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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1999
REGISTRATION NO. 333-76135
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
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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<PAGE> 2
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 SEPTEMBER 29, 1999
PROSPECTUS
[LOGO]
ZAP.COM CORPORATION
DISTRIBUTION OF 477,742 SHARES AND
RESALE OF 1,000,000 SHARES BY ZAPATA CORPORATION
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. We
are a wholly-owned subsidiary of Zapata Corporation. This prospectus relates to
the registration of the distribution by Zapata of 477,742 shares of our common
stock to Zapata stockholders of record as of , 1999 as a stock
dividend. This prospectus also relates to the resale of up to 1,000,000
outstanding shares of our common stock by Zapata.
Prior to the distribution, there has been no public market for our common
stock.
SHARES OUR COMMON STOCK INVOLVES SUBSTANTIAL RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
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................................................ 5
Special Note Regarding Forward-Looking Statements........... 21
The Distribution............................................ 21
Resale Offering By Zapata................................... 2
Use of Proceeds............................................. 23
Dividend Policy............................................. 23
Dilution....................................................
Capitalization.............................................. 24
Selected Financial Data..................................... 25
Management's Discussion and Analysis of Financial Condition
and
Results of Operations..................................... 26
Business.................................................... 30
Management.................................................. 43
Executive Compensation...................................... 44
Related Party Transactions.................................. 46
Security Ownership of ZAP.COM............................... 49
Description of Securities................................... 50
Shares Eligible for Future Sale............................. 54
Federal Income Tax Considerations........................... 56
Experts..................................................... 57
Legal Matters............................................... 57
Available Information....................................... 57
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. ZAP.COM is not making an offer to sell
these securities, or soliciting 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 any significant
assets or a network in place and we have not formally entered into any strategic
relationships other than with Auragen Communications, Inc., nor have we
generated any 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 expect to enter into
contracts for these services with several third parties prior to or shortly
following the distribution.
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
Immediately prior to the distribution, we will enter 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 will enter into with American
Internetwork Sports a Warrant Agreement which 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.
Prior to the distribution, we will enter into a services agreement with
Zapata under which Zapata will provide us with general administrative services.
The services agreement will also provide 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. Prior to the closing of the
distribution, we will also enter 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 ,1999. However, some
states may not allow Zapata to distribute our
shares without registration or qualification in
that particular state. Therefore, we have
reserved the right to pay those stockholders
cash in lieu of the stock dividend they would
have received but for those restrictions.
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 577,000
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.
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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? Following the distribution, we intend to apply
to a member of the National Association of
Securities Dealers to make a market in our
common stock and provide a quotation on the OTC
Electronic Bulletin Board maintained by the
NASD under the "ZAP". 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.
RESALE OFFERING BY ZAPATA
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.
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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 our
network established or any formal strategic relationships other than with
Auragen Communications, nor do we have any assets or 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.
We do not presently 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
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Network and to select sites that offer content which is attractive to potential
customers. We do not 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
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profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future.
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 the banner that we plan to use 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
The lack of an operating history makes it difficult for us to assess the
impact of seasonal factors of our business. We expect, however, that 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 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 denies us
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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. As of the date of this
prospectus, we have not entered into formal agreements with NetGravity. To the
extent that we are unable to reach formal agreements with NetGravity, or
material difficulties are encountered in bringing its 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
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termination of any of these relationships in the future after they have been
established could have the same effect and could impair our relationships with
customers and have a negative impact on our revenues. Further, if any of the
third-parties change their terms or terminate their relationships, we may need
to incur additional costs to replace those service providers and to bring the
new service providers up-to-date with our then current operations. Please see
"Business -- Operating Infrastructure and Technology Platform," and "-- Sales,
Marketing and Customer Service".
THE FAILURE OF COMPUTER SYSTEMS USED BY US OR THIRD PARTIES COULD HARM OUR
OPERATIONS AND REVENUES
The continuing and uninterrupted performance of computer systems used by
us, third parties performing services for us and 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 THE 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 display our
banner throughout these publishers'
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Web sites. We expect that the main form of consideration to be paid these
publishers 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 may make it difficult for us to raise
additional capital in the future or to raise capital on terms favorable to us.
In particular, potential investors may be unwilling to invest 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 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 with 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 the business model on which our business will be based. 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
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we do not succeed in attracting new employees with the appropriate experience
and skills or retaining and motivating our current and future employees, our
business could suffer significantly. Please see "Management".
INTERNATIONAL EXPANSION MAY IMPOSE ADDITIONAL COSTS ON US THAT WE MAY NOT BE
ABLE TO RECOVER
We may pursue in the future international operations and international
sales and marketing efforts. International operations have inherent risks,
including:
- changes in regulatory requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences;
- general import/export restrictions relating to encryption technology
and/or privacy;
- difficulties and costs of staffing and managing foreign operations;
- political and economic instability either domestically or
internationally;
- fluctuations in currency exchange rates; and
- seasonal reductions in business activity during the summer months in
Europe and in other parts of the world.
Each of these risks may impose additional costs on our business which we may not
be able to recover.
MANY OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES, LONGER OPERATING
HISTORIES, ESTABLISHED CUSTOMER BASES AND BROADER PRODUCT OFFERINGS
Our business is, and we believe will continue to be, intensely competitive.
Our initial competitors include DoubleClick, 24/7 Media, Flycast Communications
and other Internet advertising networks and providers of advertising inventory
management products and services. Other competitors include large and
established companies like Microsoft, America Online, @Home, Yahoo!, Excite,
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".
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OUR COMPUTER SYSTEMS, AND THE SYSTEMS OF OTHERS WE DEPEND ON, MAY NOT OPERATE
PROPERLY BECAUSE OF THE YEAR 2000 PROBLEMS
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with the Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
Significant uncertainty exists in the software industry concerning the potential
effects associated with these compliance issues. Additionally, the Internet
could face service disruptions arising from the Year 2000 problem.
We are taking actions to ensure that external suppliers and service
providers who we engage use systems that will be able to support our needs and,
where necessary, interoperate with hardware and software infrastructure that we
are acquiring in preparation for the Year 2000. We do not anticipate that any
these external suppliers or service providers will experience Year 2000 problems
which may result in unanticipated material costs to us. In addition, the 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.
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ON-LINE SECURITY BREACHES COULD HARM OUR REPUTATION, OUR ABILITY TO PURSUE
E-COMMERCE OPPORTUNITIES AND EXPOSE US TO LIABILITY
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. As we
establish e-commerce relationships, we plan to rely on encryption and
authentication technology licensed from third parties to provide the security
and authentication necessary to effect secure transmission of confidential
information over our network. It is possible that advances in computer
capabilities, new discoveries or other developments will result in a compromise
or breach of the algorithms that we select for this purpose. This could have a
material adverse effect on our business, including our reputation, and our
ability to secure and continue e-commerce relationships.
We may be required to expend significant capital and other resources to
protect against the threat of security breaches like this or to alleviate
problems caused by these breaches. The public's concern over the security of
Internet transactions and the privacy of users may also inhibit the growth of
the Web, especially as a means of conducting commercial transactions. To the
extent that our activities or those of third party contractors involve the
storage and transmission of proprietary information, like credit card numbers,
security breaches could expose us to a risk of loss or litigation and possible
liability. We can provide no assurance that our security measures will prevent
security breaches or that failure to prevent these 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 adopt to rapidly changing technologies, to adapt our
service offerings to evolving industry standards and to continually improve the
performance, features and reliability of our services in response to competitive
service offerings and the evolving demands of the marketplace on a timely and
cost-effective basis. In addition, the widespread adoption of new Internet,
networking or telecommunications technologies or other technological changes
could require us to incur substantial expenditures to modify or adapt our
services or infrastructure. We cannot assure you that we will be successful in
using new technologies effectively or adapting the ZAP.COM Network to customers,
network site participants or emerging industry standards. If we are unable to
adapt in a timely manner in response to changing market conditions or customer
requirements, our 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,
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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 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 was
determined by our board of directors and is not based on an independent
valuation of our business or 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 not be listed on a national
securities exchange, Nasdaq, or on the OTC Electronic Bulletin Board.
Management's strategy is to list the common stock on the OTC Electronic Bulletin
Board as soon as practicable. However, to date we have not solicited any
securities brokers to become market-makers of our common stock. We can provide
you no assurance that the market price of the common stock will not decline
below the initial public trading price. The initial public trading price will be
determined by market makers independent of us.
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 size of our network;
- announcements by third parties of significant claims or proceedings
against us;
- future sales or issuances of equity by us;
- change in the status of our intellectual property rights; and
- the operating and stock price performance of other comparable companies.
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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.
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 or otherwise. 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 "Security Ownership of ZAP.COM".
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".
In contemplation of the distribution, we will be entering into agreements
with Zapata, including the distribution agreement, the tax sharing and indemnity
agreement, the services agreement and the registration rights agreement for the
purpose of defining our on-going relationship with Zapata following the
distribution. 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.
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<PAGE> 22
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 intend to enter into a tax
sharing and indemnity agreement with Zapata prior to the consummation of the
distribution, if Zapata or members of its consolidated tax group (other than us
and our subsidiaries) fail to pay tax liabilities arising prior to the time that
we are no longer a member of Zapata's consolidated tax group, we could be
required to make payments in respect of these tax liabilities and these payments
could materially adversely affect our financial condition. Please see "Related
Party Transactions -- Tax Sharing and Indemnity Agreement."
BECAUSE WE DO NOT INTEND TO PAY ANY CASH DIVIDENDS ON OUR COMMON STOCK, HOLDERS
OF OUR COMMON STOCK WILL NOT BE ABLE TO RECEIVE A RETURN ON THEIR SHARES UNLESS
THEY SELL THEIR SHARES
We have paid no dividends on our common stock and we cannot assure you that
we will achieve sufficient earnings to pay cash dividends on our common stock in
the near future. Further, we intend to retain any future earnings to fund the
development and expansion of our operations. Therefore, we do not anticipate
paying any cash dividends on our common stock in the foreseeable future. Unless
we pay dividends, holders of our common stock will not be able to receive a
return on their shares unless they sell them. Please see "Dividends."
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 offering to 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
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<PAGE> 23
shares, Avram Glazer will own 50,200 shares and Zapata stockholders (other than
the Glazers) will own 269,834 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 the 1,000,000 shares registered under the registration
statement of which this prospectus forms a part or acquired by "affiliates" in
the distribution or the Glazers in the concurrent 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.
The registration statement of which this prospectus forms a part covers
1,000,000 shares of ZAP.COM common stock held by Zapata which may be sold from
time to time in the public market. In addition, immediately prior to the
distribution, ZAP.COM will grant to Zapata registration rights with respect to
its shares. These registration rights will 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 to be 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. We may also issue
from time to time shares of common stock in connection with promotions and other
events. We expect to file a shelf registration statements covering the issuance
and public resale of these shares. 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.
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<PAGE> 24
Following the concurrent offering to 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 1,450,000,000 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. 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 one share of ZAP.COM common stock for every 50 shares of Zapata
common stock held on , 1999, the record date for the distribution.
As of September 23, 1999, Zapata had 23,887,078 shares of common stock
outstanding. Using this figure, Zapata will distribute 477,742 shares in the
aggregate. All of the distributed shares will be fully paid and nonassessable
and the holders of those shares will not be entitled to preemptive rights. No
consideration will be paid to Zapata or us by Zapata stockholders for the
distributed shares. Following the distribution, our outstanding common stock
will be owned 98% by Zapata, 1.5% by the Glazers and 0.5% by the public.
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.
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<PAGE> 25
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;
- 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 account
statements reflecting ownership of ZAP.COM common stock to eligible Zapata
stockholders. Zapata stockholders may request stock certificates from the
distribution agent.
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.
RESALE OFFERING BY ZAPATA
An additional 1,000,000 outstanding shares of ZAP.COM common stock held by
Zapata have been registered for sale in the registrations statement of which
this prospectus forms a part. Zapata may sell these shares subsequent to the
consumation of the distribution if a current prospectus relating to these shares
is in effect and they are qualified for sale. We will not receive any proceeds
from the market sales by Zapata of these shares. We are paying all costs and
expenses of registering Zapata's shares which may be sold in market sales. Sales
of by Zapata of these shares or the potential of such sales could have an
adverse effect on the market price of our common stock. Please see "Risk
Factors -- 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."
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
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<PAGE> 26
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).
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 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.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of Zapata's shares covered by this prospectus may
not simultaneously engage in market making activities with respect to any
ZAP.COM securities for a period of at least two (and up to nine) business
prior to the commencement of the distribution. In addition, Zapata
will be 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.
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.
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USE OF PROCEEDS
We will not receive any proceeds from the distribution by Zapata of our
common stock to its stockholders or from the resale of our shares by Zapata. 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 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> 28
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)............... (922,313) 9,177,677
Total capitalization.............................. $(922,313) $ 9,177,677
</TABLE>
- ---------------
(1) Excludes 3,000,000 shares of common stock, which immediately prior to the
consummation of the distribution will be reserved for issuance under the
1999 Long-Term Incentive Plan, of which 577,000 shares will be 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 to be
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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<PAGE> 29
SELECTED FINANCIAL DATA
The selected financial data set forth below for the period from April 2,
1998 (date of inception) through July 31, 1999 are derived from our audited
financial statements. The audited balance sheet as of July 31, 1999 and the
related statements of operations, stockholder's deficit and cash flows and the
related notes thereto are included elsewhere in this prospectus. The following
information should be read in conjunction with "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>
PERIOD FROM
APRIL 2, 1998
(DATE OF INCEPTION)
THROUGH
JULY 31, 1999
-------------------
<S> <C>
Revenues.................................................... $ --
Expenses:
General and administrative(1)............................. 922,323
---------
Loss before income taxes.................................... 922,323
---------
Benefit from income taxes................................... --
---------
Net loss.................................................... $(922,323)
=========
Per share data (basic):
Net loss per share........................................ $(922,323)
=========
Average common shares and common share equivalents
outstanding............................................... 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
JULY 31, 1999
-------------
<S> <C>
Balance sheet data:
Total assets.............................................. $ 87,308
Total liabilities......................................... 1,009,621
Total stockholder's deficit............................... (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 an operating loss of approximately $922,000, 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. ZAP.COM does
not currently have any agreement, understanding or arrangement with any Web site
publishers to join the network. Please see "Risk Factors -- We Expect to Incur
Significant Expenses For Compensation Paid to Web Site Publishers For
Participating In Our Network."
In October 1999, ZAP.COM intends to grant options to purchase up to 577,000
shares of ZAP.COM common stock at $2.00 per share to persons who are or who,
immediately following the closing of the rights offering, will become ZAP.COM
executives or key employees, provided the distribution is successfully
completed. In addition, immediately prior to the closing of the distribution,
ZAP.COM intends to grant American Internetwork Sports stock warrants in
consideration for sports related consulting services for the purchase of up to
2,000,000 shares of ZAP.COM common stock at an $2.00 per share exercise price.
These options and warrants will generally vest ratably on an annual basis during
the first three years following their issuance and
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<PAGE> 31
will have five year terms. To the extent that these options and warrants have
positive fair value (as defined by Financial Accounting Standards No. 123
'Accounting for Stock Based Compensation"), ZAP.COM will incur non-cash charges
to net income. In the case of the options, the charge associated with the
options will be charged over the vesting period. In the case of the warrants,
the charge associated with the warrants may be charged over the term of the
consulting agreement between ZAP.COM and American Internetwork Sports pursuant
to which the warrants will be issued. ZAP.COM intends to use a fair value of
these options and warrants based on the initial five-day trading average of
ZAP.COM common following the consummation of the distribution, less a fifteen
percent liquidity discount.
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. We believe that our operating results since
inception are not meaningful and that the results for any period should not be
relied upon as an indication of future performance. 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 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 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 in
cash $8,000,000 for its ZAP.COM common stock 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.
As of September 15, 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 in cash
$1,100,000 for 550,000 shares of ZAP.COM common stock. ZAP.COM expects to use
the
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<PAGE> 32
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". 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. 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 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
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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 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 and
securing advertising customers; (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. This information is
available to ZAP.COM from two sources.
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 agreements to support its
home page content and functionality, similar to the agreement entered into with
Direct Hit.
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 software 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. We are currently negotiating a contract with NetGravity and expect
to enter into the agreement shortly after the consummation of the distribution,
although there can be no assurance that this will occur. If we do enter into an
agreement with NetGravity, we will need to locate a new technology platform and
partner to manage our banner space.
ZAP.COM currently owns two servers which are currently hosted by Qwest
Communications International Corporation. We are in the process of evaluating
the acquisition of additional components for our operating infrastructure. We
intend to acquire an infrastructure which provides timely and efficient delivery
of programming to the ZAP.COM Network.
We expect to enter into a facilities management and hardware support
agreement with a third party. ZAP.COM expects that the provider will offer
comprehensive facilities management services. The provider will also be expected
to ensure connectivity for ZAP.COM's two servers to the Internet. 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 performing services for our systems.
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 by NetGravity or our then technology partner
or hardware supporting 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.
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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 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 only contracted with Auragen Communications
which will assist in the design and implementation of our banner. 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. ZAP.COM may, although we cannot guarantee that it will, ultimately
acquire some of the firms with which it establishes strategic relationships and
partnerships.
EMPLOYEES
Effective upon the consummation of the distribution, ZAP.COM expects to
have four 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.
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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, 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
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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 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
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ZAP.COM will compete with current and future suppliers of Internet
navigational 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, Inc., CNET, Inc., CNN/Time
Warner, Inc., Excite, Inc., Infoseek Corporation, Lycos, Inc., Netscape
Communications Corporation , Microsoft Corporation and Yahoo! Inc. 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 DoubleClick, 24/7 Media and Flycast Communications Corporation.
ZAP.COM's business may also encounter competition from providers of advertising
inventory management products and related services, including NetGravity,
Accipiter and Adforce.
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 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. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and quality of
products and services. Any new legislation or regulation, or the application or
interpretation of existing laws, may decrease the growth in the use of the
Internet, which could in turn decrease the demand for ZAP.COM's service,
increase ZAP.COM's cost of doing business or otherwise have a material adverse
effect on ZAP.COM's 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
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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.
ZAP.COM's general liability insurance may not cover all potential claims to
which ZAP.COM is exposed and may not be adequate to indemnify ZAP.COM for all
liability that may be imposed. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could result in significant
expense and cash demands which would adversely affect operating results and
financial condition. Even to the extent that these claims do not result in
liability to ZAP.COM, ZAP.COM could incur significant costs in investigating 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 Federal Trade Commission is considering adopting
regulations regarding the collection and use of personal identifying information
obtained from individuals when accessing web sites.
Further, the FTC has begun investigations into the privacy practices of
companies that collect information on the Internet. One investigation resulted
in a consent decree 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
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largely unsettled, even in areas where there has been some legislative action.
ZAP.COM cannot be sure that violations of local laws or new laws will not be
alleged by one or more governments, ZAP.COM will not violate those laws or laws
will not be modified or ones enacted in the future. Any of these events could
materially adversely effect our revenues and growth prospects.
Internet Taxation. A number of legislative proposals have been made at the
federal, state and local level, and by various foreign governments, that would
impose additional taxes on the sale of goods and services over the Internet and
some states have taken measures to tax Internet-related activities. Although
Congress recently placed a three-year moratorium on state and local taxes on
Internet access or on discriminatory taxes on electronic commerce, existing
state or local laws were expressly excepted from this moratorium. Further, once
this moratorium is lifted, some type of federal and/or state taxes may be
imposed upon Internet commerce. This legislation, or other attempts at
regulating commerce over the Internet, may substantially 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 currently 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...................... 38 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 38, has served as the sole director and President and
Chief Executive Officer of ZAP.COM since its formation in April 1998. Mr. Glazer
also serves as Zapata's President and Chief Executive Officer. He has held these
positions since 1995. For more than five years prior to becoming Zapata's
President and Chief Executive Officer, Mr. Glazer was employed by, and worked on
behalf of, Malcolm I. Glazer and a number of entities owned and controlled by
Malcolm I. Glazer. He also serves as a director of Zapata, Specialty Equipment
Companies, Inc. (a food equipment manufacturer) and Viskase Corporation (f/k/a
Envirodyne Corporation) (a food packaging company) and is chairman of the board
and a director of Omega Protein Corporation (a marine protein company). He is 38
years of age.
Leonard DiSalvo, age 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
five 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 September
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 or for stock appreciation rights
exercisable for cash, in lieu of the option, 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 -- 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. The ZAP.COM Board currently plans in
October 1999 to approve 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 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.
Prior to the consummation of the distribution, Zapata and ZAP.COM intend to
enter into a number of agreements for the purpose of defining their continuing
relationship. These agreements are summarized below. Each of these agreements
have been negotiated in the context of a parent-subsidiary relationship and,
therefore, are 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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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. The registration rights agreement which
ZAP.COM and Zapata will enter into prior to the consummation of the distribution
will provide for ZAP.COM's grant of 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 will entitle 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 will also be able to 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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American Internetwork Sports Company, LLC
Immediately prior to the closing of the distribution, ZAP.COM will enter
into a Consulting Agreement with American Internetwork Sports Company, LLC to
provide ZAP.COM with corporate, business and marketing advice on sports related
aspects of ZAP.COM's business, involving 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
will enter 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.
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SECURITY OWNERSHIP OF ZAP.COM
The following table sets forth information known to ZAP.COM regarding
beneficial ownership of ZAP.COM common stock as of August 31, 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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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, which terms will expire at the second and
third annual stockholders' meeting occurring after the classified board becomes
effective. Commencing with the first annual meeting of stockholders occurring
after the classified board becomes effective, directors elected to succeed
directors whose terms then expire will be elected for a term of office to expire
at the third succeeding annual meeting of stockholders after their election,
with each director to hold office until 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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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 will attempt to have its common stock quoted 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 any broker-dealer will make a market in the common stock or, if so, that it
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. 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 one 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.
The registration statement of which this prospectus forms a part covers
1,000,000 shares of ZAP.COM common stock held by Zapata which may be sold from
time to time in the public market. In addition, ZAP.COM intends to enter into a
registration rights agreement with Zapata
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under which Zapata will have 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. In addition,
ZAP.COM may issue shares of common stock in connection with promotions and other
events. These shares will become available for resale at various dates in the
future. ZAP.COM expects in the future to file a registration statement covering
the issuance and resale of these shares. 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 shares 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.
57
<PAGE> 61
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, as determined using rules similar to
those contained in Section 246(c) of the Code, 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, any this excess would be
treated as gain on the subsequent sale or disposition of the stock for the
taxable year in which the extraordinary dividend is received. 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 for the 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.
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.
58
<PAGE> 62
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Cash Flows..................................... F-5
Statement of Changes in Stockholder's Deficit............... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of ZAP.COM Corporation
In our opinion, the accompanying balance sheet and related statements of
operations, 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 the results of
its operations and its cash flows for the 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 audit provides a reasonable basis
for the opinion expressed above.
As discussed in Note 3, Zapata Corporation, the shareholder of the Company
has committed to an equity contribution of $8,000,000 and to forgive up to
$1,000,000 in amounts owed to it by the Company.
PricewaterhouseCoopers LLP
September 24, 1999
New Orleans, Louisiana
F-2
<PAGE> 64
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
BALANCE SHEET
<TABLE>
<CAPTION>
JULY 31,
1999
------------
<S> <C>
ASSETS
ASSETS:
Current assets:
Cash and cash equivalents................................... $ 10,942
Prepaid expenses............................................ 35,495
---------
Total current assets...................................... 46,437
Property and equipment...................................... 40,871
---------
Total assets...................................... $ 87,308
=========
LIABILITIES AND STOCKHOLDER'S DEFICIT
LIABILITIES:
Current liabilities:
Due to related party........................................ $ 39,588
Accrued liabilities......................................... 287,475
---------
Total current liabilities................................. 327,063
Amounts due to stockholder and affiliates................... 682,558
---------
Total liabilities................................. 1,009,621
---------
COMMITMENTS & CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Common stock, no par value, 25,000 shares authorized,
1,000 shares issued and outstanding.................... 10
Deficit accumulated during the development stage.......... (922,323)
---------
Total stockholder's deficit....................... (922,313)
---------
Total liabilities and stockholder's deficit....... $ 87,308
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 65
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FROM APRIL 2, 1998 (DATE OF INCEPTION)
THROUGH JULY 31, 1999
--------------------------------------
<S> <C>
Revenues.................................................... $ --
Expenses:
General and administrative................................ 922,323
---------
922,323
---------
Loss before income taxes.................................... (922,323)
---------
Benefit from income taxes (Note 5).......................... --
---------
Net loss.................................................... $(922,323)
=========
Per share data (basic and diluted):
Net loss per share........................................ $ (922.32)
=========
Average common shares and common share equivalents
outstanding............................................ 1,000
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 66
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FROM (DATE OF
INCEPTION)
APRIL 2, 1998
THROUGH JULY 31, 1999
----------------------
<S> <C>
Cash flows used in operating activities:
Net loss.................................................. $(922,323)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 7,698
Changes in assets and liabilities
Prepaid expenses..................................... (35,495)
Accrued liabilities.................................. 287,475
---------
Total adjustments................................. 259,678
---------
Net cash used in operating activities................ (662,645)
---------
Cash flows used by investing activities
Capital additions......................................... (8,981)
---------
Net cash flows used by investing activities............ (8,981)
Cash flows provided by financing activities
Issuance of common stock.................................. 10
Amounts due to stockholder and affiliates................. 682,558
---------
Net cash flows provided by financing activities........... 682,568
---------
Net change in cash and cash equivalents..................... 10,942
Cash and cash equivalents at beginning of period............ --
---------
Cash and cash equivalents at end of period.................. $ 10,942
=========
Supplemental schedule of noncash investing activities
Transfer of equipment from related party.................. $ 39,588
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 67
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENT 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 ended July 31, 1999.... -- -- (922,323) (922,323)
----- --- --------- ---------
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> 68
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 577,000 shares of the Company's common stock, respectively intended to
be issued subsequent to July 31, 1999 had been issued
F-7
<PAGE> 69
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, the Company has accumulated a deficit during its development
stage of $922,323. 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. 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 $1,000,000 in intercompany
debt. As of July 31, 1999, the Company owed Zapata approximately $683,000.
