<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 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
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ZAP.COM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
NEVADA 76-0571159 7319
(STATE OF 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 CENTRE, SUITE 350
(ADDRESS, INCLUDING ZIP CODE OF PRINCIPAL ROCHESTER, NEW YORK 14618
PLACE OF BUSINESS AND TELEPHONE NUMBER, (716) 242-8600
INCLUDING AREA CODE OF REGISTRANT'S (NAME, ADDRESS, INCLUDING ZIP CODE OF PRINCIPAL
PRINCIPAL EXECUTIVE OFFICES) PLACE OF BUSINESS AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
</TABLE>
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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. [X]
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. [ ]
<TABLE>
<CAPTION>
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PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO PROPOSED MAXIMUM MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING PRICE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value
per share........................ 50,000,000(1) $6.125(2) $306,250,000(2) $80,850
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</TABLE>
(1) Pursuant to Rule 416(a), the number of shares of common stock being
registered shall be adjusted to include any additional shares which may
become issuable as a result of stock splits, stock dividends or similar
transactions.
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, based on the last
reported sales price on December 20, 1999 as quoted on the OTC Bulletin
Board.
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
EXPLANATORY NOTE
This registration statement covers the registration of 20,000,000 shares of
common stock, $.001 par value per share, of Zap.Com Corporation ("Zap.Com") to
be issued from time to time as payment for all or some portion of the purchase
price for certain rights granted to Zap.Com with respect to one or more Web
sites by Web site owners who join the ZapNetwork (the "Offering Registration").
This registration statement also covers the registration of up to an additional
30,000,000 shares of common stock, $0.001 par value per share, of Zap.Com to be
issued from time to time as payment for all or some portion of the purchase
price for one or more acquisitions of companies, businesses or assets
complementary to Zap.Com's existing business (including future acquisitions of
rights granted with respect to one or more Web sites) or which may be offered in
connection with promotions or similar events or for sale or other distribution
by persons who acquire such shares in the acquisitions or promotional events or
by the donees of such persons or by other persons acquiring such shares (the
"Shelf Registration"). The complete prospectus (the "Offering Prospectus")
relating to the Offering Registration immediately follows this explanatory note.
Following the Offering Prospectus are certain pages relating solely to the Shelf
Registration (together with the remainder of the Offering Prospectus as modified
as indicated below, including an alternate front and back cover page), (the
"Shelf Prospectus"). The Shelf Prospectus will not include the information in
the prospectus summary under the heading "Offering", or under the sections of
the Offering Prospectus entitled "Use of Proceeds" and "Federal Income Tax
Considerations", but includes a "Selling Stockholder" section. All other
sections of the Offering Prospectus will be used in the Shelf Prospectus, except
that a different Plan of Distribution section will be used. Each of the
alternate or additional pages for the Shelf Prospectus included herein has been
labeled "Alternate Page for Shelf Prospectus." If required, each of the
prospectuses in the forms in which they are used after the registration
statement becomes effective will be filed with the Securities and Exchange
Commission pursuant to Rule 424(b) of the General Rules and Regulations under
the Securities Act of 1933, as amended.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 30, 1999
PROSPECTUS
[LOGO]
20,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
Zap.Com Corporation is a development stage company which seeks to build a
branded global network of third party Web sites on which it will have the
contractual right to deploy on a perpetual basis its multifunctional Internet
banner, the ZapBox or other Internet properties it acquires or develops in the
future. This prospectus relates to 20,000,000 shares of our common stock which
we are offering to select owners of Web sites in exchange for these Web site
rights. We are offering the shares of our common stock on a continuous basis
pursuant to Rule 415 under the Securities Act of 1933 only during the period
when the registration statement relating to this prospectus is effective.
Our common stock is currently quoted on the OTC Bulletin Board under the
symbol "ZPCM." As of December 20, 1999, we had 50,000,000 shares of common stock
issued and outstanding. On December 20, 1999, the last reported sales price for
our common stock(of which 16,500 shares traded) was $6.125
AN INVESTMENT IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
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> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Special Note Regarding Forward-Looking Statements........... 21
Plan of Distribution........................................ 22
Use of Proceeds............................................. 28
Dividend Policy............................................. 28
Price Range of Zap.Com Common Stock......................... 28
Capitalization.............................................. 29
Selected Financial Data..................................... 31
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 32
Business.................................................... 36
Management.................................................. 47
Related Party Transactions.................................. 50
Principal Stockholders...................................... 53
Federal Income Tax Considerations........................... 53
Description of Securities................................... 54
Experts..................................................... 57
Legal Matters............................................... 57
Additional Information...................................... 57
Index to Financial Statements............................... F-1
</TABLE>
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Our World Wide Web site is www.zap.com. Neither the information in this Web
site, the ZapBox nor any of our other Internet properties nor any Web Site on
the ZapNetwork is incorporated by reference into this prospectus.
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 person to provide you
with different or inconsistent information. If anyone provides you with
different or inconsistent information, you should not rely on it as having been
authorized by Zap.Com. The information in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus. This prospectus shall not constitute an offer to sell these
securities, or solicitation of an offer to buy, in any jurisdiction where the
offer or sale is not permitted.
Zap.Com, ZapNetwork and ZapBox are some of our service marks.
i
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information appearing elsewhere in this prospectus. The description of the
ZapNetworks rights agreement and its various terms in this prospectus are based
on the form of agreement we intend to seek from Web site owners as a condition
to joining the ZapNetwork. Certain terms of the ZapNetwork rights agreement
actually entered into with different web site owners may vary from our form of
this agreement.
BUSINESS OF ZAP.COM
Zap.Com Corporation was founded in April 1998 to create and operate a
premier Internet network with a global market reach. Our goal is to make the
ZapNetwork a leading advertising and e-commerce platform by offering a variety
of services and benefits to users, Web site owners, advertisers and merchants.
We plan to pursue this goal by building the ZapNetwork, which will be a network
of third party Web sites that deploy on a perpetual basis our multifunctional
Internet banner, the ZapBox or other Internet properties we acquire or develop
in the future.
Our business model involves the acquisition by us of contractual rights to
space on third party Web sites, with each site's owner retaining the right to
all other aspects of its Web site. We expect to deploy on a perpetual basis our
ZapBox or other Internet properties in this space. We expect that the main form
of consideration to be paid these owners will be our common stock.
To date, our operations have consisted primarily of organizational and
capital raising activities, research and analysis with respect to Internet
industry opportunities, development of strategic relationships and the creation
and launch of our homepage at www.zap.com and the first release of our
multifunctional Internet banner, ZapBox 1.0. ZapBox 1.0 offers search, feedback
e-mail, animated graphical links to ZapNetwork sites and the Zap.Com homepage.
We are developing future releases of the ZapBox, which are expected to offer
additional user functionality and ad serving and e-commerce capabilities. We
have deployed ZapBox 1.0 on three Web sites owned and operated by our majority
stockholder, Zapata Corporation, which include www.word.com, www.charged.com and
www.pixeltime.com, and our homepage at www.Zap.Com. Zapata has agreed to
continue this arrangement at its discretion and no legal or other financial
obligations exist between the parties with respect to this arrangement. This
initial network allows us to beta test ZapBox releases and the technology that
will support the ZapNetwork. It also allows us to present a working model to
prospective ZapNetwork participants.
As of the date of this prospectus, we have not generated any, nor do we
have any source of revenue. Therefore, to a significant extent, the description
of our business in this prospectus is based on a business model and activities
in the early execution stages.
In the future, we may acquire or establish strategic relationships with
Internet service organizations, electronic commerce companies and traditional
companies that have attractive electronic commerce opportunities, including
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 site owner or anyone else for any acquisition,
investment or similar transaction. At any given time, however, we may be in
discussions or negotiations regarding any of these opportunities.
Our business will be supported by a systems platform that is provided and
maintained by third parties. We will also rely on third parties for facilities
and hardware management, software programming and development and sales
representation. We have entered into contracts with third parties for some of
these services and plan to enter into additional contracts for the balance of
these services.
Our principal executive offices are located at 100 Meridian Centre, Suite
350, Rochester, New York 14618. Our telephone number is (716) 242-8600.
RISK FACTORS
We will be operating in a new industry and our business and securities
involve a high degree of risk. The principal risks are described under "Risk
Factors."
<PAGE> 6
RECENT EVENTS
Prior to November 12, 1999, we were a wholly-owned subsidiary of Zapata. On
November 12, 1999, Zapata distributed 477,742 shares of our common stock to its
stockholders. In connection with the distribution, Zapata provided us with
$9,000,000 as the capital contribution for 49,450,000 shares of our common
stock. The contribution consisted of $8,000,000 in cash and the forgiveness of
$1,000,000 of inter-company debt. In addition, in November 1999 our President
and Chief Executive Officer, Avram Glazer, and his father, Malcolm Glazer, who
owns approximately 44% of Zapata's outstanding common stock, contributed
$1,100,000 to us in exchange for 550,000 shares of our common stock.
RELATIONSHIP BETWEEN ZAPATA AND ZAP.COM
As of the date of this prospectus, Zapata holds 48,972,258 shares of our
common stock, or 98% of our outstanding common stock. As a result, Zapata
controls our management and policies and will be able to control substantially
all matters submitted to our stockholders for consideration, including the
election of directors and all proposals for merger, liquidation, sale of
substantially all of our assets and charter amendments.
Officers and Directors
Executive officers of Zapata also serve as executive officers of Zap.Com.
In addition, Avram Glazer serves as a director of both corporations.
Contractual Arrangements
On October 20, 1999, we entered into a services agreement with Zapata under
which Zapata is required to provide us with general administrative services. The
services agreement also provides that Zapata will bill Zap.Com for services
based on an estimated cost basis for services provided. The services agreement
may be terminated by either party on 120 days notice. On October 20, 1999, we
also entered into an investment and distribution agreement, tax sharing and
indemnity agreement and registration rights agreement with Zapata.
On October 20, 1999, we entered into a consulting agreement with American
Internetwork Sports Company, LLC to provide us with corporate, business and
marketing advice on sports related aspects of Zap.Com's business. In exchange
for these services, we entered into a warrant agreement with American
Internetwork Sports that provides for the issuance of warrants to purchase in
the aggregate up to 2,000,000 shares of Zap.Com common stock at an exercise
price of $2.00 per share. These warrants will become exercisable on a cumulative
basis in equal one-third amounts on each of the first three anniversary dates of
the consummation of Zapata's distribution of our shares on November 12, 1999,
unless earlier accelerated, and have a term of five years. The warrants will
accelerate and become immediately exercisable if at any time Zap.Com terminates
the consulting agreement without cause or there is a change in control of
Zap.Com. American Internetwork Sports is owned and controlled by Avram Glazer's
siblings.
2
<PAGE> 7
THE OFFERING
Eligible Subscribers Web site owners who apply to become members of
the ZapNetwork and offer to subscribe our
shares in exchange for various rights with
respect to their Web site as set forth in the
ZapNetwork rights agreement which they must
enter into with Zap.Com to join the network. We
describe the ZapNetwork rights agreement on
page 23 of this prospectus under the heading
"Plan of Distribution -- ZapNetwork Rights
Agreement." We will offer and sell our shares
only to Web site owners located in those states
where we have registered or qualified the
shares being offered under this prospectus for
sale or where an exemption is available for
offering and selling these shares.
Common Stock Offered 20,000,000 shares.
Direct Offering This offering is being conducted by our
officers without the use of any independent
brokers. No underwriting discounts or
commissions will be paid to our officers. We
intend to solicit select Web site owners
through various methods, including direct mail
and appropriate online and off-line
advertising.
Share Offering Price We will pay each Web site owner a purchase
price for the Web site rights granted to us.
The purchase price will generally be payable
only in shares of our common stock offered
under this prospectus. Under the ZapNetwork
rights agreement, the number of shares to be
issued in payment of the purchase price will be
based on a per share value to be determined on
each of the six dates on which purchase price
payments are due to the Web site owner. The
rights agreement provides that the share price
will be the higher of the average closing price
of our common stock for the 20 days ending on
the payment dates and the per share floor price
in effect on the date the agreement is signed
by the Web site owner. The per share floor
price is established by our Board of Directors
from time to time. As of the date of this
prospectus, the per share floor price last
established by our Board of Directors is $5.00.
Best Efforts and Continuous
Offering This offering is being made on a "best efforts"
and continuous basis, with no minimum number of
shares required to be sold. We may accept
applications to our network and subscriptions
for our shares at any time and from time to
time until the offering expires or is
withdrawn. In order to ensure that we have
sufficient shares to satisfy our payment
obligations under the ZapNetwork rights
agreement that we enter into in connection with
this offering, we will only accept
subscriptions which have an aggregate purchase
price equal to the number of shares offered
multiplied by the applicable floor price.
Common Stock to be Outstanding
After the Offering Under the terms of the ZapNetwork rights
agreement, the shares being offered under this
prospectus generally will be issued over a
seven year period. Until those shares are
issued, we will reserve from our authorized but
unissued shares the number of shares equal to
the total purchase price due a Web site owner
divided by the per share floor price in effect
on the date that the Web site owner enters into
a rights agreement with us. If all of the
shares
3
<PAGE> 8
offered under this prospectus are subscribed
and issued, we will have 70,000,000 shares
outstanding if we issue no other shares prior
to the last payment date. However, if the
20-day average closing price for our shares at
one or more of the payment dates on which
shares subscribed for in this offering are to
be issued is greater than the applicable per
share floor price, then we will issue fewer
shares than we have reserved for issuance to
those Web site owners. In addition, we have
5,000,000 shares reserved for options and
warrants issued to or to be issued, including
options and warrants for 2,578,000 shares
previously granted at an exercise price of
$2.00 per share.
Expiration Date The earlier of the date on which all of the
shares offered by this prospectus have been
subscribed based on the applicable per share
floor price and July 1, 2000, unless withdrawn
or extended by Zap.Com in its sole discretion.
In no event will the offering end later than on
December 31, 2000.
Joining the ZapNetwork A Web site owner wishing to join the ZapNetwork
by granting us various Web site rights and
subscribing for shares in this offering in
exchange for those rights can do so by
following the procedures described under "Plan
of Distribution -- How You Can Join the
ZapNetwork."
Conditional Acceptance Into
the Network and Site
Evaluation Each Web site owner whose ZapNetwork
application we accept will initially be
accepted into our network on a conditional
basis for up to 120 business days after we sign
the Web site owner's rights agreement. We will
have the right to review and evaluate all
aspects of the Web site during this period. As
a result of this evaluation, we may elect not
to continue the Web site owner in our network.
If we elect not to continue as Web site owner
in our network during the initial evaluation
period, then neither party will have any legal
or financial obligation to the offer in the
absence of a breach of the ZapNework rights
agreement by the Web site owner during this
period.
4
<PAGE> 9
SUMMARY FINANCIAL DATA
The following tables set forth selected financial data derived from our
audited financial statements. The audited balance sheets as of December 31, 1998
and September 30, 1999 and the related statements of operations, stockholder's
deficit and cash flows for the periods then ended and the related notes are
included elsewhere in this prospectus. The following information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FROM APRIL 2, 1998 FOR THE
(DATE OF INCEPTION) NINE MONTHS
THROUGH ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
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<S> <C> <C>
Revenues.................................................. $ -- $ --
Expenses
General and administrative.............................. 793 1,411,548(1)
Loss before income taxes.................................. (793) (1,411,548)
----------- ------------
Benefit from income taxes................................. -- --
----------- ------------
Net loss.................................................. $ (793) $ (1,411,548)
=========== ============
Per share data (basic):
Net loss per share...................................... $ (.00) $ (.03)
=========== ============
Average common shares and common share equivalents
outstanding............................................. 49,450,000 49,450,000
=========== ============
</TABLE>
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(1) Includes approximately $325,000 of costs incurred as of September 30, 1999
in connection with a rights offering abandoned by Zap.Com in September 1999.
The following balance sheet data is presented:
- On an actual basis;
- On a pro forma basis to give effect as of September 30, 1999 to Zapata's
contribution of $9,000,000, consisting of $8,000,000 in cash and
$1,000,000 in inter-company debt forgiveness, and the Glazers' $1,100,000
cash contribution as payment for 550,000 shares; and
- On a pro forma as adjusted basis to give effect as of September 30, 1999
to the issuance of the 20,000,000 shares offered by this prospectus at
the assumed per share floor price of $5.00. We will capitalize the
issuance of these shares at the purchase price due to the Web site owner
who is entitled to receive them and ratably amortize this amount over the
payment period. See "Place of Distribution -- ZapNetwork Rights
Agreement."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
AS OF ---------------------------------------------
DECEMBER 31, PRO PRO FORMA
1998 ACTUAL FORMA AS ADJUSTED
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
Balance sheet data:
Cash and cash equivalents....................... $ -- $ 23,401 $9,123,401 $ 9,123.401
Total assets.................................. -- 62,283 9,162,283 109,162,283(1)
Total liabilities............................. 783 1,474,614 474,624 474,624
Total stockholders' (deficit) equity.......... (783) (1,412,331) 8,687,659 108,687,659(1)
</TABLE>
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(1) The actual amount of total assets and total stockholders' equity will be
less than the presented pro forma as adjusted figures if the per share value
of the shares issued to Web site owners under their respective ZapNetwork
rights agreements is below the $5.00 per share floor price used for
determining this figure. If this occurs, then the intangible assets acquired
from the Web site owners in the form of Web site rights will be reduced and
total assets and total stockholders' equity will decrease by the same
amount. In addition, subsequent increases, if any, to the per share floor
price by the Board of Directors would result in an increase to the actual
amount of the total assets and total stockholders' equity from the presented
pro forma as adjusted figures to the extent of Web site rights acquired
after the floor price increase.
5
<PAGE> 10
RISK FACTORS
You should be aware that an investment in our common stock involves a high
degree of risk. The principal risks are described below. We urge you to
carefully consider these risk factors together with all of the other information
included in this prospectus, including our financial statements and the related
notes, before investing in our common stock. Our business, prospects, operating
results and financial condition could be adversely affected by any of these
risks. Further, the trading price of our common stock could decline
significantly due to any of these risks.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND
PROSPECTS
We were founded in April 1998. To date, our activities have consisted
primarily of organizational and capital raising activities, research and
analysis with respect to Internet industry opportunities, development of
strategic and commercial relationships and the creation and launch of our
homepage, the ZapBox 1.0 and the ZapNetwork. As of the date of this prospectus,
we have a limited operating history which makes it difficult to evaluate our
business and its prospects.
WE FACE MANY RISKS IN ESTABLISHING A NEW BUSINESS ENTERPRISE
As a recently 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 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 like the Internet, using unproven business models.
To address some of these risks we must successfully:
- finalize development of future releases of our banner which incorporate
additional functionality;
- build and maintain the ZapNetwork by having Web site owners join our
network;
- develop and formalize strategic and commercial relationships with third
parties for services in areas critical to the successful execution of our
business model, including organizations that have sales, software,
hardware, Web site traffic measurement and technical and Internet
industry expertise;
- attract, retain and motivate qualified personnel;
- market the ZapNetwork to potential customers, including advertisers,
direct marketers, merchants and others;
- manage the expansion of our operations; and
- anticipate and adapt to changes in our market and competitive
developments.
We cannot be certain that our business strategy will be successful or that
we will successfully address any or all of these risks or any of the other risks
described in this prospectus. Our failure to address these risks will present
significant obstacles to our ability to achieve and sustain profitability.
WE HAVE NO PRESENT SOURCE OF REVENUES; TO GENERATE REVENUES, WE WILL NEED TO
GROW OUR NETWORK WHICH WE CANNOT GUARANTEE WILL OCCUR.
As of the date of this prospectus, we do not have any source of revenue.
Our ability to generate revenues will depend on our ability to have Web sites
owners join the ZapNetwork and to select sites that are attractive to potential
customers. We do not expect to generate any revenues from the ZapNetwork until
it has grown to a size which is attractive to potential advertising customers
and e-commerce partners. As of the date of the prospectus we have no present
plans, proposals, arrangements or understandings with any Web site owners to
join our network. Further, we have not confirmed the interests of Web site
owners in the ZapNetwork and,
6
<PAGE> 11
therefore, we cannot assure you that Web site owners will want to join our
network. Please see "Business -- Web Site Owner Recruiting." If we are unable to
attract a sufficient number of Web site owners to our network to commence sales,
it would adversely effect our ability to generate revenues and would impede our
growth. 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. Even if we do
attract a sufficient number of Web site owners, we cannot assure you that we
will be able to integrate these Web sites into our network without substantial
unanticipated costs, delays or other problems. We also may be unable 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. Please see "Business -- Web Site Owner
Recruiting" and "Management's Discussion and Analysis of Financial Condition and
Results of Operation."
WE ANTICIPATE SIGNIFICANT LOSSES AND NEGATIVE OPERATING CASH FLOW FOR THE
FORESEEABLE FUTURE
As of September 30, 1999, we had a deficit accumulated during the
development stage of $1,412,341. We anticipate that, for the foreseeable future,
we will incur substantial operating losses and negative operating cash flow as
we execute our business model and obtain and integrate the necessary technology,
systems and supporting infrastructure, increase the number of Web sites that
belong to our network, develop our brands, hire additional employees and expand
our business. We also anticipate significant charges arising from the
consideration we plan to pay Web site owners who join the ZapNetwork and in
connection with promotions or similar events. As a result, in order to achieve
and maintain profitability, we will need to establish and grow our network and
attract and retain customers which we cannot assure you will occur. Please see
"Risk Factors -- We Have No Present Source of Revenue; To Generate Revenues We
Will Need to Grow Our Network and We Cannot Guarantee That This Will Occur" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operation." To the extent that revenue does not grow at anticipated rates, or
that increases in operating expenses are not followed by commensurate increases
in revenue, or if we are unable to adjust operating expense levels accordingly,
our business, results of operations and financial condition will be materially
and adversely affected. There can be no assurance that we will ever achieve
profitability. If we do achieve profitability, we cannot be certain that we
would be able to sustain or increase profitability on a quarterly or annual
basis in the future.
OUR BUSINESS MODEL AND ITS POTENTIAL FOR PROFIT IS UNPROVEN
Our business is based on an unproven model. As a result, the profit
potential for our business model is also unproven. Even if our network is
successfully developed, our success will largely depend on our ability to
generate and substantially increase advertising and e-commerce related revenues.
