterial claims arising following the date hereof and prior to the Effective
Time.
(ii) Except as disclosed in the Spin Co. S-1 as filed with the SEC prior to
the date hereof, (A) Spin Co. and its Subsidiaries do not own or have any rights
to use any properties, assets or other rights used in the conduct of the
business of Z-D or any of Z-D's Subsidiaries (other than Spin Co. and Spin Co.'s
Subsidiaries), (B) there are no agreements, arrangements, understandings or
other transactions between Spin Co. or any of its Subsidiaries, on the one hand,
and Z-D and any of its Subsidiaries (other than Spin Co. and its Subsidiaries)
on the other and (C) since December 31, 1999 no officer or key employee of Z-D
or any of its Subsidiaries (other than Spin Co. and its Subsidiaries) has
transferred to, or otherwise become an employee or consultant of, Spin Co. or
any of its Subsidiaries. The assets of Spin Co. and its Subsidiaries consist
entirely of (i) assets reflected as "Net assets of discontinued operations" on
the consolidated balance sheets of Z-D included in the Z-D Filed SEC Reports
(the "Z-D Financial Statements") and (ii) assets acquired by Spin Co. and its
Subsidiaries after the date of the Z-D Financial Statements. Since the date of
the Z-D Financial Statements, neither Z-D nor any of its Subsidiaries (other
than Spin Co. and its Subsidiaries) has transferred any assets or other rights
to Spin Co. and its Subsidiaries except cash transfers prior to the date hereof
that are fully reflected in the net inter-company payable from Spin Co. and its
Subsidiaries to Z-D. Z-D and its Subsidiaries (other than Spin Co. and its
Subsidiaries) do not have any liabilities or other obligations (whether
absolute, contingent or otherwise and whether or not required to be set forth in
or reflected on a balance sheet
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prepared in accordance with GAAP) arising out of or relating to Spin Co. or its
Subsidiaries or their respective properties, assets and other activities other
than (i) those to be expressly provided for in the Distribution Agreement (as
defined below) and (ii) those for which Spin Co. will indemnify Z-D and its
Subsidiaries pursuant to the Distribution Agreement. For all purposes of this
Agreement, the Subsidiaries of Spin Co. will include those entities being
transferred to Spin Co. pursuant to the Distribution Agreement. All outstanding
indebtedness of Spin Co. and its Subsidiaries (including the $150,000,000
interim debt facility) is non-recourse to Z-D and its Subsidiaries (other than
Spin Co. and its Subsidiaries). The Preliminary Spin-Off Prospectus included as
part of the Spin Co. S-1 as filed with the SEC prior to the date hereof
accurately describes in all material respects Z-D's current plans with respect
to the Spin-Off and the Cash Dividend. Section 3.2(r)(ii) of the Z-D Disclosure
Schedule sets forth Z-D's good faith estimate of the amounts set forth therein
and Z-D knows of no other fees or expenses payable by Z-D relating to the
Spin-Off, the restructuring or the Merger which have not been included therein.
At the time of the Spin-Off and after giving effect to the contemplated
borrowings and the payment of the proceeds thereof to Z-D, Spin Co. will be
Solvent (as defined in Section 8.12) and will have a net worth (fair market
value of assets minus fair market value of liabilities) of at least $1.00.
(s) Valuation Methodology.
Section 3.2(s) of the Z-D Disclosure Schedule sets forth the valuation
methodology used to establish the relationship between the Z-D Exchange Ratio
and the Z-D Net Exchange Ratio.
(t) Brokers or Finders.
No agent, broker, investment banker, financial advisor or other firm or
Person is or will be entitled to any broker's or finder's fee or any other
similar commission or fee in connection with any of the transactions
contemplated by this Agreement, based upon arrangements made by or on behalf of
Z-D, except Morgan Stanley Dean Witter, whose fees and expenses will be paid by
Z-D. Z-D has provided to CNET a true, correct and complete copy of Z-D's
agreement with Morgan Stanley Dean Witter relating to this Agreement, the
Merger, the Spin-Off and the Divestitures.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 COVENANTS OF CNET.
During the period from the date of this Agreement and continuing until the
Effective Time, CNET agrees as to itself and its Subsidiaries that (except as
expressly contemplated or permitted by this Agreement or Section 4.1 (including
its subsections) of the CNET Disclosure Schedule or to the extent that Z-D shall
otherwise consent in writing, such consent not to be unreasonably withheld):
(a) Ordinary Course.
CNET and its Subsidiaries shall carry on their respective businesses in the
usual, regular and ordinary course in all material respects, in substantially
the same manner as heretofore conducted, and shall use its reasonable best
efforts to preserve intact their present lines of business, maintain their
rights and franchises and preserve their relationships with customers, suppliers
and others having business dealings with them to the end that their ongoing
businesses shall not be impaired in any material respect at the Effective Time.
(b) Dividends; Repurchases of Share Capital.
CNET shall not, and shall not propose to, (i) declare or pay any dividends
on or make other distributions in respect of any of its outstanding shares of
capital stock; (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for, shares of its capital stock; or (iii)
repurchase, redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital stock
pursuant to any tender offer or exchange offer.
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(c) Governing Documents.
Except to the extent required to comply with their respective obligations
under this Agreement or with applicable law, CNET and Merger Sub shall not amend
or propose to amend their respective certificates of incorporation or bylaws in
a manner that could reasonably be expected to materially and adversely affect
CNET's or Merger Sub's ability to effect the consummation of the Merger.
(d) No Acquisitions.
CNET shall not acquire or agree to acquire by merger or consolidation, or
by purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association, joint venture or other business organization or division thereof or
otherwise acquire or agree to acquire any assets (excluding the acquisition of
assets used in the operations of the business of CNET and its Subsidiaries in
the ordinary course, which assets do not constitute a business unit, division or
all or substantially all of the assets of the transferor) to the extent such
acquisition could reasonably be expected to materially delay or interfere with
the consummation of the Merger; provided, however, that the foregoing shall not
prohibit (x) internal reorganizations or consolidations involving existing
Subsidiaries of CNET or (y) the creation of new Subsidiaries of CNET organized
to conduct or continue activities otherwise permitted by this Agreement;
provided, further, however, that CNET shall not be permitted to acquire that
certain company set forth on Section 4.1(d) of the CNET Disclosure Schedule. For
the avoidance of doubt, the parties agree that an acquisition would "materially
delay" consummation of the Merger if pro forma financial statements would be
required to be included in the relevant disclosure document relating to such
acquisition and complying with such a requirement would delay clearance of the
Form S-4 (as defined below) by the SEC.
(e) Qualification.
CNET shall use its reasonable best efforts not to, and shall use its
reasonable best efforts not to permit any of its Subsidiaries to, take any
action (including any action otherwise permitted by this Section 4.1) that would
prevent or impede the Merger from qualifying as a reorganization under Section
368(a) of the Code.
(f) Benefits Maintenance.
CNET shall maintain for a period of one year after the Effective Time,
without interruption, employee compensation and benefit plans, programs and
policies and fringe benefits (including post-employment welfare benefits but
excluding equity-based arrangements and compensation plans) that will provide
benefits to each employee of Z-D who continues employment with CNET after the
Effective Time that are in the aggregate no less favorable than those provided
to similarly situated CNET employees pursuant to employee compensation and
benefit plans, programs and policies, and fringe benefits of CNET as in effect
from time to time. Employees of Z-D who continue employment with CNET shall be
given credit for all service with Z-D (or service credited by Z-D for similar
plans, programs or policies) under all employee compensation and benefit plans,
programs and policies and fringe benefits of CNET in which they become
participants for purposes of eligibility, vesting and benefit accrual (other
than benefit accrual under tax qualified defined benefit plans which would
provide a duplication of benefits to employees of Z-D).
(g) Income Tax Elections.
CNET shall not (i) change its fiscal year, (ii) make or change any Tax
election, (iii) change any method of Tax accounting, (iv) enter into any closing
agreement relating to any Tax, or (v) surrender any right to claim a Tax Refund,
that, individually or in the aggregate, in the United States or elsewhere, would
be material to CNET.
(h) No Related Actions.
CNET will not, and will not permit any of its Subsidiaries to, agree or
commit to do any of the foregoing.
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4.2 COVENANTS OF Z-D.
During the period from the date of this Agreement and continuing until the
Effective Time, Z-D agrees as to itself and its Subsidiaries that (except as
expressly contemplated or permitted by this Agreement or Section 4.2 (including
its subsections) of the Z-D Disclosure Schedule or to the extent that CNET shall
otherwise consent in writing, which consent shall not be unreasonably withheld):
(a) Ordinary Course.
(i) Except in connection with the Spin-Off and the Cash Dividend, Z-D and
its Subsidiaries shall carry on their respective businesses in the usual,
regular and ordinary course in all material respects, in substantially the same
manner as heretofore conducted, and shall use their reasonable best efforts to
preserve intact their present lines of business, maintain their rights and
franchises and preserve their relationships with customers, suppliers and others
having business dealings with them (including, without limitation, by delaying
payment of accounts payable) and retain the services of their respective
officers and key employees and consultants, to the end that their ongoing
businesses shall not be impaired in any material respect at the Effective Time.
(ii) Other than in connection with acquisitions permitted by Section 4.2(e)
or investments permitted by Section 4.2(g), Z-D shall not, and shall not permit
any of its Subsidiaries to, (A) enter into any new material line of business or
(B) incur or commit to any capital expenditures or any obligations or
liabilities in connection therewith other than capital expenditures and
obligations or liabilities in connection therewith as disclosed in Section
4.2(a) of the Z-D Disclosure Schedule or obligations or liabilities in non-
material amounts incurred or committed to in the ordinary course of business
consistent with past practice.
(b) Dividends; Changes in Share Capital.
Z-D shall not, and shall not permit any of its Subsidiaries to, and shall
not propose to, (i) declare or pay any dividends on or make other distributions
in respect of any of its capital stock, except the Spin-Off and the Cash
Dividend in the manner provided in Section 5.12; (ii) split, combine or
reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for, shares of its capital stock, except for any such transaction by a wholly
owned Subsidiary of Z-D which remains a wholly owned Subsidiary after
consummation of such transaction; or (iii) except as set forth in Section 4.2(b)
of the Z-D Disclosure Schedule, repurchase, redeem or otherwise acquire any
shares of its capital stock or any securities convertible into or exercisable
for any shares of its capital stock, except for the purchase from time to time
by Z-D of Z-D Common Stock and Z-D Net Common Stock in connection with the Z-D
Benefit Plans in the ordinary course of business consistent with past practice.
(c) Issuance of Securities.
Z-D shall not, and shall not permit any of its Subsidiaries to, issue,
deliver or sell, or authorize or propose the issuance, delivery or sale of, any
shares of its capital stock of any class, any Z-D Voting Debt or any securities
convertible into or exercisable for, or any rights, warrants, calls or options
to acquire, any such shares or Z-D Voting Debt, or enter into any commitment,
arrangement, undertaking or agreement with respect to any of the foregoing,
other than (i) the issuance of Z-D Common Stock and Z-D Net Common Stock upon
the exercise of Z-D Stock Options in accordance with their present terms or
pursuant to Z-D Stock Options or other stock based awards granted pursuant to
clause (ii) below, (ii) the granting of up to 100,000 Z-D Stock Options or other
stock based awards of or to acquire shares of Z-D Net Common Stock granted under
Z-D Stock Option Plans outstanding on the date hereof in the ordinary course of
business consistent with past practice, (iii) issuances by a wholly owned
Subsidiary of Z-D of capital stock to such Subsidiary's parent or another wholly
owned Subsidiary of Z-D, (iv) pursuant to acquisitions and investments as
disclosed in Section 4.2(e) or 4.2(g) of the Z-D Disclosure Schedule or the
financings therefore, (v) in connection with the Spin-Off, or (vi) issuances
disclosed in Section 4.2(c) of the Z-D Disclosure Schedule.
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(d) Governing Documents.
Except as set forth in Section 4.2(d) of the Z-D Disclosure Schedule or to
the extent required to comply with their respective obligations hereunder or
with applicable law, Z-D and its Subsidiaries shall not amend or propose to
amend their respective certificates of incorporation or bylaws.
(e) No Acquisitions.
Other than acquisitions disclosed in Section 4.2(e) of the Z-D Disclosure
Schedule and the restructurings required in connection with the Spin-Off, Z-D
shall not, and shall not permit any of its Subsidiaries to, acquire or agree to
acquire by merger or consolidation, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, joint venture, association or
other business organization or division thereof or otherwise acquire or agree to
acquire any assets (excluding the acquisition of assets used in the operations
of the business of Z-D and its Subsidiaries in the ordinary course, which assets
do not constitute a business unit, division or all or substantially all of the
assets of the transferor); provided, however, that notwithstanding anything
herein to the contrary, (i) between the date hereof and 120 days after the date
hereof, Z-D shall be permitted to make acquisitions provided that (x) no cash
consideration is to be paid or debt incurred in connection therewith unless Z-D
reasonably believes that it will not have any debt outstanding at the Effective
Time, following payment of all expenses set forth in Section 3.2(r) of the Z-D
Disclosure Schedule, and (y) the consideration to be paid by Z-D in any
individual acquisition is less than $25 million; and provided further that the
aggregate consideration to be paid by Z-D in all such acquisitions is not more
than $50 million and (ii) if the Closing does not take place within 120 days of
the date hereof, the $50 million referred to in clause (i) above shall be
increased to $70 million and (iii) in any event, the acquired company shall not
be an Affiliate of Z-D Majority Stockholder; provided, further, that issuance of
such shares would not cause Z-D Majority Stockholder to own of record, for
purposes of the Z-D Stockholders Meeting, less than a majority of the voting
power of the shares of Z-D Common Stock and Z-D Net Common Stock entitled to
vote at the Z-D Stockholders Meeting; and provided, further, however, that Z-D
shall not be permitted to acquire that certain company set forth in Schedule
4.1(d) of the CNET Disclosure Schedule prior to the Effective Time. Without
limiting the foregoing, Z-D shall not, and shall not permit any of its
Subsidiaries to, engage in (x) internal reorganizations or consolidations
involving existing Subsidiaries of Z-D (other than required in connection with
the Spin-Off contemplated by the Distribution Agreement) or (y) the creation of
new Subsidiaries of Z-D organized to conduct or continue activities otherwise
permitted by this Agreement.
