-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kbnie7kU33/gDWx5FSkDQV43Wa2VOwrWNAapWrgoDuuYGwffMB17t0jQJ2hB+YWH zJQxsGzeNznOFm+fDXVgpA== 0000950123-06-004030.txt : 20060331 0000950123-06-004030.hdr.sgml : 20060331 20060331171215 ACCESSION NUMBER: 0000950123-06-004030 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060331 DATE AS OF CHANGE: 20060331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZIFF DAVIS HOLDINGS INC CENTRAL INDEX KEY: 0001124566 STANDARD INDUSTRIAL CLASSIFICATION: PERIODICALS: PUBLISHING OR PUBLISHING AND PRINTING [2721] IRS NUMBER: 364355050 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-99939 FILM NUMBER: 06729951 BUSINESS ADDRESS: STREET 1: 28 EAST 28TH ST CITY: NEW YORK STATE: NY ZIP: 10016 10-K 1 y18951e10vk.htm FORM 10-K FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-K
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 2005
Commission file number 333-99939
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
ZIFF DAVIS HOLDINGS INC.
(Exact name of Registrant as Specified in Its Charter)
     
Delaware   36-4335050
(State or Other Jurisdiction of   (I.R.S. Employer Identification No.)
Incorporation or Organization)    
28 East 28th Street
New York, New York 10016
(Address of Principal Executive Offices and Zip Code)
 
(212) 503-3500
(Registrant’s Telephone Number, Including Area Code)
Shares registered pursuant to Section 12(b) of the Act: None
Shares registered pursuant to Section 12(g) of the Act: None
 
     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934. Yes o No þ
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. þ
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer o Accelerated filer o Non-accelerated filer þ
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date:
     As of March 25, 2006, 2,311,049 shares of common stock, par value, $0.001 per share, were outstanding. The issuer’s common stock is not publicly traded.
DOCUMENTS INCORPORATED BY REFERENCE
None
 
 

 

 

ZIFF DAVIS HOLDINGS INC.
Index to Form 10-K for the Year Ended December 31, 2005
         
        Page
PART I
    
Item 1.     3
Item 1A.     10
Item 1B.     16
Item 2.     16
Item 3.     17
Item 4.     17
PART II
    
Item 5.     17
Item 6.     17
Item 7.     18
Item 7A.     29
Item 8.     29
Item 9.     62
Item 9A.     62
Item 9B.     62
PART III
    
Item 10.     63
Item 11.     65
Item 12.     68
Item 13.     70
Item 14.     72
PART IV
    
Item 15.     73
SIGNATURES  
 
   77
 EX-10.39: ASSET PURCHASE AGREEMENT
 EX-10.41: LETTER
 EX-14.2: AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY
 EX-31.1: CERTIFICATION
 EX-31.2: CERTIFICATION
 EX-32.1: CERTIFICATION
 EX-32.2: CERTIFICATION

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PART I
     Important Note: Please see the sections entitled “Forward-Looking Statements” and “Certain Risk Factors” appearing below in Item 1 and Item 1A.
ITEM 1. BUSINESS
     References to “we,” “us,” “our,” “Ziff Davis” and “the Company” refer to Ziff Davis Holdings Inc. and its subsidiaries. In those situations where it is important to distinguish between Ziff Davis Holdings Inc. and Ziff Davis Media Inc., we use the term “Ziff Davis Holdings” to refer to Ziff Davis Holdings Inc. and the term “Ziff Davis Media” to refer to Ziff Davis Media Inc.
Background and Organization
     We are a leading integrated media company serving the technology and videogame markets. Ziff Davis Holdings is majority owned by various investment funds managed by Willis Stein & Partners Management III, L.L.C. (“Willis Stein” or “controlling stockholders”), a private equity investment firm. Ziff Davis Holdings is a holding company which indirectly owns 100% of Ziff Davis Media. Ziff Davis Holdings does not conduct any business, but rather all operations are conducted by Ziff Davis Media and its direct and indirect subsidiaries. Ziff Davis Holdings has no material assets other than its investment in the capital stock of Ziff Davis Media. Ziff Davis Holdings was incorporated in the state of Delaware and was formed to acquire certain publishing assets (“Ziff-Davis Publishing,” “ZDP” or “Predecessor”) from Ziff-Davis Inc. (“ZDI”), an unrelated company. Our major operating subsidiaries are Ziff Davis Publishing Inc., Ziff Davis Development Inc. and Ziff Davis Internet Inc. In January 2002, we changed our fiscal year-end from March 31 to December 31, effective December 31, 2001.
     We had no operations prior to April 5, 2000, when we completed the acquisition of ZDP for $780.0 million plus expenses. This acquisition was accounted for under the purchase method of accounting and was funded by: (1) issuing preferred and common stock for $353.7 million in proceeds; (2) executing a $405.0 million senior credit facility (as subsequently amended and restated, the “Senior Credit Facility”) of which $355.0 million was borrowed at closing; and (3) issuing a bridge loan totaling $175.0 million in proceeds. Fees and expenses, including debt issuance costs associated with the acquisition, which totaled approximately $30.0 million, were paid from the equity and debt proceeds. On July 18, 2000, we issued $250.0 million 12% senior subordinated notes due 2010 (the “12% Notes”). The proceeds from the offering of the 12% Notes were used to repay the bridge loan and approximately $59.7 million of the Senior Credit Facility. In addition, proceeds from the offering of the 12% Notes were used to pay approximately $8.5 million of expenses associated with the offering and approximately $6.8 million of accrued interest.
     In August 2002, we completed a financial restructuring, including an exchange of approximately 95% of our 12% Notes for new compounding notes due 2009 (“the Compounding Notes”) and equity as well as the amendment and restatement of our Senior Credit Facility. (See “Management Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Financial Restructuring” and Note 13 to our audited Consolidated Financial Statements.)
     We have historically reported and managed our business in conjunction with the reporting requirements set forth in the Senior Credit Facility and indenture agreements which mandated certain restrictions on the sources of funding provided to the Restricted Subsidiaries and Unrestricted Subsidiaries, as defined in those debt agreements. Effective July 1, 2004, we amended the terms of our Senior Credit Facility which eliminated the distinction between the Restricted and Unrestricted Subsidiaries (as defined in the Senior Credit Facility as had been amended and restated) and allowed to be viewed in its entirety for purposes of financial covenant compliance. As a result, effective July 1, 2004 we have been reporting and managing our business along the following operations segments: the Consumer Small Business Group, the Enterprise Group and the Game Group.
     In April 2005, we completed a private placement transaction pursuant to which we issued $205.0 million of Senior Secured Floating Rate Notes at a floating interest rate of 3-month London Inter-Bank Offering Rate (“LIBOR”) plus 6.00% which mature in 2012 (the “Floating Rate Notes”). Interest on the Floating Rate Notes is payable quarterly with the first interest payment made on August 1, 2005. The proceeds were used to repay in full our Senior Credit Facility, including accrued interest, and to pay related fees and expenses of the transaction. The remaining balance of approximately $27.0 million was added to our existing cash balance and is available for general corporate purposes.
     Simultaneously with the initial sale of the Floating Rate Notes, we entered into a registration rights agreement, under which we agreed to commence an offer to exchange the originally-issued notes with a series of publicly-registered notes with substantially identical terms. Under the exchange offer, which commenced on June 24, 2005 and expired on July 22, 2005, 100% of the originally issued notes were tendered and exchanged for publicly registered notes. The Floating Rate Notes are subject to certain permitted liens and are secured by a first priority security interest in substantially all of our existing and future assets.

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     In order to focus on delivering integrated marketing solutions to our customers, in the fourth quarter of 2005 we completed an additional realignment of our business within our three segments (Consumer/Small Business Group, Enterprise Group and Game Group) each offering print, online and events products. This operational realignment does not change our reporting of segment results, rather it further integrates the development and execution of the products and services offered by the respective groups.
     Our Consumer/Small Business Group (formerly known as the Consumer Tech Group) is principally comprised of PC Magazine, a number of consumer-focused websites, including pcmag.com and extremetech.com, and our consumer electronics convention, DigitalLife. During the fourth quarter of 2005 the group shut down both Sync and ExtremeTech magazines. The operating results for these publications are included in the financial statements for the year ended December 31, 2005.
     Our Enterprise Group is comprised of three publications, eWEEK, CIO Insight and Baseline; 16 internet sites affiliated with these brands and also a number of vertical platform and community sites for readers; over 40 weekly eNewsletters; eSeminars, which produce live interactive webcasts, and the Ziff Davis Web Buyers Guide, our searchable online directory of technology products. The Enterprise Group also includes our custom conference group which manages face-to-face events in the U.S. and worldwide; Business Information Services, a marketing research tools unit; and Contract Publishing , which produces custom magazines, white papers, case studies and other sales and marketing collateral for customers.
     The Game Group is focused on the videogame market and is principally comprised of three magazine publications (Electronic Gaming Monthly, Computer Gaming World and Official U.S. PlayStation Magazine) and the 1up network, a collection of online destinations for gaming enthusiasts. The Game Group discontinued publishing GMR and reduced the frequency of Xbox Nation during the fourth quarter of 2004. The full year results of these publications are included in the financial statements for the year ended December 31, 2004.
     For additional information on our operating segments, see Note 22 to our audited Consolidated Financial Statements.
General
     We are a leading integrated media company serving the technology and videogame markets and one of the largest technology magazine publishers in the United States as measured by revenue. In 2005, we had an estimated 13.6% share versus 13.1% for 2004 of advertising pages in the technology magazine industry based on data compiled by IMS/The Auditor (Toronto, Canada) (“IMS”). Our current U.S. titles have a combined circulation of approximately 1.9 million and our U.S. based brands reach over 28 million people per month at work, home and play based on syndicated research and management’s estimates. Our audiences cover the full spectrum of readership, from corporate technology buyers and users to consumer enthusiasts, influencers and gamers.
     We distinguish our products through our comprehensive labs-based evaluations, trusted buying advice, recognized industry experts, and thought-provoking reviews, opinions and insights. We publish seven industry-leading technology, videogame and consumer magazines including PC Magazine, eWEEK, Baseline, CIO Insight, Electronic Gaming Monthly, Computer Gaming World and Official U.S. Playstation Magazine. PC Magazine was the number one technology magazine in the United States in 2005, as measured by the Publishers Information Bureau using advertising pages. eWEEK ranked fifth in advertising pages among information technology magazines in the United States, according to IMS. Our videogame publications led the market in 2005 with an estimated 35.7% market share of advertising pages based on IMS data.
     Our readers are well-educated, influential buyers of technology and other products, and decision-makers in their professional fields and households, which makes them attractive to a wide range of advertisers. For example, the estimated 2,569,000 business professionals, (individuals who are involved in purchasing technology for their businesses) and read PC Magazine, each spend an estimated average of $215,376 per year on technology products and services for their business according to the IntelliQuest CIMS 2005 Business Study. Similarly, in December 2005, the average annual information technology budget for corporate business readers of eWEEK was approximately $48 million, according to our subscriber qualification surveys. Additionally, according to internal readership surveys, the average Game Group reader purchases two games per month and influences approximately six other people regarding game purchasing decisions.
     We extend the power of our print brands online through companion sites, as well as original technology and videogame enthusiast websites. These include pcmag.com, eweek.com, extremetech.com, 1up.com and Filefront.com We also produce highly targeted business-to-business and consumer technology events. Furthermore, we export the power of our brands internationally, licensing our content to publications in 49 countries that are produced in 18 languages.
Consumer/Small Business Group
     The Consumer/Small Business Group is principally comprised of PC Magazine, a number of consumer-focused websites, including pcmag.com and extremetech.com, and our consumer electronics convention, DigitalLife. During the fourth quarter of 2005, the group shut down both Sync and ExtremeTech magazines, because they did not achieve planned results.

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     The following table sets forth information regarding PC Magazine:
                                         
    First   Frequency            
    Issue   Per Year   Primary Audience   Circulation   Rate Base
PC Magazine
     1981       22     Consumer/Business   Paid     700,000  
     PC Magazine is one of the largest technology publications in the world, delivering the most authoritative, comprehensive labs-based reviews and trusted recommendations for buyers of technology products and services. PC Magazine has re-emphasized its focus on both consumers and the fast growing small-to-medium business segment. This focus includes additional coverage of the growing consumer electronics market. PC Magazine publishes 22 times a year (plus occasional special issues) with a paid circulation of 700,000. PC Magazine had a recent U.S. readership of approximately 5.1 million readers (MRI Fall 2005). Reaching highly-engaged technology influencers, PC Magazine differentiates itself through unique and extensive product reviews based on its exclusive benchmark testing performed in the PC Magazine labs, supplemented by its “First Looks” section covering emerging technologies and products, and opinion columns from its renowned technology authorities.
     In September 2003, we launched the Ziff Davis Event Marketing Group, which is part of the Consumer/Small Business Group. The Event Marketing Group develops and builds large-scale consumer events such as DigitalLife, a four-day convention that was launched in New York City in October 2004. DigitalLife brings together the latest in digital technology for the home, work and play. In October 2005, the DigitalLife convention attracted 44,700 consumers, an increase of 46.7% more than the 2004 convention.
     Our Consumer/Small Business Group internet sites provide online destinations for information technology (“IT”) and business professionals and technology enthusiasts. The portfolio of online products is also grounded in a tradition of labs-based reviews, advice and commentary from leading experts, and in-depth analyses and reporting.
     The following February 2006 monthly page view and unique visitor statistics show the relative scale of our Consumer/Small Business Group Internet properties:
                 
Website Address   Page Views   Unique Visitors
www.pcmag.com
     30,107,600       4,591,400  
www.extremetech.com
     8,793,100       1,358,100  
Other Consumer/Small Business Group Sites
     918,200       265,000  
 
                
Total
     39,818,900       6,214,500 *
*   Unadjusted for duplication of unique visitors between all sites.
     pcmag.com is the premier online destination for helping technology buyers make informed product choices for their business and personal lives. Offering labs-based reviews, solutions, leading columnists and articles from PC Magazine, pcmag.com also offers original content such as online-only reviews, product buying guides, proprietary downloads, eNewsletters, and special features by dedicated online editors. Once a user has made an informed product decision, pcmag.com’s online shopping features help the user find the best price and service options to complete the transaction.
     extremetech.com offers the hardcore technology do-it-yourselfer in-depth coverage of new and emerging technologies, community swapping tips and online shopping. Whether a reader is configuring the ultimate gaming PC or building a digital audio workstation, extremetech.com provides the component reviews, how-to features and tips to help the reader succeed.
Enterprise Group
     The Enterprise Group is comprised of three publications, eWEEK, CIO Insight and Baseline; 16 internet sites affiliated with these brands and also a number of vertical platform and community sites for readers; over 40 weekly eNewsletters; eSeminars, which produce live interactive webcasts; and the Ziff Davis Web Buyers Guide, our searchable online directory of technology products. The Enterprise Group also includes our custom conference group which manages face-to-face events in the U.S. and worldwide; Business Information Services, a marketing research tools unit; and Contract Publishing, which produces custom magazines, white papers, case studies and other sales and marketing collateral for customers.
     The following table sets forth information regarding the publications within the Enterprise Group:
                                         
    First   Frequency            
Magazine Title   Issue   Per Year   Primary Audience   Circulation   Rate Base
eWEEK
     1983       51     Business   Controlled     400,100  
CIO Insight
     2001       14     Business   Controlled     50,000  
Baseline
     2001       15     Business   Controlled     125,000  

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     eWEEK is a 400,100 subscriber, controlled circulation magazine and it is one of the largest controlled-circulation publications in the United States, reaching over 1.8 million enterprise technology decision-makers per week who are evaluating and purchasing technology solutions for their companies, according to the May 2004 BPA Pass Along Audit. Controlled-circulation publications like eWEEK are distributed directly to qualified professionals for no charge and generate revenue principally from the sale of advertising. In order to qualify for a free subscription, eWEEK subscribers must be involved in one or more stages of the IT decision-making process within an enterprise and be active in the specification, recommendation, purchase or approval of multiple technologies, services and business applications. These qualifications are audited by BPA International. The criteria we use to qualify subscribers for this magazine are among the highest standards in the industry. eWEEK differentiates itself by delivering to its readers breaking news, technology evaluations and strategic analyses of the technologies, platforms and trends that impact enterprise-wide computing. This makes eWEEK extremely attractive to advertisers selling products and services to IT professionals and senior business readers evaluating and implementing enterprise technology solutions.
     CIO Insight is a 50,000 subscriber, controlled-circulation strategic business journal for today’s senior IT decision makers. Its mission is to provide IT executives with cutting-edge strategies, management techniques and technology perspectives that align business with IT. Each month, CIO Insight provides senior-level technology executives with in-depth analysis and proprietary research about new trends in IT. Writers are either proven experts in their fields or journalists who are well-versed in technology and management issues. In order to qualify for a free subscription, CIO Insight subscribers must be senior IT executives actively charged with setting their companies IT business goals, direction and strategy. These senior IT executives must also have personal purchase authority for IT within their organizations or have personal budgets in certain IT categories.
     Baseline is a 125,000 subscriber, controlled-circulation magazine that is a guide to selecting and managing the deployment of leading-edge information systems for senior IT and business leaders. Through case studies, news stories, company dossiers and financial tools, the publication provides these senior executives with a detailed look at how their peers are implementing strategic information technology projects and systems. The success or failure of each implementation is measured by the company’s actual progress against “baseline” expectations of financial returns and technology deliverables. In the four years since its inception, Baseline has won five Jesse H. Neal National Business Journalism Awards for its excellent editorial coverage of business and technology issues, and in March 2005 was awarded the Grand Neal award, the highest distinction awarded by the Association of Business Media Companies. In order to qualify for a free subscription, Baseline subscribers must be actively involved in setting goals, evaluating or managing a company’s IT investment, or planning major IT projects or upgrades in the next 12 months. The subscriber must have a director-level title or higher, have a minimum personal budget authority of $50,000 and an organizational spending minimum of $100,000.
     Our Enterprise Group internet sites offer products and services consisting of internet advertising, eNewsletters, select lead-generation programs, integrated e-commerce opportunities, email direct marketing, sponsorship and custom site development. The Enterprise Group also produces eSeminars, which are sponsored interactive webcasts that connect IT experts, buyers and sellers in online interactive groups to explore the latest issues in technology. We held approximately 275 eSeminarsTM in 2005. Additionally, the Enterprise Group’s Web Buyers Guide unveiled its extensive White Paper Library Service which was designed to help technology buyers identify research and make the best qualified purchasing decisions.
     The following February 2006 monthly page views and unique visitor statistics show the relative scale of our Enterprise Group internet properties:
                 
Website Address   Page Views   Unique Visitors
www.eweek.com
     5,243,400       1,491,900  
www.cioinsight.com
     268,800       86,100  
www.baselinemag.com
     312,800       106,300  
Other targeted B2B Sites*
     4,100,800       1,671,500  
 
                
Total
     9,925,800       3,355,800 **
 
                
 
                
 
*   Includes miscellaneous sites such as microsoft-watch.com, webbuyersguide.com, channelinsider.com, devsource.com, and other targeted sites.
 
**   Unadjusted for duplication of unique visitors between all sites.
     eweek.com is the real-time resource for IT professionals who evaluate and purchase technology solutions for their organizations. With a dedicated team of online journalists, eweek.com offers 24/7 technology news coverage, timely features, analysis and reports on major topical issues and technology vertical markets. Information can be accessed by topic or industry, helping IT professionals get

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the information they need in a fast and convenient format. eweek.com includes the award-winning journalism, reviews and insights of eWEEK, plus case studies, research and tools from CIO Insight and Baseline.
     cioinsight.com is an IT portal for Chief Information Officers and other senior-level technology decision-makers. It provides easy access to progressive articles, interviews, surveys and proprietary research on technology strategies and cost-cutting techniques from experienced industry journalists. As a result of its elevated editorial approach, cioinsight.com offers marketers a targeted subscriber readership that includes senior-level IT executives directly involved in their organizations’ technology budget, direction and strategy.
     baselinemag.com provides senior IT and business executives with timely case studies, cutting-edge articles and extensive interactive online tools so that they can make better decisions about implementing information technology. baselinemag.com’s content examines project-based ROI goals, defining core and valuable metrics with the key players involved while profiling the specific technology solutions used. baselinemag.com not only details which technology products and projects work best, but also which products and projects failed and why they failed.
Game Group
     The Game Group is focused on the videogame market and is principally comprised of three magazine publications (Electronic Gaming Monthly, Computer Gaming World, and Official U.S. Playstation Magazine) and the 1UP Network, a collection of online destinations for gaming enthusiasts. In November of 2005, we acquired filefront.com which has expanded the size and reach of the 1UP Network to over 10 million monthly unique visitors and 119 million pageviews. The Game Group’s paid publications are positioned to capitalize on the large and growing enthusiast market for videogames. According to DFC Intelligence, the global videogame market was estimated to be $28.5 billion in 2005 and is forecasted to grow to $42 billion in 2008. Because readers of videogame magazines are principally 18-to-34 year old males, these publications also offer advertisers access to a highly focused, difficult-to-reach readership with attractive demographics and spending patterns. For the year ended December 31, 2005, we were the leader in the United States in this valuable publishing segment in three major categories: IMS advertising pages (35.7% share); total circulation (23.4% share); newsstand circulation (34.3% share). On average, our videogame publications sell nearly 250,000 copies at the newsstand per issue.
     The following table sets forth information regarding the publications within the Game Group segment:
                                         
    First   Frequency            
Magazine Title   Issue   Per Year   Primary Audience   Circulation   Rate Base
Computer Gaming World
     1981       11     Consumer   Paid     219,000 *
Electronic Gaming Monthly
     1988       12     Consumer   Paid     667,000  
Official U.S. Playstation Magazine
     1997       12     Consumer   Paid     300,000 *
 
*   Target circulation; no rate base is claimed for these publications.
     Electronic Gaming Monthly is a valued guide to video gaming and leads the industry with exclusive scoops, authoritative articles and hard-hitting reviews. The magazine, which reaches the most influential and engaged videogame players, recently celebrated its 200th issue.
     Official U.S. PlayStation Magazine is the only magazine that provides a disc supplied by Sony Computer Entertainment America, containing interactive samples of games and other materials. It is a critical voice, independent of SCEA (“SCEA”), that helps readers get more out of their PlayStation systems (PS1 and PS2).
     Computer Gaming World is an authoritative source in computer gaming, with over 20 years of editorial leadership. It provides readers with informed, well-written and entertaining reviews, previews, features and strategies about PC games.
     The following February 2006 monthly page views and unique visitor statistics show the relative scale of the 1up Network:
                 
Website Address   Page Views   Unique Visitors
www.1up.com
     23,322,000       2,041,000  
www.filefront.com
     95,814,000       8,623,000  
 
                
Total
     119,136,000       10,664,000 *
 
            
 
*   Unaudited for duplication of unique visitors between all sites
     In October 2003, 1up.com was launched as our new online destination for videogame enthusiasts and provides up-to-the-minute news, multiple game reviews, tips and tricks and live forums with industry celebrities covering all game platforms. Unlike other

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competing videogame sites, 1up.com incorporates the unique editorial features from the Game Group’s industry-leading publications together with unique site functions and features for social networking, discussion groups, consumer news and lifestyle coverage of movies, music and gadgets.
Revenue
     Our principal sources of revenue for the year ended December 31, 2005 were advertising (62.1% of total revenue), circulation (17.6%) and other ancillary sources (20.3%). Circulation comprises both subscriptions (10%) and newsstand sales (7.6%).
     Advertising. Advertising rates and rate structures vary among our publications and internet properties and are based on, among other things, the circulation or audience of the particular property, the readership demographics, the scheduled frequency and the size and placement of the advertisement in the publication or website. Our advertising revenue is influenced by a number of external factors, including the volume of new technology product introductions, the amount and allocation of marketing expenditures by our advertising clients and the extent to which our customers elect to advertise using print and online media.
     Subscriptions. Generally, we sell subscriptions to our publications either directly by our circulation management teams or by independent subscription direct marketing companies or agents. We receive approximately 13.1% of the total price of subscriptions sold through agents. In addition to agents, we have historically sold subscriptions using a variety of techniques including direct reply subscription cards, direct mail and the internet.
     Newsstand. We sold approximately 4.2 million single copies of magazines for the year ended December 31, 2005. Generally we receive approximately 47.5% of the cover price of an individual magazine sold through the newsstand with the balance of the cover price going to the magazine’s distributor, wholesaler and retailer.
     Other Revenue Sources. We also derive revenue from a variety of ancillary activities, including mailing list rentals, custom conferences and events, royalty and license agreements and eNewsletters.
Operating Costs
     The principal components of our production costs are raw materials, printing and distribution, which represented 24.7%, 37.0% and 35.1%, respectively, of our production expenses for the year ended December 31, 2005. Approximately 3.2% of our production costs related to the execution costs for the DigitalLife convention. Our principal raw material is paper. Paper supply and prices are subject to volatility and may be significantly affected by many factors, including market and economic conditions.
     We outsource the printing process, including the majority of our pre-press and paper buying operations, for all of our publications. To facilitate efficient and timely printing of our publications, we have established long-term contractual relationships with certain printing companies, including R.R. Donnelley and Brown Printing Company. For the year ended December 31, 2005, approximately 38.6% of our total production costs were for printing services and paper supplied by or through R.R. Donnelley.
     Our other principal operating costs are selling, general and administrative expenses. Included in these costs are compensation expenses (salaries, commissions and incentives), benefits, editorial costs and circulation, marketing and promotion expenses.
Circulation
     Our publications include paid-circulation magazines, which generate revenue principally from advertising, newsstand sales and subscriptions; and controlled-circulation publications, which in our case are distributed to qualified IT professionals and generate revenue principally from the sale of advertising. Our controlled-circulation publications offer technology content that appeals to a professional audience in need of technology information and enterprise IT solutions, specifically in the areas of news, lab testing reviews, analysis, opinion and case studies. Our paid-circulation publications offer consumer and business-oriented content that appeals to a broader audience interested in technology products and services, the internet and/or videogame hardware and software. As of December 31, 2005, we published four domestic paid-circulation publications and three domestic controlled-circulation publications.
     Our paid-circulation publications are distributed to subscribers and are also available for sale at newsstands and other retail outlets. We have an agreement with Warner Publishing Services to manage our newsstand and retail distribution. Warner Publishing Services in turn has agreements with magazine wholesalers to arrange for national and regional placements of our publications and to manage billing and collection of amounts due from the magazine retailers. Our paid subscribers receive their publications through the U.S.

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Postal Service and via Zinio Systems Inc. for digital delivery. We also have an agreement with Kable Fulfillment Services to manage our subscription billing, collection and processing, which includes providing mailing labels for each of the paid publications.
     Our controlled-circulation publications are distributed free of charge to individuals who meet demographic standards we established in an effort to make the publication attractive to advertisers. The qualified subscribers of our controlled-circulation publications receive these publications via the U.S. Postal Service and also via Zinio Systems Inc. for digital delivery. In addition, we have an agreement with Omeda Communications to manage our list and mailing labels for each of the controlled publications.
Customers
     The size and composition of our readership offers advertisers concentrated and efficient exposure to their critical target audiences. As a result, our top advertisers, including Microsoft, Computer Discount Warehouse, IBM, Hewlett Packard and Dell Computer, have consistently advertised in our publications and on our internet sites. Importantly, as technology and videogames have become more mainstream and appeal to broader demographics, our publications are becoming increasingly more appealing to a larger range of advertisers who are interested in marketing lifestyle and other general consumer products to this reader audience.
     We had over 900 advertising customers in 2005 according to internal records and an average circulation of approximately 1.9 million individuals according to the figures filed with the Audit Bureau of Circulation for the six months ended December 31, 2005 as well as average controlled circulation of approximately 0.6 million according to information filed with BPA International (unadjusted in each case, for duplication of subscribers between our magazines). No single advertiser comprised more than 11.4% of our advertising revenue or 7.1% of total revenue for the year ended December 31, 2005. Our top ten advertisers accounted for 43.3% of our advertising revenue and 26.9% of our total revenue for the year ended December 31, 2005.
Competition
     The magazine publishing industry is highly competitive. Our competitors include several much larger international companies that operate in many markets and have broad product offerings in publishing and trade shows and conferences. We compete for readers and advertisers in the general publishing marketplace, which is fragmented. According to SRDS Media, there are about 9,000 domestic trade magazine titles. We also compete for advertising and circulation revenue principally with publishers of other technology magazines and internet sites with similar editorial content to ours. We believe our core competitive set includes approximately 20 print publishing and Internet companies. The technology magazine industry has traditionally been dominated by a small number of large publishers. In 2005, the three largest technology-publishing companies, Ziff Davis, International Data Group and CMP Media, accounted for 65.2% of total technology magazine gross advertising revenue and 69.6% of total technology advertising pages according to IMS.
Our publications and internet sites generally compete on the basis of:
  •   editorial quality;
 
  •   quantity and quality of circulation;
 
  •   the strength of complementary products serving the same niche;
 
  •   the effectiveness of sales, research efforts and customer service; and
 
  •   advertising rates.
     We believe that we compete successfully with other technology and videogame publications and internet sites based on our market-leading positions within the technology and videogame magazine sectors, the nature and quality of our magazines’ editorial content and the attractive demographics of our readers. In addition, our magazines also compete for advertising revenue with general-interest consumer and business magazines and other forms of media, including broadcast and cable television, radio, newspapers, direct marketing and other electronic media. In competing with general-interest consumer and business magazines and other forms of media, we rely on our ability to reach a targeted segment of the population in an efficient, cost-effective manner.
Certain License Agreements and Service Contracts
     We were granted an exclusive license until March 31, 2007 to use certain trademarks owned by Sony Computer Entertainment America Inc. in connection with publishing of the magazine Official U.S. PlayStation Magazine in the United States and Canada.

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     We had been granted a license to use certain trademarks owned by Microsoft Corporation in connection with publishing Xbox Nation both in print and online. We did not publish any issues of the magazine in 2005 and the term of our right to use these trademarks expired on October 31, 2005.
     We also were licensed to use certain trademarks and copyrighted content owned by Electronics Boutique of America, Inc., in connection with our publication of GMR magazine. The parties agreed to terminate this license in connection with the discontinuation of GMR in February 2005.
     Lastly, we license various of our trademarks and copyrighted content to third parties, including publishers of foreign editions of our magazines and other magazines. Our brands and content currently appear in over 49 countries and over 18 languages worldwide.
Trademarks and Intellectual Property Rights
     We have developed strong brand awareness for our principal publications and services. Accordingly, we consider our trademarks, copyrights, trade secrets and similar intellectual property critical to our success and rely on trademark, copyright and trade secrets laws, as well as licensing and confidentiality agreements, to protect our intellectual property rights. We generally register our material trademarks in the U.S. and in certain other key countries in which these trademarks are used. Effective trademark, copyright and trade secret protection may not be available in every country where our publications and services are available.
     We may be subject to claims by third parties of alleged infringement of trademarks, copyrights, patents and other intellectual property rights, from time to time in the ordinary course of business. We do not believe there are any such legal proceedings or claims pending that are likely to have, individually or in the aggregate, a material adverse affect on our business, financial condition or results of operations.
Employees
     As of December 31, 2005, we had a total of approximately 530 employees, all based in the U.S. None of our employees are represented by a labor union. We believe that our relations with our employees are good.
ITEM 1A. RISK FACTORS
Forward-Looking Statements
     All statements in this Form 10-K that are not statements of historical fact are “forward-looking statements,” as that term is used in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Examples of forward-looking statements include: projections or estimates of or expectations regarding earnings, revenue, expenses, financing needs or other financial items; statements of the plans and objectives of management for future operations; statements concerning proposed new products and services; any statements of assumptions underlying any of the foregoing. In some cases, you can identify forward-looking statements by the use of words such as “may,” “will,” “expects,” “should,” “believes,” “plans,” “anticipates,” “estimates,” “predicts,” “projects,” “should,” “potential” or “continue,” and any other words of similar meaning.
     Any or all of our forward-looking statements in this Form 10-K and in any other public statements we make may turn out to be materially wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors, including but not limited to those mentioned in this Form 10-K will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. Forward-looking statements herein speak only as of the date of filing of this Form 10-K. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. We do, however, make public disclosures from time to time, and any of the information contained in this Form 10-K could be superseded by subsequently disclosed information. You are advised, therefore, to consult any further disclosures we make on related subjects in our reports to the Securities and Exchange Commission (“SEC”) and our other public statements.
     Statements regarding our future financial performance or results of operations, including expected revenue growth; future paper, postage, printing or other expenses; future operating margins; licensing or contract renewals; anticipated capital spending; our ability to obtain funding and other future or expected performance are subject to risk factors, some of which are discussed immediately below under “Certain Risk Factors.”
Certain Risk Factors
     Below we provide a cautionary discussion of certain risks, uncertainties and possibly inaccurate assumptions relevant to our businesses. This list is inherently incomplete. These are some of the factors that we think could cause our actual results to differ

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materially from expected and historical results. Other factors besides those listed here could also adversely affect us. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995. In addition to other information in this Form 10-K, you should carefully evaluate the following risk factors:
Risks Related to Our Financial Structure
Our indebtedness could make it difficult for us to satisfy our obligations with respect to our long-term debt and preferred stock and reduce the cash available to finance our growth.
     We have a significant amount of indebtedness, including under our Floating Rate Notes, Compounding Notes and 12% Notes (collectively, the “Notes”). As of December 31, 2005, we had long-term debt and redeemable preferred stock (which has been classified as debt since January 1, 2004) totaling $357.5 million and $899.5 million, respectively, and approximately $1,066.6 million of stockholders’ deficit.
     Our substantial indebtedness could:
  •   make it more difficult for us to satisfy our obligations with respect to the Notes;
 
  •   increase our vulnerability to general adverse economic and industry conditions;
 
  •   require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund our operations;
 
  •   limit our flexibility in planning for, or reacting to, changes in our business and the publishing industry generally;
 
  •   place us at a competitive disadvantage compared to our competitors that have less debt and limit, our ability to borrow additional funds.
     In addition, the indentures governing the Notes contain restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our outstanding indebtedness.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.
     Our ability to service our indebtedness will depend on our future performance, which will be affected by prevailing economic conditions and financial, business and other factors. Certain of these factors are beyond our control. If we cannot generate sufficient cash flow from operations to service our indebtedness and to meet our other obligations and commitments, we will be required to refinance our debt or to dispose of assets to obtain funds for such purposes. There is no assurance that refinancing or asset dispositions could be achieved on a timely basis or on satisfactory terms, if at all, or would be permitted by the terms of the indentures governing our Notes. In the event that we were unable to refinance our Notes or raise funds through asset sales, sales of equity or otherwise, our ability to pay the principal of, and interest on, the amounts borrowed under the Notes, or to make any payment on the accrued dividends on our preferred stock, would be impaired.
Despite current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.
     We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of our indentures do not fully prohibit us or our subsidiaries from doing so. If new debt is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify.
An increase in short-term interest rates could adversely affect our cash flows.
     As of December 31, 2005, we had $205.0 million of outstanding floating rate debt. Any increase in short-term interest rates would result in higher interest costs and could have an adverse effect on our business. While we may seek to use interest rate swaps or other

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derivative instruments to hedge portions of our floating-rate exposure, we may not be successful in obtaining hedges on acceptable terms.
If Ziff Davis Holdings does not receive loans, advances or dividends from its subsidiaries, Ziff Davis Holdings may be unable to redeem or pay accrued dividends on its preferred stock.
     Ziff Davis Holdings is a holding company with no assets other than its ownership of the capital stock of a holding company that owns the capital stock of Ziff Davis Media. Accordingly, Ziff Davis Holdings’ ability to perform its obligations to the holders of its preferred stock depends upon the operating cash flow of Ziff Davis Media and its direct and indirect subsidiaries and their payments to Ziff Davis Holdings in the form of loans, dividends or otherwise. Ziff Davis Media is restricted from making any payments to Ziff Davis Holdings before such time as its obligations under the Notes are satisfied. In addition, the making of loans, advances or other payments by Ziff Davis Media to Ziff Davis Holdings may be subject to regulatory and contractual restrictions. Subsidiary payments are also contingent upon earnings and various business and other considerations. If Ziff Davis Holdings is unable to obtain payments from Ziff Davis Media or its direct and indirect subsidiaries, Ziff Davis Holdings may be unable to redeem its preferred stock upon mandatory redemption on March 31, 2010 (or upon an earlier change in control, in certain circumstances with respect to certain classes of our preferred stock), or pay any cash dividends accruing on its preferred stock. In addition, Ziff Davis Holdings will be unable to pay any cash dividends on certain classes of preferred stock unless it has first paid in full all accrued dividends on classes that have liquidation preference.
We may not be able to finance a change of control offer.
     Under the terms of the indenture governing the Notes and under the terms of the series E redeemable preferred stock (the “Series E Preferred Stock”) as set forth in the certificate of incorporation of Ziff Davis Holdings, we will be required to offer to repurchase all the Notes for a price equal to 101% of the principal amount, plus interest that has accrued but has not been paid as of the repurchase date, and to offer to redeem all the Series E Preferred Stock, if a change of control (as defined in the indentures governing the Notes or in the certificate of incorporation of Ziff Davis Holdings, respectively) occurs. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchases, or that we will not have sufficient funds to pay our other debts. In addition, the indentures governing the Notes may prohibit us from redeeming the Series E Preferred Stock after a change in control until we have repaid in full our debt under such indentures. If we fail to repurchase the Notes upon a change in control, we will be in default under the indentures governing the Notes. Any future debt that we incur may also contain restrictions on repurchases in the event of a change in control or similar event. These repurchase restrictions may delay or make it harder for others to obtain control over us.
If there is a default, proceeds from sales of the collateral may not be sufficient to repay the holders of the Floating Rate Notes.
     The value of the Notes in the event of a liquidation will depend on market and economic conditions, the availability of buyers and similar factors. You should not rely upon the book value of the assets underlying the collateral as a measure of realizable value for such assets. No appraisals of any collateral were prepared in connection with the offering of the Notes. The value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers, the current condition of the collateral, the existence of title defects and other factors both in and out of our control.
     Under the indenture governing the terms of the Notes, we are permitted to incur additional indebtedness and other obligations that may share in the liens on the collateral securing the Notes. If we incur any additional debt that is secured on an equal and ratable basis with the Secured Notes, the holders of that debt will be entitled to share ratably with the holders of the Notes and the value of the collateral securing the Notes will be diluted.
     In addition, rights of holders of Notes in the collateral securing the Notes may be adversely affected by the failure to perfect security interests in certain collateral securing the Notes, both to the extent permitted by the specific terms of the indenture governing the Secured Notes, which provides for a security interest in our cash and deposit accounts but does not require such security interest to be perfected, and as a result of any failure to perfect security interests that the indenture requires to be perfected.
     If the proceeds of any sale of the assets underlying the perfected security interests in the collateral are insufficient to repay all amounts due on the Notes, the holders of the Notes (to the extent the Notes are not repaid from the proceeds of the sale of the collateral) would have only an unsecured claim against our remaining assets, which claim will rank equal in priority to our other unsecured senior indebtedness.

