<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 13, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ZAP.COM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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<S> <C> <C>
NEVADA APPLIED FOR 7319
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER (PRIMARY STANDARD
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) CLASSIFICATION CODE INCORPORATION)
</TABLE>
<TABLE>
<S> <C>
ZAP.COM CORPORATION AVRAM GLAZER,
100 MERIDIAN CENTRE, SUITE 350 PRESIDENT AND CHIEF EXECUTIVE OFFICER
ROCHESTER, NEW YORK 14618 ZAP.COM CORPORATION
(716) 242-8600 100 MERIDIAN CENTER, SUITE 350
ROCHESTER, NEW YORK 14618
(716) 242-8600
(ADDRESS, INCLUDING ZIP CODE OF PRINCIPAL (NAME, ADDRESS, INCLUDING ZIP CODE OF PRINCIPAL
PLACE OF BUSINESS AND TELEPHONE NUMBER, INCLUDING PLACE OF BUSINESS AND TELEPHONE NUMBER, INCLUDING
AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
------------------------
COPIES TO:
GORDON E. FORTH, ESQ.
WOODS, OVIATT, GILMAN, STURMAN & CLARKE LLP
700 CROSSROADS BUILDING
TWO STATE STREET
ROCHESTER, NEW YORK 14614
TELEPHONE NO. (716) 987-2800
FACSIMILE NO. (716) 454-3968
------------------------
APPROXIMATE DATE OF COMMENCEMENT DATE OR PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [ ].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d)under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE PRICE PER SHARE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Rights to purchase shares of Common Stock, par
value $.001 per share, to be distributed to
holders of Zapata Corporation common stock on
the record date(1).............................. 13,612,000(2) -- -- --
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Common Stock, par value $.001 per share, to be
issued pursuant to rights to purchase(2)........ 13,612,000 $8.00 $108,896,000 $30,273(3)
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Common Stock, par value $.001 per share, to be
distributed under certain circumstances to
holders of Zapata Corporation common stock on
the record date................................. 1,200,000(4) -- -- $ 2(5)
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</TABLE>
(1) The Company is granting at no cost to holders of the outstanding common
stock of Zapata Corporation ("Zapata") transferable subscription rights (the
"Rights") to subscribe for and purchase shares of the Company's common stock
at $8.00 per share.
(2) Represents one share of common stock issuable pursuant to the exercise of
each Right in respect of the shares of Zapata common stock estimated to be
outstanding as of April 12, 1999 (excluding 10,395,384 shares owned by an
entity controlled by Malcolm Glazer).
(3) The registration fee is calculated pursuant to Rule 457(i).
(4) Based on an estimate of the maximum number of shares of ZAP.COM common stock
issuable in connection with the Stock Distribution described herein.
(5) Estimated solely for purposes of calculating the registration statement fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933 based on the
adjusted book value of ZAP.COM common stock after giving effect to the
issuance of $8,000,000 in Series A preferred stock described herein,
assuming no Rights are exercised other than by Avram Glazer and an entity
controlled by Malcolm Glazer and 1,200,000 of the Company's 49,514,694
shares held by Zapata are distributed. No consideration will be paid by the
recipients of the ZAP.COM common stock constituting a part of the Stock
Distribution.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
[ZAPATA LETTERHEAD]
, 1999
Dear Stockholder:
I am pleased to send you the attached prospectus concerning a rights
offering and spin-off of our wholly-owned Internet subsidiary, ZAP.COM
Corporation, which is a development stage company. As a holder of Zapata
Corporation common stock you will receive a transferable right to purchase
("Right") shares of ZAP.COM Stock. Each holder of Zapata common stock at the
close of business on , 1999 (the record date for the distribution
of the Right) will receive one Right for every one share of Zapata common stock
he owns on that date. For example, if you own 500 shares of Zapata common stock,
you can purchase up to 500 shares of ZAP.COM COMMON stock. There is currently no
public market for the Rights or the ZAP.COM common stock. We expect that the
Rights will trade in the Over-the-Counter Market until the close of business on
the date that immediately precedes the date on which the Rights expire. We have
applied for quotation of our common stock in the Nasdaq National Market under
the symbol "ZCOM" and for trading privileges in the Pacific Stock Exchange under
the same symbol.
In addition, we may also distribute on a pro rata basis to those persons
holding our common stock as of , 1999, at no cost to them, in the
aggregate between 150,000 shares and 1,200,000 shares of ZAP.COM common stock
(the "Stock Distribution"). We will only make this Stock Distribution if it is
necessary in order for the ZAP.COM common stock to qualify for listing on the
Nasdaq National Market and the Pacific Stock Exchange based on the results of
the Rights offering.
The Rights are set to expire at 5:00 p.m., EST, on , 1999,
unless we extend the expiration date by up to 10 days. Accordingly, if you wish
to take advantage of your Rights, you will need to exercise them before that
time. The Rights Offering and, if necessary the Stock Distribution are expected
to close on or about , 1999.
Zapata founded ZAP.COM Corporation to create and operate a leading Internet
network with global market reach. We plan to pursue this goal by building the
ZAP.COM Network(TM), which will be a branded global network of "company-owned"
banners displayed throughout Web sites owned and operated by third parties. Our
goal is to make the ZAP.COM Network a leading advertising and e-commerce
platform.
ZAP.COM believes that the structure of the ZAP.COM Network will provide a
significant competitive advantage by combining the benefits of a potentially
large and wide reaching Company-owned network with the individual creative
talents of the participating Web publishers. ZAP.COM's management will be
dedicated to rapidly building the ZAP.COM Network.
We are very excited about the opportunity ahead of us in the new and
rapidly growing Internet medium. By creating ZAP.COM and conducting the Rights
Offering and, if necessary, making the Stock Distribution, Zapata will create a
separate publicly traded Internet company. This will separate Zapata's Internet
business with its own unique market opportunity and risk/reward profile from
Zapata's other, more traditional businesses. This transaction will enable Zapata
stockholders to increase or decrease their level of participation in our new
business by varying their level of investment in ZAP.COM following the Rights
Offering and if made, the Stock Distribution.
The attached prospectus contains important information about the Rights
Distribution and ZAP.COM's planned business. I encourage you to read it
carefully. Holders of Zapata common stock on the record date for the Rights
Distribution are not required to exercise their Rights.
<PAGE> 3
The Rights Distribution and if made, the Stock Distribution will both be
taxable to you as a dividend. Please read the information set forth under the
caption "Certain Federal Income Tax Considerations" in the attached prospectus
and consult your tax advisor with respect to the income tax consequences of
these transactions to you.
If you have any questions concerning either the Rights Distribution or the
Stock Distribution, you should contact our Information Agent at the following
address and number:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
(800) 223-2064
Banks and Brokers should call collect at (212) 440-9800
Thank you for your consideration.
Sincerely,
Avram A. Glazer,
President and Chief Executive Officer
iii
<PAGE> 4
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL OR DISTRIBUTE THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUBJECT TO COMPLETION, DATED , 1999
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[LOGO]
ZAP.COM CORPORATION
13,612,000 Transferable Rights to Purchase Common Stock
13,612,000 Shares of Common Stock
1,200,000 Shares of Common Stock
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ZAP.COM is a development stage company that seeks to build a branded global
network of ZAP.COM banners, which will reside on third party web sites and be
available for multiple commercial purposes.
We are a wholly-owned subsidiary of Zapata Corporation. We are providing this
prospectus to Zapata so that it may furnish it to persons who owned shares of
Zapata common stock on , 1999 in connection with the distribution to
those persons, at no cost to them, of (1) transferable subscription rights (the
"Rights") to purchase at a cash price of $8.00 per share up to an aggregate of
13,612,000 shares of ZAP.COM common stock (the "Rights Offering") and (2) if
necessary as of the closing of the Rights Offering to meet certain listing
requirements of the Nasdaq National Market and the Pacific Stock Exchange, an as
yet undetermined number of shares of ZAP.COM common stock which will not be less
than 150,000 shares nor more than 1,200,000 shares (the "Stock Distribution").
Eligible Zapata stockholders will receive one Right and, if necessary, an as yet
undetermined number of shares of ZAP.COM common stock for each share of Zapata
common stock held by them on , 1999. We will not issue fractional
shares and will instead pay cash in place of fractional shares.
The Rights will expire at 5:00 p.m., Eastern Standard Time, on ,
1999, at which time they will become null and void unless extended or terminated
by us in our sole discretion. If you want to exercise your Rights, we recommend
that you submit your subscription documents to the Subscription Agent before
that deadline or to your broker or bank at least 10 days prior to that deadline.
See page 29 of this prospectus for further instructions on submitting
subscriptions.
<TABLE>
<CAPTION>
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Subscription Price for Shares
Available under Rights Proceeds To ZAP.COM(1)(2)
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<S> <C> <C>
Price Per Share........................................ $8.00 $8.00
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Total Minimum.......................................... $1,082,448 $1,082,448
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Total Maximum(3)....................................... $108,896,000 $108,896,000
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</TABLE>
- ---------------
(1) We will not receive any proceeds from the Stock Distribution if it is made.
(2) Before deducting expenses that we will pay in connection with the Rights
Offering and if made, the Stock Distribution, estimated to be $600,000.
(3) Assumes the exercise of all 13,612,000 Rights (including 135,306 Rights
expected to be exercised by Avram Glazer and an entity controlled by Malcolm
Glazer).
There is currently no public market for the Rights or our common stock. We
expect that the Rights will trade in the over-the-counter market until the close
of business on the day that immediately precedes the date on which the Rights
expire. We have applied for quotation of our common stock on the Nasdaq NM under
the symbol "ZCOM" and for trading privileges on the Pacific Stock Exchange under
the same symbol.
We do not have to sell a minimum number of shares in order to complete the
Rights Offering. Except in certain specified circumstances, no monies paid to
the Subscription Agent upon the exercise of the Rights will be refunded unless
we terminate the Rights Offering.
In order for the ZAP.COM common stock to be more widely held, Malcolm Glazer,
who controls approximately 44% of Zapata's outstanding common stock, has agreed
to exercise only 125,000 of the Rights he is entitled to receive and Avram
Glazer has agreed to exercise only 10,306 Rights he is entitled to receive. See
"The Rights Offering -- Exercise of Rights by the Glazers."
The exercise of Rights and the ownership of our common stock issued in the Stock
Distribution if it is made involve substantial risk. You should refer to page 11
of this prospectus for a discussion of certain factors that you should consider
in connection with the Rights Offering and the Stock Distribution.
Neither the Securities Exchange Commission nor any state securities commission
has approved or disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 1999.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 11
The Rights Offering................... 26
The Stock Distribution................ 32
Use of Proceeds....................... 34
Dividend Policy....................... 34
Dilution.............................. 35
Capitalization........................ 36
Selected Financial Data............... 38
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 39
Business.............................. 42
Management............................ 54
Executive Compensation................ 56
Certain Relationships and Related
Party Transactions.................. 59
Security Ownership of ZAP.COM......... 61
Description of Securities............. 62
Shares Eligible for Future Sale....... 68
Certain Federal Income Tax
Consequences........................ 69
Experts............................... 71
Legal Matters......................... 71
Available Information................. 71
Index to Financial Statements......... F-1
</TABLE>
------------------------
Our principal executive offices are located at 100 Meridian Centre, Suite
350, Rochester, New York 14618, and our telephone number is (716) 242-8600. Our
World Wide Web site is www.zap.com. The information in the Web site is not
incorporated by referenced into this prospectus. In this prospectus, the terms
"Company," "ZAP.COM," "we," "us" and "our" refer to ZAP.COM Corporation, a
Nevada corporation.
You should rely only on the information contained in this prospectus, the
related registration statement and any documents incorporated by reference into
the registration statement. ZAP.COM has not authorized any other person to
provide you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. ZAP.COM is not making an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus is accurate as of the date on the front cover of this prospectus
only. ZAP.COM's business, plan of operations, prospects, results of operations
and financial condition may have changed since that date.
2
<PAGE> 6
PROSPECTUS SUMMARY
This section contains a summary of information elsewhere in this
prospectus. It is not complete and may not contain all of the information that
you should consider before exercising your Rights or receiving ownership of
ZAP.COM shares in the Stock Distribution. You should read the entire prospectus
carefully, including the "Risk Factors" section. Except as otherwise noted, all
information in this prospectus assumes: (1) the adoption and filing by ZAP.COM
of Amended and Restated Articles of Incorporation and the adoption by ZAP.COM of
Amended and Restated By-Laws reflecting the provisions described herein; (2) the
effectiveness of a 36,038-for-one share split of ZAP.COM common stock and
Zapata's capital contribution of $36,028 to meet stated capital requirements;
and (3) that Zapata will have 23,887,078 shares of common stock outstanding on
the record date for the Rights distribution and the Stock Distribution, of which
10,395,384 shares are owned by an entity controlled by Malcolm Glazer.
WHY THIS PROSPECTUS WAS SENT TO YOU
This prospectus is being delivered by Zapata Corporation, a Delaware
corporation to you because you owned Zapata common stock on , 1999.
This entitles you to receive, at no cost to you, a distribution consisting of a
Right to subscribe for and purchase one share of common stock of a development
stage company, ZAP.COM Corporation, a Nevada corporation, at a price of $8.00
per share, for each share of Zapata common stock held by you on ,
1999. Each Right also carries the right to purchase additional shares of ZAP.COM
common stock that were available under the Rights distributed by other eligible
Zapata stockholders, but which have not been exercised by them, at the same
price. See "Rights Offering -- The Right Offering."
This prospectus is also being delivered by Zapata to you in connection with
a potential distribution in the aggregate of between 150,000 shares of ZAP.COM
common stock and 1,200,000 shares of ZAP.COM common stock which it may make on
, 1999 (or such later date as Zapata's Board may choose) based on
the number of shares of Zapata common stock you owned on , 1999.
Zapata will only distribute these shares to you if as of the close of the Rights
Offering, either
- the number of shares being issued pursuant to exercised Rights or
- the number of record holders or beneficial owners, as applicable, who
will receive shares of ZAP.COM common stock from the exercise of their
Rights is insufficient to meet the listing requirements for either the
Nasdaq NM or the Pacific Stock Exchange.
The exact number of shares that will be distributed in such circumstances
will depend on the number of Rights which have been exercised as of the
completion of the Rights Offering. See "The Stock Distribution -- The
Distribution."
If shares remain unsubscribed as of the end of the Rights Offering, the
first 350,000 of such shares will be offered by us to certain other persons.
These persons may have a relationship with us or Zapata. All unsubscribed shares
not purchased by such persons will be issued to Zapata pursuant to the
Distribution Agreement described below. See "Relationship between Zapata and
ZAP.COM -- Formation and Funding."
BUSINESS OF ZAP.COM
Zapata founded ZAP.COM Corporation in April 1998 to create and operate a
leading Internet network with global market reach. We plan to pursue this goal
by building the ZAP.COM Network(TM), which will be a branded global network of
banners that will be owned by ZAP.COM and displayed throughout Web sites owned
and operated by third parties. Our goal is to make the ZAP.COM Network a leading
advertising and e-commerce platform.
3
<PAGE> 7
To date, our operations have consisted exclusively of organizational
activities, research and analysis with respect to Internet industry
opportunities, the creation of our business model and the exploration of certain
strategic relationships. As of the date of this prospectus, we do not have any
significant assets or a network in place and we have not formally entered into
any strategic relationships nor generated any revenues. Therefore, to a
significant extent, the description of our business in this prospectus is based
on our business model and relates mostly to activities in the planning and early
execution stages.
We plan to aggressively build the ZAP.COM Network through the addition of
qualified Web sites to the Network. In the future, we may also acquire or
establish strategic relationships with Internet service organizations capable of
enhancing our Internet resources, electronic commerce companies and traditional
companies which have attractive electronic commerce opportunities, such as
broadcasting, media, entertainment and communications companies. As of the date
of this prospectus, we do not have any specific plans, proposals, arrangements
or understandings with any Web publisher or any one else for any acquisition,
investment or similar transaction.
RELATIONSHIP BETWEEN ZAPATA AND ZAP.COM
FORMATION AND FUNDING
Simultaneously with the closing of the Rights Offering, Zapata will
contribute to ZAP.COM $8,000,000 to fund start-up costs and anticipated
operating losses and for general corporate purposes. In exchange for this
investment, we will issue to Zapata 10,000 shares of our Series A preferred
stock and 13,612,000 Rights. Zapata will distribute the Rights to those persons
owning Zapata common stock on , 1999. If all of the shares subject
to the Rights have not been purchased as of the close of the Rights Offering,
then, simultaneously with the closing of the Rights Offering, we will issue
those unpurchased shares to Zapata. For example, if eligible Zapata stockholders
exercise 3,000,000 Rights and no one else purchases any shares, then, following
the Rights Offering, we will issue Zapata 10,612,000 shares of our common stock,
bringing the total number of common shares which would be owned by Zapata to
46,650,000 shares or 93.3% of our total outstanding shares of common stock.
Upon completion of the Rights Offering, we will be a majority-owned
subsidiary of Zapata rather than a wholly-owned subsidiary. Following the Rights
Offering, Zapata will not have any obligation to provide any future funding to
us.
CORPORATE GOVERNANCE
Our authorized capital consists of 150,000,000 shares of preferred stock
and 1,000,000,000 shares of common stock. We have designated 10,000 shares of
our authorized preferred stock as Series A preferred stock. These Series A
preferred shares will be issued to Zapata simultaneously with the closing of the
Rights Offering. Our Series A preferred stock and common stock vote as a single
class on almost all matters presented to stockholders for consideration. Each
share of our Series A preferred stock is entitled to 50,000 votes per share and
each share of our common stock is entitled to one vote per share. Accordingly,
following the consummation of the Rights Offering and, if made, the Stock
Distribution, Zapata, as the sole holder of our Series A preferred stock, will
control our management and policies and substantially all matters submitted to
our stockholders for approval, including the election of directors and all
proposals for merger, liquidation, sale of substantially all of our assets and
charter amendments. See "Description of Securities." Zapata will be entitled to
retain its ability to control the vote on almost all stockholder votes until we
issue more than 500,000,000 shares of its common stock. See "Risk
Factors -- Zapata's Control and Interlocking Directors and Officers Create a
Potential Conflict of Interest Relating to Zapata."
Following the Rights Offering, ZAP.COM's officers will also be officers of
Zapata. In addition, Avram Glazer will be a director of both corporations. See
"Risk Factors -- Zapata's Control and
4
<PAGE> 8
Interlocking Directors and Officers Create a Potential Conflict of Interest
Relating to Zapata" and "Business -- Employees."
WORD AND CHARGED WEBZINES
In April 1998, Zapata formed, as wholly-owned subsidiaries, Zap Corporation
and ZAP.COM Corporation (f/k/a Zap Internetwork Corporation) for the purpose of
pursuing Internet related opportunities.
In April 1998, Zapata acquired from ICON CMT (k/n/a Qwest Communications
International Corporation) the operating assets of two on-line Web based
magazines, Word and Charged. Word publishes an eclectic mix of essays, new
fiction, visual art, photographs, underground comics, animation, video, sound
and music, weekly columns, quirky humor, contests, games and online
conversation. Among other distinctions, ENTERTAINMENT WEEKLY named Word the #1
Web site of 1996, POV Magazine named Word the #1 Web site of 1997 and the Best
Web Design of 1997 by I.D. Magazine. Charged focuses on the Generation X
audience interested in action sports and extreme leisure and targets the biking,
surfing, skating and snowboarding crowd.
Effective upon the closing of the Rights Offering, Zapata's 21 employees
who operate the Word and Charged webzines will become employees of ZAP.COM. The
Word and Charged webzines will continue to be operated after the Rights Offering
by substantially the same employees pursuant to the Services Agreement described
below. In addition, effective upon the closing of the Rights Offering, Zapata
will assign to our wholly-owned subsidiary, Word Media Corporation, all of its
rights to Pixeltime (which is a proprietary Java-based drawing system), all
related license agreements (including a license agreement with Dr.
Pepper/Seven-Up Inc.) and all of the rights to its agreement with Crown
Publishing to publish Gib: Real-Life People Talking About Their Jobs, (which is
a collection of Word's Weekly "Work" columns). We intend to license this
software and other intellectual property rights back to Zapata for use by its
Word and Charged webzines.
CONTRACTUAL ARRANGEMENTS
The ZAP.COM business model and related intellectual property rights
underlying the ZAP.COM Network were developed by executives and employees of
Zapata. These individuals assigned to the Company all of their intellectual
property rights relating to the ZAP.COM Network
Prior to the closing of the Rights Offering, we will enter into a Services
Agreement with Zapata under which Zapata will provides us with general
administrative services and we will provide Zapata with technical, creative and
design services and Webzine based administrative services. The Services
Agreement provides that each party will bill the other one for services based on
an estimated cost basis. The Services Agreement may be terminated on 120 days
notice from either party. We will also enter into a Distribution Agreement, Tax
Indemnity Agreement and Registration Rights Agreement with Zapata. All of these
agreements will become effective upon completion of the Rights Offering. For a
description of these agreements see "Certain Relationships and Related Party
Transactions."
QUESTIONS AND ANSWERS CONCERNING THE
RIGHTS OFFERING AND STOCK DISTRIBUTION
WHAT SECURITIES ARE BEING DISTRIBUTED?
Zapata is distributing, at no cost to you, with this prospectus Rights to
acquire in the aggregate up to 13,612,000 shares of our common stock at a price
of $8.00 per share. You will receive one Right for each share of Zapata common
stock owned by you on , 1999.
In addition, simultaneously with the issuance of shares pursuant to
exercised Rights, if necessary to meet the listing requirements of the Nasdaq NM
and the Pacific Stock Exchange, Zapata will, at no charge to you, distribute to
you shares of our common stock. We do not currently know if Zapata will have to
distribute these shares and if Zapata has to issue the shares, how many
5
<PAGE> 9
shares it will ultimately issue. However, if Zapata has to distribute these
shares, then it will distribute no less than 150,000 shares nor more than
1,200,000 shares for a distribution ratio of between approximately 0.0063 shares
and 0.0502 shares for each share of Zapata common stock held by you on
, 1999. See "The Stock Distribution." You will not be required to
make any payment or to take any other action to receive these shares if they are
distributed. If we are required to make the Stock Distribution, we will not
issue fractional rights. Instead, we will make a cash payment to Zapata
stockholders otherwise entitled to a fractional share of ZAP.COM common stock as
a result of the Stock Distribution. The amount of the payment will be based on a
price of $8.00 per share. See "The Stock Distribution."
WHAT IS A RIGHT?
A Right is an offer by us to sell shares of our common stock to the person
holding the Right. When you "exercise" the Right, that means that you choose to
purchase the shares of ZAP.COM common stock that the Right entitles to you to
purchase.
HOW MANY SHARES MAY I PURCHASE AND AT WHAT PRICE?
You will receive the right to purchase one share of our common stock at a
price of $8.00 per share for every share of Zapata common stock you owned on
, 1999. For example, if you owned 500 shares of Zapata common stock
on , 1999, you will be entitled to purchase 500 shares of ZAP.COM
for a total purchase price of $4,000.
If you exercise your Right in full, you will have the opportunity to buy
additional shares of our common stock at $8.00 per share by indicating the
number of additional shares you would like to purchase on the attached
Subscription Certificate. If eligible Zapata stockholders request to make
additional purchases of more than the number of shares of common stock available
to satisfy fully such requests, then the shares of common stock available from
unsubscribed Rights immediately prior to the close of the Rights Offering will
be pro-rated among those stockholders who exercise their Right in full and elect
to purchase additional shares of common stock. In some cases, this may mean that
the total shares of common stock that you will be able to purchase will be fewer
additional shares than you request on your Subscription Certificate. See "The
Rights Offering -- Subscription Privileges."
WILL EVERY STOCKHOLDER RECEIVE RIGHTS IN PROPORTION TO THEIR ZAPATA HOLDINGS?
Yes. However, in order for our common stock to be more widely held, Malcolm
Glazer, who controls approximately 44% of Zapata's outstanding common stock and
Avram Glazer, who is our President and Chief Executive Officer, have agreed to
exercise only 135,306 Rights for an aggregate exercise price of approximately
$1,082,448. Therefore, Zapata will not distribute to the Glazers or entities
controlled by them the 10,275,078 Rights which would otherwise be distributed
with respect to the Zapata shares beneficially owned by them. See "The Rights
Offering -- Exercise of Rights by the Glazers."
WHAT HAPPENS TO UNSUBSCRIBED SHARES?
We will offer the first 350,000 shares unsubscribed as of the close of the
Rights Offering to certain person selected by us. These persons may have a
relationship with us or Zapata. To the extent that any unsubscribed shares
remain unsold after the offer to these persons, such shares will be issued to
Zapata pursuant to the Distribution Agreement to be entered into by us with
Zapata.
WHY IS ZAP.COM ENGAGING IN A RIGHTS OFFERING AND THE STOCK DISTRIBUTION?
The Rights Offering represents ZAP.COM's initial public offering of its
securities, although it is different than a traditional offering in that
securities are directed only to eligible Zapata stockholders and to certain
persons selected by us with respect to Rights that are unsubscribed as of
immediately
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prior to the closing of the Rights Offering for up to a maximum of 350,000
Rights. We believe that the Rights Offering has several advantages over a
traditional initial public offering. This type of offering gives us an
opportunity to offer our common stock to investors who we believe, as Zapata
stockholders, already have some interest in ZAP.COM. This form of offering also
is more cost effective than the traditional method since there will not be any
underwriting discounts and commissions.
In addition, the Zapata Board supports the Rights Offering and if made, the
Stock Distribution because it will benefit Zapata stockholders by:
- separating our business, with its own unique market opportunity and
risk/reward profile, from Zapata's other traditional businesses,
including its marine protein business and food packaging business, which
should increase our financial flexibility in the capital markets by
allowing us to be viewed, from an investor's perspective, as engaging in
only Internet business;
- enabling Zapata stockholders to increase or decrease their level of
participation in our new business by varying their level of investment in
us (by acquiring our common stock initially in the Rights Offering and,
thereafter, in the open market and/or selling any of our common stock
distributed to them);
- allowing Zapata and us to pursue different operating strategies, given
our different business environments and competitive market conditions;
and
- permitting Zapata to benefit from increases, if any, in the market value
of its retained equity interest in us.
HOW DID THE COMPANY ARRIVE AT THE $8.00 PER SHARE PRICE?
In determining the price per share during the Rights Offering, our Board
did not employ any valuation formula or obtain an independent valuation of our
Company. Rather, our Board considered our business potential and prospects and
the Company's status as a development stage company. As a result, this price
bears no relation to book value, earnings, assets or other generally accepted
valuation criteria for corporations. We believe that any valuation of our
Company, given its early stage of development, is highly speculative. The actual
value or resale value of our common stock may be significantly higher or lower
than the purchase price. See "The Rights Offering -- Determination of
Subscription Price."
HOW LONG WILL THE RIGHTS OFFERING LAST?
You will be able to exercise your Rights until 5:00 p.m., EST, on
, 1999. If you do not exercise your Rights prior to then, they will
expire. We may, in our discretion, decide to extend the Rights Offering for up
to 10 days. See "Rights Offering -- Expiration Date."
AFTER I EXERCISE MY RIGHTS, CAN I CHANGE MY MIND?
No. Once you send in your Subscription Certificate and payment, you cannot
revoke the exercise of your Rights even if you later learn information about us
that you consider to be unfavorable. You should not exercise your Rights unless
you are certain that you wish to purchase our common stock. See "Rights
Offering -- No Revocation."
IS THERE A MINIMUM NUMBER OF SHARES THAT MUST BE SOLD AS A CONDITION TO CLOSING
THE RIGHTS OFFERING?
No. We have not established any minimum number of Rights that must be
exercised as a condition to our accepting exercised Rights. Consequently, no
minimum amount of proceeds is required to consummate the Rights Offering.
Malcolm Glazer and Avram Glazer, however, have
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informed us that they intend to exercise a portion of their Rights. These net
proceeds together with Zapata's $8,000,000 investment will result in the Company
receiving gross proceeds of $9,082,448 (less estimated offering expenses of
approximately $600,000) if no other Zapata stockholder exercises their Rights.
Beyond this amount, we can not assure you of the amount of net proceeds that we
will receive from the Rights Offering. See "The Rights Offering -- No Minimum
Subscription" and "-- Rights to Terminate or Modify Rights Offering."
HOW MANY ZAP.COM SHARES WILL BE OUTSTANDING AFTER THE RIGHTS OFFERING?
Following the Rights Offering, we will have outstanding 10,000 shares of
our Series A preferred stock and 50,000,000 shares of our common stock,
including 350,000 shares of restricted stock awarded to our President and Chief
Executive Officer in April 1999. This excludes 7,500,000 shares of common stock
which are reserved for options which may be granted under the Company's 1999
Long-Term Incentive Plan and the Company's 1999 Non-Employee Directors Plan, of
which options to purchase 755,000 shares of common stock have been granted at
$5.00 per share. See "Executive Compensation -- Stock Option Plans." Further, in
the future, the Company will be required under the Distribution Agreement with
Zapata to reserve a sufficient number of shares of common stock to ensure that
such shares are available if Zapata transfers its Series A preferred stock at a
time when it is convertible. See "Certain Relationships and Related Party
Transactions -- Distribution Agreement".
HOW DOES ZAPATA, AS THE SOLE HOLDER OF OUR SERIES A PREFERRED STOCK, AND THE
HOLDERS OF OUR COMMON STOCK PARTICIPATE IN DIVIDENDS AND OTHER DISTRIBUTIONS?
In the event that a common stock dividend is declared by the ZAP.COM Board:
- If the shares of ZAP.COM common stock owned by Zapata represent 35% or
more of ZAP.COM's total outstanding shares of common stock as of the
record date for the dividend, then Zapata, as the owner of our Series A
preferred stock will not be entitled to any dividends or distributions.
- If the shares of ZAP.COM common stock owned by Zapata have been diluted
below 35% of ZAP.COM's total outstanding shares of common stock as of the
record date for the dividend, then so long as all of our Series A
preferred stock is owned by Zapata, Zapata will be entitled to receive a
dividend amount, which when added to the dividends to be received by
Zapata with respect to its common stock, will equal 35% of the total
dividend amount paid to all ZAP.COM stockholders (i.e., common and
preferred). The 35% figure will be proportionately reduced in the event
that Zapata transfers its Series A preferred stock after Zapata's common
stock holdings drop below 35% as a result of dilution.
In the event of a liquidation:
- After satisfaction of all liabilities and payment of all preferred stock
with superior preferences, Zapata, as the owner of our Series A preferred
stock, will be entitled to distributions totaling $8,000,000 before any
distributions are made to persons owning our common stock.
- If the shares of ZAP.COM common stock owned by Zapata represent 35% or
more of ZAP.COM's outstanding shares of common stock as of the record
date for the liquidating distribution, then Zapata, as the holder of our
Series A preferred stock, will not be entitled to any amount in addition
to its $8,000,000 preference upon liquidation.
- If the shares of common stock held by Zapata are diluted below 35% of
ZAP.COM's total outstanding shares of common stock, then so long as all
of our Series A preferred stock is owned by Zapata, Zapata will be
entitled to receive liquidating distributions which when added to the
liquidating distribution to be received by Zapata with respect to its
common stock will constitute 35% of the total net assets distributed to
our stockholders (i.e., persons
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owning common and preferred). As discussed above, the 35% figure is
subject to adjustment.
See "Description of Securities -- Series A Preferred Stock."
HOW DO I EXERCISE MY RIGHTS?
You must properly complete the attached Subscription Certificate and
forward it by mail, hand or over-night express mail courier (or following
guaranteed delivery procedures) together with proper payment on or prior to 5:00
p.m., EST, on , 1999 at the address appearing on page 28. If the
mail is used to forward Subscription Certificates, it is recommended that
insured, registered mail be used. See "The Rights Offering -- Transferability of
Rights" and "The Rights Offering -- Method of Transferring Rights."
WHAT IF I HOLD ZAPATA COMMON STOCK WITH A BROKER OR THROUGH OTHERS?
If your Zapata common stock is held with a broker, dealer, commercial bank,
trust company or other nominee, or you hold it personally and would prefer to
have such institutions effect transactions relating to the Rights on their
behalf, you should contact the appropriate institution or nominee and request it
to effect the transactions for you. You should be aware that brokers or other
nominee holders may establish deadlines for receiving instructions from
beneficial holders significantly in advance of the date which we have
established for the expiration of the Rights. See "The Rights Offering -- Shares
Held for Others."
WHEN WILL I RECEIVE MY NEW SHARES?
If you purchase shares of our common stock in the Rights Offering or if
Zapata distributes shares of our common stock to you in order to meet certain
listing requirements of the Nasdaq NM and the Pacific Stock Exchange, we will
send you certificates representing those shares as soon as practicable after the
expiration of the Rights.
HOW MUCH MONEY WILL YOU RECEIVE FROM THE RIGHTS OFFERING AND THE STOCK
DISTRIBUTION?
The amount of the net proceeds that we receive from the Rights Offering
will depend on the number of Rights exercised. If all Rights are exercised, we
expect our gross proceeds from the Rights Offering together with the proceeds
from Zapata's $8,000,000 investment to be approximately $116,896,000. If no one
other than the Glazers exercise their Rights, then our net proceeds from the
Rights Offering together with $8,000,000 in proceeds from Zapata's investment
will be approximately $9,082,448. Regardless of how many Rights are exercised,
the offering expenses are estimated to be approximately $600,000. See "Use of
Proceeds."
HOW WILL ZAP.COM USE THE PROCEEDS FROM THE RIGHTS OFFERING?
After paying the expenses of the Rights Offering and, if made, the Stock
Distribution, the net proceeds received from the Rights Offering and Zapata's
investment will be used to fund the development of the ZAP.COM Network and
anticipated operating losses and for general corporate purposes. Until used, we
will invest the proceeds in government securities. See "Use of Proceeds."
WHAT IS YOUR DIVIDENDS POLICY?
To date, we have not paid any dividends on our outstanding stock. The
payment of dividends, if any, will be decided by our Board and will depend on
our earnings, capital requirements and financial condition. Our Board currently
intends to retain all earnings, if any, for use in our business operations and,
accordingly, our Board does not expect to declare or pay any cash dividends in
the foreseeable future, except as may be required by any outstanding shares of
preferred stock. See "Dividend Policy."
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WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF EXERCISING MY RIGHTS OR
RECEIVING SHARES IN A STOCK DISTRIBUTION?
You will generally recognize dividend income (taxable as ordinary income)
in an amount equal to the fair market value, if any, of the Rights as of the
date of they are distributed to you by Zapata, whether exercised or not.
Although it is not binding on the Internal Revenue Service, the fair market
value of the Rights as of , 1999 is expected to be zero. We cannot
provide you any assurance, however, as to the precise amount of dividend income,
if any, you will recognize upon the receipt of the Rights. See "Certain Federal
Income Tax Considerations -- The Rights' Offering."
If we make the Stock Distribution, then, depending on your adjusted tax
basis in your Zapata common stock and the amount of Zapata's current and
accumulated earnings and profits, the shares of ZAP.COM common stock distributed
to you will result in ordinary income, return of capital, capital gain or a
combination thereof. See "Certain Federal Income Tax Considerations -- The Stock
Distribution."
CAN I SELL OR TRANSFER MY RIGHTS?
Yes. The Rights are transferrable if you follow the required procedures.
See "The Rights Offering -- Method of Transferring."
WHERE WILL THE RIGHTS AND THE ZAP.COM COMMON STOCK TRADE?
There is currently no public market for our Rights or our common stock. We
expect that our Rights will trade in the over-the-counter market until the
trading day immediately before the Rights expire. We have applied for quotation
of our common stock on the Nasdaq NM and for the listing of our common stock on
the Pacific Stock Exchange. Our proposed Nasdaq NM symbol is "ZCOM" and our
proposed Pacific Stock Exchange symbol is the same. See "Listing and Trading of
ZAP.COM Common Stock." We can not assure you that a market for our Rights or
common stock will develop or if either market develops, that those markets will
be sustained.
IS EXERCISING MY RIGHTS RISKY?
The exercise of your Rights involves a high degree of risk. You should
carefully consider the "Risk Factors" described in this prospectus, beginning on
page 11 before exercising your Rights or making any investment decisions with
respect to shares issued to you in connection with the Stock Distribution if it
is made. See "Risk Factors."
CAN ZAP.COM CANCEL THE RIGHTS OFFERING AND THE STOCK DISTRIBUTION?
Yes. Our Board can cancel the Rights Offering at any time on or before
, 1999, for any reason. If the Rights Offering is canceled, any
money received from Zapata stockholders will be refunded promptly. See "The
Rights Offering -- Withdrawal Rights" and "The Stock Distribution -- Right to
Terminate or Modify the Stock Distribution."
WHO CAN I TALK TO IF I HAVE MORE QUESTIONS?
We have appointed Georgeson & Company, Inc. as our Information Agent for
the Rights Offering and the Stock Distribution. If you have any questions about
the Rights Offering, including questions about subscription procedures or the
Stock Distribution, or if you would like additional copies of this prospectus or
other documents, please call (800) 440-9820. Banks and brokers should call
collect at (212) 440-9800.
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A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. Although we believe that the expectations
reflected in this prospectus are reasonable, we cannot assure you that our
expectations will be correct. We have included a discussion entitled "Risk
Factors" in this prospectus, disclosing important factors that could cause our
actual results to differ materially from our expectations. When considering such
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements in this prospectus.
RISK FACTORS
Before you invest in shares of our common stock or if you otherwise receive
ownership of our common stock, you should be aware that there are various risks,
including those described below. We urge you to carefully consider these risk
factors together with all of the other information included in this prospectus
and the information incorporated in this prospectus by reference before you
decide to purchase our common stock or you make an investment decision with
respect to any of our common stock that you receive as part of the Stock
Distribution if it is made.
RISKS RELATED TO THE BUSINESS
NO OPERATING HISTORY OR PRESENT SOURCE OF REVENUES; RISKS ASSOCIATED WITH
FORMING A NEW COMPANY
We were founded in April 1998. To date, our activities have consisted only
of organizational activities, research and analysis with respect to Internet
industry opportunities and the exploration of certain strategic relationships.
As of the date of this prospectus, we do not have our network established or any
formal strategic relationships, nor do we have any assets or operating history
upon which an evaluation may be made of our business and its prospects.
As a newly formed company, we face all of the risks associated with
establishing a new business enterprise in the Internet industry. In addition,
our revenue model is evolving and is expected to rely substantially upon the
commercial use of our network by advertisers, direct marketers and merchants
either by themselves or in a strategic relationship with us. Our prospects must
be considered in light of the risks, expenses and problems frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets such as the Internet using
unproven business models. To address some of these risks we must successfully:
- build and maintain the ZAP.COM Network by attracting Web publishers to
participate in the Network;
- commercialize and market the ZAP.COM Network to potential customers,
including advertisers, direct marketers, merchants (including potential
e-commerce partners) and others;
- manage the expansion of our operations;
- attract, retain and motivate qualified personnel;
- develop and formalize strategic relationships with third parties for
services in areas critical to the successful execution of our business
model, including sales, software, hardware, Web site traffic measurement
and technical and Internet industry expertise; and
- anticipate and adapt to changes in our market and competitive
developments.
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We cannot assure you that we will be successful in addressing any of these
risks, and our failure to do so could have a material adverse effect on our
business, prospects, results of operations and financial condition.
ANTICIPATION OF SIGNIFICANT LOSSES FOR THE FORESEEABLE FUTURE
We anticipate that, for the foreseeable future, we will incur substantial
operating losses as we execute our business model and acquire and integrate the
necessary technology, systems and supporting infrastructure, increase the number
of Web sites participating in our Network and develop our brand name. We also
anticipate significant non-cash charges arising from the consideration that will
be paid to Web publishers who join the ZAP.COM Network. As a result, we will
need to generate significant revenues to achieve and maintain profitability. Our
revenues for the foreseeable future will be dependent on user traffic levels and
commercial activity on the Web sites of participants in the ZAP.COM Network. We
will not generate any revenues from the ZAP.COM Network until it has grown to a
size which is attractive to potential customers. We have no present plans,
proposals, arrangements or understandings with any Web publishers to join our
Network. Further, we cannot assure you that our Network will ever achieve the
size necessary to attract customers or e-commerce partners, or, if we do, that
we will ever achieve sufficient revenues to become profitable. In addition, as
our business model evolves, we may introduce new pricing models and new products
and services which may adversely affect our margins and significantly increase
our operating expenses. Even if we do achieve profitability, we cannot assure
you that we can sustain or increase profitability on a quarterly or annual basis
in the future.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY
The lack of an operating history makes it difficult for us to assess the
impact of seasonal factors of our business. We expect, however, that our
revenues and operating results will fluctuate significantly quarter to quarter
in the future due to a number of factors, some of which are beyond our control.
These factors include:
- the addition of new or loss of old network customers or the addition or
discontinuance of Web sites who participate in the ZAP.COM Network;
- the price paid to a Web publisher for joining the ZAP.COM Network and
related costs;
- user traffic levels and the number of available impressions on Web sites
that participate in the ZAP.COM Network;
- customer demand for advertising, sale of products or other commercial
uses of the ZAP.COM Network;
- seasonal fluctuations in revenue;
- changes in the growth rate of Internet usage;
- changes in our pricing policies or those of our competitors for different
uses of the ZAP.COM Network;
- the mix of domestic and international sales;
- the commitment of budgets for businesses to Internet advertising and use;
- the mix of revenues from different uses of the ZAP.COM Network by our
customers and e-commerce partners;
- the timing and amount of costs relating to the expansion of our
operations, including infrastructure technology and business systems,
brand development and personal hiring and training;
- the introduction of new solutions by us or our competitors; and
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- general economic and market conditions.
Due to all of these factors you should not rely on quarter-to-quarter
comparisons of our revenues and operating results as an indication of future
performance. In addition, due to the absence of any operating history and our
unproven business model, we cannot predict future revenues or results of
operations accurately. It is likely that in some future periods our results of
operations may be below the expectations of public market analysts and investors
and this would almost certainly affect the trading price of our common stock.
OUR BUSINESS MODEL IS UNPROVEN
Our business is based on an unproven model. As a result, the profit
potential for our business model is also unproven. Our ability to generate
significant revenues will depend, in part, on our ability to contract with a
sufficient number of Web publishers who operate Web sites that are marketable to
our potential customers. We have not confirmed the interests of Web publishers
in the ZAP.COM Network and, therefore, we can not provide any assurance that a
sufficient number of Web publishers will want to participate in our Network to
make it viable. If we are unable to attract a sufficient number of Web
publishers to our Network to commence sales, it would have a material adverse
effect on our business, prospects, results of operations and financial
condition. Even if we do attract a sufficient number of Web publishers, we
cannot assure you that we will be able to integrate these Web sites into our
Network without substantial costs, delays or other problems. We also may not be
able to anticipate all of the changing demands that successive admissions of Web
sites to our Network will impose on our Management personnel, operational and
management information systems and financial systems or those of Zapata with
whom we have a Services Agreement. Further, even if our Network is successfully
developed, we cannot assure you that the market for our new solution will
develop or that demand for our new solution will emerge in any particular
product area or become sustainable. The failure to adequately address any of
these situations could have a material adverse effect on our business,
prospects, results of operations and financial condition.
WE WILL DEPEND ON THE WEB SITES PARTICIPATING IN THE ZAP.COM NETWORK
Our near-term and long-term prospects are significantly dependent upon the
performance of Web sites participating in the ZAP.COM Network, including the
quality of their content or other Internet activity and the level of traffic on
their sites. Management's assessment of a particular Web site may not prove to
be correct. Additionally, we will have no control over these factors and could
be adversely effected by declines in the quality or traffic levels of
participating Web sites or if one or more material Web sites discontinues its
business or becomes bankrupt or insolvent.
Each ZAP.COM Network participant will enter into a contract with us. In the
event that a Web publisher participating in our Network breaches their contract
at any time, our remedy will be to pursue a court order for specific performance
of the denied access. A court, however, may find that money damages are adequate
and refuse to issue such an order. If a material number of the ZAP.COM Network's
participants engage in such conduct and the presiding courts refuse to
specifically enforce the participants' contracts with us, it would have a
material adverse effect on our business, prospects, results of operations and
financial condition.
WE WILL RELY ON THIRD PARTY TECHNOLOGY SERVICE PROVIDERS
In order to complete development of the ZAP.COM Network, we must develop
and acquire the supporting infrastructure. For example, we do not have direct
connection access to the Internet, but instead we now, and presumably always
will, rely on Internet service providers to provide us with connectivity for our
Network to the Internet and to Web sites participating in our Network. We will
also rely on a variety of technology that will be licensed from third parties.
For example, to address the complex task of managing banner space within the
planned ZAP.COM Network, the Company
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has selected Netgravity's software platform. In addition, we have selected Qwest
Communications International Corp. to be our primary vendor for hardware and
Internet hosting services. To the extent that we are unable to reach formal
agreements with either NetGravity of Qwest Communications, or we encounter
material difficulties in bringing, or are unable to bring, these systems online,
we will need to acquire an alternative solution from third party service
providers and vendors. Our loss of, or inability to maintain or obtain upgrades
to the technology licenses or hardware solutions deployed in our operating
infrastructure could result in delays, which would materially adversely effect
our business, prospects, results of operations and financial condition, until
equivalent technology and hardware solutions could be identified, licensed or
acquired and integrated. If we are unable to maintain satisfactory relationships
with these third parties on acceptable commercial terms, or the quality of
products and services provided by these third parties falls below a satisfactory
standard, we could experience a disruption in the delivery of programming to our
Network, which could have a negative impact on our business, prospects, results
of operations and financial condition. A failure to complete the development of
our infrastructure or to do so without substantial delay or cost will have a
material adverse impact on our business, prospects, results of operations and
financial condition.
We also expect to rely on a number of other third-party service providers
for certain operational aspects critical to our business plan. These providers
include experienced Internet consultants, sales agencies, Web site traffic
measurement firms, home page content providers and others. We currently do not
have any of these arrangements in place and we cannot assure you that we will be
able to secure these arrangements, directly or indirectly. If we fail to secure
the necessary arrangements, or to do so in a timely manner and on commercially
reasonable terms, it will have a material adverse effect on our business,
prospects, results of operations and financial condition. The termination of any
of these relationships in the future after they have been established could have
a material adverse effect on our business, prospects, results of operations and
financial condition. These adverse affects include, for example, the inability
to commence or continue operations and material reduction in performance.
Further, if any of the third-parties change their terms or terminate their
relationships, we may need to incur additional costs to replace such service
providers and to bring the new service providers up-to-date with our then
current operations.
FAILURE OF THIRD PARTY SYSTEMS COULD HARM OUR BUSINESS
The continuing and uninterrupted performance of the systems of third
parties performing services for us is critical to our success. Customers may
become dissatisfied by any system failures that interrupt our ability to deliver
programming over our Network accurately to the targeted audience and without
significant delay to the viewer. Sustained or repeated system failure would
reduce the attractiveness of our solutions to our customers and Web publishers
who are potential Network participants. Slower response time or system failures
may also result from straining the capacity of our deployed software or hardware
due to an increase in the volume of programming delivered to our Network through
our servers. To the extent that we do not effectively address any capacity
constraints or system failures, our business, prospects, results of operations
and financial condition would be materially and adversely affected.
Similar to all computer systems, systems used in our business could be
damaged by earthquake, fire, floods, power loss, telecommunications failures,
break-ins and like events. In addition, interruptions in our solutions could
result from the failure of our telecommunications providers to provide the
necessary data communications capacity in the time frame we require. Despite
precautions we have taken, unanticipated problems affecting our systems may at
some point in the future cause interruptions in the delivery of our solutions.
Despite security measures, our servers are also vulnerable to computer viruses,
physical or electronic break-ins and other disruptive problems, which could lead
to interruptions, delays, loss of data or cessation in service to our Network.
We do not presently have redundant systems or a formal disaster recovery plan.
We do not now and will not for the foreseeable future maintain business
interruption insurance. Any system
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failure that causes interruption or an increase in download time of banners to
Web sites could delay programming to the ZAP.COM Network and, if sustained or
repeated, could reduce the attractiveness of the Network to customers and
potential ZAP.COM Network participants.
WE EXPECT TO HAVE SIGNIFICANT AMORTIZATION EXPENSE
We expect to incur significant amortization charges for the consideration
we pay to Web publishers who agree to participate in the ZAP.COM Network. We
expect to amortize these charges over a period of three years. The reduction in
net income resulting from amortization charges may have a material and adverse
impact on earnings and hence upon the market price of our common stock.
