Ziff Davis obtains court approval of reorganization plan

By Rebecca Melvin

New York, June 17 - Ziff Davis Media Inc. obtained court approval of its reorganization plan from the U.S. Bankruptcy Court for the Southern District of New York after the company and its creditors hammered out final wording of a warrant agreement during a recess in Tuesday's confirmation hearing.

The warrant resolution obviates the need for a June 25 hearing that was tentatively planned and paves the way for the plan to go effective July 1.

"We anticipate that the plan effective date will be July 1," Ziff Davis counsel Mark Davis of Winston & Strawn LLP said following the hearing.

Judge Burton Lifland said he found Ziff Davis' second amended joint Chapter 11 plan of reorganization confirmable except for a single element, which was a reservation of rights by the official committee of unsecured creditors related to the unresolved warrant agreement terms.

Lifland said the potential litigation element stands in the way of confirmation.

"This hole should have been worked out before you came here today," Lifland told the parties, and he granted a one-hour recess because the parties, including the company, the official committee, and the ad hoc group of holders of floating-rate senior secured notes, felt they could reach agreement within that time.

The warrants are exercisable into shares of new Ziff Davis Holdings common stock representing 5% of shares on the effective date.

A management incentive plan, which was also an open issue, although it wouldn't have held up confirmation, was also resolved.

Of entities that voted on the plan, 140 voted to accept the plan, representing $269 million of claims, and seven voted to reject the plan, representing $250,000 of claims, Davis told the court.

Under the plan, Ziff Davis, publisher of PC Magazine and other technology and videogame oriented media, will issue a new $57.5 million senior secured note in exchange for the company's existing senior secured debt, plus stock.

In addition, 11.2% of the reorganized company's common stock will be distributed to holders of Ziff Davis' subordinated unsecured notes.

During the bankruptcy process, Ziff Davis gained access to $17 million of cash collateral, of which more than $15 million remains, Davis said. It also has exit financing of $7.5 million.

Creditor treatment

Treatment of creditors under the plan will include:

• Holders of administrative claims, less than $20,000 in miscellaneous priority claims and $100,000 in priority tax claims will recover 100% in cash;

• Holders of less than $100,000 in miscellaneous secured claims will recover 100% either in cash, reinstatement of their claims or return of the collateral securing the claims;

• Holders of subsidiary interests will retain their interests;

• Holders of $242.55 million in senior secured note claims will receive their share of new senior secured notes, their share of cash, 90% of the new common stock of the reorganized company and their share of an indemnity escrow;

• Holders of $186.39 million in subordinated note claims will receive 10% of the new common stock of the reorganized company and warrants for an additional 5% of common stock.

• Holders of $14 million in general unsecured claims will recover 9% through their share of $1.25 million in cash;

• Holders of $915,000 in convenience claims of $10,000 or less will recover 50% in cash; and

• Holders of old Ziff Davis Holdings common stock and interest will receive no distribution under the plan.

Ziff Davis is a New York-based media company with about 250 employees. It filed for bankruptcy on March 5, and its Chapter 11 case number is 08-10768.

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