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The guarantees and the liens securing the guarantees of the Notes may not be enforceable because of fraudulent conveyance laws.
     The incurrence of the guarantees of the Notes and the grant of liens by the guarantors (including any future guarantees and future liens) may be subject to review under U.S. federal bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of the guarantors’ unpaid creditors. Under these laws, if in such a case or lawsuit a court were to find that, at the time such guarantor incurred a guarantee of the Notes or granted the lien, such guarantor:
  •   incurred the guarantee of the Notes or granted the lien with the intent of hindering, delaying or defrauding current or future creditors;
 
  •   received less than reasonably equivalent value or fair consideration for incurring the guarantee of the Notes or granting the lien and such guarantor;
 
  •   was insolvent or was rendered insolvent;
 
  •   was engaged, or about to engage, in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business; or
 
  •   intended to incur, or believed that it would incur, debts beyond its ability to pay as such debts matured (as all of the foregoing terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes);
then such court could avoid the guarantee or lien of such guarantor or subordinate the amounts owing under such guarantee or such lien to such guarantor’s presently existing or future debt or take other actions detrimental to you.
Our controlling stockholder may have interests that conflict with the interests of other investors.
     A majority of the equity securities of Ziff Davis Holdings are held by Willis Stein and its equity co-investors. Through their controlling interest in us and pursuant to the terms of an investor rights agreement among certain of Ziff Davis Holdings’ stockholders (“Investor Rights Agreement”), Willis Stein has the ability to control our operations and policies. Circumstances may occur in which the interests of Willis Stein and its affiliates, as controlling stockholders, could be in conflict with the interests of other investors. In addition, our equity investors may have an interest in pursuing acquisitions, divestitures or other transactions that, in their judgment, could enhance their equity investment, even though such transactions might involve risks to holders of our debt.
Stockholders’ proportional equity interest in Ziff Davis Holdings could be reduced in the future.
     The Series E Preferred Stock offers limited preemptive rights on issuances by Ziff Davis Holdings that are senior to such shares and a right to approve the issuance of shares junior to the series D redeemable preferred stock (“Series D Preferred Stock”) but senior to or on par with the Series E Preferred Stock. However, these rights are subject to certain limitations, which may result in the dilution of your equity interest in Ziff Davis Holdings. We may offer and sell additional shares of capital stock in the future, including capital stock issued under our Amended and Restated 2002 Employee Stock Option Plan (“2002 Plan”). In connection with our financial restructuring, we issued approximately 38.6 million common stock warrants to Willis Stein, each entitling Willis Stein to obtain upon exercise one share of the common stock of Ziff Davis Holdings at an exercise price of $0.001 per share, and approximately 5.2 million common stock warrants to the tendering holders of our 12% Notes (of which approximately 1.4 million common stock warrants were issued to Willis Stein as a tendering holder), each giving such holders the right to acquire upon exercise one share of the common stock of Ziff Davis Holdings at an exercise price of $0.001 per share.
Because there is no public market for the Notes, you may not be able to resell your Notes.
     The Notes have been registered under the Securities Act, but do not trade on any established securities exchange. Accordingly, there can be no assurance as to:
  •   the ability of holders to sell their Notes; or
 
  •   the price at which the holders would be able to sell their Notes.
     If a trading market does develop, the Notes might trade at higher or lower prices than their principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar debentures and our financial performance. Historically, the market price for non-investment grade debt has been subject to disruptions that have caused substantial volatility in

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the prices of securities similar to the Notes. For example, the difference in yield between investment grade and non-investment grade debt increased dramatically in 2001 and 2002, driving prices down on non-investment grade debt, following the September 11, 2001 terrorist attacks and a number of corporate accounting scandals. The market for the Notes, if any, may be subject to similar disruptions. Any such disruptions may adversely affect the value of the Notes.
We depend on advertising as a principal source of revenue, which decreases during economic cycle downturns and fluctuates due to seasonal buying.
     We expect that advertising revenue will continue to be the principal source of our revenue in the foreseeable future. Most of our advertising contracts are either short-term contracts and/or can be terminated by the advertiser at any time with little notice. We cannot assure you that we will be able to retain current advertisers or obtain new advertising contracts. Advertising revenue for the magazine industry is cyclical and dependent upon general economic conditions. Advertising revenue for the technology magazine industry has decreased significantly over the last several years due to the downturn in the technology sector (and the general U.S. economy for much of that period) and a migration of advertising demand from print media to non-print media such as the internet. The technology sector has declined as technology capital spending has slowed dramatically which has led to further industry consolidation and reduction of advertising budgets. If the technology sector downturn continues or a general economic downturn resumes, our advertisers may continue to reduce their advertising budgets and any material decline in these revenues would have a material adverse effect on our business, results of operations and financial condition. In addition, factors such as competitive pricing pressures and delays in new product launches may affect technology product advertisers. We cannot assure you that advertisers will maintain or increase current levels of advertising in special-interest magazines.
If the U.S. economy worsens, we may have to implement further cost saving efforts to achieve the benefits we expect, which could result in further restructuring charges and materially impact our business.
     In 2001 and 2002, we experienced a significant decline in revenue and earnings, primarily due to weak economic conditions, which were exacerbated by the terrorist attacks of September 11, 2001. We took a number of steps designed to improve our profits and margins despite decreased revenue. We restructured a number of our businesses and support departments and reduced overhead infrastructure by consolidating and closing several offices and outsourcing certain corporate functions. As a result, we recorded special restructuring and writedown charges to our operations of $277.5 million in 2001 and $128.2 million during 2002 related to these operating and financial restructuring decisions. Additionally, due to marketplace conditions in the technology and videogame markets that our publishing and events operations serve, on December 31, 2004 we committed to a plan to restructure certain of our operations in order to improve our profitability that included discontinuing the publication of GMR magazine and the Business4Site event, reducing the frequency of Xbox Nation magazine and reducing certain other operating, general and administrative expenses. As a result, we recorded a restructuring charge of $5.5 million during the fourth quarter of 2004. Most recently, in connection with the discontinuation of Sync and ExtremeTech magazines and reduction of certain corporate positions related to our reorganization into three operating divisions, we recorded a restructuring charge of $3.0 million in the fourth quarter of 2005. If the U.S. economy worsens, our revenue would likely decline further. Because of our fixed cost structure, decreases in our revenue cause disproportionately greater decreases in our earnings. Accordingly, if revenue declines beyond our expectations, we will be forced to take additional cost-saving steps that could result in additional restructuring charges and materially adversely affect our business.
We may not be able to protect our intellectual property.
     We rely on copyright and trademark rights to protect our publishing products. Effective trademark and copyright protection may be unavailable or limited, or we may not have applied for such protection in the United States or abroad. In addition, we have been, and may in the future be, notified of claims that our products may infringe trademarks, copyrights, patents and/or other intellectual property rights of others. Such claims, including any related litigation, could result in significant expense to us and adversely affect our cash flow, whether or not such litigation is resolved in our favor.
Our business might suffer if we fail to retain our senior management or to recruit and retain key personnel.
     Our business is managed by a small group of key executive officers. The loss of services of one or more of these senior executives could adversely affect our ability to effectively manage our overall operations or successfully execute current or future business strategies. In addition, our success depends on our continued ability to recruit and retain highly skilled, knowledgeable and sophisticated editorial, sales and technical personnel. Competition for these key executives and personnel is intense. We cannot assure you of our ongoing ability to attract and retain such qualified employees.
New product launches or acquired products may reduce our earnings or generate losses.
     Our future success will depend in part on our ability to continue offering new products and services that successfully gain market acceptance by addressing the needs of our current and future customers. Our efforts to introduce new or integrate acquired products

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may not be successful or profitable. The process of internally researching and developing, launching, gaining acceptance and establishing profitability for a new product or service, or assimilating and marketing an acquired product, is both risky and costly. New products generally incur initial operating losses.
     Costs related to the development of new products and services are generally expensed as incurred and, accordingly, our profitability from year to year may be adversely affected by the number and timing of new product launches.
We face significant competition for advertising and circulation.
     We face significant competition from a number of print and website publishers, some of which have greater financial and other resources than we have, which may enhance their ability to compete in the technology and videogame publishing market. We principally compete for advertising and circulation revenue with publishers of other technology and videogame publications. We also face broad competition from media companies that produce general-interest magazines and newspapers. Competition for advertising revenue is primarily based on advertising rates, the nature and scope of readership, reader response to the promotions for advertisers’ products and services and the effectiveness of sales teams. Other competitive factors in publishing include product positioning, editorial quality, circulation, price and customer service, which impact readership audience, circulation revenues and, ultimately, advertising revenues. Because our industry is relatively easy to enter, we anticipate that additional competitors, some of whom have greater resources than we do, may enter these markets and intensify competition. We announced effective January 2005 a reduction in the rate base of PC Magazine to 700,000 as did our primary competitor, PC World, when it reduced its rate base to 850,000 effective January 2005. We also have announced reductions in rate base or target circulation for certain other of our magazines. Although reduced circulation lowers our production and distribution expenses, it could also have a negative impact on our revenues that potentially equals or exceeds the production and distribution cost savings.
Our principal vendors are consolidating and this may adversely affect our business and operations.
     We rely on our principal vendors and their ability or willingness to sell goods and services to us at favorable prices and other terms. Many factors outside our control may harm these relationships and the ability and willingness of these vendors to sell these goods and services to us on such terms. Our principal vendors include paper suppliers, printers, subscription fulfillment houses and national newsstand wholesalers, distributors and retailers. Each of these industries in recent years has experienced consolidation among its principal participants. Further consolidation may result in all or any of the following, which could adversely affect our results of operations:
  •   decreased competition, which may lead to increased prices;
 
  •   interruptions and delays in services provided by such vendors; and
 
  •   greater dependence on certain vendors.
We may be adversely affected by fluctuations in paper and postage costs.
     Our principal raw material is paper. Paper prices have fluctuated over the past several years. We generally enter into contracts for the purchase of paper that adjust the price on a quarterly basis. We have not entered, and do not currently plan to enter, into long-term forward price or option contracts for paper. Accordingly, significant increases in paper prices could adversely affect our future results of operations.
     Postage for magazine distribution is also one of our significant expenses. We primarily use the U.S. Postal Service to distribute magazine subscriptions. We may not be able to recover, in whole or in part, paper or postage cost increases. Postal rates increased 9.9% in January 2001, 2.6% in July 2001, 9.9% in June 2002 and 5.4% in January 2006. Each of these price increases has had a significant adverse effect on our cash flow, and any further significant cost increases will also have an adverse effect on our cash flow. Many in the publishing industry anticipate that the Postmaster General shortly will file a new rate case (a request to increase postal rates) requesting a rate increase of 6%-10% or higher, which might result in increased rates; any such increase likely would not become effective, however, prior to approximately mid 2007.
We may be adversely affected by a continued weakening of newsstand sales.
     The magazine industry has seen a weakening of newsstand sales during the past few years. A continuation of this decline could adversely affect our financial condition and results of operations by reducing our circulation revenue and thereby causing us to either incur higher circulation expense to maintain our rate bases, or to reduce our rate bases which could then cause further negative impacts to our revenue.

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Our websites and networks may be vulnerable to unauthorized persons accessing our systems, which could disrupt our operations and result in the theft of our and our users’ proprietary or personal information.
     Our Internet activities involve the storage and transmission of proprietary information and personal information of our users. We endeavor to protect our proprietary information and personal information of our users from third party access. However, it is possible that unauthorized persons may be able to circumvent our protections and misappropriate proprietary or personal information or cause interruptions or malfunctions in our Internet operations. We may be required to expend significant capital and other resources to protect against or remedy any such security breaches. Accordingly, security breaches could expose us to a risk of loss, or litigation and possible liability. Our security measures and contractual provisions attempting to limit our liability in these areas may not be successful or enforceable.
Our business involves risks of liability claims for publication and website content or technology, which could result in significant liability.
     As a publisher and a distributor of print publications and Internet content, we may face potential liability for:
  •   defamation;
 
  •   negligence;
 
  •   copyright, patent or trademark infringement;
 
  •   use or failure to protect personal information about our users collected on our websites or through subscriptions;
 
  •   other claims based on the nature and content of the materials published or distributed.
     Our insurance may not cover these types of claims, and it may or may not apply to a particular claim or be adequate to reimburse us for all liability that may be imposed. Any liability we incur that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on our business, operating results and financial condition.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results.
     Beginning with the year ending December 31, 2007, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management will be required to deliver a report that assesses the effectiveness of our internal control over financial reporting, and we will be required to deliver an attestation report from our auditors on our management’s assessment of and operating effectiveness of internal controls. We are taking steps to comply with Section 404 and other Sarbanes-Oxley Act requirements. The efficacy of the steps we are taking to ensure the reliability of our financial statements is subject to continued management review, as well as audit committee oversight. We cannot be certain that these measures will ensure that we maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to accurately meet our reporting obligations. In addition, if we fail to maintain effective controls and procedures, we may be unable to provide financial information in a timely and reliable manner. Any failure by us to timely provide the required financial information could materially and adversely impact our business, our financial condition and the market value of the Notes.
ITEM 1B. UNRESOLVED STAFF COMMENTS
     Not applicable.
ITEM 2. PROPERTIES
Properties
     Our principal properties and the approximate square feet occupied by us (excluding excess space vacated or sublet to others) are currently as follows:
                 
    Lease   Approximate
    Expiration   Square Feet
New York, New York (Headquarters)
     2019       144,000  
San Francisco, California
     2010       35,000  
Woburn, Massachusetts
     2006       11,000  

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     Properties other than those listed above include smaller sales and/or general offices in Chicago, Illinois; Topsfield, MA; Medford, MA; Garden City, NY; Houston, TX and Atlanta, Georgia, under leases expiring through 2007. We do not own real property and we lease all of our offices from third parties. We believe our facilities are in good operating condition and are suitable and adequate for our current operations.
     In connection with prior years’ cost reduction programs, we undertook a real estate consolidation and relocation project designed to reduce our total real estate costs and square feet leased. In 2001, we closed eight facilities covering approximately 60,000 square feet with lease terms expiring through 2006. Two of the facilities covering approximately 24,000 square feet have been subleased. We also subleased approximately 194,000 square feet of our New York headquarters with sublease terms expiring in 2019. In 2002, we closed three more facilities covering approximately 125,000 square feet with terms expiring in 2010 and vacated approximately 60,000 square feet in our New York headquarters. In 2004, we entered into a sublease agreement for the vacated space in our New York headquarters that will also expire in 2019. We are currently in the process of attempting to negotiate subleases or lease terminations relating to the remaining closed facilities and excess leased space. We cannot assure you, however, that we will successfully negotiate and execute these additional subleases or lease terminations, or comment as to the terms on which we could do so.
ITEM 3. LEGAL PROCEEDINGS
     In May 2004, we gave notice of our election not to renew the then-existing license agreement pursuant to which the licensee (the “Former Licensee”) was licensed to publish the Greek edition of PC Magazine. In July 2004, we were informed that the Former Licensee had commenced litigation against us in Greece. In December 2004, a Greek court denied plaintiff’s request for an injunction against us, and granted our request for an injunction against plaintiff related to the PC Magazine trademark in Greece. In December 2004, we were informed that the Former Licensee sued us in Greece for damages. We currently do not anticipate that this matter will have a material impact on our financial condition or results of operations, however, we cannot give any assurances as to the outcome of these matters.
     We are also subject to various claims and legal proceedings that arise in the ordinary course of business. However, we do not expect any of these claims or legal proceedings, either individually or in the aggregate, to have a material adverse effect on our financial condition, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
     Not applicable.
PART II
ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
     There is no public trading market for Ziff Davis Holdings’ common stock. There are approximately 35 holders of record of Ziff Davis Holdings’ common stock. Ziff Davis did not during 2005 sell any equity securities.
     Ziff Davis Holdings has not paid cash dividends on its common stock and currently intends to retain any future earnings to finance operations, debt service and business expansion. Therefore, the payment of any cash dividends on the common stock is unlikely in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of the Board of Directors of Ziff Davis Holdings and subject to terms of the indentures governing the Floating Rate Notes and the Compounding Notes and Ziff Davis Holdings’ certificate of incorporation and will be dependent upon our earnings, capital requirements, financial condition and such other factors deemed relevant by the Board of Directors.
     Ziff Davis Holdings did not repurchase any of its equity securities during 2005.
ITEM 6. SELECTED FINANCIAL DATA
     The following table presents the selected historical financial information of Ziff Davis Holdings. The selected financial information as of December 31, 2005, 2004, 2003, 2002 and 2001 and for the years ended December 31, 2005, 2004, 2003 and 2002 the nine month period ended December 31, 2001, were derived from the audited Consolidated Financial Statements and the related notes of Ziff Davis Holdings, which appear in Item 8 in this Form 10-K.

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     The following selected historical financial and operating information of Ziff Davis Holdings should be read in conjunction with “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the audited Consolidated Financial Statements and related notes of Ziff Davis Holdings, which appear in this Form 10-K.
ZIFF DAVIS HOLDINGS INC.
SELECTED FINANCIAL DATA
                                         
                                    Nine Months  
                                    Ended  
    Year Ended December 31,     December 31,  
(in thousands of dollars)   2005     2004     2003     2002     2001(2)  
Statement of Operations Data(1):
                                        
Revenue, net
   $ 187,611     $ 204,477     $ 194,107     $ 209,037     $ 215,859  
 
                              
Operating expenses:
                                        
Cost of production
     51,834       59,743       60,622       75,835       81,726  
Selling, general and administrative expenses
     117,688       110,939       98,973       125,171       164,351  
Depreciation and amortization of property, equipment and intangible assets
     5,831       6,202       10,793       18,851       62,636  
Amortization of intangible assets
     16,384       15,226       15,108       18,919       —  
Restructuring charges, net(3)
     2,967       5,491       (6,238 )     48,950       37,412  
Loss on equity investment
     56       —       —       —       —  
Write-down of intangible assets(4)
     —       —       —       79,241       240,077  
 
                              
Total operating expenses
     194,760       197,601       179,258       366,967       586,202  
 
                              
Income (loss) from operations
   $ (7,149 )   $ 6,876     $ 14,849     $ (157,930 )   $ (370,343 )
 
                              
Net (loss) income
   $ (118,075 )   $ (85,186 )   $ (1,909 )   $ (196,840 )   $ (415,424 )
 
                              
Cash Flows and Other Data(1):
                                        
Cash Flows:
                                        
Operating
   $ (8,803 )   $ 9,801     $ 8,535     $ (48,002 )   $ (65,138 )
Investing
     (12,530 )     (8,982 )     2,411       (1,013 )     (8,704 )
Financing
     22,915       (15,535 )     (4,928 )     70,349       68,287  
Capital expenditures
     6,542       5,849       2,518       2,567       23,336  
Balance Sheet Data(1) (At End of Period):
                                        
Cash and cash equivalents
   $ 34,174     $ 32,592     $ 47,308     $ 41,290     $ 19,956  
Total assets
     346,795       352,652       376,908       394,412       515,295  
Total debt
     357,458       308,857       309,031       301,266       429,201  
Redeemable preferred stock
     899,533       814,549       739,602       673,577       515,987  
Total stockholders’ deficit
   $ (1,066,612 )   $ (948,537 )   $ (863,351 )   $ (796,763 )   $ (555,314 )
 
(1)   The financial information presented is for Ziff Davis Holdings. See Note 20 to our Consolidated Financial Statements for condensed consolidating financial information for Ziff Davis Media and our subsidiary guarantors.
 
(2)   As of January 1, 2002, Ziff Davis Holdings adopted the Emerging Issues Task Force Nos. 01-9 and 00-25, which required the netting of product placement and distribution costs against reported revenue. Amounts prior to January 1, 2002, have been reclassified to reflect the current year adoption of this accounting pronouncement.
 
(3)   The restructuring charges incurred in 2001, 2002, 2004 and 2005 were primarily related to the closure of magazines. They include the write-off of fixed assets, severance costs and costs to exit certain activities, such as facilities closure costs. The credit incurred in 2003 represents a reversal of a portion of the prior years’ accruals primarily relating to adjustments to our estimated future real estate lease costs after excess vacant space was sublet.
 
(4)   Reflects asset impairment charges primarily related to the closure of magazines.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
     The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements, including the notes to those statements, which are included in Item 8 of this Form 10-K and in conjunction with the sections of Item 1A of this Form 10-K titled “Forward-Looking Statements” and “Certain Risk Factors.”

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Historical results and percentage relationships set forth in the audited Consolidated Financial Statements, including trends that might appear, should not be taken as indicative of results of future operations.
Overview
     We are a leading integrated media company focused on the technology and videogame markets. Ziff Davis Holdings is majority owned by various investment funds managed by Willis Stein, a private equity investment firm. Ziff Davis Holdings is a holding company that indirectly owns 100% of Ziff Davis Media. Ziff Davis Holdings does not conduct any business, but rather all operations are conducted by Ziff Davis Media and its direct and indirect subsidiaries. Ziff Davis Holdings has no material assets other than its investment in the capital stock of Ziff Davis Media. Ziff Davis Holdings was incorporated in the state of Delaware and was formed to acquire certain publishing assets from Ziff-Davis Inc., an unrelated company. Our major operating subsidiaries are Ziff Davis Publishing Inc., Ziff Davis Development Inc. and Ziff Davis Internet Inc. In January 2002, we changed our fiscal year-end from March 31 to December 31, effective December 31, 2001.
     We had no operations prior to April 5, 2000, when we completed the acquisition of ZDP for $780.0 million plus expenses. This acquisition was accounted for under the purchase method of accounting and was funded by: (1) issuing preferred and common stock for $353.7 million in proceeds; (2) executing a $405.0 million Senior Credit Facility (as subsequently amended and restated, the “Senior Credit Facility”) of which $355.0 million was borrowed at closing; and (3) issuing a bridge loan totaling $175.0 million in proceeds. Fees and expenses, including debt issuance costs associated with the acquisition, which totaled approximately $30.0 million, were paid with the equity and debt proceeds. On July 18, 2000, we issued $250.0 million 12% senior notes due 2010 (the “12% Notes”). The proceeds from the offering of the 12% Notes were used to repay the bridge loan and approximately $59.7 million of the Senior Credit Facility. In addition, proceeds from the offering of the 12% Notes were used to pay approximately $8.5 million of expenses associated with the offering and approximately $6.8 million of accrued interest.
     In August 2002, we completed a financial restructuring, including an exchange of most of our 12% Notes for new Compounding Notes due 2009 (“the Compounding Notes”) and equity as well as the amendment and restatement of our Senior Credit Facility. (See “Management Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Financial Restructuring” and Note 13 to our audited Consolidated Financial Statements.)
     We have historically reported and managed our business in conjunction with the reporting requirements set forth in the Senior Credit Facility and indenture agreements which mandated certain restrictions on the sources of funding provided to the Restricted Subsidiaries and Unrestricted Subsidiaries, as defined in these debt agreements. Effective July 1, 2004, we amended the terms of our Senior Credit Facility which eliminated the distinction between the Restricted and Unrestricted Subsidiaries (as defined in the Senior Credit Facility as had been amended and restated) and allowed the Company to be viewed in its entirety for purposes of financial covenant compliance. As a result effective July 1, 2004 we have been reporting and managing our business along the following operations segments: Consumer/Small Business Group, the Enterprise Group and the Game Group.
     In April 2005, we completed a private placement transaction pursuant to which we issued $205.0 million of Senior Secured Floating Rate Notes at a floating interest rate of 3-month London Inter-Bank Offering Rate (“LIBOR”) plus 6.00% which mature in 2012 (the “Floating Rate Notes”). Interest on the Floating Rate Notes is payable quarterly with the first interest payment made on August 1, 2005. The proceeds were used to repay in full our Senior Credit Facility, including accrued interest, and to pay related fees and expenses of the transaction. The remaining balance of approximately $27.0 million was added to our existing cash balance and is available for general corporate purposes.
     Simultaneously with the initial sale of the Floating Rate Notes, we entered into a registration rights agreement, under which it agreed to commence an offer to exchange the originally issued notes with a series of publicly registered notes with substantially identical terms. Under the exchange offer, which commenced on June 24, 2005 and expired on July 22, 2005, 100% of the originally issued notes were tendered and exchanged for publicly registered notes. The Floating Rate Notes are subject to certain exceptions and permitted liens, secured by a first priority security interest in substantially all of our existing and future assets.
     During 2005 we completed an additional operational realignment of our businesses into three distinct groups (Consumer/Small Business Group, Enterprise Group and the Game Group) that each offer integrated customer solutions. This realignment does not change our reporting of segment results, rather it further integrates the development and execution of the products and services offered by the respective groups.
     Our Consumer/Small Business Group (formerly known as the Consumer Tech Group) is principally comprised of PC Magazine, a number of consumer-focused websites, led by pcmag.com and extremetech.com, and our consumer electronics convention, DigitalLife. During the fourth quarter of 2005 we shut down both Sync and ExtremeTech magazines. The operating results for these publications are included in the financial statements for the year ended December 31, 2005.

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     Our Enterprise Group is comprised of three publications, eWEEK, CIO Insight and Baseline; sixteen internet sites affiliated with these brands and also a number of vertical platform and community sites for readers; over forty weekly eNewsletters; eSeminars, which produce live interactive webcasts and the Ziff Davis Web Buyers Guide, the Company’s searchable online directory of technology products. The Enterprise Group also includes our custom conference group which manages face-to-face events in the U.S. and worldwide; Business Information Services, a marketing research tools unit; and Contract Publishing , which produces custom magazines, white papers, case studies and other sales and marketing collateral for customers. .
     The Game Group is focused on the videogame market and is principally comprised of three magazine publications (Electronic Gaming Monthly, Computer Gaming World and Official U.S. PlayStation Magazine) and the 1up network, a collection of online destinations for gaming enthusiasts. The Game Group discontinued publishing GMR and reduced the frequency of Xbox Nation during the fourth quarter of 2004. The full year results of these publications are included in the financial statements for the year ended December 31, 2004.
     For additional information on our operating segments, see Note 22 to our audited Consolidated Financial Statements.
     Ziff Davis Holdings’ financial statements as of December 31, 2005, 2004 and for the years then ended are prepared on a consolidated basis and include the accounts of Ziff Davis Holdings and its subsidiaries.
Technology Sector and Economic Trends
     Our revenue and profitability are influenced by a number of external factors, including the volume of new technology product introductions; the amount and allocation of marketing expenditures by our clients; the extent to which sellers elect to advertise using print and online media; changes in paper prices and postage rates; and competition among computer technology marketers including print publishers and providers of other technology information services. Accordingly, we may experience fluctuations in revenue and profitability from period to period. Many of our large customers concentrate their advertising expenditures around major new product or service launches. Marketing expenditures by technology companies can also be affected by factors generally impacting the technology industry, including pricing pressures and temporary surpluses of inventory.
     Our revenue and profitability are also influenced by internal factors such as product mix and the timing and frequency of our new product launches. New properties generally require several years to achieve profitability, and upon achieving initial profitability often have lower operating margins than more established properties. Accordingly, our total revenue and profitability from year to year may be affected by the number and timing of new product launches. If we conclude that a new property or service will not achieve certain milestones with regard to revenue, profitability or cash flow within a reasonable period of time, management may discontinue such publication or service or merge it into another existing publication or service.
     In 2005 changes in the advertising market that began as a result of the economic downturn in 2001 continued to have a significant negative impact on our business. These trends included a significant decline in print technology advertising spending and consolidation among our technology and videogame advertisers. In response to this decline, we have undertaken cost reduction and restructuring programs in 2004 and 2005.
Results of Operations — Year ended December 31, 2005 compared to year ended December 31, 2004
     The table below presents results for the year ended December 31, 2005 and compares this to the results for the year ended December 31, 2004.
                 
    Year Ended     Year Ended  
    December 31,     December 31,  
(in thousands of dollars)   2005     2004  
Revenue, net
   $ 187,611     $ 204,477  
 
            
Operating expenses:
                
Cost of production
     51,834       59,743  
Selling, general and administrative expenses
     117,688       110,939  
Depreciation and amortization of property and equipment
     5,831       6,202  
Amortization of intangible assets
     16,384       15,226  
Restructuring charges, net
     2,967       5,491  
Loss on equity investment
     56       —  
 
            
Total operating expenses
     194,760       197,601  
 
            
Income (loss) from operations
     (7,149 )     6,876  
Interest expense, net
     (110,711 )     (91,824 )
 
            
Loss before income taxes
     (117,860 )     (84,948 )
Income tax provision
     215       238  
 
            
Net loss
   $ (118,075 )   $ (85,186 )
 
            

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Revenue, Net
     Revenue was $187.6 million for the year ended December 31, 2005, compared to $204.5 million in the comparable prior year period, a decrease of $16.9 million, or 8.3%.
     Revenue for the Consumer/Small Business Group was $68.3 million in 2005 compared to $81.0 million in the comparable prior year period, a decrease of $12.7 million, or 15.6%. The decrease was primarily caused by lower print advertising revenues and lower circulation revenues for PC Magazine. PC Magazine ad pages and its ad page yield declined year over year. This decrease in ad page yield was primarily caused by the PC Magazine’s rate base reduction that occurred in the first quarter of 2005. This decline was partially offset by an increase in the online businesses, principally pcmag.com, and a 37% increase in revenues for the DigitalLife convention. Revenue for Sync and ExtremeTech magazines, which were shut down in the fourth quarter of 2005, was $5.9 million in 2005 compared to $2.5 million in 2004.
     Revenue for the Enterprise Group was $76.6 million in 2005 compared to $72.9 million in the comparable prior year period, an increase of $3.7 million, or 5.0%. The increase primarily related to the growth of the Enterprise Group’s online properties as well as its Custom Solutions Group. These increases are partially offset by a decline in print advertising and list rental revenues. Ad pages for the Enterprise Group publications increased year over year, but ad page yields decreased year-over-year.
     Revenue for the Game Group was $42.7 million in 2005 compared to $50.6 million in the comparable prior year period, a decrease of $7.9 million, or 15.6%. The decrease was primarily related to the expiration of the GMR magazine partnership as well as the reduction in frequency of Xbox Nation and lower newsstand sales and advertising revenues. Revenues for GMR and Xbox Nation were $0.4 million in 2005 compared to $4.2 million in 2004. The decline in newsstand revenue was primarily caused by the current stage of the videogame console market. These decreases were partially offset by an increase in the Game Group’s online revenues.
Cost of Production
     Cost of production was $51.8 million for the year ended December 31, 2005, compared to $59.7 million for the comparable prior year period, a $7.9 million or 13.2% decrease.
     Cost of production related to the Consumer/Small Business Group decreased $4.4 million, or 21.3% from $20.6 million in 2004 to $16.2 million for the year ended December 31, 2005. The decrease was primarily caused by PC Magazine’s rate base reduction in the first quarter of 2005, which reduced the volume of magazines produced year-over-year. The decrease was partially offset by higher costs to produce the expanded DigitalLife convention. Cost of production for the Consumer/Small Business Group as a percentage of revenue was 23.7% and 25.4% for the years ended December 31, 2005 and 2004, respectively.
     Cost of production related to the Enterprise Group decreased $0.2 million to $14.0 million for the year ended December 31, 2005 compared to $14.2 million for the year ended December 31, 2004. This decrease was caused by the elimination of costs related to the Business 4Site West event, which did not take place in 2005. This decrease was partially offset by two more issues being produced in 2005 than in 2004. The cost of production as a percentage of revenues was 18.2% and 19.4% for the years ended December 31, 2005 and 2004, respectively.
     Cost of production related to the Game Group decreased $3.3 million, or 13.2% from $24.9 million in 2004 to $21.6 million in 2005. The decrease primarily relates to reduction in frequency of publication of Xbox Nation in 2005, a reduced number of issues in 2005 and lower ad pages in 2005. Cost of production as a percentage of revenue was 50.5% and 49.2% for the years ended December 31, 2005 and 2004, respectively. The cost of production as a percentage of revenue is traditionally higher for the Game Group because each line of of the cost associated with the CD/DVD insert for Official U.S. Playstation Magazine.
Selling, General and Administrative Expenses
     Selling, general and administrative expenses for the year ended December 31, 2005 were $117.7 million, compared to $110.9 million for the year ended December 31, 2004, a $6.8 million or 6.1% increase.
     Selling, general and administrative expenses related to the Consumer/Small Business Group increased $1.3 million, or 3.2%, from $39.8 million in 2004 to $41.1 million in 2005. The increase was primarily due to increased spending on content development and sales and marketing to expand the Group’s online business. The majority of these costs related to an increase in employees year over year. This increase in costs was partially offset by lower spending in the magazine circulation and marketing areas. Selling, general and administrative expenses as a percentage of revenue were 60.1% and 49.1% for the years ended December 31, 2005 and 2004, respectively. The

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primary reasons for this increase was the decline in the revenue and the increase in headcount associated with building the group’s online business and the DigitalLife convention.
     Selling, general and administrative expenses related to the Enterprise Group increased $10.2 million, or 21.8%, from $46.7 million in 2004 to $56.9 million in 2005. The increase was primarily due to an increase in costs to grow the group’s online businesses as well as higher execution costs related to growing the group’s custom events business. This cost increase primarily related to an increase in employees year over year. Selling, general and administrative expenses for the Enterprise Group as a percentage of revenue were 74.2% and 64.1% for the years ended December 31, 2005 and 2004, respectively. This increase was primarily caused by the increase in headcount for the online and events businesses.
     Selling, general and administrative expenses related to the Game Group decreased $4.7 million, or 19.2%, from $24.4 million in 2004 to $19.7 million in 2005. Approximately $2.1 million or 46.7% of this decrease was attributable to the reduction of costs resulting from the reduction in the frequency of publication of Xbox Nation and the expiration of the GMR contract in early 2005. The decrease was also caused by a reduction in sales, marketing, circulation and editorial costs for Computer Gaming World, Electronic Gaming Monthly, Official U.S. Playstation Magazine year over year. These decreases were partially offset by an increase in costs to expand the group’s 1UP Network year over year. Selling, general and administrative expenses for the Game Group as a percentage of revenue were 46.1% and 48.2% for the years ended December 31, 2005 and 2004, respectively.
Depreciation and amortization
     Depreciation and amortization expenses were $22.2 million and $21.4 million for the years ended December 31, 2005 and 2004, respectively. The increase was primarily caused by an increase in capital expenditures of $0.7 million year over year as well as the increase in amortization expenses related to intangible assets acquired in the November 2005 purchase of FileFront.com.
Restructuring charges, net
     During the fourth quarter of 2005, we recorded a $3.0 million restructuring charge. The restructuring charge was principally comprised of severance for terminated employees and exit costs related to the closure of Sync and ExtremeTech magazines. We expect to realize approximately $5.0 million in earnings before interest, taxes, depreciation, amortization, restructuring and certain other non-cash charges (“EBITDA”) (See Note 22 of our audited Consolidated Financial Statement for a reconciliation of EBITDA to loss before income taxes) improvement in 2006 directly attributable to the closure of Sync and ExtremeTech magazines along with additional restructuring actions within the Company’s selling, general and administrative activities.
     During the fourth quarter 2004, we implemented a comprehensive cost reduction and restructuring program. The program included the discontinuation of GMR, the reduction in frequency of Xbox Nation and canceling the Business 4Site show scheduled for November 2004. The restructuring was also designed to reduce our workforce in order to eliminate operating costs. As a result of the restructuring, we recorded a restructuring charge of $5.5 million as of December 31, 2004 which was comprised of $3.3 million in employee severance costs and $2.2 million in costs to exit certain activities.
Interest expense, net
     Interest expense was $110.7 million for the year ended December 31, 2005, compared to $91.8 million for the year ended December 31, 2004. Our weighted average debt outstanding was approximately $335.2 million and $310.2 million, and our weighted average interest rate was 11.98% and 9.07% for the years ended December 31, 2005 and 2004, respectively. Interest expense includes the interest associated with our Floating Rate Notes, Compounding Notes and 12% Notes. It also includes $84.9 million in non-cash interest related to the accretion of dividends of its preferred stock as well as non-cash reduction of interest expense of $15.9 million related to our August 2002 financial restructuring (see Note 13 to the Consolidated Financial Statements).
Income taxes
     The income tax provisions of $0.2 million for the years ended December 31, 2005 and 2004 resulted from foreign withholding taxes on our international licensing revenue as well as certain minimum state and local taxes, despite the consolidated entity having a pre-tax loss.
Results of Operations — Year ended December 31, 2004 compared to year ended December 31, 2003
                 
    Year Ended     Year Ended  
    December 31,     December 31,  
(in thousands of dollars)   2004     2003  
Revenue, net
   $ 204,477     $ 194,107  
Operating expenses:
                
Cost of production
     59,743       60,622  

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    Year Ended     Year Ended  
    December 31,     December 31,  
    2004     2003  
Selling, general and administrative expenses
     110,939       98,973  
Depreciation and amortization of property and equipment
     6,202       10,793  
Amortization of intangible assets
     15,226       15,108  
Restructuring charges, net
     5,491       (6,238 )
 
            
Total operating expenses
     197,601       179,258  
 
            
Income from operations
     6,876       14,849  
Gain on sale of assets, net
     —       2,609  
Interest expense, net
     (91,824 )     (19,142 )
 
            
Loss before income taxes
     (84,948 )     (1,684 )
Income tax provision
     238       225  
 
            
Net loss
   $ (85,186 )   $ (1,909 )
 
            
Revenue, net
     Revenue was $204.5 million for the year ended December 31, 2004, compared to $194.1 million in the comparable prior year period, an increase of $10.4 million, or 5.4%.
     Revenue for the Consumer Small Business Group was $81.0 million in 2004 compared to $77.0 million in the comparable prior year period, an increase of $4.0 million, or 5.2%. The increase was primarily related to higher advertising revenue for our Internet operations and incremental revenue for Sync and ExtremeTech magazines and DigitalLife, all three of which debuted in 2004. However, these gains were partially offset by lower advertising revenue for PC Magazine related to a decrease in advertising pages and average revenue per page. Circulation revenue for the Consumer/Small Business Group decreased $0.5 million, or 3.4% to $14.6 million, primarily due to decreased subscription revenue for PC Magazine, partially offset by incremental newsstand revenue for Sync and ExtremeTech. Other revenue related to the Consumer/Small Business Group increased $6.6 million, or 97%, primarily driven by increased PC Magazine branded event revenue, rights and permissions revenue and e-commerce revenue.
     Revenue for the Enterprise Group was $72.9 million in 2004 compared to $60.2 million in the comparable prior year period, an increase of $12.7 million, or 21.1%. The increase primarily related to higher advertising revenue for CIO Insight and the Internet operations, substantially increased Custom Solutions Group event revenues for eWEEK, Baseline and CIO Insight and incremental revenue for the Business Information Services business. There was one additional issue of Baseline and CIO Insight published during the year ended December 31, 2004 compared to the same prior year period.
     Revenue for the Game Group was $50.6 million in 2004 compared to $56.9 million in the comparable prior year period, a decrease of $6.3 million, or 11.1%. The decrease was primarily relate to significant advertising page declines and five fewer issues published in the portfolio during the year, partially offset by an increase in the average revenue per page compared to the same prior year period. Circulation revenue for the Game Group decreased $1.5 million, or 5.9%, to $23.2 million, primarily due to decreased newsstand revenue. These decreases were partially offset by a increases 1up.com revenue and other revenue related to the Game Group which increased $1.2 million, primarily driven by increased revenue from GMR magazine, a joint venture with Electronics Boutique that has been discontinued with the February 2005 issue. Total paid advertising pages for the Game Group decreased by 23.2% for the year ended December 31, 2004.
Cost of Production
     Cost of production was $59.7 million in 2004 for the year ended December 31, 2004, compared to $60.6 million for the comparable prior year period, a $0.9 million or 1.5% decrease.
     Cost of production related to the Consumer Small Business Group decreased $0.2 million, or 1.0% from $20.8 million in 2003 to $20.6 million for the year ended December 31, 2004. The decrease primarily related to manufacturing, paper and distribution cost savings achieved through the implementation of a number of new production and distribution initiatives across all of our publications and the impact of more favorable supplier contracts. These savings were partially offset by the increase in advertising pages for the Consumer Small Business Group and the incremental costs associated with DigitalLife. As a result, cost of production for the Consumer Small Business Group as a percentage of revenue decreased from 27.0% to 25.4% for the years ended December 31, 2003 and 2004 respectively.
     Cost of production related to the Enterprise Group of $14.2 million remained flat in 2004 when compared to the comparable prior year period. Increased costs associated with the increase in advertising pages for the Enterprise Group and higher Internet costs due to more eSeminars and the Business 4Site West event were offset by lower manufacturing, paper and distribution cost savings achieved

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through the implementation of a number of new production and distribution initiatives across all of our publications and the impact of more favorable supplier contracts. As a result, cost of production for the Enterprise Group as a percentage of revenue decreased from 23.6% to 19.5% for the years ended December 31, 2003 and 2004 respectively.
     Cost of production related to the Game Group decreased $0.7 million, or 2.7% from $25.6 million in 2003 to $24.9 million in 2004. The decrease primarily relates to manufacturing, paper and distribution cost savings as a result of the significant decline in advertising pages, five fewer issues published in the portfolio during the year and lower manufacturing, paper and distribution costs achieved through the implementation of a number of new production and distribution initiatives across all of our publications. These savings were partially offset by additional costs incurred for retail partner fees and premiums (e.g., posters, CDs, etc.) used to stimulate newsstand and subscriber sales. As a result, cost of production for the Game Group as a percentage of revenue increased from 45.0% to 49.2% for the years ended December 31, 2003 and 2004 respectively.
Selling, General and Administrative Expenses
     Selling, general and administrative expenses for the year ended December 31, 2004 were $110.9 million, compared to $99.0 million for the year ended December 31, 2003, a $11.9 million or 12% increase.
     Selling, general and administrative expenses related to the Consumer/Small Business Group increased $6.6 million, or 19.9% to $39.8 million in 2004. The increase was primarily due to incremental costs associated with Sync and ExtremeTech magazines and Digital Life, and increased Internet promotion, content and sales costs due to higher sales volume, costs associated with PC Magazine branded events and non-cash employee stock option expense. These higher costs were partially offset by lower overhead costs as a result of our continued cost management efforts. As a result, selling, general and administrative expenses for the Consumer/Small Business Group as a percentage of revenue increased from 43.1% to 49.1% for the years ended December 31, 2003 and 2004, respectively.
     Selling, general and administrative expenses related to the Enterprise Group increased $4.0 million, or 9.4% to $46.7 million in 2004. The increase was primarily due to higher sales volumes for custom events, Business Information Service, development costs, increased Internet promotions, content and sales costs due to higher sales volume. These higher costs were partially offset by lower overhead costs as a result of our continued cost management efforts. As a result, selling, general and administrative expenses for the Enterprise Group as a percentage of revenue decreased from 70.9% to 64.0% for the years ended December 31, 2003 and 2004, respectively.
     Selling, general and administrative expenses related to the Game Group increased $1.3 million, or 5.6% to $24.4 million in 2004. The increase was primarily due to incremental costs associated with 1up.com, partially offset by lower overhead costs as a result of our continued cost management efforts. As a result, selling, general and administrative expenses for the Game Group as a percentage of revenue increased from 40.6% to 48.2% for the years ended December 31, 2003 and 2004, respectively.
Depreciation and amortization
     Depreciation and amortization expenses were $21.4 million and $25.9 million for the years ended December 31, 2004 and 2003, respectively. The decrease is principally attributable to a greater portion of assets being fully depreciated as of December 31, 2004.
Restructuring charges, net
     During the fourth quarter 2004, we implemented a comprehensive cost reduction and restructuring program. The program included the discontinuation of GMR, the reduction in frequency of Xbox Nation and canceling the Business 4Site show scheduled for November 2004. The program was also designed to reduce our workforce in order to decrease excess operating costs. As a result of the restructuring, we recorded a restructuring charge of $5.5 million as of December 31, 2004 which is comprised of $3.3 million in employee severance costs and $2.2 million in costs to exit certain activities.
     For the year ended December 31, 2003, we reversed a portion of the prior years’ accrued restructuring balance and recognized a credit of $6.2 million to restructuring charges, net in our Consolidated Statement of Operations. This credit primarily related to real estate lease costs and reflected our recent sublet of excess space in our New York headquarters for an amount higher than originally estimated.
Gain on sale of assets, net
     In September 2003, we sold an international trademark to an unrelated third-party for approximately $5.0 million and realized a gain on sale of $2.5 million. We also received a final contingent payment of the 2002 sale of our eTESTING LABS, Inc. subsidiary that was recognized as a gain of $0.1 million.

