<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 2000
REGISTRATION NO. 333-93837
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ZAP.COM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<S> <C> <C>
NEVADA 76-0571159 7319
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER (PRIMARY STANDARD
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) CLASSIFICATION CODE INCORPORATION)
</TABLE>
<TABLE>
<S> <C>
ZAP.COM CORPORATION AVRAM GLAZER
100 MERIDIAN CENTRE, SUITE 350 PRESIDENT AND CHIEF EXECUTIVE OFFICER
ROCHESTER, NEW YORK 14618 ZAP.COM CORPORATION
(716) 242-8600 100 MERIDIAN CENTRE, SUITE 350
(ADDRESS, INCLUDING ZIP CODE OF PRINCIPAL ROCHESTER, NEW YORK 14618
PLACE OF BUSINESS AND TELEPHONE NUMBER, (716) 242-8600
INCLUDING AREA CODE OF REGISTRANT'S (NAME, ADDRESS, INCLUDING ZIP CODE OF PRINCIPAL
PRINCIPAL EXECUTIVE OFFICES) PLACE OF BUSINESS AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
</TABLE>
------------------------
COPIES TO:
GORDON E. FORTH, ESQ.
WOODS OVIATT GILMAN LLP 700 CROSSROADS BUILDING
TWO STATE STREET
ROCHESTER, NEW YORK 14614
TELEPHONE NO. (716) 987-2800
FACSIMILE NO. (716) 454-3968
------------------------
APPROXIMATE DATE OF COMMENCEMENT DATE OR PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d)under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
This registration statement covers the registration of 20,000,000 shares of
common stock, $.001 par value per share, of Zap.Com Corporation ("Zap.Com") to
be issued from time to time as payment for all or some portion of the purchase
price for certain rights granted to Zap.Com with respect to one or more Web
sites by Web site owners who join the ZapNetwork (the "Offering Registration").
This registration statement also covers the registration of up to an additional
30,000,000 shares of common stock, $0.001 par value per share, of Zap.Com to be
issued from time to time as payment for all or some portion of the purchase
price for one or more acquisitions of companies, businesses or assets
complementary to Zap.Com's existing business (including future acquisitions of
rights granted with respect to one or more Web sites) or which may be offered in
connection with promotions or similar events or for sale or other distribution
by persons who acquire such shares in the acquisitions or promotional events or
by the donees of such persons or by other persons acquiring such shares (the
"Shelf Registration"). The complete prospectus (the "Offering Prospectus")
relating to the Offering Registration immediately follows this explanatory note.
Following the Offering Prospectus are certain pages relating solely to the Shelf
Registration (together with the remainder of the Offering Prospectus as modified
as indicated below, including an alternate front and back cover page the "Shelf
Prospectus"). The Shelf Prospectus will not include the information in the
prospectus summary under the heading "Offering", or under the sections of the
Offering Prospectus entitled "Use of Proceeds" and "Federal Income Tax
Considerations", but will include a "Selling Stockholder" section. All other
sections of the Offering Prospectus will be used in the Shelf Prospectus, except
that a different Plan of Distribution section will be used and additional
non-substantive changes will be made to reflect the offering being made under
the Offering Prospectus if the Shelf Prospectus is used concurrently with the
Offering Prospectus. Each of the alternate or additional pages for the Shelf
Prospectus included herein has been labeled "Alternate Page for Shelf
Prospectus." If required, each of the prospectuses in the forms in which they
are used after the registration statement becomes effective will be filed with
the Securities and Exchange Commission pursuant to Rule 424(b) of the General
Rules and Regulations under the Securities Act of 1933, as amended.
<PAGE> 3
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 3, 2000
PROSPECTUS
[LOGO]
20,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
Zap.Com Corporation is a development stage company which seeks to build a
branded global network of independently owned Web sites on which it will have
the contractual right to deploy on a perpetual basis its Web application, the
ZapBox or other Internet properties it acquires or develops in the future. This
prospectus relates to 20,000,000 shares of our common stock which we are
offering to select owners of Web sites in exchange for these Web site rights. We
are offering the shares of our common stock on a continuous basis as permitted
by Rule 415 under the Securities Act of 1933 only during the period when the
registration statement relating to this prospectus is effective.
Our common stock is currently quoted on the National Association of
Securities Dealer's OTC Bulletin Board under the symbol "ZPCM." As of February
28, 2000, we had 50,000,000 shares of common stock issued and outstanding. On
February 28, 2000, the last reported sales price for our common stock (of which
800 shares traded) was $8.75.
AN INVESTMENT IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
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 , 2000.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 8
Special Note Regarding Forward-Looking Statements........... 24
Plan of Distribution........................................ 25
Use of Proceeds............................................. 32
Dividend Policy............................................. 32
Price Range of Zap.Com's Common Stock....................... 32
Capitalization.............................................. 33
Selected Financial Data..................................... 34
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 35
Business.................................................... 39
Management.................................................. 50
Related Party Transactions.................................. 55
Principal Stockholders...................................... 58
Federal Income Tax Considerations........................... 58
Description of Securities................................... 59
Experts..................................................... 62
Legal Matters............................................... 62
Additional Information...................................... 62
Index to Financial Statements............................... F-1
</TABLE>
------------------------
Our World Wide Web site is www.zap.com. Neither the information in this Web
site, the ZapBox nor any of our other Internet properties nor any Web site on
the ZapNetwork is incorporated by reference into this prospectus.
You should rely only on the information contained in this prospectus, the
related registration statement and any documents incorporated by reference into
the registration statement. Zap.Com has not authorized any person to provide you
with different or inconsistent information. If anyone provides you with
different or inconsistent information, you should not rely on it as having been
authorized by Zap.Com. The information in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus. This prospectus shall not constitute an offer to sell these
securities, or solicitation of an offer to buy, in any jurisdiction where the
offer or sale is not permitted.
Zap.Com, ZapNetwork, ZapBox and My ZapBox are some of our service marks.
As of the date of this prospectus, we have registered the securities, or an
exemption from registration has been obtained (or is otherwise available), only
in the states of Colorado, Delaware, Georgia, Idaho, Florida, Illinois,
Louisiana, Nevada, New York, Oregon, Rhode Island, South Carolina, Utah,
Washington and Wyoming and initial sales may only be made in these
jurisdictions. Those Website owners that subscribe to securities in this
offering must be residents of these states.
i
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information appearing elsewhere in this prospectus. The description of the
ZapNetwork agreement and its various terms in this prospectus are based on the
form of agreement we intend to seek from Web site owners as a condition to
joining the ZapNetwork. The exact terms of the ZapNetwork agreement actually
entered into with different Web site owners may vary from the form of this
agreement described in this prospectus.
BUSINESS OF ZAP.COM
Zap.Com Corporation was founded in April 1998 to create and operate a
global network of independently owned Web sites that attract a diverse audience
of Internet users. Our goal is to make the ZapNetwork a leading advertising and
e-commerce platform by aggregating Internet users who frequent Web sites that
are often overlooked by Internet advertisers. We plan to pursue this goal by
offering a variety of services and benefits to users, Web site owners,
advertisers and merchants that participate in the ZapNetwork. We will provide
these services by deploying the ZapBox on all ZapNetwork member sites on a
perpetual basis.
Our business model involves the acquisition by us of perpetual contractual
rights to space on third party Web sites who join our ZapNetwork. In this
acquired space, we will deploy the ZapBox or other Internet properties we may
develop or acquire in the future. The Web site owner will retain all rights to
the remaining space on its Web site. We expect that the main form of
consideration to be paid to the owners of a Web site who join our network and
grant us those rights will be shares of our common stock. We believe that the
ZapNetwork will be attractive to Web site owners because they will be able to:
- recognize direct value for their audience without giving up ownership or
editorial control of their Web site,
- participate in Zap.Com's potential future appreciation, and
- have the opportunity for increasing the value of their remaining rights
to their Web site as a result of the potential for increased traffic and
stickiness (i.e., user retention which the ZapBox may generate).
The ZapBox is our proprietary Web application that provides portal-like
functionality and content wrapped around an Internet advertising banner. The
ZapBox offers Internet users who prefer specialized sites that address their
particular interests access to traditional portal-like information from within
the specialized sites that they favor. We believe that users of these
specialized sites generally represent "unclaimed eyeballs" since access to these
users has generally not been cost effective. By aggregating access to these
users, we believe the ZapNetwork will be attractive to Internet advertisers and
businesses desiring to promote their business through a relationship with
Zap.Com.
ZapBox 1.0 offered search, feedback e-mail and animated graphical links to
ZapNetwork sites and the Zap.Com homepage. We released ZapBox 2.0 on January 7,
2000. ZapBox 2.0 which has ad serving capabilities and features additional
functionality that offers users personalizable access to timely news, weather,
business, sports content and horoscopes. In addition, ZapBox 2.0 offers a rich
media interactive demonstration of the ZapBox. We are developing future releases
of the ZapBox, which are expected to offer additional user functionality, and
have ad targeting and e-commerce capabilities. We have deployed ZapBox 1.0 and
ZapBox 2.0 on three Web sites owned and operated by our majority stockholder,
Zapata Corporation, www.word.com, www.charged.com and www.pixeltime.com, and our
homepage at www.zap.com. Zapata has agreed to continue this arrangement at its
discretion without legal or other financial obligations between the parties.
This initial network has allowed us to beta test the ZapBox releases and the
technology that supports the ZapNetwork.
Our business is supported by a systems platform provided and maintained by
EMC, Inc. and ad serving technology provided by DoubleClick, Inc. We rely on
Auragen Communications, Inc. for software programming and development. We have
also entered into contracts with iSyndicate, Inc. to provide content
<PAGE> 6
for the ZapBox and Direct Hit Technologies, Inc. to support the search function
for the ZapBox. We also intend to rely on a third party to provide us with sales
representation and other third parties for various operational needs.
To date, our operations have consisted primarily of organizational and
capital raising activities, research and analysis with respect to Internet
industry opportunities, development of strategic relationships, the creation and
launch of our homepage at www.zap.com and the first two releases of the ZapBox.
As of the date of this prospectus, we have not generated any, nor do we have any
source of revenue. Therefore, to a significant extent, the description of our
business in this prospectus is based on a business model and activities in the
early execution stages.
In the future, we may acquire or establish strategic relationships with
Internet service organizations, electronic commerce companies and traditional
companies that have attractive electronic commerce opportunities, including
broadcasting, media, entertainment and communications companies. As of the date
of this prospectus, we do not have any specific plans, proposals, arrangements
or understandings with any Web site owner or anyone else for any acquisition,
investment or similar transaction. At any given time, however, we may be in
discussions or negotiations regarding any of these opportunities.
Our principal executive offices are located at 100 Meridian Centre, Suite
350, Rochester, New York 14618. Our telephone number is (716) 242-8600.
RISK FACTORS
We will be operating in a new industry and our business and securities
involve a high degree of risk. The principal risks are described under "Risk
Factors."
RECENT EVENTS
Prior to November 12, 1999, we were a wholly-owned subsidiary of Zapata. On
November 12, 1999, Zapata distributed 477,742 shares of our common stock to its
stockholders. On November 30, 1999, our stock began to trade on NASD's OTC
Bulletin Board. In connection with the distribution, Zapata provided us with
$9,000,000 as its capital contribution for 49,450,000 shares of our common
stock. The contribution consisted of $8,000,000 in cash and the forgiveness of
$1,000,000 of inter-company debt, which represented Zap.Com's organizational and
development costs previously paid by Zapata. In addition, in November 1999 our
President and Chief Executive Officer, Avram Glazer, and his father, Malcolm
Glazer, who owns approximately 44% of Zapata's outstanding common stock,
contributed $1,100,000 to us in exchange for 550,000 shares of our common stock.
On October 20, 1999, we entered into a consulting agreement with American
Internetwork Sports Company, LLC to provide us with corporate, business and
marketing advice on sports related aspects of Zap.Com's business. In exchange
for these services, we entered into a warrant agreement with American
Internetwork Sports that provides for the issuance of warrants to purchase in
the aggregate up to 2,000,000 shares of Zap.Com common stock at an exercise
price of $2.00 per share. These warrants will become exercisable on a cumulative
basis in equal one third amounts on each of the first three anniversary dates of
the consummation of Zapata's distribution of our shares on November 12, 1999,
unless earlier accelerated, and have a term of five years. The warrants will
accelerate and become immediately exercisable if at any time Zap.Com terminates
the consulting agreement without cause or there is a change in control of
Zap.Com. American Internetwork Sports is owned and controlled by Avram Glazer's
siblings.
RELATIONSHIP BETWEEN ZAPATA AND ZAP.COM
As of the date of this prospectus, Zapata holds 48,972,258 shares of our
common stock, or 98% of our outstanding common stock. As a result, Zapata
controls our management and policies and will be able to control substantially
all matters submitted to our stockholders for consideration, including the
election of directors and all proposals for merger, liquidation, sale of
substantially all of our assets and charter amendments.
2
<PAGE> 7
Officers and Directors
Executive officers of Zapata also serve as executive officers of Zap.Com.
In addition, Avram Glazer serves as a director of both corporations.
Contractual Arrangements
On October 20, 1999, we entered into a services agreement with Zapata under
which Zapata is required to provide us with general administrative services. The
services agreement also provides that Zapata will bill Zap.Com for services
based on an estimated cost basis for services provided. The services agreement
may be terminated by either party on 120 days notice. On October 20, 1999, we
also entered into an investment and distribution agreement, tax sharing and
indemnity agreement and registration rights agreement with Zapata.
3
<PAGE> 8
THE OFFERING
Eligible Subscribers Web site owners who apply to become members of
the ZapNetwork and grant us various rights with
respect to their Web site as set forth in the
ZapNetwork agreement which they must enter into
with Zap.Com to join the network. We describe
the ZapNetwork agreement on page 25 of this
prospectus under the heading "Plan of
Distribution -- ZapNetwork Agreement." We will
sell our shares only to Web site owners that
reside in those states where, if required, we
have registered or qualified the shares being
offered under this prospectus for sale and have
registered our officers as brokers, salesperson
or agents, as applicable.
Common Stock Offered 20,000,000 shares.
Direct Offering This offering is being conducted by our
officers without the use of any independent
brokers. No underwriting discounts or
commissions will be paid to our officers. We
intend to solicit select Web site owners
through our officers, direct mail and
appropriate online and off-line advertising.
Share Offering Price We will pay each Web site owner a purchase
price for the Web site rights that it grants to
us. The Web site rights purchase price will
generally be payable only in shares of our
common stock offered under this prospectus.
Under the ZapNetwork agreement, the number of
shares to be issued in payment of the Web site
rights purchase price will be based on a per
share value to be determined on each of the six
dates on which purchase price payments are due
to the Web site owner. The ZapNetwork agreement
provides that the share price will be the
higher of the average closing price of our
common stock for the 20 days ending on the
payment dates and the per share floor price in
effect on the date the agreement is signed by
the Web site owner. The per share floor price
is established by our Board of Directors. As of
the date of this prospectus, the per share
floor price last established by our Board of
Directors is $5.00. From time to time during
this offering, the Board of Directors may
change the per share floor price for ZapNetwork
agreements entered into after the change.
Best Efforts and Continuous
Offering This offering is being made on a "best efforts"
and continuous basis, with no minimum number of
shares required to be subscribed. We may accept
applications to our network and subscriptions
for our shares at any time and from time to
time until the offering expires or is
withdrawn. In order to ensure that we have
sufficient shares to satisfy our payment
obligations under ZapNetwork agreements, we
will only accept subscriptions submitted in
connection with this offering that have Website
rights purchase price which in the aggregate
equal the number of shares subscribed
multiplied by the applicable per share floor
price.
Common Stock to be Outstanding
After the Offering Under the terms of the ZapNetwork agreement,
the shares being offered under this prospectus
generally will be issued over a seven year
period. Until those shares are issued, we will
reserve from our authorized but unissued shares
the number of shares equal to the total Web
site rights purchase price due a Web site owner
divided
4
<PAGE> 9
by the per share floor price in effect on the
date that the Web site owner enters into the
ZapNetwork agreement with us. If all of the
shares offered under this prospectus are
subscribed and issued, and we issue no other
shares prior to the last scheduled payment
date, we will have 70,000,000 shares
outstanding. However, if at one or more of the
payment dates on which shares subscribed for in
this offering are to be issued the 20 day
average closing price for our shares is greater
than the applicable per share floor price, then
we will issue fewer shares than we have
reserved for issuance to those Web site owners
and our outstanding shares will be reduced by
the same amount. In addition, we have 5,000,000
shares reserved for options and warrants issued
or to be issued, including options and warrants
for 2,608,000 shares previously granted at a
weighted average exercise price of $2.07 per
share.
Expiration Date The earlier of the date on which all of the
shares offered by this prospectus have been
subscribed based on the applicable per share
floor price and September 1, 2000, unless
earlier withdrawn or extended by Zap.Com in its
sole discretion. In no event will the offering
end later than on February 28, 2001.
Joining the ZapNetwork A Web site owner wishing to join the ZapNetwork
by granting us various Web site rights and
subscribing for shares in this offering in
exchange for those rights can do so by
following the procedures described under "Plan
of Distribution -- How You Can Join the
ZapNetwork."
Conditional Acceptance Into
the Network and Web Site
Evaluation Each Web site owner whose ZapNetwork
application we accept will initially be
accepted into our network on a conditional
basis for up to 120 business days after we sign
the Web site owner's ZapNetwork agreement. We
will have the right to review and evaluate all
aspects of the owner's Web site during this
period. As a result of this evaluation, we may
elect not to continue the Web site owner in our
network. If we elect not to continue the Web
site owner in our network during the initial
evaluation period, then neither party will have
any legal or financial obligation to the other
in the absence of a breach of the ZapNetwork
agreement by the Web site owner during this
period.
5
<PAGE> 10
SUMMARY FINANCIAL DATA
The following tables set forth selected financial data derived from our
audited financial statements, including the audited balance sheets as of
December 31, 1998 and December 31, 1999 and the related statements of
operations, stockholder's equity (deficit) and cash flows for the periods then
ended and the accompanying notes are included elsewhere in this prospectus. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
CUMULATIVE
FROM APRIL 2, 1998 FROM APRIL 2, 1998
(DATE OF INCEPTION) FOR THE (DATE OF INCEPTION)
THROUGH YEAR ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1999
------------------- ----------------- -------------------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues................................. $ -- $ -- $ --
Cost of revenues......................... -- 141,160 141,160
---------- ----------- -----------
Gross Profit................... -- (141,160) (141,160)
Operating expenses:
Product development.................... -- 52,388 52,388
Sales and marketing.................... -- 1,696,539 1,696,539
General and administrative............. 793 1,690,907(1) 1,691,700(1)
Depreciation........................... -- 8,105 8,105
---------- ----------- -----------
Total operating expenses....... 793 3,447,939 3,448,732
---------- ----------- -----------
Loss from operations........... (793) (3,589,099) (3,589,892)
Interest income.......................... -- 54,159 54,159
---------- ----------- -----------
Loss before income taxes................. (793) (3,534,940) (3,535,733)
Benefit from income taxes................ -- -- --
---------- ----------- -----------
Net loss................................. $ (793) $(3,534,940) $(3,535,733))
========== =========== ===========
Per share data (basic and diluted):
Net loss per share..................... $ (.00) $ (.07) $ (.07)
========== =========== ===========
Average common shares and common share
equivalents outstanding............. 49,450,000 49,525,342 49,493,036
========== =========== ===========
</TABLE>
- ---------------
(1) Includes approximately $325,000 of costs incurred as of December 31, 1999 in
connection with a rights offering abandoned by Zap.Com in September 1999.
The following balance sheet data is presented:
- On an actual basis; and
- On a pro forma basis as of December 31, 1999 to give effect to the
assumed acceptance of subscriptions under ZapNetwork agreements entered
into during this offering for the issuance of up to 20 million shares of
common stock at an assumed per share floor price of $5.00.
6
<PAGE> 11
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1998 1999
------------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ -- $ 7,579,363
===== ============
Total assets.............................................. $ -- $ 8,488,748
===== ============
Total liabilities......................................... $ 783 $ 753,205
===== ============
Total stockholders' (deficit) equity(1):
Common stock, $.001 par value 1,500,000,000 shares
authorized, 49,450,000 shares issued and outstanding as
of December 31, 1998; 1,500,000,000 shares authorized,
50,000,000 issued and outstanding as of December 31,
1999 actual and pro forma.............................. $ 10 $ 50,000(2)
Additional paid in capital................................ -- 21,549,996(2)
Preferred stock, $0.01 par value, 150,000,000 shares
authorized, 0 shares issued and outstanding as of
December 31, 1999...................................... -- --
Deficit accumulated during the development stage.......... (793) (3,535,733)
Deferred consulting expense............................... -- (10,328,720)
----- ------------
Total stockholders' (deficit) equity.............. $(783) $ 7,735,543
===== ============
</TABLE>
- ---------------
(1) As of December 31, 1999 there is no pro forma effect for the assumed
acceptance of subscriptions under ZapNetwork agreements entered into during
this offering. Due to the variable nature of the number of shares to be
issued under the subscriptions pursuant to these agreements, we will account
for the commitment to issue these shares and the associated expense at their
minimum value as prescribed by the principles of the Financial Accounting
Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 96-18
"Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods, or Services".
Accordingly, the minimum fair value of these shares will be recorded under
total stockholders' (deficit) equity as "Obligation to issue common stock
for ZapNetwork agreements" on a pro rata basis during the Web site rights
purchase price payment period. If the per share floor price is $5.00
throughout the offering, then the maximum value of the shares to be issued
in consideration for the Web site rights granted to Zap.Com under the
ZapNetwork agreements will be no more than $100 million. This figure will be
reduced in two circumstances. It will be lower if the per share value of the
shares issued to Web site owners under their respective ZapNetwork
agreements based on the 20-day average closing price for our shares ending
on each of the six payments dates under those agreements is below the
applicable per share floor price. Please see "Plan of
Distribution -- ZapNetwork Agreement -- Web Site Rights Purchase Price and
Subscribed Shares -- Illustrative Purchase Price Payment Schedule No. 2".
The maximum value of the subscribed shares will also be reduced if a Web
site owner's purchase price is decreased due to a decline in the site's
unique users from the number of unique users that was used to determine its
original purchase price. Please see "Plan of Distribution -- ZapNetwork
agreement."
(2) At the time shares are issued to Web site owners at each Web site rights
purchase price payment date, the amount accrued for this payment under
"Obligation to issue common stock for ZapNetwork agreements" will be
reclassified into "common stock" and "additional paid in capital" at their
then current fair value.
7
<PAGE> 12
RISK FACTORS
You should be aware that an investment in our common stock involves a high
degree of risk. The principal risks are described below. We urge you to
carefully consider these risk factors together with all of the other information
included in this prospectus, including our financial statements and the related
notes, before subscribing for our common stock. Our business, prospects,
operating results and financial condition could be adversely affected by any of
these risks. Further, the trading price of our common stock could decline
significantly due to any of these risks.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND
PROSPECTS
We were founded in April 1998. To date, our activities have consisted
primarily of organizational and capital raising activities, research and
analysis with respect to Internet industry opportunities, development of
strategic and commercial relationships and the creation and launch of our
homepage, ZapBox 1.0, Zapbox 2.0 and the ZapNetwork. As of the date of this
prospectus, we have a limited operating history which makes it difficult to
evaluate our business and its prospects.
WE FACE MANY RISKS IN ESTABLISHING A NEW BUSINESS ENTERPRISE
As a development stage company, we face all of the risks associated with
establishing a new business enterprise in the Internet industry. In addition,
our revenue model is evolving and is expected to rely substantially upon the use
of our network by advertisers, direct marketers and merchants either by
themselves or in a strategic relationship with us. Our prospects must be
considered in light of the risks, expenses and problems frequently encountered
by companies in their early stages of development, particularly companies in new
and rapidly evolving markets like the Internet, using unproven business models.
To address some of these risks we must successfully:
- finalize development of future releases of our ZapBox which will
incorporate additional functionality;
- build and maintain the ZapNetwork by having Web site owners join our
network;
- continue to develop, formalize and maintain strategic and commercial
relationships with third parties for services in areas critical to the
successful execution of our business model, including organizations that
have sales, software, hardware, Web site traffic measurement and
technical and Internet industry expertise;
- continue to attract, retain and motivate qualified personnel;
- market the ZapNetwork to potential customers, including advertisers,
direct marketers, merchants and others;
- manage the expansion of our operations; and
- anticipate and adapt to changes in our market and competitive
developments.
We cannot be certain that our business strategy will be successful or that
we will successfully address any or all of these risks or any of the other risks
described in this prospectus. Our failure to address these risks will present
significant obstacles to our ability to achieve and sustain profitability.
WE HAVE NO PRESENT SOURCE OF REVENUES; TO GENERATE REVENUES, WE WILL NEED TO
GROW OUR NETWORK WHICH WE CANNOT GUARANTEE WILL OCCUR.
As of the date of this prospectus, we do not have any source of revenue.
Our ability to generate revenues will depend on our ability to have Web site
owners join the ZapNetwork and to select sites that are attractive to potential
customers. We do not expect to generate any revenues from the ZapNetwork until
it has grown to a size which is attractive to potential advertising customers
and e-commerce partners. As of the date of the prospectus we have no present
plans, proposals, arrangements or understandings with any Web site owners to
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join our network. Further, we have not confirmed the interests of Web site
owners in the ZapNetwork and, therefore, we cannot assure you that Web site
owners will want to join our network. Please see "Business -- Web Site Owner
Recruiting." If we are unable to attract a sufficient number of Web site owners
to our network to commence sales, it would adversely effect our ability to
generate revenues and would impede our growth. Further, we cannot assure you
that our network will ever achieve the size necessary to attract customers or
e-commerce partners, or, if we do, that we will ever achieve sufficient revenues
to become profitable. Even if we do attract a sufficient number of Web site
owners, we cannot assure you that we will be able to integrate these Web sites
into our network without substantial unanticipated costs, delays or other
problems. We also may be unable to anticipate all of the changing demands that
successive admissions of Web sites to our network will impose on our management
personnel, operational and management information systems and financial systems
or those of Zapata with whom we have a services agreement. Please see
"Business -- Web Site Owner Recruiting" and "Management's Discussion and
Analysis of Financial Condition and Results of Operation."
WE ANTICIPATE SIGNIFICANT LOSSES FOR THE FORESEEABLE FUTURE AND NEGATIVE CASH
FLOW IN THE EARLY STAGES OF THE IMPLEMENTATION OF OUR BUSINESS PLAN
As of December 31, 1999, we had a deficit accumulated during the
development stage of $3,535,733. During the early stages of the execution of our
business plan we will incur significant expenditures to obtain and integrate the
necessary technology, systems and supporting infrastructure, increase the number
of Web sites that belong to our network, develop our brands, hire additional
employees and expand our business. We also anticipate significant charges
arising from the consideration we plan to pay Web site owners who join the
ZapNetwork and in connection with promotions or similar events. We will also
incur significant charges as a result of our consulting arrangement with
American Internetwork Sports. In order to achieve and maintain profitability and
positive cash flow, we will need to establish and grow our network and attract
and retain customers which we cannot assure you will occur. Please see "Risk
Factors -- We Have No Present Source of Revenue; To Generate Revenues We Will
Need to Grow Our Network and We Cannot Guarantee That This Will Occur" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operation." We anticipate that, for the foreseeable future we will incur
substantial operating losses and in the early stages of the implementation of
our business plan we will have a negative operating cash flow. To the extent
that revenue does not grow at anticipated rates, or that increases in operating
expenses are not followed by commensurate increases in revenue, or if we are
unable to adjust operating expense levels accordingly, our business, results of
operations and financial condition will be materially and adversely affected.
There can be no assurance that we will ever achieve profitability or positive
cash flow. If we do achieve profitability and positive cash flow, we cannot be
certain that we would be able to sustain or increase profitability or cash flow
on a quarterly or annual basis in the future.
OUR BUSINESS MODEL AND ITS POTENTIAL FOR PROFIT IS UNPROVEN
Our business is based on an unproven model. As a result, the profit
potential for our business model is also unproven. Even if our network is
successfully developed, our success will largely depend on our ability to
generate and substantially increase advertising and e-commerce related revenues.
We cannot assure you that the market for our services will develop or become
sustainable. Either of these situations could have a material adverse effect on
our ability to generate revenues and would impede our growth. In addition, as
our business model evolves, we may introduce new pricing models and new products
and services which may adversely affect our margins, significantly increase our
operating expenses and adversely affect our operating cash flow.
WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS PLAN IF INTERNET USAGE GROWS
Our future success is highly dependent on an increase in the use of the
Internet as a medium for commercial activities, including advertising, direct
marketing, for-fee content delivery and other commerce. The Internet market is
at a very early stage of development, is rapidly evolving and is characterized
by an increasing number of entrants that are introducing or developing competing
products and services. As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance for recently
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introduced products and services is uncertain and have a high level of risk.
Because the Internet market is new and evolving, we cannot predict with any
assurance the market's size, growth rate or durability.
Most of our potential network customers will have only limited experience
with the Web as a commercial medium and may not find it to be an effective way
to carry-on business. Consequently, they may allocate only limited portions of
their budget to Internet based advertising and transactions. Our ability to
generate revenues will depend on these potential customers accepting and
utilizing the Internet's new and novel emerging method of conducting business
and exchanging information.
WE ARE IN THE PROCESS OF DEVELOPING FUTURE RELEASES OF THE ZAPBOX, AND IT MAY BE
DIFFICULT TO FINALIZE DEVELOPMENT OF THESE RELEASES
We have created and launched the ZapBox, which is a Web application that
offers search, news, sports, weather, feedback e-mail, animated graphical links
to ZapNetwork sites and the Zap.Com homepage, content personalization and
ad-serving capabilities. We are currently in the process of developing future
releases of the ZapBox. The timing and success of these versions of the ZapBox
is unpredictable due to the uncertainty of several technical parameters,
including bandwidth requirements and browser compatibility. We cannot guarantee
that the development of these future versions of the ZapBox will be successfully
finalized and introduced. In addition, the current or any future version of the
ZapBox may contain undetected errors when first made available, which could
result in additional expense to us and also result in a loss or delay of market
acceptance of the ZapBox and disruption to the operation of our network. Any of
these events would have a material adverse affect on our ability to generate and
grow revenues and could result in incurring additional expenses that may not be
recovered.
IF BANNER ADVERTISING BECOMES AN INEFFECTIVE BUSINESS METHOD, OUR BUSINESS,
REVENUES, OPERATING RESULTS AND PROSPECTS WILL SUFFER
Banner advertising, from which we expect to derive substantially all of our
revenues, may not be an effective business model in the future. There are
currently no widely accepted standards to measure the effectiveness of Internet
banners and we cannot be sure that these standards will develop to sufficiently
support the use of banners as a significant medium for delivery of advertising,
e-commerce and other information. Potential ZapNetwork customers may not accept
our (or third party) measurements of impressions on the ZapNetwork and these
measurements may contain errors. This could adversely affect our business and
our ability to generate revenues. Even if new methods of measuring effectiveness
are developed, we may not be able to take advantage of them. Moreover,
inexpensive "filter" software programs that limit or prevent banners from being
delivered to a user's computer are currently available. The widespread adoption
of this software or the actual or perceived ineffectiveness of a network of
banners in general, could threaten the commercial viability of our business and
limit our long-term growth.
WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN OUR QUARTERLY
OPERATING RESULTS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE
Our limited operating history makes it difficult for us to assess the
impact of seasonal factors of our business. We expect, however, that our
revenues and operating results will fluctuate significantly quarter-to-quarter
in the future due to a number of factors, some of which are beyond our control.
These factors include:
- the addition of new, or loss of, network customers or the addition to, or
loss of Web sites from, the ZapNetwork;
- the price paid for the Web site rights to Web site owners joining the
ZapNetwork and related costs;
- user traffic levels and the number of impressions on Web sites that
belong to the ZapNetwork;
- demand for advertising on the ZapNetwork by future customers and the
success of any e-commerce opportunities that we pursue for the
ZapNetwork;
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- seasonal fluctuations in revenue;
- changes in the growth rate of Internet usage;
- changes in our pricing policies or those of our competitors for different
uses of the ZapNetwork;
- the commitment of budgets for businesses to Internet advertising and use;
- the mix of revenues from different uses of the ZapNetwork by our future
customers and e-commerce partners;
- the timing and amount of costs relating to building our network and
expanding our operations, including infrastructure technology and
business systems, brand development and personal hiring and training;
- the introduction of new solutions by us or our competitors; and
- general economic and market conditions.
Due to all of these factors you should not rely on quarter-to-quarter
comparisons of our revenues and operating results as an indication of future
performance. In addition, due to our limited operating history and our unproven
business model, we cannot predict future revenues or operating results
accurately. It is likely that in some future periods our revenues and operating
results may be below the expectations of public market analysts and investors
and this would almost certainly affect adversely the trading price of our common
stock. Please see "Management's Discussion of Analysis of Financial Condition
and Results of Operation".
A DECLINE IN TRAFFIC ON, OR LOSS OF WEB SITES BELONGING TO OUR NETWORK COULD
RESULT IN REDUCED REVENUES
Our near-term and long-term prospects will be significantly dependent upon
the performance of the Web sites who join the ZapNetwork, including the quality
of their content or other offerings and the level of traffic on their sites.
Management's assessment of a particular Web site candidate for our network may
not prove to be correct. Additionally, we will have no control over these
factors and our ability to generate revenues and grow would be significantly
impeded by declines in the quality or traffic levels of Web sites that belong to
our network, or if one or more material Web sites discontinues its business or
becomes bankrupt or insolvent.
Each Web site owner who joins the ZapNetwork will enter into a contract
with us providing for a perpetual right to deploy the ZapBox or any other
Internet properties we develop or acquire in the future, throughout its Web
sites. In the event that a Web site owner breaches its ZapNetwork agreement at
any time and denies us access to its Web sites, one of our remedies will be to
pursue a court order for specific performance. A court, however, may find that
money damages are adequate and refuse to issue this type of order despite the
irreparable harm that we believe will occur. If either a Web site owner whose
site is material to the network or a material number of Web sites which belong
to the network engage in that type of conduct and the presiding courts refuse to
specifically enforce the participants' contracts with us, we might be unable to
honor obligations to our customers and our ability to generate revenues and grow
would be significantly impeded.
OUR DATABASE MAY CONTAIN INACCURACIES THAT COULD REDUCE THE VALUE OF OUR
INFORMATION
The effectiveness of targeting on our network will be largely dependent
upon the accuracy of user profile information contained in the databases we
assemble. We will collect data on registered users of the ZapBox. We cannot be
sure that the information which will be developed from our database will be
accurate or that network customers will be willing to rely on targeting based on
our database which may contain potential inaccuracies. This could adversely
affect our ability to secure or continue customer relationships which could
adversely affect our ability to generate and grow revenues. Please see
"Business -- Intellectual Property".
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WE RELY ALMOST EXCLUSIVELY ON THIRD PARTY TECHNOLOGY AND SERVICE PROVIDERS THAT
WE DO NOT CONTROL
We rely almost exclusively on third parties to provide infrastructure to
support the ZapBox and the Zap Network. For example, we rely on EMC, Inc. to
provide us with connectivity to the Internet and to provide us with the
necessary software to address certain operational aspects of our network. We
have entered into an agreement with EMC to provide us with those services. We
have also entered into a sublicense agreement with EMC for the Doubleclick Ad
Server software platform which will become effective in May 2000. The Ad Server
software will address the task of distributing the banner in the ZapBox and
managing the banner inventory. We have a contract with Doubleclick for its Ad
Center service for delivery of advertising on the ZapBox through April 2000. We
are relying on Auragen Communications, Inc. to develop future releases of the
ZapBox and to manage Zap.Com's relationship with EMC, DoubleClick and other
third parties providing technology solutions to Zap.Com. To the extent that
material difficulties are encountered in bringing DoubleClick's systems on-line,
we will need to acquire an alternative solution. Our loss of, or inability to
maintain or obtain upgrades to the technology licenses or hardware solutions
used in our operating infrastructure by us or third parties could result in
delays, which would adversely effect our ability to operate our network. This
would cause our business and operating results to suffer until equivalent
technology and hardware solutions could be identified and implemented. If we are
unable to maintain satisfactory relationships with third parties who provide
services or products necessary to operate our network on acceptable commercial
terms, or the quality of products and services provided by these third parties
falls below a satisfactory standard, we could experience a disruption in the
delivery of programming to our network, which could have a negative impact on
our network and, hence, our business and operating results. A failure to
complete the development of our infrastructure or to do so without substantial
delay or cost will have a material adverse impact on our ability to generate
revenue.
We also expect to rely on third-party service providers for a number of
operational aspects critical to our business plan. These providers include
experienced media representation agencies, Web site traffic measurement firms,
content providers, customer service providers and others. We currently have some
of these arrangements in place and we cannot assure you that we will be able to
secure all other arrangements necessary to operate our business. If we fail to
secure additional necessary arrangements, or to do so in a timely manner and on
commercially reasonable terms, it will have a material adverse effect on our
ability to commence sales efforts and to generate revenues. The termination of
any of these relationships in the future after they have been established could
have the same effect and could impair our relationships with customers and have
a negative impact on our revenues. Further, if any of the third-parties change
their terms or terminate their relationships, we may need to incur additional
costs to replace those service providers and to bring the new service providers
up-to-date with our then current operations. Please see "Business -- Operating
Infrastructure and Technology Platform," and "-- Sales, Marketing and Customer
Service".
THE FAILURE OF COMPUTER SYSTEMS USED BY US OR THIRD PARTIES COULD HARM OUR
OPERATIONS AND REVENUES
The continuing and uninterrupted performance of computer systems used by
us, third parties performing services for us and Web site that belong to our
network is critical to our success. Customers may become dissatisfied by any
system failures that interrupt our ability to deliver programming over our
network accurately to the targeted audience and without significant delay to the
viewer. Sustained or repeated system failure would reduce the attractiveness of
our solutions to our customers. Slower response time or significant disruptions
may also result from straining the capacity of the software used in our network
or the hardware connected to our network due to an increase in the volume of
programming delivered to our network. If these circumstances arise, our efforts
to rectify the situation may result in significant additional expenses. To the
extent that any capacity constraints or system failures are not adequately
addressed, it would adversely effect the delivery of programming to our network,
the number of ZapBox views received by our customers and our revenues and we may
need to incur additional significant expenses to rectify the situation.
Similar to all computer and communication systems, systems used in our
business could be damaged by earthquake, fire, floods, power loss,
telecommunications failures, break-ins and like events. In addition,
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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. Any of
these events could lead to interruptions, delays, loss of data or cessation in
service to our network. We do not now and will not for the foreseeable future
maintain business interruption insurance. Any system failure that causes
interruption or an increase in download time of our ZapBox or other Internet
properties to Web sites could delay programming to the ZapNetwork and, if
sustained or repeated, could reduce the attractiveness of the network to
customers.
WE EXPECT TO INCUR SIGNIFICANT EXPENSES FOR COMPENSATION PAID TO WEB SITE OWNERS
FOR JOINING OUR NETWORK
We expect to incur significant charges against earnings for the
consideration we plan to pay for Web site rights to granted to us by Web site
owners who join and belong to the ZapNetwork in connection with this and future
offerings. To the extent we pay this consideration in shares of our common
stock, we will account for it at fair value on the date of issuance. We expect
to ratably expense these charges over the payment period and that the reduction
in net income resulting from these charges will have a material and adverse
impact on earnings.
IF WE ARE UNABLE TO RAISE NECESSARY CAPITAL IN THE FUTURE, WE MAY BE UNABLE TO
MEET OUR FUTURE CAPITAL NEEDS
Our business model is dependent on a significant number of Web Site owners
joining our network as a result of being paid for the right to deploy the
ZapBox, or other Internet properties we develop or acquire in the future,
throughout their Web sites. We expect that the main form of consideration to be
paid these Web site owners will be our common stock. Since our common stock
started trading on November 30, 1999, our common stock has been thinly traded.
If a more active trading market does not develop in, or develops and is not
maintained in our common stock, Web site owners considering joining the
ZapNetwork may be unwilling to accept our common stock as consideration for
joining and belonging to the network. Under these circumstances, we may be
required to use cash to initiate and possibly maintain the growth of our
network. In addition, our cash flow may not turn positive when we have projected
which may require us to use additional capital to satisfy operating expenses.
Under either of these circumstances, we will require additional cash resources.
We have limited cash resources available and Zapata does not have an
obligation to contribute additional funds to us. Although we are not prohibited
from raising additional capital by any of the arrangements between Zapata and
us, Zapata's control of approximately 98% of our outstanding common stock and
the significant potential for percentage dilution of a potential investor's
percentage ownership in our common stock presented by our business model may
make it difficult for us to raise additional capital in the future or to raise
capital on terms favorable to us. Zapata's control may deter potential investors
from investing in Zap.Com because Zapata's voting control over Zap.Com will make
it more difficult for a third party to acquire us even if a change of control
could benefit our stockholders by providing them with a premium over the then
current market price of their shares. This may also adversely affect the market
value and liquidity of our common stock and our ability to issue additional
common stock.
If we raise additional funds in the future through the issuance of equity,
equity-related or debt securities any or all of those securities may have
rights, preferences or privileges senior to those of the rights of our common
stock and our stockholders may also experience significant dilution.
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OUR BRAND MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO SUCCEED AND
BUILDING BRAND IDENTITY IS LIKELY TO BE EXPENSIVE
We believe that quality recognition and perception of the Zap.Com brands is
vital to our success. Development and continued awareness of our brands will
depend largely on our success in establishing and maintaining a position as a
leading Internet business that operates a high quality network which is valuable
to both potential customers, like advertisers and e-commerce partners, and Web
site owners who are potential ZapNetwork participants. We cannot assure you that
we will be able to establish and maintain this position. In order to promote and
maintain our brands, we expect to incur significant expenses. In addition, the
development of our brand names depends, to a significant degree, on the
protection of our trademarks and trade names, which cannot be assured. Please
see "Risk Factors -- Our Intellectual Property Rights May Be 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," "ZapNetwork," "ZapBox," and "My ZapBox" service marks. In the
future we intend to file additional applications with the United States Patent
and Trademark Office, and where appropriate, in foreign jurisdictions, to
attempt to register trademarks/service marks that we adopt. We also generally
enter into confidentiality agreements with our employees, consultants and
corporate partners to control access to, and distribution of, proprietary
information.
We cannot assure you that a patent will ever be issued on our pending
provisional patent application or that our pending trademark applications will
be approved. Further, we can not assure you that if issued or approved, the
patent or registered marks will not be successfully challenged by others or
invalidated through administrative process or litigation. We also do not know if
the pending or future applications will be issued within the scope of the claims
sought.
If a patent is issued on the final application, it is possible that:
- if there are variations in the application of the business model claimed
in the patent to the products and services we offer in the future, the
patent, if issued, may not be effective in preventing one or more third
parties from utilizing a copycat business model to offer the same product
or service in one or more categories; and
- a competitor may develop and utilize a business model that appears
similar to the system described in the final patent application, but
which has sufficient distinctions that it does not fall within the scope
of any patent which may arise from this type of application.
We plan to collect and utilize data derived from user activity on the
ZapBox, the ZapNetwork and the Web sites on our network. We plan to use this
data for ad targeting and delivery of other programming on, and predicting
performance of, our network. We cannot assure you that any trade secret,
copyright or other protection will be available to protect this information.
The validity, enforceability and scope of protection of proprietary rights
in Internet-related businesses is uncertain and still evolving. In addition, the
laws of some foreign countries do not protect proprietary rights to the same
extent as they do in the United States. Our means of protecting our proprietary
rights in the United States or abroad may not be adequate and competitors and
third parties may infringe or misappropriate our proprietary rights.
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In addition, claims may be asserted against us in the ordinary course of
our business, including claims of unfair competition, dilution or alleged
infringement of the trademark/service marks and other intellectual property
rights of third parties by us, the Web site owners who belong to the ZapNetwork
or strategic partners. For example, Zapata and an affiliated entity were
previously named in a trademark infringement and dilution action for use of the
"ZAP" mark. Please see "Business -- Intellectual Property." Further, because
patent applications in the United States are not publicly disclosed until the
patent is issued, an application may have been filed which relates to our
proposed services and processes. Infringement and similar claims and any
resulting litigation could subject us to significant liability for damages and
could result in the invalidation of our proprietary rights. In addition, even if
we prevail, this type of litigation could be time consuming and expensive to
defend, and could result in the diversion of our time and attention. Any claims
or litigation commenced by third parties may also result in limitations on our
ability to use the trademarks/service marks and other intellectual property
unless we enter into arrangements with the third parties responsible for those
claims or suits which may be unavailable on commercially reasonable terms.
In addition, inasmuch as we license a substantial portion of our content
from third parties, our exposure to copyright infringement actions,
trademark/service mark infringement actions and dilution actions may increase
because we must rely upon those third parties for information as to the origin
and ownership of the licensed content. We have obtained appropriate
representations and indemnities to cover these risks; however, we cannot assure
you that the representations are accurate or the indemnities sufficient to
compensate for the breach of any of those representations.
IT MAY BE DIFFICULT TO PROTECT OUR DOMAIN NAMES AND ASSOCIATED GOODWILL
Domain names are Internet addresses for accessing Web sites that are
registered with Network Solutions, Inc. We are currently the registered holder
of 60 Internet domain names. The most important of these domain names is our
home page at www.zap.com. The purpose of registering domain names other than
www.zap.com is to provide a medium through which Zap.Com can execute marketing
activities. As of the date of this prospectus, we have not developed operational
sites for most of these 59 other domain names. If developed, these sites are
expected to support and compliment the content of ZapNetwork sites.
Third parties may submit false registration data to Network Solutions, Inc.
attempting to transfer one or more of our domain names to their control. Third
parties have challenged our rights to use some of our domain names, and we
expect that they will continue to do so. We cannot guarantee you that third
parties will not in the future be successful in having transferred to them, or
challenging our right to use, domain names which we have registered.
There is also a possibility of the enactment of laws and/or regulations
regarding domain names which could have an adverse effect on our registered
domain names. Further, regulatory bodies could make changes to the existing
registration system for domain names. Therefore, our domain names may lose their
value, or we may have to obtain entirely new domain names in addition to or in
lieu of our registered domain names if reform efforts result in a restructuring
in the current system. Therefore, we could lose our domain names or be unable to
prevent third parties from acquiring domain names that infringe or otherwise
decrease the value of our domain names, trademarks/service marks and other
proprietary rights.
WE MAY HAVE DIFFICULTY INTEGRATING ACQUIRED BUSINESSES OR GENERATING ACCEPTABLE
RETURNS FROM FUTURE ACQUISITIONS OR INVESTMENTS
We may in the future make selective acquisitions or strategic investments
in complementary businesses, products, services or technologies. If we buy a
company, we could have difficulty in integrating and assimilating that company's
operations, technologies, products and personnel. In addition, the key personnel
of the acquired company may decide not to work for us, leaving us without any
experience in a new market. These difficulties could disrupt our ongoing
business and distract our management and employees. We may not successfully
overcome these and other problems encountered in connection with potential
acquisitions or strategic investments. In addition, an acquisition could
materially impair our operating results by diluting our
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stockholders' equity, causing us to incur additional debt or requiring us to
amortize acquisition expenses and acquired assets.
WE MAY BE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY WHICH COULD CAUSE OUR BUSINESS
AND OPERATING RESULTS TO SUFFER
To meet our growth strategy, our operations must rapidly and significantly
expand. This growth will place a substantial strain on our limited management,
operational and financial resources and systems. To integrate all Web sites
which join our network and to manage the growth of our operations will require
the development and implementation of our operational and financial systems,
procedures and controls and training, managing and expansion of our employee
base. Our management will also be required to establish and maintain
relationships with customers, Web site owners participating in the ZapNetwork
and strategic and commercial partners and to maintain control over our strategic
direction in a rapidly changing environment. We cannot provide any assurance
that we will be able to effectively manage the expansion of our operations or
that the systems we develop and implement or procedures or controls that we
adopt will be adequate to support the rapid execution necessary to fully exploit
the market opportunity we have identified. If we do not manage our growth
effectively, our business and operating results may suffer.
OUR MANAGEMENT DOES NOT HAVE EXPERIENCE IN ACQUIRING, BUILDING OR MANAGING AN
INTERNET NETWORK
Our senior management's only experience in managing an Internet related
business has been their oversight of Zapata's Word and Charged Webzines. They
have not had any previous experience managing a network based Internet company.
We cannot guarantee you that our management will be able to effectively
implement our business model. To address this, we may add key personnel in the
near future. Competition for personnel with Internet experience is intense due
to the competitive nature of the job market. If we do not succeed in attracting
new employees with the appropriate experience and skills or retaining and
motivating our current and future employees, our business could suffer
significantly. Please see "Management".
INTERNATIONAL EXPANSION MAY IMPOSE ADDITIONAL COSTS ON US THAT WE MAY NOT BE
ABLE TO RECOVER
We may pursue in the future international operations and international
sales and marketing efforts. International operations have inherent risks,
including:
- changes in regulatory requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse tax consequences;
- general import/export restrictions relating to encryption technology
and/or privacy;
- difficulties and costs of staffing and managing foreign operations;
- political and economic instability either domestically or
internationally;
- fluctuations in currency exchange rates; and
- seasonal reductions in business activity during the summer months in
Europe and in other parts of the world.
Each of these risks may impose additional costs on our business which we may not
be able to recover.
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MANY OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER RESOURCES, LONGER OPERATING
HISTORIES, ESTABLISHED CUSTOMER BASES AND BROADER PRODUCT OFFERINGS
Our initial competitors include DoubleClick and 24/7 Media and other
Internet advertising networks and providers of advertising inventory management
products and services. Recently, CMGI acquired several Internet advertising and
marketing companies, including AdForce, AdKnowledge and Flycast. As a result of
these transactions, CMGI now owns several companies, including AdSmart Network
and Engage Technologies, that will compete with our network, and Engage
Technologies, which is majority owned by CMGI, has announced an agreement to
acquire AdSmart and Flycast. Other potential competitors include large and
established companies like Microsoft, America Online, CNET, CNN/Time Warner,
Excite@Home, Yahoo!, Disney (which owns the GO Network) and Lycos. Also several
companies have developed applications similar to the ZapBox, such as Jotter,
MyExcite and Netzero, which use Internet technologies to deliver advertising and
access to content to Internet users who sign-up for their services. We will also
compete for advertising with Web site publishers as well as traditional media
like television, radio, print and outdoor advertising.
The market for Internet advertising and related products is intensely
competitive. 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. Competition may also
increase as a result of industry consolidation. In the future, as we expand our
service offerings, we expect to encounter increased competition in the
development and delivery of our services. In addition, new technologies and the
expansion of existing technologies may increase competitive pressures on us.
Increased competition is likely to put downward pressure on pricing and gross
margins. Further, many of our existing and potential competitors have
substantially greater financial, technical and marketing resources than we do,
longer operating histories, greater name recognition, established customer bases
and broader product and service offerings than we do. These factors may allow
them to respond more quickly than we can to new or emerging technologies and
changes in customer requirements. These competitors may also be able to devote
greater resources than we can to the development, promotion and sale of their
products and services. These competitors may also engage in more extensive
research and development, undertake more far-reaching marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to existing and
potential employees, strategic partners, advertisers and Web publishers. Our
competitors may also develop products or services that are equal or superior to
our solutions or that achieve greater market acceptance than our solutions. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products or services to address the needs of our prospective
advertising, ad agency and Web publisher customers. As a result, it is possible
that new competitors may emerge and rapidly acquire significant market share. As
a result, we may be unable to secure and grow a customer base. We cannot assure
you that we will be able to compete effectively or that competitive pressures
will not adversely affect our business, results of operations or financial
condition. 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 companies' computer systems, software products and control devices
needed to be upgraded or replaced in order to operate properly in the Year 2000
and because of the inability to distinguish 21st century dates from the 20th
century dates. Zap.Com was aware of the issues associated with the programming
code in existing computer systems as the year 2000 approached.
As of and after January 1, 2000, Zap.Com has not experienced any Year 2000
related disruptions to its computer systems or business operations. If any of
these errors or defects do exist, we may incur material expenses to resolve
them. Although to date we have not experienced any date related problems with
the hardware and software used in our systems, we cannot assure you that such
problems may not surface. If these systems do experience date related problems,
we could experience a delay in generating revenue, diversion of
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our resources or incur expenses that could unexpectedly materially adversely
affect our financial condition and prospects. Please see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000."
IF THE WEB INFRASTRUCTURE WERE TO FAIL, WE WOULD NOT BE ABLE TO DELIVER
PROGRAMMING TO OUR NETWORK
Our future success substantially depends, among other things, upon the
continued expansion and maintenance of the Web infrastructure as a reliable
network backbone on which we can transmit programming to our network. This
requires the necessary speed, capacity and security and timely development of
enabling products like high speed modems, for providing reliable Web access and
services. We can provide no assurance that the Web infrastructure will continue
to be able to support the growing demands placed upon it as the Web continues to
grow in terms of the number of users, the frequency of users and the increased
bandwidth requirements so that the performance or reliability of the Web will
not be adversely affected by these demands. In addition, the Internet could lose
its viability due to delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity or due to
increased governmental regulation. Changes in, or insufficient availability of,
telecommunications services to support the Internet could also result in slower
response times and adversely affect usage of the Web and the effectiveness of
our network. In fact, the Web has experienced a variety of outages and other
delays due to damage to a portion of its Web infrastructure. Any future outages
or delays could adversely impact the Web sites participating in the ZapNetwork.
Any outages of this nature or any other failure of the Internet infrastructure
to effectively support the expected growth in the Web, could delay the growth of
the Internet and adversely affect our revenues and cause us to incur additional
operating expenses.
ON-LINE SECURITY BREACHES COULD HARM OUR REPUTATION, OUR ABILITY TO PURSUE
E-COMMERCE OPPORTUNITIES AND EXPOSE US TO LIABILITY
A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. As we
establish e-commerce relationships, we plan to rely on encryption and
authentication technology licensed from third parties to provide the security
and authentication necessary to effect secure transmission of confidential
information over our network. It is possible that advances in computer
capabilities, new discoveries or other developments will result in a compromise
or breach of the algorithms that we select for this purpose. This could have a
material adverse effect on our business, including our reputation, and our
ability to secure and continue e-commerce relationships.
We may be required to expend significant capital and other resources to
protect against the threat of security breaches like this or to alleviate
problems caused by these breaches. The public's concern over the security of
Internet transactions and the privacy of users may also inhibit the growth of
the Web, especially as a means of conducting commercial transactions. To the
extent that our activities or those of third party contractors involve the
storage and transmission of proprietary information, like credit card numbers,
security breaches could expose us to a risk of loss or litigation and possible
liability. We can provide no assurance that our security measures will prevent
security breaches or that failure to prevent these types of security breaches
will not significantly limit our ability to pursue e-commerce opportunities or
expose us to third party liability.
IF WE ARE NOT ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE, OUR SERVICE WILL
BECOME LESS DESIRABLE
The Internet industry and its markets for commercial activities are
characterized by rapidly changing customer and user requirements, frequent new
service or product announcements, introductions and enhancements and evolving
industry standards and practices. In addition, these market characteristics are
heightened by the inclination of companies from many industries to offer
Internet-based products and services. As a result, our future success will
depend on our ability to adapt to rapidly changing technologies, to adapt our
service offerings to evolving industry standards and to continually improve the
performance, features and reliability of our services in response to competitive
service offerings and the evolving demands of the
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marketplace on a timely and cost-effective basis. In addition, the widespread
adoption of new Internet, networking or telecommunications technologies or other
technological changes could require us to incur substantial expenditures to
modify or adapt our services or infrastructure. We cannot assure you that we
will be successful in using new technologies effectively or adapting the
ZapNetwork to customers, network site members or emerging industry standards. If
we are unable to adapt in a timely manner in response to changing market
conditions or customer requirements, our services may become less desirable,
which could adversely affect our ability to generate and grow revenues.
REGULATORY AND LEGAL UNCERTAINTIES COULD INCREASE OUR COSTS AND DECREASE THE
DEMAND FOR OUR SERVICES
Although there are currently few laws or regulations that specifically
regulate activity on the Internet, the number of these laws and regulations is
increasing. A number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governments and agencies.
Laws or regulations may be adopted with respect to the Internet relating to
liability for information retrieved from or transmitted over the Internet,
online content regulation, user privacy, pricing, taxation and quality of
products and services.
Moreover, the applicability to the Internet of existing laws governing
issues like intellectual property ownership and infringement, copyright,
trademark, trade secret, obscenity, libel, employment and personal privacy is
uncertain and developing. The extent to which existing laws relating to issues
like property ownership, pornography, libel and personal privacy are applicable
to the Internet is uncertain. Some foreign governments, like Germany, have
enforced laws and regulations related to content distributed over the Internet
that are more strict than those currently in place in the United States. Any new
legislation or regulation, or the application or interpretation of existing
laws, may decrease the growth in the use of the Internet, which could in turn
decrease the demand for Zap.Com's service, increase Zap.Com's cost of doing
business or otherwise have a material adverse effect on our business and
operating results.
In addition, there is growing public concern about privacy on the Internet
and in particular about the collection and use of information about Internet
users. Several private actions have been commenced other Internet companies
challenging their collection and use of personal information about Internet
users. The outcome of these actions and the impact of these cases on Zap.Com, if
any, is unclear and could increase Zap.Com's cost of doing business or otherwise
harm our business interests. Please see "Business -- Government Regulation and
Legal Uncertainties".
IT IS DIFFICULT TO PREDICT WHETHER A MARKET FOR OUR STOCK WILL DEVELOP, AND IF A
MARKET DEVELOPS, THE MARKET PRICE OF OUR STOCK WILL LIKELY BE VOLATILE
Our common stock has been thinly-traded on the OTC Electronic Bulletin
Board since November 30, 1999 with the daily volume in our shares ranging from
100 shares to 19,800 shares as of February 28, 2000. We cannot assure you that
investors will develop an interest in our common stock so that an active trading
market develops or, if this occurs, how active that trading market will be or
whether it will be sustained. In addition, the market for our securities is
highly volatile. Between November 30, 1999 and February 28, 2000, the trading
price of our common stock has fluctuated between $0.25 and $12.00 per share. It
is likely that the price of our common stock will continue to fluctuate widely
in the future. A number of specific factors that may affect the price, liquidity
and volatility of our securities, include:
- the minimal supply of shares eligible for public resale as of the date of
this prospectus;
- actual or anticipated fluctuations in our quarterly operating results;
- operating results that vary from expectations as to our future financial
performance or changes in financial estimates for us by securities
analysts and investors;
- announcements of technological innovations or new services by us or our
competitors;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic relationships, joint ventures, capital
commitments and the status of the growth of our network;
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- announcements by third parties of significant claims or proceedings
against us;
- future sales or issuances of equity by us;
- change in the status of our intellectual property rights;
- the operating and stock price performance of other comparable companies;
and
- that our common stock is not followed by any market analysts.
Any of these factors could adversely affect the trading price and liquidity
of our stock. Also, the stock market in general has experienced extreme price
and volume volatility that has especially affected the market prices of
securities of many Internet-related and small capitalization companies. Stock
prices for Internet-related companies are often influenced by rapidly changing
perceptions about the future of the Internet or the results of other Internet or
technology companies, rather than specific developments relating to the issuer
of that particular stock. If our stock price is volatile, a securities class
action may be brought against us. Class action litigation could result in
substantial costs and divert our management's attention and resources. Any
adverse determination in this litigation could also subject us to significant
liabilities.
If at any time the price of our common stock declines below $5.00 and at
such time our securities are not then registered on a national securities
exchange or quoted in the Nasdaq system and our net assets are below $5,000,000
(or after April 2002 $2,000,000) and our average revenue for the last three
years has been less than $6,000,000, our common stock would be considered "penny
stock" under the Securities Exchange Act of 1934 and the rules of the SEC.
Broker-dealer practices in connection with transactions in "penny stocks" are
regulated by certain penny stock regulations adopted by the SEC. These
regulations require a broker-dealer, prior to a transaction in a penny stock
with customers other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse), to provide the customer with
a risk disclosure document, disclosure of market quotations, if any, disclosure
of the compensation of the broker-dealer and its salesperson in the transaction
and monthly account statements showing the market values of the common stock
held in the customer's accounts. The bid and offer quotation and compensation
information must be provided prior to effecting the transaction and must be
contained on the customer's confirmation. Consequently, the "penny stock" rules
may restrict the ability of broker-dealers to sell our securities and adversely
affect your ability to sell our securities in the secondary market and the price
of our securities in the secondary market.
ZAPATA'S CONTROL AND THE PRESENCE OF INTERLOCKING DIRECTORS AND OFFICERS CREATES
POTENTIAL CONFLICTS OF INTEREST AND COULD PREVENT A CHANGE OF CONTROL
As of the date of this prospectus Zapata owns approximately 98% of our
outstanding common stock. As a result, Zapata's directors and officers will be
able to control the outcome of substantially all matters submitted to the
stockholders for approval, including the election of directors and any proposed
merger, liquidation, transfer or encumbrance of a substantial portion of its
assets, or amendment to our charter to change our authorized capitalization.
This concentration of ownership may also have the effect of delaying or
preventing a change in control of Zap.Com even if it would be beneficial to our
stockholders. Please see "Principal Stockholders".
In addition, our executive officers also are directors, officers or
employees of Zapata and, in most cases, either own, or hold an option to
purchase, equity securities of Zapata. In addition, Malcolm Glazer, who is the
father of our President and Chief Executive Officer, Avram Glazer, controls and
beneficially owns approximately 44% of Zapata's outstanding common stock. As a
result, these executive officers have inherent potential conflicts of interest
when making decisions related to transactions between us and Zapata. Zapata's
ability to control matters listed above together with the potential conflicts of
interest of its executive officers who also serve as executive officers of
Zap.Com and our initial Chairman of the Board could adversely affect the trading
price and liquidity of our common stock. These factors could limit the price
that investors might be willing to pay for our common stock in the future.