TO THE EXTENT THAT THE GROWTH OF THE ZAP.COM NETWORK IS FINANCED WITH EQUITY,
INVESTORS ARE LIKELY TO EXPERIENCE SIGNIFICANT DILUTION
We currently intend to finance a significant amount of the growth in the
ZAP.COM Network through the issuance of shares of our common stock (or other
securities), cash or a combination thereof. We currently have 1,000,000,000
authorized shares of common stock. Upon the conclusion of the Rights Offering,
we will have 50,000,000 shares of common stock outstanding. In addition, we will
have 7,500,000 shares of common stock reserved for options awarded or to be
awarded under the Company's 1999 Incentive Plan and the Company's 1999
Directors' Stock Plan. Accordingly, immediately following the closing of the
Rights Offering, we will have 942,500,000 authorized but unissued and unreserved
shares of common stock, of which up to 264,962,000 shares may have to be
reserved for issuance for the conversion of Zapata's Series A preferred stock as
a result of a transfer after Zapata's common stock holdings have been diluted to
below 35%. See "Certain Relationships and Related Transactions -- Distribution
Agreement." Consequently, subject to the rules and regulations of the Nasdaq NM
and the Pacific Stock Exchange, we will be able to finance our growth or
acquisitions by issuing significant amounts of additional shares of common stock
without obtaining stockholder approval of such issuances. To the extent we use
common stock for all or a portion of the consideration to be paid for future
acquisitions, dilution may be experienced by existing stockholders, including
the purchasers of common stock in the Rights Offering and the recipients of
common stock in the Stock Distribution if it is made. Moreover, the issuance of
additional shares of common stock may have a negative impact on earnings per
share and may negatively impact the market price of the common stock. See "Use
of Proceeds" and "Dilution."
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL NEEDS
If our common stock does not achieve and maintain a sufficient market
value, or if Web publishers who are potential ZAP.COM Network participants are
unwilling to accept our common stock as all or part of the payment due them for
joining the ZAP.COM Network, we may be required to use more of our cash
resources in order to initiate and maintain the growth of our Network. If all of
the Rights are exercised, then we will receive gross proceeds of approximately
$108,896,000; however, if no Rights are exercised, our gross proceeds will be
approximately $1,082,448. In addition to the proceeds from the Rights Offering,
we will receive $8,000,000 of gross proceeds from Zapata's investment.
Regardless of how many Rights are exercised, we expect to incur approximately
$600,000 offering expenses. If only a limited number of Rights are exercised as
of the closing of the Rights Offering, our growth will be severely limited
unless we obtain additional capital through debt or equity financing.
Following the Rights Offering, Zapata will not have an obligation to
contribute additional funds to us. Although we are not prohibited from raising
additional capital by any of the arrangements between Zapata and us, Zapata's
rights as the sole holder of our Series A preferred stock may make it difficult
for us to raise additional capital in the future. In particular, potential
investors may be unwilling to invest in ZAP.COM due to the voting control and
35% minimum equity position afforded to Zapata as the sole holder of our Series
A preferred stock. Zapata's voting control may make it
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more difficult for a third party to acquire us even if a change of control could
benefit our stockholders by providing them with a premium over the then current
market price of their shares. The 35% minimum equity position may cause a
greater dilution to the outstanding common stock held by our stockholders other
than Zapata. The 35% minimum equity position will only apply if in the future
the ZAP.COM common stock held by Zapata is diluted below 35% of ZAP.COM's common
stock as a result of new common stock issuances by us. As a result, the market
value, liquidity of our common stock and our ability to issue additional shares
(including shares issued to Web publishers who are potential ZAP.COM Network
participants) may be adversely affected.
OUR BRAND MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO SUCCEED
We believe that broad recognition and favorable perception of the ZAP.COM
brand are vital to our success. Development and continued awareness of our
brands will depend largely on our success in establishing and maintaining a
position as a leading Internet business that operates a high quality network
which is valuable to both potential customers, such as advertisers, e-commerce
partners and Web publishers who are potential ZAP.COM Network participants. We
cannot assure you that we will be able to establish and maintain such a
position. In order to promote and maintain our brands, we expect to incur
significant expenses. In addition, the development of our brand names depends,
to a significant degree, on the protection of our trademarks and trade names,
which cannot be assured. See "Risk Factors -- Dependent on Proprietary Rights
and Risk of Infringement." If our brand enhancement strategy is unsuccessful,
these expenses may never be recovered and we may be unable to realize
significant revenue. If we are unable to achieve or maintain a leading Internet
position or to promote and maintain our brands, our business, prospects, results
of operations and financial condition will be materially adversely effected.
DEPENDENCE ON PROPRIETARY RIGHTS AND RISK OF INFRINGEMENT
We protect our proprietary rights through a combination of patent,
copyright, trade secret and trademark law. We have filed a patent application in
the United States which is directed at three different aspects of our business
processes. In addition, we intend to file applications with the United States
Patent and Trademark Office, and where appropriate, in foreign jurisdictions, to
attempt to register trademarks/service marks that we adopt. We currently have
pending in the United States Patent and Trademark Office applications for the
registration of the "ZAP.COM," "ZAP.COM Network," "ZAP.COM, THE NEXT NETWORK"
and "UltraBanner" trademarks/service marks. We cannot assure you that any of our
patent or trademark applications will be approved or will not be successfully
challenged by others or invalidated through administrative process or
litigation. If our trademark/service mark applications are not approved because
third parties own similar trademarks/service marks, our continued use of such
trademarks/service marks may be prevented or may be restricted unless we enter
into arrangements with such third parties which there is no certainty of
occurring or being available on commercially reasonable terms. Such patent,
trademark/service mark, copyright and trade secret protection may not be
available in every country in which our services are distributed or made
available.
In addition, we generally enter into confidentiality agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of proprietary information. Despite our efforts to protect our
proprietary rights from unauthorized use or disclosure, parties may attempt to
disclose, obtain or use our proprietary information. We cannot assure you that
the steps we have taken will prevent misappropriation of our solutions,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States.
We plan to collect and utilize data derived from user activity on the
ZAP.COM Network and the Web sites of Web publishers participating in our
Network. We plan to use this data for ad targeting and delivery of other
programming and predicting performance of our Network. We cannot assure you that
any trade secret, copyright or other protection will be available for such
information.
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Since the validity, enforceability and scope of protection of certain
proprietary rights in Internet-related industries is uncertain and still
evolving, we cannot assure you that any of our proprietary rights will be viable
or of value in the future. Infringement claims may be asserted against us by
third parties. We have been, and we expect to continue to be, subject to claims
in the ordinary course of our business, including claims of unfair competition,
dilution or alleged infringement of the trademark/service marks and other
intellectual property rights of third parties by us, the Web publishers
participating in the ZAP.COM Network or strategic partners. Claims of this
nature and any resulting litigation could subject us to significant liability
for damages and could result in the invalidation of our proprietary rights. In
addition, even if we prevail, such litigation could be time consuming and
expensive to defend, and could result in the diversion of our time and
attention, any of which could materially and adversely affect our business,
prospects, results of operations and financial condition. Any claims or
litigation from third parties may also result in limitations on our ability to
use the trademarks/service marks and other intellectual property subject to such
claims or litigations unless we enter into arrangements with the third parties
responsible for such claims or litigations which may be unavailable on
commercially reasonable terms. Current and future competitors of ours or others
may adopt product or service names similar to our marks, thereby impeding our
ability to build brand identity and possibly leading to customer confusion. Our
inability to protect our marks and trade names might have a material adverse
effect on our business, prospects, results of operations and financial
condition. In addition, we may in the future receive notices from third parties
claiming infringement by aspects of our businesses, such as the claim made by
LFG d/b/a Zap Futures. See "Business -- Intellectual Property."
Additional claims, with or without merit, may arise in the future which
could result in significant litigation costs and diversion of resources,
including the attention of our Management, and require us to enter into royalty
and licensing agreements, which could have a material adverse effect on our
business, prospects, results of operations and financial condition. In the
future, we may also need to file lawsuits to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. Such litigation, whether successful or
unsuccessful, could result in substantial costs and diversion of resources,
which could have a material adverse effect on our business, prospects, results
of operations and financial condition.
In addition, inasmuch as we expect to license a substantial portion of our
content from third parties, our exposure to copyright infringement actions,
trademark/service mark infringement actions and dilution actions may increase
because we must rely upon such third parties for information as to the origin
and ownership of such licensed content. We plan to obtain appropriate
representations and indemnities to cover such issues; however, we cannot assure
you that the representations will be accurate or the indemnities sufficient to
compensate for the breach of any such representations.
PATENT
We have pending one United States patent application directed to a unique
Internet-based commerce method and system underlying our business model. We can
not assure you that our pending patent application will result in the issuance
of patents. If a patent is issued, it is possible that:
- the patent could be successfully challenged by one or more third parties,
which could result in our loss of the right to prevent others from
exploiting the invention claimed in the issued patent;
- if there are variations in the application of our business model claimed
in the patent to the products and services we offer in the future, the
patent, if issued, may not be effective in preventing one or more third
parties from utilizing a copycat business model to offer the same product
or service in one or more categories; and
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- our ability to effectively exploit the business model claimed in the
patent could be successfully prevented if one or more third parties
prevail in an interference action in the U.S. Patent and Trademark Office
and thereby obtain priority of invention for the subject matter claimed
in our core patent.
While our pending application is directed to a unique Internet connectivity
method, if granted it will not necessarily prohibit competitors from developing
and operating Internet businesses that use similar models. It is possible for a
competitor to develop and utilize a business model that appears similar to the
system described in our patent application, but which has sufficient
distinctions that it does not fall within the scope of any patent which may
arise from such application.
PROTECTION OF OUR DOMAIN NAMES AND ASSOCIATED GOODWILL IS UNCERTAIN
The Company holds approximately 50 Internet domain names. There is a
possibility of the enactment of laws and/or regulations regarding domain names
which could have an adverse effect on the Company's domain names. Further,
regulatory bodies could establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding domain
names. Therefore, we cannot assure you that ZAP.COM's domain names will not lose
their value, or that ZAP.COM will not have to obtain entirely new domain names
in addition to or in lieu of its current domain names if reform efforts result
in a restructuring in the current system. Therefore, we could lose our domain
names or be unable to prevent third parties from acquiring domain names that
infringe or otherwise decrease the value of our domain names, trademarks/service
marks and other proprietary rights.
WE MAY BE SUBJECT TO THE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS OR
INVESTMENTS IN OTHER BUSINESSES
We may make selective acquisitions or investments in complementary
businesses, products, services or technologies. If we buy a company, we could
have difficulty in integrating and assimilating that company's operations,
technologies, products and personnel. In addition, the key personnel of the
acquired company may decide not to work for us. These difficulties could disrupt
our ongoing business, distract our Management and employees, increase our
expenses and adversely affect our results of operations due to accounting
requirements such as amortization of goodwill. Any of these results could
adversely affect our business, prospects, results of operations and financial
condition.
WE MAY BE UNABLE TO MANAGE OUR GROWTH
To meet our growth strategy, our operations must rapidly and significantly
expand. This is expected to place a substantial strain on our limited
Management, operational and financial resources and systems. To integrate all
Web sites participating in our Network and to manage the growth of our
operations will require the development and implementation of our operational
and financial systems, procedures and controls (including financial and other
internal management systems) and training, managing and expansion of our
employee base. Our Management will also be required to establish and maintain
relationships with customers, Web publishers participating in the ZAP.COM
Network and strategic partners and to maintain control over our strategic
direction in a rapidly changing environment. We cannot provide any assurance
that we will be able to effectively manage the expansion of our operations or
that the systems we develop and implement or procedures or controls that we
adopt will be adequate to support the rapid execution necessary to fully exploit
the market opportunity we have identified. Any failure of Management to
effectively manage our growth would have a material adverse effect on our
business, prospects, results of operations and financial condition.
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DEPENDENCE ON OUR KEY PERSONNEL; LACK OF EXPERIENCE
Our performance is substantially dependent on our senior Management team
and key technical personnel. Our senior Management's only experience in managing
an Internet related business has been their oversight of the Word and Charged
Webzines. They have not had any previous experience managing a network based
Internet company. There can be no assurance that our Management will be able to
effectively implement our business model. We expect to add key personnel in the
near future. Competition for personnel with Internet experience is intense due
to the competitive nature of the job market. If we do not succeed in attracting
new employees with the appropriate experience and skills or retaining and
motivating our current and future employees, our business could suffer
significantly.
WE WILL BE SUBJECT TO RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
We may pursue in the future international operations and international
sales and marketing efforts. International operations are subject to other
inherent risks, including:
- changes in regulatory requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences;
- general import/export restrictions relating to encryption technology
and/or privacy;
- difficulties and costs of staffing and managing foreign operations;
- political and economic instability either domestically or
internationally;
- fluctuations in currency exchange rates; and
- seasonal reductions in business activity during the Summer months in
Europe and certain other parts of the world.
WE ARE SUBJECT TO YEAR 2000 RISKS
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance issues. Additionally, the Internet could
face service disruptions arising from the Year 2000 problem.
We are taking actions to ensure that external suppliers and service
providers who we engage use systems that will be able to support our needs and,
where necessary, interoperate with hardware and software infrastructure that we
are acquiring in preparation for the Year 2000. We do not anticipate that any
such external suppliers or service providers will experience Year 2000 problems
which may result in unanticipated material costs to us. In addition, the ZAP.COM
Network site participants may also be impacted by Year 2000 complications. Any
failure by our Network participants to make their sites Year 2000 compliant
could result in a delivery of programming to the participant and in the
participant's operation of its sites. If a material number of Network
participants experience such trouble, it could have a material adverse effect on
our business, prospects, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
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CONTINGENCY PLANS
ZAP.COM has not yet developed a contingency plan to address situations that
may result if it is unable to achieve Year 2000 compliance. The cost of
developing and implementing such a plan, if necessary, could be material.
RISKS RELATED TO INTERNET INDUSTRY
WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS PLAN IF INTERNET USAGE GROWS
Our future success is highly dependent on an increase in the use of the
Internet as a medium for commercial activities, including advertising, direct
marketing, for-fee content delivery and other commerce. The Internet market is
at a very early stage of development, is rapidly evolving and is characterized
by an increasing number of entrants that are introducing or developing competing
products and services. As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty and risk. Because the
Internet market is new and evolving, we cannot predict with any assurance the
market's size, growth rate or durability.
Most of our potential Network customers (including advertisers, direct
marketers and e-commerce partners) will have only limited experience with the
Web as a commercial medium and may not find it to be an effective way to
carry-on business. Consequently, they may allocate only limited portions of
their budget to Internet based advertising and transaction. The ultimate success
of our business model will depend on these potential customers accepting and
utilizing the Internet's new and novel emerging method of conducting business
and exchanging information.
The effectiveness of Internet advertising is largely dependent upon the
accuracy of profile information contained in the databases used to target
advertisements. We cannot be certain that the information in our database will
be accurate or that Network customers will be willing to have advertisements
targeted by any database containing such potential inaccuracies.
BANNERS MAY BECOME AN INEFFECTIVE METHOD FOR DELIVERING INTERNET PROGRAMMING
Banners, from which we expect to derive substantially all of our revenues,
may not be an effective Internet method in the future. There are currently no
widely accepted standards to measure the effectiveness of Internet banners and
we cannot be certain that such standards will develop to sufficiently support
the use of banners as a significant medium for delivery of information
(including advertising and e-commerce opportunities). Potential ZAP.COM Network
customers may not accept third party measurements of impressions on ZAP.COM
Network Web sites and such measurements may contain errors.
We cannot be certain that any other Internet solution will be developed or
accepted by the market. Even if new methods are developed, we may not be able to
take advantage of them. Moreover, "filter" software programs that limit certain
banner information from being delivered to a Web site are currently available.
Our business could be materially adversely affected if use of filter software
becomes widespread. Actual or perceived ineffectiveness of a network of banners
in general, or accuracy of measurements or database information in particular,
could limit our long-term growth.
FAILURE OF THE WEB INFRASTRUCTURE WOULD HARM OUR BUSINESS
Our future success substantially depends, among other things, upon the
continued expansion and maintenance of the Web infrastructure as a reliable
network backbone. This requires the necessary speed, capacity and security, and
timely development of enabling products such as high speed modems, for providing
reliable Web access and services. We can provide no assurance that the Web
infrastructure will continue to be able to support the growing demands placed
upon it as the
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Web continues to grow in terms of the number of users, the frequency of users
and the increased bandwidth requirements such that the performance or
reliability of the Web will not be adversely affected by these demands. In
addition, the Internet could lose its viability due to delays in the development
or adoption of new standards and protocols required to handle increased levels
of Internet activity or due to increased governmental regulation. Changes in, or
insufficient availability of, telecommunications services to support the
Internet could also result in slower response times and adversely affect usage
of the Web and the effectiveness of our Network. In fact, the Web has
experienced a variety of outages and other delays due to damage to a portion of
its Web infrastructure. Any future outages or delays could adversely impact the
Web sites of Web publishers participating in the ZAP.COM Network. Any such
outages or any other failure of the Internet infrastructure to effectively
support the expected growth or delays occur in the Web, could delay the growth
of the Internet and our business.
ON-LINE SECURITY BREACHES COULD HARM OUR BUSINESS
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. We plan to
rely on encryption and authentication technology licensed from third parties to
provide the security and authentication necessary to effect secure transmission
of confidential information over our Network. It is possible that advances in
computer capabilities, new discoveries or other developments will result in a
compromise or breach of the algorithms that we select for this purpose. This
could have a material adverse effect on our business, prospects, results of
operations and financial condition.
We may be required to expend significant capital and other resources to
protect against the threat of such security breaches or to alleviate problems
caused by such breaches. The public's concern over the security of Internet
transactions and the privacy of users may also inhibit the growth of the Web,
especially as a means of conducting commercial transactions. To the extent that
our activities or those of third party contractors involve the storage and
transmission of proprietary information, such as credit card numbers, security
breaches could expose us to a risk of loss or litigation and possible liability.
We can provide no assurance that our security measures will prevent security
breaches or that failure to prevent such security breaches will not have a
material adverse effect on our business, prospects, results of operations and
financial condition.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE
The Internet industry and its markets for commercial activities are
characterized by rapidly changing customer and user requirements, frequent new
service or product announcements, introductions and enhancements and evolving
industry standards and practices. In addition, these market characteristics are
heightened by the apparent need of companies from many industries to offer
Internet-based products and services. As a result, our future success will
depend on our ability to adopt to rapidly changing technologies, to adapt our
service offerings to evolving industry standards and to continually improve the
performance, features and reliability of our services in response to competitive
service offerings and the evolving demands of the marketplace on a timely and
cost-effective basis. In addition, the widespread adoption of new Internet,
networking or telecommunications technologies or other technological changes
could require us to incur substantial expenditures to modify or adapt our
services or infrastructure. We cannot assure you that we will be successful in
using new technologies effectively or adapting the ZAP.COM Network to customers,
Network site participants or emerging industry standards. If we are unable to
adapt in a timely manner in response to changing market conditions or customer
requirements, our business, prospects, results of operations and financial
condition would be materially adversely effected.
REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS
There is an increasing number of laws and regulations pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and
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foreign governments and agencies. Laws or regulations may be adopted with
respect to the Internet relating to liability for information retrieved from or
transmitted over the Internet, online content regulation, user privacy, taxation
and quality of products and services. Moreover, the applicability to the
Internet of existing laws governing issues such as intellectual property
ownership and infringement, copyright, trademark, trade secret, obscenity,
libel, employment and personal privacy is uncertain and developing. Any new
legislation or regulation, or the application or interpretation of existing
laws, may decrease the growth in the use of the Internet, which could in turn
decrease the demand for ZAP.COM's service, increase ZAP.COM's cost of doing
business or otherwise have a material adverse effect on ZAP.COM's business,
prospects, results of operations and financial condition.
RISKS RELATED TO RIGHTS OFFERING AND STOCK DISTRIBUTION
SUBSCRIPTIONS EXERCISES ARE IRREVOCABLE
Subscriptions for shares in the Rights Offering will be irrevocable, except
in limited circumstances. You will not receive interest on your subscription
funds delivered to our Subscription Agent upon the exercise of your Rights
pending delivery of such certificates and returns of any excess funds not
applied to the purchase of such shares.
DETERMINATION OF SUBSCRIPTION PRICE ARBITRARY
The subscription price was determined by our Board of Directors and is not
based on an independent valuation of the Company or its assets or other
recognized criteria of investment value, such as book value, cash flow, earnings
or financial condition. The subscription price, therefore, does not indicate
that the common stock has a value or can be resold. We cannot assure you that if
a trading market develops in our common stock, that the stock will trade at
prices in excess of the subscription price at any time after the date of this
prospectus. See "The Rights Offering -- Determination of Subscription Price."
THERE HAS BEEN NO PRIOR TRADING MARKET FOR OUR RIGHTS OR COMMON STOCK AND THE
MARKET PRICE OF THESE SECURITIES WILL LIKELY BE VOLATILE
Prior to the closing of the Rights Offering and, if applicable, the Stock
Distribution, you could not purchase ZAP.COM common stock publicly. We have
applied for quotation of the ZAP.COM common stock on the Nasdaq NM and for
listing on the Pacific Stock Exchange. We cannot assure you, however, that
either listing will be obtained. If our common stock is not approved for
quotation on the Nasdaq NM or for listing on the Pacific Stock Exchange
following the closing of the Rights Offering, trading of our common stock would
be conducted on an electronic bulletin board established for securities that do
not meet the Nasdaq listing requirements or in what is commonly referred to as
the "pink sheets." Further, while prior to their expiration, the Rights may be
transferred, they will not be listed or traded on any national securities
exchange or automated quotation system and, therefore, will be traded in the
same way. As a result, an investor may find it more difficult to dispose of, or
obtain accurate quotations as to the price of our Rights and common stock.
We cannot assure you that investors will develop an interest in the Rights
or our common stock so that a trading market develops or, if a trading market
does develop, how active that trading market will be or whether it will be
sustained. The market price of our common stock is likely to be volatile. A
number of factors may affect the price and liquidity of our common stock,
including:
- actual or anticipated fluctuations in our quarterly operating results;
- operating results that vary from expectations as to our future financial
performance or changes in financial estimates for us by securities
analysts and investors;
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- announcements of technological innovations or new services by us or our
competitors;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic relationships, joint ventures, capital
commitments, the results of the Rights Offering and the size of our
Network;
- announcements by third parties of significant claims or proceedings
against us;
- future sales or issuances of equity by us;
- change in the status of our intellectual property rights; and
- the operating and stock price performance of other comparable companies.
In addition, our common stock may be followed by few, if any, market
analysts and there may be few institutions acting as market makers for our
common stock. Either of these factors could adversely affect the liquidity and
trading price of our common stock. Also, the stock market in general has
experienced extreme price and volume volatility that has especially affected the
market prices of securities of many high technology Internet-related companies.
ZAPATA'S CONTROL AND INTERLOCKING DIRECTORS AND OFFICERS CREATE POTENTIAL
CONFLICTS OF INTEREST RELATING TO ZAPATA
Our Series A preferred stock and common stock generally vote as one class
on all matters presented to stockholders for consideration. On each stockholder
vote, our common stock is entitled to one vote and each share of Series A
preferred stock is entitled to 50,000 votes. We have issued all of our
authorized Series A preferred stock to Zapata, assuring that Zapata will have
voting control of ZAP.COM. As a result, Zapata's directors and officers will be
able to control our Management and policies as well as the outcome of
substantially all matters submitted to the stockholders for approval, including
the election of directors and any proposed merger, liquidation, transfer or
encumbrance of a substantial portion of its assets, or amendment to our charter
to change our authorized capitalization or otherwise. Zapata will be entitled to
retain its ability to control the vote on almost all stockholder votes until
ZAP.COM issues more than 500,000,000 shares of its common stock.
In addition, our executive officers also are directors, officers or
employees of Zapata and either own, or hold an option to purchase, equity
securities of Zapata. In addition, Malcolm Glazer, who is the father of our
President and Chief Executive Officer, Avram Glazer, controls and beneficially
owns approximately 44% of Zapata's outstanding common stock. As a result, these
executive officers have inherent conflicts of interest when making decisions
related to transactions between us and Zapata. Zapata's ability to control
matters listed above together with the potential conflicts of interest of
certain of our executive officers and our initial director could adversely
affect the trading price and liquidity of our common stock. Also, Zapata may
delay or prevent a change of control in our Company, even if it would be
beneficial to our stockholders. These factors could limit the price that certain
investors might be willing to pay for our common stock in the future.
In addition, those persons serving as both our officers and key employees
and those of Zapata have not committed to devote any specific percentage of his
business time to us. The competing claims upon each officer's time and energies
could divert his attention from our affairs, placing additional demands on our
resources. The efforts of all or any of these individuals may not be sufficient
to meet both our needs and those of Zapata. If we were deprived of access to
certain key members of our management team, or other personnel, or loss access
to such services altogether, our business, prospects, results of operations and
financial condition could be materially adversely affected. See "Certain
Relationships and Related Party Transactions."
In contemplation of the Rights Offering and Stock Distribution, we will be
entering into certain agreements with Zapata, including the Distribution
Agreement, the Tax Indemnity Agreement, the Services Agreement and the
Registration Rights Agreement for the purpose of defining our on-
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going relationship with Zapata following the Rights Offering and, if made, the
Stock Distribution. We cannot assure you that the terms of these agreements, or
the transactions provided for therein, will be effected on terms at least as
favorable to us as could have been obtained from unaffiliated third parties.
LIABILITIES AS A MEMBER OF CONSOLIDATED TAX GROUP
The Company has been and will continue to be through the closing of the
Rights Offering, a member of Zapata's consolidated tax group under federal
income tax law. If the Rights Offering is fully subscribed, then following the
consummation of the Rights Offering, we will no longer be a member of Zapata's
consolidated tax group for federal income tax purposes. Each member of a
consolidated group for federal income tax purposes is jointly and severally
liable for the federal income tax liability of each other member of the
consolidated group. Similar rules may apply under state income tax laws.
Although we intend to enter into a Tax Indemnity Agreement with Zapata prior to
the consummation of the Rights Offering, if Zapata or members of its
consolidated tax group (other than us and our subsidiaries) fail to pay tax
liabilities arising prior to the time that the Company is no longer a member of
Zapata's consolidated tax group or during the tax period including the date on
which the Rights Offering is consummated, we could be required to make payments
in respect of these tax liabilities and such payments could materially adversely
affect the Company's business, results of operations and financial condition.
See "Certain Relationships and Related Transactions."
BENEFITS TO INSIDERS
Prior to the Rights Offering, Zapata owned all of our outstanding shares of
common stock. If all of the Rights are exercised, then, following the Rights
Offering, Zapata will own beneficially approximately 72% of our outstanding
common stock. Using the $8.00 per share price, the aggregate market value of the
shares of common stock beneficially owned by Zapata immediately following the
Rights Offering will be approximately $288,304,000; Zapata's aggregate purchase
price for these shares and the Series A preferred stock will have been
approximately $8,036,038. See "Dilution" and "Principal Stockholders."
SOME DIRECTORS TO SERVE AFTER THE RIGHTS OFFERING NOT IDENTIFIED
We currently have one director, Avram Glazer, who is also an officer and
director of Zapata and the President and Chief Executive Officer of ZAP.COM. Mr.
Glazer expects to propose the expansion of the Board to five directors and to
add additional persons, some of whom will be unaffiliated with Zapata, to fill
these new vacancies on the Board of Directors. Therefore, investors do not know
the identity of all the persons who will serve on our Board and be responsible
for our affairs.
OUR MANAGEMENT HAS BROAD DISCRETION OVER USE OF PROCEEDS OF THIS OFFERING
All of the net proceeds of the Rights Offering and Zapata's $8,000,000
investment will be available to fund development of the ZAP.COM Network and
operating losses and for general corporate purposes. As of the date of this
prospectus, we cannot specify with certainty the particular uses for the net
proceeds to be received upon completion of the Rights Offering. Accordingly, our
Management will have broad discretion in the application of the net proceeds.
The failure of Management to apply such funds effectively could have a material
adverse effect on our business, prospects, results of operations and financial
condition. See "Use of Proceeds."
LACK OF DIVIDENDS
We have paid no dividends on our common stock and we cannot assure you that
we will achieve sufficient earnings to pay cash dividends on our common stock in
the near future. Further, we intend
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to retain earnings to fund our operations. Therefore, we do not anticipate
paying any cash dividends on our common stock in the foreseeable future. See
"Dividends."
ANTI-TAKEOVER PROVISIONS MAY HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR
COMMON STOCK
If Zapata were ever to lose voting control over us, certain provisions of
our charter and By-Laws could make it more difficult for a third party to gain
control of our Company. This would be true even if a change in control might be
beneficial to our stockholders. This could adversely affect the market price of
the ZAP.COM common stock. These provisions include:
- the elimination of the right of stockholders to act by written consent;
- the elimination of the right of stockholders to call special meetings of
the stockholders;
- the creation of a staggered Board of Directors; and
- the ability of the Board of Directors to designate and issue Preferred
Stock without stockholder consent.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY EFFECT OUR STOCK PRICE
Sales of a substantial number of shares of our common stock after the
Rights Offering and if made, the Stock Distribution could adversely affect the
market price of our common stock by introducing a large number of sellers to the
market. Given the likely volatility that will exist for our shares, such sales
could cause the market price of our common stock to decline. See "Shares
Eligible For Future Sales."
After the Rights Offering, we will have 50,000,000 shares of our common
stock outstanding (including 350,000 shares of restricted stock awarded to the
Company's President and Chief Executive Officer) and 755,000 shares of common
stock reserved for issuance pursuant to outstanding stock options. All of the
shares of common stock to be sold in the Rights Offering or issued in the Stock
Distribution if it is made, will be freely tradable without restriction or
further registration under the federal securities laws unless acquired by our
"affiliates," as that term is defined in Rule 144 under the Securities Act of
1933, as amended. All of the shares acquired by "affiliates" will be "restricted
securities" under the Securities Act subject to restrictions on timing, manner
and volume of sales of such shares.
Following the consummation of the Rights Offering, we intend to file a
registration statement on Form S-8 under the Securities Act covering 7,250,000
shares of common stock reserved for issuance under the 1999 Incentive Plan and a
separate registration statement on Form S-8 covering 250,000 shares of common
stock reserved for issuance under the 1999 Directors Plan. This registration
statement will automatically become effective upon filing.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
The Rights Offering price is expected to be substantially higher than the
net tangible book value of each outstanding share of common stock. Accordingly,
purchasers of common stock in the Rights Offering will suffer immediate and
substantial dilution. After giving effect to the Rights Offering on a fully
exercised basis, the dilution will be $5.84 per share in the pro forma net
tangible book value of the common stock from the Rights Offering price. See
"Dilution."
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THE RIGHTS OFFERING
ZAP.COM is issuing transferable Rights, at no cost, to holders of
outstanding shares of Zapata common stock on , 1999. Rights will not
be distributed to Zapata stockholders who did not hold Zapata stock as of
, 1999. Each Zapata stockholder will receive one Right for each
share of Zapata common stock owned on , 1999.
DETERMINATION OF SUBSCRIPTION PRICE
Prior to the Rights Offering, there has been no public market for the
ZAP.COM common stock. In determining the subscription price, the Company's Board
did not employ any valuation formula or obtain an independent valuation of the
Company. Rather our Board considered our business potential and prospects and
the fact that ZAP.COM is a development stage company. As a result, this price
bears no relation to book value, earnings, assets or other generally accepted
valuation criteria for corporations. We believe that any valuation of our
Company, given its early stage of development, is highly speculative. The actual
value or resale value of our common stock may be significantly higher or lower
than the purchase price.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., EST, on , 1999 unless
extended by ZAP.COM. After expiration, unexercised Rights will be null and void
and no longer exercisable by the holder. ZAP.COM will not be obligated to honor
any purported exercise of Rights received by the Subscription Agent after the
expiration time, regardless of when the documents relating to such exercise were
sent. Notice of any extension of the expiration time will be made through a
press release issued by ZAP.COM.
SUBSCRIPTION PRIVILEGES
Basic Subscription Privilege. Each Right entitles you to receive, upon
payment of $8.00 to ZAP.COM, one share of ZAP.COM common stock (the "Basic
Subscription Privilege"). The Company will send you certificates representing
shares that you purchase pursuant to your Basic Subscription Privilege as soon
as practicable after the Rights expire.
Over-Subscription Privilege. Subject to the allocation described below,
each Right also grants you an "Over-Subscription Privilege" to purchase at $8.00
per share additional shares of ZAP.COM common stock offered in the Rights
Offering that are not purchased by other Zapata stockholders as of the end of
the Rights Offering. You are entitled to exercise your Over-Subscription
Privilege only if you exercise your Basic Subscription Privilege in full.
If there are not sufficient shares of ZAP.COM common stock to satisfy all
subscriptions pursuant to Over-Subscription Privileges, shares will be allocated
pro rata (subject to the elimination of fractional shares) in proportion to the
number of shares of ZAP.COM common stock you purchased pursuant to the Basic
Subscription Privilege. If, however, the pro rata allocation results in any
Zapata stockholder being allocated a greater number of shares than such
stockholder subscribed for pursuant to the exercise of such holder's
Over-Subscription Privilege, then those additional shares will be allocated
among all other Zapata stockholders exercising their Over-Subscription
Privileges. After all of the Rights expire and pro rations and adjustments
required by the terms of the Rights Offering have been effected, we will send to
you certificates representing shares of ZAP.COM common stock you purchase
pursuant to your Over-Subscription Privilege as soon as practicable.
In connection with the exercise of the Over-Subscription Privilege, banks,
brokers and other nominee holders of Rights who exercise the Basic Subscription
Privilege and the Over-Subscription Privilege on behalf of beneficial owners of
Rights will be required to certify to the Subscription Agent and ZAP.COM as to
the aggregate number of Rights that have been exercised and the number of
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shares that are being subscribed for pursuant to the Over-Subscription Privilege
by each beneficial owner on whose behalf the nominee holder is acting.
UNSUBSCRIBED SHARES
The Company will offer the first 350,000 shares that are not subscribed for
as of the end of the Rights Offering at a price of $8.00 per share to persons
selected to us. These persons may have a relationship with us or Zapata. We
expect to enter into agreements with these person to purchase the unsubscribed
shares before the end of the Rights Offering. If there are less that 350,000
unsubscribed shares at the Rights Offering, the number of unsubscribed shares
offered to each of these persons will be adjusted accordingly. To the extent
that any unsubscribed shares remain unsold after the offer to these persons,
such shares will be issued to Zapata pursuant to the Distribution Agreement.
EXERCISE OF RIGHTS BY THE GLAZERS
In order to have ZAP.COM's common stock be more widely held, Malcolm
Glazer, who controls approximately 44% of Zapata's outstanding common stock, has
agreed to exercise only 125,000 Rights. In addition, our President and Chief
Executive Officer, Avram Glazer, has agreed to exercise only 10,306 Rights. At
the closing of the Rights Offering, ZAP.COM will issue to Zapata all shares
subject to unexercised Rights and not otherwise purchased as of the close of the
Rights Offering. If no Zapata stockholders other than the Glazers (or an entity
controlled by them) exercise their Rights, the Company will receive $9,082,448
in gross proceeds from the Rights Offering and the Zapata investment less
estimated offering expenses. In contrast, if all Rights are exercised, the gross
proceeds to the Company will be $108,896,000. Regardless of the Rights that are
exercised, the Company has estimated that the expenses for the offering will be
approximately $600,000.
PLAN OF DISTRIBUTION AND SUBSCRIPTION AGENT
In order to reduce costs and to provide a benefit to Zapata's eligible
stockholders, ZAP.COM is making this Rights Offering directly to Zapata
stockholders. ZAP.COM will not be paying any commissions or fees in connection
with the Rights Offering. However, where shares are held indirectly through a
broker, bank or other institution ZAP.COM will reimburse the institutions'
reasonable out-of-pocket costs in distributing this prospectus and other
materials to beneficial owners of the stock.
ZAP.COM has appointed its Transfer Agent, American Stock Transfer & Trust
Company, to assist with the Rights Offering in the role of Subscription Agent.
The Subscription Agent will hold all subscriptions received from Zapata
stockholders, and will be responsible for delivering stock certificates and
refunds (in the case of oversubscription or cancellation of the Rights Offering)
to stockholders. ZAP.COM will pay the fees and expenses of the Subscription
Agent in connection with the Rights Offering and, if made, the Stock
Distribution.
You should deliver your Subscription Certificate, payment of the
subscription price and Notice of Guaranteed Delivery (if any) to the
Subscription Agent. The address to which these documents and payment should be
delivered is:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Telephone: (718) 921-8200
Facsimile: (718) 234-5001
Funds received in payment of the subscription price for shares subscribed
for pursuant to the Over-Subscription Privilege prior to notification by the
Subscription Agent of the allocation of the shares will be held in a segregated
account pending issuance of such shares. If you are allocated
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less than all of the shares of ZAP.COM common stock which you have subscribed
for pursuant to your Over-Subscription Privilege, the excess funds that you pay
to the Subscription Agent in respect of the subscription price for shares not
issued will be returned to you by mail without interest or deduction as soon as
practicable after the , 1999.
ZAP.Com has also retained Georgeson & Company Inc. to act as information
Agent for the Rights Offering and, if made, the Stock Distribution. ZAP.COM will
pay the fees and expenses of the Information Agent.
EXERCISE OF RIGHTS
You may exercise your Rights by delivering to the Subscription Agent, at or
prior to 5:00 p.m., EST, on , 1999:
- a properly completed and duly executed Subscription Certificate;
- any required signature guarantees; and
- payment in full of $8.00 per share of ZAP.COM common stock to be
purchased through the Basic Subscription Privilege and the
Over-Subscription Privilege.
ZAP.COM may reject any subscription documents the Subscription Agent
receives after 5:00 p.m., EST, on , 1999, regardless of when the
documents were originally mailed.
METHOD OF PAYMENT
Payments for the shares must be by (a) check or bank draft drawn upon a
United States bank or postal, telegraphic or express money order payable to
American Stock Transfer & Trust Company, as Subscription Agent, or (b) wire
transfer of funds to the account maintained by the Subscription Agent for such
purpose. Any wire transfer of funds should clearly indicate the identity of the
subscriber who is paying the subscription price by the wire transfer. The
subscription price will be deemed to have been received by the Subscription
Agent only upon (1) clearance of any uncertified check, (2) receipt by the
Subscription Agent of any certified check or bank draft drawn upon a United
States bank or of any postal, telegraphic or express money order or (3) receipt
of good funds in the Subscription Agent's account designated above.
- --------------------------------------------------------------------------------
If paying by uncertified personal check, please note that the funds paid
thereby may take up to five business days to clear. Accordingly, holders of
Rights who wish to pay the subscription price by means of uncertified personal
check are urged to make payment sufficiently in advance of the date on which the
Rights expire to ensure that such payment is received and cleared by such date
and are urged to consider payment by means of certified or cashier's check,
money order or wire transfer of funds.
- --------------------------------------------------------------------------------
GUARANTEED DELIVERY PROCEDURES
If you want to exercise your Rights, but time will not permit your
Subscription Certificate to reach the Subscription Agent on or prior to
, 1999, you may exercise your Rights if you satisfy the following
Guaranteed Delivery Procedures:
(1) You send, and the Subscription Agent receives, payment in full for each
share of common stock being purchased through the Basic Subscription
Privilege and the Over-Subscription Privilege, on or prior to
, 1999;
(2) You send, and the Subscription Agent receives, on or prior to
, 1999, a Notice of Guaranteed Delivery, substantially in
the form provided with the attached instructions, from a member firm of
a registered national securities exchange or a member of the National
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Association of Securities Dealers, Inc. or a commercial bank or trust
company having an office or correspondent in the United States. The
Notice of Guaranteed Delivery must state your name, the number of
Rights that you hold, the number of shares of common stock that you
wish to purchase pursuant to the Basic Subscription Privilege and the
number of shares, if any, you wish to purchase pursuant to the
Over-Subscription Privilege. The Notice of Guaranteed Delivery must
guarantee the delivery of your Subscription Certificate to the
Subscription Agent within three OTC trading days following the date of
the Notice of Guaranteed Delivery; and
(3) You send, and the Subscription Agent receives, your properly completed
and duly executed Subscription Certificate, including any required
guarantees, within three OTC trading days following the date of your
Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be
delivered to the Subscription Agent in the same manner as your
Subscription Certificate at the addresses set forth below, or may be
transmitted to the Subscription Agent by facsimile transmission, to
facsimile number (718) 234-5001. You can obtain additional copies of
the form of Notice of Guaranteed Delivery by requesting it from the
Subscription Agent at the address set forth above under "-- Plan of
Distribution and Subscription Agent."
SIGNATURE GUARANTEES
Signatures on the Subscription Certificate must be guaranteed by an
Eligible Guarantor Institution, as defined in Rule 17Ad-15 of the Exchange Act,
subject to the standards and procedures adopted by the Subscription Agent.
Eligible Guarantor Institutions include banks, brokers, dealers, credit unions,
national securities exchanges and savings associations.
Signatures on the Subscription Certificate do not need to be guaranteed if:
(1) the Subscription Certificate provides that the shares of common stock
to be purchased are to be delivered directly to the record owner of
such rights; or
(2) the Subscription Certificate is submitted for the account of a member
firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or a commercial bank
or trust company having an office or correspondent in the United
States.
SHARES HELD FOR OTHERS
If you hold shares of Zapata common stock for others, such as brokers,
trustees or depositories for securities, you should provide a copy of this
prospectus to the respective beneficial owners of those shares as soon as
possible, ascertain such beneficial owners' intentions and obtain instructions
with respect to the Rights. If the beneficial owner so instructs, you should
complete Subscription Certificates and submit them to the Subscription Agent
with the proper payment.
If you are a beneficial owner of Zapata common stock held by a holder of
record, you should contact the holder and request the holder to effect
transactions in accordance with your instructions. Beneficial holders should be
aware that brokers or other record holders may establish deadlines for receiving
instructions from beneficial holders significantly in advance of ,
1999.
AMBIGUITIES IN EXERCISE OF THE RIGHTS
If you do not specify the number of Rights being exercised on your
Subscription Certificate, or if your payment is not sufficient to pay the total
purchase price for all of the shares that you indicted you wished to purchase,
you will be deemed to have exercised the maximum number of Rights that could be
exercised for the amount of the payment that the Subscription Agent receives
from you.
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If your payment exceeds the total purchase price for all of the Rights
shown on your Subscription Certificate, your payment will be applied, until
depleted, to subscribe for shares of common stock in the following order:
(1) to subscribe for the number of shares, if any, that you indicated on
the Subscription Certificate(s) that you wished to purchase through
your Basic Subscription Privilege;
(2) to subscribe for shares of common stock until your Basic Subscription
Privilege has been fully exercised; and
(3) to subscribe for additional shares of common stock pursuant to the
Over-Subscription Privilege (subject to any application proration).
Any excess payment remaining after the foregoing allocation will be returned to
you as soon as practicable by mail, without interest or deduction.
COMPANY'S DECISIONS BINDING
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by ZAP.COM, whose determinations will
be final and binding. ZAP.COM reserves the right, in its sole discretion, to
waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as ZAP.COM
determines in its sole discretion. ZAP.COM reserves the right, in its sole
discretion, to reject any purchases not properly submitted or the acceptance of
which would, in the opinion of its counsel, be unlawful. Neither Zapata,
ZAP.COM, the Information Agent nor the Subscription Agent will be under any duty
to give notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for failure to
give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this prospectus should be
directed to the Information Agent at (800) 223-2064.
WITHDRAWAL RIGHTS
ZAP.COM may withdraw the Rights Offering at any time prior to or on
, 1999, for any reason. If ZAP.COM withdraws the Rights Offering,
any funds received from stockholders will be promptly refunded without interest
or penalty.
- --------------------------------------------------------------------------------
The instructions accompanying the Subscription Certificate should be read
carefully and followed in detail. Do not send Subscription Certificates to
Zapata or to ZAP.COM. The method of delivery of Subscription Certificates and
payment of the subscription price to the Subscription Agent will be at the
election and risk of the Rights holders, but if sent by mail, it is recommended
that such certificates and payments be sent by registered mail, properly
insured, with return receipt requested, and that a sufficient number of days be
allowed to ensure delivery to the Subscription Agent and clearance of payment at
or prior to 5:00 p.m., EST, on , 1999.
- --------------------------------------------------------------------------------
METHOD OF TRANSFERRING RIGHTS
It is anticipated that the Rights will trade in the over-the-counter market
until the close of business on the last trading day prior to the expiration of
the Rights. There can be no assurance that a market for the Rights will develop,
that any market which does develop will be active or can be sustained or as to
the prices at which the Rights will trade.
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The Rights evidenced by a single Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the accompanying instructions. A portion of the Rights evidenced
by a single Subscription Certificate (but no fractional Rights) may be
transferred by delivering to the Subscription Agent a Subscription Certificate
properly endorsed for transfer, with instructions to register such portion of
the Rights evidenced thereby in the name of the transferee (and to issue a new
Subscription Certificate to the transferee evidencing such transferred Rights).
In such event, a new Subscription Certificate evidencing the balance of the
Rights will be issued to the Rights holder or, if the Rights holder so
instructs, to an additional transferee. However, notwithstanding the foregoing,
the Subscription Agent will reissue Subscription Certificates for the
transferred Rights to the transferee, and will reissue Subscription Certificates
for the balance, if any, to the holder of the Rights, only to the extent it is
able to do so before the expiration of the Rights. To transfer Rights to any
person other than a bank or broker, signatures on the Subscription Certificate
must be guaranteed by an eligible institution.
Holders wishing to transfer all or a portion of their Rights (but not
fractional Rights) should allow a sufficient amount of time prior to the
expiration date for (a) the transfer instructions to be received and processed
by the Subscription Agent, (b) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred Rights,
and to the transferor with respect to retained Rights, if any, and (c) the
Rights evidenced by such new Subscription Certificates to be exercised or sold
by the recipients thereof. Neither ZAP.COM nor the Subscription Agent will have
any liability to a transferee or transferor of Rights if Subscription
Certificates are not received in time for exercise or sale prior to the
expiration of the Rights.
Except for the fees charged by the Subscription Agent (which will be paid
by ZAP.COM), all commissions, fees and other expenses (including brokerage
commissions and transfer taxes) incurred in connection with the purchase, sale
or exercise of Rights will be for the account of the transferor of the Rights,
and none of such commissions, fees or expenses will be paid by ZAP.COM or the
Subscription Agent.
NO MINIMUM SUBSCRIPTION AND RIGHTS TO TERMINATE OR MODIFY RIGHTS OFFERING
The Rights Offering is not conditioned upon ZAP.COM's receipt of
subscriptions for any minimum number of shares of ZAP.COM common stock. The
ZAP.COM Board of Directors, in its sole discretion, may amend the terms and
conditions of the Rights Offering at any time prior to the Expiration Date. In
the event of such termination, ZAP.COM will return to all eligible Zapata
stockholders who exercised their Rights their subscription payments without
interest or deduction, as soon as practicable.
NO REVOCATION
Once you exercise your Basic Subscription Privilege or Over-Subscription
Privilege, you may not revoke that exercise.
NO RECOMMENDATION
An investment in ZAP.COM common stock must be made pursuant to each
stockholder's evaluation of such stockholder's best interests. Neither the Board
of Directors of Zapata nor the Board of Directors of ZAP.COM makes any
recommendation regarding whether stockholders should sell their Rights or
whether to exercise such stockholder's Rights.
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THE STOCK DISTRIBUTION
The Board of Directors of Zapata has declared a special stock distribution
of ZAP.COM common stock to holders of record of Zapata common stock as of the
close of business on , 1999 pursuant to which between 150,000
shares of ZAP.COM common stock and 1,200,000 shares of ZAP.COM common stock will
be distributed to holders of Zapata common stock as of , 1999.
Zapata will only distribute these shares to you if as of the close of the Rights
Offering, either the number of shares being issued pursuant to exercised Rights
or the number of record holders or beneficial owners, as applicable, who will
receive shares of ZAP.COM common stock as a result of such exercises is
insufficient to meet the listing requirements for either the Nasdaq NM or the
Pacific Stock Exchange. The aggregate number of shares that will be distributed
and the applicable distribution ratio depends upon the number of Rights which
are exercised in connection with the Rights Offering.
If the number of holders who elect to exercise their Rights prior to the
expiration of the Rights is insufficient to meet either the number of record
holders required to qualify for listing on the Nasdaq NM or the number of
beneficial holders required for listing on the Pacific Stock Exchange, then
Zapata will distribute to persons owning Zapata common stock on ,
1999 an aggregate of 150,000 shares of ZAP.COM common stock. If this Stock
Distribution is made, you will receive approximately .0063 shares of ZAP.COM
common stock for each share of Zapata common stock that you owned on
, 1999. For our common stock to be eligible for quotation on the
Nasdaq NM, we must have at least 400 holders of our common stock; for our common
stock to be eligible for trading privileges on the Pacific Stock Exchange, we
must have at least 500 beneficial holders of our common stock. As of the date of
this prospectus, Zapata has approximately 7,051 holders of record of its common
stock and approximately 28,335 beneficial owners of its common stock.
For ZAP.COM's common stock to be eligible for listing on the Nasdaq NM, we
must have at least 1,200,000 shares outstanding and held by non-affiliates for
ZAP.COM's common stock to be eligible for listing on the Pacific Stock Exchange,
we must have at least 1,000,000 shares of common stock outstanding and held by
non-affiliates. If upon expiration of the Rights, Rights holders (other than
Zapata, Malcolm Glazer, Avram Glazer or an entity controlled by the Glazers)
have not exercised Rights for the purchase of at least 1,200,000 shares of our
common stock, then we will distribute so many shares of our common stock as
will, when distributed together with those shares being issued in connection
with the Rights Offering, result in our common stock meeting the listing
eligibility requirements of the Nasdaq NM and the Pacific Stock Exchange. If
circumstances require Zapata to make the Stock Distribution in order to meet
non-affiliate outstanding share requirements, Zapata will not distribute less
than 150,000 shares of ZAP.COM common stock. For example, if 600,000 Rights are
exercised prior to the expiration of the Rights (excluding Rights exercised by
the Glazers or any entity controlled by them), then we will issue 400,000 shares
of our common stock to Zapata, which will, in turn, distribute those shares to
persons owning Zapata stock on , 1999. This would result in you
receiving approximately 0.0168 shares of ZAP.COM common stock for each share of
our common stock held by you on , 1999.
