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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1999
REGISTRATION NO. 333-76135
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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AMENDMENT NO. 2
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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<S> <C> <C>
NEVADA 76-0571159 7319
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER (PRIMARY STANDARD
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) CLASSIFICATION CODE INCORPORATION)
</TABLE>
<TABLE>
<S> <C>
100 MERIDIAN CENTRE, SUITE 350 AVRAM GLAZER
ROCHESTER, NEW YORK 14618 PRESIDENT AND CHIEF EXECUTIVE OFFICER
(716) 242-8600 ZAP.COM CORPORATION
100 MERIDIAN CENTRE, SUITE 350
ROCHESTER, NEW YORK 14618
(716) 242-8600
(ADDRESS, INCLUDING ZIP CODE OF PRINCIPAL (NAME, ADDRESS, INCLUDING ZIP CODE OF PRINCIPAL
PLACE OF BUSINESS AND TELEPHONE NUMBER, INCLUDING PLACE OF BUSINESS AND TELEPHONE NUMBER, INCLUDING
AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
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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. [ ]
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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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 AUGUST 6, 1999
PROSPECTUS
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[LOGO]
ZAP.COM CORPORATION
13,612,0000 Shares of Common Stock
(13,612,000 Rights to Purchase Common Stock)
3,000,000 Shares of Common Stock
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ZAP.COM is a development stage company that seeks to build a branded global
network of ZAP.COM banners, which will reside on third party web sites. We are a
wholly-owned subsidiary of Zapata Corporation and are providing this prospectus
to persons who owned shares of Zapata common stock on , 1999, at no
cost to them, with the following securities:
- subscription rights to purchase at a cash price of $8.00 per share up to
an aggregate of 13,612,000 shares of ZAP.COM common stock, and
- if necessary as of the closing of the rights offering to meet the listing
requirements of the Nasdaq National Market, an as yet undetermined number
of shares of ZAP.COM common stock which will not be less than 150,000
shares nor more than 3,000,000 shares in the aggregate.
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<CAPTION>
Estimated Maximum
Soliciting Proceeds to Us
Agent and Dealer Before Offering
Price to the Public Fees(1) Expenses
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<S> <C> <C> <C>
Subscription Price...................... $8.00 $0.40 $7.60
Total Minimum........................... $1,082,448 -- $1,082,448
Total Maximum........................... $108,896,000 $5,390,678 $103,505,322
</TABLE>
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(1) No soliciting agent or dealer fees will be paid on shares purchased by
Zapata, Malcolm Glazer or Avram Glazer or any entity owned by them.
Prior to the rights offering, neither the rights nor our common stock has been
listed on any stock exchange or the Nasdaq NM. We have applied for quotation of
our common stock on the Nasdaq NM under the symbol "ZCOM" following the closing
of the rights offering. The rights are only transferable to immediate family
members of, or entities owned or controlled by the rights holder and, therefore,
will not be listed on the Nasdaq NM or a national securities exchange.
The rights will expire at 5:00 p.m., Eastern Standard Time, on ,
1999, unless extended or terminated by us in our sole discretion. In no event
shall we extend the rights offering past , 1999. All proceeds from
exercised rights will be held in escrow by American Stock Transfer & Trust
Company pending the termination or closing of the rights offering.
In order for our common stock to be more widely held, Malcolm Glazer, who
controls approximately 44% of Zapata's outstanding common stock, and Avram
Glazer have committed to exercise only 135,306 rights for an aggregate
subscription price of $1,082,448. Thus, only 135,306 of the rights covered by
this prospectus will be distributed to the Glazers and entities owned by them.
See "The Offering -- Exercise of Rights by the Glazers."
INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
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.................... 3
Risk Factors.......................... 7
Special Note Regarding Forward-
Looking Statements.................. 25
The Offering.......................... 25
Use of Proceeds....................... 34
Dividend Policy....................... 34
Dilution.............................. 35
Capitalization........................ 36
Selected Financial Data............... 38
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 39
Business.............................. 43
Management............................ 56
Executive Compensation................ 58
Certain Relationships and Related
Party Transactions.................. 61
Security Ownership of ZAP.COM......... 64
Description of Securities............. 65
Shares Eligible for Future Sale....... 72
Federal Income Tax Consequences....... 73
Experts............................... 75
Legal Matters......................... 75
Available Information................. 76
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. 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.
You should assume that the information appearing in this prospectus is
accurate as of the date on the front cover of the Prospectus.
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 50,000-for-one share split of ZAP.COM common stock and Zapata's capital
contribution of $50,000 to meet stated capital requirements; and (3) that Zapata
will have 23,887,078 shares of common stock outstanding on the record date for
the rights distribution and, if made, the stock 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 leading 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 exclusively of organizational
activities, research and analysis with respect to Internet industry
opportunities and the exploration of certain strategic relationships. As of the
date of this prospectus, we do not have any significant assets or a network in
place and we have not formally entered into any strategic relationships nor
generated any revenues. Therefore, to a significant extent, the description of
our business in this prospectus is based on 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 use the
acquired space for displaying our banner. In the future, we may also acquire or
establish strategic relationships with Internet service organizations,
electronic commerce companies and traditional companies which have attractive
electronic commerce opportunities, such as broadcasting, media, entertainment
and communications companies. As of the date of this prospectus, we do not have
any specific plans, proposals, arrangements or understandings with any Web 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 shortly following the
closing of the rights offering.
RISK FACTORS
We will be operating in a new industry and our business and this offering
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.
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- we face many risks in establishing a new business enterprise in Web
advertising and e-commerce markets, which are new and rapidly evolving.
- the business model to be used by us and its potential for profit is
unproven.
- we have no present source of revenues and 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.
- the exercise price for the rights was determined on an arbitrary basis.
RELATIONSHIP BETWEEN ZAPATA AND ZAP.COM
FUNDING BY ZAPATA
Simultaneously with the closing of the rights offering, Zapata will
contribute to ZAP.COM $8,000,000 to fund start-up costs and anticipated
operating losses and for general corporate purposes. In exchange for this
investment we will issue to Zapata 10,000 shares of our Series A preferred stock
and 70,000 shares of our Series B preferred stock.
Immediately following the closing of the rights offering, Zapata will
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. The Series A preferred stock held by
Zapata will allow Zapata to retain its ability to control the vote on almost all
stockholder votes until our outstanding common stock totals more than
500,000,000 shares, without taking into account any shares of common stock which
Zapata may hold.
Following the rights offering, officers of Zapata will become officers of
ZAP.COM. In addition, Avram Glazer is a director of both corporations.
WORD AND CHARGED WEBZINES
In April 1998, Zapata acquired from ICON CMT (k/n/a Qwest Communications
International Corporation) the operating assets of two on-line Web based
magazines, Word and Charged. Word publishes an eclectic mix of essays, new
fiction, visual art, photographs, underground comics, animation, video, sound
and music, weekly columns, quirky humor, contests, games and online
conversation. Charged focuses on the Generation X audience interested in action
sports and extreme leisure and targets the biking, surfing, skating and
snowboarding crowd.
Effective upon the closing of the rights offering, all of Zapata's
employees who operate the Word and Charged webzines and otherwise perform
Internet-related services will become employees of ZAP.COM. The Word and Charged
webzines and all other Zapata Web sites will continue to be operated after the
rights offering by substantially the same employees. Word, Charged and any other
Web sites acquired by Zapata will participate in the ZAP.COM Network. In
addition, effective upon the closing of the rights offering, Zapata will assign
to our wholly-owned subsidiary, Word Media Corporation, all of its rights to
Pixeltime which is a proprietary Java-based drawing system and a related license
agreement with Dr. Pepper/Seven-Up Inc. We intend to license this software and
other intellectual property rights back to Zapata for use by its Word and
Charged webzines.
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CONTRACTUAL ARRANGEMENTS
Immediately, prior to the closing of the rights offering, 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 $8.00 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 closing of the rights offering,
unless the exercise of the warrants is accelerated . The excerise of the
warrants will accelerate and become immediately excerisible 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 closing of the rights offering, we will enter into a services
agreement with Zapata under which Zapata will provides us with general
administrative services and we will provide Zapata with technical, creative and
design services and Web-based administrative services and webzines. The services
agreement will also provide that each party will bill the other one 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 rights
offering, we will also enter into an investment and distribution agreement, tax
sharing and indemnity agreement and registration rights agreement with Zapata.
THE OFFERING
Description of the Rights
Offering...................... Each holder of shares of Zapata common stock on
, 1999 will receive one right for
every share of Zapata common stock owned on
that date. Each right will carry a basic
subscription priviledge which entitles the
holder to purchase one share of ZAP.COM common
stock. In addition each rights holder who fully
exercises his basic subscription priviledge
will be entitled to exercise an over
subscription priviledge for the purchase of
additional shares of ZAP.COM common stock to
the extent other rights holders do not exercise
their rights. If there are not sufficient
shares of ZAP.COM common stock to satisfy all
over-subscription privileges, that are
exercised then shares will be allocated pro
rata in proportion to the number of shares of
ZAP.COM common stock which rights holders
exercising their over-subscription privileges
purchased with their basic subscription
privilege. We will be offering up to 13,612,000
shares in the aggregate.
Subscription Price............ The subscription price per share of ZAP.COM
common stock will be $8.00 per share.
Exercise Period............... The rights will only be exercisable from the
period beginning on , 1999 and ending
on , 1999, at 5:00 p.m., Eastern
Standard Time, unless extended by us, in our
sole discretion. In no event will we extend the
exercise period beyond 5:00 p.m., Eastern
Standard Time, , 1999.
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How Rights Will be
Evidenced..................... Each holder will receive a certificate
representing his rights.
Purchase of Unsubscribed
Shares........................ In the event that not all of the rights are
exercised during the rights offering, we will
offer up to 350,000 of the unsubscribed shares
to persons selected by us who may or may not
have a relationship with ZAP.COM or Zapata. In
addition, any soliciting agent or dealer we
engage may offer all other unsubscribed shares
to persons selected by it. No specific persons
have been identified for these offers as of the
date of this prospectus nor have any types of
procedures been developed or employed to do so.
These offers may only be made during the rights
offering and accepted by us if shares are
available as of the close of the rights
offering. All offers of unsubscribed shares
during the offering will be made at a price of
$8.00 per share. Following completion of the
rights offering and if made the stock
distribution, ZAP.COM may offer and sell shares
of common stock not sold in the rights offering
or distributed in the stock distribution.
Number of Shares of Common
Stock to be Outstanding
After the Offering.......... Immediately following this offering, depending
on the number of shares purchased, we will have
outstanding between 50,135,306 and 63,612,000
common shares. Immediately prior to the closing
of the rights offering, we will also have
reserved 8,000,000 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
755,000 shares in the aggregate at an exercise
price of $5.00 per share. Because the number of
shares available for awards under these plans
cannot exceed in the aggregate 16% of our
outstanding common stock, future issuance of
shares in the rights offering or otherwise will
increase the number of shares reserved for
awards under these plans. Immediately prior to
the closing of the rights offering, we will
also have reserved 2,000,000 shares reserved
for warrants with an exercise price of $8.00
per share.
Use of Proceeds............... Fund development of the ZAP.COM Network and
anticipated operating losses and for other
general corporate purposes.
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RISK FACTORS
Before you invest in shares of our common stock or if you otherwise receive
ownership of our common stock, you should be aware that an investment in our
common stock involves a high degree of risk. The principal risks are described
below. We urge you to carefully consider these risk factors together with all of
the other information included in this prospectus, including our financial
statements and the notes thereto, before you decide to purchase our common stock
or you make an investment decision with respect to any of our common stock that
you receive as part of the stock distribution if it is made. 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 due to any of these risks, and you could loose all or part of your
investment.
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 only
of organizational activities, research and analysis with respect to Internet
industry opportunities and the exploration of strategic relationships. As of the
date of this prospectus, we do not have our network established or any formal
strategic relationships, nor do we have any assets or operating history upon
which an evaluation may be made of our business and its prospects.
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 such as the Internet using unproven business
models. To address some of these risks we must successfully:
- develop and formalize strategic relationships with third parties for
services in areas critical to the successful execution of the business
model we plan to use, 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 and merchants and others;
- manage the expansion of our operations; and
- anticipate and adapt to changes in our market and competitive
developments.
Our failure to successfully address any of these risks or any of the other
risks described in this prospectus 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 AND WE CANNOT GUARANTEE THAT THIS 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 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
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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 INCURRING SIGNIFICANT LOSSES FOR THE FORESEEABLE FUTURE
We anticipate that, for the foreseeable future, we will incur substantial
operating losses and negative operating cash flow as we execute the business
model for our business and obtain and integrate the necessary technology,
systems and supporting infrastructure, increase the number of Web sites
participating in our network and develop our brand name. We also anticipate
significant charges arising from the consideration we plan to pay Web site
publishers who join the ZAP.COM Network. As a result, we will need to generate
significant revenues to achieve and maintain profitability, which cannot be
assured. 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."
THE BUSINESS MODEL TO BE USED BY ZAP.COM AND ITS POTENTIAL FOR PROFIT IS
UNPROVEN
Our business is based on an unproven model. As a result, the profit
potential for the 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 the business model
evolves, we may introduce new pricing models and new products and services which
may adversely affect our margins, significantly increase our operating expenses
and adversely affect our operating cash flow. Even if we do achieve
profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future.
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.
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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 UNIQUE BANNER WE PLAN TO USE, AND IT MAY
BE DIFFICULT TO FINALIZE DEVELOPMENT OF THE BANNER.
Our main product will initially 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". The ZAP.COM banner is currently being
developed, although a functional prototype 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 unique banner that we plan to use can be successfully
completed, finalized and introduced or that it will achieve significant market
acceptance. In addition, the final version of the unique 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. 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 such 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
such measurements may contain errors. This could adversely affect our business
and our ability to generate revenues. Even if new methods of measuring
effectiveness are developed, we may not be able to take advantage of them.
Moreover, inexpensive "filter" software programs that limit or prevent banners
from being delivered to a user's computer are currently available. The
widespread adoption of this software or the actual or perceived ineffectiveness
of a network of banners in general, could threaten the commercial viability of
our business and limit our long-term growth.
WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN OUR QUARTERLY
OPERATING RESULTS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE
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 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;
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- 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 the trading price of our common stock.
Please see "Management's Discussion of Analysis of Financial Condition and
Results of Operation".
A DECLINE IN THE TRAFFIC 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 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
such an 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 such 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
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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 such 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. In addition, we have selected
Qwest Communications International Corp. to be our primary vendor for hardware
and Internet hosting services. As of the date of this prospectus, we have not
entered into formal agreements with NetGravity or Qwest Communications. To the
extent that we are unable to reach formal agreements with either NetGravity or
Qwest Communications, or material difficulties are encountered in bringing their
systems on-line, we will need to acquire an alternative solution from third
party service providers or vendors. 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 do not have any of these
arrangements in place and we cannot assure you that we will be able to secure
these arrangements, directly or indirectly. If we fail to secure the necessary
arrangements, or to do so in a timely manner and on commercially reasonable
terms, it will have a material adverse effect on our ability to commence sales
efforts and to generate revenues. The termination of any of these relationships
in the future after they have been established could have the same effect and
could impair our relationships with customers and have a negative impact on our
revenues. Further, if any of the third-parties change their terms or terminate
their relationships, we may need to incur additional costs to replace such
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.
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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
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. In
such event, we will be required to use our cash resources to initiate and
possibly maintain the growth of our network. If all of the offered shares are
purchased, then we will receive proceeds of approximately $103,505,322 after
deducting estimated maximum soliciting agent or dealer fees, but prior to any
offering expenses; however, if no shares are purchased other than by the
Glazers, our gross proceeds will be approximately $1,082,448. In addition to the
proceeds from the offering, we will receive $8,000,000 of gross proceeds from
Zapata's investment. Regardless of how many shares are purchased in the
offering, we expect to incur approximately $850,000 in offering expenses. If Web
site publishers are unwilling to accept our common stock as payment for joining
the ZAP.COM Network and if only a limited number of rights are exercised as of
the closing of the rights offering, our limited
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cash resources will significantly and adversely effect our ability to establish
and grow our network unless we obtain additional capital through debt or equity
financing.
Any time following the first anniversary of the rights offering closing,
Zapata may require ZAP.COM to repurchase up to $7,000,000 of its Series B
preferred stock if a cash balance, cash flow, market capitalization or secondary
offering test is met. Please see "Description of Securities -- Series B
Preferred Stock". Depending upon ZAP.COM's financial condition at such time, the
repurchase payments could severely impair ZAP.COM's ability to raise additional
capital.
Following the rights offering, Zapata will not have an obligation to
contribute additional funds to us. Although we are not prohibited from raising
additional capital by any of the arrangements between Zapata and us, Zapata's
rights as the sole holder of our Series A preferred stock may make it difficult
for us to raise additional capital in the future or to raise capital on terms
favorable to us. In particular, potential investors may be unwilling to invest
in ZAP.COM due to Zapata's voting control of ZAP.COM and the 35% minimum common
equity position in ZAP.COM afforded to Zapata as the sole holder of our Series A
preferred stock. Zapata's voting control may make our common stock 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 of their shares. The 35% minimum
equity position may be unattractive because it may in the future cause a greater
dilution to the outstanding common stock held by our stockholders other than
Zapata. This will occur if the ZAP.COM common stock held by Zapata is diluted
below 35% of ZAP.COM's common stock as a result of new common stock issuances by
us. As a result, the market value, liquidity of our common stock and our ability
to issue additional common stock may be adversely affected.
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, such as 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 such a position. In
order to promote and maintain our brands, we expect to incur significant
expenses. In addition, the development of our brand names depends, to a
significant degree, on the protection of our trademarks and trade names, which
cannot be assured. 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
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adopt. We also generally enter into confidentiality agreements with our
employees, consultants and corporate partners to control access to, and
distribution of, proprietary information.
We cannot assure you that a patent will ever be issued on the pending
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 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 the final patent application, but
which has sufficient distinctions that it does not fall within the scope
of any patent which may arise from such 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 such 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, infringement claims may be asserted against us by third
parties. We also expect other claims in the ordinary course of our business,
including claims of unfair competition, dilution or alleged infringement of the
trademark/service marks and other intellectual property rights of third parties
by us, the Web 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, application
may have been filed which relate to our proposed services. 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, such 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 such claims or litigations 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 such third parties for information as to the origin
and ownership of such licensed content. We plan to obtain appropriate
representations and indemnities to cover such issues; however, we cannot assure
you that the representations will be accurate or the indemnities sufficient to
compensate for the breach of any such representations.