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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
their business time to us. The competing claims upon each officer's time and
energies could divert their attention from our affairs, placing additional
demands on our resources. The efforts of all or any of these individuals may not
be sufficient to meet both our needs and those of Zapata. If we were deprived of
access to any key members of our management team, or other personnel, or lost
access to these type of services altogether, our business, prospects, results of
operations and financial condition could be materially adversely affected.
On October 20, 1999, we entered into agreements with Zapata, including an
investment and distribution agreement, a tax sharing and indemnity agreement, a
services agreement and a registration rights agreement for the purpose of
defining our on-going relationship with Zapata following Zapata's distribution
of our shares on November 12, 1999. Please see "Related Party
Transactions -- Zapata Corporation." We cannot assure you that the terms of
these agreements, or the related transactions, are on terms as favorable to us
as could have been obtained from unaffiliated third parties.
WE HAVE LIABILITIES AS A MEMBER OF ZAPATA'S CONSOLIDATED TAX GROUP
We have been, and expect to continue to be, for the foreseeable future, a
member of Zapata's consolidated tax group under federal income tax law until the
Zap.Com securities held by Zapata do not constitute either 80% of the voting
power or the market value of Zap.Com's outstanding stock. Each member of a
consolidated group for federal income tax purposes is jointly and severally
liable for the federal income tax liability of each other member of the
consolidated group. Similar rules may apply under state income tax laws.
Although we have entered into a tax sharing and indemnity agreement with Zapata,
if Zapata or members of its consolidated tax group (other than us and our
subsidiaries) fail to pay tax liabilities arising prior to the time that we are
no longer a member of Zapata's consolidated tax group, we could be required to
make payments in respect of these tax liabilities and these payments could
materially adversely affect our financial condition. Please see "Related Party
Transactions -- Tax Sharing and Indemnity Agreement."
BECAUSE WE DO NOT INTEND TO PAY ANY CASH DIVIDENDS ON OUR COMMON STOCK, HOLDERS
OF OUR COMMON STOCK WILL NOT BE ABLE TO RECEIVE A RETURN ON THEIR SHARES UNLESS
THEY SELL THEIR SHARES
We have paid no dividends on our common stock and we cannot assure you that
we will achieve sufficient earnings to pay cash dividends on our common stock in
the near future. Further, we intend to retain any future earnings to fund the
development and expansion of our operations. Therefore, we do not anticipate
paying any cash dividends on our common stock in the foreseeable future. Unless
we pay dividends, holders of our common stock will not be able to receive a
return on their shares unless they sell them, which could be difficult unless a
more active market develops in our stock. Please see "Dividends" and "Risk
Factors -- It is Difficult to Predict Whether a Market For Our Stock Will
Develop, and if a Market Develops, the Market Price For Our Stock Will Likely Be
Volatile."
THE ANTI-TAKEOVER PROVISIONS IN OUR CORPORATE DOCUMENTS MAY HAVE AN ADVERSE
EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK
If Zapata were ever to lose voting control over us, provisions within our
charter and by-laws could make it more difficult for a third party to gain
control of us. This would be true even if a change in control might be
beneficial to our stockholders. This could adversely affect the market price of
our common stock. These provisions include:
- the elimination of the right to act by written consent by stockholders
after Zapata no longer holds a controlling interest in us;
- the elimination of the right to call special meetings of the stockholders
by stockholders except that Zapata may do so as long as it holds a
controlling interest in us;
- the creation of a staggered board of directors; and,
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- the ability of the board of directors to designate, determine the rights
and preferences of, and to issue preferred stock, without stockholder
consent, which could adversely affect the rights of our common
stockholders.
Please see "Description of Securities -- Antitakeover Effects of Nevada
Law, Charter and By-Law Provisions".
A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK WILL IS ELIGIBLE FOR SALE INTO THE
MARKET AND THIS COULD DEPRESS OUR STOCK PRICE
Sales of a substantial number of shares of our common stock in the future
could cause the market price of our common stock to decline. As of the date of
this prospectus, we have outstanding 50,000,000 shares of common stock, of which
Zapata owns 48,972,258 shares, Malcolm Glazer owns 707,908 shares, Avram Glazer
owns 50,020 shares and the public owns 269,814 shares. In addition, we have
3,000,000 shares of common stock reserved for issuance under our 1999 Long-Term
Incentive Plan and 2,000,000 shares of our common stock reserved for issuance of
shares that may be purchased under the warrants granted to American Internetwork
Sports.
All of our shares distributed by Zapata to its stockholders on November 12,
1999 are freely tradable without restriction or further registration under the
federal securities laws unless acquired by our "affiliates," as that term is
defined in Rule 144 under the Securities Act of 1933. All of the shares held by
Zapata (other than 1,000,000 shares available for sale by Zapata under a
separate prospectus), acquired by "affiliates" in Zapata's distribution or by
the Glazers in connection with their November 1999 investment are "restricted
securities" under the Securities Act and available for resale upon compliance
with Rule 144, including the one year holding period and the timing, manner and
volume of sales of these shares. In the absence of Rule 144's availability,
these shares may only be publicly resold if they are registered or another
exemption is available.
We have registered 1,000,000 shares of Zap.Com common stock for resale by
Zapata from time to time under a separate registration statement. We have also
granted Zapata registration rights with respect to all of its shares. These
registration rights effectively allow Zapata to register and publicly sell all
of its shares at any time and to participate as a selling stockholder in future
public offerings by Zap.Com.
The warrants issued to American Internetwork Sports generally vest over
three years and expire in November 2004; however, the warrants will accelerate
and immediately vest and become exercisable if Zap.Com terminates its consulting
agreement with American Internetwork Sports without cause or there is a change
in control of Zap.Com. Please see "Related Party Transactions -- American
Internetwork Sports Company, LLC." All of the shares issued to American
Internetwork Sports upon exercise of the warrants, will be available for public
resale under Rule 144 following the expiration of a one year holding period
commencing upon the issuance of shares after the exercise of the warrants and
compliance with the other requirements of Rule 144. Further, prior to the first
anniversary of the issuance of the warrants, Zap.Com is required to register the
shares issued upon exercise of the warrants on a registration statement on Form
S-8. This registration statement will automatically become effective upon filing
and permit unrestricted public resale of these shares.
In addition, we also intend to file a registration statement on Form S-8
under the Securities Act covering the shares reserved for issuance under the
1999 Long-Term Incentive Plan. This registration statement will also
automatically become effective upon filing and permit unrestricted public resale
of these shares. In addition to shares covered by this prospectus, we have
registered on a shelf basis under the registration statement of which this
prospectus forms a part 30,000,000 shares of our common stock for issuance from
time to time in the future in connection with acquisitions, mergers, other
business combinations, future offerings to Web site owners who apply to join our
network, to strategic and commercial partners and in connection with future
promotions and other events. All of the shares which are issued to Web site
owners in connection with this offering or in connection with these other
transactions will be freely tradable. The sale of a substantial amount of these
shares into the market could cause the price of our stock to drop. In addition,
sales could create the perception to the public of difficulties or problems with
our business. As a result, these sales also
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might make it more difficult for us to sell equity or equity related securities
in the future at a time and price that we deem appropriate.
INVESTORS WILL EXPERIENCE DILUTION WITH FUTURE STOCK ISSUANCES
We currently intend to finance a significant amount of the growth in the
ZapNetwork with shares of our common stock. Under the pricing formula we expect
to use to purchase web site rights, the number of shares of our common stock to
be issued to potential network members will be a function of trading prices
prior to each of the payment dates under the ZapNetwork agreement and the
applicable per share floor price, Further, the purchase price is subject to
adjustment if a Web site's traffic declines below a specified level.
Accordingly, we can only predict the maximum and not the actual number of shares
of common stock to be issued in connection with this offering.
In addition, we may from time to time issue additional shares in the future
in connection with promotions and other events. Please see "Business -- Building
the ZapNetwork". We currently have 1,500,000,000 authorized shares of common
stock. As of the date of this prospectus, we have 50,000,000 shares of common
stock outstanding. We will be able to finance our growth, future acquisitions
and promotional or other events by issuing significant amounts of additional
shares of common stock without obtaining stockholder approval of these
issuances, provided we comply with the rules and regulations of any exchange or
national market system on which our shares are then listed. As of the date of
this prospectus, we have registered under the registration statement of which
this prospectus forms a part 30,000,000 shares on a shelf basis for offer and
issuance from time to time in connection with future acquisitions (including
additional Web site rights) and promotions or similar events. To the extent we
use our common stock in this manner in the future, dilution in percentage
ownership will be experienced by existing stockholders.
As of the date of this prospectus, we have reserved 5,000,000 shares of
common stock for issuance on the exercise of 2,000,000 warrants issued to
American Internetwork Sports and options issued or to be issued pursuant to our
1999 Long-Term Incentive Stock Option Plan, including outstanding options for
the purchase of 608,000 shares of our common stock. The warrants have an
exercise price of $2.00 per share and generally become exercisable annually in
equal one third amounts commencing in October 2000. The outstanding options and
warrants have a weighted average exercise price of $2.07 per share, vest
annually in ratable amounts over three years from the grant date, the first of
which was in October 1999 and have a term of five years. The issuance of shares
upon the exercise of the above securities will have a dilutive effect on our
common stock, which may adversely effect the price of our common stock.
WE CANNOT ASSURE YOU THAT WEBSITE OWNERS WILL NOT BE TERMINATED FROM THE
ZAPNETWORK
While certain Web site owners may be conditionally admitted to the
ZapNetwork, there can be no assurance that we will continue those Web sites in
the network after conducting our evaluation of their Web sites or that they will
not be terminated in the future under the terms of the ZapNetwork agreement that
they enter into with us. If one or more of the Web site owners accepted into our
network is terminated, then any shares registered in this offering and
subscribed by these Web site owners may be used for the acquisition of Web site
rights from other Web site owners. There is no assurance that we will be able to
use those shares to acquire Web site rights from additional Web sites on
acceptable terms.
WE INTEND TO RELY ON REPRESENTATIONS, WARRANTIES AND INDEMNITIES IN CON NECTION
WITH THE ACQUISITION OF WEB SITE RIGHTS RATHER THAN DUE DILIGENCE, AND
MISREPRESENTATIONS AND BREACHES OF WARRANTIES BY WEB SITE OWNERS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION OR RESULTS OF OPERATION.
In accepting a Web site owner into the ZapNetwork, we expect to rely upon
the representations, warranties and indemnities made by the Web site owner in
their ZapNetwork agreement with respect to their Web sites and related matters.
We do not intend to perform any due diligence investigation in connection with
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these transactions other than a third party audit of the unique user traffic on
the Web site during the initial evaluation period. There can be no assurance
that these representations and warranties will be true and correct and material
adverse facts relating to the Web sites and related matters may exist that we
are unaware of and which could cause harm to us or our network. In addition, any
material misrepresentations could have a material adverse effect on our
financial condition and results of operations.
THE ZAPNETWORK AGREEMENT MAY VARY AMONG WEB SITE OWNERS WHO JOIN OUR NETWORK AND
ANY MODIFICATIONS MAY PRESENT ADDITIONAL RISKS TO THE WEB SITE OWNER TO WHICH
THOSE TERMS APPLY
We reserve the right to negotiate the final terms of the ZapNetwork
Agreement for Web site owners who desire to join the ZapNetwork and these terms
may vary from our form of the agreement discussed and summarized in this
prospectus. Specific terms negotiated with a particular Web site owner may
present risks to that Web site owner not disclosed in this prospectus.
WEB SITE OWNERS WHO JOIN THE ZAPNETWORK WILL NOT KNOW THE EXACT WEB SITE RIGHTS
PURCHASE PRICE AT THE TIME THAT THEY SIGN THE ZAPNETWORK AGREEMENT, NOR WILL
THEY KNOW THE NUMBER OF SHARES THEY WILL RECEIVE UNTIL AFTER THEIR LAST PAYMENT.
At the time a Web Site Owner enters into a ZapNetwork rights agreement with
us, it will only be able to estimate the Web site rights purchase price it will
receive based on its estimation of its Web site's unique user traffic. The Web
site owner will not know the exact purchase price it will receive for the Web
site rights it grants to us until after we deliver to it a Web site rights
purchase price certificate at the end of the evaluation period. Under the
ZapNetwork agreement which we intend to enter into with Web site owners, this
purchase price is subject to reduction if the unique user traffic on their Web
site, as determined by us, decreases on an average monthly basis during the
three months prior to a payment date. In addition, under our form of ZapNetwork
rights agreement, a Web site owner will not know the number of shares of common
stock to be issued to it at the time it enters into the ZapNetwork agreement and
it will not know this until the final Web site rights purchase price payment has
been made. This is because under the agreement, the number of shares that a Web
site owner will receive will depend on the average closing price of our common
stock on the 20 days prior to each of the six annual payment dates and the
applicable per share floor price, divided by the dollar value of the Web site
rights purchase price to determine the number of shares.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements can
be identified in some cases by the use of forward-looking terminology like
"may," "will," "should," "expect," "anticipate," "estimate," "plan," "intend,"
"believe," "predicts," potential," "continue" and the negative of such terms or
other similar or comparable terminology. These statements discuss future
expectations and predictions and other forward-looking information. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot assure you that our expectations will be correct. These
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance, or achievements
to be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by these forward-looking
statements. These factors include, among other things, those listed under "Risk
Factors" and elsewhere in this prospectus. When considering forward-looking
statements, you should keep in mind these risk factors and other cautionary
statements in this prospectus. Neither we nor any other person assumes
responsibility for the accuracy and completeness of these statements. We are
under no duty to update any of the forward-looking statements after the date of
this prospectus.
24
<PAGE> 29
PLAN OF DISTRIBUTION
SOLICITATION OF WEB SITE OWNERS
We are offering to Web site owners who apply to join our network the shares
of common stock covered by this prospectus in exchange for the right to, among
other things, deploy our Internet properties on their Web sites. We have not
retained an independent broker-dealer to solicit Web sites and assist us in this
offering. We intend to solicit Web site owners only through our officers and
direct mail and appropriate on-line and off-line advertising. We may at any time
make presentations to, or otherwise be engaged in discussions with one or more
ZapNetwork candidates.
None of the officers participating in the offering being made with this
prospectus are registered or licensed as a broker or dealer or an agent of a
broker or dealer under Section 15 of the Securities Exchange Act of 1934. We
will not pay commissions or additional compensation in connection with sales of
shares by our officers. Further, we intend to satisfy the safe harbor provisions
of Rule 3a4-1 of the Exchange Act to ensure that our officers will not be deemed
"brokers," as defined in the Exchange Act, because of their actions in
conducting the offering.
In addition to this prospectus, Web site owners who are solicited in this
offering will be provided with a ZapNetwork application package, generally
consisting of a cover letter, a brochure, an application and, a ZapNetwork
agreement or comparable materials. The cover letter will direct the Web site
owners to http://www.zap.com/prospectussupplement, which will display any
supplements to this prospectus. We may also use other sales materials,
including, speeches for public seminars, audio, video and slide presentations,
invitations to attend public seminars, prospecting letters, mailing cards,
articles and publications concerning ZapNetwork, and so called "tombstone"
advertisements and a Web site. The offering, however, is made only by means of
this prospectus. Although the information contained in the application package
and supplemental sales materials do not conflict with any of the information
contained in this prospectus, these materials do not purport to be complete, and
should not be considered as part of this prospectus or the registration
statement of which this prospectus is a part, or as incorporated in this
prospectus or the registration statement by reference, or as forming the basis
of the offering of the shares which are offered by this prospectus.
We will offer and sell our shares only to Web site owners located in those
states where, if required, we have registered or qualified the shares being
offered under this prospectus for sale or where an exemption is available for
offering and issuing the shares and our officers have registered as brokers,
salesmen or agents, as appropriate. As of the date of this prospectus, we intend
to sell shares in this offering only to Web site owners residing in the States
of Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Louisiana, New York,
Oregon, Rhode Island, South Carolina, Utah, Washington, and Wyoming. We have
filed appropriate registrations for this offering and for our officers (or for
appropriate waivers for the registration) in all of the other states (except for
Texas), but these registrations are not yet effective and there can be no
assurance that they will become effective. We intend to supplement this
prospectus with any additional states in which all appropriate registrations
become effective after the date of this prospectus.
TERMS OF OFFER
The terms of this offering are contained in this prospectus and in the
ZapNetwork agreement provided to solicited Web site owners by Zap.Com. See "Plan
of Distribution -- ZapNetwork Agreement". We will be conducting this offering on
a "best efforts" basis. There is no minimum number of shares that must be
subscribed to consummate this offering. We may accept applications and
subscriptions at any time and from time to time during the offering. There is no
guarantee that any Web site owners will join our network or that any shares will
be subscribed and issued.
Zap.Com is offering 20,000,000 shares under this prospectus. In order to
ensure that we have sufficient shares to satisfy subscriptions under the
ZapNetwork agreements we enter into in connection with this offering, we will
not accept subscriptions for more shares than equal the aggregate purchase price
being paid for Web site rights divided by the applicable per share floor price.
Fewer shares may be issued to Web site owners than originally reserved for
issuance under their ZapNetwork agreement if at any of the annual
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<PAGE> 30
payment dates, the average closing price for our common stock during the 20 days
ending on the payment dates is greater than the per share floor price that
applies to them or if their unique user traffic during the payment period falls
below the unique traffic level used to determine their Web site rights purchase
price. If one or more Web site owners accepted into the ZapNetwork is
terminated, then any shares registered in this offering and reserved for, but
not yet issued to those Web site owners may be used for the acquisition of Web
site rights from other Web site owners.
We will begin the offering as soon as practical after the registration
statement, of which this prospectus forms a part, becomes effective. We will end
the offering at 5:00 p.m., Eastern Standard Time, on September 1, 2000 or, if
earlier, the date on which all of the shares offered by this prospectus have
been subscribed based on the applicable per share floor price. We reserve the
right to extend or withdraw this offering at any time and to end this offering
at any time during its pendency for any reason whatsoever. In no event, however,
will this offering end later than 5:00 p.m., Eastern Standard Time, on February
28, 2001.
ZAPNETWORK AGREEMENT
The ZapNetwork agreement is the instrument in which a Web site owner will
grant us perpetual rights that entitle us to, among other things, deploy our
Internet application, the ZapBox, or other Zap.Com Internet properties we
develop or acquire in the future on its Web site. A copy of the agreement may be
obtained from us by contacting us at the phone number provided on page 30. We
reserve the right to agree with any Web site owner to different terms than those
set forth in our form ZapNetwork agreement and we do not intend to provide a
supplement to this prospectus for any change made to the form of agreement
initially presented to the Web site owner. The following summary description of
the ZapNetwork agreement is of the form agreement which we intend to seek from
Web site owners who want to join our network. This description is qualified in
its entirety by reference to the ZapNetwork agreement provided to you with this
prospectus as it may be modified by addendum.
Acquisition of Web Site Rights By Zap.Com
Under the ZapNetwork agreement, each Web site owner that joins the
ZapNetwork will grant us the irrevocable and perpetual right to have at all
times the ZapBox, or any other Internet properties we acquire or develop, appear
and be immediately and fully apparent and prominently displayed without
scrolling on each and every page of it's Web site. This deployment must be
accomplished when the page is viewed in 640 x 480 pixel (or higher) resolution.
Our Internet property, however, will not exceed twenty five percent (25%) of the
initial viewing area of each and every page of the Web site based on the greater
of a 640 x 480 pixel resolution or the industry's then current standard
resolution as determined by Zap.Com. There is, however, no limitation on the
size of any Internet properties emanating from our Internet properties that are
invoked by user initiated functionality. The agreement provides that we will
have sole control and discretion over all aspects of the Internet property
deployed on the Web site, including functionality, content, ad serving and "look
and feel". The Web site owner will retain control over all other aspects of the
Web site.
The Web site owner will elect in its application to join our network to
grant us these Web site rights either on an exclusive or non-exclusive basis. If
the Web site owner grants the rights on an exclusive basis, the Web site owner
will not be permitted to:
- place or permit to be placed on its Web site any third party advertising,
including ads, e-commerce, sponsorships and affiliate programs, through a
hyperlink, button or any other technology or promotional materials or
content,
- place or permit to be placed on its Web site any Internet property or
application similar to any of our Internet properties unless previously
authorized by us in writing, or
- enter into any agreement that conflicts with the ZapNetwork agreement.
If the Web site owner grants us non-exclusive rights, then the later two of
these limitations will apply.
Conditional Acceptance Into The ZapNetwork and Web Site Evaluation
Each Web site owner whose ZapNetwork application we accept will initially
be accepted into our network on a conditional basis for up to 120 business days
after we countersign a Web site owner's
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<PAGE> 31
ZapNetwork agreement. During this period we will have the right to review and
evaluate all aspects of the Web site and to have the ZapBox deployed on the Web
site. During this conditional acceptance period the Web site owner will be bound
by all of the terms of the ZapNetwork agreement which it executes.
During the 120 business day evaluation period, we will notify the Web site
owner of the Web site rights purchase price payable in Zap.Com shares due for
the Web site rights granted to us by delivery of a purchase price certificate
unless we elect not to continue a Web site owner in our network. If we do not
provide the Web site owner with a Web site rights price certificate during the
120 business day evaluation period, the ZapNetwork agreement and the Web site
owner's participation in the network will automatically terminate and, in the
absence of a breach of the ZapNetwork agreement by the Web site owner, neither
party will have any liability to the other.
Web Site Rights Purchase Price and Subscribed Shares
A Web site owner that joins the ZapNetwork will receive a purchase price
for the Web site rights granted to us under the ZapNetwork agreement it
executes. This purchase price will be determined by using a formula which takes
into account the number of monthly unique users estimated to visit the Web site
in the course of a month selected by us during the initial 120 business day
evaluation period. The estimation of a Web site's monthly unique users will be
determined by Zap.Com and verified by a third party chosen by Zap.Com through an
analysis of log files generated by the Zap.Com Internet property placed on the
Web site or through such other method as determined by Zap.Com.
Under the ZapNetwork agreement, the Web site rights purchase price will be
payable in six payments, which shall be due and payable on the last day of each
of the following calendar months:
<TABLE>
<CAPTION>
NUMBER OF MONTHS
AFTER DELIVERY OF WEB SITE PERCENTAGE OF
RIGHTS PURCHASE PRICE WEB SITE RIGHTS
CERTIFICATE BY ZAP.COM PURCHASE PRICE
- -------------------------- ---------------
<S> <C>
1 (24 months)......................................... 15.0%
2 (36 months)......................................... 15.0%
3 (48 months)......................................... 17.5%
4 (60 months)......................................... 17.5%
5 (72 months)......................................... 17.5%
6 (84 months)......................................... 17.5%
</TABLE>
The payment of the purchase price due a Web site owner for the Web Site
rights granted to us will be made with shares of common stock offered by this
prospectus and subscribed for by the Web site owner under its ZapNetwork
agreement. The subscribed shares will be issued for the purchase price dollar
amount due at the six payment dates. The number of shares will equal the Web
site rights purchase price dollar amount divided by the higher of the average
closing price of our stock during the 20 days ending on the payment date and the
per share floor price last set by the Zap.Com Board prior to the execution of
the ZapNetwork agreement by the Web site owner. As of the date of this
prospectus, the per share floor price last set by the Board is $5.00. Please see
"Illustrative Purchase Price Schedules" below.
Within 45 days following each payment date, we will deliver the subscribed
shares issued on that date either via electronic transfer to the Web site
owner's brokerage account or by mailing a stock certificate to the Web site
owner. Until the certificates are issued or the electronic transfer is made, the
Web site owner will be only a subscriber of the shares to be issued and shall
not be a record or beneficial holder of the shares. We will not issue fractional
shares, but instead will pay the Web site owner a cash amount equal to the
corresponding fractional amount of the 20-day average closing stock price used
for that payment. The market price of Zap.Com common shares that a Web site
owner is due on each payment date may fluctuate before the Web site owner
receives ownership and control over the shares within the 45 days following the
payment date.
We have included below a table to illustrate the total payment and number
of Zap.Com common shares that a Web site owner would receive under the
ZapNetwork agreement for a Web site rights purchase price of $500,000, given the
stated assumptions. For the purposes of the following table, we have assumed
that the 20-day average closing stock price of Zap.Com common stock at the six
payment dates is $15.00, $20.00, $31.00,
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<PAGE> 32
$42.00, $70.00, and $90.00, respectively, and the per share floor price is
$5.00. We have also assumed that the Web site maintains or increases its unique
user traffic level throughout the payment period.
ILLUSTRATIVE PURCHASE PRICE PAYMENT SCHEDULE NO. 1
<TABLE>
<CAPTION>
24 36 48 60 72 84
PAYMENT DATE MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS TOTALS
- ------------ ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of Web Site Rights
Purchase Price................... 15.0% 15.0% 17.5% 17.5% 17.5% 17.5% 100%
------- ------- ------- ------- ------- ------- --------
Payment Dollar Amount.............. $75,000 $75,000 $87,500 $87,500 $87,500 $87,500 $500,000
------- ------- ------- ------- ------- ------- --------
20-Day Average Closing Stock
Price............................ $ 15.00 $ 20.00 $ 31.00 $ 42.00 $ 70.00 $ 90.00 na
------- ------- ------- ------- ------- ------- --------
Number of Common Shares............ 5,000 3,750 2,822 2,083 1,250 972 15,877
------- ------- ------- ------- ------- ------- --------
</TABLE>
We have included below a second table to illustrate the effects of the per
share floor price on the total number of Zap.Com common shares that a Web site
owner would receive for a $500,000 purchase price. In particular, this table
illustrates that if the 20-day average closing price of Zap.Com's common stock
falls below the applicable per share floor price at any of the six payment
dates, then the aggregate total dollar payment amount by Zap.Com as of the dates
the payments are made will be lower than the purchase price dollar amount stated
in the ZapNetwork agreement. For the purposes of this table, we have assumed
that the 20-day average closing price of Zap.Com common stock at the six payment
dates is $5.00, $4.00, $5.00, $10.00, $15.00, and $20.00, respectively, and that
the per share floor price is $5.00. We have also assumed that the site maintains
or increases its unique user traffic levels throughout the purchase price
payment period.
ILLUSTRATIVE PURCHASE PRICE PAYMENT SCHEDULE NO. 2
<TABLE>
<CAPTION>
24 36 48 60 72 84
PAYMENT DATE MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS TOTALS
- ------------ ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of Purchase Price....... 15.0% 15.0% 17.5% 17.5% 17.5% 17.5% 100%
------- ------- ------- ------- ------- ------- --------
Payment Dollar Amount.............. $75,000 $60,000 $87,500 $87,500 $87,500 $87,500 $485,000
------- ------- ------- ------- ------- ------- --------
20-day Average Closing Stock
Price............................ $ 5.00 $ 4.00 $ 5.00 $ 10.00 $ 15.00 $ 20.00 na
------- ------- ------- ------- ------- ------- --------
Number of Common Shares............ 15,000 15,000 17,500 8,750 5,833 4,375 66,458
------- ------- ------- ------- ------- ------- --------
</TABLE>
These tables are included for illustrative purposes only. The actual 20-day
average closing stock prices will not be known until the close of trading on
each of the payment dates. We cannot predict what the Zap.Com stock closing
price will be during the applicable measurement period prior to any payment
date. There may be significant fluctuations in Zap.Com' stock price after the
effective date of a Web site owner's ZapNetwork agreement, and any change in
Zap.Com's' stock price after that date and prior to the time that it receives
Zap.Com shares should not be viewed as representative of what the stock price
will be when the Web site owner receives its shares.
The ZapNetwork agreements provide that, during the payment period, the Web
site rights purchase price may be reduced if during the three calendar months
prior to any payment date, the average monthly number of unique users who are
estimated to visit the Web site is 10% or more below the monthly unique user
number used to determine the Web site rights purchase price. Under those
circumstances the Web site rights purchase price will be lowered by reducing the
dollar amount of that annual payment by the percentage decrease experienced in
the Web site's unique user traffic. The amount of the Web site's unique user
traffic during the three month period will be estimated by Zap.Com and verified
by a third party chosen by Zap.Com through an analysis of log files generated
within the Zap.Com Internet property deployed on the Web site or through such
other method as determined by Zap.Com.
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<PAGE> 33
Other Terms
The ZapNetwork agreement also includes, among other terms and conditions:
- Representations and warranties by the Web site owner as to its form of
organization, its ownership and use rights with respect to the Web site
and its content, technology and related materials, the lack of third
party infringement and Web site traffic.
- Covenants by the Web site owner to: continue to operate the Web site
consistent with its historic operations and content quality; improve the
Web site's traffic; to exclude objectionable material from its Web site;
update the Web site's content; maintain Zap.Com's confidential
information; and make available reports and information to Zap.Com and
permit Zap.Com to use this information for a variety of purposes.
- A covenant by the Web site owner at its own expense, via the Internet
(through use of password or otherwise) or through any other means as
determined by Zap.Com, to provide Zap.Com with access to its log files
for its Web site and any reports generated from them and to furnish
Zap.Com with any and all reports of subscribership, viewership,
advertisement inventory and usage, reviews and audience studies,
deliveries, census requirements, and other information regarding the Web
site available to the Web site owner that may be useful to Zap.Com for
any purposes, including promoting the ZapNetwork.
- A covenant by the Web site owner to include in all of its advertising and
promotional materials (i.e., sales literature, off-line or on-line
promotional materials, print, TV, radio, etc.) a graphic or text to be
spoken, indicating that the Web site is a part of the ZapNetwork.
- A covenant by the Web site owner to not artificially inflate its traffic
counts using a device, program or other means and to not place any
Zap.Com Internet properties on pages that are unrelated to the Web site.
- If the Web site ceases to fully operate or be functional for more than 24
hours, a right in favor of Zap.Com to take actions on behalf of the Web
site owner to the extent necessary to ensure that the Web site becomes
operational and functional or, if the Web site ceases to be fully
operational and functional for more than seven consecutive days other
than due to causes outside its control, a right in favor of Zap.Com to
purchase from the Web site owner the assets necessary to operate the Web
site for $1.00.
- An indemnity by the Web site owner in favor of Zap.Com regarding the
representations and warranties contained in the ZapNetwork agreement and
third-party claims arising from the operation of the Web site by the Web
site owner with a right, at Zap.Com's election, to offset the amounts due
Zap.Com under the indemnity against the Web site rights purchase price
payments due the Web site owner under the ZapNetwork agreement.
- A covenant by the Web site owner if it has granted Zap.Com exclusive Web
site rights to continue to observe its exclusivity obligations for 24
months following termination of the ZapNetwork agreement by Zap.Com due
to a breach of the agreement by the Web site owner or from entering into
an agreement similar to the ZapNetwork agreement or participating in an
Internet network that competes with Zap.Com, which if violated would
entitle Zap.Com to liquidated damages equal to the greater of 25% of the
present value of the consideration payable to the Web site currently
under that agreement or $25,000.
- A right of first refusal in favor of Zap.Com for the sale of the Web site
and its assets by the Web site owner for 24 months following termination
of the ZapNetwork agreement by Zap.Com due to a breach of the agreement
by the Web site owner.