(f) No Dispositions.
Other than as disclosed in Section 4.2(f) of the Z-D Disclosure Schedule,
Z-D shall not, and shall not permit any of its Subsidiaries to, sell, lease or
otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of
its assets (including capital stock of Subsidiaries of Z-D) except for the
Spin-Off or the Cash Dividend and for sales in the ordinary course of business.
(g) Investments; Indebtedness.
Z-D shall not, and shall not permit any of its Subsidiaries to, other than
as disclosed in Section 4.2(g) of the Z-D Disclosure Schedule, make any loans,
advances or capital contributions to, or investments in, any Person, incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
Person, issue or sell any debt securities or warrants or other rights to acquire
any debt securities of Z-D or any of its Subsidiaries, guarantee any debt
securities of another person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another Person (other than any
wholly owned Subsidiary) or enter into any arrangement having the economic
effect of any of the foregoing (collectively, "Z-D Indebtedness"), except for
the financings by Spin Co. that are non-recourse to Z-D and its Subsidiaries
(other than Spin Co. and its Subsidiaries) in connection with the Spin-Off and
except that Z-D may, with the prior consent of CNET, which will not be
unreasonably withheld, enter into and borrow up to $10 million in indebtedness
pursuant to a line of credit facility that by its terms is not due until at
least six months following the Closing.
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(h) Tax-Free Qualification.
Z-D shall use its reasonable best efforts not to, and shall use its
reasonable best efforts not to permit any of its Subsidiaries to, take any
action (including any action otherwise permitted by this Section 4.2)(a) that
would prevent or impede the Merger from qualifying as a reorganization under
Section 368(a) of the Code.
(i) Compensation.
Except as required by law or by the terms of any collective bargaining
agreement or other agreement currently in effect between Z-D or any Subsidiary
of Z-D and any executive officer or employee thereof, Z-D shall not increase the
salary of any director, executive officer or key employee of Z-D or any
Significant Subsidiary of Z-D (except in the ordinary course of business
consistent with past practice), or make any increase in or commitment to
increase any employee benefits or bonuses, accelerate the exercisability of any
Z-D Stock Options, provide any current or former employee a cash payment in
cancellation of any Z-D Stock Option, make any severance payments, adopt or
amend or make any commitment to adopt or amend any Z-D Benefit Plan or any plan,
program or arrangement that would be a Z-D Benefit Plan if in effect as of the
date hereof or make any contribution, other than regularly scheduled
contributions, to any Z-D Benefit Plan. Any option granted or committed to be
granted after the date hereof shall not accelerate as a result of the approval
or consummation of any transaction contemplated by this Agreement.
(j) Accounting Methods; Income Tax Elections.
Except as disclosed in the Z-D SEC Reports filed prior to the date of this
Agreement, or as required by a Governmental Entity, Z-D shall not change its
methods of accounting in effect at December 31, 1999, except as required by
changes in GAAP as concurred in by Z-D's independent public accountants. Z-D
shall not (i) change its fiscal year, (ii) make or change any Tax election,
(iii) change any annual Tax accounting period, (iv) change any method of Tax
accounting, (v) file any amended Tax Return, (vi) enter into any closing
agreement relating to any Tax, (vii) settle any material Tax claim or
assessment, or (viii) surrender any right to claim a Tax Refund, that,
individually or in the aggregate, in the United States or elsewhere, would be
material to Z-D or the Surviving Corporation.
(k) Certain Agreements and Arrangements.
Except as set forth in Section 4.2(k) of the Z-D Disclosure Schedule, Z-D
shall not, and shall not permit any of its Subsidiaries to, enter into any
agreements or arrangements that (i) provide exclusive rights to any third party,
including in any territory; (ii) could, after the Effective Time, reasonably be
expected to limit or restrict CNET or any of its Affiliates (including CNET) or
any successor thereto, from engaging or competing in any line of business or in
any geographic area; or (iii) would be a "material contract" or would have been
required to be included in Section 3.2(m) of the Z-D Disclosure Schedule had
such contract been in existence on the date of this Agreement.
(l) Settlements.
Z-D shall not, and shall not permit any of its Subsidiaries to, settle or
compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit, controversy or similar dispute or proceeding.
(m) Spin Co.
Z-D will not, and will not permit any of its Subsidiaries to, take any
action that would result in the representations and warranties contained in
Section 3.2(r) being untrue in any respect immediately prior to the Effective
Time nor will Z-D or any Subsidiary of Z-D (other than Spin Co.) transfer any
property, assets, employees or other rights to Spin Co. or any of its
Subsidiaries (other than assets primarily related to Spin Co. and reflected on
the Z-D Financial Statements as "net assets of discontinued operations" and cash
transfers to Spin Co. that are reflected in Section 5.12).
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(n) No Related Actions.
Z-D will not, and will not permit any of its Subsidiaries to, agree or
commit to do any of the foregoing.
4.3 GOVERNMENTAL FILINGS.
Each party shall (a) confer on a reasonable basis with the other and (b)
report to the other (to the extent permitted by law or regulation or any
applicable confidentiality agreement) on operational matters. Z-D and CNET shall
file all reports required to be filed by each of them with the SEC (and all
other Governmental Entities) between the date of this Agreement and the
Effective Time and shall, if requested by the other party and to the extent
permitted by law or regulation or any applicable confidentiality agreement,
deliver to the other party copies of all such reports, announcements and
publications promptly after such request.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF PROXY STATEMENT; STOCKHOLDERS MEETINGS.
(a) As promptly as reasonably practicable following the date hereof, CNET
and Z-D shall cooperate in preparing and each shall cause to be filed with the
SEC mutually acceptable proxy materials which shall constitute the joint proxy
statement/prospectus relating to the matters to be submitted to the CNET
stockholders at the CNET Stockholders Meeting (as defined in Section 5.1(c)) and
the matters to be submitted to the Z-D stockholders at the Z-D Stockholders
Meeting (defined in Section 5.1(b)) (such proxy statement/prospectus, and any
amendments or supplements thereto, the "Joint Proxy Statement/ Prospectus") and
CNET shall prepare and file with the SEC a registration statement on Form S-4
with respect to the issuance of CNET Common Stock in the Merger (such Form S-4,
and any amendments or supplements thereto, the "Form S-4"). The Joint Proxy
Statement/Prospectus will be included as a prospectus in and will constitute a
part of the Form S-4 as CNET's prospectus. Each of CNET and Z-D shall use
reasonable best efforts to have the Joint Proxy Statement/Prospectus cleared by
the SEC and the Form S-4 declared effective by the SEC and to keep the Form S-4
effective as long as is necessary to consummate the Merger and the transactions
contemplated hereby and thereby. CNET and Z-D shall, as promptly as practicable
after receipt thereof, provide the other party copies of any written comments
and advise the other party of any oral comments, with respect to the Joint Proxy
Statement/Prospectus or Form S-4 received from the SEC. The parties shall
cooperate and provide the other with a reasonable opportunity to review and
comment on any amendment or supplement to the Joint Proxy Statement/ Prospectus
and the Form S-4 prior to filing such with the SEC, and will provide each other
with a copy of all such filings made with the SEC. Notwithstanding any other
provision herein to the contrary, no amendment or supplement (including by
incorporation by reference) to the Joint Proxy Statement/ Prospectus or the Form
S-4 shall be made without the approval of both parties, which approval shall not
be unreasonably withheld or delayed; provided that with respect to documents
filed by a party which are incorporated by reference in the Form S-4 or Joint
Proxy Statement/Prospectus, this right of approval shall apply only with respect
to information relating to the other party or its business, financial condition
or results of operations. CNET will use reasonable best efforts to cause the
Joint Proxy Statement/Prospectus to be mailed to CNET stockholders, and Z-D will
use reasonable best efforts to cause the Joint Proxy Statement/Prospectus to be
mailed to Z-D's stockholders, in each case as promptly as practicable after the
Form S-4 is declared effective under the Securities Act. CNET shall also take
any action (other than qualifying to do business in any jurisdiction in which it
is not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities laws in connection
with the Merger and each of Z-D and CNET shall furnish all information
concerning it and the holders of its capital stock as may be reasonably
requested in connection with any such action. Each party will advise the other
party, promptly after it receives notice thereof, of the time when the Form S-4
has become
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effective, the issuance of any stop order, the suspension of the qualification
of the CNET Common Stock issuable in connection with the Merger for offering or
sale in any jurisdiction, or any request by the SEC for amendment of the Joint
Proxy Statement/Prospectus or the Form S-4. If at any time prior to the
Effective Time any information relating to CNET or Z-D, or any of their
respective affiliates, officers or directors, should be discovered by CNET or
Z-D, which information should be set forth in an amendment or supplement to
either the Form S-4 or the Joint Proxy Statement/Prospectus so that any of such
documents would not include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other party hereto and, to
the extent required by law, rules or regulations, an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC and
disseminated to the stockholders of CNET and Z-D.
(b) Z-D shall duly take all lawful action to call, give notice of, convene
and hold a meeting of its stockholders on a date determined in accordance with
the mutual agreement of Z-D and CNET (the "Z-D Stockholders Meeting") for the
purpose of obtaining the Z-D Stockholder Approval and shall its use reasonable
best efforts to solicit the Z-D Stockholder Vote; and the Board of Directors of
Z-D shall recommend adoption of this Agreement by the stockholders of Z-D (the
"Z-D Recommendation"), and shall not, unless CNET makes a change in the CNET
Recommendation, (x) withdraw, modify or qualify (or propose to withdraw, modify
or qualify) in any manner adverse to CNET such recommendation or (y) take any
action or make any statement (other than any action described in the foregoing
clause (x)) in connection with the Z-D Stockholders Meeting inconsistent with
such recommendation (collectively, a "Change in the Z-D Recommendation");
provided, however, any action or statement under clause (y) will not be deemed a
Change in the Z-D Recommendation provided (I) such action or statement is taken
or made pursuant to advice from Sullivan & Cromwell, counsel to Z-D, to the
effect that such action or statement is required by applicable law, (II) if a
Z-D Public Proposal has been made and not rescinded, such action or statement
shall not relate to such Z-D Public Proposal other than any factual statement
required by any regulatory authority (including the SEC) and shall in any event
include a rejection of such Z-D Public Proposal and (III) such action or
statement also includes a reaffirmation of the Z-D Board of Directors' approval
of the Merger and the other transactions contemplated hereby and recommendation
to the Z-D stockholders to adopt this Agreement provided further, however, that,
notwithstanding clause (I), (II) or (III), the Board of Directors of Z-D may
make a Change in the Z-D Recommendation pursuant to Section 5.4 hereof.
Notwithstanding any Change in the Z-D Recommendation, this Agreement shall be
submitted to the stockholders of Z-D at the Z-D Stockholders Meeting for the
purpose of adopting this Agreement and nothing contained herein shall be deemed
to relieve Z-D of such obligation.
(c) CNET shall duly take all lawful action to call, give notice of, convene
and hold a meeting of its stockholders on a date determined in accordance with
the mutual agreement of CNET and Z-D (the "CNET Stockholders Meeting") for the
purpose of obtaining the CNET Stockholder Approval with respect to the
transactions contemplated by this Agreement and shall use its reasonable best
efforts to solicit the CNET Stockholder Vote, and the Board of Directors of CNET
shall recommend approval of the issuance of CNET Common Stock pursuant to this
Agreement by the stockholders of CNET (the "CNET Recommendation"), and shall
not, unless Z-D makes a Change in the Z-D Recommendation, (x) withdraw, modify
or qualify (or propose to withdraw, modify or qualify) in any manner adverse to
Z-D such recommendation or (y) take any action or make any statement (other than
any action described in the foregoing clause (x)) in connection with the CNET
Stockholders Meeting inconsistent with such recommendation (collectively, a
"Change in the CNET Recommendation"); provided, however, any action or statement
under clause (y) will not be deemed a Change in the CNET Recommendation provided
(I) such action or statement is taken or made pursuant to advice from Simpson
Thacher & Bartlett, counsel to CNET, to the effect that such action or statement
is required by applicable law, (II) if a CNET Public Proposal has been made and
not rescinded, such action or statement shall not relate to such CNET Public
Proposal other than any factual statement required by any regulatory authority
(including the SEC) and shall in any event include a rejection of such CNET
Public Proposal and (III) such action or statement also includes a reaffirmation
of the CNET Board of Directors' approval of the Merger and
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the other transactions contemplated hereby and recommendation to the CNET
stockholders to approve the issuance of CNET Common Stock pursuant to this
Agreement; provided further, however, that, notwithstanding clause (I), (II) or
(III), the Board of Directors of CNET may make a Change in the CNET
Recommendation pursuant to Section 5.4 hereof.