F-8
<PAGE> 70
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 through July 31, 1999.
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.
Immediately following the distribution, the Company intends to grant
American Internetwork Sports Company, LLC ("American") 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 consulting expense to the extent that the warrants are
determined to have fair value, (as defined in SFAS No. 123, "Accounting for
Stock-Based Compensation") if any, at the date of grant or depending upon the
terms of the consulting agreement, defer these charges and recognize terms over
the life of the consulting agreement.
F-9
<PAGE> 71
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 September 1999, the Board
amended the 1999 Incentive Plan to fix the number of shares subject to the plan
at 3,000,000 shares. Subsequently, in October 1999 the Company intends to grant
new options to persons who are or will become key executives or key employees,
for the purchase of up to 577,000 shares of common stock at an exercise price of
$2.00 per share. The Company intends to record compensation expense based on a
fair value, if any of these options at the date of grant. The Company intends to
use a fair value of these options based on the initial five-day trading average
of the Company's common stock , less a 15% liquidity discount.
F-10
<PAGE> 72
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
ZAP.COM CORPORATION
DISTRIBUTION BY ZAPATA CORPORATION OF
477,742 SHARES OF ZAP.COM 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> 73
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..........................................
Information Agent Miscellaneous............................. 49,725
--------
Total............................................. $
========
</TABLE>
- ---------------
* To be filed by amendment.
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.
II-1
<PAGE> 74
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 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.
In October 1999, ZAP.COM intends to issue stock options to officers and
employees of ZAP.COM to purchase up to 577,000 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.
Immediately prior to consummation of the distribution, ZAP.COM expects to
issue 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 will be 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 Form of Warrant to be issued to American Internetwork Sports
Company, LLC
4.3 ZAP.COM 1999 Long-Term Incentive Plan
5.1 Opinion of Woods, Oviatt, Gilman, Sturman & Clarke LLP**
10.1 Form of Investment and Distribution Agreement between
ZAP.COM and Zapata
10.2 Form of Services Agreement between ZAP.COM and Zapata
10.3 Form of Tax Sharing and Indemnity Agreement between ZAP.COM
and Zapata
10.4 Form of Registration Rights Agreement between ZAP.COM and
Zapata
10.5 Form of Consulting Agreement between ZAP.COM and American
Internetwork Sports Company, LLC
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.
(b) No Financial Statements Schedules are filed a part of this registration
statement.
II-2
<PAGE> 75
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> 76
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 3 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Rochester, New
York, on September 28, 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. 2 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 September 28, 1999
- --------------------------------------------------- Directors, Director,
(Avram Glazer) Chief Executive Officer
and President
[insert signatures for new directors]
/s/ LEONARD DISALVO Vice President Finance, September 28, 1999
- --------------------------------------------------- Chief Financial Officer
(Leonard DiSalvo) and Principal Accounting
Officer
</TABLE>
II-4
<PAGE> 77
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.. Form of Warrant to be issued to American Internetwork Sports
Company, LLC
4.3 ZAP.COM 1999 Long-Term Incentive Plan
5.1 Opinion of Woods, Oviatt, Gilman, Sturman & Clarke LLP**
10.1 Form of Investment and Distribution Agreement between
ZAP.COM and Zapata
10.2 Form of Services Agreement between ZAP.COM and Zapata*
10.3 Form of Tax Sharing and Indemnity Agreement between ZAP.COM
and Zapata
10.4 Form of Registration Rights Agreement between ZAP.COM and
Zapata
10.5 Form of Consulting Agreement between ZAP.Com and American
Internetwork Sports Company, LLC
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 3.1
(FORM OF)
RESTATED ARTICLES OF INCORPORATION
OF
ZAP.COM CORPORATION
Pursuant to the provisions of Section 78.403 of the Nevada Revised
Statutes, ZAP.COM CORPORATION (the "Corporation") hereby adopts the following
Restated Articles of Incorporation.
ARTICLE I
NAME
The name of the corporation shall be ZAP.COM Corporation.
ARTICLE II
RESIDENT AGENT
The name and address of the Corporation's initial resident agent is
John P. Fowler, Marshall Hill Cassas & de Lipkau, 333 Holcomb Avenue, Suite 300,
Reno, Nevada 89502. The Corporation may, from time to time, in the manner
provided by law, change the resident agent and the registered office within the
State of Nevada. The Corporation may also maintain an office or offices for the
conduct of its business, either within or without the State of Nevada.
ARTICLE III
PURPOSE
The Corporation is organized for the purpose of engaging in any lawful
activity, within or without the State of Nevada.
ARTICLE IV
STOCK
<PAGE> 2
SECTION 4.01 AUTHORIZED CAPITAL STOCK. The total number of shares of
stock this Corporation is authorized to issue shall be 1,650,000,000 shares.
This stock shall be divided into two classes to be designated as "Common Stock"
and "Preferred Stock".
SECTION 4.02 COMMON STOCK. 1,500,000,000 shares of the authorized
stock, par value $0.001 per share, are designated Common Stock. The holder of
each share of Common Stock shall have one vote per share on all matters placed
before the stockholders.
SECTION 4.03 PREFERRED STOCK. 150,000,000 shares of the authorized
stock, par value $0.01 per share, are designated Preferred Stock. The Board of
Directors shall have the authority to authorize the issuance of the Preferred
Stock from time to time in one or more classes or series, and to state in the
resolution or resolutions from time to time adopted providing for the issuance
thereof the following:
(a) The number of shares to constitute the class or series and
the designation thereof;
(b) The preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations, or
restrictions thereof, if any, with respect to any class or series;
(c) Whether or not the shares of any class or series shall be
redeemable and if redeemable the redemption price or prices, and the time or
times at which, and the terms and conditions upon which, such shares shall be
redeemable and the manner of redemption;
-2-
<PAGE> 3
(d) Whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and if such retirement or
sinking funds be established, the annual amount thereof and the terms and
provisions relative to the operation thereof;
(e) The dividend rate, whether dividends are payable in cash,
stock of the Corporation, or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the relation to the
payment of dividends payable on any other class or classes or series of stock,
whether or not such dividends shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;
(f) The preferences, if any, and the amounts thereof which the
holders of any class or series thereof are entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of, the Corporation;
(g) Whether or not the shares of any class or series is
convertible into, or exchangeable for, the shares of any other class or classes
or of any other series of the same or any other class or classes of stock of the
Corporation and the conversion price or prices or ratio or ratios or the rate or
rates at which such exchange may be made, with such adjustments, if any, as
shall be stated and expressed or provided for in such resolution or resolutions;
(h) Whether or not the holders of shares of each class or
series of Preferred Stock have voting rights for the election or removal of
directors or for any
-3-
<PAGE> 4
other purpose and upon which circumstances any or all voting rights shall be
exercised or exercisable;
(i) Such other rights and provisions with respect to any class
or series as may to the Board of Directors seem advisable.
The shares of each class or series of the Preferred Stock may
vary from the shares of any other class or series thereof in any respect. The
Board of Directors may increase the number of shares of the Preferred Stock
designated for any existing class or series by a resolution adding to such class
or series authorized and unissued shares of the Preferred Stock not designated
for any other class or series. The Board of Directors may decrease the number of
shares of the Preferred Stock designated for any existing class or series of the
Preferred Stock and the shares so subtracted shall become authorized and
unissued shares of the Preferred Stock.
<PAGE> 5
ARTICLE V
DIRECTORS AND INCORPORATORS
SECTION 5.01 GOVERNING BOARD OF DIRECTORS. The governing board shall be
styled "Board of Directors" and the first Board of Directors shall consist of
one director. The number of directors may at any time or times be increased or
-10-
<PAGE> 6
decreased to a maximum number of twelve (12) as provided in the By-Laws,
provided that after the initial Board of Directors expands the size of the Board
of Directors to three (3) directors or more, the Board of Directors shall
thereafter consist of no less than three (3) directors.
SECTION 5.02 INITIAL NUMBER OF DIRECTORS. The names and post office
addresses of the members of the first Board of Directors, which shall be one (1)
in number, is as follows:
Avram Glazer
80 Ambassador
Rochester, New York 14610
Subject to Section 5.03, this individual shall serve as a director
until the first annual meeting of stockholders or until his successor is
elected and qualified.
SECTION 5.03 CLASSIFICATION OF DIRECTORS. On the first date (the
"Classification Date") that the size of the Board of Directors is increased in
size to three (3) or more directors, the directors shall be divided into three
classes, designated Class I, Class II and Class III. Each Class shall consist,
as nearly as possible, of one-third of the total number of directors
constituting the entire Board of Directors. The Corporation's initial director
shall determine the Class for each director after being elected to the Board. At
each succeeding annual meeting of stockholders following the classification of
the directors, successors to the class of directors whose term expires at that
annual meeting shall be elected for a term of office expiring at the third
succeeding annual meeting of stockholders after their election. The Class I
directors shall stand for election at the first annual meeting of Stockholders
following the Classification Date, the Class II directors shall stand for
-11-
<PAGE> 7
election at the second succeeding annual stockholders meeting following the
Classification Date and the Class III directors shall stand for election at the
third succeeding annual Stockholders meeting following the Classification Date.
If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such Class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting for
the year in which his term expires and until his successor is elected and
qualifies, subject, however, to the prior death, resignation, retirement,
disqualification or removal from office.
SECTION 5.04 VACANCIES. Except as otherwise provided in a Certificate
of Designation setting forth the rights of the holders of any class or series of
Preferred Stock, any vacancy on the Board of Directors that results from the
death, resignation, retirement, disqualification or removal from office of any
director, an increase in the number of directors, or any other reason may be
filled by a majority of the Board of Directors then in office, or by a sole
remaining director. Vacancies shall not be filled by a vote or written consent
of the stockholders. Any director elected to fill a vacancy not resulting from
an increase in the number of directors shall have the same remaining term as
that of his predecessor.
SECTION 5.05. CLASSIFICATION IF PREFERRED STOCKHOLDERS ELECT DIRECTORS.
Notwithstanding the foregoing, whenever the holders of any one or more classes
or
-12-
<PAGE> 8
series of Preferred Stock issued by the Corporation have the right, voting
separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of these
Restated Articles or an amendment to these Restated Articles applicable thereto,
or the terms of a Certificate of Designation of the Preferred Stock filed with
the Nevada Secretary of State applicable thereto, and such directors so elected
shall not be divided into classes pursuant to this Article V unless expressly
provided by such terms.
SECTION 5.06 NOTICE OF NOMINATIONS. Advance notice of stockholder
nominations for the election of directors and the proposal of business by
stockholders shall be given in the manner provided in the By-Laws, as amended
and in effect from time to time.
SECTION 5.07 INCORPORATOR. The name and post office address of the
incorporator signing these Articles of Incorporation is as follows:
John P. Fowler
Marshall Hill Cassas & de Lipkau
333 Holcomb Avenue, Suite 300
Reno, Nevada 89502
ARTICLE VI
STATUTES NOT APPLICABLE
The provisions of Nevada Revised Statutes 78.411 through 78.444,
inclusive, regarding combinations with interested stockholders, shall not be
applicable to this Corporation.
ARTICLE VII
STOCKHOLDER VOTING
-13-
<PAGE> 9
SECTION 7.01 WRITTEN CONSENT. During any period of time in which
Zapata, is not the beneficial owner of Common Stock and Preferred Stock which
entitle it to cast more than fifty percent (50%) of the votes entitled to be
cast in the election of directors ("Voting Stock Majority"), no action required
or permitted to be taken at a meeting of the stockholders of this Corporation
shall be taken by written consent of the stockholders.
SECTION 7.02 CALLING SPECIAL MEETING. Subject to all the rights of
holders of any class or series of stock having a preference over Common Stock as
to dividends or upon dissolution liquidation or winding up of the Corporation,
special meetings of the Board of Directors or stockholders may only be called
only by the Chairman of the Board or by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors and
no holder of Common Stock shall be entitled to call a meeting of the
stockholders, expect as provided in Section 7.03.
SECTION 7.03 CALLING MEETINGS AT REQUEST OF ZAPATA. At any time during
which Zapata and its affiliates own at least a Voting Stock Majority, the
officers of this Corporation shall call a meeting of the stockholders upon the
written request of Zapata and no other stockholder shall at any time have any
right to call a meeting of stockholders.
ARTICLE VIII
DIRECTORS' AND OFFICERS' LIABILITY
No director or officer of the Corporation shall be personally liable to
the Corporation or any of its stockholders for damages for breach of fiduciary
duty as a director or officer involving any act or omission of any such director
or officer.
-14-
<PAGE> 10
However, the foregoing provision shall not eliminate or limit the
liability of a director or officer for (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or (ii) the payment
of dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any
repeal or modification of this Article by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation for acts or
omissions prior to such repeal or modification.
ARTICLE IX
INDEMNITY
SECTION 9.01 RIGHT TO INDEMNITY. Subject to any restrictions set forth
in the By-Laws of this Corporation, every person who was or is a party, or is
threatened to be made party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or a person of whom he is the legal representative is or was a director
or officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the laws of the State of Nevada from time to time against all expenses,
liability and loss (including attorneys' fees, judgments, fines and amounts paid
or to be paid in settlement) reasonably incurred or suffered by him in
connection therewith. Such right of indemnification shall be a contract right
which may be enforced in any manner desired by such person. Such right of
indemnification shall not be exclusive of any other right which such directors,
officers or representatives may have or hereafter acquire, and, without limiting
the
-15-
<PAGE> 11
generality of such statement, they shall be entitled to their respective rights
of indemnification under any by-law, agreement, vote of stockholders, provision
of law or otherwise, as well as their rights under this Article.
SECTION 9.02 EXPENSES ADVANCED. Subject to any restrictions set forth
in the By-Laws of this Corporation, expenses of directors and officers incurred
in defending a civil or criminal action, suit or proceeding by reason of any act
or omission of such director or officer acting as a director or officer shall be
paid by the Corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of any undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the Corporation.
SECTION 9.03 BY-LAWS; INSURANCE. Without limiting the application of
the foregoing, the Board of Directors may adopt by-laws from time to time with
respect to indemnification, to provide at all times the fullest indemnification
permitted by the laws of the State of Nevada, to limit the right of
indemnification, and may cause the Corporation to purchase and maintain
insurance or make other financial arrangements on behalf of any person who is or
was a director or officer of the Corporation as a director or officer of another
corporation, or as its representative in a partnership, joint venture, trust or
other enterprise against any liability asserted against such person and incurred
in any such capacity or arising out of such status, to the fullest extent
permitted by the laws of the State of Nevada, whether or not the Corporation
would have the power to indemnify such person.
-16-
<PAGE> 12
The indemnification and advancement of expenses provided in this
Article shall continue for a person who has ceased to be a director, officer,
employee or agent, and inures to the benefit of the heirs, executors and
administrators of such a person.
ARTICLE X
AMENDMENT OF CERTAIN ARTICLES AND BYLAWS
Notwithstanding any other provision of these Restated Articles, an
amendment thereto, a resolution of the Board of Directors or a Certificate of
Designation of the rights, powers, limitations, preferences, restrictions and
relative rights of any class or series of stock filed with the Nevada Secretary
of State, or the By-Laws of this Corporation in effect from time to time, the
affirmative vote of holders of two-thirds of the voting power of the capital
stock shall be required to amend, alter, change or repeal Article V, Article VII
or Article XI of these Restated Articles and amend, alter, change or repeal any
By-Law relating to the following subject matters: stockholder action without a
meeting; the calling of special stockholder meetings; notices of stockholder
meetings; the number election and term of the Corporation's directors; the
filling of vacancies in the Board of Directors; and the removal of directors.
Neither the directors nor the stockholders shall promulgate By-Laws inconsistent
with these Restated Articles and any and all such inconsistent By-Laws shall be
null and void.
Executed this ____ day of _______________, 1999.
---------------------------
Avram Glazer,
President and CEO
-17-
<PAGE> 13
STATE OF NEW YORK )
COUNTY OF MONROE ) ss:
This instrument was acknowledged before me on ______, 1999 by
Avram Glazer as President and Chief Executive Officer of ZAP.com Corporation, a
Nevada Corporation.
------------------------------
Notary Public
-18-
<PAGE> 1
Exhibit 4.1
TEMPORARY CERTIFICATE -- EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE
WHEN READY FOR DELIVERY.
NUMBER [LOGO] SHARES
ZAP.COM CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
THIS CERTIFICATE IS TRANSFERABLE IN NEW YORK, NY
COMMON STOCK SEE REVERSE FOR CERTAIN COMMON STOCK DEFINITIONS
AND RESTRICTIVE LEGEND CUSIP NO.
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE, $.001 PER SHARE OF THE
COMMON STOCK OF
ZAP.COM CORPORATION
(hereinafter called the "Corporation") transferable on the books of the
Corporation by said holder in person or by duly authorized attorney upon
surrender of this certificate properly endorsed. This certificate and the shares
represented hereby are issued and shall be held subject to all the provisions of
the Restated Articles of Incorporation and Amended and Restated By-Laws and all
amendments thereto, copies of which are on file at the office of the Transfer
Agent, and the holder hereof, by acceptance of this certificate, consents to and
agrees to be bound by all of said provisions. This certificate is not valid
until countersigned by the Transfer Agent and registered by the Registrar.
In Witness Whereof, the Corporation has caused this certificate to be
signed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Corporation.
DATED
[Signature] [SEAL] [Signature]
SECRETARY PRESIDENT AND CHIEF EXECUTIVE
OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, NY) TRANSFER AGENT AND REGISTRAR
AUTHORIZED SIGNATURE
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<PAGE> 2
<TABLE>
<S> <C>
TEN COM - as tenants in common
TEN ENT - - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of survivorship and not
as tenants
UNIF GIFT MIN ACT - Custodian under Uniform Gifts to Minors in common
Act ___________________ (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE:
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
SHARES OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ___________________________________
X _______________________________
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE
WHATEVER.
X _______________________________
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE
WHATEVER.
ZAP.COM CORPORATION
READ CAREFULLY
ZAP.COM Corporation (the "Corporation") will furnish to any stockholder, upon
request and without charge, a full statement of the designation, relative
rights, preferences and limitations of the shares of each class of stock
authorized to be issued and the designation, relative rights, preferences and
limitations of each series of Preferred Stock so far as the same have been
fixed, and the authority of the Board of Directors to designate and fix the
relative rights, preferences and limitations of other series. Any such request
may be addressed to the Corporation or to the Transfer Agent.
<PAGE> 3
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED
OR DESTROYED THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE> 1
Exhibit 4.2
THE SECURITIES REPRESENTED BY THIS WARRANT AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS, AND MAY NOT
BE SOLD OR OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND APPLICABLE
STATE SECURITIES LAWS UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE
SUCH TRANSACTION.
WARRANT AGREEMENT
To Purchase 2,000,000 Shares of Common Stock
Dated as of ___________, 1999
ZAP.COM CORPORATION
a Nevada Corporation
Issue Date: ____________, 1999
THIS CERTIFIES THAT, AMERICAN INTERNETWORK SPORTS COMPANY, LLC
("American Internetwork"), with a place of business at One Buccaneer Place,
Tampa, Florida, for value received, is entitled, upon the terms and subject to
the conditions of this Warrant Agreement (the "Warrant Agreement"), to warrants
granting the right to subscribe for and purchase fully-paid and non-assessable
shares of common stock, par value $.001 per share (the "Common Stock"), of
ZAP.COM Corporation, a Nevada corporation (the "Company"). The Company has
entered into this Warrant Agreement pursuant to a Consulting Agreement of even
date herewith (the "Consulting Agreement") between the Company and the Warrant
Holder (defined below).
1. ISSUANCE OF WARRANTS. On the Issue Date, the Company will issue to
American Internetwork or its designees (each a "Warrant Holder") warrants (the
"Warrants") to acquire 2,000,000 shares of the Common Stock (the "Shares") on
the terms and conditions set forth herein.
2. EXERCISE PRICE. The Warrants shall have an exercise price of $____
per share of Common Stock, as adjusted pursuant to the provisions of Section 8
of this Warrant Agreement (the "Exercise Price").
3. VESTING AND TERM.
(a) Except as otherwise provided for herein, the term of the
Warrants and the right to purchase Shares as granted herein shall vest in the
following manner: (i) Warrants for one-third of the Shares will vest on the
first anniversary of the Issue Date, (ii) Warrants for an additional one-third
of the Shares will vest on the second anniversary of the
<PAGE> 2
Issue Date and (iii) Warrants for an additional one-third of the Shares will
vest on the third anniversary of the Issue Date. Notwithstanding the foregoing,
all the Warrants shall automatically vest and become immediately exercisable (i)
upon the occurrence of a "Change of Control" occurs or (ii) if the Company
terminates the Consulting Agreement without Cause (as defined in the Consulting
Agreement).
As used herein, a "Change in Control" means the
occurrence of any one of the following events:
(i) any person or entity other than Zapata
Corporation or any affiliate (as defined in Rule 12b-2 promulgated under Section
12 of the Securities Exchange Act of 1934) of Zapata Corporation (including
Malcolm Glazer or any entity controlled by him) is or becomes the beneficial
owner (as defined in Section 13d-3 of the Securities Exchange Act of 1934),
directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such person any securities acquired directly
from the Company or any of its affiliates) representing thirty-five percent
(35%) or more of the combined voting power of the Company's then outstanding
voting securities;
(ii) the following individuals cease for any reason
to constitute a majority of the number of directors then serving: individuals
who, on the Issue Date, constitute the Company's Board of Directors (the
"Board") and any new director (other than a director whose initial assumption of
office is in connection with an actual or threatened election contest,
including, but not limited to, a consent solicitation, relating to the election
of directors of the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was approved or
recommended by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors on the Issue Date or whose appointment,
election or nomination for election was previously so approved or recommended;
(iii) there is consummated a merger or consolidation
of the Company or any direct or indirect subsidiary of the Company with any
other corporation, other than (A) a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) more than fifty
percent (50%) of the combined voting power of the voting securities of the
Company or such surviving or parent entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person,
directly or indirectly, acquired thirty-five percent (35%) or more of the
combined voting power of the Company's then outstanding securities (not
including in the securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates); or
(iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or there is consummated an agreement for
the sale or disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect), other than a sale
or disposition by the Company of all
2
<PAGE> 3
or substantially all of the Company's assets to an entity, at least fifty
percent (50%) of the combined voting power of the voting securities of which are
owned by stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale.
(b) Unless this Warrant Agreement and the Warrants are earlier
terminated pursuant to Section 9, Vested Warrants may be exercised at any time
and from time to time up to 5:00 p.m., Eastern Standard Time, on the fifth
anniversary of the Issue Date (the "Expiration Date"), provided the Company has,
prior to any such exercise, completed an initial public offering of shares of
Common Stock pursuant to an effective registration statement under the
Securities Act of1933, as amended (an "IPO"); provided, however, that if the
Company has not completed an IPO within thirty (30) days prior to such
Expiration Date, then the term of the Warrants shall be extended for an
additional and the exercise thereof shall be extended for a period of nine (9)
months from the completion date of the IPO.
4. EXERCISE OF WARRANTS.
(a) Exercise. The Warrants and the purchase rights represented
thereby are exercisable by the Warrant Holder, in whole or in part, at any time
after they vest until 5:00 p.m., Eastern Standard Time, on the Expiration Date
in accordance with the procedures set forth in Section 4(b) below. Upon receipt
of the items required under Section 4(b) and the Warrant Holder's fulfillment of
the other terms of Section 4(b), the Company shall issue to the Warrant Holder a
certificate for the number of shares of Common Stock purchased. The Warrant
Holder, upon exercise of the Warrants, shall be deemed to have become the holder
of the Shares represented thereby (and such Shares shall be deemed to have been
issued) immediately prior to the close of business on the date or dates upon
which the Warrants are exercised. In the event of any exercise of the rights
represented by the Warrants, certificates for the Shares so purchased shall be
delivered to the Warrant Holder as soon as practical and in any event within ten
(10) business days after receipt of such notice and, unless the Warrants have
been fully exercised or expired, new Warrants representing the remaining portion
of the Warrants and the underlying Shares, if any, with respect to which this
Warrant Agreement shall not then have been exercised shall also be issued to the
Warrant Holder as soon as possible and in any event within such ten (10) day
period.
(b) Method of Exercise. The Warrants may be exercised, at the
election of the Warrant Holder, by the tender of the Notice of Exercise in the
form attached hereto as Exhibit A (the "Notice of Exercise") and the surrender
of the Warrants at the principal office of the Company and by the payment to the
Company, by check, cancellation of indebtedness or other form of payment
acceptable to the Company, of an amount equal to the then applicable Exercise
Price per share multiplied by the number of Shares then being purchased.
Notwithstanding any provisions herein to the contrary, if the fair market value
of one share of the Company's Common Stock is greater than the Exercise Price
(at the date
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<PAGE> 4
of calculation as set forth below), in lieu of exercising the Warrants for cash,
the Warrant Holder may elect to receive Shares equal to the value (as determined
below) of the Warrants (or portion thereof being canceled) by surrender of the
Warrants at the principal office of the Company together with the duly executed
Notice of Exercise in which event the Company shall issue to the Warrant Holder
a number of shares of the Common Stock computed using the following formula:
X= Y (A-B)
------
A
WHERE X= the number of shares of Common Stock to be issued to the
Warrant Holder;
Y= the number of shares of the Common Stock purchasable under the
Warrants or, if only a portion of the Warrants is being exercised, the
portion of the Warrants being canceled (at the date of such
calculation);
A= the fair market value of one share of the Company's Common Stock (at
the date of such calculation); and
B= Exercise Price (at the date of such calculation).