- A prohibition on an assignment of the Web site owner's right under the
ZapNetwork agreement or the sale of its value unless the acquirer
expressly assumes all obligations under the ZapNetwork agreement and
Zap.Com is given at least 10 days advance notice of the transaction and
copies of all agreements and instruments under which the transaction is
to be effected.
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<PAGE> 34
Termination
The Web site owner may terminate the ZapNetwork agreements during the first
30 days after Zap.Com delivers a Web site rights purchase price certificate to
the Web site owner if the unique user number estimated by Zap.Com for purposes
of determining the purchase price is 40% or more below the unique user number
set forth in the network application originally submitted by the Web site owner
to Zap.Com. To do so, the Web site owner must deliver written notice of the
termination to Zap.Com within the 30 day period which must be accompanied by an
administration fee of $2,500 unless Zap.Com waives the fee.
Zap.Com may terminate the ZapNetwork agreement for any reason prior to the
delivery of the Web site rights purchase price certificate by written notice to
the Web site owner. Zap.Com shall be deemed to have terminated the ZapNetwork
agreement if Zap.Com has not delivered a Web site rights purchase price
certificate to the Web site owner within 120 business days after Zap.Com
delivers a signed copy of the agreement to the Web site owner. After delivery of
the Web site rights purchase price certificate, Zap.Com may terminate the
ZapNetwork agreement at any time by notice to the Web site owner if the Web site
owner breaches any representations, warranties, or covenants under the
ZapNetwork agreement, becomes subject to bankruptcy or insolvency, or sues
Zap.Com. Upon termination of the ZapNetwork agreement, Zap.Com will issue any
payment shares due as of the last payment date immediately preceding the
termination date which have not yet been issued and issue a portion of the
payment shares that are due and owing of the next payment date immediately
following the termination date on a pro rata basis based upon the number of days
that have elapsed as of the termination date since the last payment date
compared to 365 days.
Miscellaneous
The Zap Network agreement is governed by New York law and any dispute under
the agreement involving the parties must be adjudicated in a New York state or
federal court located in Monroe county New York. The agreement may not be
assigned by the Web site owner unless it complies with the required procedures.
Zap.Com may transfer or assign any and all of its rights under the agreement.
Zap.Com's liability under the ZapNetwork agreement is limited to the issuance of
the Zap.Com shares due the Web site owner as of the last payment date and for
the pro rata number of shares due as of the next payment date. The ZapNetwork
agreement provides that in the event that the Web site owner breaches its
covenants, Zap.Com will be entitled to enforce its rights through specific
performance. The ZapNetwork agreement may only be modified by a written
instrument signed by both parties.
HOW YOU CAN JOIN THE ZAPNETWORK
In order to join the ZapNetwork and subscribe for shares offered under this
prospectus, you must:
- read this prospectus and any prospectus supplement appearing at
http:/www.zap.com
/prospectussupplement; and
- complete and sign the ZapNetwork application, sign and have notarized the
ZapNetwork agreement.
We will only consider a Web site owner's application and subscription for
our shares if:
- all required items have been submitted to us;
- all blanks in those items have been properly filled in, properly signed,
dated and, where necessary, notarized; and
- all of those items are received before the expiration of the offering.
The application and ZapNetwork agreement will be irrevocable and cannot be
withdrawn for a period of 60 days after being submitted to Zap.Com. No
application or subscription to purchase shares shall be deemed accepted and no
ZapNetwork agreement shall be binding on Zap.Com unless and until it is accepted
by Zap.Com. Zap.Com may only accept a Web site owner's application by having an
officer of Zap.Com sign and return one of the ZapNetwork agreements to the Web
site owner. If accepted, we will return a copy of the countersigned ZapNetwork
agreement to the Web site owner promptly.
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<PAGE> 35
Zap.Com may, in its sole discretion, refuse to admit any Web site owner to
the ZapNetwork and reject any subscription for shares for any reason. Zap.Com
may be required to reject a subscription if the offering is not registered in
the state in which the subscribing Web site owner resides or the Web site owner
does not otherwise meet a state imposed requirement or if Zap.Com's officers are
not properly registered as a broker, salesman or agent to the extent required.
If Zap.Com has not notified a Web site owner that it has been conditionally
admitted to the network within 60 days after the Web site owner first submits
the required items to us, then it's application and subscription will be deemed
rejected by Zap.Com and will be null and void and not capable of acceptance.
In determining which Web site owner applications and subscriptions to
accept, we may take into account the quality, traffic, technological
compatibility and potential of the Web site applying to our network and any
other factors we deem in our sole discretion to be relevant. We will notify you
if your application and subscription have been accepted and arrange with you our
evaluation of your Web site. We will determine the Web site rights purchase
price due you during this evaluation and will notify you of it prior to
expiration of the 120 business day period allotted to our review under the
ZapNetwork agreement unless we terminate your ZapNetwork agreement prior to that
time.
If you have any questions regarding joining the ZapNetwork, please call
ZapMember Services at 1-877-3-zapcom or 1-877-392-7266.
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<PAGE> 36
USE OF PROCEEDS
Zap.Com will not receive any cash proceeds from the offerings made in this
prospectus. The sole consideration to be received for the shares subscribed in
this offering will be the Web site rights granted to Zap.Com under the
ZapNetwork agreements entered into by Web site owners with Zap.Com.
DIVIDEND POLICY
Zap.Com has not declared or paid any cash dividends on its common stock
since its inception and does not expect to pay any cash dividends on its common
stock in the foreseeable future. Zap.Com currently intends to retain future
earnings, if any, to finance the expansion of its business.
PRICE RANGE OF ZAP.COM'S COMMON STOCK
Our common stock began trading on the OTC bulletin board maintained by the
NASD under the symbol "ZPCM" November 30, 1999. We believe that approximately
five dealers are engaged in making a market in our common stock. The OTC
Bulletin Board is a regulated quotation service that displays real-time quotes,
last-sale prices and volume information in over-the-counter equity securities.
The OTC bulletin board market quotations reflect inter-dealer prices, without
retail mark up, mark down or commission and may not necessarily represent actual
transactions. Prior to November 30, 1999, no active trading market existed for
our common stock. The market for our common stock is highly volatile. The
following table presents quarterly high and low closing prices for our common
stock reported by the OTC bulletin board.
<TABLE>
<CAPTION>
HIGH PRICE LOW PRICE
---------- ---------
<S> <C> <C>
1999
Fourth Quarter (November 30, 1999
through December 31, 1999)............................. $ 10.75 $2.25
2000
First Quarter (January 1, 2000
through February 28, 2000)............................. $10.875 $5.50
</TABLE>
On February 28, 2000, the last sale price reported on the NASD OTC bulletin
board for our common stock was $8.75. As of February 28, 2000, there were 1,707
holders of record of our common stock.
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<PAGE> 37
CAPITALIZATION
The following table presents the capitalization of Zap.Com as of December
31, 1999. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and the financial statements and the notes included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1999
------------
<S> <C>
Common stock, $.001 par value, 1,500,000,000 shares
authorized, 50,000,000 issued and outstanding as of
December 31, 1999 actual and pro forma.................... 50,000(2)
Additional paid in capital.................................. 21,549,996(2)
Preferred stock, $0.01 par value, 150,000,000 shares
authorized, 0 shares issued and outstanding as of December
31, 1999.................................................. --
Deficit accumulated during the development stage............ (3,535,733)
Deferred consulting expense................................. (10,328,720)
------------
Total stockholders' (deficit) equity(1)................... $ 7,735,543
============
</TABLE>
- ---------------
(1) As of December 31, 1999 there is no pro forma effect for the assumed
acceptance of subscriptions under ZapNetwork agreements entered into during
the offering. Due to the variable nature of the number of shares to be
issued under the subscriptions pursuant to these agreements we will account
for the commitment to issue these shares and the associated expense at their
minimum value as prescribed by the principles of EITF 96-18 "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods, or Services". Accordingly, the minimum
fair value of these shares will be recorded under total stockholders'
(deficit) equity as "Obligation to issue common stock for ZapNetwork
agreements" on a pro rata basis during the Web site rights purchase price
payment period. If the per share floor price is $5.00 throughout the
offering, then the maximum value of the shares to be issued in consideration
for the Web site rights granted to Zap.Com under the ZapNetwork agreements
will be no more than $100 million. This figure will be reduced in two
circumstances. It will be lower if the per share value of the shares issued
to Web site owners under their respective ZapNetwork agreements based on the
20-day average closing price for our shares ending on each of the six
payments dates under those agreements is below the applicable per share
floor price. The maximum value of the subscribed shares will also be reduced
if a Web site owners purchase price is decreased due to a decline in the
site's unique users from the number of unique users that was used to
determine its original purchase price. Please see "Plan of
Distribution -- ZapNetwork agreement."
(2) At the time shares are issued to Web site owners at each Web site rights
purchase price payment date, the amount accrued for this payment under
"Obligation to issue common stock for ZapNetwork agreements" will be
reclassified into "common stock" and "additional paid in capital" at their
then current fair value.
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SELECTED FINANCIAL DATA
The following tables set forth selected financial data derived from our
audited financial statements. The audited balance sheets as of December 31, 1998
and December 31, 1999 and the related statements of operations, stockholders'
equity (deficit) and cash flows for the periods then ended and the accompanying
notes are included elsewhere in this prospectus. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes thereto included elsewhere in this prospectus.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FROM APRIL 2, 1998 FROM APRIL 2, 1999
(DATE OF INCEPTION) FOR THE (DATE OF INCEPTION)
THROUGH YEAR ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1999
------------------- ----------------- -------------------
<S> <C> <C> <C>
Revenues................................. $ -- $ -- $ --
Cost of revenues......................... -- 141,160 141,160
----------- ----------- -----------
Gross Profit................... -- (141,160) (141,160)
Operating expenses:
Product development.................... -- 52,388 52,388
Sales and marketing.................... -- 1,696,539 1,696,539
General and administrative............. 793 1,690,907(1) 1,691,700(1)
Depreciation........................... -- 8,105 8,105
----------- ----------- -----------
Total operating expenses....... 793 3,447,939 3,448,732
----------- ----------- -----------
Loss from operations........... (793) (3,589,099) (3,589,892)
Interest income.......................... -- 54,159 54,159
----------- ----------- -----------
Loss before income taxes................. (793) (3,534,940) (3,535,733)
Benefit from income taxes................ -- -- --
----------- ----------- -----------
Net loss................................. $ (793) $(3,534,940) $(3,535,733)
=========== =========== ===========
Per share data (basic and diluted):
Net loss per share..................... $ (.00) $ (.07) $ (.07)
=========== =========== ===========
Average common shares and common share
equivalents outstanding............. 49,450,000 49,525,342 49,493,036
=========== =========== ===========
</TABLE>
- ---------------
(1) Includes approximately $325,000 of costs incurred as of December 31, 1999 in
connection with a rights offering abandoned by Zap.Com in September 1999.
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Balance sheet data:
Cash and cash equivalents................................. $ -- $7,579,363
Total assets.............................................. -- 8,488,748
Total liabilities......................................... 783 753,205
Total stockholders' (deficit) equity(1)................... (783) 7,735,543
</TABLE>
- ---------------
(1) See "Capitalization" for a presentation of the components of "total
stockholders' (deficit) equity" on a proforma basis to give effect to the
offering made by this prospectus assuming full subscription of the
20,000,000 shares being offered.
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<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
OVERVIEW AND RESULTS OF OPERATIONS
Zap.Com is a development stage company that seeks to build its network, the
ZapNetwork, into a global network of independently owned Web sites that deploy,
on a perpetual basis, our Internet application, the ZapBox or other Internet
properties that we may acquire or develop. Currently, the ZapNetwork currently
consists of Web sites owned and operated by Zapata: www.charged.com,
www.word.com and www.pixeltime.com. and Zap.Com's home page, www.zap.com. Zapata
has agreed to continue this arrangement at its discretion with no legal or other
financial obligations. We intend to distribute advertising and e-commerce
opportunities over the ZapNetwork.
From inception on April 2, 1998 through November 12, 1999, Zap.Com operated
as a wholly-owned subsidiary of Zapata. On November 12, 1999, Zap.Com became a
public company when Zapata distributed 477,742 shares of our common stock to its
stockholders. On November 30, 1999, our common stock began trading on the OTC
bulletin board under the symbol "ZPCM."
Since its inception, Zap.Com's operations have consisted primarily of
organizational and capital raising activities, research and analysis with
respect to Internet industry opportunities, the development of strategic and
commercial relationships and the development and launch of our home page at
www.zap.com and ZapBox 1.0 and 2.0. This limited operating history makes it
difficult to evaluate our business and prospects. You must consider our
prospects in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, operating within
the relatively new and rapidly evolving Internet environment. Our risks include,
but are not limited to, an evolving and unpredictable business model, proper
management of our growth, the implementation of the ZapBox, the establishment
and continuation of strategic and commercial relationships, increasing our
employee base, growing and maintaining the ZapNetwork, attracting and retaining
customers, and the anticipation of and adaptation to changes in our market and
competitive developments. Please see "Risk Factors". We cannot assure anyone
that we will be successful in addressing these or any other risks, and our
failure to do so could have a material adverse effect on our business, financial
condition and results of operations.
Zap.Com does not presently have any source of revenue. Zap.Com's ability to
generate revenue will depend on its ability to contract with Web sites to join
the ZapNetwork and to successfully market the ZapBox to potential customers.
Zap.Com cannot predict whether Web site owners will want to join the ZapNetwork.
If Zap.Com is unable to attract a sufficient number of Web site owners to its
network, it will not be able to commence sales or generate sufficient revenues
to become profitable. Please see "Risk Factors -- We Have No Present Source of
Revenues; To Generate Revenues, We Will Need to Grow Our Network and We Cannot
Guarantee That This Will Occur."
On October 20, 1999, Zap.Com granted to Zap.Com executives or key employees
options to purchase up to 578,000 shares of Zap.Com common stock at $2.00 per
share exercise price. In addition, on October 20, 1999 Zap.Com granted American
Internetwork Sports stock warrants for the purchase of up to 2,000,000 shares of
Zap.Com common stock at a $2.00 per share exercise price in consideration for a
three year commitment to provide sports related consulting services. On January
27, 2000, Zap.Com granted to a Zap.Com executive options to purchase an
additional 25,000 shares of Zap.Com common stock at a $9.00 per share exercise
price and on January 14, 2000, Zap.Com granted to an officer of Zap.Com options
to purchase up to 5,000 shares of common stock at an exercise price of $5.50 per
share. These options and the warrant will generally vest ratably on an annual
basis on the first three anniversaries of their issuance and have five year
terms.
Zap.Com accounts for the options pursuant to the provisions of APB Opinion
No. 25 "Accounting for Stock Issued to Employees" and has provided for in the
notes to the financial statements with the pro-forma disclosure provisions
prescribed by Financial Accounting Standards No. 123 "Accounting for Stock Based
Compensation." In management's opinion, the exercise price of the options was
equal to or below the fair value of Zap.Com's common stock on the date of grant
and, accordingly, no compensation charge was
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<PAGE> 40
recorded by the Company. In the case of the warrants granted to American
Internetwork Sports, Zap.Com accounts for the warrants in accordance with EITF
Issue No. 96-18. Accordingly, Zap.Com records expense based on the then current
fair value of the warrants at the end of each reporting period with adjustment
of prior expense to actual expense at each vesting date. Zap.Com anticipates
incurring significant additional charges against earnings in connection with
these warrants in future periods if the trading price of Zap.Com's stock
increases because these increases will increase the then current fair value of
these warrants.
As of December 31, 1999 Zap.Com had incurred expenses and a cumulative
operating loss of approximately $3,536,000 from date of inception, consisting
primarily of payroll, legal, accounting and consulting fees, and marketing and
development costs. Of this amount, approximately $325,000 is attributable to the
rights offering that Zap.Com abandoned during September 1999, and approximately
$1,171,000 of the marketing expenses was attributable to a non-cash charge
associated with the warrants issued to American Internetwork sports. Since its
inception, Zapata has provided Zap.Com with all of the administrative personnel
and services which it has required on an estimated cost basis. The total cost of
these services through December 31, 1999 was approximately $369,000.
Zap.Com expects that during the year 2000 it will significantly increase
the levels of its expenditures in connection with the development of a
supporting infrastructure and network, the hiring of additional employees and
the expansion of its business. Further, during this and future periods, Zap.Com
also anticipates that it will incur significant charges against earnings as a
result of consideration to be paid Web site owners who join the ZapNetwork and
from stock which may be issued in connection with promotions or other events.
Please see "Risk Factors -- We Expect to Incur Significant Expenses For
Compensation Paid to Web site owners For Participating In Our Network." As of
the date of this prospectus, Zap.Com does not have any agreement, understanding
or arrangement with any Web site owners to join the network. At any given time,
however, we may be in discussions or negotiations regarding any of these
opportunities.
Until Zap.Com begins to recognize revenue from operations, we will continue
to be considered in the development stage. Zap.Com anticipates that for the
foreseeable future, it will incur substantial operating losses. During the early
stages of the execution of our business plan, we will incur significant
expenditures to acquire and integrate the necessary technology, systems and
supporting infrastructure, increases the number of Web sites joining its
network, develop our brand name and expand our business. The extent of losses
will depend, in part, on the amount and rates of growth in our revenue from
advertisers, e-commerce relationships and other customers. As a result, we will
need to generate significant revenue if profitability is to be achieved. To the
extent that revenue does not grow at anticipated rates or that increases in our
operating expenses precede or are not subsequently followed by commensurate
increases in revenue, if we are unable to adjust operating expense levels
accordingly, our business, results of operations and financial condition will be
materially adversely affected. There can be no assurance that our operating
losses will not increase in the future or that we will ever achieve or sustain
profitability. See "Risk Factors -- Our Lack Of An Operating History Makes It
Difficult To Evaluate Our Business And Prospects" and "-- We Anticipate
Significant Losses for the Foreseeable Future."
We believe that our revenue will be influenced by seasonal fluctuations
because advertisers, who we expect to initially comprise most of our customers,
generally place fewer advertisements during the first and third calendar
quarters of each year. In addition, expenditures by advertisers tend to be
cyclical, reflecting overall economic conditions as well as budgeting and buying
patterns. In addition, our operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond our
control. Please see "We May Fail to Meet Market Expectations Because of
Fluctuation In Our Quarterly Operating Results" and "Risk Factors -- Which Could
Cause Our Stock Price to Decline".
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, Zap.Com had approximately $7,580,000 in cash and
cash equivalents. In November 1999, Zapata contributed to Zap.Com $8,000,000 in
cash and forgave $1,000,000 in inter-company debt. Also in November 1999,
Malcolm Glazer and Avram Glazer contributed $1,100,000 in cash as payment
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<PAGE> 41
for 550,000 shares of Zap.Com common stock. The proceeds from these investments
and the forgiven loan have been and are being used by Zap.Com to finance the
development of its Internet application, the ZapBox, and operational expenses
associated with the implementation of its business plan.
As of the date of this prospectus Zap.Com does not have a source of
revenues and it will not have revenues until customer contracts have been
secured. Zap.Com does not expect to secure customer contracts until the
ZapNetwork has grown to a size which makes sales commercially feasible. We
cannot predict when Zap.Com will commence sales or begin to recognize revenues.
Please see "Risk Factors -- We Have No Present Source of Revenue; To Generate
Revenues We Will Need to Grow Our Network and We Cannot Guarantee That This Will
Occur."
Due to its lack of revenues and the costs it has incurred in implementing
its business plan to date, Zap.Com has experienced negative cash flow. Zap.Com
expects the negative cash flow to continue for at least the next 12 months or
until customer contracts have been secured and sales are made. Zap.Com currently
expects that the proceeds from the investments made by Zapata and the Glazers
will be sufficient to support its growth and operations at least through
December 31, 2000.
If sufficient sales do not commence in the next 12 months, Zap.Com will need to
significantly reduce operational expenses. As of the date of this prospectus,
Zap.Com has contractual commitments for approximately $1 million over the next
12 months. To the extent that revenue does not grow at anticipated rates, or
that increases in operating expenses are not followed by commensurate increases
in revenue, or if we are unable to adjust operating expense levels accordingly,
we will continue to experience negative cash flow and will need to raise
additional capital to fully implement our business plan. Future additional
capital could be required during this period if unexpected costs arise or if we
pursue ventures that enhance or accelerate our business development. If
additional capital requirements arise, we may need to raise additional funds.
As part of its business strategy, Zap.Com plans to make payments of common
stock to Web site owners who join the ZapNetwork. Please see
"Business -- Building The ZapNetwork". To date, trading in our common stock has
been thin. We cannot assure you that a more active trading market for our common
stock will develop or if it does develop, that it will be sustained. Please see
"Risk Factors -- It is Difficult to Predict Whether a Market For Our Stock Will
Develop and If a Market Develops, the Market Price of Our Stock Will Likely be
Volatile." We believe that the willingness of Web site owners to accept our
common stock will depend upon the development of an active trading market in our
stock, prevailing market conditions, the market price of our common stock and
other factors over which we have no control, as well as our financial condition
and results of operation. If Web site owners are unwilling to accept Zap.Com
common stock, Zap.Com may need to raise additional funds to fund the growth of
the ZapNetwork.
We cannot guarantee that Zap.Com will be able to raise sufficient capital
if additional funds are necessary, or, if it can, that it will be able to do so
on terms that it deems acceptable. In particular, potential investors may be
unwilling to invest in Zap.Com due to Zapata's voting control over Zap.Com and
the significant potential for percentage dilution of a potential investor's
percentage ownership in our common stock presented by our business model.
Zapata's voting control may be unattractive because it makes it more difficult
for a third party to acquire us even if a change of control could benefit our
stockholders by providing them with a premium over the then current market price
for their shares. Please see "Risk Factors -- Zapata's Control and the Presence
of Interlocking Directors and Officers Will Create a Potential Conflict of
Interest and Could Prevent a Change of Control". Failure of Zap.Com to raise
funds required to support the growth of its network would have a material
adverse effect on Zap.Com's business and its ability to generate and grow
revenues and could result in a complete loss in the value of Zap.Com common
stock being offered with this prospectus. If we raise additional funds through
the issuance of equity, equity-related or debt securities, these securities may
have rights, preferences or privileges senior to those of the rights of our
common stockholders, who would then experience dilution.
YEAR 2000
Many companies' computer systems, software products and control devices
needed to be upgraded or replaced in order to operate properly in the Year 2000
and because of the inability to distinguish 21st century
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<PAGE> 42
dates from the 20th century dates Zap.Com was aware of the issues associated
with the programming code in existing computer systems as the year 2000
approached.
As of and after January 1, 2000, Zap.Com has not experienced any Year 2000
related disruptions to its computer systems or business operations. If any of
these errors or defects do exist, we may incur material expenses to resolve
them. Although to date we have not experienced any date related problems with
the hardware and software used in our systems, we cannot assure you that such
problems may not surface. If these systems do experience date related problems,
we could experience a delay in generating revenue, diversion of our resources or
expenses that could unexpectedly adversely affect our financial condition and
prospects. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000."
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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 111 million in the United States and over 219
million world wide in July 1999 to over 230 million in the United States and
over 600 million world wide by the end of 2003. 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 February 2000, the number of Internet domains
(.com, .net, .edu and .org) had grown to approximately 8.1 million.
With the explosion in both the number of users and Web sites, the Internet
has emerged as a significant communications medium. This has resulted in more
and more businesses using the Internet as a sales and distribution channel for
commercial activities and as an information resource. To date, commercial
applications on the Internet have involved mostly commerce, advertising and
direct marketing.
E-commerce has grown as a result of the increase in traffic, user's
willingness to conduct on-line transactions and the types of products and
service being distributed over the Internet. Consumers now trade securities, pay
bills, purchase airline tickets, insurance, mortgages and consumer goods, among
others -- over the Internet. Zap.Com believes that this growth will continue
with a projected increase in business to consumer e-commerce sales from an
estimated $24.0 billion in 1999 to $75.0 billion in 2003.
Dissemination of content, like newspapers, magazines and journals, through
the Web has also experienced significant growth because of both the growing
popularity of the medium and the attractiveness of Web-based advertising to the
customers of content publishers. On-line advertising provides advertisers with
the ability to target their messages to select audiences with specific interests
and characteristics and to quickly modify a program's cost effectively in
response to information received from dialogue with customers. The Web also
allows the measurement of the effectiveness and response rates of advertisements
and the tracking of the demographic characteristics of Web users, which tend to
have attractive profiles. These valuable tools have not been lost on traditional
advertisers, like consumer product companies and automobile manufacturers, who
are increasing their use of on-line advertising. Zap.Com believes that the
dollar value of Internet advertising in the United States will increase from an
estimated $3.2 billion in 1998 to $11.5 billion in 2003.
Internet-based direct marketing has also experienced rapid growth. The
Internet allows point-of-sale promotions to be targeted to consumers and better
evaluated based on the response rate of consumers (e.g., number of leads, number
of sales or transactions as a percentage of promotions viewed, etc.). Direct
marketers have the opportunity through the Internet to increase consumer
response rates and decrease costs-per-transaction by high impact targeting and
delivering of their campaigns. This can be much more cost efficient to the
direct marketer than traditional mediums. Zap.Com believes that approximately
$163 billion was spent on direct marketing initiatives in the United States in
1998.
While the Web offers numerous opportunities, potential advertisers and
e-commerce companies face a number of significant challenges to realizing this
potential. These challenges arise from the fact that there are millions of Web
sites (only a fraction of which are of significant size), the significant
breadth of content available on the Web and the costs of transacting
individually with a number of smaller, but desirable sites in order to reach a
larger on-line audience. In addition, small Web sites do not typically maintain
the special analytical tools that are necessary to evaluate and optimize the
effectiveness of information delivery and to target appropriate users. Many of
these Web sites also lack the technology to deliver information to a broad reach
of Internet users. Potential advertisers and e-commerce companies seek to
overcome these challenges by outsourcing their on-line needs to media
representative firms whose business is to coordinate the sale of the on-line
inventory of a number of related or unrelated Web sites.
Web site owners face equally daunting challenges in capitalizing on the
economic opportunities presented by the Web. Typically, Web site owners attempt
to support, or profit from, their Web sites by selling Internet advertising or
other commercial uses of their inventory. Many Web site owners who are too small
or lack brand name value to justify an internal sales force or to attract the
attention of a media representative firm,
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however, find this difficult because they do not have the resources necessary to
employ, train and manage a sales force or to compete for experienced personnel
in this highly competitive environment. As of December 1999, Zap.Com believes
that 75% of Internet advertising dollars go to the 5 mostly highly trafficked
Web sites and that 95% of the Internet advertising dollars go to the 50 mostly
highly trafficked Web sites. Further, many Web site owners cannot afford, or do
not have the ability to operate and maintain, the servers and technology
necessary for targeted information delivery. Many Web site owners are unable to
secure advertising from, or to service those persons who purchase on-line
inventory. As a result, many Web site owners seek to outsource sales of their
on-line inventory.
Several business models have evolved to address the challenges faced by
both Internet advertisers and others wishing to engage in Internet-based
commercial activities and Web site owners. These models generally focus on
centralizing the point of sale to the Web sites in one entity, which creates
synergies for, and streamlines distribution and marketing operations of, Web
sites belonging to the network and provides for more effective placement of
advertisement.
One business model involves organizations that act as advertising
representatives for sites. These firms coordinate and facilitate the
distribution of a customer's advertising on-line inventory over a large network
of third party sites with high brand value, including premium Web sites. Some
Internet search and navigational sites as well as Web site owners who offer a
significant amount of content through their sites employ a model, which involves
the distribution of advertising banners over a family of Web sites owned by
them. Also, Web advertising companies are available which focus on technologies
or services that allow companies to track and manage their own advertising
campaigns or inventory. Another model is the "associate program" in which any
Web publisher receives a referral fee for purchases originating from the
publisher's Web site from a button that hyperlinks to the Web publisher's
e-commerce site.
THE ZAP.COM SOLUTION
Zap.Com plans to employ a business model that it believes addresses, in a
unique and effective manner, both the challenges faced by Web site owners and
advertising and e-commerce companies who desire to benefit from the Internet.
This model is similar to existing business models in that it involves the
creation of a network, however, it differs in that Zap.Com plans to acquire
perpetual rights (subject to payment obligations) to space on independent Web
sites, while the site's publisher retains the rights to all other aspects of the
Web site.
Zap.Com believes that its network structure will provide it with the
benefits of both a potentially large and wide reaching network while retaining
the individual creative talents of the Web site owners who belong to our
network. Zap.Com further believes that this network structure will be attractive
to Web site owners because, among other things, they will receive a direct
economic benefit while retaining ownership and control of all aspects of their
Web site not involving the ZapBox and have the potential to increase their
traffic as a result of belonging to the network.
BUSINESS STRATEGY
To implement its business model, Zap.Com plans to pursue the following key
elements:
Build the ZapNetwork. In order to reach a substantial audience, Zap.Com
will seek to aggregate a significant number of independent Web sites for its
network. Zap.Com intends to pursue Web sites that have appealing and diverse
content, have an attractive base of unique users and meet other criteria
established by Zap.Com. Zap.Com plans to compensate Web sites for joining the
ZapNetwork with payments of Zap.Com common stock.
Deploy the ZapBox. Zap.Com intends to deploy the ZapBox in the space
acquired on the Web sites which join the ZapNetwork. The ZapBox is our
proprietary Web application that provides portal-like functionality and content,
such as news, sports, weather and horoscopes wrapped around an Internet
advertising banner.
Build Multiple Revenue Streams. Zap.Com intends to seek revenue from
multiple sources, including advertising, e-commerce and other commercial
activities. Zap.Com intends to achieve its revenue objectives
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by: (1) establishing and expanding a user base; (2) establishing the ability to
target advertising, e-commerce and other commercial programming to
demographically distinct user groups; (3) creating revenue-sharing commerce
relationships; and (4) entering into relationships with third-party content
providers that pay Zap.Com for access to its users.
Establish and Build Brand Loyalty. Zap.Com intends to advertise and
promote its brands to potential advertising and e-commerce customers. Zap.Com
plans to pursue this strategy through a variety of marketing and promotional
techniques, which may include on-line and off-line advertising, conducting a
public relations campaign and developing business alliances and relationships.
Develop Strategic and Commercial Relationships. Zap.Com intends to develop
and continue strategic and commercial relationships with third parties that will
facilitate the execution of its business plan, like a media representation firm,
an on-line inventory management company, Web site developers, Web site hosts,
content providers, e-commerce and traditional businesses and other
organizations. While Zap.Com may develop the ability to render some of these
services internally, it also intends to continue developing strategic and
commercial relationships to assure itself of adequate access to these services
for the foreseeable future.
Create a Superior Economic Model. Zap.Com believes that the business model
which it plans to use has inherent economic advantages over other Internet
networks. The ZapNetwork agreement reduces the risk of network participant
turnover, maximizes the flexibility of the ZapBox for promotional and commercial
activities and creates a potentially favorable cash flow model due to Zap.Com's
right to retain all ZapNetwork generated revenues while alleviating it of the
expenses and organizational complexities of operating and supporting a network
of company-owned Web sites. Zap.Com believes that this strategy will result in a
highly scalable business platform, from which it expects to be able to generate
multiple revenue sources.