Notwithstanding any Change in the CNET Recommendation, this Agreement shall
be submitted to the stockholders of CNET at the CNET Stockholders Meeting for
the purpose of approving the issuance of CNET Common Stock pursuant to this
Agreement and nothing contained herein shall be deemed to relieve CNET of such
obligation.
5.2 ACCESS TO INFORMATION.
Upon reasonable notice, each party shall (and shall cause its Subsidiaries
to) afford to the officers, employees, accountants, counsel, financial advisors
and other representatives of the other party reasonable access during normal
business hours, during the period prior to the Effective Time, to all its
properties, books, contracts, commitments, records, officers and employees and,
during such period, such party shall (and shall cause its Subsidiaries to)
furnish promptly to the other party (a) a copy of each report, schedule,
registration statement and other document filed, published, announced or
received by it during such period pursuant to the requirements of Federal or
state securities laws and the HSR Act and (b) all other information concerning
it and its business, properties and personnel as such other party may reasonably
request; provided, however, that either party may restrict the foregoing access
to the extent that (i) any law, treaty, rule or regulation of any Governmental
Entity applicable to such party or any contract requires such party or its
Subsidiaries to restrict or prohibit access to any such properties or
information or (ii) the information is subject to confidentiality obligations to
a third party. The parties will hold any such information obtained pursuant to
this Section 5.2 in confidence in accordance with, and shall otherwise be
subject to, the provisions of the confidentiality letter dated June 28, 2000,
between Z-D and CNET (the "Confidentiality Agreement"), which Confidentiality
Agreement shall continue in full force and effect. Any investigation by either
of CNET or Z-D shall not affect the representations and warranties of the other.
5.3 REASONABLE BEST EFFORTS.
(a) Subject to the terms and conditions of this Agreement, each party will
use its reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under this
Agreement and applicable laws and regulations to consummate the Merger and the
other transactions contemplated by this Agreement as soon as practicable after
the date hereof, including (i) preparing and filing as promptly as practicable
all documentation to effect all necessary applications, notices, petitions,
filings and other documents and to obtain as promptly as practicable all
Necessary Consents and all other consents, waivers, licenses, orders,
registrations, approvals, permits, rulings, authorizations and clearances
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement (collectively, the "Required
Approvals") and (ii) taking all reasonable steps as may be necessary to obtain
all such Necessary Consents and the Required Approvals. In furtherance and not
in limitation of the foregoing, each party hereto agrees to make, as promptly as
practicable, (i) an appropriate filing of a Notification and Report Form
pursuant to the HSR Act with respect to the transactions contemplated hereby
(which filing shall be made in any event within 10 Business Days of the date
hereof), and (ii) all other necessary filings with other Governmental Entities
relating to the Merger, and, in each case, to supply as promptly as practicable
any additional information and documentary material that may be requested
pursuant to such laws or by such authorities and to use reasonable best efforts
to cause the expiration or termination of the applicable waiting periods under
the HSR Act and the receipt of Required Approvals under such other laws or from
such authorities as soon as practicable. Notwithstanding the foregoing, nothing
in this Section or the other provisions of this Agreement shall require, or be
deemed to require, (x) CNET or Z-D or any of their respective Subsidiaries to
agree to divest or hold separate any business or assets or to effect any such
divestiture or action, except in each
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case that the parties agree after consultation is not material and does not
affect any of the contemplated benefits of the Merger, (y) CNET or Z-D or any of
their Subsidiaries to agree to any restriction or condition on the conduct of
their or their Subsidiaries' businesses, except in each case that the parties
agree after consultation is not material and does not affect any of the
contemplated benefits of the Merger or (z) CNET or Z-D to take any other action
if doing so would, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect on CNET after the Merger. Neither Z-D nor
CNET shall take or agree to take any action identified in clause (x), (y) or (z)
of the immediately preceding sentence without the prior written consent of the
other party.
(b) Each of Z-D and CNET shall, in connection with the efforts referenced
in Section 5.3(a) to obtain all Required Approvals, use its reasonable best
efforts to (i) cooperate in all respects with each other in connection with any
filing or submission and in connection with any investigation or other inquiry,
including any proceeding initiated by a private party; (ii) promptly inform the
other party of any communication received by such party from, or given by such
party to, the Antitrust Division of the Department of Justice (the "DOJ"), the
Federal Trade Commission (the "FTC") or any other Governmental Entity and of any
material communication received or given in connection with any proceeding by a
private party, in each case regarding any of the transactions contemplated
hereby; and (iii) consult with each other in advance to the extent practicable
of any meeting or conference with, the DOJ, the FTC or any such other
Governmental Entity or, in connection with any proceeding by a private party,
with any other Person, and to the extent permitted by the DOJ, the FTC or such
other applicable Governmental Entity or other Person, give the other party the
opportunity to attend and participate in such meetings and conferences.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Section 5.3(a) and (b), if any administrative or judicial action or
proceeding, including any proceeding by a private party, is instituted (or
threatened to be instituted) challenging any transaction contemplated by this
Agreement as violative of any Regulatory Law (as defined below), or if any
statute, rule, regulation, executive order, decree, injunction or administrative
order is enacted, entered, promulgated or enforced by a Governmental Entity
which would make the Merger or the other transactions contemplated hereby
illegal or would otherwise prohibit or materially impair or delay the
consummation of the Merger or the other transactions contemplated hereby, each
of Z-D and CNET shall cooperate in all respects with each other and, subject to
Section 5.3(a), seek to contest and resist any such action or proceeding and to
have vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent, that is in effect and
that prohibits, prevents or restricts consummation of the Merger or the other
transactions contemplated by this Agreement and to have such statute, rule,
regulation, executive order, decree, injunction or administrative order
repealed, rescinded or made inapplicable so as to permit consummation of the
transactions contemplated by this Agreement. Notwithstanding the foregoing or
any other provision of this Agreement, nothing in this Section 5.3 shall limit a
party's right to terminate this Agreement pursuant to Section 7.1(b) or 7.1(c)
so long as such party has up to then complied with its obligations under this
Section 5.3. For purposes of this Agreement, "Regulatory Law" means the Sherman
Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, and all other federal, state and foreign, if any,
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines and other laws that are designed or intended to prohibit, restrict or
regulate (i) mergers, acquisitions or other business combinations, (ii) foreign
investments or (iii) actions having the purpose or effect of monopolization or
restraint of trade or lessening of competition.
(d) Each of Z-D and CNET and its respective Board of Directors shall, if
any state takeover statute or similar statute becomes applicable to this
Agreement, the Merger or any other transactions contemplated hereby or thereby,
take all action reasonably necessary to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise to minimize the
effect of such statute or regulation on this Agreement, the Merger and the other
transactions contemplated hereby.
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5.4 ACQUISITION PROPOSALS.
(a) Without limitation on any of such party's other obligations under this
Agreement (including under Article IV hereof), each of CNET and Z-D agrees that
neither it nor any of its Subsidiaries nor any of the officers and directors of
it or its Subsidiaries shall, and that it shall direct and use its reasonable
best efforts to cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly, (i)
initiate, solicit, encourage or knowingly facilitate any inquiries or the making
of any proposal or offer with respect to, or a transaction to effect, a merger,
reorganization, share exchange, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving it
or any of its Significant Subsidiaries, or any purchase or sale of 20% or more
of the consolidated assets (including without limitation stock of its
Subsidiaries) of such party and its Subsidiaries, taken as a whole, or any
purchase or sale of, or tender or exchange offer for, the equity securities of
such party that, if consummated, would result in any Person (or the stockholders
of such Person) beneficially owning securities representing 20% or more of the
total voting power of such party (or of the surviving parent entity in such
transaction) or any of its Significant Subsidiaries (any such proposal, offer or
transaction (other than a proposal or offer made by the other party or an
Affiliate thereof) being hereinafter referred to as an "Acquisition Proposal"),
(ii) have any discussion with or provide any confidential information or data to
any Person relating to an Acquisition Proposal, or engage in any negotiations
concerning an Acquisition Proposal, or knowingly facilitate any effort or
attempt to make or implement an Acquisition Proposal, (iii) approve or
recommend, or propose publicly to approve or recommend, any Acquisition Proposal
or (iv) approve or recommend, or propose to approve or recommend, or execute or
enter into, any letter of intent, agreement in principle, merger agreement,
acquisition agreement, option agreement or other similar agreement or propose
publicly or agree to do any of the foregoing related to any Acquisition
Proposal.
(b) Notwithstanding anything in this Agreement to the contrary, (i) each of
CNET and Z-D and its respective Board of Directors shall be permitted to, to the
extent applicable, comply with Rule 14d-9 and Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal, and (ii) each of CNET and
Z-D and their respective Board of Directors shall be permitted to comply with
federal securities laws, and (iii) each of CNET and Z-D or their respective
Board of Directors shall be permitted to engage in the matters set forth in
clauses (a) (ii) to (iv) above (other than executing or entering into, any
letter of intent, agreement in principle, merger agreement, acquisition
agreement, option agreement or other similar agreement) and to make a Change in
the CNET Recommendation or a Change in the Z-D Recommendation, as the case may
be, in connection with an Acquisition Proposal by any such Person, to the extent
that: (x) such Acquisition Proposal was not solicited by such party and such
party's Board of Directors, after consultation with outside counsel, determines
in good faith that the failure to take such action would be inconsistent with
its fiduciary duties under applicable law; (y) prior to providing any
information or data to any Person or entering into discussions or negotiations
with any Person, the subject party promptly notifies the other party of such
inquiries, proposals or offers received by, any such information requested from,
or any such discussions or negotiations sought to be initiated or continued
with, any of its representatives indicating, in connection with such notice, the
name of such Person and the material terms and conditions of any inquiries,
proposals or offers; and (z) the Board of Directors of the subject party shall
have received from such Person, prior to providing any information or data to
any Person in connection with an Acquisition Proposal by any such Person, an
executed confidentiality agreement having provisions that are customary in such
agreements, as advised by counsel, provided that if such confidentiality
agreement contains provisions that are less restrictive than the comparable
provision, or omits restrictive provisions, contained in the Confidentiality
Agreement, then the Confidentiality Agreement will be deemed to be amended to
contain only such less restrictive provisions or to omit such restrictive
provisions, as the case may be.
(c) Each of Z-D and CNET agrees that it will promptly keep the other party
informed of the status and terms of any such proposals or offers and the status
and terms of any such discussions or negotiations, and that prior to the time
that this Agreement is terminated in accordance with its terms, it will not sign
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any agreement inconsistent with the consummation of the Merger. Each of CNET and
Z-D agrees that it will, and will cause its officers, directors and
representatives to, immediately cease and cause to be terminated any activities,
discussions or negotiations existing as of the date of this Agreement with any
parties conducted heretofore with respect to any Acquisition Proposal. Each of
CNET and Z-D agrees that it will use reasonable best efforts to promptly inform
its directors, officers, key employees, agents and representatives of the
obligations undertaken in this Section 5.4. Nothing in this Section 5.4 shall
permit CNET or Z-D to terminate this Agreement (except as specifically provided
in Article VII hereof) or affect any other obligation of CNET or Z-D under this
Agreement. Z-D shall not submit to the vote of its stockholders any Acquisition
Proposal other than the Merger and CNET shall not submit to the vote of its
stockholders any Acquisition Proposal (other than the Merger) that is not a
Qualifying Acquisition Proposal.
(d) Notwithstanding anything contained in this Agreement to the contrary,
CNET shall be permitted to undertake any of the actions set forth in clauses (a)
(i) to (iv) relating to any Qualifying Acquisition Proposal (as defined in
Section 8.12).
5.5 FEES AND EXPENSES.
Subject to Section 7.2, whether or not the Merger is consummated, all
Expenses (as defined below) incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
Expenses, except (a) if the Merger is consummated, the Surviving Corporation
shall pay, or cause to be paid, any and all property or transfer taxes imposed
in connection with the Merger and (b) Expenses incurred in connection with the
filing, printing and mailing of the Joint Proxy Statement/ Prospectus and Form
S-4, which shall be shared equally by CNET and Z-D. As used in this Agreement,
"Expenses" includes all out-of-pocket expenses (including, without limitation,
all fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the Voting
Agreements and the transactions contemplated hereby and thereby, including the
preparation, printing, filing and mailing of the Joint Proxy
Statement/Prospectus and Form S-4 and the solicitation of stockholder approvals
and all other matters related to the transactions contemplated hereby and
thereby.
5.6 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) The certificate of incorporation and bylaws of the Surviving
Corporation shall contain provisions no less favorable with respect to
exculpation and indemnification than are set forth in Article VIII of the
Amended and Restated Certificate of Incorporation of Z-D and Section 6.4 of the
bylaws of Z-D, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at the Effective
Time were directors, officers or employees of Z-D.