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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 50 Internet domain names, though sites exist for only five of the
domain names. Third parties may submit false 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 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 BUSINESSES INVOLVING 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 will suffer.
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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 expect to add key personnel in the near future. Competition for
personnel with Internet experience is intense due to the competitive nature of
the job market. If we do not succeed in attracting new employees with the
appropriate experience and skills or retaining and motivating our current and
future employees, our business could suffer significantly. 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 and other Internet
advertising networks and providers of advertising inventory management products
and services. Other competitors include such large and established companies as
Microsoft, America Online, @Home, Yahoo!, Excite, Disney (which owns the GO
Network) and Lycos. We also compete for advertisers with other Internet
publishers as well as traditional media such as 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,
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established customer bases and broader product and service offerings than we do.
As a result, we may be unable to secure and grow a customer base which would
adversely affect our ability to generate and grow revenues. Please see
"Business -- Competition".
OUR COMPUTER SYSTEMS, AND THE SYSTEMS OF OTHERS WE DEPEND ON, MAY NOT OPERATE
PROPERLY BECAUSE OF THE YEAR 2000 PROBLEMS
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such Year 2000 requirements or risk system
failure or miscalculations causing disruptions of normal business activities.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance issues. Additionally, the Internet could
face service disruptions arising from the Year 2000 problem.
We are taking actions to ensure that external suppliers and service
providers who we engage use systems that will be able to support our needs and,
where necessary, interoperate with hardware and software infrastructure that we
are acquiring in preparation for the Year 2000. We do not anticipate that any
such external suppliers or service providers will experience Year 2000 problems
which may result in unanticipated material costs to us. In addition, the ZAP.COM
Network site participants may also be impacted by Year 2000 complications. Any
failure by our network participants to make their sites Year 2000 compliant
could 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 such 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 such a plan, 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 such as high speed modems, for providing reliable Web access
and services. We can provide no assurance that the Web infrastructure will
continue to be able to support the growing demands placed upon it as the Web
continues to grow in terms of the number of users, the frequency of users and
the increased bandwidth requirements such that the performance or reliability of
the Web will not be adversely affected by these demands. In addition, the
Internet could lose its viability due to delays in the development or adoption
of new standards and protocols required to handle increased levels of Internet
activity or due to increased governmental regulation. Changes in, or
insufficient availability of, telecommunications services to support the
Internet could also result in slower response times and adversely affect usage
of the Web and the effectiveness of our network. In fact, the Web has
experienced a variety of outages and other delays due to damage to a portion of
its Web infrastructure. Any future outages or delays could adversely impact the
Web sites participating in the ZAP.COM Network. Any such outages 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 such security breaches or to alleviate problems
caused by such breaches. The public's concern over the security of Internet
transactions and the privacy of users may also inhibit the growth of the Web,
especially as a means of conducting commercial transactions. To the extent that
our activities or those of third party contractors involve the storage and
transmission of proprietary information, such as credit card numbers, security
breaches could expose us to a risk of loss or litigation and possible liability.
We can provide no assurance that our security measures will prevent security
breaches or that failure to prevent such security breaches will not
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 such as intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity,
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libel, employment and personal privacy is uncertain and developing. The extent
to which existing laws relating to issues such as property ownership,
pornography, libel and personal privacy are applicable to the Internet is
uncertain. Some foreign governments, such as 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 EXERCISE OF YOUR RIGHTS IS IRREVOCABLE
Once you exercise your rights, you may not revoke the exercise. You will
not receive interest on your subscription funds delivered to our subscription
agent upon the exercise of your rights pending delivery of certificates for your
shares and the return of any funds not applied to the purchase of such shares.
THE EXERCISE PRICE FOR THE RIGHTS WAS DETERMINED ON AN ARBITRARY BASIS
The exercise price for the rights 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, such as book value, cash flow,
earnings or financial condition. The exercise price, therefore, does not
indicate that our common stock has a value or can be resold. Further, we cannot
assure you that if a trading market develops in our common stock, that the stock
will trade at prices in excess of the subscription price at any time after the
date of this prospectus. Please see "The Rights Offering -- Determination of
Exercise Price."
IT IS DIFFICULT TO PREDICT WHETHER A MARKET FOR OUR STOCK WILL DEVELOP, AND THE
MARKET PRICE OF OUR STOCK WILL LIKELY BE VOLATILE
Prior to the closing of the rights offering and, if applicable, the stock
distribution, you could not purchase ZAP.COM common stock publicly. We have
applied for quotation of the ZAP.COM common stock on the Nasdaq NM. We cannot
assure you, however, that this listing will be obtained. If our common stock is
not approved for quotation on the Nasdaq NM following the closing of the rights
offering, trading of our common stock will be conducted on an electronic
bulletin board established for securities that do not meet the Nasdaq listing
requirements or in what is commonly referred to as the "pink sheets." If this
occurs, an investor may find it more difficult to dispose of, or obtain accurate
quotations as to the price of our common stock.
We cannot assure you that investors will develop an interest in the rights
or our common stock so that a trading market develops or, if a trading market
does develop, how active that trading market will be or whether it will be
sustained. A number of specific factors that may affect the price and liquidity
of our securities, include:
- 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, the results of the rights offering 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;
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- change in the status of our intellectual property rights; and
- the operating and stock price performance of other comparable companies.
In addition, our common stock may not be followed by any market analysts
and there may be few institutions acting 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 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.
ZAPATA'S CONTROL AND THE PRESENCE OF INTERLOCKING DIRECTORS AND OFFICERS AFTER
THIS OFFERING WILL CREATE POTENTIAL CONFLICTS OF INTEREST AND COULD PREVENT A
CHANGE OF CONTROL
Our Series A preferred stock and common stock generally vote as one class
on all matters presented to stockholders for consideration. On each stockholder
vote, our common stock is entitled to one vote and each share of Series A
preferred stock is entitled to 50,000 votes. Prior to the closing of the rights
offering, we will issue all of our authorized Series A preferred stock to
Zapata, assuring that Zapata will have voting control of ZAP.COM. As a result,
Zapata's directors and officers will be able to control 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. Based solely on the number
of Series A preferred stock shares that will be held by Zapata immediately
following the closing the rights offering and without taking into account any
common stock which Zapata may hold, Zapata will be entitled to retain its
ability to control the vote on almost all stockholder votes until ZAP.COM has
more than 500,000,000 shares of its common stock outstanding. 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 director 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
certain key members of our management team, or other personnel, or loss access
to such services altogether, our business, prospects, results of operations and
financial condition could be materially adversely affected. Please see "Certain
Relationships and Related Party Transactions".
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In contemplation of the rights offering and stock distribution, we will be
entering into certain 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 rights offering and, if made, the stock
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.
WE HAVE LIABILITIES AS A MEMBER OF ZAPATA'S CONSOLIDATED TAX GROUP
We have been and expect to continue to be following the closing of the
rights offering 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
rights offering, if Zapata or members of its consolidated tax group (other than
us and our subsidiaries) fail to pay tax liabilities arising prior to the time
that 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 such payments
could materially adversely affect our financial condition. Please see "Certain
Relationships and Related Transactions -- Tax Sharing and Indemnity Agreement."
INVESTORS DO NOT KNOW THE IDENTITY OF A MAJORITY OF THE PERSONS WHO WILL SERVE
AS DIRECTORS
We currently have one director, Avram Glazer, who is also an officer and
director of Zapata and the President and Chief Executive Officer of ZAP.COM. Mr.
Glazer expects to propose the expansion of the board to five directors and to
add additional persons, some of whom will be unaffiliated with Zapata, to fill
these new vacancies on the board of directors. Therefore, investors do not know
the identity of all the persons who will serve on our board and be responsible
for our affairs.
OUR MANAGEMENT HAS BROAD DISCRETION OVER USE OF PROCEEDS FROM THIS OFFERING
All of the net proceeds of the offering and Zapata's $8,000,000 investment
will be available to fund development of the ZAP.COM Network and operating
losses and for general corporate purposes. As of the date of this prospectus, we
cannot specify with certainty the particular uses for the net proceeds to be
received upon completion of the rights offering. Accordingly, our management
will have broad discretion in the application of the net proceeds. The failure
of management to apply such funds effectively could impede our ability to
generate and grow our revenues and grow our business. Please see "Use of
Proceeds."
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."
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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
other than Zapata so long as it holds a controlling interest in us;
- the elimination of the right to call special meetings of the stockholders
by stockholders other than Zapata so long as it holds a controlling
interest in us;
- the creation of a staggered board of directors after our board increases
to three or more directors; and
- the ability of the board of directors to designate and issue preferred
stock without stockholder consent.
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
rights offering and if made, the stock distribution could cause the market price
of our common stock to decline. After the rights offering, we will have between
50,135,306 and 63,612,000 shares of our common stock outstanding. In addition,
our 1999 Long-Term Incentive Plan permit up to 16% of the aggregate number of
shares of common stock outstanding from time to time be reserved for issuance
under these plans. Thus, immediately prior to the close of the rights offering
we will have reserved 7,250,000 and 750,000 shares, respectively, for issuance
under these plans. Future issuances of common stock in the rights offering, in
acquisitions or otherwise will result in an increase in the number of awards
available to be made under these plans. As of the close of the rights offering,
we will also have reserved 2,000,000 common shares for issuance pursuant to a
warrant which will be issued to American Internetwork Sports Company, LLC. All
of the shares of common stock to be sold in the rights offering or issued in the
stock distribution if it is made, will be freely tradable without restriction or
further registration under the federal securities laws unless acquired by our
"affiliates," as that term is defined in Rule 144 under the Securities Act of
1933. All of the shares acquired by "affiliates" will be "restricted securities"
under the Securities Act with restrictions on timing, manner and volume of sales
of such shares.
Following consummation of the rights offering, Zapata will hold between
47,000,000 and 50,000,000 shares of ZAP.COM stock. These shares will be
available for resale under Rule 144 following the expiration of a one year
contractual restriction on transfers. In addition, immediately prior to the
closing of the rights offering, ZAP.COM will enter into a registration rights
agreement with Zapata which will grant to Zapata registration rights with
respect to shares of ZAP.COM common stock that its holds. These registration
rights will effectively allow Zapata to sell all of its shares of common stock
approximately one year after the closing of the rights offering 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 or there is a change in control of ZAP.COM. Please see
Certain Relationships and Related Party Transactions -- American Internetwork
Sports Company, LLC. All of the shares issued to American Internetwork
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Sports' under its warrants, will be available for resale upon complying with
Rule 144. Further, prior to the first anniversary of the issuance of the
options, ZAP.COM is required to register the optioned shares on a registration
statement on Form S-8. This registration statement will automatically become
effective upon filing.
In addition, following the consummation of the rights offering, 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 Incentive Plan. This
registration statement will automatically become effective upon filing.
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. 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 IMMEDIATE AND SUBSTANTIAL DILUTION AND WILL EXPERIENCE
FURTHER DILUTION WITH FUTURE STOCK ISSUANCES
The rights offering price is substantially higher than the pro forma net
tangible book value of each outstanding share of common stock. Accordingly,
purchasers of common stock in the rights offering will suffer immediate and
substantial dilution. After giving effect to the rights offering on a minimum
and maximum offering basis, the dilution in the pro forma net tangible book
value of the common stock from the rights offering price will be $7.999 per
share and $6.39, per share, respectively. Please see "Dilution." Further, if all
of the offered shares are sold, then, using the $8.00 per share price, the
aggregate market value of the shares of common stock beneficially owned by
Zapata immediately following the rights offering will be approximately
$400,000,000 and Zapata's aggregate purchase price for these shares and the
Series A preferred stock and Series B preferred stock will have been
approximately $8,050,000. Please see "Dilution".
We currently intend to finance a significant amount of the growth in the
ZAP.COM Network with shares of our common stock or other securities, cash or a
combination of these items. Please see "Business -- Building the ZAP.COM
Network". We currently have 1,500,000,000 authorized shares of common stock.
Upon the conclusion of the rights offering, we will have between 50,135,306 and
63,612,000 shares of common stock outstanding. In addition, immediately prior to
the closing of the rights offering we will initially have 8,000,000 shares of
common stock reserved for options awarded or to be awarded under ZAP.COM's 1999
Incentive Plan. Future issuances of common stock in the rights offering will
increase the awards available under this plan up to a maximum aggregate amount
of 16% of our outstanding common stock. In addition, as of the close of the
rights offering, we will have 2,000,000 shares reserved for warrants issued to
the American Internetwork Sports. Accordingly, immediately following the closing
of the rights offering, we will have between 1,439,864,694 and 1,426,388,000
authorized but unissued and unreserved shares of common stock. Consequently, we
will be able to finance our growth or acquisitions by issuing significant
amounts of additional shares of common stock without obtaining stockholder
approval of such issuances provided we comply with the Nasdaq NM rules and
regulations. To the extent we use common stock for all or a portion of the
consideration to be paid for future acquisitions, dilution may be experienced by
existing stockholders, including the purchasers of common stock in the rights
offering and the recipients of common stock in the stock distribution if it is
made. Please see "Dilution."
The Series A preferred stock held by Zapata may in the future also result
in additional dilution to the common stockholders. If at the time of a common
stock dividend the shares of ZAP.COM common stock owned by Zapata have been
diluted below 35% of ZAP.COM's total outstanding shares of common stock as of
the record date for the dividend, then so long as all of
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our Series A preferred stock is owned by Zapata, Zapata will be entitled to
receive a dividend amount, which, when added to the dividends to be received by
Zapata with respect to its common stock, will equal 35% of the total dividend
amount paid to all holders of ZAP.COM Series A preferred stock and common stock.
In the event of a liquidation, if the shares of common stock held by Zapata are
diluted below 35% of ZAP.COM's total outstanding shares of common stock, then so
long as all of our Series A preferred stock is owned by Zapata, Zapata will be
entitled to receive liquidating distributions which, when added to the
liquidating distribution to be received by Zapata with respect to its common
stock, will constitute 35% of the total net assets distributed to all holders of
ZAP.COM Series A preferred stock and common stock. If Zapata transfers its
Series A preferred stock to a third party it will convert into the number of
common shares equal to 35% of ZAP.COM's outstanding common stock. The 35% figure
will be proportionately adjusted if at anytime following the closing of the
rights offering Zapata sells common stock which reduces its ZAP.COM common
shareholdings below 35% of ZAP.COM's outstanding common stock. Please see
"Description of Securities -- Series A Preferred Stock".
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus contains forward-looking statements. Such statements can be
identified by the use of forward-looking terminology such as "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 such forward-looking statements. Such
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this prospectus. When considering such 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 such statements. We are under no duty to update any
of the forward-looking statements after the date of this Prospectus.
THE OFFERING
ZAP.COM is distributing rights, at no cost, to holders of outstanding
shares of Zapata common stock on , 1999. Rights will not be
distributed to Zapata stockholders who did not hold Zapata stock as of
, 1999. Each Zapata stockholder will receive one right for each
share of Zapata common stock owned on , 1999. The rights will be
evidenced by subscription certificates.
PURPOSE OF THE OFFERING
The rights offering is essentially ZAP.COM's initial public offering. The
rights offering is different than a traditional offering in that it is initially
directed only to Zapata stockholders and thereafter to other persons selected by
us for the first 350,000 unsubscribed shares and by our soliciting agent or
dealer with respect to any additional unsubscribed shares. The primary purpose
of the offering is to obtain additional capital, create a public market for our
common stock and facilitate future access to public markets. ZAP.COM believes
that the rights offering has an advantage over a traditional initial public
offering because it gives ZAP.COM the opportunity to offer its common stock to
investors who, as Zapata stockholders, already have some interest in an Internet
business.
In addition, the rights offering and if made, the stock 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 initially in the
rights offering and, thereafter, in the open market and/or selling any of
our common stock distributed to them; -allowing Zapata and us to pursue
different operating strategies, given our different business environments
and competitive market conditions; and
- permitting Zapata to benefit from increases, if any, in the market value
of its retained equity interest in us.
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EXPIRATION DATE
The rights will expire at 5:00 p.m., EST, on , 1999 unless
extended by us. In no case will we extend the rights past , 1999.
After expiration, unexercised rights will be null and void and no longer
exercisable by the holder. We will not be obligated to honor any purported
exercise of rights received by the subscription agent after the expiration time,
regardless of when the documents relating to such exercise were sent, except
when you have timely transmitted the documents under the guaranteed delivery
procedures described below. Notice of any extension of the expiration time will
be made through a press release issued by ZAP.COM.
SUBSCRIPTION PRIVILEGES
Basic Subscription Privilege. Each right grants to you a basic
subscription privilege which entitles you to purchase one share of ZAP.COM
common stock for every share of Zapata common stock you held on ,
1999 for a subscription price of $8.00 per share. We will send you certificates
representing shares that you purchase with your basic subscription privilege as
soon as practicable after the rights offering closes.
Over-Subscription Privilege. Each right also grants you an
"over-subscription privilege" to purchase at $8.00 per share such additional
shares of ZAP.COM common stock as you may elect from the shares offered in the
rights offering and which are not purchased by other Zapata stockholders as of
the close of the rights offering. The allocation procedures described below will
be applied to over subscriptions that are exercised. You are entitled to
exercise your over-subscription privilege only if you exercise your basic
subscription-privilege in full.
If there are not sufficient shares of ZAP.COM common stock to satisfy all
subscriptions that are attributable to over-subscription privileges, then shares
will be allocated pro rata in proportion to the number of shares of ZAP.COM
common stock which rights holders exercising their over-subscription privileges
purchased with their basic subscription privilege. If, however, the pro rata
allocation results in any rights holder being allocated a greater number of
shares than such holder subscribed for under his over-subscription privilege,
then those additional shares will be reallocated among all other rights holders
exercising their over-subscription privileges. For example, if rights holders
exercise their basic subscription privilege for 10,000,000 shares and exercise
their over-subscription privilege for 5,000,000 additional shares, then only
3,612,000 shares would be available in the aggregate for the over-subscription
privilege. If the rights holders who exercised their over-subscription privilege
for 5,000,000 shares held rights under which they exercised basic subscription
privileges for 4,000,000 shares, then the 3,612,000 shares would in the first
instance be allocated .9030 shares per ZAP.COM share purchased by the rights
holders exercising their over-subscription privilege (i.e. 3,612,000 shares
divided by 4,000,000), with subsequent reallocations depending on individual
circumstances. However, if one of these rights holder has exercised his basic
subscription privilege for 200 shares and his over-subscription privilege for 50
shares, he would be allocated 180 shares, but only be obligated to purchase 50
shares. The remaining 130 shares would be reallocated among the rights holders
exercising their over-subscription privilege.