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Interest expense, net
     Interest expense was $91.8 million for the year ended December 31, 2004, compared to $19.1 million for the year ended December 31, 2003. Our weighted average debt outstanding was approximately $310.2 million and $306.8 million, and our weighted average interest rate was 9.07% and 8.81% for the years ended December 31, 2004 and 2003, respectively.
     Interest expense at December 31, 2004, included the following non-cash items: (1) $74.9 million related to the accrued dividends on the redeemable Preferred Stock (previously recorded in Accumulated deficit on the Condensed Consolidated Balance Sheet); (2) $1.5 million related to long-term real estate leases recorded in prior year periods at their net present value; (3) $2.3 million of amortization of debt issuance costs and (4) $1.5 million of net interest expense related to the Compounding Notes; as well as non-cash reduction of interest expense of $13.3 million related to our August 2002 financed restructuring (see Note 12 to the Consolidated Financial Statements).
Income taxes
     The income tax provision of $0.2 million for the years ended December 31, 2004 and 2003 resulted from foreign withholding taxes on our international licensing revenue as well as certain minimum state and local taxes, despite the consolidated entity having a pre-tax loss.
Liquidity and Capital Resources
     Total cash at December 31, 2005 was $34.2 million. We have historically relied upon cash flow from operating activities, debt financing through placement of notes or borrowings under the former Senior Credit Facility, and additional investments from our equity sponsors to finance our operations.
     Total indebtedness at December 31, 2005 was $357.5 million and consisted of $205.0 million of Floating Rate Notes, $140.2 million of Compounding Notes and $12.3 million of 12% Notes. Total debt does not include $899.5 million in aggregate redemption value of outstanding shares of mandatorily redeemable Preferred Stock of Ziff Davis Holdings.
     In April 2005, the Company completed a private placement transaction pursuant to which the Company issued $205.0 million of Floating Rate Notes at a floating interest rate of 3-month LIBOR plus 6.00% which mature in 2012. Interest on the notes is payable quarterly with the first interest payment made on August 1, 2005. The proceeds were used to pay-off our Senior Credit Facility, including accrued interest, and to pay related fees and expenses of the transaction. The remaining balance of approximately $27.0 million was added to our existing cash balance and is available for general corporate purposes.
     Compounding Notes are due in 2009. Non-cash interest is compounded quarterly on these notes at 14%. Cash interest starts accruing on these notes in August 2006 at 12% with the first payment due in February 2007. The 12% notes mature in 2010 and bear interest at 12% that is paid semi-annually. Based on current interest rates, we anticipate approximately $23 million in cash interest payments will be due in 2006.
     Our 2002 Employee Stock Option Plan (the “2002 Plan”) gives each optionee the right to obtain cash payments in certain circumstances. This cash payment would equal the “Spread Value Per Share”, as defined, that the optionee may have failed to receive in a “Dividend Event” or a “Redemption Event,” as defined, due to the option being wholly or partially unvested or unexercisable as of the date of such event. The 2002 Plan only provides the optionee with the right to receive a cash payment to the extent that we have made payments to holders of outstanding shares of stock, in an amount per share that exceeds the exercise price of the option on such class of stock.
Liquidity Position
     We believe that our cash on hand, coupled with future cash generated from operations, will be sufficient to meet our liquidity, working capital and capital spending needs for 2006. Due to the repayment of the Senior Credit Facility, none of our outstanding indebtedness requires us to meet any financial covenants. The Floating Rate Notes indenture contains only incurrence-based covenants that require certain financial criteria be met if we intend to take some action, such as incur additional debt or make a restricted payment, as defined.
     In terms of long-term liquidity, our ability to service our indebtedness will depend on our future performance which will be affected by prevailing economic conditions and financial, business and other factors. We believe that our diversification into Internet, events and other non-print businesses will continue and that these businesses will grow profitably and will generate meaningful incremental free cash flow to assist us in servicing our long-term obligations. Our current intention is to repay our long-term obligations when they come due in 2009, 2010 and 2012 in part from cash flow from operations; with the remainder coming from the refinancing of our obligations, including our Redeemable Preferred Stock outstanding; or selling

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assets to obtain funds for such purposes. In terms of the redemption of its preferred securities, we believe the primary holder of these securities and our equity sponsor, Willis Stein, will continue to support our future growth plans and will develop a plan to extend the maturities or refinance these preferred securities in the event that should become necessary. There is no assurance, however, that refinancing of indebtedness, including preferred securities, or asset dispositions could be achieved on a timely basis or on satisfactory terms, if at all, or would be permitted by the terms of our existing indebtedness.
     Significant assumptions and risks apply to this belief, including, among other things, that we will be successful in implementing our business strategy and that there will be no material adverse developments in our business, liquidity or capital requirements. See Item 1A — Risk Factors.
Sources and Uses of Cash — Years Ended December 31, 2005 and 2004
     Details for the changes in cash and cash equivalents during the years ended December 31, 2005 and 2004 are discussed below:
     Operating Activities. Cash (used)/provided by operating activities was $(8.8) million for 2005 compared to $9.8 million for 2004. This decrease was primarily caused by an increase in our 2005 operating loss compared to 2004 as well as an increase in cash interest expense paid in 2005.
     Investing Activities. Cash used by investing activities was ($12.5) million and ($9.0) million for the years ended December 31, 2005 and 2004, respectively. This increase primarily relates to our 2005 acquisition of FileFront.com and its purchase of an equity investment in a joint venture in China. Capital expenditures, which primarily consist of the purchase of computer hardware and software applications, were $6.5 million and $5.8 million for the 2005 and 2004, respectively.
     Financing Activities. Cash provided/(used) by financing activities was $22.9 million and $(15.5) million for the years ended December 31, 2005 and 2004, respectively. This improvement was primarily related to the completion of an April 2005 refinancing.
Contractual Obligations and Commitments
     As of December 31, 2005, we had long-term debt and preferred stock obligations totaling $357.5 million and $899.5 million, respectively.
     The following table sets forth our contractual obligations at December 31, 2005, excluding future interest and dividends:
                                         
    Balance at December 31, 2005  
            Less Than     One to     Three to     After  
    Total     One Year     Three Years     Five Years     Five Years  
(in thousands of dollars)
                                        
Long-term debt
   $ 357,458     $ —     $ —     $ 152,458     $ 205,000  
Preferred stock at redemption value
     899,533       —       —       899,533       —  
Non-cancelable operating lease obligations
     93,331       10,014       19,845       17,341       46,131  
 
                              
 
   $ 1,350,322     $ 10,014     $ 19,845     $ 1,069,332     $ 251,131  
 
                              
     The caption Non-cancelable operating lease obligations in the above table includes our real estate operating lease obligations, net of existing subleases, at December 31, 2005. However, the lease obligation amounts are gross lease payments reflecting contractual lease escalations and have not been reduced for estimated future sublease income related to vacated facilities that were not subleased as of December 31, 2005, nor discounted to present value.
     Pursuant to purchase agreements related to the Company’s acquisitions in 2004 and 2005 the Company may be required to pay additional contingent purchase consideration. This additional contingent consideration is based on revenues and certain other performance measures to be earned or achieved in 2006. Any payments for this contingent consideration would be payable in 2007. If the contingent consideration was measured based on 2005 revenues the Company would be required to pay approximately $1.4 million.
     In connection with our commercial agreements, we often provide indemnifications of varying scope and terms to customers, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements and out of intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with certain of our directors and officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers in certain circumstances. The indemnification provided by us to our officers and directors does not have a stipulated maximum, therefore we are not able to develop a reasonable estimate of the maximum liabilities. To date, we have not incurred material costs as a result of such obligations and have not accrued any liabilities related to such indemnification obligations in our financial statements.
     Lastly, certain legal proceedings described are potential contingencies, which could also affect our liquidity in future periods. See “Item 3 Legal Proceedings.”

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Off-Balance-Sheet Arrangements
     At December 31, 2005, we did not have any relationships with variable interest (otherwise known as “special purpose”) entities that have been established for the purpose of facilitating off-balance-sheet debt.
     In the ordinary course of business, we have indemnification obligations with respect to letters of credit primarily used as security against non-performance in relation to certain of our non-cancelable operating lease obligations. The outstanding letters of credit approximated $1.6 million at December 31, 2005, and are not recorded on the audited Consolidated Balance Sheet as of December 31, 2005. These letters are collateralized by restricted cash balances as of December 31, 2005, such balances are reported in other assets, net on the balance sheet as of December 31, 2005.
     We enter into certain incentive agreements, from time to time, with executives and senior management that include earn-out payments that are calculated based on the achievement of future revenue and other financial thresholds. Several of these agreements currently exist with measurement dates beginning with the close of our 2006 fiscal year. As of December 31, 2005, we cannot provide a reasonable estimate of the likelihood and amount we would be required to pay to fulfill these commitments. As a result, we have not accrued any liabilities in relation to these incentive obligations as of December 31, 2005.
Cyclicality
     Revenue from print advertising accounted for approximately 45% of our total revenue for the year ended December 31, 2005. Cyclicality in advertising expenditures generally, or with respect to magazine-based advertising specifically, could therefore have a material effect on our business, financial condition and operating results with respect to comparability to prior periods.
Seasonality
     Historically, our business has been seasonal and we have earned a significant portion of our annual revenue in the fourth calendar quarter. This is largely due to the general increase in advertising revenue in the fourth quarter as a result of increased consumer buying activity during the holiday season. Other factors affecting the seasonality of our business are customer budgetary spending patterns, new product introductions and general economic trends. Quarterly results may also be affected by variations in the number of magazines sold in any quarter, timing and termination of existing contractual agreements, costs incurred in connection with internal growth, changes in our mix of customers, fluctuation in the costs of raw materials and other general economic conditions. Accordingly, our operating results in any particular quarter may not be indicative of the results that can be expected for any future quarter or for the entire year. We also cannot assure that our fourth quarter revenue will be higher than revenue for our other quarters.
Critical Accounting Policies and Estimates
     In December 2001, the SEC issued disclosure guidance for “critical accounting policies.” The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
     The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to allowances for doubtful accounts, reserves for sales returns and allowances, reserves for severance, closures and restructuring-related costs and the recoverability of long-lived assets, including the excess of purchase price over net assets acquired. We base our estimates on historical experience and on various assumptions that we believe are reasonable under the circumstances. These form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates which would affect our reported results of operations. We believe the following is a description of the critical accounting policies and estimates used in the preparation of our consolidated financial statements.
     Allowances for doubtful accounts are estimated losses resulting from our customers’ failure to make required payments. We continually monitor collections from customers and provide for estimated credit losses. We aggressively pursue collection efforts on these overdue accounts and upon collection reverse the write-off in future periods. If future payments by our customers were to differ from our estimates, we may need to increase or decrease our allowances for doubtful accounts.
     Reserves for sales returns and allowances are primarily related to our newsstand sales, and to a lesser extent, subscription sales in which subscribers are billed. We estimate and maintain these reserves based primarily on our distributors’ historical return practices,

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our subscribers’ historical collection rates and our actual return experience. If actual sales returns and allowances differ from the estimated returns and allowances rates used, we may need to increase or decrease our reserve for sales returns and allowances.
     Reserves for restructuring-related costs, including severance, magazine and facilities closures, are estimated costs resulting from management’s plans and actions to consolidate operations and eliminate headcount to reduce total operating costs. If the future payments of these costs were to differ from our estimates, we may need to increase or decrease our reserves.
     We periodically evaluate the recoverability of our long-lived assets, including property and equipment, goodwill and identifiable intangible assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or in connection with our annual financial review process. Our evaluations include analyses based on the cash flows generated by the underlying assets and profitability information, including estimated future operating results, trends or other determinants of fair value. If the fair value of the asset determined by these evaluations is less than its carrying amount, an impairment charge is recognized for the difference. Future adverse changes in market conditions or continuing poor operating results of certain businesses may also indicate an inability to recover the carrying value of the assets, thereby possibly requiring an impairment evaluation and charge.
Effect of Recently Issued Accounting Standards
     In December 2004, the FASB issued SFAS 123 (revised 2004), “Share-Based Payment”, (“SFAS 123R”), which replaces SFAS 123, “Accounting for Stock-Based Compensation”, (“SFAS 123”), and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123, no longer will be an alternative to financial statement recognition. We are required to adopt SFAS 123R in the first quarter of 2006, beginning January 1, 2006. Under SFAS 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive options, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated.
     The account for the options to purchase our preferred stock pursuant to SFAS 133. In applying the provisions of SFAS 133 the fair value of the options are determined at the end of each reporting period and reflected as a liability on our balance sheet to the extent vesting has occurred. A corresponding amount is reflected in our statement of operations for changes in the fair value of the options which have occurred during the period. Based on the accounting treatment described above, the company believes that its current accounting for stock options issued pursuant to the 2002 Plan is consistent with the provisions of SFAS 123R and the adoption of SFAS 123R will not have a natural effect on our results of operations.
     In December 2004, the FASB issued SFAS 153, “Exchange of Nonmonetary Assets”, which eliminated the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 will be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS 153 did not have a material impact on our operating results or financial position.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
     Due to the Floating Rate Notes having a floating interest rate based on 3-month LIBOR, but our Compounding Notes and 12% Notes having fixed rates, only $152.5 million or 42.7% of our total debt is effectively set at a fixed rate of interest as of December 31, 2005. Accordingly a 1.00% fluctuation in market interest rates would cause a $2.0 million fluctuation in interest expense.
Inflation and Fluctuations in Paper Prices and Postage Costs
     We continually assess the impact of inflation and changes in paper and postage prices as these costs represent a significant portion of our cost of production. Paper costs increased approximately 8% for the year ended December 31, 2005 compared to the year ended December 31, 2004. In addition, during 2001 we outsourced the majority of our paper buying to our printers. As a result, we hold significantly lower levels of inventory and have generally been able to purchase paper at or below market prices at the time of use. However, there can be no assurance that these trends will continue or that we can recover future paper price increases.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
     
    Page
Report of Independent Registered Public Accounting Firm (Grant Thornton)
   30
Report of Independent Registered Public Accounting Firm (PricewaterhouseCoopers)
   31
Consolidated Balance Sheets as of December 31, 2005 and December 31, 2004
   32
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003
   33
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
   34
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2005, 2004 and 2003
   35
Notes to Consolidated Financial Statements
   36

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Ziff Davis Holdings Inc.
We have audited the accompanying consolidated balance sheet of Ziff Davis Holdings Inc. and Subsidiaries as of December 31, 2005, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ziff Davis Holdings Inc. and subsidiaries as of December 31, 2005, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
New York, New York
March 24, 2006

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Ziff Davis Holdings Inc.
In our opinion, the consolidated balance sheet as of December 31, 2004 and the related consolidated statements of operations, cash flows and stockholders’ equity for each of the two years in the period ended December 31, 2004 present fairly, in all material respects, the financial position of Ziff Davis Holdings Inc. and its subsidiaries (the Company) at December 31, 2004, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” effective January 1, 2004.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
New York, New York
March 21, 2005

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ZIFF DAVIS HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
as of December 31,
                 
    2005     2004  
ASSETS
                
Current assets:
                
Cash and cash equivalents
   $ 34,174     $ 32,592  
Accounts receivable, net
     32,496       35,126  
Inventories
     437       575  
Prepaid expenses and other current assets
     5,632       6,661  
 
            
Total current assets
     72,739       74,954  
Property and equipment, net
     16,322       15,004  
Intangible assets, net
     196,380       207,141  
Goodwill
     39,828       39,903  
Other assets, net (including restricted cash of $1,623 and $0)
     21,526       15,650  
 
            
Total assets
   $ 346,795     $ 352,652  
 
            
LIABILITIES AND STOCKHOLDERS DEFICIT
                
Current liabilities:
                
Accounts payable
   $ 21,787     $ 20,280  
Accrued expenses and other current liabilities
     34,211       26,154  
Current portion of long-term debt
     —       23,991  
Unexpired subscriptions and deferred revenue, net
     18,177       20,327  
 
            
Total current liabilities
     74,175       90,752  
Long-term debt
     357,458       284,866  
Accrued interest — troubled debt restructuring
     60,278       76,190  
Accrued restructuring costs — long-term
     12,058       14,978  
Mandatorily redeemable preferred stock
     899,533       814,549  
Other non-current liabilities
     9,905       19,854  
 
            
Total liabilities
     1,413,407       1,301,189  
 
            
Commitments and contingencies
                
Stockholders’ deficit:
                
Common stock — $0.001 par value, 100,000,000 shares authorized, 2,311,049 issued and outstanding as of December 31, 2005 and 2004, respectively
     17,329       17,329  
Additional paid-in capital
     8,468       8,468  
Accumulated deficit
     (1,092,409 )     (974,334 )
 
            
Total stockholders’ deficit
     (1,066,612 )     (948,537 )
 
            
Total liabilities and stockholders’ deficit
   $ 346,795     $ 352,652  
 
            
The accompanying notes are an integral part of these consolidated financial statements.

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ZIFF DAVIS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
for the year ended December 31,
                         
 
   2005     2004     2003  
Revenue, net
   $ 187,611     $ 204,477     $ 194,107  
 
                  
Operating expenses:
                        
Cost of production
     51,834       59,743       60,622  
Selling, general and administrative expenses
     117,688       110,939       98,973  
Depreciation and amortization of property and equipment
     5,831       6,202       10,793  
Amortization of intangible assets
     16,384       15,226       15,108  
Restructuring charges (reductions), net
     2,967       5,491       (6,238 )
Loss in equity investment
     56       —       —  
 
                  
Total operating expenses
     194,760       197,601       179,258  
 
                  
Income (loss) from operations
     (7,149 )     6,876       14,849  
Gain on sale of assets, net
     —       —       2,609  
Interest expense, net
     (110,711 )     (91,824 )     (19,142 )
 
                  
Loss before income taxes
     (117,860 )     (84,948 )     (1,684 )
Income tax provision
     215       238       225  
 
                  
Net loss
   $ (118,075 )   $ (85,186 )   $ (1,909 )
 
                  
The accompanying notes are an integral part of these consolidated financial statements.

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ZIFF DAVIS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
for the year ended December 31,
                         
    2005     2004     2003  
Cash flows from operating activities:
                        
Net loss
   $ (118,075 )   $ (85,186 )   $ (1,909 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                        
Accrued dividends on mandatorily redeemable preferred stock
     84,985       74,947       —  
Depreciation and amortization
     22,215       21,428       25,901  
Restructuring charge (reduction)
     2,967       5,491       (6,238 )
Loss in equity investment
     56       —       —  
Provision for doubtful accounts
     1,118       (769 )     557  
Non-cash rent (income) expense
     164       (389 )     (1,617 )
Non-cash interest
     1,830       1,531       1,316  
Amortization of debt issuance costs
     3,316       2,236       2,158  
Non-cash stock compensation
     (807 )     1,109       —  
Gain on sale of assets
     —       —       (2,609 )
Changes in operating assets and liabilities:
                        
Accounts receivable
     1,162       (1,439 )     (2,797 )
Inventories
     138       (254 )     13  
Accounts payable and accrued expenses
     (5,572 )     (4,901 )     (3,328 )
Unexpired subscriptions and deferred revenue, net
     (3,068 )     (4,843 )     (4,697 )
Prepaid expenses and other, net
     768       840       1,785  
 
                  
Net cash provided by (used in) operating activities
     (8,803 )     9,801       8,535  
 
                  
Cash flows from investing activities:
                        
Acquisitions
     (5,237 )     (3,146 )     —  
Joint venture investment
     (751 )     —       —  
Capital expenditures
     (6,542 )     (5,849 )     (2,518 )
Net proceeds from sale of assets
     —       13       4,929  
 
                  
Net cash provided by (used in) investing activities
     (12,530 )     (8,982 )     2,411  
 
                  
Cash flows from financing activities:
                        
Proceeds from sale of floating rate bonds
     205,000       —       —  
Debt issuance costs
     (6,321 )     (488 )     —  
Repayment of borrowings under senior credit facilities
     (174,141 )     (15,047 )     (4,928 )
Funding of letters of credit, net
     (1,623 )     —       —  
 
                  
Net cash provided by (used in) financing activities
     22,915       (15,535 )     (4,928 )
 
                  
Net increase (decrease) in cash and cash equivalents
     1,582       (14,716 )     6,018  
Cash and cash equivalents at beginning of year
     32,592       47,308       41,290  
 
                  
Cash and cash equivalents at end of year
   $ 34,174     $ 32,592     $ 47,308  
 
                  
Cash paid during the year for:
                        
Interest
   $ 16,963     $ 11,743     $ 14,444  
Income taxes
     15       15       33  
The accompanying notes are an integral part of these consolidated financial statements.

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ZIFF DAVIS HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(dollars in thousands except per share data)
                                                                 
                                            Accumulated              
                    Stock     Additional             Other     Total        
    Common Stock     Subscription     Paid-In     Accumulated     Comprehensive     Stockholders’     Comprehensive  
    Shares     Amount     Loans     Capital     Deficit     Loss     Deficit     Loss  
Balance at December 31, 2002
     2,334,748     $ 17,901     $ (572 )   $ 8,468     $ (821,214 )   $ (1,346 )   $ (796,763 )   $ (196,386 )
 
                                                              
Cancellation of shareholder loans
     (21,820 )     (558 )     558       —       —       —       —          
Change in fair value of interest rate swap
     —       —       —       —       —       1,346       1,346       1,346  
Dividends payable on preferred stock
     —       —       —       —       (66,025 )     —       (66,025 )        
Net loss
     —       —       —       —       (1,909 )     —       (1,909 )     (1,909 )
 
                                                
Balance at December 31, 2003
     2,312,928       17,343       (14 )     8,468       (889,148 )     —       (863,351 )   $ (563 )
 
                                                              
Cancellation of shareholder loans
     (1,879 )     (14 )     14       —       —       —       —          
Net loss
     —       —       —       —       (85,186 )     —       (85,186 )   $ (85,186 )
 
                                                
Balance at December 31, 2004
     2,311,049       17,329       —       8,468       (974,334 )     —       (948,537 )   $ (85,186 )
Net loss
     —       —       —       —       (118,075 )     —       (118,075 )   $ (118,075 )
 
                                                
Balance at December 31, 2005
     2,311,049     $ 17,329     $ —     $ 8,468     $ (1,092,409 )   $ —     $ (1,066,612 )   $ (118,075 )
 
                                                
The accompanying notes are an integral part of these consolidated financial statements.

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ZIFF DAVIS HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION
Formation of Ziff Davis Holdings Inc.
     Ziff Davis Holdings Inc. (“Ziff Davis Holdings” or, collectively with its subsidiaries, the “Company”) is majority owned by various investment funds managed by Willis Stein & Partners Management III, L.L.C. (“Willis Stein” or “controlling stockholders”), a private equity investment firm. Ziff Davis Holdings is a holding company which indirectly owns 100% of Ziff Davis Media Inc. (“Ziff Davis Media”). Ziff Davis Holdings does not conduct any business, but rather all operations are conducted by Ziff Davis Media and its direct and indirect subsidiaries. Ziff Davis Holdings has no material assets other than its investment in the capital stock of Ziff Davis Media.
     The Company is an integrated media company focused on the technology and videogame markets. The Company is an information services and marketing solutions provider of technology media including publications, websites, conferences, events, eSeminars, eNewsletters, custom publishing, list rentals, research and market intelligence. Ziff Davis Holdings was incorporated in the state of Delaware and was formed to acquire certain publishing assets (“Ziff-Davis Publishing”, “ZDP” or “Predecessor”) from Ziff-Davis Inc. (“ZDI”), an unrelated company. The Company’s major operating subsidiaries are Ziff Davis Publishing Inc., Ziff Davis Development Inc. and Ziff Davis Internet Inc.
     The Company had no operations prior to April 5, 2000 when it completed the acquisition of ZDP for $780,000 plus expenses (see Note 3). This acquisition was accounted for under the purchase method of accounting and was funded by: (1) issuing preferred and common stock for $353,700 in proceeds; (2) executing a $405,000 senior credit facility (as subsequently amended and restricted, the “Senior Credit Facility”) of which $355,000 was borrowed at closing; and (3) issuing a bridge loan totaling $175,000 in proceeds. Fees and expenses, including debt issuance costs associated with the acquisition of ZDP, which totaled approximately $30,000, were paid with the equity and debt proceeds. On July 18, 2000, the Company issued $250,000 of 12% Senior Subordinated Notes due 2010 (the “12% Notes”). The proceeds from the offering were used to repay the bridge loan and approximately $59,700 of the Senior Credit Facility. In addition, proceeds from the offering of the 12% Notes were used to pay approximately $8,500 of expenses associated with the offering and approximately $6,800 of accrued interest.
     In connection with the acquisition of ZDP, the Company determined that ZDP’s wholly-owned international operations (excluding international licensing operations and international joint ventures) did not meet its long-term strategic objectives. As a result, the operations were sold on August 4, 2000.
Operations
     In order to focus on delivering integrated marketing solutions to our customers, in the fourth quarter of 2005 we completed an additional realignment of our business within our three segments (Consumer/Small Business Group, Enterprise Group and Game Group) each offering print, online and events products. This operational realignment does not change our reporting of segment results, rather it further integrates the development and execution of the products and services offered by the respective groups.
     The Consumer/Small Business Group (formerly known as the Consumer Tech Group) is principally comprised of PC Magazine, a number of consumer-focused websites, led by pcmag.com and extremetech.com, and the Company’s consumer electronics convention, DigitalLife. During the fourth quarter of 2005 we shut down both Sync and ExtremeTech magazines.
     The Enterprise Group is comprised of three publications, eWEEK, CIO Insight and Baseline; sixteen Internet sites affiliated with these brands and also a number of vertical platform and community sites for readers; over forty weekly eNewsletters; eSeminars, which produce live interactive webcasts and the Ziff Davis Web Buyers Guide, the Company’s searchable online directory of technology products. The Enterprise Group also includes our custom conference group which manages face-to-face events in the U.S. and worldwide; Business Information Services, a marketing research tools unit; and Contract Publishing, which produces custom magazines, white papers, case studies and other sales and marketing collateral for customers.

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     The Game Group is focused on the videogame market and is principally comprised of three magazine publications (Electronic Gaming Monthly, Computer Gaming World and Official U.S. PlayStation Magazine) and the 1up network, a collection of online destinations for gaming enthusiasts. The Game Group discontinued publishing GMR and reduced the frequency of Xbox Nation during the fourth quarter of 2004.
     For additional information on the Company’s operating segments, see Note 22.
Liquidity
     The Company’s financial statements have been presented on the basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
     The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
     As of December 31, 2005, we had long-term debt and redeemable preferred stock (which has been classified as debt) totaling $357.5 million and $899.5 million, respectively, and a working capital deficit of approximately $1.4 million. The Company has also incurred a $7,149 loss from operations for the year ended December 31, 2005.
     In April 2005, the Company completed a private placement transaction pursuant to which the Company issued $205,000 of Floating Rate Notes at a floating interest rate of 3 month London Interbank Offering Rate (“LIBOR”) plus 6.00% which mature in 2012. Interest on the notes is payable quarterly with the first interest payment made on August 1, 2005. The proceeds were used to pay-off the Company’s former Senior Credit Facility, including accrued interest, and to pay related fees and expenses of the transaction. The remaining balance of approximately $27,000 was added to the Company’s existing cash balance and is available for general corporate purposes.
     The Company believes that its cash on hand, coupled with future cash generated from operations, will be sufficient to meet its liquidity, working capital and capital spending needs for 2006. Due to the recent Floating Rate Notes issuance, none of the Company’s outstanding indebtedness require it to meet any financial covenants. The Floating Rate Notes indenture contains only incurrence-based covenants that require certain financial criteria be met if the Company intends to take some action, such as incur additional debt or make a restricted payment, as defined.
     The Company will continually evaluate its business unit performance and given the realignment of operations into three businesses in late 2005, the Company is now in a position to act quickly to implement the requisite steps, principally expense and capital reductions, in the event unexpected market or competitive changes give rise to a risk of a decline in financial performance.
     The Company’s ability to service its indebtedness will depend on its future performance which will be affected by prevailing economic conditions and financial, business and other factors. The Company believes that its diversification into Internet, events and other non-print businesses will continue and that these businesses will grow in profitability and will generate meaningful incremental free cash flow to assist the Company in servicing its long-term obligations. The Company’s current intention is to repay its long-term obligations when they come due in 2009, 2010 and 2012 in part from cash flow from operations, with the remainder coming from the refinancing of such obligations, including its Redeemable Preferred Stock outstanding, or selling assets to obtain funds for such purposes. In terms of the redemption of its preferred securities, the Company believes the primary holder of these securities and its equity sponsor, Willis Stein, will continue to support its future growth plans and will develop a plan to extend the maturities or refinance these preferred securities in the event that should become necessary. There is no assurance, however, that refinancings of indebtedness including preferred securities or asset dispositions could be achieved on a timely basis or on satisfactory terms, if at all, or would be permitted by the terms of the Company’s existing indebtedness.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
     The financial statements of the Company as of December 31, 2005 and 2004, and for the years ended December 31, 2005, 2004 and 2003 are prepared on a consolidated basis and include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents
     The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Concentration of credit risk
     The Company places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in excess of federally insured limits. The Company has not experienced losses in such accounts.
     The Company’s advertisers primarily include customers who represent a variety of technology companies who are principally based in the United States. The Company extends credit to its customers and historically has not experienced significant losses relating to receivables from individual customers or groups of customers. No one customer accounted for more than 10% of consolidated revenue or total accounts receivable for the years ended December 31, 2005, 2004 and 2003, and as of December 31, 2005 and 2004.

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Inventories
     Inventories, which consist of paper, are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. The Company does not carry any significant paper inventory as it has outsourced its paper buying function to its printer suppliers. The inventories amount reflected on the Consolidated Balance Sheet is primarily related to the production of eWEEK.
Property and equipment
     Property and equipment have been recorded at cost or their estimated fair value if acquired in connection with a business combination net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the acquired assets, ranging from 2 to 20 years. Leasehold improvements are amortized using the straight-line method over the service life of the improvement or the life of the related lease, whichever is shorter. Maintenance and repair costs are charged to expense as incurred.
Capitalized software
     In accordance with Statement of Position 98-1 “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” the Company capitalizes certain costs incurred for the development of internal use software. Capitalized costs include direct labor and related overhead for software produced by the Company and the cost of software purchased from third parties. These costs are included in property, plant and equipment in the accompanying Consolidated Balance Sheet. Costs incurred in connection with business process re-engineering are expensed as incurred. The Company capitalized approximately $5,920, $3,300 and $1,700 of internal use software costs, principally in connection with its Internet properties, during the years ended December 31, 2005, 2004 and 2003, respectively. Approximately $5,500 and $3,500 of unamortized software costs remained at December 31, 2005 and 2004, respectively.
Intangible assets and Goodwill
     Intangible assets consist principally of advertising lists, subscriber lists, trademarks and trade names and goodwill. Amortization of the definite-lived assets is computed on a straight-line basis over estimated useful lives, ranging from 2 to 20 years. Advertising lists and subscriber lists are recorded at estimate fair value as determined by an income approach. Trademarks and tradenames are recorded at estimated fair value using a relief from royalty approach. In determining estimated useful lives, the Company considers its competitive position in the markets in which it operates, the historical attrition rates of advertisers and subscribers and legal and contractual obligations.
     Goodwill represents the excess purchase price over the fair value of identifiable net assets of businesses acquired. The Company reviews the recoverability of goodwill and indefinite-lived intangible assets in the fourth quarter of each year and also performs such tests if any event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company compares the estimated fair values of the entity with its respective net book value. Fair value is generally determined based on estimated future cash flows of the related assets. If the fair value of a reporting unit equals or exceeds its carrying amount, the goodwill and indefinite-lived intangible assets of the reporting unit is not considered impaired. If the carrying amount of the reporting unit exceeds its fair value, the goodwill and indefinite-lived intangible assets impairment loss is measured as the excess of the carrying value of goodwill over its implied fair value. The Company did not recognize any impairment of its indefinite-lived intangible assets for the years ended December 31, 2005, 2004 and 2003.
Impairment of long-lived assets
     The Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment losses for assets to be held and used are recognized in operating results in the event that the undiscounted expected future cash flows to be generated by the related asset are less than the carrying value of the asset. If undiscounted expected future cash flows are not sufficient to support the recorded value of the assets, an impairment loss is recognized for the difference between fair value and the carrying value to reduce the intangible assets to their estimated recoverable value. Fair value is determined using quoted market prices in an active market (if available). If quoted market prices are not available, management estimates the fair market value using the best information available including prices for similar assets and the results of established valuation techniques.
Debt issuance costs
     The cost to issue debt is recorded in other assets and amortized to interest expense over the term of the related debt using the straight line method. At December 31, 2005 and 2004, the Consolidated Balance Sheet included $13,970 and $10,964 in net debt

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issuance costs, respectively, within Other assets, net. The Company amortized $3,316, $2,236 and $2,158 for the years ended December 31, 2005, 2004 and 2003, respectively. During 2005 the Company wrote off approximately $330 of debt issuance costs as a result of its April 2005 refinancing.
Revenue, net
     Advertising revenue for the Company’s magazine publications, less agency commissions and sales incentives, is recognized as income in the month that the related publications are sent to subscribers or become available for sale at newsstands. Circulation revenue consists of both subscription and single copy newsstand sales. Subscription revenue (which is net of agency fees), less estimated cancellations, is deferred when paid and then recognized as income in the month that the related publications are sent to subscribers. Newsstand sales, less estimated returns and certain sales incentives, are recognized in the month that the related publications are sold at newsstands. The Company also derives revenue from Internet advertising, royalty agreements, list rentals, custom conferences and other sources. These other revenues are recognized over the terms of related agreements or when services are provided. The Company recorded approximately $1,120, $2,504 and $2,557 in barter revenue for the years ended December 31, 2005, 2004 and 2003, respectively.
Operating costs and expenses
     Cost of production includes the direct costs of producing magazines, which are primarily paper, manufacturing, distribution and fulfillment expenses.
     Selling, general and administrative costs include compensation, editorial, product development, advertising and subscriber acquisition costs, sales and marketing and other general and administrative costs. Editorial and product development costs, including pre-publication expenses, are expensed as incurred. Product development costs include the cost of artwork, graphics, prepress, plates and photography for new products. Advertising costs are expensed as incurred. These expenses also include the direct costs of the Company’s Internet operations, such as telecommunication and hosting fees, as well as costs to produce the DigitalLife convention. Costs associated with the DigitalLife convention are deferred and expensed when the convention takes place.
Stock-based compensation
     Statement of Financial Accounting Standards (“SFAS”) 123, “Accounting for Stock-based Compensation,” requires that companies with stock-based compensation plans either recognize compensation expense based on the fair value of options granted or continue to apply the existing accounting rules and disclose pro forma net income and earnings per share assuming the fair value method had been applied. The Company has chosen to continue applying Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employers” and related interpretations in accounting for the options on common stock.
     Due to the nature of the rights granted to the option holders and the debt classification of the underlying securities in the case of the options on the preferred stock, the Company accounts for the option grants under the 2002 Stock Option Plan using a fair value methodology. The Company utilizes the Black-Scholes option pricing model to calculate the value of the stock options when granted. The value of the options are remeasured at each reporting period and any changes in the value are recorded as compensation expense in that period relative to the vested portion of the outstanding option. Based on the accounting treatment described above, the company believes that its current accounting for stock options issued pursuant to the 2002 Plan is consistent with the provisions of SFAS 123R and the adoption of SFAS 123R will not have a material effect on the Company’s results of operations.
Comprehensive loss
     Comprehensive loss, which is reported on the accompanying Consolidated Statement of Changes in Stockholders’ Deficit as a component of Accumulated Other Comprehensive Loss, consists of net income (loss) and other gains and losses affecting stockholders’ equity (deficit) that, under generally accepted accounting principles, are excluded from net income (loss). The only such change was the change in certain derivative financial instruments as detailed in the Consolidated Statement of Changes in Stockholders’ Deficit.
Income taxes
     Income taxes are based upon income for financial reporting purposes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefit, or that future deductibility is uncertain (see Note 11).

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Interest rate swaps
     The Company utilized an interest rate swap to reduce the impact of fluctuating interest rates on its variable rate debt and interest expense. Under its interest rate swap agreement, the Company agreed with the counter parties to exchange, at quarterly intervals, the difference between the Company’s fixed pay rate and the counter parties’ variable pay rate based on three-month London Inter-Bank Offering Rate (“LIBOR”). The Company’s interest rate swap agreement ended on October 31, 2003 and was not renewed.
Fair value of financial investments
     The Company’s financial instruments recorded on the Consolidated Balance Sheet include cash and cash equivalents, accounts receivable, accounts payable, preferred stock, interest rate swap agreements and debt. Because of their short maturity, the carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximate fair value. Fair value of long-term debt is based on rates available to the Company for debt with similar terms and maturities. Fair value of public debt is based on quoted market prices, where available, or quoted market prices of comparable instruments. Fair value of preferred stock is based on the present value of expected future cash flows, discounted at a risk-adjusted required rate of return (see Note 24).
Use of estimates
     The preparation of financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to allowances for doubtful accounts, reserves for sales returns and allowances, reserves for severance, closures and restructuring related costs and the recoverability of long-lived assets, including the excess of purchase price over net assets acquired. The Company bases its estimates on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. These form the basis of the Company’s judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates which would effect the Company’s reported results of operations. The Company believes the following is a description of the policies related to recording estimates used in the preparation of its consolidated financial statements.
     Allowances for doubtful accounts are estimated losses resulting from its customers’ failure to make required payments. The Company continually monitors collections from customers and provides for estimated credit losses. The Company aggressively pursues collection efforts on these overdue accounts and upon collection reverses the allowance in future periods. If future payments by the Company’s customers were to differ from its estimates, the Company may need to increase or decrease the Company’s allowances for doubtful accounts.
     Reserves for sales returns and allowances are primarily related to the Company’s newsstand sales, and to a lesser extent, subscription sales in which subscribers are billed. The Company estimates and maintains these reserves based primarily on the distributors’ historical return practices, our subscribers’ historical collection rates and the Company’s actual return experience. If actual sales returns and allowances differ from the estimated returns and allowances rates used, the Company may need to increase or decrease the reserve for sales returns and allowances.
     Reserves for restructuring related costs including severance, magazine and facilities closures are estimated costs resulting from management’s plans and actions to consolidate operations and eliminate headcount to reduce total operating costs. If the future payments of these costs were to differ from its estimates, the Company may need to increase or decrease its reserves. The Company recorded restructuring charges or (credits) related to its 2001, 2002, 2004 and 2005 cost reduction and restructuring programs of $2,967, $5,491 and $(6,238) for the years ended December 31, 2005, 2004 and 2003, respectively.
     The Company periodically evaluates the recoverability of its long-lived assets, including property and equipment, goodwill and intangible assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or in connection with its annual financial review process. The Company’s evaluations include analyses based on the cash flows generated by the underlying assets and profitability information, including estimated future operating results, trends or other determinants of fair value. If the fair value of the asset determined by these evaluations is less than its carrying amount, an impairment charge is recognized for the difference. Future adverse changes in market conditions or continuing poor operating results of certain businesses may also indicate an inability to recover the carrying value of the assets, thereby possibly requiring an impairment evaluation and charge.
Advertising
     All advertising costs are expensed as incurred. The Company incurred advertising expenses of $37,620, $35,495, and $28,900 for the years ending December 31, 2005, 2004 and 2003, respectively.

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Recent accounting pronouncements
     In December 2004, the FASB issued SFAS 123 (revised 2004), “Share-Based Payment”, or (“SFAS 123R”), which replaces SFAS 123, “Accounting for Stock-Based Compensation”, (“SFAS 123”), and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The pro forma disclosures previously permitted under SFAS 123, no longer will be an alternative to financial statement recognition. The Company is required to adopt SFAS 123R as of January 1, 2006. Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. The Company is evaluating the requirements of SFAS 123R and expects that the adoption of SFAS 123R will not have a material impact on our consolidated results of operations.
     In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments that have characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The FASB directed that the effective date of SFAS 150 be deferred for certain nonpublic entities with mandatorily redeemable financial instruments until fiscal periods beginning after December 31, 2003. The Company believes that under SFAS 150 it is defined as a nonpublic entity and has outstanding preferred stock that is considered mandatorily redeemable. Effective January 1, 2004, the Company recorded the accrued dividends on the mandatorily redeemable preferred stock as interest expense and classified the mandatorily redeemable preferred stock as long term liability on the Consolidated Balance Sheet. The adoption of this statement increased the Company’s total liabilities by $814,549 as of December 31, 2004 and increased the Company’s consolidated interest expense by $74,947 in 2004. This had no impact on the Company’s debt covenants or its ability to service its debt payments in 2004.
     In December 2004, the FASB issued SFAS 153, “Exchange of Nonmonetary Assets”, which eliminated the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 became effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS 153 did not have a material impact on the Company’s operating results or financial position.
Reclassifications
     Certain amounts have been reclassified, where appropriate, to conform to the current financial statement presentation.
NOTE 3 — ACQUISITIONS AND DISPOSITIONS
Acquisitions
     In October 2004, the Company acquired Connexus Media, Inc. (“CMI”), a business-to-business online publishing company based in Topsfield, Massachusetts. Under the terms of the agreement, the Company acquired CMI’s portfolio of 25 prominent business-to-business, vertical and technology-specific websites, 10 weekly eNewsletters, 25 list rental databases and other ancillary paid content programs. CMI resides in the Enterprise Group segment for reporting purposes.
     In December 2004, the Company acquired DeviceForge LLC (“DeviceForge”), a vertical online business-to-business publishing company for the application developers, business executives and technologists. DeviceForge resides in the Enterprise Group segment for reporting purposes.
     The purchase price of these acquisitions was $3,146 of which $1,356 was allocated to intangible assets, $1,764 was allocated to goodwill and the remainder was allocated to tangible assets. These acquisitions are accounted for in the Enterprise Group.
     In November 2005, the Company acquired FileFront, L.P. (“filefront.com”), a leading destination for videogame downloads including demos, game trailers, patches and drivers. The cost of the filefront.com acquisition was $5,237 of which $4,630 was allocated intangible assets and $607 was allocated to fixed assets. The subscriber list is being amortized over three years.

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     Filefront.com resides in the Game Group segment for reporting purposes.
     Had these acquisitions occurred as of January 1, 2004 or January 1, 2005 the impact on the Company’s results of operations would not have been material.
     The Company may be required to pay additional contingent purchase considerations with respect to the aforementioned acquisitions based on certain revenue and performance targets for 2006 and 2007 as defined in the purchase agreements. If any contingent consideration is earned it would be payable in 2007 and 2008.
     In November 2005, the Company contributed $751 and formed a joint venture with SEEC Media Group Limited to launch PC Magazine in the China market. The Chinese edition of PC Magazine will have an editorial edition mission identical to its counterpart in the United States, with the magazine being the definitive “independent guide to technology” and empowering technology buyers in China, to make educated and effective technology purchasing decisions.
Dispositions
     In September 2003, the Company sold an international indenture to an unrelated third party guarantee net proceeds of $4,929. The Company realized a gain of $2,544 related to the sale. The Company who recognized in 2003 a gain of $65 related to its sale of its TESTING LABS Inc. subsidiary on 2002.
NOTE 4 — ACCOUNTS RECEIVABLE, NET
     Trade accounts receivable are recorded at the invoiced amount. Although the Company may have the right to demand interest for certain delinquent accounts, the Company has not recorded any receivables for interest on delinquent accounts. The allowance for doubtful accounts is the best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience. The Company reviews the allowance for doubtful accounts on a monthly basis and assigns an estimated reserve to the balances. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. All other balances are reviewed on a pooled basis by type of receivable. Account balances are charged off against the allowance when it is probable the receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure related to its customers.
     In consultation with our third party distributors, the Company determines the number of magazines to deliver to newsstand locations. The allowance for newsstand returns is based on the estimate of unsold copies for each issue. This estimate is based on historical trades for each magazine.
     Allowances for subscription cancellations are based on estimates of the number of subscribers who will cancel their subscriptions. These estimates are based on historical trends for each magazine.
     Gross accounts receivable consists of the following:
                 
    As of
December 31,		  
    2005     2004  
Trade
   $ 23,984     $ 22,497  
Newsstand
     23,463       34,417  
Subscription
     4,068       5,540  
Other
     4,906       6,458  
 
            
Total gross accounts receivable
     56,421       68,912  
Allowance for newsstand returns and cancellations
     (19,141 )     (28,022 )
Allowance for trade accounts receivable, subscriptions and other
     (4,784 )     (5,764 )
 
            
Accounts receivable, net
   $ 32,496     $ 35,126  
 
            
     Following are the changes in allowance for newsstand returns and cancellations during the years ended December 31, 2005 and 2004:
                                 
    Balance at     Increase to     Decrease to     Balance at  
    beginning of year     allowance     allowance     end of year  
December 31, 2005
   $ 28,022     $ 46,806     $ (55,687 )   $ 19,141  
December 31, 2004
   $ 16,270     $ 45,846     $ (34,094 )   $ 28,022  
     Following are the changes in allowance for trade accounts receivable, subscriptions and other during the years ended December 31, 2005 and 2004:
                                 
    Balance at     Net     Writeoffs,     Balance at  
    beginning of year     additions     Net of Recoveries     end of year  
December 31, 2005
   $ 5,764     $ 1,512     $ (2,492 )   $ 4,784  
December 31, 2004
   $ 4,819     $ 3,850     $ (2,905 )   $ 5,764  
NOTE 5 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
     Prepaid expenses and other current assets consist of the following:

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    As of
December 31,		  
    2005     2004  
Deferred expenses and deposits
   $ 5,310     $ 6,178  
Production expenses
     322       54  
Other
     —       429  
 
            
 
   $ 5,632     $ 6,661  
 
            
     Deferred expenses and deposits primarily represent prepaid postage and other deferred expenses related to future issues of our publications or future conferences and events. Production expenses represent prepaid manufacturing and distribution expenses related to future issues of our publications.
NOTE 6 — PROPERTY AND EQUIPMENT, NET
     Property and equipment, net consist of the following:
                 
    As of
December 31,		  
    2005     2004  
Computers and equipment
   $ 28,962     $ 26,778  
Capitalized computer software
     25,864       21,068  
Leasehold improvements
     19,929       19,491  
Furniture and fixtures
     6,243       6,512  
 
            
 
     80,998       73,849  
Accumulated depreciation and amortization
     (64,676 )     (58,845 )
 
            
 
   $ 16,322     $ 15,004  
 
            
     Depreciation expense for the years ended December 31, 2005, 2004 and 2003 was $5,831, $6,202 and $10,793, respectively. The useful lives for the various classes of assets are as follows: computer equipment three years, capitalized software five years, leasehold improvements life of the lease and furniture and fixtures five years.
NOTE 7 — GOODWILL AND INTANGIBLE ASSETS, NET
     The purchase price of acquisitions is allocated to tangible and identifiable intangible assets with the remaining amount being allocated to goodwill. Advertising lists and subscriber lists were recorded at estimated fair value as determined by an income approach. Trademarks/trade names were recorded at estimated fair value using a relief from royalty approach.
     Definite-lived intangible assets are being amortized using the straight-line method over estimated useful lives, ranging from 2 to 20 years. In determining the estimated useful lives, the Company considered its competitive position in the markets in which it operates, the historical attrition rates of advertisers and subscribers, legal and contractual obligations, and other factors.
     Recoverability of goodwill and intangible assets is assessed both on an annual basis or on an interim basis if events or circumstances change that would likely reduce the fair value of related assets below their carrying values. During 2005, 2004 and 2003, the Company did not record any impairment charges.
     As of December 31, 2005 and December 31, 2004, the Company’s intangible assets and related accumulated amortization consisted of the following:
                                                 
    As of December 31, 2005     As of December 31, 2004  
            Accumulated                     Accumulated        
    Gross     Amortization     Net     Gross     Amortization     Net  
Amortized intangible assets:
                                                
Advertising lists
   $ 184,179     $ (74,087 )   $ 110,092     $ 184,178     $ (60,146 )   $ 124,032  
Trademark/trade names
     25,057       (5,501 )     19,556       25,057       (4,104 )     20,953  
Subscriber lists and other
     18,595       (12,646 )     5,949       12,973       (11,600 )     1,373  
 
                                    
Total amortized intangible assets
     227,831       (92,234 )     135,597       222,208       (75,850 )     146,358  
Unamortized intangible assets:
                                                
Trademark/trade names
     67,686       (6,903 )     60,783       67,686       (6,903 )     60,783  
Goodwill
     47,095       (7,267 )     39,828       47,170       (7,267 )     39,903  
 
                                    
Total goodwill and intangible assets
   $ 342,612     $ (106,404 )   $ 236,208     $ 337,064     $ (90,020 )   $ 247,044  
 
                                    
     During the fourth quarter of 2005, the Company made an acquisition for $5,237 in which $4,630 was recorded in subscriber list and other (see Note 3).
     During 2004, the Company made acquisitions for $3,146, of which $1,279 was recorded in subscriber list and other (see Note 3).

