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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1999
REGISTRATION NO. 333-76135
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4
TO
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)
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NEVADA 76-0571159 7319
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER (PRIMARY STANDARD CLASSIFICATION
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) CODE INCORPORATION)
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100 MERIDIAN CENTRE, SUITE 350 AVRAM GLAZER
ROCHESTER, NEW YORK 14618 PRESIDENT AND CHIEF EXECUTIVE OFFICER
(716) 242-8600 ZAP.COM CORPORATION
(ADDRESS, INCLUDING ZIP CODE OF PRINCIPAL PLACE OF 100 MERIDIAN CENTRE, SUITE 350
BUSINESS AND TELEPHONE NUMBER, INCLUDING AREA CODE ROCHESTER, NEW YORK 14618
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) (716) 242-8600
(NAME, ADDRESS, INCLUDING ZIP CODE OF PLACE OF
BUSINESS AND TELEPHONE NUMBER, AREA CODE
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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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
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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. [ ]
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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. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus. One
prospectus is for use in connection with the distribution of 477,742 shares of
the Registrant's common stock by Zapata Corporation to its stockholders (the
"Distribution Prospectus"). The other prospectus is for the resale by Zapata
Corporation of up to 1,000,000 shares of the Registrant's common stock (the
"Resale Prospectus"). The Distribution Prospectus and the Resale Prospectus are
substantively identical, except for the following principal points:
- they contain different outside front and back cover pages;
- they contain different offering sections in the prospectus summaries;
- the Distribution section in the Distribution Prospectus is changed to a
Plan of Distribution section in the Resale Prospectus;
- they contain different Use of Proceeds sections;
- the Resale Prospectus contains a Selling Stockholder section;
- the Federal Income Tax Considerations section will be deleted from the
Resale Prospectus;
- references in the Distribution Prospectus to the Resale Prospectus will
be deleted from the Resale Prospectus;
- the Plan of Distribution section from the Distribution Prospectus will be
deleted from the Resale Prospectus and a new Plan of Distribution section
will be included in the Resale Prospectus; and
Pages includes in the Distribution Prospectus and not in the Resale
Prospectus are marked "Alternate Page" and follow the back cover page of the
Distribution Prospectus.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL OR DISTRIBUTE THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 27, 1999
PROSPECTUS
[LOGO]
DISTRIBUTION OF 477,742 SHARES
ZAP.COM CORPORATION
COMMON STOCK
ZAP.COM is a development stage company which seeks to build a branded
global network of ZAP.COM banners that will reside on third party web sites. As
of the date of this prospectus, we are a wholly-owned subsidiary of Zapata
Corporation. This prospectus relates to the distribution by Zapata of 477,742
shares of our common stock to Zapata stockholders of record as of November 5,
1999 as a stock dividend.
Prior to the distribution, there has been no public market for our common
stock.
AN INVESTMENT IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
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.
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TABLE OF CONTENTS
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Special Note Regarding Forward-Looking Statements........... 20
The Distribution............................................ 20
Use of Proceeds............................................. 22
Dividend Policy............................................. 22
Capitalization.............................................. 23
Selected Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition
and
Results of Operations..................................... 25
Business.................................................... 29
Management.................................................. 42
Related Party Transactions.................................. 45
Principal Stockholders...................................... 48
Description of Securities................................... 49
Shares Eligible for Future Sale............................. 53
Federal Income Tax Considerations........................... 55
Experts..................................................... 56
Legal Matters............................................... 56
Available Information....................................... 56
Index to Financial Statements............................... F-1
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Our principal executive offices are located at 100 Meridian Centre, Suite
350, Rochester, New York 14618, and our telephone number is (716) 242-8600. Our
World Wide Web site is www.zap.com. The information in the Web site is not
incorporated by 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 dealer, broker,
salesperson any other individual to provide you with different 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 a solicitation of an offer to buy, in any
jurisdiction where the offer or sale is not permitted.
ZAP.COM, ZAP.COM Network, ZAP.COM -- The Next Network and Ultrabanner are
some of our trademarks.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information appearing elsewhere in this prospectus. Except as otherwise noted,
all information in this prospectus assumes: (1) the adoption and filing by
ZAP.COM of Restated Articles of Incorporation and the adoption by ZAP.COM of
Amended and Restated By-Laws described in this prospectus; (2) the effectiveness
of a 49,450-for-one share split of ZAP.COM common stock and Zapata's capital
contribution of $49,450 to meet stated capital requirements; and (3) that Zapata
will have 23,887,078 shares of common stock outstanding on the record date for
the distribution, of which 10,395,384 shares will continue to be held by an
entity owned by Malcolm Glazer.
BUSINESS OF ZAP.COM
Zapata Corporation (NYSE: ZAP) founded our company, ZAP.COM Corporation, in
April 1998 to create and operate a premier Internet network with global market
reach. We plan to pursue this goal by building the ZAP.COM Network, which will
be a network of banners owned by us and displayed throughout Web sites owned and
operated by third parties. Our goal is to make the ZAP.COM Network a leading
advertising and e-commerce platform.
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
of our banner. As of the date of this prospectus, we do not have a network in
place and have not generated any revenues, nor do we have any sources of
revenues. Therefore, to a significant extent, the description of our business in
this prospectus is based on a business model and relates mostly to activities in
the planning and early execution stages.
Our business model involves the acquisition by us of perpetual rights to
space on third party Web sites, with each site's publisher retaining the right
to all other aspects of its Web site. We plan to compensate the owners of these
Web sites with cash, common stock or other securities. We expect to display our
banner on the acquired space. In the future, we may also 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 publisher or any one
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 and for 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.
RISK FACTORS
We will be operating in a new industry and our business and securities
involves a high degree of risk. The principal risks are described under "Risk
Factors." Among these are the following:
- we have no operating history which makes it difficult to evaluate our
business and prospects.
- we face many risks in establishing a new business enterprise in Web
advertising and e-commerce markets, which are new and rapidly evolving.
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- our business model and its potential for profit is unproven.
- we have no present source of revenues and for us to generate revenues, we
will need to grow our network, which we cannot guarantee will occur.
- we anticipate incurring significant losses for the foreseeable future.
- many of our competitors have substantially greater financial, technical
and marketing resources and experience, longer operating histories,
greater name recognition, established and significant customer bases and
broader product and service offerings than we do.
RELATIONSHIP BETWEEN ZAPATA AND ZAP.COM AND OTHERS
CONCURRENT OFFERINGS
Immediately prior to distribution, Zapata will provide ZAP.COM with
$9,000,000 which will constitute its contribution for the 49,450,000 shares of
ZAP.COM common stock it holds. The contribution will consist of $8,000,000 in
cash and the forgiveness of up to $1,000,000 in inter-company debt.
In addition, concurrently with the consummation of the distribution,
Malcolm Glazer and Avram Glazer or one or more entities controlled by them will
contribute $1,100,000 to ZAP.COM in exchange for 550,000 shares of our common
stock. Immediately following the concurrent offering to the Glazers and the
distribution, Zapata will hold 98% of our outstanding common stock and continue
to control our management and policies and 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.
CONTRACTUAL ARRANGEMENTS
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 the distribution, 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.
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. The services agreement will permit termination
on 120 days notice from either party. On October 20, 1999, we will also entered
into an investment and distribution agreement, tax sharing and indemnity
agreement and registration rights agreement with Zapata.
OFFICERS AND DIRECTORS
Following the distribution, officers of Zapata will become officers of
ZAP.COM. In addition, Avram Glazer is, and will remain a director of both
corporations.
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THE DISTRIBUTION
Will Every Zapata Stockholder
Share in Proportion to Their
Zapata Holdings? Yes. Zapata stockholders will receive one share
of ZAP.COM common stock for each 50 shares of
Zapata common stock owned by them at the close
of business on November 5 ,1999. However, some
states may not allow Zapata to distribute our
shares without registration or qualification in
that particular state. Also Zapata is not
distributing fractional shares. Therefore, we
have reserved the right to pay those
stockholders cash in lieu of the stock dividend
they would have received but for those state
restrictions and in lieu of fractional shares.
How Many Shares Will ZAP.COM
Have Outstanding Following
the
Distribution? Immediately following the concurrent offering
to the Glazers and the distribution, we will
have outstanding 50,000,000 shares of common
stock. In addition, we will have reserved
3,000,000 shares of common stock for the grant
of options and other awards under our 1999
Long-Term Incentive Plan, of which we will have
outstanding options for the purchase of 578,000
shares. We will also have reserved 2,000,000
shares of common stock for warrants issued to
American Internetwork Sports. These outstanding
options and warrants will have an exercise
price of $2.00 per share, vest ratably over
three years and have a term of five years.
Why Are We Engaging in This
Distribution? The distribution represents ZAP.COM's initial
public offering of its securities, although it
is different than a traditional offering in
that securities are being distributed rather
than sold and will be directed only to eligible
Zapata stockholders. The primary purpose of the
distribution is to create a public market for
our common stock and to facilitate future
access to the public market.
Can I Sell My ZAP.COM Shares? Upon the effectiveness of the registration
statement of which this prospectus forms a
part, if you are not an affiliate of ZAP.COM,
the shares you receive in the distribution will
be freely tradable, assuming any market for
these securities ever develops.
Where Will My ZAP.COM Shares
Trade? We expect that our common stock will be listed
on the OTC Electronic Bulletin Board maintained
by the National Association of Securities
Dealers under the symbol "ZPCM". We can not
assure you that a market for our common stock
will develop. If a market does develop, it is
likely to be limited, sporadic and highly
volatile.
Will the Distribution be
Taxable to
Me? The distribution will be taxable to you as a
dividend. Please read the information set forth
under the caption "Federal Income Tax
Considerations" in this prospectus and consult
your tax advisor with respect to the income tax
consequences of the distribution to you.
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RISK FACTORS
You should be aware that ownership 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 notes
thereto, when evaluating your ownership of 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 LACK OF AN 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 activities, research and analysis with respect to
Internet industry opportunities, development of strategic relationships and the
creation of our banner. As of the date of this prospectus, we do not have an
established network, we have limited assets and no operating history upon which
an evaluation may be made of 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 our banner;
- develop and formalize strategic 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;
- build and maintain the ZAP.COM Network by attracting Web site publishers
to participate in the network;
- market the ZAP.COM Network 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 contract with Web
sites publishers to participate in the ZAP.COM Network and to select sites that
are attractive to potential customers. We do not
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expect to generate any revenues from the ZAP.COM Network until it has grown to a
size which is attractive to potential advertising customers and e-commerce
partners. We have no present plans, proposals, arrangements or understandings
with any Web site publishers to join our network. Further, we have not confirmed
the interests of Web site publishers in the ZAP.COM Network and, therefore, we
cannot assure you that Web site publishers will want to participate in our
network. Please see "Business -- Web Site Publisher Recruiting." If we are
unable to attract a sufficient number of Web site publishers 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 publishers, we cannot
assure you that we will be able to integrate these Web sites into our network
without substantial costs, delays or other problems. We also may not be able to
anticipate all of the changing demands that successive admissions of Web sites
to our network will impose on our management personnel, operational and
management information systems and financial systems or those of Zapata with
whom we have a services agreement. Please see "Business -- Web Site Publisher
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 July 31, 1999, we had a deficit accumulated during the development
stage of $922,323. 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 participating in our
network, develop our brand name, hire additional employees and expand our
business. We also anticipate significant charges arising from the consideration
we plan to pay Web site publishers who join the ZAP.COM Network. We will also
incur charges in connection with any stock we issue 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 our operating losses will
not increase in the future or 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 that
demand 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. Even if we do achieve
profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future.
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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 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 DESIGNING THE BANNER WE PLAN TO USE, AND IT MAY BE
DIFFICULT TO FINALIZE DEVELOPMENT OF THE BANNER.
Our main product will be our banner. We plan for the banner to display a
variety of content in various forms of media. Please see "Business -- Products
and Services." Although a functional prototype of our planned banner has been
created, the timing and success of the final version of the banner is
unpredictable due to the uncertainty of several design parameters associated
with the Internet, including bandwidth requirements and browser compatibility.
We cannot guarantee that the development of our banner can be successfully
finalized and introduced or that it will achieve significant market acceptance.
In addition, the final version of our banner may contain undetected errors when
first introduced which could result in additional expense to us and also result
in a loss or delay of market acceptance of the banner 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 BANNERS BECOME AN INEFFECTIVE METHOD FOR DELIVERING INTERNET PROGRAMMING, OUR
BUSINESS AND REVENUES WILL SUFFER
Banners, from which we expect to derive substantially all of our revenues,
may not be an effective Internet method in the future. There are currently no
widely accepted standards to measure the effectiveness of Internet banners and
we cannot be sure that these standards will develop to sufficiently support the
use of banners as a significant medium for delivery of advertising, e-commerce
opportunities and other information. Potential ZAP.COM Network customers may not
accept our or third party measurements of impressions on the ZAP.COM Network 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.
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WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN OUR QUARTERLY
OPERATING RESULTS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE
Our lack of an operating history makes it difficult for us to assess the
impact of seasonal factors of our business. We expect, however, that after
establishing our network, 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 ZAP.COM Network;
- the price paid to Web site publishers for joining the ZAP.COM Network and
related costs;
- user traffic levels and the number of impressions on Web sites that
participate in the ZAP.COM Network;
- demand for advertising on the ZAP.COM Network by future customers and the
success of any e-commerce opportunities for the ZAP.COM Network;
- seasonal fluctuations in revenue;
- changes in the growth rate of Internet usage;
- changes in our pricing policies or those of our competitors for different
uses of the ZAP.COM Network;
- the commitment of budgets for businesses to Internet advertising and use;
- the mix of revenues from different uses of the ZAP.COM Network 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 the absence of any 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 PARTICIPATING IN, 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 ZAP.COM Network, 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
participating Web sites or if one or more material Web sites discontinues its
business or becomes bankrupt or insolvent.
Each Web site publisher who joins the ZAP.COM Network will enter into a
contract with us providing for a perpetual right to place and display our banner
throughout its Web sites. In the event that a Web site publisher participating
in our network breaches its contract at any time and
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denies us access to its Web sites, our remedy 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 publisher whose site is
material to the network or a material number of Web sites participating in 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 programming on our network will be largely dependent
upon the accuracy of profile information contained in the databases we assemble
and use to target banner programming on our network. This data will be collected
from those Web site publishers participating in our network and, therefore, the
quality of this data will be dependent on these publishers. Thus, we cannot be
sure that the information which will be developed for our database will be
accurate or that network customers will be willing to have banner programming
targeted by any database containing those 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".
WE WILL RELY ALMOST EXCLUSIVELY ON THIRD PARTY TECHNOLOGY AND SERVICE PROVIDERS
THAT WE DO NOT CONTROL
In order to create the ZAP.COM Network, we must develop and acquire the
supporting infrastructure. For example, we do not have direct connection access
to the Internet, but instead we expect to rely on an Internet service provider
who is engaged in the business of providing connectivity for its customers to
the Internet. We will also rely on a variety of technology that will be licensed
from or provided by third parties. For example, to address the complex task of
distributing programming to banners on our network, managing banner space and
measuring traffic on and collecting data from the ZAP.COM Network we have
selected NetGravity and its software platform. To the extent that material
difficulties are encountered in bringing NetGravity's systems on-line, we will
need to acquire an alternative solution from another third party service
provider or vendor. Our loss of, or inability to maintain or obtain upgrades to
the technology licenses or hardware solutions deployed 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,
home page content providers and others. We currently have only a few of these
arrangements in place and we cannot assure you that we will be able to secure
these arrangements, directly or indirectly. If we fail to secure 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
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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 ZAP.COM Network participants 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 banner views received by our customers and our revenues. In
addition, our operations and the performance of our network could be adversely
affected.
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 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 presently have redundant systems or a formal disaster
recovery plan. We do not now and will not for the foreseeable future maintain
business interruption insurance. Any system failure that causes interruption or
an increase in download time of banners to Web sites could delay programming to
the ZAP.COM Network and, if sustained or repeated, could reduce the
attractiveness of the network to customers.
WE EXPECT TO INCUR SIGNIFICANT EXPENSES FOR COMPENSATION PAID TO WEB SITE
PUBLISHERS FOR PARTICIPATING IN OUR NETWORK
We expect to incur significant charges for the consideration we plan to pay
Web site publishers for joining and participating in the ZAP.COM Network. 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 a period of three years or less 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 publishers
joining our network as a result of being paid for the right to place and display
our banner throughout these publishers' Web sites. We expect that the main form
of consideration to be paid these publishers
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will be our common stock. If an orderly trading market does not develop in, or
develops and is not maintained in our common stock, Web site publishers who are
potential ZAP.COM Network participants may be unwilling to accept our common
stock as all or part of the payment due them for joining and participating in
the ZAP.COM Network. Under these circumstances, we will be required to use cash
to initiate and possibly maintain the growth of our network.
Following the distribution, we will have limited cash resources and Zapata
will not have an obligation to contribute additional funds to us. Although we
are not prohibited from raising additional capital by any of the arrangements
between Zapata and us, Zapata's control of approximately 98% of our outstanding
common stock after the distribution 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. As a result, the market value and liquidity of our common stock and our
ability to issue additional common stock may be adversely affected.
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 brand 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 publishers who are potential ZAP.COM Network 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 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 applications for the registration of
the "ZAP.COM," "ZAP.COM Network," "ZAP.COM -- THE NEXT NETWORK," and the
"UltraBanner" trademarks/service marks. 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.
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We cannot assure you that a patent will ever be issued on our pending
provisional patent application or that our pending trademark applications 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
ZAP.COM Network and the Web sites participating in 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 industries 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 publishers participating in the
ZAP.COM Network 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 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 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. We are the registered holders of
approximately 60 Internet domain names, though sites exist for only five of the
domain names. Third parties may submit false
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registration data to Network Solutions, Inc. attempting to transfer key 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
participating in our network and to manage the growth of our operations will
require the development and implementation of our operational and financial
systems, procedures and controls and training, managing and expansion of our
employee base. Our management will also be required to establish and maintain
relationships with customers, Web site publishers participating in the ZAP.COM
Network and strategic partners and to maintain control over our strategic
direction in a rapidly changing environment. We cannot provide any assurance
that we will be able to effectively manage the expansion of our operations or
that the systems we develop and implement or procedures or controls that we
adopt will be adequate to support the rapid execution necessary to fully exploit
the market opportunity we have identified. 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 the 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
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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 business is, and we believe will continue to be, intensely competitive.