We will send to you certificates representing shares of ZAP.COM common
stock you purchase with your over-subscription privilege as soon as practicable
after the rights offering closes and all pro-rations and adjustments required by
the terms of the rights offering have been effected.
In connection with the exercise of the over-subscription privilege, banks,
brokers and other nominee holders of rights who exercise the basic subscription
privilege and the over-subscription privilege on behalf of beneficial owners of
rights will be required to certify to the subscription agent and ZAP.COM as to
the aggregate number of rights that have been exercised and the
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number of shares that are being subscribed under the over-subscription privilege
by each beneficial owner on whose behalf the nominee holder is acting.
DETERMINATION OF SUBSCRIPTION PRICE
Prior to the rights offering, there has been no public market for ZAP.COM's
common stock. In determining the subscription price, our board did not employ
any recognized criteria of investment value or obtain an independent valuation
of our business or assets. Rather, our board considered our business potential
and prospects and the fact that we are a development stage company. As a result,
this price bears no relation to book value, earnings, assets or other generally
accepted investment criteria. We believe that any valuation of our business,
given its early stage of development, is highly speculative. The actual value or
resale value of our common stock may be significantly higher or lower than the
exercise price for the rights.
SALE OF UNSUBSCRIBED SHARES DURING THE RIGHTS OFFERING
We will offer at a price of $8.00 per share to persons selected by us the
first 350,000 shares that are not subscribed as of the close of the rights
offering. These persons may have a relationship with us or Zapata. In addition,
any soliciting agent or dealer we engage may offer at a price of $8.00 per share
to persons selected by it any remaining shares that are unsubscribed in the
rights offering. No specific persons have been identified as of the date of this
Prospectus nor have any types of procedures been developed to do so. Such offers
may only by made during the rights offering and accepted by us if shares are
available as of the close of the rights offering. We expect any purchases of
these unsubscribed shares to be closed simultaneously with the close of shares
subscribed for by rights holders.
SALES OF SHARES SUBSEQUENT TO THE RIGHTS OFFERING
We may by means of a post-effective amendment to the registration statement
of which this prospectus is a part, offer and sell any unsubscribed-for shares
to banks, insurance companies, pension funds and other institutional investors
and to certain individuals in any state in which the offer and sale to such
persons may be made consistent with applicable law. ZAP.COM may solicit and
accept subscriptions from any additional offerees for any shares offered by this
prospectus which were not validly subscribed for by eligible Zapata
stockholders. It is anticipated that, in general, offers and sales to additional
offerees, if any, will be made on substantially the same terms as those
described above for offers and sales made pursuant to the offer, although the
price of shares sold to additional offerees is expected to differ based on
then-prevailing market conditions. Any material differences in the terms of
sales to additional offerees from those made pursuant to the rights offering
would be described in a supplement to this Prospectus.
EXERCISE OF RIGHTS BY THE GLAZERS
In order to have our common stock be more widely held, Malcolm Glazer, who
controls approximately 44% of Zapata's outstanding common stock, has agreed to
only be entitled to receive and exercise 125,000 rights. In addition, our
President and Chief Executive Officer, Avram Glazer, has agreed to only be
entitled to receive and exercise 10,306 rights. Thus, only 135,306 rights
covered by this prospectus will be issued to the Glazers or an entity owned by
them. If no Zapata stockholders other than the Glazers (or an entity owned by
them) purchase any of the offered shares, we will receive $9,082,448 in gross
proceeds from the rights offering and Zapata's investment less estimated
offering expenses. In contrast, if all of the shares are purchased, the proceeds
net of estimated solicitation fees of $5,390,678 together with Zapata's
investment will be $111,505,322. Regardless of the number of shares purchased,
expenses for the offering are estimated to be approximately $850,000.
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PLAN OF DISTRIBUTION -- SUBSCRIPTION AGENT, SOLICITING AGENT DEALERS AND
INFORMATION AGENT
In order to provide a benefit to Zapata's eligible stockholders, ZAP.COM is
initially making this rights offering directly to eligible Zapata stockholders.
ZAP.COM may appoint a soliciting agent for the rights offering prior to the
commencement of, or during the rights offering to solicit purchases during the
rights offering from rights holders and from other persons it selects for any of
the shares remaining unpurchased as of the close of the rights offering. ZAP.COM
will negotiate the fees that the soliciting agent will receive but in no event
will these fees exceed 5% of the gross proceeds of the offering, other than
proceeds received from Zapata or the Glazers or any entity owned by them. The
soliciting agent may reallow a portion of its commission to soliciting dealers
who procure exercises of subscriptions. In the absence of a soliciting agent,
ZAP.COM will pay each broker-dealer who has entered into a soliciting dealer
agreement with ZAP.COM fees for their soliciting efforts equal to 2.5% of the
subscription price per share of common stock for each share of common stock
issued pursuant to the exercise of rights issued as a result of their soliciting
efforts. The soliciting fees will be paid directly to a broker-dealer designated
on the applicable portion of the subscription certificates as having solicited
the rights holder. Soliciting fees will not be paid on any undesignated exercise
rights.
ZAP.COM also expects to reimburse any soliciting agent for its accountable
expenses up to an agreed upon amount. ZAP.COM may also indemnify any soliciting
agents or dealers against specified liabilities, including liabilities under the
Securities Act of 1933, which it may incur in connection with services rendered
by it. Where shares are held indirectly through a broker, bank or other
institution ZAP.COM will reimburse the institutions' reasonable out-of-pocket
costs in distributing this prospectus and other materials to beneficial owners
of the stock.
ZAP.COM has appointed its transfer agent, American Stock Transfer & Trust
Company, to assist with the rights offering in the role of subscription agent.
You should deliver your subscription certificate, payment of the subscription
price and notice of guaranteed delivery, if applicable, to the subscription
agent. The address to which these documents and payment should be delivered is:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
Telephone: (718) 921-8200
Facsimile: (718) 234-5001
The subscription agent will hold all subscriptions and subscription
proceeds in escrow until the earlier of the termination or close of the rights
offering and the acceptance or rejection of the subscription by ZAP.COM. ZAP.COM
will accept or reject all subscriptions in the days after the closing of
the rights offering. The subscription agent will be responsible for delivering
stock certificates and refunds to rights holders if the rights offering is
terminated or if a subscription certificate is rejected. Funds received in
payment of the subscription price for shares subscribed for under the
over-subscription privilege prior to notification by the subscription agent of
the allocation of the shares will be held in escrow by the subscription agent
pending issuance of such shares. If you are allocated less than all of the
shares of ZAP.COM common stock which you have subscribed for under your
over-subscription privilege, the excess funds that you pay to the subscription
agent in respect of the subscription price for shares not issued will be
returned to you by mail without interest or deduction as soon as practicable
after 5:00 p.m., EST, on , 1999, or such later date as the rights
offering closes on. Subscription proceeds held in the escrow account will be
invested in bank money-market accounts. Subscribers may not withdraw funds from
the escrow account. During any period in which subscription proceeds are held in
escrow, interest earned thereon will be retained by ZAP.COM. Escrowed proceeds
will be released to ZAP.COM on the date that the applicable subscription
certificate is accepted by
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<PAGE> 30
ZAP.COM. ZAP.COM will pay the fees and expenses of the subscription agent in
connection with the rights offering and, if made, the stock distribution.
ZAP.COM has also retained Georgeson Shareholder Communications, Inc. to act
as information agent for the rights offering and, if made, the stock
distribution. ZAP.COM will pay the information agent a $12,000 fee and reimburse
it for its accounting expenses. The address for our information agent is as
follows:
Georgeson Shareholder Communications, Inc.
Wall Street Plaza
New York, New York 10005
If you have questions or need assistance concerning the procedure for
exercising the rights or concerning the stock distribution, or if you would like
additional copies of this Prospectus, the Instructions or the Notice of
Guaranteed Delivery, you should contact our information agent.
EXERCISE OF RIGHTS
You may exercise your rights by delivering to the subscription agent, at or
prior to 5:00 p.m., EST, on , 1999, or such later date as to which
ZAP.COM may extend the rights offering:
- Your properly completed and duly executed subscription certificate and
- any required signature guarantees or other supplemental documentation;
and
- Your payment in full of $8.00 per share of ZAP.COM common stock
subscribed for under the basic subscription privilege and the
over-subscription privilege.
ZAP.COM may reject any subscription documents the subscription agent
receives after 5:00 p.m., EST, on , 1999, regardless of when the
documents were originally mailed.
METHOD OF PAYMENT
Payments for the shares must be made in U.S. dollars for the full number of
shares you have subscribed for either by (a) check or bank draft drawn upon a
U.S. bank payable to American Stock Transfer & Trust Company, as subscription
agent, or (b) wire transfer of immediately available funds to the subscription
agent at The Chase Manhattan Bank, ABA No. 021-000021, for the credit to the
account of American Stock Transfer & Trust Company, as escrow agent for ZAP.COM
Corporation, Account No. 323-053637. Any wire transfer of funds should clearly
indicate the identity of the rights holder who is paying the subscription price
by the wire transfer. The subscription price will be deemed to have been
received by the subscription agent only upon (1) clearance of any uncertified
check, (2) receipt by the subscription agent of any certified check or bank
draft drawn upon a U.S. bank or (3) receipt of good funds in the subscription
agent's account designated above.
- --------------------------------------------------------------------------------
IF PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID IN
THIS MANNER MAY TAKE UP TO FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS OF
RIGHTS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL
CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE DATE ON WHICH THE
RIGHTS EXPIRE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARED BY SUCH DATE
AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK,
MONEY ORDER OR WIRE TRANSFER OF FUNDS.
- --------------------------------------------------------------------------------
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<PAGE> 31
GUARANTEED DELIVERY PROCEDURES
If you want to exercise your rights, but time will not permit your
subscription certificate to reach the subscription agent on or prior to 5:00
p.m., EST, on , 1999, you may exercise your rights if you satisfy
the following guaranteed delivery procedures:
- You send, and the subscription agent receives, payment in full for each
share of common stock being purchased through the basic subscription
privilege and the over-subscription privilege in the method described
above under "The Offering -- Method of Payment," on or prior to 5:00
p.m., EST, on , 1999;
- You send, and the subscription agent receives, on or prior to 5:00 p.m.,
EST, on , 1999, a notice of guaranteed delivery,
substantially in the form provided with the attached instructions, from a
member firm of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or correspondent in the United States.
The notice of guaranteed delivery must state your name, the number of
rights that you hold, the number of shares of common stock that you wish
to purchase under the basic subscription privilege and the number of
shares, if any, you wish to purchase under the over-subscription
privilege. The notice of guaranteed delivery must guarantee the delivery
of your subscription certificate to the subscription agent within three
business days following the date of the notice of guaranteed delivery;
and
- You send, and the subscription agent receives, your properly completed
and duly executed subscription certificate and the related nominee holder
certification, if applicable, including any required guarantees, within
three business days following the date of your notice of guaranteed
delivery. The notice of guaranteed delivery may be delivered to the
subscription agent in the same manner as your subscription certificate at
the addresses set forth above under "The Offering -- Plan of
Distribution -- Subscription Agent, Soliciting Agent and Information
Agent" or may be transmitted to the subscription agent by facsimile
transmission, to facsimile number (718) 234-5001. You can obtain
additional copies of the form of notice of guaranteed delivery by
requesting it from the subscription agent at the same address.
SIGNATURE GUARANTEES
Your signature on each subscription certificate must be guaranteed by an
Eligible Guarantor Institution, as defined in Rule 17Ad-15 of the Securities
Exchange Act of 1934, and required under the standards and procedures adopted by
the subscription agent. Eligible Guarantor Institutions include banks, brokers,
dealers, credit unions, national securities exchanges and savings associations.
Signatures on the subscription certificate do not need to be guaranteed if:
- the subscription certificate provides that the shares of common stock to
be purchased are to be delivered directly to the record owner of such
rights; or
- the subscription certificate is submitted for the account of a member
firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or a commercial bank or
trust company having an office or correspondent in the United States.
SHARES HELD FOR OTHERS
If you hold shares of Zapata common stock for others on , 1999,
you should provide a copy of this prospectus to the respective beneficial owners
of those shares as soon as possible, ascertain such beneficial owners'
intentions and obtain instructions with respect to the
30
<PAGE> 32
rights, as set forth in the instructions we have provided to you for your
distribution to the beneficial owners. If the beneficial owner so instructs, you
should complete subscription certificates and submit them to the subscription
agent with the proper payment. If you hold shares of Zapata common stock for the
account(s) of more than one beneficial owner, you may exercise the number of
rights to which all such beneficial owners in the aggregate otherwise would have
been entitled had they been direct record holders of Zapata common stock on the
record date for the rights offering, provided that, you, as a nominee record
holder, make a proper showing to the subscription agent by submitting the form
entitled "Nominee Holder Certification" which we will provide to you with your
rights offering materials.
If you are a beneficial owner of Zapata common stock or you will receive
your rights through a broker, custodian bank or other nominee, we will ask your
broker, custodian bank or other nominee to notify you of this rights offering.
If you wish to exercise your rights, you will need to contact your broker,
custodian bank or nominee and request it to effect the transaction in accordance
with your instructions. To indicate your decision with respect to your rights,
you should complete and return to your broker, custodian bank or other nominee
the form entitled "Beneficial Owners Election Form." You should receive this
form from your broker, custodian bank or other nominee with the other rights
offering materials. If you wish to obtain a separate rights certificate, you
should contact the nominee as soon as possible and request that a separate
rights certificate be issued to you. You should be aware that nominee record
holders may establish deadlines for receiving instructions from beneficial
holders significantly in advance of the expiration date for the rights.
AMBIGUITIES IN EXERCISE OF THE RIGHTS
If you do not specify the number of rights being exercised on your
subscription certificate, or if your payment is not sufficient to pay the total
subscription price for all of the shares that you indicate you wish to purchase,
you will be deemed to have exercised the maximum number of rights that could be
exercised for the amount of the payment that the subscription agent receives
from you.
If your payment exceeds the total subscription price for all of the rights
shown on your subscription certificate, your payment will be applied, until
depleted, to subscribe for shares of common stock in the following order:
- to subscribe for the number of shares, if any, that you indicated on the
subscription certificate(s) that you wished to purchase through your
basic subscription privilege;
- to subscribe for shares of common stock until your basic subscription
privilege has been fully exercised; and
- to subscribe for additional shares of common stock through your
over-subscription privilege, after applying required pro-ration.
Any excess payment remaining after the foregoing allocation will be returned to
you as soon as practicable following the closing of the rights offering by mail,
without interest or deduction.
OUR DECISIONS ARE BINDING
All questions concerning the timeliness, validity, form and eligibility of
any exercise of rights will be determined by us and our determinations will be
final and binding. We reserve the right, in our sole discretion, to waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as we may determine, or reject the purported exercise of any
right. Subscriptions will not be deemed to have been received or accepted until
all irregularities have been waived or cured within such time as we determine in
our sole discretion. We reserve the right, in our sole discretion, to reject any
purchases not properly submitted or the acceptance of which would, in the
opinion of our counsel, be unlawful. Neither Zapata, ZAP.COM, the
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<PAGE> 33
information agent, the soliciting agent, any soliciting dealer nor the
subscription agent will be under any duty to give notification of any defect or
irregularity in connection with the submission of subscription certificates or
incur any liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising rights or requests for additional copies of this prospectus should be
directed to the information agent at (800) 223-2064. Banks and brokers should
call collect at (212) 440-9800.
RIGHT TO TERMINATE OR MODIFY RIGHTS OFFERING
We may withdraw the rights and terminate the rights offering at any time
prior to the expiration of the rights, for any reason. If we withdraw the rights
and terminate the rights offering, any funds received from rights holders will
be promptly refunded by the subscription agent without interest or penalty. The
ZAP.COM board of directors, in its sole discretion, may amend the terms and
conditions of the rights and the offering at any time prior to the expiration of
the rights.
- --------------------------------------------------------------------------------
THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION CERTIFICATE SHOULD BE READ
CAREFULLY AND FOLLOWED IN DETAIL. DO NOT SEND SUBSCRIPTION CERTIFICATES TO
ZAPATA OR TO ZAP.COM. THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND
PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE
ELECTION AND RISK OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL, IT IS RECOMMENDED
THAT SUCH CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE
ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT AT
OR PRIOR TO 5:00 P.M., EST, ON , 1999.
- --------------------------------------------------------------------------------
RESTRICTIONS ON TRANSFERABILITY OF RIGHTS
The subscription rights may be exercised by the persons to whom the rights
are granted. You may, however, transfer your rights to immediate family members
or to entities beneficially owned or controlled by you. Otherwise, your
subscription rights are not transferrable.
PROCEDURES FOR DEPOSITORY TRUST COMPANY PARTICIPANTS
We expect that you will be able to exercise your basic subscription
privilege and your over-subscription privilege through the facilities of the
Depository Trust Company. If your rights are held of record through the
Depository Trust Company, you may exercise your basic subscription privilege and
your over-subscription privilege by instructing the Depository Trust Company to
transfer your rights from your account to the account of the subscription agent,
together with certification as to the aggregate number of rights you are
exercising and the number of shares of our common stock you are subscribing for
under your basic subscription privilege and your over-subscription privilege, if
any, and your subscription price payment for each share you subscribed for under
your basic subscription privilege and over-subscription privilege.
NO MINIMUM SUBSCRIPTION AMOUNT
We are conducting the rights offering on a best efforts basis. Thus, we
cannot guarantee that any of our shares will be sold other than to the Glazers
as described in this prospectus. The rights offering is not conditioned upon
ZAP.COM's receipt of subscriptions for any minimum number of shares of ZAP.COM
common stock. However, we may cancel the rights offering at any time prior to
its completion, in which case all subscription payments will be returned without
interest or penalty.
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<PAGE> 34
NO REVOCATION
Once you exercise your basic subscription privilege or over-subscription
privilege, you may not revoke that exercise. Rights not exercised prior to their
expiration will be null and void as of and after such time.