(b) CNET shall cause to be maintained in effect for six years from the
Effective Time the current policies of the directors' and officers' liability
insurance maintained by Z-D (provided that CNET may substitute therefore
policies of at least the same coverage containing terms and conditions which are
not materially less advantageous) with respect to matters or events occurring
prior to the Effective Time to the extent available; provided, however, that in
no event shall CNET be required to expend more than an amount per year equal to
$750,000 to maintain or procure insurance coverage pursuant hereto; and,
provided, further that if the annual premiums of such insurance coverage exceed
such amount, CNET shall be obligated to obtain a policy with the greatest
coverage available for a cost not exceeding such amount.
(c) After the Effective Time, CNET agrees that it will or will cause the
Surviving Corporation to indemnify and hold harmless each present and former
director and officer of Z-D, determined as of the Effective Time (the
"Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection
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with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or pertaining to
matters relating to their duties or actions in their capacity as officers and
directors and existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent permitted under applicable law (and CNET shall, or shall cause the
Surviving Corporation to, also advance fees and expenses (including reasonable
attorneys' fees) as incurred to the fullest extent permitted under applicable
law provided the person to whom expenses are advanced provides a customary
undertaking complying with applicable law to repay such advances if it is
ultimately determined that such person is not entitled to indemnification).
(d) Nothing in this Agreement is intended to, shall be construed to or
shall release, waive or impair any rights to directors' and officers' insurance
claims under any policy that is or has been in existence with respect to Z-D or
any of its officers, directors or employees, it being understood and agreed that
the indemnification provided for this Section 5.6 is not prior to or in
substitution for any such claims under such policies.
5.7 PUBLIC ANNOUNCEMENTS.
The initial press release pertaining to the transactions contemplated by
this Agreement shall be a joint press release and thereafter CNET and Z-D shall
consult with each other before issuing communications to employees regarding the
transactions contemplated by this Agreement or any press release or otherwise
making any public statements with respect to this Agreement or the Merger and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by law or any listing agreement
with its securities exchange. Z-D and CNET shall each provide to the other a
copy of each press release or other public statement relating to its business
reasonably in advance of making such release or statement.
5.8 ACCOUNTANT'S LETTERS.
Each of Z-D and CNET shall use its reasonable best efforts to cause to be
delivered to the other party a letter of its independent public accountants,
dated a date within two business days before the date on which the S-4 shall
become effective and addressed to the other, in form and substance reasonably
satisfactory to the other and customary in scope and substance for comfort
letters delivered by independent public accountants in connection with
registration statements similar to the S-4.
5.9 BOARD OF DIRECTORS.
Effective at the Effective Time, CNET shall increase the size of its Board
of Directors by adding one directorship and creating one vacancy, and CNET shall
elect to its Board of Directors one designee of Z-D Majority Stockholder and one
designee of Z-D, in each case reasonably acceptable to the Board of Directors of
CNET. If, prior to the first anniversary of the Effective Time, CNET further
increases the size of its Board to nine directors, one vacancy shall be filled
by a designee appointed by the Board of Directors of CNET who is reasonably
acceptable to Z-D Majority Stockholder.
5.10 LISTING OF SHARES OF CNET COMMON STOCK.
CNET shall use its reasonable best efforts to cause the shares of CNET
Common Stock to be issued in the Merger and the shares of CNET Common Stock to
be reserved for issuance upon exercise of the Z-D Stock Options to be approved
for listing on the NASDAQ, subject to official notice of issuance, prior to the
Closing Date.
5.11 AFFILIATES.
Not less than 45 days prior to the date of the Z-D Stockholders Meeting,
Z-D shall deliver to CNET a letter identifying all persons who, in the judgment
of Z-D, may be deemed at the time this Agreement is submitted for adoption by
the stockholders of Z-D, "affiliates" of Z-D for purposes of Rule 145 under the
Securities Act and applicable SEC rules and regulations, and such list shall be
updated as necessary to
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reflect changes from the date thereof. Z-D shall use its reasonable best efforts
to cause each person identified on such list to deliver to CNET not less than 30
days prior to the Effective Time a written agreement in form and substance
reasonably satisfactory to CNET and Z-D.
5.12 THE SPIN-OFF AND CASH DIVIDEND.
(a) Z-D shall use its reasonable best efforts to consummate the Spin-Off as
soon as practicable and in any event prior to the Z-D Stockholders Meeting, in a
manner that will not cause a breach of the representation set forth in Section
3.2(r)(ii) hereof. Without limiting the foregoing, to the extent necessary to
consummate the Spin-Off prior to the Z-D Stockholders Meeting, Z-D and Spin Co.
will reduce or, to the extent necessary, eliminate the borrowings by Spin Co.
described in the Spin Co. S-1 as filed with the SEC prior to the date hereof.
(b) Prior to the Effective Time, Z-D may declare and pay the Cash Dividend
in an aggregate amount of $2.50 per share of Z-D Common Stock, provided that in
the event that the Net Cash Transfers (as defined below) from Spin Co. and its
Subsidiaries to Z-D after the date hereof are less than $275 million, the amount
of the Cash Dividend per share of Z-D Common Stock will be reduced so that the
aggregate Cash Dividend paid in respect of all shares of Z-D Common Stock equals
the amount of the Net Cash Transfers. As used herein, "Net Cash Transfers" means
the sum of (i) the aggregate cash amount transferred by Spin Co. and its
Subsidiaries to Z-D after the date hereof in repayment of the net inter-company
payable of Spin Co. and its Subsidiaries to Z-D, plus (ii) the aggregate amount
of any cash dividends paid by Spin Co. and its Subsidiaries to Z-D after the
date hereof, minus (iii) all cash transfers from Z-D or its Subsidiaries to Spin
Co. or its Subsidiaries from and after the date of this Agreement and on or
prior to the date that the Cash Dividend is declared. Prior to the declaration
of the Cash Dividend, Z-D will deliver a certificate of the Chief Financial
Officer of Z-D certifying as to the calculation of the amount of the Cash
Dividend that is permitted pursuant to this Section 5.12(b) and setting forth
such calculation in reasonable detail. If the Net Cash Transfers pursuant to
clause (i) are insufficient to repay all net inter-company payables of Spin Co.
and its Subsidiaries to Z-D, then Z-D will forgive all remaining net
inter-company payables owed by Spin-Co. and its Subsidiaries. Z-D agrees that
the Net Cash Transfers will be no less than zero.
(c) Z-D and its Subsidiaries will not make any cash transfers to Spin Co.
or its Subsidiaries after the date the Cash Dividend is declared.
(d) As promptly as practicable following the date hereof, Z-D and Spin Co.
shall enter into a distribution agreement with respect to the Spin Off,
substantially in the form of the draft dated July 11, 2000 which was previously
provided to CNET (except as set forth on Section 5.12(d) of the CNET Disclosure
Schedule) with such changes as are reasonably acceptable to CNET and Z-D (the
"Distribution Agreement").
ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of Z-D and CNET to effect the Merger and the
transactions contemplated hereby are subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) Stockholder Approval.
(i) Z-D shall have obtained the Z-D Stockholder Approval and (ii) CNET
shall have obtained the CNET Stockholder Approval.
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(b) No Injunctions or Restraints; Illegality.
No Laws shall have been adopted or promulgated, and no temporary
restraining order, preliminary or permanent injunction or other order issued by
a court or other Governmental Entity of competent jurisdiction shall be in
effect, having the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger.
(c) HSR Act.
The waiting period (and any extension thereof) applicable to the Merger
under the HSR Act shall have been terminated or shall have expired.
(d) NASDAQ.
The shares of CNET Common Stock to be issued in the Merger and such other
shares of CNET Common Stock to be reserved for issuance in connection with the
Merger shall have been approved for listing on the NASDAQ, subject to official
notice of issuance.
(e) Effectiveness of the Form S-4.
The Form S-4 shall have been declared effective by the SEC under the
Securities Act and no stop order suspending the effectiveness of the Form S-4
shall have been issued by the SEC and no proceedings for that purpose shall have
been initiated or threatened by the SEC.
(f) Spin-Off and Cash Dividend.
The Spin-Off shall have been consummated and, to the extent permitted by
Section 5.12, the Cash Dividend shall have been paid.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF CNET.
The obligation of CNET to effect the Merger and the transactions
contemplated hereby is subject to the satisfaction, or waiver by CNET, on or
prior to the Closing Date of the following conditions:
(a) Representations and Warranties.
(i) The representations and warranties of Z-D set forth in this Agreement
that are qualified as to Material Adverse Effect shall be true and correct as of
the date of this Agreement and as of immediately prior to the Effective Time
(except to the extent such representations and warranties shall have been made
as of an earlier date, in which case such representations and warranties shall
have been so true and correct as of such earlier date) with the same force and
effect as if then made and (ii) the representations and warranties of Z-D set
forth in this Agreement that are not qualified as to Material Adverse Effect
shall be true and correct in all respects as of the date of this Agreement and
immediately prior to the Effective Time (except to the extent such
representations and warranties shall have been made as of an earlier date, in
which case such representations and warranties shall have been true and correct
in all material respects as of such earlier date) with the same force and effect
as if then made, except where the failure of such representations and warranties
(other than the representation contained in Section 3.2(b), which shall be true
and correct in all material respects) to be true and correct would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Z-D; and CNET shall have received a certificate of a senior
executive officer and a senior financial officer of Z-D to such effect.
(b) Performance of Obligations of Z-D.
Z-D shall have performed or complied in all material respects with all
agreements and covenants required to be performed by it under this Agreement at
or prior to the Closing Date, and CNET shall have received a certificate of a
senior executive officer and a senior financial officer of Z-D to such effect.
(c) Tax Opinion.
CNET shall have received from Simpson Thacher & Bartlett, counsel to CNET,
on the Closing Date, a written opinion to the effect that for federal income tax
purposes the Merger will constitute a
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reorganization within the meaning of Section 368(a) of the Code. In rendering
such opinion, counsel to CNET shall be entitled to rely upon information,
representations and assumptions provided by CNET and Z-D substantially in the
form of Exhibits 6.2(c)(1) and 6.2(c)(2), respectively (allowing for such
amendments to the representations as counsel to CNET deems reasonably
necessary).
(d) Solvency of Spin Co.; Cash Received from Spin Co.
Z-D shall have delivered to CNET reasonably satisfactory evidence to the
effect that Spin Co. was, at the time of the Spin-Off, Solvent.
6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF Z-D.
The obligations of Z-D to effect the Merger and the transactions
contemplated hereby is subject to the satisfaction, or waiver by Z-D, on or
prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties.
(i) The representations and warranties of CNET and Merger Sub, as
applicable, set forth in this Agreement that are qualified as to Material
Adverse Effect shall be true and correct as of the date of this Agreement and as
of immediately prior to the Effective Time (except to the extent such
representations and warranties shall have been made as of an earlier date, in
which case such representations and warranties shall have been so true and
correct as of such earlier date) with the same force and effect as if then made
and (ii) the representations and warranties of CNET and Merger Sub, as
applicable, set forth in this Agreement that are not qualified as to Material
Adverse Effect shall be true and correct in all respects the date of this
Agreement and immediately prior to the Effective Time (except to the extent such
representations and warranties shall have been made as of an earlier date, in
which case such representations and warranties shall have been true and correct
in all material respects as of such earlier date) with the same force and effect
as if then made, except where the failure of such representations and warranties
(other than the representation contained in Section 3.1(b), which shall be true
and correct in all material respects) to be true and correct would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on CNET; and Z-D shall have received a certificate of a senior
executive officer and a senior financial officer of each of CNET and Merger Sub
to such effect.
(b) Performance of Obligations of CNET and Merger Sub.
Each of CNET and Merger Sub shall have performed or complied in all
material respects with all agreements and covenants required to be performed by
it under this Agreement at or prior to the Closing Date, and Z-D shall have
received a certificate of a senior executive officer and a senior financial
officer of each of CNET and Merger Sub to such effect.
(c) Tax Opinion.
Z-D shall have received from Sullivan & Cromwell, counsel to Z-D, on the
Closing Date, a written opinion to the effect that for federal income tax
purposes the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code. In rendering such opinion, counsel to Z-D shall be
entitled to rely upon information, representations and assumptions provided by
CNET and Z-D substantially in the form of Exhibits 6.2(c)(1) and 6.2(c)(2),
respectively (allowing for such amendments to the representations as counsel to
Z-D deems reasonably necessary).
(d) CNET Conditions.
The conditions set forth in Section 6.2 shall have been satisfied or waived
by CNET.