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 Netgravity,
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 Internet 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 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
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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 ZAP.COM
Network site participants may also be impacted by Year 2000 complications. Any
failure by our network participants to make their sites Year 2000 compliant
could disrupt delivery of programming to the participant and the participant's
operation of its sites. If a material number of participants 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 -- Liquidity and Capital Resources -- Year 2000".
ZAP.COM has not yet developed a contingency plan to address situations that
may result if it is unable to achieve Year 2000 compliance. The cost of
developing and implementing a plan like this, if necessary, could be material.
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 ZAP.COM
Network. 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.
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
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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 type 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 apparent need of companies from many industries to offer
Internet-based products and services. As a result, our future success will
depend on our ability to 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 ZAP.COM Network to customers,
network site participants or emerging industry standards. If we are unable to
adapt in a timely manner in response to changing market conditions or customer
requirements, our 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
business
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or otherwise have a material adverse effect on our business and operating
results. Please see "Business -- Government Regulation and Legal Uncertainties".
THE INVESTMENT PRICE PAID FOR OUR SHARES IN THE CONCURRENT OFFERINGS WAS
DETERMINED ON AN ARBITRARY BASIS
The price paid for our common shares in the concurrent offerings to Zapata
and the Glazers was determined by our board of directors and is not based on our
assets or other recognized criteria of investment value, like book value, cash
flow, earnings or financial condition. These prices, therefore, do not indicate
that our common stock has a value or can be resold.
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
Prior to this prospectus, there has been no public trading market for our
common stock. Upon the registration statement of which this prospectus forms a
part becoming effective, our common stock will be listed on the OTC Electronic
Bulletin Board. The initial public trading price for our common stock will be
determined by market makers independent of us. We can provide you no assurance
that the market price of the common stock will not decline below the initial
public trading price.
We cannot assure you that investors will develop an interest in our common
stock so that a trading market develops or, if a trading market does develop,
how active that trading market will be or whether it will be sustained. A number
of specific factors that may affect the price and liquidity of our securities,
include:
- the minimal supply of shares eligible for public resale following the
consummation of the distribution;
- 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 may not be followed by any market analysts
and few, if any, institutions may act as market makers for our securities.
Either of these factors could adversely affect the liquidity and trading price
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 such litigation could also subject us to significant
liabilities.
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ZAPATA'S CONTROL AND THE PRESENCE OF INTERLOCKING DIRECTORS AND OFFICERS AFTER
THIS DISTRIBUTION WILL CREATE POTENTIAL CONFLICTS OF INTEREST AND COULD PREVENT
A CHANGE OF CONTROL
Immediately following the distribution, Zapata will own 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
father of our President and Chief Executive Officer, Avram Glazer, controls and
beneficially owns approximately 44% of Zapata's outstanding common stock. As a
result, these executive officers have inherent conflicts of interest when making
decisions related to transactions between us and Zapata. Zapata's ability to
control matters listed above together with the potential conflicts of interest
of 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. Please see
"Relationships and Related Party Transactions".
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 the distribution.
Please see "Related Party Transactions -- Zapata Corporation." We cannot assure
you that the terms of these agreements, or the related transactions, will be
effected on terms at least 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, following the consummation of
the distribution 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
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<PAGE> 22
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
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
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 after the
distribution could cause the market price of our common stock to decline. Upon
completion of the concurrent offerings to Zapata and the Glazers and the
distribution, we will have outstanding 50,000,000 shares of common stock, of
which Zapata will own 48,972,258 shares, Malcolm Glazer will own 707,908 shares,
Avram Glazer will own 50,020 shares and the public will own 269,814 shares. In
addition, we will 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 the shares to be distributed to Zapata stockholders in the
distribution will be freely tradable without restriction or further registration
under the federal securities laws unless acquired by our "affiliates," as that
term is defined in Rule 144 under the Securities Act of 1933. All of the shares
held by Zapata (other than 1,000,000 shares registered concurrently with this
distribution) or acquired by other "affiliates" in the distribution or the
Glazers in the concurrent
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<PAGE> 23
offering will be "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.
Concurrently with the distribution ZAP.COM has registered for resale
1,000,000 shares of ZAP.COM common stock held by Zapata. These shares, which are
covered by a separate resale prospectus, may be sold from time to time in the
public market. In addition, ZAP.COM has granted to Zapata registration rights
with respect to its shares. These registration rights effectively allow Zapata
to register and publicly sell all of its shares any time after the distribution
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; 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, following the consummation of the distribution, 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.
We are also likely to issue large amounts of additional common stock in the
future in connection with payments made to Web site publishers for joining and
participating in the ZAP.COM Network or in other acquisitions. Shortly after the
consummation of the distribution we expect to file a shelf registration
statement covering 50,000,000 shares of our common stock for these issuances
and, if necessary, the public resale of these shares. We may also issue from
time to time shares of common stock in connection with promotions and other
events. All of these shares will become available for resale at various dates in
the future. The availability or sale of these shares could adversely affect the
price of our stock. Please see "Shares Eligible for Future Sale" for more
detailed information.
INVESTORS WILL EXPERIENCE FURTHER DILUTION WITH FUTURE STOCK ISSUANCES
We currently intend to finance a significant amount of the growth in the
ZAP.COM Network with shares of our common stock 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 ZAP.COM Network". We
currently have 1,500,000,000 authorized shares of common stock. Following the
concurrent offerings to Zapata and the Glazers and the distribution, we will
have 50,000,000 shares of common stock outstanding. In addition, immediately
following the consummation of the distribution, we will initially have 5,000,000
shares of common stock reserved for options awarded or to be awarded under
ZAP.COM's 1999 Long-Term Incentive Plan, and for warrants issued to American
Internetwork Sports. Accordingly, immediately following the distribution, we
will have 1,445,000,000 shares authorized but unissued and unreserved shares of
common stock. Consequently, 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
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<PAGE> 24
with the rules and regulations of any exchange or national market system on
which our shares are then listed. We expect that shortly after the consummation
of the distribution to file a shelf registration statement covering 50,000,000
shares of our common stock for issuance in connection with the acquisition of
banner. To the extent we use our common stock in this manner in the future,
dilution in percentage ownership may be experienced by existing stockholders,
including the recipients of common stock in the distribution. In addition,
additional dilution in percentage ownership will be experienced by existing
stockholders upon the exercise of any options or warrants that we have granted
or will grant in the future.
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.
THE DISTRIBUTION
The Board of Directors of Zapata has declared a dividend, payable to its
stockholders of record on November 5, 1999, of 477,742 shares of ZAP.COM common
stock. As of October 21, 1999, Zapata had 23,887,078 shares of common stock
outstanding. Using this figure, Zapata stockholders will receive one share of
ZAP.COM common for every 50 shares of Zapata common stock held on the record
date. All of the distributed shares will be fully paid and nonassessable and the
holders of those shares will not be entitled to preemptive rights. Immediately
consideration will be paid to Zapata or us by Zapata stockholders for the
distributed shares.
PURPOSE OF THE DISTRIBUTION
The distribution is essentially ZAP.COM's initial public offering. The
distribution is different than a traditional offering in that it is a
distribution of rather than a sale of shares and it is directed only to Zapata
stockholders. The primary purpose of the distribution is to create a public
market for our common stock and facilitate future access to public markets.
In addition, the distribution should benefit Zapata stockholders by:
- allowing our business, with its own unique market opportunity and
risk/reward profile, to be evaluated by investors independently of
Zapata's other traditional businesses, including its marine protein
business and food packaging business, which should increase our financial
flexibility in the capital markets;
- enabling Zapata stockholders to increase or decrease their level of
direct investment in us by acquiring our common stock, in the open market
and/or selling any of our common stock distributed to them into the open
market if one develops;
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<PAGE> 25
- allowing Zapata and us to pursue different operating strategies, given
our different business environments and competitive market conditions;
and
- permitting Zapata to benefit from increases, if any, in the market value
of its retained equity interest in us.
MANNER OF EFFECTING THE DISTRIBUTION
Zapata will effect the distribution by delivering the required number of
ZAP.COM shares to American Stock Transfer & Trust Company, the distribution
agent for the distribution. The distribution is currently expected to be
effected as soon as practicable after the registration statement, of which this
prospectus forms a part, is declared effective. Shortly after the registration
statement is effective, the distribution agent will begin mailing stock
certificates reflecting ownership of ZAP.COM common stock to eligible Zapata
stockholders.
No fractional shares of ZAP.COM common stock will be distributed as part of
the distribution. Fractional shares of ZAP.COM common stock will be aggregated
and sold by the distribution agent at the earliest practicable date at the
then-prevailing market price. Each person who would be otherwise entitled to
receive a fractional share will instead receive a cash payment equal to that
person's proportionate share of the net proceeds of the sale of the aggregated
shares. In addition, if you reside in a state in which the state securities laws
do not permit a readily available exemption for the distribution of the shares,
Zapata reserves the right to issue you cash in lieu of shares.
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<PAGE> 26
USE OF PROCEEDS
We will not receive any proceeds from the distribution by Zapata of our
common stock to its stockholders. The primary purpose of the distribution is to
create a public market for our common stock and facilitate future access to
public markets.
We will receive proceeds from the concurrent offerings to Zapata and the
Glazers and we plan to use those proceeds to fund development of the ZAP.COM
Network and anticipated operating losses and for general corporate purposes.
Pending use, ZAP.COM intends to invest the net proceeds from the concurrent
offerings in government securities.
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.
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<PAGE> 27
CAPITALIZATION
The following table sets forth the actual capitalization of ZAP.COM as of
July 31, 1999 and the capitalization of ZAP.COM on a pro forma basis as of July
31, 1999 to give effect to the concurrent offerings to Zapata and the Glazers.
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 thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
JULY 31, 1999
------------------------
ACTUAL PRO FORMA
--------- -----------
<S> <C> <C>
Stockholders' equity (deficit):
Common stock, $0.001 par value; 1,500,000,000 shares
authorized and 49,450,000 issued and outstanding
actual; 50,000,000 shares issued and outstanding pro
forma(1)............................................... $ 10 $ 50,000
Common Stock Warrants..................................... -- --
Additional paid-in capital................................ -- 10,050,000
Deficit accumulated during the development stage.......... (922,323) (922,323)
Total stockholders equity (deficit) and
capitalization.................................. (922,313) 9,177,677
</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".
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SELECTED FINANCIAL DATA
The selected financial data set forth below for the periods from April 2,
1998 (date of inception) through December 31, 1998, and from January 1, 1999
through July 31, 1999 and the cumulative period from April 2, 1998 (date of
inception) through July 31, 1999 are derived from our audited financial
statements. The audited balance sheets as of December 31, 1998 and July 31, 1999
and the related statements of operations, stockholder's deficit and cash flows
for the periods then ended and the related notes thereto 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>
CUMULATIVE
PERIOD FROM
APRIL 2, 1998
FROM APRIL 2, 1998 FOR THE (DATE OF
(DATE OF INCEPTION) SEVEN MONTHS INCEPTION)
THROUGH ENDED THROUGH
DECEMBER 31, 1998 JULY 31, 1999 JULY 31, 1999
------------------- ------------------- ----------------
<S> <C> <C> <C>
Revenues................................... $ -- $ -- $ --
Expenses:
General and administrative(1)............ 793 921,530 922,323
--------- --------- ---------
Loss before income taxes................... (793) (921,530) (922,323)
--------- --------- ---------
Benefit from income taxes.................. -- -- --
--------- --------- ---------
Net loss................................... $ (793) $(921,530) $(922,323)
========= ========= =========
Per share data (basic):
Net loss per share....................... $ (.79) $ (921.53) $ (922.32)
========= ========= =========
Average common shares and common share
equivalents outstanding.................. 1,000 1,000 1,000
========= ========= =========
</TABLE>
- ---------------
(1) Includes approximately $325,000 of costs incurred as of July 31, 1999 in
connection with a rights offering abandoned by ZAP.COM in September 1999.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
1998 JULY 31, 1999
------------ -------------
<S> <C> <C>
Balance sheet data:
Total assets.............................................. $ 0 $ 87,308
Total liabilities......................................... 783 1,009,621
Total stockholder's deficit............................... (783) (922,313)
</TABLE>
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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 develop an Internet
network of banners through which it will distribute advertising and e-commerce
opportunities. From inception on April 2, 1998 through July 31, 1999, ZAP.COM
has operated as a wholly-owned subsidiary of Zapata. During this period,
ZAP.COM's operations have consisted primarily of organizational and capital
raising activities, research and analysis with respect to the Internet industry,
the development of strategic relationships and the creation of its banner. 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, particularly companies dependent upon 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 completion of our banner, the establishment of strategic
relationships, increasing our employee base, building and maintaining the
ZAP.COM Network, attracting and retaining customers, and the anticipation and
adaption to changes in our market and competitive developments. 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 July 31, 1999 ZAP.COM had generated no revenues and had incurred
expenses and a cumulative operating loss of approximately $922,000 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.
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
participate in the ZAP.COM Network and to successfully market its banner to
customers. ZAP.COM cannot predict whether Web site publishers will want to join
the ZAP.COM Network. If ZAP.COM is unable to attract a sufficient number of Web
site publishers to its network, it will not be able to commence sales or
generate revenues or 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".
ZAP.COM expects that following the distribution 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
consideration to be paid Web site publishers who join the ZAP.COM Network 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 Publishers For Participating In Our Network." ZAP.COM does not
currently have any agreement, understanding or arrangement with any Web site
publishers to join the network.
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 and warrants will generally vest ratably on
an annual basis during the first three years following their issuance and will
have five year terms. ZAP.COM
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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 are equal to the fair value of 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 the Company's 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%.
In the case of the warrants granted to American Internetwork Sports,
ZAP.COM will record expense in accordance with FASB EITF 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.
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 participating in 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 and 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 compose 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, Which Could Cause Our Stock
Price to Decline".
LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1999, ZAP.COM had approximately $11,000 in cash or cash
equivalents. 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 ZAP.COM
Network 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."
Immediately prior to the distribution, Zapata will contribute to ZAP.COM
$8,000,000 in cash and will forgive up to $1,000,000 in inter-company debt, the
proceeds of which ZAP.COM used in connection with the start-up costs and costs
incurred in connection with capital raising activities.
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<PAGE> 31
The entire contribution will be allocated to the ZAP.COM common stock held by
Zapata. As of October 25, 1999, ZAP.COM had approximately $982,000 in
inter-company debt to Zapata. Concurrently with the consummation of the
distribution, Malcolm Glazer and Avram Glazer or an entity controlled by them
will contribute $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 concurrent
offerings to fund development of the ZAP.COM Network and anticipated operating
losses and for general corporate purposes. Please see "Use of Proceeds".
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 concurrent offerings 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 publishers who join the ZAP.COM Network. Please see
"Business -- Building The ZAP.COM Network". Shortly after the consummation of
the distribution, we expect to file a shelf registration statement covering
50,000,000 shares of common stock for these issuances and, if necessary, the
public resale of these shares. If Web site publishers are unwilling to accept
ZAP.COM common stock, ZAP.COM may need to raise additional funds.
ZAP.COM 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 the
distributed ZAP.COM common stock. 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
stock holders, 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.
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 plans to assess the Year 2000 readiness of the information technology
("IT") systems that it will be acquiring or that will be employed by
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<PAGE> 32
third party service providers, including the hardware and software that enable
delivery of data and programming to the ZAP.COM Network, and its non-IT systems.
Prior to purchasing any hardware or software or engaging a third party, ZAP.COM
will 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 will purchase or license will have
material problems in this regard as it will only purchase or license current
versions of hardware and software provided by major vendors. Moreover, ZAP.COM
plans 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, 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.
ZAP.COM Network site participants may also be impacted by Year 2000
complications. Any failure by our network participants to make their sites Year
2000 compliant could result in an inability to deliver programming to the
participant's sites. 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 not incurred any expenditures in connection
with identifying or evaluating Year 2000 compliance issues. ZAP.COM, however,
expects to incur less than $10,000 in operating costs associated with time spent
by employees in the IT system evaluation process and Year 2000 compliance
matters generally. ZAP.COM does not expect these future expenses to be material.
Risks. ZAP.COM is not currently aware of any Year 2000 compliance problems
relating to the IT or non-IT systems which it 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 the
Web sites of its Web publisher customers, which could have a material adverse
effect on ZAP.COM's business, prospects, results of operations and financial
condition.
Contingency Plan. ZAP.COM has not yet developed any Year 2000 contingency
plans. The results of ZAP.COM's Year 2000 simulation testing and the responses
received from third party vendors and service providers will be taken into
account in determining the nature and extent of any contingency plans which it
develops. Our failure to develop and implement, if necessary, an appropriate
contingency plan could materially adversely affect our business and results of
operations.
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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 Web users world wide in March 1999 to over 132 million in the United
States and over 325 million world wide by the end of 2000. In addition, due in
part to the Web's open nature, the number of Web sites has been proliferating at
a rapid pace. 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 the number of users and Web sites, the Internet has
emerged as a significant communications medium. This has resulted in more and
more businesses using the Internet as a sales and distribution channel for
commercial activities and as an information resource. To date, commercial
applications on the Internet have involved mostly commerce, advertising and
direct marketing.
E-commerce has grown both as a result of the increase in the traffic and
the types of products and service being distributed over the Internet. Consumers
now trade securities, pay bills and purchase airline tickets and consumer goods
over the Internet. 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. Web-based advertising provides advertisers with
the ability to target their messages to select audiences with specific interests
and characteristics and to quickly modify a program's cost effectively in
response to information received from dialogue with customers. The Web also
allows the measurement of the effectiveness and response rates of advertisements
and the tracking of the demographic characteristics of Web users, which tend to
have attractive profiles. These valuable tools have not been lost on traditional
advertisers, like consumer products companies and automobile manufacturers, who
are beginning to use online advertising.
Internet-based direct marketing has experienced rapid growth. The Internet
allows point-of-sale promotions to be targeted to consumers and better evaluated
based on the response rate of consumers (e.g., number of leads, number of sales
or transactions as a percentage of promotions viewed, etc.). Direct marketers
have the opportunity through the Internet to increase consumer response rates
and decrease costs-per-transaction by high impact targeting and delivering of
their campaigns. This can be much more cost efficient to the direct marketer
than traditional mediums. These unique capabilities are expected to continue the
growth in Internet 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. This compares to the approximately $163
billion which ZAP.COM believes 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 the
potential of the Internet for their use. 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
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companies seek to overcome these challenges by outsourcing their Web site
placement 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 publishers face equally daunting challenges in capitalizing on the
economic opportunities presented by the Web. Typically, Web site publishers
attempt to support, or profit from, their Web sites by selling Internet
advertising or other commercial uses of their inventory of Web site space. Many
Web site publishers 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,
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 publishers cannot
afford, or do not have the ability to operate and maintain, the servers and
technology necessary for targeted information delivery. Many Web site publishers
are unable to secure advertising from, or to service those persons who purchase
on-line inventory. As a result, many Web site publishers seek to outsource sales
of their on-line inventory.