MANNER OF EFFECTING THE STOCK DISTRIBUTION
If a Stock Distribution is made, shares of ZAP.COM common stock being
distributed, at Zapata's request, will be delivered by ZAP.COM to the Stock
Distribution Agent for transfer and distribution to eligible Zapata
stockholders. In such event, the Stock Distribution Agent will deliver the
certificates to eligible Zapata stockholders simultaneously with the issuance of
shares to stockholders who have exercised their Rights and the issuance of any
shares to purchasers selected by the Company. Fractional shares of ZAP.COM
common stock will not be issued in the Stock Distribution and instead a cash
payment will be made in lieu of such fractional shares. The amount of the
payment will be based on a price of $8.00 per share.
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RIGHTS TO TERMINATE OR MODIFY THE STOCK DISTRIBUTION
The Stock Distribution does not require stockholder approval and the Zapata
Board of Directors may abandon, defer or modify the Stock Distribution prior to
11:59 p.m., EST, on the day immediately preceding the closing of the Rights
Offering. Zapata's stockholders will not be entitled to appraisal rights in
connection with the Stock Distribution and related transactions described herein
at any time.
No holder of Zapata common stock will be required to pay any cash, exchange
their Zapata shares or tender any other consideration for the shares of ZAP.COM
common stock received in the distribution. The Stock Distribution will not
affect the number of, or the rights attaching to outstanding shares of Zapata
common stock. All shares of ZAP.COM common stock issued in the Stock
Distribution will be fully paid and non-assessable and the holders of those
shares will not be entitled to preemptive rights. See "Description of
Securities -- Common Stock."
INFORMATION AGENT
The Company has appointed Georgeson & Company Inc. to act as the
Information Agent for the Rights Offering and, if made, the Stock Distribution.
The Company will pay the fees and expenses of the Information Agent from certain
liabilities that it may incur in connection with the Rights Offering and, if
made, the Stock Distribution.
If you have questions or need assistance concerning the procedure for
exercising Rights or concerning the Stock Distribution, or if you would like
additional copies of this prospectus, the Instructions or the Notice of
Guaranteed Delivery, you should contact the Information Agent.
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
(800) 223-2064
Banks and Brokers call collect (212) 440-9800
STATE AND FOREIGN SECURITIES LAW
The Rights may not be exercised by any person, and neither this prospectus,
the Subscription Certificate nor the Stock Distribution shall constitute an
offer to sell or a solicitation of an offer to purchase any shares of ZAP.COM
common stock in any jurisdiction in which such transactions would be unlawful.
No action has been taken in any jurisdiction outside the United States to permit
offers and sales of the Rights or the offer, sale or distribution of the shares
of ZAP.COM common stock. Consequently, ZAP.COM may reject subscriptions pursuant
to the exercise of Rights by any holder of Rights outside the United States, and
ZAP.COM may also reject subscriptions from holders in jurisdictions within the
United States and Zapata may refuse to distribute Rights or shares of ZAP.COM
common stock to any eligible Zapata stockholders if ZAP.COM or Zapata should
determine that it may not lawfully issues shares to such holders, even if it
could do so by qualifying the shares for sale or by taking other actions in such
jurisdictions.
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USE OF PROCEEDS
The gross proceeds to be received by ZAP.COM from the Rights Offering
depends on the number of Rights exercised. There is no minimum number of shares
that must be purchased for the Rights Offering to close. Malcolm Glazer, on
behalf of an entity controlled by him, and Avram Glazer have agreed to exercise
Rights for the purchase in the aggregate of 135,306 shares of ZAP.COM common
stock. Accordingly gross proceeds to ZAP.COM from the Rights Offering, ranges
from approximately $1,082,448 if no shares are purchased other than by the
Glazers to approximately $108,896,000 if all of the Rights are exercised. Except
for the Rights which the Glazers have agreed to exercise, no assurance can be
given as to the actual number of Rights that will be exercised. Regardless of
the number of Rights that are exercised, the Company has estimated that the
expenses for the offering and related transactions will be approximately
$600,000.
ZAP.COM intends to use the net proceeds that it receives from Zapata's
$8,000,000 equity contribution and the Rights Offering to fund development of
the ZAP.COM Network and anticipated operating losses and for other general
corporate purposes. ZAP.COM may also use a portion of these net proceeds to
acquire or invest in Web sites or complimentary businesses, although the Company
does not have any specific understanding, agreement, plan or proposal with
respect to any such transaction. Thus, at the present time, the Company has not
determined the specific use for the net proceeds of Zapata's investment or the
Rights Offering. Accordingly, ZAP.COM's Management will have broad discretion in
the application of the net proceeds. See "Risk Factors -- Our Management Has
Broad Discretion Over Use of the Proceeds of This Offering."
Pending use, ZAP.COM intends to invest the net proceeds from the Rights
Offering in government securities.
DIVIDEND POLICY
ZAP.COM has not declared or paid any cash dividends on its capital stock
since its inception and does not expect to pay any cash dividends in the
foreseeable future. ZAP.COM currently intends to retain future earnings, if any,
to finance the expansion of its business.
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DILUTION
As of February 28, 1999, ZAP.COM had a negative net tangible book value
available to common stockholders of approximately $149,568, or approximately
$.004 per share of common stock. Net tangible book value per share of common
stock represents the amount of ZAP.COM's tangible assets less total liabilities,
divided by 36,038,000 shares. At February 28, 1999, ZAP.COM's pro forma net book
value available to common stockholders would be $108,182,810 or $2.16 per share
after giving effect to the sale of all 13,612,000 shares of common stock offered
in the Rights Offering at $8.00 per share as of such date less estimated
offering expenses of $600,000. This represents an immediate increase in the pro
forma net tangible book value available to common stockholders of approximately
$2.16 per share of ZAP.COM common stock to Zapata, as ZAP.COM's sole stockholder
prior to the Rights Offering, and an immediate dilution of $5.84 per share to
investors purchasing shares in the Rights Offering. The following table
illustrates this per share dilution to new investors:
<TABLE>
<S> <C> <C>
Rights Offering exercise price per share.................... $8.00
-----
Net tangible book value per common share as of February
28, 1999 prior to the Rights Offering.................. $(.004)
------
Increase in net tangible book value per common share
resulting from the Rights Offering (assuming that it is
fully subscribed)...................................... $ 2.16
------
Pro Forma net tangible book value per common share as of
February 28, 1999 after the Rights Offering (assuming that
it is fully subscribed)................................... $2.16
-----
Dilution to new ZAP.COM common stockholders................. $5.84
=====
</TABLE>
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<PAGE> 39
CAPITALIZATION
The following table sets forth the capitalization of ZAP.COM as of February
28, 1999 on a pro forma basis to give effect to Zapata's $8,000,000 investment
and as adjusted to give effect to (1) the exercise by the Glazers (or an entity
controlled by them) of 135,306 Rights and (2) the maximum exercise by eligible
Zapata stockholders of 13,612,000 Rights, in each case less estimated offering
expenses of $600,000. The data set forth below should be read in conjunction
with the Financial Statements and related Notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, 1999
--------------------------------------------------------
PRO FORMA
----------------------------
AS ADJUSTED AS ADJUSTED
ACTUAL PRO FORMA(1) MINIMUM MAXIMUM
-------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Stockholders' equity (deficit):
Preferred Stock, $0.01 par value,
150,000,000 shares
authorized.....................
Series A Preferred Stock, $0.01
par value, 10,000 shares
designated; no shares issued
and outstanding actual;
10,000 shares issued and
outstanding pro forma and pro
forma as adjusted minimum and
maximum...................... -- 8,000,000 $7,986,524(2) $ 8,000,000(3)
Common stock, $0.001 par value;
1,000,000,000 shares authorized
and 36,038,000 issued and
outstanding actual; 50,000,000
shares issued and outstanding
pro forma and pro forma as
adjusted minimum and maximum
(4)(5)......................... 10 36,038 50,000 50,000
Additional paid-in capital(6)....... -- -- 482,313 108,282,388
Deficit accumulated during the
development stage................. (149,578) (149,578) (149,578) (149,578)
-------- --------- ---------- ------------
Total stockholders' equity
(deficit)......................... (149,568) 7,886,460 8,369,259 116,182,810
======== ========= ========== ============
</TABLE>
- ---------------
(1) In addition to Zapata's $8 million investment, pro forma also reflects an
additional capital contribution by Zapata of $36,028 as if it occurred on
February 28, 1999. Zapata has made this additional contribution in order to
meet stated capital requirements under Nevada law.
(2) This figure represents Zapata's $8,000,000 investment in ZAP.COM which is
allocated $7,986,524 to the Series A preferred stock and $13,476 to the
13,476,694 shares of common stock that would be issued to Zapata if only the
Glazers (or an entity controlled by them) exercise their Rights. See
"Relationship Between Zapata and ZAP.COM -- Formation and Funding."
(3) If all of the Rights are exercised by eligible Zapata stockholders, then
ZAP.COM will not be obligated to issue Zapata any shares of common stock and
Zapata's entire $8,000,000 investment will be paid in consideration for the
Series A preferred stock issued to Zapata. See "Relationship Between Zapata
and ZAP.COM -- Formation and Funding."
(4) Under the Distribution Agreement to be entered into by Zapata and ZAP.COM,
simultaneously with the closing of the Rights Offering, ZAP.COM will issue
to Zapata all shares of ZAP.COM common stock unpurchased as of the closing
of the Rights Offering. Accordingly, the number of outstanding shares of
common stock will be 49,650,000 regardless of the number of Rights
exercised. The remaining 350,000 shares represent those shares which will be
issued to the Company's President and Chief Executive Officer pursuant to a
restricted stock award under the 1999 Incentive Plan. The amount of
paid-in-capital and additional paid-in-capital varies
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<PAGE> 40
depending on the number of Rights that are exercised. See "Relationship
Between Zapata and ZAP.COM -- Formation and Funding."
(5) Excludes an aggregate of 7,500,000 shares of common stock reserved for
issuance under the 1999 Incentive Plan and the 1999 Directors Plan, of which
755,000 shares are reserved for options granted under the 1999 Incentive
Plan with an exercise price of $5.00 per share, and includes an award of
350,000 shares of restricted stock granted to the Company's President and
Chief Executive Officer. See "Management -- Stock Option Plans." Also
excludes shares of Common Stock issuable upon Zapata's transfer of its
Series A preferred stock which will only occur if at the time of transfer,
the ZAP.COM common stock held by Zapata constitutes less than 35% of all
outstanding common as a result of dilution. See "Description of
Securities -- Series A Preferred Stock."
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<PAGE> 41
SELECTED FINANCIAL DATA
The selected financial data set forth below for the period from April 2,
1998 (date of inception) through February 28, 1999 are derived from the audited
financial statements of the Company. The audited balance sheet as of February
28, 1999 and the related statements of operations, stockholder's deficit and
cash flows and the related notes thereto are included elsewhere in this
prospectus. The following information should be read in conjunction with the
Financial Statements and Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
PERIOD FROM APRIL 2, 1998
(DATE OF INCEPTION)
THROUGH
FEBRUARY 28, 1999
-------------------------
<S> <C>
Revenues.................................................... --
Expenses:
General and administrative................................ 149,578
---------
Loss before income taxes.................................... 149,578
---------
Benefit from income taxes................................... --
---------
Net loss.................................................... $(149,578)
=========
Per share data (basic):
Net loss per share........................................ $ (149.58)
=========
Average common shares and common share equivalents
outstanding............................................... 1,000
=========
</TABLE>
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1999
-------------------------
<S> <C>
Balance sheet data:
Property and equipment.................................... 39,588
Total liabilities......................................... 189,156
Total stockholder's deficit............................... (149,568)
</TABLE>
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<PAGE> 42
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
OVERVIEW AND RESULTS OF OPERATIONS
From inception on April 8, 1998 through February 28, 1999, the Company has
operated as a wholly-owned subsidiary of Zapata. During this period, ZAP.COM's
operations have consisted of organizational activities, research and analysis
with respect to the Internet industry, efforts to refine ZAP.COM's business
model and strategy, and the exploration of certain strategic relationships.
ZAP.COM generated no revenues during this period and has incurred expenses and
an operating loss of approximately $150,000, consisting primarily of payroll,
legal and consulting fees. Since its inception, Zapata has provided the Company
with all of the administrative personnel and services which it has required.
The Company intends to develop an Internet network of banners. The Company
expects that following the Rights Offering and, if made, the Stock Distribution
it will significantly increase the levels of its expenditures. Further, during
this period, the Company will recognize approximately $1,750,000 of non-cash
charges as a result of the 350,000 shares of restricted stock granted to the
Company's President and Chief Executive Officer during April 1999. The Company
also anticipates that it will have significant charges against earnings from the
consideration to be paid Web sites who join the ZAP.COM Network, although the
Company does not currently have any agreement, understanding or arrangement with
any Web publisher to join the Network. See "Risk Factors -- We Expect to Have
Significant Amortization Expense." Until the Company begins to recognize
significant revenue from operations, the Company will be considered in the
development stage.
LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 1999, ZAP.COM had no cash or cash equivalents. Further,
ZAP.COM does not presently have a source of revenues and it does not expect to
begin recognizing revenues until the ZAP.COM Network has grown to a size which
makes sales commercially feasible. There can be no assurance as to when ZAP.COM
will commence sales or begin to recognize revenues.
Simultaneously with the closing of the Rights Offering, Zapata will
contribute to ZAP.COM in cash $8,000,000. ZAP.COM estimates that it will receive
gross proceeds from the Rights Offering of between approximately $1,082,448 and
$108,896,000 depending on the number of Rights that are exercised, in each case
less offering expenses estimated to be approximately $600,000. ZAP.COM expects
to use the funds that it receives from Zapata's investment and the Rights
Offering to fund development of the ZAP.COM Network and anticipated operating
losses and for general corporate purposes. See "Use of Proceeds."
Depending on the amount of the funds received by the Company in the Rights
Offering, the Company may have to delay, scale back or eliminate some or a
substantial amount of its planned activities. Nevertheless, the Company expects
to incur significant negative cash flow from operations for at least the next 12
months. The Company, however, expects that the proceeds from the Zapata
investment and the Rights Offering if only the Glazers exercised their 135,306
Rights will be sufficient to support the Company's growth and operations during
at least this 12 month period.
As part of its business strategy, the Company plans to make payments of
cash, common stock or combination of cash and common stock to Web Publishers who
join the ZAP.COM Network. See "Risk Factors -- To the Extent That the Growth of
the ZAP.COM Network is Financed with Equity, Investors Are Likely to Experience
Significant Dilution." If Web Publishers are unwilling to accept ZAP.COM common
stock and ZAP.COM does not raise sufficient funds from Zapata's investment and
the Rights Offering to fund these payments, the Company may need to raise
additional funds. There can be no assurance that ZAP.COM will be able to do so,
particularly given the terms of the ZAP.COM Series A preferred stock, or, if it
can, that it will be able to do so on terms that it deems acceptable. See "Risk
Factors -- We May Be Unable to Meet Our Future Capital Needs." Failure of
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<PAGE> 43
ZAP.COM to raise funds required to support its operations would have a material
adverse effect on ZAP.COM's business, prospects, results of operations and
financial condition and could result in a complete loss in the value of the
ZAP.COM common stock issued pursuant to exercised Rights or in the Stock
Distribution.
YEAR 2000
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with Year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
State of Readiness. The only software and hardware currently employed by
the Company consist of a financial accounting package and two servers, all of
which are Year 2000 compliant. The Company plans to assess the Year 2000
readiness of the information technology ("IT") systems that it will be
acquiring, including the hardware and software that enable the Company to
provide and deliver its solutions, and its non-IT systems. Prior to purchasing
any such hardware or software, it will assess, with the help of consultants,
whether such components will properly recognize dates beyond December 31, 1999.
The Company does not anticipate that any hardware or software that it will
purchase or license will have material problems in this regard as it will only
purchase or license current versions of hardware and software provided by major
vendors. Moreover, the Company plans to secure appropriate contractual
assurances from its software and hardware vendors that their software and
hardware solutions are Year 2000 compliant. Further, the Company plans to
conduct a Year 2000 simulation once the Company's entire IT system and operating
infrastructure is in place.
In addition, the ZAP.COM Network site participants may also be impacted by
Year 2000 complications. Any failure by our Network participants to make their
sites Year 2000 compliant could result in a delivery of programming to the
participant and in the participant's operation of its sites. If a material
number of Network participants experience such trouble, it could have a material
adverse effect on our business, prospects, results of operations and financial
condition.
Costs. To date, ZAP.COM has not incurred any expenditures in connection
with identifying or evaluating Year 2000 compliance issues. The Company,
however, expects to incur operating costs associated with time spent by
employees in the IT system evaluation process and Year 2000 compliance matters
generally. ZAP.COM does not expect these future expenses to be material.
Risks. ZAP.COM is not currently aware of any Year 2000 compliance problems
relating to the IT or non-IT systems which it plans to employ that would have a
material adverse effect on its business, prospects, results of operations and
financial condition. There can be no assurance that ZAP.COM will not discover
Year 2000 compliance problems in hardware or software that it acquires which
will require substantial revisions or replacements, all of which could be time
consuming and expensive. The failure of ZAP.COM to fix or replace third party
software, hardware or services on a timely basis could result in lost revenues,
increased operating costs, the loss of customers and other business
interruptions, any of which could have a material adverse effect on ZAP.COM's
business, prospects, results of operations and financial condition. Moreover,
the failure to adequately address Year 2000 compliance issues in its IT and
non-IT systems could result in claims of mismanagement, misrepresentation or
breach of contract and related litigation, which could be costly and time
consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third party service providers and others
outside ZAP.COM's control will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systemic failure beyond the
control of ZAP.COM, such as a prolonged Internet, telecommunications or
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<PAGE> 44
electrical failure, which could also prevent ZAP.COM from delivering its
services to its customers, decrease the use of the Internet or prevent users
from accessing the Web sites of its Web publisher customers, which could have a
material adverse effect on ZAP.COM's business, prospects, results of operations
and financial condition.
Contingency Plan. ZAP.COM has not yet developed any Year 2000 contingency
plans. The results of ZAP.COM's Year 2000 simulation testing and the responses
received from third party vendors and service providers will be taken into
account in determining the nature and extent of any contingency plans which it
develops.
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<PAGE> 45
BUSINESS
Zapata founded ZAP.COM Corporation in April 1998 to create and operate a
leading Internet network with global market reach. The Company plans to pursue
this goal by building the ZAP.COM Network(TM), which will be a branded global
network of ZAP.COM banners displayed throughout Web sites owned and operated by
third parties. Our goal is to develop the ZAP.COM Network into a leading
advertiser and e-commerce platform.
To date, our operations have consisted exclusively of organizational
activities, research and analysis with respect to Internet industry
opportunities, the creation of our business model and the exploration of certain
strategic relationships. As of the date of this prospectus, we do not have any
significant assets or a network in place and we have not formally entered into
any strategic relationships or generated any revenues. Therefore, to a
significant extent, the description of our business in this prospectus is based
on our business model and relates mostly to activities in the planning and early
execution stages.
ZAP.COM believes that this new structure will provide a significant
competitive advantage by combining the benefits of a potentially large and wide
reaching Company-owned network with the individual creative talents of the
participating Web publishers. ZAP.COM further believes that this unique
structure will be attractive to Web publishers because of their ability to
receive a direct economic benefit while retaining ownership and control of all
aspects of their Web site not involving the ZAP.COM banner.
ZAP.COM plans to aggressively build the ZAP.COM Network. In the future,
ZAP.COM may also acquire or establish strategic relationships with Internet
service companies capable of enhancing its Internet resources, electronic
commerce companies and traditional companies which have attractive electronic
commerce opportunities, such as broadcasting, media, entertainment and
communications companies. As of the date of this prospectus, ZAP.COM has no
specific plans, proposals, arrangements or understandings with respect to the
acquisition of any rights from any specific Web publisher.
ZAP.COM may use cash, common stock or other securities or a combination of
such consideration to attract websites to its network. The Company's ability to
use its common stock depends to a large extent on the development of a trading
market and sufficient interest of the potential Web publisher in the Company's
common stock. ZAP.COM's ability to use cash will depend upon the success of the
Rights Offering. There is no assurance that such a market will develop or that
the Rights Offering will raise a sufficient amount of cash to fund the growth of
the ZAP.COM Network required for ZAP.COM to commence commercial sales or to
attract a sufficient number of customers to make ZAP.COM viable. The trading
market in its common stock or the failure of a sufficient number of Rights to be
exercised would have a material adverse impact on ZAP.COM's business, prospects,
results of operations and financial condition.
To implement its business model, ZAP.COM plans to pursue the following key
elements:
Build ZAP.COM Network. In order to reach a substantial audience,
ZAP.COM will seek to aggregate a significant number of Web sites for its
network. ZAP.COM intends to pursue Web sites that have appealing and
diverse content and a significant number of unique users.
Build Multiple Revenue Streams. ZAP.COM intends to seek revenue from
multiple sources, including advertising, commerce and other commercial
activities. ZAP.COM intends to achieve its revenue objectives by: (1)
generating advertising revenues through the establishment and expansion of
a customer base, establishing the ability to target advertisements to
demographically distinct groups, creating a large number of page views on
its Network by adding a large number of Web sites which have minimum levels
of traffic to the Network, securing advertising contracts and investing in
ad serving and ad targeting technology; (2) creating revenue-sharing
commerce relationships; and (3) entering into relationships with
third-party content providers that pay ZAP.COM for access to its Network.
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<PAGE> 46
Establish and Build Brand Loyalty. ZAP.COM intends to aggressively
promote and advertise ZAP.COM and the ZAP.COM Network brand names, products
and services in order to create and increase the awareness of potential
customers. ZAP.COM plans to pursue this strategy through a variety of
marketing and promotional techniques, which may include advertising on-line
and through traditional media, conducting an on-going public relations
campaign and developing business alliances and relationships.
Develop Strategic Relationships. ZAP.COM intends to develop strategic
relationships with third parties that will facilitate the execution of its
business plan, such as sales organizations, advertising agencies, Web
developers, site content managers, site hosts, content providers, e-
commerce and traditional businesses and other organizations. While ZAP.COM
may develop the ability to render some of these services internally, it
also intends to continue developing strategic relationships to assure
itself of adequate access to such services for the foreseeable future.
Create a Superior Economic Model. ZAP.COM believes that its business
model, has inherent economic advantages over other Web-based networks. This
structure reduces the risk of network participant turnover, maximizes the
flexibility of banner use for promotional and commercial activities and
creates a potentially favorable cash flow model due to ZAP.COM's right to
retain all Network generated fees and commissions while alleviating it of
the expenses and organizational complexities of operating and supporting
participating Web sites. ZAP.COM believes that this strategy will result in
a highly scalable business platform, from which it can generate revenues
from multiple sources, including advertising, commerce and other commercial
activities.
INDUSTRY
The Internet's rapid growth since its first commercialization in the late
1980's, is expected to continue for the foreseeable future. The Company believes
that the number of Web users will grow from 78 million in the United States and
over 159 million Web users world wide in March 1999 to over 132 million in the
United States and over 325 million world wide by the end of 2000. In addition,
due in part to the Web's open nature, the number of Web sites has been
proliferating at a rapid pace. The Company believes that as of December 1998,
the number of Internet domains (.com, .net, .edu and .org) has grown to
approximately 4.5 million.
With the explosion in the number of users and Web sites, the Internet has
emerged as a significant communications medium. This has resulted in more and
more businesses using the Internet as a sales and distribution channel for
commercial activities and as an information resource. To date, commercial
applications on the Internet have involved mostly commerce, advertising and
direct marketing.
E-commerce has grown both as a result of the increase in the traffic and
the types of products and service being distributed over the Internet. Consumers
now trade securities, pay bills and purchase airline tickets and consumer goods
over the Internet. The Company believes that this growth is expected to continue
with a projected increase in e-commerce sales from an estimated $3.7 billion in
1998 to $10.0 billion in 2000.
Dissemination of content, such as newspapers, magazines and journals,
through the Web has also experienced significant growth because of both the
growing popularity of the medium and the attractiveness of Web-based advertising
to the content publishers' customers. Web-based advertising provides advertisers
with the ability to target their messages to select audiences with specific
interests and characteristics and to quickly modify a program's cost effectively
in response to information received from dialogue with customers. The Web also
allows the measurement of the effectiveness and response rates of advertisements
and the tracking of the demographic characteristics of Web users, which tend to
have attractive profiles. These valuable tools have not been lost on traditional
advertisers, such as consumer products companies and automobile manufacturers,
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<PAGE> 47
who are beginning to use online advertising. These unique capabilities are
expected to continue the growth in Internet advertising. The Company believes
that the dollar value of Internet advertising in the United States will increase
from an estimated $2.1 billion in 1998 to $7.1 billion in 2002.
Internet-based direct marketing is another commercial activity that has
experienced rapid growth. The Internet allows point-of-sale promotions to be
targeted to consumers and better evaluated based on the response rate of
consumers (e.g., number of leads, number of sales or transactions as a
percentage of promotions viewed, etc.). Direct marketers have the opportunity
through the Internet to increase consumer response rates and decrease
costs-per-transaction by high impact targeting and delivering of their
campaigns. This can be much more cost efficient to the direct marketer than
traditional mediums. The Company believes that $163 billion was spent on direct
marketing initiatives in the United States in 1998.
While the Web offers numerous opportunities, most on-line commercial users
face a number of significant challenges to realizing the potential of the
Internet for their use. These challenges arise from the breadth of content
available on the Web and the costs of transacting individually with a number of
smaller, but desirable sites in order to reach a larger on-line audience. In
addition, special analytical tools are necessary to evaluate and optimize the
effectiveness of information delivery and to target appropriate users.
Commercial users also find that many individual Web sites lack the technology to
deliver information to a broad reach of Internet users. Commercial users seek to
overcome these challenges by outsourcing their Web site placement needs to third
parties whose business is to coordinate the sale of the on-line inventory of a
number of unrelated Web sites.
Web publishers face equally daunting challenges in capitalizing on the
economic opportunities presented by the Web. Typically, Web publishers attempt
to support, or profit from, their Web sites by selling Internet advertising or
other commercial uses of their inventory of Web site space. Many Web publishers,
however, find this difficult because they do not have the resources necessary to
employ, train and manage a sales force or to compete for experienced personnel
in this highly competitive environment. Further, many Web publishers cannot
afford, or do not have the ability to operate and maintain, the servers and
technology necessary for targeted information delivery. As a result, many Web
publishers are unable to secure advertising from, or to service those persons
who purchase on-line inventory. As a result, many Web publishers seek to
outsource sales of their on-line inventory.
Several business models have evolved to address the challenges faced by
both commercial users of the Internet and Web publishers. These models generally
focus on centralizing the point of sale to the Web sites in one entity, which
creates synergies for, and streamlines distribution and marketing operations of,
participating Web sites and provides for more effective placement of the
commercial users' advertising or other information.
One business model involves sales organizations that coordinate and
facilitate the distribution of a customer's advertising banner over a network of
third party sites for a limited duration. Some Internet search and navigational
sites as well as large content aggregators employ a model, which involves the
distribution of advertising banners over a family of Web sites owned by them. A
third model which has developed is the "associate program" in which any Web
publisher receive a referral fee for purchases originating from the publisher's
Web site from a button that hyperlinks to the Web publisher's e-commerce site.
THE ZAP.COM SOLUTION
ZAP.COM has developed a business model that it believes addresses both the
challenges faced by commercial users and Web publishers in a unique and
effective manner. This model is similar to existing business models in that it
involves the creation of a network. It differs in that ZAP.COM will own and have
exclusive rights to space on a third party Web site, while the site's publisher
will retain the rights to all other aspects of its Web site.
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<PAGE> 48
THE ZAP.COM NETWORK
ZAP.COM's goal is to aggressively assemble a large network of websites that
will become part of the ZAP.COM network through the payment of cash, the
issuance of equity or a combination of cash and equity. The Web publisher will
recognize taxable income to the extent of the purchase price paid for the
display rights. This may be unattractive to certain candidates for the ZAP.COM
Network.
ZAP.COM's ability to attract a significant number of web publishers to the
ZAP.COM Network will largely depend upon the success of the Rights Offering and
the development of an orderly trading market in its Common Stock. There can be
no assurance that either of these events will occur and if either do not occur,
ZAP.COM's ability to execute its business plan will be materially adversely
effected. To the extent that ZAP.COM issues significant amounts of stock in
connection with these transactions, existing stockholders will experience
dilution. These acquisitions will negatively impact earnings due to significant
non-cash charges against charges over a short period time.
WEB PUBLISHER RECRUITING
ZAP.COM's Management will be dedicated to rapidly building the ZAP.COM
Network. ZAP.COM believes there are a number of Web sites which are viable
candidates for the ZAP.COM Network program. The Company believes that as of
December 1998, over 4.5 million internet domains existed. Although some highly
desirable sites have already entered into network arrangements with third
parties which commits their on-line inventory, ZAP.COM believes that many of
these arrangements are non-exclusive or are terminable by Web publishers and,
therefore, these sites may also be candidates for the ZAP.COM Network.
ZAP.COM anticipates that the ZAP.COM Network will be attractive to Web
publishers because it may, among other things, allow them to:
- recognize direct value for their audience without giving up ownership or
editorial control of their Web sites other than the ZAP.COM banner.
- maximize value of their Web sites to potential customers and acquirers
through increased traffic through cross-promoting and cross-linking with
the ZAP.COM Network;
- provide participating Web publishers with payments which may be
reinvested in their Web sites; and
- have the opportunity to participate in ZAP.COM's potential future
appreciation if they receive ZAP.COM common stock as part of the
consideration for joining the ZAP.COM Network.
This should also be attractive to Web publishers who do not have, or have
limited, internal sales, billing, tracking and reporting capabilities. It also
alleviates the Web publisher from the start-up and fixed costs associated with
establishing, maintaining, upgrading and operating the necessary servers to
deliver advertising or otherwise make their Web sites available for commercial
purposes.
ZAP.COM does not intend to recruit or limit participation in its Network to
any particular type of Web site. In order to be eligible for participation in
the ZAP.COM Network, an applicant must own Web sites, which meet minimum unique
viewer requirements and do not display illegal content.
ZAP.COM expects a significant number of Web publishers to apply for
participation in the ZAP.COM Network. ZAP.COM, however, has been unable to
confirm this due to limitations imposed by the confidential nature of this
business concept prior to the filing of its initial registration statement.
There can be no assurance that any Web sites will seek to participate in the
ZAP.COM Network or that if any do, that a sufficient number that would permit
ZAP.COM to successfully execute its business plan.
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PRODUCTS AND SERVICES
ZAP.COM will maintain a home page, which will be the central point of
ZAP.COM's Web properties and the ZAP.COM Network. The ZAP.COM home page is
expected to offer portal site functionalities, including content on topics of
general interest such as news, sports, entertainment, weather, politics,
finance, current events and travel, community, such as bulletin boards and chat
sessions, and search and auction capabilities. ZAP.COM anticipates entering into
standard content provider agreements to support its home page content and
functionality.
As the ZAP.COM Network grows, ZAP.COM plans to divide the participating Web
sites into channels that segregate sites according to topic or audience groups.
ZAP.COM will also seek to design its network so that customers can benefit from
the dynamic matching, targeting and delivering functionality available on the
technology which it will seek to develop, acquire or license. If successful,
customers should be able to customize their delivery on the ZAP.COM Network
within specific categories of interest, on specific Web sites, or by targeting
based on a variety of factors, including user interest, organization type,
keyword choice and user geographical location.
ZAP.COM's main product will initially be its banner, which is displayed on
Web sites participating in the ZAP.COM Network. ZAP.COM plans to display a
variety of content on these banners. The content on ZAP.COM's banner may be made
available in various forms of rich media (including graphics, animations, sound,
text and user prompted interactions) and, through box drop-down technology,
which will have portal-like functionality, such as search capabilities,
channel-based content and community, etc. and display advertisement, e-commerce
and other commercial opportunities. The banner may permit users to click back to
the ZAP.COM home page or to another ZAP.COM site or other available services.
This will provide numerous access points to the ZAP.COM Network which should
enhance the traffic of participating Web sites.
ZAP.COM will be responsible for of all Network banners, including displayed
content. Thus, ZAP.COM will have the responsibility for programming, and sales
and marketing of the banners. Ownership of and responsibility for all other
aspects of the Network Web sites will continue with participating Web
publishers.
DOMAIN NAME
Domain names are the user's Internet "addresses." The Company currently
hold over 50 Internet domain names, including the following names:
BUYBID.COM
PIXELTIME.COM
ZXAPATACORP.COM
EXTREMELEISURE.COM
ZAPINTERNET.COM
CHARGED.COM
WORD.COM
DRLOVELADY.COM
PARANOID.COM
JUNKRADIO.COM
CAFETECH.COM
INSTANTWINNER.COM
ZAPTV.COM
ZAPBIZ.COM
WEBSURFCAFE.COM
ZAPCARS.COM
ZAPSPORTS.COM
THEPHANTOMMENACENEWS.COM
PHANTOMMENACENET.COM
TRADEFEDERATION.COM
GALACTICREPUBLIC.COM
ZAPWEATHER.COM
CYBERNETCAFE.COM
CYBERSURFCAFE.COM
EATFOOD.COM
ZAPHOME.COM
ZAPGAMES.COM
ZAPNEW.COM
ZAPSTORE.COM
ZAPLINK.COM
NEWS99.COM
NEWS00.COM
ZAPATANET.COM
BETAZONE.COM
INSTANTNETNAMES.COM
BETACENTER.COM
VIDEOCAFE.COM
GOODAFTERNOON.COM
PHANTOMMENNACENEWS.COM
THEPHANTOMMENACENET.COM
THETRADEFEDERATION.COM
WEBARBARIAN.COM
INTERNETLINKS.COM
CAFESURF.COM
ZAPBUSINESS.COM
INTERNETCOMPANIES.COM
NEWS03.COM
NEWS02.COM
NEWS97.COM
NEWS04.COM
NEWS05.COM
NEWS01.COM
APTSEARCH.COM
INEWS.COM
MISTERBIG.COM
BETAWORLD.COM
INTERNETNAMES.COM
WWWNAMES.COM
NEWS98.COM
ZAPMARKET.COM
ZAPAUCTION.COM
THEGALACTICREPUBLIC.COM
WEBBARBARIAN.COM
The allocation and governance of domain names is generally regulated by
Internet regulatory bodies such as Network Solutions, Inc. These Internet
regulatory bodies promulgate rules and
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regulations regarding domain names, which are subject to change from time to
time. The relationship between Internet regulatory bodies, the allocation and
governance of domain names and laws protecting trademarks/service marks and
similar proprietary rights is unclear and is flux. The current system for
registering, allocating and managing domain names has been the subject of much
litigation, including trademark/service mark litigation, unfair competition and
dilution litigation. Therefore, there is no assurance that ZAP.COM's domain
names will not lose their value, or that ZAP.COM will not have to obtain
entirely new domain names in addition to or in lieu of its current domain names
if reform efforts result in a restructuring in the current system. Therefore,
the Company could lose its domain names or be unable to prevent third parties
from acquiring domain names that infringe or otherwise decrease the value of our
domain names, trademarks/service marks and other proprietary rights.
OPERATING INFRASTRUCTURE AND TECHNOLOGY PLATFORM
ZAP.COM's business will be supported by a systems platform that is provided
and maintained by third parties. As the Company's technology platform, the
Company has chosen NetGravity's software solution. This platform will enable the
Company to manage its banner space, track page impressions and report on
programming performance to Network customers. The Company believes that this
software is scaleable and may be incorporated into the Company's sales and
reporting to enhance performance measurements. The Company's banners will be
dynamically served through the use of the NetGravity software to rotate, change
or target existing messages or increase the amount of programming delivered in a
given space. The Company is currently negotiating a contract with NetGravity and
expects to enter into the agreement shortly after the Registration Statement
becomes effective, although there can be no assurance that this will occur. In
such event, the Company will need to locate a software platform and negotiate an
acceptable arrangement.
The Company is in the process of evaluating the acquisition of various
components of its operating infrastructure. The Company intends to acquire an
infrastructure which provides timely and efficient delivery of its programming
to the ZAP.COM Network. The Company anticipates that the acquired services will
use Compaq hardware, Microsoft Windows NT, Microsoft's Internet Index Server and
Netscape's Enterprise Web server software.
The Company expects to enter into an Internet-hosting agreement with Qwest
Communications International Corporation pursuant to which Qwest will maintain
two servers that are located at Qwest's New Jersey Data Center and provide its
hardware systems. The Company is currently negotiating a contract with Qwest and
expects to enter into the agreement shortly after the Registration Statement
becomes effective, although there can be no assurance that this will occur. In
such event, the Company will need to locate a software platform and negotiate an
acceptable arrangement.
Under the contemplated agreement, Qwest will provide comprehensive
facilities management services (including human and technical monitoring) of all
production servers 24 hours per day, seven days per week. Qwest will also
provide the means of connectivity for ZAP.COM's servers to the Internet through
macro capacity fiber network. These connections link to many different parts of
the Internet via a combination of public and private peering agreements. The
facility has two independent uninterruptible power supplies, which are
battery-powered, as well as two independent diesel generators designed to
provide power to these systems within seconds of a power outage. The diesel
generators can supply the data center's power for nine days before refueling is
required. Qwest does not guarantee that ZAP.COMs Internet access will be
uninterrupted, error-free or secure. ZAP.COM's operations will be dependent on
Qwest's ability to protect both Qwest's and ZAP.COM's systems against damage
from fire, power loss, water damage, telecommunications failures, vandalism and
other malicious acts, and similar unexpected adverse events. Any disruption in
the Internet access provided by Qwest could have a material adverse effect on
ZAP.COM's business, prospects, results of operations and financial condition.
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The Company's success will depend on the continuing and uninterrupted
performance of the Company's systems and those of third parties performing
services for it. Customers may become dissatisfied by any system failures that
interrupt the Company's ability to deliver programming, including any failure
affecting the Company's ability to deliver programming (including content,
advertisements, e-commerce opportunities, etc.) accurately to the targeted
audience and without significant delay to the viewer. Sustained or repeated
system failure would reduce the attractiveness of the Company's solutions to its
customers and Web publishers who are potential Network participants. Slower
response time or system failures may also result from straining the capacity of
the Company's deployed software or hardware due to an increase in the volume of
programming delivered to our Network through its servers. To the extent that the
Company does not effectively address any capacity constraints or system
failures, its business, prospects, results of operations and financial condition
would be materially and adversely affected.
All of the Company's production data will be copied to backup tapes each
night and these backup tapes will be rotated to a third-party facility for
off-site storage. ZAP.COM plans to keep all of its production servers behind
packet-filtered routers and does not allow any outside access to any
administrative functions. Strict password management and physical security
measures will be followed through a Class A data center.
The ZAP.COM Network depends on Internet service providers, online service
providers and the operators of ZAP.COM Network participating Web sites for
points of access to the Network. Each of these providers and operators has
experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to ZAP.COM's
systems. Moreover, the Internet infrastructure may not be able to support
continued growth in its use. Any of these problems could materially adversely
affect the Company's business, prospects, results of operations and financial
condition.
SALES AND MARKETING
ZAP.COM plans to conduct a marketing program that is aimed at attracting
and retaining customers who use its Network for adverting, e-commerce and other
commercial activities. ZAP.COM plans to use on-line and traditional print media
in conducting these programs. ZAP.COM will also explore co-marketing agreements,
pursuant to which links to the ZAP.COM home page will be featured on Web sites
which are not a part of the ZAP.COM Network.
The Company has selected CKG Media.Com, Inc. d/b/a Phase2Media to act as
its sales agent in the solicitation of sales for the ZAP.COM Network. The
Company is currently negotiating a contract with Phase2Media and expects to
enter into the agreement before the Rights Offering closes, although there can
be no assurance that this will occur. In such event, the Company will be
required to locate a new sales agency and negotiate an acceptable arrangement.
CUSTOMER AND ZAP.COM NETWORK SERVICE
ZAP.COM believes that its ability to establish and maintain long-term
relationships with its customers and to encourage repeat use of its Network by
customers will depend, in part, on the strength of its support and service
operations and staff. Furthermore, ZAP.COM believes that frequent communication
with and feedback from its customers and participating Web publishers will allow
it to continually improve its Network and services. ZAP.COM plans to offer an
e-mail address to enable its constituents to request information and to
encourage feedback and suggestions.
STRATEGIC PARTNERSHIPS & RELATIONSHIPS
ZAP.COM anticipates entering into a number of strategic relationships and
partnerships with third parties. ZAP.COM has already developed a number of
informal strategic relationships with advertisement agencies, Web developers,
site content managers, site hosts and other persons whose services are necessary
to develop and implement its business strategy. As of the date of this
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prospectus, none of these relationships has resulted in a legal binding
relationship. While ZAP.COM may develop the ability to render these services
internally, ZAP.COM intends to continue developing strategic relationships and
partnerships so that ZAP.COM can have adequate access to such services for the
foreseeable future. ZAP.COM may, although there can be no assurance that it
will, ultimately acquire some of the firms with which it establishes strategic
relationships and partnerships.
EMPLOYEES
Effective upon the closing of the Rights Offering, Zapata's 21 employees
who operated the Word and Charged webzines will becomes employees of ZAP.COM.
These include 5 technical employees, 13 creative development employees and 3
administrative employees. The Company expects to make many of these employees
available to Zapata so that it can continue to operate Word and Charged. Two
additional employees, Avram Glazer, the Company's President and CEO, and Leonard
DiSalvo, VP-Finance currently devote all of their business time and attention to
Zapata. ZAP.COM expects to hire additional employees as necessary to assist in
the operation of the business. Although the competition for skilled employees in
the Internet industry is intense, ZAP.COM does not now foresee problems in
hiring qualified employees to meet its needs.
The Company's senior management does not posses experience in acquiring or
managing an Internet network business. Therefore, ZAP.COM has relied, and will
continue to rely, on consultants, service organizations and other professionals
with Internet expertise and experience to assist it in executing its business
model. ZAP.COM will compensate such consultants, service organizations and other
professionals at competitive rates and presently there is no way to estimate the
term of such service.
INTELLECTUAL PROPERTY
ZAP.COM regards its service marks, trademarks, trade dress, trade secrets
and other intellectual property as critical to its success, and will rely on
trademark law, patent law, trade secret protection and confidentiality and/or
license agreements with its employees, customers, participating Web publishers
and others to protect its proprietary rights. ZAP.COM has filed applications
seeking registration of its trademarks and service marks in the U.S. and
internationally, including ZAP.COM, ZAP.COM Network, ZAP.COM, The Next Network
and UltraBanner. Effective trademark, service mark, and trade secret protection
may not be available in every country in which ZAP.COM's products and services
are made available electronically. ZAP.COM may license to third parties in the
future certain of its proprietary rights, such as trademarks/service marks.
While ZAP.COM will attempt to ensure that the quality of its brands are
maintained by such licensees, there can be no assurance that such licensees will
not take actions that might materially adversely affect the value of ZAP.COM's
proprietary rights or reputation, which could have a material adverse effect on
ZAP.COM's business, prospects, results of operations and financial condition.
There can be no assurance that the steps taken by ZAP.COM to protect its
proprietary rights will be adequate or that third parties will not infringe or
misappropriate ZAP.COM's trademarks, trade dress and other proprietary rights.
On August 17, 1998, LFG, Inc. d/b/a Zap Futures commenced an action against
Zapata and another of its wholly-owned subsidiaries, Zap Corporation, in the
United States District Court for the Northern District of Illinois. LFG alleges
that ZAP.COM and Zap are guilty of trademark infringement, trademark dilution
and unfair competition under the federal Lanham Act and various Illinois
statutes. The action arises out of the use by ZAP.COM and Zap of the Zap trade
name and the Internet domain name "ZAP.COM" for its Internet Web site and its
linking of that Web site to other Web sites owned by LFG competitors. LFG uses
the domain name "zapfutures. com" for its Web site. LFG seeks injunctive relief,
unspecified compensatory damages, punitive damages and an award of attorneys'
fees. The parties reached settlement of this action on April 9, 1999. Under the
settlement, Zapata is obligated to provide two years of advertising to ZAP
Futures on any of ZAP.COM's
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financial Web pages within its proprietary ZAP.COM Web sites. The Company plans
to make its financial Web page available to the plaintiff to fulfill this
obligation on behalf of Zapata and Zap Corporation.
There can be no assurance that other parties will not assert infringement
claims against ZAP.COM for use of the ZAP.COM or other marks. ZAP.COM may be
subject to legal proceedings and claims from time to time in the ordinary course
of its business, including claims of alleged infringement of the trademarks and
other intellectual property rights of third parties by ZAP.COM and its
licensees. Such claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources.
COMPETITION
The market for Internet advertising, e-commerce opportunities and other
commercial uses of the Internet as well as the market for Web publishers who are
candidates for network opportunities are new and rapidly evolving, and
competition is expected to increase significantly in these markets. Barriers to
entry are relatively insubstantial. Competition may also increase as a result of
industry consolidation. ZAP.COM believes that the principal competitive factors
for companies seeking to create a network on the Internet are critical mass,
functionality, brand recognition, Web site participation in the network,
loyalty, broad demographic profile and strategic relationships.
The Company believes that its ability to compete depends on many factors
both within and beyond its control, including the following:
- the timing and market acceptance of the ZAP.COM business model;
- the ability to recruit high quality Web sites with required levels of
traffic to the ZAP.COM Network;
- the effectiveness of the ZAP.COM Network;
- the number and types of strategic relationships (including e-commerce
partnerships);
- the sales and marketing efforts;
- the ease of use performance, price and reliability of solutions developed
by ZAP.COM and its competitions
The Company will compete for Internet advertising revenues and strategic
relationships with many Internet content providers and ISPs, including Web
directories, search engines, shareware archives, content sites, commercial
on-line services and sites maintained by Internet service providers, as well as
thousands of Internet sites operated by individuals and government and
educational institutions. These competitors include free information, search and
content sites or services, such as America Online, Inc., CNET, Inc., CNN/Time
Warner, Inc., Excite, Inc., Infoseek Corporation, Lycos, Inc., Netscape
Communications Corporation , Microsoft Corporation and Yahoo! Inc. ZAP.COM also
competes with the these companies, as well as traditional forms of media such as
newspapers, magazines, radio and television, for advertisers and advertising
revenues. ZAP.COM believes that the principal competitive factors in attracting
advertisers include the amount of traffic on its network, brand recognition,
customer service, the demographics of the users of the Web sites participating
in the ZAP.COM Network, ZAP.COM's ability to offer targeted audiences and the
overall cost-effectiveness of the medium offered by ZAP.COM.
ZAP.COM believes that it will also face significant competition in the
rates that it establishes for the use of its Network, which could, in turn, have
a material adverse effect on ZAP.COM's business, prospects, results of
operations and financial condition. Many of ZAP.COM's potential competitors,
including Web directories and search engines and large traditional media
companies, have operating histories in the Web industry, established brand names
and customer relationships and significantly greater financial, technical and
marketing resources than ZAP.COM. Such competitors are able to
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adopt more aggressive pricing policies and make more attractive offers to
potential employees, distribution partners, commerce companies, advertisers,
third-party content providers and Web publishers. There can be no assurance that
Internet content providers and ISPs, including Web directories, search engines,
shareware archives, sites that offer professional editorial content, commercial
on-line services and sites maintained by ISPs will not be perceived by potential
Network customers as being more desirable for the distribution of their
information over the Web. In addition, ZAP.COM's potential customers and
strategic partners may have established collaborative relationships with certain
of ZAP.COM's competitors or potential competitors, and high-traffic Web sites.
Accordingly, there can be no assurance that ZAP.COM will be able to grow its
Network, traffic levels and customer base, or that competitors will not
experience greater growth in traffic than ZAP.COM as a result of such
relationships which could have the effect of making their networks and Web sites
more attractive to advertisers, or that ZAP.COM's future strategic partners will
not sever or will elect not to renew their agreements with ZAP.COM. There can
also be no assurance that ZAP.COM will be able to compete successfully against
its future competitors or that competition will not have a material adverse
effect on ZAP.COM's business, prospects, results of operations and financial
condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There is an increasing number of laws and regulations pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and quality of
products and services. Any new legislation or regulation, or the application or
interpretation of existing laws, may decrease the growth in the use of the
Internet, which could in turn decrease the demand for ZAP.COM's service,
increase ZAP.COM's cost of doing business or otherwise have a material adverse
effect on ZAP.COM's business, results of operations and financial condition.
Liability For Information Retrieved From ZAP.COM Participating Web Sites
and From Other Internet Sites. Content may be accessed on Web sites
participating in the ZAP.COM Network or on other Internet sites. This content
may be downloaded by users and subsequently transmitted to others over the
Internet. By providing such links, the Company is exposed to claims that it is
liable for wrongful actions by the owners of these other sites. Claims of this
nature have been brought, sometimes successfully, against providers of Internet
services in the past. ZAP.COM could also be exposed to liability with respect to
third-party content that may be posted by users in chat rooms or bulletin boards
offered which may be offered by the ZAP.COM Network. Also, ZAP.COM may be
subject to claims alleging that, by directly or indirectly providing links to
other web sites, ZAP.COM is liable for copyright or trademark infringement or
the wrongful actions of third parties through their respective web sites.