We cannot assure you that the market for our services will develop or become
sustainable. Either of these situations could have a material adverse effect on
our ability to generate revenues and would impede our growth. In addition, as
our business model evolves, we may introduce new pricing models and new products
and services which may adversely affect our margins, significantly increase our
operating expenses and adversely affect our operating cash flow.
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 is uncertain and have a high level of 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 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
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limited portions of their budget to Internet based advertising and transactions.
Our ability to generate revenues will depend on these potential customers
accepting and utilizing the Internet's new and novel emerging method of
conducting business and exchanging information.
WE ARE IN THE PROCESS OF DEVELOPING FUTURE RELEASES OF THE ZAPBOX, AND IT MAY BE
DIFFICULT TO FINALIZE DEVELOPMENT OF THESE RELEASES
We have created ZapBox 1.0, which is a multifunctional banner that offers
search, feedback e-mail, animated graphical links to ZapNetwork sites and the
Zap.Com homepage. Our business model relies on the addition of ad serving and
e-commerce capabilities to the ZapBox. We are currently in the process of
developing future releases of the ZapBox with these and other functions. The
timing and success of these versions of the ZapBox is unpredictable due to the
uncertainty of several technical parameters, including bandwidth requirements
and browser compatibility. We cannot guarantee that the development of these
future versions our banner will be successfully finalized and introduced. In
addition, the current or any future version of the ZapBox may contain undetected
errors when first made available, which could result in additional expense to us
and also result in a loss or delay of market acceptance of the banner or other
Internet property and disruption to the operation of our network. Any of these
events would have a material adverse affect on our ability to generate and grow
revenues and could result in incurring additional expenses that may not be
recovered.
IF BANNER PROGRAMMING BECOMES AN INEFFECTIVE BUSINESS METHOD, OUR BUSINESS,
REVENUES, OPERATING RESULTS AND PROSPECTS WILL SUFFER
Banner advertising, from which we expect to derive substantially all of our
revenues, may not be an effective business model in the future. There are
currently no widely accepted standards to measure the effectiveness of Internet
banners and we cannot be sure that these standards will develop to sufficiently
support the use of banners as a significant medium for delivery of advertising,
e-commerce and other information. Potential ZapNetwork customers may not accept
our (or third party) measurements of impressions on the ZapNetwork and these
measurements may contain errors. This could adversely affect our business and
our ability to generate revenues. Even if new methods of measuring effectiveness
are developed, we may not be able to take advantage of them. Moreover,
inexpensive "filter" software programs that limit or prevent banners from being
delivered to a user's computer are currently available. The widespread adoption
of this software or the actual or perceived ineffectiveness of a network of
banners in general, could threaten the commercial viability of our business and
limit our long-term growth.
WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN OUR QUARTERLY
OPERATING RESULTS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE
Our limited 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, network customers or the addition to, or
loss of Web sites from, the ZapNetwork;
- the price paid to Web site owners for joining the ZapNetwork and related
costs;
- user traffic levels and the number of impressions on Web sites that
belong to the ZapNetwork;
- demand for advertising on the ZapNetwork by future customers and the
success of any e-commerce opportunities for the ZapNetwork;
- 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 ZapNetwork;
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- the commitment of budgets for businesses to Internet advertising and use;
- the mix of revenues from different uses of the ZapNetwork by our future
customers and e-commerce partners;
- the timing and amount of costs relating to building our network and
expanding 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
- 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 our limited operating history and our unproven
business model, we cannot predict future revenues or operating results
accurately. It is likely that in some future periods our revenues and operating
results may be below the expectations of public market analysts and investors
and this would almost certainly affect adversely the trading price of our common
stock. Please see "Management's Discussion of Analysis of Financial Condition
and Results of Operation".
A DECLINE IN TRAFFIC ON, OR LOSS OF WEB SITES BELONGING TO OUR NETWORK COULD
RESULT IN REDUCED REVENUES
Our near-term and long-term prospects will be significantly dependent upon
the performance of the Web sites who join the ZapNetwork, including the quality
of their content or other offerings and the level of traffic on their sites.
Management's assessment of a particular Web site candidate for our network may
not prove to be correct. Additionally, we will have no control over these
factors and our ability to generate revenues and grow would be significantly
impeded by declines in the quality or traffic levels of Web sites that belong to
our network, or if one or more material Web sites discontinues its business or
becomes bankrupt or insolvent.
Each Web site owner who joins the ZapNetwork will enter into a contract
with us providing for a perpetual right to deploy the ZapBox or any other
Internet properties we develop or acquire in the future, throughout its Web
sites. In the event that a Web site owner breaches its ZapNetwork rights
agreement at any time and denies us access to its Web sites, one of our remedies
will be to pursue a court order for specific performance. A court, however, may
find that money damages are adequate and refuse to issue this type of order
despite the irreparable harm that we believe will occur. If either a Web site
owner whose site is material to the network or a material number of Web sites
which belong to the network engage in that type of conduct and the presiding
courts refuse to specifically enforce the participants' contracts with us, we
might be unable to honor obligations to our customers and our ability to
generate revenues and grow would be significantly impeded.
OUR DATABASE MAY CONTAIN INACCURACIES THAT COULD REDUCE THE VALUE OF OUR
INFORMATION
The effectiveness of targeting on our network will be largely dependent
upon the accuracy of profile information contained in the databases we assemble.
This data will initially be collected from those Web site owners who belong to
our network and, therefore, the quality of this data will be dependent on those
Web site owners. Thus, we cannot be sure that the information which will be
developed from our database will be accurate or that network customers will be
willing to rely on targeting based on our database which may contain these
potential inaccuracies. This could adversely affect our ability to secure or
continue customer relationships which could adversely affect our ability to
generate and grow revenues. Please see "Business -- Intellectual Property".
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WE WILL RELY ALMOST EXCLUSIVELY ON THIRD PARTY TECHNOLOGY AND SERVICE PROVIDERS
THAT WE DO NOT CONTROL
In order to support the ZapBox, we must develop and acquire the supporting
infrastructure. For example, we currently expect to rely on EMC, Inc. to provide
us with connectivity to the Internet and to provide us with the necessary
software to address certain operational aspects of our network. We have entered
into a letter of intent with EMC to provide us with those services. We expect to
enter into a sublicense agreement with EMC for the Doubleclick Ad Server
software platform. The Ad server software is being sublicensed to address the
complex task of distributing the advertising banner on our network, managing
banner space and measuring page views from the ZapNetwork. To the extent that
material difficulties are encountered in bringing DoubleClick's systems on-line,
we will need to acquire an alternative solution. Our loss of, or inability to
maintain or obtain upgrades to the technology licenses or hardware solutions
used in our operating infrastructure by us or third parties could result in
delays, which would adversely effect our ability to operate our network. This
would cause our business and operating results to suffer until equivalent
technology and hardware solutions could be identified and implemented. If we are
unable to maintain satisfactory relationships with third parties who provide
services or products necessary to operate our network 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 network and, hence, our business and operating results. 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 ability to generate
revenue.
We also expect to rely on third-party service providers for a number of
operational aspects critical to our business plan. These providers include
experienced media representation agencies, Web site traffic measurement firms,
content providers, customer service providers and others. We currently have some
of these arrangements in place and we cannot assure you that we will be able to
secure all other arrangements necessary to operate our business. If we fail to
secure additional necessary arrangements, or to do so in a timely manner and on
commercially reasonable terms, it will have a material adverse effect on our
ability to commence sales efforts and to generate revenues. The termination of
any of these relationships in the future after they have been established could
have the same effect and could impair our relationships with customers and have
a negative impact on our revenues. Further, if any of the third-parties change
their terms or terminate their relationships, we may need to incur additional
costs to replace those service providers and to bring the new service providers
up-to-date with our then current operations. Please see "Business -- Operating
Infrastructure and Technology Platform," and "-- Sales, Marketing and Customer
Service".
THE FAILURE OF COMPUTER SYSTEMS USED BY US OR THIRD PARTIES COULD HARM OUR
OPERATIONS AND REVENUES
The continuing and uninterrupted performance of computer systems used by
us, third parties performing services for us and Web site participants in our
network 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. Slower response time or significant disruptions
may also result from straining the capacity of the software used in our network
or the hardware connected to our network due to an increase in the volume of
programming delivered to our network. If these circumstances arise, our efforts
to rectify the situation may result in significant additional expenses. To the
extent that any capacity constraints or system failures are not adequately
addressed, it would adversely effect the delivery of programming to our network,
the number of Zap.Box views received by our customers and our revenues and we
may need to incur significant expenses to rectify the situation.
Similar to all computer and communication 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 network programming 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 systems supporting our network may at some
point in the future
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cause interruptions in the delivery of programming to our network. 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 now and will not for the foreseeable future maintain business
interruption insurance. Any system failure that causes interruption or an
increase in download time of our ZapBox or other Internet properties to Web
sites could delay programming to the ZapNetwork and, if sustained or repeated,
could reduce the attractiveness of the network to customers.
WE EXPECT TO INCUR SIGNIFICANT EXPENSES FOR COMPENSATION PAID TO WEB SITE OWNERS
FOR JOINING OUR NETWORK
We expect to incur significant charges for the consideration we plan to pay
Web site owners for joining and belonging to the ZapNetwork in connection with
this and future offerings. To the extent we pay this consideration in shares of
our common stock, we will account for it at fair value on the date of issuance.
We expect to amortize these charges over future periods and that the reduction
in net income resulting from these charges will have a material and adverse
impact on earnings.
IF WE ARE UNABLE TO RAISE NECESSARY CAPITAL IN THE FUTURE, WE MAY BE UNABLE TO
MEET OUR FUTURE CAPITAL NEEDS
Our business model is dependent on a significant number of Web Site owners
joining our network as a result of being paid for the right to deploy the
ZapBox, or other Internet properties we develop or acquire in the future,
throughout their Web sites. We expect that the main form of consideration to be
paid these Web site owners will be our common stock. Since our common stock
started trading on November 30, 1999, our common stock has been thinly traded.
If a more active trading market does not develop in, or develops and is not
maintained in our common stock, Web site owners considering joining the
ZapNetwork may be unwilling to accept our common stock as consideration for
joining and belonging to the network. Under these circumstances, we may be
required to use cash to initiate and possibly maintain the growth of our
network.
We have limited cash resources available for payment to potential
ZapNetwork participants and Zapata does 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 control of
approximately 98% of our outstanding common stock and the significant potential
for percentage dilution of a potential investor's percentage ownership in our
common stock presented by our business model may make it difficult for us to
raise additional capital in the future or to raise capital on terms favorable to
us. Zapata's control may deter potential investors from investing in Zap.Com
because Zapata's voting control over Zap.Com will make it 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. This may also adversely affect the market value and liquidity
of our common stock and our ability to issue additional common stock.
If we raise additional funds in the future through the issuance of equity,
equity-related or debt securities any or all of those securities may have
rights, preferences or privileges senior to those of the rights of our common
stock and our stockholders may also experience significant dilution.
OUR BRAND MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO SUCCEED AND
BUILDING BRAND IDENTITY IS LIKELY TO BE EXPENSIVE
We believe that quality recognition and perception of the Zap.Com brands is
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, like advertisers and e-commerce partners, and Web
site owners who are potential ZapNetwork participants. We cannot assure you that
we will be able to establish and maintain this 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. Please
see "Risk Factors -- Our Intellectual Property Rights May Be
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Difficult to Protect". If our brand enhancement strategy is unsuccessful, these
expenses may never be recovered and we may be unable to realize significant
revenue and our ability to succeed will be seriously impeded.
OUR INTELLECTUAL PROPERTY RIGHTS MAY BE DIFFICULT TO PROTECT
We protect our proprietary rights through a combination of patent,
copyright, trade secret and trademark law. A provisional patent application has
been filed in the United States Patent and Trademark office that is directed at
three different aspects of the business processes we plan to employ in our
business. A provisional patent application is a type of application under which
a patent will not issue, but which will provide a priority date for a regular
patent application that is filed within a one year period following the filing
of the provisional patent application. We also currently have pending in the
United States Patent and Trademark Office application for the registration of
the "Zap.Com," service mark. In addition, in the future we intend to file
additional 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 also generally enter into
confidentiality agreements with our employees, consultants and corporate
partners to control access to, and distribution of, proprietary information.
We cannot assure you that a patent will ever be issued on our pending
provisional patent application or that our pending trademark application will be
approved. Further, we can not assure you that if issued or approved, the patent
or registered marks will not be successfully challenged by others or invalidated
through administrative process or litigation. We also do not know if the pending
or future applications will be issued within the scope of the claims sought.
If a patent is issued on the final application, it is possible that:
- if there are variations in the application of the 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
- a competitor may develop and utilize a business model that appears
similar to the system described in the final patent application, but
which has sufficient distinctions that it does not fall within the scope
of any patent which may arise from this type of application.
We plan to collect and utilize data derived from user activity on the
ZapBox, the ZapNetwork and the Web sites on our network. We plan to use this
data for ad targeting and delivery of other programming on, and predicting
performance of, our network. We cannot assure you that any trade secret,
copyright or other protection will be available to protect this information.
The validity, enforceability and scope of protection of proprietary rights
in Internet-related businesses is uncertain and still evolving. In addition, the
laws of some foreign countries do not protect proprietary rights to the same
extent as they do in the United States. Our means of protecting our proprietary
rights in the United States or abroad may not be adequate and competitors and
third parties may infringe or misappropriate our proprietary rights.
In addition, claims may be asserted against us 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 site owners who belong to the ZapNetwork
or strategic partners. For example, Zapata and an affiliated entity were named
in a trademark infringement and dilution action last year for use of the "ZAP"
mark. Please see "Business -- Intellectual Property." Further, because patent
applications in the United States are not publicly disclosed until the patent is
issued, an application may have been filed which relates to our proposed
services and processes. Infringement and similar claims 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, this type of litigation could be time consuming and expensive to
defend, and could result in the diversion of our time and attention. Any claims
or litigation commenced by third parties may also result in limitations on our
ability to use the trademarks/service marks
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and other intellectual property unless we enter into arrangements with the third
parties responsible for those claims or suits which may be unavailable on
commercially reasonable terms.
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 those third parties for information as to the origin
and ownership of the licensed content. We plan to obtain appropriate
representations and indemnities to cover these risks; however, we cannot assure
you that the representations will be accurate or the indemnities sufficient to
compensate for the breach of any of those representations.
IT MAY BE DIFFICULT TO PROTECT OUR DOMAIN NAMES AND ASSOCIATED GOODWILL
Domain names are Internet addresses for accessing Web sites that are
registered with Network Solutions, Inc. ZAP.COM is currently the registered
holder of 60 Internet domain names. The most important of these domain names is
our home page at www.zap.com. The purpose of registering domain names other than
www.zap.com is to provide a medium through which Zap.Com can execute marketing
activities. As of the date of this prospectus, we have not developed operational
sites for most of these 59 other domain names. If developed, these sites are
expected to support and compliment the content of ZapNetwork sites.
Third parties may submit false registration data to Network Solutions, Inc.
attempting to transfer one or more of our domain names to their control. Third
parties have challenged our rights to use some of our domain names, and we
expect that they will continue to do so. We cannot guarantee you that third
parties will not in the future be successful in having transferred to them, or
challenging our right to use, domain names which we have registered.
There is also a possibility of the enactment of laws and/or regulations
regarding domain names which could have an adverse effect on our registered
domain names. Further, regulatory bodies could make changes to the existing
registration system for domain names. Therefore, our domain names may lose their
value, or we may have to obtain entirely new domain names in addition to or in
lieu of our registered 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 HAVE DIFFICULTY INTEGRATING ACQUIRED BUSINESSES OR GENERATING ACCEPTABLE
RETURNS FROM FUTURE ACQUISITIONS OR INVESTMENTS
We may in the future make selective acquisitions or strategic 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, leaving us without any
experience in a new market. These difficulties could disrupt our ongoing
business and distract our management and employees. We may not successfully
overcome these and other problems encountered in connection with potential
acquisitions or strategic investments. In addition, an acquisition could
materially impair our operating results by diluting our stockholders' equity,
causing us to incur additional debt or requiring us to amortize acquisition
expenses and acquired assets.
WE MAY BE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY WHICH COULD CAUSE OUR BUSINESS
AND OPERATING RESULTS TO SUFFER
To meet our growth strategy, our operations must rapidly and significantly
expand. This growth will place a substantial strain on our limited management,
operational and financial resources and systems. To integrate all Web sites
which join 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 and training, managing and expansion of our employee
base. Our management will also be required to establish and maintain
relationships with customers, Web site owners participating in the ZapNetwork
and strategic and commercial partners and to maintain control over our strategic
direction in a rapidly changing environment. We cannot
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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. If we do not manage
our growth effectively, our business and operating results may suffer.
OUR MANAGEMENT DOES NOT HAVE EXPERIENCE IN ACQUIRING, BUILDING OR
MANAGING AN INTERNET NETWORK
Our senior management's only experience in managing an Internet related
business has been their oversight of Zapata's Word and Charged Webzines. They
have not had any previous experience managing a network based Internet company.
We cannot guarantee you that our management will be able to effectively
implement our business model. To address this, we may 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. Please see "Management".
INTERNATIONAL EXPANSION MAY IMPOSE ADDITIONAL COSTS ON US THAT WE MAY NOT BE
ABLE TO RECOVER
We may pursue in the future international operations and international
sales and marketing efforts. International operations have 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 in other parts of the world.
Each of these risks may impose additional costs on our business which we may not
be able to recover.
MANY OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES, LONGER OPERATING
HISTORIES, ESTABLISHED CUSTOMER BASES AND BROADER PRODUCT OFFERINGS
Our initial competitors include DoubleClick, 24/7 Media, Flycast
Communications, TeknoSurf and ClickAgents and other Internet advertising
networks and providers of advertising inventory management products and
services, such as AdForce, Accipiter and Valueclick. Other competitors include
large and established companies like Microsoft, America Online, CNET, CNN/Time
Warner, Excite@Home, Yahoo!, Disney (which owns the GO Network) and Lycos. We
also compete for advertising with other Web site publishers as well as
traditional media like television, radio, print and outdoor advertising.
We expect our competition to be intense and to continue to increase because
there are no substantial barriers to entry. The level of competition is also
likely to increase as current competitors increase the sophistication of their
offerings and as new participants enter the market. In the future, as we expand
our service offerings, we expect to encounter increased competition in the
development and delivery of our services. In addition, new technologies and the
expansion of existing technologies may increase competitive pressures on us.
Increased competition is likely to put downward pressure on pricing and gross
margins. Further, many of our existing and potential competitors have
substantially greater financial, technical and
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marketing resources than we do, longer operating histories, greater name
recognition, established customer bases and broader product and service
offerings than we do. As a result, we may be unable to secure and grow a
customer base which would adversely affect our ability to generate and grow
revenues. Please see "Business -- Competition".
OUR COMPUTER SYSTEMS, AND THE SYSTEMS OF OTHERS WE DEPEND ON, MAY NOT OPERATE
PROPERLY BECAUSE OF THE YEAR 2000 PROBLEMS
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 the 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 these 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
these external suppliers or service providers will experience Year 2000 problems
which may result in unanticipated material costs to us. In addition, the
ZapNetwork site participants may also be impacted by Year 2000 complications.
Any failure by Web sites that belong to our network to make their sites Year
2000 compliant could disrupt delivery of programming to the site and the
operation of the site and the ZapNetwork. If a material number of sites in our
network experience this type of trouble, it could effect our ability to deliver
programming to our network which could adversely affect our ability to fulfill
obligations to customers and to generate revenues. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000".
Zap.Com has no contingency plan to address situations that may result if it
is unable to achieve Year 2000 compliance. The failure to have a contingency
plan in place could have a material effect on our business, prospects, results
of operations and financial condition. Please see "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Year 2000".
IF THE WEB INFRASTRUCTURE WERE TO FAIL, WE WOULD NOT BE ABLE TO DELIVER
PROGRAMMING TO OUR NETWORK
Our future success substantially depends, among other things, upon the
continued expansion and maintenance of the Web infrastructure as a reliable
network backbone on which we can transmit programming to our network. This
requires the necessary speed, capacity and security and timely development of
enabling products like 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 Web continues to
grow in terms of the number of users, the frequency of users and the increased
bandwidth requirements so 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 participating in the ZapNetwork.
Any outages of this nature or any other failure of the Internet infrastructure
to effectively support the expected growth in the Web, could delay the growth of
the Internet and adversely affect our revenues and cause us to incur additional
operating expenses.
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ON-LINE SECURITY BREACHES COULD HARM OUR REPUTATION, OUR ABILITY TO
PURSUE E-COMMERCE OPPORTUNITIES AND EXPOSE US TO LIABILITY
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. As we
establish e-commerce relationships, 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, including our reputation, and our
ability to secure and continue e-commerce relationships.
We may be required to expend significant capital and other resources to
protect against the threat of security breaches like this or to alleviate
problems caused by these 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, like 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 these types of security breaches
will not significantly limit our ability to pursue e-commerce opportunities or
expose us to third party liability.
IF WE ARE NOT ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE, OUR SERVICE WILL
BECOME LESS DESIRABLE
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 inclination of companies from many industries to offer
Internet-based products and services. As a result, our future success will
depend on our ability to adapt 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 ZapNetwork 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 services may become less desirable, which could adversely
affect our ability to generate and grow revenues.
REGULATORY AND LEGAL UNCERTAINTIES COULD INCREASE OUR COSTS AND
DECREASE THE DEMAND FOR OUR SERVICES
Although there are currently few laws or regulations that specifically
regulate activity on the Internet, the number of these laws and regulations is
increasing. 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, pricing, taxation and quality of
products and services.
Moreover, the applicability to the Internet of existing laws governing
issues like intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, employment and personal privacy is
uncertain and developing. The extent to which existing laws relating to issues
like property ownership, pornography, libel and personal privacy are applicable
to the Internet is uncertain. Some foreign governments, like Germany, have
enforced laws and regulations related to content distributed over the Internet
that are more strict than those currently in place in the United States. 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
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business or otherwise have a material adverse effect on our business and
operating results. Please see "Business -- Government Regulation and Legal
Uncertainties".