Several business models have evolved to address the challenges faced by
both Internet advertisers and e-commerce companies and Web site publishers.
These models generally focus on centralizing the point of sale to the Web sites
in one entity, which creates synergies for, and streamlines distribution and
marketing operations of, participating Web sites and provides for more effective
placement of advertising or e-commerce opportunities.
One business model involves organizations that act as advertising
representatives for sites. These firms coordinate and facilitate the
distribution of a customer's advertising banner 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 publishers 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 which has developed is the "associate
program" in which any Web publisher receive a referral fee for purchases
originating from the publisher's Web site from a button that hyperlinks to the
Web publisher's e-commerce site.
THE ZAP.COM SOLUTION
ZAP.COM plans to employ a business model that it believes addresses both
the challenges faced by advertisers and e-commerce companies who desire to use
the Internet and Web site publishers in a unique and effective manner. This
model is similar to existing business models in that it involves the creation of
a network. It differs in that ZAP.COM will acquire, own and have exclusive
rights to space on a third party Web site, while the site's publisher will
retain the rights to all other aspects of its Web site.
ZAP.COM believes that its network structure will provide it with the
benefits of both a potentially large and wide reaching company-owned network and
the individual creative talents of the participating Web site publishers.
ZAP.COM further believes that this network structure will be attractive to Web
site publishers 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 ZAP.COM banner and have potential to enhance their traffic as
a result of belonging to the network.
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BUSINESS STRATEGY
To implement its business model, ZAP.COM plans to pursue the following key
elements:
Deploy a Multifunctional Banner. ZAP.COM intends to deploy a
multifunctional banner that delivers content and advertising banners across the
ZAP.COM Network of Web sites.
Build ZAP.COM Network. In order to reach a substantial audience, ZAP.COM
will seek to aggregate a significant number of Web sites for its network.
ZAP.COM intends to pursue Web sites that have appealing and diverse content,
have a minimum number of unique users and meet other criteria.
Build Multiple Revenue Streams. ZAP.COM intends to seek revenue from
multiple sources, including advertising, commerce and other commercial
activities. ZAP.COM intends to achieve its revenue objectives by: (1) generating
advertising revenues through the establishment and expansion of a customer base,
establishing the ability to target advertisements to demographically distinct
groups, creating a large number of page views on its network by adding to the
network a large number of Web sites which have minimum levels of traffic; (2)
creating revenue-sharing commerce relationships; and (3) entering into
relationships with third-party content providers that pay ZAP.COM for access to
its network.
Establish and Build Brand Loyalty. ZAP.COM intends to promote and
advertise ZAP.COM and the ZAP.COM Network brand names, products and services in
order to create and increase the awareness of potential customers. ZAP.COM plans
to pursue this strategy through a variety of marketing and promotional
techniques, which may include advertising on-line and through traditional media,
conducting an on-going public relations campaign and developing business
alliances and relationships.
Develop Strategic Relationships. ZAP.COM intends to develop strategic
relationships with third parties that will facilitate the execution of its
business plan, like a sales organization, a banner space 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 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 Web-based
networks. The banner rights structure reduces the risk of network participant
turnover, maximizes the flexibility of banner use for promotional and commercial
activities and creates a potentially favorable cash flow model due to ZAP.COM's
right to retain all network generated fees and commissions less a sales
commission while alleviating it of the expenses and organizational complexities
of operating and supporting a network of participating Web sites. ZAP.COM
believes that this strategy will result in a highly scalable business platform,
from which it can generate revenues from multiple sources, including
advertising, commerce and other commercial activities.
BUILDING THE ZAP.COM NETWORK
ZAP.COM's goal is to assemble a large network of Web site banners that will
become part of the ZAP.COM Network. ZAP.COM will seek to attract these sites to
its network primarily through the issuance of equity and if necessary the
payment of cash or a combination of equity and cash.
ZAP.COM intends to take a variety of information into account in developing
the price which it will pay for the space to be acquired for third party Web
sites. One significant factor that ZAP.COM plans to consider is traffic on third
party site. ZAP.COM believes that, in many cases,
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the purchase and sale of Internet companies which host or provide Web site based
services are based upon the traffic of those sites.
To determine the price to pay Web Publishers for joining the ZAP.COM
network. ZAP.COM is relying on two sources of information. One source is
information Zapata has provided ZAP.COM which it compiled during its previous
efforts to enter the Internet market. This information includes prices which
various private web sites were willing to be sold. The second source is the
trading price of public companies that operate Web sites relative to their
reported traffic.
ZAP.COM's ability to pay Web site publishers for joining the ZAP.COM
Network will largely depend upon the development of an orderly trading market in
ZAP.COM's common stock. If an orderly trading market does not develop in
ZAP.COM's common stock, then Web site publishers may be reluctant to accept
stock as payment for joining the ZAP.COM Network 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 acquire banner rights from Web site
publishers and to commence operations. If and when ZAP.COM issues stock in
connection with these transactions, 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 must record against earnings over a three year period
following issuance. Please see "Risk Factors -- We Expect to Incur Significant
Expenses For Compensation Paid to Web Site Publishers For Participating in Our
Network."
WEB SITE PUBLISHER RECRUITING
ZAP.COM believes there are a number of Web sites which are viable
candidates for the ZAP.COM Network. ZAP.COM believes that as of December 1998,
over 4.5 million internet domains existed. Although some highly desirable sites
have already entered into network arrangements with third parties which commits
their on-line inventory, ZAP.COM believes that many of these arrangements are
non-exclusive or are terminable by Web site publishers, making these sites
candidates for the ZAP.COM Network.
ZAP.COM anticipates that the ZAP.COM Network will be attractive to Web site
publishers because it may, among other things, allow them to:
- recognize direct value for their audience without giving up ownership or
editorial control of their Web sites other than the space occupied by the
ZAP.COM banner.
- increase the value of their Web sites to potential customers and
acquirers as a result of increased traffic through cross-promoting and
cross-linking with the ZAP.COM Network; and
- have the opportunity to participate in ZAP.COM's potential future
appreciation if they receive ZAP.COM common stock as part of the
consideration for joining the ZAP.COM Network.
ZAP.COM also believes that its network will be attractive to Web site
publishers because many small and medium-sized Web sites do not have, or have
limited, internal sales, billing, tracking and reporting capabilities. By
joining the network, these sites will not need these capabilities because
ZAP.COM will have responsibility for ad placement and reporting.
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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 for
participation in the ZAP.COM Network, 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 participate in its network.
ZAP.COM expects a significant number of Web site publishers to apply for
participation in the ZAP.COM Network. ZAP.COM, however, has been unable to
confirm this due to limitations imposed by the confidential nature of this
business concept prior to the filing of its initial registration statement.
ZAP.COM cannot guarantee you that any Web sites will want to participate in the
ZAP.COM Network or that if any do, that a sufficient number would join the
ZAP.COM Network 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 maintains a home page that links to some of the Internet's most
popular Web properties. These links are categorized into interest specific
categories like news, sports, entertainment, weather, politics, finance, current
events and travel. The ZAP.COM homepage also offers a search capability that is
supported by Direct Hit through a standard content provider agreement. As the
ZAP.COM Network grows, it will provide access to ZAP.COM's Web properties and
the ZAP.COM Network. The homepage is also expected to continue to offer content
on the topics of general interest like news, weather and sports. ZAP.COM
anticipates entering into standard content provider agreement with iSyndicate,
Inc. to support its home page content and functionality.
As the ZAP.COM Network grows, ZAP.COM plans to divide the participating Web
sites into channels that segregate sites according to topic or audience groups.
ZAP.COM will also seek to design its network so that customers can benefit from
the dynamic matching, targeting and delivering functionality available on the
technology which will serve its network. If successful, customers should be able
to customize their delivery on the ZAP.COM Network within specific categories of
interest, on specific Web sites, or by targeting based on a variety of factors,
including user interest, organization type, keyword choice and user geographical
location.
ZAP.COM's main product will initially be its banner, which will be
displayed on Web sites participating in the ZAP.COM Network. ZAP.COM plans to
display a variety of content on these banners. The content on ZAP.COM's banner
is expected to be available in various forms of media, including graphics,
animations, sound, text and user prompted interactions and, through box
drop-down technology, will 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 ZAP.COM banner is expected to
permit users to click back to the ZAP.COM home page or to another ZAP.COM site
or other available services. This will provide numerous access points to the
ZAP.COM Network which should enhance the traffic of participating Web sites.
ZAP.COM has entered into an arrangement with Auragen Communications to develop
the banner. Although a functional prototype has been created, we cannot predict
when the final banner will be available or whether we will encounter
difficulties in completing final development of the banner. Please see "Risk
Factors -- We are in the Process of Designing the Unique Banner We Plan to Use,
and It May Be Difficult to Finalize the Banner."
ZAP.COM will be responsible for of all network banners, including displayed
content. Thus, ZAP.COM will have the responsibility for programming and sales
and marketing of the banners. Ownership of and responsibility for all other
aspects of Web sites participating in the network will continue with the Web
site publishers.
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DOMAIN NAME
Domain names are the user's Internet "addresses." ZAP.COM is currently the
registered holder of over 60 Internet domain names, including the following
names:
BUYBID.COM
PIXELTIME.COM
ZAPATACORP.COM
EXTREMELEISURE.COM
CHARGED.COM
WORD.COM
DRLOVELADY.COM
PARANOID.COM
JUNKRADIO.COM
CAFETECH.COM
INSTANTWINNER.COM
ZAPTV.COM
ZAPBIZ.COM
WEBSURFCAFE.COM
ZAPCARS.COM
ZAPSPORTS.COM
THEPHANTOMMENACENEWS.COM
PHANTOMMENACENET.COM
TRADEFEDERATION.COM
GALACTICREPUBLIC.COM
ZAPWEATHER.COM
CYBERNETCAFE.COM
CYBERSURFCAFE.COM
EATFOOD.COM
ZAPHOME.COM
ZAP.COM
ZAPGAMES.COM
ZAPNEWS.COM
ZAPSTORE.COM
ZAPLINK.COM
NEWS99.COM
NEWS00.COM
ZAPATANET.COM
BETAZONE.COM
INSTANTNETNAMES.COM
BETACENTER.COM
VIDEOCAFE.COM
GOODAFTERNOON.COM
PHANTOMMENNACENEWS.COM
THEPHANTOMMENACENET.COM
THETRADEFEDERATION.COM
WEBARBARIAN.COM
INTERNETLINKS.COM
CAFESURF.COM
ZAPBUSINESS.COM
INTERNETCOMPANIES.COM
NEWS03.COM
NEWS02.COM
NEWS97.COM
NEWS04.COM
NEWS05.COM
NEWS01.COM
APTSEARCH.COM
1NEWS.COM
MISTERBIG.COM
BETAWORLD.COM
INTERNETNAMES.COM
WWWNAMES.COM
NEWS98.COM
ZAPMARKET.COM
ZAPAUCTION.COM
THEGALACTICREPUBLIC.COM
WEBBARBARIAN.COM
These domain names can be utilized to create Web sites that will have their
own user base and which will function as stand alone Web sites and network
members. These sites are expected to support and compliment the content of the
ZAP.COM Network 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
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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. As ZAP.COM's technology platform, we have
chosen NetGravity's Ad Server technology solution. This platform will enable
ZAP.COM to manage its banner space, track page impressions and report on
programming performance to network customers. ZAP.COM's banners will be
dynamically served by NetGravity through the use of its software which will
rotate, change or target existing messages or increase the amount of programming
delivered in a given space.
ZAP.COM currently owns two servers which are currently hosted by Qwest
Communications International Corporation. To support the expansion of the
ZAP.COM Network and the functionality of the banner, ZAP.COM has contracted with
EMC, Inc. to provide the necessary hosting, Internet connectivity and database
management services. Any disruption of Internet access provided to ZAP.COM could
prevent ZAP.COM from operating or serving its network and could cause ZAP.COM
not to honor customer obligations and would harm ZAP.COM's reputation. This
would have a significantly adverse affect on 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 programming, 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 publishers 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 ZAP.COM Network will depend on Internet service providers, online
service providers and the operators of ZAP.COM Network participating 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 significant 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 plans to use on-line and traditional print
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 ZAP.COM Network.
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 ZAP.COM Network. We are currently negotiating a contract with Phase2Media
and expect to enter into the agreement shortly after the
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consummation of the distribution, although we cannot guarantee that this will
occur. Under those circumstances, ZAP.COM will be required 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 participating Web site publishers will
allow it to continually improve its network and services. ZAP.COM plans to offer
an e-mail address to enable its constituents to request information and to
encourage feedback and suggestions.
STRATEGIC PARTNERSHIPS & RELATIONSHIPS
ZAP.COM anticipates entering into a number of strategic relationships and
partnerships with third parties. ZAP.COM has already developed a number of
informal strategic relationships with advertisement agencies, Web site
developers, Web site content managers, site hosts and other persons whose
services are necessary to develop and implement its business strategy. As of the
date of this prospectus, we have contracted with Auragen Communications,
Netgravity and EMC. While ZAP.COM may develop the ability to render all of these
outsourced services internally, 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
Effective upon the consummation of the distribution, ZAP.COM will have six
employees. Two employees, Avram Glazer, our President and CEO, and Leonard
DiSalvo, VP-Finance and Chief Financial Officer, currently devote a portion of
their business time and attention to Zapata and a portion to ZAP.COM. This
arrangement will also continue after the consummation of the distribution.
Following the distribution, 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 and other professionals
with Internet expertise and experience to assist it in executing its business
model. ZAP.COM will compensate those consultants, service organizations and
other professionals at competitive rates and 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, participating Web site
publishers 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 the business model which ZAP.COM plans to
use. 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 trademarks and service marks in the United States, including
ZAP.COM, ZAP.COM Network,
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ZAP.COM -- The Next Network, and UltraBanner. ZAP.COM plans to file additional
trademark and service marks 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
trademarks 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.
Each contract that ZAP.COM will have with Web site publishers who
participate in the ZAP.COM Network will entitle ZAP.COM to receive data derived
from user activity on the publisher's Web sites. This information will be
collected and analyzed for targeting advertising, e-commerce and direct
marketing programs and 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 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
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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
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 publishers
who are candidates for network opportunities are new and rapidly evolving, and
competition is expected to increase significantly in these markets. Barriers to
entry are relatively insubstantial. Competition may also increase as a result of
industry consolidation. ZAP.COM believes that the principal competitive factors
for companies seeking to create a network on the Internet are critical mass,
functionality, brand name, Web site participation in 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 the business model that ZAP.COM plans
to use;
- the ability to recruit high quality Web sites with required levels of
traffic to the ZAP.COM Network;
- the effectiveness of the ZAP.COM Network in terms of viewer traffic and
reach and targeting and measuring programming to the network;
- the number and types of strategic relationships established by ZAP.COM,
including e-commerce partnerships;
- sales and marketing efforts;
- customer service and support efforts;
- the ease of use, performance, price and reliability of solutions
developed by ZAP.COM or its competitions
ZAP.COM will compete with current and future suppliers of Internet
navigational, Web search engine companies and information services, high-traffic
Web sites and Internet service providers. These competitors include free
information, search and content sites or services, like America Online, CNET,
CNN/Time Warner, Excite@Home, Infoseek, Lycos, Microsoft, Yahoo! and Disney.
ZAP.COM will also compete with traditional forms of media like newspapers,
magazines, radio and television, for advertisers and advertising revenues.
Several companies offer competitive products or services through Web advertising
networks, including those that focus on the traditional CPM 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 may also
encounter competition from providers of advertising inventory management
products and related services, including NetGravity, Accipiter Adforce and
Valueclick.
ZAP.COM believes that this competition could have a significant and adverse
impact on prices and terms of 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
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and product offerings. These competitors may have advantages in expertise, brand
recognition and other factors.
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 publishers.
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 ZAP.COM Network 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 is an increasing number of laws and regulations pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. 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 Participating Web Sites
and From Other Internet Sites. Content may be accessed on Web sites
participating in the ZAP.COM Network or on other Internet sites that are linked
to the ZAP.COM Network. 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 site participants in the ZAP.COM
Network or which are otherwise linked to the ZAP.COM Network. 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 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.
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
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ZAP.COM, ZAP.COM could incur significant costs in investigating and defending
against these claims which would also adversely affect 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 participate in the ZAP.COM Network. To the extent
that one or more network participants 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 proscribed 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 publishers participating in the ZAP.COM Network or
ZAP.COM, or the FTC's regulatory and enforcement efforts may adversely affect
the ability of Web sites participating in the ZAP.COM Network from collecting
and providing 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 publishers participating in the ZAP.COM Network 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
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and local taxes on Internet access or on discriminatory taxes on electronic
commerce, existing state or local laws were expressly excepted from this
moratorium. Further, once this moratorium is lifted, some type of federal and/or
state taxes may be imposed upon Internet commerce. This legislation, or other
attempts at regulating commerce over the Internet, may substantially impede the
growth of commerce on the Internet and, as a result, adversely affect ZAP.COM's
opportunity to derive financial benefit from those activities.
Jurisdictions. It is possible that, although transmissions by ZAP.COM over
the Internet originate primarily in New York, the governments of other states
and foreign countries might attempt to regulate ZAP.COM's transmissions or
prosecute ZAP.COM for violations of their laws. These laws may be modified, or
new laws enacted, in the future. Any of 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 another of
its wholly-owned subsidiaries, Zap Corporation, however have been sued for use
of the Zap tradename and the ZAP.COM domain in connection with Web sites
providing financial information. This suit has been settled. 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, DIRECTORS AND KEY EMPLOYEES
The following table sets forth information concerning each executive
officer of ZAP.COM immediately following completion of the distribution:
<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
</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, will become ZAP.COM's Corporate Secretary
effective immediately following the distribution. Mr. Forth has served as
Zapata's corporate secretary since December 1998. Mr. Forth is a partner of
Woods, Oviatt, Gilman, Sturman & Clarke LLP, a Rochester, New York based law
firm which provides legal services to both Zapata and 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.
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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 following the distribution.