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ARTICLE VII
TERMINATION AND AMENDMENT
7.1 TERMINATION.
This Agreement may be terminated at any time prior to the Effective Time by
action taken or authorized by the Board of Directors of the terminating party or
parties and, except as provided below, whether before or after approval of the
matters presented in connection with the Merger by the stockholders of Z-D or
CNET:
(a) By mutual written consent of CNET and Z-D;
(b) By either Z-D or CNET, if the Effective Time shall not have occurred on
or before January 31, 2001 (the "Termination Date"); provided, however, that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement (including without limitation such party's obligations set forth in
Section 5.3) has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before the Termination Date;
(c) By either Z-D or CNET, if any Governmental Entity (i) shall have issued
an order, decree or ruling or taken any other action (which the parties shall
have used their reasonable best efforts to resist, resolve or lift, as
applicable, in accordance with and subject to Section 5.3) permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement, and such order, decree, ruling or other action shall have become
final and nonappealable or (ii) shall have failed to issue an order, decree or
ruling or to take any other action, and such denial of a request to issue such
order, decree, ruling or take such other action shall have become final and
nonappealable (which order, decree, ruling or other action the parties shall
have used their reasonable best efforts to obtain, in accordance with and
subject to Section 5.3), in the case of each of (i) and (ii) which is necessary
to fulfill the conditions set forth in Sections 6.1(c), (d) or (e), as
applicable; provided, however, that the right to terminate this Agreement under
this Section 7.1(c) shall not be available to any party whose failure to comply
with Section 5.3 has been the cause of such action or inaction;
(d) By either Z-D or CNET, if the approvals of the stockholders of either
CNET or Z-D contemplated by this Agreement shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of
stockholders or of any adjournment thereof at which the vote was taken;
(e) By CNET, if Z-D shall have (i) failed to make the Z-D Recommendation or
(ii) materially breached its obligations under this Agreement by reason of a
failure to call the Z-D Stockholders Meeting in accordance with Section 5.1(b)
or if Z-D shall have failed to prepare and mail to its stockholders the Joint
Proxy Statement/Prospectus in accordance with Section 5.1(a);
(f) By Z-D, if CNET shall have (i) failed to make the CNET Recommendation
or (ii) materially breached its obligations under this Agreement by reason of a
failure to call the CNET Stockholders Meeting in accordance with Section 5.1(c),
or if CNET shall have failed to prepare and mail to its stockholders the Joint
Proxy Statement/Prospectus in accordance with Section 5.1(a);
(g) By Z-D, if CNET shall have breached or failed to perform any of its
representations, warranties, covenants or other agreements contained in this
Agreement, such that the conditions set forth in Section 6.2(a) or (b) are not
capable of being satisfied on or before the Termination Date; or
(h) By CNET, if Z-D shall have breached or failed to perform any of its
representations, warranties, covenants or other agreements contained in this
Agreement, such that the conditions set forth in Section 6.3(a) or (b) are not
capable of being satisfied on or before the Termination Date.
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7.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by either Z-D or CNET as
provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of CNET or Z-D or their
respective officers or directors (i) except with respect to the second sentence
of Section 5.2, Section 5.5, this Section 7.2 and Article VIII, which provisions
shall survive such termination, (ii) except that, notwithstanding anything to
the contrary contained in this Agreement, neither CNET nor Z-D shall be relieved
or released from any liabilities or damages arising out of its willful breach of
this Agreement and (iii) except that the non-solicitation agreement between Z-D
and CNET dated as of July 14, 2000 (the "Non-Solicit Agreement") shall remain in
full force and effect in accordance with its terms.
(b) If (A) (I) either party shall terminate this Agreement pursuant to
Section 7.1(d) (provided that the basis for such termination is the failure of
Z-D to obtain the Z-D Stockholder Approval) or pursuant to Section 7.1(b)
without the Z-D Stockholders Meeting having occurred, (II) at any time after the
date of this Agreement and before such termination an Acquisition Proposal with
respect to Z-D shall have been publicly announced or otherwise communicated to
the senior management, Board of Directors or stockholders of Z-D (a "Z-D Public
Proposal") and (III) within twelve months of such termination Z-D or any of its
Subsidiaries enters into any definitive agreement with respect to, or
consummates, any Acquisition Proposal (for purposes of this clause (III), the
term "Acquisition Proposal" shall have the meaning assigned to such term in
Section 5.4(a) except that references to "20%" therein shall be deemed to be
references to "40%") or (B) CNET shall terminate this Agreement pursuant to
Section 7.1(e); then Z-D shall promptly, but in no event later than the date of
such termination (or in the case of clause (A), if later, the date Z-D or its
Subsidiary enters into such agreement with respect to or consummates such
Acquisition Proposal), pay CNET an amount equal to $58 million by wire transfer
of immediately available funds (less any amounts previously paid or payable by
Z-D pursuant to Section 7.2(d)), by wire transfer of immediately available
funds).
(c) If (A) (I) either party shall terminate this Agreement pursuant to
Section 7.1(d) (provided that the basis for such termination is the failure of
CNET to obtain the CNET Stockholder Approval) or pursuant to Section 7.1(b)
without the CNET Stockholders Meeting having occurred, (II) at any time after
the date of this Agreement and before such termination an Acquisition Proposal
(other than a Qualifying Acquisition Proposal) with respect to CNET shall have
been publicly announced or otherwise communicated to the senior management,
Board of Directors or stockholders of CNET (an "CNET Public Proposal") and (III)
within twelve months of such termination CNET or any of its Subsidiaries enters
into any definitive agreement with respect to, or consummates, any Acquisition
Proposal (for purposes of this clause (III), the term "Acquisition Proposal"
shall have the meaning assigned to such term in Section 5.4(a) except that
references to "20%" therein shall be deemed to be references to "40%") or (B)
Z-D shall terminate this Agreement pursuant to Section 7.1(f); then CNET shall
promptly, but in no event later than the date of such termination (or in the
case of clause (A), if later, the date CNET or its Subsidiary enters into such
agreement with respect to or consummates such Acquisition Proposal), pay Z-D an
amount equal to $105 million (less any amounts previously paid or payable by
CNET pursuant to Section 7.2(d)), by wire transfer of immediately available
funds.
(d) If either party shall terminate this Agreement pursuant to Section
7.1(d) and the basis for such termination is the failure of CNET to obtain CNET
Stockholder Approval, then, if the Z-D Stockholder Approval has been obtained
and CNET is not then entitled to terminate this Agreement pursuant to Section
7.1(h), CNET shall (i) pay Z-D an amount equal to $60 million, by wire transfer
of immediately available funds and (ii) make an unsecured loan to Z-D in the
principal amount of $15 million, such loan to be due and payable in full at
Z-D's option in cash or Z-D Common Stock (based on the average closing price
during the 30 trading days preceding such repayment) on the earlier of the
second anniversary thereof or consummation by any person of an Acquisition
Proposal with respect to Z-D, together with interest thereon at the applicable
federal rate; provided that no payment or loan shall be made pursuant to this
sentence if a termination fee has been paid to Z-D pursuant to Section 7.2(c).
If either party shall terminate this Agreement pursuant to Section 7.1(d) and
the basis for such termination
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is the failure of Z-D to obtain the ZD Stockholder Approval, then, if the CNET
Stockholder Approval has been obtained and Z-D is not then entitled to terminate
this Agreement pursuant to Section 7.1(g), Z-D shall pay CNET an amount equal to
$33 million, by wire transfer of immediately available funds; provided that no
payment shall be made pursuant to this sentence if a termination fee has been
paid to CNET pursuant to Section 7.2(b). CNET and Z-D's rights hereunder are in
addition to any rights CNET or Z-D may have under the Voting Agreements.
(e) The parties acknowledge that the agreements contained in this Section
7.2 are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, neither party would enter into this Agreement;
accordingly, if either party fails promptly to pay any amount due pursuant to
this Section 7.2, and, in order to obtain such payment, the other party
commences a suit which results in a judgment against such party for the fee set
forth in this Section 7.2, such party shall pay to the other party its costs and
expenses (including attorneys' fees and expenses) in connection with such suit,
together with interest on the amount of the fee at the prime rate of Citibank,
N.A. in effect on the date such payment was required to be made notwithstanding
the provisions of Section 5.5. The parties agree that any remedy or amount
payable pursuant to this Section 7.2 shall not preclude any other remedy or
amount payable hereunder and shall not be an exclusive remedy for any willful
breach of any representation, warranty, covenant or agreement contained in this
Agreement.
7.3 AMENDMENT.
This Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time before or after
approval of the matters presented in connection with the Merger by the
stockholders of Z-D and CNET, but, after any such approval, no amendment shall
be made which by law or in accordance with the rules of any relevant stock
exchange requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
7.4 EXTENSION; WAIVER.
At any time prior to the Effective Time, the parties hereto, by action
taken or authorized by their respective Boards of Directors, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
None of the representations, warranties, covenants and other agreements in
this Agreement or in any instrument delivered pursuant to this Agreement,
including any rights arising out of any breach of such representations,
warranties, covenants, agreements and other provisions, shall survive the
Effective Time, except for those covenants, agreements and other provisions
contained herein (including Section 5.6 and Section 5.9) that by their terms
apply or are to be performed in whole or in part after the Effective Time and
this Article VIII.
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8.2 NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed duly given (a) on the date of delivery if delivered personally,
or by telecopy or telefacsimile, upon confirmation of receipt, (b) on the first
Business Day following the date of dispatch if delivered by a recognized
next-day courier service, or (c) on the tenth Business Day following the date of
mailing if delivered by registered or certified mail, return receipt requested,
postage prepaid. All notices hereunder shall be delivered as set forth below, or
pursuant to such other instructions as may be designated in writing by the party
to receive such notice:
(a) if to CNET to:
CNET Networks, Inc.
150 Chestnut Street
San Francisco, California 94111
Fax: (415) 395-9205
Attention: Chief Executive Officer
with a copy to:
Simpson Thacher & Bartlett
3373 Hillview Avenue
Palo Alto, California 94304
Fax: (650) 251-5002
Attention: Richard Capelouto, Esq.
Daniel Clivner, Esq.
(b) if to Z-D to:
Ziff-Davis Inc.
28 East 28th Street
New York, New York 10016
Fax: (212) 503-4599
Attention: Chief Executive Officer
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Fax: (212) 558-3588
Attention: Alan J. Sinsheimer, Esq.
8.3 INTERPRETATION.
When a reference is made in this Agreement to Articles, Sections, Exhibits
or Schedules, such reference shall be to an Article or Section of or Exhibit or
Schedule to this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". In addition,
each Section of this Agreement is qualified by the matters set forth with
respect to such Section on the CNET Disclosure Schedule, the Z-D Disclosure
Schedule and the Schedules to this Agreement, as applicable, to the extent
specified therein and such other Sections of this Agreement to the extent a
matter in such Section is disclosed in such a way as to make its relevance
called for by such other Section readily apparent.
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8.4 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to the other party, it being understood that both parties need not sign the same
counterpart.
8.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement, the Non-Solicit Agreement, the Confidentiality
Agreement and the exhibits and schedules hereto and the other agreements and
instruments of the parties delivered in connection herewith constitute the
entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 5.6 (which is intended to be for the benefit of the Persons covered
thereby).
8.6 GOVERNING LAW.
This Agreement shall be governed and construed in accordance with the laws
of the State of Delaware applicable to contracts executed and to be performed
entirely within that state.
8.7 SEVERABILITY.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any law or public policy, all other terms and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby are consummated as originally contemplated to the greatest extent
possible.
8.8 ASSIGNMENT.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto, in whole or in part
(whether by operation of law or otherwise), without the prior written consent of
the other party, and any attempt to make any such assignment without such
consent shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
8.9 SUBMISSION TO JURISDICTION; WAIVERS.
Each of CNET and Z-D irrevocably agrees that any legal action or proceeding
with respect to this Agreement or for recognition and enforcement of any
judgment in respect hereof brought by the other party hereto or its successors
or assigns may be brought and determined in the Chancery or other Courts of the
State of Delaware, and each of CNET and Z-D hereby irrevocably submits with
regard to any such action or proceeding for itself and in respect to its
property, generally and unconditionally, to the nonexclusive jurisdiction of the
aforesaid courts. Each of CNET and Z-D hereby irrevocably waives, and agrees not
to assert, by way of motion, as a defense, counterclaim or otherwise, in any
action or proceeding with respect to this Agreement, (a) any claim that it is
not personally subject to the jurisdiction of the above-named courts for any
reason other than the failure to lawfully serve process, (b) that it or its
property is exempt or immune from jurisdiction of any such court or from any
legal process commenced in such courts (whether through service of notice,
attachment prior to judgment, attachment in aid of
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execution of judgment, execution of judgment or otherwise), (c) to the fullest
extent permitted by applicable law, that (i) the suit, action or proceeding in
any such court is brought in an inconvenient forum, (ii) the venue of such suit,
action or proceeding is improper and (iii) this Agreement, or the subject matter
hereof, may not be enforced in or by such courts and (d) any right to a trial by
jury.
8.10 ENFORCEMENT.
The parties agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms. It is accordingly agreed that the parties shall be entitled to
specific performance of the terms hereof, this being in addition to any other
remedy to which they are entitled at law or in equity.
8.11 FURTHER ASSURANCES.
Notwithstanding anything to the contrary herein, any breach by Z-D of a
representation, warranty, agreement or covenant other than Sections 3.2(r)(ii),
4.2(m) and 5.12, which breach relates solely to the trade show and conference
business that will be the subject of the Spin-Off and which could not reasonably
be expected to have any adverse impact on CNET and its Subsidiaries (including
Z-D) after the Effective Time, shall not be deemed a breach of such
representation, warranty, agreement or covenant.
8.12 DEFINITIONS.
As used in this Agreement:
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2 of the rules
and regulations promulgated under the Exchange Act.
(b) "beneficial ownership" or "beneficially own" shall have the meaning
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
(c) "Board of Directors" means the Board of Directors of any specified
Person and any committees thereof.
(d) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(e) "known" or "knowledge" means, with respect to any party, the knowledge
of such party's executive officers after reasonable inquiry.
(f) "Material Adverse Effect" means, with respect to any entity any event,
change, circumstance or effect that is or is reasonably likely to be materially
adverse to (i) the business, assets, liabilities, financial condition or results
of operations of such entity and its Subsidiaries taken as a whole or (ii) the
ability of such entity to consummate the transactions contemplated by this
Agreement.