IT IS DIFFICULT TO PREDICT WHETHER A MARKET FOR OUR STOCK WILL DEVELOP, AND IF A
MARKET DEVELOPS, THE MARKET PRICE OF OUR STOCK WILL LIKELY BE VOLATILE
Our common stock has been thinly-traded on the OTC Electronic Bulletin
Board since November 30, 1999 with the volume in our shares ranging from 200
shares to 19,800 shares as of December 28, 1999. We cannot assure you that
investors will develop an interest in our common stock so that an active trading
market develops or, if this occurs, how active that trading market will be or
whether it will be sustained. In addition, the market for our securities is
highly volatile. As of December 28, 1999, the trading price of our common stock
has fluctuated between $0.25 and $12.00 per share since trading commenced on
November 30, 1999. It is likely that the price of our common stock will continue
to fluctuate widely in the future. A number of specific factors that may affect
the price, liquidity and volatility of our securities, include:
- the minimal supply of shares eligible for public resale as of the date of
this prospectus;
- 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;
- 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 and the status of the growth 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 is not followed by any market analysts. Any
of these factors could adversely affect the trading price and liquidity of our
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 Internet-related and small capitalization companies. Stock prices for
Internet-related companies are often influenced by rapidly changing perceptions
about the future of the Internet or the results of other Internet or technology
companies, rather than specific developments relating to the issuer of that
particular stock. If our stock price is volatile, a securities class action may
be brought against us. Class action litigation could result in substantial costs
and divert our management's attention and resources. Any adverse determination
in this litigation could also subject us to significant liabilities.
ZAPATA'S CONTROL AND THE PRESENCE OF INTERLOCKING DIRECTORS AND OFFICERS CREATES
POTENTIAL CONFLICTS OF INTEREST AND COULD PREVENT A CHANGE OF CONTROL
As of the date of this prospectus Zapata owns approximately 98% of our
outstanding common stock. As a result, Zapata's directors and officers will be
able to control 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.
This concentration of ownership may also have the effect of delaying or
preventing a change in control of Zap.Com even if it would be beneficial to our
stockholders. Please see "Principal Stockholders".
In addition, our executive officers also are directors, officers or
employees of Zapata and, in most cases, either own, or hold an option to
purchase, equity securities of Zapata. In addition, Malcolm Glazer, who is the
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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 potential 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 its executive officers who also serve as executive officers of
Zap.Com and our initial Chairman of the Board could adversely affect the trading
price and liquidity of our common stock. These factors could limit the price
that 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 any
key members of our management team, or other personnel, or lost access to these
type of services altogether, our business, prospects, results of operations and
financial condition could be materially adversely affected.
On October 20, 1999, we entered into agreements with Zapata, including an
investment and distribution agreement, a tax sharing and indemnity agreement, a
services agreement and a registration rights agreement for the purpose of
defining our on-going relationship with Zapata following Zapata's distribution
of our shares on November 12, 1999. Please see "Related Party
Transactions -- Zapata Corporation." We cannot assure you that the terms of
these agreements, or the related transactions, are on terms as favorable to us
as could have been obtained from unaffiliated third parties.
WE HAVE LIABILITIES AS A MEMBER OF ZAPATA'S CONSOLIDATED TAX GROUP
We have been, and expect to continue to be, for the foreseeable future, a
member of Zapata's consolidated tax group under federal income tax law until the
Zap.Com securities held by Zapata do not constitute either 80% of the voting
power or the market value of Zap.Com's outstanding stock. 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 have entered into a tax sharing and indemnity agreement with Zapata,
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 we are
no longer a member of Zapata's consolidated tax group, we could be required to
make payments in respect of these tax liabilities and these payments could
materially adversely affect our financial condition. Please see "Related Party
Transactions -- Tax Sharing and Indemnity Agreement."
BECAUSE WE DO NOT INTEND TO PAY ANY CASH DIVIDENDS ON OUR COMMON STOCK, HOLDERS
OF OUR COMMON STOCK WILL NOT BE ABLE TO RECEIVE A RETURN ON THEIR SHARES UNLESS
THEY SELL THEIR SHARES
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 to retain any future earnings to fund the
development and expansion of our operations. Therefore, we do not anticipate
paying any cash dividends on our common stock in the foreseeable future. Unless
we pay dividends, holders of our common stock will not be able to receive a
return on their shares unless they sell them, which could be difficult unless a
more active market develops in our stock. Please see "Dividends" and "Risk
Factors -- It is Difficult to Predict Whether a Market For Our Stock Will
Develop, and if a Market Develops, the Market Price For Our Stock Will Likely Be
Volatile."
THE ANTI-TAKEOVER PROVISIONS IN OUR CORPORATE DOCUMENTS MAY HAVE AN ADVERSE
EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK
If Zapata were ever to lose voting control over us, provisions within our
charter and by-laws could make it more difficult for a third party to gain
control of us. This would be true even if a change in control might be
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beneficial to our stockholders. This could adversely affect the market price of
our common stock. These provisions include:
- the elimination of the right to act by written consent by stockholders
after Zapata no longer holds a controlling interest in us;
- the elimination of the right to call special meetings of the stockholders
by stockholders except that Zapata may do so as long as it holds a
controlling interest in us;
- the creation of a staggered board of directors; and,
- the ability of the board of directors to designate, determine the rights
and preferences of, and to issue preferred stock, without stockholder
consent, which could adversely affect the rights of our common
stockholders.
Please see "Description of Securities -- Antitakeover Effects of Nevada
Law, Charter and By-Law Provisions".
A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK WILL BE ELIGIBLE FOR SALE INTO THE
MARKET IN THE FUTURE, AND THIS COULD DEPRESS OUR STOCK PRICE
Sales of a substantial number of shares of our common stock in the future
could cause the market price of our common stock to decline. As of the date of
this prospectus, we have outstanding 50,000,000 shares of common stock, of which
Zapata owns 48,972,258 shares, Malcolm Glazer owns 707,908 shares, Avram Glazer
owns 50,020 shares and the public owns 269,814 shares. In addition, we have
3,000,000 shares of common stock reserved for issuance under our 1999 Long-Term
Incentive Plan and 2,000,000 shares of our common stock reserved for issuance of
shares purchased under the warrants granted to American Internetwork Sports.
All of our shares distributed by Zapata to its stockholders on November 12,
1999 are 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. All of the shares held by
Zapata (other than 1,000,000 shares available for sale by Zapata under a
separate prospectus), acquired by "affiliates" in the distribution by Zapata or
by the Glazers in connection with their November 1999 investment are "restricted
securities" under the Securities Act and available for resale upon compliance
with Rule 144, including the timing, manner and volume of sales of these shares.
In the absence of Rule 144's availability, these shares may only be publicly
resold if they are registered or another exemption is available.
We have registered 1,000,000 shares of Zap.Com common stock for resale by
Zapata from time to time under a separate registration statement. We have also
granted Zapata registration rights with respect to all of its shares. These
registration rights effectively allow Zapata to register and publicly sell all
of its shares at any time and to participate as a selling stockholder in future
public offerings by Zap.Com.
The warrants issued to American Internetwork Sports generally vest over
three years and expire in November 2004; however, the warrants will accelerate
and immediately vest and become exercisable if Zap.Com terminates its consulting
agreement with American Internetwork Sports without cause or there is a change
in control of Zap.Com. Please see "Related Party Transactions -- American
Internetwork Sports Company, LLC." All of the shares issued to American
Internetwork Sports upon exercise of the warrants, will be available for public
resale under Rule 144 following the expiration of a one year holding period
commencing upon the issuance of shares after the exercise of the warrants and
compliance with the other requirements of Rule 144. Further, prior to the first
anniversary of the issuance of the warrants, Zap.Com is required to register the
shares issued upon exercise of the warrants on a registration statement on Form
S-8. This registration statement will automatically become effective upon filing
and permit unrestricted public resale of these shares.
In addition, we also intend to file a registration statement on Form S-8
under the Securities Act covering the shares reserved for issuance under the
1999 Long-Term Incentive Plan. This registration statement will also
automatically become effective upon filing and permit unrestricted public resale
of these shares. In addition to shares covered by this prospectus, we have
registered on a shelf basis under the registration
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statement of which this prospectus forms a part 30,000,000 shares of our common
stock for issuance from time to time in the future in connection with
acquisitions, mergers, other business combinations, future offerings to Web site
owners who apply to join our network, to strategic and commercial partners and
in connection with future promotions and other events. All of the shares which
are issued to Web site owners or pursuant to these other transaction will be
freely tradable. The sale of these shares into the market could adversely affect
the price of our stock.
INVESTORS WILL EXPERIENCE DILUTION WITH FUTURE STOCK ISSUANCES
We currently intend to finance a significant amount of the growth in the
ZapNetwork with shares of our common stock. Under the pricing formula we expect
to use under the ZapNetwork rights agreement to be entered into with Web site
owners who join our network, the number of shares of our common stock to be
issued to potential network members will be a function of trading prices prior
to each of the payment dates under the rights agreement and the applicable floor
price, subject to any purchase price adjustment resulting from a decrease in a
Web site's traffic. Accordingly, we cannot predict the number of shares of
common stock to be issued or the dilutive effects of those issuances.
In addition, we may from time to time issue additional shares in the future
in connection with promotions and other events. Please see "Business -- Building
the ZapNetwork". We currently have 1,500,000,000 authorized shares of common
stock. As of the date of this prospectus, we have 50,000,000 shares of common
stock outstanding and 5,000,000 shares of common stock reserved for options and
warrants. We will be able to finance our growth, future acquisitions and
promotional or other events by issuing significant amounts of additional shares
of common stock without obtaining stockholder approval of these issuances,
provided we comply with the rules and regulations of any exchange or national
market system on which our shares are then listed. As of the date of this
prospectus, we have registered under the registration statement of which this
prospectus forms a part 30,000,000 shares on a shelf basis for offer and
issuance from time to time in connection with future acquisitions (including
additional Web site rights) and promotions or similar events. To the extent we
use our common stock in this manner in the future, dilution in percentage
ownership will be experienced by existing stockholders.
As of the date of this prospectus, we have reserved 5,000,000 shares of
common stock for issuance on the exercise of outstanding warrants and options
issued pursuant to our 1999 Long-Term Incentive Stock Option Plan. The warrants
and options all have an exercise price of $2.00 per share and become exercisable
in equal one third amounts between October 2000 and November 2002. The options
expire in October 2004 and the warrants expire in November 2004. The issuance of
shares upon the exercise or conversion of the above securities will have a
dilutive effect on our common stock, which may adversely effect the price of our
common stock.
WE CANNOT ASSURE YOU THAT WEBSITE OWNERS WILL NOT BE TERMINATED FROM THE
ZAPNETWORK
While certain Web site owners may be conditionally admitted to the
ZapNetwork, there can be no assurance that we will continue those Web sites in
the network after conducting our evaluation of their Web sites or that they will
not be terminated in the future under the terms of the ZapNetwork rights
agreement that they enter into with us. If one or more of the Web site owners
accepted into our network is terminated, then any shares registered in this
offering allocated to these Web site owners may be used for the acquisition of
Web site rights from other Web site owners. There is no assurance that we will
be able to use those shares to acquire other Web site rights on acceptable
terms.
WE INTEND TO RELY ON REPRESENTATIONS, WARRANTIES AND INDEMNITIES IN CONNECTION
WITH THE ACQUISITION OF WEB SITE RIGHTS RATHER THAN DUE DILIGENCE, AND
MISREPRESENTATIONS AND BREACHES OF WARRANTIES BY WEB SITE OWNERS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION OR RESULTS OF OPERATION.
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In accepting a Web site owner into the ZapNetwork, we expect to rely upon
certain representations, warranties and indemnities made by the Web site owner
in their ZapNetwork rights agreement with respect to their Web sites and related
matters. We do not intend to perform any due diligence investigation in
connection with these transactions. There can be no assurance that such
representations and warranties will be true and correct and material adverse
facts relating to the Web sites and related matters may exist that we are
unaware of and which could cause harm to us or our network. In addition, any
material misrepresentations could have a material adverse effect on our
financial condition and results of operations.
THE ZAPNETWORK RIGHTS AGREEMENT MAY VARY AMONG WEB SITE OWNERS WHO JOIN OUR
NETWORK AND ANY MODIFICATIONS MAY PRESENT ADDITIONAL RISKS TO THE WEB SITE OWNER
TO WHICH THOSE TERMS APPLY
We reserve the right to negotiate the final terms of the ZapNetwork
Agreement for Web Site Owners who desire to join the ZapNetwork and these terms
may vary from our form of the agreement discussed and summarized in this
prospectus. Specific terms negotiated with a particular Web Site owner may
present risks to that Web Site owner not disclosed in their prospectus.
WEB SITE OWNERS WHO JOIN THE ZAPNETWORK WILL NOT KNOW THE EXACT PURCHASE PRICE
AT THE TIME THAT THEY SIGN THE ZAPNETWORK AGREEMENT, NOR WILL THEY KNOW THE
NUMBER OF SHARES THEY WILL RECEIVE UNTIL AFTER THEIR LAST PAYMENT.
At the time the enter a Web Site Owner enters into a ZapNetwork rights
agreement with us, they will only be able to estimate the purchase price they
will receive based on their estimation of their Web site's unique user traffic.
They will not know the exact purchase price they will receive for the Web site
rights they grant to us until after we deliver to them a purchase price
certificate. Under the ZapNetwork agreement which we intend to enter into with
Web site owners, this purchase price is subject to reduction if the unique user
traffic on their Web site, as determined by us, decreases on an average monthly
basis during the 12 months prior to a payment date. In addition, under our form
of ZapNetwork rights agreement, a Web site owner will not know the number of
shares of common stock to be issued to the Web site owner at the time it enters
into the ZapNetwork rights agreement and it will not know this until the final
purchase price payment has been made
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements can
be identified by the use of forward-looking terminology like "may," "will,"
"expect," "anticipate," "estimate," "plan," "intend," "continue" or other
similar or comparable terminology. These statements discuss future expectations
and predictions and other forward-looking information. Although we believe that
the expectations reflected in the forward-looking statements are reasonable, we
cannot assure you that our expectations will be correct. These statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, levels of activity, performance, or achievements to be
materially different from any future results, levels of activity, performance,
or achievements expressed or implied by these forward-looking statements. These
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this prospectus. When considering forward-looking statements, you
should keep in mind these risk factors and other cautionary statements in this
prospectus. Neither we nor any other person assumes responsibility for the
accuracy and completeness of these statements. We are under no duty to update
any of the forward-looking statements after the date of this prospectus.
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PLAN OF DISTRIBUTION
SOLICITATION OF WEB SITE OWNERS
We are offering to Web site owners who apply to join our network the shares
of common stock covered by this prospectus in exchange for the right to, among
other things, deploy our Internet properties on their Web sites. We have not
retained an independent broker-dealer to solicit Web sites and assist us in this
offering. We intend to solicit Web site owners only through our officers and
various other methods, including direct mail and appropriate on-line and
off-line advertising. Solicited Web site owners will be provided with a
ZapNetwork application package, generally consisting of a copy of this
prospectus cover letter, a brochure, an application, a ZapNetwork rights
agreement, and form resolutions and a copy of this prospectus or comparable
materials. The cover letter will direct the Web site owners to
http://www.zap.com/prospectussupplement, which will display any supplements to
this prospectus. We may at any time make presentations to, or otherwise be
engaged in discussions with one or more ZapNetwork candidates.
None of the officers participating in the offering being made with this
prospectus are registered or licensed as a broker or dealer or an agent of a
broker or dealer under Section 15 of the Securities Exchange Act of 1934. We
will not pay commissions or additional compensation in connection with sales of
shares by our officers. Further, we intend to satisfy the safe harbor provisions
of Rule 3a4-1 of the Exchange Act to ensure that our officers will not be deemed
"brokers," as defined in the Exchange Act, because of their actions in
conducting the offering.
Our officers have registered as brokers in certain states and intend to
register in additional states if required to offer and sell securities in those
states. We will, however, offer and sell our shares only to Web site owners
located in those states where we have registered or qualified the shares being
offered under this prospectus for sale or where an exemption is available for
offering and issuing the shares.
TERMS OF OFFER
The terms of this offering are contained in this prospectus and in the
ZapNetwork rights agreement provided to the Web site owner by Zap.Com. See "Plan
of Distribution -- ZapNetwork Rights Agreement". We will be conducting this
offering on a "best efforts" basis. There is no minimum number of shares that
must be issued to consummate this offering. We may accept applications and
subscriptions at any time and from time to time during the offering. There is no
guarantee that any Web site owners will join our network or that any shares will
be issued.
Zap.Com is offering 20,000,000 shares under this prospectus. In order to
ensure that we have sufficient shares to satisfy our payment obligations under
the ZapNetwork rights agreements we enter into in connection with this offering,
we will only accept subscriptions which in the aggregate have a purchase price
equal to the number of shares offered multiplied by the applicable per share
floor price. Fewer shares may be issued to Web site owners than originally
reserved for issuance under their rights agreement if at any of the annual
payment dates, the average closing price for our common stock during the 20 days
ending on the payment dates is greater than the per share floor price that
applies to them. If one or more Web site owners accepted into the ZapNetwork is
terminated, then any shares registered in this offering allocated to those Web
site owners may be used for the acquisition of Web site rights from other Web
site owners.
We will begin the offering as soon as practical after the registration
statement, of which this prospectus forms a part, becomes effective. We will end
the offering at 5:00 p.m., Eastern Standard Time, on July 1, 2000 or, if
earlier, the date on which all of the shares offered by this prospectus have
been subscribed based on the applicable per share floor price. We reserve the
right to extend or withdraw this offering at any time and to end this offering
at any time during its pendency for any reason whatsoever. In no event, however,
will this offering end later than 5:00 p.m., Eastern Standard Time, on December
31, 2000.
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ZAPNETWORK RIGHTS AGREEMENT
The ZapNetwork rights agreement is the instrument in which a Web site owner
will grant us perpetual rights that entitle us to, among other things, deploy
our Internet properties, including the ZapBox on its Web site. A copy of the
agreement may be obtained from us by contacting us at the phone number provided
below. We reserve the right to change any terms of the ZapNetwork rights
agreement for any Web site owner prior to execution by way of addendum and we do
not intend to provide a supplement to the prospectus of any change made to the
form of agreement initially presented to the Web site owner. The following
summary description of the ZapNetwork rights agreement is of the form agreement
which we intend to seek to from Web site owners who want to join our network.
This description is qualified in its entirety by reference to the ZapNetwork
rights agreement provided to you with this prospectus as it may be modified by
addendum.
Acquisition of Web Site Rights By Zap.Com
Under the ZapNetwork rights agreement, each Web site owner that joins the
ZapNetwork will grant us the irrevocable and perpetual right to have at all
times the ZapBox, or any other Internet properties we acquire or develop, appear
and be immediately and fully apparent and prominently displayed without
scrolling on each and every page of it's Web site. This deployment must be
accomplished when the page is viewed in 640 x 480 pixel (or higher) resolution.
Our Internet property, however, will not exceed twenty five percent (25%) of the
initial viewing area of each and every page of the Web site based on the greater
of a 640 x 480 pixel resolution or the industry's then current standard
resolution as determined by Zap.Com. There is, however, no limitation on the
size of any Internet properties emanating from our Internet properties that are
invoked by user initiated functionality. The agreement provides that we will
have sole control and discretion over all aspects of the Internet property
deployed on the Web site, including functionality, content, ad serving and "look
and feel".
The Web site owner may elect in its application to join our network to
grant us these Web site rights with respect to its Web site on an exclusive or
non-exclusive basis. If the Web site owner grants the rights on an exclusive
basis, the Web site owner will not be permitted to:
- place on its Web site anything other than the Web site's content (which
may not be similar to any of our Internet properties) or engage in any
third party advertising of any kind,
- have on its Web site any third party e-commerce opportunities which are
conducted through a hyperlink or other technology that directs a user
away from its Web site, or
- enter into any agreement that conflicts with the rights agreement.
If the Web site owner grants us non-exclusive rights, then the only limitation
that will apply is a prohibition on the placement on its Web site of a
multifunctional banner or any other Internet property similar to any of our
Internet properties.
Purchase Price
In return for the Web site rights granted to us under the ZapNetwork rights
agreement, we will pay the Web site owner a purchase price based on a formula
which takes into account the number of monthly unique users estimated to visit
its Web site in the course of a month selected by us during the evaluation
period following our execution of the agreement. The formula, which will be
established by Zap.Com and included in exhibit A to the ZapNetwork rights
agreement may vary among the individual ZapNetwork rights agreements. The
estimation of a Web site's monthly unique users will be done by a third party
chosen by Zap.Com through an analysis of log files created within the Zap.Com
Internet property placed on the Web site or through such other method as
determined by Zap.Com.
Conditional Acceptance Into ZapNetwork and Web Site Evaluation
Each Web site owner whose ZapNetwork application we accept will initially
be accepted into our network on a conditional basis for up to 120 business days
after we sign a Web site owner's rights agreement. During this period we will
have the right to review and evaluate all aspects of the Web site and to have
the ZapBox deployed on the Web site. During this conditional acceptance period
the Web site owner will be bound by all of the terms of the ZapNetwork rights
agreement which it executes. As a result of this evaluation we may elect not to
continue the Web site owner in our network for any reason.
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During the 120 business day evaluation period, we will notify the Web site
owner of the purchase price due it by delivery of a purchase price certificate
unless we elect not to continue a Web site owner in our network. If we do not
provide the Web site owner with a purchase price certificate during the 120
business day evaluation period, the rights agreement and the Web site owner's
participation in the network will automatically terminate and, in the absence of
a breach of the rights agreement by the Web site owner, neither party will have
any liability to the other.
Payment of Purchase Price
Under the ZapNetwork rights agreement, the purchase price will be payable
in six payments, which shall be due and payable on the last day of each of the
following calendar months:
<TABLE>
<CAPTION>
NUMBER OF MONTHS
AFTER DELIVERY
OF PURCHASE PRICE PERCENTAGE OF
CERTIFICATE BY ZAP.COM PURCHASE PRICE
---------------------- ----------------------
<S> <C>
1 (24 months).................................... 15.0%
2 (36 months).................................... 15.0%
3 (48 months).................................... 17.5%
4 (60 months).................................... 17.5%
5 (72 months).................................... 17.5%
6 (84 months).................................... 17.5%
</TABLE>
The payment of the purchase price due a Web site owner will be made with
shares of common stock offered by this prospectus. The number of shares of
Zap.Com common stock that will be issued for any purchase price dollar amount
will be determined at the six payment dates by dividing the purchase price
dollar amount due on each payment date by the higher of the average closing
price of our stock during the 20 days ending on the payment date and the per
share floor price last set by the Zap.Com Board prior to the execution of the
rights agreement by the Web site owner. As of the date of this prospectus, the
per share floor price last set by the Board is $5.00.