Upon expansion of the size of the board to three or more directors, the
by-laws require that two standing committees of the board of directors be
activated: the audit committee and the compensation committee, each comprised of
two or more directors. The members of these committees will be appointed
following the expansion of the board to three or more directors.
The primary purpose of the audit committee will be to (1) select the firm
of independent accountants that will audit ZAP.COM's financial statements, (2)
discuss the scope and the results of the audit with the accountants and (3)
review ZAP.COM's financial accounting and reporting principles. The audit
committee will also examine and discuss the adequacy of ZAP.COM's financial
controls with the independent accountants and with management.
The functions of the compensation committee will be to review, approve and
recommend to the board of directors the terms and conditions of incentive bonus
plans applicable to corporate officers and key management personnel, to review
and approve the annual salary of the chief executive officer, and to administer
ZAP.COM's 1999 Incentive Plan.
DIRECTOR COMPENSATION
Each director who is not an employee of ZAP.COM will 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
the 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 "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. Upon completion of the distribution, 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
to be entered into by Zapata and ZAP.COM. Please see "Related Party
Transactions -- Services Agreement". ZAP.COM will then 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 to enter into and continue in
the employ of, or their relationship with, the company and to acquire a
proprietary interest in the long-term success of the company; 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
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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. The 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. Vesting conditions for a stock option will be
specified by the committee and set forth in the applicable option agreement.
Vesting conditions may include, without limitation, provision for acceleration
in the case of a change-in-control of ZAP.COM.
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. The committee may establish
conditions for stock awards, including service, vesting conditions and
performance conditions, including, without limitation, performance conditions
based on achievement of specific business objectives, increases in specified
indices and attaining specified growth measures or rates. A stock award may
provide for voting rights and dividend equivalent rights.
The committee may specify conditions for cash awards, including service
conditions and performance conditions.
Payment of awards may be made in cash or shares or combinations of the two,
as determined by the committee. An award may provide for the granting or
issuance of additional, replacement or alternative awards upon the occurrence of
specified events, including the exercise of the original award.
An award may provide for a tax gross-up payment to a participant if a
change in control of ZAP.COM results in the participant owing an excise tax or
other tax above the rate ordinarily applicable, 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 for the 200,000 shares granted to other key
employees, but at an exercise price of $2.00 per share. The options will become
effective only after the successful completion of the distribution. 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, Zapata has provided ZAP.COM with administrative
and management services, including payroll, consulting and legal, Zapata billed
ZAP.COM for these services on cost basis. These services totaled approximately
$227,000 from inception through July 31, 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. Each of these agreements were negotiated in the context of a
parent-subsidiary relationship and, therefore, were not the result of
negotiations between independent parties with separate representation. Thus we
cannot guarantee you that each of these agreements or the related transactions
are on as favorable terms as could have been obtained from unaffiliated third
parties.
Investment and Distribution Agreement. Under the investment and
distribution agreement, Zapata will contribute $9,000,000 to ZAP.COM. The
contribution will be made simultaneously with the consummation of the
distribution and consist of $8,000,000 in cash and the forgiveness of up to
$1,000,000 in inter-company debt. The entire contribution will be allocated to
Zapata's common stock investment. The investment and distribution agreement
further requires, among other things, Zapata to make the distribution of ZAP.COM
common stock described in this prospectus.
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 the distribution, as a result of any untrue statement or alleged untrue
statement in any distribution document or the omission or alleged omission to
state a material fact in any distribution document (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 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).
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<PAGE> 50
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 grant rights to Zapata with respect to the
registration under the Securities Act of the shares of ZAP.COM common stock
owned by Zapata at the consummation of the distribution. 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 rights 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.
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Glazer Investment
Simultaneously with the Consummation of the distribution, Malcolm Glazer
and Avram Glazer will contribute 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 ZAP.COM Network. 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 of 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 the distribution and have a term of five years. The warrants
will accelerate and become fully exercisable 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 will become corporate secretary upon the consummation
of the distribution, 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.
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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 September 30, 1999, as
adjusted to reflect the concurrent offerings 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>
BEFORE DISTRIBUTION AFTER DISTRIBUTION
--------------------------- ---------------------------
PERCENTAGE PERCENTAGE
NAME OF BENEFICIAL OWNER NO. OF SHARES OWNERSHIP NO. OF SHARES OWNERSHIP
- ------------------------ ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Zapata Corporation(1)........... 49,450,000 98.9% 48,972,258 97.9%
Avram Glazer(2)................. 50,000 0.1% 50,020 0.1%
All executive officers and
directors as a group.......... 50,000 0.1% 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, 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) Avram Glazer has an address of 270 Commerce Drive, Rochester, New York
14623.
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DESCRIPTION OF SECURITIES
AUTHORIZED CAPITAL STOCK
Immediately following the consummation of the distribution, ZAP.COM's
authorized capital stock will 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. Upon
consummation of the concurrent offerings and the distribution, ZAP.COM will have
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, and all shares of common stock
to be outstanding upon completion of the distribution, will be, 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. As of the date of this
prospectus, there are no shares of preferred stock designated or outstanding.
The potential issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of ZAP.COM and may discourage bids
for 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
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<PAGE> 54
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 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
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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.
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
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<PAGE> 56
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
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.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the distribution, there has been no market for the ZAP.COM common
stock. ZAP.COM expects to have its common stock listed on the OTC Electronic
Bulletin Board sponsored by the NASD. The quotation of the common stock on the
Electronic Bulletin Board is conditioned upon ZAP.COM meeting certain
requirements with respect to the availability of public information and a
broker-dealer making a market in the common stock. There can be no assurance
that the broker-dealer who has agreed to make a market in its common stock will
continue to make a market for any specific period of time. Further, there can be
no assurance that a significant public market for the ZAP.COM common stock will
develop or be sustained after the distribution. Future sales of substantial
amounts of ZAP.COM common stock, including shares issued to Web site publishers
in consideration for joining the ZAP.COM Network, in connection with
acquisitions or promotions or other events or upon exercise of outstanding
options and warrants, in the public market after the distribution could
adversely affect market prices prevailing from time to time and could impair
ZAP.COM's ability to raise capital through the sale of its equity securities.
Upon completion of the concurrent offerings and the distribution, ZAP.COM
will have outstanding 50,000,000 shares of common stock, of which 48,972,258
shares will be held by Zapata, 757,928 shares will be held by the Glazers and
269,814 shares will be held by the public. In addition, ZAP.COM will have
reserved 2,000,000 shares for warrants to be issued to American Internetwork
Sports and 3,000,000 shares for options awarded under the 1999 Long-Term
Incentive Plan. Please see "Related Party Transactions -- American Internetwork
Sports Company, LLC" and "Management -- 1999 Long-Term Incentive Plan."
The shares of common stock distributed by Zapata to its stockholders in the
manner described in this prospectus will be freely tradable without restriction
or further registration under the Securities Act, except that any shares
distributed to an "affiliate" of ZAP.COM, as that term is defined in Rule 144,
may generally be sold only if registered under the Securities Act or under an
exemption from registration. All of the outstanding shares of common stock owned
by Zapata and the shares acquired by the Glazers in the concurrent offering may
be sold only if registered under the Securities Act or under exemption from
registration.
An exemption from registration is available under Section 4(1) of the
Securities Act and Rule 144. In general, under Rule 144 as currently in effect,
beginning 90 days after the date of this prospectus, a stockholder who has
beneficially owned for at least one year shares privately acquired directly or
indirectly from ZAP.COM or from an affiliate of ZAP.COM, like Zapata, and other
persons who are affiliates of ZAP.COM who have acquired the shares in registered
transactions, will be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
- 1% of the number of outstanding shares of common stock (or 50,000 shares
immediately after completion of the concurrent offerings and the
distribution); or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the
sale.
Sales under Rule 144 must also meet requirements relating to the manner and
notice of sale and the availability of current public information about ZAP.COM.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
ZAP.COM at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least year, including
the holding period of any prior owner except an affiliate, is entitled to sell
those shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
ZAP.COM has registered for resale simultaneously with the registration of
the shares to be distributed with this prospectus 1,000,000 shares of ZAP.COM
common stock held by Zapata. These shares which may be sold from time to time in
the public market. In addition, ZAP.COM
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has entered into a registration rights agreement with Zapata under which Zapata
has demand and piggyback registration rights. Please see "Related Party
Transactions -- Registration Rights Agreement." Zapata can exercise these
privileges any time one year after the consummation of the distribution to sell
all of the common stock it holds until its beneficial ownership falls below 10%
of ZAP.COM's outstanding common stock.
ZAP.COM also anticipates that following consummation of the distribution it
will file registration statements on Form S-8 covering the common stock that may
be issued upon the exercise of options granted under the 1999 Long-Term
Incentive Plan and American Internetwork Sports' warrants. Please see "Related
Party Transactions -- American Internetwork Sports Company, LLC". Shares of
common stock that are acquired and offered under these registration statements
generally may be resold in the public market without restriction or limitation,
except in the case of affiliates of ZAP.COM, whom generally may only resell
these shares in accordance with each provision of Rule 144, other than the
holding period requirement.
ZAP.COM also expects to issue large amounts of additional common stock in
the future in connection with payments made to Web site publishers for joining
and participating in the ZAP.COM Network or in other acquisitions. ZAP.COM
expects that shortly after the consummation of the distribution to file a shelf
registration statement covering 50,000,000 shares of its common stock for these
issuances and the public resale of these shares. In addition, ZAP.COM may issue
shares of common stock in connection with promotions and other events. After
these shares are issued they will become available for resale at various dates
in the future. The availability of these shares could adversely affect the price
of ZAP.COM's stock.
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FEDERAL INCOME TAX CONSIDERATIONS
The following describes the material federal income tax consequences
affecting holders of Zapata common stock receiving shares of ZAP.COM common
stock in the distribution. Because of the complexity of the provisions of the
Internal Revenue Code of 1986 referred to below and because tax consequences may
vary depending upon the particular facts relating to each holder of Zapata
common shares, these persons should consult their own tax advisors concerning
their individual tax situations and the tax consequences of the distribution.
Neither Zapata nor ZAP.COM has obtained a private letter ruling from the
Internal Revenue Service nor an opinion of tax counsel with respect to possible
federal income tax consequences of the distribution. ZAP.COM, however, is
generally aware of the taxability of a corporate distribution of property to
stockholders. ZAP.COM believes that, under current interpretations of case law,
the Code and applicable regulations, the federal income tax consequences
applicable to holders of Zapata common stock receiving stock in the distribution
are as described below. No assurance can be given that positions contrary to
those described below will not be taken by the Internal Revenue Service or any
court of law.
Based on the facts of the proposed transaction, it is the opinion of
management of ZAP.COM that the transaction will not qualify as a "tax free" spin
off under Section 355 of the Internal Revenue Code of 1986, as amended. Rather,
ZAP.COM will report the transaction as a taxable distribution to which Section
301 applies. Under Section 301, each Zapata stockholder will be considered to
have received a distribution in an amount equal to the fair market value, when
distributed, of the shares of ZAP.COM common stock received by the stockholder
plus the amount of any cash received in lieu of whole or fractional shares of
ZAP.COM common stock. This amount will generally be taxable as ordinary dividend
income, but only to the extent that Zapata has current or accumulated earnings
and profit in the taxable year in which the distribution occurs. That portion,
if any, by which the fair market value of these shares exceed Zapata's current
or accumulated earnings and profits would be treated as a return of capital to
the extent of the holder's tax basis in his Zapata common stock and, then, as
gain from the sale of the stock to the extent of any remaining excess. Each
corporate holder of Zapata common stock (other than foreign corporations and S
corporations) receiving shares and recognizing dividend income would be entitled
to the dividends-received deduction for corporations (generally 70%, but 80%
under specified circumstances) with respect to the dividends. However,
dividends-received deduction would not be available with respect to stock
unless, among other requirements, a specified holding period is satisfied.
In early 2000, each recipient of distributed ZAP.COM common stock will
receive an IRS Form 1099-DIV reflecting the fair market value of the ZAP.COM
common stock distributed. Because of the predominantly factual nature of
determining the fair market value, if any, of the distributed shares, it is
difficult at this time for management to express an opinion with respect to the
fair market value of the distributed shares.
To the extent that the amount taxable to Zapata stockholders constitutes
ordinary income, withholding taxes at the rate of 30% will apply to those shares
distributed or cash in lieu of shares distributed to Zapata stockholders who,
before the distribution, have not provided their correct taxpayer identification
numbers to Zapata on an IRS Form W-9 or a substitute therefor. Although this
discussion does not generally address tax consequences of the distribution to
foreign holders of Zapata common stock, those holders should note that U.S.
withholding tax will also apply to the taxable amount to them (to the extent of
that foreign holder's allocable share of Zapata's current and accumulated
earnings and profits). The rate that applies to these distributions may be
reduced by income tax treaties to which the United States is a party.
Nonresident alien individuals, foreign corporations and other foreign holders of
Zapata common stock are urged to consult their own tax advisors regarding the
availability of these reductions and the procedures for claiming them.
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A Zapata stockholder's tax basis in the shares of ZAP.COM common stock
received in the stock distribution would equal the fair market value of the
ZAP.COM common stock on the date of the distribution, and the stockholder's
holding period for the shares of ZAP.COM common stock would begin the day after
that date. A Zapata stockholder's tax basis in the Zapata common stock would not
be affected by the distribution, unless the amount of the distribution exceeded
the current and accumulated earnings and profits of Zapata attributable to the
stockholder and was treated as a non-taxable reduction in tax basis to the
extent of the returned capital. In addition, under Section 1059 of the Code, a
corporate stockholder whose holding period, is two years or less (as of the
distribution announcement date) would be required to reduce the tax basis of
this Zapata common stock (but not below zero) by that portion of any
"extraordinary dividend," as defined in the Code, that is not taxed because of
the dividends-received deduction. If the portion exceeded the corporate
stockholder's tax basis for its Zapata common stock, this excess would be
treated as gain from the sale or disposition of the stock for the taxable year
in which the extraordinary dividend is received. Upon a subsequent sale of the
shares of ZAP.COM common stock, a stockholder would recognize gain or loss
measured by the difference between the amount realized on the sale and the
stockholder's tax basis in the shares of ZAP.COM common stock sold.
Holders of Zapata common stock should consult their own tax advisors
concerning their individual tax situations and the tax consequences of the
distribution.
EXPERTS
The financial statements as of July 31, 1999 and December 31, 1998 and for
the periods then ended and for the cumulative period from April 2, 1998 (date of
inception) to July 31, 1999 included in this prospectus have been so included in
reliance on the report (which contains an emphasis paragraph relating to Zapata
Corporation's commitment for 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
The validity of the ZAP.COM common stock offered hereby will be 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.
AVAILABLE 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, the
distribution.
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 Stockholder's Deficit.............. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
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 July 31, 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 seven months ended
July 31, 1999, and for the cumulative period from April 2, 1998 (date of
inception) to July 31, 1999 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with the generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 3, Zapata Corporation, the shareholder of the Company
has committed to an equity contribution of $8,000,000 and to forgive up to
$1,000,000 in amounts owed to it by the Company.
PricewaterhouseCoopers LLP
October 25, 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>
DECEMBER 31, JULY 31,
1998 1999
------------ ---------
<S> <C> <C>
ASSETS
ASSETS:
Current assets:
Cash and cash equivalents................................... $ -- $ 10,942
Prepaid expenses............................................ -- 35,495
----- ---------
Total current assets...................................... 0 46,437
Property and equipment...................................... -- 40,871
----- ---------
Total assets...................................... $ 0 $ 87,308
===== =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
LIABILITIES:
Current liabilities:
Due to related party........................................ $ 0 $ 39,588
Accrued liabilities......................................... 0 287,475
----- ---------
Total current liabilities................................. 0 327,063
Amounts due to stockholder and affiliates................... 783 682,558
----- ---------
Total liabilities................................. 783 1,009,621
----- ---------
COMMITMENTS & CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Common stock, no par value, 25,000 shares authorized,
1,000 shares issued and outstanding.................... 10 10
Deficit accumulated during the development stage.......... (793) (922,323)
----- ---------
Total stockholder's deficit....................... (783) (922,313)
----- ---------
Total liabilities and stockholder's deficit....... $ 0 $ 87,308
===== =========
</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 FROM APRIL 2, 1998
(DATE OF INCEPTION) FOR THE SEVEN (DATE OF INCEPTION)
THROUGH MONTHS ENDED THROUGH JULY 31,
DECEMBER 31, 1998 JULY 31, 1999 1999
------------------- ------------- -------------------
<S> <C> <C> <C>
Revenues................................... $ -- $ -- $ --
Expenses:
General and administrative............... 793 921,530 922,323
--------- --------- ---------
793 921,530 922,323
--------- --------- ---------
Loss before income taxes................... (793) (921,530) (922,323)
--------- --------- ---------
Benefit from income taxes (Note 5)......... -- -- --
--------- --------- ---------
Net loss................................... $ (793) $(921,530) $(922,323)
========= ========= =========
Per share data (basic and diluted):
Net loss per share....................... $ (.79) $ (921.53) $ (922.32)
========= ========= =========
Average common shares and common share
equivalents outstanding............... 1,000 1,000 1,000
========= ========= =========
</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 SEVEN FROM APRIL 2, 1998
(DATE OF INCEPTION) MONTHS ENDED (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1998 JULY 31, 1999 THROUGH JULY 31, 1999
------------------------- ------------- ---------------------
<S> <C> <C> <C>
Cash flows used in operating
activities:
Net loss.......................... $(793) $(921,530) $(922,323)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation................... -- 7,698 7,698
Changes in assets and
liabilities
Prepaid expenses............. -- (35,495) (35,495)
Accrued liabilities.......... -- 287,475 287,475
----- --------- ---------
Total adjustments......... -- 259,678 259,678
----- --------- ---------
Net cash used in operating
activities................ (793) (661,852) (662,645)
----- --------- ---------
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..................... 783 681,775 682,558
----- --------- ---------
Net cash flows provided by
financing activities........... 793 681,775 682,568
----- --------- ---------
Net change in cash and cash
equivalents....................... -- 10,942 10,942
Cash and cash equivalents at
beginning of period............... -- -- --
----- --------- ---------
Cash and cash equivalents at end of
period............................ $ -- $ 10,942 $ 10,942
===== ========= =========
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 STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK DURING THE TOTAL
---------------- DEVELOPMENT STOCKHOLDER'S
SHARES AMOUNT STAGE DEFICIT
------ ------ ----------- -------------
<S> <C> <C> <C> <C>
Balance, April 2, 1998......................... -- $-- $ -- $ --
Issuance of 1,000 shares common stock on April
2, 1998 at no par value...................... 1,000 10 -- 10
Net loss for the period from April 2, 1998 to
December 31, 1998............................ -- -- (793) (793)
----- --- --------- ---------
Balance, December 31, 1998..................... 1,000 10 (793) (783)
Net loss for the seven months ended July 31,
1999......................................... -- -- (921,530) (921,530)
----- --- --------- ---------
Balance, July 31, 1999......................... 1,000 $10 $(922,323) $(922,313)
===== === ========= =========
</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
wholly-owned subsidiary of Zapata Corporation ("Zapata"). ZAP.COM is a
development stage company which was formed to engage in an Internet-related
business through the development of a branded network of linked banners. The
Company has not yet commenced significant operations, and its, primary activity
to date has been research and investigation of Internet related opportunities
and the development of the Company's business model and the creation of its
banner. In order to successfully execute its business model, the Company must
acquire and integrate technology systems and infrastructure, contract with Web
sites to participate in the Company's network, and complete the public
registration 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 and the options
covering 578,000 shares of the Company's
F-7
<PAGE> 68
common stock, respectively issued subsequent to July 31, 1999 had been issued on
or before that date, they would have been excluded from the calculation because
they would be antidilutive.