ZAP.COM's general liability insurance may not cover all potential claims to
which ZAP.COM is exposed and may not be adequate to indemnify ZAP.COM for all
liability that may be imposed. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could have a material adverse
effect on ZAP.COM's business, prospects, results of operations and financial
condition. Even to the extent that these claims do not result in liability to
ZAP.COM, ZAP.COM could incur significant costs in investigating and defending
against these claims.
Online Content Regulations. Several federal and state statutes prohibit
the transmission of indecent, obscene or offensive content over the Internet to
particular groups of persons. In addition, pending legislation seeks to ban
Internet gambling and federal and state officials have taken action against
businesses that operate Internet gambling activities. The enforcement of these
statutes and initiatives, and any future enforcement activities, statutes and
initiatives, may result in limitations on the type of content and advertisements
available on Web sites that participate in the ZAP.COM Network. To the extent
that one or more Network participants is adversely affected by such
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legislation and regulations, this could have a material adverse effect on
ZAP.COM's business, prospects, results of operation and financial condition.
Further, legislation regulating online content could dampen the growth in use of
the Internet generally and decrease the acceptance of the Internet as an
advertising and electronic commerce medium, which could also have a material
adverse effect on ZAP.COM's business, prospects, results of operations and
financial condition.
Privacy Concerns. The Federal Trade Commission is considering adopting
regulations regarding the collection and use of personal identifying information
obtained from individuals when accessing web sites.
Further, the FTC has begun investigations into the privacy practices of
companies that collect information on the Internet. One investigation resulted
in a consent decree pursuant to which an Internet company agreed to establish
programs to implement the principles contemplated in the FTC regulations that
are under consideration. Web publishers participating in the ZAP.COM Network or
ZAP.COM may become subject to a similar investigation, or the FTC's regulatory
and enforcement efforts may adversely affect the ability of Web sites
participating in the ZAP.COM Network from collecting and providing to us
demographic and personal information from users. This could have an adverse
effect on our ability to provide highly targeted opportunities to our customers.
Any of these developments would have a material adverse effect on our business,
prospects, results of operations and financial condition.
It is also possible that cookies, or information keyed to a specific
server, file pathway or directory location that is stored on a user's hard
drive, possibly without the user's knowledge, which are used to track
demographic information and to target advertising, may become subject to laws
limiting or prohibiting their use. The passage of laws limiting or abolishing
the use of cookies has been advocated by a number of authorities in the United
States and other countries. Limitations on or elimination of the use of cookies
by Web publishers participating in the ZAP.COM Network or ZAP.COM could limit
the effectiveness of our targeting of Network programming. This could have a
material adverse effect on ZAP.COM's business, prospects, results of operations
and financial condition.
The European Union recently enacted its own privacy regulations that may
result in limits on the collection and use of certain user information. The laws
governing the Internet, however, remain largely unsettled, even in areas where
there has been some legislative action. We cannot be certain that violations of
local laws or new laws will not be alleged by certain applicable governments, we
will not violate such laws or laws will not be modified or ones enacted in the
future. Any of these events could materially adversely effect our business,
prospects, results of operations and financial condition.
Internet Taxation. A number of legislative proposals have been made at the
federal, state and local level, and by certain foreign governments, that would
impose additional taxes on the sale of goods and services over the Internet and
certain states have taken measures to tax Internet-related activities. Although
Congress recently placed a three-year moratorium on state and local taxes on
Internet access or on discriminatory taxes on electronic commerce, existing
state or local laws were expressly excepted from this moratorium. Further, once
this moratorium is lifted, some type of federal and/or state taxes may be
imposed upon Internet commerce. This legislation, or other attempts at
regulating commerce over the Internet, may substantially impede the growth of
commerce on the Internet and, as a result, adversely affect ZAP.COM's
opportunity to derive financial benefit from those activities.
Jurisdictions. It is possible that, although transmissions by ZAP.COM over
the Internet originate primarily in New York, the governments of other states
and foreign countries might attempt to regulate ZAP.COM's transmissions or
prosecute ZAP.COM for violations of their laws. These laws may be modified, or
new laws enacted, in the future. Any of the foregoing developments could have a
material adverse effect on ZAP.COM's business, prospects, results of operations
and financial condition. In addition, as ZAP.COM's service is available over the
Internet in multiple states
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and foreign countries, these jurisdictions may claim that ZAP.COM is required to
qualify to do business as a foreign corporation in each of these states or
foreign countries. As of the date of this prospectus, ZAP.COM is not qualified
to do business in any state other than New York, and failure by ZAP.COM to
qualify as a foreign corporation in a jurisdiction where it is required to do so
could subject ZAP.COM to taxes and penalties and could result in the inability
of ZAP.COM to enforce contracts in these jurisdictions. Any new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to ZAP.COM's business, or the application of
existing laws and regulations to the Internet and other online services could
have a material adverse effect on ZAP.COM's business, prospects, results of
operations and financial condition.
LEGAL PROCEEDINGS
Since the date of its organization through the date of this Prospectus,
ZAP.COM has not been involved in any legal proceedings. Zapata and another of
its wholly-owned subsidiaries, Zap Corporation, however have been sued for use
of the Zap tradename and the ZAP.COM domain in connection with Web sites
providing financial information. This suit has been settled. See
"Business -- Intellectual Property." There can be no assurance, however, that
ZAP.COM will not in the future be involved in litigation incidental to the
conduct of its business.
FACILITIES
ZAP.COM's headquarters are currently located in a facility located in
Rochester, New York, and subleased to the Company by Zapata. Under the sublease
arrangement, annual rental payments are allocated on a cost basis. ZAP.COM also
leases office space in New York City pursuant to a lease arrangement that
expires in April 2000. The Company expects to have to expand its facilities as
its operations grow. The Company believes that additional space will be
available on commercially acceptable terms.
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MANAGEMENT OF ZAP.COM
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each
executive officer of ZAP.COM immediately following the consummation of the
Rights Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Avram A. Glazer...................... 38 President, Chief Executive Officer and Director
Leonard DiSalvo...................... 40 Vice President -- Finance and Chief Financial Officer
Marisa Bowe.......................... 40 Vice President -- Network Content
Gordon E. Forth...................... 37 Secretary
</TABLE>
Avram A. Glazer, has served as the sole director and President and Chief
Executive Officer of ZAP.COM since its formation in April 1998. Mr. Glazer also
serves as Zapata's President and Chief Executive Officer. He has held these
positions since 1995. For more than five years prior to becoming Zapata's
President and Chief Executive Officer, Mr. Glazer was employed by, and worked on
behalf of, Malcolm I. Glazer and a number of entities owned and controlled by
Malcolm I. Glazer. He also serves as a director of Zapata, Specialty Equipment
Companies, Inc. (a food equipment manufacturer) and Viskase Corporation (f/k/a
Envirodyne Corporation) (a food packaging company) and is Chairman of the Board
and a director of Omega Protein Corporation (a marine protein company). He is 38
years of age.
Leonard DiSalvo, age 40, has served as ZAP.COM's Vice President-Finance and
Chief Financial Officer since April 1999. Mr. DiSalvo also serves as Zapata's
Vice President-Finance and Chief Financial Officer, a position he has held since
joining Zapata in September 1998. Mr. DiSalvo has 18 years of experience in the
areas of finance and accounting. For the past two years, Mr. DiSalvo served as a
finance manager for Canandaigua Brands, Inc., a national manufacturer and
distributor of wine, spirits and beer. Prior to that position, Mr. DiSalvo held
various management positions in the areas of finance and accounting in the
Contact Lens Division of Bausch & Lomb Incorporated. Mr. DiSalvo received his
B.S. from St. John Fisher College and is a Certified Public Accountant.
Marisa Bowe, age 40, has served as ZAP.COM's Vice President-Operations
since April 1999. Ms. Bowe is the founding Editor-in-Chief and Publisher of the
award-winning webzine, Word, where she has been employed since February 1995. In
1996, Entertainment Weekly named Ms. Bowe one of "multimedia's ten most
influential, forward-thinking" figures. Before becoming Editor of Word, Ms. Bowe
was Conference Manager of the Echo virtual community in New York City for
approximately one year. Prior to joining the Echo virtual community, Ms. Bowe
was a freelance writer and television producer for three years. Her TV and
documentary work has appeared in venues ranging from the Whitney Museum of
American Art to PBS and England's Channel Four. Ms. Bowe is also a member of the
Advisory Committee of the Web Development Fund and a member of the Silicon Alley
Reporter's prestigious "Silicon Alley 100" list.
Gordon E. Forth, age 37, has served as ZAP.COM's Corporate Secretary since
April 1999. He has also served as Zapata's corporate secretary since December
1998. Mr. Forth is a partner of Woods, Oviatt, Gilman, Sturman & Clarke LLP, a
Rochester, New York based law firm which provides legal services to both Zapata
and the Company. Mr. Forth has practiced law at the Woods, Oviatt firm since
1987. Mr. Forth received his B.A. from Hope College and his law degree and
M.B.A. from Vanderbilt University.
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KEY EMPLOYEES
The following table sets forth the names and positions of the Company's key
employees:
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
Yoshi Sedeoka......................................... Art Director
Ranjit Bhatnager...................................... Technology Director
Jason Mohr............................................ Senior Designer
</TABLE>
Yoshi Sodeoka, age 31, has served as ZAP.COM's Art Director since April
1999. He is the founding Art Director of the webzine Word, where he has been
since May 1998. Mr. Sodeoka's inventive design for the webzine has won awards
ranging from the top I.D. Magazine multimedia award to the New York Art
Director's Club and Print magazine accolades. Prior to joining Word, Mr. Sodeoka
was employed for three years by Viacom's New Media department, where he worked
on experimental interactive music projects for MTV. Prior to that position, Mr.
Sodeoka was a Senior Designer at Nicholson from October 1993 to March 1995. Mr.
Sodeoka received his computer graphics degree from Brooklyn's Pratt Institute.
He has artistic training in his native Japan, and experience in CD-ROM design.
Ranjit Bhatnager, age 30, has served as ZAP.COM's Technology Designer since
April 1999. Mr. Bhatnager has served as Word's Technology Director since August
1998. Mr. Bhatnager worked for Philadelphia Online, Philadelphia Inquirer and
Philadelphia Daily News as a programmer from September 1995 to August 1998.
Prior to that position, Mr. Bhatnager was a programmer for approximately three
years at the University of Pennsylvania, Philadelphia. Mr. Bhatnager has created
interactive news features for Philadelphia Inquirer's award-winning Web site,
educational multimedia for the University of Pennsylvania and occasions
installations for the Franklin Institute Science Museum.
Jason Mohr, age 27, has served as ZAP.COM's Senior Designer since April
1999. Mr. Mohr has most recently served as Word's Senior Designer since June
1996. He started with Word in July 1996 as a Senior Designer. Prior to that
position, Mr. Mohr was a freelance designer. Mr. Mohr's designs and concepts
have earned recognition from organizations such as the New York Art Director's
Club and I.D. Magazine. He has also designed for National Geographic On-Line.
Mr. Mohr earned a Bachelor of Fine Arts in Graphic and Packaging Design, with an
emphasis on interactive media, from Pasadena Art Center in California.
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EXECUTIVE COMPENSATION
The Company has only recently incorporated and has not paid any
compensation to any person associated with the Company, and presently has no
employment agreements with its officers or other key employees. Upon completion
of the Rights Offering, the compensation of the Company's executives who are
also employed by Zapata will be paid by Zapata and a portion of that cost will
be allocated to the Company under the Services Agreement to be entered into by
Zapata and ZAP.COM based upon an estimate of the amount of time devoted by such
employees to the operation and affairs of each corporation.
BOARD COMMITTEES
The authorized number of directors of ZAP.COM is presently fixed at one.
Avram Glazer is the sole director. Mr. Glazer anticipates expanding the Board to
five directors following the Rights Offering.
Upon expansion of the size of the Board to three or more directors, the
By-Laws require that two standing committees of the Board of Directors be
activated: the Audit Committee and the Compensation Committee, each comprised of
two or more directors. The members of these committees will be appointed
following the expansion of the Board to three or more directors.
The primary purpose of the Audit Committee will be to (1) select the firm
of independent accountants that will audit ZAP.COM's financial statements, (2)
discuss the scope and the results of the audit with the accountants and (3)
review ZAP.COM's financial accounting and reporting principles. The Audit
Committee will also examine and discuss the adequacy of ZAP.COM's financial
controls with the independent accountants and with Management.
The functions of the Compensation Committee will be to review, approve and
recommend to the Board of Directors the terms and conditions of incentive bonus
plans applicable to corporate officers and key management personnel, to review
and approve the annual salary of the chief executive officer, and to administer
ZAP.COM's 1999 Incentive Plan.
DIRECTOR COMPENSATION
Each director who is not an employee of ZAP.COM will receive $1,000 for
each meeting of the Board attended and for each committee meeting attended.
Under the 1999 Director Plan, each new non-employee director will, upon joining
the Board, be automatically granted options to purchase 15,000 shares of ZAP.COM
common stock at the fair market value thereof, and which will vest ratably over
three years from the date of the grant. See "Stock Option Plans -- 1999
Non-Employee Director Plan." There are no family relationships, or other
arrangements or understandings between or among any of the directors, executive
officers or other persons pursuant to which such person was selected to serve as
a director or officer.
STOCK OPTION PLANS
1999 Long-Term Incentive Plan
The 1999 Long-Term Incentive Plan, approved by ZAP.COM's Board and Zapata
as ZAP.COM's sole stockholder in April 1999, is intended to retain key
executives and other selected employees, reward them for making major
contributions to ZAP.COM's success and provide them with a proprietary interest
in the growth and performance of the Company and its subsidiaries.
Employees who participate in the 1999 Incentive Plan will be selected by
the Company's Board (or a committee designated by the Company's Board (the
"Committee") to make recommendations for grants under the 1999 Incentive Plan)
from among those employees who hold positions of responsibility and whose
performance, in the judgment of the Committee, has a significant effect on the
Company's success.
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The total number of shares of ZAP.COM common stock that may be issued
pursuant to the 1999 Incentive Plan will not exceed 7,250,000 shares. The number
of shares that may be awarded pursuant to the 1999 Incentive Plan is subject to
adjustment upon the occurrence of certain events.
The 1999 Incentive Plan provides for the grant of any or all of the
following types of awards: stock options, stock appreciation rights, stock
awards and cash awards. Stock options may be incentive stock options that comply
with Section 422 of the Code. The allocation of awards under the 1999 Incentive
Plan is not currently determinable as such allocation is dependent upon future
decisions to be made by the Committee in its sole discretion, subject to the
applicable provisions of the 1999 Incentive Plan.
The exercise price of any stock option may, at the discretion of the
Committee, be paid in cash or by surrendering shares or another award under the
1999 Incentive Plan, valued at fair market value on the date of exercise or any
combination thereof. Vesting conditions for a stock option will be specified by
the Committee and set forth in the applicable option agreement. Vesting
conditions may include, without limitation, provision for acceleration in the
case of a change-in-control of the Company or for stock appreciation rights
exercisable for cash (in lieu of the option) in the case of such a
change-in-control of the Company.
Stock appreciation rights are rights to receive, without payment to
ZAP.COM, cash or shares of ZAP.COM Common Stock with a value determined by
reference to the difference between the exercise or strike price of the stock
appreciation rights and the fair market value or other specified valuation of
the shares at the time of exercise. Stock appreciation rights may be granted in
tandem with stock options or separately.
Stock awards may consist of shares of ZAP.COM common stock or be
denominated in units of shares of common stock. Stock awards may be subject to
conditions established by the Committee, including service, vesting conditions
and performance conditions (including, without limitation, performance
conditions based on achievement of specific business objectives, increases in
specified indices and attaining specified growth measures or rates). A stock
award may provide for voting rights and dividend equivalent rights.
Cash awards may be subject to conditions specified by the Committee,
including service conditions and performance conditions.
Payment of awards may be made in cash or shares or combinations thereof, as
determined by the Committee. An award may provide for the granting or issuance
of additional, replacement or alternative awards upon the occurrence of
specified events, including the exercise of the original award.
An award may provide for a tax gross-up payment to a participant if a
change in control of ZAP.COM results in the participant owing an excise tax or
other tax above the rate ordinarily applicable, pursuant to the parachute tax
provisions of Section 280G of the Code or otherwise. The gross-up payment would
be in an amount such that the net amount received by the participant, after
paying the increased tax and any additional taxes on the additional amount,
would be equal to that receivable by the participant if the increased tax were
not applicable.
Pursuant to the 1999 Incentive Plan, in April, 1999, ZAP.COM granted
options to purchase shares at an exercise price of $5.00 per share to the
following officers for the indicated number of shares: Mr. A. Glazer -- 365,000;
Mr. DiSalvo -- 100,000; Ms. Bowe -- 60,000; and Mr. Forth -- 10,000. In
addition, in April 1999, ZAP.COM awarded Mr. A. Glazer 350,000 shares of
restricted stock, These options and the stock award generally vest ratably over
the three year period following the date of grant.
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Non-Management Director Stock Option Plan
The Directors Option Plan, approved by ZAP.COM's Board and Zapata as
ZAP.COM's sole stockholder in April 1999, is intended to provide incentives to
the directors of ZAP.COM who are not employees by providing them with options to
purchase shares of ZAP.COM's common stock. Options for up to a maximum of
250,000 shares of common stock may be issued under the Directors Option Plan.
The Directors Option Plan provides that each ZAP.COM non-employee director
will be granted options to purchase 15,000 shares at a price determined by
ZAP.COM's Board. All options granted under the Directors Option Plan generally
vest ratably over three years after the date of grant. Upon the occurrence of
certain events such as stock dividends and stock splits, consolidations or
mergers, an optionee's rights with respect to options granted are to be adjusted
as provided in the Directors Option Plan.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Prior to the Rights Offering, Zapata provided the Company with certain
administrative and management services, including payroll, consulting and legal,
which were billed on cost basis to the Company. These services totaled
approximately $150,000 from inception through February 28, 1999. The costs of
these services were directly charged and/or allocated using methods that the
Company's management believe were reasonable.
Prior to the consummation of the Rights Offering, Zapata and ZAP.COM intend
to enter into a number of agreements for the purpose of defining their
continuing relationship. These agreements will be negotiated in the context of a
parent-subsidiary relationship and, therefore, will not be the result of
negotiations between independent parties. It is the intention of Zapata and
ZAP.COM that such agreements and the transactions provided for therein, taken as
a whole, should accommodate the parties' interests in a manner that is fair to
both parties, while continuing certain mutually beneficial arrangements. There
can be no assurance that each of such agreements, or the transactions provided
for therein, will be effected on terms at least as favorable to the Company as
could have been obtained from unaffiliated third parties. The following is a
summary of these agreements which Zapata and ZAP.COM will enter into and which
will become effective upon completion of the Rights Offering and if made, the
Stock Distribution:
DISTRIBUTION AGREEMENT
Under the Distribution Agreement, Zapata will contribute $8,000,000 in cash
to ZAP.COM in exchange for 13,612,000 Rights, 10,000 shares of our Series A
preferred stock and the shares of common stock not purchased in the Rights
Offering. The Distribution Agreement requires the Company to distribute the
Rights and conduct the Rights Offering and if necessary the Stock Distribution
and reserve from its authorized and unissued shares of common stock the number
of shares of common stock into which the Series A preferred stock is convertible
from time to time.
The Distribution Agreement provides that Zapata and ZAP.COM will indemnify
each other with respect to any future losses that might arise from the Rights
Offering or if made, the Stock Distribution, as a result of any untrue statement
or alleged untrue statement in any Rights Offering or Stock Distribution
document or the omission or alleged omission to state a material fact in any
Rights Offering or Stock Distribution document (1) in ZAP.COM's case except to
the extent such statement was based on information provided by Zapata and (2) in
Zapata's case, only to the extent such loss relates to information supplied by
Zapata.
SERVICES AGREEMENT
The Services Agreement provides that Zapata will provide to ZAP.COM certain
management and administrative services, as well as the use of certain office
space and facilities. The administrative services to be provided by Zapata,
through its employees, include financial reporting, accounting, auditing, tax,
office services, payroll and human resources as well as the management
consulting services. The Services Agreement further provides that ZAP.COM will
provide Zapata with technical, creative and Webzine administrative support for
its Word and Charged webzines. Each party will pay the other party for these
services at the estimated cost of providing such services. The Services
Agreement shall continue until terminated by either party upon 120 days' notice.
TAX INDEMNITY AGREEMENT
The Tax Indemnity Agreement defines the parties' rights and obligations
with respect to the filing of returns, payments, deficiencies and refunds of
federal, state and other income, franchise or certain other taxes relating to
ZAP.COM's business for periods prior to and including the date on which the
Rights Offering and Stock Distribution are consummated and with respect to
certain tax attributes of ZAP.COM after the Rights Offering and Stock
Distribution. With respect to periods
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ending on or before the last day of the taxable year in which the Rights
Offering closes and the Stock Distribution, if it is made, occurs, Zapata is
responsible for (i) filing both consolidated federal tax returns for the Zapata
affiliated group and combined or consolidated state tax returns for any group
that includes a member of the Zapata affiliated group, including, in each case,
the Company for the relevant periods of time that the Company was a member of
the applicable group, and (ii) paying the taxes relating to such returns
(including any subsequent adjustments resulting from the redetermination of such
tax liabilities by the applicable taxing authorities). The Company is
responsible for filing returns and paying taxes relating to it for periods that
begin before and end after the closing of the Rights Offering and the occurrence
of the Stock Distribution if it is made. This Agreement is intended to allocate
the tax liability between Zapata and ZAP.COM as if they were separate taxable
entities.
REGISTRATION RIGHTS AGREEMENT
The Registration Rights Agreement which the Company and Zapata will enter
into prior to the consummation of the Rights Offering will provide for the
Company to grant certain rights (the "Registration Rights") to Zapata with
respect to the registration under the Securities Act of the shares of ZAP.COM
common stock owned by Zapata at the closing of the Rights Offering (the
"Registrable Securities"). Pursuant to the Registration Rights Agreement, Zapata
will be able to require the Company, not more than once in any 365 day period
commencing on the first anniversary of the closing of the Rights Offering and on
not more than three occasions after Zapata no longer owns a majority of the
voting power of the outstanding capital stock of the Company, to file a
registration statement under the Securities Act covering the registration of the
Registrable Securities, including in connection with an offering by Zapata of
its securities that are exchangeable for the Registrable Securities (the "Demand
Registration Rights"). Zapata's Demand Registration Rights are subject to
certain limitations, including that any such registration cover a number of
Registrable Securities having a fair market value of at least $50.0 million at
the time of the request for registration and that the Company may be able to
temporarily defer a Demand Registration to the extent it conflicts with another
public offering of securities by the Company or would require the Company to
disclose certain material non-public information. Zapata will also be able to
require the Company to include Registrable Securities owned by Zapata in a
registration by the Company of its securities (the "Piggyback Registration
Rights"), subject to certain conditions, including the ability of the
underwriters for the offering to limit or exclude Registrable Securities
therefrom.
The Company and Zapata will share equally the out-of-pocket fees and
expenses of the Company associated with a demand registration and Zapata will
pay its pro rata share of underwriting discounts, commissions and related
expenses (the "Selling Expenses"). The Company will pay all expenses associated
with a piggyback registration, except that Zapata will pay its pro rata share of
the Selling Expenses. The Registration Rights Agreement contains certain
indemnification and contribution provisions (1) by Zapata for the benefit of the
Company and related persons, as well as any potential underwriter and (2) by the
Company for the benefit of Zapata and related persons, as well as any potential
underwriter. Zapata's Demand Registration Rights will terminate on the date that
Zapata owns, on a fully converted or exercised basis with respect to such
securities held by Zapata, Registrable Securities representing less than 10% of
the then issued and outstanding voting stock of the Company. Zapata's Piggyback
Registration Rights will terminate at such time as it is able to sell all of its
Registrable Securities pursuant to Rule 144 under the Securities Act within a
three month period. Zapata also may transfer its Registration Rights to any
transferee from it of Registrable Securities that represent, on a fully
converted or exercised basis with respect to the Registrable Securities
transferred, at least 20% of the then issued and outstanding voting stock of the
Company at the time of transfer; provided, however, that any such transferee
will be limited to (i) two demand registrations if the transfer conveys less
than a majority but more than 30% and (ii) one demand registration if the
transfer conveys 30% or less of the then issued and outstanding voting stock of
the Company.
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SECURITY OWNERSHIP OF ZAP.COM
Immediately prior to the closing of the Rights Offering and if applicable,
the Stock Distribution, all of ZAP.COM's outstanding shares of common stock will
be held by Zapata.
After the Rights Offering, Zapata will own between approximately 72% and
99% of ZAP.COM's outstanding common stock depending on the number of Rights that
are exercised. As a result of this ownership and the Series A preferred stock
owned by Zapata, Zapata controls the Company. Malcolm Glazer, through an entity
he owns and controls, owns beneficially and of record approximately 45% of
Zapata's outstanding common stock, and therefore he may be deemed to
beneficially own the Company's Series A preferred stock and common stock owned
beneficially by Zapata. Malcolm Glazer controls the Glazer Partnership. By
virtue of such ownership, Malcolm Glazer may be deemed to control Zapata.
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DESCRIPTION OF SECURITIES
AUTHORIZED CAPITAL STOCK
Immediately following the consummation of the Rights Offering, ZAP.COM's
authorized capital stock will consist of (1) 1,000,000,000 shares of ZAP.COM
common stock, par value $.001 per share and (2) 150,000,000 shares of preferred
stock, par value $.01 per share, of which 10,000 shares are designated as Series
A preferred stock and 149,990,000 shares are undesignated. Upon closing of the
Rights Offering, the Company will have outstanding 10,000 shares of Series A
preferred stock and 50,000,000 shares of common stock. The following summary
description of ZAP.COM's capital stock and other securities is qualified in its
entirety by reference to ZAP.COM's Amended and Restated Articles of
Incorporation and Amended and Restated By-Laws, each of which is filed as an
exhibit to the Registration Statement and to the applicable provisions of the
Nevada Corporate Law.
Common Stock
The holders of the outstanding common stock are entitled to receive and
share ratably dividends if, as and when declared by the Board of Directors out
of funds legally available therefor with respect to the Company's outstanding
common stock. See "Dividend Policy." In addition, in the event of a liquidation,
dissolution or winding-up of ZAP.COM, the holders of common stock are entitled
to share equally and ratably in the net assets of ZAP.COM, if any, remaining
after paying all debts and liabilities of ZAP.COM and payment of all liquidation
preferences of any outstanding shares of preferred stock, including the Series A
preferred stock. In certain circumstances, as described below, the holders of
common stock may be required to share such net assets with Zapata as the holder
of the Series A preferred stock.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Holders of common stock vote together with the holders
of the Series A preferred stock as a single class on almost all matters
presented to stockholders for a vote.
Each outstanding share of common stock is, and all shares of common stock
to be outstanding upon completion of the Rights Offering and, if applicable, the
Stock Distribution, will be, fully paid and nonassessable. The rights,
preferences, and privileges of the holders of common stock are subject to, and
may be adversely affected by the rights of holders of shares of any class or
series of preferred stock which the Company may designate and issue in the
future.
Preferred Stock
The ZAP.COM Board has the authority to issue up to 150,000,000 shares of
preferred stock in one or more series and to fix the number of shares
constituting any such series and the preferences, limitations and relative
rights, including dividend rights, dividend rate, voting rights, terms of
redemption, redemption price or prices, conversion rights and liquidation
preferences of the shares constituting any series, without any further vote or
action by the ZAP.COM stockholders. The issuance of preferred stock by the
ZAP.COM Board could adversely affect the rights of holders of common stock. As
of the date of this prospectus, except for the Series A preferred stock, there
are no shares of preferred stock designated or outstanding.
The potential issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of ZAP.COM and may discourage bids
for the ZAP.COM Common Stock at a premium over the market price of the ZAP.COM
common stock and may adversely affect the market price of, and the voting and
other rights of the holders of, the ZAP.COM Common Stock. ZAP.COM has no current
plans to issue any shares of preferred stock other than the Series A preferred
stock.
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Series A Preferred Stock
The ZAP.COM Board of Directors designated 10,000 shares as Series A
preferred stock, $0.01 par value per share. The following is a summary of the
terms of the Series A preferred stock.
Upon liquidation (or similar event) proceeds remaining after the
satisfaction of all liabilities and payment of all preferred stock preference
amounts superior to the Series A preferred stock Zapata, as the holder of Series
A preferred stock, shall be entitled to the original issue price of $8,000,000
prior to any distribution of net assets to the holders of common stock.
Zapata, as the holder of the Series A preferred stock, shall not be
entitled to any dividends or additional distributions (whether upon liquidation
or otherwise) unless at the time the dividend or distribution is declared, the
percentage of the outstanding ZAP.COM common stock held by Zapata ("Zapata
Actual Percentage") is less than 35% ("Zapata Minimum Percentage") of ZAP.COM's
total outstanding shares of common stock. If the Zapata Actual Percentage is
below the Zapata Minimum Percentage, then Zapata, as the holder of Series A
preferred stock, shall be entitled to receive a percentage of the dividend or
distribution amount declared which is equal to the difference between the Zapata
Minimum Percentage and the Zapata Actual Percentage as of the applicable record
date and the holders of the common stock (including Zapata with respect to its
common stock) shall be entitled to receive the balance of the dividend or
distribution amount. The holders of the Series A preferred stock and the common
stock shall be entitled to receive such amounts on an equal priority basis
without any priority or preference. For example, if on the date of ZAP.COM's
liquidation, Zapata holds 20% of the outstanding common stock (and it has not
disposed of any common shares since the Rights Offering) and $20,000,000 is
available for distribution after the satisfaction of all liabilities and payment
of all liquidation preferences of any outstanding shares of preferred stock,
including the Series A preferred stock, then the Company would distribute
$3,000,000 with respect to the Series A preferred stock and $17,000,000 with
respect to the common stock.
If at any time after the ZAP.COM common stock held by Zapata constitutes
less than the Zapata Minimum Percentage and Zapata transfers or otherwise
disposes of any common stock, then the Zapata Minimum Percentage shall be
reduced by the amount that the transferred or disposed of shares constitute of
all outstanding shares of common stock on the date of transfer or disposition
following conversion.
If at any time Zapata transfers the Series A preferred stock to a third
party and immediately prior to the transfer, the Zapata Actual Percentage is
less than the Zapata Minimum Percentage, then upon transfer, the Series A
preferred stock will automatically convert into common stock. The number of
shares of common stock into which the Series A preferred stock converts will be
in proportion to the amount of the total dividend or distribution which is
payable with respect to the Series A preferred stock immediately prior to the
transfer, assuming that all outstanding Series A preferred stock has been
converted. If the Zapata Actual Percentage is equal to or greater than the
Zapata Minimum Percentage at the time the Series A preferred stock is
transferred, then the Series A preferred stock will not convert and the right of
the Series A preferred stock to receive dividends and distributions above and
beyond the $8,000,000 liquidation preference amount will automatically
terminate.
In almost all matters presented to stockholders for a vote (including the
election of directors or any merger, liquidation, sale of assets or charter
amendment proposals), the holders of the Series A preferred stock and the common
stock vote as a single class. Each share of Series A preferred stock is entitled
to 50,000 votes. Cumulative voting for the election of directors is not provided
for in ZAP.COM's Amended and Restated Articles of Incorporation, which means
that the holders of the Series A preferred stock will control all stockholders
votes. Each share of common stock is entitled to one vote in all matters
presented to stockholders. The common stock is not entitled to preemptive rights
and is not subject to conversion or redemption.
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RIGHTS
The Company is granting on the date hereof Rights to holders of Zapata
common stock on , 1999. The Rights are each exercisable for one
share of ZAP.COM common stock at an exercise price of $8.00 per share and are
transferable. Rights may be transferred, in whole or in part, by endorsing or
delivering to the Subscription Agent a subscription certificate that has been
properly endorsed for transfer, with your signature guaranteed by an eligible
institution and accompanied by instructions to reissue the rights, in whole or
in part, to the transferee. The Subscription Agent will reissue a new
certificate for the balance, if any, to the holder of the Rights, in each case,
to the extent it is able to do so prior to the expiration date of the Rights.
The Rights expire on , 1999. For more information about the Rights
and the Rights Offering see "The Rights Offering."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND
BY-LAWS
Board of Directors
The Articles provide that except as otherwise fixed by or pursuant to the
provisions of a Certificate of Designation setting forth the rights of the
holders of any class or series of preferred stock, the number of the directors
of ZAP.COM will be fixed from time to time exclusively pursuant to a resolution
adopted by a majority of the total number of directors which the Company would
have if there were no vacancies (the "Whole Board"). After the size of the Board
is expanded to three or more directors, the directors, other than those who may
be elected by the holders of preferred stock, will be automatically classified,
with respect to the time for which they severally hold office, into three
classes, as nearly equal in number as possible. In such event, the terms of the
directors elected first to the ZAP.COM Board will expire at the next annual
meeting of stockholders, after which the classified Board becomes effective and
the remaining directors will be designated by the directors first elected to the
Board to one of the other two classes, which terms will expire at the second and
third annual stockholders' meeting occurring after the classified Board becomes
effective. Commencing with the first annual meeting of stockholders occurring
after the classified Board becomes effective, directors elected to succeed
directors whose terms then expire will be elected for a term of office to expire
at the third succeeding annual meeting of stockholders after their election,
with each director to hold office until such person's successor is duly elected
and qualified.
The Articles provide that except as otherwise provided for or fixed by or
pursuant to a Certificate of Designation setting forth the rights of the holders
of any class or series of preferred stock, newly created directorships resulting
from any increase in the number of directors and any vacancies on the ZAP.COM
Board resulting from death, resignation, disqualification, removal or other
cause will be filled by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of ZAP.COM's Board, and
not by the stockholders. Any director elected in accordance with the preceding
sentence will hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been duly elected and qualified. No
decrease in the number of directors constituting the ZAP.COM Board will shorten
the term of any incumbent director. Subject to the rights of holders of
preferred stock, any director may be removed from office only for cause by the
affirmative vote of the holders of at least 66 2/3% of the voting power of all
voting stock then outstanding, voting together as a single class.
Once the classified Board is effective, these provisions will preclude a
third party from removing incumbent directors and simultaneously gaining control
of the ZAP.COM Board by filling the vacancies created by removal with its own
nominees. Under the classified Board provisions described above, it would take
at least two elections of directors for any individual or group to gain control
of the ZAP.COM Board. Accordingly, these provisions could discourage a third
party from
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initiating a proxy contest, making a tender offer or otherwise attempting to
gain control of the ZAP.COM.
Special Meetings of Stockholders
The Company's Articles provide that special meetings of the stockholders of
ZAP.COM can be called only by the Chairman of the Board of Directors, or a
majority of the members of the Board of Directors. A special meeting may also be
called by Zapata so long as it continues to hold 50% or more of the voting power
of all classes of outstanding capital stock of ZAP.COM.
Written Consent
Under the Articles, the stockholders of ZAP.COM may not take action in
writing without a meeting of the stockholders after the date on which Zapata no
longer beneficially owns at least 50% of the voting power of all classes of
outstanding capital stock.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
The Company's By-Laws require that timely notice in writing be provided by
stockholders seeking to bring business before, or to nominate candidates for
election as directors at, the annual meeting of stockholders. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of ZAP.COM not less than 120 days nor more than 150
days prior to the first anniversary of the date of ZAP.COM's notice of annual
meeting provided with respect to the previous year's annual meeting of
stockholders.
If no annual meeting of stockholders was held in the previous year or the
date of the annual meeting of stockholders has been changed to be more than 30
days earlier than or 60 days after that anniversary, notice will be timely if
received no more than 90 days later than the later of (1) 60 days prior to the
annual meeting of stockholders or (2) the close of business on the 10th day
following the date on which notice of the date of the meeting is given to
stockholders or made public, whichever first occurs.
The Company's By-Laws also specify requirements as to the form and content
of a stockholder's notice. These provisions may preclude stockholders from
timely bringing matters before, or from nominations for directors at, an annual
meeting of stockholders.
Amendments
The Articles provide that the affirmative vote of the holders of at least
66 2/3% of ZAP.COM's voting stock, voting together as a single class, is
required to amend provisions of the Articles relating to stockholder action
without a meeting; the calling of special meetings; the number, election and
term of the ZAP.COM directors; the filling of vacancies; and the removal of
directors. The Articles further provide that the related By-Laws described above
(including the Stockholder Notice Procedure) may be amended only by the ZAP.COM
Board or by the affirmative vote of the holders of at least 66 2/3% of the
voting power of the outstanding shares of voting stock, voting together as a
single class.
NEVADA ANTI-TAKEOVER LAWS AND CERTAIN CHARTER PROVISIONS
The Nevada Code contains provisions restricting the ability of a Nevada
corporation to engage in business combinations with an interested stockholder.
Under the Nevada Code, except under certain circumstances, business combinations
with interested stockholders are not permitted for a period of three years
following the date such stockholder becomes an interested stockholder. The
Nevada Code defines an interested stockholder, generally, as a person who is the
beneficial owner, directly or indirectly, of 10% or more of the outstanding
shares of a Nevada corporation. In addition, the Nevada Code generally disallows
the exercise of voting rights with respect to "control shares"
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<PAGE> 69
of an "issuing corporation" held by an "acquiring person," unless such voting
rights are conferred by a majority vote of the disinterested stockholders.
"Control shares" are those outstanding voting shares of an issuing corporation
which an acquiring person and those persons acting in association with an
acquiring person (1) acquire or offer to acquire in an acquisition of a
controlling interest and (2) acquire within ninety days immediately preceding
the date when the acquiring person became an acquiring person. An "issuing
corporation" is a corporation organized in Nevada which has two hundred or more
stockholders, at least one hundred of whom are stockholders of record and
residents of Nevada, and which does business in Nevada directly or through an
affiliated corporation. The Nevada Code also permits directors to resist a
change or potential change in control of the corporation if the directors
determine that the change or potential change is opposed to or not in the best
interest of the corporation. As a result, the Company's Board of Directors may
have considerable discretion in considering and responding to unsolicited offers
to purchase a controlling interest in ZAP.COM
While ZAP.COM does not currently exceed the Control Share Acquisition
statute thresholds, it may do so in the future. ZAP.COM presently does not "do
business" in Nevada within the meaning of the Control Share Acquisition Statute
and it does not plan to do so. Therefore, the Control Share Acquisition statute
does not currently apply to ZAP.COM.
Nevada law permits a Nevada corporation to "opt out" of the application of
the "Business Combinations" statute by inserting a provision doing so in its
articles of incorporation. ZAP.COM's Articles has such a provision. The Articles
can be amended at any time to subject ZAP.COM to the effect of the "Business
Combinations" statutes. Under Nevada law, the Articles may be amended pursuant
to a resolution adopted by the ZAP.COM Board and ratified by a vote of a
majority of the voting power of ZAP.COM's outstanding voting stock.
If the Business Combination statute and/or the Control Share Acquisition
statute become applicable to ZAP.COM in the future, the cumulative effect of
these terms may be to make it more difficult to acquire and exercise control of
ZAP.COM and to make changes in management more difficult.
LIABILITY OF DIRECTORS; INDEMNIFICATION
ZAP.COM believes that certain provisions of its Articles and By-Laws will
be useful to attract and retain qualified persons as directors and officers. The
Articles limit the liability of directors to the fullest extent permitted by
Nevada law. This is intended to relieve ZAP.COM's directors from monetary
liabilities for breach of their fiduciary duties as directors, except under
certain circumstances, including:
- acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or
- the willful or grossly negligent payment of unlawful distributions.
ZAP.COM's Articles and By-Laws generally require ZAP.COM to indemnify, its
directors and officers to the fullest extent permitted by Nevada law. The
Articles and ZAP.COM's By-laws also require ZAP.COM to advance expenses, to its
directors and its officers to the fullest extent permitted by Nevada law upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it should be ultimately determined that they are not entitled to
indemnification by ZAP.COM.
Prior to the consummation of the Rights Offering and, if made, the Stock
Distribution, ZAP.COM intends to enter into agreements with its officers and
directors which provides for the indemnification and advancement of expenses by
ZAP.COM. ZAP.COM also intends to obtain, prior to the completion of the Rights
Offering and, if made, the Stock Distribution, officer and director liability
insurance with respect to liabilities arising out of certain matters, including
matters arising under the Securities Act.
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<PAGE> 70
At present there is no pending litigation or proceeding involving a
director, officer, associate or other agent of ZAP.COM for which indemnification
is being sought. ZAP.COM is also not aware of any threatened litigation that may
result in claims for indemnification.
TRANSFER AGENT & REGISTRAR
The Transfer Agent and Registrar for ZAP.COM common stock is American Stock
Transfer & Trust Company.
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<PAGE> 71
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Rights Offering and, if made, the Stock Distribution, there
has been no market for the ZAP.COM common stock, and there can be no assurance
that a significant public market for the ZAP.COM common stock will develop or be
sustained after this offering. Future sales of substantial amounts of ZAP.COM
common stock, including shares issued to Web publishers in consideration for
joining the ZAP.COM Network and upon exercise of outstanding options and
warrants, in the public market after this offering could adversely affect market
prices prevailing from time to time and could impair ZAP.COM's ability to raise
capital through the sale of its equity securities.
Upon completion of the Rights Offering and if made, the Stock Distribution,
ZAP.COM will have and 10,000 shares of Series A preferred stock outstanding and
50,000,000 shares of common stock outstanding (including 350,000 shares of
restricted stock awarded to the Company's President and Chief Executive
Officer), excluding 755,000 shares of common stock subject to stock options
outstanding as of April 12, 1999 and any stock options or other awards made by
the Company thereafter. The shares of common stock issued in the Rights Offering
and if made, the Stock Distribution will be freely tradable without restriction
or further registration under the Securities Act, except that any shares
purchased by an "affiliate" of the Company, as that term is defined in Rule 144,
may generally be sold only in compliance with Rule 144, as described below. All
of the outstanding shares of common stock owned by Zapata, Malcolm Glazer, Avram
Glazer and any entity controlled by them will be "restricted securities" as that
term is defined in Rule 144, and may be sold only if registered under the
Securities Act or in accordance with an applicable exemption from such
registration, such as Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a stockholder who has beneficially owned for at
least one year shares privately acquired directly or indirectly from ZAP.COM or
from an affiliate of ZAP.COM, and persons who are affiliates of ZAP.COM who have
acquired the shares in registered transactions, will be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
(1) 1% of the number of outstanding shares of common stock (or approximately
500,000 shares immediately after completion of the Rights Offering); or (2) the
average weekly trading volume of the common stock during the four calendar weeks
preceding the filing of a Form 144 with respect to such sale. Sales under Rule
144 are also subject to certain requirements relating to the manner and notice
of sale and the availability of current public information about ZAP.COM. Under
Rule 144(k), a person who is not deemed to have been an affiliate of ZAP.COM at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, including the
holding period of any prior owner except an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
The Company intends to enter into a Registration Rights Agreement with
Zapata pursuant to which it will grant Zapata demand registration rights. See
"Certain Relationships and Related Party Transactions Registration Rights
Agreement." Zapata can exercise such privileges any time one year after the
closing of the Rights Offering to sell all of the common stock it holds and
which it can acquire on conversion of the Series A preferred stock until its
beneficial ownership falls below a certain level.
As of April 12, 1998, the Company had outstanding options to purchase an
aggregate of 755,000 shares of common stock, all of which have an exercise price
of $5.00. per share. As of April 11, 1998, the Company had an additional
6,745,000 shares of common stock available for future grant under the Plans. See
"Executive Compensation -- Stock Option Plans." It is anticipated that a
Registration Statement on Form S-8 covering the common stock that may be issued
pursuant to the options granted under the Plans will be filed and that shares of
common stock that are so acquired and offered thereafter pursuant to this
Registration Statement generally may be resold in the public market without
restriction or limitation, except in the case of affiliates of the Company, whom
generally may only resell such shares in accordance with each provision of Rule
144, other than the holding period requirement.
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<PAGE> 72
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material federal income tax consequences
affecting holders of Zapata common shares receiving Rights in this offering and
shares of ZAP.COM common stock in the Stock Distribution if it is made. The
distribution of the Rights by the Company to holders of Zapata common stock more
likely than not will constitute a taxable dividend under the Internal Revenue
Code of 1986, as amended (the "Code"), and may also be subject to state or local
income taxes. Because of the complexity of the provisions of the Code referred
to below and because tax consequences may vary depending upon the particular
facts relating to each holder of Zapata common shares, such holders should
consult their own tax advisors concerning their individual tax situations and
the tax consequences of this offering under the Code and under any applicable
state, local or foreign tax laws.
Neither Zapata nor ZAP.COM has obtained a private letter ruling from the
Internal Revenue Service nor an opinion of tax counsel with respect to possible
federal income tax consequences of the Rights Offering or the Stock
Distribution. Zapata and ZAP.COM, however, are generally aware of the taxability
of a corporate distribution of property pro rata to stockholders. The Company
believes that, under current interpretations of case law, the Code and
applicable regulations thereunder, the federal income tax consequences
applicable to holders of Zapata common stock receiving Rights and shares in the
Stock Distribution, if made, generally are as follows:
DISTRIBUTION OF RIGHTS TO HOLDERS OF ZAPATA SHARES
The Rights, can be considered as constituting "property" within the meaning
of Section 317(a) of the Code. The federal income tax consequences of a
distribution of the Rights by the Company to holders of Zapata common stock, as
determined under the Code and the regulations thereunder, are as follows: (1)
each non-corporate holder of Zapata common stock will be deemed to have received
a distribution from Zapata, generally taxable as ordinary dividend income, in an
amount equal to the fair market value (if any) of the Rights, as of the date of
distribution, (2) each corporate holder of Zapata common stock (other than
foreign corporations and S corporations) will be deemed to have received a
distribution from Zapata (generally taxable as a dividend subject to the
dividends received deduction for corporations (generally 70%, but 80% under
certain circumstances) in an amount equal to the fair market value (if any) of
the Rights, as of the date of distribution; and (3) the tax basis of the Rights
in the hands of each holder (whether corporate or non-corporate) of Zapata
common stock will be equal to the fair market value (if any) of the Rights as of
the date of distribution. Because of the predominantly factual nature of
determining the fair market value, if any, of the Rights, it is difficult for
Management to express an opinion with respect to the fair market value of the
Rights.
Since the fair market value of the Rights will determine the amount of
taxable income deemed received by the holders of Zapata common stock, the
determination of the fair market value of each Right as of the date of
distribution is critical. Zapata's Board of Directors believes that the per
share value of the ZAP.COM common stock represented by the Rights at the date of
the commencement of the Rights Offering approximates the exercise price and that
the Rights should have no value for federal income tax purposes. The Internal
Revenue Service, however, is not bound by this determination.
Exercise of Rights
Holders of Rights, whether corporate or non-corporate, will recognize
neither gain nor loss upon the exercise of the Rights. A holder of Rights who
receives shares of ZAP.COM common stock upon the exercise of the Rights will
acquire a tax basis in such shares equal to the sum of the exercise price paid
under this Rights Offering and the tax basis (if any) of the holder of Rights.
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<PAGE> 73
Transfers and Lapses of Rights
A holder who sells a Right will recognize gain or loss equal to the
difference between the holder's basis in the Right and the amount received in
exchange for the Right. Gain or loss from the sale of the Right will be a
capital gain or loss if the common stock into which the Right is convertible
would have been a capital asset in the hands of the holder.
The income tax treatment applicable to holders of Rights who fail to
exercise or transfer their Rights prior to the expiration date is set forth in
Section 1234 of the Code. Holders of Rights who allow their Rights to lapse are
deemed under the Code to have sold their Rights on the date on which the Rights
expire. Since upon such lapse no consideration will be received by a holder of
Rights, and since the Rights will have been held for less than 12 months, a
short-term capital loss equal to the tax basis (if any) in the Rights will be
sustained by the holder on such lapse, provided that ZAP.COM common stock
subject to the Rights would have been a capital asset in the hands of the holder
had it been acquired by him.
STOCK DISTRIBUTION
Issuance of Common Stock
Each Zapata stockholder will be considered to have received a distribution
in an amount equal to the fair market value, when distributed, of the shares of
ZAP.COM common stock received by the stockholder plus the amount of any cash
received in lieu of fractional shares of ZAP.COM common stock. Such a
distribution would be taxed as a dividend to the stockholder to the extent of
the stockholder's share of (1) Zapata's current earnings and profits for federal
income tax purposes for the fiscal year ending September 30, 1999 or (2)
Zapata's accumulated earnings and profits through September 30, 1999. To the
extent that the aggregate fair market value of the shares of ZAP.COM common
stock distributed exceeds Zapata's earnings and profits, the excess would be
treated first as a non-taxable reduction in the tax basis of a stockholder's
Zapata common stock to the extent of the tax basis, and thereafter as short-term
or long-term capital gain, provided the Zapata common stock is held by the
stockholder as a capital asset. Under Zapata's best current estimates, it will
have sufficient earnings and profits by September 30, 1999, to treat the entire
Stock Distribution as a dividend. This estimate is, however, subject to change
as current assumptions may change and future events could materially impact
Zapata's earnings and profits.