NO BOARD RECOMMENDATION
An investment in ZAP.COM common stock must be made in accordance with each
investor's evaluation of his or its best interest. Neither the board of
directors of Zapata nor the board of directors of ZAP.COM makes any
recommendation regarding whether rights holders should exercise their rights.
THE STOCK DISTRIBUTION
The board of directors of Zapata has declared a special stock distribution
of ZAP.COM common stock to holders of record of Zapata common stock as of the
close of business on , 1999 which provides for the distribution of
between 150,000 shares of ZAP.COM common stock and 3,000,000 shares of ZAP.COM
common stock to holders of Zapata common stock as of 1999. Zapata
will only distribute these shares to you if as of the close of the rights
offering, the number of shares or the market value of the shares being issued to
non-affiliates as a result of exercised rights or the number of record holders
who will receive shares of ZAP.COM common stock as a result of such exercises is
insufficient to meet the listing requirements for the Nasdaq NM and the
distribution will satisfy these requirements. The aggregate number of shares
that will be distributed and the applicable distribution ratio depends upon the
number of rights which are exercised in connection with the rights offering. As
of the date of this prospectus, Zapata has approximately 7,051 holders of record
of its common stock, approximately 21,284 beneficial owners of its common stock
and 23,887,078 shares of common stock outstanding.
For ZAP.COM common stock to be eligible for quotation on the Nasdaq NM, we
must have at least 400 holders of our common stock. If the number of holders who
elect to exercise their rights prior to the expiration of the rights offering is
insufficient to meet the number of record holders required to qualify for
listing on the Nasdaq NM, then Zapata will distribute to persons owning Zapata
common stock on , 1999 no less than 150,000 shares of ZAP.COM common
stock. If 150,000 shares are distributed, you will receive approximately .0063
shares of ZAP.COM common stock for each share of Zapata common stock that you
owned on , 1999. Zapata, however, will not distribute fractional
shares. In lieu of fractional shares you will receive a cash distribution based
on an $8.00 per share price.
For ZAP.COM's common stock to be eligible for listing on the Nasdaq NM,
ZAP.COM must have at least 1,100,000 shares outstanding and held by
non-affiliates and such shares must have a market value of $20,000,000 or more.
If upon expiration of the rights offering, rights holders have not exercised
rights for the purchase of at least 1,100,000 shares of our common stock or the
shares to be issued to such persons has a market value of less than $20,000,000,
then we will distribute so many shares of our common stock as will, when
distributed together with those shares being issued in connection with the
rights offering, result in our common stock meeting the listing eligibility
requirements of the Nasdaq NM up to a maximum of 3,000,000 shares. If
circumstances require Zapata to make the stock distribution in order to meet
non-affiliate outstanding share requirements, Zapata will not distribute less
than 150,000 shares of ZAP.COM common stock. For example, if non-affiliates
exercise 2,000,000 rights prior to the expiration of the rights offering, then
assuming an $8 per share market price, Zapata will distribute 500,000 shares to
persons owning Zapata stock on , 1999. This would result in you
receiving approximately 0.0209 shares of ZAP.COM common stock for each share of
Zapata common
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<PAGE> 35
stock held by you on , 1999 less any fractional shares. In lieu of
fractional shares, you will receive a cash distribution based on an $8.00 per
share price.
MANNER OF EFFECTING THE STOCK DISTRIBUTION
If a stock distribution is made, shares of ZAP.COM common stock being
distributed by Zapata will be delivered by to the stock distribution agent for
transfer and distribution to eligible Zapata stockholders. In such event, the
stock distribution agent will deliver the certificates to eligible Zapata
stockholders at about the same time as certificates are issued to stockholders
who have exercised their rights. Fractional shares of ZAP.COM common stock will
not be issued in the stock distribution and instead a cash payment will be made
in lieu of such fractional shares. The amount of the payment will be based on a
price of $8.00 per share.
RIGHT TO TERMINATE OR MODIFY THE STOCK DISTRIBUTION
The stock distribution does not require stockholder approval and the Zapata
board of directors may abandon, defer or modify the stock distribution prior to
11:59 p.m., EST, on the day immediately preceding the closing of the rights
offering. Zapata's stockholders will not be entitled to appraisal rights in
connection with the stock distribution and related transactions described in
this prospectus at any time.
No holder of Zapata common stock will be required to pay any cash, exchange
their Zapata shares or tender any other consideration for the shares of ZAP.COM
common stock received in the stock distribution. The stock distribution will not
affect the number of, or the rights attaching to outstanding shares of Zapata
common stock. All shares of ZAP.COM common stock issued in the stock
distribution will be fully paid and non-assessable and the holders of those
shares will not be entitled to preemptive rights. Please see "Description of
Securities -- Common Stock."
STATE AND FOREIGN SECURITIES LAW
The rights may not be exercised by any person, and neither this prospectus,
the subscription certificate nor the stock distribution shall constitute an
offer to sell or a solicitation of an offer to purchase any shares of ZAP.COM
common stock in any jurisdiction in which such transactions would be unlawful.
[RIDER 33A MISSING]
No action has been taken in any jurisdiction outside the United States to
permit offers and sales of the rights or the offer, sale or distribution of the
shares of ZAP.COM common stock. Consequently, ZAP.COM may reject subscriptions
that relate to the exercise of rights by any holder of rights outside the United
States, and ZAP.COM may also reject subscriptions from holders in jurisdictions
within the United States and ZAP.COM may refuse to distribute rights and Zapata
may refuse to distribute shares of ZAP.COM common stock to any eligible Zapata
stockholders if ZAP.COM or Zapata should determine that it may not lawfully
issue securities to such holders. ZAP.COM and Zapata may do so even if it
qualify the securities for sale or distribution by taking other actions or
modifying the terms of the offering or the distribution in such jurisdictions
which either corporation may decline to do in its sole discretion. In such
event, rights holders who are residents of these jurisdictions will not be
eligible to participate in either the rights offering or the stock distribution
or both.
Subscription Certificates will not be mailed to eligible Zapata
stockholders whose addresses are outside the United States or who have an APO or
FPO address, but will be held by the subscription agent for their account. To
exercise such rights, these Zapata stockholders must notify the subscription
agent by the expiration date and must establish to the satisfaction of the
subscription agent that such exercise is permitted under applicable law. If such
a holder does not notify the subscription agent and provide acceptable
instructions to the subscription agent by such time, the rights represented
thereby will be available for over-subscription by other rights holders.
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<PAGE> 36
USE OF PROCEEDS
The primary purposes of this offering are to obtain additional capital,
create a public market for the common stock and facilitate future access to
public markets. The gross proceeds to be received by ZAP.COM from the rights
offering depends on the number of shares purchased. There is no minimum number
of shares that must be purchased for the rights offering to close. Please see
"The Offering -- No Minimum Subscription Amount." Malcolm Glazer, on behalf of
an entity owned by him, and Avram Glazer have informed ZAP.COM that they intend
to exercise rights for the purchase in the aggregate of 135,306 shares of
ZAP.COM common stock. Please see "The Offering -- Exercise of Rights By the
Glazers." Accordingly gross proceeds to ZAP.COM from the rights offering and the
Zapata investment, ranges from approximately $9,082,448 if no shares are
purchased other than by the Glazers to approximately $111,505,322 net of
estimated maximum solicitation fees if all of the shares offered are purchased.
Except for the rights which the Glazers plan to exercise, no assurance can be
given as to the actual number of shares that will be purchased. Regardless of
the number of shares purchased, ZAP.COM has estimated that the expenses for the
offering and related transactions will be approximately $850,000. In addition,
immediately prior to the closing of the rights offering, Zapata will make an
$8,000,000 investment in ZAP.COM. Please see "Certain Relationships and Related
Party Transactions -- Investment and Distribution Agreement."
ZAP.COM intends to use the net proceeds that it receives from the offering
and Zapata's $8,000,000 investment to fund development of the ZAP.COM Network
and anticipated operating losses and for other general corporate purposes.
ZAP.COM may also use a portion of these net proceeds to acquire or invest in Web
sites or complimentary businesses, although ZAP.COM does not have any specific
understanding, agreement, plan or proposal with respect to any such transaction.
Thus, at the present time, ZAP.COM has not determined the specific use for the
net proceeds of Zapata's investment or the offering. Accordingly, ZAP.COM's
management will have broad discretion in the application of the net proceeds.
Please see "Risk Factors -- Our Management Has Broad Discretion Over Use of the
Proceeds From This Offering."
Pending use, ZAP.COM intends to invest the net proceeds from the offering
and Zapata's investment 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. Pursuant to the
terms of the Series B preferred stock, ZAP.COM will be required to pay
cumulative dividends to the holders of such stock at the rate of 8% per annum on
the liquidation amount of such stock and to repurchase the stock under specified
circumstances following the first anniversary of the closing of the rights
offering. Please see "Authorized Capital Stock -- Series B Preferred Stock." The
dividend and repurchase price may only be paid out of legally available funds
and cash dividends will not be required until June 15, 2002. ZAP.COM is
restricted from paying dividends on common stock if it is in default with
respect to the payment of dividends on or the repurchase of Series B Preferred
Stock at any time.
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DILUTION
As of March 31, 1999, ZAP.COM had a negative net tangible book value
available to common stockholders of approximately ($304,358), or approximately
$(0.01) per share of common stock. Net tangible book value per share of common
stock represents the amount of ZAP.COM's tangible assets less total liabilities
and preferred stock liquidation value, divided by 50,000,000 shares. After
giving effect to the sale of the minimum and maximum number of shares offered
hereby at the subscription offering price of $8.00 per share, and the
application by ZAP.COM of the estimated net proceeds after deducting estimated
maximum soliciting agent and dealer fees and offering expenses, the pro forma
net tangible book value as of March 31, 1999 would have been $(21,920) and
$102,400,954 or $(0.001) per share and $1.61 per share, respectively. This
represents an immediate increase in net tangible book value of $0.004 and $1.62
per share, respectively, to Zapata as the sole existing stockholder and an
immediate dilution of $7.999 to $6.39 per share, respectively, to new investors
purchasing shares in the minimum and maximum offering. The following table
illustrates the per share dilution in net tangible book value per share to new
investors in the minimum and maximum offering.
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
---------------- ----------------
<S> <C> <C>
Offering price per share............................ $ 8.00 $ 8.00
Net tangible book value per common share as of
March 31, 1999 prior to the offering........... $ (0.01) $ (0.01)
------- -------
Increase in net tangible book value per common
share resulting from the offering.............. $ 0.009 $ 1.62
------- -------
Pro Forma net tangible book value per common share
as of March 31, 1999 after the offering........... $(0.001) $ 1.61
======= =======
Dilution to new ZAP.COM common stockholders......... $ 7.999 $ 6.39
======= =======
</TABLE>
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CAPITALIZATION
The following table sets forth the capitalization of ZAP.COM as of March
31, 1999 on a pro forma basis to give effect to Zapata's $8,000,000 investment,
and as adjusted to give effect to (1) the purchase of shares only by the Glazers
(or an entity owned by them) for a total of 135,306 purchased shares and (2) the
maximum purchase of 13,612,000 shares, less estimated maximum solicitation fees
of $5,390,678 and, in each case less estimated offering expenses of $850,000.
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>
MARCH 31, 1999
----------------------------------------
PRO FORMA
----------------------------------------
AS ADJUSTED AS ADJUSTED
ACTUAL MINIMUM MAXIMUM
--------- ----------- ------------
<S> <C> <C> <C>
Redeemable preferred stock(1)
Preferred stock, $0.01 par value, 150,000,000
shares authorized; Series B preferred stock,
$0.01 par value, 100,000 shares designated;
no shares issued and outstanding actual;
70,000 shares issued and outstanding pro
forma as adjusted minimum and maximum....... $ -- $ 7,000,000 $ 7,000,000
Stockholders' equity (deficit):
Series A preferred stock, $0.01 par value,
10,000 shares designated; no shares issued
and outstanding actual; 10,000 shares issued
and outstanding pro forma as adjusted
minimum and maximum......................... -- 1,000,000 1,000,000
Common stock, $0.001 par value; 1,500,000,000
shares authorized and 50,000,000 issued and
outstanding actual; 50,135,306 shares issued
and outstanding pro forma as adjusted
minimum and 63,612,000 shares issued and
outstanding pro forma as adjusted maximum
(2)(3)...................................... 10 50,135 63,612
Common Stock Warrants(4)....................... -- -- --
Additional paid-in capital..................... -- 232,313 102,641,710
Deficit accumulated during the development
stage....................................... (304,368) (304,368) (304,368)
--------- ----------- ------------
Total stockholders' equity (deficit)........... 304,358 978,080 103,400,954
--------- ----------- ------------
Total capitalization............................. $ 304,358 $ 7,978,080 $110,400,954
========= =========== ============
</TABLE>
- ---------------
(1) Please see "Description of Securities -- Series B Preferred Stock" for
information regarding the terms of this security.
(2) ZAP.COM will have between 50,135,306 and 63,612,000 shares of outstanding
common stock upon closing of the offering. Please see "Certain Relationships
and Related Party Transactions -- Investment and Distribution Agreement".
(3) Excludes 8,000,000 shares of common stock, which immediately prior to the
close of the rights offering will be reserved for issuance under the 1999
Incentive Plan, of which 755,000 shares will be reserved for options
outstanding as of the date of this prospectus
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<PAGE> 39
with an exercise price of $5.00 per share. The total number of reserved
shares for issuance under this plan will increase with future issuances of
shares in the rights offering or other transactions, Please see "Management
- 1999 Long-Term Incentive Plan. Also excludes shares of common stock
issuable upon Zapata's transfer of its Series A preferred stock which will
only occur if at the time of transfer, the ZAP.COM common stock held by
Zapata constitutes less than 35% of all outstanding ZAP.COM common stock as
a result of dilution. Please see "Description of Securities -- Series A
Preferred Stock".
(4) Reflects warrants to purchase up to an aggregate of 2,000,000 shares of
common stock at an exercise price of $8.00 per share to be issued to
American Internetwork Sports immediately prior to closing of the rights
offering. Please see "Certain Relationships and Related Party
Transactions -- American Internetwork Sports Company, LLC".
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SELECTED FINANCIAL DATA
The selected financial data set forth below for the period from April 2,
1998 (date of inception) through March 31, 1999 are derived from our audited
financial statements. The audited balance sheet as of March 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
MARCH 31, 1999
-------------------------
<S> <C>
Revenues.................................................... $ --
Expenses:
General and administrative................................ 304,368
---------
Loss before income taxes.................................... 304,368
---------
Benefit from income taxes................................... --
---------
Net loss.................................................... $(304,368)
=========
Per share data (basic):
Net loss per share........................................ $ (304.37)
=========
Average common shares and common share equivalents
outstanding............................................... 1,000
=========
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-------------------------
<S> <C>
Balance sheet data:
Total assets.............................................. $ 111,528
Total liabilities......................................... 415,886
Total stockholder's deficit............................... (304,358)
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
OVERVIEW AND RESULTS OF OPERATIONS
From inception on April 2, 1998 through March 31, 1999, ZAP.COM has
operated as a wholly-owned subsidiary of Zapata. During this period, ZAP.COM's
operations have consisted of organizational activities, research and analysis
with respect to the Internet industry, efforts to refine the business model
which ZAP.COM plans to employ, and the exploration of strategic relationships.
During this period, ZAP.COM generated no revenues and has incurred expenses and
an operating loss of approximately $304,000, consisting primarily of payroll,
legal and consulting fees. Since its inception, Zapata has provided ZAP.COM with
all of the administrative personnel and services which it has required.
ZAP.COM intends to develop an Internet network of banners through which it
will distribute advertising and e-commerce opportunities. 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 rights offering and, if made, the stock
distribution it will significantly increase the levels of its expenditures to
develop a supporting infrastructure and its network. 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, although it 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 April and June, 1999, ZAP.COM granted options to purchase 755,000 shares
of ZAP.COM common stock at $5.00 per share to persons who are or who immediately
following the closing of the rights offering will become ZAP.COM executives or
key employees. In addition, immediately prior to the closing of the rights
offering, ZAP.COM intends to grant American Internet 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 $8.00 per share exercise price.
These options and warrants will generally vest ratably on annual basis during
the first three years following their issuance. To the extent that these options
and warrants have positive intrinsic value (as defined by Financial Accounting
Standards No. 123) ZAP.COM will incur non-cash charges to net income during
1999. Because of the predominately factual nature of determining the intrinsic
value of the options and warrants, it is difficult for management to express
opinions as to their intrinsic value at the time of issuance. We plan to
finalize the intrinsic value of these options and warrants based on an appraisal
of an independent third party and will recognize appropriate charges based on
this appraisal.
Until ZAP.COM begins to recognize revenue from operations, it will be
considered in the development stage. ZAP.COM anticipates that, for the
foreseeable future, it will incur substantial operating losses 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 and develops its brand name. As a result, to achieve and maintain
profitability, ZAP.COM will need to generate significant revenues which cannot
be assured. Please see "Risk Factors -- We Anticipate Incurring Significant
Losses for the Foreseeable Future".
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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 February 28, 1999, ZAP.COM had no cash or cash equivalents. Further,
ZAP.COM does not presently have a source of revenues and it does not expect to
begin recognizing revenues until the ZAP.COM Network has grown to a size which
makes sales commercially feasible. 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."
Simultaneously with the closing of the rights offering, Zapata will
contribute to ZAP.COM in cash $8,000,000 for 10,000 shares of Series A preferred
stock and 70,000 shares of Series B preferred stock. ZAP.COM estimates that it
will receive proceeds from the rights offering of between approximately
$1,082,448 and $103,505,322 net of estimated maximum solicitation fees depending
on the number of shares purchased, in each case less estimated offering expenses
of $850,000. ZAP.COM expects to use the funds that it receives from Zapata's
investment and the rights offering to fund development of the ZAP.COM Network
and anticipated operating losses and for general corporate purposes. Please see
"Use of Proceeds".
Depending on the amount of funds ZAP.COM receives in the rights offering,
it may have to delay, scale back or eliminate some or a substantial amount of
its planned activities. Nevertheless, 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, expects that the proceeds from
the Zapata investment and the rights offering if only the Glazers exercise their
135,306 rights will be sufficient to support its growth and operations during at
least this 12 month period.