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 carryforwards for tax purposes. The Company is
included in Zapata's consolidated U.S. federal income tax return and its income
tax effects are allocated to the Company in proportion to its contribution to
consolidated taxable income.
A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. Primary factors considered
by management to determine the size of the allowance include the estimated
taxable income level for future years and the limitations on the use of such
carryforwards and expiration dates.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 3. STOCKHOLDER'S DEFICIT
The Company was incorporated in April 2, 1998 as a wholly-owned subsidiary
of Zapata, through the issuance of 1,000 shares of no par value common stock. As
of July 31, 1999 and December 31, 1998, the Company has accumulated a deficit
during its development stage of $922,323 and $783, 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.
The Company anticipates amending and restating its Articles of
Incorporation to revise its capital structure. Subsequent to the amendment,
ZAP.COM's authorized capital stock will be: (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. The Company also anticipates the Board of
Directors approving a 49,450 for one stock split immediately prior to the
distribution.
Subject to the completion of the Stock Distribution Zapata has agreed to an
additional capital contribution of $8,000,000 to the Company including $49,450
to meet the stated capital requirements of Nevada Law to effectuate the
anticipated stock split and the forgiveness of up to
F-8
<PAGE> 69
$1,000,000 in intercompany debt. As of July 31, 1999 and December 31, 1998, the
Company owed Zapata approximately $683,000 and $783, respectively.
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 $8,000 for the seven month period ending July 31, 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 $323,000.
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 $227,000 was
allocated to the Company using a percentage of time analysis.
The Company also received server and network equipment from a related
entity to operate its Webspace, the ZAP.COM Network and related projects. The
Company recorded the assets at the cost to the transferor of approximately
$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 July 31, 1999, ZAP.COM has satisfied all of its startup
and offering costs with borrowings from Zapata. Zapata has agreed to forgive up
to $1,000,000 in intercompany debt from the Company at the completion of the
distribution. As a result, the Company has classified amounts payable to
shareholders and affiliates of approximately $683,000 as of July 31, 1999 as a
long term liability as the Company has the intent not to repay the amounts in
the next year.
On October 20, 1999, the Company granted to American Internetwork Sports
Company, LLC stock warrants in consideration for sports related consulting
services. American 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 EITF 96-18. Accordingly, ZAP.COM will expense based on the then
current fair value of the warrants at the end of each reporting period with
F-9
<PAGE> 70
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. 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. As
of July 31, 1999 the rights offering had not been completed. The rights offering
was subsequently 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 or 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
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
DISTRIBUTION OF 477,742 SHARES
ZAP.COM CORPORATION
COMMON STOCK
Until , 1999 (i.e., 90 days after the date of this prospectus),
all dealers that buy or sell or trade in our securities, whether or not
participating in this distribution, may be required to deliver a prospectus, or
in which the person making the offer or solicitation is not qualified to do so
or to any person to whom it is unlawful to make the offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create an implication that there has not been any change in
the facts set forth in this Prospectus or in the affairs of ZAP.COM since the
date hereof.
CERTAIN PERSONS PARTICIPATING IN THIS DISTRIBUTION MAY ENGAGE IN
TRANSACTIONS THAT STABLIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON
STOCK, INCLUDING STABLIZING BIDS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 72
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT SELL OR DISTRIBUTE THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[ALTERNATE PAGE]
SUBJECT TO COMPLETION, DATED OCTOBER 27, 1999
PROSPECTUS
[LOGO]
1,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
ZAP.COM is a development stage company which seeks to build a branded
global network of ZAP.COM banners that will reside on third party web sites.
This prospectus relates to the offering of up to 1,000,000 shares of our common
stock which may be offered from time to time by Zapata Corporation.
The common stock may be sold by Zapata in several ways. See "Plan of
Distribution" starting on page 20.
There is no fixed price for the sale of the common stock. The selling price
will be based on the market price of the common stock at the time sales are
made.
The common stock is currently quoted on the OTC Bulletin Board under the
symbol "ZPCM."
AN INVESTMENT IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
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> 73
[ALTERNATE PAGE]
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Special Note Regarding Forward-Looking Statements........... 20
Plan of Distribution........................................ 20
Use of Proceeds............................................. 22
Dividend Policy............................................. 22
Capitalization.............................................. 23
Selected Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Business.................................................... 29
Management.................................................. 42
Related Party Transactions.................................. 45
Principal Stockholders...................................... 48
Selling Stockholders........................................ 48
Description of Securities................................... 49
Shares Eligible for Future Sale............................. 53
Experts..................................................... 56
Legal Matters............................................... 56
Available Information....................................... 56
Index to Financial Statements............................... F-1
</TABLE>
------------------------
Our principal executive offices are located at 100 Meridian Centre, Suite
350, Rochester, New York 14618, and our telephone number is (716) 242-8600. Our
World Wide Web site is www.zap.com. The information in the Web site is not
incorporated by 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 dealer, broker,
salesperson any other individual to provide you with different 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, ZAP.COM Network, ZAP.COM -- The Next Network and Ultrabanner are
some of our trademarks.
i
<PAGE> 74
[ALTERNATE PAGE]
THE OFFERING
How will Zapata sell its
1,000,000
shares? Zapata may sell all or any portion of its
shares that have been registered for resale
through public or private transactions, or in a
combination of these methods at prevailing
market prices or at privately negotiated
prices.
Will we receive any proceeds
from
Zapata's distribution or
resale of
our shares? We will not receive any proceeds from the
distribution or any part of the proceeds from
the resale of shares by Zapata.
ii
<PAGE> 75
[ALTERNATE PAGE]
issued to American Internetwork Sports. Accordingly, immediately following the
distribution, we will have 1,445,000,000 shares authorized but unissued and
unreserved shares of common stock. Consequently, 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. We expect that shortly after the consummation of the distribution
to file a shelf registration statement covering 50,000,000 shares of our common
stock for issuance in connection with the acquisition of banner. To the extent
we use our common stock in this manner in the future, dilution in percentage
ownership may be experienced by existing stockholders, including the recipients
of common stock in the distribution. In addition, additional dilution in
percentage ownership will be experienced by existing stockholders upon the
exercise of any options or warrants that we have granted or will grant in the
future.
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.
PLAN OF DISTRIBUTION
This prospectus covers 1,000,000 shares of ZAP.COM common stock held by
Zapata. Zapata may effect sales of its shares which are covered by this
prospectus from time to time in transaction (which may include block
transactions) in the over-the-counter market or in negotiated transactions, a
combination of these methods of sale or otherwise. Sales may be made at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. Zapata may effect these transactions by selling its
securities directly to purchasers, through broker-dealers acting as agents for
Zapata or to broker-dealers who may purchase shares as principals and thereafter
sell the securities from time to time in the market in negotiated transactions
or otherwise. These broker-dealers, if any, may receive compensation in the form
of discounts, commissions, or concessions from Zapata and/or the purchasers from
whom such broker-dealers may act as agents or to whom they may sell as
principals or otherwise (which compensation as to a particular broker-dealer may
exceed customary commissions). Zapata and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commission received by
them and any profit on the resale of the securities may be deemed underwriting
discounts and commissions under the Securities Act.
At the time a particular offer of sale is made by or on behalf of Zapata,
to the extent required, a prospectus will be distributed that will set forth the
number of shares being offered
20
<PAGE> 76
[ALTERNATE PAGE]
and the terms of the offering, including the name or names of any underwriters,
dealers, or agents, if any, the purchase price paid by any underwriter for the
shares purchased from Zapata, and any discounts, commissions, or concessions
allowed or reallowed or paid to dealers, and the proposed selling price to the
public.
If any of the following events occurs, this prospectus will be amended to
include additional disclosure before offers and sales of Zapata are made: (i) to
the extent such securities are sold at a fixed price or by option at a price
other than the prevailing market price, such price would be set forth in this
Prospectus; (ii) if the securities are sold in block transactions and the
purchaser wishes to resell, such arrangements would be described in this
Prospectus; (iii) if the compensation paid to broker-dealers is other than usual
and customary discounts, commissions, or concessions, disclosure of the terms of
the transaction would be included in this prospectus. This prospectus would also
disclose if there are other changes to the stated plan of distribution,
including arrangements than either individually or as a group would constitute
an orchestrated distribution of the Zapata's shares covered by this prospectus.
Zapata is subject to the applicable provisions of the Exchange Act and the
rules and regulations thereunder, including, without limitation, Regulation M
which provisions may limit the timing of the purchases and sales of shares of
ZAP.COM's securities by Zapata.
It is not possible at the present time to determine the price to the public
in any sale of the common stock by Zapata. Accordingly, the public offering
price and the amount of any applicable underwriting discounts and commissions
will be determined at the time of such sale by Zapata. The aggregate proceeds to
Zapata from the sale of the common stock will be the purchase price of the
common stock sold less all applicable commissions and underwriters' discounts,
if any. We will pay substantially all the expenses incident to the registration,
offering and sale of the common stock to the public by Zapata, other than fees,
discounts and commissions of underwriters, dealers or agents, if any, and
transfer taxes.
21
<PAGE> 77
[ALTERNATE PAGE]
[ALTERNATE PAGE]
USE OF PROCEEDS
ZAP.COM will not receive any proceeds from the sale of shares of common
stock by Zapata.
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.
22
<PAGE> 78
[ALTERNATE PAGE]
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to ZAP.COM regarding
beneficial ownership of ZAP.COM common stock as of September 30, 1999, as
adjusted to reflect the concurrent offerings 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)....................................... 48,972,258 97.9%
Avram Glazer(2)............................................. 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, 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) Avram Glazer has an address of 270 Commerce Drive, Rochester, New York
14623.
SELLING STOCKHOLDERS
The following table sets forth as of October 31, 1999, and upon completion
of the Offering described in this prospectus, information with regard to the
beneficial ownership of ZAP.COM common stock by Zapata. Zapata may not have a
present intention of selling the shares and may offer less than the amount of
shares indicated.
<TABLE>
<CAPTION>
SHARES TO
SHARES BENEFICIALLY OWNED BE SHARES BENEFICIALLY OWNED
BEFORE OFFERING(1) OFFERED(2) AFTER OFFERING(2)
-------------------------- ---------- --------------------------
NAME OF SELLING STOCKHOLDER NUMBER PERCENTAGE NUMBER NUMBER PERCENTAGE
- --------------------------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Zapata Corporation(1)...... 48,972,256 97.9% 1,000,000 47,972,256 95.9%
</TABLE>
- ---------------
(1) Zapata has sole voting and investment power with respect to all shares
beneficially owned by it.
(2) Zapata may offer less than the amount of shares indicated. No representation
is made that any shares will or will not be offered for sale.
(3) This assumes that all shares owned by Zapata which are offered hereby are
sold. Zapata reserves the right to accept or reject, in whole or in part,
any proposed purchase of shares.
48
<PAGE> 79
[ALTERNATE PAGE]
EXPERTS
The financial statements as of July 31, 1999 and December 31, 1998 and for
the periods then ended and for the cumulative period from April 2, 1998 (date of
inception) to July 31, 1999 included in this prospectus have been so included in
reliance on the report (which contains an emphasis paragraph relating to Zapata
Corporation's commitment for 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.
AVAILABLE 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, the
distribution.
56
<PAGE> 80
[ALTERNATE PAGE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
1,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities being registered hereby are itemized below.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 30,275
Blue Sky Qualification Fees and Expenses.................... 20,000
Accounting fees and expenses................................ 175,000
Legal fees and expenses..................................... 325,000
Printing and engraving expenses............................. 150,000
Distribution Agent.......................................... 7,500
Information Agent Miscellaneous............................. 49,725
--------
Total............................................. $757,500
========
</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 Amended and 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). Prior to the consummation of the distribution, ZAP.COM
will effect a 49,450-for-one share stock split and in connection with the split,
Zapata will contribute $9,000,000 to the Company's capital. These securities
will be issued pursuant to an exemption from the registration requirements
provided by Section 3(c)(9) of the Securities Act.
Concurrently with the consummation of the distribution, ZAP.COM will issue
to Malcolm Glazer and Avram Glazer or an entity controlled by them 550,000
shares of common stock in
II-1
<PAGE> 82
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 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. These options terminated in September 1999.
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 will be 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 Form of Restated Articles of Incorporation of ZAP.COM*
3.2 Form of Amended and Restated By-laws of ZAP.COM*
4.1 Form of Specimen Stock Certificate*
4.2 Warrant Agreement dated October 20, 1999 between American
Internetwork Sports Company, LLC* and ZAP.COM
4.3 ZAP.COM 1999 Long-Term Incentive Plan*
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*
10.2 Services Agreement dated October 20, 1999 between ZAP.COM
and Zapata*
10.3 Tax Sharing and Indemnity Agreement dated October 20, 1999
between ZAP.COM and Zapata*
10.4 Registration Rights Agreement dated October 20, 1999 between
ZAP.COM and Zapata*
10.5 Consulting Agreement dated October 20, 1999 between ZAP.COM
and American Internetwork Sports Company, LLC*
10.6 Net Gravity AdCenter Service Agreement dated September 30,
1999 between ZAP.COM Corporation and Net Gravity, Inc.
10.7 Letter Agreement dated October 18, 1999 between ZAP.COM
Corporation and EMC, Inc.
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>
- ---------------
* Previously filed.
(b) No Financial Statements Schedules are filed a part of this registration
statement.
II-2
<PAGE> 83
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 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> 84
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 4 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Rochester, New
York, on October 27, 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 Amendment
No. 4 to 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 October 27, 1999
- --------------------------------------------------- Directors, Director,
(Avram Glazer) Chief Executive Officer
and President
[insert signatures for new directors]
/s/ LEONARD DISALVO Vice President Finance, October 27, 1999
- --------------------------------------------------- Chief Financial Officer
(Leonard DiSalvo) and Principal Accounting
Officer
</TABLE>
II-4
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Form of Restated Articles of Incorporation of ZAP.COM*
3.2 Form of Amended and Restated By-laws of ZAP.COM*
4.1 Form of Specimen Stock Certificate*
4.2 Warrant Agreement dated October 20, 1999 between American
Internetwork Sports Company, LLC* and ZAP.COM
4.3 ZAP.COM 1999 Long-Term Incentive Plan*
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*
10.2 Services Agreement dated October 20, 1999 between ZAP.COM
and Zapata*
10.3 Tax Sharing and Indemnity Agreement dated October 20, 1999
between ZAP.COM and Zapata*
10.4 Registration Rights Agreement dated October 20, 1999 between
ZAP.COM and Zapata*
10.5 Consulting Agreement dated October 20, 1999 between ZAP.Com
and American Internetwork Sports Company, LLC*
10.6 Net Gravity Ad Center Service Agreement dated September 30,
1999 between ZAP.COM Corporation and Net Gravity, Inc.
10.7 Letter Agreement dated October 18, 1999 between ZAP.COM
Corporation and EMC, Inc.
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>
- ---------------
* Previously filed.
** To be filed by amendment.
<PAGE> 1
Exhibit 5.1
WOODS, OVIATT, GILMAN, STURMAN & CLARKE,LLP
Suite 700 Two State Street
Rochester, New York 14614
October 26,1999
ZAP.COM Corporation
100 Meridian Centre, Suite 350
Rochester, New York 14614
Attention: Avram Glazer, President and CEO
Re: ZAP.COM Corporation Registration Statement
On Form S-1
Dear Mr. Glazer:
We acted as counsel to ZAP.COM Corporation ("ZAP.COM"), Nevada
corporation, in connection with the preparation and filing with the Securities
Exchange Commission ("Commission") under the Securities Act of 1933, as
amended(the "Act"), of a Registration Statement on Form S-1 (File No.
333-76135)(the "Registration Statement") pursuant to which ZAP.COM is
registration(i) 477,747 shares of outstanding ZAP.COM common stock (the
"Distribution Shares") for distribution by Zapata Corporation ("Zapata") to its
stockholder and (ii) 1,000,000 shares of outstanding ZAP.COM common stock (the
"Resale Shares") held by Zapata for resale to the public as described in the
resale prospectus forming a part of the registration statement. This opinion
is being furnished in accordance wiht the requirements of Item 601(b)(5) of
Regulation S-k under the Act.
In connection wiht this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the following documents (collectively, the "Documents"):
1. The form of Restated Articles of Incorporation of ZAP.COM approved by
ZAP.COM's Board of Directors and sole stockholders;
2. The form of Amended and Restated By-Laws of ZAP.COM approved by ZAP.COM's
Board of Directors and sole stockholder;
3. A Certificate of the Vice President--Finance of ZAP.COM with respect to the
proceedings of the stockholders and Board of Directors of ZAP.COM;
4. Resolutions of the Board of Directors of ZAP.COM Board of Directors
("Resolutions") relating to the issuance of the Rights and the issuance and
sale of the Shares; ZAP.COM Corporation
<PAGE> 2
5. A specimen certificate representing the Common STock; and
6. The Registration Statement as filed with the Commission, as on April 13,
1999, as amended by Amendment No.1 to the Registration Statement, as filed
with the Commission on July 2, 1999 and Amendment No.2 to the Registration
Statement as filed with the Commission on August 6, 1999, Amendment No.3 as
filed with the Commission on September 29, 1999 and Amendment No.4 filed
with the Commission on October 26, 1999 (as so amended, being hereafter
refered to as the "Registration Statement")
In giving our opinion, we have relied as to matters of fact upon
certificate of public officials and statements or representations of officers
of ZAP.COM. For purposes of this opinion, we have assumed, without any
investigation, (a) the legal capacity of each natural person and (b) the
genuineness of each signature, the completeness of each doucment submitted to
us as an original and the conformity with original of each documents submitted
to us as a copy.