In general, any amount received by a corporate stockholder that is taxable
as a dividend would be eligible for a 70% dividends-received deduction. However,
the 70% dividends-received deduction would not be available with respect to
stock unless, among other requirements, certain holding period requirements were
satisfied. In this regard, under Section 246(c) of the Code, the length of time
that a taxpayer is deemed to have held stock is reduced for periods during which
the taxpayer's risk of loss with respect to such stock is diminished by reason
of the existence of certain options to sell, contracts to sell or other similar
arrangements.
In addition, under Section 1059 of the Code, a corporate stockholder whose
holding period, as determined using rules similar to those contained in Section
246(c) of the Code, is two years or less (as of the Stock Distribution
announcement date) would be required to reduce the tax basis of such Zapata
common stock (but not below zero) by that portion of any "extraordinary
dividend," as defined in the Code, that is not taxed because of the
dividends-received deduction. If the portion exceeded the corporate
stockholder's tax basis for its Zapata common stock, any such excess would be
treated as gain on the subsequent sale or disposition of the stock for the
taxable year in which the extraordinary dividend is received.
Basis
A Zapata stockholder's tax basis in the shares of ZAP.COM common stock
received in the Stock Distribution would equal the fair market value of the
ZAP.COM common stock on the date of
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<PAGE> 74
the Stock Distribution, and the stockholder's holding period for the shares of
ZAP.COM common stock would begin the day after that date. A Zapata stockholder's
tax basis in the Zapata common stock would not be affected by the Stock
Distribution, unless, as described above, the amount of the Stock Distribution
exceeded the current and accumulated earnings and profits of Zapata attributable
to the stockholder and was treated as a non-taxable reduction in tax basis. Upon
a subsequent sale of the shares of ZAP.COM common stock, a stockholder would
recognize gain or loss measured by the difference between the amount realized on
the sale and the stockholder's tax basis in the shares of ZAP.COM common stock
sold.
GENERAL
The summary of federal income tax consequences set forth above is for
general information only and may not be applicable to stockholders who received
their shares of Zapata common stock through the exercise of an option or
otherwise as compensation, who are not citizens or residents of the U.S. or who
are otherwise subject to special treatment under the Code. HOLDERS OF ZAPATA
COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THEIR INDIVIDUAL
TAX SITUATIONS AND THE TAX CONSEQUENCES OF THE RIGHTS OFFERING AND STOCK
DISTRIBUTION UNDER THE INTERNAL REVENUE CODE OF 1986 AND UNDER ANY APPLICABLE
STATE, LOCAL OR FOREIGN TAX LAWS.
EXPERTS
The balance sheet of ZAP.COM as of February 28, 1999 and the related
statements of operations, changes in stockholder's deficit and cash flows for
the period April 2, 1998 to February 28, 1999, included in this prospectus and
Registration Statement, which have been included herein, in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants which report
includes an emphasis paragraph related to the Company's shareholder's commitment
for an equity contribution, given upon the authority of that firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the ZAP.COM common stock offered hereby will be passed upon
by, Woods, Oviatt, Gilman, Sturman & Clarke LLP.
AVAILABLE INFORMATION
ZAP.COM has filed with the Securities and Exchange Commission a
Registration Statement, which includes certain exhibits (the "Registration
Statement"), under the Securities Act of 1933, as amended, for the securities
offered by this prospectus. This prospectus contains general information about
the contents of contracts and other documents filed as exhibits to the
Registration Statement. However, this prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits filed with
the Registration Statement. You should read the Registration Statement and the
exhibits for further information about ZAP.COM, the Rights Offering and the
Stock Distribution.
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ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Cash Flows..................................... F-5
Statement of Changes in Stockholder's Deficit............... F-6
Note to Financial Statements................................ F-7
</TABLE>
F-1
<PAGE> 76
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of ZAP.COM Corporation
In our opinion, the accompanying balance sheet and related statements of
operations, stockholder's deficit and cash flows present fairly, in all material
respects, the financial position of ZAP.COM Corporation (a Development Stage
Company, the "Company") at February 28, 1999 and the results of its operations
and its cash flows for the period from April 2, 1998 (date of inception) through
February 28, 1999 in conformity with generally accepted accounting principles.
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 of these statements in accordance with the
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 3, Zapata Corporation, the shareholder of the Company,
has committed to an equity contribution of $8,000,000 to the Company.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
April 9, 1999
F-2
<PAGE> 77
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 28,
1999
------------
<S> <C>
ASSETS
ASSETS:
Property and equipment.................................... 39,588
---------
Total assets...................................... $ 39,588
=========
LIABILITIES AND STOCKHOLDER'S DEFICIT
LIABILITIES:
Due to related party...................................... $ 39,588
Payable to stockholder.................................... 62,260
Accrued liabilities....................................... 87,308
---------
Total liabilities................................. 189,156
---------
COMMITMENTS & CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Common stock, no par value, 25,000 shares authorized,
1,000 shares issued and outstanding.................... 10
Deficit accumulated during the development stage.......... (149,578)
---------
Total stockholder's deficit....................... (149,568)
---------
Total liabilities and stockholder's deficit....... $ 39,588
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 78
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FROM APRIL 2, 1998 (DATE OF INCEPTION)
THROUGH FEBRUARY 28, 1999
--------------------------------------
<S> <C>
Revenues.................................................... $ --
---------
Expenses:
General and administrative................................ 149,578
---------
149,578
---------
Loss before income taxes.................................... (149,578)
---------
Benefit from income taxes (Note 5).......................... --
---------
Net loss.................................................... $(149,578)
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 79
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FROM (DATE OF INCEPTION) APRIL 2, 1998
THROUGH FEBRUARY 28, 1999
---------------------------------------
<S> <C>
Cash flows used in operating activities:
Net loss................................................ $(149,578)
Adjustments to reconcile net loss to net cash used in
operating activities:
Changes in assets and liabilities
Accounts payable and accrued liabilities........... 87,308
Due to stockholder................................. 62,260
---------
Total adjustments............................... 149,568
---------
Net cash used in operating activities.............. (10)
---------
Cash flows provided by financing activities
Issuance of common stock................................ 10
---------
Net cash flows provided by financing activities......... 10
---------
Net change in cash and cash equivalents................... --
Cash and cash equivalents at beginning of period.......... --
---------
Cash and cash equivalents at end of period................ $ --
=========
Supplemental schedule of noncash investing activities
Transfer of equipment from related party................ $ 39,588
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 80
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK DURING THE
---------------- DEVELOPMENT
SHARES AMOUNT STAGE
------ ------ -----------
<S> <C> <C> <C>
Balance, April 2, 1998..................................... -- $-- $ --
Issuance of 1,000 shares common stock on April 2, 1998 at
no par value............................................. 1,000 10 --
Net loss for the period ended February 28, 1999............ -- -- (149,578)
----- --- ---------
Balance, February 28, 1999................................. 1,000 $10 $(149,568)
===== === =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 81
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND ORGANIZATION
ZAP.COM Corporation (formerly known as Zap Internetworks, Inc), a Nevada
corporation (the "Company", "ZAP.COM") was incorporated in April 1998 and is a
wholly-owned subsidiary of Zapata Corporation ("Zapata"). ZAP.COM is a
development stage company which was formed to engage in an Internet-related
business through the development of a branded network of linked banners. The
Company has not yet commenced significant operations, and its only activity to
date has been research and investigation of Internet related opportunities, the
development of the Company's business model, and funding from Zapata. In order
to successfully execute its business model, the Company must acquire and
integrate technology systems and infrastructure, contract with Web sites to
participate in the Company's network, and complete the public registration and
sale of a portion of its equity. The Company anticipates incurring significant
operating losses and capital expenditures for the foreseeable future. The
Company has adopted a fiscal year-end of December 31.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are presented as if the Company had
existed as a corporation separate from Zapata Corporation for the periods
presented and include the historical assets, liabilities, revenues and expenses
that are directly related to the business that will comprise the Company's
operations.
General and administrative expenses reflected in the financial statements
include allocations of certain corporate expenses from Zapata for which took
into consideration personnel, space, estimates of time spent to provide
services, or other appropriate bases. Management believes the foregoing
allocation of these costs were made on a reasonable basis; however, they do not
necessarily equal the costs which would have been or will be incurred by the
Company prospectively.
The financial information included herein may not necessarily reflect the
financial position and results of operations of the Company in the future or
what the financial position and results of operations of the Company would have
been had it been a separate, stand-alone company during the periods covered.
Property, equipment and depreciation
Property and equipment are stated at cost, less accumulated depreciation
provided on a straight-line method over the estimated useful lives of the
respective assets. The Company periodically evaluates its long-lived assets for
impairment if events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Start-up Costs
In accordance with AICPA Statement of Position 98-5 -- Reporting on the
Costs of Start-up Activities, the Company expenses all start-up activities,
including organization costs, as they are incurred.
F-7
<PAGE> 82
Income Taxes
The Company utilizes the liability method to account for income taxes. This
method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of existing temporary differences between the
financial reporting and tax reporting basis of assets and liabilities, and
operating loss and tax credit carryforwards for tax purposes. The Company is
included in Zapata's consolidated U.S. federal income tax return and its income
tax effects are allocated to the Company in proportion to its contribution to
consolidated taxable income.
A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. Primary factors considered
by management to determine the size of the allowance include the estimated
taxable income level for future years and the limitations on the use of such
carryforwards and expiration dates.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 3. STOCKHOLDER'S DEFICIT
The Company was incorporated in April 2, 1998 as a wholly-owned subsidiary
of Zapata, through the issuance of 1,000 shares of no par value common stock. As
of February 28, 1999, the Company has accumulated a deficit during its
development stage of $149,578. The Company will continue to incur a development
stage deficit until it begins its planned operations, at which point, the
Company will accumulate its operating results in retained earnings.
The Company anticipates amending its Amended and Restated Articles of
Incorporation to revise its capital structure. Subsequent to the amendment,
ZAP.COM's authorized capital stock will be (1) 1,000,000,000 shares of ZAP.COM
common stock, par value $.001 per share and (2) 150,000,000 shares of preferred
stock, par value $.01 per share, of which 10,000 shares are designated as Series
A preferred stock and 149,990,000 shares are undesignated.
Zapata has agreed to contribute $8,000,000 to the Company in exchange for
10,000 shares of Series A preferred stock and up to 13,612,000 shares of common
stock. The number of shares of common stock issued to Zapata will be contingent
on the number of the Company's shares purchased by holders of ZAP.COM rights,
pursuant to the rights offering.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of server and network equipment which was
transferred from a wholly owned subsidiary of Zapata. The equipment transfer was
recorded at the cost basis of the assets to the transferor on the transfer date
of February 28, 1999. ZAP.COM depreciates these assets over their remaining
useful life of approximately 5 years. At February 28, 1999, these assets had a
net cost balance of approximately $39,600. No depreciation expense was recorded
during the period as the assets were not received until the last day of the
period.
NOTE 5. INCOME TAXES
For Federal income tax purposes, organizational costs are not deductible
until a corporation is liquidated and start-up costs must be amortized over not
less than 60 months. The Company has recognized a deferred tax benefit for
start-up costs to be amortized over 60 months for tax purposes. However, as it
is not more likely than not that the deferred tax asset will be utilized,
management has established a full valuation reserve of $52,352.
F-8
<PAGE> 83
NOTE 6. RELATED PARTY TRANSACTIONS
The Company has utilized the services of the management and staff of its
sole shareholder, Zapata, during its start-up period. The actual payroll and
related fringe benefit costs for these employees of approximately $62,000 was
allocated to the Company using a percentage of time analysis.
The Company also received server and network equipment from a related
entity to operate its Webspace, the ZAP.COM Network and related projects. The
Company recorded the assets at the cost to the transferor of approximately
$39,600. No gain or loss was recognized on the transaction.
During 1998, LFG, Inc. commenced a legal action against Zapata and Zap
Corp. (a wholly-owned subsidiary of Zapata and an affiliate of the Company). The
action alleged that Zapata and Zap Corp. were guilty of trademark infringement
and other federal and state statutes because of their use of Zap trade name and
the Internet domain name "Zap.com." In April 1999, Zapata and Zap Corp reached
an agreement in principal with LFG that secured a general release from the
action in exchange for a cash payment and the furnishing of limited advertising
for LFP on Zap Corp.'s Web site for a two year period. Additionally, Zapata and
its subsidiaries will receive from LFG the transferable and assignable perpetual
license to any rights LFG has in the "Zap" mark.
F-9
<PAGE> 84
- ---------------------------------------------------------
- ---------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITY OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH AN OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL, TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS FURNISHED OR
THE DATE HEREOF.
UNTIL , 1999 (25 DAYS AFTER THE EXPIRATION DATE), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 11
The Rights Offering..................... 26
The Stock Distribution.................. 32
Use of Proceeds......................... 34
Dividend Policy......................... 34
Dilution................................ 35
Capitalization.......................... 36
Selected Financial Data................. 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 39
Business................................ 42
Management.............................. 54
Executive Compensation.................. 56
Certain Relationships and Related Party
Transactions.......................... 59
Security Ownership of ZAP.COM........... 61
Description of Securities............... 62
Shares Eligible for Future Sale......... 68
Certain Federal Income Tax
Consequences.......................... 69
Experts................................. 71
Legal Matters........................... 71
Available Information................... 71
Index to Financial Statements........... F-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
13,612,000 TRANSFERABLE RIGHTS
TO PURCHASE COMMON STOCK
13,612,000 SHARES OF
COMMON STOCK
1,200,000 SHARES OF
COMMON STOCK
ZAP.COM CORPORATION
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of
the securities being registered hereby are itemized below.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $30,275
-------
Nasdaq Listing fee.......................................... *
Pacific Stock Exchange listing fee.......................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Blue sky fees and expenses (including legal fees)........... *
Subscription Agent, Transfer Agent and Registrar fees and
expenses.................................................. *
Information Agent Miscellaneous............................. *
-------
Total............................................. $30,275
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Amended and Restated Articles of Incorporation and Amended
and Restated By-Laws limit the liability of directors to the fullest extent
permitted by Nevada law. This is intended to allow the Company's officers and
directors of monetary liabilities for breach of their fiduciary duties as
directors, except under certain circumstances, including (1) acts or omissions
which involve intentional misconduct, fraud or a knowing violation of law or (2)
the willful or grossly negligent payment of unlawful distributions.
The Nevada Corporation Law and the Company's Amended and Restated Articles
of Incorporation and Amended and Restated By-Laws authorize indemnification of a
director, officer, employee or agent of the Company against expenses incurred by
him or her in connection with any action, suit or proceeding to which such
person is named a party by reason of having acted or served in such capacity, if
he acted in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Company and, with respect to any
criminal proceeding had no reasonable cause to believe his conduct was unlawful.
With respect to judgments or settlement obtained against a director, officer,
employee or agent of the Company resulting from lawsuits filed by the Company or
derivative suits filed on behalf of the Company, such a person cannot be
indemnified for such expenses unless and only to the extent that a court
determines that, in view of all the circumstances, the person is fairly and
reasonably entitled to indemnity for such expenses. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 (the "Securities Act")
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In April 1998, the Company issued 1,000 shares of common stock to Zapata
Corporation ("Zapata"). In April 1999, the Company effected a 36,038-for-one
share stock split and in connection with such split, Zapata contributed $36,028
to the Company's capital. No underwriters,
II-1
<PAGE> 86
brokers or other agents were involved in these transactions. These securities
were issued pursuant to an exemption provided by Section 4(2) of the Securities
Act.
In connection with the Rights Offering and, if made, the Stock
Distribution, the Company will issue shares of its Series A preferred stock to
Zapata and issue additional shares of the Company's common stock to Zapata .
These securities will also be issued pursuant to the Section 4(2) exemption. No
underwriters, brokers or other agents will be involved in this transaction.
These securities will be issued pursuant to an exemption from registration
provided by Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Form of Amended and Restated Articles of Incorporation of
ZAP.COM
3.2 Form of Amended and Restated By-laws of ZAP.COM
4.1 Form of Specimen Stock Certificate**
4.2 Form of Subscription Certificate for the Rights**
4.3 Form of Subscription Agent Agreement between ZAP.COM and
American Stock Transfer & Trust Company**
4.4 Subscription Instructions, including Notice of Guaranteed
Delivery and Notice of Guaranteed Payment**
4.5 ZAP.COM 1999 Long-Term Incentive Plan**
4.6 ZAP.COM 1999 Non-Employees Directors Plan**
5.1 Opinion of Woods, Oviatt, Gilman, Sturman & Clarke LLP**
10.1 Form of Distribution Agreement between ZAP.COM and Zapata
10.2 Form of Services Agreement between ZAP.COM and Zapata
10.3 Form of Tax Indemnity Agreement between ZAP.COM and Zapata
10.4 Form of Registration Rights Agreement between ZAP.COM and
Zapata
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Woods, Oviatt, Gilman, Sturman & Clarke LLP
(contained in Exhibit 5)**
27 Financial Data Schedule**
99 Form of letter to stockholders regarding Rights Offering and
Stock Distribution
</TABLE>
- ---------------
** To be filed by amendment.
(b) No Financial Statements Schedules are filed a part of this Registration
Statement.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registration in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or
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<PAGE> 87
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
If the registrant relies on Rule 430A under the Securities Act, the
registrant will:
(1) For purposes of determining any liability under the Securities
Act, treat the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Securities and Exchange
Commission declared it effective.
(2) For the purpose of determining any liability under the Securities
Act, treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered therein and that
offering of such securities at that time as the initial bona fide offering
thereof.
II-3
<PAGE> 88
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, New York, on
April 13, 1999.
ZAP.COM CORPORATION
By:
------------------------------------
Name: Avram Glazer
Title: Chief Executive Officer and
President
In accordance with the requirements of the Securities Act, this
Registration Statement on Form S-1 has been signed by the following persons in
their capacities and on the date signed.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ AVRAM GLAZER Chairman of the Board of April 13, 1999
- --------------------------------------------------- Directors, Director, Chief
(Avram Glazer) Executive Officer and
President
/s/ LEONARD DISALVO Vice President Finance, Chief April 13, 1999
- --------------------------------------------------- Financial Officer and
Principal Accounting Officer
</TABLE>
II-4
<PAGE> 1
EXHIBIT 3.1
(FORM OF)
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
ZAP.COM CORPORATION
Pursuant to the provisions of Section 78.403 of the Nevada Revised
Statutes, ZAP.COM CORPORATION (the "Corporation") hereby adopts the following
Restated Articles of Incorporation.
ARTICLE I
NAME
The name of the corporation shall be ZAP.COM Corporation.
ARTICLE II
RESIDENT AGENT
The name and address of the Corporation's initial resident agent is
John P. Fowler, Marshall Hill Cassas & de Lipkau, 333 Holcomb Avenue, Suite 300,
Reno, Nevada 89502. The Corporation may, from time to time, in the manner
provided by law, change the resident agent and the registered office within the
State of Nevada. The Corporation may also maintain an office or offices for the
conduct of its business, either within or without the State of Nevada.
ARTICLE III
PURPOSE
The Corporation is organized for the purpose of engaging in any lawful
activity, within or without the State of Nevada.
ARTICLE IV
STOCK
<PAGE> 2
SECTION 4.01 AUTHORIZED CAPITAL STOCK. The total number of shares of
stock this Corporation is authorized to issue shall be 1,150,000,000 shares.
This stock shall be divided into two classes to be designated as "Common Stock"
and "Preferred Stock".
SECTION 4.02 COMMON STOCK. 1,000,000,000 shares of the authorized
stock, par value $0.001 per share, are designated Common Stock. The holder of
each share of Common Stock shall have one vote per share on all matters placed
before the stockholders.
SECTION 4.03 PREFERRED STOCK. 150,000,000 shares of the authorized
stock, par value $0.01 per share, are designated Preferred Stock. The Board of
Directors shall have the authority to authorize the issuance of the Preferred
Stock from time to time in one or more classes or series, and to state in the
resolution or resolutions from time to time adopted providing for the issuance
thereof the following:
(a) The number of shares to constitute the class or series and
the designation thereof;
(b) The preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations, or
restrictions thereof, if any, with respect to any class or series;
(c) Whether or not the shares of any class or series shall be
redeemable and if redeemable the redemption price or prices, and the time or
times at which, and the terms and conditions upon which, such shares shall be
redeemable and the manner of redemption;
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<PAGE> 3
(d) Whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and if such retirement or
sinking funds be established, the annual amount thereof and the terms and
provisions relative to the operation thereof;
(e) The dividend rate, whether dividends are payable in cash,
stock of the Corporation, or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the relation to the
payment of dividends payable on any other class or classes or series of stock,
whether or not such dividends shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;
(f) The preferences, if any, and the amounts thereof which the
holders of any class or series thereof are entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of, the Corporation;
(g) Whether or not the shares of any class or series is
convertible into, or exchangeable for, the shares of any other class or classes
or of any other series of the same or any other class or classes of stock of the
Corporation and the conversion price or prices or ratio or ratios or the rate or
rates at which such exchange may be made, with such adjustments, if any, as
shall be stated and expressed or provided for in such resolution or resolutions;
(h) Whether or not the holders of shares of each class or
series of Preferred Stock have voting rights for the election or removal of
directors or for any
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<PAGE> 4
other purpose and upon which circumstances any or all voting rights shall be
exercised or exercisable;
(i) Such other rights and provisions with respect to any class
or series as may to the Board of Directors seem advisable.
The shares of each class or series of the Preferred Stock may
vary from the shares of any other class or series thereof in any respect. The
Board of Directors may increase the number of shares of the Preferred Stock
designated for any existing class or series by a resolution adding to such class
or series authorized and unissued shares of the Preferred Stock not designated
for any other class or series. The Board of Directors may decrease the number of
shares of the Preferred Stock designated for any existing class or series of the
Preferred Stock and the shares so subtracted shall become authorized and
unissued shares of the Preferred Stock.
SECTION 4.04 SERIES A PREFERRED STOCK.
(a) Designation and Amount. 10,000 shares of Preferred Stock
are designated a series of Preferred Stock which shall be known as the "Series A
Preferred Stock".
(b) Dividends and Distributions.
(i) So long as Zapata Corporation ("Zapata") is the holder
of all of the outstanding shares of Series A Preferred Stock, Zapata as the
holder of the Series A Preferred Stock shall at any time that the Zapata Actual
Percentage (defined below) is less than the Zapata Minimum Percentage be
entitled, not in preference to the holders of Common Stock, but in parity
therewith, to receive and participate in all dividends, when, as and if declared
by the Board of Directors out of funds legally available therefor with respect
to the Company's Common Stock. In such event the quarterly dividend shall be in
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<PAGE> 5
an amount (rounded to the nearest cent) equal to the aggregate per share amount
of all cash dividends, and the aggregate per share amount (payable in kind) of
all non-cash dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock
multiplied by the difference between the Zapata Minimum Percentage and the
Zapata Actual Percentage. All payments of dividends to the holder of the Common
Stock and the Series A Preferred Stock at or about the same time.
As used herein, the following definitions shall apply:
"Zapata Actual Percentage" shall mean the percentage that any
dividends or distributions payable by the Company with respect to the Common
-5-
<PAGE> 6
Stock held by Zapata constitutes of all dividends and distributions payable with
respect to all shares of outstanding Common Stock on the record date with
respect to which such dividend or distribution is payable.
"Zapata Minimum Percentage" shall mean thirty-five percent
(35%) unless at any time after the date on which these Amended and Restated
Articles of Incorporation are filed with the Nevada Secretary of State, the
Common Stock held by Zapata has decreased to less than thirty-five percent (35%)
of all outstanding shares of Common Stock or the outstanding Common Stock as a
result of transfers, conveyances or other dispositions by Zapata of its Common
Stock. If such circumstances exist as of the date that a record is taken for a
Common Stock dividend or distribution, then the Zapata Minimum Percentage shall
be automatically reduced by an amount equal to the percentage that such
transferred, conveyed or disposed of shares constituted of all the sum of all
outstanding shares of Common Stock and the number of shares of Common Stock into
which all the outstanding Series A Preferred Stock would be converted on that
date if it were transferred as of the date of such transfer, conveyance or other
disposition.
(ii) If Zapata, as the holder of the Series A
Preferred Stock, is at any time entitled to receive a portion of the dividend or
distribution as the result of the declaration of dividends or distributions with
respect to the Common Stock, then the Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in Section 4.04(b)(i)
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock) in the amount required
under this Section 4.04(b).
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<PAGE> 7
(c) Liquidation, Dissolution or Winding-Up. Upon any
liquidation, dissolution or winding-up of the Corporation, no distribution shall
be made (i) to the holders of the Common Stock or any shares of other stock
ranking junior (upon liquidation, dissolution or winding-up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have first received $800.00 per share, plus an amount
equal to declared and unpaid dividends and distributions thereon, to the date of
such payment, or (ii) to the holders of stock ranking on a parity (upon
liquidation, dissolution or winding-up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all other
such parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding-up.
Further, if as of the record date for the distribution of the remaining net
assets to Corporations stockholders the Zapata Actual Percentage is less than
the Zapata Minimum Percentage, then Zapata, as the holder of all the outstanding
shares of Series A Preferred Stock, shall, not in preference to the holders of
Common, but in parity therewith, be entitled to receive an aggregate amount
equal to the aggregate amount to be distributed to holders of Common Stock
multiplied by the difference between the Zapata Minimum Percentage and the
Zapata Actual Percentage as of such record date. The amount distributable to the
holders of Common Stock shall be reduced by such amount.
(d) Conversion.
(i) If at any time Zapata transfers the Series A
Preferred Stock to any other person (other than a wholly-owned subsidiary of
Zapata or if any entity 100% owned, directly or indirectly by Zapata) and at
such time the Zapata Actual Percentage is less than the Zapata Minimum
Percentage, then effective
-7-
<PAGE> 8
immediately upon the consummation of such transfer, the Series A Preferred Stock
being transferred shall automatically and without any further action on the part
of Zapata be converted into shares of fully paid and nonassessable Common Stock.
Such conversion shall be at a rate that results in the transferee of the Series
A Preferred Stock being issued the number of shares of Common Stock that is
necessary for such transferor to be entitled immediately following the transfer
to the same percentage of the Common Dividend Amount and the Common Liquidation
Amount as Zapata would have been entitled to receive as a holder of the
transferred Series A Preferred Stock had it not transferred such stock.
(ii) Upon conversion of any Series A Preferred Stock,
each such share shall be cancelled and not subject to reissuance.
(d) Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(i) Subject to the provision for adjustment
hereinafter set forth, each share of Series A Preferred Stock shall entitle the
holder thereof to 50,000 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
after the date hereof declares or pays any dividend on Common Stock payable in
shares of Common Stock, or effects a subdivision or combination or consolidation
of the outstanding
-8-
<PAGE> 9
shares of Common Stock (by reclassification or otherwise) into a greater or
lesser number of shares of Common Stock, then in each such case, the number of
votes per share to which holders of Series A Preferred Stock were entitled
immediately prior to such event shall be automatically adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(ii) Except as otherwise provided herein or by law,
the holders of shares of Series A Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Company having general voting
rights shall vote together as one voting group on all matters submitted to a
vote of the stockholders of the Corporation.
(iii) Except as set forth herein, holders of Series A
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock and any other capital stock of the Corporation having general
voting rights as set forth herein) for taking any corporate action.
(e) Reacquired Shares. Any shares of Series A Preferred Stock
converted into Common Stock purchased or otherwise acquired by the Corporation
in any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall, upon their cancellation, become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a
-9-
<PAGE> 10
new series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors, subject to the conditions and restrictions on issuance set
forth herein.
(f) Consolidation, Merger, Etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case, the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged as if the Series A
Preferred Stock had been converted immediately prior to such transaction.
(g) No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.
(h) Amendment. The Articles of Incorporation of the
Corporation shall not be amended in any manner that would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
ARTICLE V
DIRECTORS AND INCORPORATORS
SECTION 5.01 GOVERNING BOARD OF DIRECTORS. The governing board shall be
styled "Board of Directors" and the first Board of Directors shall consist of
one director. The number of directors may at any time or times be increased or
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<PAGE> 11
decreased to a maximum number of twelve (12) as provided in the By-Laws,
provided that after the initial Board of Directors expands the size of the Board
of Directors to three (3) directors or more, the Board of Directors shall
thereafter consist of no less than three (3) directors.
SECTION 5.02 INITIAL NUMBER OF DIRECTORS. The names and post office
addresses of the members of the first Board of Directors, which shall be one (1)
in number, is as follows:
Avram Glazer
80 Ambassador
Rochester, New York 14610
This individual shall serve as a director until the first annual
meeting of stockholders or until his successor is elected and qualified.
SECTION 5.03 CLASSIFICATION OF DIRECTORS. On the first date (the
"Classification Date") that the size of the Board of Directors is increased in
size to three (3) or more directors, the directors shall be divided into three
classes, designated Class I, Class II and Class III. Each Class shall consist,
as nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. The Corporation's initial director
shall determine the Class for each director after being elected to the Board. At
each succeeding annual meeting of stockholders following the classification of
the directors, successors to the class of directors whose term expires at that
annual meeting shall be elected for a term of office expiring at the third
succeeding annual meeting of stockholders after their election. The Class I
directors shall stand for election at the first annual meeting of Stockholders
following the Classification Date, the Class II directors shall stand for
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<PAGE> 12
election at the second succeeding annual stockholders meeting following the
Classification Date and the Class III directors shall stand for election at the
third succeeding annual Stockholders meeting following the Classification Date.
If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such Class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting for
the year in which his term expires and until his successor is elected and
qualifies, subject, however, to the prior death, resignation, retirement,
disqualification or removal from office.
SECTION 5.04 VACANCIES. Except as otherwise provided in a Certificate
of Designation setting forth the rights of the holders of any class or series of
Preferred Stock, any vacancy on the Board of Directors that results from the
death, resignation, retirement, disqualification or removal from office of any
director, an increase in the number of directors, or any other reason may be
filled by a majority of the Board of Directors then in office, or by a sole
remaining director. Vacancies shall not be filled by a vote or written consent
of the stockholders. Any director elected to fill a vacancy not resulting from
an increase in the number of directors shall have the same remaining term as
that of his predecessor.
SECTION 5.05. CLASSIFICATION IF PREFERRED STOCKHOLDERS ELECT DIRECTORS.
Notwithstanding the foregoing, whenever the holders of any one or more classes
or
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<PAGE> 13
series of Preferred Stock issued by the Corporation have the right, voting
separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of these
Articles or an amendment to these Articles applicable thereto, or the terms of a
Certificate of Designation of the Preferred Stock filed with the Nevada
Secretary of State applicable thereto, and such directors so elected shall not
be divided into classes pursuant to this Article V unless expressly provided by
such terms.
SECTION 5.06 NOTICE OF NOMINATIONS. Advance notice of stockholder
nominations for the election of directors and the proposal of business by
stockholders shall be given in the manner provided in the By-Laws, as amended
and in effect from time to time.
SECTION 5.07 INCORPORATOR. The name and post office address of the
incorporator signing these Articles of Incorporation is as follows:
John P. Fowler
Marshall Hill Cassas & de Lipkau
333 Holcomb Avenue, Suite 300
Reno, Nevada 89502
ARTICLE VI
STATUTES NOT APPLICABLE
The provisions of Nevada Revised Statutes 78.411 through 78.444,
inclusive, regarding combinations with interested stockholders, shall not be
applicable to this Corporation.
ARTICLE VII
STOCKHOLDER VOTING
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SECTION 7.01 WRITTEN CONSENT. During any period of time in which Zapata
Corporation, a Delaware corporation ("Zapata"), is not the beneficial owner of
Common Stock and Preferred Stock which constitutes fifty percent (50%) or more
of the votes entitled to be cast in the election of directors ("Voting Stock
Majority"), no action required or permitted to be taken at a meeting of the
stockholders of this Corporation shall be taken by written consent of the
stockholders.
SECTION 7.02 CALLING SPECIAL MEETING. During any period of time in
which Zapata does not beneficially own a Voting Stock Majority, subject to all
the rights of holders of any class or series of stock having a preference over
Common Stock as to dividends or upon liquidation, special meetings of the Board
of Directors or stockholders may only be called only by the Chairman of the
Board or by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors. and no holder of Common
Stock shall be entitled to call a meeting of the stockholders.
SECTION 7.03 CALLING MEETINGS AT REQUEST OF ZAPATA. At any time during
which Zapata and its affiliates own at least a Voting Stock Majority, the
officers of this Corporation shall call a meeting of the stockholders upon the
written request of Zapata.
ARTICLE VIII
DIRECTORS' AND OFFICERS' LIABILITY
No director or officer of the Corporation shall be personally liable to
the Corporation or any of its stockholders for damages for breach of fiduciary
duty as a director or officer involving any act or omission of any such director
or officer.
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However, the foregoing provision shall not eliminate or limit the
liability of a director or officer for (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or (ii) the payment
of dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any
repeal or modification of this Article by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation for acts or
omissions prior to such repeal or modification.
ARTICLE IX
INDEMNITY
SECTION 9.01 RIGHT TO INDEMNITY. Subject to any restrictions set forth
in the By-Laws of this Corporation, every person who was or is a party, or is
threatened to be made party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or a person of whom he is the legal representative is or was a director
or officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the laws of the State of Nevada from time to time against all expenses,
liability and loss (including attorneys' fees, judgments, fines and amounts paid
or to be paid in settlement) reasonably incurred or suffered by him in
connection therewith. Such right of indemnification shall be a contract right
which may be enforced in any manner desired by such person. Such right of
indemnification shall not be exclusive of any other right which such directors,
officers or representatives may have or hereafter acquire, and, without limiting
the
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generality of such statement, they shall be entitled to their respective
rights of indemnification under any by-law, agreement, vote of shareholders,
provision of law or otherwise, as well as their rights under this Article.
SECTION 9.02 EXPENSES ADVANCED. Subject to any restrictions set forth
in the By-Laws of this Corporation, expenses of directors and officers incurred
in defending a civil or criminal action, suit or proceeding by reason of any act
or omission of such director or officer acting as a director or officer shall be
paid by the Corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of any undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the Corporation.
SECTION 9.03 BY-LAWS; INSURANCE. Without limiting the application of
the foregoing, the Board of Directors may adopt by-laws from time to time with
respect to indemnification, to provide at all times the fullest indemnification
permitted by the laws of the State of Nevada, to limit the right of
indemnification, and may cause the Corporation to purchase and maintain
insurance or make other financial arrangements on behalf of any person who is or
was a director or officer of the Corporation as a director or officer of another
corporation, or as its representative in a partnership, joint venture, trust or
other enterprise against any liability asserted against such person and incurred
in any such capacity or arising out of such status, to the fullest extent
permitted by the laws of the State of Nevada, whether or not the Corporation
would have the power to indemnify such person.
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The indemnification and advancement of expenses provided in this
Article shall continue for a person who has ceased to be a director, officer,
employee or agent, and inures to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE X
AMENDMENT OF CERTAIN ARTICLES AND BYLAWS
Notwithstanding any other provision of these Articles, an amendment
thereto, a resolution of the Board of Directors or a Certificate of Designation
of the rights, powers, limitations, preferences, restrictions and relative
rights of any class or series of stock filed with the Nevada Secretary of State,
or the By-Laws of this Corporation in effect from time to time, the affirmative
vote of holders of 66-2/3% of the voting power of the capital stock shall be
required to amend, alter, change or repeal Article V, Article VII or Article XI
of these Articles of Incorporation and amend, alter, change or repeal any By-Law
relating to the following subject matters: stockholder action without a meeting;
the calling of special stockholder meetings; notices of stockholder meetings;
the number election and term of the Corporation's directors; the filling of
vacancies in the Board of Directors; and the removal of directors. Neither the
directors nor the stockholders shall promulgate By-Laws inconsistent with these
Articles of Incorporation and any and all such inconsistent By-Laws shall be
null and void.
Executed this ____ day of April, 1999.
---------------------------
John P. Fowler
Incorporator
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STATE OF NEVADA )
COUNTY OF WASHOE ) ss:
This instrument was acknowledged before me on ______, 1999 by John P.
Fowler.
------------------------------
Notary Public
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EXHIBIT 3.2
(FORM OF)
AMENDED AND RESTATED BY-LAWS
ZAP.COM CORPORATION, A NEVADA CORPORATION
ARTICLE I
STOCKHOLDERS' MEETING
SECTION 1.1 PLACE OF MEETINGS.
All meetings of the stockholders shall be held at the principal office
of the corporation in the State of New York ("Principal Office"), or at any
other place within or without the State of New York as may be designated for
that purpose from time to time by the Board of Directors.
SECTION 1.2 ANNUAL MEETINGS.
The annual meeting of the stockholders shall be held not later than two
hundred ten (210) days after the close of the fiscal year, on the date and at
the time set by the Board of Directors, at which time the stockholders shall
elect directors, consider reports of the affairs of the Corporation, and
transact such other business as may properly be brought before the meeting.
SECTION 1.3 SPECIAL MEETINGS.
Except as otherwise required by law as of the time at which Zapata
Corporation, ("Zapata"), and its affiliates cease to be the beneficial owners of
an aggregate of at least a majority of the voting power of then outstanding
capital stock of this Corporation (the "Voting Stock Majority"), special
meetings of the stockholders cannot be called by the holders of the Common
Stock, but only by the Chairman of the Board or by the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors, the number of directors the Corporation would have if there were no
vacancies (the "Whole Board"). At any time during which Zapata and its
affiliates own at least a Voting Stock Majority, special meetings of the
stockholders may be called by the Chairman of the Board, Chief Executive
Officer, the President, a majority of the Board of Directors, or upon request by
Zapata, or any of Zapata's affiliates.
SECTION 1.4 NOTICE OF MEETINGS.
1.4.1 Notice of each meeting of stockholders, whether annual or
special, shall be given at least ten (10) and not more than sixty (60) days
before the meeting by the Secretary or any Assistant Secretary causing to be
delivered or mailed to each stockholder of record entitled to vote at the
meeting a written notice stating the time and place of the meeting and the
purpose or purposes for which the meeting is called. The notice shall be signed
by
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the Chairman of the Board, the Vice Chairman of the Board, the Chief
Executive Officer, the President, the Secretary or any Assistant Secretary and
shall be delivered or mailed postage prepaid to each stockholder at such
stockholder's address as it appears on the stock books of the corporation. If
any stockholder has failed to supply an address, notice shall be deemed to have
been given if mailed to the address of the Principal Office, or published at
least once in a newspaper having general circulation in the county in which the
Principal Office is located.
1.4.2 It shall not be necessary to give any notice of the adjournment
of or the business to be transacted at an adjourned meeting other than by
announcement at the meeting at which such adjournment is taken. However, when a
meeting is adjourned for thirty (30) days or more, notice of the adjourned
meeting must be given as in the case of an original meeting.
SECTION 1.5 CONSENT BY STOCKBROKERS.
As of the time at which Zapata and its affiliates cease to be the
beneficial owner of at least a Voting Stock Majority, no action required or
permitted to be taken at a meeting of the stockholders shall be taken by written
consent. However, at any time during which Zapata and its affiliates are the
beneficial owners of an aggregate of at least a Voting Stock Majority, any
action required or permitted to be taken at a meeting of the stockholders of the
Corporation may be taken without a meeting by the written consent of
stockholders entitled to vote on such action holding at least a majority of the
voting power.
SECTION 1.6 QUORUM.
1.6.1 The presence in person or by proxy of the persons entitled to
vote a majority of the voting capital stock at any meeting constitutes a quorum
for the transaction of business. Particular shares of stock shall not be counted
in determining the number of shares of stock represented or required for a
quorum or in any vote at a meeting, if the voting of such shares at the meeting
has been enjoined or for any reason such shares cannot be lawfully voted at the
meeting.
1.6.2 The stockholders present at a duly called or held meeting at
which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
1.6.3 In the absence of a quorum, the holders of a majority of the
shares of stock present in person or by proxy and entitled to vote may adjourn
any meeting from time to time, but not for a period of more than thirty (30)
days at any one time, until a quorum is in attendance.
SECTION 1.7 VOTING RIGHTS.
1.7.1 Except as otherwise provided by law or by the Restated Articles
of Incorporation, any amendment thereto, (a) every holder of record of the
Corporation's
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Common Stock is entitled to vote at each meeting of the stockholders and is
entitled to one vote for each share of stock standing in the stockholder's name
on the books of the Corporation and (b) every holder of record of the
Corporation's Series A Preferred Stock is entitled to vote at each meeting of
the stockholders and is entitled to fifty thousand (50,000) votes for each share
of stock standing in the stockholder's name on the books of the Corporation.
Except as otherwise provided by law or by the Restated Articles of Incorporation
or any amendment thereto, or any Certificate of Designation of the rights and
privileges of the holders of Preferred Stock filed in the office of the Nevada
Secretary of State (a "Certificate of Designations"), if a quorum is present,
the vote of the holders of a majority of votes cast on a particular matter is
binding upon all stockholders of the Corporation.
1.7.2 The Board of Directors may designate a day not more than sixty
(60) days before any meeting of the stockholders as the day as of which
stockholders entitled to notice of and to vote at the meeting is determined.
SECTION 1.8 PROXIES.
Every stockholder entitled to vote or to execute consents may do so
either in person or by written proxy executed in accordance with the provisions
of Chapter 78 of the Nevada Revised Statutes and filed with the Secretary of the
Corporation.
SECTION 1.9 MANNER OF CONDUCTING MEETINGS.
To the extent not in conflict with the provisions of law relating
thereto, the Articles of Incorporation or any amendment thereto, or these
By-Laws, meetings must be conducted pursuant to such rules as may be adopted by
the chairman presiding at the meeting.
SECTION 1.10 BUSINESS BROUGHT BEFORE MEETINGS.
1.10.1 At any annual meeting of stockholders, the only business which
may be conducted must have been brought before the meeting (i) by or at the
direction of the Chairman of the Board, (ii) by or at the direction of the Board
of Directors or (iii) by any stockholder of the Corporation who is entitled to
vote with respect to the matter and who complies with the notice procedures set
forth in this Section 1.10. For business to be properly brought before an annual
meeting by a stockholder, the stockholder must give timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered or mailed by first class United States mail, postage
prepaid, to the Secretary of the Corporation not less not less than 120 days nor
more than 150 days prior to the first anniversary of the date of the notice of
annual meeting provided with respect to the previous year's annual meeting of
stockholders. A stockholder's notice to the Secretary must set forth details of
each matter the stockholder proposes to bring before the annual meeting as
follows: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the books of the
Corporation, of the stockholder of the Corporation proposing such business,
(iii) the class and number of
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shares of the stock of the Corporation that are beneficially owned by the
stockholder and (iv) any material interest of the stockholder in such business.
1.10.2 At any special meeting of stockholders, the only business which
may be conducted must have been described in general terms in the notice of the
special meeting.
1.10.3 Notwithstanding anything in these By-Laws to the contrary, no
business shall be brought before or conducted at any annual or special meeting
except in accordance with the foregoing procedures. The officer of the
Corporation or other person presiding over the annual meeting ("Presiding
Person") shall, if the facts so warrant, determine and declare to the meeting
that business was not properly brought before the meeting in accordance with the
provisions of this Section 1.10. If the Presiding Person determines that a
matter was not properly brought before the meeting, the Presiding Person shall
so declare to the meeting and the business shall not be transacted. Except as
otherwise provided in this By-Laws, at any special meeting of the stockholders,
the only business which shall be conducted must have been brought before the
meeting by or at the direction of the Board of Directors.
SECTION 1.11 NOTICE OF NOMINATIONS.
Nominations for the election of directors may be made only by the
Chairman of the Board of Directors or upon timely notice given by any
stockholder entitled to vote for the election of directors. No persons other
than those nominated pursuant to this Section 1.11 are eligible for election as
a director. For such a stockholder notice to be timely, the notice must be made
in writing, and physically received by the Secretary of the Corporation not
later, than the 150th day prior to, nor later than the 120th day before the
first anniversary of the date of ZAP.COM's notice of annual meeting provided
with respect to the previous year's annual meeting of stockholders.(except that,
in the event that the date of the annual meeting is more than thirty (30)
calendar days before or more than sixty (60) calendar days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the one hundred fiftieth (150th)
calendar day before such annual meeting and not later than the close of business
on the one hundred twentieth (120th) calendar day before such annual meeting or
the tenth (10th) calendar day following the day on which public announcement of
a meeting date is first made by the Corporation). The stockholder notice must
contain the name and business address of the nominee. The notice must also
contain all the information set forth in clauses (ii) through (iv) of the last
sentence of Section 1.10.1 above.
SECTION 1.12 APPLICABILITY TO ZAPATA.
Sections 1.10 and 1.11 shall not apply to Zapata and its affiliates
before the date on which Zapata no longer owns at least a Voting Stock Majority.
ARTICLE II
DIRECTORS - MANAGEMENT
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SECTION 2.1 POWERS.
Subject to any limitation contained in the laws of the State of Nevada,
the Articles of Incorporation or any amendment thereto, or these By-Laws, or as
to action to be authorized or approved by the stockholders, all corporate powers
shall be exercised by or under authority of, and the business and affairs of
this Corporation shall be controlled by, the Board of Directors.
SECTION 2.2 NUMBER AND QUALIFICATION.
The number of directors which shall constitute the whole Board of
Directors shall be one director unless and until the directors expand the number
of directors to three or more directors, in which case, the number of directors
shall be no less than three (3) nor more than twelve (12) directors. The number
of directors shall be fixed from time to time within this range exclusively by
the Board of Directors pursuant to a resolution adopted by a majority of the
Whole Board. No increase or decrease in the number of directors shall shorten
the term of any incumbent director.
SECTION 2.3 CLASSES OF DIRECTORS AND TERM OF OFFICE.
2.3.1 On the first date (the "Classification Date") that the size of
the Board of Directors is increased in size to three (3) or more directors, the
directors shall be divided into three classes, designated Class I, Class II and
Class III. Each Class shall consist, as nearly as may be possible, of one-third
of the total number of directors constituting the entire Board of Directors. The
Corporation's initial director shall determine the Class for each director after
being elected to the Board. At each succeeding annual meeting of stockholders
following the classification of the directors, successors to the class of
directors whose term expires at that annual meeting shall be elected for a term
of office expiring at the third succeeding annual meeting of stockholders after
their election. The Class I directors shall stand for election at the first
annual meeting of Stockholders following the Classification Date, the Class II
directors shall stand for election at the second succeeding annual stockholders
meeting following the Classification Date and the Class III directors shall
stand for election at the third succeeding annual Stockholders meeting following
the Classification Date. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, and any additional director
of any class elected to fill a vacancy resulting from an increase in such Class
shall hold office for a term that shall coincide with the remaining term of that
class, but in no case will a decrease in the number of directors shorten the
term of any incumbent director. A director shall hold office until the annual
meeting for the year in which his term expires and until his successor is
elected and qualifies, subject, however, to the prior death, resignation,
retirement, disqualification or removal from office.
2.3.1 In the event of vacancy, either by death, resignation, or removal
of a director, or by reason of an increase in the number of directors, each
replacement or new director
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shall serve for the balance of the term of the class of the director he or she
succeeds or, in the event of an increase in the number of directors, of the
class to which he or she is assigned. All directors elected for a term shall
continue in office until the election and qualification of their respective
successors, their death, their resignation in accordance with Section 2.6, their
removal in accordance with Section 2.5, or if there has been a reduction in the
number of directors and no successor is to be elected, until the end of the
term.
2.3.2 Directors elected by holders of preferred stock of the
Corporation voting as a class shall not be members of any of the foregoing
classes and shall hold office until the next annual meeting of stockholders
unless the terms of the series or class of preferred stock of the Corporation
provides otherwise.
SECTION 2.4 ELECTION OF DIRECTORS.
2.4.1 At each annual meeting of stockholders, the class of directors to
be elected at the meeting shall be chosen by a plurality of the votes cast by
the holders of shares entitled to vote in the election at the meeting, provided
a quorum is present. The election of directors by the stockholders shall be by
written ballot if directed by the chairman of the meeting or if the number of
nominees exceeds the number of directors to be elected.
2.4.2 Except as otherwise provided for in a Certificate of
Designations, any vacancy on the Board of Directors shall be filled by the
affirmative vote of a majority of the remaining directors, or a sole remaining
director, though less than a quorum. Vacancies on the Board of Directors shall
not be filled by the vote or written consent of the stockholders, except
directors elected by the holders of preferred stock as may be provided in any
Certificate of Designations.
2.4.3 If the holders of Preferred Stock voting as a class are entitled
to elect directors other than with a vote of the holders of the Common Stock,
those directors shall be elected by a plurality of the votes cast by the holders
of shares of preferred stock of the Corporation entitled to vote, voting
separately as a class.
SECTION 2.5 REMOVAL OF DIRECTORS.
Any director, other than a director elected by holders of preferred
stock of the corporation voting as a class, may be removed from office at any
time but only upon the affirmative vote of the holders of at least 66-2/3% of
the voting power of all voting capital stock of the Corporation, voting together
as a single class. Directors elected by holders of preferred stock may be
removed from office as provided in the Certificate of Designations or at any
time upon the affirmative vote of the holders of at least 66-2/3% of the voting
power of the shares of preferred stock the holders of which are entitled to
elect the director.
SECTION 2.6 RESIGNATIONS.