For purposes of this Section 4(b), fair market value means, with respect to
Common Stock, Awards or other property, as of a particular date, (i) if the
Common Stock is listed on a national securities exchange, the closing sales
price per share of Common Stock on the consolidated transaction reporting system
for the principal such national securities exchange on that date, or, if there
shall have been no such sale so reported on that date, on the last preceding
date on which such a sale was so reported, (ii) if the Common Stock is not so
listed, but is quoted in the Nasdaq National Market System, the closing sales
price per share of Common Stock on the Nasdaq National Market System on that
date, or, if there shall have been no such sale so reported on that date, on the
last preceding date on which such a sale was so reported, (iii) if the Common
Stock is not so listed or quoted, the mean between the closing bid and asked
price on that date, or, if there are no quotations available for such date, on
the last preceding date on which such quotations shall be available, as reported
by Nasdaq, or, if not reported by Nasdaq, by the National Quotation Bureau,
Inc., (iv) if the date on which shares of Common Stock are first issued and sold
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission, the Initial Public Offering price of the
shares so issued and sold, as set forth in the first final prospectus used in
such offering and (v) if such date is prior to the date of the IPO, the price
shall be as determined by the Board to be the fair market value.
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<PAGE> 5
5. RESERVATION OF SHARES. The Company will at all times have authorized
and reserved a sufficient number of shares of Common Stock to provide for the
exercise of the rights to purchase the Shares represented by the Warrants as
provided in this Warrant Agreement. All of the Shares shall be duly authorized
and, when issued upon such exercise, shall be validly issued, fully paid and
nonassessable, and free and clear of all preemptive rights.
6. NO FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the Warrant.
7. NO RIGHTS AS STOCKHOLDER. Neither the Warrants nor this Warrant
Agreement shall entitle the Warrant Holder to any voting rights or other rights
as a stockholder of the Company prior to the exercise of the Warrant.
8. ADJUSTMENT RIGHTS. The Exercise Price and the number of shares of
Common Stock purchasable under the Warrants issued hereunder are subject to
adjustment from time to time, as follows:
(a) Merger. If at any time there shall be a merger or
consolidation of the Company with or into another corporation when the Company
is not the surviving corporation, then, as part of such merger or consolidation,
lawful provision shall be made so that the Warrant Holder shall thereafter be
entitled to receive upon exercise of the Warrants, during the period specified
herein and upon payment of the aggregate Exercise Price due therefor, the number
of shares of stock or other securities or property of the successor corporation
resulting from such merger or consolidation, to which a holder of the stock
deliverable upon exercise of the Warrants issued pursuant to this Warrant
Agreement would have been entitled in such merger or consolidation if such
Warrants had been exercised immediately before such merger or consolidation. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and interests of
the Warrant Holder after the merger or consolidation. The Company will not
effect any such merger or consolidation unless, prior to the consummation
thereof, the successor corporation shall assume, by written instrument
reasonably satisfactory in form and substance to the Warrant Holder, the
obligations of the Company under the Warrants and this Warrant Agreement.
(b) Reclassification, Etc. If the Company at any time shall,
by subdivision, combination or reclassification of securities or otherwise,
change any of the securities which may then be purchased under the Warrants into
the same or a different number of securities of any other class or classes, then
the Warrants shall thereafter represent the right to acquire such number and
kind of securities as would have been issuable as the result of such change with
respect to the securities which were subject to the Warrants immediately prior
to such subdivision, combination, reclassification or other change.
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<PAGE> 6
(c) Split, Subdivision or Combination of Shares. If the
Company at any time shall split or subdivide its Common Stock, the Exercise
Price shall be proportionately decreased and the number of Shares issuable
pursuant to the Warrants shall be proportionately increased. If the Company at
any time shall combine or reverse split its Common Stock, the Exercise Price
shall be proportionately increased and the number of Shares issuable pursuant to
the Warrants shall be proportionately decreased. The adjustment shall be such as
will give the Warrant Holder upon exercise for the same aggregate Exercise Price
the total number, class and kind of shares as the Warrant Holder would have
owned had the Warrants been exercised prior to the event and had the Warrant
Holder continued to hold such shares until after the event requiring adjustment
under this Section 8(c).
(d) Stock Dividends. If the Company at any time shall pay a
dividend payable in Common Stock, then the Exercise Price shall be adjusted,
from and after the date of determination of stockholders entitled to receive
such dividend, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend and (ii) the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
after such dividend. The Warrants shall thereafter entitle their respective
holders to purchase, at the Exercise Price resulting from such adjustment, the
number of shares of Common Stock (calculated to the nearest whole share)
obtained by multiplying (x) the Exercise Price in effect immediately prior to
such adjustment by (y) the number of shares of Common Stock issuable upon the
exercise hereof immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
(e) Other Changes. If any change in the outstanding Common
Stock or any other event occurs as to which the other provisions of this Section
8 are not strictly applicable or if strictly applicable, would not fairly
protect the purchase rights of the Warrant Holder in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number of and class of shares available under the Warrants, the Exercise
Price or the application of such provisions, so all adjustments shall be made so
that the holders of the Warrant shall not be adversely affected by such
transaction. The adjustment shall be such as will give the Warrant Holder upon
exercise for the same aggregate Exercise Price the total number, class and kind
of shares as the Warrant Holder would have owned had the Warrants been exercised
prior to the event and had the Warrant Holder continued to hold such shares
until after the event requiring adjustment.
(f) Notice of Adjustments; Notices. Whenever the Exercise
Price or number or kind of securities purchasable under the Warrants shall be
adjusted pursuant to Section 8 hereof, the Company shall issue a certificate
signed by its Chief Executive Officer President or Chief Financial Officer
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was
6
<PAGE> 7
calculated and the Exercise Price and the kind and number of securities
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first class mail, postage prepaid) to
the Warrant Holder. The Company shall give written notice to the Warrant Holder
at least ten (10) business days prior to the date on which the Company closes
its books or takes a record for determining rights to receive any dividends or
distributions. The Company shall also give written notice to the Warrant Holder
at least thirty (30) business days prior to the date on which a merger or
consolidation of the Company with or into another corporation when the Company
is not the surviving corporation shall take place.
(g) No Change of Warrant Necessary. Irrespective of any
adjustment in the Exercise Price or in the number or kind of securities issuable
upon exercise of the Warrants, unless the Warrant Holder otherwise requests, the
Warrants and this Warrant Agreement may continue to express the same price and
number and kind of shares of Common Stock as are stated in this Warrant
Agreement as initially executed.
9. TERMINATION. In the event that the Company terminates the Consulting
Agreement for Cause, then the Company may terminate this Warrant Agreement and
all Warrants immediately and by written notice to the Warrant Holder. Concurrent
with any such termination by the Company this Warrant Agreement, and all
unexercised Warrants issued hereunder, shall automatically terminate, be
canceled and of no further force and effect.
10. REDEMPTION. The Warrants represented by this Warrant Agreement are
not redeemable by the Company at any time.
11. COMPLIANCE WITH SECURITIES ACT; TRANSFERABILITY OF WARRANT AND
SHARES.
(a) Compliance with Securities Act. The Warrant Holder, by
acceptance hereof, agrees that the Warrants, and the securities to be issued
upon exercise of the Warrants, are being acquired for investment and that such
Warrant Holder will not offer, sell or otherwise dispose of the Warrants or any
securities to be issued upon exercise of the Warrants except under circumstances
which will not result in a violation of the Securities Act of 1933, as amended
(the "Securities Act"), or any applicable state securities laws. The Warrants
and all securities issued upon exercise of the Warrants (unless registered
under) the Securities Act and any applicable state securities laws) shall be
stamped or imprinted with a legend in substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD OR
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS
7
<PAGE> 8
SUCH REGISTRATION IS NOT REQUIRED TO EFFECTUATE SUCH TRANSACTION, AND
IF REASONABLY REQUESTED BY THE COMPANY, THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL TO THAT EFFECT."
(b) Transfer. Subject to the provisions of the Securities Act
and any applicable state securities laws, the Warrants and any related rights
hereunder may be sold, transferred, pledged or otherwise disposed of, in whole
or in part, to any person. Any transfer or sale or attempted transfer or sale of
rights under this Warrant Agreement or any of the Warrants in violation of any
provision of this Agreement shall be void, and the Company shall not record such
transfer on its books or treat any purported transferee of the Warrant as the
owner of the Warrant or any other rights related to this Agreement for any
purpose.
(c) Exchange, Transfer, Assignment or Loss of Warrants. The
Warrants cannot be exchanged, transferred or assigned otherwise than in
accordance with the provisions of this Agreement. If the provisions of this
Agreement are complied with, upon surrender of the Warrants to the Company with
the Assignment Form annexed hereto as Exhibit B duly executed, and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and issue a new Warrant in the name of the heir, devisee or assignee named in
such instrument of assignment and the assigned Warrant shall promptly be
canceled.
12. RESTRICTED SECURITIES. The Warrant Holder understands that the
Warrants hereunder are exempt pursuant to Section 4(2) of the Securities Act
based on the representations of the Warrant Holder set forth herein. The Warrant
Holder also understands that if the securities issued pursuant to the exercise
of Warrants have not been registered under the Securities Act as of their issue,
they will be issued pursuant to the same exemption. The Warrant Holder
represents that it is experienced in evaluating companies such as the Company,
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment and has the ability
to suffer the total loss of the investment. The Warrant Holder further
represents that it has had the opportunity to ask questions of and receive
answers from the Company concerning the terms and conditions of this Agreement,
the Warrants the shares, the business of the Company, and to obtain additional
information to such Warrant Holder's satisfaction. The Warrant Holder is an
"Accredited Investor" within the meaning of Rule 501 of Regulation D under the
Securities Act, as presently in effect.
13. REGISTRATION ON FORM S-8. The Company shall register with the
Securities and Exchange Commission all securities issuable under the Warrants to
an individual. The registration shall be made under a registration statement on
Form S-8 filed by it under the Securities Act. The Company shall register such
securities no later than during the first anniversary of the Issue Date and
shall take such action as is necessary to maintain the
8
<PAGE> 9
effectiveness of such registration statement and a current prospectus relating
thereto as long as portion of the Warrants remain exercisable.
14. MISCELLANEOUS.
(a) No Consequential Damages. No party hereto shall be
entitled to consequential damages as a result of any breach of a covenant,
representation or warranty contained herein.
(b) Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service or personal delivery:
(i) if to the Company, to:
ZAP.COM Corporation
100 Meridian Centre
Suite 390
Rochester, New York 14618
(ii) if to the Warrant Holder, to:
AMERICAN INTERNETWORK SPORTS COMPANY, LLC
One Buccaneer Place
Tampa, Florida 33607
All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) business days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
(c) Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the Warrant Holder
and the Company and their respective successors and permitted assigns. No
person, other than the Warrant Holder and the Company and their respective
successors and permitted assigns, is intended to be a beneficiary of this
Agreement.
(d) Amendment and Waiver.
(i) No failure or delay on the part of the Company,
or the Warrant Holder in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies
9
<PAGE> 10
that may be available to the Company and the Warrant Holder at law, in equity or
otherwise.
(ii) Any amendment, supplement or modification of or
to any provision of this Warrant Agreement, any waiver of any provision of this
Warrant Agreement, and any consent to any departure by the Company or the
Warrant Holder from the terms of any provision of this Agreement, shall be
effective only if it is made or given in writing and signed by the Company and
the Warrant Holder.
(e) Counterparts. This Warrant Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(f) Headings. The headings in this Warrant Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. This Warrant Agreement shall be governed by
and construed in accordance with the laws of the State of Nevada, without regard
to the principles of conflicts of law of any jurisdiction.
(h) Venue. Any action or proceeding involving the parties
hereto shall be adjudicated in a court located in Monroe County, New York. The
parties hereto hereby irrevocably consent to the jurisdiction and venue of such
courts.
(i) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
(j) Entire Agreement. The Consulting Agreement, this Warrant
Agreement and the Warrants and exhibits and schedules hereto is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of he subject matter contained herein. This Warrant Agreement and the
Warrants, together with the exhibits and schedules hereto, supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(k) Charges; Taxes and Expenses. Issuance of certificates for
securities upon the exercise of the Warrants shall be made without charge to the
Warrant Holder for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company.
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<PAGE> 11
(l) Saturdays, Sundays, Holidays, Etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a Saturday, Sunday or a legal holiday.
(m) Lost Warrants. The Company covenants to the Warrant Holder
that, upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant Agreement and, in the
case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation,
upon surrender and cancellation of the last Warrant on this Warrant Agreement,
the Company will make and deliver a new Warrant or Warrant Agreement, as
applicable, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
document.
(n) Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any governmental authority or
any other person, and otherwise fulfilling, or causing the fulfillment of, the
various obligations made herein, as may be reasonably required or desirable to
carry out or to perform the provisions of this Warrant Agreement and to
consummate and make effective as promptly as possible the transactions
contemplated by this Warrant Agreement.
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed and
delivered by the authorized individuals of each of the undersigned.
ZAP.COM CORPORATION
By:
Name: Leonard DiSalvo
Title: Vice President
AMERICAN INTERNETWORK SPORTS
COMPANY, LLC
By:
Name:
Title: An Authorized Member
11
<PAGE> 12
EXHIBIT A
NOTICE OF EXERCISE
To: ZAP.COM Corporation
1. The undersigned hereby elects to purchase __________ shares of the
Common Stock of ZAP.COM Corporation in accordance with the Warrants issued
pursuant to the Warrant Agreement, dated as of _______, 1999, by and between
ZAP.COM Corporation and the undersigned, and tenders herewith payment of the
purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned.
By:
(Print Name of Signatory)
Date:
<PAGE> 13
EXHIBIT B
ASSIGNMENT FORM
TO: ZAP.COM Corporation
The undersigned hereby assigns and transfers unto
__________________________ of ______________________________ (please typewrite
or print in block letters) the right to purchase ____________ shares of the
common stock of ZAP.COM Corporation subject to the Warrant Agreement, dated as
of ________, 1999, by and between ZAP.COM Corporation and American Internetwork
Sports Company, LLC (the "Warrant Agreement").
This assignment complies with the provisions of Section 10(c) of the
Warrant Agreement and is accompanied by funds sufficient to pay all applicable
transfer taxes.
By:
(Print Name of Signatory)
Date:
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<PAGE> 1
Exhibit 4.3
1999 LONG-TERM INCENTIVE PLAN
OF
ZAP.COM CORPORATION
1. OBJECTIVE. The objective of the 1999 Long-Term Incentive Plan (the
"Plan") of ZAP.COM Corporation, a Nevada corporation ("ZAP.COM"), is to advance
the interests of ZAP.COM and its stockholders by providing a means to attract
and retain officers and other key employees to ZAP.COM and its Subsidiaries
(hereinafter defined) and to reward the performance of officers, other
employees, consultants and directors for fulfilling their responsibilities for
long-range achievements. These objectives are to be accomplished by making
awards under the Plan to Participants (as hereinafter defined) that provide them
with a proprietary interest in the growth and performance of ZAP.COM and its
Subsidiaries.
2. DEFINITIONS. As used herein, the terms set forth below shall have
the meanings ascribed thereto below:
"Affiliate" means an affiliate of ZAP.COM as defined in Rule
12b-2 promulgated under Section 12 of the Exchange Act.
"Award" means the grant of any form of stock option, stock
appreciation right, stock award, cash award or other rights or interests,
whether granted singly, in combination or in tandem, by ZAP.COM to a Participant
under this Plan.
"Award Agreement" means any written agreement, contract,
notice or other instrument or document evidencing an Award.
"Board" means the Board of Directors of ZAP.COM.
"Change of Control" means the occurrence of any one of the
following events:
(a) any person or entity other than Zapata or any
affiliate of Zapata (including Malcolm Glaze or any entity controlled by him)
is or becomes the beneficial owner (as defined in Section 13d-3 of the
Securities Exchange Act of 1934), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such person any
securities acquired directly from the Company or any of its affiliates (as
defined in SEC Rule 12b-2)) representing thirty-five percent (35%) or more of
the combined voting power of the Company's then outstanding voting securities;
<PAGE> 2
(b) the following individuals cease for any reason to
constitute a majority of the number of directors then serving: individuals who,
on the effective date of this Plan (the "Effective Date"), constitute the
Company's Board of Directors (the "Board") and any new Director (other than a
director whose initial assumption of office is in connection with an actual or
threatened election contest, including, but not limited to, a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the Company's
stockholders was approved or recommended by a vote of at least two-thirds (2/3)
of the Directors then still in office who either were directors on the Effective
Date or whose appointment, election or nomination for election was previously so
approved or recommended;
(c) there is consummated a merger or consolidation of
the Company or any direct or indirect subsidiary of the Company with any other
corporation, other than (i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving or parent entity) more than fifty
percent (50%) of the combined voting power of the voting securities of the
Company or such surviving or parent entity outstanding immediately after such
merger or consolidation or (ii) a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in which no person,
directly or indirectly, acquired thirty-five percent (35%) or more of the
combined voting power of the Company's then outstanding securities (not
including in the securities beneficially owned by such person any securities
acquired directly from the Company or its affiliates); or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or there is consummated an agreement for the
sale or disposition by the Company of all or substantially all of the Company's
assets (or any transaction having a similar effect), other than a sale or
disposition by the Company of all or substantially all of the Company's assets
to an entity, at least fifty percent (50%) of the combined voting power of the
voting securities of which are owned by stockholders of the Company in
substantially the same proportions as their ownership of the Company immediately
prior to such sale.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time. References to any provision of the Code shall be deemed to
include regulations thereunder and successor provisions and regulations thereto.
"Committee" means the Board until a committee is appointed by
the Board to administer the Plan, in which case, the composition of the
committee shall at all times satisfy the provisions of Section 162(m) of the
Code.
"Common Stock" means the common stock, par value $.001 per
share, of ZAP.COM.
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<PAGE> 3
"Director" means an individual serving as a member of the
Board.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act shall
be deemed to include rules thereunder and successor provisions and rules
thereto.
"Fair Market Value" means, with respect to Common Stock,
Awards or other property, as of a particular date, (i) if the Common Stock is
listed on a national securities exchange, the closing sales price per share of
Common Stock on the consolidated transaction reporting system for the principal
such national securities exchange on that date, or, if there shall have been no
such sale so reported on that date, on the last preceding date on which such a
sale was so reported, (ii) if the Common Stock is not so listed, but is quoted
in the Nasdaq National Market System, the closing sales price per share of
Common Stock on the Nasdaq National Market System on that date, or, if there
shall have been no such sale so reported on that date, on the last preceding
date on which such a sale was so reported, (iii) if the Common Stock is not so
listed or quoted, the mean between the closing bid and asked price on that date,
or, if there are no quotations available for such date, on the last preceding
date on which such quotations shall be available, as reported by Nasdaq, or, if
not reported by Nasdaq, by the National Quotation Bureau, Inc., and (iv) if such
date is on a date prior to the date on which shares of Common Stock are
distributed by Zapata to its stockholders pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission, the
price determined by the Board in good faith to be the fair market value.
"Incentive Stock Option" or "ISO" means an option that is
intended to be and is designated as an "incentive stock option" within the
meaning of Section 422 of the Code, or any successor provision.
"Initial Public Offering" means the consummation of the
distribution of shares of Common Stock made by Zapata to the holders of common
stock of Zapata, as more fully described in the preliminary prospectus contained
within the Amendment No. 3 to the Registration Statement, filed by ZAP.COM with
the Securities and Exchange Commission on or about September 29, 1999, as such
Registration Statement may thereafter be amended from time to time.
"Participant" means any eligible person described in Section 3
of the Plan to whom an Award has been made under this Plan and his or her
successors, heirs, executors and administrators, as the case may be.
"Pricing Date" means the date on which an Award consisting of
an option or stock appreciation right is granted, except that the Committee may
provided that (i) the
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<PAGE> 4
Pricing Date is the date on which the recipient is hired or promoted (or similar
event), if the grant of the option or stock appreciation right occurs not more
than 90 days after the date of such hiring, promotion or other event, and (ii)
if an Award consisting of an option or stock appreciation right is granted in
tandem with or in substitution for an outstanding option or stock appreciation
right, the Pricing Date is the date of grant of such outstanding option or stock
appreciation right.
"Subsidiary" means any corporation of which ZAP.COM directly
or indirectly owns shares representing more than 50% of the voting power of all
classes or series of capital stock of such corporation which have the right to
vote generally on matters submitted to a vote of the stockholders of such
corporation.
"Zapata" means Zapata Corporation, a Nevada corporation, which
prior to the Effective Date owns all of the Company's outstanding capital stock.
3. ELIGIBILITY. Executive officers and other employees of ZAP.COM, its
parent or any of its Subsidiaries, including any officer or member of the Board
who is also such an employee, and persons who provide consulting or other
services to ZAP.COM deemed by the Board to be of substantial value to ZAP.COM,
and non-employee Directors are eligible to be granted Awards under the Plan. In
addition, persons who have been offered employment by ZAP.COM or its
Subsidiaries, and persons employed by an entity that the Board reasonably
expects to become a Subsidiary of ZAP.COM, are eligible to be granted an Award
under the Plan.
4. STOCK SUBJECT TO THE PLAN.
(a) The total amount of Common Stock that may be subject to
outstanding Awards shall not exceed three million (3,000,000) shares of common
stock.
(b) If an Award valued by referenced to Common Stock may only
be settled in cash, the number of shares to which such Award relates shall be
deemed to be Common Stock subject to such Award for purposes of this Section 4.
Any shares of Common Stock delivered pursuant to an Award may consist, in whole
or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market for a Participant's account.
(c) Except as provided in an Award Agreement, in the event
that the Committee shall determine that any dividend or other distribution
(whether in the form of cash, stock or other property), recapitalization, Common
Stock split, reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase or share exchange, or other similar corporate
transaction or event, affects the Common Stock such that an adjustment is
appropriate in order to prevent dilution or enlargement of the rights of
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holders of Awards under the Plan, then the Committee shall make such equitable
changes or adjustments as it deems necessary or appropriate to any or all of (i)
the number and kind of shares of Common Stock or other property (including cash)
that may thereafter be issued in connection with Awards, (ii) the number and
kind of shares of Common Stock or other property (including cash) issued or
issuable in respect of outstanding Awards, (iii) the exercise price, grant price
or purchase price relating to any Award; provided that, with respect to
Incentive Stock Options, such adjustment shall be made in accordance with
Section 424(h) of the Code, (iv) any performance goals and (v) the individual
limitations applicable to Awards.
5. ADMINISTRATION. This Plan shall be administered by the Committee,
which shall have full and exclusive power to interpret this Plan and to adopt
such rules, regulations and guidelines and taking such actions as necessary for
carrying out this Plan as it may deem necessary or proper. Unless otherwise
provided in an Award Agreement with respect to a particular award, the Committee
may, in its discretion, provide for the extension of the exercisability of an
Award, accelerate the vesting or exercisability of an Award, eliminate or make
less restrictive any restrictions contained in an Award, waive any restriction
or other provision of this Plan or an Award or otherwise amend or modify an
Award in any manner that is either (i) not adverse to the Participant holding
such Award or (ii) consented to by such Participant. The Committee may correct
any defect or supply any omission or reconcile any inconsistency in this Plan or
in any Award in the manner and to the extent the Committee deems necessary or
desirable to carry it into effect. References in this Plan to "permitted by the
Committee" and words of similar import refer to authorization contained in the
original Award Agreement or an amendment thereto or to other action by the
Committee, whether of general or limited applicability or in connection with a
particular exercise, Award payment or other event. Any decision of the Committee
in the interpretation and administration of this Plan shall lie within its sole
and absolute discretion and shall be final, conclusive and binding on all
parties concerned. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee.
Each member of the Committee shall be entitled, in good faith,
to rely or act upon any report or other information furnished to him by any
officer or other employee of ZAP.COM or any Subsidiary, ZAP.COM's independent
certified public accountants or any executive compensation consultant, legal
counsel or other professional retained by ZAP.COM or the Committee to assist in
the administration of the Plan. No member of the Committee nor officer or
employee of ZAP.COM to whom it has delegated authority in accordance with the
provisions of Section 6 of this Plan, shall be liable for anything done or
omitted to be done by him or her, by any member of the Committee or by any
officer of ZAP.COM in connection with the performance of any duties under this
Plan, except for his or her own willful misconduct or as expressly provided by
statute. ZAP.COM shall indemnify (to the extent permitted under Nevada law) and
hold harmless each member of the Committee and each other director or employee
of ZAP.COM to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against
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<PAGE> 6
any cost or expense (including counsel fees) or liability (including any amount
paid in settlement of a claim with the approval of the Committee) arising out of
any action, omission or determination relating to the Plan, unless, in either
case, such action, omission or determination was taken or made by such member,
director or employee without good faith or the reasonable belief that it was in
the best interests of ZAP.COM.
6. DELEGATION OF AUTHORITY. The Committee may delegate to the Chief
Executive Officer and to other senior officers of ZAP.COM its duties under this
Plan pursuant to such conditions or limitations as the Committee may establish,
except that the Committee may not delegate to any person the authority to grant
Awards to, or take other action with respect to, Participants who are subject to
Section 16 of the Exchange Act.