(g) "the other party" means, with respect to Z-D, CNET and, with respect to
CNET, Z-D.
(h) "Person" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
(i) "Qualifying Acquisition Proposal" means any Acquisition Proposal
involving CNET or its Subsidiaries (x) which the Board of Directors of CNET
concludes in good faith is in the best interests of CNET and could not
reasonably be expected to materially delay (including an event referred to in
Section 4.1(d)) or interfere with the consummation of the Merger in accordance
with the terms of this Agreement and (y) in which all parties to such
Acquisition Proposal expressly and unconditionally provide (and to the extent
such Acquisition Proposal is publicly disclosed, publicly disclose) that (1) the
consummation of the transaction contemplated by such Acquisition Proposal is not
conditioned on the cancellation, termination, amendment or other modification of
this Agreement, the Merger or the other agreements and transactions contemplated
hereby and (2) they will support and seek the consummation of the Merger and the
other transactions contemplated hereby.
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(j) "Solvent" means, when used with respect to any Person, as of any date
of determination, that (a) the amount of the "present fair saleable value" of
the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim", and
(ii) "claim" means any (x) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y)
right to an equitable remedy for breach of performance if such breach gives rise
to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured or unmatured, disputed,
undisputed, secured or unsecured.
(k) "Subsidiary" when used with respect to any party means any corporation
or other organization, whether incorporated or unincorporated, at least a
majority of the securities or other interests of which having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
(l) "Tax" (and, with correlative meaning, "Taxes") means any federal,
state, local or foreign income, gross receipts, property, sales, use, license,
excise, franchise, employment, payroll, withholding, alternative or add on
minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, imposed by any taxing authority or any
obligation to pay Taxes imposed on any entity for which a party to this
Agreement is liable as a result of any indemnification provision or other
contractual obligation.
(m) "Tax Return" means any return, report or similar statement required to
be filed with respect to any Tax (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
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IN WITNESS WHEREOF, CNET, Z-D and Merger Sub have caused this Agreement to
be signed by their respective officers thereunto duly authorized, all as of the
date first written above.
CNET NETWORKS, INC.
By: /s/ SHELBY BONNIE
----------------------------------
Name: Shelby Bonnie
Title: Chief Executive Officer
ZIFF-DAVIS INC.
By: /s/ ERIC HIPPEAU
----------------------------------
Name: Eric Hippeau
Title: Chairman and CEO
TD MERGER SUB, INC.
By: /s/ SHELBY BONNIE
----------------------------------
Name: Shelby Bonnie
Title: Chief Executive Officer
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ANNEX B
2000 CNET NETWORKS, INC.
STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN
The purpose of the Plan is to aid the Company and its Affiliates in
recruiting and retaining key employees, directors or consultants of outstanding
ability and to motivate such employees, directors or consultants to exert their
best efforts on behalf of the Company and its Affiliates by providing incentives
through the granting of Awards. The Company expects that it will benefit from
the added interest which such key employees, directors or consultants will have
in the welfare of the Company as a result of their proprietary interest in the
Company's success.
2. DEFINITIONS
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any successor
thereto.
(b) Affiliate: With respect to the Company, any entity directly or
indirectly controlling, controlled by, or under common control with, the Company
or any other entity designated by the Board in which the Company or an Affiliate
has an interest.
(c) Award: An Option or Other Stock-Based Award granted pursuant to the
Plan.
(d) Beneficial Owner: A "beneficial owner", as such term is defined in Rule
13d-3 under the Act (or any successor rule thereto).
(e) Board: The Board of Directors of the Company.
(f) Change in Control: The occurrence of any of the following events:
(i) any Person (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of stock of the
Company), becomes the Beneficial Owner, directly or indirectly, of
securities of the Company, representing 50% or more of the combined voting
power of the Company's then-outstanding securities;
(ii) during any period of twenty-four consecutive months (not
including any period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board, and any new director (other
than (A) a director nominated by a Person who has entered into an agreement
with the Company to effect a transaction described in Sections 2(e)(i),
(iii) or (iv) of the Plan or (B) a director nominated by any Person
(including the Company) who publicly announces an intention to take or to
consider taking actions (including, but not limited to, an actual or
threatened proxy contest) which if consummated would constitute a Change in
Control) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds ( 2/3)
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a
majority thereof;
(iii) the consummation of any transaction or series of transactions
resulting in a merger or consolidation, in which the Company is involved,
other than a merger or consolidation which would result in the shareholders
of the Company immediately prior thereto continuing to own (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation; or
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(iv) the complete liquidation of the Company or the sale or
disposition by the Company of all or substantially all of the Company's
assets, other than a liquidation of the Company into a wholly-owned
subsidiary.
(g) Code: The Internal Revenue Code of 1986, as amended, or any successor
thereto.
(h) Committee: The Compensation Committee of the Board.
(i) Company: CNET Networks, Inc., a Delaware corporation.
(j) Effective Date: June 1, 2000.
(k) Fair Market Value: On a given date, (i) if there should be a public
market for the Shares on such date, the arithmetic mean of the high and low
prices of the Shares as reported on such date on the Composite Tape of the
principal national securities exchange on which such Shares are listed or
admitted to trading, or, if the Shares are not listed or admitted on any
national securities exchange, the arithmetic mean of the per Share closing bid
price and per Share closing asked price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System (or such market in
which such prices are regularly quoted)(the "NASDAQ"), or, if no sale of Shares
shall have been reported on the Composite Tape of any national securities
exchange or quoted on the NASDAQ on such date, then the immediately preceding
date on which sales of the Shares have been so reported or quoted shall be used,
and (ii) if there should not be a public market for the Shares on such date, the
Fair Market Value shall be the value established by the Committee in good faith.
(l) ISO: An Option that is also an incentive stock option granted pursuant
to Section 6(d) of the Plan.
(m) Other Stock-Based Awards: Awards granted pursuant to Section 7 of the
Plan.
(n) Option: A stock option granted pursuant to Section 6 of the Plan.
(o) Option Price: The purchase price per Share of an Option, as determined
pursuant to Section 6(a) of the Plan.
(p) Participant: An employee, director or consultant who is selected by the
Committee to participate in the Plan.
(q) Performance-Based Awards: Certain Other Stock-Based Awards granted
pursuant to Section 7(b) of the Plan.
(r) Person: A "person", as such term is used for purposes of Section 13(d)
or 14(d) of the Act (or any successor section thereto).
(s) Plan: The 2000 CNET Networks, Inc. Stock Incentive Plan.
(t) Shares: Shares of common stock of the Company.
(u) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of
the Code (or any successor section thereto).
3. SHARES SUBJECT TO THE PLAN
The total number of Shares which may be issued under the Plan is 5,000,000.
The maximum number of Shares for which Options (or Award other Section 7(b)) may
be granted during a calendar year to any Participant shall 800,000. The Shares
may consist, in whole or in part, of unissued Shares or treasury Shares. The
issuance of Shares or the payment of cash upon the exercise of an Award shall
reduce the total number of Shares available under the Plan, as applicable.
Shares which are subject to Awards which terminate or lapse may be granted again
under the Plan.
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4. ADMINISTRATION
The Plan shall be administered by the Committee, which may delegate its
duties and powers in whole or in part to any subcommittee thereof consisting
solely of at least two individuals who are intended to qualify as "non-employee
directors" within the meaning of Rule 16b-3 under the Act (or any successor rule
thereto) and "outside directors" within the meaning of Section 162(m) of the
Code (or any successor section thereto). Awards may, in the discretion of the
Committee, be made under the Plan in assumption of, or in substitution for,
outstanding awards previously granted by the Company or its affiliates or a
company acquired by the Company or with which the Company combines. The number
of Shares underlying such substitute awards shall be counted against the
aggregate number of Shares available for Awards under the Plan. The Committee is
authorized to interpret the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, and to make any other determinations that it
deems necessary or desirable for the administration of the Plan. The Committee
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan in the manner and to the extent the Committee deems necessary or
desirable. Any decision of the Committee in the interpretation and
administration of the Plan, as described herein, shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned (including, but not limited to, Participants and their beneficiaries
or successors). The Committee shall have the full power and authority to
establish the terms and conditions of any Award consistent with the provisions
of the Plan and to waive any such terms and conditions at any time (including,
without limitation, accelerating or waiving any vesting conditions). The
Committee shall require payment of any amount it may determine to be necessary
to withhold for federal, state, local or other taxes as a result of the exercise
of an Award. Unless the Committee specifies otherwise, the Participant may elect
to pay a portion or all of such withholding taxes by (a) delivery in Shares or
(b) having Shares withheld by the Company from any Shares that would have
otherwise been received by the Participant.
5. LIMITATIONS
No Award may be granted under the Plan after the tenth anniversary of the
Effective Date, but Awards theretofore granted may extend beyond that date.
6. TERMS AND CONDITIONS OF OPTIONS
Options granted under the Plan shall be, as determined by the Committee,
non-qualified or incentive stock options for federal income tax purposes, as
evidenced by the related Award agreements, and shall be subject to the foregoing
and the following terms and conditions and to such other terms and conditions,
not inconsistent therewith, as the Committee shall determine:
(a) Option Price. The Option Price per Share shall be determined by the
Committee, but shall not be less than 100% of the Fair Market Value of the
Shares on the date an Option is granted.
(b) Exercisability. Options granted under the Plan shall be exercisable at
such time and upon such terms and conditions as may be determined by the
Committee, but in no event shall an Option be exercisable more than ten years
after the date it is granted, provided that, in the case of CNET Europe, S.A., a
Subsidiary, Options shall be exercisable for a period of at least twelve (12)
years but not more than fifteen (15) years from the date of grant.
(c) Exercise of Options. Except as otherwise provided in the Plan or in an
Award agreement, an Option may be exercised for all, or from time to time any
part, of the Shares for which it is then exercisable. For purposes of Section 6
of the Plan, the exercise date of an Option shall be the later of the date a
notice of exercise is received by the Company and, if applicable, the date
payment is received by the Company pursuant to clauses (i), (ii) or (iii) in the
following sentence. The purchase price for the Shares as to which an Option is
exercised shall be paid to the Company in full at the time of exercise at the
election of the Participant (i) in cash or its equivalent (e.g., by check), (ii)
to the extent permitted by the Committee, in Shares having a Fair Market Value
equal to the aggregate Option Price for the Shares being purchased and
satisfying such other requirements as may be imposed by the Committee; provided,
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that such Shares have been held by the Participant for no less than six months
(or such other period as established from time to time by the Committee or
generally accepted accounting principles), (iii) partly in cash and, to the
extent permitted by the Committee, partly in such Shares or (iv) through the
delivery of irrevocable instruments to a broker to deliver promptly to the
Company an amount equal to the aggregate option price for the shares being
purchased. No Participant shall have any rights to dividends or other rights of
a stockholder with respect to Shares subject to an Option until the Participant
has given written notice of exercise of the Option, paid in full for such Shares
and, if applicable, has satisfied any other conditions imposed by the Committee
pursuant to the Plan.
(d) ISOs. The Committee may grant Options under the Plan that are intended
to be ISOs. Such ISOs shall comply with the requirements of Section 422 of the
Code (or any successor section thereto). No ISO may be granted to any
Participant who at the time of such grant, owns more than ten percent of the
total combined voting power of all classes of stock of the Company or of any
Subsidiary, unless (i) the Option Price for such ISO is at least 110% of the
Fair Market Value of a Share on the date the ISO is granted and (ii) the date on
which such ISO terminates is a date not later than the day preceding the fifth
anniversary of the date on which the ISO is granted. Any Participant who
disposes of Shares acquired upon the exercise of an ISO either (i) within two
years after the date of grant of such ISO or (ii) within one year after the
transfer of such Shares to the Participant, shall notify the Company of such
disposition and of the amount realized upon such disposition.
(e) Attestation. Wherever in this Plan or any agreement evidencing an Award
a Participant is permitted to pay the exercise price of an Option or taxes
relating to the exercise of an Option by delivering Shares, the Participant may,
subject to procedures satisfactory to the Committee, satisfy such delivery
requirement by presenting proof of beneficial ownership of such Shares, in which
case the Company shall treat the Option as exercised without further payment and
shall withhold such number of Shares from the Shares acquired by the exercise of
the Option.
7. OTHER STOCK-BASED AWARDS
(a) Generally. The Committee, in its sole discretion, may grant Awards of
Shares, Awards of restricted Shares and Awards that are valued in whole or in
part by reference to, or are otherwise based on the Fair Market Value of, Shares
("Other Stock-Based Awards"). Such Other Stock-Based Awards shall be in such
form, and dependent on such conditions, as the Committee shall determine,
including, without limitation, the right to receive one or more Shares (or the
equivalent cash value of such Shares) upon the completion of a specified period
of service, the occurrence of an event and/or the attainment of performance
objectives. Other Stock-Based Awards may be granted alone or in addition to any
other Awards granted under the Plan. Subject to the provisions of the Plan, the
Committee shall determine to whom and when Other Stock-Based Awards will be
made, the number of Shares to be awarded under (or otherwise related to) such
Other Stock-Based Awards; whether such Other Stock-Based Awards shall be settled
in cash, Shares or a combination of cash and Shares; and all other terms and
conditions of such Awards (including, without limitation, the vesting provisions
thereof and provisions ensuring that all Shares so awarded and issued shall be
fully paid and non- assessable).