Within 30 days following each payment date, we will deliver the shares due
on that date either via electronic transfer to the Web site owner's brokerage
account or by mailing a stock certificate to the Web site owner. Until the
certificates are issued or the electronic transfer is made, the Web site owner
will be only a subscriber of the shares to be issued and shall not be a record
or beneficial holder of the shares. We will not issue fractional shares, but
instead will pay the Web site owner a cash amount equal to the corresponding
fractional amount of the 20-day average closing stock price used for that
payment. Because the market price of Zap.Com's common stock is subject to
fluctuation, the number of Zap.Com common shares that a Web site owner will
receive on each payment date may fluctuate before the Web site owner receives
control over the shares.
We have included below a table to illustrate the total payment and number
of Zap.Com common shares that a Web site owner would receive under the rights
agreement for a $500,000 purchase price, given the stated assumptions. For the
purposes of the following table, we have assumed that the 20-day average closing
stock price of Zap.Com common stock at the six payment dates is $15.00, $20.00,
$31.00, $42.00, $70.00, and $90.00, respectively, and the per share floor price
is $5.00. We have also assumed that the Web site maintains or increases its
unique user traffic level throughout the purchase price payment period.
ILLUSTRATIVE PURCHASE PRICE PAYMENT SCHEDULE
<TABLE>
<CAPTION>
24 36 48 60 72 84
PAYMENT DATE MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS TOTALS
- ------------ ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of Purchase Price....... 15.0% 15.0% 17.5% 17.5% 17.5% 17.5% 100%
------- ------- ------- ------- ------- ------- --------
Payment Dollar Amount.............. $75,000 $75,000 $87,500 $87,500 $87,500 $87,500 $500,000
------- ------- ------- ------- ------- ------- --------
20-Day Average Closing Stock
Price............................ $ 15.00 $ 20.00 $ 31.00 $ 42.00 $ 70.00 $ 90.00 na
------- ------- ------- ------- ------- ------- --------
Number of Common Shares............ 5,000 3,750 2,822 2,083 1,250 972 15,877
------- ------- ------- ------- ------- ------- --------
</TABLE>
24
<PAGE> 29
We have included below a second table to illustrate the effects of the per
share floor price on the total number of Zap.Com common shares that a Web site
owner would receive for a $500,000 purchase price. In particular, this table
illustrates that if the 20-day average closing price of Zap.Com's common stock
falls below the applicable per share floor price at any of the six payment
dates, then the aggregate total dollar payment amount by Zap.Com as of the dates
the payments are made will be lower than the purchase price dollar amount stated
in the ZapNetwork rights agreement. For the purposes of this table, we have
assumed that the 20-day average closing price of Zap.Com common stock at the six
payment dates is $5.00, $4.00, $5.00, $10.00, $15.00, and $20.00, respectively,
and that the per share floor price is $5.00. We have also assumed that the site
maintains or increases its unique user traffic levels throughout the purchase
price payment period.
ILLUSTRATIVE PURCHASE PRICE PAYMENT SCHEDULE
<TABLE>
<CAPTION>
24 36 48 60 72 84
PAYMENT DATE MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS TOTALS
- ------------ ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of Purchase Price....... 15.0% 15.0% 17.5% 17.5% 17.5% 17.5% 100%
------- ------- ------- ------- ------- ------- --------
Payment Dollar Amount.............. $75,000 $60,000 $87,500 $87,500 $87,500 $87,500 $485,000
------- ------- ------- ------- ------- ------- --------
20-day Average Closing Stock
Price............................ $ 5.00 $ 4.00 $ 5.00 $ 10.00 $ 15.00 $ 20.00 na
------- ------- ------- ------- ------- ------- --------
Number of Common Shares............ 15,000 15,000 17,500 8,750 5,833 4,375 66,458
------- ------- ------- ------- ------- ------- --------
</TABLE>
These tables are included for illustrative purposes only. The actual 20-day
average closing stock prices will not be known until the close of trading on
each of the payment dates. We cannot predict what the Zap.Com stock closing
price will be during the applicable measurement period prior to any payment
date. There may be significant fluctuations in Zap.Com' stock price after the
effective date of the ZapNetwork rights agreement, and any change in Zap.Com's'
stock price after that date and prior to the time that you receive your Zap.Com
shares should not be viewed as representative of what the stock price will be
when you receive your shares.
The ZapNetwork rights agreements provide that, during the payment period,
the purchase price may be reduced if during the three calendar months prior to
any payment date, the average monthly number of unique users who are estimated
to visit the Web site is 10% or more below the monthly unique user number used
to determine the purchase price. Under those circumstances the purchase price
will be lowered by reducing the dollar amount of that annual payment by the
percentage decrease experienced in the Web site's unique user traffic.
Other Terms
The ZapNetwork rights agreement also includes, among other terms and
conditions:
- Representations and warranties by the Web site owner as to its form of
organization, its ownership and use rights with respect to the Web site
and its content and related materials, the lack of third party
infringement and Web site traffic.
- Covenants by the Web site owner to: continue to operate the Web site
consistent with its historic operations and content quality; improve the
Web site's traffic to exclude objectionable material from its Web site;
update the Web site's content; maintain Zap.Com's confidential
information; and make available reports and information to Zap.Com and
permit Zap.Com to use this information for a variety of purposes.
- A covenant by the Web site owner that at its own expense, via the
Internet (through use of password or otherwise) or through any other
means as determined by Zap.Com, to provide Zap.Com with access to its log
files for its Web site and any reports generated from them and to furnish
Zap.Com with any and all reports of subscribership, viewership,
advertisement inventory and usage, reviews and audience studies,
deliveries, census requirements, and other information regarding the Web
sites available to the Web site owner that may be useful to Zap.Com for
any purposes, including promoting the ZapNetwork.
25
<PAGE> 30
- A covenant by the Web site owner to include in all of its advertising and
promotional materials (i.e., sales literature, off-line or on-line
promotional materials, print, TV, radio, etc.) a graphic or text to be
spoken, indicating that the Web site is a part of the ZapNetwork.
- A covenant by the Web site owner to not artificially inflate its traffic
counts using a device, program or other means and to not place any
Zap.Com Internet properties on pages that are unrelated to the Web site.
- If the Web site owner's site ceases to fully operate or be functional for
more than 24 hours, a right in favor of Zap.Com to take actions on behalf
of the Web site owner to the extent necessary to ensure that the Web site
becomes operational and functional or, if the Web site ceases to be fully
operational and functional for more than seven consecutive days other
than due to natural disasters, a right in favor of Zap.Com to purchase
from the Web site owner the assets necessary to operate the Web site for
$1.00.
- An indemnity by the Web site owner in favor of Zap.Com regarding the
representations and warranties contained in the rights agreement and
third-party claims arising from the operation of the Web site by the Web
site owner with a right, at Zap.Com's election, to offset the amounts due
Zap.Com under the indemnity against purchase price payments due the Web
site owner under the rights agreement.
- A covenant by the Web site owner who has granted Zap.Com exclusive Web
site rights to refrain from the placement of any Internet properties
similar to our Internet properties and engaging in e-commerce activities
via a hyperlink or other technology which draws users away from the Web
site for 24 months following termination of the rights agreement by
Zap.Com due to a breach of the agreement by the Web site owner or from
entering into an agreement similar to the rights agreement or
participating in an Internet network that competes with Zap.Com, which if
violated would entitle Zap.Com to liquidated damages equal to the greater
of 25% of the present value of the consideration payable to the Web site
currently under that agreement or $25,000.
- A right of first refusal in favor of Zap.Com for the sale of the Web site
and its assets by the Web site owner for 24 months following termination
of the rights agreement by Zap.Com due to a breach of the rights
agreement by the Web site owner.
- A prohibition on an assignment of the Web site owner's right under the
rights agreement or the sale of its value unless the acquirer expressly
assumes all obligations under the rights agreement and Zap.Com is given
at least 10 days advance notice of the transaction and copies of all
agreements and instruments under which the transaction is to be effected.
Termination
The Web site owner may terminate the rights agreements during the first 30
days after Zap.Com delivers a purchase price certificate to the Web site owner
if the unique user number estimated by Zap.Com for purposes of determining the
purchase price is 40% or more below the unique user number set forth in the
network application originally submitted to Zap.Com by the Web site owner. To do
so, the Web site owner must deliver written notice of the termination to Zap.Com
within the 30 day period which must be accompanied by an administration fee of
$2,500 unless Zap.Com waives the fee.
Zap.Com may terminate the rights agreement for any reason prior to the
delivery of the purchase price certificate by written notice to the Web site
owner. Zap.Com shall be deemed to have terminated the rights agreement if
Zap.Com has not delivered a purchase price certificate to the Web site owner
within 120 business days after Zap.Com delivers a signed copy of the agreement
to the Web site owner. After delivery of the purchase price certificate, Zap.Com
may terminate the rights agreement at any time by notice to the Web site owner
if the Web site owner breaches any representations, warranties, or covenants
under the ZapNetwork rights agreement, becomes subject to bankruptcy or
insolvency, or sues Zap.Com.
26
<PAGE> 31
Miscellaneous
The Zap Network rights agreement is governed by New York law and any
dispute involving the parties must be adjudicated in a New York state or federal
court located in Monroe county New York. The agreement may not be assigned by
the Web site owner unless it complies with the required procedures. Zap.Com may
transfer or assign any and all of its rights under the agreement. Zap.Com's
liability under the rights agreement is limited to the purchase price due the
Web site owner under the agreement. The rights agreement provides that in the
event that the Web site owner breaches its covenants, Zap.Com will be entitled
to enforce its rights through specific performance. The rights agreement may
only be modified by a written instrument signed by both parties.
HOW YOU CAN JOIN THE ZAPNETWORK
In order to join the ZapNetwork and subscribe for shares offered under this
prospectus, you must:
- read this prospectus and any prospectus supplement appearing at
http:/www.zap.com
/prospectussupplement; and
- complete, sign and have notarized the ZapNetwork application and the
ZapNetwork rights agreement and if you are an entity, have the
appropriate resolutions duly adopted and deliver or mail to Zap.Com the
application, rights agreement and certified copies of the resolutions.
We will only consider a Web site owner's application and subscription for
our shares if:
- all required items have been submitted to us;
- all blanks in those items have been properly filled in, properly signed,
dated and, where necessary, notarized; and
- all of those items are received before the expiration of the offering.
The application and subscription for shares will be irrevocable and cannot
be withdrawn for a period of 60 days after being submitted to Zap.Com. No
application or subscription to purchase shares shall be deemed accepted and no
rights agreement shall be binding unless and until it is accepted by Zap.Com.
Zap.Com may only accept a Web site owner's application by having an officer of
Zap.Com sign and return one of the rights agreements to the Web site owner. We
will provide a copy of the fully executed rights agreement to the Web site owner
promptly following its execution by Zap.Com.
Zap.Com may, in its sole discretion, refuse to admit any Web site owner to
the ZapNetwork and reject any subscription for shares for any reason. Zap.Com
may be required to reject a subscription if the Offering is not registered in
the state in which the subscribing Web site owner resides or the Web site owner
does not otherwise meet a state imposed requirement. If Zap.Com has not notified
a Web site owner that it has been conditionally admitted to the network within
60 days after the Web site owner first submits the required items to us, then
it's application and subscription will be deemed rejected by Zap.Com and will be
null and void and not capable of acceptance.
In determining which Web site owner applications and subscriptions to
accept, we may take into account the quality, traffic, technological
compatibility and potential of the Web site applying to our network and any
other factors we deem in our sole discretion to be relevant. We will notify you
if your application and subscription have been accepted and arrange with you our
evaluation of your Web site. We will determine the purchase price due you during
this evaluation and will notify you of it prior to expiration of the 120
business day period allotted to our review under the rights agreement unless we
terminate your rights agreement prior to that time.
If you have any questions regarding joining the ZapNetwork, please call the
ZapCenter at (887) 3-zapcom.
27
<PAGE> 32
USE OF PROCEEDS
Zap.Com will not receive any cash proceeds from the offerings made in this
prospectus.
DIVIDEND POLICY
Zap.Com has not declared or paid any cash dividends on its common stock
since its inception and does not expect to pay any cash dividends on its common
stock in the foreseeable future. Zap.Com currently intends to retain future
earnings, if any, to finance the expansion of its business.
PRICE RANGE OF ZAP.COM'S COMMON STOCK
Our common stock has traded on the OTC Bulletin Board under the symbol
"ZPCM" since November 30, 1999. We believe that approximately six dealers are
engaged in making a market in our common stock. The OTC Bulletin Board is a
regulated quotation service that displays real-time quotes, last-sale prices and
volume information in over-the-counter equity securities. The OTC Bulletin Board
market quotations reflect inter-dealer prices, without retail mark up, mark down
or commission and may not necessarily represent actual transactions. Prior to
November 30, 1999, no active trading market existed for the common stock. The
market for our common stock is highly volatile. Our common stock has traded at
prices ranging from $0.25 per share to $12.00 per share during the period
commencing on November 30, 1999, to December 20, 1999. As of December 20, 1999,
there were 1,592 holders of record of our common stock.
28
<PAGE> 33
CAPITALIZATION
The following table presents the capitalization of Zap.Com as of September
30, 1999. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and the financial statements and the notes included elsewhere in this
prospectus.
The following capitalization data is presented:
- On an actual basis;
- On a pro forma basis as of September 30, 1999 to give effect to Zapata's
contribution of $9,000,000, consisting of $8,000,000 in cash and
forgiveness of $1,000,000 in inter-company debt, and the Glazers'
$1,100,000 cash contribution in exchange for 550,000 shares; and
- On a pro forma as adjusted basis as of September 30, 1999 to give effect
to the issuance of 20,000,000 shares at a per share floor price of $5.00.
We will capitalize the issuance of these shares at the purchase price
paid to the Web site owner receiving them and ratably amortize this
amount over seven years, commencing on the continuation of the Web site
owner's rights agreement. See "Plan of Distribution -- ZapNetwork Rights
Agreement."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- ------------
<S> <C> <C> <C>
Stockholders' equity (deficit):
Common stock, no par value; 1,500,000,000 shares
authorized and 49,450,000 issued and outstanding
actual; $.001 par value; 50,000,000 shares issued
and outstanding pro forma; $.001 par value;
70,000,000 shares issued and outstanding pro forma
as adjusted(1)..................................... $ 10 $ 50,000 $ 50,000
Common stock subscribed(2)....................... -- -- 100,000,000
Common stock warrants(1)......................... -- -- --
Additional paid in capital....................... -- 10,050,000 10,050,000
Deficit accumulated during the development
stage(3)...................................... (1,412,341) (1,412,341) (1,412,341)
Total stockholders (deficit) equity and
capitalization.............................. (1,412,331) 8,687,659 108,687,659(3)
</TABLE>
- ---------------
(1) Excludes 3,000,000 shares of common stock, which are reserved for issuance
under the 1999 Long-Term Incentive Plan, of which 578,000 shares are
reserved for options outstanding as of the date of this prospectus with an
exercise price of $2.00 per share. Please see "Management -- 1999 Long-Term
Incentive Plan." Also excludes 2,000,000 shares of common stock issuable
under warrants granted to American Internetwork Sports at an exercise price
of $2.00 per share. Please see "Related Party Transactions -- American
Internetwork Sports Company, LLC". These options and warrants were issued in
October 1999. To the extent that any of these options or warrants are
exercised, there may be further dilution to new investors.
(2) The fair value of the shares to be issued under each ZapNetwork rights
agreement will be recorded as subscribed shares until the date of issuance,
at which time the amounts will be reclassified into common stock and
additional paid in capital at the then current fair value of the shares
issued. Please see "Plan of Distribution -- ZapNetwork Rights Agreement."
(3) The actual amount of total assets and total stockholders' equity will be
less than the presented pro forma as adjusted figures if the per share value
of the shares issued to Web site owners under their respective ZapNetwork
rights agreements based on the 20-day average closing price for our shares
ending on each of the six payment dates under those agreements is below the
applicable per share floor price. If this occurs, then the intangible assets
acquired from the Web site owners in the form of Web site rights will be
reduced and total assets and total stockholders' equity will decrease by the
same amount. In addition, subsequent increases, if any, to the per share
floor price by the Board of Directors would result in an increase to the
actual amount of total assets and total stockholders' equity from the
presented pro forma as adjusted figures to the extent of Web site rights
acquired after the floor price increase.
29
<PAGE> 34
SELECTED FINANCIAL DATA
The following table sets forth selected financial data derived from our
audited financial statements. The audited balance sheets as of December 31, 1998
and September 30, 1999 and the related statements of operations, stockholder's
deficit and cash flows for the periods then ended and the related notes are
included elsewhere in this prospectus. The following information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
FROM APRIL 2, 1998 FOR THE
(DATE OF INCEPTION) NINE MONTHS
THROUGH ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1999
------------------- ------------------
<S> <C> <C>
Revenues................................................ $ -- $ --
Expenses general and administrative..................... 793 1,411,548(1)
------------ ----------
Loss before income taxes................................ (793) (1,411,548)
------------ ----------
Benefit from income taxes............................... -- --
------------ ----------
Net loss................................................ $ (793) $(1,411,548)
============ ==========
Per share data (basic):
Net loss per share.................................... $ (.00) $ (.03)
============ ==========
Average common shares and common share equivalents
outstanding........................................... 49,450,000 49,450,000
============ ==========
</TABLE>
- ---------------
(1) Includes approximately $325,000 of costs as incurred as of September 30,
1999 in connection with a rights offering abandoned by Zap.Com in September
1999.
The following balance sheet data is presented:
- On an actual basis;
- On a pro forma basis to give effect as of September 30, 1999 to the
Zapata's contribution of $9,000,000, consisting of $8,000,000 in cash and
forgiveness of $1,000,000 in inter-company debt, and the Glazers'
$1,100,000 cash contribution in exchange for 550,000 shares; and
- On a pro forma as adjusted basis to give effect as of September 30, 1999
to the issuance of 20,000,000 shares at the assumed per share floor price
of $5.00 per share. We will capitalize the issuance of these shares at
the purchase price due the Web site owner who is entitled to receive them
and ratably amortize this amount over the payment period. See "Plan of
Distribution -- ZapNetwork Rights Agreement."
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1999
-----------------------------------------
AS OF PRO FORMA
DECEMBER 31, 1998 ACTUAL PRO FORMA AS ADJUSTED
----------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Balance sheet data:
Cash and cash equivalents.......... $ -- $ 23,401 $9,123,401 $ 9,123,401
Total assets(1).................. -- 62,283 9,162,283 109,162,283(1)
Total liabilities................ 783 1,474,614 474,624 474,624
Total stockholders' (deficit)
equity(1)..................... (783) (1,412,331) 8,687,659 108,687,659(1)
</TABLE>
- ---------------
(1) The actual amount of total assets and total stockholders' equity will be
less than the presented pro forma as adjusted figures if the per share value
of the shares issued to Web site owners under their respective ZapNetwork
rights agreements based on the 20-day average closing price for our shares
ending on each of the six payment dates under those agreements is below the
applicable per share floor price. If this occurs, then the intangible assets
acquired from the Web site owners in the form of Web site rights will be
reduced and total assets and total stockholders' equity will decrease by the
same amount. In addition, subsequent increases, if any, to the per share
floor price by the Board of Directors would result in an increase to the
actual amount of total assets and total stockholders' equity from the
presented pro forma as adjusted figures to the extent of the Web site rights
acquired after the floor price increase.
30
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
OVERVIEW AND RESULTS OF OPERATIONS
Zap.Com is a development stage company that intends to grow the ZapNetwork,
which is a network of third party Web sites that deploy, on a perpetual basis,
our multifunctional banner, the ZapBox or other Internet properties that we may
acquire or develop. Currently, the ZapNetwork currently consists of three Web
sites owned and operated by Zapata, www.charged.com, www.word.com and
www.pixeltime.com. and Zap.Com's home page, www.zap.com. Zapata has agreed to
continue this arrangement at its discretion and no legal or other financial
obligations exist between the parties with respect to this arrangement. We
intend to distribute advertising and e-commerce opportunities over the
ZapNetwork.
From inception on April 2, 1998 through November 12, 1999, Zap.Com operated
as a wholly-owned subsidiary of Zapata. On November 12, 1999, Zap.Com became a
public company when Zapata distributed 477,742 shares of our common stock to its
stockholders.
Since its inception, Zap.Com's operations have consisted primarily of
organizational and capital raising activities, research and analysis with
respect to Internet industry opportunities, the development of strategic and
commercial relationships and the creation of our home page at www.zap.com and
ZapBox 1.0. Our limited operating history makes it difficult to evaluate our
business and prospects. You must consider our prospects in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, operating within the relatively new and rapidly evolving
Internet environment. Our risks include, but are not limited to, an evolving and
unpredictable business model, proper management of our growth, the
implementation of an Internet banner, the establishment of strategic and
commercial relationships, increasing our employee base, growing and maintaining
the ZapNetwork, attracting and retaining customers, and the anticipation of and
adaptation to changes in our market and competitive developments. Please see
"Risk Factors". We cannot assure anyone that we will be successful in addressing
these or any other risks, and our failure to do so could have a material adverse
effect on our business, financial condition and results of operations.
As of September 30, 1999 Zap.Com had generated no revenues and had incurred
expenses and a cumulative operating loss of approximately $1,412,000 from date
of inception, consisting primarily of payroll, legal, accounting and consulting
fees. Of this amount, approximately $325,000 is attributable to the rights
offering that Zap.Com abandoned during September 1999. Since its inception,
Zapata has provided Zap.Com with all of the administrative personnel and
services which it has required on an estimated cost basis.
Zap.Com does not presently have any source of revenue. Zap.Com's ability to
generate revenue will depend on its ability to contract with Web sites to join
the ZapNetwork and to successfully market the ZapBox to potential customers.
Zap.Com cannot predict whether Web site owners will want to join the ZapNetwork.
If Zap.Com is unable to attract a sufficient number of Web site owners to its
network, it will not be able to commence sales or generate sufficient revenues
to become profitable. Please see "Risk Factors -- We Have No Present Source of
Revenues; To Generate Revenues, We Will Need to Grow Our Network and We Cannot
Guarantee That This Will Occur".
In November 1999, Zapata contributed to Zap.Com $8,000,000 in cash and
forgave $1,000,000 in inter-company debt. The entire contribution was allocated
to the Zap.Com common stock held by Zapata. Also in November 1999, Malcolm
Glazer and Avram Glazer contributed $1,100,000 in cash as payment for 550,000
shares of Zap.Com common stock.