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     As of December 31, 2004, a contractual relationship with a third party for the publication of GMR magazine had expired. As part of an agreement through the third party, the Company acquired certain rights to the third party’s subscriber list. These rights were valued at $1,537 and have been included in subscriber lists as of December 31, 2005 and December 31, 2004.
     Amortization expense was $16,384, $15,226 and $15,108 for the years ended December 31, 2005, 2004 and 2003, respectively.
     Based on the current amounts of intangible assets subject to amortization, the estimated amortization expense for each of the next 5 years ending December 31, are as follows:
         
2006
   $ 17,670  
2007
     17,670  
2008
     16,624  
2009
     15,226  
2010
     15,007  
     As of December 31, 2005, the weighted average amortization period for all intangible assets was 13.9 years. The weighted average amortization period for advertising lists, trademarks and tradenames and subscriber lists were 14.1 years, 16 years and 3 years, respectively.
NOTE 8 — OTHER ASSETS
     Other assets, net consist of the following:
                 
    As of
December 31,		  
    2005     2004  
Deferred financing costs
   $ 13,971     $ 10,965  
Deferred rent asset
     5,238       4,685  
Restricted cash
     1,623       —  
Joint venture investment
     694       —  
 
            
 
   $ 21,526     $ 15,650  
 
            
NOTE 9 — ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
     Accrued expenses and other current liabilities consist of the following:
                 
    As of
December 31,		  
    2005     2004  
Accrued operating and production costs
   $ 13,394     $ 11,606  
Accrued restructuring costs — short-term
     5,991       7,977  
Accrued interest
     4,103       1,329  
Payroll and related employee benefits
     2,417       3,037  
Accrued sales and use taxes payable
     2,357       845  
Foreign tax liabilities
     4,899       —  
Other
     1,050       1,360  
 
            
Accrued expenses and other current liabilities
   $ 34,211     $ 26,154  
 
            
NOTE 10 — COST REDUCTION AND RESTRUCTURING PROGRAM, ASSET IMPAIRMENT AND RELATED CHARGES
     During the fourth quarter 2004, the Company implemented a comprehensive cost reduction and restructuring program. This program included the reduction in frequency of Xbox Nation and canceling the Business 4Site show scheduled for November 2004. The program was also designed to reduce the Company’s workforce in order to decrease excess operating costs. This charge was reported in the Consolidated Statement of Operations for 2004 and was comprised of the following:
         
    Year Ended  
    December 31,  
    2004  
Employee severance costs(a)
   $ 3,320  
Costs to exit certain activities(b)
     2,171  
 
      
 
   $ 5,491  
 
      

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     During the fourth quarter 2005, the Company implemented a cost reduction and restructuring program. This program included the closure of Sync and ExtremeTech magazine and was also designed to reduce the Company’s workforce in order to decrease excess operating costs. This charge is reported in the Consolidated Statement of Operations for 2005 and is comprised of the following:
         
    Year Ended  
    December 31,  
    2005  
Employee severance costs(a)
   $ 2,525  
Costs to exit certain activities(b)
     442  
 
      
 
   $ 2,967  
 
      
 
(a)   Employee severance costs relate to severance benefits and other related costs that are calculated pursuant to the Company’s employee severance plan or individual employee contracts, as applicable.
 
(b)   Costs to exit certain activities relate to the termination of contracts, closure or consolidation of offices, net of sublease income and other related costs associated with the closure of publications and other businesses.
     The accrued restructuring costs balance of $18,049 at December 31, 2005 is included on the Consolidated Balance Sheet in Accrued expenses and other current liabilities ($5,991) and Accrued restructuring costs — long-term ($12,058). The remaining accrued balance primarily relates to future real estate lease costs. During the year ended December 31, 2005, the Company made $8,640 of payments primarily related to real estate leases for vacant space. The Company anticipates making approximately $5,991 in cash payments net of sublet income related to this accrual in 2006, with the remainder being paid through 2019 due to the long-term nature of related real estate lease agreements. During the year ended December 31, 2003, the Company also recorded an adjustment of $6,238 to Restructuring charges, net in the Consolidated Statements of Operations relating to the reversal of a portion of the prior years’ accruals. This adjustment primarily related to real estate lease costs and reflected the Company’s sublet of excess space in its New York headquarters for an amount higher than originally estimated.
     The following tables summarize the activity with respect to the accrued restructuring charge balances from January 1, 2003 through December 31, 2005:
                                         
            Activity for the Year Ended December 31, 2003  
                            Applied        
    Balance                     Against     Balance  
    December 31,     Expenses/             Related     December 31,  
    2002     Adjustments     Payments     Assets     2002  
Employee severance costs
   $ 3,916     $ (485 )   $ (1,457 )   $ —     $ 1,974  
Facility consolidation and other costs
     34,297       (3,815 )     (10,941 )     1,877       21,418  
 
                              
Total
   $ 38,213     $ (4,300 )   $ (12,398 )   $ 1,877     $ 23,392  
 
                              
                                         
            Activity for the Year Ended December 31, 2004  
    Balance                     Accretion     Balance  
    December 31,     Expenses/             of     December 31,  
    2003     Adjustments     Payments     Liability     2004  
Employee severance costs
   $ 1,974     $ 3,320     $ (1,374 )   $ —     $ 3,920  
Facility consolidation and other costs
     21,418       2,171       (7,960 )     3,406       19,035  
 
                              
Total
   $ 23,392     $ 5,491     $ (9,334 )   $ 3,406     $ 22,955  
 
                              
                                         
            Activity for the Year Ended December 31, 2005  
    Balance                     Accretion     Balance  
    December 31,     Expenses/             of     December 31,  
    2004     Adjustments     Payments     Liability     2005  
Employee severance costs
   $ 3,920     $ 2,525     $ (3,538 )   $ —     $ 2,907  
Facility consolidation and other costs
     19,035       442       (5,102 )     768       15,142  
 
                              
Total
   $ 22,955     $ 2,967     $ (8,640 )   $ 768     $ 18,049  
 
                              
NOTE 11 — INCOME TAXES
     The Company accounts for income taxes in accordance with SFAS 109, “Accounting for Income Taxes.” Under SFAS 109, deferred tax assets and liabilities are computed based on the differences between the financial statement and income tax bases of assets and liabilities using the effective tax rates. SFAS 109 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized. Due to the Company’s negative earnings in recent years, a valuation allowance equal to the net deferred tax asset has been established.

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     Loss before income taxes is all attributable to the United States.
     Components of the provision for income taxes are as follows:
                         
    Year Ended     Year Ended     Year Ended  
    December 31,     December 31,     December 31,  
    2005     2004     2003  
U.S. federal income taxes:
                        
Current
   $ —     $ —     $ —  
Deferred
     —       —       —  
State and local taxes:
                        
Current
     30       30       30  
Deferred
     —       —       —  
Foreign income taxes: Current
     185       208       195  
 
                  
Total provision
   $ 215     $ 238     $ 225  
 
                  
     A reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate on loss before income taxes is as follows:
                         
    Year Ended     Year Ended     Year Ended  
    December 31,     December 31,     December 31,  
    2005     2004     2003  
Federal statutory tax rate
     35.0 %     35.0 %     35.0 %
State and local taxes (net of federal tax benefit)
     —       —       (1.1 )
Permanent differences
     (25.4 )     (31.5 )     (8.9 )
Valuation allowance
     (9.6 )     (3.6 )     (26.8 )
Foreign operations
     (0.2 )     (0.3 )     (11.6 )
Other
     —       —       —  
 
                  
Effective tax rate
     (0.2 )%     (0.4 )%     (13.4 )%
 
                  
     The increase in permanent differences in 2004 and 2005 relates to the preferred stock accretion that, as of January 1, 2004, is now recorded as interest expense in accordance with SFAS 150.
     Following is a summary of the components of the deferred tax accounts at December 31, 2005 and 2004:
                 
    As of
December 31,		  
    2005     2004  
Current deferred tax assets and (liabilities):
                
Allowance for doubtful accounts and accrued liabilities
   $ 2,299     $ 1,124  
Prepaid expenses
     (251 )     (108 )
 
            
Current deferred net tax assets, net
     2,048       1,016  
 
            
Non-current deferred tax assets and (liabilities):
                
Basis difference in intangible assets
     106,850       97,195  
Basis difference in property and equipment
     (4,792 )     (3,849 )
Start-up costs capitalized
     1,551       1,357  
Deferred rent
     3,225       3,073  
Other
     7,341       584  
Net operating loss and other carryforwards
     183,062       169,790  
 
            
Non-current deferred tax assets, net
     297,237       268,150  
 
            
Gross deferred tax assets
     299,285       269,166  
Valuation allowance
     (299,285 )     (269,166 )
 
            
Net deferred tax assets
   $ —     $ —  
 
            
     The Company’s total deferred tax assets were $304,328 and $273,124 at December 31, 2005 and 2004, respectively. Total deferred tax liabilities were $5,043 and $3,958 at December 31, 2005 and 2004, respectively. The valuation allowance increased $30,119 during the year ended December 31, 2005.
     The Company’s provision for foreign taxes relates to withholding taxes paid on royalty income remitted from foreign intangible asset licensees.
     At December 31, 2005, the Company had aggregate net operating loss carryforwards for Federal income tax purposes of approximately $457,380 which will be available to reduce future taxable income. The net operating loss carryforwards will expire between December 31, 2021 and December 31, 2025 for Federal income tax purposes and between December 31, 2006 and December 31, 2025 for state income tax purposes.

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     Internal Revenue Service Code Section 382 places a limitation on the utilization of net operating loss carryforwards and certain built-in losses or deductions when an ownership change, as defined in the tax law, occurs. Generally, an ownership change occurs when there is a greater than 50 percent change in ownership. If such change should occur, the actual utilization of net operating loss carryforwards and certain built-in losses or deductions, for tax purposes, would be generally limited annually to a percentage of the fair market value of the Company at the time of such change.
NOTE 12 — DEBT
General
     As of December 31, 2005, total indebtedness was $357,458 and consisted of $205,000 of Floating Rate Notes due 2012, $12,280 of 12% Notes due 2010 and $140,178 of compounding notes due 2009 (the “Compounding Notes”).
     As of December 31, 2004, total indebtedness was $308,857 and consisted of $165,941 of outstanding principal under the term loan portion of the Senior Credit Facility, $8,200 of outstanding principal under the revolving credit portion of the Senior Credit Facility, $12,280 of 12% Notes due 2010 and $122,436 of Compounding Notes due 2009.
Floating Rate Notes
     In April 2005, the Company completed a private placement transaction pursuant to which the Company issued $205,000 of Floating Rate Notes at a floating interest rate of 3-month LIBOR plus 6.00% which mature in 2012. The Floating Rate Notes are, subject to certain exceptions and permitted liens, secured by a first priority security interest in substantially all of the Company’s existing and future assets. Interest on the notes is payable quarterly with the first interest payment made on August 1, 2005. The proceeds were used to pay off the Company’s former Senior Credit Facility including accrued interest, and to pay related fees and expenses of the transaction. The remaining balance of approximately $27,000 was added to the Company’s existing cash balance and is available for general corporate purposes. As a result of paying off the Senior Credit Facility, the Company was required to fund its outstanding letters of credit of $2,431.
     Simultaneously with the initial sale of the Floating Rate Notes, the Company entered into a registration rights agreement, under which it agreed to commence an offer to exchange the originally issued notes with a series of publicly registered notes with substantially identical terms. Under the exchange offer, which commenced on June 24, 2005 and expired on July 22, 2005, 100% of the originally issued notes were tendered and exchanged for publicly registered notes. The Floating Rate Notes are guaranteed by Ziff Davis Media’s current and future domestic subsidiaries and, for as long as any subordinated notes remain outstanding, Ziff Davis Holdings.
Compounding Notes
     The Compounding Notes, issued in August 2002, accrue interest in semi-annual periods at rates of 12.0% to 14.0%. For the first four years, interest may be paid, at the Company’s option, either in cash or by compounding such interest on the Compounding Notes. During the year ended December 31, 2005 and 2004, the Company compounded interest in the amount of $17,742 and $14,874, respectively. The new Floating Rate Notes of $205,000 plus the Compounding Notes interest of $17,742, partially offset by the pay-off of the Senior Credit Facility of $174,141, accounts for the change in total debt from $308,857 at December 31, 2004 to $357,458 at December 31, 2005.
     The issuance of the Compounding Notes has been accounted for in accordance with the provisions of SFAS 15, and, accordingly, a liability representing accrued interest on the Compounding Notes was recorded at the date of issuance. This liability represents the difference in estimated cash payments under the new note agreements as compared to the previous note agreements. The December 31, 2005 balance of $60,278 is included within long-term liabilities in the Company’s Condensed Consolidated Balance Sheet as Accrued interest — troubled debt restructuring and is being amortized as a reduction of interest expense over the remaining term of the Compounding Notes. During the years ended December 31, 2005 and 2004, the Company amortized $15,912 and $13,342, respectively, as a reduction of interest expense. All existing and future domestic subsidiaries currently guarantee or will guarantee the Company Notes.
12% Notes
     On July 18, 2000, the Company issued $205,000 of the 12% Notes. Interest is paid semi-annually and the outstanding principal, which was reduced to $12,280 as part of the financial restructuring (See Note 13), is payable on July 15, 2010. The 12% Notes are unsecured and subordinated to all existing and future senior indebtedness. All existing and future domestic subsidiaries currently guarantee or will guarantee the 12% Notes.

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Senior Credit Facility
     The Senior Credit Facility was collateralized by a first priority security interest in substantially all of the Company’s existing and future tangible and intangible assets. The Senior Credit Facility required the Company to meet certain financial tests, including a maximum total leverage ratio and a maximum senior leverage ratio, a minimum interest coverage ratio, a minimum fixed charge coverage ratio and a maximum capital expenditure amount. The Senior Credit Facility contained certain restrictive covenants, including restrictions on: (1) indebtedness, liens and guarantees; (2) mergers, consolidations and certain types of acquisitions and asset sales; and (3) dividends and stock repurchases.
     At December 31, 2004, approximately $1,000 of borrowing capacity was available under the Senior Credit Facility and existing borrowings bore interest at rates ranging from 6.58% to 7.08%. The Company made scheduled principal repayments on September 30, 2004 and December 31, 2004 totaling $8,648. The Company was also required to make an annual “excess cash flow” payment, as defined in its Senior Credit Facility, of $6,400 on April 14, 2004. This represented a mandatory repayment of its term loans under the Senior Credit Facility. The Senior Credit Facility was paid off in conjunction with the April 2005 refinancing.
Maturities
     The scheduled annual maturities of the Floating Rate Notes, 12% Notes and Compounding Notes at December 31, 2005 are as follows:
         
2006
   $ —  
2007
     —  
2008
     —  
2009
     140,178  
2010
     12,280  
Thereafter
     205,000  
 
      
 
   $ 357,458  
 
      
     The Company believes that its cash on hand, coupled with future cash generated from operations, will be sufficient to meet its liquidity, working capital and capital spending needs for 2006. Due to the recent Floating Rate Notes issuance, none of the Company’s outstanding indebtedness require it to meet any financial covenants. The Floating Rate Notes indenture contains only incurrence-based covenants that require certain financial criteria be met if the Company intends to take some action, such as incur additional debt or make a restricted payment, as defined.
     In terms of long-term liquidity, the Company’s ability to service its indebtedness will depend on its future performance which will be affected by prevailing economic conditions and financial, business and other factors. The Company believes that its diversification into Internet, events and other non-print businesses will continue and that these businesses will grow in profitability and will generate meaningful incremental free cash flow to assist the Company in servicing its long-term obligations. The company’s current intention is to repay its long-term obligations when they come due in 2009, 2010 and 2012 in part from cash flow from operations, with the remainder coming from the refinancing of such obligations, including its Redeemable Preferred Stock outstanding, or selling assets to obtain funds for such purposes. In terms of the redemption of its preferred securities, the Company believes the primary holder of these securities and its equity sponsor, Willis Stein, will continue to support its future growth plans and will develop a plan to extend the maturities or refinance these preferred securities in the event that should become necessary. There is no assurance, however, that refinancings of indebtedness including preferred securities or asset dispositions could be achieved on a timely basis or on satisfactory terms, if at all, or would be permitted by the terms of the Company’s existing indebtedness.
NOTE 13 — FINANCIAL RESTRUCTURING
     In order to address certain liquidity and debt compliance issues, the Company initiated a financial restructuring in 2001, which was completed on August 12, 2002. As part of the restructuring, the Company exchanged a combination of cash, Compounding Notes, preferred stock and warrants to purchase Ziff Davis Holdings common stock for most of the existing 12% Notes (collectively, the “Exchange Offer”). In addition, the Company amended and restated its Senior Credit Facility and received an equity contribution from Willis Stein.
     Key terms of the financial restructuring were as follows:
  •   The Company received an equity contribution of $80,000 from Willis Stein in exchange for the issuance of a new series D redeemable preferred stock (the “Series D Preferred Stock”) with an aggregate liquidation preference of approximately $80,000 as well as approximately 38.6 million warrants, each representing the right to purchase one share of the common stock of Ziff

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      Davis Holdings at an exercise price of $0.001 per share. The contribution was comprised of $10,100 of cash received during the quarter ended June 30, 2002, approximately $62,531 of cash received in August 2002, and approximately $7,369 in liquidation preference of Series D Preferred Stock issued by Ziff Davis Holdings in lieu of a cash payment which otherwise would have been owed to Willis Stein by Ziff Davis Media with respect to the 12% Notes held by Willis Stein.
  •   Accredited investors representing approximately 95.1% in aggregate principal amount of the Company’s 12% Notes who tendered their notes received an aggregate of approximately $21,158 in cash and $90,334 in aggregate principal amount of Compounding Notes. These holders also received an aggregate of approximately $28,526 in liquidation preference of a new series of preferred stock (“Series E Preferred Stock”) and warrants for the purchase of approximately 5.2 million shares of common stock of Ziff Davis Holdings in exchange for their 12% Notes.
 
  •   The Compounding Notes accrue interest in semi-annual periods, commencing on February 15 and August 15 of each year, with the first period starting on February 15, 2004. For the first four years, interest accrues at rates ranging from 12% to 14% and may be paid, at the Company’s option and subject to certain restrictions formerly under the Senior Credit Facility and now under the Floating Rate Notes Indenture, either in cash or by compounding such interest on the Compounding Notes. For all payments of interest accruing after August 12, 2006, interest shall be payable in cash at a rate of 12% per annum.
 
  •   The Series E Preferred Stock accrues dividends at a rate of 10% per annum and is subject to mandatory redemption on the earlier of March 31, 2010 or the date of a change in control. Dividends will only be paid in cash if declared for payment by the Company’s Board of Directors. In addition, so long as any Series D Preferred Stock remains outstanding, and without the prior written consent of Willis Stein, together with the holder or holders of a majority of the outstanding shares of Series D Preferred Stock, Ziff Davis Holdings will not be permitted directly or indirectly to pay or declare any cash dividend or make any distribution to the holders of Series E Preferred Stock (see Note 14). Additionally, the Senior Credit Facility restricted, and the indenture governing the Floating Rate Notes and Compounding Notes each restricts, the payment of dividends to holders of capital stock of Ziff Davis Holdings.
 
  •   Interest due to holders of the $12,280 principal amount of the 12% Notes not tendered previously due on July 15, 2002, was funded on August 14, 2002.
 
  •   The Company amended and restated its Senior Credit Facility providing for, among other terms: (1) waiver of all existing defaults; (2) deferral of principal payments for eight quarters; (3) removal of the obligation to pay the default interest rate on the outstanding principal; and (4) mandatory use of a portion of excess cash flows, as defined, to repay amounts owed under the Senior Credit Facility.
     The financial restructuring was accounted for in accordance with the troubled debt restructuring provisions of SFAS 15. Accordingly, no gain was recognized on the exchange, but rather the value of the Compounding Notes increased by an amount representing accrued interest (see Note 12).
NOTE 14 — CAPITAL STRUCTURE
Redeemable Preferred Stock
     Series A Redeemable Preferred Stock — The Company is authorized to issue 400,000 shares of series A redeemable preferred stock, $0.01 par value per share, (the “Series A Preferred Stock”). At December 31, 2005 and 2004 there were approximately 329,128 shares issued and outstanding. Prior to March 6, 2002, dividends on the Series A Preferred Stock accrued at a rate of 12% per annum. Commencing on March 6, 2002, dividends on the Series A Preferred Stock have accrued at a rate of 6.5% per annum. Each share of Series A Preferred Stock has that number of votes equal to $1,000 per share, plus all accrued and unpaid dividends, divided by $7.50. The Series A Preferred Stock has a liquidation preference of $1,000 per share, plus all accrued and unpaid dividends and a scheduled mandatory redemption date of March 31, 2010. In the event of an initial public offering of the Company’s common stock, holders of the Series A Preferred Stock may require the Company, upon written notice, to redeem all or any portion (as specified by such holders) of the outstanding shares of Series A Preferred Stock (plus all accrued and unpaid dividends thereon) at a price of $1,000 per share or convert all or any portion (as specified by such holders) of the outstanding shares of Series A Preferred Stock (plus all accrued and unpaid dividends thereon) into a number of shares of common stock equal to $1,000 per share of Series A Preferred Stock divided by the price per share of common stock received by the Company in the initial public offering.
     Series B Redeemable Preferred Stock — The Company is authorized to issue 142,500 shares of series B redeemable preferred stock, $0.01 par value per share, (the “Series B Preferred Stock”). At December 31, 2005 and 2004 there were approximately 98,286 shares issued and outstanding. Prior to March 6, 2002, dividends on the Series B Preferred Stock accrued at a rate of 12.632% per annum. Commencing on March 6, 2002, dividends on the Series B Preferred Stock have accrued at a rate of 10.85% per annum. Each share of Series B Preferred Stock has that number of votes equal to $1,000 per share, plus all accrued and unpaid dividends, divided by $7.50. The Series B Preferred Stock has a liquidation preference of $1,000 per share, plus all accrued and unpaid dividends and a

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scheduled mandatory redemption date of March 31, 2010. In the event of an initial public offering of the Company’s common stock, holders of the Series B Preferred Stock may require the Company, upon written notice, to redeem all or any portion (as specified by such holders) of the outstanding shares of Series B Preferred Stock (plus all accrued and unpaid dividends thereon) at a price of $1,000 per share or convert all or any portion (as specified by such holders) of the outstanding shares of Series B Preferred Stock (plus all accrued and unpaid dividends thereon) into a number of shares of common stock equal to $1,000 per share of Series B Preferred Stock divided by the price per share of common stock received by the Company in the initial public offering.
     Series C Convertible Preferred Stock — The Company is authorized to issue 7,500 shares of series C convertible preferred stock, $0.01 par value per share, (the “Series C Preferred Stock”). At December 31, 2005 and 2004 there were approximately 5,173 shares issued and outstanding. The Series C Preferred Stock shall not be entitled to receive any regularly scheduled dividend, however, holders would be entitled to dividends in the amount which would have been paid with respect to the common stock issuable upon conversion of the Series C Preferred Stock, in the event cash dividends are paid upon the Company’s common stock. Each share of Series C Preferred Stock has that number of votes equal to $1,000 per share, plus all accrued and unpaid dividends, divided by the conversion price of the Series C Preferred Stock (which currently is $0.60 but which may be adjusted from time to time to account for stock splits, subdivisions and other similar events). The Series C Preferred Stock is convertible by the holders thereof at any time into shares of common stock. The number of shares of common stock obtained per share of Series C Preferred Stock will be determined by dividing $1,000, plus all accrued and unpaid dividends, by the conversion price, which currently is $0.60, but which may be adjusted from time to time to account for stock splits, subdivisions and other similar events. The Series C Preferred Stock has a liquidation preference of $1,000 per share, plus all accrued and unpaid dividends and a scheduled mandatory redemption date of March 31, 2010. In the event of an initial public offering of the Company’s common stock, holders of the Series C Preferred Stock may require the Company, upon written notice, to redeem all or any portion (as specified by such holders) of the outstanding shares of Series C Preferred Stock (plus all accrued and unpaid dividends thereon) at a price of $1,000 per share or convert all or any portion (as specified by such holders) of the outstanding shares of Series C Preferred Stock (plus all accrued and unpaid dividends thereon) into a number of shares of common stock equal to $1,000 per share of Series C Preferred Stock divided by the price per share of common stock received by the Company in the initial public offering.
     Series D Redeemable Preferred Stock — The Company is authorized to issue 100,000 shares of Series D Preferred Stock. At December 31, 2005 and 2004 there were approximately 80,207 shares issued and outstanding. Dividends on the Series D Preferred Stock accrue at a rate of 22.0% per annum. Each share of Series D Preferred Stock has that number of votes equal to $1,000 per share, plus all accrued and unpaid dividends, divided by $7.50. The Series D Preferred Stock has a liquidation preference of $1,000 per share, plus all accrued and unpaid dividends and a scheduled mandatory redemption date on the earlier of (1) March 31, 2010 or (2) the date of the consummation of a change of control of the Company, at a price per share of Series D Preferred Stock equal to $1,000, plus all accrued and unpaid dividends thereon. In the event of an initial public offering of the Company’s common stock, holders of the Series D Preferred Stock may require the Company, upon written notice, to redeem all or any portion (as specified by such holders) of the outstanding shares of Series D Preferred Stock (plus all accrued and unpaid dividends thereon) at a price of $1,000 per share or convert all or any portion (as specified by such holders) of the outstanding shares of Series D Preferred Stock (plus all accrued and unpaid dividends thereon) into a number of shares of common stock equal to $1,000 per share of Series D Preferred Stock divided by the price per share of common stock received by the Company in the initial public offering.
     Series E Redeemable Preferred Stock — The Company is authorized to issue 30,000 shares of Series E Preferred Stock. At December 31, 2005 and 2004 there were approximately 28,526 shares issued and outstanding, respectively. Dividends on the Series E Preferred Stock accrue at a rate of 10% per annum. Such dividends will be payable in cash only if declared for payment by the Company’s Board of Directors. Each share of Series E Preferred Stock has that number of votes equal to $1,000 per share, plus all accrued and unpaid dividends thereon, divided by $7.50. The Series E Preferred Stock has a liquidation preference of $1,000 per share, plus all accrued and unpaid dividends thereon and a scheduled mandatory redemption date on the earlier of (1) March 31, 2010 or (2) the date of the consummation of a change of control of the Company, at a price per Series E Preferred Share equal to $1,000, plus all accrued and unpaid dividends thereon. In the event of an initial public offering of the Company’s common stock, holders of the Series E Preferred Stock may require the Company, upon written notice, to redeem all or any portion (as specified by such holders) of the outstanding shares of Series E Preferred Stock (plus all accrued and unpaid dividends thereon) at a price of $1,000 per share or convert all or any portion (as specified by such holders) of the outstanding shares of series E preferred stock (plus all accrued and unpaid dividends thereon) into a number of shares of common stock equal to $1,000 per share of Series E Preferred Stock divided by the price per share of common stock received by the Company in the initial public offering.
     The following table presents cumulative activity for each of the preferred stock accounts:

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    Preferred Stock Series
    A     B     C     D     E     Total  
Balance at December 31, 2002
   $ 435,296     $ 116,317     $ 5,173     $ 87,153     $ 29,638     $ 673,577  
Dividends payable
     28,992       13,143       —       20,813       3,077       66,025  
 
                                    
Balance at December 31, 2003
   $ 464,288     $ 129,460     $ 5,173     $ 107,966     $ 32,715     $ 739,602  
Dividends payable
     31,009       14,670       —       25,862       3,406       74,947  
 
                                    
Balance at December 31, 2004
   $ 495,297     $ 144,130     $ 5,173     $ 133,828     $ 36,121     $ 814,549  
Dividends payable
     32,988       16,286       —       31,961       3,750       84,985  
 
                                    
Balance at December 31, 2005
   $ 528,285     $ 160,416     $ 5,173     $ 165,789     $ 39,871     $ 899,534  
 
                                    
Common Stock
     Ziff Davis Holdings is authorized to issue 100,000,000 shares of common stock, $0.001 par value per share, of which 2,311,049 shares were issued and outstanding at December 31, 2005 and 2004, respectively. Each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of stockholders.
Restrictions on Transfer of Capital Stock
     There is an Investor Rights Agreement that restricts the transfer of certain shares of Ziff Davis Holdings’ capital stock by the parties thereto. The parties to the Investor Rights Agreement have granted Ziff Davis Holdings a right of first refusal with respect to its stock, which, if not exercised by Ziff Davis Holdings, may be exercised by Willis Stein and certain other of Ziff Davis Holdings’ stockholders. Each holder of shares generally has the right to participate in any transfer of shares by Willis Stein, with certain exceptions. In addition, Ziff Davis Holdings has agreed not to issue new equity securities (or securities with equity features) without giving Willis Stein and certain other of Ziff Davis Holdings’ stockholders an opportunity to purchase their pro rata share of the new securities on substantially the same terms, with certain exceptions. Each of Ziff Davis Holdings’ existing stockholders (other than the holders of Series E Preferred Stock or common stock obtained pursuant to the exercise of warrants) has agreed to consent to a sale of Ziff Davis Holdings or the assets of Ziff Davis Holdings if Willis Stein votes to approve the sale.
Common Stock Warrants
     In connection with the financial restructuring, the Company issued approximately 43,800,000 warrants each representing the right to purchase one share of Ziff Davis Holdings’ common stock at an exercise price of $0.001. The warrants may be exercised on any date from and after August 12, 2002 and prior to and including August 12, 2012. Warrants may be exercised by the payment of the exercise price either in cash, other equity securities of Ziff Davis Media or in a “cashless exercise”, by tendering other warrants.
Liquidation Preference
     The preferred stock described above ranks behind the debt obligations of the Company and ahead of the common stockholders in terms of liquidation preference. Among the preferred stock, the Series D Preferred Stock is ranked first, the Series E Preferred Stock is ranked second, the Series B and C Preferred Stock are ranked third and the Series A Preferred Stock is ranked fourth.
NOTE 15 — CONTRACTS WITH CNET
     The Company provided distribution, circulation and production services to CNET for its Computer Shopper magazine, and CNET paid the Company for its costs in relation to the performance of these services, plus an additional $5,000 annually in fees. On January 19, 2001, the Company agreed with CNET to terminate the services agreement and enter into a new two-year agreement with CNET effective March 1, 2001. The new two-year agreement contained substantially similar terms, except that CNET was not required to pay the Company any annual fee and was only required to reimburse the Company for out-of-pocket expenses incurred in connection with producing and distributing Computer Shopper. On March 1, 2001, CNET paid the Company a $2,000 non-refundable fee in connection with the termination of the original Computer Shopper services agreement. The Company recognized the termination fee pro rata over the initial contract term. The Company and CNET entered into a new agreement as of March 1, 2004, which was terminated effective March 2005, pursuant to which the Company was entitled to be paid a fixed monthly fee plus reimbursement of certain direct expenses in connection with circulation services for Computer Shopper. At December 31, 2005 no amounts were outstanding from CNET.
NOTE 16 — EARNINGS PER SHARE
     Earnings per share have been omitted on the basis that there are no public common shareholders.
NOTE 17 — EMPLOYEE BENEFIT PLANS
401(k) Plan
     The Company has established a tax-qualified 401(k) employee savings and profit sharing plan, for all of its employees who meet the 401(k) plan’s eligibility requirement. The 401(k) plan is intended to qualify under Section 401 of the Internal Revenue Code so

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that contributions by employees and income earned on the 401(k) plan contributions are not taxable to the employees until withdrawn from the 401(k) plan. Employees may make contributions to the plan, which are partially matched by the Company; both employee and Company contributions are subject to certain limitations. The Company’s matching contributions were $539, $532 and $473 for the years ended December 31, 2005, 2004 and 2003, respectively. The Company may also make additional discretionary profit-sharing contributions to the 401(k) plan. The Company did not make any discretionary profit-sharing contributions for the years ended December 31, 2005, 2004 and 2003.
Stock Option Plans
2001 Stock Option Plan
     In the fiscal year ended March 31, 2001, the Company’s Board of Directors adopted the 2001 Ziff Davis Holdings Inc. Employee Stock Option Plan (the “2001 Stock Option Plan”) which provides for the issuance of non-qualified stock options to purchase shares of Ziff Davis Holdings’ common stock to eligible employees, directors, officers, consultants and advisors (each a “participant”). Under the terms of the 2001 Stock Option Plan, options to purchase 87,667 shares of Ziff Davis Holdings’ common stock were reserved for issuance under this Plan. The option price per share of common stock was fixed at fair value by the Board of Directors and set forth in the option agreement entered into with any participant. Generally, options granted have a term of ten years from the date of grant, and vest in increments of 20% per year over a five year period on the anniversary date of the grant. There were no options granted under the 2001 Stock Option Plan in the years ended December 31, 2005, 2004 and 2003.
     A summary of the status of the Company’s 2001 Stock Option Plan as of December 31, 2005, 2004 and 2003, and changes during the three fiscal years then ended, is presented below:
                 
            Weighted Average  
    Number of Shares     Price Per Share  
Balance at December 31, 2002
     26,955       7.50  
Options granted
     —       —  
Options exercised
     —       —  
Options cancelled/forfeited
     (5,459 )     7.50  
 
            
Balance at December 31, 2003
     21,496     $ 7.50  
Options granted
     —       —  
Options exercised
     —       —  
Options cancelled/forfeited
     (3,418 )     7.50  
 
            
Balance at December 31, 2004
     18,078     $ 7.50  
Reverse stock split
     —       —  
Options granted
     —       —  
Options exercised
     —       —  
Options cancelled/forfeited
     —       —  
 
            
Balance at December 31, 2005
     18,078     $ 7.50  
 
            
No options were exercisable at December 31, 2005, 2004 and 2003.
     If the Company had accounted for employee stock options under the fair value based method, pro forma net loss for the years ended December 31, 2005, 2004 and 2003 would have increased by approximately $2, $2 and $2, respectively.
2002 Stock Option Plan
     In the fiscal year ended December 31, 2002, the Company’s Board of Directors adopted the 2002 Ziff Davis Holdings Employee Stock Option Plan (the “2002 Stock Option Plan”), which provides for the issuance of non-qualified stock options to purchase shares of certain classes of Ziff Davis Holdings capital stock to eligible employees, directors, officers, consultants and advisors. Pursuant to the 2002 Stock Option Plan, as amended and restated in March 2003, the Company may issue options to purchase shares of Ziff Davis Holdings capital stock, the following number of which are reserved for issuance under the plan: 9,619,171 shares of common stock; 58,081 shares of Series A Preferred Stock; 17,344 shares of Series B Preferred Stock; and 14,117 shares of Series D Preferred Stock. The option price per share for any participant shall be determined by the Company’s compensation committee at the time of grant. Generally, options granted pursuant to the 2002 Stock Option Plan will have a term of ten years from the date of grant (unless terminated earlier) and vest in increments of 20% per year over a five year period on the anniversary of the date of grant subject to

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acceleration in the event of a sale of the Company or thirty days following an initial public offering. The options shall be subject to certain restrictions on exercisability and shall be subject to repurchase by the Company in certain circumstances.
     In addition, in the event the Company pays any dividend on any one or more classes of capital stock subject to outstanding options granted pursuant to the 2002 Stock Option Plan, the exercise price with respect to such options to purchase shares of such classes of capital stock will be reduced by the applicable per share amount of such dividend (with any excess per share amount of the dividend paid to the optionee with respect to any shares of the option that are vested at the time of the dividend). Also, in the event the Company redeems or otherwise acquires any shares of the Company’s capital stock originally issued to Willis Stein, each optionee of outstanding options granted pursuant to the 2002 Stock Option Plan shall be paid the applicable per share spread value as defined with respect to (and the option shall terminate with respect to) the lesser of: (1) the number of shares of such class of stock that would have been issuable to such optionee had the option been fully vested and exercisable, multiplied by the percentage of shares of such class redeemed or otherwise acquired; and (2) the number of shares the optionee would be entitled to purchase if the vested portion of the option at the time of such event was exercisable. In the event that (a) a payment to the optionee pursuant to the preceding two sentences is less than the payment that would have been made had the option been fully vested at the time of the dividend or redemption (such amount the “Unvested Deficit”) and (b) within ninety days of such dividend or redemption, (1) a sale of the Company is consummated or (2) an agreement to sell the Company is executed and the sale pursuant to such agreement is consummated within 180 days, the optionee has rights to obtain additional payment up to the Unvested Deficit.
     During 2003, the Company’s Board of Directors or compensation committee thereof authorized the Company’s officers to execute and deliver option agreements with respect to an aggregate number of 10,651 shares of Series D Preferred Stock; 13,089 shares of Series B Preferred Stock; 43,815 shares of Series A Preferred Stock; and 6,975,000 shares of Common Stock. During the second quarter of 2004, the Company executed the options agreements and issued the options referred to above. During the fourth quarter of 2004, the Company’s officers executed and delivered additional option agreements with respect to an aggregate number of 1,650 shares of Series D Preferred Stock; 1,680 shares of Series B Preferred Stock; 5,079 shares of Series A Preferred Stock; and 1,025,000 shares of Common Stock. During the year ended December 31, 2005, the Company’s officers executed and delivered additional option agreements with respect to an aggregate number of 652 shares of Series D Preferred Stock; 661 shares of series B Preferred Stock; 2,073 of Series A Preferred Stock and 375,000 shares of common stock. As of December 31, 2005, the following options were vested: 9,212 of Series D options, 11,117 of Series B options, 36,911 of Series A options and 5,628,639 of common stock options.
     As of December 31, 2005, the following securities remained available for future issuance: 3,266 of the Series D options; 4,497 of the Series B options; 15,766 of the Series A options; and 2,939,171 of the common stock options. No options were exercisable at the end of the year.

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     The following table details the option activity for the year ended December 31, 2005:
                                                                 
    Series D Pfd.     Series B Pfd.     Series A Pfd.     Common  
            Wtd Avg             Wtd Avg             Wtd Avg             Wtd Avg  
    # of     Exercise     # of     Exercise     # of     Exercise     # of     Exercise  
    Options     Price     Options     Price     Options     Price     Options     Price  
Options Outstanding at 12/31/04
     11,816     $ 1,098       14,172     $ 1,007       46,895     $ 0.01       7,605,000     $ 0.001  
Granted
     652     $ 1,787       661     $ 1,000       2,073     $ 0.01       375,000     $ 0.001  
Forfeited
     (1,617 )   $ 1,038       (1,986 )   $ 1,011       (6,653 )   $ 0.01       (1,300,000 )   $ 0.001  
Expired
     —       —       —       —       —       —       —       —  
Options Outstanding at 12/31/05
     10,851     $ 1,144       12,847     $ 1,002       42,315     $ 0.01       6,680,000     $ 0.001  
 
                                                        
Range of Exercise Prices
           $ 1,000-1,790             $ 1,000-1,221             $ 0.01             $ 0.001  
Weighted Average Remaining Life
             7.6 years               7.6 years               7.5 years               7.5 years  
     The Company recognized compensation expense of ($807) and $1,109 in the consolidated statement of operations during the years ended December 31, 2005 and 2004. The $807 credit in 2005 was caused by a change in the fair value of the Company’s stock options. The fair value of the options was determined based on a black scholes Option Pricing.
     The options granted pursuant to the 2002 Plan become exercisable if one of the following events occurs; the sale of the company or thirty days following an initial public offering or the seventh anniversary of the date of the participant’s option agreement.
NOTE 18 — OPERATING LEASE COMMITMENTS
     The Company is obligated under a number of operating leases which expire at various dates through 2019. As of December 31, 2005, future minimum rental commitments under non-cancelable operating leases (net of sublease proceeds) for future fiscal years are as follows:
                         
    Gross Rental     Sublease     Net Rental  
    Commitments     Income     Commitments  
2006
   $ 19,218     $ 9,204     $ 10,014  
2007
     18,821       8,846       9,975  
2008
     18,778       8,908       9,870  
2009
     18,164       9,312       8,852  
2010
     18,023       9,534       8,489  
Thereafter
     132,377       86,246       46,131  
 
                  
 
   $ 225,381     $ 132,050     $ 93,331  
 
                  
     The Company’s rent expense for subleased facilities amounted to approximately $16,619, $15,599 and $11,207 for the years ended December 31, 2005, 2004 and 2003, respectively. Sublease income for these facilities amounted to approximately $10,095, $9,687 and $7,542 for the years ended December 31, 2005, 2004 and 2003, respectively. Certain cases contain rent escalation clauses.
NOTE 19 — CONTINGENCIES
Legal Proceedings
     In May 2004, the Company gave notice of its election not to renew the then-existing license agreement pursuant to which the licensee (the “Former Licensee”) was licensed to publish the Greek edition of PC Magazine. In July 2004, the Company was informed that the Former Licensee had commenced litigation against it in Greece. In December 2004, a Greek court denied plaintiff’s request for an injunction against the Company, and granted the Company’s request for an injunction against plaintiff related to the PC Magazine trademark in Greece. In December 2004, the Company was informed that the Former Licensee sued it in Greece for damages. The Company currently does not anticipate that this matter will have a material impact on its financial condition or results of operations. The Company cannot give any assurances as to the outcome of these matters, however.