7. AWARDS. The Committee shall select persons to whom Awards may be
granted, determine the type or types of Awards to be made to each Participant
under this Plan, determine the number of Awards to be granted and the number of
shares of Common Stock to which an Award will relate and determine all other
terms, conditions, restrictions and conditions, including achievement of
specific business objectives, increases in specified indices, attaining
specified growth rates and other comparable measurements of performance goals,
if any. Each Award made hereunder shall be embodied in an Award Agreement, which
shall contain such terms, conditions and limitations as shall be determined by
the Committee, in its sole discretion and consistent with the provisions hereof,
and shall be signed by the Participant and by the Chief Executive Officer, the
President or any Vice President of ZAP.COM for and on behalf of ZAP.COM. Award
Agreements and the forms contained therein need not be identical for each
Participant. By accepting an Award, a Participant thereby agrees that the Award
shall be subject to all of the terms and provisions of the Plan and the
applicable Award Agreement. Awards may consist of those listed in this Section
7. Awards may be made in combination or in tandem with, in replacement of, or as
alternatives to, Awards under this Plan or any other employee plan of ZAP.COM or
any of its Subsidiaries, including any incentive or similar plan of any acquired
entity, or reload options automatically granted to offset specified exercises of
options. The Committee shall determine the time or times at which an option may
be exercised, in whole or in part, the method by which the exercise price may be
paid or deemed to be paid, the form of such payment, including, without
limitation, cash, Common Stock or other Awards or awards granted under other
ZAP.COM plans or other property (including notes or other contractual
obligations of Participants to make payment on a deferred basis, such as through
"cashless exercise" arrangements, to the extent permitted by applicable law),
and the methods by which Common Stock will be delivered or be deemed to be
delivered to Participants. 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 that
to the extent that the acceleration of vesting or any payment made to a
Participant under this Plan in the event of a Change of Control of ZAP.COM is
subject to federal income, excise, or other tax at a rate above the rate
ordinarily applicable to like payments paid in the ordinary course of business
("Penalty Tax"), whether as a result of the provisions of Sections 28OG
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and 4999 of the Code, any similar or analogous provisions of any statute adopted
subsequent to the date hereof, or otherwise, then ZAP.COM shall be obligated to
pay such Participant an additional amount of cash (the "Additional Amount") such
that the net amount received by such Participant, after paying any applicable
Penalty Tax and any federal or state income tax on such Additional Amount, shall
be equal to the amount that such Participant would have received if such Penalty
Tax were not applicable.
(a) Stock Option. An Award may consist of an option to
purchase a specified number of shares of Common Stock at a specified exercise
price that is not less than the greater of (i) the Fair Market Value of the
Common Stock on the Pricing Date and (ii) the par value of the Common Stock. The
number of shares and exercise price shall be specified by the Committee. A stock
option may be in the form of an ISO which, in addition to being subject to
applicable terms, conditions and limitations established by the Committee, shall
comply with the requirement that no ISO shall be granted with an exercise price
less than 100% (110% for an individual described in Section 422(b)(6) of the
Code) of the Fair Market Value of a share of Common Stock on the date of the
grant and granted no more than ten (10) years after the effective date of the
Plan. Anything in the plan to the contrary notwithstanding, no term of the Plan
relating to ISOs shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be exercised, so as to qualify
either the Plan or any ISO under Section 422 of the Code unless so requested by
the affected Participant. Each option shall be clearly identified in the
applicable Award Agreement as either an ISO or a non-qualified option.
(b) Stock Appreciation Right. An Award may consist of a right
to receive a payment, in cash or Common Stock, equal to the excess of the Fair
Market Value or other specified valuation of a specified number of shares of
Common Stock on the date the stock appreciation right ("SAR") is exercised over
a specified strike price determined by the Committee that shall be set forth in
the applicable Award Agreement. The Committee shall determine the time or times
at which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method by
which Common Stock will be delivered or be deemed to be delivered to
Participants, whether or not the SAR will be in tandem with any other Award and
any other terms and conditions of any SAR.
(c) Stock Award. An Award may consist of Common Stock or may
be denominated in units of Common Stock. All or part of any Award may be subject
to restrictions on transfer and other restrictions and conditions established by
the Committee and set forth in the Award Agreement, which may include, but is
not limited to, continuous service with ZAP.COM and/or its Subsidiaries. Such
Awards may be based on Fair Market Value or other valuations determined by the
Committee. The certificates evidencing shares of Common Stock issued in
connection with an Award shall contain appropriate legends and restrictions
describing the terms and conditions applicable thereto, ZAP.COM may retain
physical possession of the certificates and the Participant shall have delivered
a stock power to ZAP.COM, endorsed in blank, relating to the Common Stock.
Except to the
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extent restricted under the terms of the Plan and any Award Agreement relating
to the Award, a Participant granted an Award shall have all of the rights of a
stockholder, including, without limitation, the right to vote Common Stock
issued as an Award or the right to receive dividends thereon.
(d) Cash Award. An Award may be denominated in cash with the
amount of the eventual payment subject to future service and such other
restrictions and conditions as may be established by the Committee, and set
forth in the Award Agreement, including, but not limited to, continuous service
with ZAP.COM and its Subsidiaries.
(e) Other Stock-Based Awards. The Committee is authorized,
subject to limitations under applicable law, to grant such other Awards that may
be denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Common Stock and factors that may influence
the value of Common Stock, as deemed by the Committee to be consistent with the
purposes of the Plan, including, without limitation, convertible or exchangeable
debt securities, other rights convertible or exchangeable into Common Stock,
purchase rights for Common Stock, Awards with value and payment contingent upon
performance of ZAP.COM or any other factors designated by the Committee and
Awards valued by reference to the book value of Common Stock or the value of
securities of or the performance of specified Subsidiaries ("Other Stock Based
Awards"). The Committee shall determine the terms and conditions of such Awards.
Stock issued pursuant to an Award in the nature of a purchase right granted
under this Section 7(e) shall be purchased for such consideration, paid for at
such times, by such methods and in such forms, including, without limitation,
cash, Common Stock, other Awards or other property, as the Committee shall
determine.
(f) Loan Provisions. With consent of the Committee, and
subject at all times to, and only to the extent, if any, permitted under and in
accordance with, laws and regulations and other binding obligations or
provisions applicable to ZAP.COM, ZAP.COM may make, guarantee or arrange for a
loan or loans to a Participant with respect to the exercise of any option or
other payment in connection with any Award, including the payment by a
Participant of any or all federal, state or local income or other taxes due in
connection with any Award. Subject to such limitations, the Committee shall have
full authority to decide whether to make a loan or loans hereunder and to
determine the amount, terms and provisions of any such loan or loans, including
the interest rate to be charged in respect of any such loan or loans, whether
the loan or loans are to be paid with or without recourse against the borrower,
the terms on which the loan is to be repaid and conditions, if any, under which
the loan or loans may be forgiven.
(g) Performance-Based Awards. The Committee may, in its
discretion, designate any Award the exercisability or settlement of which is
subject to the achievement of performance conditions as a performance-based
Award subject to this Section 7(g), in order to qualify such Award as "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. The performance objectives
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for an Award subject to this Section 7(g) shall consist of one or more business
criteria, as specified by the Committee, but subject to this Section 7(g).
Performance objectives shall be objective and shall otherwise meet the
requirements of Section 162(m)(4)(C) of the Code. The levels of performance
required with respect to such business criteria may be expressed in absolute or
relative levels. Achievement of performance objectives with respect to such
Awards shall be measured over a period of not less than one (1) year nor more
than five (5) years, as the Committee may specify. Performance objectives may
differ for such Awards to different Participants. The Committee shall specify
the weighting to be given to each performance objective for purposes of
determining the final amount payable with respect to any such Award. The
Committee may, in its discretion, reduce the amount of a payout otherwise to be
made in connection with an Award subject to this Section 7(g), but may not
exercise discretion to increase such amount, and the Committee may consider
other performance criteria in exercising such discretion. All determinations by
the Committee as to the achievement of performance objectives shall be in
writing. The Committee may not delegate any responsibility with respect to an
Award subject to this Section 7(g).
(h) Acceleration Upon a Change of Control. Notwithstanding
anything contained herein to the contrary, all conditions and/or restrictions
relating to the continued performance of services and/or the achievement of
performance objectives with respect to the exercisability or full enjoyment of
an Award shall immediately lapse upon a Change in Control, provided, however,
that such lapse shall not occur if (i) it is intended that the transaction
constituting such Change in Control be accounted for as a pooling of interests
under Accounting Principles Board Option No. 16 (or any successor thereto), and
operation of this Section 7(h) would otherwise violate Paragraph 47(c) thereof,
or (ii) the Committee, in its discretion, determines that such lapse shall not
occur, provided, further, that the Committee shall not have the discretion
granted in clause (ii) if it is intended that the transaction constituting such
Change in Control be accounted for as a pooling of interests under Accounting
Principles Board No. 16 (or any successor thereto), and such discretion would
otherwise violate Paragraph 47(c) thereof.
8. PAYMENT OF AWARDS.
(a) General. Payment required to be made by ZAP.COM pursuant
to Awards may be made in the form of cash or Common Stock or combinations
thereof and may include such restrictions as the Committee shall determine,
including in the case of Common Stock, restrictions on transfer and forfeiture
provisions.
(b) Deferral. With the approval of the Committee, payments may
be deferred, either in the form of installments or a future lump sum payment.
The Committee may permit selected Participants to elect to defer payments of
some or all types of Awards in accordance with procedures established by the
Committee. Any deferred payment, whether elected by the Participant or specified
by the Award Agreement or by the Committee, may be forfeited if and to the
extent that the Award Agreement so provides.
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<PAGE> 10
(c) Dividends and Interest. Dividends or dividend equivalent
rights may be extended to and made part of any Award denominated in Common Stock
or units of Common Stock, subject to such terms, conditions and restrictions as
the Committee may establish. Dividend equivalent rights may be awarded on a
free-standing basis or in connection with another Award. The Committee may
provide that dividend equivalent rights shall be paid or distributed when
accrued or shall be deemed to be reinvested in additional Common Stock, Awards
or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify. The
Committee may establish rules and procedures for the crediting of interest on
deferred cash payments and dividend equivalents for deferred payment denominated
in Common Stock or units of Common Stock.
(d) Substitution of Awards. At the discretion of the
Committee, a Participant may be offered an election to substitute an Award for
another Award or Awards of the same or different type.
9. TAX WITHHOLDING. ZAP.COM shall have the right to deduct applicable
taxes from any Award payment and withhold, at the time of delivery or vesting of
cash or shares of Common Stock under this Plan, or from payroll or other
payments to the Participant, an appropriate amount of cash or number of shares
of Common Stock or a combination thereof for payment of taxes required by law or
to take such other action as may be necessary in the opinion of the Committee to
satisfy all obligations for withholding of such taxes. The Committee may also
permit withholding to be satisfied by the transfer to ZAP.COM of shares of
Common Stock theretofore owned by the holder of the Award with respect to which
withholding is required. If shares of Common Stock are used to satisfy tax
withholding, such shares shall be valued based on the Fair Market Value when the
tax withholding is required to be made.
10. EMPLOYMENT, TERMINATION, ETC.
(a) Nothing contained in the Plan or any Award Agreement shall
confer upon any Participant any right with respect to the continuation of
employment or engagement by ZAP.COM or any of its Subsidiaries or interfere in
any way with the right of ZAP.COM or any of its Subsidiaries, subject to the
terms of any separate agreement to the contrary, at any time to terminate such
employment or service or to increase or decrease the compensation of the
Participant.
(b) No person shall have any claim or right to receive an
Award hereunder or require the Committee to make an Award at any time to any
Participant. The Committee's grant of an Award to a Participant at any time
shall neither require the Committee to grant any other Award to such Participant
or other person at any time or preclude the Committee from making subsequent
grants to such Participant or any other person.
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(c) Upon the termination of employment or engagement of a
Participant, any unexercised, deferred or unpaid Awards shall be treated as
provided in the specific Award Agreement evidencing the Award. In the event of
such a termination, the Committee may, in its discretion, provide for the
extension of the exercisability of an Award, accelerate the vesting or
exercisability of an Award, eliminate or make less restrictive any restrictions
contained in an Award, waive any restriction or other provision of this Plan or
an Award or otherwise amend or modify the Award in any manner that is either (i)
not adverse to such Participant or (ii) consented to by such Participant.
11. AMENDMENT, MODIFICATION, SUSPENSION OR TERMINATION. The Board may
amend, modify, suspend, discontinue or terminate this Plan at any time for the
purpose of meeting or addressing any changes in legal requirements or for any
other purpose permitted by law except that (a) no amendment or alteration that
would impair the rights of any Participant under any Award previously granted to
such Participant shall be made without such Participant's consent and (b) no
amendment or alteration shall be effective prior to approval by ZAP.COM's
stockholders if and to the extent the Board determines that such approval is
appropriate for purposes of satisfying Section 162(m) or 422 of the Code or is
otherwise required by law or applicable stock exchange requirements. Awards may
be granted under the Plan prior to the receipt of such approval. The Board may
also modify, suspend, terminate, discontinue or limit the power and authority of
the Committee at any time. Except as required in Section 11(b) hereunder, unless
the Board determines otherwise, no stockholder approval shall be required before
any action taken by the Board pursuant to this Section 11 is effective. Nothing
herein shall restrict the Committee's ability to exercise its discretionary
authority pursuant to Section 5 which discretion may be exercised without
amendment to the Plan.
12. TRANSFER AND ASSIGNMENT.
(a) Awards and other rights under the Plan will not be
transferable by a Participant except by will or the laws of descent and
distribution or to a Beneficiary in the event of a Participant's death. Awards
shall not be pledged, mortgaged, hypothecated or otherwise encumbered, or
otherwise subject to the claims of creditors, and, in the case of ISOs and SARs
in tandem therewith, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative; provided,
however, that such Awards and other rights (other than ISOs or SARs in tandem
therewith) may be transferred to one or more Beneficiaries during the lifetime
of the Participant to the extent and on such terms as then may be permitted by
the Committee.
(b) Upon the death of a Participant, outstanding Awards
granted to such Participant may be exercised only by the executor or
administrator of the Participant's estate or by a person who shall have acquired
the right to such exercise by will or by the laws of descent and distribution.
No transfer of an Award by will or the laws of descent and distribution shall be
effective to bind ZAP.COM unless the Committee shall have been
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furnished with (i) written notice thereof and with a copy of the will and/or
such evidence as the Committee may deem necessary to establish the validity of
the transfer and (ii) an agreement by the transferee to comply with all of the
terms and conditions of the Award that are or would have been applicable to the
Participant and to be bound by the acknowledgements made by the Participant in
connection with the grant of the Award.
13. ZAP.COM'S RIGHT TO ENGAGE IN CERTAIN TRANSACTIONS. The existence of
this Plan or outstanding Awards shall not affect in any manner the right or
power of ZAP.COM or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the capital
stock of ZAP.COM or its business or any merger or consolidation of ZAP.COM, or
any issue of bonds, debentures, preferred or prior preference stock (whether or
not such issue is prior to, on a parity with or junior to the Common Stock) or
the dissolution or liquidation of ZAP.COM, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding of any
kind, whether or not of a character similar to that of the acts or proceedings
enumerated above.
14. SECURITIES LAWS.
(a) Notwithstanding anything herein to the contrary, ZAP.COM
shall not be obligated to cause to be issued or delivered any certificates
evidencing Common Stock pursuant to the Plan unless and until ZAP.COM is advised
by its counsel that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of governmental authority and
the requirements of any securities exchange on which shares of Common Stock are
traded. ZAP.COM, however, shall be under no obligation to effect the
registration pursuant to the Securities Act of any interests in the Plan or any
Stock to be issued hereunder or to effect similar compliance under any state
laws. The Committee may require, as a condition of the issuance and delivery of
certificates evidencing shares of Common Stock, that the Participant to whom
such shares will be issued make such agreements and representations, and that
such certificates bear such legends, as the Committee, in its sole discretion,
deems necessary or desirable.
(b) The transfer of any shares of Common Stock hereunder shall
be effective only at such time as counsel to ZAP.COM shall have determined that
the issuance and delivery of such shares of Common Stock is in compliance with
all applicable laws, regulations of governmental authority and the requirements
of any securities exchange on which shares of Common Stock are traded or quoted.
The Committee may, in its sole discretion, defer the effectiveness of any
transfer of Common Stock hereunder in order to allow the issuance of such Common
Stock to be made pursuant to registration or an exemption from registration or
other methods for compliance available under federal or state securities laws.
The Committee shall inform the Participant in writing of its decision to defer
the effectiveness of a transfer. During the period of such deferral in
connection with the exercise of an Option, the Participant may, by written
notice, withdraw such exercise and obtain the refund of any amount paid with
respect thereto.
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15. UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of ZAP.COM; provided,
however, that the Committee may authorize the creation of trusts or make other
arrangements to meet ZAP.COM's obligations under the Plan to deliver cash,
Common Stock, other Awards or other property pursuant to any Award, which trusts
or other arrangements shall be consistent with the "unfunded" status of the Plan
unless the Committee otherwise determines with the consent of each affected
Participant.
16. NOTIFICATION OF ELECTION UNDER SECTION 83(B) OF THE CODE. If any
Participant shall, in connection with the acquisition of Common Stock under the
Plan, make the election permitted under Section 83(b) of the Code (i.e., an
election to include in gross income in the year of transfer the amounts
specified in Section 83(b)), such Participant shall notify ZAP.COM of such
election within ten (10) days of filing notice of the election with the Internal
Revenue Service, in addition to any filing and a notification required pursuant
to regulation issued under the authority of Section 83(b) of the Code.
17. NOTIFICATION UPON DISQUALIFYING DISPOSITION UNDER SECTION 421(B) OF
THE CODE. Each Participant shall notify ZAP.COM of any disposition of Common
Stock issued pursuant to the exercise of an ISO under the circumstances
described in Section 421(b) of the Code (relating to certain disqualifying
dispositions), within ten (10) days of such disposition.
18. PARTICIPANT RIGHTS. No Participant shall have any claim to be
granted any award under the Plan, and there is no obligation for uniformity of
treatment for Participants. Except as provided specifically herein, a
Participant or a transferee of an Award shall have no rights as a stockholder
with respect to any shares of Common Stock covered by any Award until the date
of the issuance of a certificate or certificates to him or her for such shares
of Common Stock.
19. BENEFICIARY. A Participant may file with the Committee a written
designation of a Beneficiary on such form as may be prescribed by the Committee
and may, from time to time, amend or revoke such designation. If no designated
Beneficiary survives the Participant, the executor or administrator of the
Participant's estate shall be deemed to be the grantee's Beneficiary.
20. INTERPRETATION. The Plan is designed and intended to comply with
Rule 16b-3 and, to the extent applicable, shall constitute "qualified
performance based compensation" within the meaning of Section 162(m) of the
Code, and all provisions hereof shall be construed in a manner to so comply.
Accordingly, if any provision of the Plan or any Award Agreement does not comply
or is inconsistent with the requirement of Code Section 162(m), such provision
shall be construed or deemed amended to the extent
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necessary to conform to such requirements, and no provision shall be deemed to
confer upon the Committee or any other person discretion to increase the amount
of compensation otherwise payable in connection with any Awards upon attainment
of the performance objectives.
21. SEVERABILITY. If any provision of the Plan is held to be invalid or
unenforceable, the other provisions of the Plan shall not be affected but shall
be applied as if the invalid or unenforceable provision had not been included in
the Plan.
22. EXPENSES AND RECEIPTS. The expenses of the Plan shall be paid by
ZAP.COM. Any proceeds received by ZAP.COM in connection with any Award will be
used for general corporate purposes.
23. FAILURE TO COMPLY. In addition to the remedies of ZAP.COM elsewhere
provided for herein, failure by a Participant (or Beneficiary) to comply with
any of the terms and conditions of the Plan or the applicable Award Agreement,
unless such failure is remedied by such Participant (or Beneficiary or other
person) within ten (10) days after notice of such failure by the Committee,
shall be grounds for the cancellation and forfeiture of such Award, in whole or
in part, as the Committee, in its absolute discretion, may determine.
24. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by
the Board nor its submission to ZAP.COM's stockholders for approval shall be
construed as creating any limitations on the power of the Board to adopt such
other compensatory arrangements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Plan, and
such arrangements may be either applicable generally or only in specific cases.
25. NO FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
26. GOVERNING LAW. This Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by mandatory
provisions of the Code or the securities laws of the United States, shall be
governed by and construed in accordance with the laws of the State of the State
of Nevada.
27. EFFECTIVE DATE OF PLAN. This Plan shall be effective on the date of
the Initial Public Offering, provided the Plan has been approved by the
stockholders of ZAP.COM prior to the Initial Public Offering. Unless earlier
terminated by the Board, the right to grant Awards under the Plan will terminate
on the tenth (10th) anniversary of the Effective
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Date. Awards outstanding at Plan termination will remain in effect according to
their terms and the provisions of the Plan.
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EXHIBIT 10.1
(FORM OF)
INVESTMENT AND DISTRIBUTION AGREEMENT
This INVESTMENT AND DISTRIBUTION AGREEMENT ("Agreement") is entered
into as of _______, 1999, by and between ZAPATA CORPORATION, a Nevada
corporation ("Zapata"), and ZAP.COM CORPORATION, a Nevada corporation ("ZAP.COM"
or the "Company").
R E C I T A L S:
A. Zapata, a public company whose common shares are traded on the New
York Stock Exchange, owns 1,000 shares of ZAP.COM's common stock, no par value,
constituting all of the issued and outstanding common stock of ZAP.COM.
B. Zapata desires to pursue Internet related opportunities through
ZAP.COM and has determined to invest $9,000,000 in ZAP.COM to fund its start-up
costs and anticipated operating losses and for general corporate purposes,
provided that ZAP.COM first recapitalizes by (a) increasing its authorized
capital stock to 1,650,000,000 shares, consisting of 1,500,000,000 shares of
$0.001 par value common stock, and 150,000,000 shares of preferred stock, all as
more particularly set forth in the Restated Articles of Incorporation (the
"Articles") annexed hereto as Exhibit A and (b) effecting a 49,450-for-one share
stock split and exchange (with $0.001 par value common stock being exchanged for
outstanding no par value common stock) which shall be accompanied by a $49,450
additional contribution of capital to ZAP.COM by Zapata.
C. Zapata has agreed that as soon as practicable following its
investment and the effectiveness of the stock split, it will distribute to
holders of record of its common stock as of , 1999 477,742 shares of
ZAP.COM common stock, all as described in the prospectus contained in Amendment
No. 3 to Registration Statement on Form S-1 (registration no. 333-76135) filed
with the Securities and Exchange Commission on or about September 29, 1999, as
amended (the "Registration Statement").
D. The Registration Statement contemplates that each Zapata stockholder
shall receive, at no cost, one share of ZAP.COM common stock for each fifty (50)
shares of Zapata common stock owned by such stockholder as of the applicable
record date.
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E. In connection with the distribution, ZAP.COM has agreed to register
in the Registration Statement 1,000,000 shares of ZAP.COM common stock held by
Zapata for resale to the public from time to time (the "Resale Offering").
F. ZAP.COM has advised Zapata that concurrently with the consummation
of the Distribution, Malcolm Glazer and Avram Glazer or one or more entities
controlled by them have agreed to contribute $1,100,000 to ZAP.COM in exchange
for 550,000 newly issued shares of ZAP.COM common stock.
G. The parties hereto have determined that it is necessary and
desirable to set forth certain agreements and undertakings between Zapata and
ZAP.COM that will govern certain matters pertaining to and following the
Distribution.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 GENERAL. As used in this Agreement, the following terms shall have
the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Affiliate" means a ZAP.COM Affiliate or a Zapata Affiliate, as the
case may be.
"Agent" means American Stock Transfer & Trust Company, the Agent
appointed by ZAP.COM to distribute the Distribution Shares.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions located in the State of New York are
authorized or obligated by law or executive order to close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Distribution Date" shall mean the actual date on which the Agent
effects the Distribution.
"Distribution Record Date" means the date established as the date
for taking a record of the Holders of Zapata common stock entitled to
participate in Distribution, which date has been established as _______, 1999,
subject to certain conditions.
"Distribution" shall have the meaning set forth in the recitals to
this Agreement.
"Distribution Documents" means collectively: (a) the Registration
Statement, including the Prospectus contained therein, (b) any Prospectus
subject to completion or any Prospectus filed with the SEC under Rule 424 under
the Securities Act or any Term Sheet first filed pursuant to Rule 424(b)(7)
under the Securities Act together with the preliminary Prospectus identified
therein which such Term Sheet supplements, used, in each case, in connection
with the offering of the Common Stock under the Registration Statement, (c) any
other filing made with the SEC by a member of the ZAP.COM Group in connection
with the Rights Offering or (d) any amendment or supplement to any of the
documents described in clauses (a) through (c) of this definition.
"Distribution Shares" means the 477,742 shares of ZAP.COM common
stock which Zapata will distribute to Holders of Zapata common stock on the
Distribution Record Date at the rate of one share of ZAP.COM common stock for
each fifty (50) shares of Zapata common stock held by the Holders.
"Group" means the Zapata Group or the ZAP.COM Group.
"Holders" means the holders of record of Zapata common stock as of
the Distribution Record Date.
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"Indemnifiable Losses" means all losses, liabilities, damages,
claims, demands, judgments or settlements of any nature or kind, known or
unknown, fixed, accrued, absolute or contingent, liquidated or unliquidated,
including, without limitation, all reasonable costs and expenses (including,
without limitation, attorneys' fees, and defense and accounting costs) as such
costs are incurred relating thereto, incurred or suffered by an Indemnitee.
"Indemnifying Party" means a Person who or which is obligated
under this Agreement to provide indemnification to another Person under this
Agreement.
"Indemnitee" means a Person who or which is entitled to
indemnification under this Agreement.
"Indemnity Payment" means an amount that an Indemnifying Party
is required to pay to an Indemnitee pursuant to Article 4.
"Insurance Proceeds" means those monies received by an insured
from an insurance carrier or paid by an insurance carrier on behalf of the
insured, in either case, to the extent mutually agreed upon by ZAP.COM and
Zapata acting reasonably, net of any applicable premium adjustment.
"Person" means an individual, a partnership, a joint venture,
a corporation, a limited liability company, a trust, an unincorporated
organization or a government or any department or agency thereof.
"Registration Rights Agreement" means the Registration Rights
Agreement in the form of Exhibit B annexed hereto to be entered into by Zapata
and ZAP.COM.
"Representative" means with respect to any Person, any of such
Person's directors, officers, employees, agents, consultants, advisors,
accountants and attorneys.