BUILDING THE ZAPNETWORK
Zap.Com's goal is to build the ZapNetwork into a global network of
independently owned Web sites that will deploy the ZapBox. Zap.Com will seek to
attract Web sites to its network primarily through the benefits of the ZapBox
and the payment of Zap.Com common stock to Web site owners. Please see
"Business -- Web Site Owner Recruiting."
Zap.Com has taken a variety of information into account in developing the
price which it will pay for the rights it seeks to acquire with respect to these
independent Web sites. One source is information Zapata provided to Zap.Com
which was compiled during Zapata's previous efforts to enter the Internet
market. This information includes prices which various private Web sites were
willing to be bought relative to various site performance measures. The second
source is the market valuation of public companies that operate Web sites
relative to their reported traffic.
Zap.Com's ability to pay Web site owners for joining the ZapNetwork will
largely depend upon the development of an orderly trading market in Zap.Com's
common stock. Since November 30, 1999, the trading in Zap.Com's common stock has
been thin. If an orderly trading market does not develop in Zap.Com's common
stock, then Web site owners may be reluctant to accept stock as payment for
joining the ZapNetwork and Zap.Com will have to raise additional capital in
order to fund the growth of its network. Zap.Com cannot guarantee that an
orderly trading market will develop in its stock or that, if necessary, it will
be able to raise any, or a significant amount of additional capital. Please see
"Risk Factors -- It is Difficult to Predict Whether a Market for Our Stock Will
Develop, and the Market Price of Our Securities Will Likely Be Volatile," and
"-- If We Are Unable to Raise The Necessary Capital in The Future, We May be
Unable to Meet Our Future Capital Needs." If either of these events occur,
Zap.Com may be unable to grow the ZapNetwork.
When Zap.Com issues stock in connection with the acquisition of Web site
rights, the percentage of common stock owned by existing stockholders will
experience dilution. Please see "Risk Factors -- Investors Will Experience
Dilution with Future Stock Issuances." These acquisitions will also negatively
impact net income due to non-cash charges which Zap.Com expects to record
against earnings following their consummation. Please see "Risk Factors -- We
Expect to Incur Significant Expenses For Compensation Paid to Web site owners
For Joining Our Network."
The ZapNetwork currently consists of Zapata's www.word.com, www.charged.com
and www.pixeltime.com and Zap.Com's home page, www.zap.com. Zapata has agreed to
continue this arrangement until it is terminated by Zapata at its discretion. No
legal or other financial obligations exist between
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Zapata and Zap.Com with respect to this arrangement. We are currently using this
network as a beta testing environment for the development of the ZapBox and its
underlying technologies.
WEB SITE OWNER RECRUITING
Zap.Com believes that as of February 2000 over 8.1 million Internet domains
existed. As a result, Zap.Com believes there are a number of Web sites that are
viable candidates for the ZapNetwork. Although some highly desirable sites have
already entered into network arrangements with third parties which commits their
on-line advertising inventory, Zap.Com believes that many of these arrangements
are non-exclusive or are terminable by Web site owners, making these sites
candidates for the ZapNetwork.
Zap.Com anticipates that the ZapNetwork will be attractive to Web site
owners because it may, among other things, allow them to:
- recognize direct value for their audience without giving up ownership or
editorial control of their Web sites other than the space occupied by the
ZapBox or another Zap.Com Internet property;
- increase the value of their remaining rights to their Web sites to
potential customers and acquirers as a result of potential increased
traffic through cross-promoting and cross-linking with the ZapNetwork and
potential increased "stickiness" on their Web site as a result of the
ZapBox:
- have the opportunity to participate in Zap.Com's potential future
appreciation after receiving Zap.Com common stock as part of the
consideration for joining the ZapNetwork.
Zap.Com also believes that its network will be attractive to a number of
Web site owners because many small and medium-sized Web sites do not have, or
have limited, internal sales, billing, tracking and reporting capabilities. By
joining the ZapNetwork, these sites will not need these capabilities to
recognize value for their sites because Zap.Com will have responsibility for
placement and reporting of the use of the banner space.
Zap.Com does not initially intend to recruit or limit participation in its
network to any particular type of Web site. In order to be eligible to join the
ZapNetwork, an applicant must, among other things, own and maintain Web sites,
which meet minimum unique user requirements and do not, in Zap.Com's opinion,
display objectionable content. Zap.Com, however, will have sole discretion to
determine whether a Web site may join its network.
Zap.Com expects a significant number of Web site owners to apply to join
the ZapNetwork. Zap.Com, however, has not confirmed this assumption. Zap.Com
cannot guarantee you that any Web sites will want to join the ZapNetwork or that
if any do, that a sufficient number would join the ZapNetwork so that Zap.Com
can generate revenues, or do so at a level necessary to become profitable or
generate a positive cash flow.
PRODUCTS AND SERVICES
Zap.Com's main product will initially be the ZapBox, a proprietary Web
application which will be deployed on Web sites that have joined the ZapNetwork.
Zap.Com provides a variety of content on the ZapBox. This content is made
available in various forms of media, including graphics, animations, sound, text
and user prompted interactions and is expected to offer search capabilities,
general and channel-based content and community features, like chat rooms and
e-mail, etc. and display advertisement, e-commerce and other commercial
opportunities. The ZapBox permits users to click back to the Zap.Com home page
or to other sites in the ZapNetwork. ZapBox 1.0, which was launched September
27, 1999, lets users: search, send us feedback through e-mail, link to the
Zap.Com home page and to other sites in the ZapNetwork. The links in the ZapBox
will provide users numerous access points to the ZapNetwork which should enhance
the traffic of Web sites that belong to our network. ZapBox 2.0 was launched on
January 7, 2000 and added access to news, weather, sports and horoscopes as well
as personalization capabilities. In addition, ZapBox 2.0 includes a rich media
demo to familiarize new users with the ZapBox.
Zap.Com has entered into an arrangement with Auragen Communications to
develop the ZapBox, with iSyndicate, Inc. to deliver content and functionality
for the ZapBox and with Direct Hit Technologies for search capabilities for the
ZapBox and Zap.Com's homepage. Although ZapBox 1.0 and ZapBox 2.0 have
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been created and launched, we cannot predict when other releases, offering
enhanced functionality, will be available or whether we will encounter
difficulties in deploying the ZapBox across the ZapNetwork. Please see "Risk
Factors -- We Are In The Process Of Developing Future Releases Of Our Banner,
And It May Be Difficult To Finalize Development Of These Releases."
Zap.Com will also seek to design its network so that customers can benefit
from the dynamic matching, targeting and delivering functionality available on
the technology which will serve its network. If successful, customers should be
able to customize their delivery on the ZapNetwork through the ZapBox within
specific categories of interest, on specific Web sites, or by targeting based on
a variety of factors, including user interest, keyword choice and user
geographical location.
Zap.Com will be responsible for all aspects of the ZapBox or other Internet
properties, which are deployed on ZapNetwork sites, including displayed content
and advertising and e-commerce opportunities. Thus, Zap.Com will have the
responsibility for programming and sales and marketing of these properties,
while ownership of, and responsibility for, all other aspects of ZapNetwork Web
sites will continue with the Web site owners.
Zap.Com maintains a home page at www.zap.com that links to what Zap.Com
believes to be some of the Internet's most popular Web properties. These links
are categorized into interest specific categories like news, sports,
entertainment, weather, finance, current events and travel. As the ZapNetwork
grows, it will act as a directory to the sites in the network. Zap.Com plans to
divide the Web sites that belong to the ZapNetwork into channels that segregate
sites according to topic or audience groups. The home page is also expected to
continue to display the then most recent release of the ZapBox.
Domain Names
Domain names are Internet "addresses." Zap.Com is currently the registered
holder of 60 Internet domain names. The most important of these domain names is
www.zap.com, which is the URL for our home page. The purpose to registering the
domain names other than www.zap.com is to provide a medium through which Zap.Com
can execute marketing activities. As of the date of this prospectus, we have not
developed operational sites for most of these other 59 domain names. These sites
would support and compliment the content of ZapNetwork sites.
Third parties have in the past and Zap.Com expects that third parties will
in the future challenge Zap.Com's right to domain names registered in its name.
Zap.Com cannot guarantee that it will succeed on these claims.
The allocation and governance of domain names is generally regulated by
Internet regulatory bodies like Network Solutions, Inc. These Internet
regulatory bodies promulgate rules and regulations regarding domain names, which
may change from time to time. The relationship between Internet regulatory
bodies, the allocation and governance of domain names and laws protecting
trademarks/service marks and similar proprietary rights is unclear and is in
flux. The current system for registering, allocating and managing domain names
has been the subject of much litigation, including trademark/service mark
litigation, unfair competition and dilution litigation. Therefore, we cannot
guarantee that Zap.Com's domain names will not lose their value, or that Zap.Com
will not have to obtain entirely new domain names in addition to or in lieu of
its current domain names if reform efforts result in a restructuring in the
current system. Therefore, Zap.Com could lose its domain names or be unable to
prevent third parties from acquiring domain names that infringe or otherwise
decrease the value of our domain names, trademarks/service marks and other
proprietary rights.
OPERATING INFRASTRUCTURE AND TECHNOLOGY PLATFORM
Zap.Com's business is supported by a systems platform that is provided and
maintained by third parties. For Zap.Com's ad servicing technology platform, we
have chosen DoubleClick's Ad Center and Ad Server solutions. This platform
enables Zap.Com to measure page views on the ZapNetwork and to rotate, change or
target banner advertising on the ZapBox.
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To host and support the expansion and functionality of the ZapBox and other
ZAP.COM Internet properties, Zap.Com has contracted with EMC, Inc. to provide
scalable hosting, Internet connectivity and database management services. Any
disruption of Internet access provided to Zap.Com could prevent Zap.Com from
operating or serving the ZapBox and could cause Zap.Com not to honor customer
obligations and would harm Zap.Com's reputation. This would have a material
adverse affect on Zap.Com's prospects, revenues and operating results.
Our success will depend on the continuing and uninterrupted performance of
our systems and those of third parties. Customers may become dissatisfied by any
system failures that interrupt our ability to deliver programming on the ZapBox,
including any failure to provide content, advertisements, e-commerce
opportunities, etc. accurately to the targeted audience and without significant
delay to the viewer. Sustained or repeated system failure would reduce the
attractiveness of our network to potential customers and Web site owners who are
potential network participants. Slower response time or system failures may also
result from straining the capacity of software deployed for our network due to
an increase in the volume of programming delivered to our network through its
servers. To the extent that we do not effectively address any capacity
constraints or system failures, our prospects revenues and operating results
would be materially and adversely affected.
The ZapNetwork will depend on Internet service providers, application
service providers and the operators of ZapNetwork Web sites for points of access
to the network. Internet service providers have experienced significant outages
in the past, and could experience outages, delays and other difficulties due to
system failures unrelated to systems employed by Zap.Com. Moreover, the Internet
infrastructure may not be able to support continued growth in its use. Any of
these problems could prevent Zap.Com from operating its network which would have
a material adverse affect on its prospects, revenues and operating results.
SALES, MARKETING AND CUSTOMER SERVICE
Zap.Com plans to conduct a marketing program that is aimed at attracting
and retaining customers who use its network for advertising, e-commerce and
other commercial activities. Zap.Com may use on-line or traditional media in
conducting these programs. Zap.Com will also explore co-marketing agreements,
where links to the Zap.Com home page will be featured on Web sites which are not
a part of the ZapNetwork.
Zap.Com plans to use a third party service provider to solicit potential
advertising customers. We have selected CKG Media.Com, Inc. d/b/a Phase2Media to
act as our exclusive sales agent in the solicitation of advertising sales for
the ZapNetwork. We are currently negotiating a contract with Phase2Media and
expect to enter into an agreement with that organization although we cannot
guarantee that this will occur. If we are unable to reach an agreement with
Phase2Media, we will need to locate a new sales agency and negotiate an
acceptable arrangement.
Zap.Com believes that its ability to establish and maintain long-term
relationships with its customers and to encourage repeat use of its network by
customers will depend, in part, on the strength of its support and service
operations and staff. Furthermore, Zap.Com believes that frequent communication
with and feedback from its customers and Web site owners who belong to its
network will allow it to continually improve the ZapNetwork and related
services. Zap.Com plans to offer an e-mail address to enable its constituents to
request information and to encourage feedback and suggestions.
STRATEGIC PARTNERSHIPS & RELATIONSHIPS
Zap.Com anticipates entering into a number of strategic and commercial
relationships and partnerships with third parties in order to implement its
business plan. As of the date of this prospectus, we have contracted with
DoubleClick, iSyndicate, Direct Hit Technologies, Auragen Communications, and
EMC. While Zap.Com may develop internally the ability to render all of the
outsourced services provided by these entities, Zap.Com intends to continue
developing strategic relationships and partnerships so that it can have adequate
access to those services for the foreseeable future.
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EMPLOYEES
As of the date of this prospectus, Zap.Com has eight employees. Avram
Glazer, our President and CEO, and Leonard DiSalvo, our VP-Finance and Chief
Financial Officer, Marisa Bowe, Vice President -- Network Content, and Phil
Jones, Director of Finance, currently devote a portion of their business time
and attention to Zapata and a portion to Zap.Com. We expect to hire additional
employees to assist in the operation of our business. Although the competition
for skilled employees in the Internet industry is intense, Zap.Com does not now
foresee problems in hiring qualified employees to meet its needs.
Our senior management does not possess experience in acquiring or managing
an Internet network business. Therefore, Zap.Com has relied, and expects to
continue to rely, on consultants, service organizations and other professionals
with Internet experience to assist it in executing its business model. Zap.Com
will compensate those consultants, service organizations and other professionals
at competitive rates. Presently there is no way to estimate the term of their
service.
INTELLECTUAL PROPERTY
Zap.Com regards its service marks, trademarks, trade dress, trade secrets
and other intellectual property as critical to its success, and will rely on
trademark law, patent law, trade secret protection and confidentiality and/or
license agreements with its employees, customers, Web site owners who belong to
the ZapNetwork and others to protect its proprietary rights. A provisional
patent application has been filed with the United States Patent and Trademark
Office for a business process patent which is directed to a unique
Internet-based commerce method and system underlying Zap.Com's business model. A
provisional patent application is a type of application under which a patent
will not issue, but which provides a priority date for a regular patent
application that is filed within a one year period following the filing of the
provisional patent application. Zap.Com has also filed applications seeking
registration of its service marks in the United States, including Zap.Com,
ZapNetwork, ZapBox and My ZapBox. Zap.Com plans to file additional service mark
applications in the future as it adopts and uses additional marks. Zap.Com
cannot guarantee that any patent applications or trademark registrations will be
approved. Even if they are approved, these patents or service marks might be
successfully challenged or invalidated by others. Zap.Com also does not know if
its current or future applications will be issued with the scope of claims it
seeks. If a patent is issued on our pending application, it is possible that:
- if there are variations in the application of the business model claimed
in the patent to the products and services we offer in the future, the
patent, if issued, may not be effective in preventing one or more third
parties from utilizing a copycat business model to offer the same product
or service in one or more categories; and
- a competitor may develop and utilize a business model that appears
similar to the system described in our patent application, but which has
sufficient distinctions that it does not fall within the scope of any
patent which may arise from that application.
In the future we intend to file applications in appropriate foreign
jurisdictions for trademarks/service marks that we adopt. Effective trademark,
service mark, and trade secret protection may not be available in every country
in which Zap.Com's products and services are made available electronically.
We also generally enter into confidentiality agreements with our employees,
consultants and corporate partners to control access to and distribution of
proprietary information. We cannot guarantee that any of these persons will
observe their confidentiality obligations or will not attempt to disclose,
obtain or misappropriate Zap.Com solutions or technologies.
Zap.Com may license to third parties in the future some of its proprietary
rights, like trademarks/service marks. While Zap.Com will attempt to ensure that
the quality of its brands are maintained by those licensees, licensees may take
actions that materially adversely affect the value of Zap.Com's proprietary
rights or reputation. We cannot guarantee you that the steps taken by Zap.Com to
protect its proprietary rights will be adequate or that third parties will not
infringe or misappropriate Zap.Com's trademarks, trade dress and other
proprietary rights.
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The contracts that Zap.Com will seek with Web site owners who join the
ZapNetwork will entitle Zap.Com to receive data derived from user activity on
the owner's Web sites. This information together with direct user information
derived from log files generated from the Zap.Com will be collected and analyzed
for targeting advertising, e-commerce and direct marketing programs as well as
predicting performance of these programs. Although Zap.Com believes it has
rights to use this information in its database, trade secret, copyright or other
protections may not be available for this information.
On August 17, 1998, LFG, Inc. d/b/a Zap Futures commenced an action against
Zapata and another of its wholly-owned subsidiaries, Zap Corporation, in the
United States District Court for the Northern District of Illinois. LFG alleged
that Zapata and Zap were guilty of trademark infringement, trademark dilution
and unfair competition under the federal Lanham Act and various Illinois
statutes. The action arose out of the use by Zapata and Zap of the Zap trade
name and the Internet domain name "Zap.Com" for its Internet Web site and its
linking of that Web site to other Web sites owned by LFG competitors. LFG uses
the domain name "zapfutures.com" for its Web site. LFG sought injunctive relief,
unspecified compensatory damages, punitive damages and an award of attorneys'
fees. The parties reached settlement of this action on April 9, 1999. Under the
settlement, Zapata is obligated to provide two years of advertising and listing
to ZAP Futures on any Web pages within its proprietary Web sites which lists
financial information sources or futures traders. Zap.Com plans to make any
propriety Web page meeting these requirements and which it establishes available
to the plaintiff to fulfill this obligation on behalf of Zapata and Zap
Corporation. In addition, LFG has agreed not to sue or otherwise oppose the use
by Zapata or its subsidiaries and successors and assigns of the use of the Zap
mark in connection with specified activities, including the use of the Zap mark
in connection with our network.
Zap.Com may be a party to legal proceedings and claims from time to time in
the ordinary course of its business, including claims of alleged infringement of
the trademarks and other intellectual property rights of third parties by
Zap.Com and its licensees. These claims, even if not meritorious, could result
in the expenditure of significant financial and managerial resources. Even if
Zap.Com prevails, this litigation could materially and adversely affect its
prospects, operating results and financial condition. Any claims of litigation
from third parties may also result in limitations on Zap.Com's ability to use
the intellectual property unless Zap.Com enters into arrangements with third
parties responsible for these claims or litigation, which may be unavailable on
commercially reasonable terms.
COMPETITION
The market for Internet advertising, e-commerce opportunities and other
commercial uses of the Internet as well as the market for Web site owners who
are candidates for joining our network are new and rapidly evolving and
competition is expected to increase significantly in these markets. Barriers to
entry are relatively insubstantial. Competition may also increase as a result of
industry consolidation. Zap.Com believes that the principal competitive factors
for companies seeking to create a network on the Internet are critical mass,
functionality, brand name, the quality of the Web sites that belong to the
network, loyalty, broad demographic user base, and strategic relationships.
Zap.Com believes that its ability to compete depends on many factors both
within and beyond its control, including the following:
- the timing and market acceptance of Zap.Com's business model;
- the ability to recruit high quality Web sites with required levels of
traffic to the ZapNetwork;
- the effectiveness of the ZapNetwork in terms of viewer traffic and reach
and the targeting and measuring performance of the ZapBox;
- the number and types of strategic and commercial relationships
established by Zap.Com, including e-commerce partnerships;
- the effectiveness of its sales and marketing efforts;
- the effectiveness of its customer service and support efforts;
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- the ease of use, performance, price and reliability of solutions
developed by Zap.Com or its competitions.
Several companies offer competitive products or services through Web
advertising networks, including those that focus on the cost per thousand model,
such as DoubleClick and 24/7 Media. Recently, CMGI acquired several internet
advertising and marketing companies, including AdForce, AdKnowledge and Flycast.
As a result of these transactions, CMGI now owns several companies, including
AdSmart Network and Engage Technologies, that will compete with our network, and
Engage Technologies, which is majority owned by CMGI, has announced an agreement
to acquire AdSmart and Flycast, and potential competitors include current and
future Web search engine companies and general information services, high
traffic Web sites and Internet service providers will also compete with Zap.Com.
These competitors include free information, search and content sites or
services, like America Online, CNET, CNN/Time Warner, Excite@Home, Infoseek,
Lycos, Microsoft, Yahoo! and Disney. Also, several competitive companies have
developed applications similar to the ZapBox, such as Jotter, MyExcite and
NetZero, which utilize Internet technologies to deliver advertising and access
to content to Internet users who sign up for these services. These services
provide non-Web site specific advertising opportunities to Internet advertisers.
Zap.Com also expects to compete with traditional forms of media, like
newspapers, magazines, radio and television, for advertisers and advertising
revenues.
Zap.Com believes that this competition could have a significant and adverse
impact on prices and terms of advertising and e-commerce relationships. The
nature and number of Zap.Com's competitors is expected to increase and change as
Zap.Com expands the scope of its services and product offerings. Many of
Zap.Com's potential competitors, including Web directories and search engines
and large traditional media companies, have operating histories in the Web
industry, established brand names and customer relationships and significantly
greater financial, technical and marketing resources than Zap.Com. Those
competitors are able to adopt more aggressive pricing policies and make more
attractive offers to potential employees, distribution partners, commerce
companies, advertisers, third-party content providers and Web site owners. They
may also develop products or services that are able to respond more quickly than
Zap.Com can to new or emerging technologies or changes in customer requirements.
We cannot guarantee you that potential ZapNetwork customers will not view our
competitors as being more desirable for the distribution of their information
over the Web. In addition, Zap.Com's potential customers and strategic partners
may have established collaborative relationships with one or more Zap.Com
competitors or potential competitors, and high-traffic Web sites. Accordingly,
we cannot guarantee you that Zap.Com will be able to grow its network, traffic
levels and customer base, or that competitors will not experience greater growth
in traffic than Zap.Com as a result of those relationships which could have the
effect of making their networks and Web sites more attractive to advertisers, or
that Zap.Com's future strategic partners will not sever or will elect not to
renew their agreements with Zap.Com. As a result, it is possible that new
competitors may emerge and rapidly acquire significant market share. We do not
know whether Zap.Com will be able to compete successfully and competitive
pressures may have a material adverse effect on Zap.Com's business, results of
operation or financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There are an increasing number of laws and regulations pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Recently, the United States Congress enacted Internet legislation
regarding children's privacy, copyrights and taxation. Other laws or regulations
may be adopted with respect to online content regulation, user privacy, pricing,
taxation and quality of products and services. Any new legislation or
regulation, or the application or interpretation of existing laws, may decrease
the growth in the use of the Internet, which could in turn decrease the demand
for Zap.Com's service, increase Zap.Com's cost of doing business or otherwise
have a material adverse effect on Zap.Com's prospects and revenues.
Liability For Information Retrieved From Zap.Com Web Sites Belonging to the
ZapNetwork and From Other Internet Sites. Content may be accessed on Web sites
that belong to the ZapNetwork or on other Internet sites that are linked to the
ZapNetwork or the Zap.Com home page. This content may be
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downloaded by users and subsequently transmitted to others over the Internet. By
providing those links, Zap.Com is exposed to claims that it is liable for
wrongful actions by the owners of these sites. Claims of this nature have been
brought, sometimes successfully, against providers of Internet services. Zap.Com
could also be exposed to liability with respect to third-party content that may
be posted by users in chat rooms or bulletin boards which may be offered by Web
sites which belong to the ZapNetwork or which are otherwise linked to the
ZapNetwork. Also, there may be claims, alleging that Zap.Com, by directly or
indirectly providing links to other Web sites, is liable for copyright or
trademark infringement or the wrongful actions of third parties through their
respective Web sites. The Digital Millennium Copyright Act of 1998, however, has
established limited liability for online copyright infringement by online
service providers for listing or linking to third party Web sites that include
copyright-infringing materials, provided certain conditions are met.
Zap.Com's general liability insurance may not cover all potential claims to
which Zap.Com is exposed and may not be adequate to indemnify Zap.Com for all
liability that may be imposed. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could result in significant
expense and cash demands which would adversely affect operating results and
financial condition. Even to the extent that these claims do not result in
liability to Zap.Com, Zap.Com could incur significant costs in investigating and
defending against these claims which would also adversely affect prospects,
operating results and financial condition.
Online Content Regulations. Several federal and state statutes prohibit
the transmission of indecent, obscene or offensive content over the Internet to
particular groups of persons. In addition, pending legislation seeks to ban
Internet gambling and federal and state officials have taken action against
businesses that operate Internet gambling activities. The enforcement of these
statutes and initiatives, and any future enforcement activities, statutes and
initiatives, may result in limitations on the type of content and advertisements
available on Web sites that belong to the ZapNetwork. To the extent that one or
more Web sites that belong to the ZapNetwork is adversely affected by such
legislation and regulations, this could have a material adverse effect on
Zap.Com's attractiveness to customers and could adversely affect revenues and
operating results. Further, legislation regulating online content could dampen
the growth in use of the Internet generally and decrease the acceptance of the
Internet as an advertising and electronic commerce medium, which could adversely
affect and impede the growth of our revenues.
Privacy Concerns. The Children's Online Privacy Protection Act of 1998
makes it unlawful for an operator of a Web site or online service directed to
children under 13 to collect, use or distribute personal information from a
child under 13 in a manner which violates regulations to be promulgated by the
Federal Trade Commission. The FTC is in the process of issuing final
regulations, which concern the scope of the Act's parental consent requirements.
The FTC is also considering adopting regulations regarding the collection
and use of personal identifying information obtained from individuals when
accessing Web sites. Further, the FTC has begun investigations into the privacy
practices of companies that collect information on the Internet. One
investigation resulted in a consent decree in which an Internet company agreed
to establish programs to implement the principles contemplated in the FTC
regulations that are under consideration. The FTC may conduct a similar
investigation of Web site owners who belong to the ZapNetwork or Zap.Com, or the
FTC's regulatory and enforcement efforts may adversely affect the ability of Web
sites who belong to the ZapNetwork from collecting and providing us with
demographic and personal information from users. This could have an adverse
effect on Zap.Com's ability to provide highly targeted opportunities to our
customers. Any of these developments would have a material adverse effect on
Zap.Com's revenues and growth prospects.
It is also possible that cookies, or information keyed to a specific
server, file pathway or directory location that is stored on a user's hard
drive, possibly without the user's knowledge, which are used to track
demographic information and to target advertising, may become regulated by laws
limiting or prohibiting their use. The passage of laws limiting or abolishing
the use of cookies has been advocated by a number of authorities in the United
States and other countries. Limitations on or elimination of the use of cookies
by Web site owners who belong to the ZapNetwork or Zap.Com could limit the
effectiveness of Zap.Com's targeting of advertising and other programming
delivered to its network. This could have a material adverse effect on Zap.Com's
revenues and growth prospects.
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The European Union recently enacted its own privacy regulations that may
result in limits on the collection and use of user information. The laws
governing the Internet, however, remain largely unsettled, even in areas where
there has been some legislative action. Zap.Com cannot be sure that violations
of local laws or new laws will not be alleged by one or more governments,
Zap.Com will not violate those laws or laws will not be modified or ones enacted
in the future. Any of these events could materially adversely effect our
revenues and growth prospects.
In addition to the risk of registration and regulatory constraints on our
business, there is also a risk of litigation. A number of class action lawsuits
have been brought against other Internet companies challenging their collection
and use of personal information about Internet users. The outcome of these
actions and the impact of these cases on Zap.Com, if any, is unclear and could
increase Zap.Com's cost of doing business or otherwise harm our business.
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 its
wholly-owned subsidiaries, Zap Corporation, however have been sued for use of
the Zap tradename and the Zap.Com domain in connection with Web sites providing
financial information. This suit has been settled. Please see "Business --
Intellectual Property." We cannot guarantee you that Zap.Com will not in the
future be involved in litigation incidental to the conduct of its business.
FACILITIES
Zap.Com's headquarters are located in Rochester, New York, in space
subleased to it by Zapata. Under the sublease arrangement, annual rental
payments are allocated on a cost basis. Zap.Com expects to expand its facilities
as its operations grow. Zap.Com believes that additional space will be available
on commercially acceptable terms.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning officers of Zap.Com:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Avram A. Glazer...................... 39 President, Chief Executive Officer and Chairman of the
Board
Leonard DiSalvo...................... 41 Vice President -- Finance and Chief Financial Officer
Marisa Bowe.......................... 40 Vice President -- Network Content
Gordon E. Forth...................... 38 Secretary
Gaetano Guglielmino.................. 30 Vice President and General Manager
Phil Jones........................... 31 Director of Finance
Therese Stone........................ 33 Marketing Manager, ZapNetwork
</TABLE>
Avram A. Glazer, age 39, has served as the sole director and President and
Chief Executive Officer of Zap.Com since its formation in April 1998. Mr. Glazer
also serves as Zapata's President and Chief Executive Officer. He has held these
positions since 1995. For more than five years prior to becoming Zapata's
President and Chief Executive Officer, Mr. Glazer was employed by, and worked on
behalf of, Malcolm I. Glazer and a number of entities owned and controlled by
Malcolm I. Glazer. He also serves as a director of Zapata, Specialty Equipment
Companies, Inc. (a food equipment manufacturer) and Viskase Corporation (f/k/a
Envirodyne Corporation) (a food packaging company) and is chairman of the board
and a director of Omega Protein Corporation (a marine protein company).
Leonard DiSalvo, age 41, has served as Zap.Com's Vice President-Finance and
Chief Financial Officer since April 1999. Mr. DiSalvo also serves as Zapata's
Vice President -- Finance and Chief Financial Officer, a position he has held
since joining Zapata in September 1998. Mr. DiSalvo has 19 years of experience
in the areas of finance and accounting. For the past two years, Mr. DiSalvo
served as a finance manager for Canandaigua Brands, Inc., a national
manufacturer and distributor of wine, spirits and beer. Prior to that position,
Mr. DiSalvo held various management positions in the areas of finance and
accounting in the Contact Lens Division of Bausch & Lomb Incorporated. Mr.
DiSalvo received his B.S. from St. John Fisher College and is a Certified Public
Accountant.
Marisa Bowe, age 40, has served as Zap.Com's Vice President -- Network
Content since April 1999. Ms. Bowe is the founding Editor-in-Chief and Publisher
of Word, which is Zapata's Web-based magazine, where she has been employed since
February 1995. Before becoming Editor of Word, Ms. Bowe was Conference Manager
of the Echo virtual community in New York City for approximately one year. Prior
to joining the Echo virtual community, Ms. Bowe was a freelance writer and
television producer for three years. Ms. Bowe is a member of the Advisory
Committee of the Web Development Fund and a member of the Silicon Alley
Reporter's "Silicon Alley 100" list.
Gordon E. Forth, age 38, has served as Zap.Com's Corporate Secretary since
April 1999. Mr. Forth also serves as Zapata's corporate secretary. Mr. Forth is
a partner of Woods Oviatt Gilman, 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 Gilman firm since 1987. Mr. Forth received
his B.A. from Hope College and his law degree and M.B.A. from Vanderbilt
University.