Zap.Com expects that during the year 2000 it will significantly increase
the levels of its expenditures in connection with the development of a
supporting infrastructure and network, the hiring of additional employees and
the expansion of its business. Further, during this period, Zap.Com also
anticipates that it will have significant charges against earnings from the
amortization of consideration to be paid Web site owners who join the ZapNetwork
and from stock issued in connection with promotions or other events. Please see
"Risk Factors -- We Expect to Incur Significant Expenses For Compensation Paid
to Web site owners For
31
<PAGE> 36
Participating In Our Network." As of the date of this prospectus, Zap.Com does
not have any agreement, understanding or arrangement with any Web site owners to
join the network. At any given time, however, we may be in discussions or
negotiations regarding any of these opportunities.
On October 20, 1999, Zap.Com granted to persons who are Zap.Com executives
or key employees options to purchase up to 578,000 shares of Zap.Com common
stock at $2.00 per share exercise price. In addition, on October 20, 1999
Zap.Com granted American Internetwork Sports stock warrants for the purchase of
up to 2,000,000 shares of Zap.Com common stock at a $2.00 per share exercise
price in consideration for a three year commitment to provide sports related
consulting services. These options will generally vest ratably on an annual
basis on the first three anniversaries of their issuance and will have five year
terms. The warrants will vest on annual basis on the first three anniversaries
of Zapata's November 12, 1999 distribution of Zap.Com shares to its
stockholders. The options and the warrants both have five year terms from the
date of their issuance. Zap.Com will account for these options pursuant to the
provisions of APB Option No. 25 "Accounting for Stock Issued to Employees" and
will comply with the pro-forma disclosure provisions prescribed by Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation". In
management's opinion, the exercise price of the options is equal to or below the
fair value of Zap.Com's common stock on the date of grant and, accordingly, no
compensation charge will be recorded by the Company. However, Zap.Com will
report a pro-forma compensation cost of approximately $300,000 ratably over the
vesting period determined by using an option pricing model prescribed for
non-public entities and the following assumptions: the fair value of Zap.Com's
stock at date of grant was less than $2.00, the expected life of the options is
5 years, and the risk-free interest rate is 6.00%.
In the case of the warrants granted to American Internetwork Sports,
Zap.Com will record expense in accordance with FASB Emerging Issues Task Force
96-18. Accordingly, Zap.Com will record expense based on the then current fair
value of the warrants at the end of each reporting period with adjustment of
prior period expense to actual expense at each vesting date. Due to the variable
nature of this method, Zap.Com cannot predict the cost that it will ultimately
record in connection with these warrants.
Until Zap.Com begins to recognize revenue from operations, it will continue
to be considered in the development stage. Zap.Com anticipates that, for the
foreseeable future, it will incur substantial operating losses and negative cash
flow as it executes its business model and acquires and integrates the necessary
technology, systems and supporting infrastructure, increases the number of Web
sites joining its network, develops its brand name and expands its business. The
extent of these losses will depend, in part, on the amount and rates of growth
in our revenue from advertisers, e-commerce relationships and other customers.
As a result, we will need to generate significant revenue if profitability is to
be achieved. To the extent that revenue does not grow at anticipated rates or
that increases in our operating expenses precede or are not subsequently
followed by commensurate increases in revenue, if we are unable to adjust
operating expense levels accordingly, our business, results of operations and
financial condition will be materially adversely affected. There can be no
assurance that our operating losses will not increase in the future or that we
will ever achieve or sustain profitability. See "Risk Factors -- Our Lack Of An
Operating History Makes It Difficult To Evaluate Our Business And Prospects" and
"-- We Anticipate Significant Losses and Negative Cash Flow for the Foreseeable
Future."
We believe that our revenue will be influenced by seasonal fluctuations
because advertisers, who we expect to initially comprise most of our customers,
generally place fewer advertisements during the first and third calendar
quarters of each year. In addition, expenditures by advertisers tend to be
cyclical, reflecting overall economic conditions as well as budgeting and buying
patterns. In addition, our operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond our
control. Please see "We May Fail to Meet Market Expectations Because of
Fluctuation In Our Quarterly Operating Results" and "Risk Factors -- Which Could
Cause Our Stock Price to Decline".
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, Zap.Com had approximately $23,000 in cash and
cash equivalents. In November 1999, Zapata contributed to Zap.Com $8,000,000 in
cash forgave $1,000,000 in inter-company
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debt, the proceeds of which Zap.Com used in connection with start-up and capital
raising activities. Also in November 1999, Malcolm Glazer and Avram Glazer
contributed $1,100,000 in cash as payment for 550,000 shares of Zap.Com common
stock. Zap.Com expects to use the proceeds from these contributions to fund
development of the ZapNetwork and anticipated operating losses and for general
corporate purposes.
As of the date of this prospectus Zap.Com does not have a source of
revenues and it does not expect to begin recognizing revenues until the
ZapNetwork has grown to a size which makes sales commercially feasible. We
cannot predict when Zap.Com will commence sales or begin to recognize revenues.
Please see "Risk Factors -- We Have No Present Source of Revenue; To Generate
Revenues We Will Need to Grow Our Network and We Cannot Guarantee That This Will
Occur."
Zap.Com expects to incur significant negative cash flow from operations for
at least the first 12 months following the date of this prospectus. Zap.Com,
however, currently expects that the proceeds from the investments made by Zapata
and the Glazers will be sufficient to support its growth and operations during
at least this 12 month period. However, additional capital could be required in
the next 12 months if unexpected costs arise or if we pursue ventures that
enhance or accelerate our business development. If additional capital
requirements arise, we may need to raise additional funds.
As part of its business strategy, Zap.Com plans to make payments of common
stock to Web site owners who join the ZapNetwork. Please see
"Business -- Building The ZapNetwork". Our common stock has been trading since
November 30, 1999 in the over-the-counter market. It is currently quoted in the
OTC Electronic Bulletin Board under the symbol "ZPCM". Since November 30, 1999
trading in our common stock has been thin. We cannot assure you that a more
active trading market for our common stock will develop or if it does develop,
that it will be sustained. Please see "Risk Factors -- It is Difficult to
Predict Whether a Market For Our Stock Will Develop and If a Market Develops,
the Market Price of Our Stock Will Likely be Volatile." We believe that the
willingness of Web site owners to accept our common stock will depend upon the
development of an active trading market in our stock, prevailing market
conditions, the market price of our common stock and other factors over which we
have no control, as well as our financial condition and results of operation. If
Web site owners are unwilling to accept Zap.Com common stock, Zap.Com may need
to raise additional funds.
We cannot guarantee that Zap.Com will be able to raise sufficient capital
if additional funds are necessary, or, if it can, that it will be able to do so
on terms that it deems acceptable. In particular, potential investors may be
unwilling to invest in Zap.Com due to Zapata's voting control over Zap.Com and
the significant potential for percentage dilution of a potential investor's
percentage ownership in our common stock presented by our business model.
Zapata's voting control may be unattractive because it makes it 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
for their shares. Please see "Risk Factors -- Zapata's Control and the Presence
of Interlocking Directors and Officers Will Create a Potential Conflict of
Interest and Could Prevent a Change of Control". Failure of Zap.Com to raise
funds required to support the growth of its network would have a material
adverse effect on Zap.Com's business and its ability to generate and grow
revenues and could result in a complete loss in the value of Zap.Com common
stock being offered with this prospectus. If we raise additional funds through
the issuance of equity, equity-related or debt securities, these securities may
have rights, preferences or privileges senior to those of the rights of our
common stockholders, who would then experience dilution.
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.
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State of Readiness. The only software and hardware currently employed by
Zap.Com consist of a financial accounting package and two servers, all of which
are Year 2000 compliant. Zap.Com's business, however, will be largely dependent
on software and computer technology potentially subject to Year 2000 issues.
Zap.Com has, and will continue to, assess the Year 2000 readiness of the
information technology ("IT") systems that it will be acquiring or that will be
employed by third party service providers, including the hardware and software
that enable delivery of data and programming to the ZapNetwork, and its non-IT
systems. Prior to purchasing any hardware or software or engaging a third party,
Zap.Com has, and will continue to, assess, with the help of consultants, whether
components which it proposes to purchase or which are to be employed by third
party service providers will properly recognize dates beyond December 31, 1999.
Zap.Com does not anticipate that any hardware or software that it has, or will
purchase or license will have material problems in this regard as it intends to
only purchase or license current versions of hardware and software provided by
major vendors. Moreover, Zap.Com has, and will continue to, secure appropriate
contractual assurances from its software and hardware vendors and third party
service providers that their software and hardware solutions are Year 2000
compliant. However, future guarantees of Year 2000 compliance may be impossible
or too costly to obtain and we may find it necessary to obtain software or
hardware which could experience a failure due to Year 2000 issues.
Web sites that belong to the ZapNetwork may also be impacted by Year 2000
complications. Any failure by our network participants to make their sites Year
2000 compliant could result in an inability to deliver programming to the
participant's sites. Zap.Com will obtain a representation and warranty from the
Web site owner of its Year 2000 compliance; however, this will not assure
Zap.Com that the Web sites will have no Year 2000 issues. If a material number
of network participants experience that trouble, it could have a material
adverse effect on Zap.Com's business and operations.
Costs. To date, Zap.Com has minimal expenditures in connection with
identifying or evaluating Year 2000 compliance issues.
Risks. Zap.Com is not currently aware of any Year 2000 compliance problems
relating to the IT or non-IT systems which it or third party service providers
plan to employ that would have a material adverse effect on its business,
prospects, results of operations and financial condition. We cannot guarantee
that Zap.Com will not discover Year 2000 compliance problems in hardware or
software that it acquires or that is used by third party service providers 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 and 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 these
entities to be Year 2000 compliant could result in a systemic failure beyond the
control of Zap.Com, like a prolonged Internet, telecommunications or 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
ZapNetwork sites, which could have a material adverse effect on Zap.Com's
business, prospects, results of operations and financial condition.
Contingency Plan. Zap.Com does not have any Year 2000 contingency plans.
Our failure to develop and implement, if necessary, an appropriate contingency
plan could materially adversely affect our business, results of operations and
financial condition.
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BUSINESS
INDUSTRY
The Internet's rapid growth since its first commercialization in the late
1980's, is expected to continue for the foreseeable future. We believe that the
number of Web users will grow from 78 million in the United States and over 159
million 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. Zap.Com believes that as of December 1998, the number of Internet domains
(.com, .net, .edu and .org) had grown to approximately 4.5 million.
With the explosion in both 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 as a result of the increase in traffic, user's
willingness to conduct on-line transactions 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. Zap.Com
believes that this growth will 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, like 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
customers of content publishers. On-line 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, like consumer product companies and automobile manufacturers, who
are increasing their use of on-line advertising. Zap.Com 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 has also 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. Zap.Com believes that approximately
$163 billion was spent on direct marketing initiatives in the United States in
1998.
While the Web offers numerous opportunities, potential advertisers and
e-commerce companies face a number of significant challenges to realizing this
potential. These challenges arise from the fact that there are millions of Web
sites (only a fraction of which are of significant size), the significant
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, small Web sites do not typically maintain
the special analytical tools that are necessary to evaluate and optimize the
effectiveness of information delivery and to target appropriate users. Many of
these Web sites also lack the technology to deliver information to a broad reach
of Internet users. Potential advertisers and e-commerce companies seek to
overcome these challenges by outsourcing their on-line needs to media
representative firms whose business is to coordinate the sale of the on-line
inventory of a number of related or unrelated Web sites.
Web site owners face equally daunting challenges in capitalizing on the
economic opportunities presented by the Web. Typically, Web site owners attempt
to support, or profit from, their Web sites by selling Internet advertising or
other commercial uses of their inventory. Many Web site owners who are too small
or lack brand name value to justify an internal sales force or to attract the
attention of a media representative firm,
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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 site owners cannot
afford, or do not have the ability to operate and maintain, the servers and
technology necessary for targeted information delivery. Many Web site owners are
unable to secure advertising from, or to service those persons who purchase
on-line inventory. As a result, many Web site owners seek to outsource sales of
their on-line inventory.
Several business models have evolved to address the challenges faced by
both Internet advertisers and others wishing to engage in Internet-based
commercial activities and Web site owners. 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, Web
sites belonging to the network and provides for more effective placement of
advertisement.
One business model involves organizations that act as advertising
representatives for sites. These firms coordinate and facilitate the
distribution of a customer's advertising on-line inventory over a large network
of third party sites with high brand value, including premium Web sites. Some
Internet search and navigational sites as well as Web site owners who offer a
significant amount of content through their sites employ a model, which involves
the distribution of advertising banners over a family of Web sites owned by
them. Also, Web advertising companies are available which focus on technologies
or services that allow companies to track and manage their own advertising
campaigns or inventory. Another model is the "associate program" in which any
Web publisher receives 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 plans to employ a business model that it believes addresses, in a
unique and effective manner, both the challenges faced by Web site owners and
advertising and e-commerce companies who desire to benefit from the Internet.
This model is similar to existing business models in that it involves the
creation of a network, however, it differs in that Zap.Com plans to acquire
perpetual rights (subject to payment obligations) to space on third party Web
sites, while the site's publisher retains the rights to all other aspects of the
Web site.
Zap.Com believes that its network structure will provide it with the
benefits of both a potentially large and wide reaching network while retaining
the individual creative talents of the Web site owners who belong to our
network. Zap.Com further believes that this network structure will be attractive
to Web site owners because, among other things, they will receive a direct
economic benefit while retaining ownership and control of all aspects of their
Web site not involving the ZapBox and have the potential to enhance their
traffic as a result of belonging to the network.
BUSINESS STRATEGY
To implement its business model, Zap.Com plans to pursue the following key
elements:
Build the ZapNetwork. In order to reach a substantial audience, Zap.Com
will seek to aggregate a significant number of third party Web sites for its
network. Zap.Com intends to pursue Web sites that have appealing and diverse
content, have an attractive base of unique users and meet other criteria
established by Zap.Com.
Deploy the ZapBox. Zap.Com intends to deploy it's multifunctional banner,
the ZapBox, that can deliver content, advertising and e-commerce opportunities
across the ZapNetwork of Web sites.
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)
establishing and expanding a user base; (2) establishing the ability to target
advertising, e-commerce and other commercial programming to demographically
distinct user groups; (3) creating revenue-sharing commerce relationships; and
(4) entering into relationships with third-party content providers that pay
Zap.Com for access to its users.
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Establish and Build Brand Loyalty. Zap.Com intends to advertise and
promote its brands to potential advertising and e-commerce customers. Zap.Com
plans to pursue this strategy through a variety of marketing and promotional
techniques, which may include on-line and off-line advertising, conducting a
public relations campaign and developing business alliances and relationships.
Develop Strategic and Commercial Relationships. Zap.Com intends to develop
strategic and commercial relationships with third parties that will facilitate
the execution of its business plan, like a media representation firm, an on-line
inventory management company, Web site developers, Web 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 and commercial relationships to
assure itself of adequate access to these services for the foreseeable future.
Create a Superior Economic Model. Zap.Com believes that the business model
which it plans to use has inherent economic advantages over other Internet
networks. The Web site rights structure reduces the risk of network participant
turnover, maximizes the flexibility of the ZapBox for promotional and commercial
activities and creates a potentially favorable cash flow model due to Zap.Com's
right to retain all network generated revenues less a sales commission while
alleviating it of the expenses and organizational complexities of operating and
supporting a network of company-owned Web sites. Zap.Com believes that this
strategy will result in a highly scalable business platform, from which it
expects to be able to generate multiple revenue sources.
BUILDING THE ZAPNETWORK
Zap.Com's goal is to build a large network of third party Web sites that
will deploy the ZapBox and be known as the ZapNetwork. Zap.Com will seek to
attract Web sites to its network primarily through the issuance of equity.
Zap.Com intends to take a variety of information into account in developing
the price which it will pay for the rights it seeks to acquire with respect to
these third party Web sites. One source is information Zapata provided to
Zap.Com which was compiled during Zapata's previous efforts to enter the
Internet market. This information includes prices which various private Web
sites were willing to be bought relative to various site performance measures.
The second source is the market valuation of public companies that operate Web
sites relative to their reported traffic.
Zap.Com's ability to pay Web site owners for joining the ZapNetwork will
largely depend upon the development of an orderly trading market in Zap.Com's
common stock. Since November 30, 1999, the trading in Zap.Com's common stock has
been thin. If an orderly trading market does not develop in Zap.Com's common
stock, then Web site owners may be reluctant to accept stock as payment for
joining the ZapNetwork and Zap.Com will have to raise additional capital in
order to fund the growth of its network. Zap.Com cannot guarantee that an
orderly trading market will develop in its stock or that, if necessary, it will
be able to raise any, or a significant amount of additional capital. Please see
"Risk Factors -- It is Difficult to Predict Whether a Market for Our Stock Will
Develop, and the Market Price of Our Securities Will Likely Be Volatile," and
"-- If We Are Unable to Raise The Necessary Capital in The Future, We May be
Unable to Meet Our Future Capital Needs." If either of these events occur,
Zap.Com may be unable to grow the ZapNetwork.
If and when Zap.Com issues stock in connection with the acquisition of Web
site rights, the percentage of common stock owned by existing stockholders will
experience dilution. Please see "Risk Factors -- Investors Will Experience
Dilution with Future Stock Issuances." These acquisitions will also negatively
impact net income due to non-cash charges which Zap.Com expects to record
against earnings following their consummation. Please see "Risk Factors -- We
Expect to Incur Significant Expenses For Compensation Paid to Web site owners
For Joining Our Network."
The ZapNetwork currently consists of four Web sites, including Zapata's
www.word.com, www.charged.com and www.pixeltime.com and Zap.Com's home page,
www.zap.com. Zapata has agreed to continue this arrangement until it is
terminated by Zapata at its discretion. No legal or other financial obligations
exist between Zapata and Zap.Com with respect to this arrangement. We are
currently using this network as a beta testing center for the development of the
ZapBox and its underlying technologies. As future releases of ZapBox are
developed and deployed, these sites are expected to continue as beta sites for
our network.
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WEB SITE OWNER RECRUITING
Zap.Com believes that as of December 1998 over 4.5 million Internet domains
existed. As a result, Zap.Com believes there are a number of Web sites that are
viable candidates for the ZapNetwork. Although some highly desirable sites have
already entered into network arrangements with third parties which commits their
on-line advertising inventory, Zap.Com believes that many of these arrangements
are non-exclusive or are terminable by Web site owners, making these sites
candidates for the ZapNetwork.
Zap.Com anticipates that the ZapNetwork will be attractive to Web site
owners 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 space occupied by the
ZapBox or another Zap.Com Internet property;
- increase the value of their remaining rights to their Web sites to
potential customers and acquirers as a result of increased traffic
through cross-promoting and cross-linking with the ZapNetwork;
- have the opportunity to participate in Zap.Com's potential future
appreciation after receiving Zap.Com common stock as part of the
consideration for joining the ZapNetwork.
Zap.Com also believes that its network will be attractive to a number of
Web site owners because many small and medium-sized Web sites do not have, or
have limited, internal sales, billing, tracking and reporting capabilities. By
joining the ZapNetwork, these sites will not need these capabilities because
Zap.Com will have responsibility for placement and reporting of the use of the
banner space.
Zap.Com does not initially intend to recruit or limit participation in its
network to any particular type of Web site. In order to be eligible to join the
ZapNetwork, an applicant must, among other things, own and maintain Web sites,
which meet minimum unique user requirements and do not, in Zap.Com's opinion,
display objectionable content. Zap.Com, however, will have sole discretion to
determine whether a Web site may join its network.
Zap.Com expects a significant number of Web site owners to apply to join
the ZapNetwork. Zap.Com, however, has not confirmed this assumption. Zap.Com
cannot guarantee you that any Web sites will want to join the ZapNetwork or that
if any do, that a sufficient number would join the ZapNetwork so that Zap.Com
can generate revenues, or do so at a level necessary to become profitable or
generate a positive cash flow.
PRODUCTS AND SERVICES
Zap.Com's main product will initially be the ZapBox, which will be deployed
on Web sites that have joined the ZapNetwork. Zap.Com plans to provide a variety
of content on the ZapBox. The content on Zap.Com's banner may be available in
various forms of media, including graphics, animations, sound, text and user
prompted interactions and is expected to offer search capabilities,
channel-based content and community features, like chat rooms and e-mail, etc.
and display advertisement, e-commerce and other commercial opportunities. The
ZapBox is expected to permit users to click back to the Zap.Com home page or to
other sites in the ZapNetwork. ZapBox 1.0, which was launched September 27,
1999, lets users: search, send us feedback through e-mail, link to the Zap.Com
home page and to other sites in the ZapNetwork. The links in the ZapBox will
provide users numerous access points to the ZapNetwork which should enhance the
traffic of Web sites that belong to our network. Zap.Com has entered into an
arrangement with Auragen Communications to develop the banner, with iSyndicate,
Inc. to deliver content and functionality and with Direct Hit Technologies for
search capabilities. Although ZapBox 1.0 has been created and launched, we
cannot predict when other releases, offering enhanced functionality, will be
available or whether we will encounter difficulties in deploying the ZapBox
across the ZapNetwork. Please see "Risk Factors -- We Are In The Process Of
Developing Future Releases Of Our Banner, And It May Be Difficult To Finalize
Development Of These Releases."
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 will serve its network. If successful, customers should be
able to customize their delivery on the ZapNetwork through the ZapBox within
specific
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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 will be responsible for of all Zap.Com Internet properties,
including displayed content and advertising and e-commerce opportunities. Thus,
Zap.Com will have the responsibility for programming and sales and marketing of
the banner, while ownership of, and responsibility for, all other aspects of
ZapNetwork Web sites will continue with the Web site owners.
Zap.Com maintains a home page at www.zap.com that links to what Zap.Com
believes to be some of the Internet's most popular Web properties. These links
are categorized into interest specific categories like news, sports,
entertainment, weather, finance, current events and travel. As the ZapNetwork
grows, it will act as a directory to the sites in the network. Zap.Com plans to
divide the Web sites that belong to the ZapNetwork into channels that segregate
sites according to topic or audience groups. The home page is also expected to
continue to display the then most recent release of the ZapBox.