"Resale Offering" shall have the meaning given thereto in the
recitals.
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"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Services Agreement" means the Services Agreement in the form
of Exhibit C annexed hereto to be entered into by Zapata and ZAP.COM.
"Subsidiary" means, with respect to any specified Person, any
corporation or other legal entity of which such Person or any of its
subsidiaries Controls or owns, directly or indirectly, more than fifty percent
(50%) of the stock or other equity interest entitled to vote on the election of
members to the board of directors or similar governing body; provided, however,
that for purposes of this Distribution Agreement, neither ZAP.COM nor any
Subsidiary of ZAP.COM shall be deemed to be a Subsidiary of Zapata or of any
Subsidiary of Zapata.
"Tax" means as defined in the Tax Sharing and Indemnification
Agreement.
"Tax Sharing and Indemnity Agreement" means the Tax Sharing
and Indemnity Agreement in the form of Exhibit D annexed hereto to be entered
into by Zapata and ZAP.COM.
"Third-Party Claim" means any claim, suit, arbitration,
inquiry, proceeding or investigation by or before any court, any governmental or
other regulatory or administrative agency or commission or any arbitration
tribunal asserted by a Person who is not a member of the Zapata Group or the
ZAP.COM Group.
"ZAP.COM Affiliate" means a Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by
ZAP.COM, provided, however, that for purposes of this Agreement none of the
following Persons shall be considered ZAP.COM Affiliates: (i) Zapata or any
Subsidiary of Zapata and (ii) any corporation less than fifty-one percent (51%)
of whose voting stock is directly or indirectly owned by
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<PAGE> 5
ZAP.COM and (iii) any partnership or joint venture less than fifty-one percent
(51%) of whose interests in profits and losses is directly or indirectly owned
by ZAP.COM.
"ZAP.COM Group" means, collectively, ZAP.COM and the ZAP.COM
Affiliates, or any one or more of such companies.
"Zapata Affiliate" means a Person that directly, or indirectly
through one or more intermediaries, Controls or is Controlled by Zapata;
provided, however, that for purposes of this Agreement none of the following
Persons shall be considered Zapata Affiliates: (i) ZAP.COM and any Subsidiary of
ZAP.COM, (ii) any corporation less than fifty-one percent (51%) of whose voting
stock is directly or indirectly owned by Zapata and (iii) any partnership or
joint venture less than fifty-one percent (51%) of whose interests in profits
and losses is directly or indirectly owned by Zapata.
"Zapata Group" means, collectively, Zapata and the Zapata
Affiliates, or any one or more of such companies.
ARTICLE 2
Certain Actions By ZAP.COM
2.1 PRELIMINARY ACTIONS BY ZAP.COM
(a) ZAP.COM has prepared and filed the Registration Statement
with the Commission with respect to the Distribution and the Resale Offering.
Subject to the conditions set forth herein, ZAP.COM shall use reasonable best
efforts to cause the Registration Statement to become effective under the
Securities Act. ZAP.COM has prepared and shall cause to be mailed, the
Prospectus to the Holders in connection with the Distribution, provided that a
supplement shall be added to the Prospectus if necessary prior to the
completion of the Distribution.
(b) ZAP.COM has prepared and filed with the Commission a Form
8-A which includes or incorporates by reference relevant portions of the
Registration Statement. Subject to the conditions set forth herein, ZAP.COM
shall use reasonable best efforts to cause the Form 8-A to become effective
under the Securities Exchange Act of 1934.
(c) ZAP.COM shall take all such action as may be necessary or
appropriate under the securities or blue sky laws of states or other political
subdivisions of the United States in connection with the Distribution to permit
such transactions to effected as described in the Prospectus, provided,
however, that it has no obligation to register or qualify any Distribution
Shares with any state or foreign government.
(d) ZAP.COM shall use its reasonable best efforts to have a
Form 211 filed with NASD Regulation, Inc. by a market marker in ZAP.COM Common
Stock such that ZAP.COM Common Stock is quoted on the OTC Bulletin Board.
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<PAGE> 6
(f) No Representations or Warranties; Consents. Each party
hereto understands and agrees that no party hereto is, in this Agreement or in
any other agreement or document contemplated by this Agreement or otherwise,
representing or warranting in any way that the obtaining of any consents or
approvals, the execution and delivery of any agreements or the making of any
filings or applications contemplated by this Agreement will satisfy the
provisions of any or all applicable laws. Notwithstanding the foregoing, the
parties shall use reasonable efforts to obtain all consents and approvals, to
enter into all agreements and to make all filings and applications which may be
required for the consummation of the transactions contemplated by this
Agreement, including, without limitation, all applicable regulatory filings or
consents under federal or state laws and all necessary consents, approvals,
agreements, filings and applications.
2.2 RECAPITALIZATION ETC.
(a) Recapitalization. ZAP.COM's Board of Directors and sole
stockholder has approved a plan of recapitalization pursuant to which (i)
ZAP.COM's authorized capital stock shall be increased to 1,650,000,000 shares,
consisting of 1,500,000,000 shares of common stock, par value $.001, and
150,000,000 shares of preferred stock, par value $.01 per share, and (ii)
ZAP.COM's 1,000 shares of common stock, no par value, which will be split and
exchanged for 49,450,000 shares of the Company's, par value $.001, common stock.
(b) Zapata and ZAP.COM shall take all action necessary so
that, at the Distribution Date, the Amended and Restated Articles of
Incorporation and By-laws of ZAP.COM shall be in the forms attached hereto as
Exhibit A and Exhibit E, respectively.
(c) Prior to or as of the Distribution Date, the parties
hereto shall take all steps necessary to reclassify the outstanding shares of
ZAP.COM common stock so that, except as otherwise contemplated by this
Agreement, immediately prior to or as of the Distribution Date the number of
shares of ZAP.COM common stock outstanding and held by Zapata shall equal
49,450,000 shares of common stock and, except for the shares to be issued in
the concurrent offering referred to in the recitals, shall equal all of
ZAP.COM's issued and outstanding capital stock.
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ARTICLE 3
CERTAIN TRANSACTIONS IN CONNECTION WITH THE DISTRIBUTION
3.1 EXECUTION AND DELIVERY OF CERTAIN AGREEMENTS.
(a) Contemporaneously with the consummation of the
Distribution, ZAP.COM and Zapata shall execute and deliver to one another the
Tax Sharing and Indemnity Agreement, the Registration Rights Agreement and the
Services Agreement (collectively, the "Other Agreements"). All such Other
Agreements shall become effective upon the Distribution Date.
(b) Upon fulfillment to Zapata's satisfaction of all the
conditions contained in Section 3.3 or the waiver thereof by Zapata in its sole
discretion, Zapata shall contribute to ZAP.COM $9,000,000.00, consisting of
$8,000,000 in immediately available funds and $1,000,000 by way of forgiveness
of inter-company debt by ZAP.COM to Zapata. Such forgiveness shall be effective
immediately prior to the Distribution Date without any further action on the
part of any of the parties. Notwithstanding the foregoing, each of Zapata and
ZAP.COM shall execute any documents and instruments necessary or appropriate to
confirm such loan forgiveness. Zapata and ZAP.COM agree that they shall treat
the $9,000,000 investment as a contribution to the capital of ZAP.COM in
constructive exchange for ZAP.COM common stock which it shall own following the
recapitalization contemplated under Article 2, provided that no additional
shares of ZAP.COM common stock shall be issued or issuable in connection with or
as a result of such investment and contributions.
3.2 DISTRIBUTION EXPENSES. ZAP.COM shall be responsible for and shall
pay all of the expenses incurred by Zapata and ZAP.COM to effect the
Distribution (including the fees of counsel and accountants) (the "Distribution
Expenses"), as well as all of the costs of producing, printing, mailing and
otherwise distributing the Prospectus.
3.3 ZAPATA BOARD ACTIONS; CONDITIONS PRECEDENT TO THE DISTRIBUTION.
(a) The Zapata Board shall, in its discretion, establish any
appropriate procedure in connection with the Distribution.
(b) In no event shall the Distribution occur unless the
following conditions have been satisfied:
(i) All actions contemplated by Article 2 and Section 3.4
shall have been finalized.
(ii) The Registration Statement shall have been declared
effective by the Commission;
(iii) Zapata and ZAP.COM shall have entered into the Other
Agreements and such agreements shall have become effective;
(iv) Zapata shall have provided the New York Stock Exchange
with the prior written notice of the Record Date regulated by Rule 10b-17 of
the Securities Exchange Act of 1934 and the rules and Regulation s of the NYSE;
(v) No order, injunction or decree issued by any court or
agency of competent jurisdiction or legal restraint or prohibition preventing
the consummation of the Distribution shall be in effect and no other event
outside the control of Zapata shall have occurred or failed to occur that
prevents the consummation of the Distribution; and
(vi) All action and other documents and instruments deemed
necessary or advisable by Zapata in connection with the transactions
contemplated hereby shall have been taken or executed, as the case may be, in
form and substance satisfactory to Zapata.
3.4 EFFECTING THE DISTRIBUTION.
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(a) Record Date And Distribution Date, Subject to the
satisfaction of the conditions set forth in Section 3.3 hereof, (i) the Board of
Directors of Zapata shall establish the Record Date and the Distribution Date
and (ii) as soon as practical after the Registration Statement becomes
effective, Zapata shall take all appropriate and reasonable procedures to effect
the Distribution.
(b) Prior to the Distribution Date, Zapata shall cause the
Agent to make appropriate arrangements for, among other things, the payment of
the Distribution to the holders of Zapata Common stock in accordance with this
Section 3.4(e).
(c) Prior to or as of the Distribution Date, Zapata shall
deliver to the Agent a share certificate representing all of the outstanding
shares of ZAP.COM Common stock to be distributed in connection with the payment
of the Distribution. After the Distribution Date, upon the request of the
Agent, ZAP.COM shall provide all certificates for shares of ZAP.COM Common
stock that the Agent shall require in order to effect the Distribution.
(d) Except as otherwise contemplated by this Agreement, the
Agent shall distribute, as of the Distribution Date, one (1) share of ZAP.COM
Common stock in respect of every fifty (50) shares of Zapata Common stock held
by holders of record of Zapata Common stock on the Record Date. All shares of
ZAP.COM Common stock issued in the Distribution shall be duly authorized,
validly issued, fully paid and nonassessable.
(e) In lieu of the distribution of fractional shares of
ZAP.COM Common stock to holders of record of Zapata Common stock as of the
Record Date, the parties shall cause the Agent to cause all such fractional
shares to be aggregated and the resulting shares sold for the account of such
stockholders. Such sales shall be effected as soon as practicable after the
Distribution Date. Following the sale of the aggregated fractional shares of
ZAP.COM Common stock, the parties shall cause the Agent to distribute the
proceeds of the sale of the aggregated fractional shares to such stockholders.
(f) Notwithstanding anything herein to the contrary, Zapata
shall have no obligation to distribute any shares of ZAP.COM Common stock to any
Zapata stockholder who resides in a state where such distribution may not be
made without registration or qualification, provided that Zapata pays such
stockholders a cash amount in lieu of the stock dividend they would have
received at a rate deemed appropriate by Zapata.
ARTICLE 4
SURVIVAL, ASSUMPTION AND INDEMNIFICATION
4.1 ASSUMPTION AND INDEMNIFICATION.
(a) Subject to Section 4.1(c), from and after the Closing
Date, Zapata shall indemnify, defend and hold harmless each member of the
ZAP.COM Group, each of their Representatives and each of the heirs, executors,
successors and assigns of any of the foregoing from and against all
Indemnifiable Losses of any such member or Representative relating to, arising
out of or due to any untrue statement or alleged untrue statement of a material
fact contained in any Distribution Document or the omission or alleged
omission to state in any of the Distribution Documents a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only insofar as any such statement or omission was made with
respect to (i) a matter of historical fact relating to a member of the Zapata
Group or (ii) the present or future intentions of Zapata or any member of the
Zapata Group, in reliance upon and in conformity with information furnished by
Zapata in writing specifically for use in connection with the preparation of the
Distribution Documents and designated in such writing as having been so
furnished.
(b) Subject to Section 4.1(c), from and after the Closing
Date, ZAP.COM shall indemnify, defend and hold harmless each member of the
Zapata Group, each of their Representatives and each of the heirs, executors,
successors and assigns of any of the foregoing from and against all
Indemnifiable Losses of any such member or Representative relating to, arising
out of or due to any untrue statement or alleged untrue statement of a material
fact contained in any Distribution Document or the omission or alleged
omission to state in any of the Distribution Documents a material fact
required to be
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stated therein or necessary to make the statements therein not misleading;
provided that ZAP.COM will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made with respect to (i) a matter of historical fact relating to a member of the
Zapata Group or (ii) the present or future intentions of Zapata or any member of
the Zapata Group, in reliance upon and in conformity with information furnished
by Zapata in writing specifically for use in connection with the preparation of
the Distribution Documents and designated in such writing as having been so
furnished.
(c) If an Indemnitee realizes a Tax benefit or detriment by
reason of having incurred an Indemnifiable Loss for which such Indemnitee
receives an Indemnity Payment from an Indemnifying Party or by reason of
receiving an Indemnity Payment, then such Indemnitee shall pay to such
Indemnifying Party an amount equal to the Tax benefit, or such Indemnifying
Party shall pay to such Indemnitee an additional amount equal to the Tax
detriment (taking into account any Tax detriment resulting from the receipt of
such additional amounts), as the case may be. If, in the opinion of counsel to
an Indemnifying Party reasonably satisfactory in form and substance to the
affected Indemnitee, there is a substantial likelihood that the Indemnitee will
be entitled to a Tax benefit by reason of an Indemnifiable Loss, the
Indemnifying Party promptly shall notify the Indemnitee and the Indemnitee
promptly shall take any steps (including the filing of such returns, amended
returns or claims for refunds consistent with the claiming of such Tax benefit)
that, in the reasonable judgment of the Indemnifying Party, are necessary and
appropriate to obtain any such Tax benefit. If, in the opinion of counsel to an
Indemnitee reasonably satisfactory in form and substance to the affected
Indemnifying Party, there is a substantial likelihood that the Indemnitee will
be subjected to a Tax detriment by reason of an Indemnification Payment, the
Indemnitee promptly shall notify the Indemnifying Party and the Indemnitee
promptly shall take any steps (including the filing of such returns or amended
returns or the payment of Tax underpayments consistent with the settlement of
any liability for Taxes arising from such Tax detriment) that, in the reasonable
judgment of the Indemnitee, are necessary and appropriate to settle any
liabilities for Taxes arising from such Tax detriment. If, following a payment
by an Indemnitee or an Indemnifying Party pursuant to this Section 4.1(c) in
respect of a Tax benefit or detriment, there is an adjustment to the amount of
such Tax benefit or detriment, then each of Zapata and ZAP.COM shall make
appropriate payments to the other, including the payment of interest thereon at
the federal statutory rate then in effect, to reflect such adjustment. This
Section 4.1(c) shall govern the matters discussed in this Section and shall
control over any conflicting language in the Tax Sharing and Indemnification
Agreement.
(d) The amount which an Indemnifying Party is required to pay
to any Indemnitee pursuant to this Section 4.1 shall be reduced (including
retroactively) by any Insurance Proceeds and other amounts actually recovered by
such Indemnitee in reduction of the related Indemnifiable Loss. Zapata and
ZAP.COM shall use their respective best efforts to collect any Insurance
Proceeds or other amounts to which they or any of their Subsidiaries are
entitled, without regard to whether they are the Indemnifying Party hereunder.
If an Indemnitee receives an Indemnity Payment in respect of an Indemnifiable
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Loss and subsequently receives Insurance Proceeds or other amounts in respect of
such Indemnifiable Loss, then such Indemnitee shall pay to such Indemnifying
Party an amount equal to the difference between (i) the sum of the amount of
such Indemnity Payment and the amount of such Insurance Proceeds or other
amounts actually received and (ii) the amount of such Indemnifiable Loss,
adjusted (at such time as appropriate adjustment can be determined) in each case
to reflect any premium adjustment attributable to such claim.
4.2 PROCEDURE FOR INDEMNIFICATION.
(a) If any Indemnitee receives notice of the assertion of any
Third-Party Claim with respect to which an Indemnifying Party is obligated under
this Agreement to provide indemnification, such Indemnitee shall give such
Indemnifying Party notice thereof promptly after becoming aware of such
Third-Party Claim; provided, however, that the failure of any Indemnitee to give
notice as provided in this Section 4.2 shall not relieve any Indemnifying Party
of its obligations under this Article 4, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice. Such
notice shall describe such Third-Party Claim in reasonable detail.
(b) An Indemnifying Party, at such Indemnifying Party's own
expense and through counsel chosen by such Indemnifying Party (which counsel
shall be reasonably satisfactory to the Indemnitee), may elect to defend any
Third-Party Claim. If an Indemnifying Party elects to defend a Third-Party
Claim, then, within ten (10) Business Days after receiving notice of such
Third-Party Claim (or sooner, if the nature of such Third-Party Claim so
requires), such Indemnifying Party shall notify the Indemnitee of its intent to
do so, and such Indemnitee shall cooperate in the defense of such Third-Party
Claim. After notice from an Indemnifying Party to an Indemnitee of its election
to assume the defense of a Third-Party Claim, such Indemnifying Party shall not
be liable to such Indemnitee under this Article 4 for any legal or other
expenses subsequently incurred by such Indemnitee in connection with the defense
thereof; provided, however, that such Indemnitee shall have the right to employ
one law firm as counsel to represent such Indemnitee (which firm shall be
reasonably acceptable to the Indemnifying Party) if, in such Indemnitee's
reasonable judgment, either a conflict of interest between such Indemnitee and
such Indemnifying Party exists in respect of such claim or there may be defenses
available to such Indemnitee which are different from or in addition to those
available to such Indemnifying Party, and in that event (i) the reasonable fees
and expenses of such separate counsel shall be paid by such Indemnifying Party
(it being understood, however, that the Indemnifying Party shall not be liable
for the expenses of more than one separate counsel (in addition to local
counsel) with respect to any Third-Party Claim (even if against multiple
Indemnitees)) and (ii) each of such Indemnifying Party and such Indemnitee shall
have the right to conduct its own defense in respect of such claim. If an
Indemnifying Party elects not to defend against a Third-Party Claim, or fails to
notify an Indemnitee of its election as provided in this Section 4.2 within the
period of ten (10) Business Days described above, such Indemnitee may defend,
compromise and settle such Third-Party Claim; provided, however, that no such
Indemnitee may compromise or settle any such Third-Party Claim without the prior
written consent of the Indemnifying Party, which consent shall not be withheld
unreasonably. Notwithstanding the foregoing, the Indemnifying Party shall not,
without the
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prior written consent of the Indemnitee, (i) settle or compromise any
Third-Party Claim or consent to the entry of any judgment which does not include
as an unconditional term thereof the delivery by the claimant or plaintiff to
the Indemnitee of a written release from all liability, damage or claims of any
nature or kind in respect of such Third-Party Claim or (ii) settle or compromise
any Third-Party Claim in any manner that may adversely affect the Indemnitee.
4.3 REMEDIES CUMULATIVE. The remedies provided in this Article 4 shall
be cumulative and shall not preclude assertion by any Indemnitee of any other
rights or the seeking of any other remedies against any Indemnifying Party.
ARTICLE 5
ACCESS TO INFORMATION
5.1 PROVISION OF CORPORATE RECORDS. Prior to or as promptly as
practicable after the Closing Date, Zapata shall use reasonable efforts to
accommodate ZAP.COM with respect to the delivery to ZAP.COM of all corporate
books and records of the ZAP.COM Group, including in each case copies of all
active agreements, active litigation files and government filings. From and
after the Closing Date, all books, records and copies so delivered shall be the
property of ZAP.COM.
5.2 ACCESS TO INFORMATION. From and after the Closing Date, each of
Zapata and ZAP.COM shall afford to the other, and shall cause the members of
their respective Groups to so afford, reasonable access and duplicating rights
during normal business hours to all information within such party's possession
relating to such other party's businesses, assets or liabilities, insofar as
such access is reasonably required by such other party. Without limiting the
foregoing, information may be requested under this Section 5.2 for audit,
accounting, claims, litigation and Tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations, as ZAP.COM may reasonably
request and which are directly related to the ZAP.COM Business.
ARTICLE 6
MISCELLANEOUS
6.1 TERMINATION. Notwithstanding any other provision hereof, this
Agreement may be terminated and the Distribution abandoned at any time prior to
the Distribution Date by and in the sole discretion of the Zapata Board of
Directors without the approval of ZAP.COM or the Zapata Stockholders. In the
event of such termination, no party hereto shall have any liability or
obligation to other party by reason of this Agreement.
6.2 COMPLETE AGREEMENT. This Agreement and the exhibits hereto and the
agreements (including the Other Agreements) and other documents referred to
herein and therein shall constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and shall supersede all
previous negotiations, commitments and writings with respect to such subject
matter.
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6.3 AUTHORITY. Each of the parties hereto represents to the other that (a) it
has the power and authority to execute, deliver and perform this Agreement and
the Other Agreements, (b) the execution, delivery and performance of this
Agreement and the Other Agreements by it has been duly authorized by all
necessary corporate action, (c) it has duly and validly executed the Agreement,
(d) this Agreement and the Other Agreements, when executed, will be the valid
and binding obligation of such party, enforceable against it in accordance with
its terms subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
general equity principles.
6.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (other than the
laws regarding choice of laws and conflicts of laws) as to all matters,
including matters of validity, construction, effect, performance and remedies.
6.5 NOTICES. All notices, requests, claims, demands and other
communications hereunder (collectively, "Notices") shall be in writing and shall
be given (and shall be deemed to have been duly given upon receipt) by delivery
in person, by cable, telegram, telex, telecopy or other standard form of
telecommunications, or by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to Zapata:
Zapata Corporation
100 Meridian Centre, Suite 350
Rochester, New York 14618
Attn: Avram Glazer, Chief Executive Officer
If to ZAP.COM:
ZAP.COM Corporation
100 Meridian Centre, Suite 350
Rochester, New York 14618
Attn: Leonard DiSalvo, Vice President Finance
or to such other address as any party hereto may have furnished to the other
parties by a notice in writing in accordance with this Section 6.5.
6.6 AMENDMENT AND MODIFICATION. This Agreement may be amended or
modified in any material respect only by a written agreement signed by both of
the parties hereto.
6.7 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto, their successors and permitted assigns, and
the members of their respective Groups, but neither this Agreement nor any of
the rights, interests
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and obligations hereunder shall be assigned by either party hereto without the
prior written consent of the other party (which consent shall not be
unreasonably withheld). Except for the provisions of Sections 4.2 and 4.3
relating to Indemnities, which are also for the benefit of the other
Indemnitees, this Agreement is solely for the benefit of the
parties hereto and their Subsidiaries and Affiliates and is not intended to
confer upon any other Persons any rights or remedies hereunder.
6.8 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.9 NO WAIVER. No failure by either party to take any action or assert
any right hereunder shall be deemed to be a waiver of such right in the event of
the continuation or repetition of the circumstances giving rise to such right,
unless expressly waived in writing by the party against whom the existence of
such waiver is asserted.
6.10 HEADINGS. The Article and Section headings contained in this
Agreement are solely for the purpose of reference, are not part of
the agreement of the parties hereto and shall not in any way affect the meaning
or interpretation of this Agreement.
6.11 ENFORCEABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Each party
acknowledges that money damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of
the parties hereunder shall be specifically enforceable.
6.12 SURVIVAL OF AGREEMENTS. All covenants and agreements of the
parties hereto contained in this Agreement shall survive the
Closing Date.
In WITNESS WHEREOF, the undersigned have exercised and
delivered this Agreement as of the date first set forth above.
ZAPATA CORPORATION
By:_________________________________
Name: Avram Glazer
Title: Chief Executive Officer
ZAP.COM CORPORATION
By:_________________________________
Name: Leonard DiSalvo
Title: Vice President - Finance
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EXHIBIT 10.3
FORM OF TAX SHARING AND INDEMNITY AGREEMENT
This TAX SHARING AND INDEMNITY AGREEMENT (the "Agreement"), dated as of
this ___ day of ______, 1999, by and between ZAPATA CORPORATION ("Zapata"), a
Nevada corporation, and ZAP.COM CORPORATION ("ZAP.COM"), a Nevada corporation.
R E C I T A L S:
A. Zapata, a public company, whose common shares are traded on the New
York Stock Exchange, owns 49,450,000 shares of ZAP.COM's common stock, par value
$.001 per share, constituting all of the issued and outstanding common
stock of ZAP.COM.
B. Zapata is the parent of an affiliated group of corporations,
including Zap.Com, that join in filing consolidated federal Tax Returns and
certain consolidated, combined or unitary state income Tax Returns;
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C. Pursuant to an Investment and Distribution Agreement on even
date herewith (the "Investment Agreement") Zapata and ZAP.COM, Zapata has
agreed to, among other things, distribute 477,742 shares of ZAP.COM common
stock to eligible Zapata stockholders (the "Distribution").
D. Under the Investment and Distribution Agreement, as a condition to
effecting the Distribution, the parties hereto are required to enter into this
Agreement to address certain tax issues involving Zapata and ZAP.COM.
NOW, THEREFORE, in consideration of their mutual promises, Zapata and
ZAP.COM agree as follows:
ARTICLE 1
DEFINITIONS
1.1 As used in this Agreement, the following terms shall have the
following meanings:
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor thereto, as in effect for the taxable period in question.
"Consolidated Group" means the group of corporations that
immediately prior to the Effective Date are members of the affiliated group of
corporations (within the meaning of Section 1504 of the Code) of which Zapata is
the common parent.
"Effective Date" means the date upon which Zapata ceases to
own eighty percent (80%) of the issued and outstanding shares of ZAP.COM.