Gaetano Guglielmino, age 30, has served as Zap.Com's Vice President and
General Manager since January 2000. Prior to that, he served as Zap.Com's
Director of Marketing and Sales since June 1999. From January 1998 until joining
Zap.Com, Mr. Guglielmino was employed by Bausch & Lomb Incorporated, where he
was the Strategy Manager -- Disposable Contact Lenses for the Vision Care
Division. From 1994 until 1998, Mr. Guglielmino served as the Business Manager
for Bausch & Lomb's Thin Film Technology Division. Mr. Guglielmino received his
B.S. and M.B.A. from Rochester Institute of Technology.
Phil Jones, age 31, has served as Zap.Com's Director of Finance since
October 1999. Mr. Jones has served as Zapata's Accounting Manager since January
1999. From 1995 to 1998, Mr. Jones' engaged in public
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accounting, most recently at Arthur Andersen, LLP. From 1992 to 1995, Mr. Jones
was a financial analyst at Citibank, N.A.. Mr. Jones received his B.A. in
Economics at SUNY Geneseo and his MBA from Rochester Institute of Technology. He
is also a Certified Public Accountant.
Therese F. Stone, age 33, has served as Zap.Com's Marketing Manager,
ZapNetwork since October 1999. From July 1996 until joining Zap.Com, Ms. Stone
was employed by Nalge Nunc International where she launched and managed that
company's corporate and branded web sites. From 1990 to 1996 she held various
marketing and communications positions at Nalge Nunc International. Ms. Stone
received her B.A. from Geneseo State University of New York.
EXECUTIVE COMPENSATION
Zap.Com presently has no employment agreements with its officers or other
key employees. The compensation of Zap.Com's executives who are also employed by
Zapata will be paid by Zapata and a portion of that cost will be allocated to
Zap.Com under the services agreement between Zapata and Zap.Com. Please see
"Related Party Transactions -- Services Agreement." Zap.Com will reimburse
Zapata for these costs. The costs will be based upon an estimate of the amount
of time devoted by those employees to the operation and affairs of each
corporation.
The following table sets forth information regarding compensation with
respect to the fiscal year ended December 31, 1999 for services in all
capacities rendered to Zap.Com by our Chief Executive Officer. No other
executive officers of Zap.Com had annual compensation in excess of $100,000 as
of December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
SECURITIES
FISCAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS #
- --------------------------- ------ ---------- --------- ------------
<S> <C> <C> <C> <C>
Avram A. Glazer, President and Chief Executive
Officer..................................... 1999 $206,250(1) -- 365,000(2)
</TABLE>
- ---------------
(1) Mr. Glazer serves as President and Chief Executive Officer of both Zapata
and Zap.Com. For fiscal 1999, Zapata has allocated 69% of Mr. Glazer's
$365,000 annual salary to Zap.Com. No amount of Mr. Glazer's Zapata bonus of
$300,000 for fiscal 1999 was allocated to Zap.Com.
(2) Non-qualified stock options were granted to Mr. Glazer under Zap.Com's 1999
Long-Term Incentive Plan. The share amounts under this column reflect only
the shares underlying the options that were granted during fiscal 1999. The
options have an exercise price of $2.00 per share, generally vest over three
years from the date of grant.
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<PAGE> 56
INDIVIDUAL GRANTS
The following table provides information concerning the grant of stock
options for Zap.com's common stock made to the "Named Officers" during fiscal
1999:
OPTION GRANTS IN FISCAL 1999
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL POTENTIALLY REALIZABLE
UNDERLYING OPTIONS VALUE AT ASSUMED
OPTIONS GRANTED TO EXERCISE ANNUAL RATE OF STOCK
GRANTED EMPLOYEES IN PRICE EXPIRATION PRICE APPRECIATION
NAMED OFFICERS (#)(1) FISCAL YEAR ($/SHARE) DATE FOR OPTION TERM(1)
- -------------- ---------- ------------ --------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
Avram A Glazer, President and
Chief Executive Officer........ 365,000 63% $2.00(1) 10/20/2004 $5,332,060
</TABLE>
- ---------------
(1) The amounts shown as potentially realizable values are based on arbitrarily
assumed rates of stock price appreciations of 10% over the February 14, 2000
closing price of Zap.Com's common stock over the full term of the options (5
years), as required by applicable regulations and are provided for
illustrative purposes only.
All of the options awarded during fiscal 1999 were granted with an exercise
price equal to or above the fair market value of the common stock on the date of
grant. At the time of the award, all of the options were exercisable in
cumulative one-third installments, commencing one year after the date of award,
with full vesting occurring on the third anniversary of the award.
OPTION VALUES
The following sets forth for each of the Named Officers options exercised
and the number and value of securities underlying unexercised options that are
held by the Named Officers as of December 31, 1999.
AGGREGATED OPTION EXERCISES IN FISCAL 1999
AND 1999 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES ($) VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FISCAL YEAR-END FISCAL YEAR-END
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE(1)
- ---- -------- -------- --------------- ----------------
<S> <C> <C> <C> <C>
Avram A. Glazer............................ -- $-- 0/365,000 $0/$1,140,625
</TABLE>
- ---------------
(1) The value of the unexercised in-the-money options at the 1999 fiscal year
end has been determined on the basis of the December 31, 1999 closing price
of our common stock which was reported on the OTC bulletin board to be
$5.125.
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<PAGE> 57
BOARD OF DIRECTORS AND BOARD COMMITTEES
The authorized number of directors of Zap.Com is presently fixed at one.
Avram Glazer is the sole director. Mr. Glazer anticipates expanding the board to
three or more directors at some point in the future.
Upon expansion of the size of the board to three or more directors, the
by-laws require that two standing committees of the board of directors be
activated: the audit committee and the compensation committee, each comprised of
two or more directors. The members of these committees will be appointed
following the expansion of the board to three or more directors.
The primary purpose of the audit committee will be to (1) select the firm
of independent accountants that will audit Zap.Com's financial statements, (2)
discuss the scope and the results of the audit with the accountants and (3)
review Zap.Com's financial accounting and reporting principles. The audit
committee will also examine and discuss the adequacy of Zap.Com's financial
controls with the independent accountants and with management.
The functions of the compensation committee will be to review, approve and
recommend to the board of directors the terms and conditions of incentive bonus
plans applicable to corporate officers and key management personnel, to review
and approve the annual salary of the chief executive officer, and to administer
Zap.Com's 1999 Long-term Incentive Plan.
DIRECTOR COMPENSATION
Each director who is not an employee of Zap.Com will be compensated at a
set dollar amount to be determined for serving as a director. In addition, each
new non-employee director will, upon joining the board, be granted options under
Zap.Com 1999 Long Term Incentive Plan to purchase shares of Zap.Com common
stock. These options will generally vest ratably over three years from the date
of the grant. Please see "Management-1999 Long-term Incentive Plan". There are
no family relationships, or other arrangements or understandings between or
among any of the directors, executive officers or other persons under which that
person was selected to serve as a director or officer.
1999 LONG-TERM INCENTIVE PLAN
The 1999 Long-Term Incentive Plan was approved by Zap.Com's board and
Zapata as Zap.Com's sole stockholder in April 1999 and amended in October 1999.
Pursuant to the plan, awards may be made to existing and future officers, other
employees, consultants and directors of Zap.Com from time to time. The 1999
Incentive Plan is intended to promote the long-term financial interests and
growth of Zap.Com by providing employees, officers, directors and consultants of
Zap.Com with appropriate incentives and rewards to enter into and continue in
the employ of, or their relationship with, Zap.Com and to acquire a proprietary
interest in the long-term success of Zap.Com and to reward the performance of
individual officers, other employees, consultants and directors in fulfilling
their responsibilities for long-range achievements.
Zap.Com's board, or upon formation, the compensation committee (both of
which are referred to below as the "committee"), will make recommendations for
grants under the 1999 Incentive Plan from among those eligible persons who hold
positions of responsibility and whose performance, in the judgment of the
committee, has a significant effect on Zap.Com's success.
Under the 1999 Incentive Plan 3,000,000 shares of common stock are
available for awards and we reserved this number of shares from our authorized
common stock. As of February 29, 2000, we had outstanding options to purchase
608,000 shares of common stock.
The 1999 Incentive Plan provides for the grant of stock options, stock
appreciation rights, stock awards and cash awards. Stock options may be
incentive stock options that comply with Section 422 of the Code. Future
allocation of awards under the 1999 Incentive Plan is not currently determinable
as the allocation is dependent upon future decisions to be made by the committee
in its sole discretion, and the applicable provisions of the 1999 Incentive
Plan.
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<PAGE> 58
Stock options may be granted at exercise prices that are no less than 85%
of the fair market value of our common shares on the date of the grant. The
exercise price of any stock option may, at the discretion of the committee, be
paid in cash or by surrendering shares or another award under the 1999 Incentive
Plan, valued at fair market value on the date of exercise or any combination of
cash or stock.
Stock appreciation rights are rights to receive, without payment to
Zap.Com, cash or shares of Zap.Com common stock with a value determined by
reference to the difference between the exercise or strike price of the stock
appreciation rights and the fair market value or other specified valuation of
the shares at the time of exercise. Stock appreciation rights may be granted in
tandem with stock options or separately.
Stock awards may consist of shares of Zap.Com common stock or be
denominated in units of shares of common stock. A stock award may provide for
voting rights and dividend equivalent rights. Stock awards may be granted at no
less than 85% of the fair market value of our common shares on the date of the
grant.
The committee may specify conditions for awards, including vesting service
and performance conditions. Vesting conditions may include, without limitation,
provision for acceleration in the case of a change-in-control of Zap.Com,
vesting conditions and performance conditions, including, without limitation,
performance conditions based on achievement of specific business objectives,
increases in specified indices and attaining specified growth measures or rates.
An award may provide for the granting or issuance of additional,
replacement or alternative awards upon the occurrence of specified events,
including the exercise of the original award.
An award may provide for a tax gross-up payment to a participant if a
change in control of Zap.Com results in the participant owing an excise tax or
other tax above the rate ordinarily applicable, due to the parachute tax
provisions of Section 280G of the Code or otherwise. The gross-up payment would
be in an amount so that the net amount received by the participant, after paying
the increased tax and any additional taxes on the additional amount, would be
equal to that receivable by the participant if the increased tax were not
applicable.
Under the 1999 Incentive Plan, in April, 1999, Zap.Com granted options to
purchase shares at an exercise price of $5.00 per share to the following persons
for the indicated number of shares: Mr. A. Glazer -- 365,000; Mr.
DiSalvo -- 100,000; Ms. Bowe -- 60,000; Mr. Forth -- 10,000; and other key
employees to be designated -- 200,000. In June 1999, Zap.Com granted options to
Mr. Guglielmino to purchase 20,000 shares at an exercise price of $5.00 per
share. All of these grants were made contingent upon the successful completion
of a previously planned rights offering. Zap.Com abandoned the rights offering
in September 1999, thereby terminating these options. On October 20, 1999, the
Zap.Com Board approved the same amounts of options under the 1999 Incentive Plan
to the same persons, (except that options for 20,000 shares were granted to Mr.
Jones, options for 2,000 shares were granted to Ms. Stone and options for 1,000
shares were granted to a key person and the remaining options were not
regranted), but at an exercise price of $2.00 per share. On January 27, 2000,
Zap.Com granted options of 25,000 shares to Mr. Guglielmino at an exercise price
of $9.00 and on January 14, 2000, granted 5,000 shares to Ms. Stone at an
exercise price of $5.50 per share. All of these options will generally vest
ratably on an annual basis over the three year period following the grant and
are for a term of five years.
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<PAGE> 59
RELATED PARTY TRANSACTIONS
ZAPATA CORPORATION
Prior to the distribution by Zapata of 477,742 shares of Zap.Com common
stock to its stockholders on November 12, 1999, Zapata provided Zap.Com with
administrative and management services, including payroll, consulting and legal.
Zapata billed Zap.Com for these services on a cost basis. These services totaled
approximately $369,000 from inception through December 31, 1999. The costs of
these services were directly charged and/or allocated using methods that
Zap.Com's management believe were reasonable.
On October 20, 1999, Zapata and Zap.Com entered into a number of agreements
for the purpose of defining their continuing relationship. These agreements are
summarized below:
Investment and Distribution Agreement. Under the investment and
distribution agreement, Zapata contributed $9,000,000 to Zap.Com in connection
with the 49,450-for-one stock split of Zap.Com's common stock consummated
immediately prior to Zapata's distribution of Zap.Com common stock to its
stockholders. The contribution consisted of $8,000,000 in cash and the
forgiveness of $1,000,000 in inter-company debt. The entire contribution was
allocated to Zapata's common stock investment.
The investment and distribution agreement provides that Zapata and Zap.Com
will indemnify each other with respect to any future losses that might arise
from Zapata's distribution, as a result of any untrue statement or alleged
untrue statement in the registration statement under which Zap.Com registered
the distribution or the omission or alleged omission to state a material fact in
the registration statement (1) in Zap.Com's case except to the extent the
statement was based on information provided by Zapata and (2) in Zapata's case,
only to the extent the loss relates to information supplied by Zapata.
Services Agreement. The services agreement provides that Zapata will
provide to Zap.Com management and administrative services, as well as the use of
designated office space and facilities. The administrative services to be
provided by Zapata, through its employees, include financial reporting,
accounting, auditing, tax, office services, payroll and human resources as well
as the management consulting services. Zap.Com will pay Zapata for these
services at the estimated cost to Zapata of providing those services. The
services agreement shall continue until terminated by either party upon 120
days' notice.
Tax Sharing and Indemnity Agreement. The tax sharing and indemnity
agreement defines the parties' rights and obligations with respect to the filing
of returns, payments, deficiencies and refunds of federal, state and other
income, franchise or other taxes relating to Zap.Com's business for periods
prior to and including the date on which Zap.Com ceases to be a member of
Zapata's consolidated tax group and with respect to tax attributes of Zap.Com
after it is no longer a member of Zapata's consolidated tax group. For periods
ending on or before the last day of the taxable year in which Zap.Com ceases to
be a part of Zapata's consolidated tax group, Zapata is responsible for;
- filing both consolidated federal tax returns for the Zapata affiliated
group and combined or consolidated state tax returns for any group that
includes a member of the Zapata affiliated group, including, in each
case, Zap.Com for the relevant periods of time that Zap.Com was a member
of the applicable group, and
- paying the taxes relating to those returns (including any subsequent
adjustments resulting from the redetermination of those tax liabilities
by the applicable taxing authorities).
Zap.Com is responsible for reimbursing Zapata for its share of those taxes, if
any. Zap.Com is also responsible for filing returns and paying taxes relating to
it for periods that begin before and end after Zap.Com ceases to be a part of
Zapata's consolidated tax group. This agreement is intended to allocate the tax
liability between Zapata and Zap.Com as if they were separate taxable entities.
Zapata and Zap.Com have also agreed to cooperate with each other and to share
information in preparing those tax returns and in dealing with other tax
matters.
Registration Rights Agreement. Under the registration rights agreement
between Zap.Com and Zapata, Zap.Com granted certain rights to Zapata with
respect to the registration under the Securities Act of the
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<PAGE> 60
shares of Zap.Com common stock owned by Zapata as of November 12, 1999. The
registration rights agreement entitles Zapata to demand Zap.Com, not more than
once in any 365 day period and on not more than three occasions after Zapata no
longer owns a majority of the voting power of the outstanding capital stock of
Zap.Com, to file a registration statement under the Securities Act covering the
registration of Zap.Com common stock held by Zapata, including in connection
with an offering by Zapata of its securities that are exchangeable for its
common stock. Zapata's demand registration rights contain various limitations,
including that the registration cover a number of shares of Zap.Com common stock
held by Zapata having a fair market value of at least $5.0 million at the time
of the request for registration and that Zap.Com may be able to temporarily
defer a demand registration to the extent it conflicts with another public
offering of securities by Zap.Com or would require Zap.Com to disclose material
non-public information. Zapata may also require Zap.Com to include Zap.Com
common stock held by Zapata in a registration by Zap.Com of its securities so
long as specified conditions are satisfied. The underwriters for the offering,
however, may limit or exclude Zap.Com common stock held by Zapata from the
offering.
Zap.Com and Zapata will share equally the out-of-pocket fees and expenses
of a demand registration and Zapata will pay its pro rata share of underwriting
discounts, commissions and related selling expenses. Zap.Com will pay all
expenses associated with a piggyback registration, except that Zapata will pay
its pro rata share of the selling expenses. The registration agreement contains
indemnification and contribution provisions:
- by Zapata for the benefit of Zap.Com and related persons, as well as any
potential underwriter, and
- by Zap.Com for the benefit of Zapata and related persons, as well as any
potential underwriter.
Zapata's demand registration rights will terminate on the date that Zapata
owns, on a fully converted or exercised basis with respect to the securities
held by Zapata, common stock representing less than 10% of the then issued and
outstanding voting stock of Zap.Com. Zapata's piggyback registration rights will
terminate when it is able to sell all of its Zap.Com common stock, including all
common stock available upon exercise of all conversion and subscription
privileges, under Rule 144 within a three month period. Zapata may transfer its
registration rights to any transferee from it of common stock that represents,
on a fully converted or exercised basis, at least 20% of the then issued and
outstanding voting stock of Zap.Com at the time of transfer; provided, however,
that the transferee will be limited to
- two demand registrations if the transfer conveys less than a majority but
more than 30%, and
- one demand registration if the transfer conveys 30% or less of the then
issued and outstanding voting stock of Zap.Com.
GLAZER INVESTMENT
In November 1999, Malcolm Glazer and Avram Glazer contributed to Zap.Com
$1,100,000 in cash in exchange for 550,000 shares of Zap.Com common stock.
AMERICAN INTERNETWORK SPORTS COMPANY, LLC
On October 20, 1999 American Internetwork Sports Company, LLC and Zap.Com
entered into a consulting agreement which requires American Internetwork Sports
to provide Zap.Com during a three year term with corporate, business and
marketing advice on sports related aspects of Zap.Com's business, including
sports related content, e-commerce opportunities, strategic alliances and Web
sites who are candidates for the ZapNetwork. American Internetwork Sports is
owned and controlled by Avram Glazer's siblings Kevin Glazer, Bryan Glazer, Joel
Glazer, Darcie Glazer and Edward Glazer. Bryan Glazer, Joel Glazer and Edward
Glazer all serve as Executive Vice Presidents of the Tampa Bay Buccaneers, which
is a member of the NFL.
In exchange for these services, Zap.Com and American Internetwork Sports
entered into a warrant agreement which provides for the issuance of warrants to
purchase up to 2,000,000 shares of Zap.Com common stock at an exercise price of
$2.00 per share. These warrants will become exercisable on a cumulative basis in
equal one-third amounts on each of the first three anniversary dates of Zapata's
November 12, 1999 distribution of our shares and have a term of five years. The
warrants will accelerate and become fully
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<PAGE> 61
exercisable in the event of a change of control or if the consulting agreement
is terminated by Zap.Com without cause. The warrant agreement requires Zap.Com
to register the shares covered by the warrants on registration statement on Form
S-8 before the first anniversary following the issuance of the warrants and to
keep the registration in effect until all of the shares issuable under the
warrants can be sold under Rule 144 of the Securities Act within a three month
period.
OTHER
Gordon E. Forth, who serves as corporate secretary of Zap.Com, is a partner
at Woods Oviatt Gilman which has acted as counsel to Zap.Com and Zapata in
connection with the distribution. Mr. Forth also serves as corporate secretary
to Zapata.
Zap.Com lacked sufficient independent directors to ratify any of the
transactions described under the "Related Party Transaction" section of this
prospectus. There can be no assurance that these agreements, or the transactions
provided for under those agreement, or any related transactions were effected on
terms at least as favorable to Zap.Com as could have been obtained from
unaffiliated third parties. All future transactions between Zap.Com and its
officers, directors or 5% stockholders, and their respective affiliates,
however, will be on terms no less favorable than could be obtained from
unaffiliated third parties. In the event that Zap.Com enters into future
affiliated transactions, they will be approved by independent directors who do
not have an interest in the transactions and who have access, at Zap.Com's
expense, to Zap.Com's counsel or independent legal counsel. Accordingly, Zap.Com
will not enter into any of these transactions until Zap.Com has two or more
independent directors on its Board.
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<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to Zap.Com regarding
beneficial ownership of Zap.Com common stock as of November 12, 1999 for (1)
each executive officer and director of Zap.Com who beneficially owns shares; (2)
each stockholder known to Zap.Com to beneficially own 5% or more of Zap.Com's
outstanding securities; and (3) all executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------
PERCENTAGE
NAME OF BENEFICIAL OWNER NO. OF SHARES OWNERSHIP
- ------------------------ ------------- ----------
<S> <C> <C>
Zapata Corporation(1)(2).................................... 48,972,258 97.9%
Avram Glazer(3)............................................. 50,020 0.1%
All executive officers and directors as a group............. 50,020 0.1%
</TABLE>
- ---------------
(1) Zapata's address is 100 Meridian Centre, Suite 350, Rochester, New York
14618. As a result of this ownership, Zapata controls Zap.Com. Malcolm
Glazer, through an entity he owns and controls, owns beneficially and of
record approximately 44% of Zapata's outstanding common stock and, by virtue
of that ownership, Malcolm Glazer may be deemed to control Zapata and,
therefore, to beneficially own the Zap.Com securities held by Zapata. Mr.
Glazer disclaims any beneficial ownership of Zap.Com's common stock
beneficially owned by Zapata.
(2) Zap.Com has registered 1,000,000 shares of Zap.Com common stock held by
Zapata for resale on a shelf basis under a separate registration statement.
These figures are subject to change if Zapata sells any of these shares.
(3) Avram Glazer's address is 100 Meridian Centre, Suite 350, Rochester, New
York 14618.
FEDERAL INCOME TAX CONSIDERATIONS
In general, a Web site owner will recognize gain or loss upon the receipt
of shares of common stock and other consideration in exchange for the Web site
rights granted to Zap.Com under the ZapNetwork agreement. The "amount realized"
in respect of the Web site rights granted to Zap.Com will include the fair
market value of the shares received and any cash or other property received in
exchange for the Web site rights. Taxable gain or loss will generally consist of
the excess of the amount realized over the Web site owner's adjusted tax basis
in those rights.
The installment method of recognizing gain will apply to the Web site
owners in the absence of disqualifying factors. Application of the installment
method will permit a Web site owner to defer recognition of gain on the
disposition of the Web site rights until the Web site owner actually receives
the shares of common stock or other property. Thus, gain on an installment sale
will be spread over the period in which the installment payments are received,
rather than being taxed in the year in which the Web site owner transfers the
Web site rights. The installment method is not available to a transaction where
a loss is sustained.
Each Web site owner should consult their own tax advisor concerning the
amount, the timing and the character of any gain or loss recognized as long-term
or short-term capital gain or loss (or as ordinary income or loss), which will
be determined by a number of factors, including the tax status of the holder,
whether the Web site rights have been held for more than 1 year, the costs of
building the Web site, and whether and to what extent the holder has previously
claimed a deduction for those costs.
Web site owners should consult their own tax advisor concerning tax
consequences of the granting of the Web site rights to Zap.Com and holding or
disposing of the shares received from Zap.Com under applicable state and local
laws. Site owners that are Non-U.S. persons should also consult their tax
advisors regarding the United States and foreign tax consequences of the
acquisition, holding or disposition of the Web site rights and the shares.
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DESCRIPTION OF SECURITIES
AUTHORIZED CAPITAL STOCK
Zap.Com's authorized capital stock consist of (1) 1,500,000,000 shares of
Zap.Com common stock, par value $.001 per share and (2) 150,000,000 shares of
preferred stock, par value $.01 per share, all of which are undesignated. As of
the date of this prospectus, Zap.Com has outstanding 50,000,000 shares of common
stock. The following summary description of Zap.Com's capital stock and other
securities is qualified in its entirety by reference to Zap.Com's Restated
Articles of Incorporation and Amended and Restated By-Laws, each of which is
filed as an exhibit to the registration statement of which this prospectus forms
a part and to the applicable provisions of the Nevada Corporate Law.
Common Stock
The holders of the outstanding common stock are entitled to receive and
share ratably dividends if, as and when declared by the board of directors out
of funds legally available with respect to Zap.Com's outstanding common stock.
Please see "Dividend Policy." In addition, in the event of a liquidation,
dissolution or winding-up of Zap.Com, the holders of common stock are entitled
to share equally and ratably in the net assets of Zap.Com, if any, remaining
after paying all debts and liabilities of Zap.Com and payment of all liquidation
preferences of any outstanding shares of preferred stock.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights.
Each outstanding share of common stock is fully paid and nonassessable. The
rights, preferences, and privileges of the holders of common stock may be
adversely affected by any class or series of preferred stock which Zap.Com may
designate and issue in the future.
Preferred Stock
The Zap.Com board has the authority to issue up to 150,000,000 shares of
preferred stock in one or more series and to fix the number of shares
constituting the series and the preferences, limitations and relative rights,
including dividend rights, dividend rate, voting rights, terms of redemption,
redemption price or prices, conversion rights and liquidation preferences of the
shares constituting any series, without any further vote or action by the
Zap.Com stockholders. The issuance of preferred stock by the Zap.Com board could
adversely affect the rights of holders of common stock.
The potential issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of Zap.Com and may discourage bids
for Zap.Com common stock at a premium over its market price and may adversely
affect the market price of, and the voting and other rights of the holders of,
the Zap.Com common stock. Zap.Com has no current plans to issue any shares of
preferred stock.
ANTI-TAKEOVER EFFECTS OF NEVADA LAW AND CHARTER
Board of Directors
Zap.Com's Restated Articles of Incorporation provide that, except as
otherwise fixed by the provisions of a certificate of designation containing the
rights of the holders of any class or series of preferred stock, the number of
the directors of Zap.Com will be fixed from time to time exclusively through a
resolution adopted by a majority of the total number of directors which Zap.Com
would have if there were no vacancies. After the size of the board is expanded
to three or more directors, the directors, other than those who may be elected
by the holders of preferred stock, will be automatically classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible. The terms of the directors elected first to
the Zap.Com board will expire at the next annual meeting of stockholders after
which the classified board becomes effective and the remaining directors will be
designated by the directors first elected to the board to one of the other two
classes. The terms of these two classes will expire at the second and third
annual stockholders' meeting occurring after the classified board becomes
effective. Commencing with the
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<PAGE> 64
first annual meeting of stockholders occurring after the classified board
becomes effective, directors elected to succeed directors whose terms then
expire will be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election, with each director to hold
office until the person's successor is duly elected and qualified.
The Articles provide that except as otherwise provided for or fixed by a
certificate of designation containing the rights of the holders of any class or
series of preferred stock, newly created directorships resulting from any
increase in the number of directors and any vacancies on the Zap.Com board
resulting from death, resignation, disqualification, removal or other cause will
be filled by the affirmative vote of a majority of the remaining directors then
in office, even though less than a quorum of Zap.Com's board, and not by the
stockholders. Any director elected in accordance with the preceding sentence
will hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until the
director's successor shall have been duly elected and qualified. No decrease in
the number of directors constituting the Zap.Com board will shorten the term of
any incumbent director. Any director elected by the holders of our common stock
may be removed from office only for cause by the affirmative vote of the holders
of at least 66 2/3% of the voting power of all voting stock then outstanding,
voting together as a single class.
Once the classified board is effective, these provisions will preclude a
third party from removing incumbent directors and simultaneously gaining control
of the Zap.Com board by filling the vacancies created by removal with its own
nominees. Under the classified board provisions described above, it would take
at least two elections of directors for any individual or group to gain control
of the Zap.Com board. Accordingly, these provisions could discourage a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of Zap.Com.
Special Meetings of Stockholders
Zap.Com's Articles provide that special meetings of the stockholders of
Zap.Com can be called only by the chairman of the board of directors, or a
majority of the members of the board of directors. A special meeting may also be
called by Zapata so long as it continues to hold 50% or more of the voting power
of all classes of outstanding capital stock of Zap.Com.
Written Consent
Under Zap.Com's Articles, the stockholders of Zap.Com may not take action
in writing without a meeting of the stockholders after the date on which Zapata
no longer beneficially owns at least 50% of the voting power of all classes of
outstanding capital stock.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Zap.Com's by-laws require that timely notice in writing be provided by
stockholders seeking to bring business before, or to nominate candidates for
election as directors at, the annual meeting of stockholders. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of Zap.Com not less than 120 days nor more than 150
days prior to the first anniversary of the date of Zap.Com's notice of annual
meeting provided with respect to the previous year's annual meeting of
stockholders. If no annual meeting of stockholders was held in the previous year
or the date of the annual meeting of stockholders has been changed to be more
than 30 days earlier than or 60 days after that anniversary, notice will be
timely if received no more than 90 days later than the later of
- 60 days prior to the annual meeting of stockholders, or
- the close of business on the 10th day following the date on which notice
of the date of the meeting is given to stockholders or made public,
whichever first occurs.
Zap.Com's by-laws also specify requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from timely
bringing matters before, or from nominations for directors at, an annual meeting
of stockholders.
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<PAGE> 65
Amendments
The Articles provide that the affirmative vote of the holders of at least
66 2/3% of Zap.Com's voting stock, voting together as a single class, is
required to amend provisions of the Articles relating to stockholder action
without a meeting; the calling of special meetings; the number, election and
term of the Zap.Com directors; the filling of vacancies; and the removal of
directors. The Articles further provide that the related by-laws described above
(including the stockholder notice procedure) may be amended only by the Zap.Com
board or by the affirmative vote of the holders of at least 66 2/3% of the
voting power of the outstanding shares of voting stock, voting together as a
single class.
NEVADA ANTI-TAKEOVER LAWS AND ZAP.COM CHARTER PROVISIONS
The Nevada Code contains provisions restricting the ability of a Nevada
corporation to engage in business combinations with an interested stockholder.
Under the Nevada Code, except under specified circumstances, business
combinations with interested stockholders are not permitted for a period of
three years following the date the stockholder becomes an interested
stockholder. The Nevada Code defines an interested stockholder, generally, as a
person who is the beneficial owner, directly or indirectly, of 10% or more of
the outstanding shares of a Nevada corporation. As permitted under Nevada law,
Zap.Com has "opted out" of the application of the business combination statute
by inserting a provision doing so in its Articles. The Articles can be amended
at any time to subject Zap.Com to the effect of the business combinations
statutes. Under Nevada law, the Articles may be amended with a resolution
adopted by the Zap.Com board and ratified by a vote of a majority of the voting
power of Zap.Com's outstanding voting stock.
In addition to the business combination statute, the Nevada Code generally
disallows the exercise of voting rights with respect to "control shares" of an
"issuing corporation" held by an "acquiring person," unless the voting rights
are conferred by a majority vote of the disinterested stockholders. "Control
shares" are those outstanding voting shares of an issuing corporation which an
acquiring person and those persons acting in association with an acquiring
person
- acquire or offer to acquire in an acquisition of a controlling interest,
and
- acquire within ninety days immediately preceding the date when the
acquiring person became an acquiring person.