6
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Any director of the Corporation may resign at any time either by oral
tender of resignation at any meeting of the Board of Directors or by giving
written notice thereof to the Chairman of the Board, the Chief Executive
Officer, the President or the Secretary of the Corporation. Such resignation
shall take effect at the time it specifies, and the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 2.7 PLACE OF MEETINGS.
Meetings of the Board of Directors shall be held at the Principal
Office or at such other place within or without the State of Nevada as may be
designated for that purpose by the Board of Directors.
SECTION 2.8 MEETINGS AFTER ANNUAL STOCKHOLDERS' MEETING.
The first meeting of the Board of Directors held after the annual
stockholders' meeting shall be held at such time and place within or without the
State of Nevada as is fixed by announcement of the Chairman of the Board, the
Chief Executive Officer or the President of the Corporation given at the annual
stockholders' meeting, and no other notice of such meeting shall be necessary,
provided a majority of the whole Board is present. Alternatively, such meeting
may be held at the time and place fixed in a notice given under other provisions
of these By-Laws.
SECTION 2.9 OTHER REGULAR MEETINGS.
2.9.1 Regular meetings of the Board of Directors shall be held at such
time and place within or without the State of Nevada as may be determined from
time to time by a majority of the Board.
2.9.2 No notice need be given of regular meetings, except that each
director must be given written notice of the specific meeting dates or regular
meeting dates, and the day of the month, the time, and the place of the meeting.
SECTION 2.10 SPECIAL MEETINGS.
During any period of time when Zapata holds a Voting Stock Majority, only the
Chairman of the Board , the Board of Directors and Zapata shall be entitled to
call special meeting of stockholders and directors. During any period of time in
which Zapata does not beneficially own a Voting Stock Majority, subject to all
the rights of holders of any class or series of stock having a preference over
Common Stock as to dividends or upon liquidation, special meetings of the Board
of Directors or stockholders may only be called only by the Chairman of the
Board or by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors. and no holder of Common
Stock shall be entitled to call a meeting of the stockholders. Notice of any
special meeting must be mailed to each director not later than one (1) day
before the day on which the meeting is to be held, or shall be sent to him or
her by telecopy, or delivered personally or by telephone, not later than
midnight of the day before the day of the
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meeting. Any meeting of the Board of Directors shall be a legal meeting, without
any notice thereof having been given, if each director consents to the holding
thereof or waives notice in the manner specified in Section 2.11. Except as
otherwise provided in these By-Laws or as my be indicated in the notice thereof,
any and all business may be transacted at any special meeting.
SECTION 2.11 WAIVER OF NOTICE.
Anything herein to the contrary notwithstanding, notice of any meeting of
directors shall not be required as to any director who waives notice in writing
(including telecopy) before or after the meeting, which waiver shall be filed
with the Secretary of the Corporation. Attendance of a director at a meeting is
equivalent to a written waiver of notice of the meeting if the director's oral
consent is entered in the minutes or the director takes part in the
deliberations of the meeting without objection.
SECTION 2.12 NOTICE OF ADJOURNMENT.
Notice of the time and place of holding an adjourned meeting need not be given
to absent directors if the time and place is fixed at the meeting adjourned.
SECTION 2.13 QUORUM.
A majority of the number of directors as fixed by the Restated Articles of
Incorporation or any amendment thereto, or pursuant to these By-Laws, shall be
necessary to constitute a quorum for the transaction of business, and the action
of a majority of the directors present at any meeting at which there is a
quorum, when duly assembled, is valid as a corporate act. However, a minority of
the directors, in the absence of a quorum, may adjourn from time to time or fill
vacant directorships in accordance with Section 2.4 but may not transact any
other business. When the Board of Directors consists of one or two directors,
then the one or two directors, respectively, constitute a quorum.
SECTION 2.14 ACTION BY UNANIMOUS WRITTEN CONSENT.
Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting, if all members of the Board
individually or collectively consent in writing to the meeting. The written
consent must be filed with the minutes of the proceedings of the Board and has
the same force and effect as a unanimous vote of the directors.
SECTION 2.15 COMPENSATION.
The directors may be paid their expenses of attendance at each meeting of the
Board of Directors. Additionally, the Board of Directors may from time to time,
in its discretion, pay to directors either or both a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary for services as a
director. No such payment precludes any director from serving the Corporation in
any other capacity and receiving compensation
8
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therefor. Members of special or standing committees may be allowed
like reimbursement and compensation for attending committee meetings.
SECTION 2.16 TRANSACTIONS INVOLVING INTERESTS OF DIRECTORS.
In the absence of fraud, no contract or other transaction of the corporation is
affected or invalidated by the fact that any of the directors of the corporation
are in any way interested in, or connected with, any other party to, such
contract or transaction, provided that such transaction satisfies the applicable
provisions of Chapter 78 of the Nevada Revised Statutes. Each and every person
who becomes a director of the Corporation is hereby relieved, to the extent
permitted by law, from any liability that might otherwise exist from contracting
in good faith with the corporation for the benefit of himself or herself or any
person in which he or she may be in any way interested or with which he or she
may be in any way connected. Any director of the Corporation may vote and act
upon any matter, contract or transaction between the Corporation and any other
person without regard to the fact that he or she is also a stockholder, director
or officer of, or has any interest in, such other person.
ARTICLE III
OFFICERS
SECTION 3.1 EXECUTIVE OFFICERS.
The executive officers of the Corporation shall be a Chief Executive Officer
(who may be the Chairman of the Board, the Vice Chairman of the Board or the
President), a President, one or more Vice Presidents, a Secretary and a
Treasurer. Any person may hold two or more offices. The executive officers of
the corporation must be elected annually by the Board of Directors and hold
office for one year or until their respective successors are elected and
qualify.
SECTION 3.2 APPOINTED OFFICERS: TITLES.
3.2.1 The Chief Executive Officer or a person designated by such
officer, or the Secretary in the case of assistant secretaries or the Treasurer
in the case of assistant treasurers, may appoint one or more assistant
secretaries or one or more assistant treasurers, each of whom shall hold such
title at the pleasure of the appointing officer, have such authority and perform
such duties as are provided in these By-Laws, or as the Chief Executive Officer
or other appointing officer may determine from time to time. Any person
appointed under this Section 3.2.1 to serve in any of the foregoing positions is
deemed by reason of such appointment or service in such capacity to be an
"officer" of the Corporation.
3.2.2 The Chief Executive Officer or a person designated by such
officer may also appoint one or more vice presidents and one or more assistant
vice presidents for each corporate staff function and a corporate controller and
one or more assistant controllers. Each of these persons hold such title at the
pleasure of the Chief Executive Officer and have
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authority to act for and shall perform duties with respect to only the staff
function for which the person is appointed. Any person appointed under this
Section 3.2.2 to serve in any of the foregoing positions is not deemed by reason
of such appointment or service in such capacity to be an "officer" of the
Corporation.
SECTION 3.3 REMOVAL AND RESIGNATION.
3.3.1 Any officer may be removed, either with or without cause, by a
majority of the directors at the time in office, at any regular or special
meeting of the Board. Any appointed person may be removed from such position at
any time by the person making such appointment or such person's successor.
3.3.2 Any officer may resign at any time, by giving written notice to
the Board of Directors, the Chief Executive Officer, the President or the
Secretary of the Corporation. Any such resignation takes effect at the date of
the receipt of such notice, or at any later time specified in the notice. Unless
otherwise specified, the acceptance of the resignation is not necessary to make
it effective.
SECTION 3.4 VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these By-Laws for regular appointments to such office.
SECTION 3.5 CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside at all meetings of the Board of
Directors and shall exercise and perform such other powers and duties as may be
from time to time assigned to him or her by the Board of Directors or these
By-Laws. The Vice Chairman of the Board shall, in the absence of the Chairman,
preside at all meetings of the Board of Directors and shall exercise and perform
such other powers and duties as may be from time to time assigned to him or her
by the Board of Directors or these By-Laws.
SECTION 3.6 CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall, subject to the control of the Board
of Directors, have general supervision, direction and control of the business
and affairs of the Corporation. The Chief Executive Officer shall preside at all
meetings of the stockholders and, in the absence of the Chairman of the Board
and the Vice Chairman of the Board, at all meetings of the Board of Directors.
The Chief Executive Officer is ex officio a member of the Executive Committee
and has the general powers and duties of management usually vested in the office
of chief executive officer of a corporation and such other powers and duties as
may be prescribed by the Board of Directors or these By-Laws.
SECTION 3.7 PRESIDENT.
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In the absence or disability of the Chief Executive Officer, the
President shall perform all of the duties of the Chief Executive Officer and
when so acting has all the powers and is subject to all the restrictions upon
the Chief Executive Officer, including the power to sign all instruments and to
take all actions which the Chief Executive Officer is authorized to perform by
the Board of Directors or these By-Laws. The President has the general powers
and duties usually vested in the office of president of a corporation and such
other powers and duties as may be prescribed by the Chief Executive Officer, the
Deputy Chief Executive Officer or the Board of Directors or these By-Laws.
SECTION 3.8 VICE PRESIDENT
In the absence or disability of the Chief Executive Officer and the
President, the Vice President most senior in the order of his or her rank and
seniority shall perform all of the duties of the Chief Executive Officer, and
when so acting has all the powers of and is subject to all the restrictions upon
the Chief Executive Officer, including the power to sign all instruments and to
take all actions which the Chief Executive Officer is authorized to perform by
the Board of Directors or these By-Laws. The various ranks of Vice Presidents
have the general powers and duties usually vested in the office of a vice
president of a corporation and each of them has such other powers and perform
such other duties as from time to time may be prescribed for them respectively
by the Board of Directors, the Executive Committee of the Board of Directors,
the Chief Executive Officer or these By-Laws.
SECTION 3.9 SECRETARY AND ASSISTANT SECRETARIES.
3.9.1 The Secretary shall (1) attend all meetings of the Board of
Directors and all meetings of the stockholders; and (2) record and keep, or
cause to be kept, all votes and the minutes of all proceedings in a book or
books to be kept for that purpose at the Principal Office, or at such other
place as the Board of Directors may from time to time determine, specifying
therein (i) the time and place of holding, (ii) whether regular or special, and
if special, how authorized, (iii) the notice thereof given, (iv) the names of
those present at directors' meetings, (v) the number of shares of stock the
holders of which are present or represented at stockholders' meetings, and (vi)
the proceedings thereof; and (3) perform like duties for the Executive and other
standing committees, when required. In addition, the Secretary must keep or
cause to be kept, at the office of the Corporation's resident agent in Nevada,
those documents required to be kept at such office by Section 5.2 of these
By-Laws and the applicable provisions of Chapter 78 of the Nevada Revised
Statutes.
3.9.2 The Secretary shall give, or cause to be given, notice of
meetings of the stockholders and special meetings of the Board of Directors, and
has such other powers and perform such other duties as may be prescribed by
these By-Laws or by the Board of Directors or the Chief Executive Officer, or
the President, under whose supervision he or she shall be. The Secretary must
keep in safe custody the seal of the Corporation (if any) and affix it to any
instrument requiring it, and when so affixed, it shall be attested by his or her
signature or by the signature of the Treasurer or an Assistant Secretary. The
Secretary is
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hereby authorized to issue certificates, to which the corporate seal may be
affixed, attesting to the incumbency of officers of this Corporation or to
actions taken by the Board of Directors or any committee of officers or
directors or the stockholders.
3.9.3 In the absence or disability of the Secretary, the Assistant
Secretaries, in the order of their seniority, shall perform the duties and
exercise the powers of the Secretary, and shall perform such other duties as the
Chief Executive Officer, the President or the Secretary prescribe.
SECTION 3.10 TREASURER AND ASSISTANT TREASURERS.
3.10.1 The Treasurer shall deposit all moneys and other valuables in
the name and to the credit of the Corporation, with such depositories as may be
ordered by the Board of Directors. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
Chief Executive Officer, or the President or directors, whenever they request
it, an account of all his or her transactions as Treasurer, and of the financial
condition of the Corporation, as may be prescribed by these By-Laws or by the
Board of Directors or the Chief Executive Officer or the President, under whose
supervision he or she shall be.
3.10.2 In the absence or disability of the Treasurer, the Assistant
Treasurers, in the order of their seniority shall perform the duties and
exercise the powers of the Treasurer and shall perform such other duties as the
Chief Executive Officer, the President or the Treasurer prescribe.
SECTION 3.11 ADDITIONAL POWERS, SENIORITY AND SUBSTITUTION OF OFFICERS.
In addition to the foregoing powers and duties specifically prescribed
for the respective officers, the Board of Directors may from time to time by
resolution (i) impose or confer upon any of the officers such additional duties
and powers as the Board of Directors may see fit, (ii) determine the order of
seniority among the officers, and/or (iii) except as otherwise provided above,
provide that in the absence of any officer or officers, any other officer or
officers shall substitute for and assume the duties, powers and authority of the
absent officer or officers. Any such resolution may be final, subject only to
further action by the Board of Directors, or the resolution may grant such
discretion, as the Board of Directors deems appropriate, to the Chief Executive
Officer (or in his or her absence the executive officer serving in his or her
place) to impose or confer additional duties and powers, to determine the order
of seniority among officers, and/or provide for substitution of officers as
above described.
SECTION 3.12 COMPENSATION.
The officers of the Corporation shall receive such compensation as is
fixed from time to time by the Board of Directors. No officer is prohibited from
receiving such salary by reason of the fact that the officer is also a director
of the Corporation.
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SECTION 3.13 TRANSACTION INVOLVING INTEREST OF OFFICER.
In the absence of fraud, no contract or other transaction of the
Corporation shall be affected or invalidated by the fact that any of the
officers of the Corporation are in any way interested in, or connected with, any
other party to such contract or transaction, or are themselves parties to such
contract or transaction, provided that the transaction complies with the
applicable provisions of Chapter 78 of the Nevada Revised Statutes. Each and
every person who is or may become an officer of the Corporation is hereby
relieved, to the extent permitted by law, when acting in good faith, from any
liability that might otherwise exist from contracting with the Corporation for
the benefit of such officer or any person in which he or she may be in any way
interested or with which he or she may be in any way connected.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 4.1 STANDING.
The Board of Directors may appoint an Executive Committee and shall
appoint an Audit Committee and a Compensation Committee following the expansion
of the size of the Board to three (3) or more directors. Each Committee shall
consist of such number of its members as it may designate, consistent with the
laws of the State of Nevada, the Restated Articles of Incorporation or any
amendment thereto or these By-Laws, including, if deemed desirable, alternate
members who, in the order specified by the Board of Directors, may replace any
absent or disqualified member at any meeting of the Committee.
4.1.1 The Executive Committee shall have and may exercise, when the
Board is not in session, all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation, but the Executive
Committee shall not have the power to fill vacancies on the Board, or to change
the membership of or to fill vacancies in the Executive Committee or any other
committee of the Board, or to adopt, amend or repeal the By-Laws, or to declare
dividends.
4.1.2 The Audit Committee shall select and engage on behalf of the
Corporation, and fix the compensation of a firm of certified public accountants
whose duty it shall be to audit the books and accounts of the Corporation and
its subsidiaries for the fiscal year in which they are appointed, and who shall
report to the Audit Committee. The Audit Committee shall confer with the
auditors and shall determine, and from time to time shall report to the Board of
Directors upon, the scope of the auditing of the books and accounts of the
Corporation and its subsidiaries. The Audit Committee shall also be responsible
for determining that the business practices and conduct of employees and other
representatives of the corporation and its subsidiaries comply with the policies
and procedures of the Corporation. A majority of the members of the Audit
Committee shall not be officers or employees of the Corporation or any of its
subsidiaries.
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4.1.3.1 The Compensation Committee shall establish a general
compensation policy for the Corporation and shall have responsibility for the
approval of increases in directors' fees and in salaries paid to officers and
senior employees earning in excess of an annual salary to be determined by the
Committee. The Compensation Committee also shall evaluate and make
recommendations to the Board of Directors with respect to the adoption,
substantive modification to or termination of any benefit plan of this
Corporation, and with respect to employee benefit plans of the Corporation has
such additional responsibilities as are described in Section 4.1.3.2 hereof.
None of the members of the Compensation Committee shall be officers or employees
of the Corporation or any of its subsidiaries.
4.1.3.2 To assist the Corporation in fulfilling its business goals, the
Board of Directors may from time to time establish or adopt those benefit plans,
which it shall designate as constituting a Level 1 plan (which designation
generally shall connote a compensatory plan in which participation is designed
solely for directors or senior management employees, or involves stock of this
Corporation, or is an incentive compensation plan that includes senior
management) or as constituting a Level 2 plan (which designation generally shall
connote a compensatory plan which is a savings plan or a corporate-wide capital
accumulation plan in which participation is broader than senior management
employees). The Board of Directors may modify or terminate any such plan.
However, the Compensation Committee is authorized to take action to adopt
non-substantive amendments to any Level 1 or Level 2 plan as it deems necessary
or appropriate, unless such plan involves the issuance of stock of the
Corporation. The Chief Executive Officer, or his designee, may take any and all
actions to establish or adopt any Level 3 plan (which would include medical
plans, dental plans, insurance plans, welfare plans and other benefit plans and
any other plan which is not a Level 1 or Level 2 plan) which he deems necessary
or convenient to the management of the Corporation, or to modify or terminate
such Level 3 plan, so long as such action is not primarily for the benefit of
directors or senior management employees of the Corporation, either individually
or collectively.
Notwithstanding the foregoing, the Compensation Committee is
responsible for the control and management of the operation and administration
(which shall exclude ministerial activities) of the benefit plans of the
Corporation, subject to the limitations of this section. The Compensation
Committee is responsible for the control and management of the operation and
administration (which shall exclude ministerial activities) of those plans
designated by the Board of Directors as Level 1 plans. The Compensation
Committee's responsibilities with respect to the control and management of the
operation and administration (which shall exclude ministerial activities) of
those plans designated by the Board of Directors as Level 2 plans, is limited to
the appointment of members of any committee as may be constituted as under such
plans, and such periodic oversight as the Compensation Committee deems prudent
under the circumstances then prevailing in order to evaluate the prudence of the
continued appointment of such members. The Compensation Committee has no
responsibility with respect to the control and management of the operation and
administration of any Level 3 plan.
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SECTION 4.2 OTHER COMMITTEES.
Subject to any limitations in the laws of the State of Nevada, the
Articles of Incorporation or any amendment thereto, or these By-Laws as to
action to be authorized or approved by the stockholders, or duties not delegable
by the Board of Directors, any or all of the corporate powers may be exercised
by or under authority of, and the business and affairs of this Corporation may
be controlled by, such other committee or committees as may be appointed by the
Board of Directors. The powers to be exercised by any such committee shall be
designated by the Board of Directors.
SECTION 4.3 PROCEDURES.
Subject to any limitations in the laws of the State of Nevada, the
Articles of Incorporation or any amendment thereto, or these By-Laws regarding
the conduct of business by the Board of Directors and its appointed committees,
any committee created under this Article may use any procedures for conducting
its business and exercising its powers, including but not limited to, actions by
the unanimous written consent of its members in the manner set forth in Section
2.14. A majority constitutes a quorum unless the Committee consists of one or
two directors, then the one or two directors, respectively, constitute a quorum.
Notices of meetings may be sent to a committee's members in any reasonable
manner and may be waived as for meetings of directors.
ARTICLE V
CORPORATE RECORDS AND REPORTS - INSPECTION
SECTION 5.1 RECORDS.
The Corporation shall maintain adequate and correct accounts, books and
records of its business and properties. All of such books, records and accounts
shall be kept at its Principal Office as fixed by the Board of Directors from
time to time.
SECTION 5.2 ARTICLES, BY-LAWS AND STOCK LEDGER.
The Corporation shall maintain and keep the following documents at the
office of its resident agent in the State of Nevada: (i) a certified copy of the
Articles of Incorporation and all amendments thereto; (ii) a certified copy of
the By-Laws and all amendments thereto; and (iii) a statement setting forth the
following: "The Corporation's transfer agent, whose address is
_____________________________________________________, is the custodian of the
duplicate stock ledger of the Corporation."
SECTION 5.3 INSPECTION.
Any person who has been a stockholder of record for at least six (6)
months immediately before such stockholder's demand, or any person holding, or
thereunto authorized in writing by the holders of, at least five percent (5%) of
all of the Corporation's outstanding stock, upon at least five (5) days written
demand, or any judgment creditor
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without prior demand, has the right to inspect in person or by agent or
attorney, during usual business hours, the duplicate stock ledger of the
Corporation and to make extracts therefrom. However, such inspection may be
denied to any stockholder or other person upon his or her refusal to furnish to
the Corporation an affidavit that such inspection is not desired for a purpose
which is in the interest of a business or object other than the business of the
Corporation and that he or she has not at any time sold or offered for sale any
list of stockholders of any corporation or aided or abetted any person in
procuring any such record of stockholders for any such purpose.
SECTION 5.4 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, issued in the name of, or payable to, the
Corporation, shall be signed or endorsed by such person or persons, and in such
manner as shall be determined from time to time by resolution of the Board of
Directors.
ARTICLE VI
OTHER AUTHORIZATIONS
SECTION 6.1 EXECUTION OF CONTRACTS.
The Board of Directors, except as these By-Laws otherwise provide, may
authorize any officer or officers or agent or agents to enter into any contract
or execute any instrument in the name of and on behalf of the Corporation. Such
authority may be general, or confined to specific instances. Unless so
authorized by the Board of Directors, no officer, agent or employee shall have
any power or authority, except in the ordinary course of business, to bind the
Corporation by any contract or engagement or to pledge its credit, or to render
it liable for any purpose or in any amount.
SECTION 6.2 REPRESENTATION OF OTHER CORPORATIONS.
All stock of any other corporation, standing in the name of the
Corporation, shall be voted, represented and all right incidental thereto
exercised as directed by written consent or resolution of the Board of Directors
expressly referring thereto. In general, such rights shall be delegated by the
Board of Directors under express instructions from time to time as to each
exercise thereof to the Chief Executive Officer, the President, any Executive
Vice President, any Senior Vice President, and Vice President, the Treasurer or
the Secretary of this Corporation, or any other person expressly appointed by
the Board of Directors. Such authority may be exercised by the designated
officers in person, or by any other person authorized so to do by proxy, or
power of attorney, duly executed by such officers.
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SECTION 6.3 DIVIDENDS.
The Board of Directors may from time to time declare, and the
Corporation may pay, dividends on its outstanding stock in the manner and on the
terms and conditions provided by the laws of the State of Nevada, and the
Articles of Incorporation or any amendment thereto, subject to any contractual
restrictions to which the Corporation is then subject.
ARTICLE VII
CERTIFICATES FOR TRANSFER OF STOCK
SECTION 7.1 CERTIFICATES FOR STOCK.
7.1.1 Certificates for stock shall be of such form and device as the
Board of Directors may designate and shall be numbered and registered as they
are issued. Each shall state the name of the record holder of the stock
represented thereby; its number and date of issuance; the number of shares of
stock for which it is issued; the par value; a statement of the rights,
privileges, preferences and restrictions, if any; a statement as to rights of
redemption or conversion, if any; and a statement of liens or restrictions upon
transfer or voting, if any, or, alternatively, a statement upon certificates
specifying such matters may be obtained from the Secretary of the Corporation.
7.1.2 Every certificate for stock must be signed by the Chief Executive
Officer, the President and the Secretary or an Assistant Secretary, or must be
authenticated by facsimile signatures of the Chief Executive Officer, the
President and the Secretary or an Assistant Secretary. Before it becomes
effective, every certificate for stock authenticated by a facsimile or a
signature must be countersigned by a transfer agent or transfer clerk, and must
be registered by an incorporated bank or trust company, either domestic or
foreign, as registrar of transfers.
7.1.3 Even though an officer who signed, or whose facsimile signature
has been written, printed or stamped on a certificate for stock ceases, by
death, resignation or otherwise, to be an officer of the Corporation before the
certificate is delivered by the Corporation, the certificate shall be as valid
as though signed by a duly elected, qualified and authorized officer, if it is
countersigned by the signature or facsimile signature of a transfer agent or
transfer clerk and registered by an incorporated bank or trust company, as
registrar of transfers.
7.1.4 Even though a person whose signature as, or on behalf of, the
transfer agent or transfer clerk has been written, printed or stamped on a
certificate for stock ceases, by death, resignation or otherwise, to be a person
authorized to so sign such certificate before the certificate is delivered by
the Corporation, the certificate shall be deemed countersigned by the signature
of a transfer agent or transfer clerk for purposes of meeting the requirements
of this section.
SECTION 7.2 TRANSFER ON THE BOOKS.
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Upon surrender to the Secretary of the Corporation or transfer agent of
the Corporation of a certificate for stock duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
SECTION 7.3 LOST OR DESTROYED CERTIFICATES.
The Board of Directors may direct, or may authorize the Secretary of
the Corporation to direct, a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the Corporation
alleged to have been lost or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate for stock so lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors or Secretary may in its or his or her discretion, and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his or her legal representative, to advertise
the same in such manner as it shall require and/or give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost or destroyed.
SECTION 7.4 TRANSFER AGENTS AND REGISTRARS.
The Board of Directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, who may be the same person, and may
be the Secretary of the Corporation, or an incorporated bank or trust company,
either domestic or foreign, who shall be appointed at such times and places as
the requirements of the corporation may necessitate and the Board of Directors
may designate.
SECTION 7.5 FIXING RECORD DATE FOR DIVIDENDS, ETC.
The Board of Directors may fix a time, not exceeding sixty (60) days
before the date fixed for the payment of any dividend or distribution, or for
the allotment of rights, or when any change or conversion or exchange of stock
shall go into effect, as a record date for determining the stockholders entitled
to receive any such dividend or distribution, or any such allotment of rights,
or to exercise the rights with respect to any such change, conversion, or
exchange of stock, and, in such case, only stockholders of record on the date so
fixed are entitled to receive such dividend, distribution or allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares of stock on the books of the Corporation after any record
date fixed as provided in this Section 7.5.
SECTION 7.6 RECORD OWNERSHIP.
The Corporation is entitled to recognize the exclusive right of a
person registered as such on the books of the Corporation as the owner of shares
of the Corporation's stock to receive dividends, and to vote as such owner, and
is not bound to recognize any equitable
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or other claim to or interest in such shares on the part of any other person,
whether or not the Corporation has express or other notice thereof, except as
otherwise provided by law.
ARTICLE VIII
AMENDMENTS TO BY-LAWS
SECTION 8.1 SUPERMAJORITY REQUIRED FOR CERTAIN AMENDMENTS.
The affirmative vote of 66-2/3% of the voting power of the Common Stock
or the affirmative vote of a majority of the Board of Directors shall be
necessary to amend or repeal Sections [1.3, 1.5, 1.7, 1.10, 1.11, 1.12, 2.2,
2.4, 2.5, 2.10] of these By-Laws.
SECTION 8.2 BY STOCKHOLDERS.
Except as otherwise required by the provisions of Section 8.1 above,
the Articles of Incorporation or any amendments thereto and subject to the right
of the Board of Directors to amend or repeal by-laws as provided in Section 8.3,
these By-Laws may be repealed or amended at the annual stockholders' meeting or
at any other meeting of the stockholders called for that purpose, by a vote of
stockholders entitled to exercise a majority of the voting power of the
Corporation.
SECTION 8.3 BY DIRECTORS.
Except as otherwise required by the provisions of Section 8.1 above,
the Articles of Incorporation and subject to the right of the stockholders to
adopt, amend, or repeal by-laws as provided in Section 8.2, the Board of
Directors may adopt, amend or repeal any of these Bylaws by the affirmative vote
of a majority of the directors present at any organizational, regular or special
meeting of the Board of Directors. This power may not be delegated to any
committee appointed in accordance with these By-Laws.
SECTION 8.4 RECORD OF AMENDMENTS.
Whenever an amendment or a new By-Law is adopted, it shall be copied in
the book of minutes with the original By-Laws, in the appropriate place. If any
Bylaw is repealed, the fact of repeal, with the date of the meeting at which the
repeal was enacted, or written assent was filed, shall be stated in the book of
minutes.
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ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 9.1 INDEMNIFICATION FOR EXPENSES IN PROCEEDINGS.
Each person who was or is a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that such person, or a person of whom such person is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action or inaction in an
official capacity or in any other capacity while serving as a director, officer,
employee, fiduciary or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by the laws of Nevada, as the same
exist or may hereafter be amended, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, employee
benefit plan excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith, and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee, fiduciary or agent and shall inure to the
benefit of such person's heirs, executors and administrators. However, except as
provided in Section 9.2, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors. The right to indemnification conferred in this Article IX
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if so required by Chapter 78 of the Nevada Revised Statutes, the
payment of such expenses incurred by a director or officer in such person's
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer (and not
in any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to any employee
benefit plan) in advance of the final disposition of a proceeding shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section 9.1 or otherwise. The Corporation may, by action of the Board,
provide indemnification to employees and agents of the Corporation with the same
scope and effect as the foregoing indemnification of directors and officers.
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SECTION 9.2 RIGHT TO BRING SUIT FOR UNPAID CLAIMS.
If a claim under Section 9.1 is not paid in full by the Corporation
within thirty (30) days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the Corporation shall also pay the expense of prosecuting such
claim. It is a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has failed to meet a
standard of conduct which makes it permissible under Nevada law for the
Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including the Board of Directors, independent legal
counsel, or its stockholders) to have made a determination before the
commencement of such action that indemnification of the claimant is permissible
in the circumstances because he or she has met such standard of conduct, nor an
actual determination by the Corporation (including the Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such standard of conduct, shall be a defense to the action or create a
presumption that the claimant has failed to meet such standard of conduct.
SECTION 9.3 ADVANCEMENT OF EXPENSES.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article IX is not exclusive of any other right which any person may have or
hereafter acquire under any provision of law, the Articles of Incorporation or
any amendment thereto, or these By-Laws, or of any agreement or vote of
stockholders or disinterested directors, or otherwise.
SECTION 9.4 INDEMNIFICATION INSURANCE.
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee, fiduciary or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprises against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Nevada law.
SECTION 9.5 INDEMNIFICATION EXPENSES OF WITNESSES.
To the extent that any director, officer, employee, fiduciary or agent
of the Corporation is by reason of such position, or a position with another
entity at the request of the Corporation, a witness in any action, suit or
proceeding, the Corporation shall indemnify such person against all costs and
expenses actually and reasonably incurred by such person or on such person's
behalf in connection thereto.
SECTION 9.6 INDEMNIFICATION AGREEMENTS.
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The Corporation may enter into agreements with any director, officer,
employee, fiduciary or agent of the Corporation providing for indemnification to
the full extent permitted by Nevada law.
SECTION 9.7 SEVERABILITY.
If any provision of this Article IX shall for any reason be determined
to be invalid, the remaining provisions hereof shall not be affected thereby but
shall remain in full force and effect.
ARTICLE X
INTERPRETATION
Reference in these By-Laws to any provision of Chapter 78 of the Nevada
Revised Statutes shall be deemed to include all amendments thereto and the
effect of the construction and determination of validity thereof by the Nevada
Supreme Court.
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CERTIFICATE OF ACCEPTANCE
OF APPOINTMENT BY AGENT FOR SERVICE OF PROCESS
In accordance with NRS 78.030(1)(b), the undersigned certifies
acceptance of the appointment as the agent for service of process ZAP.COM
Corporation, a Nevada corporation.
Date: April ___, 1999 _____________________________________
John P. Fowler
Marshall Hill Cassas & de Lipkau
333 Holcomb Avenue, Suite 300
Reno, Nevada 89502
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EXHIBIT 10.1
(FORM OF)
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT ("Distribution Agreement") is entered into
as of _______, 1999, by and between ZAPATA CORPORATION, a Delaware corporation
("Zapata"), and ZAP.COM CORPORATION, a Nevada corporation ("ZAP.COM" or the
"Company").
R E C I T A L S:
A. Zapata, a public company, whose common shares are traded on the New
York Stock Exchange, owns 36,388,000 shares of ZAP.COM's common stock, no par
value, constituting all of the issued and outstanding common stock of ZAP.COM.
B. Zapata desires to pursue Internet related opportunities through
ZAP.COM and has determined to invest $8,000,000 in ZAP.COM to fund its start-up
costs and anticipated operating losses and for general corporate purposes,
provided that ZAP.COM first recapitalizes by (a) increasing its authorized
capital stock to 1,150,000,000 shares, consisting of 1,000,000,000 shares of
$0.001 par value common stock, and 150,000,000 shares of preferred stock
(including 10,000 shares of Series A preferred stock), all as more particularly
set forth in the Amended and Restated Articles of Incorporation (the "Articles")
annexed hereto as Exhibit A and (b) effecting a 36,038-for-one share stock split
and exchange (with $0.001 par value common stock being exchanged for outstanding
no par value common stock) which shall be accompanied by a $36,038 contribution
of capital to ZAP.COM by Zapata.
C. In consideration for Zapata's $8,000,000 investment, ZAP.COM will
issue to Zapata 10,000 shares of Series A preferred stock and 13,612,000
transferable rights (the "Rights") to purchase at $8.00 per share an aggregate
of up to 13,612,000 shares of ZAP.COM common stock (the "Rights Offering").
D. Zapata's Board of Directors (the "Zapata Board") has determined,
subject to its further consideration and the satisfaction of certain conditions,
to authorize Zapata to distribute the Rights to eligible holders of its common
stock, par value $.25 per share (the "Rights Distribution"). Each Zapata
stockholder shall receive, at no cost, one Right for each share of Zapata common
stock owned by such stockholder as of the record date. The Rights Offering shall
commence on the effective date of the Registration Statement and expire at
5:00 p.m., EST, on _______, 1999, unless extended by ZAP.COM.
E. Upon expiration of the Rights Offering, the unexercised Rights shall
be issued to Zapata.
<PAGE> 2
F. If upon expiration of the Rights Offering the number of shares being
issued pursuant to exercised Rights on the number of record holders or
beneficial owners, as applicable, who will receive shares of ZAP.COM Common
Stock as a result of such excercises is insufficient to meet the listing
requirements of NASDAQ or the Pacific Stock Exchange, respectively, then Zapata
will distribute an aggregate of 150,000 shares of ZAP.COM Common Stock to
persons owning Zapata Common Stock; further if the number of shares of ZAP.COM
Common Stock to be issued to non-affiliates of ZAP.COM pursuant to exercised
rights is insufficient to meet the outstanding shares of NASDAQ and the Pacific
Stock Exchange then Zapata will not distribute less than 150,000 shares of
ZAP.COM Common Stock (the "Stock Distribution").
G. The parties hereto have determined that it is necessary and
desirable to set forth certain agreements and undertakings between Zapata and
ZAP.COM that will govern certain matters following the Rights Offering and, if
made, the Stock Distribution.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 GENERAL. As used in this Distribution Agreement, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Affiliate" means a ZAP.COM Affiliate or a Zapata Affiliate, as the
case may be.
"Agent" means American Stock Transfer & Trust Company, the
Subscription Agent appointed by Zapata to distribute the Rights and, if
necessary, the ZAP.COM common stock pursuant to the Stock Distribution.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions located in the State of New York are
authorized or obligated by law or executive order to close.
"Closing Date" means the second business day after the Rights
expire and the Agent issues shares of ZAP.COM Common Stock pursuant to Rights
that have been exercised and paid for.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Distribution Record Date" means the date established by the Zapata
Board as the date for taking a record of the Holders of Zapata common stock
entitled to participate in the Rights Distribution and, if made, the Stock
Distribution, which date has been established as _______, 1999, subject to
certain conditions to the Rights Distribution as provided in Article __.
"Group" means the Zapata Group or the ZAP.COM Group.
"Holders" means the holders of record of Zapata common stock as of
the Distribution Record Date.
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"Indemnifiable Losses" means all losses, liabilities, damages,
claims, demands, judgments or settlements of any nature or kind, known or
unknown, fixed, accrued, absolute or contingent, liquidated or unliquidated,
including, without limitation, all reasonable costs and expenses (including,
without limitation, attorneys' fees, and defense and accounting costs) as such
costs are incurred relating thereto, incurred or suffered by an Indemnitee.
"Indemnifying Party" means a Person who or which is obligated
under this Agreement to provide indemnification to another Person under this
Agreement.
"Indemnitee" means a Person who or which is entitled to
indemnification under this Agreement.
"Indemnity Payment" means an amount that an Indemnifying Party
is required to pay to an Indemnitee pursuant to Article 3.
"Insurance Proceeds" means those monies received by an insured
from an insurance carrier or paid by an insurance carrier on behalf of the
insured, in either case, to the extent mutually agreed upon by ZAP.COM and
Zapata acting reasonably, net of any applicable premium adjustment.
"Person" means an individual, a partnership, a joint venture,
a corporation, a limited liability company, a trust, an unincorporated
organization or a government or any department or agency thereof.
"Registration Rights Agreement" means the Registration Rights
Agreement in the form of Exhibit B annexed hereto to be entered into by Zapata
and ZAP.COM.
"Representative" means with respect to any Person, any of such
Person's directors, officers, employees, agents, consultants, advisors,
accountants and attorneys.
"Rights Distribution" shall have the meaning set forth in the
recitals to this Agreement.
"Rights Distribution Date" means the date determined by the
Zapata Board as the date on which Rights Distributions shall be effected, which
shall be as soon as practicable after the Registration Statement has been
declared effective.
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<PAGE> 4
"Rights Offering" shall have the meaning set forth in the
recitals to this Agreement and is further described as the offering by ZAP.COM
to Zapata stockholders to subscribe for and purchase shares of ZAP.COM common
stock pursuant to the exercise of transferable Rights issued to such
stockholders pursuant to a Registration Statement on Form S-1 after it has been
declared effective under the Securities Act.
"Rights Offering Documents" means collectively: (a) the
Registration Statement, including the Prospectus contained therein, (b) any
Prospectus subject to completion or any Prospectus filed with the SEC under Rule
424 under the Securities Act or any Term Sheet first filed pursuant to Rule
424(b)(7) under the Securities Act together with the preliminary Prospectus
identified therein which such Term Sheet supplements, used, in each case, in
connection with the offering of the Common Stock under the Registration
Statement, (c) any other filing made with the SEC by a member of the ZAP.COM
Group in connection with the Rights Offering or (d) any amendment or supplement
to any of the documents described in clauses (a) through (c) of this definition.
"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Services Agreement" means the Services Agreement in the form
of Exhibit C annexed hereto to be entered into by Zapata and ZAP.COM.
"Subsidiary" means, with respect to any specified Person, any
corporation or other legal entity of which such Person or any of its
subsidiaries Controls or owns, directly or indirectly, more than fifty percent
(50%) of the stock or other equity interest entitled to vote on the election of
members to the board of directors or similar governing body; provided, however,
that for purposes of this Distribution Agreement, neither ZAP.COM nor any
Subsidiary of ZAP.COM shall be deemed to be a Subsidiary of Zapata or of any
Subsidiary of Zapata.
"Stock Distribution" shall have the meaning set forth in the
recitals to this Agreement.
"Tax" means as defined in the Tax Indemnification Agreement.
"Tax Indemnity Agreement" means the Tax Indemnification
Agreement in the form of Exhibit D annexed hereto to be entered into by Zapata
and ZAP.COM.
"Third-Party Claim" means any claim, suit, arbitration,
inquiry, proceeding or investigation by or before any court, any governmental or
other regulatory or administrative agency or commission or any arbitration
tribunal asserted by a Person who is not a member of the Zapata Group or the
ZAP.COM Group.
"ZAP.COM Affiliate" means a Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by
ZAP.COM, provided, however, that for purposes of this Agreement none of the
following Persons shall be considered ZAP.COM Affiliates: (i) Zapata or any
Subsidiary of Zapata and (ii) any corporation less than fifty-one percent (51%)
of whose voting stock is directly or indirectly owned by
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ZAP.COM and (iii) any partnership or joint venture less than fifty-one percent
(51%) of whose interests in profits and losses is directly or indirectly owned
by ZAP.COM.
"ZAP.COM Group" means, collectively, ZAP.COM and the ZAP.COM
Affiliates, or any one or more of such companies.
"Zapata Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by Zapata;
provided, however, that for purposes of this Distribution Agreement none of the
following Persons shall be considered Zapata Affiliates: (i) ZAP.COM and any
Subsidiary of ZAP.COM, (ii) any corporation less than fifty-one percent (51%) of
whose voting stock is directly or indirectly owned by Zapata and (iii) any
partnership or joint venture less than fifty-one percent (51%) of whose
interests in profits and losses is directly or indirectly owned by Zapata.
"Zapata Group" means, collectively, Zapata and the Zapata
Affiliates, or any one or more of such companies.
ARTICLE 2
ZAPATA'S INVESTMENT
2.1 PRELIMINARY ACTION.
(a) Registration Statement and Prospectus. ZAP.COM has
prepared and filed the ZAP.COM Registration Statement with the Commission.
Subject to the conditions set forth herein, ZAP.COM shall use reasonable efforts
to cause the Registration Statement to become effective under the Securities
Act. ZAP.COM has prepared and shall cause to be mailed, the Prospectus to the
Holders in connection with the Rights Offering and, if made, the Stock
Distribution, provided that a supplement shall be added to the Prospectus if
necessary in connection with the Stock Distribution.
(b) Form 8-A. ZAP.COM has prepared and filed with the
Commission a Form 8-A which includes or incorporates by reference relevant
portions of the Registration Statement. Subject to the conditions set forth
herein, ZAP.COM shall use reasonable efforts to cause the Form 8-A to become
effective under the Exchange Act.
(c) Blue Sky. ZAP.COM shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of states or
other political subdivisions of the United States in connection with the Rights
Distribution, Rights Offering and Stock Distribution to permit such transactions
to effected as described in the Prospectus.
(d) Listing. ZAP.COM has prepared and filed an application to
effect the listing of the shares of common stock to be issued in connection with
the Rights Offering and, if made, the Stock Distribution on the Nasdaq National
Market and the Pacific Stock Exchange. ZAP.COM shall use reasonable efforts to
cause the ZAP.COM shares to be so listed.
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(e) No Representations or Warranties; Consents. Each party
hereto understands and agrees that no party hereto is, in this Agreement or in
any other agreement or document contemplated by this Agreement or otherwise,
representing or warranting in any way that the obtaining of any consents or
approvals, the execution and delivery of any agreements or the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable laws. Notwithstanding the foregoing, the
parties shall use reasonable efforts to obtain all consents and approvals, to
enter into all agreements and to make all filings and applications which may be
required for the consummation of the transactions contemplated by this
Agreement, including, without limitation, all applicable regulatory filings or
consents under federal or state laws and all necessary consents, approvals,
agreements, filings and applications.
2.2 RECAPITALIZATION, AUTHORIZATION AND SALE OF SHARES AND RIGHTS.
(a) Recapitalization. The Company's Board of Directors and
stockholders have approved a plan of recapitalization pursuant to which (i) the
Company's authorized capital stock shall be increased to 1,150,000,000 shares,
consisting of 1,000,000,000 shares of common stock, par value $.001, and
150,000,000 shares of preferred stock, par value $.01 per share and (ii) the
Company's 1,000 shares of common stock, no par value, which be split and
exchange for 36,038,000 shares of the Company's, par value $.001, common stock,
provided that Zapata first contributes to the Company $36,028 in order to meet
stated capital requirements.
(b) Authorization. The Company has authorized the sale and
issuance of up to 10,000 shares (the Series A "Preferred Shares") of the
Company's Series A preferred stock having the rights, preferences, privileges
and restrictions as set forth in the Articles. The Company has also authorized
the sale and issuance to the Company of transferable Rights to purchase in the
aggregate up to 13,612,000 shares of its common stock as well the 13,612,000
shares of common stock issuable pursuant to exercised Rights. Each Right
entitles the holder to purchase one share of the Company's common stock at a
price of $8.00 per share.
(c) Sale and Issuance of Shares. On the terms and subject to
the conditions set forth herein, the Company will issue and sell to Zapata, and
Zapata will purchase from the Company, 10,000 Series A Preferred Shares and
13,612,000 Rights. In addition, if as of the expiration of the Rights, not all
of the Rights have been exercised, then the Company shall have the right to
offer up to 375,000 unsubscribed shares to persons designated by the Company for
purchase at a price of $8.00 per share. If any of the 13,612,000 shares remain
unpurchased following such offers by the Company, then all such shares of common
shall be issued to Zapata for no additional consideration.
(d) Closings. The closing of the purchase and sale of the
Series A Preferred Shares and the Rights hereunder (the "Closing") shall be held
at the Company's offices immediately following the Registration Statement being
declared effective. At the Closing, the Company shall deliver to Zapata a
certificate, registered in Zapata's name, evidencing Zapata's ownership of the
10,000 Series A Preferred Shares and
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shall deliver to American Stock Transfer & Trust Company Certificates which
evidence the Rights. In addition, any shares remaining unpurchased as of the
closing of the Rights Offering shall be issued to Zapata on the fifth Business
Day after the date on which the Agent provides Zapata with a final accounting of
the number of shares of common stock sold pursuant to the exercise of Rights in
the Rights Offering.
ARTICLE 3
CERTAIN TRANSACTIONS IN CONNECTION WITH THE RIGHTS OFFERING
3.1 EXECUTION AND DELIVERY OF CERTAIN AGREEMENTS. Contemporaneously
with the closing of the Rights Offering, ZAP.COM and Zapata shall execute and
deliver to one another the Tax Indemnity Agreement, the Registration Rights
Agreement and the Services Agreement (collectively, the "Other Agreements").
3.2 RIGHTS OFFERING AND STOCK DISTRIBUTION EXPENSES. ZAP.COM shall be
responsible for and shall pay all of the expenses incurred by Zapata and ZAP.COM
to effect the Rights Offering and, if made, the Stock Distribution (including
the fees of counsel and accountants) (the "Selling Expenses"), as well as all of
the costs of producing, printing, mailing and otherwise distributing the
Prospectus.
3.3 ZAPATA BOARD ACTIONS; CONDITIONS PRECEDENT TO THE RIGHTS
DISTRIBUTION.
(a) The Zapata Board shall, in its discretion, establish any
appropriate procedure in connection with the Rights Distributions.
(b) In no event shall the Distributions occur unless the
following conditions have been satisfied:
(i) The Registration Statement on Form S-1 under the
Securities Act filed by ZAP.COM shall have been declared effective by the
Commission; and
(ii) Zapata and ZAP.COM shall have entered into the
Other Agreements.
3.4 EFFECTING THE RIGHTS DISTRIBUTION. On the Rights Distribution Date,
subject to the conditions and rights set forth in this Agreement, Zapata shall
instruct the Agent to distribute to the Holders one Right for every share of
Zapata common stock held as of the Distribution Record Date. The Rights Offering
shall remain open until 5:00 p.m., EST, on _____, 1999, or such later date to
which the Company may extend the Rights Offering, subject to the consent of
Zapata, at which time the Rights Offering will terminate. Each Holder of Rights
who elects to exercise all of his Rights may also subscribe for an unlimited
number of additional shares of ZAP.COM common stock that are not otherwise
purchased by Holders of Rights or Company Designated Persons.
3.5 EFFECTING THE STOCK DISTRIBUTION.
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(a) If as of the Closing, the number of record Holders who
will receive Common Shares Pursuant to exercised Rights have exercised their
Rights are insufficient for the Company to qualify for listing for quotation on
the Nasdaq National Market or the number of beneficial holders are insufficient
to qualify for listing on the Pacific Stock Exchange, then, simultaneously with
the issuance of shares in connection with the Rights Offering, Zapata will
distribute to Holders an aggregate of 150,000 shares of ZAP.COM common stock.
(b) If as of the Closing of the Rights Offering, the number of
shares that have been purchased either by Holders or Company Designated Persons
is insufficient to qualify for listing on the Nasdaq National Market or the
Pacific Stock Exchange, then, simultaneously with the issuance of shares in
connection with the Rights Offering, Zapata will distribute to Holders a
sufficient number of shares so that the common stock qualifies for such listing,
provided that the number of shares distributed shall not be less than 150,000
shares nor more than 1,100,000 shares.
(c) ZAP.COM shall take all steps required by Zapata to effect
the Stock Distribution. Prior to the Stock Distribution ZAP.COM shall cause to
be issued to the Agent a certificate or certificates representing a sufficient
number of shares of common stock so that the Stock Distribution can be effected.
3.6 RESERVED SHARES.
The Company shall reserve from its authorized but unissued
shares of common stock a sufficient number of shares of common stock so that if
Zapata transfers its Series A preferred stock, there is available a sufficient
number of shares of common stock available for issuance upon conversion of such
stock into common stock.
ARTICLE 4
SURVIVAL, ASSUMPTION AND INDEMNIFICATION
4.1 ASSUMPTION AND INDEMNIFICATION.
(a) Subject to Section 4.1(c), from and after the Closing
Date, Zapata shall indemnify, defend and hold harmless each member of the
ZAP.COM Group, each of their Representatives and each of the heirs, executors,
successors and assigns of any of the foregoing from and against all
Indemnifiable Losses of any such member or Representative relating to, arising
out of or due to any untrue statement or alleged untrue statement of a material
fact contained in any Rights Offering Document or the omission or alleged
omission to state in any of the Rights Offering Documents a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only insofar as any such statement or omission was made with
respect to (i) a matter of historical fact relating to a member of the Zapata
Group or (ii) the present or future intentions of Zapata or any member of the
Zapata Group, in reliance upon and in conformity with information furnished by
Zapata in writing specifically for use in connection with the preparation of the
Rights Offering Documents and designated in such writing as having been so
furnished.