Domain Names
Domain names are Internet "addresses." Zap.Com is currently the registered
holder of 60 Internet domain names. The most important of these domain names is
www.zap.com, which is the URL for our home page. The purpose to registering the
domain names other than www.zap.com is to provide a medium through which Zap.Com
can execute marketing activities. As of the date of this prospectus, we have not
developed operational sites for most of these other 59 domain names. These sites
would support and compliment the content of ZapNetwork sites.
Third parties have in the past and Zap.Com expects that third parties will
in the future challenge Zap.Com's right to domain names registered in its name.
Zap.Com cannot guarantee that it will succeed on these claims.
The allocation and governance of domain names is generally regulated by
Internet regulatory bodies like Network Solutions, Inc. These Internet
regulatory bodies promulgate rules and regulations regarding domain names, which
may 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 in
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, we cannot
guarantee 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, Zap.Com 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. For Zap.Com's ad servicing technology platform,
we have chosen DoubleClick's Ad Server technology solution. This platform will
enable Zap.Com to manage the ZapBox and measure page views on the ZapNetwork.
This technology will allow us to rotate, change or target banner advertising on
the ZapBox.
Zap.Com currently owns two servers that are hosted by Qwest Communications
International Corporation. To support the expansion and functionality of the
ZapBox and other ZAP.COM Internet properties, Zap.Com has contracted with EMC,
Inc. to provide scalable hosting, Internet connectivity and database management
services and to support the expansion of the functionality of the ZapBox and the
ZapNetwork. Any disruption of Internet access provided to Zap.Com could prevent
Zap.Com from operating or serving the ZapBox and could cause Zap.Com not to
honor customer obligations and would harm Zap.Com's reputation. This would have
a material adverse affect on Zap.Com's prospects, revenues and operating
results.
Our success will depend on the continuing and uninterrupted performance of
our systems and those of third parties. Customers may become dissatisfied by any
system failures that interrupt our ability to deliver
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programming on the ZapBox, including any failure to provide 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 our network to potential
customers and Web site owners who are potential network participants. Slower
response time or system failures may also result from straining the capacity of
software deployed for our network due to an increase in the volume of
programming delivered to our network through its servers. To the extent that we
do not effectively address any capacity constraints or system failures, our
prospects revenues and operating results would be materially and adversely
affected.
The ZapNetwork will depend on Internet service providers, online service
providers and the operators of ZapNetwork Web sites for points of access to the
network. Internet service providers have 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 prevent Zap.Com from operating its network which would have a material
adverse affect on its prospects, revenues and operating results.
SALES, MARKETING AND CUSTOMER SERVICE
Zap.Com plans to conduct a marketing program that is aimed at attracting
and retaining customers who use its network for advertising, e-commerce and
other commercial activities. Zap.Com may use on-line or traditional media in
conducting these programs. Zap.Com will also explore co-marketing agreements,
where links to the Zap.Com home page will be featured on Web sites which are not
a part of the ZapNetwork.
Zap.Com plans to use a third party service provider to solicit potential
advertising customers. We have selected CKG Media.Com, Inc. d/b/a Phase2Media to
act as our exclusive sales agent in the solicitation of advertising sales for
the ZapNetwork. We are currently negotiating a contract with Phase2Media and
expect to enter into an agreement with that organization although we cannot
guarantee that this will occur. If we are unable to reach an agreement with
Phase 2 Media, we will need to locate a new sales agency and negotiate an
acceptable arrangement.
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 Web site owners who belong to its
network will allow it to continually improve the ZapNetwork and related
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 and commercial
relationships and partnerships with third parties in order to implement its
business plan. As of the date of this prospectus, we have contracted with
DoubleClick, iSyndicate, Direct Hit Technologies, Auragen Communications, and
EMC. While Zap.Com may develop internally the ability to render all of the
outsourced services provided by these entities, Zap.Com intends to continue
developing strategic relationships and partnerships so that it can have adequate
access to those services for the foreseeable future.
EMPLOYEES
As of the date of this prospectus, Zap.Com has seven employees. Avram
Glazer, our President and CEO, and Leonard DiSalvo, our VP-Finance and Chief
Financial Officer, currently devote a portion of their business time and
attention to Zapata and a portion to Zap.Com. We expect to hire additional
employees to assist in the operation of our 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.
Our senior management does not possess experience in acquiring or managing
an Internet network business. Therefore, Zap.Com has relied, and expects to
continue to rely, on consultants, service organizations
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and other professionals with Internet experience to assist it in executing its
business model. Zap.Com will compensate those consultants, service organizations
and other professionals at competitive rates. Presently there is no way to
estimate the term of their 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, Web site owners who belong to
the ZapNetwork and others to protect its proprietary rights. A provisional
patent application has been filed with the United States Patent and Trademark
Office for a business process patent which is directed to a unique
Internet-based commerce method and system underlying Zap.Com's business model. A
provisional patent application is a type of application under which a patent
will not issue, but which provides a priority date for a regular patent
application that is filed within a one year period following the filing of the
provisional patent application. Zap.Com has also filed applications seeking
registration of its service marks in the United States, including Zap.Com.
Zap.Com plans to file additional service mark applications in the future as it
adopts and uses additional marks. Zap.Com cannot guarantee that any patent
applications or trademark registrations will be approved. Even if they are
approved, these patents or service marks might be successfully challenged or
invalidated by others. Zap.Com also does not know if its current or future
applications will be issued with the scope of claims it seeks. If a patent is
issued on our pending application, it is possible that:
- if there are variations in the application of the 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
- a competitor may 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 that application.
In the future we intend to file applications in appropriate foreign
jurisdictions for trademarks/service marks that we adopt. 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.
We also generally enter into confidentiality agreements with our employees,
consultants and corporate partners to control access to and distribution of
proprietary information. We cannot guarantee that any of these persons will
observe their confidentiality obligations or will not attempt to disclose,
obtain or misappropriate Zap.Com solutions or technologies.
Zap.Com may license to third parties in the future some of its proprietary
rights, like trademarks/service marks. While Zap.Com will attempt to ensure that
the quality of its brands are maintained by those licensees, licensees may take
actions that materially adversely affect the value of Zap.Com's proprietary
rights or reputation. We cannot guarantee you 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.
The contracts that Zap.Com will seek with Web site owners who join the
ZapNetwork will entitle Zap.Com to receive data derived from user activity on
the owner's Web sites. This information will be collected and analyzed for
targeting advertising, e-commerce and direct marketing programs as well as
predicting performance of these programs. Although Zap.Com believes it has
rights to use this information in its database, trade secret, copyright or other
protections may not be available for this information.
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 alleged
that Zapata and Zap were guilty of trademark infringement, trademark dilution
and unfair competition under the federal Lanham Act and various Illinois
statutes. The action arose out of the use by Zapata and Zap of the Zap trade
name and the Internet domain name "Zap.Com" for its Internet Web site
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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 sought
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 and listing to ZAP Futures on any Web pages within its proprietary
Web sites which lists financial information sources or futures traders. Zap.Com
plans to make any propriety Web page meeting these requirements and which it
establishes available to the plaintiff to fulfill this obligation on behalf of
Zapata and Zap Corporation. In addition, LFG has agreed not to sue or otherwise
oppose the use by Zapata or its subsidiaries and successors and assigns of the
use of the Zap mark in connection with specified activities, including the use
of the Zap mark in connection with our network.
Zap.Com may be a party 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. These claims, even if not meritorious, could result
in the expenditure of significant financial and managerial resources. Even if
Zap.Com prevails, this litigation could materially and adversely affect its
prospects, operating results and financial condition. Any claims of litigation
from third parties may also result in limitations on Zap.Com's ability to use
the intellectual property unless Zap.Com enters into arrangements with third
parties responsible for these claims or litigation, which may be unavailable on
commercially reasonable terms.
COMPETITION
The market for Internet advertising, e-commerce opportunities and other
commercial uses of the Internet as well as the market for Web site owners who
are candidates for joining our network 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 name, the Web sites that belong to the network, loyalty,
broad demographic profile and strategic relationships.
Zap.Com 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 Zap.Com's business model;
- the ability to recruit high quality Web sites with required levels of
traffic to the ZapNetwork;
- the effectiveness of the ZapNetwork in terms of viewer traffic and reach,
targeting and measuring performance of the ZapBox;
- the number and types of strategic and commercial relationships
established by Zap.Com, including e-commerce partnerships;
- the effectiveness of its sales and marketing efforts;
- the effectiveness of its customer service and support efforts;
- the ease of use, performance, price and reliability of solutions
developed by Zap.Com or its competitions.
Several companies offer competitive products or services through Web
advertising networks, including those that focus on the traditional cost per
thousand model, such as DoubleClick, 24/7 Media and Flycast Communications, and
those use a performance based model, such as TeknoSurf and ClickAgents.
Zap.Com's business competition is also expected from providers of advertising
inventory management products and related services, including Accipiter, Adforce
and Valueclick. Current and future suppliers of Internet navigational, Web
search engine companies and information services, high traffic Web sites and
Internet service providers will also compete with Zap.Com. These competitors
include free information, search and content sites or services, like America
Online, CNET, CNN/Time Warner, Excite@Home, Infoseek, Lycos,
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Microsoft, Yahoo! and Disney. Zap.Com. also expectes to compete with traditional
forms of media, like newspapers, magazines, radio and television, for
advertisers and advertising revenues.
Zap.Com believes that this competition could have a significant and adverse
impact on prices and terms of advertising and e-commerce relationships. The
nature and number of Zap.Com's competitors is expected to increase and change as
Zap.Com expands the scope of its services and product offerings. 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. Those
competitors are able to adopt more aggressive pricing policies and make more
attractive offers to potential employees, distribution partners, commerce
companies, advertisers, third-party content providers and Web site owners. They
may also be able to respond more quickly than Zap.Com can to new or emerging
technologies or changes in customer requirements. We cannot guarantee you that
potential ZapNetwork customers will not view our competitors 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 one or more Zap.Com competitors or potential
competitors, and high-traffic Web sites. Accordingly, we cannot guarantee you
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 those 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. As a result, it is possible that new competitors may emerge and
rapidly acquire significant market share. We do not know whether Zap.Com will be
able to compete successfully and competitive pressures may have a material
adverse effect on Zap.Com's prospects and revenues.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There are 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. Recently, the United States Congress enacted Internet legislation
regarding children's privacy, copyrights and taxation. Other laws or regulations
may be adopted with respect to online content regulation, user privacy, pricing,
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 prospects and revenues.
Liability For Information Retrieved From Zap.Com Web Sites Belonging to the
ZapNetwork and From Other Internet Sites. Content may be accessed on Web sites
that belong to the ZapNetwork or on other Internet sites that are linked to the
ZapNetwork or the Zap.Com home page. This content may be downloaded by users and
subsequently transmitted to others over the Internet. By providing those links,
Zap.Com is exposed to claims that it is liable for wrongful actions by the
owners of these sites. Claims of this nature have been brought, sometimes
successfully, against providers of Internet services. 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 which may be offered by Web sites which
belong to the ZapNetwork or which are otherwise linked to the ZapNetwork. Also,
there may be claims, alleging that Zap.Com, by directly or indirectly providing
links to other Web sites, is liable for copyright or trademark infringement or
the wrongful actions of third parties through their respective Web sites. The
Digital Millennium Copyright Act of 1998, however, has established limited
liability for online copyright infringement by online service providers for
listing or linking to third party Web sites that include copyright-infringing
materials, provided certain conditions are met.
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 result in significant
expense and cash demands which would adversely affect operating results 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
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and defending against these claims which would also adversely affect prospects,
operating results and financial condition.
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 belong to the ZapNetwork. To the extent that one or
more Web sites that belong to the ZapNetwork is adversely affected by such
legislation and regulations, this could have a material adverse effect on
Zap.Com's attractiveness to customers and could adversely affect revenues and
operating results. 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 adversely
affect and impede the growth of our revenues.
Privacy Concerns. The Children's Online Privacy Protection Act of 1998
makes it unlawful for an operator of a Web site or online service directed to
children under 13 to collect, use or distribute personal information from a
child under 13 in a manner which violates regulations to be promulgated by the
Federal Trade Commission. The FTC is in the process of issuing final
regulations, which concern the scope of the Act's parental consent requirements.
The FTC is also 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 in which an Internet company agreed
to establish programs to implement the principles contemplated in the FTC
regulations that are under consideration. The FTC may conduct a similar
investigation of Web site owners who belong to the ZapNetwork or Zap.Com, or the
FTC's regulatory and enforcement efforts may adversely affect the ability of Web
sites who belong to the ZapNetwork from collecting and providing us with
demographic and personal information from users. This could have an adverse
effect on Zap.Com's ability to provide highly targeted opportunities to our
customers. Any of these developments would have a material adverse effect on
Zap.Com's revenues and growth prospects.
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 regulated by 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 site owners who belong to the ZapNetwork or Zap.Com could limit the
effectiveness of Zap.Com's targeting of advertising and other programming
delivered to its network. This could have a material adverse effect on Zap.Com's
revenues and growth prospects.
The European Union recently enacted its own privacy regulations that may
result in limits on the collection and use of user information. The laws
governing the Internet, however, remain largely unsettled, even in areas where
there has been some legislative action. Zap.Com cannot be sure that violations
of local laws or new laws will not be alleged by one or more governments,
Zap.Com will not violate those laws or laws will not be modified or ones enacted
in the future. Any of these events could materially adversely effect our
revenues and growth prospects.
Internet Taxation. A number of legislative proposals have been made at the
federal, state and local level, and by various foreign governments, that would
impose additional taxes on the sale of goods and services over the Internet and
some 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
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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 these developments could have a material
adverse effect on Zap.Com's prospects, operating results and financial
condition. In addition, as Zap.Com expects its service to be available over the
Internet in multiple states 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 prospects, operating
results 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 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. Please see "Business --
Intellectual Property." We cannot guarantee you 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 located in Rochester, New York, in space
subleased to it by Zapata. Under the sublease arrangement, annual rental
payments are allocated on a cost basis. Zap.Com expects to expand its facilities
as its operations grow. Zap.Com believes that additional space will be available
on commercially acceptable terms.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning officers of Zap.Com:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Avram A. Glazer...................... 39 President, Chief Executive Officer and Chairman of the
Board
Leonard DiSalvo...................... 41 Vice President -- Finance and Chief Financial Officer
Marisa Bowe.......................... 40 Vice President -- Network Content
Gordon E. Forth...................... 38 Secretary
Gaetano Guglielmino.................. 30 Director of Marketing and Sales
Phil Jones........................... 31 Director of Finance
Therese Stone........................ 32 Marketing Manager, ZapNetwork
</TABLE>
Avram A. Glazer, age 39, 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).
Leonard DiSalvo, age 41, 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 -- Network
Content since April 1999. Ms. Bowe is the founding Editor-in-Chief and Publisher
of Word, which is Zapata's Web-based magazine, where she has been employed since
February 1995. 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. Ms. Bowe is a member of the Advisory
Committee of the Web Development Fund and a member of the Silicon Alley
Reporter's "Silicon Alley 100" list.
Gordon E. Forth, age 38, has served as Zap.Com's Corporate Secretary since
April 1999. Mr. Forth also serves as Zapata's corporate secretary. 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 Zap.Com. 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.
Gaetano Guglielmino, age 30, has served as Zap.Com's Director of Marketing
and Sales since June 1999. From January 1998 until joining Zap.Com, Mr.
Guglielmino was employed by Bausch & Lomb Incorporated, where he was the
Strategy Manager -- Disposable Contact Lenses for the Vision Care Division. From
1994 until 1998, Mr. Guglielmino served as the Business Manager for Bausch &
Lomb's Thin Film Technology Division. Mr. Guglielmino received his B.S. and
M.B.A. from Rochester Institute of Technology.
Phil Jones, age 31, has served as Zap.Com's Director of Finance since
October 1999. Mr. Jones has served as Zapata's Accounting Manager since January
1999. From 1995 to 1998, Mr. Jones' engaged in public accounting, most recently
at Arthur Andersen, LLP. From 1992 to 1995, Mr. Jones was a financial analyst at
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Citibank, N.A.. Mr. Jones received his B.A. in Economics at SUNY Geneseo and his
MBA from Rochester Institute of Technology. He is also a Certified Public
Accountant.
Therese F. Stone, age 32, has served as Zap.Com's Marketing Manager,
ZapNetwork since October 1999. From July 1996 until joining ZAP.COM, Ms. Stone
was employed by Nalge Nunc International where she launched and managed that
company's corporate and branded web sites. From 1990 to 1996 she held various
marketing and communications positions at Nalge Nunc International. Ms. Stone
received her B.A. from Geneseo State University of New York.
BOARD OF DIRECTORS AND 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
three or more directors at some point in the future.
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 Long-term Incentive Plan.
DIRECTOR COMPENSATION
Each director who is not an employee of Zap.Com will be compensated at a
set dollar amount to be determined for serving as a director. In addition, each
new non-employee director will, upon joining the board, be granted options under
Zap.Com 1999 Long Term Incentive Plan to purchase shares of Zap.Com common stock
at the fair market value for the shares. These options will vest ratably over
three years from the date of the grant. Please see "Management-1999 Long-term
Incentive Plan". There are no family relationships, or other arrangements or
understandings between or among any of the directors, executive officers or
other persons under which that person was selected to serve as a director or
officer.
EXECUTIVE COMPENSATION
Zap.Com presently has no employment agreements with its officers or other
key employees. The compensation of Zap.Com's executives who are also employed by
Zapata will be paid by Zapata and a portion of that cost will be allocated to
Zap.Com under the services agreement between Zapata and Zap.Com. Please see
"Related Party Transactions -- Services Agreement". Zap.Com will reimburse
Zapata for those costs. The costs will be based upon an estimate of the amount
of time devoted by those employees to the operation and affairs of each
corporation.
1999 LONG-TERM INCENTIVE PLAN
The 1999 Long-Term Incentive Plan was approved by Zap.Com's board and
Zapata as Zap.Com's sole stockholder in April 1999 and amended in October 1999.
Pursuant to the plan, awards may be made to existing and future officers, other
employees, consultants and directors of Zap.Com from time to time. The 1999
Incentive Plan is intended to promote the long-term financial interests and
growth of Zap.Com by providing employees, officers, directors and consultants of
Zap.Com with appropriate incentives and rewards
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to enter into and continue in the employ of, or their relationship with, Zap.Com
and to acquire a proprietary interest in the long-term success of Zap.Com; and
to reward the performance of individual officers, other employees, consultants
and directors in fulfilling their responsibilities for long-range achievements.
Zap.Com's board, or upon formation, the compensation committee (both of
which are referred to below as the "committee"), will make recommendations for
grants under the 1999 Incentive Plan from among those eligible persons who hold
positions of responsibility and whose performance, in the judgment of the
committee, has a significant effect on Zap.Com's success.
Under the 1999 Incentive Plan 3,000,000 shares of common stock are
available for awards. 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. Future allocation of awards under the 1999
Incentive Plan is not currently determinable as the allocation is dependent upon
future decisions to be made by the committee in its sole discretion, and 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 of cash or stock.
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. A stock award may provide for
voting rights and dividend equivalent rights.
The committee may specify conditions for awards, including vesting service
and performance conditions. Vesting conditions may include, without limitation,
provision for acceleration in the case of a change-in-control of Zap.Com,
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.
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, due to the parachute tax
provisions of Section 280G of the Code or otherwise. The gross-up payment would
be in an amount so 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.
Under 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 persons
for the indicated number of shares: Mr. A. Glazer -- 365,000; Mr.
DiSalvo -- 100,000; Ms. Bowe -- 60,000; Mr. Forth -- 10,000; and other key
employees to be designated -- 200,000. In June 1999, Zap.Com granted options to
Mr. Guglielmino to purchase 20,000 shares at an exercise price of $5.00 per
share. All of these grants were made contingent upon the successful completion
of a previously planned rights offering. Zap.Com abandoned the rights offering
in September 1999, thereby terminating these options. On October 20, 1999, the
Zap.Com Board approved the same amounts of options under the 1999 Incentive Plan
to the same persons, (except that options for 20,000 shares were granted to Mr.
Jones, options for 2,000 shares were granted to Ms. Stone and options for 1,000
shares were granted to a key person and the remaining options were not
regranted), but at an exercise price of $2.00 per share. All of these options
will generally vest ratably on an annual basis over the three year period
following the grant and are for a term of five years.
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RELATED PARTY TRANSACTIONS
ZAPATA CORPORATION
Prior to the distribution by Zapata of 477,742 shares of Zap.Com common
stock to its stockholders on November 12, 1999, Zapata provided Zap.Com with
administrative and management services, including payroll, consulting and legal.
Zapata billed Zap.Com for these services on a cost basis. These services totaled
approximately $261,000 from inception through September 30, 1999. The costs of
these services were directly charged and/or allocated using methods that
Zap.Com's management believe were reasonable.
On October 20, 1999, Zapata and Zap.Com entered into a number of agreements
for the purpose of defining their continuing relationship. These agreements are
summarized below.
Investment and Distribution Agreement. Under the investment and
distribution agreement, Zapata contributed $9,000,000 to Zap.Com in connection
with the 49,450-for-one stock split of Zap.Com's common stock consummated
immediately prior to Zapata's distribution of Zap.Com common stock to its
stockholders. The contribution consisted of $8,000,000 in cash and the
forgiveness of $1,000,000 in inter-company debt. The entire contribution was
allocated to Zapata's common stock investment.
The investment and distribution agreement provides that Zapata and Zap.Com
will indemnify each other with respect to any future losses that might arise
from Zapata's distribution, as a result of any untrue statement or alleged
untrue statement in the registration statement under which Zap.Com registered
the distribution or the omission or alleged omission to state a material fact in
the registration statement (1) in Zap.Com's case except to the extent the
statement was based on information provided by Zapata and (2) in Zapata's case,
only to the extent the loss relates to information supplied by Zapata.
Services Agreement. The services agreement provides that Zapata will
provide to Zap.Com management and administrative services, as well as the use of
designated 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. Zap.Com will pay Zapata for these
services at the estimated cost to Zapata of providing those services. The
services agreement shall continue until terminated by either party upon 120
days' notice.
Tax Sharing and Indemnity Agreement. The tax sharing and 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 other taxes relating to Zap.Com's business for periods
prior to and including the date on which Zap.Com ceases to be a member of
Zapata's consolidated tax group and with respect to tax attributes of Zap.Com
after it is no longer a member of Zapata's consolidated tax group. For periods
ending on or before the last day of the taxable year in which Zap.Com ceases to
be a part of Zapata's consolidated tax group, Zapata is responsible for;
- 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, Zap.Com for the relevant periods of time that Zap.Com was a member
of the applicable group, and
- paying the taxes relating to those returns (including any subsequent
adjustments resulting from the redetermination of those tax liabilities
by the applicable taxing authorities).