At any time following the first year after the rights offering closing,
Zapata may require ZAP.COM to redeem the Series B preferred stock if ZAP.COM
maintains a cash balance of $15,000,000 or more, has cash flow of $5,000,000 or
more for any four quarters, has market capitalization in excess of $100,000,000
for any 30 day period or conducts a secondary offering which raises gross
proceeds of more than $20,000,000. Please see "Description of Securities --
Series B Preferred Stock". The repurchase price will equal the liquidation value
of the shares being redeemed plus all accrued and unpaid cash dividends. If
Zapata requires ZAP.COM to repurchase the Series B preferred stock, it will
adversely affect its liquidity. Depending upon ZAP.COM's financial condition at
the time of repurchase, ZAP.COM may be unable to repurchase the stock. If these
circumstances arise, it may adversely affect ZAP.COM's ability to raise
additional capital until these shares are redeemed. Please see "Risk
Factors -- If We are Unable to Raise the Necessary Capital in the Future, We May
Be Unable to Meet Our Future Capital Needs".
As part of its business strategy, ZAP.COM plans to make payments of cash,
common stock or combination of cash and 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 or ZAP.COM
does not raise sufficient funds from Zapata's investment and the rights offering
to fund these payments, ZAP.COM may need to raise additional funds. ZAP.COM
cannot guarantee that ZAP.COM will be able to do so, particularly
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given the terms of the ZAP.COM Series A preferred stock, or, if it can, that it
will be able to do so on terms that it deems acceptable. In particular,
potential investors may be unwilling to invest in ZAP.COM due to Zapata's voting
control over ZAP.COM and the 35% minimum common equity position in ZAP.COM
afforded to Zapata as the sole holder of ZAP.COM's Series A preferred stock.
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. The 35% minimum equity position may make our common stock
unattractive because it may in the future cause a greater dilution to the
outstanding common stock held by our stockholders other than Zapata if the
ZAP.COM common stock held by Zapata is diluted below 35% of ZAP.COM's common
stock as a result of new common stock issuances. Please see "Risk Factors -- If
We Are Unable To Raise the Necessary Capital in the Future, We May be Unable to
Meet our Future Capital Needs" and "-- Investors Will Experience Immediate and
Substantial Dilution and Will Experience Further Dilution with Future Stock
Issuances". Failure of ZAP.COM to raise funds required to support its operations
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 ZAP.COM common stock issued in the rights offering or stock distribution.
YEAR 2000
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with Year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
State of Readiness. The only software and hardware currently employed by
ZAP.COM consist of a financial accounting package and two servers, all of which
are Year 2000 compliant. 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 that their software and
hardware solutions are Year 2000 compliant.
In addition, the ZAP.COM Network site participants may also be impacted by
Year 2000 complications. Any failure by our network participants to make their
sites Year 2000 compliant could result in an inability to deliver programming to
the participant's sites. If a material number of network participants experience
such 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.
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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, prospects, results of operations and financial condition. Moreover,
the failure to adequately address Year 2000 compliance issues in its IT and
non-IT systems could result in claims of mismanagement, misrepresentation or
breach of contract and related litigation, which could be costly and time
consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third party service providers and others
outside ZAP.COM's control will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systemic failure beyond the
control of ZAP.COM, such as a prolonged Internet, telecommunications or
electrical failure, which could also prevent ZAP.COM from delivering its
services to its customers, decrease the use of the Internet or prevent users
from accessing the Web sites of its Web publisher customers, which could have a
material adverse effect on ZAP.COM's business, prospects, results of operations
and financial condition.
Contingency Plan. ZAP.COM has not yet developed any Year 2000 contingency
plans. The results of ZAP.COM's Year 2000 simulation testing and the responses
received from third party vendors and service providers will be taken into
account in determining the nature and extent of any contingency plans which it
develops.
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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, such as newspapers, magazines and journals,
through the Web has also experienced significant growth because of both the
growing popularity of the medium and the attractiveness of Web-based advertising
to the 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, such as 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, of their ability to receive a
direct economic benefit while retaining ownership and control of all aspects of
their Web site not involving the ZAP.COM banner and the potential to enhance
their traffic as a result of belonging to the network.
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BUSINESS STRATEGY
To implement the business model which will be the basis for our business,
ZAP.COM plans to pursue the following key elements:
Build ZAP.COM Network. In order to reach a substantial audience,
ZAP.COM will seek to aggregate a significant number of Web sites for its
network. ZAP.COM intends to pursue Web sites that have appealing and
diverse content, 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, such as 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 such 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 through the payment of cash, the issuance of equity or a combination
of cash and equity.
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, 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.
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Zapata has provided ZAP.COM with information based upon 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 amount of proceeds raised in the rights
offering and the development of an orderly trading market in ZAP.COM's common
stock. If ZAP.COM does not raise proceeds from the rights offering, then it will
have limited cash to pay Web site publishers for joining the ZAP.COM Network. 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. ZAP.COM cannot guarantee that it will raise any, or a
significant amount, of cash in the offering or that an orderly trading market
will develop. Please see "The Offering -- No Minimum Subscription Amount" and
"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." 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 Immediate and Substantial Dilution and Will
Experience Further 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.
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.
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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 such as 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 such as 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, such as 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. The ZAP.COM banner is currently being developed, 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 such as Network Solutions, Inc. These Internet
regulatory bodies promulgate rules and regulations regarding domain names, which
may change from time to time. The relationship between Internet regulatory
bodies, the allocation and governance of domain names and laws protecting
trademarks/service marks and similar proprietary rights is unclear and is in
flux. The current system for registering, allocating and managing domain names
has been the subject of much litigation, including trademark/service mark
litigation, unfair competition and dilution litigation. Therefore, we cannot
guarantee that ZAP.COM's domain names will not lose their value, or that ZAP.COM
will not have to obtain entirely new domain names in addition to or in lieu of
its current domain names if reform efforts result in a restructuring in the
current system. Therefore, ZAP.COM could lose its domain names or be unable to
prevent third parties from acquiring domain names that infringe or otherwise
decrease the value of our domain names, trademarks/service marks and other
proprietary rights.
OPERATING INFRASTRUCTURE AND TECHNOLOGY PLATFORM
ZAP.COM's business will be supported by a systems platform that is provided
and maintained by third parties. 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 registration statement becomes
effective, although there can be no assurance that this will occur. In such
event, we will need to locate a new technology platform and partner to manage
our banner space and negotiate an acceptable arrangement.
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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 anticipate that the acquired services
will use Compaq hardware, Microsoft Windows NT, Microsoft's Internet Index
Server and Netscape's Enterprise Web server software.
We expect to enter into a facilities management and hardware support
agreement with Qwest Communications. Under the arrangement, Qwest will provide
comprehensive facilities management services, including human and technical
monitoring of all production servers 24 hours per day, seven days per week.
Qwest will also provide the means of connectivity for ZAP.COM's two servers to
the Internet. The facility has two independent uninterruptible power supplies,
which are battery-powered, as well as two independent diesel generators designed
to provide power to these systems within seconds of a power outage. The diesel
generators can supply the data center's power for nine days before refueling is
required. Qwest does not guarantee that ZAP.COMs Internet access will be
uninterrupted, error-free or secure. ZAP.COM's operations will be dependent on
Qwest's ability to protect both Qwest's and ZAP.COM's systems against damage
from fire, power loss, water damage, telecommunications failures, vandalism and
other malicious acts, and similar unexpected adverse events. Any disruption of
Internet access provided by Qwest 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. We are currently
negotiating a contract with Qwest and expect to enter into the agreement shortly
after the closing of our rights offering, although there can be no assurance
that this will occur. In such event, we will need to locate another party to
provide facilities management and hardware support and negotiate an acceptable
arrangement.
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.
Under the proposed agreement with Qwest, all of ZAP.COM's production data
will be copied to backup tapes each night and these backup tapes will be rotated
to a third-party facility for off-site storage. ZAP.COM plans to maintain all of
its production servers in a manner that does not allow any outside access to any
administrative functions. Also, strict password management and physical security
measures will be followed through a Class A data center.
The ZAP.COM Network depends on Internet service providers, online service
providers and the operators of ZAP.COM Network participating Web sites for
points of access to the network. 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 rights offering closes,
although we cannot guarantee that this will occur. In such event, 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, none of these relationships has resulted in a legal
binding relationship. While ZAP.COM may develop the ability to render these
services internally, ZAP.COM intends to continue developing strategic
relationships and partnerships so that it can have adequate access to such
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 closing of the rights offering, Zapata's 21 employees
who operated the Word and Charged webzines will become employees of ZAP.COM.
These include 5 technical employees, 13 creative development employees and 3
administrative employees. We expect to make many of these employees available to
Zapata so that it can continue to operate Zapata's Word and Charged webzines.
Two additional 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 closing of the rights offering.
Following the closing of the rights offering, 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 such consultants, service
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organizations and other professionals at competitive rates and presently there
is no way to estimate the term of such service.
INTELLECTUAL PROPERTY
ZAP.COM regards its service marks, trademarks, trade dress, trade secrets
and other intellectual property as critical to its success, and will rely on
trademark law, patent law, trade secret protection and confidentiality and/or
license agreements with its employees, customers, participating Web 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 such 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, such as trademarks/service marks. While ZAP.COM will attempt to ensure
that the quality of its brands are maintained by such 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.
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On August 17, 1998, LFG, Inc. d/b/a Zap Futures commenced an action against
Zapata and another of its wholly-owned subsidiaries, Zap Corporation, in the
United States District Court for the Northern District of Illinois. LFG alleged
that Zapata and Zap were guilty of trademark infringement, trademark dilution
and unfair competition under the federal Lanham Act and various Illinois
statutes. The action arose out of the use by Zapata and Zap of the Zap trade
name and the Internet domain name "ZAP.COM" for its Internet Web site and its
linking of that Web site to other Web sites owned by LFG competitors. LFG uses
the domain name "zapfutures. com" for its Web site. LFG sought injunctive
relief, unspecified compensatory damages, punitive damages and an award of
attorneys' fees. The parties reached settlement of this action on April 9, 1999.
Under the settlement, Zapata is obligated to provide two years of advertising
and listing to ZAP Futures on any Web pages within its proprietary Web sites
which lists financial information sources or futures traders. ZAP.COM plans to
make any propriety Web page meeting these requirements and which it establishes
available to the plaintiff to fulfill this obligation on behalf of Zapata and
Zap Corporation. In addition, LFG has agreed not to sue or otherwise oppose the
use by Zapata 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. Such 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;
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- the ease of use, performance, price and reliability of solutions
developed by ZAP.COM or its competitions
ZAP.COM will compete with current and future suppliers of Internet
navigational and information services, high-traffic Web sites and Internet
service providers. These competitors include free information, search and
content sites or services, such as America Online, Inc., CNET, Inc., CNN/Time
Warner, Inc., Excite, Inc., Infoseek Corporation, Lycos, Inc., Netscape
Communications Corporation , Microsoft Corporation and Yahoo! Inc. ZAP.COM will
also compete with traditional forms of media such as 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.
Such 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 such relationships which could have the effect of
making their networks and Web sites more attractive to advertisers, or that
ZAP.COM's future strategic partners will not sever or will elect not to renew
their agreements with ZAP.COM. 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.
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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 such links, ZAP.COM is
exposed to claims that it is liable for wrongful actions by the owners of these
sites. Claims of this nature have been brought, sometimes successfully, against
providers of Internet services. ZAP.COM could also be exposed to liability with
respect to third-party content that may be posted by users in chat rooms or
bulletin boards which may be offered by Web site participants in the ZAP.COM
Network or which are otherwise linked to the ZAP.COM Network. Also, there may be
claims, alleging that ZAP.COM, by directly or indirectly providing links to
other web sites, is liable for copyright or trademark infringement or the
wrongful actions of third parties through their respective web sites.
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
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in the ZAP.COM Network or ZAP.COM could limit the effectiveness of ZAP.COM's
targeting of advertising and other programming delivered to its network. This
could have a material adverse effect on ZAP.COM's revenues and growth prospects.
The European Union recently enacted its own privacy regulations that may
result in limits on the collection and use of user information. The laws
governing the Internet, however, remain largely unsettled, even in areas where
there has been some legislative action. ZAP.COM cannot be sure that violations
of local laws or new laws will not be alleged by one or more governments,
ZAP.COM will not violate such 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 also leases office space in New
York City under a lease arrangement that expires in April 2000. ZAP.COM expects
to expand its facilities as its operations grow. ZAP.COM believes that
additional space will be available on commercially acceptable terms.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning each executive
officer of ZAP.COM immediately following the consummation of the rights
offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Avram A. Glazer...................... 38 President, Chief Executive Officer and Director
Leonard DiSalvo...................... 41 Vice President -- Finance and Chief Financial Officer
Marisa Bowe.......................... 40 Vice President -- Network Content
Gordon E. Forth...................... 38 Secretary
</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 closing of the offering. 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.
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KEY EMPLOYEES
The following table sets forth the names and positions of ZAP.COM's key
employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gaetano Guglielmino.................... 29 Director of Marketing and Sales
Yoshi Sedeoka.......................... 31 Art Director
Ranjit Bhatnager....................... 30 Technology Director
Jason Mohr............................. 27 Senior Designer
</TABLE>
Gaetano Guglielmino, age 29, 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.
Yoshi Sodeoka, age 31, has served as ZAP.COM's Art Director since April
1999. He is the founding Art Director of Word, where he has been employed since
May 1998. Prior to joining Word, Mr. Sodeoka was employed for three years by
Viacom's New Media department, where he worked on experimental interactive music
projects for MTV. Prior to that position, Mr. Sodeoka was a Senior Designer at
Nicholson from October 1993 to March 1995. Mr. Sodeoka received his computer
graphics degree from Brooklyn's Pratt Institute. He has artistic training in his
native Japan, and experience in CD-ROM design.
Ranjit Bhatnager, age 30, has served as ZAP.COM's Technology Designer since
April 1999. Mr. Bhatnager has served as Word's Technology Director since August
1998. Mr. Bhatnager worked for Philadelphia Online, Philadelphia Inquirer and
Philadelphia Daily News as a programmer from September 1995 to August 1998.
Prior to that position, Mr. Bhatnager was a programmer for approximately three
years at the University of Pennsylvania, Philadelphia. Mr. Bhatnager has created
interactive news for the Philadelphia Inquirer's Web site, educational
multimedia for the University of Pennsylvania and occasions installations for
the Franklin Institute Science Museum.
Jason Mohr, age 27, has served as ZAP.COM's Senior Designer since April
1999. Mr. Mohr has most recently served as Word's Senior Designer since June
1996. He started with Word in July 1996 as a Senior Designer. Prior to that
position, Mr. Mohr was a freelance designer. Mr. Mohr has also designed for
National Geographic On-Line. Mr. Mohr earned a Bachelor of Fine Arts in Graphic
and Packaging Design, with an emphasis on interactive media, from Pasadena Art
Center in California.
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EXECUTIVE COMPENSATION
ZAP.COM has only recently incorporated and has not paid any compensation to
any person associated with ZAP.COM, and presently has no employment agreements
with its officers or other key employees. Upon completion of the rights
offering, 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.
ZAP.COM will then reimburse Zapata for those costs. The costs will be based upon
an estimate of the amount of time devoted by such employees to the operation and
affairs of each corporation.
BOARD COMMITTEES
The authorized number of directors of ZAP.COM is presently fixed at one.
Avram Glazer is the sole director. Mr. Glazer anticipates expanding the board to
five directors following the rights offering.
Upon expansion of the size of the board to three or more directors, the
by-laws require that two standing committees of the board of directors be
activated: the audit committee and the compensation committee, each comprised of
two or more directors. In addition, the board is expected to appoint a Conflicts
Committee. 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.
The conflicts committee will be charged with reviewing all proposed
transactions between ZAP.COM and Zapata to evaluate the fairness of the
transaction to ZAP.COM. In addition, the conflicts committee will administer on
behalf of ZAP.COM, the agreements to be entered into by ZAP.COM and Zapata in
connection with the rights offering, including the distribution agreement, the
administrative services agreement, the tax sharing and indemnity agreement and
the registration rights agreement. The conflicts committee will also have
authority to review specific matters as to which ZAP.COM's board of directors
believes there may be a conflict of interest with Zapata in order to determine
if the resolution of such conflict proposed by management is fair and
reasonable. The conflicts committee will consist solely of disinterested
directors with respect to the financial interests of Zapata.
DIRECTOR COMPENSATION
Each director who is not an employee of ZAP.COM will be compensated a set
dollar amount for serving as a director. In addition, each new non-employee
director will, upon joining the board, be granted options under the 1999
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 such
person was selected to serve as a director or officer.
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<PAGE> 61
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. 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, will make
recommendations for grants under the 1999 Incentive Plan from among those
eligible persons who hold positions of responsibility and whose performance, in
the judgment of the committee, has a significant effect on ZAP.COM's success.
The total number of shares of ZAP.COM common stock that may be issued under
the 1999 Incentive Plan will not exceed at any time 16% of ZAP.COM's outstanding
shares of common stock. Thus, immediately prior to the closing of the rights
offering, ZAP.COM will have reserved 8,000,000 shares for awards to be granted
under the plan. This figure will increase based on the number of shares issued
in the offering and in other transactions.
The 1999 Incentive Plan provides for the grant of any or all of the
following types of awards: stock options, stock appreciation rights, stock
awards and cash awards. Stock options may be incentive stock options that comply
with Section 422 of the Code. The allocation of awards under the 1999 Incentive
Plan is not currently determinable as such allocation is dependent upon future
decisions to be made by the committee in its sole discretion, 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 such 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,
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<PAGE> 62
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 such that the net amount received by the participant, after
paying the increased tax and any additional taxes on the additional amount,
would be equal to that receivable by the participant if the increased tax were
not applicable.
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
options generally vest ratably over the three year period following the date of
grant.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Zapata Corporation
Prior to the rights offering, Zapata 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
$93,000 from inception through March 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 rights offering, 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 to ZAP.COM $8,000,000 in cash in
exchange for 10,000 shares of Series A preferred stock and 70,000 shares of
Series B preferred stock. The agreement requires that simultaneously with the
closing of the rights offering ZAP.COM reimburses Zapata for expenses that it
has funded from inception through such date. The agreement also contemplates
that Zapata will assign to ZAP.COM all of its rights to Pixeltime, a java-based
proprietary drawing system. The agreement also requires Zapata's Word and
Charged webzines and any other Web sites it acquires to become part of the
ZAP.COM Network. The investment and distribution agreement further requires
Zapata, if necessary, to make the stock distribution. Under the agreement Zapata
must reserve from its authorized and unissued shares of common stock the number
of shares of common stock into which the Series A preferred stock is convertible
from time to time.