(b) Subject to Section 3.1(c), from and after the Closing
Date, ZAP.COM shall indemnify, defend and hold harmless each member of the
Zapata Group, each of their Representatives and each of the heirs, executors,
successors and assigns of any of the foregoing from and against all
Indemnifiable Losses of any such member or Representative relating to, arising
out of or due to any untrue statement or alleged untrue statement of a material
fact contained in any Rights Offering Document or the omission or alleged
omission to state in any of the Rights Offering Documents a material fact
required to be
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stated therein or necessary to make the statements therein not misleading;
provided that ZAP.COM will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made with respect to (i) a matter of historical fact relating to a member of the
Zapata Group or (ii) the present or future intentions of Zapata or any member of
the Zapata Group, in reliance upon and in conformity with information furnished
by Zapata in writing specifically for use in connection with the preparation of
the Rights Offering Documents and designated in such writing as having been so
furnished.
(c) If an Indemnitee realizes a Tax benefit or detriment by
reason of having incurred an Indemnifiable Loss for which such Indemnitee
receives an Indemnity Payment from an Indemnifying Party or by reason of
receiving an Indemnity Payment, then such Indemnitee shall pay to such
Indemnifying Party an amount equal to the Tax benefit, or such Indemnifying
Party shall pay to such Indemnitee an additional amount equal to the Tax
detriment (taking into account any Tax detriment resulting from the receipt of
such additional amounts), as the case may be. If, in the opinion of counsel to
an Indemnifying Party reasonably satisfactory in form and substance to the
affected Indemnitee, there is a substantial likelihood that the Indemnitee will
be entitled to a Tax benefit by reason of an Indemnifiable Loss, the
Indemnifying Party promptly shall notify the Indemnitee and the Indemnitee
promptly shall take any steps (including the filing of such returns, amended
returns or claims for refunds consistent with the claiming of such Tax benefit)
that, in the reasonable judgment of the Indemnifying Party, are necessary and
appropriate to obtain any such Tax benefit. If, in the opinion of counsel to an
Indemnitee reasonably satisfactory in form and substance to the affected
Indemnifying Party, there is a substantial likelihood that the Indemnitee will
be subjected to a Tax detriment by reason of an Indemnification Payment, the
Indemnitee promptly shall notify the Indemnifying Party and the Indemnitee
promptly shall take any steps (including the filing of such returns or amended
returns or the payment of Tax underpayments consistent with the settlement of
any liability for Taxes arising from such Tax detriment) that, in the reasonable
judgment of the Indemnitee, are necessary and appropriate to settle any
liabilities for Taxes arising from such Tax detriment. If, following a payment
by an Indemnitee or an Indemnifying Party pursuant to this Section 3.1(c) in
respect of a Tax benefit or detriment, there is an adjustment to the amount of
such Tax benefit or detriment, then each of Zapata and ZAP.COM shall make
appropriate payments to the other, including the payment of interest thereon at
the federal statutory rate then in effect, to reflect such adjustment. This
Section 3.1(c) shall govern the matters discussed in this Section and shall
control over any conflicting language in the Tax Indemnification Agreement.
(d) The amount which an Indemnifying Party is required to pay
to any Indemnitee pursuant to this Section 3.1 shall be reduced (including
retroactively) by any Insurance Proceeds and other amounts actually recovered by
such Indemnitee in reduction of the related Indemnifiable Loss. Zapata and
ZAP.COM shall use their respective best efforts to collect any Insurance
Proceeds or other amounts to which they or any of their Subsidiaries are
entitled, without regard to whether they are the Indemnifying Party hereunder.
If an Indemnitee receives an Indemnity Payment in respect of an Indemnifiable
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Loss and subsequently receives Insurance Proceeds or other amounts in respect of
such Indemnifiable Loss, then such Indemnitee shall pay to such Indemnifying
Party an amount equal to the difference between (i) the sum of the amount of
such Indemnity Payment and the amount of such Insurance Proceeds or other
amounts actually received and (ii) the amount of such Indemnifiable Loss,
adjusted (at such time as appropriate adjustment can be determined) in each case
to reflect any premium adjustment attributable to such claim.
4.2 PROCEDURE FOR INDEMNIFICATION.
(a) If any Indemnitee receives notice of the assertion of any
Third-Party Claim with respect to which an Indemnifying Party is obligated under
this Distribution Agreement to provide indemnification, such Indemnitee shall
give such Indemnifying Party notice thereof promptly after becoming aware of
such Third-Party Claim; provided, however, that the failure of any Indemnitee to
give notice as provided in this Section 3.2 shall not relieve any Indemnifying
Party of its obligations under this Article 3, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice. Such
notice shall describe such Third-Party Claim in reasonable detail.
(b) An Indemnifying Party, at such Indemnifying Party's own
expense and through counsel chosen by such Indemnifying Party (which counsel
shall be reasonably satisfactory to the Indemnitee), may elect to defend any
Third-Party Claim. If an Indemnifying Party elects to defend a Third-Party
Claim, then, within ten (10) Business Days after receiving notice of such
Third-Party Claim (or sooner, if the nature of such Third-Party Claim so
requires), such Indemnifying Party shall notify the Indemnitee of its intent to
do so, and such Indemnitee shall cooperate in the defense of such Third-Party
Claim. After notice from an Indemnifying Party to an Indemnitee of its election
to assume the defense of a Third-Party Claim, such Indemnifying Party shall not
be liable to such Indemnitee under this Article 4 for any legal or other
expenses subsequently incurred by such Indemnitee in connection with the defense
thereof; provided, however, that such Indemnitee shall have the right to employ
one law firm as counsel to represent such Indemnitee (which firm shall be
reasonably acceptable to the Indemnifying Party) if, in such Indemnitee's
reasonable judgment, either a conflict of interest between such Indemnitee and
such Indemnifying Party exists in respect of such claim or there may be defenses
available to such Indemnitee which are different from or in addition to those
available to such Indemnifying Party, and in that event (i) the reasonable fees
and expenses of such separate counsel shall be paid by such Indemnifying Party
(it being understood, however, that the Indemnifying Party shall not be liable
for the expenses of more than one separate counsel (in addition to local
counsel) with respect to any Third-Party Claim (even if against multiple
Indemnitees)) and (ii) each of such Indemnifying Party and such Indemnitee shall
have the right to conduct its own defense in respect of such claim. If an
Indemnifying Party elects not to defend against a Third-Party Claim, or fails to
notify an Indemnitee of its election as provided in this Section 4.2 within the
period of ten (10) Business Days described above, such Indemnitee may defend,
compromise and settle such Third-Party Claim; provided, however, that no such
Indemnitee may compromise or settle any such Third-Party Claim without the prior
written consent of the Indemnifying Party, which consent shall not be withheld
unreasonably. Notwithstanding the foregoing, the Indemnifying Party shall not,
without the
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prior written consent of the Indemnitee, (i) settle or compromise any
Third-Party Claim or consent to the entry of any judgment which does not include
as an unconditional term thereof the delivery by the claimant or plaintiff to
the Indemnitee of a written release from all liability, damage or claims of any
nature or kind in respect of such Third-Party Claim or (ii) settle or compromise
any Third-Party Claim in any manner that may adversely affect the Indemnitee.
4.3 REMEDIES CUMULATIVE. The remedies provided in this Article 4 shall
be cumulative and shall not preclude assertion by any Indemnitee of any other
rights or the seeking of any other remedies against any Indemnifying Party.
ARTICLE 5
ACCESS TO INFORMATION
5.1 PROVISION OF CORPORATE RECORDS. Prior to or as promptly as
practicable after the Closing Date, Zapata shall use reasonable efforts to
accommodate ZAP.COM with respect to the delivery to ZAP.COM of all corporate
books and records of the ZAP.COM Group, including in each case copies of all
active agreements, active litigation files and government filings. From and
after the Closing Date, all books, records and copies so delivered shall be the
property of ZAP.COM.
5.2 ACCESS TO INFORMATION. From and after the Closing Date, each of
Zapata and ZAP.COM shall afford to the other, and shall cause the members of
their respective Groups to so afford, reasonable access and duplicating rights
during normal business hours to all information within such party's possession
relating to such other party's businesses, assets or liabilities, insofar as
such access is reasonably required by such other party. Without limiting the
foregoing, information may be requested under this Section 5.2 for audit,
accounting, claims, litigation and Tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations, as ZAP.COM may reasonably
request and which are directly related to the ZAP.COM Business.
ARTICLE 6
MISCELLANEOUS
6.1 TERMINATION. Notwithstanding any other provision hereof, this
Distribution Agreement may be terminated if the Rights Offering is abandoned,
which decision can be made at any time by and in the sole discretion of the
Zapata Board of Directors without the approval of ZAP.COM or by the ZAP.COM
Board of Directors without the approval of Zapata.
6.2 COMPLETE AGREEMENT. This Distribution Agreement and the exhibits
hereto and the agreements (including the Other Agreements) and other documents
referred to herein and therein shall constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and shall supersede all
previous negotiations, commitments and writings with respect to such subject
matter.
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<PAGE> 12
6.3 AUTHORITY. Each of the parties hereto represents to the other that
(a) it has the power and authority to execute, deliver and perform this
Distribution Agreement and the Other Agreements, (b) the execution, delivery and
performance of this Distribution Agreement and the Other Agreements by it has
been duly authorized by all necessary corporate action, (c) it has duly and
validly executed the Distribution Agreement, (d) this Distribution Agreement and
the Other Agreements, when executed, will be the valid and binding obligation of
such party, enforceable against it in accordance with its terms subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and general equity principles.
6.4 GOVERNING LAW. This Distribution Agreement shall be governed by and
construed in accordance with the laws of the State of New York (other than the
laws regarding choice of laws and conflicts of laws) as to all matters,
including matters of validity, construction, effect, performance and remedies.
6.5 NOTICES. All notices, requests, claims, demands and other
communications hereunder (collectively, "Notices") shall be in writing and shall
be given (and shall be deemed to have been duly given upon receipt) by delivery
in person, by cable, telegram, telex, telecopy or other standard form of
telecommunications, or by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to Zapata:
Zapata Corporation
100 Meridian Centre, Suite 350
Rochester, New York 14618
Attn: Avram Glazer, Chief Executive Officer
If to ZAP.COM:
ZAP.COM Corporation
100 Meridian Centre, Suite 350
Rochester, New York 14618
Attn: Leonard DiSalvo, Vice President Finance
or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section 6.5.
6.6 AMENDMENT AND MODIFICATION. This Distribution Agreement may be
amended or modified in any material respect only by a written agreement signed
by both of the parties hereto.
6.7 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES. This
Distribution Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto, their successors and permitted
assigns, and the members of their respective Groups, but neither this
Distribution Agreement nor any of the rights, interests
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<PAGE> 13
and obligations hereunder shall be assigned by either party hereto without the
prior written consent of the other party (which consent shall not be
unreasonably withheld). Except for the provisions of Sections 4.2 and 4.3
relating to Indemnities, which are also for the benefit of the other
Indemnitees, this Distribution Agreement is solely for the benefit of the
parties hereto and their Subsidiaries and Affiliates and is not intended to
confer upon any other Persons any rights or remedies hereunder.
6.8 COUNTERPARTS. This Distribution Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.9 NO WAIVER. No failure by either party to take any action or assert
any right hereunder shall be deemed to be a waiver of such right in the event of
the continuation or repetition of the circumstances giving rise to such right,
unless expressly waived in writing by the party against whom the existence of
such waiver is asserted.
6.10 HEADINGS. The Article and Section headings contained in this
Distribution Agreement are solely for the purpose of reference, are not part of
the agreement of the parties hereto and shall not in any way affect the meaning
or interpretation of this Distribution Agreement.
6.11 ENFORCEABILITY. Any provision of this Distribution Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Each party
acknowledges that money damages would be an inadequate remedy for any breach of
the provisions of this Distribution Agreement and agrees that the obligations of
the parties hereunder shall be specifically enforceable.
6.12 SURVIVAL OF AGREEMENTS. All covenants and agreements of the
parties hereto contained in this Distribution Agreement shall survive the
Closing Date.
ZAPATA CORPORATION
By:_________________________________
Name: Avram Glazer
Title: Chief Executive Officer
ZAP.COM CORPORATION
By:_________________________________
Name: Leonard DiSalvo
Title: Vice President - Finance
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<PAGE> 1
EXHIBIT 10.2
FORM OF SERVICES AGREEMENT
This SERVICES AGREEMENT ("Agreement") is entered into as of __________,
1999 (the "Effective Date") by and between ZAPATA CORPORATION, a Delaware
corporation ("Zapata"), and ZAP.COM CORPORATION, a Nevada corporation
("ZAP.COM").
R E C I T A L S:
A. Prior to execution of this Agreement, ZAP.COM was a wholly-owned
subsidiary of Zapata.
B. Zapata and ZAP.COM have commenced on this date a Rights Offering
and, as a result of the Rights Offering or a separate dividend by Zapata of
ZAP.COM common stock, ZAP.COM expects to become a publicly traded company, with
Zapata as its majority stockholder. The Rights Offering and Stock Distribution
are more fully described in a registration statement on Form S-1 (Registration
No. ) filed with the Securities and Exchange Commission (the "Rights Offering").
C. During the period when ZAP.COM was a wholly owned subsidiary of
Zapata, ZAP.COM relied on Zapata for the provision of certain administrative
services and, effective upon the closing of the Rights Offering, Zapata's 21
employees of its Word and Charged webzines will become employees of ZAP.COM.
D. The parties have agreed that following the Rights Offering and, if
made, the Stock Distribution, Zapata will continue to provide certain management
and administrative services to ZAP.COM and ZAP.COM will provide certain
technical, creative and webzine administrative services to Zapata so that it may
continue to operate Word and Charged.
E. Subject to the terms and conditions set forth in this Agreement,
Zapata desires to sublease to ZAP.COM a portion of the office space leased by
Zapata at 100 Meridian Centre, suite 350, Rochester, New York 14615 (the
"Lease").
NOW, THEREFORE, for and in consideration of the mutual agreements
contained herein, the parties hereby agree as follows:
1. SERVICES. During the term of this Agreement, Zapata will provide the
services described on Exhibit A to ZAP.COM and ZAP.COM will provide the services
described on Exhibit B and may, in its sole discretion, provide such other
services as Zapata or ZAP.COM may request from each other from time to time (all
such services referred to herein as the "Services").
<PAGE> 2
2. FEES AND EXPENSES.
(a) The requesting party (the "Requesting Party") will pay to
the other party fees ("Fees") for the Services provided by said party
("Performing Party") equal to such Performing Party's cost of providing such
Services, as reasonably determined by the Performing Party. Such Fees will
include an allocation of the Performing Parties general and administrative
overhead expense relating to such Services. The Performing Party may, but shall
not be obligated to, determine such cost using the same methods employed by the
Performing Party to allocate costs to the Requesting Party for such Services
prior to the Rights Offering.
(b) The Requesting Party will reimburse the Performing Party
for expenses any reasonable and necessary out-of-pocket expenses incurred in
connection with the provision of the Services, including any taxes or other
governmental impositions attributable to the provision of the Services (other
than income or other similar taxes assessed on the Fees), but not including any
general or administrative overhead expense of Requesting Party. Requesting Party
will not have any obligation to advance funds on behalf of Performing Party.
(c) Performing Party will invoice Requesting Party for the
Fees and expenses due hereunder at the intervals determined by Performing Party
from time to time. All invoices will be due and payable within thirty (30)
calendar days after the date of the invoice.
3. INFORMATION AND RECORDS.
(a) The Parties will make available to each other on a timely
basis all information which is reasonably necessary for the parties to provide
the Services to each other.
(b) The parties will maintain records with respect to the
Services which are substantially similar to those maintained with respect to
similar Services provided for its own account, and will provide those records to
each other upon termination of this Agreement.
4. LIABILITY.
(a) The parties make no express or implied warranties to each
other with respect to the Services.
(b) The Performing Party will be liable to the Requesting
Party for any Loss (hereinafter defined) suffered as a result of acts or
omissions of the Performing Party or any shareholder, director, officer or
employee of said party or any attorney, accountant, representative or agent
retained by the Performing Party ("Associates") in connection with the Services
provided only if and to the extent that (i) the acts or omissions constitute
gross negligence or willful misconduct or (ii) the acts or omissions would be
covered by Zapata's insurance coverage under crime, fidelity or fiduciary
insurance (if any). In any event, except to the extent covered by the Performing
Party's crime, fidelity or fiduciary insurance, (i) any
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<PAGE> 3
claim for damages from the Performing Party in connection with a Service
provided will be limited to the amount of Fees charged with respect to the
Service, and (ii) Performing Party will not be liable to Requesting Party for
any incidental or consequential damages, lost profits or opportunities, or
exemplary or punitive damages.
As used herein, "Loss" means any and all claims, liabilities,
obligations, losses, deficiencies and damages or judgments of any kind or nature
whatsoever arising from, asserted against, or associated with the furnishing or
failure to furnish the Services, regardless of by whom asserted and regardless
of whether or not any such loss is known or unknown, fixed or contingent or
asserted or unasserted, incurred by Performing Party in connection with the
provision of the Services.
5. INDEMNITY. Except as provided in Section 4(b), the Requesting Party
will indemnify the Performing Party and its Associates and hold Performing Party
and its Associates harmless from any and all Losses arising from, asserted
against or associated with the provision of Services by Performing Party to
Requesting Party.
6. AUTHORITY.
(a) In providing the Services, Performing Party may take such
actions, make such decisions and exercise such judgment on behalf of Requesting
Party as Performing Party has taken, made or exercised in providing the same or
similar services on behalf of Requesting Party prior to the closing of Rights
Offering and, if made, the Stock Distribution.
(b) Prior to taking action on behalf of Requesting Party,
Performing Party will use reasonable efforts to consult with appropriate
officers or employees of Requesting Party (i) in those circumstances under which
Performing Party would have consulted officers or employees of Requesting Party
prior to the Rights Offering, and (ii) in any other circumstances required under
such reasonable rules and procedures as Performing Party may adopt, from time to
time, after prior consultation with Requesting Party.
7. SUBLEASE.
(a) Commencing on and as of the Effective Date and continuing
on a month to month basis thereafter, Zapata shall sublease to ZAP.COM a portion
of the real estate leased by Zapata at 100 Meridian Centre, Suite 350,
Rochester, New York 14618 (the "Meridian Centre Space") The portions of the
Meridian Centre Space subject to the sublease may, depending, on the occupancy
requirements of Zapata, fluctuate from time to time during the term of the
sublease. On not less than a quarterly basis commencing with the first full
calendar quarter beginning after the Effective Date, Zapata and ZAP.COM shall
determine in good faith the portion of the Meridian Centre Space then occupied
by ZAP.COM (the "ZAP.COM Occupied Space") for purposes of the payment
obligations of ZAP.COM set forth below.
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<PAGE> 4
(b) The monthly rent payable by ZAP.COM under the sublease
shall be equal to Zapata's monthly base rental payment for leasing the ZAP.COM
Occupied Space then occupied by ZAP.COM (as determined by Zapata and ZAP.COM as
required under Section 7 above). In addition to the foregoing, ZAP.COM shall pay
to Zapata, on a monthly basis after invoice from Zapata (I) their proportionate
share, based on the then current ZAP.COM Occupied Space, of the monthly out-of
pocket cost to Zapata for all utilities, taxes and maintenance, cleaning,
security and repair fees paid by Zapata with respect to the Meridian Centre
Space, (ii) their proportionate share, based on usage, of the monthly
out-of-pocket cost to Zapata for all capital equipment located at or on the
Meridian Centre Space (such as photocopy and facsimile equipment and leased
appliances), provided, however, that all telephones (including cellular
telephones), personal computers and printers used by ZAP.COM and owned or leased
by Zapata shall be paid for by ZAP.COM based on actual out-of-pocket cost to
Zapata for the provision of each such item to ZAP.COM.
(c) The Lease will continue on a month to month basis until
terminated by Zapata or ZAP.COM on at least ninety (90) days prior written
notice to the other party.
8. FORCE MAJEURE. The Performing Party will not be liable to the
Requesting Party for any failure to comply with this Agreement caused, directly
or indirectly, by of (a) a fire, flood, explosion, riot, rebellion, revolution,
labor trouble (whether or not due to the fault of such Party), requirements or
acts of any government authority or agency or subdivision thereof, loss of
source of supplies or other inability to obtain materials or suppliers, or (b)
any other cause, whether similar or dissimilar to the foregoing, beyond the
reasonable control of the parties hereto.
9. TERM. The parties' obligation to provide Services (and, in the case
of Zapata, the ZAP.COM Occupied Space) hereunder, shall continue until either
party gives one hundred twenty (120) days advance written notice or upon written
notice from a party if one of the parties materially breaches this Agreement and
fails to cure such breach within thirty (30) days after receiving written notice
thereof. One party may terminate another party's obligation to provide it with
services and, in the case of ZAP.COM with the Occupied Space, still be obligated
to provide the other party with Services until the other party also terminates
the other party's obligation to provide Services (and space if applicable). Any
outstanding Fees and expenses as well as a Requesting Party's obligation to
indemnify the Performing Party shall survive the termination of this Agreement
indefinitely.
10. NOTICES. All notices, demands, requests, or other communications
which may be or are required to be given, served, or sent by a party pursuant to
this Agreement will be in writing and will be (a) personally delivered, (b)
mailed by first class, registered or certified mail, return receipt requested,
postage prepaid, (c) sent by an internationally recognized express delivery
service or (d) transmitted by facsimile, address as follows:
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<PAGE> 5
if to Zapata:
Zapata Corporation
100 Meridian Centre, Suite 350
Rochester, New York 14618
Attention: Avram Glazer, President and Chief
Executive Officer
if to ZAP.COM:
ZAP.COM Corporation
100 Meridian Centre, Suite 350
Rochester, New York 14618
Attention: Leonard DiSalvo, Vice President Finance
Each party may designate by notice in writing a new address or
facsimile number to which any notice may be given, served or sent. Each notice
will be deemed sufficiently given, served, sent or received when it is delivered
to the addressee, with an affidavit of personal delivery, the return receipt,
the delivery receipt or when delivery is refused by the addressee. Each notice
or other communication sent by facsimile will be deemed sufficiently given only
if a copy of the notice or communication is immediately sent by one of the
methods specified in (a), (b) or (c) above.
11. MISCELLANEOUS.
(a) This Agreement sets forth the entire agreement of the
parties with respect to the Services and supersedes all previous agreements,
understandings or negotiations with respect to the Services.
(b) The rights and obligations set forth in this Agreement may
be amended, modified or supplemented only by a writing signed by each party.
(c) A party may waive a right under this Agreement only by a
written waiver signed by the party. No failure to exercise or delay in
exercising a right under this Agreement will constitute a waiver of that right.
(d) If any provision of this Agreement is found invalid,
illegal or unenforceable, the provision will be ineffective only to the extent
of the invalidity, illegality or unenforceability, and the other provisions of
this Agreement will remain in full force and effect.
(e) A party may not assign its rights, and a party may not
delegate its obligations, under this Agreement unless it first obtains the
written consent of the other party, provided, however, that Zapata may assign
its rights and delegate its obligations to any wholly-owned subsidiary of Zapata
without ZAP.COM's consent. Any party, in its discretion, may withhold consent to
any such assignment or delegation.
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<PAGE> 6
(f) Except as permitted under Subsection (e), this Agreement
will not inure to the benefit of any Person other than the Parties.
(g) This Agreement will be governed by and construed and
enforced in accordance with the internal laws of the State of New York.
(h) This Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf as of the date first above written.
ZAPATA CORPORATION
By: ________________________________
Name:
Title:
ZAP.COM CORPORATION
By: ________________________________
Name:
Title:
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<PAGE> 7
EXHIBIT A
ZAPATA CORP. AS PERFORMING PARTY
DESCRIPTION OF SERVICES
A. Accounting:
1. Maintain a general ledger.
2. Furnish general bank account checks and reconcile general bank
account.
3. Process vendor invoices and employee expense reports approved
by ZAP.COM for payment.
4. Input accounts receivable in accordance with instructions from
ZAP.COM personnel; post cash receipts; provide A/R aging as
requested (not more often than once per week).
5. Maintain fixed asset records
(acquisition-disposal-depreciation schedules).
6. Provide project profit and cost accounting schedules.
7. Provide quarterly financial information for use by ZAP.COM
personnel in preparing quarterly financial statements; bonus
calculations; trial balances; and financial statements.
8. Responsible for all SEC quarterly reporting requirements.
9. Coordinating all required audits and reviews for financial
reporting.
10. Coordinating and creating all press releases and corporate
communications.
11. General administrative support necessary to fulfill the
ZAP.COM requirements as a publicly held company.
B. Payroll:
1. Maintain employee data base and input payroll information into
the payroll database.
2. Distribute payroll checks.
3. Administer state and federal income tax withholdings.
C. Tax:
1. Prepare and file all state and federal income and sale/use tax
returns with a due date during the Term.
D. Benefits:
1. Coordinate participation of ZAP.COM employees in Zapata
Corp.'s health and medical insurance program.
2. Coordinate participation of ZAP.COM employees in Zapata Corp's
401(k) Defined Contribution Benefit Plan.
7.
<PAGE> 8
EXHIBIT B
ZAP.COM as Performing Party
DESCRIPTION OF SERVICES
All technical, creative and administrative services necessary for
Zapata to operate its Word and Charged webzines in substantially the same
fashion as such webzines were operated prior to the date hereof.
8
<PAGE> 1
EXHIBIT 10.3
FORM OF TAX INDEMNITY AGREEMENT
This TAX INDEMNITY AGREEMENT (the "Agreement"), dated as of this ___
day of May, 1999, by and between ZAPATA CORPORATION ("Zapata"), a Delaware
corporation, and ZAP.COM CORPORATION ("ZAP.COM"), a Nevada corporation.
R E C I T A L S:
A. Zapata, a public company, whose common shares are traded on the New
York Stock Exchange, owns [36,388,000] shares of ZAP.COM's common stock, par
value $.01 per share, constituting all of the issued and outstanding common
stock of ZAP.COM.
B. Simultaneously with the execution hereof, Zapata will contribute
$8,000,000 to ZAP.COM in exchange for 10,000 shares of Series A preferred stock
and transferable rights (the "Rights") to purchase at $8.00 per share (the
"Rights Offering") an aggregate of up to 13,602,000 shares of ZAP.COM common
stock. Holders of the Series A preferred stock and the ZAP.COM common stock will
vote on all matters presented to the stockholders as one class, with each holder
of the Series A preferred stock entitled to 50,000 votes for each share held and
each holder of common stock entitled to one vote for each share held.
C. Zapata's Board of Directors (the "Zapata Board") has determined,
subject to its further consideration and the satisfaction of certain conditions,
to authorize Zapata to distribute the Rights to eligible Zapata stockholders as
of a record date to be determined by the Zapata Board.
D. The Rights Offering, as more fully described in the registration
statement on Form S-1 (Registration No. ______) (the "Registration Statement"),
filed by ZAP.COM with the Securities and Exchange Commission, provides that
Zapata stockholders may exercise their Right to purchase one share of ZAP.COM
Common Stock at $8.00 per share.
E. The Rights are set to expire on _______, 1999 unless extended up to
ten (10) days by ZAP.COM. All shares that remain unpurchased as of the
expiration of the Rights shall be issued to the Company.
F. If the shares to be issued pursuant to exercised Rights are
insufficient for ZAP.COM's common stock to be eligible for listing on the Nasdaq
National Market or the Pacific Stock Exchange either because there will be to
few record holders or beneficial owners of ZAP.COM common stock or because there
will be to few shares held by unaffiliated stockholders, then Zapata will
distribute between a minimum of 150,000 shares of ZAP.COM common stock and a
maximum of 1,000,000 shares of common stock to its stockholders as of the record
date.
<PAGE> 2
G. As a results of these transactions following the consummation of the
Rights Offering and the Stock Distribution, Zapata will own all of ZAP.COM's
Series A preferred stock and between 74% and 99% of its outstanding common
stock.
H. In connection with the Rights Offering, Zapata and ZAP.COM have
entered into a Distribution Agreement on even date herewith (the "Distribution
Agreement") which requires, among other things, Zapata and ZAP.COM to enter into
this Agreement to address certain tax issues involving Zapata and ZAP.COM that
will arise after the Rights Offering after Zapata's ownership of ZAP.COM is less
than 80% of ZAP.COM's issued and outstanding shares as a result of which neither
ZAP.COM nor any ZAP.COM Post-Closing Affiliates (hereinafter defined) will file
Tax Returns (hereinafter defined) as a member of the Zapata Group (hereinafter
defined); and
NOW, THEREFORE, in consideration of their mutual promises, Zapata and
ZAP.COM agree as follows:
ARTICLE 1
DEFINITIONS
1.1 As used in this Agreement, the following terms shall have the
following meanings:
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor thereto, as in effect for the taxable period in question.
"Consolidated Group" means the group of corporations that
immediately prior to the Effective Date are members of the affiliated group of
corporations (within the meaning of Section 1504 of the Code) of which Zapata is
the common parent.
"Effective Date" means the date upon which Zapata ceases to
own eighty percent (80%) of the issued and outstanding shares of ZAP.COM.
"Final Determination" shall mean the final resolution of
liability for any Tax for a taxable period, including any related interest or
penalties, (a) by Internal Revenue Service Form 870 or 870-AD (or any successor
forms thereto), on the date of acceptance by or on behalf of the Internal
Revenue Service ("IRS"), or by a comparable form under the laws of other
jurisdictions; except that a Form 870 or 870-AD or comparable form that reserves
(whether by its terms or by operation of law) the right of the taxpayer to file
a claim for refund and/or the right of the Taxing Authority to assert a further
deficiency shall not constitute a Final Determination; (b) by a decision,
judgment, decree, or other order by a court of competent jurisdiction, which has
become final and unappealable; (c) by a closing agreement or accepted offer in
compromise under Section 7121 or 7122 of the Code, or comparable agreements
under the laws of other jurisdictions; (d) by any allowance of a refund or
credit in respect of an overpayment of Tax, but only after the
2
<PAGE> 3
expiration of all periods during which such refund may be recovered (including
by way of offset) by the Tax imposing jurisdiction; or (e) by any other final
disposition, including by reason of the expiration of the applicable statute of
limitations.
"Representative" means with respect to any person or entity,
any of such person's or entity's directors, officers, employees, agents,
consultants, advisors, accountants, attorneys, and representatives.
"Tax" or "Taxes" means (a) all forms of taxation, whenever
created or imposed, and whenever imposed by a national, municipal, governmental,
state, federal or other body, whether domestic or foreign (a "Taxing
Authority"), and without limiting the generality of the foregoing, shall include
net income, alternative or add-on minimum tax, gross income, sales, use, ad
valorem, gross receipts, value added, franchise, profits, license, transfer,
recording, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profit, custom duty, or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any related interest, penalties, or other additions to tax, or
additional amounts imposed by any such Taxing Authority, (b) liability for the
payment of any amounts of the type described in (a) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any period,
including any liability arising pursuant to Treas. Reg. Section 1.1502-6, or as
a result of being a party to any agreement or arrangement whereby liability for
payment of such amounts was determined or taken into account with reference to
the liability of another party and (c) liability for the payment of any amounts
of the type described in (a) as a result of any express or implied obligation to
indemnify any other person.
"Taxing Authority" is defined under the term "Taxes."
"Taxable Period" or "Taxable Periods" means the tax year for
the "Consolidated Group" as defined in this Article 1.
"Tax Return" means any return, filing, questionnaire or other
document required to be filed, including requests for extensions of time,
filings made with estimated Tax payments, claims for refund and amended returns
that may be filed, for any taxable period with any Taxing Authority in
connection with any Tax (whether or not a payment is required to be made with
respect to such filing).
"ZAP.COM Businesses" means the present and future
subsidiaries, divisions and business of ZAP.COM and any member of the ZAP.COM
Post-Closing Affiliates.
"ZAP.COM Post-Closing Affiliate" means any corporation,
partnership or other entity directly or indirectly controlled by ZAP.COM after
the Effective Date.
"ZAP.COM Pre-Closing Affiliate" means any corporation,
partnership or other entity directly or indirectly controlled by ZAP.COM on or
before the Effective Date.
3
<PAGE> 4
"Zapata Affiliate" means any corporation, partnership or other
entity directly or indirectly controlled by Zapata, other than ZAP.COM or any
ZAP.COM Affiliate.
"Zapata Businesses" means the present and future subsidiaries,
divisions and business of any member of the Zapata Group, other than the present
and future subsidiaries, divisions and business of ZAP.COM or any ZAP.COM
Post-Closing Affiliates.
"Zapata Group" means the group of corporations that
immediately after the Effective Date are members of the affiliated group of
corporations of which Zapata is the common parent (within the meaning of section
1504 of the Code).
ARTICLE 2
PREPARATION AND FILING OF TAX RETURNS
2.1 INCOME INCLUDED. All Tax Returns required to be filed by the
Consolidated Group relating to Taxable Periods ending before or including the
Effective Date and filed after the date of this Agreement shall include the
income of ZAP.COM and ZAP.COM Pre-Closing Affiliates (as determined in this
Section 2.1) attributable to such Taxable Periods (including, for Federal income
Tax purposes, any deferred income triggered into income by Treas. Reg. Section
1.1502-13 and Treas. Reg. Section 1.1502-14 and any excess loss accounts taken
into income under Treas. Reg. Section 1.1502-19) required to be reported in the
Consolidated Group's consolidated Federal income Tax Returns (or under any
similar rules applicable to any state, local or other Tax Returns filed on a
consolidated basis). The income of ZAP.COM and ZAP.COM Pre-Closing Affiliates
will be apportioned for the period October 1, 1998 up to and including the
Effective date and the period after the Effective Date by closing the books of
ZAP.COM and such ZAP.COM Pre-Closing Affiliates as of the end of the Effective
Date. The income of ZAP.COM and any ZAP.COM Pre-Closing Affiliate shall not
include any deferred income triggered into income by Treas. Reg. Section
1.1502-13 and Treas. Reg. 1.1502-14 and any excess loss accounts taken into
income under Treas. Reg. Section 1.1502-19, attributable to any other member of
the Consolidated Group.
2.2 TAX RETURNS FOR TAXABLE PERIODS ENDING BEFORE OR INCLUDING THE
EFFECTIVE DATE. Except as otherwise provided in Section 2.4, Zapata shall timely
prepare and file, or cause to be timely prepared and filed, all Tax Returns
required to be filed by or on behalf of any member of the Consolidated Group
relating to Taxable Periods ending before or including the Effective Date.
ZAP.COM shall provide Zapata any Tax-related information reasonably requested by
Zapata relating to any Taxable Periods ending on or before the Effective Date.
2.3 TAX RETURNS FOR TAXABLE PERIODS BEGINNING AFTER THE EFFECTIVE DATE.
ZAP.COM shall prepare and file, or cause to be prepared and filed, all Tax
Returns for ZAP.COM and any ZAP.COM Post-Closing Affiliate for taxable periods
of ZAP.COM and any ZAP.COM Post-Closing Affiliate beginning after the Effective
Date. Zapata shall
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prepare and file, or cause to be prepared and filed, all Tax Returns for the
Zapata Group for Taxable Periods beginning after the Effective Date.
2.4 CARRY-OVER PERIOD RETURNS.
(a) ZAP.COM shall prepare and file on a timely basis any Tax
Returns (but not including any Federal income Tax Return or Tax Returns under
any similar rules applicable to any state or local, and filed on a consolidated
basis) of ZAP.COM and any ZAP.COM Pre-Closing Affiliate for any Taxable Period
beginning before and ending after the Effective Date (a "Carry-Over Period").
(b) All other Tax Returns for a Carry-Over Period required to
be filed by any member of the Consolidated Group other than ZAP.COM or any
ZAP.COM Pre-Closing Affiliate shall be prepared and filed by Zapata.
ARTICLE 3
PAYMENT OF TAXES
3.1 LIABILITY FOR TAXES WITH RESPECT TO TAXABLE PERIODS ENDING BEFORE
OR INCLUDING THE EFFECTIVE DATE. Except as otherwise provided in this Agreement,
Zapata shall be responsible for paying and shall pay all Taxes relating to any
Tax Return filed by the Consolidated Group or any member thereof with respect to
any Taxable Period ending before and including the Effective Date, including
without limitation, any additional Taxes as a result of any audit, amendment or
other change in a Tax Return as filed by the Consolidated Group or any member
thereof.
3.2 PREPARATION OF ZAP.COM'S FINAL RETURNS; PAYMENT OF TAXES. On or
before _____________, 1999, Zapata shall cause to be prepared (in a manner
consistent with practices followed in prior years) and delivered to ZAP.COM a
separate United States Federal Income Tax Return for ZAP.COM and each ZAP.COM
Pre-Closing Affiliate for the period beginning October 1, 1998 and ending on the
Effective Date (the "ZAP.COM Final Returns"). The ZAP.COM Final Returns shall
include all items of income, gain, loss, deductions and credit of ZAP.COM and
the ZAP.COM Pre-Closing Affiliates realized during such period and determined
and apportioned in accordance with Section 2.1. Zapata shall include in its
consolidated federal income tax for its first taxable year ending after the
Effective Date the items of income, gain, loss, deductions and credit shown on
the ZAP.COM Final Returns and shall pay all Taxes due with respect thereto as
provided in this Section 3.2 and Section 3.1.
3.3 SEPARATION PAYMENT WITH RESPECT TO FEDERAL INCOME TAXES. Zapata
shall give ZAP.COM notice of the filing of Zapata's consolidated federal income
tax returns for its first taxable year ending after the Effective Date ("Final
Return Notice"). If the ZAP.COM Final Returns show a tax liability, ZAP.COM
shall pay to Zapata the amount thereof within thirty (30) days after receipt by
ZAP.COM of the Final Return Notice. Zapata shall not withdraw any earnings or
assets of ZAP.COM or any ZAP.COM Pre-
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Closing Affiliates prior to the Effective Date. If the ZAP.COM Final Returns
show a net operating loss or other tax benefit that is utilized by Zapata or any
member of the Zapata Group and, therefore, is not allocated to the entity
incurring such tax benefit pursuant to Treas. Reg. Section 1.1502-79, Zapata
shall pay to ZAP.COM (or the appropriate entity) the amount of any tax savings
to be realized thereby within thirty (30) days after receipt by ZAP.COM of the
ZAP.COM Final Returns.
3.4 ALLOCATION OF EARNINGS AND PROFITS FOR TAXABLE PERIODS ENDING
BEFORE OR INCLUDING THE EFFECTIVE DATE. All earnings and profits of the
Consolidated Group for all Taxable Periods ending before or including the
Effective Date shall be allocated pursuant to Section 1552 of the Code among the
members of the Consolidated Group in accordance with the ratio which that
portion of the consolidated taxable income attributable to each member of the
Consolidated Group having taxable income bears to the consolidated taxable
income of the Consolidated Group in accordance with Section 1552(a)(1) of the
Code and the Regulations thereunder.
3.5 UNUSED CARRY-FORWARD ATTRIBUTES. Zapata and ZAP.COM agree that, for
purposes of all required returns and reports with respect to Taxes, the amount
of unused tax credits under the Code attributable to ZAP.COM and each of the
ZAP.COM Pre-Closing Affiliates that may be carried forward to Taxable Periods
ending after the Effective Date shall, unless otherwise required by law or
regulations, be determined in accordance with the principles of Treas. Reg.
Section 1.1502-79(c). Any other carry-forward attributes shall similarly be
determined in accordance with applicable regulations.
3.6 LIABILITY FOR TAXES WITH RESPECT TO POST-EFFECTIVE DATE TAXABLE
PERIODS. The Zapata Group shall pay all Taxes of the Zapata Group and shall be
entitled to receive and retain all refunds of Taxes of the Zapata Group with
respect to Taxable Periods beginning after the Effective Date which are
attributable to the Zapata Businesses. ZAP.COM shall pay all Taxes of ZAP.COM
and any ZAP.COM Post-Closing Affiliate and shall be entitled to receive and
retain all refunds of Taxes of ZAP.COM and any ZAP.COM Post-Closing Affiliate
for all periods beginning after the Effective Date which are attributable to the
ZAP.COM Businesses.
3.7 CARRY-OVER PERIOD PAYMENTS. Zapata shall be responsible for (and
shall pay) any Taxes shown to be due on a Tax Return for a Carry-Over Period
filed pursuant to Section 2.4(b) hereof by any member of the Consolidated Group
other than ZAP.COM or a ZAP.COM Pre-Closing Affiliate. ZAP.COM shall be
responsible for (and shall pay) any Taxes shown to be due on a Tax Return for a
Carry-Over Period filed by ZAP.COM and any ZAP.COM Pre-Closing Affiliate
pursuant to Section 2.4(a) hereof.
3.8 CARRY-BACKS. ZAP.COM shall be entitled to any refund of any Tax
obtained by the Consolidated Group (or any member of the Consolidated Group),
including any refund obtained as a result of the carry-back of losses or credits
of ZAP.COM or any ZAP.COM Post-Closing Affiliate from any taxable period
beginning after the Effective Date to any Taxable Period ending before or
including the Effective Date. The application of
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any such carry-backs by ZAP.COM and/or any other current or former member of the
Consolidated Group shall be in accordance with the Code and the Treasury
Regulations promulgated thereunder. Notwithstanding this Section 3.9, ZAP.COM
and any ZAP.COM Post-Closing Affiliate shall have the right, in its sole
discretion, to make any election, including the election under Section 172(b)(3)
of the Code, which would eliminate or limit the carry-back of any loss or credit
to any Taxable Period ending before or including the Effective Date.
3.9 POST-CLOSING ELECTIONS. At Zapata's request, ZAP.COM and the
ZAP.COM Pre-Closing Affiliates shall make and/or join with Zapata in making any
Tax elections reasonably requested by Zapata after the Effective Date, if the
making of such election does not have a material adverse impact on ZAP.COM or
any ZAP.COM Pre-Closing Affiliate for any post-Effective Date Tax period.
3.10 REFUNDS. ZAP.COM and any ZAP.COM Pre-Closing Affiliate shall be
entitled to any refund of any Tax obtained by the Consolidated Group (or any
member of the Consolidated Group) as a result of any audit, amendment or other
change in the Tax Return as filed by the Consolidated Group or any member
thereof to the extent the refund is attributable to ZAP.COM and any ZAP.COM
Pre-Closing Affiliate for any Taxable Period of the Consolidated Group ending
before or including the Effective Date. Zapata will cooperate with ZAP.COM and
any ZAP.COM Pre-Closing Affiliate in obtaining such refunds, including, but not
limited to, the filing of amended Tax Returns or refund claims. Zapata will
immediately pay to ZAP.COM and any ZAP.COM Pre-Closing Affiliate any Tax refund
described in this Section 3.10 when such refund is received by the Zapata Group.
With the exception of Section 3.8, all other refunds arising from Tax Returns
filed for the Consolidated Group will belong to Zapata.
ARTICLE 4
COOPERATION AND EXCHANGE OF INFORMATION
4.1 COOPERATION. ZAP.COM shall cooperate (and shall cause any ZAP.COM
Post-Closing Affiliate to cooperate) fully at such time and to the extent
reasonably requested by Zapata in connection with the preparation and filing of
any Tax Return or the conduct of any audit, dispute, proceeding, suit or action
concerning any issues or any other matter contemplated hereunder relating to any
Taxable Period ending before or including the Effective Date. Such cooperation
shall include, without limitation, (a) the retention and provision on demand of
copies of books, records, documentation or other information relating to any
such Tax Return until the later of (i) the expiration of the applicable statute
of limitation (giving effect to any extension, waiver, or mitigation thereof)
and (ii) in the event any claim has been made under this Agreement for which
such information is relevant, until a Final Determination with respect to such
claim; (b) the execution of any document that may be necessary or reasonably
helpful in connection with the filing of any such Tax Return, or in connection
with any audit, proceeding, suit or action addressed in the preceding sentence;
and (c) the use of the parties' reasonable best efforts to obtain any
documentation from a governmental authority or a third party that may be
necessary or
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helpful in connection with the foregoing. Each party shall make its employees
and facilities available on a mutually convenient basis to facilitate such
cooperation.
4.2 TAX RETURNS FOR TAXABLE PERIODS INCLUDING THE EFFECTIVE DATE.
Zapata will provide ZAP.COM with the opportunity to review and comment upon any
Tax Returns to be filed after the date of this Agreement (including any amended
returns), and will provide ZAP.COM, promptly upon its request, with copies of
such Tax Returns (including any amended returns).
4.3 AUDITS. Zapata will allow ZAP.COM and any ZAP.COM Pre-Closing
Affiliate and its counsel to participate (at the expense of ZAP.COM or its
ZAP.COM Pre-Closing Affiliate) in any audits of Zapata's Consolidated Federal
Income Tax Returns to the extent that such returns relate to ZAP.COM and any
ZAP.COM Pre-Closing Affiliate. Zapata will not settle any such audit in a manner
which would adversely affect ZAP.COM and any ZAP.COM Pre-Closing Affiliate
without the prior written consent of ZAP.COM, which consent shall not be
unreasonably withheld.
4.4 CARRY-BACKS. Zapata will immediately pay to ZAP.COM and any ZAP.COM
Pre-Closing Affiliate any Tax refund (or reduction in Tax liability) resulting
from a carry-back of a post-acquisition tax attribute of ZAP.COM and any ZAP.COM
Pre-Closing Affiliates into the Zapata Consolidated Group Tax Return, when such
refund or reduction is realized by the Zapata Group. Zapata will cooperate with
ZAP.COM and any ZAP.COM Pre-Closing Affiliate in obtaining such refunds (or
reduction in Tax liability), including, but not limited to, the filing of
amended Tax Returns or refund claims.
4.5 CONTEST PROVISIONS. Zapata shall have full responsibility and
discretion in the handling of any Tax controversy, including, without
limitation, an audit, a protest to the Appeals Division of the IRS, and
litigation in Tax Court or any other court of competent jurisdiction involving a
Tax Return of the Consolidated Group or the Zapata Group.
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ARTICLE 5
MISCELLANEOUS
5.1 TAX INDEMNIFICATION.
(a) Zapata shall defend, indemnify and hold harmless ZAP.COM
and each ZAP.COM Pre-Closing Affiliate from and against any liability, cost or
expense, including, without limitation, any fine, penalty, interest, charge or
reasonable accountant's fee, for any Tax required under this Agreement to be
paid by Zapata or any member of the Consolidated Group other than ZAP.COM or a
ZAP.COM Pre-Closing Affiliate.
(b) ZAP.COM shall indemnify and hold harmless Zapata and each
member of the Zapata Group from and against any liability, cost or expense,
including without limitation, any fine, penalty, interest, charge or reasonable
accountant's fee, for any Tax required under this Agreement to be paid by
ZAP.COM or any ZAP.COM Post-Closing Affiliate.
(c) The amount of any payment made with respect to this
Section 5.1 shall include any additional amount necessary to indemnify the
recipient of the payment against any Taxes imposed or incurred (including any
increase in liability or taxes resulting from a reduction in the amount of the
loss), and any reasonable professional fees or other litigation costs incurred,
in connection with such payment, and (ii) be reduced by the amount of any tax
benefit realized or to be realized by the recipient as a result of its payment
of the Taxes being indemnified hereunder.
5.2 BREACH. Zapata shall defend, indemnify and hold harmless ZAP.COM
and each ZAP.COM Pre-Closing Affiliate and ZAP.COM shall indemnify and hold
harmless each member of the Zapata Group from and against any payment required
to be made under this Agreement as a result of the breach by a member of the
Zapata Group or by ZAP.COM or a ZAP.COM Pre-Closing Affiliate, as the case may
be, of any obligation under this Agreement.
5.3 RESOLUTION OF CERTAIN DISPUTES.
(a) Arbitration. Disagreements between Zapata and ZAP.COM with
respect to amounts that either claims is owed by the other (or by an Affiliate
of the other) under this Agreement, or other matters under this Agreement that
are not resolved by mutual agreement, shall be resolved by arbitration pursuant
to this Section 5.3.
(b) Selection of the Arbitrator. Any arbitrator selected
pursuant to this Section 5.3(b) shall have at least ten (10) years of experience
in the field of corporate taxation, shall be an attorney licensed to practice
law in any state of the United States or a certified public accountant licensed
to practice in any state of the United States and shall not be or have been
employed by or affiliated with either party. The parties shall first attempt to
agree on a mutually satisfactory arbitrator. If the parties are unable to agree
on a
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mutually satisfactory arbitrator within thirty (30) days after either party
notifies the other in writing of a disagreement requiring arbitration pursuant
to this Section 5.3 (15 days in the case of a disagreement with respect to
Section 4.1 through Section 4.5), each party shall select an arbitrator. The two
arbitrators thus selected shall agree on and select a third arbitrator. If the
two arbitrators cannot agree on such third arbitrator within thirty (30) days
(fifteen (15) days in the case of a disagreement with respect to Section 4.1
through Section 4.5), the parties shall each select a different arbitrator and
renew the foregoing procedure. If the position of an arbitrator is vacated, the
person or persons who originally selected the arbitrator to fill such position
shall select a new arbitrator to fill the position, unless the parties agree to
continue the arbitration with the remaining arbitrators. When used hereinafter,
the term "arbitrator" shall refer to the three arbitrators so selected when
appropriate and a decision of a majority of such arbitrators shall constitute a
decision by the arbitrator in the appropriate context.