Zap.Com is responsible for reimbursing Zapata for its share of those taxes, if
any. Zap.Com is also responsible for filing returns and paying taxes relating to
it for periods that begin before and end after Zap.Com ceases to be a part of
Zapata's consolidated tax group. This agreement is intended to allocate the tax
liability between Zapata and Zap.Com as if they were separate taxable entities.
Zapata and Zap.Com have also agreed to cooperate with each other and to share
information in preparing those tax returns and in dealing with other tax
matters.
Registration Rights Agreement. Under the registration rights agreement
between Zap.Com and Zapata, Zap.Com granted certain rights to Zapata with
respect to the registration under the Securities Act of the
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shares of Zap.Com common stock owned by Zapata as of November 12, 1999. The
registration rights agreement entitles Zapata to demand Zap.Com, not more than
once in any 365 day period and on not more than three occasions after Zapata no
longer owns a majority of the voting power of the outstanding capital stock of
Zap.Com, to file a registration statement under the Securities Act covering the
registration of Zap.Com common stock held by Zapata, including in connection
with an offering by Zapata of its securities that are exchangeable for its
common stock. Zapata's demand registration rights contain various limitations,
including that the registration cover a number of shares of Zap.Com common stock
held by Zapata having a fair market value of at least $5.0 million at the time
of the request for registration and that Zap.Com may be able to temporarily
defer a demand registration to the extent it conflicts with another public
offering of securities by Zap.Com or would require Zap.Com to disclose material
non-public information. Zapata may also require Zap.Com to include Zap.Com
common stock held by Zapata in a registration by Zap.Com of its securities so
long as specified conditions are satisfied. The underwriters for the offering,
however, may limit or exclude Zap.Com common stock held by Zapata from the
offering.
Zap.Com and Zapata will share equally the out-of-pocket fees and expenses
of a demand registration and Zapata will pay its pro rata share of underwriting
discounts, commissions and related selling expenses. Zap.Com will pay all
expenses associated with a piggyback registration, except that Zapata will pay
its pro rata share of the selling expenses. The registration agreement contains
indemnification and contribution provisions:
- by Zapata for the benefit of Zap.Com and related persons, as well as any
potential underwriter, and
- by Zap.Com 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 the securities
held by Zapata, common stock representing less than 10% of the then issued and
outstanding voting stock of Zap.Com. Zapata's piggyback registration rights will
terminate when it is able to sell all of its Zap.Com common stock, including all
common stock available upon exercise of all conversion and subscription
privileges, under Rule 144 within a three month period. Zapata may transfer its
registration rights to any transferee from it of common stock that represents,
on a fully converted or exercised basis, at least 20% of the then issued and
outstanding voting stock of Zap.Com at the time of transfer; provided, however,
that the transferee will be limited to
- two demand registrations if the transfer conveys less than a majority but
more than 30%, and
- one demand registration if the transfer conveys 30% or less of the then
issued and outstanding voting stock of Zap.Com.
GLAZER INVESTMENT
In November 1999, Malcolm Glazer and Avram Glazer contributed to Zap.Com
$1,100,000 in cash in exchange for 550,000 shares of Zap.Com common stock.
AMERICAN INTERNETWORK SPORTS COMPANY, LLC
On October 20, 1999 American Internetwork Sports Company, LLC and Zap.Com
entered into a consulting agreement which requires American Internetwork Sports
to provide Zap.Com during a three year term with corporate, business and
marketing advice on sports related aspects of Zap.Com's business, including
sports related content, e-commerce opportunities, strategic alliances and Web
sites who are candidates for the ZapNetwork. American Internetwork Sports is
owned and controlled by Avram Glazer's siblings Kevin Glazer, Bryan Glazer, Joel
Glazer, Darcie Glazer and Edward Glazer. Bryan Glazer, Joel Glazer and Edward
Glazer all serve as Executive Vice Presidents of the Tampa Bay Buccaneers, which
is a member of the NFL.
In exchange for these services, Zap.Com and American Internetwork Sports
entered into a warrant agreement which provides for the issuance of warrants to
purchase up to 2,000,000 shares of Zap.Com common stock at an exercise price of
$2.00 per share. These warrants will become exercisable on a cumulative basis in
equal one-third amounts on each of the first three anniversary dates of Zapata's
November 12, 1999 distribution of our shares and have a term of five years. The
warrants will accelerate and become fully
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exercisable in the event of a change of control or if the consulting agreement
is terminated by Zap.Com without cause. The warrant agreement requires Zap.Com
to register the shares covered by the warrants on registration statement on Form
S-8 before the first anniversary following the issuance of the warrants and to
keep the registration in effect until all of the shares issuable under the
warrants can be sold under Rule 144 of the Securities Act within a three month
period.
OTHER
Gordon E. Forth, who serves as corporate secretary of Zap.Com, is a partner
at Woods, Oviatt, Gilman, Sturman & Clarke, LLP which has acted as counsel to
Zap.Com and Zapata in connection with the distribution. Mr. Forth also serves as
corporate secretary to Zapata.
Zap.Com lacked sufficient independent directors to ratify any of the
transactions described under the "Related Party Transaction" section of this
prospectus. There can be no assurance that these agreements, or the transactions
provided for under those agreement, or any related transactions were effected on
terms at least as favorable to Zap.Com as could have been obtained from
unaffiliated third parties. All future transactions between Zap.Com and its
officers, directors or 5% stockholders, and their respective affiliates,
however, will be on terms no less favorable than could be obtained from
unaffiliated third parties. In the event that Zap.Com enters into future
affiliated transactions, they will be approved by independent directors who do
not have an interest in the transactions and who have access, at Zap.Com's
expense, to Zap.Com's counsel or independent legal counsel. Accordingly, Zap.Com
will not enter into any of these transactions until Zap.Com has two or more
independent directors on its Board.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to Zap.Com regarding
beneficial ownership of Zap.Com common stock as of November 12, 1999 for (1)
each executive officer and director of Zap.Com who beneficially owns shares; (2)
each stockholder known to Zap.Com to beneficially own 5% or more of Zap.Com's
outstanding securities; and (3) all executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------
PERCENTAGE
NAME OF BENEFICIAL OWNER NO. OF SHARES OWNERSHIP
- ------------------------ ------------- ----------
<S> <C> <C>
Zapata Corporation(1)(2).................................... 48,972,258 97.9%
Avram Glazer(3)............................................. 50,020 0.1%
All executive officers and directors as a group............. 50,020 0.1%
</TABLE>
- ---------------
(1) Zapata's address is 100 Meridian Centre, Suite 350, Rochester, New York
14618. As a result of this ownership, Zapata controls Zap.Com. Malcolm
Glazer, through an entity he owns and controls, owns beneficially and of
record approximately 44% of Zapata's outstanding common stock and, by virtue
of that ownership, Malcolm Glazer may be deemed to control Zapata and,
therefore, to beneficially own the Zap.Com securities held by Zapata. Mr.
Glazer disclaims any beneficial ownership of Zap.Com's common stock
beneficially owned by Zapata.
(2) Zap.Com has registered 1,000,000 shares of Zap.Com common stock held by
Zapata for resale on a shelf basis under a separate registration statement.
These figures are subject to change if Zapata sells any of these shares.
(3) Avram Glazer's address is 100 Meridian Centre, Suite 350, Rochester, New
York 14618.
FEDERAL INCOME TAX CONSIDERATIONS
In general, a Web site owner will recognize gain or loss upon the receipt
of shares of common stock and other consideration in exchange for the Web site
rights granted to Zap.Com under the ZapNetwork rights agreement. The "amount
realized" in respect of the Web site rights granted to Zap.Com will include the
fair market value of the shares received and any cash or other property received
in exchange for the Web site rights. Taxable gain or loss will generally consist
of the excess of the amount realized over the Web site owner's adjusted tax
basis in those rights.
The installment method of recognizing gain will apply to the Web site
owners in the absence of disqualifying factors. Application of the installment
method will permit a Web site owner to defer recognition of gain on the
disposition of the Web site rights until the Web site owner actually receives
the shares of common stock or other property. Thus, gain on an installment sale
will be spread over the period in which the installment payments are received,
rather than being taxed in the year in which the Web site owner transfers the
Web site rights. The installment method is not available to a transaction where
a loss is sustained.
Each Web site owner should consult their own tax advisor concerning the
amount, the timing and the character of any gain or loss recognized as long-term
or short-term capital gain or loss (or as ordinary income or loss), which will
be determined by a number of factors, including the tax status of the holder,
whether the Web site rights have been held for more than 1 year, the costs of
building the Web site, and whether and to what extent the holder has previously
claimed a deduction for those costs.
Web site owners should consult their own tax advisor concerning tax
consequences of the granting of the Web site rights to Zap.Com and holding or
disposing of the shares received from Zap.Com under applicable state and local
laws. Site owners that are Non-U.S. persons should also consult their tax
advisors regarding the United States and foreign tax consequences of the
acquisition, holding or disposition of the Web site rights and the shares.
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DESCRIPTION OF SECURITIES
AUTHORIZED CAPITAL STOCK
Zap.Com's authorized capital stock consist of (1) 1,500,000,000 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, all of which are undesignated. As of
the date of this prospectus, Zap.Com has outstanding 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 Restated
Articles of Incorporation and Amended and Restated By-Laws, each of which is
filed as an exhibit to the registration statement of which this prospectus forms
a part 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 with respect to Zap.Com's outstanding common stock.
Please 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.
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.
Each outstanding share of common stock is fully paid and nonassessable. The
rights, preferences, and privileges of the holders of common stock may be
adversely affected by any class or series of preferred stock which Zap.Com 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 the 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.
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 Zap.Com common stock at a premium over its market price 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.
ANTI-TAKEOVER EFFECTS OF NEVADA LAW AND CHARTER
Board of Directors
Zap.Com's Restated Articles of Incorporation provide that, except as
otherwise fixed by the provisions of a certificate of designation containing 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 through a
resolution adopted by a majority of the total number of directors which Zap.Com
would have if there were no vacancies. 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. 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. The terms of these two classes will expire at the second and third
annual stockholders' meeting occurring after the classified board becomes
effective. Commencing with the
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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 the person's successor is duly elected and qualified.
The Articles provide that except as otherwise provided for or fixed by a
certificate of designation containing 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 the
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. Any director elected by the holders of our common stock
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 initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of Zap.Com.
Special Meetings of Stockholders
Zap.Com'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 Zap.Com's 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
Zap.Com'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
- 60 days prior to the annual meeting of stockholders, or
- 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.
Zap.Com'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.
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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 ZAP.COM 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 specified circumstances, business
combinations with interested stockholders are not permitted for a period of
three years following the date the 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. As permitted under Nevada law,
Zap.Com has "opted out" of the application of the business combination statute
by inserting a provision doing so in its Articles. 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 with 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.
In addition to the business combination statute, the Nevada Code generally
disallows the exercise of voting rights with respect to "control shares" of an
"issuing corporation" held by an "acquiring person," unless the 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
- acquire or offer to acquire in an acquisition of a controlling interest,
and
- 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. While Zap.Com does not currently exceed the
control share statute thresholds, it may do so in the future. Further, Zap.Com
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.
If the business combination statute and/or the control share acquisition
statute becomes 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.
The Nevada Code 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, Zap.Com's board of directors may have considerable discretion in
considering and responding to unsolicited offers to purchase a controlling
interest in Zap.Com.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Zap.Com believes that provisions contained within 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
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permitted by Nevada law. This is intended to relieve Zap.Com's officers and
directors from monetary liabilities for breach of their fiduciary duties as
directors, except for:
- 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 that director or officer to repay
the amount if it should be ultimately determined that they are not entitled to
indemnification by Zap.Com.
Prior to the consummation of 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 consummation of the distribution, officer and director
liability insurance with respect to liabilities arising out of matters,
including matters arising under the Securities Act.
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.
EXPERTS
The financial statements as of September 30, 1999 and December 31, 1998 and
for the periods then ended and for the cumulative period from April 2, 1998
(date of inception) to September 30, 1999 included in this prospectus have been
so included in reliance on the report (which contains an emphasis paragraph
relating to Zapata's commitment of an equity contribution to Zap.Com
Corporation) of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
Certain matters relating to this Offering are being passed upon by, Woods,
Oviatt, Gilman, Sturman & Clarke LLP of Rochester, New York. Woods, Oviatt,
Gilman, Sturman & Clarke LLP is legal counsel to both Zapata and Zap.Com and a
partner of the firm is corporate secretary for both corporations.
ADDITIONAL INFORMATION
Zap.Com has filed with the Securities and Exchange Commission a
registration statement, which includes exhibits, under the Securities Act of
1933 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. You may read
and copy all or any portion of the registration statement or any other
information the company files at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's web site (http://www.sec.gov).
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended. In accordance with those
requirements, we file periodic reports, proxy statements and other information
with the SEC.
56
<PAGE> 61
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Cash Flows.................................... F-5
Statements of Changes in Stockholders' Deficit.............. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Zap.Com Corporation
In our opinion, the accompanying balance sheets and related statements of
operations, cash flows and changes in stockholders' deficit present fairly, in
all material respects, the financial position of Zap.Com Corporation (a
Development Stage Company, the "Company") at September 30, 1999 and December 31,
1998 and the results of its operations and its cash flows for the period from
April 2, 1998 (date of inception) to December 31, 1998, for the nine months
ended September 30, 1999, and for the cumulative period from April 2, 1998 (date
of inception) to September 30, 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 audits. We conducted our audits 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 audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note 3, Zapata Corporation, a stockholder of the Company,
on November 12, 1999, made an equity contribution of $8,000,000 and forgave
$1,000,000 in amounts owed to it by the Company.
PRICEWATERHOUSECOOPERS LLP
December 8, 1999
New Orleans, Louisiana
F-2
<PAGE> 63
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO-FORMA
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999
------------ ------------- --------------
(UNAUDITED --
NOT COVERED BY
AUDITORS
REPORT)
<S> <C> <C> <C>
ASSETS
ASSETS:
Current assets:
Cash and cash equivalents........................... $ -- $ 23,401 $ 9,123,401
----- ----------- -----------
Total current assets........................... -- 23,401 9,123,401
Property and equipment.............................. -- 38,882 38,882
----- ----------- -----------
Total assets.............................. $ -- $ 62,283 $ 9,162,283
===== =========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
LIABILITIES:
Current liabilities:
Accounts payable.................................... $ -- $ 8,114 $ 8,114
Due to related party................................ -- 39,588 39,588
Accrued liabilities................................. -- 320,436 320,436
Amounts due to stockholder and affiliates........... -- 106,476 106,486
----- ----------- -----------
Total current liabilities...................... -- 474,614 474,624
Amounts due to stockholder and affiliates, net of
current........................................... 783 1,000,000 --
----- ----------- -----------
Total liabilities......................... 783 1,474,614 474,624
----- ----------- -----------
COMMITMENT & CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock, no par value, 1,500,000,000 shares
authorized, 49,450,000 shares issued and
outstanding ($.001 par value, 1,500,000,000
shares authorized, 50,000,000 issued and
outstanding pro forma as of September 30, 1999)
(Note 7)....................................... 10 10 50,000
Additional paid in capital........................ -- -- 10,050,000
Deficit accumulated during the development
stage.......................................... (793) (1,412,341) (1,412,341)
----- ----------- -----------
Total stockholders' (deficit) equity........... (783) (1,412,331) 8,687,659
----- ----------- -----------
Total liabilities and stockholders' equity..... $ -- $ 62,283 $ 9,162,283
===== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 64
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FROM APRIL 2, 1998 FOR THE FROM APRIL 2, 1998
(DATE OF INCEPTION) NINE MONTHS (DATE OF INCEPTION)
THROUGH ENDED THROUGH
DECEMBER 31, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------- ------------------ -------------------
<S> <C> <C> <C>
Revenues................................. $ -- $ -- $ --
Expenses:
General and administrative............. 793 1,411,548 1,412,341
----------- ----------- -----------
793 1,411,548 1,412,341
----------- ----------- -----------
Loss before income taxes................. (793) (1,411,548) (1,412,341)
Benefit from income taxes (Note 5)....... -- -- --
----------- ----------- -----------
Net loss................................. $ (793) $(1,411,548) $(1,412,341)
=========== =========== ===========
Per share data (basic and diluted):
Net loss per share..................... $ (.00) $ (.03) $ (.03)
=========== =========== ===========
Average common shares and common share
equivalents outstanding (Note 7).... 49,450,000 49,450,000 49,450,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 65
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
FROM APRIL 2, 1998 FOR THE FROM APRIL 2, 1998
(DATE OF INCEPTION) NINE MONTHS (DATE OF INCEPTION)
THROUGH ENDED THROUGH
DECEMBER 31, 1998 SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
-------------------- ------------------ -------------------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss................................ $(793) $(1,411,548) $(1,412,341)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation....................... -- 9,687 9,687
Changes in assets and liabilities
Accounts payable................. -- 8,114 8,114
Accrued liabilities.............. -- 320,436 320,436
Amounts due to stockholder and
affiliates.................... -- 106,476 106,476
----- ----------- -----------
Total adjustments............. -- 444,713 444,713
----- ----------- -----------
Net cash used in operating
activities.................... (793) (966,835) (967,628)
----- ----------- -----------
Cash flows used by investing activities
Capital additions..................... -- (8,981) (8,981)
----- ----------- -----------
Net cash flows used by investing
activities.................... -- (8,981) (8,981)
----- ----------- -----------
Cash flows provided by financing
activities
Issuance of common stock.............. 10 -- 10
Amounts due to stockholder and
affiliates......................... 783 999,217 1,000,000
----- ----------- -----------
Net cash flows provided by
financing activities.......... 793 999,217 1,000,010
----- ----------- -----------
Net change in cash and cash
equivalents........................... -- 23,401 23,401
Cash and cash equivalents at beginning
of period............................. -- -- --
----- ----------- -----------
Cash and cash equivalents at end of
period................................ $ -- $ 23,401 $ 23,401
===== =========== ===========
Supplemental schedule of noncash
investing activities
Transfer of equipment from related
party.............................. $ -- $ 39,588 $ 39,588
===== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 66
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED
-------------------- DURING THE TOTAL
SHARES DEVELOPMENT STOCKHOLDERS'
(NOTE 7) AMOUNT STAGE DEFICIT
---------- ------ ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, APRIL 2, 1998 (date of
inception)............................... -- $-- $ -- $ --
Issuance of 49,450,000 shares common stock
on April 2, 1998 at no par value........... 49,450,000 10 -- 10
Net loss for the period from April 2, 1998
to December 31, 1998..................... -- -- (793) (793)
---------- --- ----------- -----------
BALANCE, DECEMBER 31, 1998................. 49,450,000 10 (793) (783)
Net loss for the nine months ended
September 30, 1999....................... -- -- (1,411,548) (1,411,548)
---------- --- ----------- -----------
BALANCE, SEPTEMBER 30, 1999................ 49,450,000 $10 $(1,412,341) $(1,412,331)
========== === =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 67
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
majority-owned subsidiary of Zapata Corporation ("Zapata"). Zap.Com is a
development stage company which was formed to engage in an Internet business
through the development of the ZapNetwork, which is a network of third party Web
sites that deploy a Zap.Com multifunctional Internet property, the ZapBox, on a
perpetual basis through which Zap.Com will distribute user content, advertising
and e-commerce. The Company has not yet commenced significant operations, and
its primary activity to date has been research and investigation of Internet
industry opportunities and the development of the Company's business model and
the creation of its multifunctional banner, the ZapBox. In order to successfully
execute its business model, the Company must acquire access to technology
systems and resources, contract with Web sites to participate in the Company's
network, and complete the public registration of its common stock. The business
model to be employed by the Company and its potential for profit is unproven.
The Company may not raise the necessary capital to fund the investment needs of
its business, thereby adversely effecting the Company's ability to grow its
network unless additional capital is obtained through debt or equity financing.
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
management 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.
Earnings Per Share
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" requires presentation of basic loss per share and diluted loss per share
for all periods presented. If the warrants covering 2,000,000 shares and the
options covering 578,000 shares of the Company's common stock, respectively
issued subsequent to September 30, 1999 had been issued on or before that date,
they would have been excluded from the calculation because they would be
antidilutive.
F-7
<PAGE> 68
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 carry forwards 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
carry forwards 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. STOCKHOLDERS' 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 September 30, 1999 and December 31, 1998, the Company has accumulated a
deficit during its development stage of $1,412,341 and $793, respectively. 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.
In September 1999, Zapata advised the Company of the Zapata Board's
intention to declare a dividend, payable to its stockholders, of one share of
Zap.Com common stock for every 50 shares of Zapata common stock on a record date
to be determined. On October 26, 1999, a record date of November 5, 1999 was
declared. The distribution is intended to be essentially Zap.Com's initial
public offering, which has as its primary purpose the creation of a public
market for the Company's common stock and future access to public markets.
In November 1999, the Company amended and restated its Articles of
Incorporation to revise its capital structure. Subsequent to the amendment,
Zap.Com's authorized capital stock was: (1) 1,500,000,000 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. Also, the Company Board of Directors approved a
49,450 for one stock split immediately prior to the distribution. (See Note 7)
On November 12, 1999, Zapata distributed 477,742 shares of Zap.Com common
stock to its stockholders. Also, on November 12, 1999, Zapata provided the
Company with $9,000,000, including $49,450 to meet the stated capital
requirements of Nevada law to effectuate the 49,450 for one stock split which
occurred immediately prior to the distribution. The contribution consisted of
$8,000,000 in cash and the forgiveness of $1,000,000 of inter-company debt. At
the same time, Malcolm Glazer and Avram Glazer contributed
F-8
<PAGE> 69
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
$1,100,000 in exchange for 550,000 shares of Zap.Com common stock. The
unaudited, pro-forma balance sheet as of September 30, 1999 gives effect to
these transactions.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment primarily consists of server and network equipment,
the majority of 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 of approximately $40,000 on the transfer date of February 28, 1999.
Zap.Com depreciates these assets over their remaining useful life of
approximately 5 years. The company recorded depreciation expense of
approximately $10,000 for the seven month period ending September 30, 1999. No
depreciation expense was recorded for the period ended December 31, 1998.