The 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 rights offering or if made, the stock distribution, as a result of any
untrue statement or alleged untrue statement in any rights offering or stock
distribution document or the omission or alleged omission to state a material
fact in any rights offering or stock distribution document (1) in ZAP.COM's case
except to the extent 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. The services agreement further provides
that ZAP.COM will provide Zapata with technical, creative and Webzine
administrative support for its Word and Charged webzines and any other Web sites
it may acquire in the future. Each party will pay the other party for these
services at the estimated cost of providing such services. The services
agreement shall continue until terminated by either party upon 120 days' notice.
Tax 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 certain 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 certain tax attributes of
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ZAP.COM after is no longer a member of Zapata's consolidated tax group. For
periods ending on or before the last day of the taxable year in which ZAP.COM
ceases to be a part of Zapata's consolidated tax group, Zapata is responsible
for;
- filing both consolidated federal tax returns for the Zapata affiliated
group and combined or consolidated state tax returns for any group that
includes a member of the Zapata affiliated group, including, in each
case, ZAP.COM for the relevant periods of time that ZAP.COM was a member
of the applicable group, and
- paying the taxes relating to those returns (including any subsequent
adjustments resulting from the redetermination of those tax liabilities
by the applicable taxing authorities). ZAP.COM is responsible for
reimbursing Zapata for its share of those taxes, if any. ZAP.COM is also
responsible for filing returns and paying taxes relating to it for
periods that begin before and end after ZAP.COM ceases to be a part of
Zapata's consolidated tax group. This agreement is intended to allocate
the tax liability between Zapata and ZAP.COM as if they were separate
taxable entities. Zapata and ZAP.COM have also agreed to cooperate with
each other and to share information in preparing those tax returns and in
dealing with other tax matters.
Registration Rights Agreement. The registration rights agreement which
ZAP.COM and Zapata will enter into prior to the consummation of the rights
offering 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 closing of the rights offering. The registration rights
agreement will entitle Zapata to demand ZAP.COM, not more than once in any 365
day period commencing on the first anniversary of the closing of the rights
offering and on not more than three occasions after Zapata no longer owns a
majority of the voting power of the outstanding capital stock of 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 $25.0 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
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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.
American Internetwork Sports Company, LLC
Immediately prior to the closing of the rights offering, 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 $8.00 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 closing of the rights offering. 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 closing of
the rights offering, is a partner at Woods, Oviatt, Gilman, Sturman & Clarke,
LLP which has acted as counsel to ZAP.COM and Zapata in connection with the
rights offering and stock 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 July 31, 1999, and as
adjusted to reflect the sale of common stock at a minimum and maximum number of
shares 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>
AMOUNT AND
NATURE OF AFTER AFTER
BENEFICIAL BEFORE MINIMUM MAXIMUM
NAME OF BENEFICIAL OWNER OWNERSHIP OFFERING OFFERING(2) OFFERING(3)
------------------------ ---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Zapata Corporation(1)....................... 50,000,000 100% 93.7% 78.6%
All executive officers and..................
directors as a group...................... -- -- -- --
</TABLE>
- ---------------
(1) Zapata's address is 100 Meridian Centre, Suite 350, Rochester, New York
14618. As a result of this ownership and the Series A preferred stock owned
by Zapata, 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 such 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) After giving effect to the issuance of 135,306 common shares to the Glazers
or an entity owned by them and an assumed distribution of 3,000,000 common
shares by Zapata to its stockholders.
(3) After giving effect to the issuance of 13,612,000 common shares upon the
closing of the rights offering.
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DESCRIPTION OF SECURITIES
AUTHORIZED CAPITAL STOCK
Immediately following the consummation of the rights offering, ZAP.COM's
authorized capital stock will consist of (1) 1,500,000,000 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, of which 10,000 shares are designated as Series
A preferred stock, 100,000 shares are designated as Series B preferred stock and
149,890,000 shares are undesignated. Upon closing of the rights offering,
ZAP.COM will have outstanding 10,000 shares of Series A preferred stock, 70,000
shares of Series B preferred stock and between 50,135,306 and 63,612,000 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, including the Series A
preferred stock and Series B preferred stock. In specified circumstances, as
described below, the holders of common stock may be required to share dividend's
or distribution of net assets on dissolution, liquidation or winding-up of
ZAP.COM with Zapata as the holder of the Series A preferred stock. Please see
"Description of Securities -- Authorized Capital Stock -- Series A Preferred
Stock."
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Holders of common stock vote together with the holders
of the Series A preferred stock as a single class on almost all matters
presented to stockholders for a vote. Please see "Description of Securities --
Authorized Capital Stock -- Series A Preferred Stock."
Each outstanding share of common stock is, and all shares of common stock
to be outstanding upon completion of the rights offering and, if applicable, the
stock distribution, will be, fully paid and nonassessable. The rights,
preferences, and privileges of the holders of common stock are subject to, and
may be adversely affected by the rights of holders of ZAP.COM's Series A
preferred stock, and Series B preferred stock and shares of 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, except for the Series A preferred stock and Series B preferred
stock, there are no shares of preferred stock designated or outstanding.
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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 other than the Series A preferred stock and the Series B
preferred stock.
Series A Preferred Stock
The ZAP.COM board of directors designated 10,000 shares as Series A
preferred stock, $0.01 par value per share. The following is a summary of the
terms of the Series A preferred stock.
The Series A preferred stock ranks junior to the Series B preferred stock
with respect to dividend rights and rights upon dissolution, liquidation or
winding up of ZAP.COM. Upon the occurrence of such event, proceeds remaining
after the satisfaction of all liabilities and payment of the Series B preferred
stock preference amount and all other preferred stock preference amounts
superior to the Series A preferred stock, Zapata, as the holder of Series A
preferred stock, is entitled to the original issue price of $100 per share prior
to any distribution of net assets to the holders of common stock or other equity
securities ranking junior to the Series A preferred stock.
Zapata, as the holder of the Series A preferred stock, shall not be
entitled to any dividends or additional distributions, whether upon dissolution,
liquidation or winding up of ZAP.COM, unless at the time the dividend or
distribution is declared, the percentage of the outstanding ZAP.COM common stock
held by Zapata ("Zapata Actual Percentage") is less than 35% ("Zapata Minimum
Percentage") of ZAP.COM's total outstanding shares of common stock as a result
of dilution. If the Zapata Actual Percentage is below the Zapata Minimum
Percentage, then Zapata, as the holder of Series A preferred stock, will be
entitled to receive a percentage of the dividend or distribution amount declared
which is equal to the difference between the Zapata Minimum Percentage and the
Zapata Actual Percentage as of the applicable record date and the holders of the
common stock (including Zapata with respect to its common stock) are entitled to
receive the balance of the dividend or distribution amount. The holders of the
Series A preferred stock and the common stock are entitled to receive such
amounts on an equal priority basis. For example, if on the date of ZAP.COM's
liquidation, Zapata's ZAP.COM common stock holdings have been diluted to 20% of
the outstanding common stock, and $20,000,000 is available for distribution
after the satisfaction of all liabilities and payment of all liquidation
preferences of any outstanding shares of preferred stock, including the Series A
preferred stock and the Series B preferred stock, then ZAP.COM would distribute
$3,000,000 with respect to the Series A preferred stock and $17,000,000 with
respect to the common stock. The $3,000,000 distributed with respect to the
Series A preferred stock represents 15% of the amount distributed or the
difference between the Zapata Minimum Percentage (i.e., 35%) and the Zapata
Actual Percentage (i.e., 20%).
If at any time after the ZAP.COM common stock held by Zapata constitutes
less than the Zapata Minimum Percentage and Zapata transfers or otherwise
disposes of any common stock, then the Zapata Minimum Percentage will be reduced
to the percentage that Zapata's remaining ZAP.COM common stock constitutes all
of ZAP.COM's outstanding common stock.
If at any time Zapata transfers the Series A preferred stock to a third
party and immediately prior to the transfer, the Zapata Actual Percentage is
less than the Zapata Minimum Percentage, then upon transfer, the Series A
preferred stock will automatically convert into common stock. The number of
shares of common stock into which the Series A preferred stock converts will
equal that number of shares which will constitute upon issuance a percentage of
ZAP.COM's outstanding common stock that equals the difference between the Zapata
Minimum Percentage
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and the Zapata Actual Percentage immediately prior to transfer. If the Zapata
Actual Percentage is equal to or greater than the Zapata Minimum Percentage at
the time the Series A preferred stock is transferred, then the Series A
preferred stock will not convert and the right of the Series A preferred stock
to receive dividends and distributions above and beyond the $1,000,000
liquidation preference amount and all conversion and voting rights will
automatically terminate.
In almost all matters presented to stockholders for a vote (including the
election of directors or any merger, liquidation, sale of assets or charter
amendment proposals), the holders of the Series A preferred stock and the common
stock vote as a single class. Each share of Series A preferred stock is entitled
to 50,000 votes. Cumulative voting for the election of directors is not provided
for in ZAP.COM's Restated Articles of Incorporation, which means that the
holders of the Series A preferred stock will control all stockholders votes.
Each share of common stock is entitled to one vote in all matters presented to
stockholders. The common stock is not entitled to preemptive rights and may not
be converted or redeemed.
Series B Preferred Stock
The ZAP.COM board of directors designated 100,000 shares of Series B
preferred stock, $.01 par value per share. The following is a summary of the
terms of the Series B preferred stock.
The Series B preferred stock ranks senior to the Series A preferred stock
with respect to dividend rights and rights upon dissolution, liquidation or
winding-up of ZAP.COM. Upon the occurrence of such an event, the proceeds
remaining after the satisfaction of all liabilities and payment of and all other
preferred stock preference amounts superior to the Series B preferred stock, the
holders of the Series B preferred stock, will be entitled to the original issue
price of $100 per share together with accretions as discussed below and all
accumulated and unpaid dividends prior to any distribution of net assets to the
holders of any equity securities ranking junior to the Series B Preferred Stock,
including Series A preferred stock and common stock.
The Series B preferred stock will accrue dividends on the liquidation
amount of the stock at the rate of 8% per annum. The dividends are cumulative,
but shall not be payable unless and until declared by the board of directors.
The dividends are payable through accretion of the liquidation preference or
additional shares of Series B Preferred Stock until June 15, 2002 at which time
dividends will be payable in cash. Securities that rank junior or on parity with
the Series B preferred stock may not be repurchased and no dividends may be
declared with respect to such securities if ZAP.COM is in default with respect
to the Series B preferred dividends or the repurchase of Series B preferred
stock.
Following the first anniversary of the closing date of the rights offering,
ZAP.COM may be required to mandatorily redeem all or a portion of the Series B
preferred stock upon the following terms at the election of the holders of the
Series B preferred stock within 180 days after the occurrence of any of the
following events:
- as of the end of any fiscal quarter, ZAP.COM has cash and cash equivalent
balances of $15,000,000 or more, in which case the Series B preferred
stock will be repurchased in four equal quarterly payments and interest
shall accrue on the deferred payment at the rate of prime plus 3%;
- as of the end of any fiscal quarter, ZAP.COM's earnings before interest,
taxes and depreciation exceeds $5,000,000 for the four quarters ended as
of such date, in which case the Series B preferred stock will be
repurchased in four equal quarterly payments and interest shall accrue on
the deferred payment at the rate of prime plus 3%;
- as of any date, ZAP.COM shall have had average market capitalization of
$100,000,000 or more for any 30 day period, in which case the Series B
preferred stock may be
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repurchased and paid for in full on the date of purchase, which must
occur during the 180 days following the holder's election to redeem the
shares; and
- ZAP.COM closes an underwritten public offering which results in gross
proceeds to ZAP.COM of $20,000,000 or more, in which case the Series B
preferred stock will be repurchased and payable in full simultaneously
with the closing of such offering.
The redemption price will equal the liquidation value of the shares being
redeemed plus all accrued and unpaid cash dividends.
Rights
ZAP.COM is granting on the date hereof rights to holders of Zapata common
stock on , 1999. The rights are each exercisable for one share of
ZAP.COM common stock at an exercise price of $8.00 per share. Rights may not be
transferred, in whole or in part, except to immediate family members of, or
entities owned or controlled by the rights holder. Unless extended, the rights
expire on , 1999. For more information about the rights and the
rights offering see "The Offering."
ANTI-TAKEOVER EFFECTS OF NEVADA LAW AND CHARTER
Board of Directors
ZAP.COM's Restated Articles of Incorporation provide that, except as
otherwise fixed by the provisions of a certificate of designation containing the
rights of the holders of any class or series of preferred stock, the number of
the directors of ZAP.COM will be fixed from time to time exclusively through a
resolution adopted by a majority of the total number of directors which ZAP.COM
would have if there were no vacancies. After the size of the board is expanded
to three or more directors, the directors, other than those who may be elected
by the holders of preferred stock, will be automatically classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible. The terms of the directors elected first to
the ZAP.COM board will expire at the next annual meeting of stockholders, after
which the classified board becomes effective and the remaining directors will be
designated by the directors first elected to the board to one of the other two
classes, 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. Subject to the rights of holders of preferred stock, any
director may be removed from office only for cause by the affirmative vote of
the holders of at least 66 2/3% of the voting power of all voting stock then
outstanding, voting together as a single class.
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Once the classified board is effective, these provisions will preclude a
third party from removing incumbent directors and simultaneously gaining control
of the ZAP.COM board by filling the vacancies created by removal with its own
nominees. Under the classified board provisions described above, it would take
at least two elections of directors for any individual or group to gain control
of the ZAP.COM board. Accordingly, these provisions could discourage a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of ZAP.COM.
Special Meetings of Stockholders
ZAP.COM's Articles provide that special meetings of the stockholders of
ZAP.COM can be called only by the chairman of the board of directors, or a
majority of the members of the board of directors. A special meeting may also be
called by Zapata so long as it continues to hold 50% or more of the voting power
of all classes of outstanding capital stock of ZAP.COM.
Written Consent
Under ZAP.COM's Articles, the stockholders of ZAP.COM may not take action
in writing without a meeting of the stockholders after the date on which Zapata
no longer beneficially owns at least 50% of the voting power of all classes of
outstanding capital stock.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
ZAP.COM's by-laws require that timely notice in writing be provided by
stockholders seeking to bring business before, or to nominate candidates for
election as directors at, the annual meeting of stockholders. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of ZAP.COM not less than 120 days nor more than 150
days prior to the first anniversary of the date of ZAP.COM's notice of annual
meeting provided with respect to the previous year's annual meeting of
stockholders. If no annual meeting of stockholders was held in the previous year
or the date of the annual meeting of stockholders has been changed to be more
than 30 days earlier than or 60 days after that anniversary, notice will be
timely if received no more than 90 days later than the later of
- 60 days prior to the annual meeting of stockholders, or
- the close of business on the 10th day following the date on which notice
of the date of the meeting is given to stockholders or made public,
whichever first occurs. ZAP.COM's by-laws also specify requirements as to
the form and content of a stockholder's notice. These provisions may
preclude stockholders from timely bringing matters before, or from
nominations for directors at, an annual meeting of stockholders.
Amendments
The Articles provide that the affirmative vote of the holders of at least
66 2/3% of ZAP.COM's voting stock, voting together as a single class, is
required to amend provisions of the Articles relating to stockholder action
without a meeting; the calling of special meetings; the number, election and
term of the ZAP.COM directors; the filling of vacancies; and the removal of
directors. The Articles further provide that the related by-laws described above
(including the stockholder notice procedure) may be amended only by the ZAP.COM
board or by the affirmative vote of the holders of at least 66 2/3% of the
voting power of the outstanding shares of voting stock, voting together as a
single class.
NEVADA ANTI-TAKEOVER LAWS AND CERTAIN CHARTER PROVISIONS
The Nevada Code contains provisions restricting the ability of a Nevada
corporation to engage in business combinations with an interested stockholder.
Under the Nevada Code, except
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under specified circumstances, business combinations with interested
stockholders are not permitted for a period of three years following the date
such stockholder becomes an interested stockholder. The Nevada Code defines an
interested stockholder, generally, as a person who is the beneficial owner,
directly or indirectly, of 10% or more of the outstanding shares of a Nevada
corporation. 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 such voting rights
are conferred by a majority vote of the disinterested stockholders. "Control
shares" are those outstanding voting shares of an issuing corporation which an
acquiring person and those persons acting in association with an acquiring
person
- acquire or offer to acquire in an acquisition of a controlling interest,
and
- acquire within ninety days immediately preceding the date when the
acquiring person became an acquiring person. An "issuing corporation" is
a corporation organized in Nevada which has two hundred or more
stockholders, at least one hundred of whom are stockholders of record and
residents of Nevada, and which does business in Nevada directly or
through an affiliated corporation. While ZAP.COM does not currently
exceed the control share statute thresholds, it may do so in the future.
Further, ZAP.COM does not "do business" in Nevada within the meaning of
the control share acquisition statute and it does not plan to do so.
Therefore, the control share acquisition statute does not currently apply
to ZAP.COM.
If the business combination statute and/or the control share acquisition
statute becomes applicable to ZAP.COM in the future, the cumulative effect of
these terms may be to make it more difficult to acquire and exercise control of
ZAP.COM and to make changes in management more difficult.
The Nevada Code permits directors to resist a change or potential change in
control of the corporation if the directors determine that the change or
potential change is opposed to or not in the best interest of the corporation.
As a result, ZAP.COM's board of directors may have considerable discretion in
considering and responding to unsolicited offers to purchase a controlling
interest in ZAP.COM.
LIABILITY OF DIRECTORS; INDEMNIFICATION
ZAP.COM believes that provisions contained within its Articles and by-laws
will be useful to attract and retain qualified persons as directors and
officers. The Articles limit the liability of directors to the fullest extent
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
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permitted by Nevada law upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it should be ultimately determined
that they are not entitled to indemnification by ZAP.COM.
Prior to the consummation of the rights offering and, if made, the stock
distribution, ZAP.COM intends to enter into agreements with its officers and
directors which provides for the indemnification and advancement of expenses by
ZAP.COM. ZAP.COM also intends to obtain, prior to the completion of the rights
offering and, if made, the stock distribution, officer and director liability
insurance with respect to liabilities arising out of certain matters, including
matters arising under the Securities Act.