(c) Arbitration Procedures.
(i) The arbitration shall be conducted under the
auspices of the American Arbitration Association.
(ii) Each party within thirty (30) days after
engagement of the arbitrator (fifteen (15) days in the case of a disagreement
with respect to Section 4.1 through Section 4.5) shall submit to the arbitrator
a written statement of the party's position (including where relevant the total
net amount it asserts is owed by it or is due to it) regarding the total amount
in dispute.
(iii) The arbitrator shall base his decision on the
following standards. In the case of a factual dispute between the parties, the
arbitrator shall make a determination of the correct facts. In the case of a
dispute regarding a legal issue, including the proper application of the Tax
laws or the proper interpretation of this Agreement, the arbitrator shall make a
determination in accordance with his best legal judgment. Upon making
determinations with respect to all factual and legal issues in dispute, the
arbitrator shall determine the amount due by one party to the other or such
other matter with respect to the matter subject to the arbitration. Where
relevant, as to each matter in dispute, the arbitrator shall find in favor of
the party whose statement submitted pursuant to paragraph (ii) above proposed
the amount closest to the amount so determined.
(iv) The arbitrator shall render a written decision
stating only the result of such decision as soon as practicable. The arbitrator
shall also orally explain the bases of such decision to both parties as soon as
practicable. If and only if both parties request, the arbitrator shall state the
bases of such decision in writing. Where relevant, as to each matter in dispute,
the arbitrator's decision shall be in an amount equal to one of the total
amounts asserted by one of the parties in the written statements submitted
pursuant to paragraph (ii) above. The arbitrator shall not, and is not
authorized to, render a decision in any other amount.
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(v) The arbitrator's decision shall be final and
binding on the parties. No appeal to any court is contemplated by this Agreement
and each party, to the maximum extent permissible by law, waives and
relinquishes all rights and entitlements to appeal such decision.
(vi) The arbitrator shall determine a fair allocation
of the costs of the arbitration proceeding (including each party's legal fees)
as between the parties.
5.4 NOTICES. Any notice, demand, claim or other communication under
this Agreement shall be in writing and shall be deemed given upon delivery if
delivered personally, upon mailing if sent by certified mail, return receipt
requested, postage prepaid, or upon completion of transmission if sent by
telecopy or facsimile, to the parties at the following address:
If to Zapata:
Zapata Corporation
100 Meridian Centre, Suite 350
Rochester, New York 14618
Attn: Avram Glazer, Chief Executive Officer
If to ZAP.COM:
ZAP.COM Corporation
100 Meridian Centre, Suite 350
Rochester, New York 14618
Attn: Leonard DiSalvo, Vice President - Finance
5.5 ENTIRE AGREEMENT. This Agreement and the applicable provisions of
the Distribution Agreement constitute the entire agreement of the parties
concerning the subject matter hereof, and supersedes all other agreements,
whether or not written, in respect of any Tax between or among any member or
members of the Zapata Group, on the one hand, and ZAP.COM and any ZAP.COM
Pre-Closing Affiliate, on the other hand. This Agreement may not be amended
except by an agreement in writing, signed by the parties hereto. In the event
and to the extent that there shall be a conflict between the provisions of this
Agreement and the Distribution Agreement, the provisions of this Agreement shall
control.
5.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with, the laws of the State of New York.
5.7 SUCCESSORS AND ASSIGNS. A party's rights and obligations under this
Agreement may not be assigned without the prior written consent of the other
party. All of the provisions of this Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns.
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5.8 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties to this Agreement and their respective subsidiaries and
should not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without this Agreement.
5.9 LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of the prohibition or unenforceability without
invalidating the remaining provisions. Any prohibition or unenforceability of
any provision of this Agreement in any jurisdiction shall not invalidate or
render unenforceable the provision in any other jurisdiction.
5.10 EXPENSES. Unless otherwise expressly provided in this Agreement or
in the Distribution Agreement, each party shall bear any and all expenses that
arise from their respective obligations under this Agreement. In the event
either party to this Agreement brings an action or proceeding for the breach or
enforcement of this Agreement, the prevailing party in such action or
proceeding, whether or not such action or proceeding proceeds to final judgment,
shall be entitled to recover as an element of its costs, and not as damages,
such reasonable attorneys' fees as may be awarded in the action or proceeding in
addition to whatever other relief to which the prevailing party may be entitled.
5.11 CONFIDENTIALITY. Each party shall hold and cause its
Representatives to hold in strict confidence, unless compelled to disclose by
judicial or administrative process or, in the opinion of its counsel, by other
requirements of law, all information (other than any such information relating
solely to the business or affairs of such party) concerning the other parties
hereto furnished it by such other party or its Representatives pursuant to this
Agreement (except to the extent that such information can be shown to have been
(a) previously known by the party to which it was furnished, (b) in the public
domain through no fault of such party, or (c) later lawfully acquired from other
sources by the party to which it was furnished), and each party shall not
release or disclose such information to any other person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors who
shall be advised of the provisions of this Section. Each party shall be deemed
to have satisfied its obligation to hold confidential information concerning or
supplied by the other party if it exercises the same care as it takes to
preserve confidentiality for its own similar information.
5.12 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signature thereto and hereto were upon the same instrument.
5.13 HEADINGS. Introductory headings used in this Agreement are solely
for the convenience of the parties and shall not be deemed to be limitations
upon or descriptive of the contents of the Section or sub-sections concerned.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
ZAP.COM CORPORATION
By:
Name: Leonard DiSalvo
Title: Vice President - Finance
ZAPATA CORPORATION
By:
Name: Avram Glazer
Title President and Chief Executive
Officer
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EXHIBIT 10.4
(FORM OF)
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
________, 1999, between ZAPATA CORPORATION, a Delaware corporation ("Zapata"),
and ZAP.COM CORPORATION, a Nevada corporation (the "Company").
R E C I T A L S:
A. Zapata is the owner of 10,000 shares of the Company's Series A
preferred stock and 36,038,000 shares of common stock, ("Common Stock"), of the
Company.
B. The Company has requested and Zapata has agreed to assist it in
conducting a Rights Offering to Zapata's stockholders.
C. In partial consideration for the consent of Zapata to the Rights
Offering by the Company, the Company has, among other things, agreed to grant to
Zapata certain registration rights applicable to Registrable Securities (as
defined below) held by Zapata.
D. The parties hereto desire to enter into this Agreement to set forth
the terms of such registration rights.
NOW, THEREFORE, upon the premises and based on the mutual promises
herein contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
initially capitalized terms shall have the following meanings:
(a) "Affiliate" means, with respect to any person, any other
person who, directly or indirectly, is in control of, is controlled by or is
under common control with the former person; and "control" (including the terms
"controlling," "controlled by," and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
(b) "Company Securities" has the meaning set forth in Section
3 hereof.
(c) "Exchangeable Securities" has the meaning set forth in
Section 6 of this Agreement.
(d) "Fair Market Value" means, with respect to any security,
(i) if the security is listed on a national securities exchange or authorized
for quotation on a national market quotation system, the closing price, regular
way, of the security on such exchange or quotation system, as the case may be,
or if no such reported sale of the security shall have occurred on such date, on
the next preceding date on which there was such a reported sale, or (ii) if the
security is not listed for trading on a national securities exchange or
authorized for quotation on a national market quotation system, the average of
the closing bid and asked prices as reported by the National Association of
Securities Dealers Automated Quotation System or such other reputable entity or
system engaged in the regular reporting of securities prices and on which such
prices for such security are reported or, if no such prices shall have been
reported for such date, on the next preceding date for which such prices were so
reported, or (iii) if the security is not publicly traded, the fair market value
of such security as determined by a nationally recognized investment banking or
appraisal firm mutually acceptable to the Company and the Holders, the fair
market value of whose Registrable Securities is to be determined.
(e) "Holder" means Zapata or any Permitted Transferee.
(f) "Initiating Holders" has the meaning set forth in Section
3 of this Agreement.
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(g) "Other Holders" has the meaning set forth in Section 3
hereof.
(h) "Other Securities" has the meaning set forth in Section 3
hereof.
(i) "Other Voting Securities" means any options, rights,
warrants or other securities convertible into or exchangeable for Voting Stock
of the Company.
(j) "Permitted Transferee" has the meaning set forth in
Section 11 hereof.
(k) "Person" means any individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, or other entity of whatever nature.
(l) "Registrable After-Acquired Securities" means any
securities of the Company acquired by Zapata (or any Permitted Transferee).
(m) "Registrable Securities" means (i) all shares of Common
Stock (as presently constituted) owned on the date hereof by Zapata, (ii) all
Registrable After-Acquired Securities, (iii) any stock or other securities into
which or for which such Common Stock or Registrable After-Acquired Securities
may hereafter be changed, converted or exchanged, and (iv) any other securities
issued to holders of such Common Stock or Registrable After-Acquired Securities
(or such stock or other securities into which or for which such Common Stock or
Registrable After-Acquired Securities are so changed, converted or exchanged)
upon any reclassification, share combination, share subdivision, share dividend,
merger, consolidation or similar transaction or event, provided that any such
securities shall cease to be Registrable Securities when such securities are
sold in any manner to a person who is not a Permitted Transferee.
(n) "Registration Expenses" means all out-of-pocket expenses
incurred in connection with any registration of Registrable Securities pursuant
to this Agreement including, without limitation, the following; (i) SEC filing
fees; (ii) the fees, disbursements and expenses of the Company's counsel(s) and
accountants in connection with the registration of the Registrable Securities to
be disposed of; (iii) all expenses in connection with the preparation, printing
and filing of the registration statement, any preliminary prospectus or final
prospectus and amendments and supplements thereto and the mailing and delivering
of copies thereof to any Holders, underwriters and dealers and all expenses
incidental to delivery of the Registrable Securities; (iv) the cost of printing
or producing any underwriting agreement, agreement among underwriters, agreement
between syndicates, selling agreement, blue sky or legal investment memorandum
or other document in connection with the offering, sale or delivery of the
Registrable Securities to be disposed of; (v) all expenses in connection with
the qualification of the Registrable Securities to be disposed of for offering
and sale under state securities laws, including the fees and disbursements of
counsel for the underwriters in connection with such qualification and the
preparation of any blue sky and legal investments surveys; (vi) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Registrable Securities
to be disposed of; (vii) transfer agents', depositaries' and registrars' fees
and the fees of any other agent appointed in connection with such offering;
(viii) all security engraving and security printing expenses, (ix) all fees and
expenses payable in connection with the listing of the Registrable Securities on
any securities exchange or inter-dealer quotation system; and (x) any one-time
payment for directors and officers insurance directly related to such offering,
provided the insurer provides a separate statement for such payment.
(o) "Rule 144" means Rule 144 promulgated under the Securities
Act, or any successor rule to similar effect.
(p) "SEC" means the United States Securities and Exchange
Commission.
(q) "Securities Act" means the Securities Act of 1933, as
amended, or any successor statute.
(r) "Selling Expenses" means all underwriting discounts and
commissions, selling concessions and stock transfer taxes applicable to the sale
by the Holders of Registrable Securities pursuant to this Agreement and all fees
and disbursements of any legal counsel, investment banker, accountant or other
professional advisor retained by a Holder.
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<PAGE> 3
(s) "Selling Holder" has the meaning set forth in Section 5
hereof.
(t) "Transactional Deferral" has the meaning set forth in
Section 2 of this Agreement.
(u) "Voting Stock" means shares of the Company's capital stock
having the power under ordinary circumstances (and not merely upon the happening
of a contingency) to vote in the election of directors of the Company.
2. Demand Registration.
(a) At any time prior to such time as the rights under this
Section 2 terminate with respect to a Holder as provided in Section 2(e) hereof,
upon written notice from such Holder in the manner set forth herein requesting
that the Company effect the registration under the Securities Act of any or all
of the Registrable Securities held by such Holder, which notice shall specify
the intended method or methods of disposition of such Registrable Securities,
the Company shall use its best efforts to effect, in the manner set forth in
Section 5, the registration under the Securities Act of such Registrable
Securities for disposition in accordance with the intended method or methods of
disposition stated in such request (including in an offering on a delayed or
continuous basis under Rule 415 (or any successor rule to similar effect)
promulgated under the Securities Act, if (x) the Company is then eligible to
register such Registrable Securities on Form S-3 (or a successor form) for such
offering and (y) the Company consents to such an offering (except that no
consent of the Company will be required if the contemplated offering on a
delayed or continuous basis under Rule 415 is the offering of Registrable
Securities upon the exercise, exchange or conversion of Exchangeable Securities
as contemplated by Section 6 hereof)), provided that:
(i) if, within 5 business days of receipt of a
registration request pursuant to this Section 2(a), the Holder
or Holders making such request are advised in writing that the
Company has in good faith commenced the preparation of a
registration statement for an underwritten public offering
prior to receipt of the notice requesting registration
pursuant to this Section 2(a) and the managing underwriter of
the proposed offering has determined that in such firm's good
faith opinion, a registration at the time and on the terms
requested would materially and adversely affect the offering
that is contemplated by the Company, the Company shall not be
required to effect a registration pursuant to this Section
2(a) (a "Transactional Deferral") until the earliest of (A)
the abandonment of such offering by the Company, (B) 60 days
after receipt by the Holder or Holders requesting registration
of the managing underwriter's written opinion referred to
above in this clause (i), unless the registration statement
for such offering has become effective and such offering has
commenced on or prior to such 60th day, and (C) if the
registration statement for such offering has become effective
and such offering has commenced on or prior to such 60th day,
the day on which the restrictions on the Holders contained in
Section 10 hereof lapse, provided, however, that the Company
shall not be permitted to delay a requested registration in
reliance on this clause (i) more than once in any 12-month
period;
(ii) if, while a registration request is pending
pursuant to this Section 2(a), the Company determines,
following consultation with and receiving advice from its
legal counsel, that the filing of a registration statement
would require the disclosure of material information that the
Company has a bona fide business purpose for preserving as
confidential and the disclosure of which the Company
determines reasonably and in good faith would have a material
adverse effect on the Company, the Company shall not be
required to effect a registration pursuant to this Section
2(a) until the earlier of (A) the date upon which such
material information is otherwise disclosed to the public or
ceases to be material and (B) 90 days after the Company makes
such determination;
(iii) the Company shall not be obligated to file a
registration statement relating to a registration request
pursuant to this Section 2: (A) prior to the first anniversary
of the closing of the Public Offering, (B) within a period of
365 calendar days after the effective date of any other
registration statement of the Company demanded pursuant to
this Section 2(a), or (C) if such registration request is for
a number of Registrable Securities having a Fair Market Value
on the
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<PAGE> 4
business day immediately preceding the date of such
registration request of less than $50,000,000.00; and
(iv) the Company shall not be obligated to file a
registration statement relating to a registration request
pursuant to this Section 2: (A) in the case of a registration
request by Zapata or any Permitted Transferee that has
acquired, in the transaction in which it became a Permitted
Transferee, at least a majority of the then issued and
outstanding Voting Stock, on more than three occasions after
such time as Zapata or such Permitted Transferee, as the case
may be, owns less than a majority of the voting power of the
outstanding capital stock of the Company (it being
acknowledged that so long as Zapata or such Permitted
Transferee owns a majority of the voting power of the
outstanding capital stock of the Company, there shall be no
limit to the number of occasions on which Zapata or such
Permitted Transferee may exercise such rights other than as
expressly set forth herein), or (B) in the case of a Holder
other than Zapata or a Permitted Transferee described in
clause (A) above, on more than the number of occasions
permitted such Holder in accordance with Section 11 hereof.
(b) Notwithstanding any other provision of this Agreement to
the contrary:
(i) a registration requested by a Holder pursuant to
this Section 2 shall not be deemed to have been effected (and,
therefore, not requested for purposes of Section 2(a)), (A)
unless the registration statement filed in connection
therewith has become effective, (B) if after such registration
statement has become effective, it becomes subject to any stop
order, or there is issued an injunction or other order or
decree of the SEC or other governmental agency or court for
any reason other than a misrepresentation or an omission by
such Holder, which injunction, order or decree prohibits or
otherwise materially and adversely affects the offer and sale
of the Registrable Securities so registered prior to the
completion of the distribution thereof in accordance with the
plan of distribution set forth in the registration statement
or (C) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection
with such registration are not satisfied by reason of some
act, misrepresentation or omission by the Company and are not
waived by the purchasers or underwriters; and
(ii) nothing herein shall modify a Holder's
obligation to pay Registration Expenses, in accordance with
Section 4 hereof, that are incurred in connection with any
withdrawn registration requested by such Holder.
(c) In the event that any registration pursuant to this
Section 2 shall involve, in whole or in part, an underwritten offering, Holders
owning at least 50.1% of the Fair Market Value of the Registrable Securities to
be registered in connection with such offering shall have the right to designate
an underwriter reasonably satisfactory to the Company as the lead managing
underwriter of such underwritten offering, and the Company shall have the right
to designate one underwriter reasonably satisfactory to such Holders as a
co-manager of such underwritten offering.
(d) The Company shall have the right to cause the registration
of additional securities for sale for the account of any person (including the
Company) in any registration of Registrable Securities requested by any Holder
pursuant to Section 2(a) only to the extent the managing underwriter or other
independent marketing agent for such offering (if any) determines that, in its
opinion, the additional securities proposed to be sold will not materially and
adversely affect the offering and sale of the Registrable Securities to be
registered in accordance with the intended method or methods of disposition then
contemplated by such Holder. The rights of a Holder to cause the registration of
additional Registrable Securities held by such Holder in any registration of
Registrable Securities requested by another Holder pursuant to Section 2(a)
shall be governed by the agreement of the Holders with respect thereto as
provided in Section 11(a).
(e) The Company shall not be obligated to file a registration
statement relating to a registration request by a Holder pursuant to this
Section 2 from and after such time as such Holder first owns Registrable
Securities representing (assuming for this purpose the conversion, exchange or
exercise of all Registrable Securities then owned by
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<PAGE> 5
such Holder that are convertible into or exercisable or exchangeable for Voting
Stock of the Company) less than 10% of the then issued and outstanding Voting
Stock of the Company.
3. Piggyback Registration. If the Company at any time proposes to
register any of its Common Stock or any other of its securities (collectively,
"Other Securities") under the Securities Act, whether or not for sale for its
own account, in a manner which would permit registration of Registrable
Securities for sale for cash to the public under the Securities Act, it will at
such time give prompt written notice to each Holder of its intention to do so at
least 10 business days prior to the anticipated filing date of the registration
statement relating to such registration. Such notice shall offer each such
Holder the opportunity to include in such registration statement such number of
Registrable Securities as each such Holder may request. Upon the written request
of any such Holder made within 5 business days after the receipt of the
Company's notice (which request shall specify the number of Registrable
Securities intended to be disposed of and the intended method of disposition
thereof), the Company shall effect, in the manner set forth in Section 5, in
connection with the registration of the Other Securities, the registration under
the Securities Act of all Registrable Securities which the Company has been so
requested to register, to the extent required to permit the disposition (in
accordance with such intended methods thereof) of the Registrable Securities so
requested to be registered, provided that:
(a) if at any time after giving written notice of its
intention to register any securities and prior to the effective date of such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to the Holders and, thereupon, (A) in the
case of a determination not to register, the Company shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration and (B) in the case of a determination to delay such registration,
the Company shall be permitted to delay registration of any Registrable
Securities requested to be included in such registration for the same period as
the delay in registering such other securities, but, in either such case,
without prejudice to the rights of the Holders under Section 2;
(b) (i) if the registration referred to in the first sentence
of this Section 3 is to be a registration in connection with an underwritten
offering on behalf of either the Company or holders of securities (other than
Registrable Securities) of the Company ("Other Holders"), and the managing
underwriter for such offering advises the Company in writing that, in such
firm's opinion, such offering would be materially and adversely affected by the
inclusion therein of Registrable Securities requested to be included therein
because such Registrable Securities are not of the same type, class or series as
the securities to be offered and sold in such offering on behalf of the Company
and/or the Other Holders, the Company may exclude all such Registrable
Securities from such offering provided that the Holder is permitted to
substitute for the Registrable Securities so excluded an equal number of
Registrable Securities of the same type, class or series as those being
registered by the Company or the Other Holders, if and to the extent such Holder
owns Registrable Securities of such type, class or series or can acquire
Registrable Securities of such type, class or series upon exercise or conversion
of other Registrable Securities; and
(ii) if the registration referred to in the first sentence of this
Section 3 is to be a registration in connection with an underwritten primary
offering on behalf of the Company, and the managing underwriter for such
offering advises the Company in writing that, in such firm's opinion, such
offering would be materially and adversely affected by the inclusion therein of
the Registrable Securities requested to be included therein because the number
or principal amount of such Registrable Securities, considered together with the
number or principal amount of securities proposed to be offered by the Company,
exceeds the aggregate number or principal amount of securities which, in such
firm's opinion, can be sold in such offering without materially and adversely
affecting the offering, the Company shall include in such registration: (1)
first, all securities the Company proposes to sell for its own account ("Company
Securities") and (2) second, the number or principal amount of Registrable
Securities and securities, if any, requested to be included therein by Other
Holders in excess of the number or principal amount of Company Securities which,
in the opinion of such underwriter, can be so sold without materially and
adversely affecting such offering (allocated pro rata among the Holders and the
Other Holders on the basis of the number of securities (including Registrable
Securities) requested to be included therein by each Holder and each such Other
Holder); and
(iii) if the registration referred to in the first sentence of this
Section 3 is to be a registration in connection with an underwritten secondary
offering on behalf of Other Holders made pursuant to demand registration rights
granted by the Company to such Other Holders (the "Initiating Holders"), and the
managing underwriter for such offering advises the Company in writing that, in
such firm's opinion, such offering would be materially and adversely affected by
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<PAGE> 6
the inclusion therein of the Registrable Securities requested to be included
therein because the number or principal amount of such Registrable Securities,
considered together with the number or principal amount of securities proposed
to be offered by the Initiating Holders, exceeds the aggregate number or
principal amount of securities which, in such firm's opinion, can be sold in
such offering without materially and adversely affecting the offering, the
Company shall include in such registration; (1) first, to the extent the
registration rights granted to an Initiating Holder permit it to exclude other
securities from its registration on substantially the same basis as that set
forth in the first sentence of Section 2(d) hereof, all securities any such
Initiating Holder proposes to sell for its own account, and (2) second, the
number or principal amount of additional securities (including Registrable
Securities) that such managing underwriter advises can be sold without
materially and adversely affecting such offering, allocated pro rata among any
Other Holders to which clause (1) does not apply and the Holders on the basis of
the number of securities (including Registrable Securities) requested to be
included therein by each Holder and each such Other Holder,
(c) the Company shall not be required to effect any
registration of Registrable Securities under this Section 3 incidental to the
registration of any of its securities in connection with stock option or other
executive or employee benefit or compensation plans of the Company;
(d) no registration of Registrable Securities effected under
this Section 3 shall relieve the Company of its obligation to effect any
registration of Registrable Securities required of the Company pursuant to
Section 2 hereof, except as expressly provided in Section 2; and
(e) the Company shall not be required to effect any
registration of Registrable Securities under this Section for any Holder from
and after such time as such Holder is able to dispose of all of its Registrable
Securities within a three-month period pursuant to Rule 144.
4. Expenses. The Holders, on the one hand, by accepting Registrable
Securities, and the Company, on the other hand, each agree to pay one-half of
all Registration Expenses with respect to a registration pursuant to Section 2
hereof, provided that to the extent a registration pursuant to Section 2
includes the registration of shares for the Company or another person in
connection therewith, the Company or such other person shall pay all incremental
expenses of including such additional shares in the registration. The Holders'
portion of any Registration Expenses shall be allocated among them pro rata
based on each Holder's number or principal amount of Registrable Securities
included in such offering. The Company agrees to pay all Registration Expenses
with respect to a registration pursuant to Section 3 hereof. All Registration
Expenses to be paid by the Holder shall be paid within 3010 days of the delivery
of a statement from the Company, such statements to be delivered not more
frequently than once every 6030 days. All internal expenses of the Company or a
Holder in connection with any offering pursuant to this Agreement, including,
without limitation, the salaries and expenses of officers and employees,
including in-house attorneys, shall be borne by the party incurring them. All
Selling Expenses of the Holders participating in any registration pursuant to
this Agreement shall be borne by such Holders pro rata based on each Holder's
number of Registrable Securities included in such registration.
5. Registration and Qualification. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Section 2 or 3 hereof, the
Company, subject to Section 4 hereof, shall:
(a) prepare and file a registration statement under the
Securities Act relating to the Registrable Securities to be offered as soon as
practicable, but in no event later than 45 days (60 days if the applicable
registration form is other than Form S-3) after the date notice is given, and
use its best efforts to cause the same to become effective within 90 days after
the date notice is given (120 days if the applicable registration form is other
than Form S-3);
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective with
respect to the disposition of all Registrable Securities until the earlier of
(i) such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition set forth in such
registration statement and (ii) the expiration of nine months after such
registration statement becomes effective; provided, that such nine-month period
shall be extended for such number of days that equals the number of days
elapsing from (A) the date the written notice contemplated by paragraph (f)
below is given by the Company to (B) the date on which the Company delivers to
the Holders of Registrable Securities the supplement or amendment contemplated
by
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<PAGE> 7
paragraph (f) below; and provided further, that in the case of a registration
to permit the exercise or exchange of Exchangeable Securities for, or the
conversion of Exchangeable Securities into, Registrable Securities, the time
limitation contained in clause (ii) above shall be disregarded to the extent
that, in the written opinion of Zapata's counsel delivered to the Company, such
Registrable Securities are required to be covered by an effective registration
statement under the Securities Act at the time such Registrable Securities are
issued upon exercise, exchange or conversion of Registrable Securities in order
for such Registrable Securities to be freely tradeable by any person who is not
an Affiliate of the Company or Zapata;
(c) furnish to the Holders and to any underwriter of such
Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities Act,
and such other documents, as the Holders or such underwriter may reasonably
request in order to facilitate the public sale of the Registrable Securities,
and a copy of any and all transmittal letters or other correspondence to, or
received from, the SEC or any other governmental agency or self-regulatory body
or other body having jurisdiction (including any domestic or foreign securities
exchange) relating to such offering;
(d) use its best efforts to register or qualify all
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions (domestic or foreign) as the
Holders or any underwriter of such Registrable Securities shall request, and use
its best efforts to obtain all appropriate registrations, permits and consents
required in connection therewith, and do any and all other acts and things which
may be necessary or advisable to enable the Holders or any such underwriter to
consummate the disposition in such jurisdictions of its Registrable Securities
covered by such registration statement; provided that the Company shall not for
any such purpose be required to register or qualify generally to do business as
a foreign corporation in any jurisdiction wherein it is not so qualified, or to
subject itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(e) (i) use its best efforts to furnish an opinion of counsel
for the Company addressed to the underwriters and dated the date of the closing
under the underwriting agreement (if any) (or if such offering is not
underwritten, dated the effective date of the registration statement), and (ii)
use its best efforts to furnish a "cold comfort" letter addressed to the
underwriters, if permissible under applicable accounting practices, and signed
by the independent public accountants who have audited the Company's financial
statements included in such registration statement, in each such case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements;
(f) immediately notify each Holder of Registrable Securities
included in such registration (each a "Selling Holder") in writing (i) at any
time when a prospectus relating to a registration pursuant to Section 2 or 3
hereof is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) if any request by the SEC or any other regulatory
body or other body having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and in
either such case (i) or (ii) at the request of the Selling Holders, subject to
Section 4 hereof, prepare and furnish to the Selling Holders a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading;
(g) use its best efforts to list all such Registrable
Securities covered by such registration on each securities exchange and
inter-dealer quotation system on which the Common Stock is then listed, with
expenses in connection therewith (not including any future periodic assessments
or fees for such additional listing, which shall be paid by the Company) to be
paid in accordance with Section 4 hereof;
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<PAGE> 8
(h) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange or
inter-dealer quotation system (in each case, domestic or foreign) not described
in paragraph (g) above as the Selling Holders or any underwriter of such
Registrable Securities shall request, and use its best efforts to obtain all
appropriate registrations, permits and consents required in connection
therewith, and to do any and all other acts and things which may be necessary or
advisable to effect such listing; provided, however, that, (i) notwithstanding
Section 4, the Holders of the Registrable Securities to be so listed shall pay
all costs and expenses incurred by the Company in connection with such listing
and (ii) the Company shall have no obligation to use its best efforts to so list
Registrable Securities if in the good faith opinion of counsel for the Company
such listing shall impose on the Company an ongoing material compliance
obligation;
(i) to the extent reasonably requested by the lead or managing
underwriters in connection with any underwritten offering, send appropriate
officers of the Company to attend any "road shows" scheduled in connection with
any such registration; and
(j) furnish for delivery in connection with the closing of any
offering of Registrable Securities unlegended certificates representing
ownership of the Registrable Securities being sold in such denominations as
shall be requested by the Selling Holders or the underwriters.
6. Exchangeable Securities. Zapata shall be entitled, if it intends to
offer any options, rights, warrants or other securities issued or to be issued
by it or any other person that are exercisable or exchangeable for or
convertible into any Registrable Securities ("Exchangeable Securities"), to
register the Registrable Securities underlying such options, rights, warrants or
other securities pursuant to (and subject to the limitations contained in)
Section 2 of this Agreement.
7. Underwriting; Due Diligence.
(a) If requested by the underwriters for any underwritten
offering of Registrable Securities pursuant to a registration requested under
this Agreement, the Company shall enter into an underwriting agreement, with
such underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, indemnities and
contribution substantially to the effect and to the extent provided in Section 8
hereof and the provision of opinions of counsel and accountants' letters to the
effect and to the extent provided in Section 5(e) hereof. The Selling Holders on
whose behalf the Registrable Securities are to be distributed by such
underwriters shall be parties to any such underwriting agreement. Such
underwriting agreement shall also contain such representations and warranties by
the Selling Holders on whose behalf the Registrable Securities are to be
distributed as are customarily contained in underwriting agreements with respect
to secondary distributions. The Selling Holders may require that any additional
securities included in an offering proposed by a Holder be included on the same
terms and conditions as the Registrable Securities that are included therein.
(b) In the event that any registration pursuant to Section 3
shall involve, in whole or in part, an underwritten offering, the Company may
require the Registrable Securities requested to be registered pursuant to
Section 3 to be included in such underwritten offering on the same terms and
conditions as shall be applicable to the other securities being sold through
underwriters under such registration. If requested by the underwriters for such
underwritten offering, the Selling Holders on whose behalf the Registrable
Securities are to be distributed shall enter into an underwriting agreement with
such underwriters, such agreement to contain such representations and warranties
by the Selling Holders and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary distributions,
including, without limitation, indemnities and contribution substantially to the
effect and to the extent provided in Section 8 hereof. Such underwriting
agreement shall also contain such representations and warranties by the Company
and such other person or entity for whose account securities are being sold in
such offering as are customarily contained in underwriting agreements with
respect to secondary distributions.
(c) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act, the Company shall give the Holders of such Registrable Securities and the
Underwriters, if any, and their respective counsel and accountants, such
reasonable and customary access to its banks and records and such opportunities
to discuss the business of the Company with its officers and the independent
public
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<PAGE> 9
accountants who have certified the Company's financial statements as shall be
necessary, in the opinion of such Holders and such underwriters or their
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
8. Indemnification and Contribution.
(a) In the case of each offering of Registrable Securities
made pursuant to this Agreement, the Company agrees to indemnify and hold
harmless each Holder, its officers and directors, each underwriter of
Registrable Securities so offered and each person, if any, who controls any of
the foregoing persons within the meaning of the Securities Act, from and against
any and all claims, liabilities, losses, damages, expenses and judgments, joint
or several, to which they or any of them may become subject, under the
Securities Act or otherwise, including any amount paid in settlement of any
litigation commenced or threatened which is approved by the indemnifying party
as provided below, and shall promptly reimburse them, as and when incurred, for
any reasonable legal or other expenses incurred by them in connection with
investigating any claims and defending any actions, insofar as such losses,
claims, damages, liabilities or actions shall arise out of, or shall be based
upon, any untrue statement or alleged untrue statement of a material fact
contained in the registration statement (or in any preliminary or final
prospectus included therein) or any amendment thereof or supplement thereto, or
in any document incorporated by reference therein, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company shall not be liable to a particular Holder in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement, or any
omission, if such statement or omission shall have been made in reliance upon
and in conformity with information relating to such Holder furnished to the
Company in writing by or on behalf of such Holder specifically for use in the
preparation of the registration statement (or in any preliminary or final
prospectus included therein) or any amendment thereof or supplement thereto.
Such indemnity shall remain in full force and affect regardless of any
investigation made by or on behalf of a Holder and shall survive the transfer of
such securities. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to each Holder, any of such
Holder's directors or officers, underwriters of the Registrable Securities or
any controlling person of the foregoing; provided, further, that this indemnity
does not apply in favor of any underwriter or person controlling an underwriter
(or if a Selling Holder offers Registrable Securities directly without an
underwriter, the Selling Holder) with respect to any loss, liability, claim,
damage or expense arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission in any preliminary prospectus
if a copy of a final prospectus was not sent or given by or on behalf of an
underwriter (or the Selling Holder, if the Selling Holder offered the
Registrable Securities directly without an underwriter) to the person asserting
such loss, claim, damage, liability or action at or prior to the written
confirmation of the sale of the Registrable Securities as required by the
Securities Act and such untrue statement or omission had been corrected in such
final prospectus.
(b) In the case of each offering made pursuant to this
Agreement, each Holder of Registrable Securities included in such offering, by
exercising its registration rights hereunder, agrees to indemnify and hold
harmless the Company, its officers and directors and each person, if any, who
controls any of the foregoing within the meaning of the Securities Act (and if
requested by the underwriters, each underwriter who participates in the offering
and each person, if any, who controls any such underwriter within the meaning of
the Securities Act), from and against any and all claims, liabilities, losses,
damages, expenses and judgments, joint or several, to which they or any of them
may become subject, under the Securities Act or otherwise, including any amount
paid in settlement of any litigation commenced or threatened which is approved
by the indemnifying party as provided below, and shall promptly reimburse them,
as and when incurred, for any legal or other expenses incurred by them in
connection with investigating any claim and defending any actions, insofar as
any such losses, claims, damages, liabilities or actions shall arise out of, or
shall be based upon, any untrue statement or alleged untrue statement of a
material fact contained in the registration statement (or in any preliminary or
final prospectus included therein) or any amendment thereof or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that such untrue statement of a
material fact is contained in, or such material fact is omitted from,
information relating to such Holder furnished in writing to the Company by or on
behalf of such Holder specifically for use in the preparation of such
registration statement (or in any preliminary or final prospectus included
therein). The foregoing indemnity is in addition to any liability which such
Holder may otherwise have to the Company, any of its directors or officers,
underwriters of the Registrable Securities or any controlling person of the
foregoing; provided, however, that this indemnity does not apply in favor of any
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<PAGE> 10
underwriter or person controlling an underwriter (or if the Company offers
Registrable Securities directly without an underwriter, the Company) with
respect to any loss, liability, claim, damage or expense arising out of or based
upon any untrue statement or alleged untrue statement or omission or alleged
omission in any preliminary prospectus if a copy of a final prospectus was not
sent or given by or on behalf of an underwriter (or the Company, if the Company
offered the Registrable Securities directly without an underwriter) to the
person asserting such loss, claim, damage, liability or action at or prior to
the written confirmation of the sale of the Registrable Securities as required
by the Securities Act and such untrue statement or omission had been corrected
in such final prospectus.
(c) Each party indemnified under Paragraph (a) or (b) of this
Section 8 shall, promptly after receipt of notice of any claim or the
commencement of any action against such indemnified party in respect of which
indemnity may be sought, notify the indemnifying party in writing of the claim
or the commencement thereof; provided that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party on account of the indemnity agreement contained in
paragraph (a) or (b) of this Section 8, except to the extent the indemnifying
party was prejudiced by such failure, and in no event shall relieve the
indemnifying party from any other liability which it may have to such
indemnified party. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof; provided that each
indemnified party, its officers and directors, if any, and each person, if any,
who controls such indemnified party within the meaning of the Securities Act,
shall have the right to employ separate counsel reasonably approved by the
indemnifying party to represent them if the named parties to any action
(including any impleaded parties) include both such indemnified party and an
indemnifying party or an Affiliate of an indemnifying party, and such
indemnified party shall have been advised by counsel either (i) that there may
be one or more legal defenses available to such indemnifying party that are
different from or additional to those available to such indemnified party or
such Affiliate or (ii) a conflict may exist between such indemnified party and
such indemnifying party or such Affiliate, and in that event the fees and
expenses of one such separate counsel for all such indemnified parties shall be
paid by the indemnifying party. An indemnified party will not settle any claim
or action for which he or it is being indemnified hereunder unless it is first
approved in writing by the indemnifying party, such approval not to be
unreasonably withheld. The indemnifying party may not agree to any settlement of
any such claim or action which provides for any remedy or relief other than
monetary damages for which the indemnifying party shall be responsible
hereunder, without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld. In any action hereunder as to which
the indemnifying party has assumed the defense thereof with counsel reasonably
satisfactory to the indemnified party, the indemnified party shall continue to
be entitled to participate in the defense thereof, with counsel of its own
choice, but, except as set forth above, the indemnifying party shall not be
obligated hereunder to reimburse the indemnified party for the costs thereof. In
all instances, the indemnified party shall cooperate fully with the indemnifying
party or its counsel in the defense of such claim or action.
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party in respect of any loss, claim, damage or liability, or any
action in respect thereof, referred to herein, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such loss, claim,
damage or liability, or action in respect thereof, in such proportion as shall
be appropriate to reflect the relative fault of the indemnifying party on the
one hand and the indemnified party on the other with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or action
in respect thereof, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party on the
one hand or the indemnified party on the other, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission, but not by reference to any indemnified
party's stock ownership in the Company. In no event, however, shall a Holder be
required to contribute in excess of the amount of the net proceeds received by
such Holder in connection with the sale of Registrable Securities in the
offering which is the subject of such loss, claim, damage or liability. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
paragraph shall be deemed to
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include, for purposes of this paragraph, any legal or other expenses reasonably
incurred by such indemnifying party in connection with investigating or
defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
9. Rule 144. The Company shall take such measures and file such
information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144 (or any successor provision). The
Company shall use its best efforts to cause all conditions to the availability
of Form S-3 (or any successor form thereto) under the Securities Act for the
filing of registration statements under this Agreement to be met as soon as
possible after the completion of the Public Offering.
10. Holdback.
(a) Each Holder agrees by the acquisition of Registrable
Securities, if so required by the managing underwriter of any offering of equity
securities by the Company, not to sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or distribution of or
otherwise dispose of any Registrable Securities owned by such Holder, during the
30 days prior to and the 90 days after the registration statement relating to
such offering has become effective (or such shorter period as may be required by
the underwriter), except as part of such underwritten offering. Notwithstanding
the foregoing sentence, each Holder subject to the foregoing sentence shall be
entitled to sell during the foregoing period any securities of the Company owned
by it in a private sale. The Company may legend and may impose stop transfer
instructions on any certificate evidencing Registrable Securities relating to
the restrictions provided for in this Section 10.
(b) The Company agrees, if so required by the managing
underwriter of any offering of Registrable Securities, not to sell, make any
short sale of, loan, grant any option for the purchase of (other than pursuant
to employee benefit plans), effect any public sale or distribution of or
otherwise dispose of any of its equity securities during the 30 days prior to
and the 90 days after any underwritten registration pursuant to Section 2 or 3
hereof has become effective, except as part of such underwritten registration
and except pursuant to registrations on Form S-4, S-8 or any successor or
similar forms thereto.
11. Transfer of Registration Rights.
(a) A Holder may transfer all or any portion of its rights
under this Agreement to any transferee of Registrable Securities that represent
(assuming the conversion, exchange or exercise of all Registrable Securities so
transferred that are convertible into or exercisable or exchangeable for the
Company's Voting Stock) at least 20% of the then issued and outstanding Voting
Stock of the Company (each, a "Permitted Transferee"); provided, however, that
(i) with respect to any transferee of less than a majority but more than 30% of
the then issued and outstanding Voting Stock, the Company shall not be obligated
to file a registration statement pursuant to a registration request made by such
transferee pursuant to Section 2 hereof on more than two occasions, and (ii)
with respect to any transferee of 30% or less of the then issued and outstanding
Voting Stock, the Company shall not be obligated to file a registration
statement pursuant to a registration request made by such transferee pursuant to
Section 2 hereof on more than one occasion. No transfer of registration rights
pursuant to this Section shall be effective unless the Company has received
written notice from the Holder of an intention to transfer at least 20 days
prior to the Holder's entering into a binding agreement to transfer Registrable
Securities (10 days in the event of an unsolicited offer). Such notice need not
contain proposed terms or name a proposed Permitted Transferee. On or before the
time of the transfer, the Company shall receive a written notice stating the
name and address of any Permitted Transferee and identifying the number and/or
aggregate principal amount of Registrable Securities with respect to which the
rights under this Agreement are being transferred and the scope of the rights so
transferred. In connection with any such transfer, the term Zapata as used in
this Agreement (other than in Section 2(a)(iv)) shall, where appropriate to
assign the rights and obligations hereunder to such Permitted Transferee, be
deemed to refer to the Permitted Transferee of such Registrable Securities.
Zapata and any Permitted Transferees may exercise the registration rights
hereunder in such priority, as among themselves, as they shall agree among
themselves, and the Company shall observe any such agreements of which it shall
have notice as provided above.
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(b) After any such transfer, the transferring Holder shall
retain its rights under this Agreement with respect to all other Registrable
Securities owned by such transferring Holder.
(c) Upon the request of the transferring Holder, the Company
shall execute an agreement with a Permitted Transferee substantially similar to
this Agreement.
12. Miscellaneous.
(a) Injunctions. Each party acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. Therefore, each party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court having
jurisdiction, such remedy being in addition to any other remedy to which such
party may be entitled at law or in equity.
(b) Severability. If any term or provision of this Agreement
is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms and provisions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and each of the parties shall use its best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term or provision.
(c) Further Assurances. Subject to the specific terms of this
Agreement, each of the parties hereto shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
(d) Waivers, etc. Except as otherwise expressly set forth in
this Agreement, no failure or delay on the part of either party in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. Except as
otherwise expressly set forth in this Agreement, no modification or waiver of
any provision of this Agreement nor consent to any departure therefrom shall in
any event be effective unless the same shall be in writing and signed by an
authorized officer of each of the parties, and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which given.
(e) Entire Agreement. This Agreement contains the final and
complete understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior agreements and understandings between the
parties, whether written or oral, with respect to the subject matter hereof. The
paragraph headings contained in this Agreement are for reference purposes only,
and shall not affect in any manner the meaning or interpretation of this
Agreement
(f) Counterparts. For the convenience of the parties, this
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original but all of which together shall be one and the same
instrument.
(g) Amendment. This Agreement may be amended only by a written
instrument duly executed by an authorized officer of each of the parties.
(h) Notices. Unless expressly provided herein, all notices,
claims, certificates, requests, demands and other communications hereunder shall
be in writing and shall be deemed to be duly given (i) when personally delivered
or (ii) if mailed registered or certified mail, postage prepaid, return receipt
requested, on the date the return receipt is executed or the letter refused by
the addressee or its agent or (iii) if sent by overnight courier which delivers
only upon the signed receipt of the addressee, on the date the receipt
acknowledgment is executed or refused by the addressee or its agent or (iv)
if sent by facsimile or other generally accepted means of electronic
transmission, on the date confirmation of transmission is received (provided
that a copy of any notice delivered pursuant to this clause (iv)
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<PAGE> 13
shall also be sent pursuant to clause (ii) or (iii)), addressed as follows or
sent by facsimile to the following number (or to such other address or facsimile
number for a party as it shall have specified by like notice):
(i) if to Zapata, to:
Zapata Corporation
100 Meridian Centre
Suite 350
Rochester, New York 14618
Attention: Avram Glazer, Chief Executive Officer
(ii) if to the Company, to:
ZAP.COM Corporation
100 Meridian Centre
Suite 350
Rochester, New York 14618
Attention: Leonard DiSalvo, Vice President--Finance,
Chief Financial Officer
(iii) if to a Holder of Registrable Securities, to the name and
address as the same appear in the security transfer books of
the Company,
or to such other address as either party (or other Holders of Registrable
Securities) may, from time to time, designate in a written notice in a like
manner.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
(j) Assignment. Except as specifically provided herein, the
parties may not assign their rights under this Agreement. The Company may not
delegate its obligations under this Agreement.
(k) Conflicting Agreements. The Company shall not hereafter
grant any rights to any person to register securities of the Company, the
exercise of which would conflict with the rights granted to the Holders of the
Registrable Securities under this Agreement. The Company shall not hereafter
grant to any person demand registration rights permitting it to exclude the
Holders from including Registrable Securities in a registration on behalf of
such person on a basis more favorable than that set forth in Section 2(d) hereof
with respect to the Holders.
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IN WITNESS WHEREOF, Zapata and the Company have caused this
Agreement to be duly executed by their authorized representative as of the date
first above written.
ZAPATA CORPORATION
By: _______________________________________
Name: Avram Glazer
Title: President and Chief Executive Officer
ZAP.COM CORPORATION
By: _______________________________________
Name: Leonard DiSalvo
Title: Vice President - Finance and Chief
Financial Officer
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<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated April 9, 1999, on our audit of the financial statements of ZAP.COM
Corporation which report includes an emphasis paragraph related to the Company's
shareholder's commitment for an equity contribution. We also consent to the
reference of our firm under the caption "Experts."
PricewaterhouseCoopers LLP
New Orleans, Louisiana
April 9, 1999
<PAGE> 1
Exhibit 99
Form of Letter to Stockholders
Regarding Rights Offering and Stock Distribution
[ZAPATA LETTERHEAD]
, 1999
Dear Stockholder:
I am pleased to send you the attached prospectus concerning a rights
offering and spin-off of our wholly-owned Internet subsidiary, ZAP.COM
Corporation, which is a development stage company. As a holder of Zapata
Corporation common stock you will receive a transferable right to purchase
("Right") shares of ZAP.COM stock. Each holder of Zapata common stock at the
close of business on , 1999 (the record date for the distribution of the
Rights) will receive one Right for every one share of Zapata common stock he
owns on that date. For example, if you own 500 shares of Zapata common stock,
you can purchase up to 500 shares of ZAP.COM common stock. There is currently no
public market for the Rights or the ZAP.COM common stock. We expect that the
Rights will trade in the Over-the-Counter Market until the close of business on
the day that immediately precedes the date on which the Rights expire. We have
applied for quotation of our common stock in the Nasdaq National Market under
the symbol "ZCOM" and for trading privileges in the Pacific Stock Exchange under
the same symbol.
In addition, we may also distribute on a pro rata basis to those persons
holding our common stock as of , 1999, at no cost to them, in the
aggregate between 150,000 shares and 1,200,000 shares of ZAP.COM common stock
(the "Stock Distribution"). We will only make this Stock Distribution if it is
necessary in order for the ZAP.COM common stock to qualify for listing on the
Nasdaq National Market and the Pacific Stock Exchange based on the results of
the Rights offering.
The Rights are set to expire at 5:00 p.m., EST, on , 1999, unless we
extend the expiration date by up to 10 days. Accordingly, if you wish to take
advantage of your Rights, you will need to exercise them before that time. The
Rights Offering and, if necessary the Stock Distribution are expected to close
on or about , 1999.
Zapata founded ZAP.COM Corporation to create and operate a leading Internet
network with global market reach. We plan to pursue this goal by building the
ZAP.COM Network (tm), which will be a branded global network of
"company-owned" banners displayed throughout Web sites owned and operated by
third parties. Our goal is to make the ZAP.COM Network a leading advertising and
e-commerce platform.
ZAP.COM believes that the structure of the ZAP.COM Network will provide a
significant competitive advantage by combining the benefits of a potentially
large and wide reaching Company-owned network with the individual creative
talents of the participating Web publishers. ZAP.COM's management will be
dedicated to rapidly building the ZAP.COM Network.
We are very excited about the opportunity ahead of us in the new and
rapidly growing Internet medium. By creating ZAP.COM and conducting the Rights
Offering and, if necessary, making the Stock Distribution, Zapata will create a
separate publicly traded Internet company. This will separate Zapata's Internet
business with its own unique market opportunity and risk/reward profile from
Zapata's other, more traditional businesses. This transaction will enable Zapata
stockholders to increase or decrease their level of participation in our new
business by varying their level of investment in ZAP.COM following the Rights
Offering and if made, the Stock Distribution.
The attached prospectus contains important information about the Rights
Distribution and ZAP.COM's planned business. I encourage you to read it
carefully. Holders of Zapata common stock on the record date for the Rights
Distribution are not required to exercise their Rights.
The Rights Distribution and if made, the Stock Distribution will both be
taxable to you as a dividend. Please read the information set forth under the
caption "Certain Federal Income Tax Considerations" in the attached prospectus
and consult your tax advisor with respect to the income tax consequences of
these transactions to you.
If you have any questions concerning either the Rights Distribution or the
Stock Distribution, you should contact our Information Agent at the following
address and number:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
(800)223-2064
Banks and Brokers should call collect at (212) 440-9800
Thank you for your consideration.
Sincerely,
Avram A. Glazer,
President and Chief
Executive Officer