(b) Performance-Based Awards. Notwithstanding anything to the contrary
herein, certain Other Stock-Based Awards granted under this Section 8 may be
granted in a manner which is deductible by the Company under Section 162(m) of
the Code (or any successor section thereto) ("Performance-Based Awards"). A
Participant's Performance-Based Award shall be determined based on the
attainment of written performance goals approved by the Committee for a
performance period established by the Committee (i) while the outcome for that
performance period is substantially uncertain and (ii) no more than 90 days
after the commencement of the performance period to which the performance goal
relates or, if less, the number of days which is equal to 25 percent of the
relevant performance period. The performance goals, which must be objective,
shall be based upon one or more of the following criteria: (i) consolidated
earnings before or after taxes (including earnings before interest, taxes,
depreciation and amortization); (ii) net income; (iii) operating income; (iv)
earnings per Share; (v) book value per Share; (vi) return on shareholders'
equity; (vii) expense management; (viii) return on investment;
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(ix) improvements in capital structure; (x) profitability of an identifiable
business unit or product; (xi) maintenance or improvement of profit margins;
(xii) stock price; (xiii) market share; (xiv) revenues or sales; (xv) costs;
(xvi) cash flow; (xvii) working capital and (xviii) return on assets. The
foregoing criteria may relate to the Company, one or more of its Subsidiaries or
one or more of its divisions or units, or any combination of the foregoing, and
may be applied on an absolute basis and/or be relative to one or more peer group
companies or indices, or any combination thereof, all as the Committee shall
determine. In addition, to the degree consistent with Section 162(m) of the Code
(or any successor section thereto), the performance goals may be calculated
without regard to extraordinary items. The maximum amount of a Performance-Based
Award during a calendar year to any Participant shall be: (x) with respect to
Performance-Based Awards that are Options, 800,000 Shares and (y) with respect
to Performance-Based Awards that are not Options, $10,000,000. The Committee
shall determine whether, with respect to a performance period, the applicable
performance goals have been met with respect to a given Participant and, if they
have, to so certify and ascertain the amount of the applicable Performance-Based
Award. No Performance-Based Awards will be paid for such performance period
until such certification is made by the Committee. The amount of the
Performance-Based Award actually paid to a given Participant may be less than
the amount determined by the applicable performance goal formula, at the
discretion of the Committee. The amount of the Performance-Based Award
determined by the Committee for a performance period shall be paid to the
Participant at such time as determined by the Committee in its sole discretion
after the end of such performance period; provided, however, that a Participant
may, if and to the extent permitted by the Committee and consistent with the
provisions of Section 162(m) of the Code, elect to defer payment of a
Performance-Based Award.
8. ADJUSTMENTS UPON CERTAIN EVENTS
Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to all Awards granted under the Plan:
(a) Generally. In the event of any change in the outstanding Shares after
the Effective Date by reason of any Share dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination, combination or
transaction or exchange of Shares or other corporate exchange, or any
distribution to shareholders of Shares other than regular cash dividends or any
transaction similar to the foregoing, the Committee in its sole discretion and
without liability to any person may make such substitution or adjustment, if
any, as it deems to be equitable, as to (i) the number or kind of Shares or
other securities issued or reserved for issuance pursuant to the Plan or
pursuant to outstanding Awards, (ii) the maximum number of Shares for which
Options may be granted during a calendar year to any Participant (iii) the
maximum amount of a Performance-Based Award that may be granted during a
calendar year to any Participant, (iv) the Option Price and/or (v) any other
affected terms of such Awards.
(b) Change in Control. Except as otherwise provided in an Award agreement,
in the event of a Change in Control, the Committee in its sole discretion and
without liability to any person may take such actions, if any, as it deems
necessary or desirable with respect to any Award (including, without limitation,
(i) the acceleration of an Award, (ii) the payment of a cash amount in exchange
for the cancellation of an Award and/or (iii) the requiring of the issuance of
substitute Awards that will substantially preserve the value, rights and
benefits of any affected Awards previously granted hereunder) as of the date of
the consummation of the Change in Control.
9. NO RIGHT TO EMPLOYMENT OR AWARDS
The granting of an Award under the Plan shall impose no obligation on the
Company or any Subsidiary to continue the employment or service or consulting
relationship of a Participant and shall not lessen or affect the Company's or
Subsidiary's right to terminate the employment or service or consulting
relationship of such Participant. No Participant or other Person shall have any
claim to be granted any Award, and there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Awards. The terms and
conditions of Awards and the Committee's determinations and interpretations with
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respect thereto need not be the same with respect to each Participant (whether
or not such Participants are similarly situated).
10. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of the Company and
a Participant, including without limitation, the estate of such Participant and
the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
11. NONTRANSFERABILITY OF AWARDS
Unless otherwise determined by the Committee, an Award shall not be
transferable or assignable by the Participant otherwise than by will or by the
laws of descent and distribution. An Award exercisable after the death of a
Participant may be exercised by the legatees, personal representatives or
distributees of the Participant.
12. AMENDMENTS OR TERMINATION
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which, (a) without the approval of
the shareholders of the Company, would (except as is provided in Section 8 of
the Plan), increase the total number of Shares reserved for the purposes of the
Plan or change the maximum number of Shares for which Awards may be granted to
any Participant or (b) without the consent of a Participant, would diminish any
of the rights of the Participant under any Award theretofore granted to such
Participant under the Plan; provided, however, that the Committee may amend the
Plan in such manner as it deems necessary to permit the granting of Awards
meeting the requirements of the Code or other applicable laws.
13. INTERNATIONAL PARTICIPANTS
With respect to Participants who reside or work outside the United States
of America and who are not (and who are not expected to be) "covered employees"
within the meaning of Section 162(m) of the Code, the Committee may, in its sole
discretion, amend the terms of the Plan or Awards with respect to such
Participants in order to conform such terms with the requirements of local law.
14. CHOICE OF LAW
The Plan shall be governed by and construed in accordance with the laws of
the State of Delaware without regard to conflicts of laws.
15. EFFECTIVENESS OF THE PLAN
The Plan shall be effective as of the Effective Date.
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ANNEX C
[LETTERHEAD OF LAZARD FRERES & CO.]
July 18, 2000
The Board of Directors
CNET Networks, Inc.
150 Chestnut St.
San Francisco, CA 94111
Dear Members of the Board:
We understand that CNET Networks, Inc (the "Company") and Ziff-Davis, Inc.
(the "Subject Company") expect to enter into an Agreement to be dated as of July
19, 2000 (the "Agreement"), pursuant to which the Company will acquire the
Subject Company (the "Acquisition"). Pursuant to the Agreement, the Acquisition
will be effected by the merger of a wholly owned subsidiary of the Company with
and into the Subject Company, with the Subject Company surviving the merger and
becoming a wholly owned subsidiary of the Company. In connection with the
Acquisition, each issued and outstanding share of Ziff Davis, Inc. -- Z-D Common
Stock, par value $0.01 per share, of the Subject Company ("Subject Company
Common Stock") will be converted into the right to receive 0.3397 shares (the
"Subject Company Exchange Ratio") of common stock, par value $0.0001 per share,
of the Company ("Company Common Stock"), and each issued and outstanding share
of Ziff-Davis, Inc. -- Z-D Net Common Stock, par value $0.01 per share, of the
Subject Company ("Subject Company Net Common Stock") will be converted into the
right to receive 0.5932 shares (the "Subject Company Net Exchange Ratio" and,
together with the Subject Company Exchange Ratio, the "Exchange Ratios") of
Company Common Stock. The Agreement permits the recapitalization and spin-off of
the trade show and conference business subsidiary of the Subject Company and the
payment of a cash dividend of $2.50 per share of Subject Company Common Stock in
connection therewith (subject to downward adjustment under certain
circumstances) prior to the consummation of the Acquisition.
You have requested our opinion as to the fairness, from a financial point
of view, to the Company of the Consideration to be paid in the Merger pursuant
to the Agreement. As used herein, the term "Consideration" means the aggregate
number of shares of Company Common Stock to be issued to the holders of Subject
Company Common Stock and Subject Company Net Common Stock in the Merger. In
connection with this opinion, we have:
(i) Reviewed the financial terms and conditions of a draft of the Agreement
dated July 18, 2000 (the "Draft Agreement");
(ii) Analyzed certain historical business and financial information
relating to the Company and the Subject Company;
(iii) Reviewed various financial forecasts and other data (including
projected cost savings and operating synergies) provided to us by the Company
and the Subject Company relating to their respective businesses;
(iv) Subject Company with respect to the businesses and prospects of the
Company and the Subject Company, respectively, the strategic objectives of each,
and possible benefits which might be realized following the Acquisition;
(v) Reviewed public information with respect to certain other companies in
lines of businesses we believe to be generally comparable to the businesses of
the Company and the Subject Company;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of businesses we believe to be generally comparable
to those of the Company and the Subject Company, and in other industries
generally;
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(vii) Reviewed the historical stock prices and trading volumes of the
Company's common stock; and
(viii) Conducted such other financial studies, analyses and investigations
as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company or the Subject Company, or
concerning the solvency or fair value of either of the foregoing entities. With
respect to financial forecasts, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of management of the Company and the Subject Company as to the future
financial performance of the Company and the Subject Company, respectively. We
assume no responsibility for and express no view as to such forecasts or the
assumptions on which they are based. We have also assumed that the Acquisition
will qualify as a tax-free reorganization for United States federal income tax
purposes.
Further, our opinion is necessarily based on economic, monetary, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. We are not expressing any opinion herein as to the prices
at which any securities of the Company or the Subject Company may actually trade
at any time, and nor are we expressing any opinion herein as to the relative
merits of the Acquisition and the other business strategies that may have been
considered by the Company's Board of Directors.
In rendering our opinion, we reviewed the Draft Agreement and have assumed
that the final form of the Agreement that the parties will execute will not
differ in any material respect from that draft. We have further assumed that the
Acquisition will be consummated on the terms described in the Agreement, without
any waiver of any material terms or conditions by the Company and that obtaining
the necessary regulatory approvals for the Acquisition will not have an adverse
effect on the Company.
Our opinion only addresses the fairness, from a financial point of view, to
the Company of the Consideration, and we do not express any views on any other
terms of the Agreement or any other agreement or arrangement between the parties
and/or their stockholders.
Lazard Freres & Co. LLC is acting as investment banker to the Company in
connection with the Acquisition and will receive a fee for our services a
substantial portion of which is contingent upon the completion of the
Acquisition. Lazard Freres & Co. LLC provides a full range of financial advisory
and securities services and, in the ordinary course of our business, we and our
affiliates may trade the securities of the Company and the Subject Company for
our own account and for the accounts of our customers, and, accordingly, may at
any time hold a long or short position in such securities.
Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors and does not constitute a recommendation to any
person as to how to vote with respect to the Acquisition, and should not be
relied upon by any person as such. It is understood that, except for the
reproduction of this letter in its entirety in the registration statement and
related proxy statement-prospectus required to be provided to the holders of
Company Common Stock, this letter may not be disclosed or otherwise referred to
without our prior consent, except as may otherwise be required by law or by a
court of competent jurisdiction.
This opinion is given pursuant to the engagement letter between us and the
Company dated June 1, 2000, and is governed by the laws of the State of New
York. It may only be relied upon subject to the assumptions and qualifications
described herein, including the express condition that it is governed by the
laws of the State of New York.
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Based on and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Consideration to be paid is fair to the Company from a
financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By: /s/ PAUL J.S. HAIGNEY
----------------------------------
Paul J.S. Haigney
Managing Director
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ANNEX D
[LETTERHEAD OF MORGAN STANLEY & CO. INCORPORATED]
July 18, 2000
Board of Directors
Ziff-Davis Inc.
28 East 28th Street
New York, NY 10016
Members of the Board:
We understand that Ziff-Davis Inc. ("Ziff-Davis"), CNET Networks, Inc.
("CNET") and TD Merger Sub, a wholly owned subsidiary of CNET ("Merger Sub"),
propose to enter into an Agreement and Plan of Merger, substantially in the form
of the draft dated July 17, 2000 (the "Merger Agreement"), which provides, among
other things, for the merger (the "Merger") of Merger Sub with and into Ziff-
Davis. Pursuant to the Merger, (i) Ziff-Davis will become a wholly owned
subsidiary of CNET, (ii) each outstanding share of ZD Common Stock, par value
$0.01 per share (the "ZD Common Stock"), other than shares held by CNET or
Merger Sub, will be converted into the right to receive 0.3397 shares of common
stock, par value $0.0001 per share (the "CNET Common Stock"), of CNET (the "ZD
Consideration") and (iii) each outstanding share of ZDNet Common Stock, par
value $0.01 per share (the "ZDNet Common Stock", and together with the ZD Common
Stock, the "Common Stock"), other than shares held by CNET or Merger Sub, will
be converted into the right to receive 0.5932 shares of CNET Common Stock (the
"ZDNet Consideration" and, together with ZD Consideration, the "Consideration").
The ZDNet Common Stock is intended to track the performance of Ziff-Davis' ZDNet
division ("ZDNet"). The terms and conditions of the Merger are more fully set
forth in the Merger Agreement.