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 rights offering and, if made, the stock distribution, there
has been no market for the ZAP.COM common stock, and there can be no assurance
that a significant public market for the ZAP.COM common stock will develop or be
sustained after this offering. Future sales of substantial amounts of ZAP.COM
common stock, including shares issued to Web site publishers in consideration
for joining the ZAP.COM Network and upon exercise of outstanding options and
warrants, in the public market after this offering could adversely affect market
prices prevailing from time to time and could impair ZAP.COM's ability to raise
capital through the sale of its equity securities.
Upon completion of the rights offering and if made, the stock distribution,
ZAP.COM will have outstanding 10,000 shares of Series A preferred stock, 70,000
shares of Series B preferred stock and between 50,135,306 and 63,612,000 shares
of common stock. ZAP.COM will have reserved 2,000,000 shares for warrants to be
issued to American Internetwork Sports. The warrants entitle the holder to
purchase shares at a price of $8.00 per share. Immediately prior to the closing
of the rights offering ZAP.COM will also have reserved 8,000,000 shares for
options awarded or to be awarded under the 1999 Incentive Plan. Because the
number of shares reserved for issuance upon the exercise of awards made or to be
made under the 1999 Incentive Plan is 16% of the aggregate number of shares of
outstanding stock from time to time, future issuances of common stock, in the
rights offering, in acquisitions or otherwise, will result in an increase in the
number of awards available to be made under these plans. Please see
"Management -- 1999 Long-Term Incentive Plan."
The shares of common stock issued in the rights offering and if made, the
stock distribution will be freely tradable without restriction or further
registration under the Securities Act, except that any shares purchased by an
"affiliate" of ZAP.COM, as that term is defined in Rule 144, may generally be
sold only in compliance with Rule 144, as described below. All of the
outstanding shares of common stock owned by Zapata and Avram Glazer and any
entity controlled by them will be "restricted securities" as that term is
defined in Rule 144, and may be sold only if registered under the Securities Act
or in accordance with an applicable exemption from such registration, such as
Rule 144. Malcolm Glazer may also be considered an affiliate of Zapata, though
he disclaims any control of Zapata and the ZAP.COM shares which he holds and
controls.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a stockholder who has beneficially owned for at
least one year shares privately acquired directly or indirectly from ZAP.COM or
from an affiliate of ZAP.COM, and persons who are affiliates of ZAP.COM who have
acquired the shares in registered transactions, will be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
- 1% of the number of outstanding shares of common stock (or between
501,350 and 636,120 shares immediately after completion of the rights
offering); 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 such
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 such shares without
complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
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ZAP.COM intends to enter into a registration rights agreement with Zapata
under which Zapata will have demand and piggyback registration rights. Please
see "Certain Relationships and Related Party Transactions -- Registration Rights
Agreement." Zapata can exercise these privileges any time one year after the
closing of the rights offering 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 the closing of the rights offering
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 Incentive Plan
and American Internetwork Sports' warrants. 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.
We are also likely to issue large amounts of additional common stock in the
future in connection with payments made to Website publishers for joining and
participating in the ZAP.COM Network or in other acquisitions. These shares will
become available for resale at various dates in the future. The availability of
these shares could adversely affect the price of our stock.
FEDERAL INCOME TAX CONSEQUENCES
The following describes the material federal income tax consequences
affecting holders of Zapata common shares receiving rights in this offering and
shares of ZAP.COM common stock in the stock distribution if it is made. 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, such holders
should consult their own tax advisors concerning their individual tax situations
and the tax consequences of this offering.
Neither Zapata nor ZAP.COM has obtained a private letter ruling from the
Internal Revenue Service nor an opinion of tax counsel with respect to possible
federal income tax consequences of the rights offering or the stock
distribution. 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 rights and shares in the stock distribution, if made, 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.
RIGHTS OFFERING
Distribution of Rights to Holders of Zapata Shares
The rights, can be considered as constituting "property" within the meaning
of Section 317(a) of the Code. The federal income tax consequences of a
distribution of the rights by ZAP.COM to holders of Zapata common stock, as
determined under the Code and the applicable regulations, are as follows: Each
holder of Zapata common stock will be deemed to have received a distribution
from Zapata, generally taxable as ordinary dividend income, in an amount equal
to the fair market value (if any) of the rights, as of the date of distribution,
but only to the extent that Zapata has current or accumulated earnings and
profit, in its taxable year of distribution. That portion, if any, by which the
fair market value of the rights 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 such stock to the extent of any remaining excess. Each corporate holder of
Zapata common stock (other than foreign corporations and S corporations)
receiving rights and recognizing dividend income would be entitled to the
dividends-received deduction for corporations (generally 70%, but 80% under
specified circumstances) with respect to such dividends. However, the 70%
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dividends-received deduction would not be available with respect to stock
unless, among other requirements, a specified holding period is satisfied.
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 such Zapata common stock (but
not below zero) by that portion of any "extraordinary dividend," as defined in
the Code, that is not taxed because of the dividends-received deduction. If the
portion exceeded the corporate stockholder's tax basis for its Zapata common
stock, any such excess would be treated as gain on the subsequent sale or
disposition of the stock for the taxable year in which the extraordinary
dividend is received.
Since the fair market value of the rights will determine the amount of
taxable income, returned capital or capital gain deemed received by the holders
of Zapata common stock, the determination of the fair market value of each right
as of the date of distribution is critical. Because of the predominantly factual
nature of determining the fair market value, if any, of the rights, it is
difficult for management to express an opinion with respect to the fair market
value of the rights.
Exercise of Rights
Holders of rights, whether corporate or non-corporate, will recognize
neither gain nor loss upon the exercise of the rights. A holder of rights who
receives shares of ZAP.COM common stock upon the exercise of the rights will
acquire a tax basis in such shares equal to the sum of the exercise price paid
under this rights offering and the tax basis (if any) of the rights.
Lapses of Rights
The federal income tax treatment applicable to holders of rights who fail
to exercise or transfer their rights prior to the expiration date is set forth
in Section 1234 of the Code. Holders of rights who allow their rights to lapse
are deemed under the Code to have sold their rights on the date on which the
rights expire. A holder who sells a right will recognize gain or loss equal to
the difference between the holder's basis in the right and the amount received
in exchange for the right. The tax basis of the rights in the hands of each
holder (whether corporate or non-corporate) of Zapata common stock will be equal
to the fair market value (if any) of the rights as of the date of distribution.
Further, each rights holder who receives rights will have a holding period for
his rights that begins on the date of receipt of the rights. Gain or loss from
the sale of the right will be a capital gain or loss if the common stock into
which the right is convertible would have been a capital asset in the hands of
the holder.
Since upon lapse of a right no consideration will be received by a holder
of rights, and since the rights will have been held for less than 12 months, a
short-term capital loss equal to the tax basis (if any) in the rights will be
sustained by the holder on such lapse, provided that ZAP.COM common stock
subject to the rights would have been a capital asset in the hands of the holder
had it been acquired by him. Short-term capital losses incurred by non-corporate
taxpayers may be used to offset short-term or long-term capital gains realized,
plus up to $3,000 ($1,500 in the case of a married individual filing a separate
return). Non-corporate taxpayers may carry forward indefinitely, but may not
carry back, unused net capital losses. When carried forward by non-corporate
taxpayers, short-term capital losses retain their short-term character and are
treated as sustained in the taxable year to which they are carried forward.
Short-term capital losses incurred by corporations may be used only to offset
short-term or long-term capital gains. Unused capital losses, however, generally
may be carried back by corporate taxpayers to the three taxable years preceding
the loss year and carried forward to the five succeeding taxable years. When
carried back or carried forward, short-term capital losses retain their
character as short-term and are treated as sustained in the taxable year to
which they are carried. Accordingly, rights holders who allow their rights to
lapse may recognize ordinary income upon
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receipt of the rights and a potentially deferred or non-deductible capital loss
upon the lapse of such rights.
STOCK DISTRIBUTION
Distribution of Common Stock
Each Zapata stockholder will be considered to have received a distribution
in an amount equal to the fair market value, when distributed, of the shares of
ZAP.COM common stock received by the stockholder plus the amount of any cash
received in lieu of fractional shares of ZAP.COM common stock. Such a
distribution would be taxed to the stockholder in the same manner as is the
distribution of the rights as described under "Federal Income Tax
Consequences -- Rights Offering -- Distribution of Rights to Holders of Zapata
Shares."
Basis
A Zapata stockholder's tax basis in the shares of ZAP.COM common stock
received in the stock distribution would equal the fair market value of the
ZAP.COM common stock on the date of the stock distribution, and the
stockholder's holding period for the shares of ZAP.COM common stock would begin
the day after that date. A Zapata stockholder's tax basis in the Zapata common
stock would not be affected by the stock distribution, unless the amount of the
stock distribution exceeded the current and accumulated earnings and profits of
Zapata attributable to the stockholder and was treated as a non-taxable
reduction in tax basis to the extent of the returned capital. Upon a subsequent
sale of the shares of ZAP.COM common stock, a stockholder would recognize gain
or loss measured by the difference between the amount realized on the sale and
the stockholder's tax basis in the shares of ZAP.COM common stock sold.
GENERAL
The material federal income tax consequences set forth above may not be
applicable to stockholders who received their shares of Zapata common stock
through the exercise of an option or otherwise as compensation, who are not
citizens or residents of the U.S. or who are otherwise subject to special
treatment under the Code. Holders of Zapata common stock should consult their
own tax advisors concerning their individual tax situations and the tax
consequences of the rights offering and stock distribution.
EXPERTS
The financial statements as of March 31, 1999 and for the period April 2,
1998 to March 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.
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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 rights
offering and the stock distribution.
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ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Cash Flows..................................... F-5
Statement of Changes in Stockholder's Deficit............... F-6
Note to Financial Statements................................ F-7
</TABLE>
F-1
<PAGE> 80
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
of ZAP.COM Corporation
In our opinion, the accompanying balance sheet and related statements of
operations, stockholder's deficit and cash flows present fairly, in all material
respects, the financial position of ZAP.COM Corporation (a Development Stage
Company, the "Company") at March 31, 1999 and the results of its operations and
its cash flows for the period from April 2, 1998 (date of inception) through
March 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 to the Company subject to
the completion of the offering and has agreed to contribute sufficient equity to
fund all of the company's obligations if the offering is not completed.
PricewaterhouseCoopers LLP
July 8, 1999
New Orleans, Louisiana
F-2
<PAGE> 81
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
1999
------------
<S> <C>
ASSETS
ASSETS:
Long term assets
Deferred offering costs................................... $ 73,164
---------
Property and equipment.................................... 38,364
Total assets...................................... $ 111,528
=========
LIABILITIES AND STOCKHOLDER'S DEFICIT
LIABILITIES:
Due to related party...................................... $ 39,588
Payable to stockholder.................................... 218,877
Accrued liabilities....................................... 157,421
---------
Total liabilities................................. 415,886
---------
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.......... (304,368)
---------
Total stockholder's deficit....................... (304,358)
---------
Total liabilities and stockholder's deficit....... $ 111,528
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 82
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FROM APRIL 2, 1998 (DATE OF INCEPTION)
THROUGH MARCH 31, 1999
--------------------------------------
<S> <C>
Revenues.................................................... $ --
Expenses:
General and administrative................................ 304,368
---------
304,368
---------
Loss before income taxes.................................... (304,368)
---------
Benefit from income taxes (Note 5).......................... --
---------
Net loss.................................................... $(304,368)
=========
Per share data (basic and diluted):
Net loss per share........................................ $ (304.37)
=========
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> 83
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FROM (DATE OF
INCEPTION)
APRIL 2, 1998
THROUGH MARCH 31, 1999
----------------------
<S> <C>
Cash flows used in operating activities:
Net loss.................................................. $(304,368)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 1,224
Changes in assets and liabilities
Accounts payable and accrued liabilities............. 157,421
Due to stockholder................................... 145,713
---------
Total adjustments................................. 304,358
---------
Net cash used in operating activities................ (10)
---------
Cash flows provided by financing activities
Issuance of common stock.................................. 10
---------
Net cash flows provided by financing activities........... 10
---------
Net change in cash and cash equivalents..................... --
Cash and cash equivalents at beginning of period............ --
---------
Cash and cash equivalents at end of period.................. $ --
=========
Supplemental schedule of noncash investing activities
Transfer of equipment from related party.................. $ 39,588
=========
Supplemental schedule of noncash financing activities
Offering costs paid by stockholder........................ $ 73,164
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 84
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 March 31, 1999... -- -- (304,368) (304,368)
----- --- --------- ---------
Balance, March 31, 1999........................ 1,000 $10 $(304,368) $(304,358)
===== === ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 85
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND ORGANIZATION
ZAP.COM Corporation (formerly known as Zap Internetworks, Inc), a Nevada
corporation (the "Company", "ZAP.COM") was incorporated in April 1998 and is a
wholly-owned subsidiary of Zapata Corporation ("Zapata"). ZAP.COM is a
development stage company which was formed to engage in an Internet-related
business through the development of a branded network of linked banners. The
Company has not yet commenced significant operations, and its only activity to
date has been research and investigation of Internet related opportunities, the
development of the Company's business model. In order to successfully execute
its business model, the Company must acquire and integrate technology systems
and infrastructure, contract with Web sites to participate in the Company's
network, and complete the public registration and sale of a portion of its
equity. The business model to be employed by the Company and its potential for
profit is unproven. Through the rights offering, 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 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
Financial Accounting Standards No. 128 requires presentation of basic loss
per share and diluted loss per share for all periods presented. If the warrants
and stock options covering 2,000,000 and 755,000 shares, respectively, of the
Company's common stock issued subsequent
F-7
<PAGE> 86
to March 31, 1999 had been issued on or before that date, they would have been
excluded from the calculation because they would be antidilutive.
Deferred Offering Costs
Deferred offering costs represent incremental costs directly attributable
to the offering of securities which are deferred and charged against the gross
proceeds of an offering. If the offering is not completed, those costs will be
charged to expense. The costs include legal and accounting fees, registration
and filing fees, and printing and stock transfer fees.
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 March 31, 1999, the Company has accumulated a deficit during its development
stage of $304,368. The Company will continue to incur a development stage
deficit until it begins its planned operations, at which point, the Company will
accumulate its operating results in retained earnings.
The Company anticipates amending 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, of which 10,000 shares will be designated as
Series A preferred stock, 100,000 shares will be designated Series B preferred
stock and 149,890,000 shares will be undesignated. The Company also anticipates
the Board of Directors approving a 50,000 for one stock split immediately prior
to a rights offering.
Subject to the completion of the Rights Offering Zapata has agreed to
contribute $8,000,000 to the Company in exchange for 10,000 shares of Series A
preferred stock and 70,000 shares of Series B preferred stock and $50,000 to
meet the stated capital requirements of Nevada Law to
F-8
<PAGE> 87
effectuate the anticipated stock split. If the rights offering is terminated or
withdrawn, Zapata has agreed not to pursue ZAP.COM for any expenses which it has
paid or will pay on behalf of the Company and will make sufficient contribution
to the Company to fund its obligations.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of server and network equipment which was
transferred from a wholly owned subsidiary of Zapata. The equipment transfer was
recorded at the cost basis of the assets to the transferor of approximately
$39,600 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 $1,200 through March 31, 1999.
NOTE 5. INCOME TAXES
For Federal income tax purposes, organizational costs are not deductible
until a corporation is liquidated and start-up costs must be amortized over not
less than 60 months. The Company has recognized a deferred tax benefit for
start-up costs to be amortized over 60 months for tax purposes. However, as it
is not more likely than not that the deferred tax asset will be utilized,
management has established a full valuation reserve of $106,529.
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 $93,000 was
allocated to the Company using a percentage of time analysis.
The Company also received server and network equipment from a related
entity to operate its Webspace, the ZAP.COM Network and related projects. The
Company recorded the assets at the cost to the transferor of approximately
$39,600. No gain or loss was recognized on the transaction.
During 1998, LFG, Inc. commenced a legal action against Zapata and Zap
Corp. (a wholly-owned subsidiary of Zapata and an affiliate of the Company). The
action alleged that Zapata and Zap Corp. were guilty of trademark infringement
and other federal and state statutes because of their use of Zap trade name and
the Internet domain name "Zap.com." In April 1999, Zapata and Zap Corp. reached
an agreement in principal with LFG that secured a general release from the
action in exchange for a cash payment and the furnishing of limited advertising
for LFP on Zap Corp.'s Web site for a two year period. Additionally, 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 March 31, 1999, ZAP.COM has satisfied all of its startup
and offering costs with borrowings from Zapata. The Company expects to settle
the amounts due to Zapata with the proceeds available, if any, to the Company
immediately following the offering. If the offering is not completed, Zapata had
agreed to forgive this debt.
Immediately following the closing of the rights offering, the Company
intends to grant American Internetwork Sports, LLC stock warrants in
consideration for sports related consulting services. American Internetwork
Sports is owned by the siblings of the Company's president and Chief Executive
Officer, Avram Glazer. The Company will record consulting expense to the extent
that the warrants are determined to have intrinsic value, (as defined in
Financial Accounting Standards No. 123) if any, of the warrants at the date of
grant.
F-9
<PAGE> 88
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 and Non-Employee's
Directors Plan. The 1999 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 stock or stock based awards under the Plan
exceed 16% of the Company's issued and outstanding shares of common stock.
On April 12, 1999, the Company granted to persons who are or who
immediately following the closing of the rights offering will become executives,
or key employees and others, options for the purchase of up to 755,000 shares of
common stock at an exercise price of $5.00 per share. The options generally vest
ratably over a three year period following the date of grant. The Company
expects to record a charge for compensation expense in April 1999 for the
intrinsic value of these options as to be determined by an independent
appraiser.
Since April 1, 1999 through July 8, 1999, the Company has incurred
approximately $500,000 in costs associated with the rights offering. These costs
include legal fees and expenses, accounting fees and expenses, a Securities and
Exchange Commission registration fee, printing and engraving fees, and a NASDAQ
listing fee. These costs along with any related future costs associated with the
rights offering will be charged against the gross proceeds of the offering. If
there are no proceeds from the offering, then these costs will be charged as
general and administrative expenses.