Our opinion hereafter expressed is based solely upon (a) our review of
the Documents, (b) discussions with certain officers of ZAP.COM with respect to
the Documents, (c) discussions with those of our attorneys who have devoted
substantive attention to the matters contained herein and (d) such review of
published sources of law as we have deemed necessary. You should be aware that
a partner of our firm serves as corporate secretary for Zapata and will serve
as the corporate secretary of ZAP.COM immediately after the consummation of the
distribution.
Based upon and subject to the foregoing, we are of the opinion that
when(i) the Registration Statement becomes effective under the Act, (ii) the
form Restated Articles of Incorporation have been filed with the Nevada
Secretary of State, (iii) the form of Amended and Restated By-laws have been
duly adopted and are in effect, (iv) the Resolutions have not been modified,
rescinded or supplement in any manner by the Board of Directors, (v) a
certificate apata in the form of the specimen stock certificate examined by us
have been manually signed by an authorized officer of the transfer agent and
registrar for the Common Stock and registered by such transfer agent and
registrar, and have been delivered to Zapata representing the Distribution
Shares and the Resale Shares, the Distribution Shares and the Resale Shares
shall have been duly and valily authorized by ZAP.COM and be 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, federa laws and
the coporate laws of the State of Nevada. Insofar as any of our opinions
herein relate to Nevada corporate law, those opinions are based soley on the
opinions of Marshall, Hil, & de delivered to us on this date relating to such
matters and is subject to the qualifications and limitations stated therein.
No opinion is expressed herein wiht respect to the qualification of the
Distribution Shares or the Resales Shares under the securities or blue sky laws
of any state or any foreign jurisdiction.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the caption
"Legal Matter" in the prospectus contained therein. This consent is not to be
construed as an admission that we are a person whose
<PAGE> 3
consent is required to be filed with the Registration Statement under Section 7
of the Act or the rules and regulations of the Commission.
Very truly yours,
WOODS, OVIATT, GILMAN, STURMAN & CLARKE LLP
S//Woods, Oviatt, Gilman, Sturman & Clarke, llp
<PAGE> 1
EXHIBIT 10.6
NETGRAVITY ADCENTER SERVICE AGREEMENT
This AGREEMENT (the "Agreement") is made and entered into as of the
date written above (the "Effective Date") by and between NETGRAVITY, INC., a
Delaware corporation ("NetGravity"), having its principal place of business at
1900 S. Norfolk Street, Suite 150, San Mateo, California 94402, and the entity
identified above (the "Customer").
1. ADCENTER SERVICES.
1.1 Scope. NetGravity will provide to Customer its AdCenter.
The AdCenter service is an Internet advertising administration system that will
allow Company to manage advertising and other programming ("programming") on its
network of on-line banners which reside on Web sites (the "Network"). In
connection with the AdCenter services, NetGravity will, among other things,
provide those services described on Exhibit A (the "Services").
1.2 Scheduling.
(a) Following the Effective Date, NetGravity will provide to
Customer a password and a URL, ID & password for Customer to securely access
NetGravity's AdCenter web site so for purposes of scheduling programming for the
Network and obtaining online reports. Customer will be solely responsible for
scheduling the programming for its Network (i.e., advertisements, streaming,
other content and audio/video) using such interface, in accordance with the
documentation provided to Customer from time to time by NetGravity.
(b) NetGravity will provide 10x5 technical support from the
hours of 9 a.m. to 8p.m., Eastern Standard Time, Monday through Friday, to one
Customer contact for scheduling questions and to assist Customer in the use of
the NetGravity Web site user interface.
1.3 Programming Delivery. Customer will be solely responsible
for delivering its programming to NetGravity in accordance with the
documentation provided to Customer from time to time by NetGravity.
<PAGE> 2
2. PRICES AND PAYMENT.
2.1 Fees. Customer shall pay NetGravity the initial set-up fee
and the rates for the Services ("Service Fee") as set forth on Exhibit C annexed
hereto, provided that in no event shall Customer pay less than the minimum
monthly Service Fee set forth below. NetGravity reserves the right to modify the
Service Fee at the expiration of each renewal term during this Agreement and
shall provide Customer, not less than ninety (90) days prior to the expiration
of the then current term, written notice of any change in the fees for the
Services. In the event of any modification to the Service Fees, Customer shall
have the right to terminate this Agreement upon written notice to NetGravity.
2.2 Payments. Customer shall make all payments with thirty
(30) days of receipt of NetGravity's invoice. All payment shall be made in U.S.
dollars. In the event any currency conversion is required in connection with the
calculation of amounts payable under this Agreement, such conversion shall be
made using the exchange rate quoted by the Wall Street Journal (U.S., Eastern
version) for the invoice date. NetGravity may impose a service charge of 1.0%
per month, or the maximum rate permitted by law, whichever is lower, on all
overdue payments. Customer agrees to pay all costs incurred by NetGravity in
collecting overdue charges, including reasonable attorneys' fees, provided that
a judgment is entered against the Customer.
2.3 Taxes. Amounts due hereunder do not include and are net of
any foreign or domestic governmental taxes or charges of any kind that may be
applicable to the Services, including, without limitation, excise, sales, use,
property, license, value-added taxes, franchise, income, withholding or similar
taxes, customs or other import duties or other taxes, tariffs or duties other
than taxes which are imposed by the United States based on the net income of
NetGravity. Any such taxes which are otherwise imposed on payments to NetGravity
shall be the sole responsibility of Customer.
3. WARRANTY AND WARRANTY DISCLAIMER.
3.1 Customer. Customer warrants that Customer is free to enter
into this Agreement and that this Agreement constitutes the valid and binding
obligation of Customer, enforceable in accordance with its terms.
3.2 NetGravity. NetGravity represents and warrants that:
(a) NetGravity is free to enter into and perform this
Agreement and that this Agreement constitutes the valid and binding obligation
of Customer, enforceable in accordance with its terms
(b) Except for events beyond NetGravity's control, including,
but not limited to, Internet access outages and other events of force majeure,
(a) the AdCenter service will materially conform to the functionality described
in Section 1, (b) NetGravity either owns, has or will otherwise acquire the
right (and will, during the term hereof, maintain such right) to use all
hardware and software components of the AdCenter
-2-
<PAGE> 3
service and will not infringe on any right or interest (intellectual property or
otherwise) of any third party.
(b) That it will take reasonable measures to provide security
and reliable operation of the Services consistent with industry customs and
standards.
(c) EXCEPT AS EXPRESSLY SET FORTH HEREIN, NETGRAVITY
SPECIFICALLY DISCLAIMS ALL WARRANTIES AND CONDITIONS, EXPRESS, IMPLIED,
STATUTORY OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OR
CONDITIONS OR MERCHANTABILITY, NON-INFRINGEMENT, SATISFACTORY QUALITY AND
FITNESS FOR A PARTICULAR PURPOSE, OR ANY IMPLIED WARRANTIES ARISING FROM COURSE
OF DEALING OR COURSE OF PERFORMANCE.
(d) During the course of delivering programming to Network,
NetGravity will collect and maintain information necessary to target
advertising, including but not limited to the user's IP address, cookie, browser
type and operating system, as well as the time, date and ad tag of the request.
NetGravity acknowledges and agrees that Customer will own and have the full
right to use or grant use of this information. Customer hereby grants NetGravity
the permission to run any reports considered part of the Service provided
hereunder and as Customer may otherwise request.
4. INDEMNIFICATION.
4.1 Customer shall indemnify, defend and hold harmless
NetGravity from any liability, losses, costs or damages (including reasonable
attorneys' fees) arising from or related to (a) any claims of personal injury or
property damage resulting from items sold or advertised by Customer; (b) any
Customer advertisement(s), any material to which users can link through such
advertisement(s), or any other information or data provided by Customer using
the Services which are allegedly defamatory, obscene, violate the personal,
privacy or property rights of any third party; (c) any willful or grossly
negligent acts of Customer in connection with Customer's use of the
Services;provided that (i) NetGravity promptly notifies Customer of such claims;
(ii) Customer has sole control of the defense and settlement of such claims and
is not responsible for any settlement that it does not approve in writing; and
(iii) NetGravity renders all reasonable assistance required to defend such
claims and (iv) that any of (a) through (c) above was not caused by a breach by
NetGravity of this Agreement.
4.2 NetGravity shall indemnify and hold harmless Customer from
any third party claims and liabilities for infringement arising out of relating
to Customer's use of the NetGravity proprietary Internet advertising management
software and the Services pursuant to this Agreement, provided that (a) Customer
promptly notifies NetGravity of
-3-
<PAGE> 4
such claims; (b) NetGravity has sole control of the defense and settlement of
such claims and is not responsible for any settlement that it does not approve
in writing; and (c) Customer renders all assistance required. If an injunction
is entered against Customer's use of the application software, NetGravity will,
at its option, (i) obtain a license permitting such use, (ii) modify the
application software to avoid the infringement or (iii) if it cannot reasonably
do either of the foregoing, terminate this Agreement.
5. LIMITATION OF LIABILITY. EXCEPT IN REGARDS TO THE PARTIES' INDEMNITY
OBLIGATIONS, IN NO EVENT SHALL ANY PARTY HEREOF, ITS SUPPLIERS OR SUBCONTRACTORS
BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OF ANY
KIND OR NATURE WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS, LOSS
OF DATA AND COST OF COVER, ARISING OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER
CAUSED AND ON ANY THEORY OF LIABILITY, WHETHER OR NOT NETGRAVITY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
6. CONFIDENTIAL INFORMATION. Each party acknowledges that in the course
of the performance of this Agreement, it may obtain certain information of the
other party identified in writing as being confidential ("Confidential
Information"). The party receiving such Confidential Information shall not use
or disclose such Confidential Information to any third party other than as
expressly permitted under this Agreement or as required by judicial, tribunal or
government order. For the purposes of this Agreement third party shall be anyone
not in direct contact with Customer and Customer's installation of AdCenter
(including employees of NetGravity or any of its affiliates). All Customer URL,
ID and passwords used in connection with this Agreement and any account
information relating to Customer's business, customers, products, technology and
information and data input into the Application Software or Services by
Customer, including, without, limitation, advertiser contact and billing
information, and any and all confidential or proprietary information disclosed
to or learned by NetGravity while NetGravity employees or implementation of the
Services is Confidential Information of Customer. Each party shall not use,
disclose or reproduce any Confidential Information of the other party without
the consent of the party providing said information, except for any information,
data or material which: (a) at the time of disclosure to the receiving party was
known or in the possession of the receiving party without restriction; (b) is
independently developed by the receiving party; (c) is generally available to
the public without any breach of this Agreement by the receiving party. The
parties acknowledge and agree that disclosure of the terms of this Agreement to
anyone that is not a party to this Agreement (except attorneys and accountants
of the parties) may create substantial business damage to the parties and hereby
agree to keep the terms of this Agreement strictly confidential. Each party will
return or destroy all copies of the other party's Confidential Information when
this Agreement is terminated.
7. TERM AND TERMINATION.
-4-
<PAGE> 5
7.1 Term. This Agreement shall continue in full force and
effect, unless terminated earlier in accordance with the terms of this Section
7, for a period of one (1) year (the "Initial Term"), except that Customer may
terminate this Agreement with or without cause during the thirty (30) day period
following the first anniversary of the Initial Term upon receipt by NetGravity
of written notice of Customer's intent to terminate. Thereafter, this Agreement
will automatically renew for additional six month periods (each a "Renewal
Term") until terminated in accordance with the terms of this Section 7.
7.2 Termination for Cause. In the event of a breach by
Customer of its material obligations under this Agreement, NetGravity may
immediately cease to provide Services to Customer. NetGravity may also terminate
this Agreement effective upon sixty (60) days written notice unless Customer
cures such breach within such sixty (60) day period. In the event of a breach by
NetGravity of its material obligations under this Agreement, Customer may
terminate this Agreement upon day with written notification to NetGravity unless
NetGravity cures such breach (admanager interface) within such seven (7) day
period. In the event that the production side, the actual adserving side of the
Service is down for , Customer shall have the right to terminate within days of
such downtime. Either party may terminate this Agreement immediately in the
event that the other party ceases to do business, undergoes a bankruptcy or
insolvency proceeding or an assignment for the benefit of creditors.
7.3 Effect of Termination. Upon termination of this Agreement,
all Confidential Information in the possession of one party shall be returned
promptly to the other party. The provisions of Sections 3, 4, 5, 6, 7 and 8, and
all payment obligations incurred prior to termination of this Agreement, shall
survive.
8. GENERAL.
8.1 Amendment; Waiver. This Agreement may not be amended
except by a written notice signed by an authorized representative of NetGravity
and Customer. The failure of either party to enforce any provision hereunder is
not a waiver of such provision or any other provision. The waiver of either
party of any of its rights hereunder shall not be construed as a waiver of any
subsequent breach.
8.2 Assignment. Customer may not assign this Agreement, in
whole or in part, whether by operation of law or otherwise, without the prior
express written consent of NetGravity, which consent shall not be unreasonably
withheld, except that Customer may assign this Agreement to any entity (a)
controlling that party; (b) controlled by, under common control with, or
acquiring a controlling financial interest in that party, or in which that party
acquires a controlling financial interest (provided such assignee assumes the
assignor's obligations under this Agreement and provided further that assignor
remains liable to the other party following such assignment); or (c) acquiring
substantially all of assignor's assets (provided such assignee assumes
assignor's obligations under this Agreement), where "control" in the foregoing
shall mean ownership of fifty percent (50%) or more of the voting stock of the
entity; or
-5-
<PAGE> 6
(d) by operation of law.Subject to the foregoing, this Agreement will bind and
inure to the benefit of the parties, their respective successors and permitted
assigns.
8.3 Governing Law; Arbitration. This Agreement shall be
governed by the laws of the State of California, excluding conflict of laws
provisions and excluding the 1980 United Nations Convention on Contracts for the
International Sale of Goods.
8.4 Liability of NetGravity. The provisions of this Agreement
under which the liability of NetGravity is excluded or limited shall not apply
to the extent that such exclusions or limitations are declared illegal or void
under any applicable laws governing this Agreement, except to the extent such
illegalities or invalidities are cured under such laws by the fact that the law
of California governs this Agreement.
8.5 Notices. All notices under this Agreement shall be in
writing. Notice shall be effective on the earlier of actual receipt or (a) the
day after transmission if sent by facsimile followed by written confirmation by
registered overnight carrier or certified United States mail; or (b) one day
after posting when sent by registered private overnight carrier (e.g., DHL,
Federal Express, etc.); or (c) five (5) days after posting when sent by
certified United States mail. Notice shall be sent to the parties at the
addresses set forth on the first page of this Agreement or at such other address
as shall be given by either party to the other in writing. Notices to NetGravity
shall be address to the attention of Contracts Administrator.
8.6 Independent Contractors. The parties are independent
contractors. Neither party shall be deemed to be an employee, agent, partner or
legal representative of the other for any purpose and neither shall have any
right, power or authority to create any obligation or responsibility on behalf
of the other.
8.7 Severability. In the event any provision of this Agreement
is determined to be invalid, illegal or otherwise unenforceable, then such
provision will instead be construed to give effect to its intent to the maximum
extent permissible and the remainder of this Agreement will remain in full force
and effect according to its terms.
8.8 Force Majeure. Except for the obligation to pay money,
neither party shall be liable for its failure to perform hereunder to the extent
that such failure to perform results from any cause beyond its reasonable
control, including, without limitation, acts of God, acts of war, strikes,
computer viruses, power outages, failure of suppliers, epidemics, earthquakes,
fire and other disasters.
8.9 Entire Agreement. This Agreement, including all Exhibits
attached hereto, constitutes the entire agreement of the parties with respect to
the subject matter hereof and supersedes all previous communications,
representations, understandings and agreements, either oral or written, between
the parties with respect to said subject matter.
-6-
<PAGE> 7
8.10 Software License Option. Upon execution of this
Agreement, NetGravity shall have been deemed to grant to Company an irrevocable
right and option to license the NetGravity AdServer Software on the terms and
conditions of the License Agreement annexed hereto as Exhibit D for a perpetual
license term at a rate which is equal to a [X]% discount off of NetGravity list
pricing in effect when the software is ordered. This option and right shall be
valid only through .
[X]=Certain information on these pages has been omitted and filed separately
with the commission. Confidential treatment has been requested with respect
to the omitted portion.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CUSTOMER
NETGRAVITY, INC. ZAP.COM CORPORATION
By: /s/ STEPHEN E. RECHT By: /s/ GAETANO GUGLIELMINO
------------------------ ------------------------------
Name: Stephen E. Recht Name: Gaetano Guglielmino
--------------------- ---------------------------
Title: Vice President Title: Director, Marketing & Sales
--------------------- ---------------------------
Finance & Administration
------------------------
Chief Financial Officer
-----------------------
-7-
<PAGE> 8
EXHIBIT A
---------
ADCENTER SERVICES
Description of AdCenter Services:
(a) NetGravity or its supplier will maintain an AdCenter server complex
from which NetGravity will electronically deliver programming scheduled by
Customer to the Network which will contain the ad tags placed by Customer.
NetGravity will provide a repository area into which Customer will copy ad
creative files for scheduled delivery. NetGravity will provide Customer with a
password for remote entry into the user interface portion of the Service, with
which Customer will be able to (i) generate ad tags, (ii) schedule advertising
to run in the on-line environments in which Customer places those ad tags and
(iii) generate reports on such advertising
(b) The AdCenter Service includes targeting features as listed in
Exhibit B annexed hereto. The AdCenter also Service includes a suite of standard
reports available in the AdCenter system and listed in Exhibit B.
(c) NetGravity will give to Customer access to any modifications,
upgrades or changes to the Services that are generally available to other
NetGravity customers ("Enhancements") as soon as they become available; provided
that any such Enhancements will be considered part of the Services or part of
other services and subject to additional fees. Customer may request that
NetGravity make Enhancements to the Services and NetGravity will consider such
requests. and shall submit a quote for the additional cost of the Enhancements
to Customer's present level of Services. Upon receipt of the quote, Customer
shall have thirty (30) days to accept or reject the quote for additional
Enhancements. If Customer fails to respond in writing within said thirty (30)
day period, the quote shall be deemed rejected by Customer and the Services
shall remain unchanged until the expiration of the term or any renewal term.