You have asked for our opinion as to whether the Consideration to be
received by the holders of shares of ZD Common Stock and ZDNet Common Stock
pursuant to the Merger Agreement is fair from a financial point of view to such
holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Ziff-Davis, ZDNet and CNET;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning Ziff-Davis and ZDNet prepared by
the management of Ziff-Davis;
(iii) reviewed certain publicly available financial projections for
ZDNet and CNET contained in certain securities analysts' research reports
that were recommended for review by the managements of Ziff-Davis and CNET,
respectively;
(iv) discussed the past and current operations and financial condition
and the prospects of Ziff-Davis and ZDNet, including information relating
to the strategic, financial and operational benefits anticipated from the
Merger, with senior executives of Ziff-Davis and ZDNet;
(v) discussed the past and current operations and financial condition
and the prospects of CNET, including information relating to the strategic,
financial and operational benefits anticipated from the Merger, with senior
executives of CNET;
(vi) reviewed the reported prices and trading activity for the ZD
Common Stock, the ZDNet Common Stock and the CNET Common Stock;
(vii) compared the financial performance of ZDNet and CNET and the
prices and trading activity of the ZDNet Common Stock and the CNET Common
Stock with that of certain other comparable publicly-traded companies and
their securities;
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(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable acquisition transactions;
(ix) participated in discussions and negotiations among
representatives of Ziff-Davis and CNET and their financial and legal
advisors;
(x) reviewed the Merger Agreement and certain related documents;
(xi) considered such other factors and performed such other analyses
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. As you are aware, we were not provided with projections or
forecasts of future financial performance of ZDNet or CNET. Instead, for
purposes of our analysis, we have relied with your consent on the estimates of
certain securities analysts' research reports that were recommended for review
by the managements of Ziff-Davis and CNET, respectively. We have relied upon the
assessment by the managements of Ziff-Davis and CNET of their ability to retain
key employees of Ziff-Davis and CNET. We have also relied upon, without
independent verification, the assessment by the managements of Ziff-Davis and
CNET of: (i) the strategic, financial and other benefits expected to result from
the Merger; (ii) the timing and risks associated with the integration of ZDNet
and CNET; and (iii) the validity of, and risks associated with, ZDNet's and
CNET's existing and future technologies, services or business models. We have
not made any independent valuation or appraisal of the assets or liabilities or
technology of Ziff-Davis, nor have we been furnished with any such appraisals.
Morgan Stanley has assumed that in connection with the receipt of all the
necessary regulatory approvals for the proposed Merger, no restrictions will be
imposed that would have a material adverse effect on the contemplated benefits
expected to be derived from the Merger. In addition, we have assumed that the
Merger will be consummated in accordance with the terms set forth in the Merger
Agreement, including that (i) the Spin-Off and the Cash Dividend (each as
defined in the Merger Agreement) will be consummated prior to the Merger and
(ii) the Merger will be treated as a tax-free reorganization pursuant to Section
368(a) of the Internal Revenue Code of 1986. With your consent, Morgan Stanley
assumed for purposes of considering the relationship between the exchange ratio
for the ZD Common Stock and the exchange ratio for the ZDNet Common Stock that
the net value of all of the assets and liabilities of the ZD division of
Ziff-Davis (excluding ZD's retained interest in ZDNet and the impact of stock
options) was equal to $55 million (i.e., the amount determined by the Ziff-Davis
Board of Directors and the special committee of that Board of Directors). With
your consent, Morgan Stanley also assumed that there would be no tax
consequences to holders of shares of ZD Common Stock and ZDNet Common Stock in
connection with the Merger. Our opinion is necessarily based on financial,
economic, market and other conditions as in effect on, and the information made
available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Ziff-Davis
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Ziff-Davis and CNET and have
received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Ziff-Davis only and may not be used for any other purpose without
our prior written consent. This opinion does not in any manner address the
prices at which the CNET Common Stock will trade following consummation of the
Merger, and Morgan Stanley expresses no opinion or recommendation as to how the
holders of ZD Common Stock, ZDNet Common Stock or CNET Common Stock should vote
at the shareholders' meetings held in connection with the Merger.
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Based on the foregoing, we are of the opinion on the date hereof that the
Consideration to be received by the holders of shares of ZD Common Stock and
ZDNet Common Stock pursuant to the Merger Agreement is fair from a financial
point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ STUART J. EPSTEIN
-------------------------------------
Stuart J. Epstein
Managing Director
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall have
the power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), because the person is or was a director
or officer of the corporation. Such indemnity may be against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with such action, suit or
proceeding, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and if, with respect to any criminal action or proceeding, the
person did not have reasonable cause to believe the person's conduct was
unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor because the person is or was a director or officer of the corporation,
against any expenses (including attorneys' fees) actually and reasonably
incurred by the person in connection with the defense or settlement of such
action or suit if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation.
Section 145(g) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director or officer of the corporation against any
liability asserted against the person in any such capacity, or arising out of
the person's status as such, whether or not the corporation would have the power
to indemnify the person against such liability under the provisions of the law.
The Registrant's bylaws and certificate of incorporation provide for the
mandatory indemnification of its directors, officers, and to the extent
authorized by the board of directors, employees and other agents, to the maximum
extent permitted by the Delaware General Corporation Law, and CNET has entered
into agreements with its officers, directors and certain key employees
implementing such indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith or incorporated herein by
reference:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 -- Agreement and Plan of Merger, dated as of July 19, 2000,
among CNET Networks, Inc., Ziff-Davis Inc. and TD Merger
Sub, Inc. (included as Annex A to the proxy
statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference).
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant (filed as Exhibit 1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended 1999 and
incorporated herein by reference).
3.2 -- Restated By-Laws of the Registrant (filed as Exhibit 3.4
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 and incorporated
herein by reference).
*5.1 -- Opinion of Simpson Thacher & Bartlett regarding legality
of securities being registered.
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
*8.1 -- Opinion of Simpson Thacher & Bartlett regarding certain
U.S. income tax aspects of the Merger.
*8.2 -- Opinion of Sullivan & Cromwell regarding certain U.S.
income tax aspects of the Merger.
10.1 -- Stock Option Plan adopted by the board of directors of
CNET dated June 1, 2000 (included as Annex B to the proxy
statement/prospectus forming a part of this Registration
Statement and incorporated by reference).
*23.1 -- Consent of Simpson Thacher & Bartlett (to be included as
part of its opinions filed as Exhibit 5.1 and Exhibit
8.1, respectively, and incorporated herein by reference).
*23.2 -- Consent of Sullivan & Cromwell (included as part of its
opinion filed as Exhibit 8.2 and incorporated herein by
reference).
23.3 -- Consent of Lazard Freres & Co. (included as part of its
opinion attached as Annex C to the proxy
statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference).
*23.4 -- Consent of Morgan Stanley & Co. Incorporated.
23.5 -- Consent of PricewaterhouseCoopers.
23.6 -- Consent of KPMG LLP.
*24.1 -- Power of Attorney.
99.1 -- Opinion of Lazard Freres & Co. (included as Annex C to
the proxy statement/ prospectus forming a part of this
Registration Statement and incorporated herein by
reference).
99.2 -- Opinion of Morgan Stanley & Co. Incorporated (included as
Annex D to the proxy statement/prospectus forming a part
of this Registration Statement and incorporated herein by
reference).
99.3 -- Stockholder Agreement, dated as of July 19, 2000, among
CNET Networks, Inc., Softbank America Inc. and Softbank
Corp. (filed as Exhibit 99.2 to the Registrant's Current
Report on Form 8-K dated July 21, 2000 and incorporated
herein by reference).
99.4 -- Voting Agreement, dated as of July 19, 2000, among CNET
Networks, Inc., Softbank America Inc. and TD Merger Sub,
Inc. (filed as Exhibit 99.3 to the Registrant's Current
Report on Form 8-K dated July 21, 2000 and incorporated
herein by reference).
99.5 -- Voting Agreement, dated as of July 19, 2000, between
Ziff-Davis, Inc. and Shelby Bonnie (filed as Exhibit 99.4
to the Registrant's Current Report on Form 8-K dated July
21, 2000 and incorporated herein by reference).
99.6 -- Voting Agreement, dated as of July 19, 2000, between
Ziff-Davis, Inc. and Halsey Minor (filed as Exhibit 99.5
to the Registrant's Current Report on Form 8-K dated July
21, 2000 and incorporated herein by reference).
*99.7 -- Form of Proxy of CNET Networks, Inc.
*99.8 -- Form of Proxy of Ziff Davis Inc.
*99.9 -- Form of Affiliate Agreement to be executed by affiliates
of Ziff-Davis, Inc.
- ---------------
* Previously filed.
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188
(b)-(c) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable and therefore have
been omitted.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in this registration statement 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;
(2) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form;
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment 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;
(4) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of any such request, and to send the
incorporated documents by first class mail or other equally prompt means,
including information contained in documents filed after the effective date of
this registration statement through the date of responding to such request; and
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in this registration statement when it
became effective.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. If a claim of
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 a successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
189
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San
Francisco, State of California, on September 8, 2000.
CNET Networks, Inc.
By: /s/ SHELBY BONNIE
----------------------------------
Name: Shelby Bonnie
Title: Chief Executive Officer
NAME TITLE DATE
---- ----- ----
* Chairman of the Board September 8, 2000
- -----------------------------------------------------
Halsey M. Minor
/s/ SHELBY W. BONNIE Chief Executive Officer September 8, 2000
- -----------------------------------------------------
Shelby W. Bonnie
* President September 8, 2000
- -----------------------------------------------------
Richard M. Marino
* Director, Executive Vice September 8, 2000
- ----------------------------------------------------- President and Chief
Douglas N. Woodrum Financial Officer
* Director September 8, 2000
- -----------------------------------------------------
John C. "Bud" Colligan
* Director September 8, 2000
- -----------------------------------------------------
Mitchell Kertzman
* Director September 8, 2000
- -----------------------------------------------------
Eric Robinson
* Vice President, Finance and September 8, 2000
- ----------------------------------------------------- Administration (Principal
David P. Overmyer Accounting Officer)
*By: /s/ SHELBY W. BONNIE
------------------------------------------------
Shelby W. Bonnie
Attorney-in-Fact
II-4
190
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 -- Agreement and Plan of Merger, dated as of July 19, 2000,
among CNET Networks, Inc., Ziff-Davis Inc. and TD Merger
Sub, Inc. (included as Annex A to the proxy
statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference).
3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant (filed as Exhibit 1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended 1999 and
incorporated herein by reference).
3.2 -- Restated By-Laws of the Registrant (filed as Exhibit 3.4
the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 and incorporated
herein by reference).
*5.1 -- Opinion of Simpson Thacher & Bartlett regarding legality
of securities being registered.
*8.1 -- Opinion of Simpson Thacher & Bartlett regarding certain
U.S. income tax aspects of the Merger.
*8.2 -- Opinion of Sullivan & Cromwell regarding certain U.S.
income tax aspects of the Merger.
10.1 -- Stock Option Plan adopted by the board of directors of
CNET dated June 1, 2000 (included as Annex B to the proxy
statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference).
*23.1 -- Consent of Simpson Thacher & Bartlett (to be included as
part of its opinions filed as Exhibit 5.1 and Exhibit
8.1, respectively, and incorporated herein by reference).
*23.2 -- Consent of Sullivan & Cromwell (to be included as part of
its opinion filed as Exhibit 8.2 and incorporated herein
by reference).
23.3 -- Consent of Lazard Freres & Co. (included as part of its
opinion attached as Annex C to the proxy
statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference).
*23.4 -- Consent of Morgan Stanley & Co. Incorporated.
23.5 -- Consent of PricewaterhouseCoopers.
23.6 -- Consent of KPMG LLP.
*24.1 -- Power of Attorney.
99.1 -- Opinion of Lazard Freres & Co. (included as Annex C to
the proxy statement/ prospectus forming a part of this
Registration Statement and incorporated herein by
reference).
99.2 -- Opinion of Morgan Stanley & Co. Incorporated (included as
Annex D to the proxy statement/prospectus forming a part
of this Registration Statement and incorporated herein by
reference).
99.3 -- Stockholder Agreement, dated as of July 19, 2000, among
CNET Networks, Inc., Softbank America Inc. and Softbank
Corp. (filed as Exhibit 99.2 to the Registrant's Current
Report on Form 8-K dated July 21, 2000 and incorporated
herein by reference).
191
EXHIBIT
NUMBER DESCRIPTION
------- -----------
99.4 -- Voting Agreement, dated as of July 19, 2000, among CNET
Networks, Inc., Softbank America Inc. and TD Merger Sub,
Inc. (filed as Exhibit 99.3 to the Registrant's Current
Report on Form 8-K dated July 21, 2000 and incorporated
herein by reference).
99.5 -- Voting Agreement, dated as of July 19, 2000, between
Ziff-Davis, Inc. and Shelby Bonnie (filed as Exhibit 99.4
to the Registrant's Current Report on Form 8-K dated July
21, 2000 and incorporated herein by reference).
99.6 -- Voting Agreement, dated as of July 19, 2000, between
Ziff-Davis, Inc. and Halsey Minor (filed as Exhibit 99.5
to the Registrant's Current Report on Form 8-K dated July
21, 2000 and incorporated herein by reference).
*99.7 -- Form of Proxy of CNET Networks, Inc.
*99.8 -- Form of Proxy of Ziff-Davis Inc.
*99.9 -- Form of Affiliate Agreement to be executed by affiliates
of Ziff-Davis, Inc.
- ---------------
* Previously filed.