"Final Determination" shall mean the final resolution of
liability for any Tax for a taxable period, including any related interest or
penalties, (a) by Internal Revenue Service Form 870 or 870-AD (or any successor
forms thereto), on the date of acceptance by or on behalf of the Internal
Revenue Service ("IRS"), or by a comparable form under the laws of other
jurisdictions; except that a Form 870 or 870-AD or comparable form that reserves
(whether by its terms or by operation of law) the right of the taxpayer to file
a claim for refund and/or the right of the Taxing Authority to assert a further
deficiency shall not constitute a Final Determination; (b) by a decision,
judgment, decree, or other order by a court of competent jurisdiction, which has
become final and unappealable; (c) by a closing agreement or accepted offer in
compromise under Section 7121 or 7122 of the Code, or comparable agreements
under the laws of other jurisdictions; (d) by any allowance of a refund or
credit in respect of an overpayment of Tax, but only after the
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expiration of all periods during which such refund may be recovered (including
by way of offset) by the Tax imposing jurisdiction; or (e) by any other final
disposition, including by reason of the expiration of the applicable statute of
limitations.
"Representative" means with respect to any person or entity,
any of such person's or entity's directors, officers, employees, agents,
consultants, advisors, accountants, attorneys, and representatives.
"Tax" or "Taxes" means (a) all forms of taxation, whenever
created or imposed, and whenever imposed by a national, municipal, governmental,
state, federal or other body, whether domestic or foreign (a "Taxing
Authority"), and without limiting the generality of the foregoing, shall include
net income, alternative or add-on minimum tax, gross income, sales, use, ad
valorem, gross receipts, value added, franchise, profits, license, transfer,
recording, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profit, custom duty, or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any related interest, penalties, or other additions to tax, or
additional amounts imposed by any such Taxing Authority, (b) liability for the
payment of any amounts of the type described in (a) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any period,
including any liability arising pursuant to Treas. Reg. Section 1.1502-6, or as
a result of being a party to any agreement or arrangement whereby liability for
payment of such amounts was determined or taken into account with reference to
the liability of another party and (c) liability for the payment of any amounts
of the type described in (a) as a result of any express or implied obligation to
indemnify any other person.
"Taxing Authority" is defined under the term "Taxes."
"Taxable Period" or "Taxable Periods" means the tax year for
the "Consolidated Group" as defined in this Article 1.
"Tax Return" means any return, filing, questionnaire or other
document required to be filed, including requests for extensions of time,
filings made with estimated Tax payments, claims for refund and amended returns
that may be filed, for any taxable period with any Taxing Authority in
connection with any Tax (whether or not a payment is required to be made with
respect to such filing).
"ZAP.COM Businesses" means the present and future
subsidiaries, divisions and business of ZAP.COM and any member of the ZAP.COM
Post-Closing Affiliates.
"ZAP.COM Post-Closing Affiliate" means any corporation,
partnership or other entity directly or indirectly controlled by ZAP.COM after
the Effective Date.
"ZAP.COM Pre-Closing Affiliate" means any corporation,
partnership or other entity directly or indirectly controlled by ZAP.COM on or
before the Effective Date.
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"Zapata Affiliate" means any corporation, partnership or other
entity directly or indirectly controlled by Zapata, other than ZAP.COM or any
ZAP.COM Affiliate.
"Zapata Businesses" means the present and future subsidiaries,
divisions and business of any member of the Zapata Group, other than the present
and future subsidiaries, divisions and business of ZAP.COM or any ZAP.COM
Post-Closing Affiliates.
"Zapata Group" means the group of corporations that
immediately after the Effective Date are members of the affiliated group of
corporations of which Zapata is the common parent (within the meaning of section
1504 of the Code).
ARTICLE 2
PREPARATION AND FILING OF TAX RETURNS
2.1 INCOME INCLUDED. All Tax Returns required to be filed by the
Consolidated Group relating to Taxable Periods ending before or including the
Effective Date and filed after the date of this Agreement shall include the
income of ZAP.COM and ZAP.COM Pre-Closing Affiliates (as determined in this
Section 2.1) attributable to such Taxable Periods (including, for Federal income
Tax purposes, any deferred income triggered into income by Treas. Reg. Section
1.1502-13 and any excess loss accounts taken into income under Treas. Reg.
Section 1.1502-19) required to be reported in the Consolidated Group's
consolidated Federal income Tax Returns (or under any similar rules applicable
to any state, local or other Tax Returns filed on a consolidated basis). The
income of ZAP.COM and ZAP.COM Pre-Closing Affiliates will be apportioned for the
Tax period commencing October 1, up to and including the Effective date and the
period after the Effective Date by closing the books of ZAP.COM and such ZAP.COM
Pre-Closing Affiliates as of the end of the Effective Date. The income of
ZAP.COM and any ZAP.COM Pre-Closing Affiliate shall not include any deferred
income triggered into income by Treas. Reg. Section 1.1502-13 and any excess
loss accounts taken into income under Treas. Reg. Section 1.1502-19,
attributable to any other member of the Consolidated Group.
2.2 TAX RETURNS FOR TAXABLE PERIODS ENDING BEFORE OR INCLUDING THE
EFFECTIVE DATE. Except as otherwise provided in Section 2.4, Zapata shall timely
prepare and file, or cause to be timely prepared and filed, all Tax Returns
required to be filed by or on behalf of any member of the Consolidated Group
relating to Taxable Periods ending before or including the Effective Date.
ZAP.COM shall provide Zapata any Tax-related information reasonably requested by
Zapata relating to any Taxable Periods ending on or before the Effective Date.
2.3 TAX RETURNS FOR TAXABLE PERIODS BEGINNING AFTER THE EFFECTIVE DATE.
ZAP.COM shall prepare and file, or cause to be prepared and filed, all Tax
Returns for ZAP.COM and any ZAP.COM Post-Closing Affiliate for taxable periods
of ZAP.COM and any ZAP.COM Post-Closing Affiliate beginning after the Effective
Date. Zapata shall
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prepare and file, or cause to be prepared and filed, all Tax Returns for the
Zapata Group for Taxable Periods beginning after the Effective Date.
2.4 CARRY-OVER PERIOD RETURNS.
(a) ZAP.COM shall prepare and file on a timely basis any Tax
Returns (but not including any Federal income Tax Return or Tax Returns under
any similar rules applicable to any state or local, and filed on a consolidated
basis) of ZAP.COM and any ZAP.COM Pre-Closing Affiliate for any Taxable Period
beginning before and ending after the Effective Date (a "Carry-Over Period").
(b) All other Tax Returns for a Carry-Over Period required to
be filed by any member of the Consolidated Group other than ZAP.COM or any
ZAP.COM Pre-Closing Affiliate shall be prepared and filed by Zapata.
ARTICLE 3
PAYMENT OF TAXES
3.1 LIABILITY FOR TAXES WITH RESPECT TO TAXABLE PERIODS ENDING BEFORE
OR INCLUDING THE EFFECTIVE DATE. Except as otherwise provided in this Agreement,
Zapata shall be responsible for paying and shall pay all Taxes relating to any
Tax Return filed by the Consolidated Group or any member thereof with respect to
any Taxable Period ending before and including the Effective Date, including
without limitation, any additional Taxes as a result of any audit, amendment or
other change in a Tax Return as filed by the Consolidated Group or any member
thereof. Zapata shall be entitled to all Tax refunds received or receivable
with respect to any and all Taxes attributable to the Consolidated Group for
all such taxable years and periods ending before including the Effective Date.
3.2 PREPARATION OF ZAP.COM'S FINAL RETURNS; PAYMENT OF TAXES. On or
before the Effective Date Zapata shall cause to be prepared (in a manner
consistent with practices followed in prior years) and delivered to ZAP.COM a
separate United States Federal Income Tax Return for ZAP.COM and each ZAP.COM
Pre-Closing Affiliate for the Tax period beginning October 1, and ending on the
Effective Date (the "ZAP.COM Final Returns"). The ZAP.COM Final Returns shall
include all items of income, gain, loss, deductions and credit of ZAP.COM and
the ZAP.COM Pre-Closing Affiliates realized during such period and determined
and apportioned in accordance with Section 2.1. Zapata shall include in its
consolidated federal income tax for its first taxable year ending after the
Effective Date the items of income, gain, loss, deductions and credit shown on
the ZAP.COM Final Returns and shall pay all Taxes due with respect thereto as
provided in this Section 3.2 and Section 3.1.
3.3 SEPARATION PAYMENT WITH RESPECT TO FEDERAL INCOME TAXES. Zapata
shall give ZAP.COM notice of the filing of Zapata's consolidated federal income
tax returns for its first taxable year ending after the Effective Date ("Final
Return Notice"). If the ZAP.COM Final Returns show a tax liability, ZAP.COM
shall pay to Zapata the amount thereof within thirty (30) days after receipt by
ZAP.COM of the Final Return Notice. Zapata shall not withdraw any earnings or
assets of ZAP.COM or any ZAP.COM Pre-
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Closing Affiliates prior to the Effective Date. If the ZAP.COM Final Returns
show a net operating loss or other tax benefit that is utilized by Zapata or any
member of the Zapata Group and, therefore, is not allocated to the entity
incurring such tax benefit pursuant to Treas. Reg. Section 1.1502-79, Zapata
shall pay to ZAP.COM (or the appropriate entity) the amount of any tax savings
to be realized thereby within thirty (30) days after receipt by ZAP.COM of the
ZAP.COM Final Returns.
3.4 ALLOCATION OF EARNINGS AND PROFITS FOR TAXABLE PERIODS ENDING
BEFORE OR INCLUDING THE EFFECTIVE DATE. All earnings and profits of the
Consolidated Group for all Taxable Periods ending before or including the
Effective Date shall be allocated pursuant to Section 1552 of the Code among the
members of the Consolidated Group in accordance with the ratio which that
portion of the consolidated taxable income attributable to each member of the
Consolidated Group having taxable income bears to the consolidated taxable
income of the Consolidated Group in accordance with Section 1552(a)(1) of the
Code and the Regulations thereunder.
3.5 UNUSED CARRY-FORWARD ATTRIBUTES. Zapata and ZAP.COM agree that, for
purposes of all required returns and reports with respect to Taxes, the amount
of unused tax credits under the Code attributable to ZAP.COM and each of the
ZAP.COM Pre-Closing Affiliates that may be carried forward to Taxable Periods
ending after the Effective Date shall, unless otherwise required by law or
regulations, be determined in accordance with the principles of Treas. Reg.
Section 1.1502-79(c). Any other carry-forward attributes shall similarly be
determined in accordance with applicable regulations.
3.6 LIABILITY FOR TAXES WITH RESPECT TO POST-EFFECTIVE DATE TAXABLE
PERIODS. The Zapata Group shall pay all Taxes of the Zapata Group and shall be
entitled to receive and retain all refunds of Taxes of the Zapata Group with
respect to Taxable Periods beginning after the Effective Date which are
attributable to the Zapata Businesses. ZAP.COM shall pay all Taxes of ZAP.COM
and any ZAP.COM Post-Closing Affiliate and shall be entitled to receive and
retain all refunds of Taxes of ZAP.COM and any ZAP.COM Post-Closing Affiliate
for all periods beginning after the Effective Date which are attributable to the
ZAP.COM Businesses.
3.7 CARRY-OVER PERIOD PAYMENTS. Zapata shall be responsible for (and
shall pay) any Taxes shown to be due on a Tax Return for a Carry-Over Period
filed pursuant to Section 2.4(b) hereof by any member of the Consolidated Group
other than ZAP.COM or a ZAP.COM Pre-Closing Affiliate. ZAP.COM shall be
responsible for (and shall pay) any Taxes shown to be due on a Tax Return for a
Carry-Over Period filed by ZAP.COM and any ZAP.COM Pre-Closing Affiliate
pursuant to Section 2.4(a) hereof.
3.8 CARRY-BACKS. ZAP.COM shall be entitled to any refund of any Tax
obtained by the Consolidated Group (or any member of the Consolidated Group),
including any refund obtained as a result of the carry-back of losses or credits
of ZAP.COM or any ZAP.COM Post-Closing Affiliate from any taxable period
beginning after the Effective Date to any Taxable Period ending before or
including the Effective Date. The application of
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any such carry-backs by ZAP.COM and/or any other current or former member of the
Consolidated Group shall be in accordance with the Code and the Treasury
Regulations promulgated thereunder. Notwithstanding this Section 3.8, ZAP.COM
and any ZAP.COM Post-Closing Affiliate shall have the right, in its sole
discretion, to make any election, including the election under Section 172(b)(3)
of the Code, which would eliminate or limit the carry-back of any loss or credit
to any Taxable Period ending before or including the Effective Date.
3.9 POST-CLOSING ELECTIONS. At Zapata's request, ZAP.COM and the
ZAP.COM Pre-Closing Affiliates shall make and/or join with Zapata in making any
Tax elections reasonably requested by Zapata after the Effective Date, if the
making of such election does not have a material adverse impact on ZAP.COM or
any ZAP.COM Pre-Closing Affiliate for any post-Effective Date Tax period.
3.10 REFUNDS. ZAP.COM and any ZAP.COM Pre-Closing Affiliate shall be
entitled to any refund of any Tax obtained by the Consolidated Group (or any
member of the Consolidated Group) as a result of any audit, amendment or other
change in the Tax Return as filed by the Consolidated Group or any member
thereof to the extent the refund is attributable to ZAP.COM and any ZAP.COM
Pre-Closing Affiliate for any Taxable Period of the Consolidated Group ending
before or including the Effective Date. Zapata will cooperate with ZAP.COM and
any ZAP.COM Pre-Closing Affiliate in obtaining such refunds, including, but not
limited to, the filing of amended Tax Returns or refund claims. Zapata will
immediately pay to ZAP.COM and any ZAP.COM Pre-Closing Affiliate any Tax refund
described in this Section 3.10 when such refund is received by the Zapata Group.
With the exception of Section 3.8, all other refunds arising from Tax Returns
filed for the Consolidated Group will belong to Zapata.
ARTICLE 4
COOPERATION AND EXCHANGE OF INFORMATION
4.1 COOPERATION. ZAP.COM shall cooperate (and shall cause any ZAP.COM
Post-Closing Affiliate to cooperate) fully at such time and to the extent
reasonably requested by Zapata in connection with the preparation and filing of
any Tax Return or the conduct of any audit, dispute, proceeding, suit or action
concerning any issues or any other matter contemplated hereunder relating to any
Taxable Period ending before or including the Effective Date. Such cooperation
shall include, without limitation, (a) the retention and provision on demand of
copies of books, records, documentation or other information relating to any
such Tax Return until the later of (i) the expiration of the applicable statute
of limitation (giving effect to any extension, waiver, or mitigation thereof)
and (ii) in the event any claim has been made under this Agreement for which
such information is relevant, until a Final Determination with respect to such
claim; (b) the execution of any document that may be necessary or reasonably
helpful in connection with the filing of any such Tax Return, or in connection
with any audit, proceeding, suit or action addressed in the preceding sentence;
and (c) the use of the parties' reasonable best efforts to obtain any
documentation from a governmental authority or a third party that may be
necessary or
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helpful in connection with the foregoing. Each party shall make its employees
and facilities available on a mutually convenient basis to facilitate such
cooperation.
4.2 TAX RETURNS FOR TAXABLE PERIODS INCLUDING THE EFFECTIVE DATE.
Zapata will provide ZAP.COM with the opportunity to review and comment upon any
Tax Returns to be filed after the date of this Agreement (including any amended
returns), and will provide ZAP.COM, promptly upon its request, with copies of
such Tax Returns (including any amended returns).
4.3 AUDITS. Zapata will allow ZAP.COM and any ZAP.COM Pre-Closing
Affiliate and its counsel to participate (at the expense of ZAP.COM or its
ZAP.COM Pre-Closing Affiliate) in any audits of Zapata's Consolidated Federal
Income Tax Returns to the extent that such returns relate to ZAP.COM and any
ZAP.COM Pre-Closing Affiliate. Zapata will not settle any such audit in a manner
which would adversely affect ZAP.COM and any ZAP.COM Pre-Closing Affiliate
without the prior written consent of ZAP.COM, which consent shall not be
unreasonably withheld.
4.4 CARRY-BACKS. Zapata will immediately pay to ZAP.COM and any ZAP.COM
Pre-Closing Affiliate any Tax refund (or reduction in Tax liability) resulting
from a carry-back of a post-acquisition tax attribute of ZAP.COM and any ZAP.COM
Pre-Closing Affiliates into the Zapata Consolidated Group Tax Return, when such
refund or reduction is realized by the Zapata Group. Zapata will cooperate with
ZAP.COM and any ZAP.COM Pre-Closing Affiliate in obtaining such refunds (or
reduction in Tax liability), including, but not limited to, the filing of
amended Tax Returns or refund claims.
4.5 CONTEST PROVISIONS. Zapata shall have full responsibility and
discretion in the handling of any Tax controversy, including, without
limitation, an audit, a protest to the Appeals Division of the IRS, and
litigation in Tax Court or any other court of competent jurisdiction involving a
Tax Return of the Consolidated Group or the Zapata Group.
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ARTICLE 5
MISCELLANEOUS
5.1 TAX INDEMNIFICATION.
(a) Zapata shall defend, indemnify and hold harmless ZAP.COM
and each ZAP.COM Pre-Closing Affiliate from and against any liability, cost or
expense, including, without limitation, any fine, penalty, interest, charge or
reasonable accountant's fee, for any Tax required under this Agreement to be
paid by Zapata or any member of the Consolidated Group other than ZAP.COM or a
ZAP.COM Pre-Closing Affiliate.
(b) ZAP.COM shall indemnify and hold harmless Zapata and each
member of the Zapata Group from and against any liability, cost or expense,
including without limitation, any fine, penalty, interest, charge or reasonable
accountant's fee, for any Tax required under this Agreement to be paid by
ZAP.COM or any ZAP.COM Post-Closing Affiliate.
(c) The amount of any payment made with respect to this
Section 5.1 shall include any additional amount necessary to indemnify the
recipient of the payment against any Taxes imposed or incurred (including any
increase in liability or taxes resulting from a reduction in the amount of the
loss), and any reasonable professional fees or other litigation costs incurred,
in connection with such payment, and (ii) be reduced by the amount of any tax
benefit realized or to be realized by the recipient as a result of its payment
of the Taxes being indemnified hereunder.
5.2 BREACH. Zapata shall defend, indemnify and hold harmless ZAP.COM
and each ZAP.COM Pre-Closing Affiliate and ZAP.COM shall indemnify and hold
harmless each member of the Zapata Group from and against any payment required
to be made under this Agreement as a result of the breach by a member of the
Zapata Group or by ZAP.COM or a ZAP.COM Pre-Closing Affiliate, as the case may
be, of any obligation under this Agreement.
5.3 RESOLUTION OF CERTAIN DISPUTES.
(a) Arbitration. Disagreements between Zapata and ZAP.COM with
respect to amounts that either claims is owed by the other (or by an Affiliate
of the other) under this Agreement, or other matters under this Agreement that
are not resolved by mutual agreement, shall be resolved by arbitration pursuant
to this Section 5.3.
(b) Selection of the Arbitrator. Any arbitrator selected
pursuant to this Section 5.3(b) shall have at least ten (10) years of experience
in the field of corporate taxation, shall be an attorney licensed to practice
law in any state of the United States or a certified public accountant licensed
to practice in any state of the United States and shall not be or have been
employed by or affiliated with either party. The parties shall first attempt to
agree on a mutually satisfactory arbitrator. If the parties are unable to agree
on a
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mutually satisfactory arbitrator within thirty (30) days after either party
notifies the other in writing of a disagreement requiring arbitration pursuant
to this Section 5.3 (15 days in the case of a disagreement with respect to
Section 4.1 through Section 4.5), each party shall select an arbitrator. The two
arbitrators thus selected shall agree on and select a third arbitrator. If the
two arbitrators cannot agree on such third arbitrator within thirty (30) days
(fifteen (15) days in the case of a disagreement with respect to Section 4.1
through Section 4.5), the parties shall each select a different arbitrator and
renew the foregoing procedure. If the position of an arbitrator is vacated, the
person or persons who originally selected the arbitrator to fill such position
shall select a new arbitrator to fill the position, unless the parties agree to
continue the arbitration with the remaining arbitrators. When used hereinafter,
the term "arbitrator" shall refer to the three arbitrators so selected when
appropriate and a decision of a majority of such arbitrators shall constitute a
decision by the arbitrator in the appropriate context.
(c) Arbitration Procedures.
(i) The arbitration shall be conducted under the
auspices of the American Arbitration Association.
(ii) Each party within thirty (30) days after
engagement of the arbitrator (fifteen (15) days in the case of a disagreement
with respect to Section 4.1 through Section 4.5) shall submit to the arbitrator
a written statement of the party's position (including where relevant the total
net amount it asserts is owed by it or is due to it) regarding the total amount
in dispute.
(iii) The arbitrator shall base his decision on the
following standards. In the case of a factual dispute between the parties, the
arbitrator shall make a determination of the correct facts. In the case of a
dispute regarding a legal issue, including the proper application of the Tax
laws or the proper interpretation of this Agreement, the arbitrator shall make a
determination in accordance with his best legal judgment. Upon making
determinations with respect to all factual and legal issues in dispute, the
arbitrator shall determine the amount due by one party to the other or such
other matter with respect to the matter subject to the arbitration. Where
relevant, as to each matter in dispute, the arbitrator shall find in favor of
the party whose statement submitted pursuant to paragraph (ii) above proposed
the amount closest to the amount so determined.
(iv) The arbitrator shall render a written decision
stating only the result of such decision as soon as practicable. The arbitrator
shall also orally explain the bases of such decision to both parties as soon as
practicable. If and only if both parties request, the arbitrator shall state the
bases of such decision in writing. Where relevant, as to each matter in dispute,
the arbitrator's decision shall be in an amount equal to one of the total
amounts asserted by one of the parties in the written statements submitted
pursuant to paragraph (ii) above. The arbitrator shall not, and is not
authorized to, render a decision in any other amount.
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(v) The arbitrator's decision shall be final and
binding on the parties. No appeal to any court is contemplated by this Agreement
and each party, to the maximum extent permissible by law, waives and
relinquishes all rights and entitlements to appeal such decision.
(vi) The arbitrator shall determine a fair allocation
of the costs of the arbitration proceeding (including each party's legal fees)
as between the parties.
5.4 NOTICES. Any notice, demand, claim or other communication under
this Agreement shall be in writing and shall be deemed given upon delivery if
delivered personally, upon mailing if sent by certified mail, return receipt
requested, postage prepaid, or upon completion of transmission if sent by
telecopy or facsimile, to the parties at the following address:
If to Zapata:
Zapata Corporation
100 Meridian Centre, Suite 350
Rochester, New York 14618
Attn: Avram Glazer, Chief Executive Officer
If to ZAP.COM:
ZAP.COM Corporation
100 Meridian Centre, Suite 350
Rochester, New York 14618
Attn: Leonard DiSalvo, Vice President - Finance
5.5 ENTIRE AGREEMENT. This Agreement and the applicable provisions of
the Distribution Agreement constitute the entire agreement of the parties
concerning the subject matter hereof, and supersedes all other agreements,
whether or not written, in respect of any Tax between or among any member or
members of the Zapata Group, on the one hand, and ZAP.COM and any ZAP.COM
Pre-Closing Affiliate, on the other hand. This Agreement may not be amended
except by an agreement in writing, signed by the parties hereto. In the event
and to the extent that there shall be a conflict between the provisions of this
Agreement and the Distribution Agreement, the provisions of this Agreement shall
control.
5.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with, the laws of the State of New York.
5.7 SUCCESSORS AND ASSIGNS. A party's rights and obligations under this
Agreement may not be assigned without the prior written consent of the other
party. All of the provisions of this Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns.
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5.8 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties to this Agreement and their respective subsidiaries and
should not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without this Agreement.
5.9 LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of the prohibition or unenforceability without
invalidating the remaining provisions. Any prohibition or unenforceability of
any provision of this Agreement in any jurisdiction shall not invalidate or
render unenforceable the provision in any other jurisdiction.
5.10 EXPENSES. Unless otherwise expressly provided in this Agreement or
in the Distribution Agreement, each party shall bear any and all expenses that
arise from their respective obligations under this Agreement. In the event
either party to this Agreement brings an action or proceeding for the breach or
enforcement of this Agreement, the prevailing party in such action or
proceeding, whether or not such action or proceeding proceeds to final judgment,
shall be entitled to recover as an element of its costs, and not as damages,
such reasonable attorneys' fees as may be awarded in the action or proceeding in
addition to whatever other relief to which the prevailing party may be entitled.
5.11 CONFIDENTIALITY. Each party shall hold and cause its
Representatives to hold in strict confidence, unless compelled to disclose by
judicial or administrative process or, in the opinion of its counsel, by other
requirements of law, all information (other than any such information relating
solely to the business or affairs of such party) concerning the other parties
hereto furnished it by such other party or its Representatives pursuant to this
Agreement (except to the extent that such information can be shown to have been
(a) previously known by the party to which it was furnished, (b) in the public
domain through no fault of such party, or (c) later lawfully acquired from other
sources by the party to which it was furnished), and each party shall not
release or disclose such information to any other person, except its auditors,
attorneys, financial advisors, bankers and other consultants and advisors who
shall be advised of the provisions of this Section. Each party shall be deemed
to have satisfied its obligation to hold confidential information concerning or
supplied by the other party if it exercises the same care as it takes to
preserve confidentiality for its own similar information.
5.12 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signature thereto and hereto were upon the same instrument.
5.13 HEADINGS. Introductory headings used in this Agreement are solely
for the convenience of the parties and shall not be deemed to be limitations
upon or descriptive of the contents of the Section or sub-sections concerned.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
ZAP.COM CORPORATION
By:
Name: Leonard DiSalvo
Title: Vice President - Finance
ZAPATA CORPORATION
By:
Name: Avram Glazer
Title President and Chief Executive
Officer
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EXHIBIT 10.4
(FORM OF)
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
________, 1999, between ZAPATA CORPORATION, a Nevada corporation ("Zapata"),
and ZAP.COM CORPORATION, a Nevada corporation (the "Company").