NetGravity acknowledges that ActionTrack and PinPoint, will be considered part
of the AdCenter services originally covered by this Agreement and will not be
subject to additional fees, provided that Customer acknowledges that NetGravity
reserves the right to charge additional fees for PinPoint in the event that
Customer desires to target on more than five dimensions
(d) NetGravity will provide 24x7 system monitoring to ensure maximum
uptime in the delivery of on-line programming.
-8-
<PAGE> 9
EXHIBIT B
---------
ADCENTER SERVICE FEATURES AND STANDARD REPORTS
Reports:
Advertiser Reports
1. Show Advertiser Performance
2. Show Campaign Performance
3. Show Individual Ad Performance
Site Reports
4. Show Total Inventory
5. Show All Current Runs
6. Show Impression Goal Status
7. Show Site Performance
8. Show Advertiser Summary
9. Show Individual Ad Summary
10. Show Campaign Summary
Affiliate Reports
11. Show Affiliate Advertiser Performance
12. Show Affiliate Profile Performance
Notes:
- - 1 Show GeoTargeting Dimension report can replace 1 of the 12 listed above at
no incremental expense
- - Custom Reports can be written by NetGravity Consulting
on a per diem basis at [X]/day.
[X]=Certain information on these pages has been omitted and filed separately
with the commission. Confidential treatment has been requested with respect
to the omitted portion.
-9-
<PAGE> 10
EXHIBIT C
---------
Set-Up and Service Fees
A. Set-Up Fees
The three day set up fee shall be $.00 plus related travel and
expenses. The set-up fee includes at a minimum one day of initial training.
Customer shall the have option to use the additional two days at its discretion.
B. Service Fees
<TABLE>
<CAPTION>
Monthly Impressions CPM
------------------- ---
<S> <C> <C>
[X] [X]
[X] [X]
[X] [X]
[X] [X]
[X] [X]
[X] [X]
[X] [X]
[X] [X]
[X] [X]
[X] [X]
[X] [X]
[X] [X]
[X] [X]
[X] [X]
</TABLE>
**Minimum Monthly Cost of $[X]
[X]=Certain information on these pages has been omitted and
filed separately with the commission. Confidential
treatment has been requested with respect to the
omitted portion.
As used herein, the term "CPM" shall mean the cost per one thousand
impressions (i.e., the number of times an advertisement is delivered to a user's
browser).
The Service Fee pricing is based on ad creative files which do not
exceed a one month average of 12.0 kilobytes in file size. NetGravity reserves
the right to adjust CPM pricing by reasonable proportions, if certain
bandwidth-intensive ads cause the average file size to exceed 12.0 kb.
-10-
<PAGE> 11
EXHIBIT D
---------
NETGRAVITY ADSERVER LICENSE AGREEMENT
This Agreement is made and entered into as of this _______ day of
__________, 1999 ("Effective Date") by and between NetGravity, Inc., a Delaware
corporation, having its principal place of business at 1900 S. Norfolk Street,
Suite 150, San Mateo, CA 94403 ("NetGravity") and the entity at the location
listed on Exhibit A hereto ("Licensee").
RECITALS
--------
A. NetGravity is the owner of proprietary Internet web site advertising sales
and management software products.
B. Licensee wishes to obtain a license to use such software on the terms and
conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties hereby agree as
follows:
1. DEFINITIONS
The following terms shall have the following meanings:
1.1 "Software" means the proprietary Internet web site advertising sales and
management software program developed by NetGravity known as AdServer which is
comprised of the Program Components, in object code form only, and any updates
and upgrades as may be issued to Licensee by NetGravity after the Effective
Date.
1.2 "Program Component(s)" means the AdManager component, AdServer component,
the AdClient component, the AdConsole component, and the AdInsight Server as
further described on Exhibit A.
1.3 "Site(s)" means Licensee's site or sites on the World Wide Web.
2. GRANT OF RIGHTS
2.1 Grant of License. Subject to the terms and conditions of this Agreement,
NetGravity hereby grants to Licensee a perpetual, worldwide, nonexclusive,
nontransferable (except in accordance with Section 12.1) license, to install and
use the number of copies of each Program Component of the Software licensed as
indicated on Exhibit A internally to manage advertising on the Site(s). Licensee
may make backup copies of the Software for archival or disaster recovery
purposes.
2.2 Restrictions. The license granted herein is granted solely to the person or
entity set forth on Exhibit A, and not, by implication or otherwise, to any
parent, subsidiary or affiliate of such person or entity. No right is granted
hereunder to use the Software to perform advertising management services for
third parties (so-called "service bureau" uses). All rights not expressly
granted hereunder are reserved to NetGravity. Licensee may not copy, distribute,
reproduce, use or allow access to the Software except as explicitly permitted
under this Agreement, and Licensee will not modify, adapt, translate, prepare
derivative works from, decompile, reverse engineer, disassemble or otherwise
attempt to derive source code from the Software or any internal data files
generated by the Software except the extent permitted by applicable law.
Licensee shall not remove, obscure, or alter NetGravity's copyright notice,
trademarks, or other proprietary rights notices affixed to or contained within
the Software.
2.3 Ownership. NetGravity owns and shall retain all right, title, and interest
in and to the Software, including all copyrights, patents, trade secret rights,
trademarks and other intellectual
<PAGE> 12
property rights therein. Licensee shall provide NetGravity with access to
Licensee's facilities, at reasonable times and upon reasonable notice, to verify
Licensee's compliance with the terms of this Agreement.
3. DELIVERY OF THE SOFTWARE
3.1 Delivery. As soon as practicable following the Effective Date, NetGravity
shall deliver the Software electronically or by other means mutually agreed upon
to Licensee at the location(s) set forth on Exhibit A.
3.2 Installation and Training. As soon as practicable following the delivery of
the Software, NetGravity will provide reasonable assistance to Licensee by
telephone and e-mail in installing the Software. At Licensee's request, on-site
installation assistance and training may be provided at NetGravity's standard
rates, plus reasonable travel expenses.
4. FEES
4.1 License Fee. In consideration for the rights granted hereunder, Licensee
shall pay NetGravity license fees in the amounts and on the payment terms set
forth on Exhibit A.
4.2 Taxes. Licensee shall be responsible for all sales taxes, use taxes and any
other similar taxes imposed by any federal, state or local governmental entity
on the transactions contemplated by this Agreement, excluding U.S. taxes based
upon NetGravity's income. When NetGravity has the legal obligation to pay or
collect such taxes, the appropriate amount shall be invoiced to and paid by
Licensee unless Licensee provides NetGravity with a valid tax exemption
certificate authorized by the appropriate taxing authority.
4.3 U.S. Dollars. All fees quoted and payments made hereunder shall be in U.S.
Dollars.
5. NETGRAVITY SUPPORT
At Licensee's request, NetGravity will offer maintenance and technical support
with respect to the Software under its then current standard Software
Maintenance Subscription and Support Agreement, a copy of which is attached as
Exhibit B.
6. WARRANTY AND DISCLAIMER
NetGravity warrants that for a period of forty-five (45) days following the
delivery of the Software: (i) the Software shall operate substantially in
accordance with the then current documentation for such Software and (ii) the
media on which the Software is furnished shall be free from defects in materials
and faulty workmanship under normal use. NetGravity does not warrant that the
Software will meet all of Licensee's requirements or that the use of the
Software will be uninterrupted or error-free. NetGravity's sole obligation under
this warranty is to use reasonable efforts to correct any non-conforming
Software. Except as expressly provided herein, NETGRAVITY LICENSES THE SOFTWARE
TO LICENSEE ON AN "AS IS" BASIS. NETGRAVITY MAKES NO OTHER WARRANTY OR CONDITION
OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE INCLUDING WITHOUT
LIMITATION THE IMPLIED WARRANTIES OR CONDITIONS OF SATISFACTORY QUALITY,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT.
7. INDEMNIFICATION
7.1 By NetGravity. NetGravity shall indemnify, defend and hold harmless Licensee
from any and all damages, liabilities, costs and expenses (including reasonable
attorneys' fees) incurred by Licensee as a result of any claim that the
Software, when used within the scope of this Agreement, infringes any copyright,
trademark, or trade secret of any third party; provided that Licensee promptly
notifies NetGravity in writing
<PAGE> 13
of any such claim and promptly tenders the control of the defense and settlement
of any such claim to NetGravity at NetGravity's expense and with NetGravity's
choice of counsel. Licensee shall cooperate with NetGravity, at NetGravity's
expense, in defending or settling such claim and Licensee may join in defense
with counsel of its choice at its own expense. If the Software is, or in the
opinion of NetGravity may become, the subject of any claim for infringement or
if it is adjudicatively determined that the Software infringes then NetGravity
may, at its option and expense, either (i) procure for Licensee the right from
such third party to use the Software or (ii) replace or modify the Software with
other suitable and reasonably equivalent products so that the Software become
noninfringing or (iii) if (i) and (ii) are not practicable, terminate this
Agreement.
7.2 Exclusions. NetGravity shall have no liability for any infringement arising
from (i) the use of other than the then-current, commercially available version
of the Software; (ii) the use of the Software other than as set forth in its
accompanying documentation; (iii) the modification of the Software unless such
modification was made or authorized by NetGravity, when such infringement would
not have occurred but for such modification; or (iv) the combination or use of
the Software with other software, hardware or other products not approved by
NetGravity in advance if such infringement would have been avoided by the use of
the Software not in such combination. THIS SECTION 7 STATES NETGRAVITY'S ENTIRE
OBLIGATION WITH RESPECT TO ANY CLAIM REGARDING THE INTELLECTUAL PROPERTY RIGHTS
OF ANY THIRD PARTY.
7.3 By Licensee. Licensee shall indemnify, hold harmless and defend NetGravity
from and against any and all claims, liabilities, damages and expenses
(including reasonable attorneys' fees) incurred by NetGravity as a result of any
breach by Licensee of this Agreement; provided that NetGravity promptly notifies
Licensee in writing of any such claim and promptly tenders to Licensee the
control and defense and settlement of such claim at Licensee's expense and with
Licensee's choice of counsel. NetGravity shall cooperate with Licensee, at
Licensee's expense, in defending or settling such claim and NetGravity may join
in defense with counsel of its choice at its own expense.
8. LIMITATION OF LIABILITY
IN NO EVENT WILL NETGRAVITY'S LIABILITY ARISING OUT OF THIS AGREEMENT OR THE USE
OR PERFORMANCE OF THE SOFTWARE EXCEED THE SUM OF THE LICENSE FEES ACTUALLY PAID
BY LICENSEE HEREUNDER. IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY TO THE
OTHER PARTY FOR ANY LOST PROFITS OR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR
SERVICES, OR FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED
AND UNDER ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGE; PROVIDED, HOWEVER, THAT THIS LIMITATION SHALL
NOT APPLY TO ANY BREACH BY LICENSEE OF THE LICENSE RESTRICTIONS OR ITS
CONFIDENTIALITY OBLIGATIONS. THE PARTIES AGREE THAT THIS SECTION 8 REPRESENTS A
REASONABLE ALLOCATION OF RISK.
<PAGE> 14
9. CONFIDENTIALITY
9.1 Definition. The term "Confidential Information" shall mean any information
disclosed by one party to the other party in connection with this Agreement
which is disclosed in writing, orally or by inspection and is identified as
"Confidential" or "Proprietary" or which a party has reason to believe is
treated as confidential by the other party. Any information, in whatever form,
disclosed by NetGravity that relates to the Software and that is not publicly
known is "Confidential Information."
9.2 Obligation. Each party shall treat as confidential all Confidential
Information received from the other party, shall not use such Confidential
Information except as expressly permitted under this Agreement, and shall not
disclose such Confidential Information to any third party without the other
party's prior written consent. Each party shall take reasonable measure to
prevent the disclosure and unauthorized use of Confidential Information of the
other party.
9.3 Exceptions. Notwithstanding the above, the restrictions of this Section
shall not apply to information that:
a) was independently developed by the receiving party without any use
of the Confidential Information of the other party and by employees or other
agents of (or independent contractors hired by) the receiving party who have not
been exposed to the Confidential Information;
b) becomes known to the receiving party, without restriction, from a
third party without breach of this Agreement and who had a right to disclose it;
c) was in the public domain at the time it was disclosed or becomes in
the public domain through no act or omission of the receiving party;
d) was rightfully known to the receiving party, without restriction, at
the time of disclosure; or
e) is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body; provided, however, that the
receiving party shall provide prompt notice thereof to the other party and shall
use its reasonable best efforts to obtain a protective order or otherwise
prevent public disclosure of such information.
10. TERM AND TERMINATION
10.1 Term. The term of this Agreement shall commence on the Effective Date and
shall continue in force until terminated as follows:
a) If Licensee fails to make any payment due within thirty (30) days
after receiving written notice from NetGravity that such payment is delinquent,
NetGravity may terminate this Agreement on written notice to Licensee at any
time following the end of such thirty (30) day period.
b) If either party materially breaches any term or condition of this
Agreement and fails to cure that breach within thirty (30) days after receiving
written notice of the breach, the nonbreaching party may terminate this
Agreement on written notice at any time following the end of such thirty (30)
day period.
c) This Agreement shall terminate immediately upon notice in the event
Licensee becomes insolvent (i.e., becomes unable to pay its debts in the
ordinary course of business as they come due) or makes an assignment of this
Agreement for the benefit of creditors.
10.2 Survival. The following sections shall survive the termination, for any
reason, of this Agreement: 4, 6, 7, 8, 9, 10, and 12.
<PAGE> 15
10.3 Remedies. Licensee acknowledges that its breach of Section 2.2 or 9 would
cause irreparable harm to NetGravity, the extent of which would be difficult to
ascertain. Accordingly, Licensee agrees that, in addition to any other remedies
to which NetGravity may be legally entitled, NetGravity shall have the right to
obtain immediate injunctive relief in the event of a breach of such sections by
Licensee or any of its officers, employees, consultants or other agents.
11. EXPORT REGULATIONS
Without affecting the scope of the license granted herein, in the event Licensee
is permitted to transfer the Software to any location outside the United States
under this Agreement, Licensee hereby agrees it will comply with all applicable
United States export laws and regulations.
12. MISCELLANEOUS.
12.1 Assignment. Licensee may not assign any of its rights or delegate any of
its obligations under this Agreement, whether by operation of law or otherwise,
without the prior express written consent of NetGravity. Subject to the
foregoing, this Agreement will bind and inure to the benefit of the parties,
their respective successors and permitted assigns.
12.2 Waiver and Amendment. No modification, amendment or waiver of any provision
of this Agreement shall be effective unless in writing and signed by the party
to be charged. No failure or delay by either party in exercising any right,
power, or remedy under this Agreement, except as specifically provided herein,
shall operate as a waiver of any such right, power or remedy.
12.3 Governing Law; Arbitration. This Agreement shall be governed by the laws of
the State of California, USA, excluding conflict of laws provisions and
excluding the 1980 United Nations Convention on Contracts for the International
Sale of Goods. Any disputes arising out of this Agreement shall be resolved by
binding arbitration in Santa Clara County California in accordance with the
rules of the American Arbitration Association. The arbitrator shall have the
power to grant injunctive relief.
12.4 Notices. All notices, demands or consents required or permitted under this
Agreement shall be in writing. Notice shall be considered effective on the
earlier of actual receipt or (a) the day following transmission if sent by
facsimile followed by written confirmation by registered overnight carrier or
certified United States mail; or (b) one (1) day after posting when sent by
registered private overnight carrier (e.g., DHL, Federal Express, etc.); or (c)
five (5) days after posting when sent by certified United States mail. Notice
shall be sent to the NetGravity at the addresses set forth on the first page of
this Agreement and to Licensee at the address set forth on Exhibit A, or at such
other address as shall be given by either party to the other in writing. Notices
to NetGravity shall be addressed to the attention of Contracts Administrator.
12.5 Independent Contractors. The parties are independent contractors. Neither
party shall be deemed to be an employee, agent, partner or legal representative
of the other for any purpose and neither shall have any right, power or
authority to create any obligation or responsibility on behalf of the other.
12.6 Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be contrary to law, such provision shall be changed
and interpreted so as to best accomplish the objectives of the original
provision to the fullest extent allowed by law and the remaining provisions of
this Agreement shall remain in full force and effect.
12.7 Complete Understanding. This Agreement, including all Exhibits attached
hereto, constitutes the final, complete and
<PAGE> 16
exclusive agreement between the parties with respect to the subject matter
hereof, and supersedes any prior or contemporaneous agreement.
12.8 Force Majeure. Except for Licensee's obligations to pay NetGravity
hereunder, neither party shall be liable to the other party for any failure or
delay in performance caused by reasons beyond its reasonable control.
12.9 Purchase Orders. This Agreement shall control Licensee's use of the
Software. All different or additional terms or conditions in any Licensee
purchase order or similar document shall be null and void.
12.10 Execution. The parties have shown their acceptance of this Agreement by
causing it to be executed below by their duly authorized representatives. This
agreement may be executed in counterparts which together shall constitute one
agreement, and each party agrees that a copy of a counterpart executed by it and
sent to the other by any method including without limitation facsimile shall
constitute acceptance of this Agreement.
NETGRAVITY
By:___________________________________
Name:_________________________________
Title: _______________________________
"LICENSEE"
By:____________________________________
Name:__________________________________
Title: ________________________________
<PAGE> 17
EXHIBIT A
LICENSEE:
- -----------------------------------------------
Address:
- -----------------------------------------------
- -----------------------------------------------
Attention: [License Administrator]:
- -----------------------------------------------
ADSERVER SOFTWARE LICENSED COMPONENTS:
- -----------------------------------------------
Program Components Description:
- -----------------------------------------------
The Admanager component contains the user interface and management
database. The Adserver is a server application responsible for delivering
advertisements. The AdClient component is the technology that integrates with
web server software to receive ads from the ad server. The AdConsole component
serves as a report publishing platform to advertisers and agencies.
<TABLE>
<CAPTION>
<S> <C>
Program Component Licensed Number of Copies
AdManager
AdServer
AdClient
AdConsole
AdInsight Server*
</TABLE>
*Licensee shall have the right to copy the AdServer for AdInsight (reporting)
purposes. This additional copy of AdServer shall not be used for additional
adserving capability.