F-10
<PAGE> 89
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
13,612,000 SHARES OF
COMMON STOCK
(13,612,000 RIGHTS TO PURCHASE COMMON STOCK)
3,000,000 SHARES OF
COMMON STOCK
ZAP.COM CORPORATION
[LOGO]
Until , 1999, all dealers that buy or sell or trade in our
securities, whether or not participating in this offering, may be required to
deliver a prospectus, or in which the person making such offer or solicitation
is not qualified to do so or to any person to whom it is unlawful to make such
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of
the securities being registered hereby are itemized below.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 30,275
Nasdaq Listing fee.......................................... 95,000
Accounting fees and expenses................................ 175,000
Legal fees and expenses..................................... 325,000
Printing and engraving expenses............................. 75,000
Subscription Agent, Transfer Agent and Registrar fees and
expenses.................................................. 100,000
Information Agent Miscellaneous............................. 49,725
--------
Total............................................. $850,000
========
</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 certain circumstances, including (1) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law or (2) the willful
or grossly negligent payment of unlawful distributions.
The Nevada Corporation Law and 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 such person is
named a party by reason of having acted or served in such capacity, if he acted
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of ZAP.COM and, with respect to any criminal
proceeding had no reasonable cause to believe his conduct was unlawful. With
respect to judgments or settlement obtained against a director, officer,
employee or agent of ZAP.COM resulting from lawsuits filed by ZAP.COM or
derivative suits filed on behalf of ZAP.COM, such a person cannot be indemnified
for such expenses unless and only to the extent that a court determines that, in
view of all the circumstances, the person is fairly and reasonably entitled to
indemnity for such expenses. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 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,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In April 1998, ZAP.COM issued 1,000 shares of common stock to Zapata. Prior
to the closing of the rights offering, ZAP.COM will effect a 50,000-for-one
share stock split and in connection with such split, Zapata contributed $50,000
to the Company's capital. These securities were issued pursuant to an exemption
provided by Section 4(2) of the Securities Act.
Prior to the closing of the rights offering and if made, the stock
distribution, ZAP.COM will issue to Zapata 10,000 shares of Series A preferred
stock and 70,000 shares of its Series B
II-1
<PAGE> 91
Preferred Stock. These securities will be issued pursuant to an exemption from
registration provided by 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 an 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 certain
compensatory benefit plans and contracts relating to compensation in compliance
with Rule 701.
Immediately prior to the closing of the rights offering, 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 $8.00 per share. This
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
(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 Subscription Certificate for the Rights
4.3 Form of Warrant to be issued to American Internetwork Sports
Company, LLC
4.5 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)
27 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
(b) No Financial Statements Schedules are filed a part of this registration
statement.
ITEM 17. UNDERTAKINGS.
The undersigned 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:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
II-2
<PAGE> 92
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in 'Calculation of
Registration Fee' table in the effective registration statement;
(iii) 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; and
(iv) To reflect the results of this offering.
(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.
The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registration in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
If the registrant relies on Rule 430A under the Securities Act, the
registrant will:
(1) For purposes of determining any liability under the Securities
Act, treat the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Securities and Exchange
Commission declared it effective.
(2) For the purpose of determining any liability under the Securities
Act, treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered therein and that
offering of such securities at that time as the initial bona fide offering
thereof.
II-3
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, New
York, on August 6, 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 August 6, 1999
- --------------------------------------------------- Directors, Director, Chief
(Avram Glazer) Executive Officer and
President
/s/ LEONARD DISALVO Vice President Finance, Chief August 6, 1999
- --------------------------------------------------- Financial Officer and
(Leonard DiSalvo) Principal Accounting Officer
</TABLE>
II-4
<PAGE> 94
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 Subscription Certificate for the Rights
4.3 Form of Warrant to be issued to American Internetwork Sports
Company, LLC
4.5 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)
27 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 4.1
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE
SET FORTH IN ZAP.COM CORPORATION'S PROSPECTUS, DATED
_______, 1999 (THE "PROSPECTUS"), AND ARE
INCORPORATED HEREIN BY REFERENCE. COPIES OF THE
PROSPECTUS ARE AVAILABLE UPON REQUEST FROM GEORGENSON
SHAREHOLDERS COMMUNICATIONS, INC., AS INFORMATION
AGENT.
<TABLE>
<CAPTION>
<S> <C> <C>
CERTIFICATE NUMBER ZAP.COM CORPORATION CERTIFICATE FOR_____ RIGHTS
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
SUBSCRIPTION CERTIFICATE
EVIDENCING RIGHTS TO PURCHASE ONE SHARE
OF $.001 PAR VALUE COMMON STOCK FOR EACH RIGHT ISSUED
VOID IF NOT EXERCISED AT OR BEFORE
5:00 P.M. (EASTERN STANDARD TIME) ON
THE EXPIRATION DATE OF _______, 1999 OR SUCH
LATER DATE AS MAY BE ESTABLISHED BY ZAP.COM
EXPIRATION DATE: _____, 1999
SUBSCRIPTION PRICE: U.S. $8.00 PER COMMON SHARE
</TABLE>
REGISTERED OWNER:
THIS CERTIFIES THAT THE REGISTERED OWNER OF THIS SUBSCRIPTION CERTIFICATE, WHOSE
NAME IS INSCRIBED ABOVE, OR A PERMITTED ASSIGNEE INDICATED ON THE REVERSE SIDE,
IS THE OWNER OF THE NUMBER OF RIGHTS SET FORTH ABOVE, EACH OF WHICH ENTITLES THE
OWNER TO SUBSCRIBE FOR COMMON STOCK, PAR VALUE $.001 PER SHARE, OF ZAP.COM
CORPORATION, A NEVADA CORPORATION, SHOWN ABOVE, IN THE RATIO OF ONE SHARE OF
COMMON STOCK FOR EACH ONE RIGHT, PURSUANT TO THE TERMS AND CONDITIONS AND AT THE
PRICE FOR EACH SHARE OF COMMON STOCK SPECIFIED IN THE PROSPECTUS AND THE
INSTRUCTIONS RELATING HERETO. THE RIGHTS REPRESENTED BY THIS SUBSCRIPTION
CERTIFICATE MAY BE EXERCISED BY DULY COMPLETING SECTION 1 ON THE REVERSE SIDE
THEREOF.
SPECIAL DELIVERY INSTRUCTIONS MAY BE SPECIFIED BY COMPLETING SECTION 2 ON THE
REVERSE SIDE HEREOF. THE RIGHTS EVIDENCED BY THIS SUBSCRIPTION CERTIFICATE MAY
ONLY BE TRANSFERRED TO IMMEDIATE FAMILY MEMBERS OF, OR AN ENTITY OWNED OR
CONTROLLED BY, THE REGISTERED OWNER BY THE REGISTERED HOLDER ENDORSING WHERE
INDICATED IN SECTION 3 ON THE REVERSE SIDE OF THIS SUBSCRIPTION CERTIFICATE AND
OTHERWISE FOLLOWING THE ACCOMPANYING INSTRUCTIONS.
IMPORTANT: Complete appropriate form on reverse.
DATE: __________, 1999
[LOGO] CORPORATE SEAL ZAP.COM CORPORATION
President
<PAGE> 2
SECTION 1 - EXERCISE AND SUBSCRIPTION
TO: American Stock Transfer & Trust Company Expiration Date: _______, 1999
Subscription Agent
40 Wall Street, 46th Floor
New York, New York 10005
The undersigned hereby irrevocably subscribes for the number of whole shares of
Common Stock indicated below as the total of A and B upon the terms and
conditions specified in the Prospectus related hereto, receipt of which is
acknowledged.
<TABLE>
<CAPTION>
<S> <C> <C>
A. Basic Subscription Privilege X $8.00 = $
_____________ __________________ __________(1)
(No. of Shares) (Subscription Price)
B. Over-Subscription Privilege X $8.00 = $
_____________ __________________ __________(2)
(No. of Shares) (Subscription Price)
</TABLE>
(A Rights holder may not exercise the Over-Subscription Privilege unless such
holder's Basic Subscription Privilege has been exercised in full).
C. Transfer ____________ Rights to _____________________________________,
as transferee
Please indicate the nature of your relationship to the transferee:
________________________________________
If the transferee is an entity with equity ownership, please state the
names of the equity holders and the percentage of equity held by such
person and if the entity is a trust, please indicated the names of the
trustees:
______________________________________________________________________
______________________________________________________________________
D. Name of Soliciting Dealer, if any:____________________________________
METHOD OF PAYMENT (CHECK ONE)
/ / Uncertified personal check. Please note that funds paid by uncertified
personal check may take at least five business days to clear.
Accordingly, Rights holders who wish to pay the subscription price by
means of an uncertified personal check are urged to make payment
sufficiently in advance of the Expiration Date to ensure that such
payment is received and clears by such time, and are urged to consider
payment by means of certified or bank check, money order or wire
transfer of immediately available funds.
/ / Certified check or bank check drawn on a U.S. bank, or money order,
payable to American Stock Transfer & Trust Company, as Subscription
Agent.
/ / Wire transfer directed to the account maintained by American Stock
Transfer & Trust Company at Chase Manhattan Bank, Account No.
323-05367 - ABA No. 021-000-021.
If the amount enclosed or transmitted is not sufficient to pay the Subscription
Price for all Shares that are stated to be subscribed for, or if the number of
Shares being subscribed for is not specified, the number of Shares subscribed
for will be assumed to be the maximum number that could be subscribed for upon
payment of such amount. If the amount enclosed or transmitted exceeds the
Subscription Price for all Shares that the undersigned has the right to purchase
pursuant to the Basic Subscription Privilege and the Over-Subscription Privilege
(such excess amount, the "Subscription Excess"), the Subscription Agent shall
return the Subscription Excess to the subscribed without interest or penalty.
SECTION 2 - SPECIAL DELIVERY INSTRUCTIONS
Name and/or address for mailing of any securities or Subscription Excess, if
other than as shown on the reverse hereof:
Name:__________________________________________________________________________
Address:_______________________________________________________________________
If permanent change of address, check here / /
Please give your telephone number: ( )
______________________________________
SECTION 3 - TRANSFER TO PERMITTED TRANSFEREE
TO TRANSFER TO A PERMITTED TRANSFEREE: If I have checked the box on
line C in Section 1, I authorize the transfer of the indicated number of Rights
to the transferee by American Stock Transfer & Trust Company according to the
procedures described in the Prospectus and represent and warrant that the
information contained in under line C in Section 1 is true and correct.
_______________________________________
Signature of Subscriber(s)
<PAGE> 3
IMPORTANT - THE SIGNATURE MUST CORRESPOND IN EVERY PARTICULAR, WITHOUT
ALTERATION, WITH THE NAME(S) AS PRINTED ON THE SUBSCRIPTION CERTIFICATE
Your signature must be guaranteed by an Eligible Guarantor Institution which is
a participant in a recognized securities guarantee program and in accordance
with the Medallion Signature Guarantee Program.
Signature____________________________________________________________
(Name of Bank or Firm)
Guaranteed
By___________________________________________________________________
(Signature of Officer and Title)
SUBSTITUTE FORM W-9
__________________________________ Date: ____________________, 1999
(Signature of Holder)
__________________________________
(Print Name of Holder)
Tax I.D. Number or Social Security Number: _________________
(Complete Substitute Form W-9)
(Must be signed by the Rights holder(s) exactly as name(s) appears on the
reverse side of this Subscription Certificate. If signature is by trustee,
executor, administrator, guardian, attorney-in-fact, agent, officer or a
corporation or another acting in a fiduciary or representative capacity, please
provide the following information. See instructions accompanying this
Subscription Certificate).
<TABLE>
<CAPTION>
<S> <C>
Taxpayer Identification or
Name:________________________________________________ Social Security Number:_____________________________
(Please Print) (Complete Substitute Form W-9)
Capacity:____________________________________________ Home Telephone Number: ( )_______________________
Address: ____________________________________________ Business Telephone Number: ( )___________________
_____________________________________________________
</TABLE>
<PAGE> 1
Exhibit 4.2
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 4.3
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 $8.00
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 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;
(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
3
<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.
4
<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.
5
<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:
13
<PAGE> 1
Exhibit 4.5
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 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 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;
(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., (iv) if such
date is 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 Initial Public
Offering, 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 rights offering of shares of
Common Stock made to the holders of common stock of Zapata Corporation, as more
fully described in the preliminary prospectus contained within the pre-effective
Registration Statement, dated April 12, 1999, intended to be filed with the
Securities and Exchange Commission on or about April 13, 1999, as such
Registration Statement may be amended from time to time, in a registered
offering with the Securities and Exchange Commission in compliance with the
provisions of the Securities Act of 1933.
"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
provide 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.
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,
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, determined immediately after being granted, shall not exceed
fifteen percent (15%) of the total number of shares of Common Stock outstanding
immediately after the Award is granted.
(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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<PAGE> 5
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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<PAGE> 7
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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<PAGE> 8
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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<PAGE> 9
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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<PAGE> 11
(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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<PAGE> 12
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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<PAGE> 13
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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<PAGE> 14
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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<PAGE> 15
Date. Awards outstanding at Plan termination will remain in effect according to
their terms and the provisions of the Plan.
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<PAGE> 1
EXHIBIT 5.1
WOODS, OVIATT, GILMAN, STURMAN & CLARKE, LLP
Suite 700
Two State Street
Rochester, New York 14614
August 6, 1999
ZAP.COM Corporation
100 Meridian Centre, Suite 350
Rochester, New York 14614
Attention: Avram Glazer, President and CEO
RE: ZAP.COM CORPORATION REGISTRATION STATEMENT ON FORM S-1
Dear Mr. Glazer:
We acted as counsel to ZAP.COM Corporation ("ZAP.COM"), a Nevada
corporation, in connection with the preparation and filing with the Securities
Exchange Commission ("Commission") under the Securities Act of 1933, as amended
(the "Act"), of a Registration Statement on Form S-1 (File No. 333-76135)
(the "Registration Statement") relating to the issuance and distribution of
approximately 13,612,000 subscription rights (the "Rights"), each Right
entitling the holder thereof to purchase one share of ZAP.COM common stock,
$.001 par value per share (the "Common Stock") and to exercise an
over-subscription priviledge. ZAP.COM has registered pursuant to the
Registration Statement a total of 13,612,000 Rights and 13,612,000 shares of
Common Stock (the "Shares") to be issued upon exercise of the Rights and
3,000,000 shares of Common Stock, (the "Distribution Shares"), which are
issuable in connection with the stock distribution described in the Registration
Statement.
This opinion is being furnished in accordance with the requirements of Item
601(b)(5) of Regulation S-k under the Act.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the following documents (collectively, the "Documents"):
1. The form of Restated Articles of Incorporation of ZAP.COM approved
by ZAP.COM's Board of Directors and sole stockholder;
2. The form of Amended and Restated By-Laws of ZAP.COM approved by
ZAP.COM's Board of Directors and sole stockholder;
3. A Certificate of the Vice President -- Finance of ZAP.COM with respect
to the proceedings of the stockholders and Board of Directors of
ZAP.COM;
4. Draft resolutions of the Board of Directors of ZAP.COM Board of
Directors ("Draft Resolutions") relating to the issuance of the Rights
and the issuance and sale of the Shares;
<PAGE> 2
ZAP.COM Corporation
August 6, 1999
Page-2-
5. A specimen certificate representing the Common Stock;
6. A specimen certificate representing the Rights;
7. The form of Subscription Agent Agreement proposed to be entered into
by ZAP.COM and American Stock Transfer & Trust Company; and
8. The Registration Statement as filed with the Commission, as on April
13, 1999, as amended by Amendment No. 1 to the Registration
Statement, as filed with the Commission on July 2, 1999 and Amendment
No. 2 to the Registration Statement as filed with the Commission on
August 6, 1999 (such Registration Statement, as so amended, being
hereafter referred to as the "Registration Statement").
In giving our opinion, we have relied as to matters of fact upon
certificates of public officials and statements or representations of officers
of ZAP.COM. For purposes of this opinion, we have assumed, without any
investigation, (a) the legal capacity of each natural person and (b) the
genuineness of each signature, the completeness of each document submitted to
us as an original and the conformity with the original of each document
submitted to us as a copy.
Our opinion hereafter expressed is based solely upon (a) our review of the
Documents, (b) discussions with certain officers of ZAP.COM with respect to the
Documents, (c) discussions with those of our attorneys who have devoted
substantive attention to the matters contained herein and (d) such review of
published sources of law as we have deemed necessary. You should be aware that a
partner of our firm will serve as the corporate secretary of ZAP.COM immediately
after the close of the rights offering.
Based upon and subject to the foregoing, we are of the opinion that when
(i) the Registration Statement becomes effective under the Act, (ii) the form of
Restated Articles of Incorporation have been filed with the Nevada Secretary of
State, (iii) the form of Amended and Restated By-laws have been duly adopted and
are in effect, (iv) the Draft Resolutions have been adopted by the Board of
Directors, (v) the Subscription Agent Agreement has been duly executed, (vi) a
certificates representing the Rights in the form of the specimen certificate
examined by us have been manually signed by an authorized officer of ZAP.Com,
(vii) certificate representing the Shares issued pursuant to exercised Rights
(''Subscribed Shares'') in the form of the specimen stock certificate examined
by us have been manually signed by an authorized officer of the transfer agent
and registrar for the Common Stock and registered by such transfer agent and
registrar, and have been delivered to the Rights holders exercising their Rights
as contemplated by the prospectus contained in the Registration Statement, (A)
the issuance of the Rights and the issuance and sale of the Shares will have
been duly authorized, and (B) the Subscribed Shares and the Distribution Shares
(if distributed) will be validly issued, fully paid and non assessable.
Members of our firm are admitted to the Bar of the State of New York and do
not opine on any laws except for the State of New York, federal laws and the
corporate laws of the State of Nevada. Insofar as any of our opinions herein
relate to Nevada corporate law, those opinions are based solely on the opinions
of Marshall, Hill, & de delivered to us on this date relating to such matters
and is subject to the qualifications and limitations stated therein.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the prospectus contained therein. This consent is not to be
construed as an admission that we are a person whose consent is required to be
filed with the Registration Statement under Section 7 of the Act or the rules
and regulations of the Commission.
Very truly yours,
WOODS, OVIATT, GILMAN, STURMAN & CLARKE LLP
<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
$8.00 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
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<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:
-5-
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement Amendment No. 2 to
Form S-1 of our report dated July 8, 1999, relating to the financial statements
of ZAP.COM Corporation, which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
New Orleans, Louisana
August 5, 1999
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-02-1998
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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<PP&E> 39,588
<DEPRECIATION> 1,224
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