R E C I T A L S:
A. Zapata is the record and beneficial owner of 49,450,000 shares of
the Company's common stock.
B. Pursuant to an Investment and Distribution of even date herewith
between Zapata and the Company, Zapata has agreed to distribute 477,742 shares
of the Company's common stock to eligible Zapata stockholders (the
"Distribution").
C. Under the Investment and Distribution Agreement the Company is
required to enter into this Agreement and to grant to Zapata certain
registration rights applicable to Registrable Securities (as defined below) held
by Zapata as a condition to Zapata effecting the Distribution.
NOW, THEREFORE, upon the premises and based on the mutual promises
herein contained, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
initially capitalized terms shall have the following meanings:
(a) "Affiliate" means, with respect to any person, any other
person who, directly or indirectly, is in control of, is controlled by or is
under common control with the former person; and "control" (including the terms
"controlling," "controlled by," and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
(b) "Company Securities" has the meaning set forth in Section
3 hereof.
(c) "Exchangeable Securities" has the meaning set forth in
Section 6 of this Agreement.
(d) "Fair Market Value" means, with respect to any security,
(i) if the security is listed on a national securities exchange or authorized
for quotation on a national market quotation system, the closing price, regular
way, of the security on such exchange or quotation system, as the case may be,
or if no such reported sale of the security shall have occurred on such date, on
the next preceding date on which there was such a reported sale, or (ii) if the
security is not listed for trading on a national securities exchange or
authorized for quotation on a national market quotation system, the average of
the closing bid and asked prices as reported by the National Association of
Securities Dealers Automated Quotation System or such other reputable entity or
system engaged in the regular reporting of securities prices and on which such
prices for such security are reported or, if no such prices shall have been
reported for such date, on the next preceding date for which such prices were so
reported, or (iii) if the security is not publicly traded, the fair market value
of such security as determined by a nationally recognized investment banking or
appraisal firm mutually acceptable to the Company and the Holders, the fair
market value of whose Registrable Securities is to be determined.
(e) "Holder" means Zapata or any Permitted Transferee.
(f) "Initiating Holders" has the meaning set forth in Section
3 of this Agreement.
<PAGE> 2
(g) "Other Holders" has the meaning set forth in Section 3
hereof.
(h) "Other Securities" has the meaning set forth in Section 3
hereof.
(i) "Other Voting Securities" means any options, rights,
warrants or other securities convertible into or exchangeable for Voting Stock
of the Company.
(j) "Permitted Transferee" has the meaning set forth in
Section 11 hereof.
(k) "Person" means any individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, or other entity of whatever nature.
(l) "Registrable After-Acquired Securities" means any
securities of the Company acquired by Zapata (or any Permitted Transferee).
(m) "Registrable Securities" means (i) all shares of Common
Stock (as presently constituted) owned on the date hereof by Zapata, (ii) all
Registrable After-Acquired Securities, (iii) any stock or other securities into
which or for which such Common Stock or Registrable After-Acquired Securities
may hereafter be changed, converted or exchanged, and (iv) any other securities
issued to holders of such Common Stock or Registrable After-Acquired Securities
(or such stock or other securities into which or for which such Common Stock or
Registrable After-Acquired Securities are so changed, converted or exchanged)
upon any reclassification, share combination, share subdivision, share dividend,
merger, consolidation or similar transaction or event, provided that any such
securities shall cease to be Registrable Securities when such securities are
sold in any manner to a person who is not a Permitted Transferee.
(n) "Registration Expenses" means all out-of-pocket expenses
incurred in connection with any registration of Registrable Securities pursuant
to this Agreement including, without limitation, the following; (i) SEC filing
fees; (ii) the fees, disbursements and expenses of the Company's counsel(s) and
accountants in connection with the registration of the Registrable Securities to
be disposed of; (iii) all expenses in connection with the preparation, printing
and filing of the registration statement, any preliminary prospectus or final
prospectus and amendments and supplements thereto and the mailing and delivering
of copies thereof to any Holders, underwriters and dealers and all expenses
incidental to delivery of the Registrable Securities; (iv) the cost of printing
or producing any underwriting agreement, agreement among underwriters, agreement
between syndicates, selling agreement, blue sky or legal investment memorandum
or other document in connection with the offering, sale or delivery of the
Registrable Securities to be disposed of; (v) all expenses in connection with
the qualification of the Registrable Securities to be disposed of for offering
and sale under state securities laws, including the fees and disbursements of
counsel for the underwriters in connection with such qualification and the
preparation of any blue sky and legal investments surveys; (vi) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Registrable Securities
to be disposed of; (vii) transfer agents', depositaries' and registrars' fees
and the fees of any other agent appointed in connection with such offering;
(viii) all security engraving and security printing expenses, (ix) all fees and
expenses payable in connection with the listing of the Registrable Securities on
any securities exchange or inter-dealer quotation system; and (x) any one-time
payment for directors and officers insurance directly related to such offering,
provided the insurer provides a separate statement for such payment.
(o) "Rule 144" means Rule 144 promulgated under the Securities
Act, or any successor rule to similar effect.
(p) "SEC" means the United States Securities and Exchange
Commission.
(q) "Securities Act" means the Securities Act of 1933, as
amended, or any successor statute.
(r) "Selling Expenses" means all underwriting discounts and
commissions, selling concessions and stock transfer taxes applicable to the sale
by the Holders of Registrable Securities pursuant to this Agreement and all fees
and disbursements of any legal counsel, investment banker, accountant or other
professional advisor retained by a Holder.
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(s) "Selling Holder" has the meaning set forth in Section 5
hereof.
(t) "Transactional Deferral" has the meaning set forth in
Section 2 of this Agreement.
(u) "Voting Stock" means shares of the Company's capital stock
having the power under ordinary circumstances (and not merely upon the happening
of a contingency) to vote in the election of directors of the Company.
2. Demand Registration.
(a) At any time prior to such time as the rights under this
Section 2 terminate with respect to a Holder as provided in Section 2(e) hereof,
upon written notice from such Holder in the manner set forth herein requesting
that the Company effect the registration under the Securities Act of any or all
of the Registrable Securities held by such Holder, which notice shall specify
the intended method or methods of disposition of such Registrable Securities,
the Company shall use its best efforts to effect, in the manner set forth in
Section 5, the registration under the Securities Act of such Registrable
Securities for disposition in accordance with the intended method or methods of
disposition stated in such request (including in an offering on a delayed or
continuous basis under Rule 415 (or any successor rule to similar effect)
promulgated under the Securities Act, if (x) the Company is then eligible to
register such Registrable Securities on Form S-3 (or a successor form) for such
offering and (y) the Company consents to such an offering (except that no
consent of the Company will be required if the contemplated offering on a
delayed or continuous basis under Rule 415 is the offering of Registrable
Securities upon the exercise, exchange or conversion of Exchangeable Securities
as contemplated by Section 6 hereof)), provided that:
(i) if, within 5 business days of receipt of a
registration request pursuant to this Section 2(a), the Holder
or Holders making such request are advised in writing that the
Company has in good faith commenced the preparation of a
registration statement for an underwritten public offering
prior to receipt of the notice requesting registration
pursuant to this Section 2(a) and the managing underwriter of
the proposed offering has determined that in such firm's good
faith opinion, a registration at the time and on the terms
requested would materially and adversely affect the offering
that is contemplated by the Company, the Company shall not be
required to effect a registration pursuant to this Section
2(a) (a "Transactional Deferral") until the earliest of (A)
the abandonment of such offering by the Company, (B) 60 days
after receipt by the Holder or Holders requesting registration
of the managing underwriter's written opinion referred to
above in this clause (i), unless the registration statement
for such offering has become effective and such offering has
commenced on or prior to such 60th day, and (C) if the
registration statement for such offering has become effective
and such offering has commenced on or prior to such 60th day,
the day on which the restrictions on the Holders contained in
Section 10 hereof lapse, provided, however, that the Company
shall not be permitted to delay a requested registration in
reliance on this clause (i) more than once in any 12-month
period;
(ii) if, while a registration request is pending
pursuant to this Section 2(a), the Company determines,
following consultation with and receiving advice from its
legal counsel, that the filing of a registration statement
would require the disclosure of material information that the
Company has a bona fide business purpose for preserving as
confidential and the disclosure of which the Company
determines reasonably and in good faith would have a material
adverse effect on the Company, the Company shall not be
required to effect a registration pursuant to this Section
2(a) until the earlier of (A) the date upon which such
material information is otherwise disclosed to the public or
ceases to be material and (B) 90 days after the Company makes
such determination;
(iii) the Company shall not be obligated to file a
registration statement relating to a registration request
pursuant to this Section 2 if such registration request is for
a number of Registrable Securities having a Fair Market Value
on the
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<PAGE> 4
business day immediately preceding the date of such
registration request of less than $5,000,000.00; and
(iv) the Company shall not be obligated to file a
registration statement relating to a registration request
pursuant to this Section 2: (A) in the case of a registration
request by Zapata or any Permitted Transferee that has
acquired, in the transaction in which it became a Permitted
Transferee, at least a majority of the then issued and
outstanding Voting Stock, on more than three occasions after
such time as Zapata or such Permitted Transferee, as the case
may be, owns less than a majority of the voting power of the
outstanding capital stock of the Company (it being
acknowledged that so long as Zapata or such Permitted
Transferee owns a majority of the voting power of the
outstanding capital stock of the Company, there shall be no
limit to the number of occasions on which Zapata or such
Permitted Transferee may exercise such rights other than as
expressly set forth herein), or (B) in the case of a Holder
other than Zapata or a Permitted Transferee described in
clause (A) above, on more than the number of occasions
permitted such Holder in accordance with Section 11 hereof.
(b) Notwithstanding any other provision of this Agreement to
the contrary:
(i) a registration requested by a Holder pursuant to
this Section 2 shall not be deemed to have been effected (and,
therefore, not requested for purposes of Section 2(a)), (A)
unless the registration statement filed in connection
therewith has become effective, (B) if after such registration
statement has become effective, it becomes subject to any stop
order, or there is issued an injunction or other order or
decree of the SEC or other governmental agency or court for
any reason other than a misrepresentation or an omission by
such Holder, which injunction, order or decree prohibits or
otherwise materially and adversely affects the offer and sale
of the Registrable Securities so registered prior to the
completion of the distribution thereof in accordance with the
plan of distribution set forth in the registration statement
or (C) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection
with such registration are not satisfied by reason of some
act, misrepresentation or omission by the Company and are not
waived by the purchasers or underwriters; and
(ii) nothing herein shall modify a Holder's
obligation to pay Registration Expenses, in accordance with
Section 4 hereof, that are incurred in connection with any
withdrawn registration requested by such Holder.
(c) In the event that any registration pursuant to this
Section 2 shall involve, in whole or in part, an underwritten offering, Holders
owning at least 50.1% of the Fair Market Value of the Registrable Securities to
be registered in connection with such offering shall have the right to designate
an underwriter reasonably satisfactory to the Company as the lead managing
underwriter of such underwritten offering, and the Company shall have the right
to designate one underwriter reasonably satisfactory to such Holders as a
co-manager of such underwritten offering.
(d) The Company shall have the right to cause the registration
of additional securities for sale for the account of any person (including the
Company) in any registration of Registrable Securities requested by any Holder
pursuant to Section 2(a) only to the extent the managing underwriter or other
independent marketing agent for such offering (if any) determines that, in its
opinion, the additional securities proposed to be sold will not materially and
adversely affect the offering and sale of the Registrable Securities to be
registered in accordance with the intended method or methods of disposition then
contemplated by such Holder. The rights of a Holder to cause the registration of
additional Registrable Securities held by such Holder in any registration of
Registrable Securities requested by another Holder pursuant to Section 2(a)
shall be governed by the agreement of the Holders with respect thereto as
provided in Section 11(a).
(e) The Company shall not be obligated to file a registration
statement relating to a registration request by a Holder pursuant to this
Section 2 from and after such time as such Holder first owns Registrable
Securities representing (assuming for this purpose the conversion, exchange or
exercise of all Registrable Securities then owned by
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<PAGE> 5
such Holder that are convertible into or exercisable or exchangeable for Voting
Stock of the Company) less than 10% of the then issued and outstanding Voting
Stock of the Company.
3. Piggyback Registration. If the Company at any time proposes to
register any of its Common Stock or any other of its securities (collectively,
"Other Securities") under the Securities Act, whether or not for sale for its
own account, in a manner which would permit registration of Registrable
Securities for sale for cash to the public under the Securities Act, it will at
such time give prompt written notice to each Holder of its intention to do so at
least 10 business days prior to the anticipated filing date of the registration
statement relating to such registration. Such notice shall offer each such
Holder the opportunity to include in such registration statement such number of
Registrable Securities as each such Holder may request. Upon the written request
of any such Holder made within 5 business days after the receipt of the
Company's notice (which request shall specify the number of Registrable
Securities intended to be disposed of and the intended method of disposition
thereof), the Company shall effect, in the manner set forth in Section 5, in
connection with the registration of the Other Securities, the registration under
the Securities Act of all Registrable Securities which the Company has been so
requested to register, to the extent required to permit the disposition (in
accordance with such intended methods thereof) of the Registrable Securities so
requested to be registered, provided that:
(a) if at any time after giving written notice of its
intention to register any securities and prior to the effective date of such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to the Holders and, thereupon, (A) in the
case of a determination not to register, the Company shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration and (B) in the case of a determination to delay such registration,
the Company shall be permitted to delay registration of any Registrable
Securities requested to be included in such registration for the same period as
the delay in registering such other securities, but, in either such case,
without prejudice to the rights of the Holders under Section 2;
(b) (i) if the registration referred to in the first sentence
of this Section 3 is to be a registration in connection with an underwritten
offering on behalf of either the Company or holders of securities (other than
Registrable Securities) of the Company ("Other Holders"), and the managing
underwriter for such offering advises the Company in writing that, in such
firm's opinion, such offering would be materially and adversely affected by the
inclusion therein of Registrable Securities requested to be included therein
because such Registrable Securities are not of the same type, class or series as
the securities to be offered and sold in such offering on behalf of the Company
and/or the Other Holders, the Company may exclude all such Registrable
Securities from such offering provided that the Holder is permitted to
substitute for the Registrable Securities so excluded an equal number of
Registrable Securities of the same type, class or series as those being
registered by the Company or the Other Holders, if and to the extent such Holder
owns Registrable Securities of such type, class or series or can acquire
Registrable Securities of such type, class or series upon exercise or conversion
of other Registrable Securities; and
(ii) if the registration referred to in the first sentence of this
Section 3 is to be a registration in connection with an underwritten primary
offering on behalf of the Company, and the managing underwriter for such
offering advises the Company in writing that, in such firm's opinion, such
offering would be materially and adversely affected by the inclusion therein of
the Registrable Securities requested to be included therein because the number
or principal amount of such Registrable Securities, considered together with the
number or principal amount of securities proposed to be offered by the Company,
exceeds the aggregate number or principal amount of securities which, in such
firm's opinion, can be sold in such offering without materially and adversely
affecting the offering, the Company shall include in such registration: (1)
first, all securities the Company proposes to sell for its own account ("Company
Securities") and (2) second, the number or principal amount of Registrable
Securities and securities, if any, requested to be included therein by Other
Holders in excess of the number or principal amount of Company Securities which,
in the opinion of such underwriter, can be so sold without materially and
adversely affecting such offering (allocated pro rata among the Holders and the
Other Holders on the basis of the number of securities (including Registrable
Securities) requested to be included therein by each Holder and each such Other
Holder); and
(iii) if the registration referred to in the first sentence of this
Section 3 is to be a registration in connection with an underwritten secondary
offering on behalf of Other Holders made pursuant to demand registration rights
granted by the Company to such Other Holders (the "Initiating Holders"), and the
managing underwriter for such offering advises the Company in writing that, in
such firm's opinion, such offering would be materially and adversely affected by
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<PAGE> 6
the inclusion therein of the Registrable Securities requested to be included
therein because the number or principal amount of such Registrable Securities,
considered together with the number or principal amount of securities proposed
to be offered by the Initiating Holders, exceeds the aggregate number or
principal amount of securities which, in such firm's opinion, can be sold in
such offering without materially and adversely affecting the offering, the
Company shall include in such registration; (1) first, to the extent the
registration rights granted to an Initiating Holder permit it to exclude other
securities from its registration on substantially the same basis as that set
forth in the first sentence of Section 2(d) hereof, all securities any such
Initiating Holder proposes to sell for its own account, and (2) second, the
number or principal amount of additional securities (including Registrable
Securities) that such managing underwriter advises can be sold without
materially and adversely affecting such offering, allocated pro rata among any
Other Holders to which clause (1) does not apply and the Holders on the basis of
the number of securities (including Registrable Securities) requested to be
included therein by each Holder and each such Other Holder,
(c) the Company shall not be required to effect any
registration of Registrable Securities under this Section 3 incidental to the
registration of any of its securities in connection with stock option or other
executive or employee benefit or compensation plans of the Company;
(d) no registration of Registrable Securities effected under
this Section 3 shall relieve the Company of its obligation to effect any
registration of Registrable Securities required of the Company pursuant to
Section 2 hereof, except as expressly provided in Section 2; and
(e) the Company shall not be required to effect any
registration of Registrable Securities under this Section for any Holder from
and after such time as such Holder is able to dispose of all of its Registrable
Securities within a three-month period pursuant to Rule 144.
4. Expenses. The Holders, on the one hand, by accepting Registrable
Securities, and the Company, on the other hand, each agree to pay one-half of
all Registration Expenses with respect to a registration pursuant to Section 2
hereof, provided that to the extent a registration pursuant to Section 2
includes the registration of shares for the Company or another person in
connection therewith, the Company or such other person shall pay all incremental
expenses of including such additional shares in the registration. The Holders'
portion of any Registration Expenses shall be allocated among them pro rata
based on each Holder's number or principal amount of Registrable Securities
included in such offering. The Company agrees to pay all Registration Expenses
with respect to a registration pursuant to Section 3 hereof. All Registration
Expenses to be paid by the Holder shall be paid within 3010 days of the delivery
of a statement from the Company, such statements to be delivered not more
frequently than once every 6030 days. All internal expenses of the Company or a
Holder in connection with any offering pursuant to this Agreement, including,
without limitation, the salaries and expenses of officers and employees,
including in-house attorneys, shall be borne by the party incurring them. All
Selling Expenses of the Holders participating in any registration pursuant to
this Agreement shall be borne by such Holders pro rata based on each Holder's
number of Registrable Securities included in such registration.
5. Registration and Qualification. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act as provided in Section 2 or 3 hereof, the
Company, subject to Section 4 hereof, shall:
(a) prepare and file a registration statement under the
Securities Act relating to the Registrable Securities to be offered as soon as
practicable, but in no event later than 45 days (60 days if the applicable
registration form is other than Form S-3) after the date notice is given, and
use its best efforts to cause the same to become effective within 90 days after
the date notice is given (120 days if the applicable registration form is other
than Form S-3);
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective with
respect to the disposition of all Registrable Securities until the earlier of
(i) such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition set forth in such
registration statement and (ii) the expiration of nine months after such
registration statement becomes effective; provided, that such nine-month period
shall be extended for such number of days that equals the number of days
elapsing from (A) the date the written notice contemplated by paragraph (f)
below is given by the Company to (B) the date on which the Company delivers to
the Holders of Registrable Securities the supplement or amendment contemplated
by
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paragraph (f) below; and provided further, that in the case of a registration
to permit the exercise or exchange of Exchangeable Securities for, or the
conversion of Exchangeable Securities into, Registrable Securities, the time
limitation contained in clause (ii) above shall be disregarded to the extent
that, in the written opinion of Zapata's counsel delivered to the Company, such
Registrable Securities are required to be covered by an effective registration
statement under the Securities Act at the time such Registrable Securities are
issued upon exercise, exchange or conversion of Registrable Securities in order
for such Registrable Securities to be freely tradeable by any person who is not
an Affiliate of the Company or Zapata;
(c) furnish to the Holders and to any underwriter of such
Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities Act,
and such other documents, as the Holders or such underwriter may reasonably
request in order to facilitate the public sale of the Registrable Securities,
and a copy of any and all transmittal letters or other correspondence to, or
received from, the SEC or any other governmental agency or self-regulatory body
or other body having jurisdiction (including any domestic or foreign securities
exchange) relating to such offering;
(d) use its best efforts to register or qualify all
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions (domestic or foreign) as the
Holders or any underwriter of such Registrable Securities shall request, and use
its best efforts to obtain all appropriate registrations, permits and consents
required in connection therewith, and do any and all other acts and things which
may be necessary or advisable to enable the Holders or any such underwriter to
consummate the disposition in such jurisdictions of its Registrable Securities
covered by such registration statement; provided that the Company shall not for
any such purpose be required to register or qualify generally to do business as
a foreign corporation in any jurisdiction wherein it is not so qualified, or to
subject itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(e) (i) use its best efforts to furnish an opinion of counsel
for the Company addressed to the underwriters and dated the date of the closing
under the underwriting agreement (if any) (or if such offering is not
underwritten, dated the effective date of the registration statement), and (ii)
use its best efforts to furnish a "cold comfort" letter addressed to the
underwriters, if permissible under applicable accounting practices, and signed
by the independent public accountants who have audited the Company's financial
statements included in such registration statement, in each such case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements;
(f) immediately notify each Holder of Registrable Securities
included in such registration (each a "Selling Holder") in writing (i) at any
time when a prospectus relating to a registration pursuant to Section 2 or 3
hereof is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) if any request by the SEC or any other regulatory
body or other body having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and in
either such case (i) or (ii) at the request of the Selling Holders, subject to
Section 4 hereof, prepare and furnish to the Selling Holders a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading;
(g) use its best efforts to list all such Registrable
Securities covered by such registration on each securities exchange and
inter-dealer quotation system on which the Common Stock is then listed, with
expenses in connection therewith (not including any future periodic assessments
or fees for such additional listing, which shall be paid by the Company) to be
paid in accordance with Section 4 hereof;
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<PAGE> 8
(h) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange or
inter-dealer quotation system (in each case, domestic or foreign) not described
in paragraph (g) above as the Selling Holders or any underwriter of such
Registrable Securities shall request, and use its best efforts to obtain all
appropriate registrations, permits and consents required in connection
therewith, and to do any and all other acts and things which may be necessary or
advisable to effect such listing; provided, however, that, (i) notwithstanding
Section 4, the Holders of the Registrable Securities to be so listed shall pay
all costs and expenses incurred by the Company in connection with such listing
and (ii) the Company shall have no obligation to use its best efforts to so list
Registrable Securities if in the good faith opinion of counsel for the Company
such listing shall impose on the Company an ongoing material compliance
obligation;
(i) to the extent reasonably requested by the lead or managing
underwriters in connection with any underwritten offering, send appropriate
officers of the Company to attend any "road shows" scheduled in connection with
any such registration; and
(j) furnish for delivery in connection with the closing of any
offering of Registrable Securities unlegended certificates representing
ownership of the Registrable Securities being sold in such denominations as
shall be requested by the Selling Holders or the underwriters.
6. Exchangeable Securities. Zapata shall be entitled, if it intends to
offer any options, rights, warrants or other securities issued or to be issued
by it or any other person that are exercisable or exchangeable for or
convertible into any Registrable Securities ("Exchangeable Securities"), to
register the Registrable Securities underlying such options, rights, warrants or
other securities pursuant to (and subject to the limitations contained in)
Section 2 of this Agreement.
7. Underwriting; Due Diligence.
(a) If requested by the underwriters for any underwritten
offering of Registrable Securities pursuant to a registration requested under
this Agreement, the Company shall enter into an underwriting agreement, with
such underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, indemnities and
contribution substantially to the effect and to the extent provided in Section 8
hereof and the provision of opinions of counsel and accountants' letters to the
effect and to the extent provided in Section 5(e) hereof. The Selling Holders on
whose behalf the Registrable Securities are to be distributed by such
underwriters shall be parties to any such underwriting agreement. Such
underwriting agreement shall also contain such representations and warranties by
the Selling Holders on whose behalf the Registrable Securities are to be
distributed as are customarily contained in underwriting agreements with respect
to secondary distributions. The Selling Holders may require that any additional
securities included in an offering proposed by a Holder be included on the same
terms and conditions as the Registrable Securities that are included therein.
(b) In the event that any registration pursuant to Section 3
shall involve, in whole or in part, an underwritten offering, the Company may
require the Registrable Securities requested to be registered pursuant to
Section 3 to be included in such underwritten offering on the same terms and
conditions as shall be applicable to the other securities being sold through
underwriters under such registration. If requested by the underwriters for such
underwritten offering, the Selling Holders on whose behalf the Registrable
Securities are to be distributed shall enter into an underwriting agreement with
such underwriters, such agreement to contain such representations and warranties
by the Selling Holders and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary distributions,
including, without limitation, indemnities and contribution substantially to the
effect and to the extent provided in Section 8 hereof. Such underwriting
agreement shall also contain such representations and warranties by the Company
and such other person or entity for whose account securities are being sold in
such offering as are customarily contained in underwriting agreements with
respect to secondary distributions.