An "issuing corporation" is a corporation organized in Nevada which has two
hundred or more stockholders, at least one hundred of whom are stockholders of
record and residents of Nevada, and which does business in Nevada directly or
through an affiliated corporation. While Zap.Com does not currently exceed the
control share statute thresholds, it may do so in the future. Further, Zap.Com
does not "do business" in Nevada within the meaning of the control share
acquisition statute and it does not plan to do so. Therefore, the control share
acquisition statute does not currently apply to Zap.Com.
If the business combination statute and/or the control share acquisition
statute becomes applicable to Zap.Com in the future, the cumulative effect of
these terms may be to make it more difficult to acquire and exercise control of
Zap.Com and to make changes in management more difficult.
The Nevada Code permits directors to resist a change or potential change in
control of the corporation if the directors determine that the change or
potential change is opposed to or not in the best interest of the corporation.
As a result, Zap.Com's board of directors may have considerable discretion in
considering and responding to unsolicited offers to purchase a controlling
interest in Zap.Com.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Zap.Com believes that provisions contained within its Articles and by-laws
will be useful to attract and retain qualified persons as directors and
officers. The Articles limit the liability of directors to the fullest extent
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permitted by Nevada law. This is intended to relieve Zap.Com's officers and
directors from monetary liabilities for breach of their fiduciary duties as
directors, except for:
- acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or
- the willful or grossly negligent payment of unlawful distributions.
Zap.Com's Articles and by-laws generally require Zap.Com to indemnify, its
directors and officers to the fullest extent permitted by Nevada law. The
Articles and Zap.Com's by-laws also require Zap.Com to advance expenses, to its
directors and its officers to the fullest extent permitted by Nevada law upon
receipt of an undertaking by or on behalf of that director or officer to repay
the amount if it should be ultimately determined that they are not entitled to
indemnification by Zap.Com.
Prior to the consummation of distribution, Zap.Com intends to enter into
agreements with its officers and directors which provides for the
indemnification and advancement of expenses by Zap.Com. Zap.Com also intends to
obtain, prior to the consummation of the distribution, officer and director
liability insurance with respect to liabilities arising out of matters,
including matters arising under the Securities Act.
At present there is no pending litigation or proceeding involving a
director, officer, associate or other agent of Zap.Com for which indemnification
is being sought. Zap.Com is also not aware of any threatened litigation that may
result in claims for indemnification.
TRANSFER AGENT & REGISTRAR
The transfer agent and registrar for Zap.Com common stock is American Stock
Transfer & Trust Company.
EXPERTS
The financial statements as of December 31, 1999 and December 31, 1998 and
for the periods then ended and for the cumulative period from April 2, 1998
(date of inception) to December 31, 1999 included in this prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
LEGAL MATTERS
Certain matters relating to this Offering are being passed upon by, Woods
Oviatt Gilman of Rochester, New York. Woods Oviatt Gilman is legal counsel to
both Zapata and Zap.Com and a partner of the firm is corporate secretary for
both corporations.
ADDITIONAL INFORMATION
Zap.Com has filed with the Securities and Exchange Commission a
registration statement, which includes exhibits, under the Securities Act of
1933 for the securities offered by this prospectus. This prospectus contains
general information about the contents of contracts and other documents filed as
exhibits to the registration statement. However, this prospectus does not
contain all of the information set forth in the registration statement and the
exhibits filed with the registration statement. You should read the registration
statement and the exhibits for further information about Zap.Com. You may read
and copy all or any portion of the registration statement or any other
information the company files at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's web site (http://www.sec.gov).
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended. In accordance with those
requirements, we file periodic reports, proxy statements and other information
with the SEC.
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<PAGE> 67
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Cash Flows.................................... F-5
Statements of Changes in Stockholders' Equity (Deficit)..... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 68
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Zap.Com Corporation
In our opinion, the accompanying balance sheets and related statements of
operations, cash flows and changes in stockholders' equity (deficit) present
fairly, in all material respects, the financial position of Zap.Com Corporation
(a Development Stage Company, the "Company") at December 31, 1999 and December
31, 1998 and the results of its operations and its cash flows for the period
from April 2, 1998 (date of inception) to December 31, 1998, for the year ended
December 31, 1999, and for the cumulative period from April 2, 1998 (date of
inception) to December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with the auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
January 28, 2000
New Orleans, Louisiana
F-2
<PAGE> 69
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND NOTES
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................... $ -- $ 7,579,363
Interest receivable......................................... -- 45,914
Prepaid assets and other receivables........................ -- 549,466
----- ------------
Total current assets................................... -- 8,174,743
Property and equipment, net................................. -- 41,424
Capitalized software costs.................................. -- 272,581
----- ------------
Total assets...................................... $ -- $ 8,488,748
===== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Current liabilities:
Accounts payable............................................ $ -- $ 299,538
Due to related party........................................ -- 39,588
Accrued liabilities......................................... -- 410,179
Amounts due to stockholder and affiliates................... 783 3,900
----- ------------
Total current liabilities.............................. 783 753,205
----- ------------
Total liabilities................................. 783 753,205
----- ------------
COMMITMENT & CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value, 1,500,000,000 shares
authorized, 49,450,000 shares issued and outstanding as
of December 31, 1998; $.001 par value, 1,500,000,000
shares authorized, 50,000,000 issued and outstanding as
of December 31, 1999................................... 10 50,000
Additional paid in capital................................ -- 21,549,996
Preferred stock, $0.01 par value, 150,000,000 shares
authorized, 0 shares issued and outstanding as of
December 31, 1998 and 1999............................. -- --
Deficit accumulated during the development stage.......... (793) (3,535,733)
Deferred consulting expense.......................... -- (10,328,720)
----- ------------
Total stockholders' (deficit) equity................... (783) 7,735,543
----- ------------
Total liabilities and stockholders' equity............. $ -- $ 8,488,748
===== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 70
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
FROM APRIL 2, 1998 FROM APRIL 2, 1998
(DATE OF INCEPTION) FOR THE (DATE OF INCEPTION)
THROUGH YEAR ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1999
------------------- ----------------- -------------------
<S> <C> <C> <C>
Revenues.................................. $ -- $ -- $ --
Cost of revenues.......................... -- 141,160 141,160
---------- ----------- -----------
Gross profit............................ -- (141,160) (141,160)
Operating expenses:
Product development..................... -- 52,388 52,388
Sales and marketing..................... -- 1,696,539 1,696,539
General and administrative.............. 793 1,690,907 1,691,700
Depreciation............................ -- 8,105 8,105
---------- ----------- -----------
Total operating expenses............. 793 3,447,939 3,448,732
---------- ----------- -----------
Loss from operations................. (793) (3,589,099) (3,589,892)
Interest income........................... -- 54,159 54,159
---------- ----------- -----------
Loss before income taxes.................. (793) (3,534,940) (3,535,733)
Benefit from income taxes (Note 7)........ -- -- --
---------- ----------- -----------
Net loss.................................. $ (793) $(3,534,940) $(3,535,733)
========== =========== ===========
Per share data (basic and diluted):
Net loss per share........................ $ (.00) $ (.07) $ (.07)
========== =========== ===========
Average common shares and common share
equivalents outstanding.............. 49,450,000 49,525,342 49,493,036
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 71
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
FROM APRIL 2, 1998 FROM APRIL 2, 1998
(DATE OF INCEPTION) FOR THE (DATE OF INCEPTION)
THROUGH YEAR ENDED THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1999 DECEMBER 31, 1999
-------------------- ----------------- --------------------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss.............................. $(793) $(3,534,940) $(3,535,733)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation....................... -- 8,105 8,105
Warrants expense................... -- 1,171,276 1,171,276
Changes in assets and liabilities
Interest receivable.............. -- (45,914) (45,914)
Prepaid expenses................. -- (549,466) (549,466)
Accounts payable................. -- 299,538 299,538
Accrued liabilities.............. -- 410,179 410,179
----- ----------- -----------
Total adjustments............. -- 1,293,718 1,293,718
----- ----------- -----------
Net cash used in operating
activities.................... (793) (2,241,222) (2,242,015)
----- ----------- -----------
Cash flows used by investing activities:
Capital additions..................... -- (282,522) (282,522)
----- ----------- -----------
Net cash flows used by investing
activities.................... -- (282,522) (282,522)
----- ----------- -----------
Cash flows provided by financing
activities:
Issuance of common stock and
recapitalization of common stock... 10 49,990 50,000
Additional paid in capital............ -- 10,050,000 10,050,000
Amounts due to stockholder and
affiliates......................... 783 3,117 3,900
----- ----------- -----------
Net cash flows provided by
financing activities.......... 793 10,103,107 10,103,900
----- ----------- -----------
Net change in cash and cash
equivalents........................... -- 7,579,363 7,579,363
Cash and cash equivalents at beginning
of period............................. -- -- --
----- ----------- -----------
Cash and cash equivalents at end of
period................................ $ -- $ 7,579,363 $ 7,579,363
===== =========== ===========
Supplemental schedule of noncash
investing activities
Transfer of equipment from related
party.............................. $ -- $ 39,588 $ 39,588
===== =========== ===========
Supplemental schedule of noncash
financing activities
Warrants issued for consulting
services-fair value................ $ -- $11,499,996 $11,499,996
===== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 72
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
-------------------- DURING THE DEFERRED STOCKHOLDERS'
SHARES PAID IN DEVELOPMENT CONSULTING EQUITY
(NOTE 8) AMOUNT CAPITAL STAGE EXPENSE (DEFICIT)
---------- ------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 2, 1998 (date of
inception)..................... -- $ -- $ -- $ -- $ -- $ --
Issuance of 49,450,000 shares
common stock on April 2, 1998
at no par value................ 49,450,000 10 -- -- -- 10
Net loss for the period from
April 2, 1998 to December 31,
1998........................... -- -- -- (793) -- (793)
---------- ------- ----------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1998....... 49,450,000 10 -- (793) -- (783)
Recapitalization of common stock,
November 12, 1999 (Note 3)..... -- 49,440 -- -- -- 49,440
Common stock issued.............. 550,000 550 1,099,450 -- -- 1,100,000
Additional capital
contribution --
Zapata Corporation............. -- -- 8,950,550 -- -- 8,950,550
Warrants issued.................. -- -- 11,499,996 -- (11,499,996) --
Warrants expense................. -- -- -- -- 1,171,276 1,171,276
Net loss..................... -- -- -- (3,534,940) -- (3,534,940)
---------- ------- ----------- ----------- ------------ -----------
BALANCE, DECEMBER 31, 1999....... 50,000,000 $50,000 $21,549,996 $(3,535,733) $(10,328,720) $ 7,735,543
========== ======= =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 73
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND ORGANIZATION
Zap.Com Corporation (formerly known as Zap Internetworks, Inc), a Nevada
corporation (the "Company", "Zap.Com") was incorporated in April 1998 and is a
majority-owned subsidiary of Zapata Corporation ("Zapata"). Zap.Com is a
development stage company which was formed to engage in an Internet business
through the development of the ZapNetwork, which seeks to become a global
network of independently owned Web sites that deploy the Company's Web
application, the ZapBox, on a perpetual basis through which the Company will
distribute user content, advertising and e-commerce. The Company has not yet
commenced significant operations, and its primary activity to date has been
research and investigation of Internet industry opportunities and the
development of the Company's business model, the establishment of strategic
relationships to provide internet connectivity and technology systems to support
its network which it plans to build and the creation of the ZapBox and the
Zap.Com homepage. In order to successfully execute its business model, the
Company must contract with Web sites to participate in the Company's network,
and complete the public registration of its common stock to be used to acquire
space on the independent Web sites who join the Company's network. The business
model to be employed by the Company and its potential for profit is unproven.
The Company anticipates incurring significant operating losses and capital
expenditures for the foreseeable future. The Company has adopted a fiscal
year-end of December 31.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are presented as if the Company had
existed as a corporation separate from Zapata Corporation for the periods
presented and include the historical assets, liabilities, revenues and expenses
that are directly related to the business that will comprise the Company's
operations.
General and administrative expenses reflected in the financial statements
include allocations of certain corporate expenses from Zapata for which
management took into consideration personnel, space, estimates of time spent to
provide services, or other appropriate bases. Management believes the foregoing
allocation of these costs were made on a reasonable basis; however, they do not
necessarily equal the costs which would have been or will be incurred by the
Company prospectively.
The financial information included herein may not necessarily reflect the
financial position and results of operations of the Company in the future or
what the financial position and results of operations of the Company would have
been had it been a separate, stand-alone company during the periods covered.
Cash and Cash Equivalents
The Company considers all highly liquid debt of instruments with an
original maturity of 90 days or less to be cash equivalents. Cash and cash
equivalents are carried at cost, which approximates market.
Property and Equipment
Property, equipment and software are stated at cost, less accumulated
depreciation. Depreciation is based on the estimated useful lives of property
and equipment using the straight-line method. The estimated useful lives for
most depreciable assets are five to seven years.
Internal Use Software
The Company capitalizes software for internal use in accordance with
Statement of Position ("SOP") 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". This standard requires certain
direct development costs associated with internal use software to be capitalized
F-7
<PAGE> 74
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
including external direct costs of material and services and payroll costs for
employees devoting time to the software projects. These costs are amortized over
the useful life of the software beginning when the asset is substantially ready
for use. Costs incurred during the preliminary project stage as well as for
maintenance and training are expensed as incurred. Internal use software will be
depreciated over three years.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the amount by which the carrying amount of the assets exceeds
the fair value of the assets.
Deferred Consulting Expense
Deferred expenses for warrants represents the current cumulative unearned
value of warrants issued to non-employees for consulting services. The Company
accounts for these warrants in accordance with Emerging Task Force Issue
("EITF") 96-18 "Accounting For Equity Instruments That Are Issued To Other Than
Employees For Acquiring, Or In Conjunction With Selling, Goods or Services"
which requires such transactions to be expensed based on the then current fair
value of the warrants at the end of each reporting period with adjustment of
prior period expense to actual expense at each vesting date.
Earnings Per Share
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" requires presentation of basic loss per share and diluted loss per share
for all periods presented. Basic loss per share is computed by dividing the net
loss by the sum of the weighted average number of shares of common stock
outstanding. Diluted earnings per share is based on the potential dilution that
would occur on exercise or conversion of securities into common stock. At
December 31, 1999, outstanding options for 578,000 and warrants for 2,000,000
shares of common stock with weighted average per share exercise prices of $2.00
that could potentially dilute basic earnings per share in the future were not
included in the computation of diluted net loss per share because to do so would
have an antidilutive effect for the periods presented.
Start-up Costs
In accordance with AICPA SOP 98-5 -- "Reporting on the Costs of Start-up
Activities", the Company expenses all start-up activities, including
organization costs, as they are incurred.
Cost of Revenues
Cost of revenues consist primarily of hosting, bandwidth, communications,
ad delivery, and content license fees costs associated with the Company's banner
and other Internet properties.
Product Development
Product development expenses consist primarily of costs for research,
design and development of the Company's proprietary Internet properties.
Income Taxes
The Company utilizes the liability method to account for income taxes. This
method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of existing temporary differences between the
financial reporting and tax reporting basis of assets and liabilities, and
operating loss and tax credit carry forwards for tax purposes. The Company is
included in Zapata's consolidated U.S. federal
F-8
<PAGE> 75
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 deferred tax assets to a level
which, more likely than not, will be realized. Primary factors considered by
management to determine the size of the allowance include the estimated taxable
income level for future years and the limitations on the use of such carry
forwards and expiration dates.
Equity Based Compensation
The Company accounts for its employee stock option plans in accordance with
the provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. As such, compensation expense related
to employee stock options is recorded only if, on the date of grant, the fair
value of the underlying stock exceeds the exercise price. The Company adopted
the disclosure-only requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation", which allows entities to continue to apply the provisions of APB
Opinion No. 25 for transactions with employees and provide pro forma net income
and pro forma earnings per share disclosures for employee stock grants made in
1999 and future years as if the fair-value-based method of accounting in SFAS
No. 123 had been applied to these transactions.
Comprehensive Income
Effective January 1, 1999, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
Segments
Effective January 1, 1999, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The Company has determined that it does not have any separately
reportable business segments as of December 31, 1998 and December 31, 1999.
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.
Recent Accounting Pronouncements
In June 1998, The Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." The statement
requires the recognition of all derivatives as either assets or liabilities in
the balance sheet and the measurement of those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the planned
use of the derivative and the resulting designation. Because the Company does
not currently hold any derivative instruments and does not engage in hedging
activities, the impact of the adoption of SFAS No. 133 is not currently expected
to have a material impact on financial position, results of operations or cash
flows. The Company will be required to implement SFAS No. 133 in the first
quarter of fiscal 2001.
F-9
<PAGE> 76
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. STOCKHOLDERS' EQUITY (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 December 31, 1999 and December 31, 1998, the Company has accumulated a
deficit during its development stage of $3,535,733 and $793, respectively. The
Company will continue to incur a development stage deficit until it begins its
planned operations, at which point, the Company will accumulate its operating
results in retained earnings.
In September 1999, Zapata advised the Company of the Zapata Board's
intention to declare a dividend, payable to its stockholders, of one share of
Zap.Com common stock for every 50 shares of Zapata common stock on a record date
to be determined. On October 26, 1999, a record date of November 5, 1999 was
declared. The primary purpose of the distribution was the creation of a public
market for the Company's common stock and future access to public markets.
In November 1999, the Company amended and restated its Articles of
Incorporation to revise its capital structure. Subsequent to the amendment,
Zap.Com's authorized capital stock consisted 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. Also, the Company Board of Directors
approved a 49,450 for one stock split immediately prior to the distribution. All
share and per share information has been retroactively restated to reflect this
split.
On November 12, 1999, Zapata distributed 477,742 shares of Zap.Com common
stock to its stockholders. Also, on November 12, 1999, Zapata provided the
Company with $9,000,000, including $49,450 to meet the stated capital
requirements of Nevada law to effectuate the 49,450 for one stock split which
occurred immediately prior to the distribution. The contribution consisted of
$8,000,000 in cash and the forgiveness of $1,000,000 of inter-company debt. At
the same time, Malcolm Glazer and Avram Glazer contributed $1,100,000 in
exchange for 550,000 shares of Zap.Com common stock.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment primarily consists of server and network equipment,
the majority of which was transferred from a wholly owned subsidiary of Zapata.
The equipment transfer was recorded at the cost basis of the assets to the
transferor of approximately $40,000 on the transfer date of February 28, 1999.
Zap.Com depreciates these assets over their remaining useful life of
approximately 5 years. The company recorded depreciation expense of
approximately $8,000 for the twelve month period ending December 31, 1999. No
depreciation expense was recorded for the period ended December 31, 1998.
NOTE 5. CAPITALIZED SOFTWARE COSTS
Capitalized software costs consists of the costs incurred during the
development of ZapBox. The ZapBox is a software application which enables the
Company to sell advertising across its network and is developed under a
development, service and license agreement with a third party vendor. Future
versions of the ZapBox to the extent that they add functionality that enable
advertising on the Company's network will be capitalized. Maintenance and
training costs will be expensed as incurred. These costs will be amortized over
a three year period on a straight line basis beginning in the period in which
the software is placed in service. As of December 31, 1999 the Company has
capitalized $272,581 in software development costs. The ZapBox became functional
in January, 2000 at which time the Company will begin to amortize these costs.
F-10
<PAGE> 77
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Accrued audit and legal costs...................... $-- $145,000
Accrued printing costs............................. -- 203,553
Accrued expenses................................... -- 61,626
-- --------
$-- $410,179
== ========
</TABLE>
NOTE 7. INCOME TAXES
As a result of net operating losses, the Company has not recorded a
provision for income taxes. The components of the deferred tax assets and
related valuation allowance at December 31, 1998 and December 31, 1999,
respectively are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $278 $1,237,507
---- ----------
Total deferred tax assets........................ 278 1,237,507
Less: valuation allowance........................ (278) (1,237,507)
---- ----------
Net deferred taxes................................. $ -- $ --
==== ==========
</TABLE>
At December 31, 1998 and 1999, the Company fully reserved it deferred tax
assets. The Company believes sufficient uncertainty exists regarding the
realizability of the deferred tax assets such that a full valuation allowance is
required. As of December 31, 1999, Zap.Com has $3,535,733 of net operating loss
carry forwards that expire in 2019.
NOTE 8. STOCK OPTIONS AND STOCK ISSUANCE PLANS:
The Company's 1999 Long-Term Incentive Plan (the "1999 Plan") provides for
the ability of the Company to provide awards to existing and future officers,
other employees, consultants and directors of the Company from time to time. The
1999 Plan is intended to promote the long-term financial interests and growth of
the Company by providing employees, officers, directors and consultants of the
Company with appropriate incentives and rewards to enter into and continue in
the employ of, or relationship with, the Company and to acquire a proprietary
interest in the long-term success of the Company.
Under the 1999 Plan 3,000,000 shares of common stock are available for
awards. The 1999 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. The 1999 Plan provides that awards may be made thereunder of stock
options, restricted stock grants, stock appreciation rights and cash awards.
Future allocation of awards under the 1999 Plan is not currently
determinable as the allocation is dependent upon future decisions to be made by
the committee in its sole discretion, and the applicable provisions of the 1999
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 Plan, valued at fair market value on the date of exercise or any
combination of cash or stock.
Stock appreciation rights are rights to receive, without payment to
Zap.Com, cash or shares of Zap.Com common stock with a value determined by
reference to the difference between the exercise or strike price of
F-11
<PAGE> 78
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the stock appreciation rights and the fair market value or other specified
valuation of the shares at the time of exercise. Stock appreciation rights may
be granted in tandem with stock options or separately.
Stock awards may consist of shares of Zap.Com common stock or be
denominated in units of shares of common stock. A stock award may provide for
voting rights and dividend equivalent rights. The committee may specify
conditions for awards, including vesting service and performance conditions.
Vesting conditions may include, without limitation, provision for acceleration
in the case of a change-in-control of Zap.Com, vesting conditions and
performance conditions, including, without limitation, performance conditions
based on achievement of specific business objectives, increases in specified
indices and attaining specified growth measures or rates.
On October 20, 1999, the Company granted options to purchase up to 578,000
shares of Zap.Com common stock at $2.00 per share to persons who are Zap.Com
executives and key employees. These options will vest ratably on an annual basis
during the first three years following their issuance and have five year terms.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Options Outstanding at April 2, 1998 (Date of Inception).... -- $ --
Granted..................................................... -- --
------- -----
Options Outstanding at December 31, 1998.................... -- --
Granted..................................................... 578,000 $2.00
------- -----
Options Outstanding at December 31, 1999.................... 578,000 $2.00
======= =====
Options Exercisable at December 31, 1999.................... -- $ --
======= =====
</TABLE>
Additional information with respect to the outstanding options as of
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE AVERAGE
RANGE OF SHARES REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTR. LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.00 578,000 5.00 $2.00 -- --
======= ======== ===== == ==
</TABLE>
The Company has elected to follow the measurement provisions of APB Opinion
No. 25, under which no recognition of expense is required in accounting for
stock options granted to employees for which the exercise price equals or
exceeds the fair market value of the stock at the grant date. All of the
outstanding options at December 31, 1999 under the 1999 Plan were granted prior
to the Company becoming a public company. Accordingly, the Company determined
there was no compensation expense attributable to these options based on an
independent valuation of the Company on the date of grant.
To estimate compensation expense which would be recognized under SFAS No.
123, "Accounting for Stock-based Compensation", the Company uses the modified
Black-Scholes option-pricing model with the following weighted-average
assumptions for options granted through December 31, 1999: risk-free interest
rate of 5.92%, expected dividends of 0%, no volatility (prior to becoming a
public company), and an expected life of four years.
Had compensation expense for the 1999 Plan been determined based on fair
value at the grant date for the awards under the Plan consistent with SFAS No.
123 the Company's net losses for the period from
F-12
<PAGE> 79
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
April 2, 1998 (date of inception) through December 31, 1998, and the year ended
December 31, 1999, would have been adjusted to the following pro forma amounts:
<TABLE>
<CAPTION>
APRIL 2, 1998
(DATE OF INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ------------
<S> <C> <C>
Net Loss, As Reported................................. $ (793) $(3,534,940)
Net Loss, Pro Forma................................... $ (793) $(3,554,990)
Basic Net Loss Per Share, Pro Forma................... $(0.00) $ (0.07)
</TABLE>
NOTE 9. RELATED PARTY TRANSACTIONS
The Company has utilized the services of the management and staff of its
majority shareholder, Zapata, during its start-up period. The actual payroll and
related fringe benefit costs for these employees of approximately $369,000 was
allocated to the Company using a percentage of time analysis.
Zap.Com's headquarters in Rochester, New York are located in space
subleased to it by Zapata. Under the sublease agreement, annual rental payments
are allocated on a cost basis. Total rental payments to Zapata in 1999 were
$31,900.
The Company also received server and network equipment from a related
entity to operate its Web site www.zap.com, and to perform beta testing on the
ZapBox. The Company recorded the assets at the cost to the transferor of
approximately $40,000. No gain or loss was recognized on the transaction.
During 1998, LFG, Inc. commenced a legal action against Zapata and Zap
Corp. (a wholly-owned subsidiary of Zapata and an affiliate of the Company). The
action alleged that Zapata and Zap Corp. were guilty of trademark infringement
and other federal and state statutes because of their use of Zap trade name and
the Internet domain name "Zap.com." In April 1999, Zapata and Zap Corp. reached
an agreement in principal with LFG that secured a general release from the
action in exchange for a cash payment and the furnishing of limited advertising
for LFP on Zap Corp.'s Web site for a two year period. Additionally, LFG agreed
not to sue or otherwise oppose the use by Zapata or its subsidiaries and
successors and assigns for the use of the "Zap" mark in connection with
specified activities including the use of the "Zap" mark in connection with the
Company's network.
As of and prior to November 12, 1999, Zap.Com had satisfied all of its
startup and offering costs with borrowings from Zapata. On November 12, 1999,
Zapata contributed $9,000,000 in cash and forgave $1,000,000 in intercompany
debt from the Company pursuant to the completion of the distribution. The
Company used the proceeds to pay down the remainder of its debt to Zapata and to
fund its day to day operations.
On October 20, 1999, the Company granted to American Internetwork Sports
Company, LLC stock warrants in consideration for sports related consulting
services. American Internetwork Sports is owned by the siblings of the Company's
president and Chief Executive Officer, Avram Glazer. The Company accounts for
this transaction in accordance with Financial Accounting Standards Board EITF
96-18, which requires the recognition of expense based on the then current fair
value of the warrants at the end of each reporting period with adjustment of
prior period expense to actual expense at each vesting date. Accordingly, the
Company estimated the fair value of the warrants at December 31, 1999 using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: dividend yield of 0.00%, risk-free interest rate of 6.15%; an
expected life of 3.75 years and a volatility of 442.2%. Based on these
assumptions, the fair value of each warrant at December 31, 1999 was $5.75. As a
result, the Company recorded the expected cost of all
F-13
<PAGE> 80
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2,000,000 warrants of approximately $11,500,000 as paid in capital-warrants with
an equal offset to deferred expense-warrants. The deferred consulting expenses
will be ratably charged to earnings over the three year vesting period of the
warrants. As of December 31, 1999, approximately $1,171,000 was charged to
earnings for these warrants.
NOTE 10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues.............................. $ -- $ -- $ -- $ --
Total operating expenses.............. $ 304,185 $ 361,550 $ 745,813 $ 2,036,391
Loss from operations.................. $ (304,185) $ (361,550) $ (745,813) $(2,177,551)
Interest income....................... $ -- $ -- $ -- $ 54,159
Net loss.............................. $ (304,185) $ (361,550) $ (745,813) $(2,123,392)
Per share data (basic and diluted):... $ (0.01) $ (0.01) $ (0.02) $ (0.04)
Shares outstanding.................... 49,450,000 49,450,000 49,450,000 50,000,000
</TABLE>
NOTE 11. SUBSEQUENT EVENT
On January 27, 2000, Zap.Com granted stock options to an officer of Zap.Com
to purchase up to 25,000 shares of common stock at an exercise price of $9.00
per share. On January 14, 2000 Zap.com granted to an officer of Zap.Com options
to purchase up to 5,000 shares of common stock at an exercise price of $5.50 per
share.
F-14
<PAGE> 81
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ZAP.COM LOGO]
PROSPECTUS
20,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
DATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 82
ALTERNATE COVER PAGE FOR SHELF PROSPECTUS
PROSPECTUS
SUBJECT TO COMPLETION MARCH 3, 2000
[LOGO]
30,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
------------------------
This prospectus covers 30,000,000 shares of common stock which may be
offered and issued by Zap.Com Corporation, from time to time, in connection with
one or more future acquisitions of companies, businesses or assets complementary
to Zap.Com's existing business (including future acquisitions of rights granted
with respect to one or more Web sites by Web site owners who join the
ZapNetwork) or in connection with future promotions or similar events. These
shares will ordinarily represent consideration paid by Zap.Com. The
consideration for any of these transactions may consist of common stock, cash,
notes or other evidences of debt, convertible or exchangeable securities,
assumptions of liabilities or a combination of these. As of the date of this
prospectus, Zap.Com has not issued any shares of common stock for any
transaction described in the prospectus and has not definitively identified any
transaction in which it may issue additional shares covered by this prospectus.
At the time that Zap.Com identifies a specific transaction in which shares will
be issued, Zap.Com will amend or supplement this prospectus and the registration
statement of which this prospectus is a part to add information about the
transaction and if applicable and to the extent required by applicable rules and
policies of the Securities and Exchange Commission, the company, business or
assets being acquired.
It is expected that the terms of the acquisitions involving the issuance of
securities covered by this prospectus will be determined by direct negotiations
with the owners or controlling persons of the businesses or assets to be merged
with or acquired by Zap.Com, through exchange offers to stockholders or
documents soliciting the approval of statutory mergers, consolidations or sales
for more widely held entities, or through offers containing terms established by
Zap.Com in the case of offers to Web site owners to join the ZapNetwork and
otherwise on the terms contained within the agreements entered into in
connection with the transaction. No underwriting discounts or commissions will
be paid, although finder's fees may be paid from time to time with respect to
specific mergers or acquisitions. Any person receiving any such fees may be
deemed to be an underwriter within the meaning of the Securities Act of 1933, as
amended.
This prospectus also relates to the offer for sale or other distribution of
the shares by persons who acquire shares in one of the transactions described in
this prospectus. These shares may be sold or distributed from time to time by or
for the account of the selling stockholders through underwriters or dealers,
through brokers or other agents, or directly to one or more purchasers, at
prices comparable to market prices prevailing at the time an agreement is
entered into in connection with the transaction, and the consummation of the
transaction at the time of delivery of the shares or at prices otherwise
negotiated. This prospectus also may be used, with Zap.Com's prior consent, by
donees of the selling stockholders, or by other persons acquiring shares and who
wish to offer and sell such shares under circumstances requiring or making
desirable its use.