NOTE 5. INCOME TAXES
For Federal income tax purposes 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 approximately $494,000.
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 $261,000 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 Web space, the ZapNetwork and related projects. The
Company recorded the assets at the cost to the transferor of approximately
$40,000. 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, LFG agreed
not to sue or otherwise oppose the use by Zapata or its subsidiaries and
successors and assigns for the use of the "Zap" mark in connection with
specified activities including the use of the "Zap" mark in connection with the
Company's network.
As of and prior to September 30, 1999, Zap.Com has satisfied all of its
startup and offering costs with borrowings from Zapata. Effective November 12,
1999, Zapata forgave $1,000,000 in intercompany debt from the Company pursuant
to the completion of the distribution. As a result, the Company has classified
amounts payable to shareholder and affiliates of $1,000,000 as of September 30,
1999 as a long term liability as the Company has the intent not to repay the
amounts in the next year. The remaining payable to Zapata of approximately
$100,000 at September 30, 1999 is classified as a current liability as it will
be repaid with proceeds from the Zapata and the Glazer investments,
respectively, which occurred in November 1999.
On October 20, 1999, the Company granted to American Internetwork Sports
Company, LLC stock warrants in consideration for sports related consulting
services. American Internetwork Sports is owned by the siblings of the Company's
president and Chief Executive Officer, Avram Glazer. The Company will record
expense in accordance with FASB Emerging Issues Task Force 96-18. Accordingly,
Zap.Com will record expense based on the then current fair value of the warrants
at the end of each reporting period with
F-9
<PAGE> 70
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
adjustment of prior period expense to actual expense at each vesting date. Due
to the variable nature of this method, Zap.Com cannot predict the cost that will
ultimately be recorded.
NOTE 7. STOCK SPLIT
On November 12, 1999, immediately prior to the distribution by Zapata of
Zap.Com common stock to its shareholders, the Company effectuated a 49,450 for
one stock split. All share and per share information has been retroactively
stated to reflect this split.
NOTE 8. OTHER SUBSEQUENT EVENTS
During April 1999, the Company's Board of Directors and sole stockholder
approved the Company's 1999 Long Term Incentive Plan. The 1999 Long Term
Incentive Plan provides that awards may be made thereunder of stock options,
restricted stock grants, stock appreciation rights and cash awards. At no time
may the stocks or the stock based awards under the Plan exceed 16% of the
Company issued and outstanding shares of common stock.
On April 12, 1999 the Company granted to persons who are or who will become
key executives or officers immediately following the Company's proposed rights
offering for the purchase of up to 755,000 shares of common stock at an exercise
price of $5.00 subject to the successful completion of the rights offering. The
rights offering was abandoned in September of 1999. In October 1999, the Board
amended the 1999 Incentive Plan to fix the number of shares subject to the plan
at 3,000,000 shares. Subsequently, on October 20, 1999, the Company granted
options to purchase up to 578,000 shares of Zap.Com common stock at $2.00 per
share to persons who are Zap.Com executives and key employees. These options
will vest ratably on an annual basis during the first three years following
their issuance and have five year terms. Zap.Com will account for these options
pursuant to the provisions of APB Opinion No. 25, "Accounting for Stock Issued
to Employees" and will comply with the pro-forma disclosure provisions
prescribed by Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation." In management's opinion, the exercise price of the options are
equal to the fair value at the date of grant and accordingly, no compensation
charge will be recorded by the Company. However, Zap.Com expects to disclose a
pro-forma compensation cost of approximately $300,000 ratably over three years
determined by using an option pricing model prescribed for non-public entities
and the following assumptions: the fair value of the Company stock at date of
grant was $2.00 the expected life of the options is 5 years, and the risk free
interest rate is 6.00%.
F-10
<PAGE> 71
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ZAP.COM LOGO]
PROSPECTUS
20,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
DATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 72
ALTERNATE COVER PAGE FOR SHELF PROSPECTUS
PROSPECTUS
[LOGO]
30,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
------------------------
This prospectus covers 30,000,000 shares of common stock which may be
offered and issued by Zap.Com Corporation, from time to time, in connection with
one or more future acquisitions of companies, businesses or assets complementary
to Zap.Com's existing business (including future acquisitions of rights granted
with respect to one or more Web sites by Web site owners who join the
ZapNetwork) or in connection with future promotions or similar events. These
shares will ordinarily represent consideration paid by Zap.Com. The
consideration for any of these transactions may consist of common stock, cash,
notes or other evidences of debt, convertible or exchangeable securities,
assumptions of liabilities or a combination of these. As of the date of this
prospectus, Zap.Com has not issued any shares of common stock for any
transaction described in the prospectus and has not definitively identified any
transaction in which it may issue additional shares covered by this prospectus.
At the time that Zap.Com identifies a specific transaction in which shares will
be issued, Zap.Com will amend or supplement this prospectus and the registration
statement of which this prospectus is a part to add information about the
transaction and if applicable and to the extent required by applicable rules and
policies of the Securities and Exchange Commission, the company, business or
assets being acquired.
It is expected that the terms of the acquisitions involving the issuance of
securities covered by this prospectus will be determined by direct negotiations
with the owners or controlling persons of the businesses or assets to be merged
with or acquired by Zap.Com, through exchange offers to stockholders or
documents soliciting the approval of statutory mergers, consolidations or sales
for more widely held entities, or through offers containing terms established by
Zap.Com in the case of offers to Web site owners to join the ZapNetwork and
otherwise on the terms contained within the agreements entered into in
connection with the transaction. No underwriting discounts or commissions will
be paid, although finder's fees may be paid from time to time with respect to
specific mergers or acquisitions. Any person receiving any such fees may be
deemed to be an underwriter within the meaning of the Securities Act of 1933, as
amended.
This prospectus also relates to the offer for sale or other distribution of
the shares by persons who acquire shares in one of the transactions described in
this prospectus. These shares may be sold or distributed from time to time by or
for the account of the selling stockholders through underwriters or dealers,
through brokers or other agents, or directly to one or more purchasers, at
prices comparable to market prices prevailing at the time an agreement is
entered into in connection with the transaction, and the consummation of the
transaction at the time of delivery of the shares or at prices otherwise
negotiated. This prospectus also may be used, with Zap.Com's prior consent, by
donees of the selling stockholders, or by other persons acquiring shares and who
wish to offer and sell such shares under circumstances requiring or making
desirable its use.
Zap.Com's common stock is traded on the OTC Bulletin Board under the symbol
"ZPCM". At December 20 1999, Zap.Com had 50,000,000 shares of common stock
outstanding. On December 20, 1999, the last reported sale price of the common
stock (of which 16,500 shares traded) was $6.125 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN FACTORS RELATING TO AN
INVESTMENT IN OUR COMMON STOCK.
These securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities commission passed
upon the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense. These securities may not be sold nor may offers
to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
<PAGE> 73
ALTERNATE PAGE FOR SHELF PROSPECTUS
PLAN OF DISTRIBUTION
ISSUANCE OF SHARES BY THE COMPANY
The shares covered by this prospectus may be issued by Zap.Com from time to
time in payment (or partial payment) of the purchase price for one or more
acquisitions of companies, businesses or assets complementary to Zap.Com's
existing business (including future acquisitions of rights granted with respect
to one or more Web sites by Web site owners who join the ZapNetwork) or which
may be offered in connection with promotions or similar events or for sale or
other distribution by persons who acquire shares in any of these transactions or
by the donees of persons or by other persons acquiring those shares. It is
expected that the terms of the transactions involving the issuance of securities
covered by this prospectus will be determined by direct negotiations with the
owners or controlling persons of the businesses or assets to be merged with or
acquired by Zap.Com, through exchange offers to stockholders or documents
soliciting the approval of statutory mergers, consolidations or sales for more
widely held entities, or through offers containing terms established by Zap.Com
in the case of offers to Web site owners to join the ZapNetwork and otherwise in
agreements entered into in connection with the transaction. The consideration in
these transactions may consist of common stock, cash, notes or other evidences
of debt, assumptions of liabilities or a combination of these. It is anticipated
that the shares issued in any of these transactions will be valued for purposes
of the transaction at a price reasonably related to the market value of the
common stock either at the time of the execution of the definitive transaction
agreement, at the time of the consummation of the transaction or at the time of
the delivery of the shares.
As of the date of this prospectus, Zap.Com has not issued any shares of
common stock for the transactions described in this prospectus and has not
definitively identified any transaction in which it may issue shares. At the
time that Zap.Com identifies a specific transaction in which shares will be
issued, Zap.Com will amend or supplement this prospectus and the registration
statement of which this prospectus is a part to add information about the
transaction and if and to the extent required by applicable rules and policies
of the Securities and Exchange Commission, the company, business or assets being
acquired.
No underwriting discounts or commissions will be paid in connection with
any acquisition contemplated hereby, although finder's fees may be paid from
time to time with respect to specific mergers or acquisitions. Any persons
receiving such fees may be deemed to be an underwriter within the meaning of the
Securities Act.
RESALE OF SHARES BY SELLING STOCKHOLDERS
This prospectus also relates to the offer for sale or other distribution of
shares by the selling stockholders who will acquire shares in a transaction
under this prospectus. The selling stockholders may sell or distribute some or
all of the shares from time to time through underwriters or dealers or brokers
or other agents or directly to one or more purchasers in transactions on any
exchange on which the shares are listed for trading, in privately negotiated
transactions, or in the over-the-counter market, or in brokerage transactions,
or in a combination of such transactions. Such transactions may be effected by
the selling stockholders at market prices, at negotiated prices, or at fixed
prices, which may be changed. Brokers, dealers, agents or underwriters
participating in those transactions as agent may receive compensation in the
form of discounts, concessions from the selling stockholders (and, if they act
as agent for the purchaser of shares, from the purchaser). These discounts,
concessions or commissions as to a particular broker, dealer, agent or
underwriter might be in excess of those customary in the type of transaction
involved. This prospectus may also be used, with Zap.Com's consent, by donees of
the selling stockholder, or by other persons acquiring shares and who wish to
offer and sell such shares under circumstances requiring or making desirable its
use. To the extent required, Zap.Com will file, during any period in which
offers or sales are being made, one or more supplements to this prospectus to
set forth the names of selling stockholders and any other material information
with respect to the plan of distribution not previously disclosed.
The selling stockholders and any such underwriters, brokers, dealers or
agents that participate in such distribution may be deemed to be "underwriters"
within the meaning of the Securities Act, and any discounts, commissions or
concessions received by any such underwriters, brokers, dealers or agents might
be deemed to be underwriting discounts and commissions under the Securities Act.
<PAGE> 74
ALTERNATE PAGE FOR SHELF PROSPECTUS
RESTRICTIONS ON RESALE
Affiliates of entities acquired by Zap.Com who do not become affiliates of
Zap.Com may not resell common sock registered under the registration statement
to which this prospectus relates which they acquire unless the shares are
covered by an effective registration statement under the Securities Act, or the
shares are sold in compliance with Rule 145 promulgated under the Securities Act
or another applicable exemption from the registration requirements of the
Securities Act. Generally, Rule 145 permits such affiliates to sell these type
of shares immediately following the acquisition in compliance with certain
volume limitations and manner of sale requirements. Under Rule 145, sales by
affiliates during any three-month period cannot exceed the greater of 1% of the
shares of common stock of Zap.Com outstanding and the average weekly reported
volume of trading of shares of Zap.Com common stock on all national securities
exchanges during the four calendar weeks preceding the proposed sale. These
restrictions will cease to apply under most other circumstances if the affiliate
has held the common stock for at least one year, provided that the person or
entity is not then an affiliate of Zap.Com. Individuals who are not affiliates
of the entity being acquired and do not become affiliates of Zap.Com will not be
subject to resale restrictions under Rule 145 and, unless otherwise
contractually restricted, may resell common stock immediately following the
acquisition without an effective registration statement under the Securities
Act. The ability of affiliates to resell shares of the common stock under Rule
145 will be subject to Zap.Com having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of sale.
<PAGE> 75
ALTERNATE BACK COVER PAGE FOR SHELF PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ZAP.COM LOGO
PROSPECTUS
30,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
DATED:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 76
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......... $ 80,850
Blue Sky fees and expenses.................................. 50,000
Accounting fees and expenses................................ 20,000
Legal fees and expenses..................................... 150,000
Printing and engraving expenses............................. 40,000
Miscellaneous............................................... 25,000
--------
Total............................................. $365,850
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Zap.Com's 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 eliminate the potential liabilities of Zap.Com's
officers and directors for breach of their fiduciary duties as directors, except
under circumstances which include the following: (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 Zap.Com's Restated Articles of Incorporation
and Amended and Restated By-Laws authorize indemnification of a director,
officer, employee or agent of Zap.Com against expenses incurred by him or her in
connection with any action, suit or proceeding to which this person is named a
party by reason of having acted or served in this 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 Zap.Com and, with respect to any criminal proceeding had
no reasonable cause to believe his conduct was unlawful. A director, officer,
employee or agent of Zap.Com against whom a judgment or settlement is obtained
resulting from lawsuits filed by Zap.Com or derivative suits filed on behalf of
Zap.Com person cannot be indemnified for the expenses he incurs 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 those expenses.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling Zap.Com
pursuant to the foregoing provisions, Zap.Com has been informed that, in the
opinion of the Securities and Exchange Commission, indemnification for these is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In April 1998, Zap.Com issued 1,000 shares of common stock to Zapata in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2). On November 12, 1999, Zap.Com effected a
49,450-for-one share stock split and in connection with the split, Zapata
contributed $9,000,000 to the Company's capital. This contribution consisted of
$8,000,000 in cash and $1,000,000 in inter-company debt forgiveness. These
securities were issued pursuant to an exemption from the registration
requirements provided by Section 3(c)(9) of the Securities Act.
In November 1999 Zap.Com issued to Malcolm Glazer and Avram Glazer 550,000
shares of common stock in connection with their investment of $1,100,000 in
Zap.Com in a transaction exempt from the registration requirements pursuant to
Section 4(2) of the Securities Act.
In April and June 1999, Zap.Com issued stock options to current and future
officers and employees of Zap.Com to purchase up to 755,000 shares of common
stock at an exercise price of $5.00 per share. This
II-1
<PAGE> 77
issuance was exempt from registration under the Securities Act in reliance on
Rule 701 promulgated under the Securities Act as offers and sales of securities
pursuant to compensatory benefit plans and contracts relating to compensation in
compliance with Rule 701. Zap.Com abandoned the rights offering in September
1999, thereby terminating these options.
On October 20, 1999, Zap.Com granted stock options to officers and
employees of Zap.Com to purchase up to 578,000 shares of common stock at an
exercise price of $2.00 per share. This issuance was exempt from registration
under the Securities Act in reliance on Rule 701 promulgated under the
Securities Act as offers and sales of securities pursuant to compensatory
benefit plans and contracts relating to compensation in compliance with Rule
701.
On October 20, 1999, Zap.Com issued warrants to American Internetwork
Sports Company, LLC to purchase up to 2,000,000 shares of common stock at an
exercise price of $2.00 per share. These securities were issued pursuant to an
exemption from registration provided by Section 4(2) of the Securities Act.
No underwriters, brokers or other agents were or will be involved in any of
the above described transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS -- SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Restated Articles of Incorporation of Zap.Com (Exhibit No.
3.1)*
3.2 Amended and Restated By-laws of Zap.Com (Exhibit No. 3.2)*
4.1 Specimen Stock Certificate (Exhibit No. 4.1)*
4.2 Warrant dated October 20, 1999 issued to American
Internetwork Sports Company, LLC (Exhibit No. 4.2)*
4.3 Zap.Com 1999 Long-Term Incentive Plan (Exhibit No. 4.3)*
5.1 Opinion of Woods, Oviatt, Gilman, Sturman & Clarke LLP
10.1 Investment and Distribution Agreement between Zap.Com and
Zapata (Exhibit No. 10.1)*
10.2 Services Agreement between Zap.Com and Zapata (Exhibit No.
10.2)*
10.3 Tax Sharing and Indemnity Agreement between Zap.Com and
Zapata (Exhibit No. 10.3)*
10.4 Registration Rights Agreement between Zap.Com and Zapata
(Exhibit No. 10.4)*
10.5 Consulting Agreement between Zap.Com and American
Internetwork Sports Company, LLC (Exhibit No. 10.5)*
10.6 NetGravity Ad Center Serivces Agreement dated September 30,
1999 between NetGravity, Inc. and Zap.Com (Exhibit No.
10.6)*
10.7 Letter Agreement dated October 18, 1999 between EMC, Inc.
and Zap.Com (Exhibit No. 10.7)*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Woods, Oviatt, Gilman, Sturman & Clarke LLP
(contained in Exhibit 5.1)
27 Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference to the exhibit number referenced in the parenthesis
and filed with Zap.Com's Registration Statement of Form S-1 (File No.
333-76135) originally filed with the Securities and Exchange Commission on
April 12, 1999, as amended.
(b) No Financial Statements Schedules are filed a part of this registration
statement.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant, each hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers, and controlling persons of the Registrant
pursuant to the provisions set forth in Item 14 above, or otherwise, the
Registrant has been advised
II-2
<PAGE> 78
in the opinion of the Securities and Exchange Commission such indemnification
for these types of claims is against public policy as expressed in the 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 Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and the Registrant will be
governed by the final adjudication of such issue.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 79
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 Rochester, New York, on
December 30, 1999.
ZAP.COM CORPORATION
By: /s/ AVRAM GLAZER
------------------------------------
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 December 30, 1999
- --------------------------------------------------- Directors, Director, Chief
(Avram Glazer) Executive Officer and
President
[insert signatures for new directors]
/s/ LEONARD DISALVO Vice President Finance, December 30, 1999
- --------------------------------------------------- Chief Financial Officer
(Leonard DiSalvo) and Principal Accounting
Officer
</TABLE>
II-4
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Restated Articles of Incorporation of Zap.Com (Exhibit 3.1)*
3.2 Amended and Restated By-laws of Zap.Com (Exhibit 3.2)*
4.1 Specimen Stock Certificate (Exhibit 4.1)*
4.2. Warrant dated October 20, 1999 issued to American
Internetwork Sports Company, LLC (Exhibit 4.2)*
4.3 Zap.Com 1999 Long-Term Incentive Plan (Exhibit 4.3)*
5.1 Opinion of Woods, Oviatt, Gilman, Sturman & Clarke LLP
10.1 Investment and Distribution Agreement dated October 20, 1999
between Zap.Com and Zapata (Exhibit 10.1)*
10.2 Services Agreement dated October 20, 1999 between Zap.Com
and Zapata (Exhibit 10.2)*
10.3 Tax Sharing and Indemnity Agreement dated October 20, 1999
between Zap.Com and Zapata (Exhibit 10.3)*
10.4 Registration Rights Agreement dated October 20, 1999 between
Zap.Com and Zapata (Exhibit 10.4)*
10.5 Consulting Agreement dated October 20, 1999 between ZAP.Com
and American Internetwork Sports Company, LLC (Exhibit
10.5)*
10.6 NetGravity AdCenter Service Agreement dated September 30,
1999 between NetGravity, Inc. and Zap.Com (Exhibit 10.6)*
10.7 Letter Agreement dated October 18, 1999 between EMC, Inc.
and Zap.Com (Exhibit 10.7)*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Woods, Oviatt, Gilman, Sturman & Clarke LLP
contained in (Exhibit 5.1)
27 Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference to the exhibit number indicated in the parenthesis
and filed with Zap.Com's registration statement on Form S-1 (registration no.
333-76135) originally filed with Securities and Exchange Commission on April
12, 1999, as amended.
<PAGE> 1
EXHIBIT 5.1
Woods, Oviatt, Gilman, Sturman & Clarke, LLP
Suite 700
Two State Street
Rochester, New York 14614
December 30, 1999
Zap.Com Corporation
Suite 350
100 Meridian Centre
Rochester, New York
Attention: Avram Glazer, President and CEO
Re: Registration Statement on Form S-1
Dear Mr. Glazer:
We have acted as counsel to Zap.Com Corporation, a Nevada corporation (the
"Company"), a Nevada corporation in connection with the preparation and filing
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), of a Registration Statement on Form S-1 (the "Registration
Statement") relating to a direct offering by the Company of up to an aggregate
of 20,000,000 of the Company's common stock, $.001 par value per share to
Website owners in exchange for Web site rights (the "Direct Offering Shares")
and 30,000,000 shares of the Company's common stock on a shelf basis (together
with the Direct Shares, the "Shares"), which may be issued from time to time.
This opinion is being furnished in allowance with the requirements of Item 601
(b) (5) of Registration S-K under the act.
In so acting, we have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, records, certificates and
other instruments of the Company as in our judgment are necessary or appropriate
for purposes of this opinion. We have assumed that the issuance of such Shares
will have been duly authorized, the Shares will have been reserved for issuance,
and certificates evidencing the same will have been duly executed and delivered,
against receipt of the consideration approved by the Board of Directors of the
Company or a committee thereof, which will be not less than the par value
thereof. Based upon the foregoing, we are of the opinion that the Shares, when
and to the extent issued and sold by the Company, will be duly authorized,
validly issued, fully paid and non-assessable.
Members of our firm are admitted to the Bar of the State of New York and do
not opine on any laws except for the State of New York, federal laws and the
Corporate-laws of the State of Nevada. Insofar as our opinions herein relate to
Nevada corporate law, those opinions are based solely on the opinion of
Marshall, Hill, Casses & de Lipkau delivered on this date relating to such
matters and is subject to the one qualifications stated therein. No opinion is
expressed herein with respect to the qualification of the Shares under the
securities laws or blue sky laws of any state. You should be aware that a
partner in our firm serves as a corporate secretary of the Company and its
controlling stockholder, Zapata Corporation.
We hereby consent to the use of this opinion as an Exhibit 5-1 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the prospectus contained therein. In giving such consent, we do not
hereby admit that we are acting within the category of persons whose consent is
required under Section 7 of the Act and the rules and regulations of the
Commission thereunder.
Very truly yours,
WOODS, OVIATT, GILMAN,
STURMAN & CLARKE LLP
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated December 8, 1999, relating to the financial statements of ZAP.COM
Corporation, which appear in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
December 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 23,401
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 48,569
<DEPRECIATION> 9,687
<TOTAL-ASSETS> 62,283
<CURRENT-LIABILITIES> 474,614
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> (1,412,341)
<TOTAL-LIABILITY-AND-EQUITY> 62,283
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,411,548
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> (1,411,548)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,411,548)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