(c) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act, the Company shall give the Holders of such Registrable Securities and the
Underwriters, if any, and their respective counsel and accountants, such
reasonable and customary access to its banks and records and such opportunities
to discuss the business of the Company with its officers and the independent
public
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<PAGE> 9
accountants who have certified the Company's financial statements as shall be
necessary, in the opinion of such Holders and such underwriters or their
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
8. Indemnification and Contribution.
(a) In the case of each offering of Registrable Securities
made pursuant to this Agreement, the Company agrees to indemnify and hold
harmless each Holder, its officers and directors, each underwriter of
Registrable Securities so offered and each person, if any, who controls any of
the foregoing persons within the meaning of the Securities Act, from and against
any and all claims, liabilities, losses, damages, expenses and judgments, joint
or several, to which they or any of them may become subject, under the
Securities Act or otherwise, including any amount paid in settlement of any
litigation commenced or threatened which is approved by the indemnifying party
as provided below, and shall promptly reimburse them, as and when incurred, for
any reasonable legal or other expenses incurred by them in connection with
investigating any claims and defending any actions, insofar as such losses,
claims, damages, liabilities or actions shall arise out of, or shall be based
upon, any untrue statement or alleged untrue statement of a material fact
contained in the registration statement (or in any preliminary or final
prospectus included therein) or any amendment thereof or supplement thereto, or
in any document incorporated by reference therein, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company shall not be liable to a particular Holder in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement, or any
omission, if such statement or omission shall have been made in reliance upon
and in conformity with information relating to such Holder furnished to the
Company in writing by or on behalf of such Holder specifically for use in the
preparation of the registration statement (or in any preliminary or final
prospectus included therein) or any amendment thereof or supplement thereto.
Such indemnity shall remain in full force and affect regardless of any
investigation made by or on behalf of a Holder and shall survive the transfer of
such securities. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to each Holder, any of such
Holder's directors or officers, underwriters of the Registrable Securities or
any controlling person of the foregoing; provided, further, that this indemnity
does not apply in favor of any underwriter or person controlling an underwriter
(or if a Selling Holder offers Registrable Securities directly without an
underwriter, the Selling Holder) with respect to any loss, liability, claim,
damage or expense arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission in any preliminary prospectus
if a copy of a final prospectus was not sent or given by or on behalf of an
underwriter (or the Selling Holder, if the Selling Holder offered the
Registrable Securities directly without an underwriter) to the person asserting
such loss, claim, damage, liability or action at or prior to the written
confirmation of the sale of the Registrable Securities as required by the
Securities Act and such untrue statement or omission had been corrected in such
final prospectus.
(b) In the case of each offering made pursuant to this
Agreement, each Holder of Registrable Securities included in such offering, by
exercising its registration rights hereunder, agrees to indemnify and hold
harmless the Company, its officers and directors and each person, if any, who
controls any of the foregoing within the meaning of the Securities Act (and if
requested by the underwriters, each underwriter who participates in the offering
and each person, if any, who controls any such underwriter within the meaning of
the Securities Act), from and against any and all claims, liabilities, losses,
damages, expenses and judgments, joint or several, to which they or any of them
may become subject, under the Securities Act or otherwise, including any amount
paid in settlement of any litigation commenced or threatened which is approved
by the indemnifying party as provided below, and shall promptly reimburse them,
as and when incurred, for any legal or other expenses incurred by them in
connection with investigating any claim and defending any actions, insofar as
any such losses, claims, damages, liabilities or actions shall arise out of, or
shall be based upon, any untrue statement or alleged untrue statement of a
material fact contained in the registration statement (or in any preliminary or
final prospectus included therein) or any amendment thereof or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that such untrue statement of a
material fact is contained in, or such material fact is omitted from,
information relating to such Holder furnished in writing to the Company by or on
behalf of such Holder specifically for use in the preparation of such
registration statement (or in any preliminary or final prospectus included
therein). The foregoing indemnity is in addition to any liability which such
Holder may otherwise have to the Company, any of its directors or officers,
underwriters of the Registrable Securities or any controlling person of the
foregoing; provided, however, that this indemnity does not apply in favor of any
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<PAGE> 10
underwriter or person controlling an underwriter (or if the Company offers
Registrable Securities directly without an underwriter, the Company) with
respect to any loss, liability, claim, damage or expense arising out of or based
upon any untrue statement or alleged untrue statement or omission or alleged
omission in any preliminary prospectus if a copy of a final prospectus was not
sent or given by or on behalf of an underwriter (or the Company, if the Company
offered the Registrable Securities directly without an underwriter) to the
person asserting such loss, claim, damage, liability or action at or prior to
the written confirmation of the sale of the Registrable Securities as required
by the Securities Act and such untrue statement or omission had been corrected
in such final prospectus.
(c) Each party indemnified under Paragraph (a) or (b) of this
Section 8 shall, promptly after receipt of notice of any claim or the
commencement of any action against such indemnified party in respect of which
indemnity may be sought, notify the indemnifying party in writing of the claim
or the commencement thereof; provided that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have to
an indemnified party on account of the indemnity agreement contained in
paragraph (a) or (b) of this Section 8, except to the extent the indemnifying
party was prejudiced by such failure, and in no event shall relieve the
indemnifying party from any other liability which it may have to such
indemnified party. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 8 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof; provided that each
indemnified party, its officers and directors, if any, and each person, if any,
who controls such indemnified party within the meaning of the Securities Act,
shall have the right to employ separate counsel reasonably approved by the
indemnifying party to represent them if the named parties to any action
(including any impleaded parties) include both such indemnified party and an
indemnifying party or an Affiliate of an indemnifying party, and such
indemnified party shall have been advised by counsel either (i) that there may
be one or more legal defenses available to such indemnifying party that are
different from or additional to those available to such indemnified party or
such Affiliate or (ii) a conflict may exist between such indemnified party and
such indemnifying party or such Affiliate, and in that event the fees and
expenses of one such separate counsel for all such indemnified parties shall be
paid by the indemnifying party. An indemnified party will not settle any claim
or action for which he or it is being indemnified hereunder unless it is first
approved in writing by the indemnifying party, such approval not to be
unreasonably withheld. The indemnifying party may not agree to any settlement of
any such claim or action which provides for any remedy or relief other than
monetary damages for which the indemnifying party shall be responsible
hereunder, without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld. In any action hereunder as to which
the indemnifying party has assumed the defense thereof with counsel reasonably
satisfactory to the indemnified party, the indemnified party shall continue to
be entitled to participate in the defense thereof, with counsel of its own
choice, but, except as set forth above, the indemnifying party shall not be
obligated hereunder to reimburse the indemnified party for the costs thereof. In
all instances, the indemnified party shall cooperate fully with the indemnifying
party or its counsel in the defense of such claim or action.
(d) If the indemnification provided for in this Section 8
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party in respect of any loss, claim, damage or liability, or any
action in respect thereof, referred to herein, then each indemnifying party
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such loss, claim,
damage or liability, or action in respect thereof, in such proportion as shall
be appropriate to reflect the relative fault of the indemnifying party on the
one hand and the indemnified party on the other with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or action
in respect thereof, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party on the
one hand or the indemnified party on the other, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission, but not by reference to any indemnified
party's stock ownership in the Company. In no event, however, shall a Holder be
required to contribute in excess of the amount of the net proceeds received by
such Holder in connection with the sale of Registrable Securities in the
offering which is the subject of such loss, claim, damage or liability. The
amount paid or payable by an indemnified party as a result of the loss, claim,
damage or liability, or action in respect thereof, referred to above in this
paragraph shall be deemed to
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include, for purposes of this paragraph, any legal or other expenses reasonably
incurred by such indemnifying party in connection with investigating or
defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
9. Rule 144. The Company shall take such measures and file such
information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144 (or any successor provision). The
Company shall use its best efforts to cause all conditions to the availability
of Form S-3 (or any successor form thereto) under the Securities Act for the
filing of registration statements under this Agreement to be met as soon as
possible after the completion of the Public Offering.
10. Holdback.
(a) Each Holder agrees by the acquisition of Registrable
Securities, if so required by the managing underwriter of any offering of equity
securities by the Company, not to sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or distribution of or
otherwise dispose of any Registrable Securities owned by such Holder, during the
30 days prior to and the 90 days after the registration statement relating to
such offering has become effective (or such shorter period as may be required by
the underwriter), except as part of such underwritten offering. Notwithstanding
the foregoing sentence, each Holder subject to the foregoing sentence shall be
entitled to sell during the foregoing period any securities of the Company owned
by it in a private sale. The Company may legend and may impose stop transfer
instructions on any certificate evidencing Registrable Securities relating to
the restrictions provided for in this Section 10.
(b) The Company agrees, if so required by the managing
underwriter of any offering of Registrable Securities, not to sell, make any
short sale of, loan, grant any option for the purchase of (other than pursuant
to employee benefit plans), effect any public sale or distribution of or
otherwise dispose of any of its equity securities during the 30 days prior to
and the 90 days after any underwritten registration pursuant to Section 2 or 3
hereof has become effective, except as part of such underwritten registration
and except pursuant to registrations on Form S-4, S-8 or any successor or
similar forms thereto.
11. Transfer of Registration Rights.
(a) A Holder may transfer all or any portion of its rights
under this Agreement to any transferee of Registrable Securities that represent
(assuming the conversion, exchange or exercise of all Registrable Securities so
transferred that are convertible into or exercisable or exchangeable for the
Company's Voting Stock) at least 20% of the then issued and outstanding Voting
Stock of the Company (each, a "Permitted Transferee"); provided, however, that
(i) with respect to any transferee of less than a majority but more than 30% of
the then issued and outstanding Voting Stock, the Company shall not be obligated
to file a registration statement pursuant to a registration request made by such
transferee pursuant to Section 2 hereof on more than two occasions, and (ii)
with respect to any transferee of 30% or less of the then issued and outstanding
Voting Stock, the Company shall not be obligated to file a registration
statement pursuant to a registration request made by such transferee pursuant to
Section 2 hereof on more than one occasion. No transfer of registration rights
pursuant to this Section shall be effective unless the Company has received
written notice from the Holder of an intention to transfer at least 20 days
prior to the Holder's entering into a binding agreement to transfer Registrable
Securities (10 days in the event of an unsolicited offer). Such notice need not
contain proposed terms or name a proposed Permitted Transferee. On or before the
time of the transfer, the Company shall receive a written notice stating the
name and address of any Permitted Transferee and identifying the number and/or
aggregate principal amount of Registrable Securities with respect to which the
rights under this Agreement are being transferred and the scope of the rights so
transferred. In connection with any such transfer, the term Zapata as used in
this Agreement (other than in Section 2(a)(iv)) shall, where appropriate to
assign the rights and obligations hereunder to such Permitted Transferee, be
deemed to refer to the Permitted Transferee of such Registrable Securities.
Zapata and any Permitted Transferees may exercise the registration rights
hereunder in such priority, as among themselves, as they shall agree among
themselves, and the Company shall observe any such agreements of which it shall
have notice as provided above.
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<PAGE> 12
(b) After any such transfer, the transferring Holder shall
retain its rights under this Agreement with respect to all other Registrable
Securities owned by such transferring Holder.
(c) Upon the request of the transferring Holder, the Company
shall execute an agreement with a Permitted Transferee substantially similar to
this Agreement.
12. Miscellaneous.
(a) Injunctions. Each party acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. Therefore, each party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court having
jurisdiction, such remedy being in addition to any other remedy to which such
party may be entitled at law or in equity.
(b) Severability. If any term or provision of this Agreement
is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms and provisions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and each of the parties shall use its best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term or provision.
(c) Further Assurances. Subject to the specific terms of this
Agreement, each of the parties hereto shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
(d) Waivers, etc. Except as otherwise expressly set forth in
this Agreement, no failure or delay on the part of either party in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. Except as
otherwise expressly set forth in this Agreement, no modification or waiver of
any provision of this Agreement nor consent to any departure therefrom shall in
any event be effective unless the same shall be in writing and signed by an
authorized officer of each of the parties, and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which given.
(e) Entire Agreement. This Agreement contains the final and
complete understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior agreements and understandings between the
parties, whether written or oral, with respect to the subject matter hereof. The
paragraph headings contained in this Agreement are for reference purposes only,
and shall not affect in any manner the meaning or interpretation of this
Agreement
(f) Counterparts. For the convenience of the parties, this
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original but all of which together shall be one and the same
instrument.
(g) Amendment. This Agreement may be amended only by a written
instrument duly executed by an authorized officer of each of the parties.
(h) Notices. Unless expressly provided herein, all notices,
claims, certificates, requests, demands and other communications hereunder shall
be in writing and shall be deemed to be duly given (i) when personally delivered
or (ii) if mailed registered or certified mail, postage prepaid, return receipt
requested, on the date the return receipt is executed or the letter refused by
the addressee or its agent or (iii) if sent by overnight courier which delivers
only upon the signed receipt of the addressee, on the date the receipt
acknowledgment is executed or refused by the addressee or its agent or (iv)
if sent by facsimile or other generally accepted means of electronic
transmission, on the date confirmation of transmission is received (provided
that a copy of any notice delivered pursuant to this clause (iv)
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<PAGE> 13
shall also be sent pursuant to clause (ii) or (iii)), addressed as follows or
sent by facsimile to the following number (or to such other address or facsimile
number for a party as it shall have specified by like notice):
(i) if to Zapata, to:
Zapata Corporation
100 Meridian Centre
Suite 350
Rochester, New York 14618
Attention: Avram Glazer, Chief Executive Officer
(ii) if to the Company, to:
ZAP.COM Corporation
100 Meridian Centre
Suite 350
Rochester, New York 14618
Attention: Leonard DiSalvo, Vice President--Finance,
Chief Financial Officer
(iii) if to a Holder of Registrable Securities, to the name and
address as the same appear in the security transfer books of
the Company,
or to such other address as either party (or other Holders of Registrable
Securities) may, from time to time, designate in a written notice in a like
manner.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
(j) Assignment. Except as specifically provided herein, the
parties may not assign their rights under this Agreement. The Company may not
delegate its obligations under this Agreement.
(k) Conflicting Agreements. The Company shall not hereafter
grant any rights to any person to register securities of the Company, the
exercise of which would conflict with the rights granted to the Holders of the
Registrable Securities under this Agreement. The Company shall not hereafter
grant to any person demand registration rights permitting it to exclude the
Holders from including Registrable Securities in a registration on behalf of
such person on a basis more favorable than that set forth in Section 2(d) hereof
with respect to the Holders.
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<PAGE> 14
IN WITNESS WHEREOF, Zapata and the Company have caused this
Agreement to be duly executed by their authorized representative as of the date
first above written.
ZAPATA CORPORATION
By: _______________________________________
Name: Avram Glazer
Title: President and Chief Executive Officer
ZAP.COM CORPORATION
By: _______________________________________
Name: Leonard DiSalvo
Title: Vice President - Finance and Chief
Financial Officer
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<PAGE> 1
Exhibit 10.5
CONSULTING AGREEMENT
This CONSULTING AGREEMENT dated as of _________, 1999 (the "Effective
Date") between AMERICAN SPORTS INTERNETWORK COMPANY, LLC, (the "Consultant"),
which has its principal office located at One Buccaneer Place, Tampa, Florida
33607 and ZAP.COM CORPORATION, ("ZAP.COM"), which has its principal office
located at 100 Meridian Centre, Suite 350, Rochester, New York 14618.
R E C I T A L S
A. ZAP.COM desires to retain Consultant to render general and specific
sports related consulting services with respect to its Internet business, and
B. Consultant is willing to render such services on the terms and
conditions hereinafter provided,
P R O V I S I O N S
NOW, THEREFORE, in consideration of the mutual agreements set forth in
this Agreement and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. ENGAGEMENT.
(a) ZAP.COM hereby engages and retains Consultant to render
the consulting services described in Section 2 hereof. Nothing contained in this
Agreement shall be deemed to create or evidence any partnership, joint venture
or employment arrangement by or between the parties, it being understood that
the relationship established hereunder is limited to that of Consultant as an
independent contractor acting for and on behalf of ZAP.COM as expressly set
forth herein.
(b) Without limiting Section 1(a), Consultant shall have no
fiduciary duty or any other duty to ZAP.COM not expressly set forth herein to
Consultant shall not be an agent for or have authority to act on behalf of or
contractually bind ZAP.COM, except for any specific transaction which ZAP.COM
may authorize Consultant to do in writing. In the absence of specific written
authorization, Consultant shall have no authority to enter into any
understanding, commitment or agreement on behalf of ZAP.COM or to otherwise bind
ZAP.COM in any manner. Consultant agrees not to hold himself itself out to
others as having any authority on behalf of or related to ZAP.COM, except as may
be specifically granted to Consultant.
2. SERVICES. (a) For a period not to exceed three (3) years from the
Effective Date (the "Initial Term"), unless otherwise mutually extended, in
writing, by the Consultant and ZAP.COM, Consultant shall, at ZAP.COM's request
from time to time at Consultant's reasonable convenience, consult with and
advise ZAP.COM with respect to corporate, business, marketing and promotional
strategy involving ZAP.COM's sports related content,
<PAGE> 2
e-commerce opportunities, strategic partners and Web sites who apply to become
members of the ZAP.COM Network. In addition, upon request by ZAP.COM, Consultant
shall use commercially reasonable efforts to arrange meetings with appropriate
representatives of the National Football League ("NFL"), NFL teams, NFL Films,
NFL Properties and other similar sports governing bodies and sports marketing
organizations, as well as with potential strategic partners such as, television
networks and other organizations. Consultant shall not be required to devote any
particular amount of time toward the performance of its duties hereunder;
provided, that Consultant shall use its reasonable efforts, and devote
sufficient time as may be necessary, to become familiar with and knowledgeable
about ZAP.COM's products, services and plans, including its banner and network.
This Agreement expressly excludes the Consultant from providing any and all
capital formation and/or public relations services to the Company inclusive of,
but not limited to (i) direct or indirect promotion of the Company's securities;
(ii) assistance in making of a market in the Company's securities; and (iii)
assistance in obtaining debt and/or equity financing.
3. PAYMENT FOR SERVICES AND EXPENSES. In full consideration for the
Consultant's willingness to enter into this Agreement and to perform the
services described herein, during the Initial Term, simultaneously with the
execution hereof, ZAP.COM and Consultant shall enter into a warrant agreement
which provides for the issuance of warrants (the "Warrants") to purchase an
aggregate of 2,000,000 shares of ZAP.COM's Common Stock at an exercise price of
$____ per share. The Warrant Agreement shall be in the form of Exhibit A
attached hereto and the Warrants issuable pursuant to the Warrant Agreement
shall vest during the Initial Term in equal thirds on a cumulative basis on the
first three anniversary dates of the execution of the Warrant Agreement as more
specifically provided therein; provided that the vesting will be accelerated in
the event of a Change of Control (as defined in the Warrant Agreement) or if
ZAP.COM terminates this Agreement without cause (as defined in Section 7 of this
Agreement).
4. NONEXCLUSIVITY OF THIS AGREEMENT. ZAP.COM understands and agrees
that, except as set forth in the next sentence, Consultant shall not be
prevented or barred from rendering services of any nature for or on behalf of
any other person, firm, corporation or entity, subject to Consultant's
obligation to maintain confidentiality of ZAP.COM's confidential information
pursuant to Section 5 below. Consultant understands and agrees that ZAP.COM
shall not be prevented or barred from retaining other persons or entities to
provide services of the same nature or similar nature as those described herein
or of any nature whatsoever.
5. CONFIDENTIALITY. During the term of this Agreement and for a period
of three (3) years thereafter, Consultant will not disclose to any other person,
firm or corporation, nor use for his own benefit, during or after the term of
this Agreement, any trade secrets or other confidential information of ZAP.COM
which is acquired by Consultant in the course of performing services hereunder.
For purposes of this Agreement, a "trade secret" is information not generally
known to the public which gives ZAP.COM an advantage over its competitors,
including all data, ideas, information, knowledge and papers pertaining to the
Company's affairs, including all products or services under development,
production methods and processes, subscriber or customer lists, marketing plans
and information
-2-
<PAGE> 3
involving ZAP.COM Network applicants and participants. Any information, which
(i) at or prior to the time of disclosure by ZAP.COM to Consultant was generally
available to the public through no breach of this Agreement, (ii) was available
to the public on a nonconfidential basis prior to its disclosure by ZAP.COM to
Consultant or (iii) was made available to Consultant from a third party
(provided that Consultant did not know that such party obtained or disseminated
such information in breach of any legal obligation to ZAP.COM) shall not be
deemed confidential information of ZAP.COM for purposes hereof. The Consultant
shall also treat all information pertaining to the affairs of web publishers who
participate in the ZAP.COM Network and all existing and future or prospective
customers or strategic partners of confidential trade secrets of such
participants, customers and partners
6. REPRESENTATIONS AND WARRANTIES.
(a) ZAP.COM represents and warrants that (i) the Company is in
good standing under the laws of the State of Nevada (ii) this Agreement and the
Warrant Agreement have been authorized by all necessary corporate action of
ZAP.COM and constitute valid, binding, Obligations of ZAP.COM enforceable in
accordance with their terms and (iii) all Warrants and all shares to be issued
pursuant thereto have been duly authorized and all shares issuable under the
Warrants shall, upon tender of the exercise price thereof, be fully paid and
nonassessible.
(b) Consultant represents and warrants that: (i) this
Agreement has been authorized by all necessary corporate action of the
Consultant and are valid and binding obligations, enforceable in accordance with
their terms; (ii) it is not a party to any agreement or instrument which would
prevent it from entering this agreement or performing its obligations hereunder
or otherwise conflicts with this Agreement; and (iii) Consultant shall not offer
or make payment of any consideration to brokers, dealers or others for purposes
of inducing the purchase, making of a market or recommendation for the purchase
of Company's securities.
7. TERMINATION. This Agreement may be terminated by either Consultant
or ZAP.COM at anytime on sixty (60) day's notice. This Agreement also may be
terminated by ZAP.COM for "cause", which shall be deemed to exist of the
Consultant materially breaches any of its material obligations under this
Agreement, provided that ZAP.COM shall first have given the Consultant written
notice specifying the facts constituting the material breach at least ten (10)
days prior to the date of termination and the Consultant shall not have cured
such breach if it is capable of being cured.
8. CONSULTANT'S LIABILITY. In the absence of gross negligence or
willful misconduct on the part of the Consultant or the Consultant's breach of
any term of this Agreement, the Consultant shall not be liable to the Company or
to any officer, director, employee, shareholder or creditor of the Company, for
any act or omission in the course of or in connection with the rendering or
providing of services hereunder. Except in those cases where gross negligence or
willful misconduct of the Consultant or the breach by the Consultant of any
terms of this Agreement is alleged and proven, the Company agrees to defend,
indemnify, and hold the Consultant harmless from and against any and all
-3-
<PAGE> 4
reasonable costs, expenses and liability (including reasonable attorney's fees
paid in the defense of the Consultant) which may in any way result from services
rendered by the Consultant pursuant to or in connection with this Agreement.
This indemnification expressly excludes any and all damages as a result of any
actions or statements, on behalf of the Company, made by the Consultant without
the prior approval or authorization of the Company.
9. COMPANY'S LIABILITY. The Consultant agrees to defend, indemnify, and
hold the Company harmless from and against any and all reasonable costs,
expenses and liability (including reasonable attorney's fees paid in defense of
the Company) which may in any way result pursuant to its gross negligence or
willful misconduct or in any connection with any actions taken or statements
made, on behalf of the Company, without the prior approval or authorization of
the Company or which are otherwise in violation of the term of this Agreement.
10. MISCELLANEOUS.
(a) No provision of this Agreement may be amended, modified,
waived or discharged unless such amendment, waiver, modification or discharge is
agreed to in writing and signed by each of the parties hereto or a duly
authorized representative thereto. No waiver by any party hereto at any time of
any breach by any other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time.
(b) If any provision of this Agreement shall be determined by
any court of competent jurisdiction to be unenforceable or invalid to any
extent, the remainder of this Agreement shall not be affected thereby, and this
Agreement shall be construed to the fullest extent possible as to give effect to
the intentions of the provision found unenforceable or invalid.
(c) This Agreement may not be assigned by Consultant without
the prior written consent of ZAP.COM.
(d) Whether by a sale of all or substantially all of its
assets, a change in control or by operation of law), which consent shall not be
unreasonably withheld or delayed. This Agreement shall be binding upon the
parties hereto and all permitted Successors and assigns.
(e) All notices and other communications provided for
hereunder shall be in writing and shall be delivered to each party hereto by
hand or sent by reputable overnight courier, with receipt verified, or
registered or certified mail, return receipt requested, addressed to the
addresses set forth in the beginning of this Agreement, Attention Vice-President
Finance in the case of ZAP.COM and Attention Managing Member in the case of
Consultants or at such other address as either party may specify by notice to
the other party given as aforesaid. Such notices shall be deemed to be effective
when the same shall be deposited, postage prepaid, in the mail and/or when the
same shall
-4-
<PAGE> 5
have been delivered by hand or overnight courier, as the case may be. If any
action or notice is to be taken or given on or by a particular calendar day, and
such calendar day is not a business day, then such action or notice may be
deferred until, or may be taken or given on, the next business day.
(f) The validity, interpretation, construction and performance
of this Agreement shall be governed by and construed in accordance with the laws
of the State of New York without regard to its conflicts of law principles. Any
action or proceeding involving the parties hereto shall be adjudicated in a
Court located in Monroe County, New York. The parties hereto hereby irrevocably
consent to the juristriction and venue of such Courts.
(g) This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
(h) All headings contained in this Agreement are for reference
purposes only and shall not in any way effect the meaning or interpretation of
any provision or provisions of this Agreement.
(i) This Agreement, and the documents to be delivered in
connection therewith, and the exhibits and schedules thereto, if any, set forth
the entire agreement of the parties hereto in respect of the subject matter
contained herein and supersede all prior and contemporaneous agreements,
promises, covenants, arrangements, understandings, communications,
representations or warranties, whether oral or written, by any party hereto; and
any prior agreement of the parties hereto in respect of the subject matter
contained herein is hereby terminated and canceled. No agreements or
representations, whether written, oral, express or implied, with respect to the
subject matter hereof have been made by either party that are not set forth
expressly in this Agreement and the other documents to be delivered in
connection herewith and therewith.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the ___ day of ___________, 1999.
ZAP.COM CORPORATION
By:
Name:
Title:
AMERICAN SPORTS INTERNETWORK
COMPANY, LLC
By:
Name:
Title:
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<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 September 24, 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
September 24, 1999
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