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     The Company is also subject to various claims and legal proceedings that arise in the ordinary course of business. However, it does not expect any of these claims or legal proceedings, either individually or in the aggregate, to have a material adverse effect on its financial condition, results of operations or liquidity.
Off-Balance-Sheet Arrangements
     The Company enters into certain incentive agreements, from time to time, with executives and senior management that include earn-out payments that are calculated based on the achievement of future revenue and other financial thresholds. Several of these agreements currently exist with measurement dates beginning with the close of the 2006 fiscal year. As of December 31, 2005, the Company cannot provide a reasonable estimate of the likelihood and amount the Company would be required to pay to fulfill their commitments.
NOTE 20 — GUARANTOR AND OTHER FINANCIAL INFORMATION
Guarantor Financial Information
     Ziff Davis Holdings and Ziff Davis Media are holding companies and their only assets are the ownership of the capital stock of their subsidiaries and cash balances. All of the Company’s consolidated subsidiaries have guaranteed Ziff Davis Media’s debt on a full, unconditional, joint and several basis. There are no restrictions which limit the ability of the Company’s subsidiaries to transfer funds to Ziff Davis Media in the form of cash dividends, loans or advances. No separate financial information for Ziff Davis Media has been provided herein because Ziff Davis Holdings’ financial information is materially the same as Ziff Davis Media’s financial information as a result of the fact that: (1) Ziff Davis Holdings does not itself conduct any business but rather all of its operations are conducted by Ziff Davis Media and its direct and indirect subsidiaries; (2) Ziff Davis Holdings has no material assets other than its equity interest in Ziff Davis Media; and (3) Ziff Davis Holdings has unconditionally guaranteed the 12% Notes and the Compounding Notes.
     The following tables present combining financial data detailing Ziff Davis Holdings, Ziff Davis Media, the guarantor subsidiaries and related elimination entries.
                                         
    At December 31, 2005  
    Ziff Davis     Ziff Davis                    
    Holdings Inc.     Media Inc.     Guarantors     Eliminations     Total  
ASSETS
                                        
Current assets:
                                        
Cash and cash equivalents
   $ —     $ —     $ 34,174     $ —     $ 34,174  
Accounts receivable, net
     —       —       32,496       —       32,496  
Inventories
     —       —       437       —       437  
Prepaid expenses and other current assets
     —       —       5,632       —       5,632  
Due (to) from affiliates
     1       (200,723 )     200,722       —       —  
 
                              
Total current assets
     1       (200,723 )     273,461       —       72,739  
Property and equipment, net
     —       —       16,322       —       16,322  
Investments in subsidiaries, equity method
     (167,080 )     (3,215 )     —       170,295       —  
Intangible assets, net
     —       —       196,380       —       196,380  
Goodwill
     —       —       39,828       —       39,828  
Note receivable — affiliate
     —       442,250       —       (442,250 )     —  
Other assets
     —       15,594       5,932       —       21,526  
 
                              
Total assets
   $ (167,079 )   $ 253,906     $ 531,923     $ (271,955 )   $ 346,795  
 
                              
LIABILITIES AND STOCKHOLDERS’ DEFICIT
                                        
Current liabilities:
                                        
Accounts payable
   $ —     $ —     $ 21,787     $ —     $ 21,787  
Accrued expenses and other current liabilities
     —       4,103       30,108       —       34,211  
Current portion of long-term debt
     —       —       —       —       —  
Unexpired subscriptions and deferred revenue, net
     —       —       18,177       —       18,177  
 
                              
Total current liabilities
     —       4,103       70,072       —       74,175  
Long-term debt
     —       357,458       —       —       357,458  
Accrued interest — troubled debt restructuring
     —       60,278       —       —       60,278  
Note payable — affiliate
     —       —       442,250       (442,250 )     —  
Accrued restructuring costs—long-term
     —       —       12,058       —       12,058  
Mandatorily redeemable preferred stock
     899,533       —       —       —       899,533  
Other non-current liabilities
     —       —       9,905       —       9,905  
 
                              
Total liabilities
     899,533       421,839       534,285       (442,250 )     1,413,407  
 
                              
Stockholders’ (deficit) equity:
                                        
Preferred stock
     —       —       1,234       (1,234 )     —  
Common stock
     17,329       —       28       (28 )     17,329  
Additional paid-in capital
     8,468       566,631       813,152       (1,379,784 )     8,467  
Accumulated deficit
     (1,092,409 )     (734,564 )     (816,776 )     1,551,341       (1,092,408 )
 
                              
Total stockholders’ deficit
     (1,066,612 )     (167,933 )     (2,362 )     170,296       (1,066,612 )
 
                              
Total liabilities and stockholders’ deficit
   $ (167,079 )   $ 253,906     $ 531,923     $ (271,955 )   $ 346,795  
 
                              

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    At December 31, 2004  
    Ziff Davis     Ziff Davis                    
    Holdings Inc.     Media Inc.     Guarantors     Eliminations     Total  
ASSETS
                                        
Current assets:
                                        
Cash and cash equivalents
   $ —     $ —     $ 32,592     $ —     $ 32,592  
Accounts receivable, net
     —       —       35,126       —       35,126  
Inventories
     —       —       575       —       575  
Prepaid expenses and other current assets
     —       —       6,661       —       6,661  
Due from (to) affiliates
     1       (190,067 )     190,066       —       —  
 
                              
Total current assets
     1       (190,067 )     265,020       —       74,954  
Property and equipment, net
     —       —       15,004       —       15,004  
Investments in subsidiaries, equity method
     (133,989 )     (34,166 )     —       168,155       —  
Intangible assets, net
     —       —       207,141       —       207,141  
Goodwill net
     —       —       39,903       —       39,903  
Note receivable — affiliate
     —       464,800       —       (464,800 )     —  
Other assets, net
     —       10,964       4,686       —       15,650  
 
                              
Total assets
   $ (133,988 )   $ 251,531     $ 531,754     $ (296,645 )   $ 352,652  
 
                              
LIABILITIES AND STOCKHOLDERS’ DEFICIT
                                        
Current liabilities:
                                        
Accounts payable
   $ —     $ —     $ 20,280     $ —     $ 20,280  
Accrued expenses and other current liabilities
     —       1,329       24,825       —       26,154  
Current portion of long-term debt
     —       23,991       —       —       23,991  
Unexpired subscriptions and deferred revenue, net
     —       —       20,327       —       20,327  
 
                              
Total current liabilities
     —       25,320       65,432       —       90,752  
Long-term debt
     —       284,866       —       —       284,866  
Accrued interest — troubled debt restructuring
     —       76,190       —       —       76,190  
Note payable — affiliate
     —       —       464,800       (464,800 )     —  
Accrued expenses — restructuring costs
     —       —       14,978       —       14,978  
Mandatorily redeemable Preferred Stock
     814,549       —       —       —       814,549  
Other non-current liabilities
     —       —       19,854       —       19,854  
 
                              
Total liabilities
     814,549       386,376       565,064       (464,800 )     1,301,189  
 
                              
Stockholders’ deficit:
                                        
Preferred stock
     —       —       1,234       (1,234 )     —  
Common stock
     17,329       —       28       (28 )     17,329  
Stock subscription loans
     —       —       —       —       —  
Additional paid-in capital
     8,468       566,631       720,420       (1,287,051 )     8,468  
Accumulated deficit
     (974,334 )     (701,476 )     (754,992 )     1,456,468       (974,334 )
 
                              
Total stockholders’ deficit
   (948,537 )   (134,845 )   (33,310 )   168,155     (948,537 )
 
                              
Total liabilities and stockholders’ deficit
   $ (133,988 )   $ 251,531     $ 531,754     $ (296,645 )   $ 352,652  
 
                              

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    Year Ended December 31, 2005  
    Ziff Davis Holdings Inc.     Ziff Davis Media Inc.     Guarantors     Eliminations     Total  
Revenue, net
   $ —     $ —     $ 187,611     $ —     $ 187,611  
 
                              
Operating expenses:
                                        
Cost of production
     —       —       51,834       —       51,834  
Selling, general and administrative expenses
     —       —       117,688       —       117,688  
Depreciation and amortization of property and equipment
     —       —       5,831       —       5,831  
Amortization of intangible assets
     —       —       16,384       —       16,384  
Restructuring charges, net
     —       —       2,967       —       2,967  
Loss in equity investee
     —       —       56       —       56  
Write-down of intangible assets
     —       —       —       —       —  
 
                              
Total operating expenses
     —       —       194,760       —       194,760  
 
                              
Loss from operations
     —       —       (7,149 )     —       (7,149 )
Equity in (loss) income from subsidiaries
     (33,088 )     (61,785 )     —       94,873       —  
Gain on sale of assets, net
     —       —       —       —       —  
Intercompany interest income (expense)
     —       54,761       (54,761 )     —       —  
Interest income (expense), net
     (84,987 )     (26,064 )     340       —       (110,711 )
 
                              
Loss before income taxes
     (118,075 )     (33,088 )     (61,570 )     94,873       (117,860 )
Income tax provision (benefit)
     —       —       215       —       215  
 
                                  
Net loss
   $ (118,075 )   $ (33,088 )   $ (61,785 )   $ 94,873     $ (118,075 )
 
                              
                                         
    Year Ended December 31, 2004  
    Ziff Davis     Ziff Davis                    
    Holdings Inc.     Media Inc.     Guarantors     Eliminations     Total  
Revenue, net
   $ —     $ —     $ 204,477     $ —     $ 204,477  
 
                              
Operating expenses:
                                        
Cost of production
     —       —       59,743       —       59,743  
Selling, general and administrative expenses
     —       —       110,939       —       110,939  
Depreciation and amortization of property and equipment
     —       —       6,202       —       6,202  
Amortization of intangible assets
     —       —       15,226       —       15,226  
Restructuring charges, net
     —       —       5,491       —       5,491  
 
                              
Total operating expenses
     —       —       197,601       —       197,601  
 
                              
Income from operations
     —       —       6,876       —       6,876  
Equity in (loss) income from subsidiaries
     (10,239 )     (50,332 )     —       60,571       —  
Intercompany interest income (expense)
     —       57,430       (57,430 )     —       —  
Interest (expense) income, net
     (74,947 )     (17,337 )     460       —       (91,824 )
 
                              
Loss before income taxes
     (85,186 )     (10,239 )     (50,094 )     60,571       (84,948 )
Income tax provision
     —       —       238       —       238  
 
                              
Net loss
   $ (85,186 )   $ (10,239 )   $ (50,332 )   $ 60,571     $ (85,186 )
 
                              
                                         
    Year Ended December 31, 2003  
    Ziff Davis     Ziff Davis                    
    Holdings Inc.     Media Inc.     Guarantors     Eliminations     Total  
Revenue, net
   $ —     $ —     $ 194,107     $ —     $ 194,107  
 
                              
Operating expenses:
                                        
Cost of production
     —       —       60,622       —       60,622  
Selling, general and administrative expenses
     —       —       98,973       —       98,973  
Depreciation and amortization of property and equipment
     —       —       10,793       —       10,793  
Amortization of intangible assets
     —       —       15,108       —       15,108  
Restructuring charges, net
     —       —       (6,238 )     —       (6,238 )
Loss in equity investee
     —       —       —               —  
Total operating expenses
     —       —       179,258       —       179,258  
 
                              
Income from operations
     —       —       14,849       —       14,849  
Equity in (loss) income from subsidiaries
     (1,909 )     (44,729 )     —       46,638       —  
Gain on sale of assets, net
     —       2,544       65       —       2,609  
Intercompany interest income (expense)
     —       59,757       (59,757 )     —       —  
Interest income (expense), net
     —       (19,481 )     339       —       (19,142 )
 
                              
Loss before income taxes
     (1,909 )     (1,909 )     (44,504 )     46,638       (1,684 )
Income tax provision
     —       —       225       —       225  
 
                              
Net (loss) income
   $ (1,909 )   $ (1,909 )   $ (44,729 )   $ 46,638     $ (1,909 )
 
                              

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    Year Ended December 31, 2005  
    Ziff Davis     Ziff Davis                    
    Holdings Inc.     Media Inc.     Guarantors     Eliminations     Total  
Cash flows from operating activities:
                                        
Net loss
   $ (118,075 )   $ (33,088 )   $ (61,785 )   $ 94,873     $ (118,075 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                                        
Depreciation and amortization
     —       —       22,215       —       22,215  
Provision for doubtful accounts
     —       —       1,118       —       1,118  
Non-cash rent expense
     —       —       164       —       164  
Non-cash rent expense
     —       1,830       —       —       1,830  
Amortization of debt issuance costs
     —       3,316       —       —       3,316  
Loss on equity investee
     —       —       56       —       56  
Non-cash restructuring charges
     —       —       2,967       —       2,967  
Non-cash compensation
     —       —       (807 )     —       (807 )
Accrued dividends on mandatorily redeemable preferred stock
     84,985       —       —       —       84,985  
Equity in loss of subsidiaries
     33,091       61,783       —       (94,873 )     —  
Changes in operating assets and liabilities:
                                        
Accounts receivable
     —       —       1,162       —       1,162  
Inventories
     —       —       138       —       138  
Accounts payable and accrued expenses
     —       2,777       (8,349 )     —       (5,572 )
Unexpired subscriptions and deferred revenue, net
     —       —       (3,068 )     —       (3,068 )
Due (to) from affiliate
     —       7,220       (7,220 )     —       —  
Prepaid expenses and other, net
     —       —       768       —       768  
 
                              
Net cash provided by (used in) operating activities
     —       43,838       (52,641 )     —       (8,803 )
 
                              
Cash flows from investing activities:
                                        
Capital expenditures
     —       —       (6,542 )     —       (6,542 )
Net proceeds from sale of assets
     —       —       —       —       —  
Joint Venture investment
     —       —       (751 )     —       (751 )
Investments in subsidiaries
     —       (89,303 )     —       89,303       —  
Acquisitions and investments, net of cash acquired
     —       —       (5,237 )     —       (5,237 )
 
                              
Net cash used in investing activities
     —       (89,303 )     (12,530 )     89,303       (12,530 )
 
                              
Cash flows from financing activities:
                                        
Proceeds from capital contributions
     —       —       89,303       (89,303 )     —  
Proceeds from floating rate notes offering
     —       205,000       —       —       205,000  
Repayment of borrowings under senior credit facilities
     —       (174,141 )     —       —       (174,141 )
Funding of letters of credit
     —       (1,623 )     —       —       (1,623 )
Proceeds from collection of intercompany notes receivable
     —       22,550       —       (22,550 )     —  
Repayment of intercompany notes payable
     —       —       (22,550 )     22,550       —  
Debt issuance costs
     —       (6,321 )     —       —       (6,321 )
 
                              
Net cash provided by (used in) financing activities
     —       45,465       66,753       (89,303 )     22,915  
 
                              
Net increase in cash and cash equivalents
     —       —       1,582       —       1,582  
Cash and cash equivalents at beginning of year
     —       —       32,592       —       32,592  
 
                              
Cash and cash equivalents at end of year
   $ —     $ —     $ 34,174     $ —     $ 34,174  
 
                              
                                         
    Year Ended December 31, 2004  
    Ziff Davis     Ziff Davis                    
    Holdings Inc.     Media Inc.     Guarantors     Eliminations     Total  
Cash flows from operating activities:
                                        
Net loss
   $ (85,186 )   $ (10,239 )   $ (50,332 )   $ 60,571     $ (85,186 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                                        
Depreciation and amortization
     —       —       21,428       —       21,428  
Provision for doubtful accounts
     —       —       (769 )     —       (769 )
Non-cash rent income
     —       —       (389 )     —       (389 )
Non-cash interest expense, net
     —       1,531       —       —       1,531  
Amortization of debt issuance costs
     —       2,236       —       —       2,236  
Loss on equity investee
     —       —       —       —       —  
Non-cash restructuring charges
     —       —       5,491       —       5,491  
Non-cash compensation
     —       —       1,109       —       1,109  

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    Year Ended December 31, 2004
    Ziff Davis     Ziff Davis                    
    Holdings Inc.     Media Inc.     Guarantors     Eliminations     Total  
Accrued dividends on mandatorily redeemable preferred stock
     74,947       —       —       —       74,947  
Equity in loss (income) of subsidiaries
     10,239       50,332       —       (60,571 )     —  
Changes in operating assets and liabilities:
                                        
Accounts receivable
     —       —       (1,439 )     —       (1,439 )
Inventories
     —       —       (254 )     —       (254 )
 
                                        
Accounts payable and accrued expenses
     —       289       (5,190 )     —       (4,901 )
Unexpired subscriptions and deferred revenue, net
     —       —       (4,843 )     —       (4,843 )
Due (to) from affiliate
     —       36,373       (36,373 )     —       —  
Prepaid expenses and other, net
     —       —       840       —       840  
 
                              
Net cash provided by (used in) operating activities
     —       80,522       (70,721 )     —       9,801  
 
                              
Cash flows from investing activities:
                                        
Capital expenditures
     —       —       (5,849 )     —       (5,849 )
Net proceeds from sale of assets
     —       —       13       —       13  
Joint Venture investment
     —       —       —       —       —  
Investments in subsidiaries
     —       (86,287 )     —       (86,287 )     —  
Acquisitions and investments, net of cash acquired
     —       —       (3,146 )     —       (3,146 )
 
                              
Net cash used in investing activities
     —       (86,287 )     (8,982 )     (86,287 )     (8,982 )
 
                              
Cash flows from financing activities:
                                        
Proceeds from capital contributions
     —       —       86,287       (86,287 )     —  
Repayment of borrowings under senior credit facilities
     —       (15,047 )     —       —       (15,047 )
Proceeds from collection of intercompany notes receivable
     —       21,300       —       (21,300 )     —  
Repayment of intercompany notes payable
     —       —       (21,300 )     21,300       —  
Debt issuance costs
     —       (488 )     —       —       (488 )
 
                              
Net cash provided by (used in) financing activities
     —       5,765       64,987       (86,287 )     (15,535 )
 
                              
Net decrease in cash and cash equivalents
     —       —       (14,716 )     —       (14,716 )
Cash and cash equivalents at beginning of year
     —       —       47,308       —       47,308  
 
                              
Cash and cash equivalents at end of year
   $ —     $ —     $ 32,592     $ —     $ 32,592  
 
                              
                                         
    Year Ended December 31, 2003
    Ziff Davis     Ziff Davis                    
    Holdings Inc.     Media Inc.     Guarantors     Eliminations     Total  
Cash flows from operating activities:
                                        
Net loss
   $ (1,909 )   $ (1,909 )   $ (44,729 )   $ 46,638     $ (1,909 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                                        
Depreciation and amortization
     —       —       25,901       —       25,901  
Provision for doubtful accounts
     —       —       557       —       557  
Non-cash rent expense
     —       —       (1,617 )     —       (1,617 )
Non-cash interest expense, net
     —       1,316       —       —       1,316  
Amortization of debt issuance costs
     —       2,158       —       —       2,158  
Loss on equity investee
     —       —       —       —       —  
Gain on sale of asset
     —       —       (2,609 )     —       (2,609 )
Non-cash restructuring charges
     —       —       (6,238 )     —       (6,238 )
Equity in loss (income) of subsidiaries
     1,909       44,729       —       (46,638 )     —  
Changes in operating assets and liabilities:
                                        
Accounts receivable
     —       —       (2,797 )     —       (2,797 )
Inventories
     —       —       13       —       13  
Accounts payable and accrued expenses
     —       (312 )     (3,016 )     —       (3,328 )
Unexpired subscriptions and deferred revenue, net
     —       —       (4,697 )     —       (4,697 )
Due from (to) affiliate
     (1 )     (859 )     860       —       —  
Prepaid expenses and other, net
     —       1,346       439       —       1,785  
 
                              
Net cash provided by (used in) operating activities
     (1 )     46,469       (37,933 )     —       8,535  
 
                              
Cash flows from investing activities:
                                        
Capital expenditures
     —       —       (2,518 )     —       (2,518 )
Net proceeds from sale of assets
     —       —       4,929       —       4,929  
Joint Venture investment
     —       —       —       —       —  
Investments in subsidiaries
     —       (86,733 )     —       86,733       —  
 
                              
Net cash provided by (used in) investing activities
     —       (86,733 )     2,411       86,733       2,411  
 
                              
Cash flows from financing activities:
                                        
Proceeds from capital contributions
     —       —       86,733       (86,733 )     —  
Repayment under senior credit facilities
     —       (4,928 )     —       —       (4,928 )
Proceeds from collection of intercompany notes
                                        

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    Year Ended December 31, 2003
    Ziff Davis     Ziff Davis                    
    Holdings Inc.     Media Inc.     Guarantors     Eliminations     Total  
receivable
     —       16,925       —       (16,925 )     —  
Repayment of intercompany notes payable
     —       —       (16,925 )     16,925       —  
 
                              
Net cash provided by (used in) financing activities
     —       11,997       69,808       (86,733 )     (4,928 )
 
                              
Net (decrease) increase in cash and cash equivalents
     (1 )     (28,267 )     34,286       —       6,018  
Cash and cash equivalents at beginning of year
     1       28,267       13,022       —       41,290  
 
                              
Cash and cash equivalents at end of year
   $ —     $ —     $ 47,308     $ —     $ 47,308  
 
                              
NOTE 21 — RELATED PARTY TRANSACTIONS
     Investment funds affiliated with Willis Stein are also shareholders of USApubs Inc. (“USApubs”), a marketer of magazine subscriptions and other services. The Company sells subscriptions to its publications both directly and through independent subscription marketing companies including USApubs. For the years ended December 31, 2005, 2004 and 2003, the Company paid $0, $635 and $1,289 in fees, respectively, to USApubs and had accounts payable to USApubs of $0 and $0 at December 31, 2005 and 2004, respectively.
     The Company reimburses travel and other out-of-pocket expenses of its directors and staff, including the directors from Willis Stein. During the years ended December 31, 2005, 2004 and 2003, the Company paid approximately $320, $80 and $100 of such director reimbursement expenses, respectively, and had a related $0 and $80 in accounts payable on the Consolidated Balance Sheet at December 31, 2005 and 2004 , respectively. The Company paid approximately $131 of Willis Stein reimbursement expenses related to the April 2005 refinancing.
NOTE 22 — SEGMENT INFORMATION
     Segment information is presented in accordance with SFAS 131, “Disclosures about Segments of an Enterprise and Related Information.” This standard is based on a management approach that designates the internal organization that is used by management for making operating decisions and assessing performance as the sources of the Company’s reportable segments. Operating segments are defined as components of an enterprise about which financial information is available that is evaluated on a regular basis by the chief operating decision-maker, or decision-making groups, in deciding how to allocate resources to an individual segment and in assessing performance of the segment.
     The Company has historically reported and managed its business in conjunction with the reporting requirements set forth in the Company’s Senior Credit Facility and indenture agreements which mandated certain restrictions on the source of funding provided to the Restricted Subsidiaries and Unrestricted Subsidiaries, as defined in these debt agreements. Effective July 1, 2004, the Company amended the terms of its Senior Credit Facility which eliminated the distinction between the Restricted and Unrestricted Subsidiaries and allowed the Company to be viewed in its entirety for purposes of financial covenant compliance. In the fourth quarter of 2005 the Company completed a realignment of its business into three distinct groups: Consumer/Small Business Group, Enterprise Group and the Game Group. Each group offers print, online and event products.
     Our Consumer/Small Business Group (formerly known as the Consumer Tech Group) is principally comprised of PC Magazine, a number of consumer-focused websites, led by pcmag.com and extremetech.com, and the Company’s consumer electronics convention, DigitalLife. During the fourth quarter of 2005 we shut down both Sync and ExtremeTech magazines.
     Our Enterprise Group is comprised of three publications, eWEEK, CIO Insight and Baseline; sixteen Internet sites affiliated with these brands and also a number of vertical platform and community sites for readers; over forty weekly eNewsletters; eSeminars, which produce live interactive webcasts and the Ziff Davis Web Buyers Guide, the Company’s searchable online directory of technology products. The Enterprise Group also includes our custom conference group which manages face-to-face events in the U.S. and worldwide; Business Information Services, a marketing research tools unit; and Contract Publishing , which produces custom magazines, white papers, case studies and other sales and marketing collateral for customers. .
     The Game Group is focused on the videogame market and is principally comprised of three magazine publications (Electronic Gaming Monthly, Computer Gaming World and Official U.S. PlayStation Magazine) and the 1up network, a collection of online destinations for gaming enthusiasts. The Game Group discontinued publishing GMR and reduced the frequency of Xbox Nation during the fourth quarter of 2004.
     The Company evaluates the performance of its segments and allocates resources to them based on earnings before interest, taxes, depreciation, amortization, restructuring and certain other non-recurring and non-cash charges (“EBITDA”). Management believes that segment EBITDA is an appropriate measure of evaluating the operational performance of the Company’s segments. However, this measure should be considered in addition to, not as a substitute for, income (loss) from operations or other measures of financial performance

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prepared in accordance with generally accepted accounting principles. Any inter-segment revenues included in segment data are not material.
     The following table presents information about the reported segments for the periods ended:
                         
    Year Ended December 31,  
    2005     2004     2003  
Revenue, net:
                        
Consumer/Small Business Group
   $ 68,359     $ 80,988     $ 76,928  
Enterprise Group
     76,564       72,925       60,234  
Game Group
     42,688       50,564       56,945  
 
                  
Total
   $ 187,611     $ 204,477     $ 194,107  
 
                  
EBITDA:
                        
Consumer/Small Business Group
   $ 10,784     $ 20,945     $ 22,946  
Enterprise Group
     5,323       12,474       3,392  
Game Group
     1,175       1,485       8,174  
 
                  
Total
   $ 17,282     $ 34,904     $ 34,512  
 
                  
                         
    Year Ended December 31,  
    2005     2004     2003  
Reconciliation of segment EBITDA to consolidated loss before income taxes:
                        
Total segment EBITDA
   $ 17,282     $ 34,904     $ 34,512  
Depreciation and amortization
     (22,215 )     (21,428 )     (25,901 )
Restructuring charges
     (2,967 )     (5,491 )     6,238  
Losses from equity investees
     (56 )     —       —  
Gain on sale of assets, net
     —       —       2,609  
Interest expense, net
     (110,711 )     (91,824 )     (19,142 )
Non-cash employee stock compensation (expense) income
     807       (1,109 )     —  
 
                  
Loss before income taxes
   $ (117,860 )   $ (84,948 )   $ (1,684 )
 
                  
     The Company’s chief operating decision maker (“CODM”) as defined in SFAS 131 does not review total assets by segment in order to assess performance and make decisions regarding the Company’s overall resource allocation. Furthermore, asset information is monitored at the corporate level and reported to the CODM monthly on a total company basis versus a segment basis.
     The following presents information about the Company’s components of revenue for the periods ending:
                         
    Year Ended December 31,  
    2005     2004     2003  
Advertising
   $ 116,559     $ 130,301     $ 132,865  
Circulation
     33,124       37,980       40,042  
Other
     37,928       36,196       21,200  
 
                  
Total Revenue, net
   $ 187,611     $ 204,477     $ 194,107  
 
                  
     No one customer accounted for more than 7.1% of total revenue for the years ended December 31, 2005, 2004 and 2003.
NOTE 23 — QUARTERLY FINANCIAL DATA (UNAUDITED)
     The following is summarized quarterly financial data for the years ended December 31, 2005, 2004 and 2003:
                                 
    2005 Quarterly Periods Ending
    March 31,   June 30,   September 30,   December 31,
Revenue, net
   $ 42,681     $ 45,347     $ 41,826     $ 57,758  
Operating loss
     (912 )     (2,197 )     (3,489 )     (550 )
Net loss
     (26,322 )     (29,508 )     (32,404 )     (29,840 )
                                 
    2004 Quarterly Periods Ending
    March 31,   June 30,   September 30,   December 31,
Revenue, net
   $ 41,968     $ 51,328     $ 46,166     $ 65,015  
Operating loss
     (2,590 )     2,350       1,421       5,695  
Net loss
     (24,706 )     (20,394 )     (22,200 )     (17,886 )

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    2003 Quarterly Periods Ending
    March 31,   June 30,   September 30,   December 31,
Revenue, net
   $ 42,091     $ 47,116     $ 45,209     $ 59,691  
Operating (loss) income
     (5,530 )     2,610       1,197       16,572  
Net (loss) income
     (10,726 )     (2,342 )     (1,205 )     12,364  
NOTE 24 — FAIR VALUE OF FINANCIAL INSTRUMENTS
     The Company’s accounting policies with respect to financial instruments are discussed in Note 2.
     The carrying amounts and fair values of the Company’s significant balance sheet financial instruments are as follows:
                                 
    December 31, 2005   December 31, 2004
    Carrying           Carrying    
    Amount   Fair Value   Amount   Fair Value
Cash and equivalents
   $ 34,174     $ 34,174     $ 32,592     $ 32,592  
Accounts receivable, net.
     32,496       32,496       35,126       35,126  
Accounts payable
     21,787       21,787       20,280       20,280  
Floating rate notes
     205,000       186,550       —       —  
Senior credit facility
     —       —       174,141       174,141  
Compounding notes
     140,178       118,754       122,437       122,437  
12% notes
     12,280       10,438       12,280       13,140  
Preferred stock
     899,533       66,219       814,549       80,059  
Standby Letters of Credit
     The Company is contingently liable for performance under letters of credit totaling approximately $1,623 primarily related to security for real estate leases. Management does not believe it is practicable to estimate the fair value of these financial instruments and does not expect any material losses from their resolution since performance is not likely to be required.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
     On August 12, 2005, the Audit Committee of our Board of Directors determined to dismiss our independent registered public accounting firm, PricewaterhouseCoopers LLP (“PwC”) on August 15, 2005, and engaged Grant Thornton LLP (“Grant Thornton”) as our new independent registered public accounting firm. The decision to change accountants was ratified by our Board of Directors.
     During the two year period ended December 31, 2004 and through August 15, 2005, there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to PwC’s satisfaction, would have caused it to make reference thereto in its reports on our financial statements for such years. None of the reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred within the two year period ended December 31, 2004 and through August 15, 2005.
ITEM 9A. CONTROLS AND PROCEDURES
     (a) Our management carried out an evaluation of the effectiveness of our disclosure controls and procedures within the 90-day period prior to the filing of this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities Exchange Commission rules and forms.
     (b) There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
     None.

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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
     Ziff Davis Holdings is party to an Investor Rights Agreement with all of the current holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock of Ziff Davis Holdings. The Investor Rights Agreement provides that the parties thereto will vote their shares such that Ziff Davis Holdings’ Board of Directors will be established at seven directors or such other number designated by Willis Stein. The agreement provides that the parties thereto will vote their shares such that the Board of Directors will consist of:
  •   Ziff Davis Holdings’ Chief Executive Officer;
 
  •   one person designated by DLJ Merchant Banking Partners II, L.P.; currently nobody has been designated, and
 
  •   four persons designated by Willis Stein, who currently are Avy H. Stein, John R. Willis, Daniel H. Blumenthal and Bradley J. Shisler.
     The Board of Directors currently consists of eight directors (with one position vacant), including the five above-mentioned directors; Bart W. Catalane, who was appointed pursuant to an agreement with our Chief Executive Officer; and one independent, outside director, who is currently Susan E. Alderton.
     The following table contains information with respect to the executive officers and directors of Ziff Davis Holdings and Ziff Davis Media:
             
Name   Age   Position
Robert F. Callahan
    54     Chairman of the Board of Directors and Chief Executive Officer
Mark Moyer
    46     Senior Vice President, Chief Financial Officer
Jason Young
    36     President, Consumer/Small Business Group
Sloan Seymour
    43     President, Enterprise Group
Scott McCarthy
    40     President, Game Group
Gregory Barton
    44     Executive Vice President of Licensing and Legal Affairs, General Counsel and Secretary
Michael J. Miller
    47     Executive Vice President, Chief Content Officer
Elda Vale
    49     Senior Vice President of Corporate Marketing and Research
Paul O’Reilly
    51     Vice President, Ziff Davis Event Marketing Group
Beth Repeta
    39     Vice President of Human Resources
John Willis
    56     Director
Avy Stein
    50     Director

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Name   Age   Position
Daniel Blumenthal
    42     Director
Bradley Shisler
    35     Director
Bart Catalane
    49     Director
Susan Alderton
    53     Director
     Robert Callahan joined the Company in October 2001 as Chairman, Chief Executive Officer and President. Prior to joining Ziff Davis Holdings and Ziff Davis Media, Mr. Callahan spent twenty years at Capital Cities/ABC and The Walt Disney Company. He spent ten years each in broadcast and publishing businesses. Mr. Callahan was most recently President of the ABC Broadcast Group where he managed the ABC Television Network including: ABC News, ABC Sports, ABC Primetime, ABC Daytime, ABC sales, marketing and financial operations; the 10 ABC-owned TV stations; the 54 ABC-owned radio stations and the ABC Radio Networks. Before moving into radio and television, Mr. Callahan was Senior Vice President, overseeing primarily business-to-business publications at Capital Cities’ Fairchild Publications division. Mr. Callahan began his career in planning and account management at Young & Rubicam, McCann Erickson and Wells, Rich, Greene.
     Mark Moyer joined the Company in October 2005 as Senior Vice President, Chief Financial Officer. From March 2004 to June 2005 Mr. Moyer served as Senior Vice President and Controller of Intelsat, Ltd., one of the world’s largest global satellite communications providers in the U.S. From June 2000 to December 2003 Mr. Moyer was employed in London for Equant N.V., a global provider of data network services, most recently as Senior Vice President, Financial Operations from July 2001 to December 2003 and as Vice President & Chief Accounting Officer from June 2000 to July 2001. From 1995 to 2000, Mr. Moyer was Vice President and Controller of Ziff-Davis Inc. Prior to that, Mr. Moyer has held several senior level accounting and finance positions at ITT Corporation and AMAX, Inc. in New York. He began his career as a Staff Auditor with Ernst & Young in Dallas, Texas.
     Jason Young was named President of Ziff Davis Media’s Consumer/Small Business Group in October 2004. He was Senior Vice President and General Manager of Ziff Davis Internet since February 2002 and Vice President of Sales of Ziff Davis Internet since May 2001. From April 2000 to May 2001, Mr. Young was Vice President of Ad Sales and Business Development at TheStreet.com. Prior to that, from 1990, Mr. Young held a variety of roles with ZDI including Publisher of Windows Pro, National Ad Director for Windows Sources, Corporate Sales Director and Ad Director of ZDNet.
     Sloan Seymour was named President of Ziff Davis Media’s Enterprise Group in October 2004. He was Senior Vice President of Ziff Davis Media’s Enterprise Group since April 2004. Prior to April 2004, Mr. Seymour was the launch publisher of Baseline magazine. Mr. Seymour began his career at our predecessor company, Ziff-Davis Inc., in 1986. In addition to launching Baseline, he created Ziff Davis’ face-to-face events and eSeminars businesses. He began his career with PC Magazine and has also worked as the Vice President and Publisher of eWEEK.
     Scott McCarthy joined Ziff Davis as President of Ziff Davis Media’s Game Group in October 2004. Prior to joining Ziff Davis, Mr. McCarthy was Executive Vice President of the ABC Radio Networks Division of The Walt Disney Company, which provides programming and services to over 4,600 radio stations in the U.S., including ABC News and ESPN Radio.
     Gregory Barton was named Executive Vice President of Licensing and Legal Affairs, General Counsel and Secretary in October 2004. Mr. Barton joined the Company in November 2002 as Executive Vice President, General Counsel and Secretary. From September 1998 to November 2002, Mr. Barton held various positions (most recently President, CFO and General Counsel) of Index Development Partners, Inc. (now known as WisdomTree Investments, Inc.), a public company based in New York City that published financial magazines and websites. From May 1995 to August 1998, Mr. Barton was employed by Alliance Semiconductor Corporation, a public company based in Santa Clara, California, that is a worldwide supplier of integrated circuits, where he served as General Counsel and, from September 1996 to August 1998, Vice President, Corporate and Legal Affairs. Mr. Barton began his career at Gibson, Dunn & Crutcher, where he was an Associate in the Corporations and Litigation Departments.
     Michael J. Miller has been Executive Vice President since the acquisition of ZDP; from 2001 to 2005, he was Editor in Chief of PC Magazine and Editorial Director of the Company; since 2005 he has been Chief Content Officer of the Company. Mr. Miller was Editorial Director for ZDI from 1997 to April 2000. From 1991 to 1997, Mr. Miller was Editor-in-Chief of PC Magazine. Prior to that time, Mr. Miller was Editor-in-Chief of InfoWorld, which he joined as executive editor in 1985 after serving as the West Coast Bureau Chief for Popular Computing and senior editor for Building Design & Construction.
     Elda Vale is Senior Vice President of Corporate Marketing and Research at Ziff Davis Media since June 2005 and was Vice President Research and Market Intelligence since June 2003. From March 2002 to May 2003, Ms. Vale was the principal of EV Associates, a research consulting firm. From 2001 to 2003, Ms. Vale served as Senior Vice President, Research and Development for Media Mark Research, a research company. She had also held senior research positions with McGraw-Hill and CBS News.
     Paul O’Reilly has been Vice President, Ziff Davis Event Marketing Group since the executive team of TM Media Inc. joined the Company in September 2004. Mr. O’Reilly has held a number of senior positions in the events industry, including CFO of Blenheim

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USA, Inc. from 1992 to 1995 and CEO and co-founder of Kingbird Media Group, a company formed in 1998 to produce conferences and custom events for major IT vendors. Kingbird was later acquired by CMP Media, where Mr. O’Reilly was part of the management team until 2001, when he co-founded TaylorMcKnight LLC, a specialist event-marketing company. Prior to 1992, Mr. O’Reilly was an executive with KPMG in London.
     Beth Repeta has been the Vice President of Human Resources of Ziff Davis Media since January 2002 and held the position of Human Resources Manager from April 2000 to January 2002. Ms. Repeta is responsible for overseeing recruiting, employee relations, compensation, benefits and facilities. Ms. Repeta held a variety of Human Resources positions at ZDI from June 1991 to April 2000, including Director of Employee Relations and Human Resources Manager. Prior to 1991, Ms. Repeta was an analyst with PriceWaterhouse.
     John Willis has been a Director since April 2001. Mr. Willis is a Managing Director of Willis Stein. Prior to the formation of Willis Stein in 1994, Mr. Willis served as President and a Director of Continental Illinois Venture Capital Corporation (“CIVC”), a venture capital investment firm, from 1989 to 1994. In 1988, he founded Continental Mezzanine Investment Group and was its manager through 1990. From 1974 until 1988, Mr. Willis held various management positions at Continental Bank. He currently serves as a Director of several companies, including Aavid Thermal Technologies, Inc. and other Willis Stein portfolio companies.
     Avy Stein has been a Director since the acquisition of ZDP. Mr. Stein is a Managing Director of Willis Stein. Prior to the formation of Willis Stein in 1994, Mr. Stein served as a Managing Director of CIVC from 1989 to 1994. From 1984 to 1985, Mr. Stein was President of Cook Energy Corporation and Vice President of Corporate Planning and Legal Affairs at Cook International, Inc. From 1980 through 1983, Mr. Stein was an attorney with Kirkland & Ellis. Mr. Stein has also served as a special consultant for mergers and acquisitions to the Chief Executive Officer of NL Industries, Inc. and as the Chief Executive Officer of Regent Corporation. Mr. Stein currently serves as a Director of several other Willis Stein portfolio companies.
     Daniel Blumenthal has been a Director since the acquisition of ZDP. Mr. Blumenthal is a Managing Director of Willis Stein. Prior to the formation of Willis Stein in 1994, Mr. Blumenthal served as Vice President of CIVC from 1993 to 1994. From 1988 to 1993 he was a corporate tax attorney with Latham & Watkins. Mr. Blumenthal currently serves as a Director of several companies, including Aavid Thermal Technologies, Inc. and other Willis Stein portfolio companies.
     Bradley Shisler has been a Director since July 2004. Mr. Shisler is a Principal of Willis Stein. Mr. Shisler re-joined Willis Stein in 2000 after graduating from the Kellogg Graduate School of Management at Northwestern University. From 1996 to 1998, Mr. Shisler served as an Associate at Willis Stein. Prior to Willis Stein, Mr. Shisler worked in the corporate finance group at Simmons & Company International, a specialized investment banking firm, and as an engineer at Stone & Webster Engineering Corporation. He currently serves as a Director of several other Willis Stein portfolio companies.
     Bart Catalane has been a Director since November 2001. Mr. Catalane served as the Company’s President from June 2004 through February 2006, as its Chief Operating Officer from November 2001 through February 2006 and its Chief Financial Officer from November 2001 through December 2003. From June 1999 until he joined the Company, Mr. Catalane was Senior Vice President and Chief Financial Officer of TMP Worldwide Inc. From February 1996 to May 1999, Mr. Catalane held the Executive Vice President and Chief Financial Officer positions for the ABC Radio and then the ABC Broadcasting Division, units of The Walt Disney Company. Prior to that, Mr. Catalane held the Senior Vice President and Chief Financial Officer position at ABC Radio Networks from 1989 to 1996. Mr. Catalane started his career as a staff auditor at Coopers & Lybrand in New York.
     Susan Alderton has been a Director since January 2006. From May 2002 through January 2006, Ms. Alderton was a Managing Executive of Stephens Financial Group, a financial services company. Prior to and through February 2002, Ms. Alderton served as Vice President and Chief Finanical Officer of NL Industries, Inc., a chemical manufacturer.
     There are no family relationships between any of our directors or executive officers.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
     The following table sets forth certain information concerning the compensation earned during the years ended December 31, 2005, 2004 and 2003 by Ziff Davis Media’s Chief Executive Officer (“CEO”) and the four most highly compensated executive officers in 2005 other than the CEO of Ziff Davis Media:

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                                    Long-Term
                                    Compensation
    Annual Compensation   Securities
    Fiscal                   Other Annual   Underlying
Name and Principal Position   Year   Salary   Bonus   Compensation   Options
    (in dollars)
Robert F. Callahan
     2005     $ 1,000,000     $ —     $ 100,000 (1)     1,216,566  
Chairman and Chief Executive
     2004       1,000,000       —       100,000 (1)     1,216,566  
Officer of Ziff Davis
     2003       1,000,000       1,000,000       100,000 (1)     —  
Holdings, Ziff Davis Media and Ziff Davis Publishing Inc.
                                        
 
                                        
Jason Young
     2005       350,000       403,750       —       603,907  
President, Consumer/Small Business Group
     2004       262,500       438,321       —       603,937  
 
     2003       250,000       378,156       —       —  
 
                                        
Michael J. Miller
     2005       378,325       50,000       —       301,903  
Executive Vice President and Chief Content Officer
     2004       370,000       —       —       301,903  
 
     2003       370,000       150,000       —       —  
 
                                        
Sloan Seymour
     2005       311,250       225,000       —       402,920  
President, Enterprise Group
     2004       300,000       275,000       —       402,920  
 
     2003       288,042       55,000       —       402,920  
 
                                        
Scott McCarthy
     2005       337,500       175,000       —       302,034  
President, Game Group
     2004       62,800       —       —       302,034  
 
     2003       —       —       —       —  
 
(1)   Allowance, without need for accounting, for reimbursement of expenses in addition to expenses eligible for reimbursement under our existing policies.
Stock Option/SAR Grants in Last Fiscal Year.
     Options granted to our named executive officers the following stock options as of December 31, 2005:
                                         
    Number of   % of Total   Weighted   Weighted    
    Securities   Options Granted   Average   Average    
    Underlying   to Employees in   Exercise   Expiration   Grant Date
Executive   Options Granted   Fiscal Year   Price   Date   Present Value
Robert F Callahan
                                        
Series D
     2,612       21.2 %   $ 1,000.00       6/30/2013     $ 327,767  
Series B
     3,209       21.7 %     1,000.00       6/30/2013       —  
Series A
     10,745       21.4 %     0.01       6/30/2013       —  
Common Stock
     1,200,000       15.0 %     0.001       6/30/2013       —  
Jason Young
                                        
Series D
     700       5.7 %     1,348.39       2/12/2014       87,840  
Series B
     769       5.2 %     1,000.00       1/12/2014       —  
Series A
     2,468       5.0 %     0.01       12/31/2013       —  
Common Stock
     600,000       7.5 %     0.001       12/31/2013       —  
Michael J. Miller
                                        
Series D
     300       2.4 %     1,000.00       3/3/2013       37,646  
Series B
     369       2.5 %     1,000.00       3/3/2013       —  
Series A
     1,234       2.5 %     0.01       3/3/2013       —  
Common Stock
     300,000       3.8 %     0.001       3/3/2013       —  
Sloan Seymour
                                        
Series D
     500       4.5 %     1,000.00       3/3/2013       62,500  
Series B
     569       4.4 %     1,000.00       3/3/2013       —  
Series A
     1,851       4.3 %     0.01       3/3/2013       —  
Common Stock
     400,000       5.9 %     0.001       3/3/2013       —  
Scott McCarthy
                                        
Series D
     400       3.6 %     1,000.00       3/3/2013       50,000  
Series B
     400       3.0 %     1,000.00       3/3/2013       —  
Series A
     1,234       2.9 %     0.01       3/3/2013       —  
Common Stock
     300,000       4.4 %     0.001       3/3/2013       —  
Stock Option/SAR Exercised in Last Fiscal Year.