SureStart Deployment Package
**Plus related travel expenses
TOTAL PACKAGE PRICE:
Payment Terms:
Payment is due Net 30 days from the Effective Date
<PAGE> 18
EXHIBIT B
Date of this Agreement:
SOFTWARE SUBSCRIPTION AND SUPPORT AGREEMENT
BETWEEN
NETGRAVITY, INC.
And
NetGravity, Inc. ("NetGravity") has granted Licensee a license to
certain software in accordance with a license agreement dated ________, 1999
(the "License Agreement"). Licensee wishes to obtain maintenance and support of
such software pursuant to this Agreement.
SECTION 1
---------
DEFINITIONS
-----------
1.1 "Product(s)" means the software programs licensed to Licensee pursuant to
the License Agreement together with any Updates furnished by NetGravity to
Licensee under this Agreement.
1.2 "Updates" means a software Product release containing error corrections and
minor enhancements, in object code form, which is made commercially available by
NetGravity and generally indicated by a change in the revision number in the
tenths or hundredths digit to the right of the decimal point (e.g., a change
from version x.xx to x.xy or x.yx) and any corrections and updates to the
associated documentation.
1.3 "Upgrades" means a software Product release containing significant
functional enhancements and feature additions of the Software, in object code
form, which is made commercially available by NetGravity and generally indicated
by a change in the
<PAGE> 19
revision number to the left of the decimal point (i.e., 4.00).
SECTION 2
---------
TECHNICAL SUPPORT
-----------------
2.1 Support. NetGravity will provide Licensee with technical support ("Support")
during the hours indicated on the attached Schedule 1. Support will be provided
by at least one of the following methods: telephone, email, World Wide Web, or
fax. NetGravity, at its sole discretion, will choose which method(s) it uses to
provide support to Licensee. Support will include:
a) assistance related to questions on the installation and operational
use of the Product(s);
b) assistance in identifying and verifying the causes of suspected
errors in the Products(s); and
c) providing workarounds for identified Product errors or malfunctions,
where reasonably available to NetGravity.
Licensee will designate the number of persons set forth in Schedule 1 to act as
support liaisons to utilize the support and will ensure that such person will be
properly trained in the operation and usage of the Products. Upon request,
Licensee will allow the use of on-line diagnostics of the Products during error
diagnosis.
2.2 Error Corrections. During the term of this Agreement, NetGravity shall use
its reasonable efforts to correct any reproducible error in the Product with a
level of effort commensurate with the severity of the error. NetGravity shall
have no obligation to correct all errors in the Product. Upon identification of
any error, Licensee shall notify NetGravity of such error and shall provide
NetGravity with enough information to reproduce the error.
2.3 Error Corrections. NetGravity shall not be responsible for correcting any
errors not reproducible by NetGravity on the unmodified Product or errors caused
by: (i) Licensee's failure to implement all Updates issued under this Agreement;
(ii) changes to the operating system or environment which adversely affect the
Product;(iii) any alterations of or additions to the Product made by parties
other than NetGravity; (iv) use of the Product in a manner for which it was not
designed; (v) interconnection of the Product with other software products not
supplied by NetGravity; or (vi) use of the Product on an unsupported platform.
NetGravity shall only be obligated to support the then current production
version of the Product and the immediately prior release for a period of three
(3) months after such release. Support for any earlier versions or for errors
not covered under this Agreement may be obtained at NetGravity's then current
rates.
2.4 On-site Training and Support. Upon request, and provided that Licensee is
current with fees due under this Agreement, NetGravity will provide training for
Licensee's administrators and trainers and/or direct support at Licensee's site
at NetGravity's then applicable standard training rates and charges.
SECTION 3
---------
MAINTENANCE SUBSCRIPTION
------------------------
NetGravity will provide each Update and Upgrade to Licensee within a reasonable
time after publication ("Subscription"). Licensee may acquire additional copies
of the documentation at NetGravity's then current standard rates.
SECTION 4
---------
FEES
----
<PAGE> 20
4.1 Support and Subscription Fees. For NetGravity technical Support services
covered by Section 2 of this Agreement, Licensee agrees to pay NetGravity the
annual technical Support fee in the amount set forth in Schedule 1 for the first
year following the Date of this Agreement. Licensee shall pay the annual fees
each year at the beginning of each renewal term of this Agreement. For
NetGravity Subscription Service provided under Section 3 of this Agreement,
Licensee shall pay the annual Subscription fee set forth in Schedule 1 beginning
one year from the Date of this Agreement. Licensee shall pay the annual fees at
the beginning of each renewal term of this Agreement. NetGravity reserves the
right to change the annual fees from time to time effective at the commencement
of the next annual period by giving Licensee at least sixty (60) days' prior
written notice of such change. NetGravity reserves the right to charge Licensee
a reinstatement fee to resume services if Licensee has not continuously
maintained this Agreement in effect. Annual fees on any additional units
licensed beyond the initial purchase will be prorated and billed at the time of
the applicable license grant.
4.2 Payment. Any amount payable to NetGravity under this Agreement will be due
and payable within thirty (30) days after Licensee's receipt of NetGravity's
invoice. All monetary amounts are specified and shall be paid in the lawful
currency of the United States of America. Licensee shall pay all amounts due
under this Agreement to NetGravity at the address indicated at the beginning of
this Agreement or such other location as NetGravity designated in writing. Any
amount not paid when due will bear interest at the rate of one and one-half
percent (1.5%) per month or the maximum rate permitted by applicable usury law,
which is less, determined and compounded on a daily basis from the date due
until the date paid.
4.3 Taxes. Unless otherwise specified, the fees, charges and other amounts
specified in this Agreement do not include any sales, use, excise or other
applicable taxes. Licensee will pay or reimburse NetGravity for any and all
such taxes (excluding any applicable federal and state taxes based on
NetGravity's income).
SECTION 5
---------
TERMINATION
-----------
5.1 Term. The term of this Agreement shall be one year and shall automatically
renew unless Licensee notifies NetGravity of its intention not to renew at least
60 days prior to the renewal date or unless terminated pursuant to paragraph
5.2.
5.2 Termination For Default. If either party defaults in the performance of or
compliance with any of its material obligations under this Agreement, and such
default has not been remedied or cured within thirty (30) days after written
notice specifying the default or, if the nature of the default is such that more
than (30) days are required for the cure thereof, the defaulting party fails to
commence its efforts to cure such breach or default within such thirty (30) days
and to diligently prosecute the same to completion thereafter, the
non-defaulting party may terminate this Agreement in addition to its other
rights and remedies under law.
5.3 Survival. Sections 4.2, 4.3, 5, 6 and 7 shall survive the termination of
this Agreement.
<PAGE> 21
SECTION 6
---------
LIMITATIONS OF LIABILITY
------------------------
LIMITATION. NETGRAVITY'S LIABILITY (WHETHER IN CONTRACT, WARRANTY, TORT
OR OTHERWISE; AND NOTWITHSTANDING ANY FAULT, NEGLIGENCE, REPRESENTATION, STRICT
LIABILITY OR PRODUCT LIABILITY OF NETGRAVITY) UNDER THIS AGREEMENT WITH REGARD
TO ANY PRODUCT, DOCUMENTATION, SERVICES OR OTHER ITEMS SUBJECT TO THIS AGREEMENT
SHALL IN NO EVENT EXCEED THE TOTAL COMPENSATION PAID BY LICENSEE TO NETGRAVITY
UNDER THIS AGREEMENT. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER
PARTY OR ANY OTHER PARTY FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT OR SPECIAL
DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF OR
RELATING TO THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
SECTION 7
---------
MISCELLANEOUS
-------------
7.1 Assignment. Licensee may not assign any of its rights or delegate any of its
obligations under this Agreement, whether by operation of law or otherwise,
without the prior express written consent of NetGravity. Subject to the
foregoing, this Agreement will bind and inure to the benefit of the parties,
their respective successors and permitted assigns.
7.2 Waiver and Amendment. No modification, amendment or waiver of any provision
of this Agreement shall be effective unless in writing and signed by the party
to be charged. No failure or delay by either party in exercising any right,
power, or remedy under this Agreement, except as specifically provided herein,
shall operate as a waiver of any such right, power or remedy.
7.3 Governing Law; Arbitration. This Agreement shall be governed by the laws of
the State of California, USA, excluding conflict of laws provisions and
excluding the 1980 United Nations Convention on Contracts for the International
Sale of Goods. Any disputes arising out of this Agreement shall be resolved by
binding arbitration in Santa Clara County California in accordance with the
rules of the American Arbitration Association. The arbitrator shall have the
power to grant injunctive relief.
7.4 Notices. All notices, demands or consents required or permitted under this
Agreement shall be in writing. Notice shall be considered effective on the
earlier of actual receipt or (a) the day following transmission if sent by
facsimile followed by written confirmation by registered overnight carrier or
certified United States mail; or (b) one (1) day after posting when sent by
registered private overnight carrier (e.g., DHL, Federal Express, etc.); or (c)
five (5) days after posting when sent by certified United States mail. Notice
shall be sent to the parties at the addresses set forth on the first page of
this Agreement or at such other address as shall be given by either party to the
other in writing. Notices to NetGravity shall be addressed to the attention of
Contracts Administrator.
7.5 Independent Contractors. The parties are independent contractors. Neither
party shall be deemed to be an employee, agent, partner or legal representative
of the other for any purpose and neither shall have any right, power or
authority to create any obligation or responsibility on behalf of the other.
<PAGE> 22
7.6 Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be contrary to law, such provision shall be changed
and interpreted so as to best accomplish the objectives of the original
provision to the fullest extent allowed by law and the remaining provisions of
this Agreement shall remain in full force and effect.
7.7 Complete Understanding. This Agreement, including all Exhibits attached
hereto, constitutes the final, complete and exclusive agreement between the
parties with respect to the subject matter hereof, and supersedes any prior or
contemporaneous agreement.
7.8 Excused Performance. Neither party will be liable for, or be considered to
be in breach of or default under this Agreement on account of, any delay or
failure to perform as required by this Agreement (other than monetary
obligations) as a result of an event of force majeure or any cause or condition
beyond such party's reasonable control.
NETGRAVITY
Signature: ________________________________
Printed Name: _____________________________
Title: ____________________________________
Date Signed: ______________________________
Licensee:
Signature: _______________________________
Printed Name:______________________________
Title: ___________________________________
Date Signed: ______________________________
<PAGE> 23
SCHEDULE 1
SUPPORT HOURS: AdService 24 (24 hours a day - 7 days a week)
SUPPORT CONTACTS: Please List 3:
FEES:
<TABLE>
<CAPTION>
Products License Date Annual Support Fee Annual Subscription Fee
-------- ------------ ------------------ -----------------------
<S> <C> <C> <C>
AdManager
AdServer June ___, 1999
Enterprise
AdClient
AdConsole
AdInsight
Fees are payable [annually] in advance.
</TABLE>
<PAGE> 1
[Zap.com Letterhead]
Exhibit 10.7
October 18, 1999
EMC Corporation
Hopkinton, MA 01748
Attention: Mr. Charles Loewy, Director Internet Solutions Group
Dear Mr. Loewy:
This letter sets forth the terms and conditions that ZAP.COM
Corporation ("ZAP.COM") has recently discussed with EMC Corporation ("EMC") and
will serve as the basis for a more detailed definitive internet services
agreement (the "Definitive Agreement") to be negotiated in good faith by both
parties. This letter is intended to be a preliminary and non-binding letter of
intent and (except solely with respect EMC's commitment to offer ZAP.COM the
pricing set forth in paragraph 3 and the parties' reimbursement and purchase and
obligations under paragraph6 below) neither party shall have any obligation to
the other until a Definitive Agreement is executed by both parties.
1. Introduction. EMC offers Internet services relating to, among other
things, development, maintenance and hosting of Internet sites, including those
on the World Wide Web portion of the Internet. ZAP.COM proposes to (a) operate a
business consisting of a network of banners owned by ZAP.COM and operated on
third party Web Sites , (b) operate various Web sites and (c) from time to time
to develop, own and operate other Web sites or Internet properties
(collectively, "ZAP.COM Internet Properties"). ZAP.COM desires to engage EMC to
provide services with respect to the ZAP.COM Internet Properties in accordance
with the proposal dated October 8, 1999 submitted by EMC to ZAP.COM and entitled
"EMC Internet Solutions Proposal No. EM991007-3194-2 Application Hosting For
ZAP.COM" (the "Services").
2. Description of Equipment and Services. The Definitive Agreement
shall provide, among other things, a thorough and detailed description of the
Services, that EMC shall provide the Services in a professional and workman like
manner and that EMC shall indemnify ZAP.COM for the cost of identifying,
evaluating and migrating to another host, in the event EMC is unable to provide
the Services for any reason. The parties shall consider including language in
the Definitive Agreement which will give flexibility to both parties regarding
the reallocation, where possible, of hardware and software covered by the
Definitive Agreement to other projects between the parties which may arise in
the future.
3. Term The initial term of the Definitive Agreement shall be 12
months. The parties shall consider including language in the Definitive
Agreement which provides an option of extending the term of the Agreement in its
entirety or in part past 12 months.
4. Pricing. Provided that a Definitive Agreement is executed on or
before November 8, 1999, the Definitive Agreement shall provide the following
pricing for the Services:
<TABLE>
<CAPTION>
Description Price
----------- -----
<S> <C>
Service $[x] monthly
Plus Bandwidth $[x] per million users per month
CPU's $[x] per dual 400MHz cpu with 2GB RAM per month
</TABLE>
[X]=Certain information on these pages has been omitted and filed separately
with the commission. Confidential treatment has been requested with respect
to the omitted portion.
100 Meridian Centre - Suite 350 - Rochester, New York 14618 - 716/242-8600 - FAX
716/242/8677 - www.zap.com
<PAGE> 2
[zap.com Letterhead]
<TABLE>
<S> <C>
Ad serving (if implemented,
systems ready no sooner than
April 2000):
Minimal monthly price for
12 months (3 million or less
ads per day) $[X]/mos.
Charge per thousand ads (over
3 million/day) served of: $xxxx/thousand ads
</TABLE>
[X]=Certain information on these pages has been omitted and filed separately
with the commission. Confidential treatment has been requested with respect
to the omitted portion.
Under the Definitive Agreement, the first payment shall be due the last
day of the calendar month in which the Definitive Agreement is executed with
each subsequent monthly payment shall be due on the 30th day of each month
thereafter.
5. Other Terms, Etc.
In addition to the terms and conditions set forth herein, the
Definitive Agreement shall contain such other terms and conditions as are usual
and customary for the provision of services such as those contemplated
thereunder. Subject to the terms and conditions set forth herein, the Definitive
Agreement will be in form and content mutually satisfactory to the parties
6. Pre-Definitive Agreement Binding Terms & Conditions:
(a) Zap.com is hereby authorizing EMC to procure the necessary
hardware, software and other resources required to provide the Services to
Zap.com If, for any reason, a Definitive Agreement is not executed by the
parties, Zap.com agrees to reimburse EMC for all expenses reasonably incurred
and documented by EMC (including, but not limited to, the procurement of
hardware, software, personnel or other such expenses necessary for the support
of Zap.com as described above )up to a an aggregate maximum amount of $xxxxx
(the "Maximum Amount"). Until the Definitive Agreement is executed by ZAP.Com
and EMC, ZAP.COM shall have no liability whatsoever in excess of the Maximum
Amount. ZAP.COM's reimbursement and purchase obligation under this Section 6(a)
shall automatically terminate with no action or notice on the part of either
party upon the execution and delivery of the Definitive Agreement by both
parties.
In consideration for the payments made by ZAP.COM toEMC pursuant to
this paragraph 6(a) , EMC shall assign all right, title and interest in and to
all hardware, and other equipment or property acquired by EMC and for
ZAP.COM(collectively, the "Transferred Assets"). EMC shall convey good and valid
title to all such Transferred Assets, free and clear of any claims, liens or
encumbrances of any kind (including any restrictions on use) In addition,
ZAP.COM shall pay a cancellation fee equal to the first monthly payment due
October 31, 1999 to EMC in the event that a Definitive Agreement is not entered
into by the parties.
(b) In consideration of ZAP.COM's undertaking in paragraph 6(a), EMC
agrees to use its diligent and reasonable best efforts to procure the software,
equipment and resources necessary to fully implement the Services as soon as is
reasonably practicable.
7. Schedule Milestones.
<TABLE>
<S> <C>
Order letter signed October 18, 1999
Agreement Signing November 18, 1999
Begin launch of zap.com properties November 18, 1999
</TABLE>
100 Meridian Centre - Suite 350 - Rochester, New York 14618 - 716/242-8600 - FAX
716/242/8677 - www.zap.com
<PAGE> 3
[Zap.com Letterhead]
<TABLE>
<S> <C>
Equipment Available and on-line TBD
as evidenced by the on-line
functionality of all the equipment
defined in the Agreement
</TABLE>
8. Public Announcements.
EMC shall not make any public announcement of the transactions
contemplated hereby unless approved in writing as to content and timing in
advance by ZAP.COM
9. Miscellaneous.
This Letter of Intent and the Definitive Agreement shall both be
governed by New York law without reference to conflicts principles. This Letter
of Intent and the Proposal represent the entire agreement of the parties with
respect to the subject matter hereof and supersedes all prior and/or
contemporaneous agreements and understandings. This Letter of Intent may only be
modified or amended by a written agreement of the authorized representatives of
the parties hereto.
If the foregoing terms are acceptable to EMC, please confirm your
acceptance by having an authorized representative sign in the space that has
been provided below and returning the enclosed copy of this letter.
Very truly yours,
ZAP.COM CORPORATION
By: /s/ GAETANO GUGLIELMINO
-----------------------
Name: Gaetano Guglielmino
-------------------
Title: Director, Marketing & Sales
---------------------------
ACKNOWLEDGED AND AGREED TO
AS OF THE DATE OF THIS LETTER:
EMC Corporation
By: /s/ CHARLES LOEWY
-------------------
Name: Charles Loewy
Title: Director, Internet Solutions Group
100 Meridian Centre - Suite 350 - Rochester, New York 14618 - 716/242-8600 - FAX
716/242/8677 - www.zap.com
<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 October 25, 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, Louisana
October 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-02-1998
<PERIOD-END> JUL-31-1999
<CASH> 10,942
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,495
<PP&E> 40,871
<DEPRECIATION> 7,700
<TOTAL-ASSETS> 87,308
<CURRENT-LIABILITIES> 287,475
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> (922,323)
<TOTAL-LIABILITY-AND-EQUITY> 87,308
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 922,323
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> (922.31)
<EPS-DILUTED> (922.31)
</TABLE>