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     Our named executive officers did not exercise any stock options or SAR’s as of December 31, 2005 (see Note 16 to our Consolidated Financial Statements).
Executive Agreements
     Mr. Callahan. On March 24, 2005, Ziff Davis Holdings and Ziff Davis Publishing Inc. entered into an executive agreement with Robert Callahan. This agreement provides, among other things, that he serves as Chairman and Chief Executive Officer of Ziff Davis Holdings, Ziff Davis Media and certain affiliates of Ziff Davis Holdings, during a term expiring on December 31, 2007. Pursuant to this agreement, his base salary is $1.0 million per year, subject to annual cost of living adjustments, and he is eligible to receive an annual bonus of $1.0 million, payable if certain targeted annual operating goals are met and an additional bonus of $1.0 million if he remains employed by Ziff Davis Holdings through December 31, 2007 and Ziff Davis Holdings generates consolidated EBITDA (as defined therein) for the twelve-month period ended December 31, 2007 of at least $100.0 million. Mr. Callahan’s executive agreement provides for severance payments upon termination of his employment by Ziff Davis Publishing Inc. without cause or his resignation for good reason (as such terms are defined in the agreement) conditioned upon Mr. Callahan delivering a general release in favor of Ziff Davis Holdings and its affiliates. The severance provisions provide that Mr. Callahan will receive, subject to compliance with certain non-compete, non-solicitation and other obligations, his annual base salary for twelve to eighteen months after the termination date (the length of which depends upon the date of termination) and a bonus of 50% of the amount of bonus, if any, paid him in respect of the immediately prior calendar year.
     Mr. Young. Ziff Davis Media entered into an executive agreement with Mr. Young as of June 1, 2004. This agreement provides, among other things, that he serves as the Senior Vice President — General Manager of Ziff Davis Internet during a term expiring on June 30, 2006. In October 2004, Mr. Young was promoted to President of the Consumer/Small Business Group. Pursuant to this agreement, his base salary is at least $250,000 per year, subject to annual cost of living adjustments (his current salary is $350,000 per year), and he is eligible to receive an annual bonus, payable if certain targeted annual operating goals are met. Mr. Young’s executive agreement provides for severance payments upon termination of his employment by the Company without cause or his resignation for good reason (as such terms are defined in the agreement) conditioned upon Mr. Young delivering a general release in favor of Ziff Davis Holdings and its affiliates. The severance provisions provide Mr. Young will receive his annual base salary for twelve months after the termination date and a portion of the bonus paid to him during the preceding fiscal year related to specified lines of business (as defined), subject to compliance with certain non-compete and non-solicitation obligations.
     Mr. Miller. In October 2004, Ziff Davis Media entered into an executive agreement with Mr. Miller. The agreement provides, among other things, that he will serve as Executive Vice President and Editorial Director of Ziff Davis Publishing Inc., and Editor-in-Chief of PC Magazine, during a term expiring on August 30, 2007. Pursuant to this agreement, has base salary is at least $370,000 per year (his current salary is $378,325 per year). Mr. Miller will be eligible to receive an annual bonus of not less than $50,000, payable at the Company’s discretion. Mr. Miller’s executive agreement provides for severance payments upon termination of his employment by the Company without cause or by him for good reason (as such terms are defined in the agreement) conditioned upon Mr. Miller delivering a general release in of Ziff Davis Holdings and its affiliates. The severance provisions provide that Mr. Miller will receive his annual base salary and possibly certain insurance premiums for twelve months after the termination date, subject to compliance with certain non-compete and non-solicitation obligations.
     Mr. Seymour. Ziff Davis Media entered into an executive agreement with Mr. Seymour as of August 1, 2003. This agreement provides, among other things, that he serves as the Senior Vice President — Enterprise Group of Ziff Davis during a term expiring on July 31, 2008. In October 2004, Mr. Seymour was promoted to President of the Enterprise Group. Pursuant to this agreement, his base salary is at least $300,000 per year (his current salary is $311,250 per year), subject to annual cost of living adjustments and he is eligible to receive an annual bonus, payable if certain targeted annual operating goals are met. Mr. Seymour’s executive agreement provides for severance payments upon termination of his employment by the Company without cause or his resignation for good reason (as such terms are defined in the agreement) conditioned upon Mr. Seymour delivering a general release in favor of Ziff Davis Holdings and its affiliates. The severance provisions provide Mr. Seymour will receive his annual base salary for twelve months after the termination date and certain health benefits, subject to compliance with certain non-compete and non-solicitation obligations.
     Mr. McCarthy. Ziff Davis Media entered into an executive agreement with Mr. McCarthy as of October 15, 2004. This agreement provides, among other things, that he serves as the President of the Company’s Game Group during a term expiring on October 17, 2009. Pursuant to this agreement, his base salary is at least $300,000 per year (his current salary is $337,500 per year) and he is eligible to receive an annual bonus, payable if certain targeted annual operating goals are met. Mr. McCarthy’s executive agreement provides for severance payments upon termination of his employment by the Company without cause or his resignation for good reason (as such terms are defined in the agreement) conditioned upon Mr. McCarthy delivering a general release in favor of Ziff Davis Holdings and its affiliates. The severance provisions provide Mr. McCarthy will receive his annual base salary for twelve months after the termination date and certain health benefits, subject to compliance with certain non-compete and non-solicitation obligations.

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Equity Incentive Plans
     Following our formation, we implemented an equity incentive program. The program provides for the issuance of, or the grant of options to purchase, restricted common stock to certain of our employees, directors and officers. Under the program, Ziff Davis Holdings reserved 87,667 shares (as adjusted for a subsequent reverse stock split) of its fully diluted common equity, and Ziff Davis Development Inc. and Ziff Davis Internet Inc. also reserved certain shares of their common equity, for employees, directors and officers. In connection with the issuance of, or the grant of options to acquire, these equity interests, the participants in the program are entitled to customary drag-along restrictions in the event of a sale of the entity in which they hold equity interests. We also have the option to repurchase the participant’s option shares if his/her employment terminates for any reason, including upon his/her death, disability or resignation.
2002 Stock Option Plan
     Upon the consummation of our financial restructuring in August 2002, the Board of Directors established a new management incentive plan pursuant to which Ziff Davis Holdings may grant participants options to purchase its common stock, Series A Preferred Stock, Series B Preferred Stock and Series D Preferred Stock. We also entered into arrangements with the holders of Series D Preferred Stock to protect the holders of Series E Preferred Stock from dilution resulting from issuances of Series D Preferred Stock upon exercise of these options by management participants while the Series E Preferred Stock remains outstanding. See “Certain Relationships and Related Party Transactions — Distribution and Payment Arrangements.” The 2002 Stock Option Plan, which was amended and restated in March 2003, provides for the grant of options to purchase up to 9,619,171 shares of common stock, 58,081 shares of Series A Preferred Stock, 17,344 shares of Series B Preferred Stock, and 14,117 shares of Series D Preferred Stock.
     All options granted pursuant to the 2002 Stock Option Plan are subject to vesting and exercisability limitations. Except as may be set forth in specified option agreements, Ziff Davis Holdings will retain the right to repurchase participants’ capital stock upon termination of employment. Each participant is subject to customary drag-along restrictions.
Board Practices
     The members of Ziff Davis Holdings’ and Ziff Davis Media’s Boards of Directors are each elected annually at the ordinary general meeting of shareholders of such corporation. Each director is elected to serve until the next annual meeting of stockholders or until a successor is duly elected and qualified or until his or her earlier death, resignation or removal. Certain of the current directors were elected pursuant to the terms of an Investor Rights Agreement. See “Certain Relationships and Related Transactions — Investor Rights Agreement.”
     We reimburse members of the Board of Directors for any out-of-pocket expenses incurred by them in connection with services provided in such capacity. Susan E. Alderton serves as our audit committee chairman and receives compensation of $50,000 per annum plus reimbursement of expenses.
     We have adopted a code of ethics applicable to our directors, officers (including our principal executive officer and principal financial officer) and employees, known as the Code of Ethics. The Code of Ethics is included herein as Exhibit 14.1. In the event that we amend or waive any of the provisions of the Code of Ethics applicable to our principal executive officer and principal financial officer, we intend to disclose the same in a Current Report on Form 8-K filed with the SEC and on the Company’s website at www.ziffdavis.com.
     The Boards of Directors of Ziff Davis Holdings and Ziff Davis Media each may appoint or designate one or more committees, each committee to consist of one or more of the directors of such company, which to the extent provided in such resolution or the by-laws will have and may exercise the powers of the Board of Directors in the management and affairs of such company except as otherwise limited by law. We currently have an audit committee and a compensation committee. The audit committee consists of Ms. Alderton, who chairs the committee, Mr. Blumenthal and Mr. Shisler. The Company’s board members have determined that Ms. Alderton is an “audit committee financial expert” as defined in Item 401 of Regulation S-K and is “independent” according to the listing rules of the New York Stock Exchange. The compensation committee consists of Messrs. Callahan, Catalane, Stein and Blumenthal.
     Our executive officers are appointed by their respective Boards of Directors for an indefinite term. The President may appoint other officers to serve for such terms as he or she deems desirable. Any officer may be removed by the Board of Directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal must be without prejudice to the contract rights, if any, of the person so removed.
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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     The table below lists information about the beneficial ownership of Ziff Davis Holdings’ capital stock, as of December 31, 2005, by each person whom we know to own beneficially more than 5% of any class of Ziff Davis Holdings’ stock, by each of Ziff Davis Holdings’ directors, by the executive officers named in the Summary Compensation table and by all of our directors and executive officers as a group. Ziff Davis Holdings has six classes of capital stock authorized for issuance: Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and common stock. There are 400,000 shares of Series A Preferred Stock authorized for issuance, 329,127.5 of which are issued and outstanding; 142,500 shares of Series B Preferred Stock authorized for issuance, 98,285.6 of which are issued and outstanding; 7,500 shares of Series C Preferred Stock authorized for issuance, 5,172.9 of which are issued and outstanding; 100,000 shares of Series D Preferred Stock authorized for issuance, 80,207.3 of which are issued and outstanding; 30,000 shares of Series E Preferred Stock authorized for issuance, 28,526.4 of which are issued and outstanding; and 100,000,000 shares of common stock authorized for issuance, of which approximately 2,311,000 shares are issued and outstanding (excluding approximately 8,622,000 shares issuable upon conversion of the Series C Preferred Stock and excluding approximately 43,800,000 shares issuable upon the exercise of certain warrants to purchase common stock). Willis Stein owns 100% of the Series B Preferred Stock, the Series C Preferred Stock and Series D Preferred stock. In the event of an initial public offering of Ziff Davis Holdings’ common stock, Willis Stein and the other holders of each series of Ziff Davis Holdings’ preferred stock may elect to convert their shares of preferred stock to shares of Ziff Davis Holdings’ common stock. Unless otherwise noted, the address of each director and executive officer is c/o Ziff Davis Media Inc., 28 East 28th Street, New York, New York 10016.
     Ziff Davis Media is authorized to issue a total of 1,000 shares of common stock, par value $0.01 per share. There are 1,000 shares of common stock issued and outstanding. All of Ziff Davis Media’s outstanding capital stock is owned by Ziff Davis Holdings. The following table sets forth beneficial ownership of Ziff Davis Holdings’ capital stock as of December 31, 2005:
                                                 
    Beneficial Ownership(1)  
            Percent of           Percent of            
    Shares of   Outstanding   Shares of   Outstanding     Percent of
    Series A   Series A   Series E   Series E   Shares of Outstanding
    Preferred   Preferred   Preferred   Preferred   Common Common
Beneficial Owner   Stock   Stock   Stock   Stock   Stock Stock  
Willis Stein Entities(2)
     281,627.5       85.57 %     8,088.6       28.35 %     50,650,938       99.35 %
DLJ Entities(3)
     47,500.0       14.43       —       —       333,333       14.42  
MacKay Shields LLP(4)
     —       —       10,360.8       36.32       1,921,502       45.40  
Robert F. Callahan
     —       —       —       —       —       —  
Sloan Seymour
     —       —       —       —       —       —  
Scott McCarthy
     —       —       —       —       —       —  
Jason Young
     —       —       —       —       —       —  
Michael J. Miller
     —       —       —       —       —       —  
John R. Willis(2)
     281,627.5       85.57       8,088.6       28.35       50,650,938       99.35  
Avy H. Stein(2)
     281,627.5       85.57       8,088.6       28.35       50,650,938       99.35  
Daniel H. Blumenthal(2)
     281,627.5       85.57       8,088.6       28.35       50,650,938       99.35  
Bradley J. Shisler
     —       —       —       —       —       —  
Susan E. Alderton
     —       —       —       —       —       —  
All directors and executive officers as a group (22 persons)
     281,627.5       85.57 %     8,088.6       28.35 %     50,650,938       99.35 %
 
*   Less than 1% of outstanding series of stock.
 
(1)   “Beneficial ownership” generally means voting or investment power with respect to a security or the right to acquire such power within 60 days. Unless otherwise indicated, we believe that each holder has sole voting and investment power with regard to the equity interests listed as beneficially owned.
 
(2)   Includes 213,750 shares of Series A Preferred Stock (64.9%), 8,088.6 shares of Series E Preferred Stock (28.4%) and 50.2 million shares of common stock (including approximately 8.6 million shares issuable upon conversion of Series C Preferred Stock and approximately 40.1 million shares issuable upon the exercise of warrants to purchase common stock) held by Willis Stein & Partners II, L.P., Willis Stein & Partners III, L.P., Willis Stein & Partners Dutch, L.P., Willis Stein & Partners Dutch III-A, L.P., Willis Stein & Partners Dutch III-B, L.P., and Willis Stein & Partners III-C, L.P. (collectively, the “Willis Stein Entities”). Also includes 67,877.5 shares of Series A Preferred Stock and 477,716 shares of common stock held by the stockholders executing the Investor Rights Agreement (other than the DLJ Entities). Such stockholders have agreed pursuant to the terms of the Investor Rights Agreement to vote their shares as directed by the Willis Stein Entities in certain matters as described more fully in Item 13 hereof and in the Investor Rights Agreement. As a result of the foregoing, the Willis Stein Entities may be deemed to have beneficial ownership with respect to the shares held by the stockholders executing the Investor Rights Agreement (other than the DLJ Entities). The Willis Stein Entities disclaim beneficial ownership of such shares held by such stockholders. Messrs. John R.

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    Willis, Avy H. Stein and Daniel H. Blumenthal are Managing Directors of each of the ultimate general partners of the Willis Stein Entities, and, as a result, may be deemed to have beneficial ownership with respect to the shares held by and deemed to be beneficially owned by the Willis Stein Entities. Each disclaims beneficial ownership of such shares held by and deemed to be beneficially owned by such funds. The address for Willis Stein and Messrs. Willis, Stein and Blumenthal is One North Wacker Drive, Suite 4800, Chicago, Illinois 60606.
 
(3)   Includes shares held by DLJ Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ EAB Partners, L.P., DLJ ESC II L.P., DLJ First Esc L.P., DLJ Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, CV. and DLJMB Funding II, Inc., which are private equity investment funds affiliated with DLJ Merchant Banking, Inc. The address for DLJ Merchant Banking, Inc. is Eleven Madison Avenue, New York, New York 10010.
 
(4)   Based on the most recent information available to the Company, includes 10,361 shares of Series E Preferred Stock of Ziff Davis Holdings and 1,921,502 shares issuable upon the exercise of warrants to purchase shares of common stock of Ziff Davis Holdings held by MacKay Shields LLP as investment manager on behalf of its managed funds for which it has discretionary authority. The address for MacKay Shields LLP is 9 West 57th Street, 33rd Floor, New York, New York 10019.
Equity Compensation Plans
     The following table sets forth information regarding securities authorized for issuance under Ziff Davis Holdings’ equity compensation plans:
                         
                    (c)
                    Number of Securities
    (a)   (b)   Remaining Available for
    Number of Securities to   Weighted-Average   Future Issuance under
    be Issued upon Exercise   Exercise Price of   Equity Compensation Plans
    of Outstanding Options,   Outstanding Options,   (Excluding Securities
    Warrants and Rights   Warrants and Rights   Reflected in Column (a))
Plan category:
                        
Equity compensation plans approved by security holders
     —       —       —  
Equity compensation plans not approved by security holders:
                        
2001 Stock Option Plan
     18,078     $ 7.50          
2002 Stock Option Plan
                        
Series D
     10,851       1,098.05          
Series B
     12,847       1,007.05          
Series A
     42,315       0.01          
Common Stock
     6,680,000       0.001          
 
                        
Total
     6,764,091       —       2,962,700 *
 
                        
 
*   Comprised of 3,266 shares of Series D Preferred Stock, 4,497 shares of Series B Preferred Stock, 15,766 shares of Series A Preferred Stock and 2,939,171 shares of common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Investor Rights Agreement
     Ziff Davis Holdings is party to an Investor Rights Agreement dated as of April 5, 2000, with certain of the stockholders of Ziff Davis Holdings, including the holders of all of the outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock. As a result, a majority of Ziff Davis Holdings’ outstanding capital stock is subject to the terms of the Investor Rights Agreement. The Investor Rights Agreement provides that Ziff Davis Holdings’ Board of Directors will be established at seven directors or such other number designated by Willis Stein. The agreement provides that parties thereto shall vote their shares such that the Board of Directors will consist of:
  •   Ziff Davis Holdings’ Chief Executive Officer;
 
  •   one person designated by DLJ Merchant Banking Partners II, L.P.; currently nobody has been designated; and
 
  •   four persons designated by Willis Stein, who currently are Avy H. Stein, John R. Willis, Daniel H. Blumenthal and Bradley J. Shisler.

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     The Board of Directors currently consists of eight directors (with one position vacant), including the five above-mentioned directors; Bart W. Catalane, who was appointed pursuant to an agreement with our Chief Executive Officer; and Susan Alderton, an independent, outside director.
     The stockholders executing the Investor Rights Agreement, other than DLJ Merchant Banking, have agreed to vote their shares as directed by Willis Stein in matters relating to any amendment of Ziff Davis Holdings’ certificate of incorporation, any merger or other business combination, any sale by Ziff Davis Holdings of substantially all of the assets of Ziff Davis Holdings or any liquidation of Ziff Davis Holdings. Willis Stein may also control the circumstances under which a public offering of Ziff Davis Holdings’ equity securities may take place. References in this section to “DLJ Merchant Banking” refer to DLJ Merchant Banking Partners II, L.P. and its affiliates that are holders of Ziff Davis Holdings’ stock.
     The Investor Rights Agreement generally restricts the transfer of shares of Ziff Davis Holdings’ capital stock. The parties to the Investor Rights Agreement have granted Ziff Davis Holdings a right of first refusal with respect to its stock, which, if not exercised by Ziff Davis Holdings, may be exercised by Willis Stein and certain other of Ziff Davis Holdings’ stockholders. Each other party to the Investor Rights Agreement generally has the right to participate in any transfer of shares by Willis Stein, with certain exceptions. In addition, Ziff Davis Holdings has agreed not to issue new equity securities (or securities with equity features) without giving Willis Stein and certain other of Ziff Davis Holdings’ stockholders an opportunity to purchase their pro rata share of the new securities on substantially the same terms, with certain exceptions. Each of the parties to the Investor Rights Agreement has agreed to consent to a sale of Ziff Davis Holdings or the assets of Ziff Davis Holdings if Willis Stein votes to approve the sale.
     The Investor Rights Agreement also provides that Willis Stein may request at any time that all or any portion of its common stock be registered with the SEC. If Willis Stein no longer owns at least 50% of the common stock specified in the Investor Rights Agreement, DLJ Merchant Banking may also make one such request. In the event that Willis Stein or DLJ Merchant Banking makes such a request for registration, the other parties to the Investor Rights Agreement that hold common stock will be entitled to participate in the registration. Ziff Davis Holdings has also granted the parties to the Investor Rights Agreement “piggyback” registration rights with respect to registrations by it, and Ziff Davis Holdings has agreed to pay all expenses relating to any such registrations.
Subscription Services
     Investment funds affiliated with Willis Stein are shareholders of USApubs Inc. (“USApubs”), a marketer of magazine subscriptions and other services. We sell subscriptions to our publications both directly and through independent subscription-marketing companies, including USApubs. For the year ended December 31, 2005, we paid approximately $0 in fees to USApubs. In management’s opinion, our transactions with USApubs are representative of arm’s-length transactions.
Willis Stein
     We reimburse travel and other out-of-pocket expenses of Ziff Davis Holdings’ directors and staff, including the directors from Willis Stein. For the year ended December 31, 2005, we paid approximately $320,000 of such expenses. Additionally, as fully described in Note 13 of our Consolidated Financial Statements, Willis Stein was involved in our financial restructuring in 2002 including through: (1) the purchase of Series D Preferred Stock; (2) the exchange of its 12% Notes; and (3) the amendment and restatement of our Senior Credit Facility agreement.
Distribution and Payment Arrangements
     The Series D Preferred Stock has a preference over the Series E Preferred Stock upon any liquidation of Ziff Davis Holdings, and Ziff Davis Holdings may not redeem, purchase or otherwise acquire any Series E Preferred Stock and may not directly or indirectly pay or declare any dividend or make any distribution upon any Series E Preferred Stock as long as any Series D Preferred Stock remains outstanding. As such, any additional issuance of Series D Preferred Stock adversely impacts the ability of the holders of the Series E Preferred Stock to receive cash payment in the event of a liquidation or redemption.
     Under the 2002 Stock Option Plan, Ziff Davis Holdings may issue to executives and other key personnel options to purchase, among other things, up to an aggregate of 14,117 shares of its Series D Preferred Stock. In order to reduce the adverse impact of the issuance of Series D Preferred Stock pursuant to the 2002 Stock Option Plan, Ziff Davis Holdings and Willis Stein have entered into arrangements such that Willis Stein has placed into escrow up to 14,117 shares of Series D Preferred Stock, and has agreed to retain in escrow at all times not less than the number of shares of Series D Preferred Stock that were issued, plus the number of shares of Series D Preferred Stock issuable upon exercise of options issued, pursuant to the 2002 Stock Option Plan. In the event that any key executive person exercises his or her option to acquire any Series D Preferred Stock under the 2002 Stock Option Plan, Ziff Davis Holdings will place the proceeds obtained in connection therewith into a separate interest-bearing escrow account for the benefit of Willis Stein. In the event that any payment is made to the holders of Series E Preferred Stock pursuant to a liquidation, dissolution or

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winding up of Ziff Davis Holdings, any portion of the escrow account allocable to such option exercise proceeds shall be paid to Willis Stein. If Ziff Davis Holdings makes any payment or distribution to the holders of Series D Preferred Stock or redeems, repurchases or otherwise acquires any Series D Preferred Stock or any third party acquires the escrowed shares, and if Willis Stein is required to place proceeds of any such transaction into the escrow account to satisfy its obligations under these arrangements or any escrowed shares are not entitled to participate in any such transaction, a portion of the escrow account allocable to option exercise proceeds placed in the escrow account will be paid to Willis Stein if such amounts do not exceed the proceeds of such a transaction.
     Willis Stein has agreed that it is not entitled to receive any distributions or payments from Ziff Davis Holdings on the shares held in escrow until the earliest of: (1) such time as of which all of the outstanding shares of Series E Preferred Stock have been redeemed, repurchased or otherwise acquired by Ziff Davis Holdings, or have been converted into common stock of Ziff Davis Holdings; or (2) such time as of which all of the outstanding shares of Series E Preferred Stock have been acquired or transferred to a third party or third parties in connection with a transaction in which a person or group of persons (other than Willis Stein) acquires the power to elect a majority of Ziff Davis Holdings’ Board of Directors.
Indemnification of Directors and Officers
     Article Eight of each of Ziff Davis Holdings’ and Ziff Davis Media’s certificates of incorporation provides that to the fullest extent permitted by the General Corporation Law of the State of Delaware, Ziff Davis Holdings’ and Ziff Davis Media’s directors shall not be liable to Ziff Davis Holdings or Ziff Davis Media, respectively, or their respective stockholders for monetary damages for a breach of their fiduciary duties as directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
     The accounting firm of PricewaterhouseCoopers (“PWC”) served as our independent accountants for the year ended December 31, 2004. In addition to rendering audit services during those resepctive years, both Grant Thornton and PWC performed various non-audit services for us. On August 12, 2005 the Audit Committee of the Board of Directors of the Company determined to dismiss its independent registered accounting firm, PWC and engage Grant Thornton LLP as it new independent registered accounting firm. The accounting firm Grant Thornton LLP (“Grant Thornton”) served as our independent registered public accounting firm for the year ended December 31, 2005.
Audit and Other Fees for the Past Two Fiscal Years
The following table sets forth the aggregate fees billed to us for services rendered by Grant Thornton and PWC for the 2005 and 2004 fiscal years:
                 
    2005     2004  
Audit fees(l)
   $ 855,530     $ 310,000  
Audit-related fees(2)
     71,492       23,650  
Tax fees(3)
     —       182,985  
All other fees(4)
     25,000       1,400  
 
            
Total
   $ 952,022     $ 518,035  
 
            
 
(1)   Audit fees consist of the audit of our annual financial statements, the review of quarterly financial statements, as well as work generally only the independent auditor can reasonably be expected to provide, such as statutory audits and financial audits of subsidiaries, services associated with SEC registration statements filed in connection with securities offerings (i.e., comfort letters and consents), and financial accounting and reporting consultations.
 
(2)   Audit-related fees consist principally of audits of employee benefit plans, assurance and related services that are reasonably related to the performance of the audit or review of financial statements and consulting on financial accounting and reporting standards.
 
(3)   Tax fees consist principally of assistance with tax compliance, tax advice and tax planning. Tax compliance includes preparation of original and amended tax returns for Ziff Davis Holdings and its consolidated subsidiaries; refund claims; and payment planning. Tax advice and tax planning includes assistance with tax audits and appeals, tax work stemming from “Audit-Related” items, tax work relating to employee benefit plans and requests for rulings or technical advice from taxing authorities.
 
(4)   All other fees consisted principally of amounts paid for consulting services related to a review of the Company’s 2002 Plan.

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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
     (a) The following exhibits are filed as part of this Form 10-K or incorporated by reference herein:
     
Exhibit    
No.   Description
2.1
  Purchase Agreement dated December 6, 1999 among WS-ZP Acquisition, Inc., ZD Inc. and ZD Holdings (Europe) Ltd. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 2.1.*
 
    
3.1
  Certificate of Incorporation for Ziff Davis Media Inc. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 3.1.*
 
    
3.2
  Fifth Amended and Restated Certificate of Incorporation for Ziff Davis Holdings Inc.*
 
    
3.3
  Certificate of Incorporation for Ziff Davis Publishing Holdings Inc. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 3.2.*
 
    
3.4
  Certificate of Incorporation for Ziff Davis Internet Inc. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 3.3.*
 
    
3.5
  Certificate of Incorporation for Ziff Davis Development Inc. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 3.4.*
 
    
3.6
  Certificate of Incorporation for Ziff Davis Publishing Inc. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 3.5.*
 
    
3.7
  By-laws for Ziff Davis Media Inc. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 3.7.*
 
    
3.8
  By-laws for Ziff Davis Holdings Inc.*
 
    
3.9
  By-laws for Ziff Davis Publishing Holdings Inc. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 3.8.*
 
    
3.10
  By-laws for Ziff Davis Internet Inc. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 3.9.*
 
    
3.11
  By-laws for Ziff Davis Development Inc. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 3.10.*
 
    
3.12
  By-laws for Ziff Davis Publishing Inc. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 3.11.*
 
    
3.13
  Certificate of Incorporation of Ziff Davis Intermediate Holdings Inc.*
 
    
3.14
  By-laws of Ziff Davis Intermediate Holdings Inc.*
 
    
4.1
  Indenture, dated August 12, 2002, by and between Ziff Davis Media Inc., the guarantors thereunder and Deutsche Bank Trust Company Americas.*
 
    
4.2
  Registration Rights Agreement, dated August 12, 2002, by and among Ziff Davis Holdings Inc. and Ziff Davis Media Inc.*
 
    
4.3
  Indenture, dated July 21, 2000 by and between Ziff Davis Media Inc., the guarantors thereunder and Bankers Trust Company. Previously filed on April 30, 2002 in connection with Ziff Davis Media’s Registration Statement on Form S-4 dated January 24, 2001. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4, (No. 333-48014) dated October 16, 2000 as Exhibit 4.1.*
 
    
4.4
  First Supplemental Indenture, dated as of August 12, 2002 by and between Ziff Davis Media, the guarantors thereunder and Deutsche Bank Trust Company Americas, supplementing that certain indenture, dated July 21, 2000, by and between Ziff Davis Media Inc., the guarantors thereunder and Bankers Trust Company.*

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Exhibit    
No.   Description
4.5
  Investor Rights Agreement, dated April 5, 2000, by and among Ziff Davis Holdings Inc., Willis Stein & Partners II, L.P., Willis Stein & Partners Dutch II, L.P., Willis Stein & Partners III, L.P. (and other partnerships sharing a common general partner therewith), the investors listed on the Schedule of Co-Investors, certain executive employees of Ziff Davis Holdings Inc., and certain other stockholders listed on the Schedule of New Stockholders. Previously filed on March 20, 2002 in connection with Ziff Davis Media’s Form 10-K as Exhibit 9.1.*
 
    
4.6
  Amendment No. 1 to Investor Rights Agreement, dated August 12, 2002, by and among Ziff Davis Holdings Inc., Willis Stein & Partners II, L.P., Willis Stein & Partners Dutch II, L.P., Willis Stein & Partners III, L.P. (and other partnerships sharing a common general partner therewith), the investors listed on the Schedule of Co-Investors, certain executive employees of Ziff Davis Holdings Inc., and certain other stockholders listed on the Schedule of New Stockholders.*
 
    
4.7
  Supplemental Indenture, dated as of September 18, 2002, by and among Ziff Davis Media Inc., Ziff Davis Holdings Inc., and Deutsche Bank Trust Company Americas, supplementing the indenture, dated as of August 12, 2002, by and between Ziff Davis Media Inc., the guarantors thereunder and Deutsche Bank Trust Company Americas.*
 
    
4.8
  Second Supplemental Indenture, dated as of September 18, 2002, by and among Ziff Davis Media Inc., Ziff Davis Holdings Inc. and Deutsche Bank Trust Company Americas, supplementing the indenture, dated as of July 21, 2000, by and between Ziff Davis Media Inc., the guarantors thereunder and Deutsche Bank Trust Company Americas (f/k/a Bankers Trust Company).*
 
    
4.9
  Form of Global Series E-l Preferred Stock Certificate.*
 
    
10.1
  Series D Preferred Stock Purchase Agreement, dated August 12, 2002, by and between Ziff Davis Holdings Inc., and the purchasers thereunder.*
 
    
10.2
  Stock Purchase Agreement, dated as of April 30, 2002, by and among Ziff Davis Holdings Inc. and the purchasers thereunder.*
 
    
10.3
  Stock Purchase Agreement, dated as of May 31, 2002, by and among Ziff Davis Holdings Inc. and the purchasers thereunder.*
 
    
10.4
  Stock Purchase Agreement, dated as of June 28, 2002, by and among Ziff Davis Holdings Inc. and the purchasers thereunder.*
 
    
10.5
  Stock Purchase Agreement, dated as of August 8, 2002, by and among Ziff Davis Holdings Inc. and the purchasers thereunder.*
 
    
10.6
  Warrant Agreement, dated August 12, 2002, by and among Ziff Davis Holdings Inc. and Willis Stein & Partners II, L.P.*
 
    
10.7
  Warrant Agreement, dated August 12, 2002, by and among Ziff Davis Holdings Inc. and Deutsche Bank Trust Company Americas.*
 
    
10.8
  Distribution and Payment Agreement, dated August 12, 2002, by and between Ziff Davis Holdings Inc. and Willis Stein & Partners II, L.P.*
 
    
10.10
  2002 Ziff Davis Holdings Inc. Amended and Restated Employee Stock Option Plan.†*
 
    
10.11
  License Agreement, dated April 5, 2000 with ZD Inc. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 10.2.*

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Exhibit    
No.   Description
10.12
  License Agreement, dated April 5, 2000 with ZD Inc. (ZD logo). Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 10.3.*
 
    
10.13
  License Agreement, dated April 5, 2000 with ZD Inc. (Interactive). Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 (No. 333-48014) dated October 16, 2000 as Exhibit 10.4.*
 
    
10.15
  Amendment to License Agreement, dated January 19, 2001 with ZDNet, Inc. Previously filed in connection with Ziff Davis Media’s Amendment No. 1 to Registration Statement on Form S-4 (No. 333-48014) dated January 24, 2001 as Exhibit 10.10.*
 
    
10.16
  Amended and Restated Executive Agreement by and between Ziff Davis Holdings Inc., Ziff Davis Publishing Inc. and Mr. Robert F. Callahan, dated as of March 23, 2005.†*
 
    
10.18
  Executive Agreement by and between Ziff Davis Media Inc. and Mr. Paul O’Reilly, dated as of September 17, 2004.†*
 
    
10.19
  Stock Purchase Agreement by and among Ziff Davis Holdings Inc. and the stock purchasers thereunder, dated May 20, 2001. Previously filed in connection with Ziff Davis Media’s Form 10-Q as Exhibit 10.2 for the quarter ended September 30, 2001.*
 
    
10.20
  Stock Purchase Agreement by and among Ziff Davis Holdings Inc. and the stock purchasers thereunder, dated July 13, 2001. Previously filed in connection with Ziff Davis Media’s Form 10-Q as Exhibit 10.3 for the quarter ended September 30, 2001.*
 
    
10.21
  Stock Purchase Agreement by and among Ziff Davis Holdings Inc. and the stock purchasers thereunder, dated August 30, 2001. Previously filed in connection with Ziff Davis Media’s Form 10-Q as Exhibit 10.4 for the quarter ended September 30, 2001.*
 
    
10.22
  Sale and Purchase Agreement relating to certain Print-Based Publishing Assets in the UK, Germany and France, dated June 20, 2000 with VNU N.V., View Group B.V., VNU Business Publications Limited, VNU Holding Deutschland GMBH, VNU Business Publications France S.A. Previously filed in connection with Ziff Davis Media’s Registration Statement on Form S-4 dated October 16, 2000 as Exhibit 2.2.*
 
    
10.23
  Stock Purchase Agreement, dated as of July 3, 2002, by and among Ziff Davis Media Inc., Ziff Davis Development Inc. and Lionbridge Technologies, Inc.*
 
    
10.25
  Amendment No. 1 to Stock Purchase Agreement, dated as of August 12, 2002 by and among Ziff Davis Holdings, Inc., Willis Stein & Partners Dutch III-B, L.P. and Willis Stein & Partners III-C, L.P. (relating to Stock Purchase Agreement, dated as of April 30, 2002).*
 
    
10.26
  Amendment No. 1 to Stock Purchase Agreement, dated as of August 12, 2002 by and among Ziff Davis Holdings, Inc., Willis Stein & Partners Dutch III-B, L.P. and Willis Stein & Partners III-C, L.P. (relating to Stock Purchase Agreement, dated as of May 31, 2002).*
 
    
10.27
  Amendment No. 1 to Stock Purchase Agreement, dated as of August 12, 2002 by and among Ziff Davis Holdings, Inc., Willis Stein & Partners Dutch III-B, L.P. and Willis Stein & Partners III-C, L.P. (relating to Stock Purchase Agreement, dated as of June 28, 2002).*
 
    
10.28
  Amendment No. 1 to Stock Purchase Agreement, dated as of August 12, 2002 by and among Ziff Davis Holdings, Inc., Willis Stein & Partners Dutch III-B, L.P. and Willis Stein & Partners III-C, L.P. (relating to Stock Purchase Agreement, dated as of August 8, 2002).*
 
    
10.29
  Executive Agreement by and between Ziff Davis Holdings Inc., Ziff Davis Publishing Inc. and Mr. Gregory Barton, dated as of October 23, 2002.†*
 
    
10.30
  Executive Agreement by and between Ziff Davis Media Inc. and Mr. Mark Moyer, dated as of September 3, 2005.†*
 
    
10.32
  Executive Agreement by and between Ziff Davis Media Inc. and Mr. Jason Young, dated as of June 1, 2004.†*
 
    
10.33
  Executive Agreement by and between Ziff Davis Media Inc. and Mr. Timothy Castelli, dated as of August 1, 2004.†*
 
    
10.34
  Executive Agreement by and between Ziff Davis Media Inc. and Mr. Sloan Seymour, dated as of August 1, 2004.†*

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Exhibit    
No.   Description
10.31
  Amendment dated December 30, 2004 to Amended and Restated Executive Agreement by and between Ziff Davis Holdings Inc., Ziff Davis Publishing Inc. and Mr. Robert F. Callahan.†*
 
    
10.32
  Amendment dated December 30, 2004 to Amended and Restated Executive Agreement by and between Ziff Davis Holdings Inc., Ziff Davis Publishing Inc. and Mr. Bart Catalane.†*
 
    
10.33
  Amendment dated February 28, 2005 to Amended and Restated Executive Agreement by and between Ziff Davis Holdings Inc., Ziff Davis Publishing Inc. and Mr. Robert F. Callahan.†*
 
    
10.34
  Amendment dated February 28, 2005 to Amended and Restated Executive Agreement by and between Ziff Davis Holdings Inc., Ziff Davis Publishing Inc. and Mr. Bart Catalane.†*
 
    
10.35
  Executive Agreement by and between Ziff Davis Media Inc. and Mr. Michael Miller, dated as of October 1, 2004.†*
 
    
10.36
  Executive Agreement by and between Ziff Davis Media Inc. and Mr. Scott McCarthy, dated as of October 15, 2004.†*
 
    
10.37
  Amendment dated December 31, 2005 to Executive Agreement by and between Ziff Davis Media Inc. and Mr. Scott McCarthy.†*
 
    
10.38
  Letter dated September 23, 2004 from the Registrant to David Wittels.†*
 
    
10.39
  Asset Purchase Agreement by and among Ziff Davis Media, Inc., MBPS, Com, Inc., FileFront, L.P. and FileFront Principals Dated as of November 4, 2005**
 
    
10.40
   Offer letter by and between Ziff Davis Media Inc. and Mr. Kenneth Beach, dated as of March 4, 2005†*
 
    
10.41
  Letter dated December 6, 2005 from the Registrant to Susan E. Alterton.**
 
    
10.42
  Purchase Agreement, dated April 18, 2005, by and among Ziff Davis Media Inc., the guarantors named therein and Bear, Stearns & Co. Inc. and Lehman Brothers Inc. Incorporated by reference to Ziff Davis Holdings’ Form 8-K filed on April 26, 2005.*
 
    
10.43
  Indenture, dated April 22, 2005, by and among Ziff Davis Media Inc., the guarantors named therein and US Bank National Association, as Trustee. Incorporated by reference to Ziff Davis Holdings’ Form 8-K filed on April 26, 2005.*
 
    
10.44
  First Lien Security Agreement, dated as of April 22, 2005, by and among Ziff Davis Media Inc., the guarantors named therein and US Bank National Association, as Trustee. Incorporated by reference to Ziff Davis Holdings’ Form 8-K filed April 26, 2005.*
 
    
10.45
  Registration Rights Agreement, dated April 22, 2005, by and among Ziff Davis Media Inc., the Guarantors named therein and Bear, Stearns & Co. Inc. and Lehman Brothers Inc. Incorporated by reference to Ziff Davis Holdings’ Form 8-K filed on April 26, 2005.*
 
    
14.1
  Code of Ethics.*
 
    
14.2
  Ziff Davis Holdings Inc. Audit and Non-Audit Services Pre-Approval Policy.**
 
    
21.1
  Subsidiaries of Registrants.*
 
    
31.1
  Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
 
    
31.2
  Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
 
    
32.1
  Certification of our Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **
 
    
32.2
  Certification of our Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
 
*   Previously filed.
 
**   Filed herewith.
 
†   Denotes management contract or compensatory plan or arrangement.

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SIGNATURES
     Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on it behalf by the undersigned, thereunto duly authorized on the 31st day of March 2006.
             
    ZIFF DAVIS HOLDINGS INC.    
 
            
 
  By:   /s/ MARK D. MOYER    
 
     
 
Name: Mark D. Moyer 		   
 
      Title: Chief Financial Officer    
     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities.
     
Signatures   Title
/s/      ROBERT F. CALLAHAN   Chairman and Chief Executive Officer
 
Robert F. Callahan 		   (Principal Executive Officer)
     
/s/      MARK D. MOYER   Chief Financial Officer
 
Mark Moyer 		   (Principal Financial and Accounting Officer)
     
/s/      BART W. CATALANE   Director
 
Bart W. Catalane 		   
     
/s/      JOHN R. WILLIS   Director
 
John R. Willis 		   
     
/s/      AVY H. STEIN   Director
 
Avy H. Stein 		   
     
/s/      DANIEL H. BLUMENTHAL   Director
 
Daniel H. Blumenthal 		   
     
/s/      BRADLEY J. SHISLER   Director
 
Bradley J. Shisler 		   
     
/s/      SUSAN E. ALDERTON
 
Susan E. Alderton 		  Director 
     Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
     None.

77

EX-10.39 2 y18951exv10w39.txt EX-10.39: ASSET PURCHASE AGREEMENT EXHIBIT 10.39 EXECUTION COPY ================================================================================ ASSET PURCHASE AGREEMENT BY AND AMONG ZIFF DAVIS MEDIA INC., MBPS.COM, INC., FILEFRONT, L.P. AND THE FILEFRONT PRINCIPALS DATED AS OF NOVEMBER 4, 2005 ================================================================================ TABLE OF CONTENTS SECTION 1. DEFINITIONS.................................................................................... 1 1A. Definitions.................................................................................... 1 1B. Other Definitions.............................................................................. 6 SECTION 2. PURCHASE AND SALE OF ASSETS.................................................................... 8 2A. Purchase and Sale of Assets.................................................................... 8 2B. No Assumption of Liabilities................................................................... 8 2C. Closing Transactions........................................................................... 9 2D. Adjustment Amount.............................................................................. 10 2E. Additional Purchase Price Payment.............................................................. 11 2F. Allocation of Purchase Price................................................................... 12 SECTION 3. CONDITIONS TO CLOSING.......................................................................... 13 3A. Conditions to Buyer's Obligations.............................................................. 13 3B. Conditions to Sellers' Obligations............................................................. 15 SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE FILEFRONT PRINCIPALS.......................... 16 4A. Organization and Limited Partnership Power..................................................... 16 4B. Authorization of Transactions.................................................................. 16 4C. Absence of Conflicts........................................................................... 16 4D. Absence of Liabilities......................................................................... 17 4E. Purchased Assets............................................................................... 17 4F. Legal Compliance............................................................................... 17 4G. Contracts and Commitments...................................................................... 17 4H. Intellectual Property.......................................................................... 17 4I. Brokerage...................................................................................... 18 4J. Affiliate Transactions......................................................................... 18 4K. Disclosure..................................................................................... 18 SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER........................................................ 19 5A. Organization and Corporate Power............................................................... 19 5B. Authorization of Transactions.................................................................. 19 5C. No Violation................................................................................... 19 5D. Governmental Authorities and Consents.......................................................... 19 5E. Brokerage...................................................................................... 19 SECTION 6. INDEMNIFICATION AND RELATED MATTERS............................................................ 19 6A. Survival....................................................................................... 19 6B. Indemnification of Buyer....................................................................... 20 6C. Indemnification of Sellers..................................................................... 20 6D. Procedure...................................................................................... 21 6E. Payments; Setoff............................................................................... 22 SECTION 7. ADDITIONAL AGREEMENTS.......................................................................... 22
-i- 7A. Tax Matters.................................................................................... 22 7B. Press Releases and Announcements............................................................... 22 7C. Further Transfers.............................................................................. 22 7D. Specific Performance........................................................................... 22 7E. Expenses....................................................................................... 23 7F. Non-Competition, Non-Solicitation and Confidentiality.......................................... 23 7G. Amendment of Filefront's Limited Partnership Agreement and MBPS Certificate of Incorporation... 25 7H. Transfer of Ownership of Sellers............................................................... 25 7I. Websites....................................................................................... 25 7J. Budgets and Operations......................................................................... 26 7K. Other Business Obligations..................................................................... 27 7L. Amendment of Filefront Name.................................................................... 28 7M. The Queue...................................................................................... 28 SECTION 8. MISCELLANEOUS.................................................................................. 28 8A. Amendment and Waiver........................................................................... 28 8B. Notices........................................................................................ 28 8C. Binding Agreement; Assignment.................................................................. 29 8D. Severability................................................................................... 30 8E. Construction................................................................................... 30 8F. Headings....................................................................................... 30 8G. Entire Agreement............................................................................... 30 8H. Counterparts................................................................................... 30 8I. Governing Law.................................................................................. 30 8J. Submission to Jurisdiction..................................................................... 30 8K. No Third-Party Beneficiaries................................................................... 31 8L. Arbitration.................................................................................... 31 8M. Delivery by Facsimile.......................................................................... 31
-ii- INDEX OF EXHIBITS Exhibit A-1 Form of Executive Agreement with Todd Faulk Exhibit A-2 Form of Executive Agreement with Derek Labian Exhibit B Budget INDEX OF SCHEDULES Schedule 1.1 Assumed Indebtedness Schedule 2A(i)(A) List of Purchased Assets Schedule 2A(i)(B) List of Assigned Contracts Schedule 2A(ii) List of Excluded Assets Schedule 2F Allocation of Purchase Price Schedule 4C Absence of Conflicts Schedule 4D Absence of Liabilities Schedule 4E Title to Assets Schedule 4G Contracts and Commitments Schedule 4H(ii) Intellectual Property Schedule 4H(iv) Historical Monthly Unique Visitors Schedule 4I Brokerage Schedule 4J Affiliate Transactions Schedule 5E Brokerage Schedule 7K Other Business Obligations -iii- ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of November 4, 2005, by and among FILEFRONT, L.P., a Texas limited partnership ("Filefront"), MBPS.com, Inc. ("MBPS" and together with Filefront, each a "Seller" and collectively, the "Sellers"); Todd Faulk ("Faulk"); Derek Labian ("Labian") (each of Faulk and Labian a "Filefront Principal" and, collectively, the "Filefront Principals"); and Ziff Davis Media Inc., a Delaware corporation ("Buyer"). Sellers, the Filefront Principals, and Buyer are collectively referred to herein as the "Parties" and individually as a "Party." On the terms and subject to the conditions set forth in this Agreement, Buyer desires to acquire from each Seller, and each Seller desires to sell to Buyer, all of the assets of such Seller other than the Excluded Assets. NOW, THEREFORE, in consideration of the premises, representations and warranties and mutual covenants contained herein and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1A. Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: "Affiliate" of any particular Person means any other Person controlling, controlled by or under common control with such particular Person, where "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities or otherwise. "Assumed Indebtedness" means Indebtedness of Sellers and their Subsidiaries expressly agreed to be assumed by Buyer at the Closing as set forth on Schedule 1.1 attached hereto. "Assumed Liabilities" means, with respect to the Purchased Assets, (i) liabilities to the extent included in (but only to the extent included in) the computation of Effective Date Net Working Capital, (ii) accounts payable and accrued liabilities first incurred in the ordinary course of business between the Effective Date and the Closing Date that would, on a balance sheet prepared in accordance with GAAP, be characterized as current liabilities, (iii) performance obligations under Assigned Contracts that first arise after the Closing Date and (iv) the Assumed Indebtedness to the extent included in (but only to the extent included in) the computation of Closing Indebtedness; provided that, notwithstanding the foregoing, "Assumed Liabilities" shall not include any obligation or liability that arises from breach of any such Assigned Contract arising on or prior to the Closing Date or any obligation or liability that arises in whole or in part from consummation of the transactions contemplated hereby. "Average Number of Monthly Unique Visitors" means, for any Applicable Measurement Period, the quotient equal to the number of Monthly Unique Visitors for such Applicable Measurement Period divided by (i) three (3) in the case of the Alternative Measurement Period and (ii) six (6) in the case of the General Measurement Period. "Business" means the business of Sellers as conducted on or prior to the Closing Date, including the operation of www.filefront.com website and sub-domains. "Cause" means, with respect to the circumstances surrounding the termination of a Filefront Principal's employment by Buyer, (i) the indictment of, or plea of no contest, by the Filefront Principal with respect to a felony or a crime involving moral turpitude; (ii) the commission of any other act or omission by the Filefront Principal constituting fraud against Buyer or any of its Affiliates or any of their customers, suppliers, or business relations, or the violation of any fiduciary duty to Buyer and/or its Affiliates under applicable law; (iii) willful or reckless misconduct or gross negligence (which, in the case of gross negligence by the Filefront Principal is not cured within fifteen (15) days after written notice thereof to the Filefront Principal), with respect to Buyer or any of its Affiliates; (iv) failure of such Filefront Principal to devote substantially all of his business time and attention to Buyer in accordance with his Executive Agreement or failure to perform his job responsibilities, in each case not cured within fifteen (15) days after written notice thereof to the Filefront Principal, (v) any breach of any of Sections 7F, 7G, or 7H of this Agreement or breach of the restrictive covenants of such Filefront Principal's Executive Agreement, in each case which is not cured within fifteen (15) days after written notice thereof to the Filefront Principal; or (vi) any material breach of Buyer's company policies established by the CEO of Buyer, which breach, if curable, is not cured within fifteen (15) calendar days after written notice thereof to such Filefront Principal. "Closing Indebtedness" means Assumed Indebtedness as of 12:01 am on the Closing Date. "Closing Net Working Capital" means Net Working Capital as of 12:01 am on the Closing Date. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Contract" means any contract, license, sublicense, franchise, permit, mortgage, purchase order, indenture, loan agreement, lease, sublease, agreement, obligation, instrument, Employee Benefit Plan, Employee Pension Benefit Plan, or other arrangement or any commitment to enter into any of the foregoing (in each case, whether written or oral). "Effective Date" means November 1, 2005. "Effective Date Net Working Capital" means Net Working Capital as of 12:01 am on the Effective Date. "Employee Benefit Plan" means any "employee benefit plan" (as such term is defined in ERISA Section 3(3)) and any other employee benefit plan, program, or arrangement of any kind. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Section 3(2). - 2 - "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Executive Agreement" means, as the context may require, (i) the Executive Agreement, dated as of the Closing Date, by and between Faulk and Buyer in form and substance as set forth on Exhibit A-1 attached hereto and (ii) the Executive Agreement, dated as of the Closing Date, by and between Labian and Buyer in form and substance as set forth on Exhibit A-2 attached hereto, in each case as the same may be amended, modified, supplemented, or waived from time to time. "Full Calendar Month" means any calendar month for which there are at least 20 Measurable Calendar Days. "GAAP" means United States generally accepted accounting principles as in effect from time to time, consistently applied. "Good Reason" means, with respect to any Filefront Principal, the occurrence, without a Filefront Principal's consent, of any of the following: (i) failure to make funding available for the Business in accordance with the Budget by more than 10% in the aggregate in any fiscal quarter which is not cured after written notice to Buyer by making available to the Business additional funding in an amount equal to such shortfall in the fiscal quarter immediately following such notice; (ii) a reduction in such Filefront Principal's annual Base Salary as contemplated by such Filefront Principal's Executive Agreement, except for across-the-board salary reductions similarly affecting all senior executives of the Buyer; or (iii) Buyer moves the headquarters for the Business more than 30 miles from Spring, Texas. "Guarantor" means Ziff Davis Holdings Inc., a Delaware corporation. "Incapacity" means, for each Filefront Principal, the disability of such Filefront Principal caused by any physical or mental injury, illness or incapacity as a result of which such Filefront Principal is unable to effectively perform the essential functions of such Filefront Principal's duties as determined by Buyer in good faith, for a period of ninety (90) consecutive calendar days or a period of one hundred and twenty (120) calendar days during any one hundred and eighty (180) calendar day period. "Indebtedness" means (i) any indebtedness for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money (including, but not limited to, interest and prepayment penalties computed as though payment is being made on the Closing Date), (ii) any indebtedness evidenced by any note, bond, debenture or other debt security, (iii) any indebtedness for the deferred purchase price of property or services with respect to which a Person is liable, contingently or otherwise, as obligor or otherwise (including any deferred purchase price in the form of contingent consideration, whether in the form of seller debt, earn-out or otherwise), (iv) any commitment by which a Person assures a creditor against loss (including, without limitation, contingent reimbursement liabilities with respect to letters of credit), (v) any indebtedness guaranteed in any manner by a Person (including, without limitation, guarantees in the form of an agreement to repurchase or reimburse), (vi) any liabilities under capitalized leases with respect to which a Person is liable, contingently or otherwise, as - 3 - obligor, guarantor or otherwise, or with respect to which liabilities a Person assures a creditor against loss, (vii) any amounts owed to any Person under any noncompetition, consulting or similar arrangements, (viii) all liabilities related to any change-of-control or similar payment or increased cost which is triggered in whole or in part by the transactions contemplated by this Agreement, and (ix) any liabilities incurred by such Person (including, but not limited to, any fees, costs and expenses incurred on behalf of Sellers) in connection with the negotiation of the Letter of Intent, this Agreement, the other Transaction Documents, the performance of such Person's and its pre-Closing Affiliates' obligations hereunder and thereunder, and the consummation of the transactions contemplated hereby and thereby. "Initial Period" means the 24-month period beginning on November 1, 2005 and ending on October 31, 2007. "Intellectual Property" means in any jurisdiction throughout the world: (i) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (ii) all trademarks, service marks, trade dress, logos, slogans, trade names (including filefront and derivations thereof), corporate names, Internet domain names (including www.filefront.com and any sub-domain names) and rights in telephone numbers, and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (iii) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (iv) all mask works and all applications, registrations, and renewals in connection therewith, (v) all trade secrets, website content, and confidential business information (including ideas, research and development, know-how, formulas, notes, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (vi) all computer software (including source code, executable code, data, databases, and related documentation), (vii) all advertising and promotional materials, (viii) all other proprietary rights, and (ix) all copies and tangible embodiments thereof (in whatever form or medium). "Knowledge" as used in the phrases "to the Knowledge of Sellers", "to Sellers' Knowledge" or phrases of similar import means the actual knowledge of the either Filefront Principal or either Seller (which shall include the actual knowledge of the partners, managers, officers and key employees of Sellers), after making reasonable inquiry with respect to the particular matter in question. "Letter of Proposal" means that certain letter agreement, dated August 2, 2005, addressed to Filefront. "Liens" means any mortgage, pledge, lien, encumbrance, security interest, Tax, or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof), any sale of receivables with recourse against any Seller or any of its Affiliates, and any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute. - 4 - "Measurable Calendar Day" means a calendar day during which there are not more than six (6) hours during which (a) access to the filefront.com website and sub-domains thereof or (b) proper measurement of site traffic by the applicable third party site tracking tool is materially and adversely interrupted due to external events outside the control of the Filefront Principals and Buyer (e.g., earthquake or internet shutdown). "Monthly Unique Visitors" means United States unique visitors to the www.filefront.com web site or any sub-domains of filefront.com (excluding unique visitors generated by (a) paid referrals for uniques, including search engines and (b) non-U.S. domains) calculated on a monthly, unduplicated basis, as measured by Omniture SiteCatalyst; provided that paid referrals shall not include any general advertising or marketing campaign by Buyer in the ordinary course of business; provided further that in the event that (i) Omniture SiteCatalyst is not available to measure Monthly Unique Visitors, then Monthly Unique Visitors will be determined by a similar third party site tracking tool for measurement proposed by Buyer consented to by Sellers (which consent shall not be unreasonably withheld, delayed or conditioned) or (ii) no third party tracking tool is agreed to by the Parties, the Parties will jointly calculate the Monthly Unique Visitors (with the default method being to calculate United States Monthly Unique Visitors by setting a cookie on the visitor's browser, uniquely identifying the visitor, with spiders and BOTS to be excluded from any such calculation of Monthly Unique Visitors). "Net Working Capital" means the difference between (i) the sum of operating expenses paid by Sellers prior to the Effective Date with respect to which Buyer will receive the benefit for the operation of the Business on and after the Effective Date over (ii) the sum of customer deposits and revenues and subscription revenues received by Sellers prior to the Effective Date with respect to periods on and after the Effective Date. In calculating amounts pursuant to clauses (i) and (ii) of this definition, amounts shall be ratably applied between periods prior to the Effective Date, on the one hand, and on and after the Effective Date, on the other hand, such that, by way of example, if a $1,000 payment is made by Sellers for the period between September 1, 2005 and December 31, 2005, the amount included for such expense in the calculation of Net Working Capital shall be $1,000 multiplied by a fraction, the numerator of which is the number of days between the Effective Date and the December 31, 2005 and the denominator of which is the number of days between September 1, 2005 and December 31, 2005. "Person" means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, and a governmental entity (or any department, agency, or political subdivision thereof). "Purchase Price" means the Cash Portion plus the Additional Purchase Price Payment, as adjusted by the Final Adjustment Amount. "Remaining Filefront Principal" means in the event that one Filefront Principal ceases to be employed with Buyer for any reason, the other Filefront Principal that remains employed with Buyer after cessation of employment for the first Filefront Principal. - 5 - "Remaining Vesting Period" means, for a Remaining Filefront Principal, the number of calendar days between the Termination Date for such Remaining Filefront Principal and the last day of the Initial Period, inclusive. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association, or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (ii) if a limited liability company, partnership, association, or other business entity (other than a corporation), a majority of partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof and for this purpose, a Person or Persons owns a majority ownership interest in such a business entity (other than a corporation) if such Person or Persons shall be allocated a majority of such business entity's gains or losses or shall be or control any managing director or general partner of such business entity (other than a corporation). The term "Subsidiary" shall include all Subsidiaries of such Subsidiary. "Tax" or "Taxes" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, whether computed on a separate or consolidated, unitary or combined basis or in any other manner, including any interest, penalty, or addition thereto, whether disputed or not and including any obligation to indemnify or otherwise assume or succeed to the tax liability of any other Person. "Termination Date" with respect to a Filefront Principal shall have the same meaning as defined in that Filefront Principal's Executive Agreement. "Total Vesting Period" means the number of calendar days in the Initial Period. "Transaction Documents" means this Agreement, the Executive Agreements and any other agreement or document contemplated hereby to which either Seller or either of the Filefront Principals is a party. "Treas. Reg." means the Treasury Regulations promulgated pursuant to the Code. "Unvested Portion" means the percentage obtained by dividing the Remaining Vesting Period by the Total Vesting Period. 1B. Other Definitions. Each of the following defined terms has the meaning given such term in the Section set forth opposite such defined term:
DEFINED TERM SECTION REFERENCE - --------------------------------- ----------------- Accounting Firm 2C(iv)
- 6 - Acquisition Target 7F(ii) Additional Purchase Price Payment 2E(i) Agreement Preamble Allocation 2F Alternative Measurement Period 2E(iii) Applicable Measurement Period 2E(iii) Assigned Contracts 2A(i) Basket 6B Budget 7J(i) Buyer Preamble Buyer Parties 6B Cash Portion 2C(ii) Closing 2C(i) Closing Date 2C(i) Closing Statement 2C(iii) Closing Transactions 2C(ii) Confidential Information 7F(iii) Dispute Notice 2C(iii) Estimated Closing Indebtedness 2C(ii) Excluded Assets 2A(ii) Faulk Preamble Filefront Preamble Filefront Principals Preamble Final Adjustment Amount 2D Forfeited Amount 2E(v) General Measurement Period 2E(iii) Indemnified Party 6D Indemnifying Party 6D Insiders 4J Item of Dispute 2C(iii) Labian Preamble Loss 6B Losses 6B MBPS Preamble Noncompete Period 7F(i) Parties Preamble Party Preamble Purchased Assets 2A(i) Restricted Person 7F(i) Retained Liabilities 2B Rules 8L Seller(s) Preamble ZD Entity 7F(ii)
- 7 - SECTION 2. PURCHASE AND SALE OF ASSETS 2A. Purchase and Sale of Assets. (i) Purchased Assets. On the terms and subject to the conditions contained in this Agreement, on the Closing Date, Buyer shall purchase from each Seller, and each Seller shall sell, convey, assign, transfer, and deliver to Buyer, free and clear of all Liens, all assets, properties, rights, titles, and interests of every kind and nature owned or leased by such Seller (including indirect and other forms of beneficial ownership) as of the Closing Date whether tangible, intangible, real or personal and wherever located and by whomever possessed (the "Purchased Assets"), including, but not limited to, the assets listed on Schedule 2A(i)(A) attached hereto, cash on hand arising from business generated from and after the Effective Date through the Closing Date, receivables arising from and after the Effective Date and all Intellectual Property, but excluding all Excluded Assets, against payment by Buyer of an aggregate amount in cash equal to the Cash Portion (as defined below); provided that the Purchased Assets shall include only those contracts of Sellers listed as being assigned to Buyer on Schedule 2A(i)(B) hereof that are actually assigned to Buyer in accordance with its terms (the "Assigned Contracts"); provided further that in no event shall Assigned Contracts include any Employee Benefit Plan or Employee Pension Benefit Plan. (ii) Excluded Assets. Notwithstanding the foregoing, the following assets are expressly excluded from the purchase and sale contemplated hereby (the "Excluded Assets") and, as such, are not included in the Purchased Assets: (a) the limited partnership certificate of formation, limited partnership agreement, certificate of incorporation, bylaws, qualifications to conduct business as a foreign company, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, unit or stock transfer books, blank unit or stock certificates, and other documents relating to the organization, maintenance, and existence of Seller as a limited partnership; (b) any of the rights of Sellers under this Agreement (or under any side agreement between either Seller on the one hand and Buyer on the other hand entered into on or after the date of this Agreement); (c) any right to receive mail and other communications addressed to either Seller relating exclusively to the Excluded Assets; (d) any rights in and with respect to the assets associated with Seller's Employee Benefit Plans or Employee Pension Benefit Plans, if any; and (e) any assets listed on Schedule 2A(ii). 2B. No Assumption of Liabilities. Subject to the conditions specified in this Agreement, from and after the Closing Date, except for the Assumed Liabilities, Buyer will not assume or in any way be responsible for any liabilities or obligations whatsoever related to the ownership, operation, or condition of the Business or the Purchased Assets at any time on or prior to the Closing Date or any liabilities or other obligations of any Seller or any Filefront - 8 - Principal, whether incurred prior to, on, or after the Closing Date (such liabilities or obligations, other than the Assumed Liabilities, are referred to herein as the "Retained Liabilities") and Sellers shall pay and discharge all Retained Liabilities when such become due and payable. 2C. Closing Transactions. (i) Closing. Subject to satisfaction or waiver of the conditions contained in this Agreement, the closing of the transactions contemplated by this Agreement (the "Closing") will occur at the offices of Kirkland & Ellis LLP, 200 East Randolph Drive, Chicago, Illinois 60601, at 10 a.m. on November 4, 2005 or at such other time and on such other date as the Parties hereto mutually agree. The date and time of the Closing are herein referred to as the "Closing Date." Notwithstanding anything to the contrary herein, the Closing shall be effective as of 12:01 am on the Closing Date. (ii) Closing Transactions. Subject to the conditions set forth in this Agreement, the Parties shall consummate the following "Closing Transactions" on the Closing Date: (a) Sellers shall convey all of the Purchased Assets to Buyer and shall deliver to Buyer such appropriately executed instruments of sale, transfer, or assignment, transfer tax declarations, and all other instruments of conveyance that are necessary or desirable to effect transfer to Buyer of good and marketable title to the Purchased Assets (free and clear of all Liens), including documents acceptable for recording with the United States Patent and Trademark Office, the United States Copyright Office, and any other similar domestic or foreign office, department or agency and all instruments necessary or desirable to change the registered owner of all internet domain names to Buyer (it being understood that all of the foregoing shall be satisfactory in form and substance to Buyer and its counsel); (b) Buyer shall deliver to Sellers an aggregate amount in cash (the "Cash Portion") equal to the result of (1) $5,235,000 minus (2) the amount of Closing Indebtedness (estimated by Seller and agreed to by Buyer prior to the Closing Date to be $200,776.39 (the "Estimated Closing Indebtedness")), with such consideration to be allocated between Sellers as directed in writing signed by Sellers prior to the Closing Date; and (c) Sellers and Buyer shall deliver the opinions, certificates and other documents and instruments required to be delivered by or on behalf of such Party under Section 3 hereof. (iii) The Closing Statement. Promptly, but in any event within 60 days after the Closing, Buyer shall furnish to Sellers a statement (the "Closing Statement") setting forth (a) Closing Indebtedness and (b) Effective Date Net Working Capital. Unless within the 30-day period following Sellers' receipt of the Closing Statement, Sellers deliver written notice to Buyer (the "Dispute Notice") setting forth in reasonable detail any and all items of disagreement related to the Closing Statement (each, an "Item of Dispute"), the Closing Statement shall be conclusive and binding upon Sellers and Buyer; provided that the only basis on which Sellers shall be permitted to submit an Item of Dispute is that such Item of Dispute was not prepared in accordance with this Agreement. Each Seller and each of the Filefront Principals shall cooperate - 9 - fully with Buyer in connection with the preparation of the Closing Statement. After the delivery of the Closing Statement, Buyer shall cooperate with Sellers in connection with the review of the Closing Statement, including, without limitation, providing Sellers and their accountants reasonable access during business hours to materials (including accountants' work papers) used in the preparation of the Closing Statement. (iv) Dispute Resolution. If Sellers deliver the Dispute Notice to Buyer within such 30-day period, Buyer and Sellers shall use reasonable efforts to resolve their differences concerning the Items of Dispute, and if any Item of Dispute is so resolved, the Closing Statement shall be modified as necessary to reflect such resolution. If all Items of Dispute are so resolved, the Closing Statement (as so modified) shall be conclusive and binding on Sellers and Buyer. If any Item of Dispute remains unresolved for a period of twenty (20) days after Buyer's receipt of the Dispute Notice, Buyer and Sellers shall submit the dispute to a nationally-recognized, independent certified public accountant (the "Accounting Firm") selected by the mutual agreement of Buyer and Sellers within ten (10) days after the end of such 20-day period. If Buyer and Sellers are unable to mutually agree upon such an accountant within such 10-day period, then Buyer and Sellers shall each select a "nationally recognized" accountant and within five (5) days after their selection, those two accountants shall select a third "nationally recognized" accountant, which third accountant shall act as the Accounting Firm. Buyer and Sellers shall request that the Accounting Firm render a determination (which determination shall be solely based on whether such Item of Dispute was prepared in accordance with this Agreement) as to each unresolved Item of Dispute within 45 days after its retention, and Buyer, and Sellers shall cooperate fully with the Accounting Firm so as to enable it to make such determination as quickly and as accurately as practicable. The Accounting Firm's determination as to each Item of Dispute submitted to it shall be in writing and shall be conclusive and binding upon Buyer and Sellers, and the Closing Statement shall be modified to the extent necessary to reflect such determination. The fees and expenses of the Accounting Firm shall be allocated to be paid by Buyer and/or Sellers based upon the percentage which the portion of the contested amount not awarded to each party bears to the amount actually contested by such party, as determined by the Accounting Firm. (v) Indebtedness Adjustment. If the amount of the Closing Indebtedness as reflected on the final Closing Statement is greater than the Estimated Closing Indebtedness, each of Sellers and each of the Filefront Principals (on a joint and several basis) shall pay to Buyer an amount equal to such excess. If the amount of the Closing Indebtedness as reflected on the final Closing Statement is less than the Estimated Closing Indebtedness, Buyer shall pay to Sellers an aggregate amount equal to such shortfall. (vi) Net Working Capital Adjustment. If the Effective Date Net Working Capital as determined by reference to the final Closing Statement is negative, each of Sellers and each of the Filefront Principals (on a joint and several basis) shall pay to Buyer an amount equal to the absolute value of such negative amount. If the Effective Date Net Working Capital as determined by reference to the final Closing Statement is positive, Buyer shall pay to Sellers an aggregate amount equal to such excess. 2D. Adjustment Amount. Without duplication, all amounts owed pursuant to Sections 2C(v) and/or 2C(vi) shall be aggregated, and the net amount (if any) owed by Buyer to Sellers, - 10 - on the one hand, or Sellers and the Filefront Principals to Buyer, on the other hand, is referred to as the "Final Adjustment Amount". The Final Adjustment Amount shall be calculated as an adjustment to the Purchase Price on the first business day on which the Closing Statement becomes conclusive and binding. The Final Adjustment Amount shall bear simple interest at a rate of 6% per annum measured from the Closing Date to the date of such payment. Payment of the Final Adjustment Amount shall be paid by delivery of immediately available funds to an account designated by the recipient Party within ten business days after the date of final determination. 2E. Additional Purchase Price Payment. (i) In addition to the Cash Portion, Buyer shall pay to Sellers, on the terms and subject to the conditions and limitations set forth below, the following additional purchase price (the "Additional Purchase Price Payment"). (ii) The Additional Purchase Price Payment shall be determined as the dollar amount resulting from: (A) the product of two dollars and fifty cents ($2.50) times the number by which the Average Number of Monthly Unique Visitors during the Applicable Measurement Period exceeds two (2) million minus (B) the amount, as set forth in Section 7J(ii), by which the actual aggregate operating and capital expenses of the Business during the Initial Period exceed the agreed total of the budgeted operating and capital expenses during the Initial Period as set forth on Exhibit B. For example, by way of illustration only, if the Average Number of Monthly Unique Visitors during the Applicable Measurement Period is three (3) million (and assuming aggregate operating and capital expenses during the Initial Period do not exceed the agreed upon budget amount), then the Additional Purchase Price Payment would equal two million five hundred thousand dollars ($2,500,000) (i.e., $2.50 x (3,000,000 - 2,000,000)). Notwithstanding anything to the contrary herein, the Additional Purchase Price Payment shall in no event exceed $10 million. (iii) When used herein, "Applicable Measurement Period" means (A) the three most recent Full Calendar Months during the Initial Period immediately prior to the Termination Date for the Remaining Filefront Principal (the "Alternative Measurement Period") in the event that (x) the employment of both Filefront Principals is terminated due to death or Incapacity of the Filefront Principals occurring during the Initial Period, or (y) the Remaining Filefront Principal's employment is terminated due to death or Incapacity of the Remaining Filefront Principal occurring during the Initial Period, and (B) otherwise, the last six Full Calendar Months during the Initial Period (the "General Measurement Period"); provided that, in the event that the Remaining Filefront Principal's employment with the Company is terminated by the Company without Cause or by the Remaining Filefront Principal's resignation with Good Reason prior to the expiration of the Initial Period, the "Applicable Measurement Period" shall be (I) the Alternative Measurement Period in the event that the Additional Purchase Price Payment to Sellers would be greater by application of the Alternative Measurement Period than the General Measurement Period or (II) the General Measurement Period in the event that the Additional Purchase Price Payment would be greater or equal by application of the General Measurement Period than the Alternative Measurement Period. - 11 - (iv) The Additional Purchase Price Payment shall be payable within 30 days after the calculation thereof has been made, which such calculation shall be made within 30 days after the end of the Applicable Measurement Period or, in the case of application of the proviso to the foregoing clause (iii), within 30 days after the end of the General Measurement Period. (v) Notwithstanding anything to the contrary herein, if the Remaining Filefront Principal ceases to be a full-time employee of Buyer or any of its Affiliates prior to the expiration of the Initial Period as a result of such Remaining Filefront Principal's termination by the Company with Cause or such Remaining Filefront Principal's resignation without Good Reason, the Additional Purchase Price Payment otherwise payable to Sellers shall be reduced by the product of (a) the Additional Purchase Price Payment otherwise due and owing hereunder (as determined in accordance with Section 2E(ii) and without regard to this Section 2E(v)), multiplied by (b) the Unvested Portion (such product, the "Forfeited Amount"). Each of the Parties agrees that no Seller nor any Filefront Principal shall have any rights to all or any portion of the Forfeited Amount and that Buyer may retain the Forfeited Amount or make payments of the Forfeited Amount to any Person as Buyer may determine in its sole discretion. (vi) Guarantor is a party to this Agreement solely for the purposes of this Section 2E(vi). In consideration of the transactions contemplated by this Agreement, the receipt and sufficiency of which are hereby acknowledged, in the event that Buyer fails to make any Additional Purchase Price Payment it is required to make hereunder, Guarantor hereby unconditionally and irrevocably guarantees payment by Buyer of the Additional Purchase Price Payment required to be made by Buyer and agrees to indemnify Sellers for any Losses suffered by Sellers as a result of its failing to comply with its obligations under this Section 2E(iv) or breach of any representations of Seller made in this Section 2E(vi), subject to any defenses of Buyer. In no event shall the aggregate liability of Guarantor arising under or related to this Agreement and the transactions contemplated hereby, whether based in contract, tort, strict liability, other Law or otherwise, exceed Buyer's obligations under this Agreement. Guarantor hereby represents and warrants to Seller that (A) Guarantor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware has full corporate power and authority to execute, deliver and perform this Agreement, (B) the execution, delivery and performance by Guarantor of this Agreement have been duly authorized by all requisite corporate action on the part of Guarantor, and (C) this Agreement has been duly executed and delivered by Guarantor and constitutes the valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar Laws relating to creditors' rights generally, and general equitable principles. Guarantor's obligations shall terminate on the earliest of (x) the time that the Additional Purchase Price Payment is made, (y) the time that Buyer ceases to be a Subsidiary of Guarantor, and (z) the time that Buyer's obligations to make the Additional Purchase Price Payment are assigned to another Person (other than an Affiliate of Buyer) in accordance with Section 8C hereof. 2F. Allocation of Purchase Price. Buyer and Sellers shall jointly allocate the Purchase Price in accordance with Section 1060 of the Code (the "Allocation") among the Purchased Assets using the methodology and allocation amounts set forth on the Schedule 2F attached hereto. For purposes of the Allocation, the Purchase Price shall mean an amount equal to the Purchase Price plus Assumed Liabilities for U.S. federal income Tax purposes. To the - 12 - extent that the Purchase Price is adjusted after the Closing Date pursuant to Section 2, Buyer and Sellers agree to revise and amend the Allocation in accordance with the character of each such adjustment, consistent with the methodology on Schedule 2F. Sellers and Buyer agree to prepare and file an IRS Form 8594 for or such other form or statement as may be required by applicable law, rule or regulation, and any comparable state or local income tax form, in a manner consistent with the Allocation. Sellers and Buyer shall adhere to the Allocation for all Tax-related purposes including any federal, foreign, state, county or local income and franchise Tax return filed by them after the Closing Date, including the determination by Sellers of taxable gain or loss on the sale of the Purchased Assets and the determination by Buyer of its tax basis with respect to the Purchased Assets. Neither Buyer nor Sellers shall file any Tax returns or, in a judicial or administrative proceeding, assert or maintain any Tax reporting position that is inconsistent with this Agreement or the Allocation agreed to in accordance with this Agreement, unless required to do so by applicable law. SECTION 3. CONDITIONS TO CLOSING 3A. Conditions to Buyer's Obligations. The obligation of Buyer to consummate the transactions contemplated by this Agreement is subject to the fulfillment of the following conditions as of the Closing Date to Buyer's satisfaction in its sole discretion: (i) The representations and warranties set forth in Section 4 hereof shall be true and correct in all material respects at and as of the Closing Date as though then made and as though the Closing Date were substituted for the date of this Agreement throughout such representations and warranties, except to the extent that such representations and warranties are qualified by terms such as "material" and "material adverse effect," in which case such representations and warranties shall be true and correct in all respects at and as of the Closing Date as though then made and as though the Closing Date were substituted for the date of this Agreement throughout such representations and warranties. (ii) Sellers shall have performed and complied with all of its covenants hereunder requiring performance by Sellers on or prior to Closing including, without limitation, the simultaneous transfer of the Purchased Assets; (iii) All consents and approvals by third parties that are required or desirable for the transfer of the Purchased Assets, for the consummation of the transactions contemplated hereby (including, but not limited to, the consent of Buyer's lenders), or in order to prevent a breach of or a default under or a termination or modification of or any right of acceleration of any obligations under any Assigned Contract which is included as one of the Purchased Assets and all consents required to assign the Contracts listed on Schedule 2A(i)(B) attached hereto to Buyer shall have been obtained, in each case on terms and conditions satisfactory to Buyer; (iv) All governmental filings, authorizations, and approvals that are required for the transfer of the Purchased Assets to Buyer and the consummation of the transactions contemplated hereby shall have been duly made and obtained on terms satisfactory to Buyer; (v) No action, suit, or proceeding shall be pending or, to the Knowledge of Seller, threatened before any court or quasi-judicial or administrative agency of any federal, - 13 - state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable judgment, decree, injunction, order or ruling would prevent the performance of this Agreement or any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement, cause such transactions to be rescinded, or materially and adversely affect the right of Buyer to own, operate or control the Purchased Assets, and no judgment, decree, injunction, order or ruling shall have been entered which has any of the foregoing effects; (vi) Sellers shall have delivered to Buyer releases of any and all Liens held by third parties with respect to any of the Purchased Assets, on terms satisfactory to Buyer; (vii) On or prior to the Closing Date, Sellers shall have delivered to Buyer at Seller's expense each of the following: (a) a certificate from Sellers in form and substance satisfactory to Buyer, dated the Closing Date, stating that the preconditions specified in Section 3A(i) - (v) have been satisfied; (b) copies of all third party and governmental consents, approvals, filings, releases, terminations, and filings required in connection with the transfer of the Purchased Assets and the consummation of the transactions contemplated by this Agreement and the other agreements contemplated hereby; (c) a certificate of each Seller, dated the Closing Date, in form and substance reasonably satisfactory to Buyer, as to (i) no amendments to the certificate of formation of such Seller or certificate of incorporation of Seller, as applicable, since the date specified in subsection (d) below; (ii) the limited partnership agreement or bylaws, as applicable, of such Seller; and (iii) any resolutions of the general partner and partners, board of directors, or shareholders of such Seller relating to this Agreement and the transactions contemplated hereby; (d) copies of the certificate of formation or certificate of incorporation of such Seller, as applicable, certified on or soon before the Closing Date by the Secretary of State (or comparable officer) of the jurisdiction of such Seller's formation; (e) copies of the certificate of good standing of such Seller issued on or soon before the Closing Date by the Secretary of State (or comparable officer) of the jurisdiction of such Seller's organization; (f) documents required to be delivered to Buyer pursuant to Section 2C(ii)(a); (g) such other documents or instruments as Buyer may reasonably request to effect the transactions contemplated hereby; (viii) All proceedings to be taken by Sellers in connection with the consummation of the Closing Transactions and the other transactions contemplated hereby and all certificates, opinions, instruments, and other documents required to be delivered by Seller to effect the transactions contemplated hereby reasonably requested by Buyer shall be satisfactory in form and substance to Buyer; and - 14 - (ix) Each of the Filefront Principals shall have executed and delivered to Buyer an Executive Agreement in form and substance as set forth in Exhibit A attached hereto and the same shall be in full force and effect. Any condition specified in this Section 3A may be waived by Buyer; provided, however, that no such waiver shall be effective unless it is set forth in a writing executed by Buyer or unless Buyer agrees in writing to consummate the transactions contemplated by this Agreement without fulfillment of such condition. 3B. Conditions to Sellers' Obligations. The obligation of Sellers to consummate the transactions contemplated by this Agreement is subject to the fulfillment of the following conditions as of the Closing Date to Sellers' satisfaction in their sole discretion: (i) The representations and warranties set forth in Section 5 shall be true and correct in all material respects at and as of the Closing Date as though then made and as though the Closing Date were substituted for the date of this Agreement throughout such representations and warranties, except to the extent that such representations and warranties are qualified by terms such as "material" and "material adverse effect," in which case such representations and warranties shall be true and correct in all respects at and as of the Closing Date as though then made and as though the Closing Date were substituted for the date of this Agreement throughout such representations and warranties; (ii) Buyer shall have performed and complied in all material respects with all of its covenants requiring performance by Buyer at or prior to Closing. (iii) No action, suit or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable judgment, decree, injunction, order, or ruling would prevent the transfer of the Purchased Assets, the performance of this Agreement or any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement, or cause such transactions to be rescinded, and no judgment, decree, injunction, order, or ruling shall have been entered which has any of the foregoing effects; (iv) On or prior to the Closing Date, Buyer shall have delivered to Sellers a certificate from Buyer, in form and substance satisfactory to Sellers, stating that the preconditions specified in Sections 3B(i) - (iii) have been satisfied; and (v) All proceedings to be taken by Buyer in connection with the consummation of the Closing Transactions and the other transactions contemplated hereby and all certificates, instruments, and other documents required to be delivered by Buyer to effect the transactions contemplated hereby reasonably requested by Sellers shall be reasonably satisfactory in form and substance to Sellers. Any condition specified in this Section 3B may be waived by Sellers; provided that no such waiver shall be effective against Seller unless it is set forth in writing executed by Sellers or unless Sellers agree in writing to consummate the transactions contemplated by this Agreement without the fulfillment of such condition. - 15 - SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE FILEFRONT PRINCIPALS As an inducement to Buyer to enter into this Agreement, each Seller and each of the Filefront Principals hereby jointly and severally represent and warrant to Buyer as of the Closing Date as follows: 4A. Organization and Limited Partnership Power. Filefront is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Texas. MBPS is a corporation duly organized, validly existing, and in good standing under the laws of the State of California. Each Seller is qualified to do business in every jurisdiction where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified would not reasonably be expected to have a material adverse effect. Each Seller has all requisite partnership power and authority or corporate power and authority, as applicable, and all licenses, permits and approvals necessary to own and operate the Purchased Assets. The certificate of formation and limited partnership agreement of Filefront that have previously been furnished to Buyer reflect all amendments thereto and are correct and complete. The certificate of incorporation and bylaws of MBPS that have previously been furnished to Buyer reflect all amendments thereto and are correct and complete. Neither Seller has or ever has had any Subsidiaries and neither Seller owns or ever has owned the capital stock, equity securities or rights exercisable or convertible into capital stock or equity securities of any other Person. 4B. Authorization of Transactions. Each Seller has full partnership power and authority or corporate power and authority, as applicable, and each of the Filefront Principal has the capacity, to execute and deliver the Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. Each Filefront Principal and each Seller has duly authorized the execution and delivery of this Agreement and all other Transaction Documents to which such Filefront Principal or such Seller is a party and the consummation of the transactions contemplated hereby and thereby. No other limited partnership proceedings or corporate proceedings on the part of any Filefront Principal or any Seller are necessary to approve and authorize the execution and delivery of this Agreement or the other Transaction Documents to which such Filefront Principal or such Seller is a party and the consummation of the transactions contemplated hereby and thereby. This Agreement and all other Transaction Documents to which any Filefront Principal or any Seller is a party have been duly executed and delivered by such Filefront Principal or such Seller, as the case may be, and constitute the valid and binding agreements of such Filefront Principal and such Seller, enforceable against such Filefront Principal and such Seller in accordance with their terms. 4C. Absence of Conflicts. Except as set forth in Schedule 4C, the execution, delivery and performance of this Agreement and the other Transaction Documents to which any Seller or any Filefront Principal is a party and the consummation of the transactions contemplated hereby and thereby do not and shall not (a) conflict with or result in any breach of any of the terms, conditions or provisions of, (b) constitute a default under, (c) result in a violation of, (d) give any third party the right to modify, terminate, or accelerate any obligation under, (e) result in the creation of any Lien upon the Purchased Assets, or (f) require any authorization, consent, approval, exemption, or other action by or notice or declaration to, or filing with, any court or - 16 - administrative or other governmental body or agency, under the provisions of the certificate of formation or limited partnership agreement of Filefront, the certificate of incorporation or bylaws of MBPS or any Assigned Contract, or any law, statute, rule or regulation to which any Seller, any Filefront Principal or any of the Purchased Assets is subject or any judgment, order or decree to which any Seller, any Filefront Principal or the Purchased Assets is subject. 4D. Absence of Liabilities. Neither Seller has any obligation or liability (whether accrued, absolute, contingent, unliquidated or otherwise, whether or not known, whether due or to become due and regardless of when asserted), including with respect to the Purchased Assets, arising out of transactions entered into at or prior to the Closing, or any action or inaction at or prior to the Closing, or any state of facts existing at or prior to the Closing except (i) obligations under Contracts or commitments described in Schedule 4G, and (ii) liabilities expressly disclosed on Schedule 4D. 4E. Purchased Assets. Except as set forth on Schedule 4E, the Sellers own good and marketable title, free and clear of all Liens, to all of the Purchased Assets, except for (i) rights of licensors and lessors of such Purchased Assets which are subject to license or lease as described on Schedule 4G or Schedule 4E, (ii) Liens for current Taxes not yet due and payable, and (iii) Liens disclosed on the attached Schedule 4E. The Filefront Principals have assigned any and all of their right, title, and interest in the Purchased Assets to Sellers, and none of the Filefront Principals has any right, title, or interest in any of the Purchased Assets. The Purchased Assets constitute all of the assets (including Intellectual Property) used in the operation of the Business (other than Excluded Assets). At the Closing, Sellers will convey good and marketable title to all of the Purchased Assets, free and clear of all Liens. 4F. Legal Compliance. Sellers and their predecessors and Affiliates have complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder and including the Foreign Corrupt Practices Act, 15 U.S.C. 78dd-1 et seq.) of federal, state, local, and foreign governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. 4G. Contracts and Commitments. Except as specifically contemplated by this Agreement and except as set forth in Schedule 4G, neither Seller is a party to or bound by any Contract. Except as disclosed in Schedule 4G, no Contract or commitment disclosed on Schedule 4G has been (i) to the Knowledge of Sellers, breached or terminated by the other party, or (ii) breached or terminated by Sellers. Sellers have provided Buyer with a true and correct copy of all written Contracts which are required to be disclosed on Schedule 4G, in each case together with all amendments, waivers or other changes thereto (all of which are disclosed on Schedule 4G). Schedule 4G contains an accurate and complete description of all material terms of all oral Contracts referred to therein. 4H. Intellectual Property. (i) Sellers own or possess or have the right to use pursuant to a valid and enforceable, written license, sublicense, agreement, or permission all Intellectual Property - 17 - included in the Purchased Assets. Each item of Intellectual Property owned or used by Sellers immediately prior to the Closing Date hereunder will be owned or available for use by Buyer on identical terms and conditions immediately subsequent to the Closing Date hereunder. Sellers have taken all commercially reasonable action to maintain and protect each item of Intellectual Property that they own or use. (ii) Except as set forth on Schedule 4H(ii), neither Seller has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of third parties, and no Filefront Principal nor any Seller has ever received any charge, complaint, claim, demand, or notice alleging any such interference, infringement, misappropriation, or violation (including any claim that either Seller must license or refrain from using any Intellectual Property rights of any third party). To the Knowledge of Sellers, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of Sellers or any of their respective Subsidiaries. (iii) Each Seller has taken all commercially reasonable actions to maintain and protect all of the Intellectual Property of such Seller and will continue to take commercially reasonable actions to maintain and protect all of the Intellectual Property of such Seller prior to Closing so as not to adversely affect the validity or enforceability thereof. (iv) Schedule 4H(iv) sets forth the Monthly Unique Visitors for each of the last three Full Calendar Months prior to the date of this Agreement. 4I. Brokerage. Except as set forth in Schedule 4I, there are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of either Seller. 4J. Affiliate Transactions. Except as disclosed on Schedule 4J, no officer, partner, manager, employee, or Affiliate of either Seller or any individual related by marriage or adoption to any such individual or any entity in which any such Person owns any beneficial interest (collectively, the "Insiders"), is (i) a party to any agreement, Contract, commitment or transaction with such Seller or pertaining to the Purchased Assets or (ii) has any interest in any of the Purchased Assets. Except as disclosed on Schedule 4J, since 12:01 a.m. on the Effective Date, (x) no cash or other funds have been used except for the payment of accounts payable and accrued liabilities in the ordinary course of business consistent with past custom and practice, in each case that have become due in accordance with their terms and (y) no cash or other asset of the Business has been distributed to any equityholder of any Seller or used to pay any Indebtedness of any Seller. Neither Seller has taken any action outside of the ordinary course of business to cause Closing Date Net Working Capital to be less than Effective Date Net Working Capital. 4K. Disclosure. Neither this Agreement, the other Transaction Documents nor any of the schedules, attachments or Exhibits hereto, contain any untrue statement of a material fact or omit a material fact necessary to make each statement contained herein or therein, not misleading. - 18 - SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER As a material inducement to Sellers to enter into this Agreement, Buyer hereby represents and warrants to Sellers as of the Closing Date as follows: 5A. Organization and Corporate Power. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, with full corporate power and authority to enter into this Agreement and the Transaction Documents to which Buyer is a party and perform its obligations hereunder and thereunder. 5B. Authorization of Transactions. The execution, delivery and performance of this Agreement and the Transaction Documents to which Buyer is a party have been duly and validly authorized by all requisite corporate action on the part of Buyer, and no other corporate proceedings on its part are necessary to authorize the execution, delivery or performance of this Agreement. This Agreement constitutes, and each of the Transaction Documents to which Buyer is a party shall when executed constitute, a valid and binding obligation of Buyer, enforceable in accordance with their terms. 5C. No Violation. Buyer is not subject to or obligated under its organizational documents, any applicable law, or rule or regulation of any governmental authority, or any agreement or instrument, or any license, franchise or permit, or subject to any order, writ, injunction or decree, which would be breached or violated by its execution, delivery or performance of this Agreement and the other agreements contemplated hereby to which Buyer is a party. 5D. Governmental Authorities and Consents. Buyer does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement. 5E. Brokerage. Except as set forth in Schedule 5E, there are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of Buyer. SECTION 6. INDEMNIFICATION AND RELATED MATTERS 6A. Survival. All representations, warranties, covenants, and agreements set forth in this Agreement, the Transaction Documents or in any writing or certificate delivered in connection with this Agreement shall survive the Closing Date; provided that no Party shall be entitled to bring a claim for breach of representations or warranties made by Sellers or Buyer hereunder (other than representations or warranties of Seller made in Section 4A, 4B, 4E, 4I or 4J, or Section 5A, 5B or 5E, all of which shall survive the Closing forever) unless such Party delivers written notice of a claim prior to the expiration of the Initial Period (in which case such claim shall survive until such claim and the matter upon which such claim is brought are terminated). The right to indemnification, reimbursement or other remedy based upon such representations, warranties, covenants and obligations shall not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, - 19 - whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with any such representation, warranty, covenant or obligation. The waiver of any condition based upon the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, shall not affect the right to indemnification, reimbursement, or other remedy based upon such representation, warranties, covenants and obligations. 6B. Indemnification of Buyer. Each Seller and each of the Filefront Principals shall, jointly and severally, indemnify Buyer and its direct and indirect shareholders, officers, directors, employees, agents, representatives, affiliates, successors, and permitted assigns (collectively, the "Buyer Parties") and hold each of them harmless from and against and pay on behalf of or reimburse such Buyer Parties in respect of any loss (including diminution in value), liability, demand, claim, action, cause of action, cost, damage, deficiency, tax, penalty, fine or expense, whether or not arising out of third party claims (including, without limitation, interest, penalties, reasonable attorneys' fees and expenses, court costs and all amounts paid in investigation, defense or settlement of any of the foregoing) (collectively, "Losses" and individually, a "Loss") which any such Buyer Party may suffer, sustain or become subject to, as a result of, in connection with, relating or incidental to, or by virtue of: (i) the breach of any representation, warranty, covenant, or agreement made by any Seller or any of the Filefront Principals contained in this Agreement, the other Transaction Documents, any Exhibit or schedule hereto or any certificate delivered by such Seller or any of the Filefront Principals to Buyer with respect hereto or thereto in connection with the Closing, (ii) any Retained Liabilities or any claim, proceeding or assertion made against Buyer with respect to any Retained Liabilities, or (iii) any claim, suit or proceeding instituted by either Seller or any of its equityholders or other stakeholders regarding the allocation of consideration between Sellers. Sellers shall not be obligated to pay any indemnification amount for Losses pursuant to this Section 6B (x) until the aggregate amount of all Losses exceeds $50,000 (the "Basket") whereupon Buyer Parties shall be entitled to indemnification for all Losses (including the Basket) or (y) in excess of $1,000,000 plus 20% of the Additional Purchase Price Payment paid or payable to Seller; provided that in no event shall the limits on indemnification pursuant to this sentence apply to any claim for indemnification (A) pursuant to clause (i) of this Section 6B for breach of the representations and warranties of Sellers made in any of Sections 4A, 4B, 4E, 4H, 4I or 4J, (B) pursuant to clause (i) of this Section 6B for breach of any covenant or agreement made by Seller, or (C) pursuant to clause (ii) or (iii) of this Section 6B; provided further Sellers shall not be obligated to pay any indemnification amount with respect to a breach of any representation or warranty contained in Section 4H in excess of $2,000,000 plus 50% of the Additional Purchase Price Payment paid or payable to Seller; provided further that in no event shall Sellers' aggregate obligations for breaches of representations and warranties exceed the Purchase Price (including, for the avoidance of doubt, the Additional Purchase Price Payment). 6C. Indemnification of Sellers. Buyer shall indemnify and hold harmless Sellers and each of the Filefront Principals from and against and pay on behalf of or reimburse Sellers and each of the Filefront Principals in respect of any Loss which Sellers or any of the Filefront Principals may suffer, sustain or become subject to, as the result of, in connection with, relating to, or incidental to or by virtue of the breach by Buyer of any representation, warranty, covenant or agreement made by Buyer contained in this Agreement, any other Transaction Document or any certificate delivered by Buyer to Sellers with respect thereto in connection with the Closing. - 20 - Buyer shall not be obligated to pay any indemnification amount for Losses pursuant to this Section 6C (x) until the aggregate amount of all Losses exceeds the Basket whereupon Sellers shall be entitled to indemnification for all Losses (including the Basket) or (y) in excess of $1,000,000 plus 20% of the Additional Purchase Price Payment paid or payable to Sellers; provided that in no event shall the limits on indemnification pursuant to this sentence apply to any claim for indemnification (A) pursuant to this Section 6C for breach of the representations and warranties of Buyer made in any of Sections 5A, 5B or 5E, or (B) pursuant to this Section 6C for breach of any covenant or agreement made by Buyer. 6D. Procedure. If a Party hereto seeks indemnification under this Section 6, such Party (the "Indemnified Party") shall give written notice to the other Party(ies) (the "Indemnifying Party") after receiving written notice of any action, lawsuit, proceeding, investigation or other claim against it (if by a third party) or discovering the liability, obligation, or facts giving rise to such claim for indemnification, describing the claim, the amount thereof (if known and quantifiable), and the basis thereof; provided that the failure to so notify the Indemnifying Party shall not relieve the Indemnifying Party of its or his obligations hereunder except to the extent such failure shall have harmed the Indemnifying Party. In that regard, if any action, lawsuit, proceeding, investigation or other claim shall be brought or asserted by any third party which, if adversely determined, would entitle the Indemnified Party to indemnity pursuant to Section 6, the Indemnified Party shall promptly notify the Indemnifying Party of the same in writing, specifying in detail the basis of such claim and the facts pertaining thereto and the Indemnifying Party shall be entitled to participate in the defense of such action, lawsuit, proceeding, investigation or other claim giving rise to the Indemnified Party's claim for indemnification at its expense, and at its option (subject to the limitations set forth below) shall be entitled to appoint lead counsel of such defense with a counsel acceptable to the Indemnified Party; provided that, as a condition precedent to the Indemnifying Party's right to assume control of such defense, it must first enter into an agreement with the Indemnified Party (in form and substance reasonably satisfactory to the Indemnified Party) pursuant to which the Indemnifying Party agrees to be fully responsible (with no reservation of rights) for all Losses relating to such claims and furnish the Indemnified Party with reasonable evidence that the Indemnifying Party is and will be able to satisfy any such liability; and provided further that the Indemnifying Party shall not have the right to assume control of such defense and shall pay the fees and expenses of counsel retained by the Indemnified Party, if the claim which the Indemnifying Party seeks to assume control (A) involves criminal or quasi-criminal allegations, (B) involves a claim to which the Indemnified Party reasonably believes an adverse determination would be detrimental to or injure the Indemnified Party's reputation or future business prospects, or (C) involves a claim which, upon petition by the Indemnified Party, the appropriate court rules that the Indemnifying Party failed or is failing to vigorously prosecute or defend. If the Indemnifying Party is permitted to assume and control the defense and elects to do so, the Indemnified Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in any such action and to participate in the defense thereof, but the fees and expenses of such counsel employed by the Indemnified Party shall be at the expense of the Indemnified Party unless (x) the employment thereof has been specifically authorized by the Indemnifying Party in writing, or (y) the Indemnifying Party has been advised by counsel that a reasonable likelihood exists of a conflict of interest between the Indemnifying Party and the Indemnified Party. If the Indemnifying Party shall control the defense of any such claim, the Indemnifying Party shall obtain the prior written consent of the Indemnified Party (which shall not be unreasonably - 21 - withheld) before entering into any settlement of a claim or ceasing to defend such claim, if pursuant to or as a result of such settlement or cessation, injunction or other equitable relief will be imposed against the Indemnified Party or if such settlement does not expressly unconditionally release the Indemnified Party from all liabilities and obligations with respect to such claim and all other claims arising out of the same or similar facts and circumstances, with prejudice. 6E. Payments; Setoff. The Indemnifying Party shall pay the Indemnified Party in immediately available funds promptly after the Indemnified Party provides the Indemnifying Party with written notice of a claim hereunder and the Parties reasonably agree that there is a reasonable basis for such claim; provided, however, that Buyer may elect to setoff any amount to which it may be entitled under this Section 6 against any Additional Purchase Price Payment. Neither the exercise of nor the failure to exercise such right of setoff will constitute an election of remedies or limit Buyer in any manner in the enforcement of any other remedies that may be available to it. SECTION 7. ADDITIONAL AGREEMENTS 7A. Tax Matters. All transfer, documentary, sales, use, stamp, registration and other such Taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred in connection with the consummation of the transactions contemplated by this Agreement shall be paid by each Seller, on a joint and several basis, when due, and each Seller will, at its own expense, file all necessary Tax returns and other documentation with respect to all such Taxes, fees and charges, and, if required by applicable law, the Parties will, and will cause their Affiliates to, join in the execution of any such Tax returns and other documentation. 7B. Press Releases and Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the other Party; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Party prior to making the disclosure). After the Closing, neither Seller nor any Filefront Principal shall issue any press release or make any public announcement relating to the subject matter of this Agreement after the Closing without the prior written approval of Buyer. 7C. Further Transfers. Each Seller shall execute and deliver such further instruments of conveyance and transfer and take such additional action as Buyer may reasonably request to effect, consummate, confirm or evidence the transfer to Buyer of the Purchased Assets and any other transactions contemplated hereby. Each Seller will execute such documents as may be necessary to assist Buyer in preserving or perfecting its rights in the Purchased Assets. 7D. Specific Performance. Each Party acknowledges and agrees that the other Party would be damaged irreparably if any provision of this Agreement is not performed in accordance with its specific terms or otherwise is breached, so that a Party shall be entitled to injunctive relief to prevent breaches of the provisions of this Agreement and to enforce specifically this - 22 - Agreement and the terms and provisions hereof in addition to any other remedy to which such Party may be entitled, at law or in equity. In particular, the Parties acknowledge that the business of Sellers is unique and recognize and affirm that if either Seller or any of the Filefront Principals breaches this Agreement, money damages would be inadequate and Buyer would have no adequate remedy at law, so that Buyer shall have the right, in addition to any other rights and remedies existing in its favor, to enforce its rights and the other Parties' obligations hereunder not only by action for damages but also by action for specific performance, injunctive, and/or other equitable relief, in case without the requirement of posting a bond or proving actual damages. 7E. Expenses. Each Party shall pay all of its own fees, costs, and expenses (including, without limitation, fees, costs, and expenses of legal counsel, investment bankers, brokers or other representatives and consultants, and appraisal fees, costs, and expenses) incurred in connection with the negotiation of this Agreement, the performance of their obligations hereunder, and the consummation of the transactions contemplated hereby. 7F. Non-Competition, Non-Solicitation and Confidentiality. (i) Non-Competition. During the period from the date hereof until the second anniversary after the expiration of the Initial Period (the "Noncompete Period"), neither Seller nor any of the Filefront Principals shall directly or indirectly (whether for such Party or for any other Person) own any interest in, operate, manage, control, engage in, participate in (whether as an officer, director, employee, partner, agent, representative or otherwise), invest in, permit any of their names to be used by, consult with, advise, render services for (alone or in association with any other Person), or otherwise assist in any manner (a) any Person (each a "Restricted Person") that engages in or owns, invests in, operates, manages or controls any venture or enterprise which directly or indirectly engages or proposes to engage in a business which Buyer's Game Group engages as of the Closing Date or any time during the Initial Period or which any Seller or any Filefront Principal has knowledge that Buyer's Game Group intends to engage as of the Closing Date or any time during the Initial Period; (b) any successor, assignee, partner, joint venture or collaboration partner, subsidiary, division or Affiliate of any Restricted Person; or (c) any Person in which any Restricted Person owns an interest or participates, which any of Restricted Person manages or controls (whether as an officer, director, employee, partner, agent, representative or otherwise), or with which any Restricted Person consults or to which any Restricted Person otherwise provides management or financial support. Notwithstanding the foregoing, the Noncompete Period shall terminate in the event that Buyer and Guarantor have breached any obligations to make the Additional Purchase Price Payment on the 10th day after written notice of such breach, unless prior to such time, Buyer's obligations to make the Additional Purchase Price Payment are satisfied (by Buyer or Guarantor). Nothing herein shall prohibit Sellers or the Filefront Principals from being an owner, indirectly through a mutual fund or other similar pooled investment vehicle, of a passive investment in the stock of a corporation that is publicly traded, so long as neither Seller nor any of the Filefront Principals has any other participation in the business of any such corporation. The Parties expressly acknowledge and agree that each and every restriction imposed by this Section 7F(i) is reasonable with respect to subject matter, time period and geographical area. (ii) Non-Solicitation. Each Seller and each of the Filefront Principals agree that, during the Noncompete Period, each Seller and each of the Filefront Principals shall not, - 23 - and shall not permit any of their Affiliates to, directly or indirectly through another Person (a) induce or attempt to induce any employee of any ZD Entity to leave the employ of such ZD Entity, or in any way interfere with the relationship between any ZD Entity and any employee thereof, (b) hire any person who was an employee of any ZD Entity at any time during the one (1) year period prior to the termination of the Noncompete Period, (c) call on, solicit or service any customer, supplier, licensee, licensor, franchisee or other business relation of any ZD Entity in order to induce or attempt to induce such Person to cease or reduce doing business with such ZD Entity (for avoidance of doubt and without limiting the foregoing, it shall constitute a material violation of this Section 7F(ii) for either Seller or any Filefront Principal to make any effort to cause any customer, supplier, licensee, licensor, franchisee or other business relation of a ZD Entity to purchase from a third party any goods or services that are offered at such time by such ZD Entity), or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the ZD Entity, including, without limitation, making any negative statements or communications about any ZD Entity, or (d) directly or indirectly acquire or attempt to acquire any business in the United States of America to which any ZD Entity has made an acquisition proposal prior to the Termination Date to the knowledge of any Filefront Principal relating to the possible acquisition of such business (an "Acquisition Target") by the ZD Entity, or take any action to induce or attempt to induce any Acquisition Target to consummate any acquisition, investment or other similar transaction with any Person other than a ZD Entity. When used herein, "ZD Entity" means Ziff Davis Holdings Inc. and its Subsidiaries. (iii) Confidentiality. Seller and each of the Filefront Principals shall treat and hold as confidential any information concerning the business of Sellers and Buyer and their respective Affiliates (the "Confidential Information") (including all information related to the Purchased Assets), refrain from using any of the Confidential Information except in connection with this Agreement, and deliver promptly to Buyer, at the request and option of Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in his or its possession or under his or its control. If any Seller or any Filefront Principal is requested or required (by oral question or request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, such Person shall notify Buyer promptly of the request or requirement so that Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 7F(iii). If, in the absence of a protective order or the receipt of a waiver hereunder such Person is, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, such Person may disclose the Confidential Information to the tribunal; provided that such disclosing Person shall use his or its best efforts to obtain, at the request of Buyer, an order or other assurance that confidential treatment shall be accorded to such portion of the Confidential Information required to be disclosed as Buyer shall designate. "Confidential Information" shall not include any information that was made generally available to the public, other than information from any Seller or any Filefront Principal disclosed in violation of this Agreement. (iv) Remedy for Breach. Each Seller and each of the Filefront Principals acknowledge and agree that Buyer is entering into this Agreement and the Transaction Documents in reliance on the covenants of Sellers and the Filefront Principals in this Section 7F and that if either Seller or a Filefront Principal breaches any of the provisions of this Section 7F, monetary damages shall not constitute a sufficient remedy. Consequently, in the event of any - 24 - such breach, Buyer and/or its respective successors or assigns may, in addition to other rights and remedies existing in their favor, apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof, in each case without the requirement of posting a bond or proving actual damages. (v) Enforcement. If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 7F is invalid or unenforceable, each Seller and each of the Filefront Principals agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 7G. Amendment of Filefront's Limited Partnership Agreement and MBPS Certificate of Incorporation. Filefront shall not, and each of the Filefront Principals agrees that it shall cause Filefront not to, amend, modify or waive any provision of Filefront's partnership agreement or certificate of formation, as in effect on the date hereof and in the form attached to the certificate delivered by Sellers to Buyer pursuant to Section 3A hereof on the Closing Date, without the prior written consent of Buyer. MBPS shall not, and each of the Filefront Principals agrees that it shall cause MBPS not to, amend, modify or waive any provision of MBPS' certificate of incorporation or bylaws, as in effect on the date hereof and in the form attached to the certificate delivered by Sellers to Buyer pursuant to Section 3A hereof on the Closing Date, without the prior written consent of Buyer. The covenants of Sellers and the Filefront Principals in this Section 7G shall terminate on the fourth anniversary of the Closing Date; provided that such termination shall not release any Seller or any Filefront Principal of liability for breach of this Section 7G arising before such termination. 7H. Transfer of Ownership of Sellers. Each of the Filefront Principals hereby agrees and covenants not to sell, transfer, pledge or encumber all or any portion of his or her ownership interest in ether Seller or his or her right to receive any proceeds from any Additional Purchase Price Payment without the prior written consent of Buyer so long as the Additional Purchase Price Payment is due and owing and has not yet been made. Each Seller agrees that it shall not permit or record on the books of such Seller, any sale, transfer, pledge or encumbrance by any Filefront Principal made in violation of this Section 7H. The covenants of Sellers and the Filefront Principals in this Section 7H shall terminate on the fourth anniversary of the Closing Date; provided that such termination shall not release any Seller or any Filefront Principal of liability for breach of this Section 7H arising before such termination. 7I. Websites. At all times after Closing, the content appearing on the www.filefront.com web site or sub-domains of filefront.com shall be substantially similar to the content on such sites at Closing, and Buyer shall have the right to approve any material changes relating to the content appearing on such websites, and any such content shall be subject to Buyer's standard Terms of Service and Privacy Policy. - 25 - 7J. Budgets and Operations. (i) Each of Buyer, Sellers and the Filefront Principals agrees that the budget for the Initial Period shall be as attached on Exhibit B attached hereto (the "Budget") and during the Initial Period shall comply with the covenants set forth in this Section 7J. Buyer agrees to make funding available for operation of the Business during the Initial Period in accordance with the Budget. Notwithstanding the Budget, the Filefront Principals shall use their best efforts to efficiently deploy the Business' capital and bandwidth during the Initial Period. Furthermore, during the Initial Period, Buyer agrees to maintain up to 7.5 Gbps of Internet bandwidth connections to support United States website traffic. Buyer also commits to support non-United States website traffic with at lease one (1) Gbps of bandwidth during the Initial Period. (ii) During each fiscal quarter, the Filefront Principals agree that they shall cause that the Budget will not, without the prior written consent of Buyer, be exceeded by more than 10% with respect to any particular category in such Budget. Notwithstanding anything herein to the contrary, the Filefront Principals shall not permit the Budget to be exceeded in any fiscal quarter without the prior written consent of Buyer and in the event that the aggregate operating and capital expenses for any particular fiscal quarter during the Initial Period exceed the amount set forth in the Budget for such fiscal quarter, the amount of expenses in excess of the expenses in the Budget for such fiscal quarter shall, for each such fiscal quarter in which operating and capital expenses in the aggregate exceed the operating and capital expenses set forth in the Budget for such fiscal quarter, reduce the Additional Purchase Price Payment by an amount equal to such excess; provided that the aggregate amount by which the Additional Purchase Price Payment is reduced as a result of application of this Section 7J(ii) shall be decreased by an aggregate amount equal to the amount by which the aggregate operating and capital expenses in the Budget for any fiscal quarter during the Interim Period exceed the aggregate operating and capital expenses for such fiscal quarter; provided further that in no event shall the foregoing proviso be interpreted to provide for an increase in the Additional Purchase Price beyond the amount otherwise determined in accordance with Section 2E hereof. (iii) Subject to compliance with the Budget and Buyer's human resource guidelines, the Filefront Principals shall be entitled to hire employees and independent contractors for the Business; provided that no such Person shall be given the title or authority of vice president or any position on par with or senior to vice president without the prior written consent of Buyer. The Filefront Principals shall, to the extent previously approved by Buyer, retain operational control over the Business during the Initial Period. All employees and contractors of the Business shall report to the Filefront Principals. (iv) During the Initial Period, Buyer shall not require any user to register with Buyer in order to download files from the filefront.com website or any sub-domain thereof without the prior written consent of the Filefront Principals. (v) During the Initial Period, as long as a Filefront Principal remains employed with Buyer, Buyer agrees that the Business' headquarters shall be no located no further than 30 miles from Spring, Texas; provided that the Filefront Principals shall be required to travel as necessary in the ordinary course performance of their duties to Buyer. The Budget shall include up to an aggregate $50,000 for relocation expenses (including post-move expenses - 26 - (including lease expenses) with respect to the Business' current hosting site in Southern California) for the Purchased Assets from Southern California to a facility located near Spring, Texas; provided that the Filefront Principals shall not enter into any Contract or commitment for the new hosting site without the prior written consent of Buyer nor shall there be any requirement for Buyer to approve of such relocation if the aggregate hosting and bandwidth costs at the proposed new facility would exceed expenses at Buyer's existing facility in Southern California. (vi) During the Initial Period, the Filefront Principals shall abide by all standard Buyer policies with respect to the operation of the Business, including with respect to accounting, human resources and legal matters. Subject to Buyer's obligations under this Section 7J, Buyer shall retain sales and marketing control over the Purchased Assets, including with respect to (A) advertising (including ad sizes, locations, serving, pricing and rate cards), (B) sales, service and end-user and customer management, (C) subscription services (including terms, pricing and promotions), (D) marketing and branding of the site, (E) list rental, and (F) linking to content from filefront.com on Buyer's other properties. The Filefront Principals shall dedicate at least 20% of the development portion of the HR category of the Budget towards supporting Buyer's sales and marketing efforts. (vii) During the Initial Period, the Filefront Principals shall use good faith efforts to assist Buyer in procuring the advertising customers of the Business existing as of the Effective Date for Buyer's account after the Closing on terms satisfactory to Buyer. (viii) It is understood by the Parties that, as long as Buyer makes funding available to the Filefront Principals for operation of the Business during the Initial Period in accordance with the Budget and otherwise complies with the covenants binding on Buyer set forth in this Section 7J, Buyer shall make all decisions in its sole discretion relating to the use, non-use, capital funding, and/or sale of the Purchased Assets in each case without regard to the impact thereof on the Additional Purchase Price Payment. Subject to Buyer making funding available to the Filefront Principals for operation of the Business during the Initial Period in accordance with the Budget and otherwise complying with the covenants binding on Buyer set forth in Section 7J, each Seller and each of the Filefront Principals does hereby release, waive, and discharge Buyer and its successors and assigns from any and all liability or obligation with respect to such decisions and the budgets approved by Buyer's board of directors, CEO, President or CFO with respect to the use, non-use and/or capital funding of the Purchased Assets (except to the extent such decisions were made in bad faith with a primary purpose of reducing or eliminating the Additional Purchase Price Payment). (ix) Notwithstanding the foregoing, Buyer's obligations under this Section 7J shall terminate upon the earliest of (A) the expiration of the Initial Period, (B) any date that the Remaining Filefront Principal is terminated by the Company with Cause or resigns his employment with the Company without Good Reason, and (C) the first day of the calendar month after which the average number of Monthly Unique Visitors during the immediately preceding three Full Calendar Months is less than 1,500,000. 7K. Other Business Obligations. The Filefront Principals hereby advise Buyer that they are engaged as owners of the Person and business described on Schedule 7K hereto and - 27 - hereby represent and warrant to Buyer that its activities and services with respect to such Person and business do not, and covenant and agree that during the Noncompete Period its activities and services with respect to such Person and business will not, (i) compete with any business in which Buyer's Game Group engages, (ii) involve pornography or any other matter that might reasonably be expected to be of concern to Buyer, or (iii) require more than 10 hours of the Filefront Principals' time in any month. The Filefront Principals hereby agree to cause the covenants described in clauses (i) - (iii) foregoing to be complied with during the Noncompete Period; provided that each Filefront Principals' obligations under clause (iii) of this Section 7K shall terminate for a Filefront Principal upon such Filefront Principal's Termination Date. 7L. Amendment of Filefront Name. Filefront agrees that, within 30 days after the Closing Date, it shall change its name under the laws of State of Texas and each other jurisdiction where it is authorized to do business to not include the name "filefront" or anything confusingly similar thereto. 7M. The Queue. In the event that, after the Closing, any Buyer Party receives any claim, suit or proceeding instituted by a third party, or any notice given by a third party to any Buyer Party, in each case relating to an alleged infringement by such Buyer Party concerning the queue used in the operation of the Business, the Sellers shall have ten business days to, at their own expense, resolve the issue to Buyer's reasonable satisfaction by any of (i) changing the existing queue such that it is no longer infringing, (ii) changing to a new queue that is not infringing, or (iii) entering into a license agreement with respect to the existing queue with the purported patent holder. Prior to embarking upon a resolution, the Sellers shall confer with Buyer regarding their proposed resolution and get their prior approval for such proposed resolution (which approval shall not be unreasonably withheld). In the event that Sellers have not resolved the issue prior to the expiration of the tenth business day, Buyer shall be entitled to resolve the issue in accordance with clause (i), (ii) or (iii) of this Section 7M or, with Sellers' prior consent, such other means as Buyer determines to be reasonably practicable and Sellers shall reimburse Buyer for its reasonable out-of-pocket Losses in so resolving the issue; provided in no event shall this Section 7M be construed to provide that Sellers are required to indemnify any Buyer Party for Losses, other than as specified in this Section 7M, for any out-of-pocket damages suffered by Buyer Parties for operation of the website during periods from and after the Closing Date. SECTION 8. MISCELLANEOUS 8A. Amendment and Waiver. This Agreement may be amended and any provision of this Agreement may be waived with the prior written consent of Buyer, Sellers and the Filefront Principals, and upon such consent, such amendment or waiver shall be binding on all Parties hereto; provided that any amendment to the Budget shall require only the consent of Buyer and the Filefront Principals. No course of dealing between or among any persons having any interest in this Agreement shall be deemed effective to modify, amend, or discharge any part of this Agreement or any rights or obligations of any Party under or by reason of this Agreement. 8B Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given (i) when delivered personally to the recipient, (ii) one - 28 - business day after being sent to the recipient by reputable overnight courier service (charges prepaid), (iii) one business day after being sent to the recipient by facsimile transmission or electronic mail, or (iv) four business days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid, and addressed to the intended recipient as set forth below:
Notices to Seller or the Filefront Principals: with copies to: - ---------------------------------------------- -------------------------------- FileFront, L.P. and Mbps.com, Inc. Greenberg Traurig, LLC c/o Sharon Fanning 2450 Colorado Avenue, Suite 400E 4200 Weir Road Santa Monica, CA 90404 Cleveland, Texas 77328 Attn: Thomas S. Loo Telecopy: (310) 586-7800 Todd Faulk Email: LooT@gtlaw.com 17714 Memorial Springs Drive Tomball, Texas 77375 Derek Labian 2526 Autumn Springs Lane Spring, Texas 77373
Notices to Buyer: with copies to: - ----------------- --------------- c/o Ziff Davis Holdings Inc. Kirkland & Ellis LLP 28 E. 28th Street 200 East Randolph Drive New York, NY 10016 Chicago, IL 60601 Attention: General Counsel Attention: John A. Weissenbach, Esq. Telecopy: (212) 503-3560 Richard J. Campbell, Esq. Telecopy: (312) 861-2200
8C.Binding Agreement; Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party; provided, however, that Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases Buyer nonetheless shall remain responsible for the performance of all of its obligations hereunder). Notwithstanding anything herein to the contrary, (A) no consent of any other Party pursuant to this Section 8C shall be required for Buyer to assign its rights and obligations under this Agreement (in whole or in part) (x) where Buyer pays $10,000,000 in full satisfaction of its obligations to pay the Additional Purchase Price Payment, (y) after the Additional Purchase Price Payment is made is accordance herewith, or (z) where the Purchased Assets are being sold as part of a sale of all or substantially all of the assets of Buyer or a sale of all or substantially all of the assets of Buyer's Game Group or where there is a sale of equity securities of, or merger involving, Buyer or any of its Affiliates and (B) in no event shall any consent of any other Party be required for Buyer to assign its rights under this Agreement where Buyer is retaining all obligations with respect to the Additional Purchase Price Payment. - 29 - 8D. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement. 8E. Construction. The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Person. The word "including" shall mean including without limitation regardless of whether such words are included in some contexts but not others. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. 8F. Headings. The headings used in this Agreement are for convenience of reference only and do not constitute a part of this Agreement and shall not be deemed to limit, characterize or in any way affect any provision of this Agreement, and all provisions of this Agreement shall be enforced and construed as if no heading had been used in this Agreement. 8G. Entire Agreement. The schedules and exhibits identified in this Agreement are incorporated herein by reference and made a part hereof. This Agreement and the documents referred to herein contain the entire agreement between the Parties and supersede any prior understandings, agreements or representations by or between the Parties, written or oral, which may have related to the subject matter hereof in any way, including, without limitation, the Letter of Proposal. 8H. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. 8I. Governing Law. All questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflict of law provision (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. 8J. Submission to Jurisdiction. Each of the Parties irrevocably and unconditionally submits to the exclusive jurisdiction of any state or Federal court sitting in New York County, New York, in any action or proceeding arising out of or relating to this Agreement and agrees that all claims in respect of the action or proceeding may be heard and determined in any such court. Each Party also agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. Each Party hereby agrees - 30 - that service of any process, summons, notice or document by U.S. registered mail to the appropriate address and to the attention of the appropriate person indicated in Section 8B shall be effective service of process for any action, suit or proceeding brought against such Party in any such court; provided, however, that nothing in this paragraph shall affect the right of any Party to serve legal process in any other manner permitted by law or at equity. Each Party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law or at equity. Notwithstanding the foregoing, nothing in this Section 8J shall limit the parties' agreement to arbitrate disputes as set forth in Section 8L. 8K. No Third-Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to confer on any person other than the Parties and their respective successors and permitted assigns any rights or remedies under or by virtue of this Agreement. 8L. Arbitration. Each of the Parties hereto agrees that in the event of any dispute arising between or among the Parties arising out of or relating to this Agreement or its breach, except for a dispute relating to the rights and obligations set forth in Section 7F, such dispute shall be settled by arbitration to be conducted in New York, New York in accordance with the Commercial Arbitration Rules (except as modified below) of the American Arbitration Association and with the Expedited Procedures thereof (collectively, the "Rules"). Each of the Parties hereto agrees that such arbitration shall be conducted by a single arbitrator who is mutually agreeable to both Parties. Each of the Parties agrees that in any such arbitration that pre-arbitration discovery shall be limited to an exchange of documents which each parties intends to rely upon at the arbitration proceeding, that the Arbitration proceeding shall commence within 90 days from selection of the Arbitrator, the proceeding shall not exceed an aggregate of 16 hours (exclusive of time required by the Arbitrator for preparation), that the award shall be made in writing no more than 30 days following the end of the proceeding, that the arbitration shall not be conducted as a class action, that the arbitration award shall not include factual findings or conclusions of law, that no punitive damages shall be awarded, and that all facts and circumstances relating to such arbitration, including without limitation the existence of the dispute and the ultimate resolution, shall be kept confidential. Any award rendered by the arbitrator shall be final and binding and judgment may be entered on it in any court of competent jurisdiction. The prevailing Party (as determined by the arbitrator) shall in addition be awarded by the arbitrator such Party's own attorneys' fees and expenses in connection with such proceeding. The non-prevailing Party (as determined by the arbitrators) shall pay the fees and expenses of the arbitration. 8M. Delivery by Facsimile. This Agreement and any Transaction Document, and any amendments hereto or thereto, to the extent signed and delivered by means of a facsimile machine, shall be treated in all manner and respects as an original Contract and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any Party hereto or to any such Contract, each other Party hereto or thereto shall re-execute original forms thereof and deliver them to all other Parties. No Party hereto or to any such Contract shall raise the use of a facsimile machine to deliver a signature or the fact that any signature or Contract was transmitted or communicated through the use of facsimile machine as a defense to the formation of a Contract and each such Party forever waives any such defense. * * * * - 31 - IN WITNESS WHEREOF, the undersigned have executed this Asset Purchase Agreement as of the date first written above. FILEFRONT, L.P. By: Interactive Internet Ventures, LLC Its: General Partner By: ___________________________________ Name: ___________________________________ Its: ___________________________________ MBPS.COM, INC. By: ___________________________________ Name: ___________________________________ Its: ___________________________________ ZIFF DAVIS MEDIA INC. By: ___________________________________ Name: ___________________________________ Its: ___________________________________ ____________________________________________ Todd Faulk ____________________________________________ Derek Labian Solely for purposes of 2E(vi): ZIFF DAVIS HOLDINGS INC. By: ______________________________ Name: ______________________________ Its: ______________________________ EX-10.41 3 y18951exv10w41.txt EX-10.41: LETTER Exhibit 10.41 Susan E. Alderton December 6, 2005 Managing Executive Stephens Financial Group 65 East 55th Street New York, NY 10022 Dear Susan, This constitutes a formal offer for you to join the Ziff Davis Media Board of Directors and be its Audit Committee Chairperson. The total compensation for the position is $50,000 per year and will be paid monthly. The Compensation Committee will also recommend a stock option package for you with potential liquidation value of $250,000. Your directorship would become effective with our first 2006 Board meeting which is currently scheduled for January 12 at our offices in New York City. We'll have three other Board meetings during 2006 (the dates yet to be determined in March, June and September), with one of them taking place at Willis Stein & Partners' offices in Chicago. Our CFO, Mark Moyer, can answer any questions you may have about Audit Committee meeting dates; meetings with our auditors, Grant Thornton; Sarbanes-Oxley compliance plans; etc. Susan, it was great meeting with you to discuss Ziff Davis' progress and future plans and we look forward to the opportunity of working with you to complete our mission and deliver full value to all of our stakeholders and employees. Happy Holidays ! /s/ R. F. Callahan Cc: Mark Moyer EX-14.2 4 y18951exv14w2.txt EX-14.2: AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY Exhibit 14.2 ZIFF DAVIS HOLDINGS INC. AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY BACKGROUND Under the Sarbanes-Oxley Act of 2002 (the "Act"), the Audit Committee (the "Committee") of the Board of Directors (the "Board") of Ziff Davis Holdings Inc. ("Ziff Davis") is responsible for the appointment, compensation and oversight of the work of the independent auditor. As part of this responsibility, the Committee is required to pre-approve the audit and non-audit services performed by Ziff Davis Holdings' independent auditor, PricewaterhouseCoopers, in order to assure that they do not impair the auditor's independence. To implement the provisions of the Act, the Securities and Exchange Commission (the "SEC") has issued rules specifying the types of services that an independent auditor may not provide to its audit client, as well as the Committee's administration of the engagement of the independent auditor. Accordingly, the Committee has adopted this Audit and Non-Audit Services Pre-Approval Policy (the "Policy"), which sets forth the procedures and the conditions pursuant to which services to be performed by the independent auditor are to be pre-approved. Under the SEC's rules issued on January 28, 2003, services provided by Ziff Davis's external audit firm are classified into four categories of permitted services: - - Audit; - - Audit-Related; - - Tax; and - - All Other. Financial information systems design and implementation services and a number of other services detailed on Attachment A are specifically prohibited (the "Prohibited Services"). Attachment A also summarizes the SEC's definition of each of the four categories listed above. It is the intent of the Committee to maintain this policy in a manner consistent with SEC regulation and other relevant criteria as they may change from time to time. This policy may be updated from time to time based on changes in such criteria, or otherwise as determined in the reasonable judgment of the Committee. POLICY Ziff Davis will not use its external audit firm for any Prohibited Services. Each request to use Ziff Davis's external audit firm for permitted services, and the related estimated fees, will be approved by the Committee (and, if indicated on Attachment B, by the Board of Directors) before the commencement of such services.. To ensure an efficient process, each year in connection with the April Board meeting Ziff Davis's management will request the approval of the Committee (and, if indicated on Attachment B, by the Board of Directors) for all estimated fees for the current year. Ziff Davis's management will provide the Committee (and, if indicated on Attachment B, by the Board of Directors) with updates and request additional approval in a manner consistent with Attachment B if the estimated fees for those services change. Attachment A DEFINITIONS OF SERVICES PROVIDED BY EXTERNAL AUDIT FIRM UNDER SEC RULES Definitions of Permissible Services; Audit: Includes the audit of the annual financial statements and review of financial statements included in the Form 10-Q, as well as services that generally only the external audit firm can reasonably provide, such as comfort letters, statutory audits, attest services, consents, and assistance with and review of documents filed with the SEC. Audit-Related: Assurance and related services that are reasonably related to the performance of the audit or review of the registrant's financial statements and are not included in Audit services, such as employee benefit plan audits, acquisition due diligence reviews, internal control reviews, and consultation concerning financial accounting and reporting standards. Tax: Tax compliance, tax consulting and tax planning. The proposed regulations acknowledge that some tax services, such as the formulation of tax strategies designed to minimize a client's tax obligations, may impair and external audit firm's independence and therefore are prohibited services. All Other: Services other than those described herein that are prohibited or otherwise would not impair the external audit firm's independence. Listing of Prohibited Services: - - Bookkeeping or other services related to a client's accounting records or financial statements; - - Financial information systems design and implementation; - - Appraisal or valuation services, fairness opinions, or contributions-in-kind reports; - - Actuarial services; - - Internal audit outsourcing services; - - Broker-dealer, investment adviser, or investment banking services; - - Legal services or expert services unrelated to the audit; and - - Any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible. - - Consulting services other than to the extent specified above as permissible Attachment B ZIFF DAVIS HOLDINGS INC. AUTHORITY LIMITS FOR APPROVAL OF NON-AUDIT SERVICES PROVIDED BY EXTERNAL AUDIT FIRM
MAXIMUM AGGREGATE PER TIMING OF NOTIFICATION TO BOARD PER PROJECT FISCAL YEAR Audit Committee $100,000 $300,000 The Committee shall approve the engagement of the external audit firm prior to the start of the work; the Board shall be informed at or before the meeting following such approval Board of Directors Greater than Greater than The Committee and the Board shall approve the $100,000 $300,000 engagement of the external audit firm prior to the start of the work
EX-31.1 5 y18951exv31w1.txt EX-31.1: CERTIFICATION EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, Robert F. Callahan, certify that: 1. I have reviewed this Annual Report on Form 10-K of Ziff Davis Holdings, Inc. ("the registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) (paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986); (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ ROBERT F. CALLAHAN ------------------------------------ ROBERT F. CALLAHAN CHIEF EXECUTIVE OFFICER March 31, 2006 EX-31.2 6 y18951exv31w2.txt EX-31.2: CERTIFICATION EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Mark D. Moyer, certify that: 1. I have reviewed this Annual Report on Form 10-K of Ziff Davis Holdings, Inc. ("the registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) (paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986); (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. By: /s/ MARK D. MOYER ------------------------------------ MARK D. MOYER CHIEF FINANCIAL OFFICER March 31, 2006 2 EX-32.1 7 y18951exv32w1.txt EX-32.1: CERTIFICATION EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Ziff Davis Holdings Inc. (the "Company") for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert F. Callahan, Chairman of the Board of Directors and Chief Executive Officer of the Company, certify, pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) to my knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ ROBERT F. CALLAHAN ------------------------------------ ROBERT F. CALLAHAN CHIEF EXECUTIVE OFFICER March 31, 2006 3 EX-32.2 8 y18951exv32w2.txt EX-32.2: CERTIFICATION EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Ziff Davis Holdings Inc. (the "Company") for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Derek Irwin, Chief Financial Officer of the Company, certify, pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) to my knowledge, the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. By: /s/ MARK D. MOYER ------------------------------------ MARK D. MOYER CHIEF FINANCIAL OFFICER March 31, 2006 4 -----END PRIVACY-ENHANCED MESSAGE-----