Zap.Com's common stock is traded on the OTC Bulletin Board under the symbol
"ZPCM". At February 28, 2000, Zap.Com had 50,000,000 shares of common stock
outstanding. On February 28, 2000, the last reported sale price of the common
stock (of which 800 shares traded) was $8.75 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN FACTORS RELATING TO AN
INVESTMENT IN OUR COMMON STOCK.
These securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities commission passed
upon the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense. These securities may not be sold nor may offers
to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
This prospectus is dated , 2000
<PAGE> 83
ALTERNATE PAGE FOR SHELF PROSPECTUS
PLAN OF DISTRIBUTION
ISSUANCE OF SHARES BY ZAP.COM
The shares covered by this prospectus may be issued by Zap.Com from time to
time in payment (or partial payment) of the purchase price for one or more
acquisitions of companies, businesses or assets complementary to Zap.Com's
existing business (including future acquisitions of rights granted with respect
to one or more Web sites by Web site owners who join the ZapNetwork) or which
may be offered in connection with promotions or similar events or for sale or
other distribution by persons who acquire shares in any of these transactions or
by the donees of persons or by other persons acquiring those shares. It is
expected that the terms of the transactions involving the issuance of securities
covered by this prospectus will be determined by direct negotiations with the
owners or controlling persons of the businesses or assets to be merged with or
acquired by Zap.Com, through exchange offers to stockholders or documents
soliciting the approval of statutory mergers, consolidations or sales for more
widely held entities, or through offers containing terms established by Zap.Com
in the case of offers to Web site owners to join the ZapNetwork and otherwise in
agreements entered into in connection with the transaction. The consideration in
these transactions may consist of common stock, cash, notes or other evidences
of debt, assumptions of liabilities or a combination of these. It is anticipated
that the shares issued in any of these transactions will be valued for purposes
of the transaction at a price reasonably related to the market value of the
common stock either at the time of the execution of the definitive transaction
agreement, at the time of the consummation of the transaction or at the time of
the delivery of the shares.
As of the date of this prospectus, Zap.Com has not issued any shares of
common stock for the transactions described in this prospectus and has not
definitively identified any transaction in which it may issue shares. At the
time that Zap.Com identifies a specific transaction in which shares will be
issued, Zap.Com will amend or supplement this prospectus and the registration
statement of which this prospectus is a part to add information about the
transaction and if and to the extent required by applicable rules and policies
of the Securities and Exchange Commission, the company, business or assets being
acquired.
No underwriting discounts or commissions will be paid in connection with
any acquisition contemplated hereby, although finder's fees may be paid from
time to time with respect to specific mergers or acquisitions. Any persons
receiving such fees may be deemed to be an underwriter within the meaning of the
Securities Act.
RESALE OF SHARES BY SELLING STOCKHOLDERS
This prospectus also relates to the offer for sale or other distribution of
shares by the selling stockholders who will acquire shares in a transaction
under this prospectus. The selling stockholders may sell or distribute some or
all of the shares from time to time through underwriters or dealers or brokers
or other agents or directly to one or more purchasers in transactions on any
exchange on which the shares are listed for trading, in privately negotiated
transactions, or in the over-the-counter market, or in brokerage transactions,
or in a combination of such transactions. Such transactions may be effected by
the selling stockholders at market prices, at negotiated prices, or at fixed
prices, which may be changed. Brokers, dealers, agents or underwriters
participating in those transactions as agent may receive compensation in the
form of discounts, concessions from the selling stockholders (and, if they act
as agent for the purchaser of shares, from the purchaser). These discounts,
concessions or commissions as to a particular broker, dealer, agent or
underwriter might be in excess of those customary in the type of transaction
involved. This prospectus may also be used, with Zap.Com's consent, by donees of
the selling stockholder, or by other persons acquiring shares and who wish to
offer and sell such shares under circumstances requiring or making desirable its
use. To the extent required, Zap.Com will file, during any period in which
offers or sales are being made, one or more supplements to this prospectus to
set forth the names of selling stockholders and any other material information
with respect to the plan of distribution not previously disclosed.
The selling stockholders and any such underwriters, brokers, dealers or
agents that participate in such distribution may be deemed to be "underwriters"
within the meaning of the Securities Act, and any discounts, commissions or
concessions received by any such underwriters, brokers, dealers or agents might
be deemed to be underwriting discounts and commissions under the Securities Act.
<PAGE> 84
ALTERNATE PAGE FOR SHELF PROSPECTUS
RESTRICTIONS ON RESALE
Affiliates of entities acquired by Zap.Com who do not become affiliates of
Zap.Com may not resell common sock registered under the registration statement
to which this prospectus relates which they acquire unless the shares are
covered by an effective registration statement under the Securities Act, or the
shares are sold in compliance with Rule 145 promulgated under the Securities Act
or another applicable exemption from the registration requirements of the
Securities Act. Generally, Rule 145 permits such affiliates to sell these type
of shares immediately following the acquisition in compliance with certain
volume limitations and manner of sale requirements. Under Rule 145, sales by
affiliates during any three-month period cannot exceed the greater of 1% of the
shares of common stock of Zap.Com outstanding and the average weekly reported
volume of trading of shares of Zap.Com common stock on all national securities
exchanges during the four calendar weeks preceding the proposed sale. These
restrictions will cease to apply under most other circumstances if the affiliate
has held the common stock for at least one year, provided that the person or
entity is not then an affiliate of Zap.Com. Individuals who are not affiliates
of the entity being acquired and do not become affiliates of Zap.Com will not be
subject to resale restrictions under Rule 145 and, unless otherwise
contractually restricted, may resell common stock immediately following the
acquisition without an effective registration statement under the Securities
Act. The ability of affiliates to resell shares of the common stock under Rule
145 will be subject to Zap.Com having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of sale.
<PAGE> 85
ALTERNATE BACK COVER PAGE FOR SHELF PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ZAP.COM LOGO
PROSPECTUS
30,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
DATED:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 86
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities being registered hereby are itemized below.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 80,850
Blue Sky fees and expenses.................................. 50,000
Accounting fees and expenses................................ 20,000
Legal fees and expenses..................................... 150,000
Printing and engraving expenses............................. 40,000
Miscellaneous............................................... 25,000
--------
Total............................................. $365,850
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Zap.Com's Restated Articles of Incorporation and Amended and Restated
By-Laws limit the liability of directors to the fullest extent permitted by
Nevada law. This is intended to eliminate the potential liabilities of Zap.Com's
officers and directors for breach of their fiduciary duties as directors, except
under circumstances which include the following: (1) acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law or (2) the
willful or grossly negligent payment of unlawful distributions.
The Nevada Corporation Law and Zap.Com's Restated Articles of Incorporation
and Amended and Restated By-Laws authorize indemnification of a director,
officer, employee or agent of Zap.Com against expenses incurred by him or her in
connection with any action, suit or proceeding to which this person is named a
party by reason of having acted or served in this capacity, if he acted in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of Zap.Com and, with respect to any criminal proceeding had
no reasonable cause to believe his conduct was unlawful. A director, officer,
employee or agent of Zap.Com against whom a judgment or settlement is obtained
resulting from lawsuits filed by Zap.Com or derivative suits filed on behalf of
Zap.Com person cannot be indemnified for the expenses he incurs unless and only
to the extent that a court determines that, in view of all the circumstances,
the person is fairly and reasonably entitled to indemnity for those expenses.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling Zap.Com
pursuant to the foregoing provisions, Zap.Com has been informed that, in the
opinion of the Securities and Exchange Commission, indemnification for these is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In April 1998, Zap.Com issued 1,000 shares of common stock to Zapata in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2). On November 12, 1999, Zap.Com effected a
49,450-for-one share stock split and in connection with the split, Zapata
contributed $9,000,000 to the Company's capital. This contribution consisted of
$8,000,000 in cash and $1,000,000 in inter-company debt forgiveness. These
securities were issued pursuant to an exemption from the registration
requirements provided by Section 3(c)(9) of the Securities Act.
In November 1999 Zap.Com issued to Malcolm Glazer and Avram Glazer 550,000
shares of common stock in connection with their investment of $1,100,000 in
Zap.Com in a transaction exempt from the registration requirements pursuant to
Section 4(2) of the Securities Act.
In April and June 1999, Zap.Com issued stock options to current and future
officers and employees of Zap.Com to purchase up to 755,000 shares of common
stock at an exercise price of $5.00 per share. This
II-1
<PAGE> 87
issuance was exempt from registration under the Securities Act in reliance on
Rule 701 promulgated under the Securities Act as offers and sales of securities
pursuant to compensatory benefit plans and contracts relating to compensation in
compliance with Rule 701. Zap.Com abandoned the rights offering in September
1999, thereby terminating these options.
On October 20, 1999, Zap.Com granted stock options to officers and
employees of Zap.Com to purchase up to 578,000 shares of common stock at an
exercise price of $2.00 per share. This issuance was exempt from registration
under the Securities Act in reliance on Rule 701 promulgated under the
Securities Act as offers and sales of securities pursuant to compensatory
benefit plans and contracts relating to compensation in compliance with Rule
701.
On October 20, 1999, Zap.Com issued warrants to American Internetwork
Sports Company, LLC to purchase up to 2,000,000 shares of common stock at an
exercise price of $2.00 per share. These securities were issued pursuant to an
exemption from registration provided by Section 4(2) of the Securities Act.
On January 27, 2000, Zap.Com granted stock options to an executive of
Zap.Com to purchase up to 25,000 shares of common stock at an exercise price of
$9.00 per share. On January 14, 2000, Zap.Com granted stock options to an
officer of Zap.Com to purchase up to 5,000 shares of common stock at an exercise
price of $5.50 per share. These issuances were exempt from registration under
the Securities Act in reliance on Rule 701 promulgated under the Securities Act
as offers and sales of securities pursuant to compensatory benefit plans and
contracts relating to compensation in compliance with Rule 701.
No underwriters, brokers or other agents were or will be involved in any of
the above described transactions.
II-2
<PAGE> 88
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS -- SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Restated Articles of Incorporation of Zap.Com (Exhibit No.
3.1)*
3.2 Amended and Restated By-laws of Zap.Com (Exhibit No. 3.2)*
4.1 Specimen Stock Certificate (Exhibit No. 4.1)*
4.2 Warrant dated October 20, 1999 issued to American
Internetwork Sports Company, LLC (Exhibit No. 4.2)*
4.3 Zap.Com 1999 Long-Term Incentive Plan (Exhibit No. 4.3)*
5.1 Opinion of Woods Oviatt Gilman+
10.1 Investment and Distribution Agreement between Zap.Com and
Zapata (Exhibit No. 10.1)*
10.2 Services Agreement between Zap.Com and Zapata (Exhibit No.
10.2)*
10.3 Tax Sharing and Indemnity Agreement between Zap.Com and
Zapata (Exhibit No. 10.3)*
10.4 Registration Rights Agreement between Zap.Com and Zapata
(Exhibit No. 10.4)*
10.5 Consulting Agreement between Zap.Com and American
Internetwork Sports Company, LLC (Exhibit No. 10.5)*
10.6 NetGravity Ad Center Services Agreement dated September 30,
1999 between NetGravity, Inc. and Zap.Com (Exhibit No.
10.6)*
10.7 Letter Agreement dated October 18, 1999 between EMC, Inc.
and Zap.Com (Exhibit No. 10.7)*
10.8 Termination Agreement dated January 10, 2000, between
Zap.Com and DoubleClick, Inc. (successors-in-interest to
NetGravity, Inc.)
10.9 Internet Services Agreement dated December 28, 1999 between
Zap.Com and EMC Inc.
10.10 Assignment and Assumption Agreement dated July 10, 1990
between Zap.com and DoubleClick, Inc.
10.11 Development, License and Services Agreement dated March 2,
2000 between Zap.Com and Auragen Communications, Inc.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Woods Oviatt Gilman (contained in Exhibit 5.1)+
27 Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference to the exhibit number referenced in the parenthesis
and filed with Zap.Com's Registration Statement of Form S-1 (File No.
333-76135) originally filed with the Securities and Exchange Commission on
April 12, 1999, as amended.
+ Previously filed.
(b) No Financial Statements Schedules are filed a part of this registration
statement.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant, each hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers, and controlling persons of the Registrant
pursuant to the provisions set forth in Item 14 above, or otherwise, the
Registrant has been advised in the opinion of the Securities and Exchange
Commission such indemnification for these types of claims is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred, or paid by a director, officer
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and the Registrant will be governed by the final
adjudication of such issue.
II-3
<PAGE> 89
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Rochester, New York, on
March 3, 2000.
ZAP.COM CORPORATION
By: /s/ AVRAM GLAZER
------------------------------------
Name: Avram Glazer
Title: Chief Executive Officer and
President
In accordance with the requirements of the Securities Act, this
Registration Statement on Form S-1 has been signed by the following persons in
their capacities and on the date signed.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ AVRAM GLAZER Chairman of the Board of March 3, 2000
- --------------------------------------------------- Directors, Director, Chief
(Avram Glazer) Executive Officer and
President
[insert signatures for new directors]
/s/ LEONARD DISALVO Vice President Finance, March 3, 2000
- --------------------------------------------------- Chief Financial Officer
(Leonard DiSalvo) and Principal Accounting
Officer
</TABLE>
II-5
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Restated Articles of Incorporation of Zap.Com (Exhibit No.
3.1)*
3.2 Amended and Restated By-laws of Zap.Com (Exhibit No. 3.2)*
4.1 Specimen Stock Certificate (Exhibit No. 4.1)*
4.2 Warrant dated October 20, 1999 issued to American
Internetwork Sports Company, LLC (Exhibit No. 4.2)*
4.3 Zap.Com 1999 Long-Term Incentive Plan (Exhibit No. 4.3)*
5.1 Opinion of Woods Oviatt Gilman+
10.1 Investment and Distribution Agreement between Zap.Com and
Zapata (Exhibit No. 10.1)*
10.2 Services Agreement between Zap.Com and Zapata (Exhibit No.
10.2)*
10.3 Tax Sharing and Indemnity Agreement between Zap.Com and
Zapata (Exhibit No. 10.3)*
10.4 Registration Rights Agreement between Zap.Com and Zapata
(Exhibit No. 10.4)*
10.5 Consulting Agreement between Zap.Com and American
Internetwork Sports Company, LLC (Exhibit No. 10.5)*
10.6 NetGravity Ad Center Services Agreement dated September 30,
1999 between NetGravity, Inc. and Zap.Com (Exhibit No.
10.6)*
10.7 Letter Agreement dated October 18, 1999 between EMC, Inc.
and Zap.Com (Exhibit No. 10.7)*
10.8 Termination Agreement dated January 10, 2000, between
Zap.Com and DoubleClick, Inc. (successors-in-interest to
NetGravity, Inc.)
10.9 Internet Services Agreement dated December 28, 1999 between
Zap.Com and EMC Inc.
10.10 Assignment and Assumption Agreement dated July 10, 1990
between Zap.com and DoubleClick, Inc.
10.11 Development, License and Services Agreement dated March 2,
2000 between Zap.Com and Auragen Communications, Inc.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Woods Oviatt Gilman (contained in Exhibit 5.1)+
27 Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference to the exhibit number referenced in the parenthesis
and filed with Zap.Com's Registration Statement of Form S-1 (File No.
333-76135) originally filed with the Securities and Exchange Commission on
April 12, 1999, as amended.
+ Previously filed.
<PAGE> 1
Exhibit 10.8
TERMINATION AGREEMENT
This TERMINATION AGREEMENT (this "Agreement") is made and entered into as
of the 10th day of January, 2000 by and between DOUBLECLICK. INC.
("DoubleClick") and ZAP.COM CORPORATION ("Zap.Com").
WITNESSETH:
WHEREAS, DoubleClick's predecessor in interest, NetGravity, Inc. and
Zap.Com entered into a NetGravity AdServer Services Agreement dated November 4,
1999 (the "Services Agreement"); and
WHEREAS, Zap.Com has exercised its rights under the Services Agreement to
license certain Adserver technology in connection therewith DoubleClick and
Zap.Com are on even date herewith entering into the DoubleClick AdServer
Network License Agreement (the "License Agreement"); and
WHEREAS, DoubleClick and Zap.Com desire to terminate the Services
Agreement upon and subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto intending
legally to be bound, hereby agree as follows:
1. DoubleClick and Zap.Com hereby agree that effective as of the
Installment Date (as defined in the License Agreement), the Services Agreement
shall be terminated in all respects and neither party shall have any further
obligation to the other thereunder, except that all indemnification
obligations of the parties thereunder shall survive such termination.
2. This Agreement shall be binding, subject to its terms, only upon
execution by both DoubleClick and Zap.Com.
3. This Agreement is governed by the laws of the State of New York
without reference to conflicts principles. This Agreement may not be modified
except with a writing signed by the parties hereto.
IN WITNESS WHEREOF, the parities hereto have executed this Agreement as of
the date first above written.
DOUBLECLICK, INC.
By: /s/ David Mansur
---------------------
Name: David Mansur
Title:
ZAP.COM CORPORATION
By: /s/ Gaetano Gugielmino
-----------------------
Name: Gaetano Gugielmino
Title:
<PAGE> 1
Exhibit 10.9
INTERNET SERVICES AGREEMENT
This Internet Services Agreement (the "Agreement"), by and between EMC
Corporation ("EMC"), a Massachusetts corporation with a principal place of
business at 171 South Street, Hopkinton, MA 01748, and ZAP.COM Corporation, (the
"Company") a Nevada corporation with a principal place of business at 100
Meridian Centre, Suite 350, Rochester, New York 14618 is made this 28th day of
December, 1999 (the "Effective Date").
WHEREAS, EMC HAS PRODUCTS AND SERVICES WHICH IT INTENDS TO EMPLOY TO
SATISFY COMPANY'S REQUIREMENTS; AND
WHEREAS, COMPANY DESIRES TO HAVE EMC PERFORM INTERNET SERVICES FOR
COMPANY; AND
WHEREAS, COMPANY OWNS AND OPERATES ONLINE INFORMATION SERVICES WHICH
CONSIST OF CERTAIN HARDWARE, SOFTWARE AND APPLICATION SUBSYSTEMS THAT IT WISHES
EMC TO INSTALL, OPERATE AND MAINTAIN FOR COMPANY AT EMC'S INTERNET SERVICES
CENTER, AS FURTHER DEFINED IN THE STATEMENT(S) OF WORK,
NOW, THEREFORE, IN CONSIDERATION OF THE ABOVE AND OTHER GOOD AND
VALUABLE CONSIDERATION, THE PARTIES AGREE AS FOLLOWS:
DEFINITIONS:
"SERVICES" shall mean providing the computer hardware and all related
interfaces, software, data storage and network interface connections and other
such items necessary for the operation of the Company's internet Applications,
the installation and the ongoing operation and maintenance of said Applications,
all as more fully defined in each Statement of Work attached to and made a part
of this Agreement, together with such consulting services as may be necessary to
accomplish said installation, operation and maintenance.
"APPLICATION" shall be defined in each Statement of Work.
"CONTENT" shall mean all text, graphics, sound and video contained in
the Application(s).
1. GENERAL SCOPE OF AGREEMENT.
Company is solely responsible for the Applications and the Content of
the Applications and shall have sole discretion as to whether and when to issue
a purchase
<PAGE> 2
order for Services in the form of a Statement of Work, once this Agreement is
signed by both parties. In the event of any inconsistency between this Agreement
and any such purchase order, the terms of this Agreement shall control and be
determinative of the parties' rights. EMC is responsible for the equipment,
facilities and services as defined herein and in each Statement of Work.
2. SERVICES TO BE PERFORMED.
EMC will perform the Services as detailed in each Statement of Work,
according to the Functional Specifications in Section 2.1.
2.1 FUNCTIONAL SPECIFICATION
EMC shall supply, maintain and operate the Services including its
various parts in accordance with the functional specification (the "Functional
Specification") set forth below:
The hardware and software and other equipment items shall be specified
in each Statement of Work attached to this Agreement.
A protected and secure computer room environment with physical access
restricted to authorized personnel, and network and remote access restricted by
firewall and other electronic means to authorized users; sufficient fire
repression equipment so as to protect the computer hardware and network hardware
used by the Applications, and backup power supplies to provide uninterrupted
supplies of electricity; automatic and regularly scheduled backup of all related
data and the restoration of such backups on demand by Company; storage of such
backups at a location different than that of the original data, together with
such disaster recovery arrangements as are necessary to enable EMC to continue
to provide the Services, without interruption, in the event of an unplanned
interruption of or the inaccessibility of the Applications; twenty-four hour per
day, seven days per week support of the computer room; and complete facilities
management, including data backups, computer hardware maintenance, network
hardware maintenance, installation of software updates and fixes as supplied by
the manufacturers of the computer and network hardware and software in place,
and any such other tasks as required to provide the Services in accordance with
the requirements and obligations identified in each Statement of Work, routine
maintenance to be performed between the hours of 2:00 AM and 4:00 AM on Sunday
mornings, to minimize server downtime during peak usage periods. During the term
of this Agreement, the allocation of hardware, software and other equipment and
Services supplied by EMC may be re-allocated to other projects by Company and
EMC upon submission of a revised Statement of Work, subject to both parties
written acceptance which will not be unreasonably withheld or delayed.
2.2 STATEMENT OF WORK
2
<PAGE> 3
The parties will use documents ("Statements of Work") that define each
assignment, task or project to be performed by EMC for Company. The Statements
of Work will be as complete in details as is required to meet the function of
the work. As a minimum, each Statement of Work must contain the following items:
a detailed description of the project objective; specifications including but
not limited to the following: megabytes of disk space on EMC's server(s) for
storage of the Applications and any data files associated with the Applications,
megabytes of bandwidth available to the Applications, maximum response time,
number of e-mail accounts, number of redundant T3 connections to the Internet on
diverse backbones; maximum downtime; accessibility of log information to the
Company; use of a secure commerce server, etc; coordinators for both EMC and
Company that will be responsible for the efforts; schedule for performance;
reports and/or meetings required, and a list of equipment and services with
prices.
As each Statement of Work is prepared and signed by both parties, that
Statement of Work will be incorporated by reference into this Agreement.
2.3 ACCEPTANCE BY COMPANY.
Upon notice to the Company that the Applications have been installed
and are operating in accordance with the Statement of Work, the Company shall
review the operation of the Applications.*
2.4 REPRESENTATIONS AND WARRANTIES.
EMC represents and warrants that it shall perform the Services in
accordance with this Agreement and in a professional and workmanlike manner, and
agrees that in the event EMC is unable for any reason to perform the Services in
accordance with the Statement of Work, the Company may terminate this Agreement,
in accordance with Section 6.3 of the Agreement.
3. OTHER DUTIES OF EMC
3.1 APPOINTMENT OF CONTACT PERSONNEL
EMC shall appoint a single, primary contact person who shall be
Company's main representative at EMC and whose primary responsibility will be to
assure that the obligations and responsibilities herein are performed in
accordance with the specifications and requirements herein stated.
From time to time it may be necessary to designate a new primary
contact person. EMC will notify Company promptly in writing of the new primary
contact person. Upon reasonable request from Company, EMC will change the
primary contact person. The new primary contact must be fully brought up to
speed on work completed to date for the Company by the previous contact at EMC.
The new contact should be familiar with all
* Certain Confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission
3
<PAGE> 4
running applications and server configurations before being installed as the new
primary contact.
3.2 PROPRIETARY RIGHTS
EMC is the sole owner of all right, title and interest in the computer
hardware, software and network connections (the "technology") used to provide
the Services, including any patent, copyright or trade secret rights (the "EMC
rights"), provided EMC does not use the Confidential Information of the Company.
4. DUTIES OF COMPANY
4.1 SUPPLY OF OPERATIONAL DATA
Company shall supply to EMC all necessary operational data required to
operate the unique software or Applications provided to EMC by Company, and all
such other data that EMC reasonably requires in order to perform the Services;
provided that all such operational data shall be protected as Confidential
Information under the non-disclosure agreement between the parties dated October
25, 1999.
4.2 SUPPLY OF SERVER AND DATABASE SOFTWARE AND LICENSES
Company shall supply EMC with such product information from the
Applications, Hardware, Software and associated licenses or maintenance
agreements as EMC needs to perform its obligations under this Agreement.
4.3 APPOINTMENT OF CONTACT PERSONNEL
Company shall appoint a single, primary contact person who shall be
EMC's main representative at Company and whose primary responsibility will be to
assure that the obligations and responsibilities herein are performed in
accordance with the specifications and requirements herein stated.
From time to time it may be necessary to designate a new primary
contact person. Company will notify EMC promptly in writing of the new primary
contact person.
4.4 PROPRIETARY RIGHTS
Company represents that the Application(s) contain technology and
Content gathered, selected, coordinated and arranged by Company at considerable
expense by the application of methods, editorial standards and judgment that are
proprietary to Company and that the technology, Content and Applications are
valuable assets of Company, and that title and ownership of the technology,
Content and Application(s) remains exclusively with the Company and its
licensors.
4
<PAGE> 5
EMC acknowledges that it is not acquiring any interest of any kind in
the technology, Content or Application(s) of Company.
5. PAYMENT
Payment terms will be established by the parties and included in each
Statement of Work. Unless specified otherwise in an agreed Statement of Work,
Company shall pay all invoices within 10 days following the receipt of the
invoice by Company, or upon such other terms as the parties may agree.
6. TERM AND TERMINATION
6.1 TERM OF THE AGREEMENT
This Agreement is effective as of the Effective Date and shall remain
in effect for ___*____ or until terminated in accordance with the terms
contained in the following sections and elsewhere in the Agreement.
6.2 RENEWAL OF THE AGREEMENT
*Either party may elect not to renew by giving written notice to the
other party in accordance with the notice provisions contained in Section 9 of
this Agreement, not less than ninety (90) days prior to the end of the then
current term.
6.3 TERMINATION OF THE AGREEMENT
*In the event operation of the Applications is interrupted for a period
longer than twenty-four hours during which EMC fails to make its best efforts to
remedy the problem, Company shall have the right to terminate this Agreement
immediately, upon notice and without further obligation to EMC.
6.4 UPTIME
EMC guarantees __*__% system availability for the site on a rolling
three-month basis measured monthly for the preceding three-month period. Site
outages ("downtime") which will be counted against this _*__% metric will be any
unscheduled downtime caused by any EMC personnel or equipment and related
software within EMC's firewall which is used for operation of the site. Any
downtime related to customer or third party software, content, applications or
personnel will not be counted as downtime for the purpose of measuring overall
system availability.
7. LIMITATION OF LIABILITY
*Certain information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
5
<PAGE> 6
7.1 EMC SHALL, EXCEPT AS PROVIDED IN SECTION 7.4 OF THIS
AGREEMENT, HOLD HARMLESS AND INDEMNIFY COMPANY FROM ANY LOSS OR DAMAGES
(INCLUDING REASONABLE ATTORNEYS FEES) INCURRED BY COMPANY BECAUSE OF ANY CLAIMS,
SUITS OR DEMANDS OF THIRD PARTIES ARISING OUT OF OR RESULTING FROM ANY
TECHNOLOGY OR CONTENT PROVIDED BY EMC TO COMPANY.
7.2 EMC SHALL NOT BE LIABLE FOR ANY CONTENT PROCESSED OR
STORED ON THE SYSTEM EVEN IF SUCH CONTENT WAS KNOWN BY EMC. COMPANY SHALL HOLD
HARMLESS AND INDEMNIFY EMC FROM ANY LOSS OR DAMAGES (INCLUDING REASONABLE
ATTORNEYS FEES) INCURRED BY EMC BECAUSE OF ANY CLAIMS, SUITS OR DEMANDS OF THIRD
PARTIES ARISING OUT OF OR RESULTING FROM ANY CONTENT PROVIDED BY COMPANY TO EMC
FOR PLACEMENT ON THE APPLICATION.
7.3 EXCEPT FOR CLAIMS BY THIRD PARTIES THAT THE INSTALLATION
AND/OR OPERATION OF THE APPLICATIONS BY EMC AND/OR COMPANY INFRINGE ON THE
INTELLECTUAL PROPERTY RIGHTS OF SAID THIRD PARTIES, EMC'S ENTIRE LIABILITY FOR
ANY CLAIM, LOSS, DAMAGE OR EXPENSE FROM ANY CAUSE WHATSOEVER, REGARDLESS OF THE
FORM OF THE ACTION, WHETHER IN CONTRACT, TORT OR OTHERWISE, INCLUDING
NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, SHALL BE LIMITED TO THE GREATER OF
THE AMOUNTS PAID BY THE COMPANY TO EMC DURING THE PREVIOUS 12 MONTH PERIOD OR
$100,000.
7.4 NEITHER PARTY SHALL BE LIABLE FOR ANY INCIDENTAL,
CONSEQUENTIAL, OR ANY OTHER INDIRECT LOSS OR DAMAGE, INCLUDING LOST PROFITS OR
LOST DATA, ARISING OUT OF THIS AGREEMENT OR ANY OBLIGATION RESULTING THEREFROM,
OR THE USE OR PERFORMANCE OF ANY SERVICE, WHETHER IN AN ACTION FOR OR ARISING
OUT OF ANY CAUSE WHATSOEVER, REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT, TORT, INCLUDING NEGLIGENCE, STRICT LIABILITY OR OTHERWISE.
8. CONFIDENTIALITY
The disclosure of Confidential Information shall be governed
by the Agreement entered into by the parties on October 25, 1999, of which a
copy is attached to an made a part of this Agreement.
9. GENERAL
9.1 This Agreement* and any Statement(s) of Work attached to
this Agreement, is the complete and exclusive agreement of the parties and
supersedes all prior written agreements with respect to the subject matter,
including without limitation the
*Certain Confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
6
<PAGE> 7
Letter of Intent executed by the parties as of October 18, 1999. Neither this
Agreement nor any Statement of Work may be altered or amended except in writing
and executed by their authorized representatives.
9.2 Neither party will be liable to the other for any failure
or delay in performing the services or obligations set forth in this Agreement,
due in whole or in party to the extent that such failure or delay is caused by
events beyond the reasonable control of the non-performing party, including
without limitation acts of God, natural or human-caused disasters such as flood
or fire, civil disturbances or strikes by employees other than employees of the
non-performing party.
9.3 This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, excluding its choice of law provisions.
9.4 Sections 3.2, 4.4, 5, 7, 8 and 9 shall survive termination
of this Agreement.
9.5 All notices under this Agreement shall be in writing and
shall be given in person or by certified or registered mail or overnight courier
to the attention of the respective General Corporate Counsel at the addresses
set forth above.
9.6 All headings in this Agreement are inserted for
convenience only and are not intended to effect the meaning or interpretation of
this Agreement or any clause.
9.7 No omission or delay on the part of either party in
requiring the fulfillment by the other party of its obligations hereunder shall
constitute a waiver of its rights to require the fulfillment of any other
obligation hereunder, or a waiver of any remedy it might have hereunder.
9.8 EMC shall not be in breach of this Agreement due to any
failure to meet any Target Completion Date (as defined in the (Statement of
Work) due to any cause under the reasonable control of Company or as stated in
section 9.2
Signed by authorized representatives of both parties.
COMPANY: ZAP.COM EMC CORPORATION
By: /s/ Gaetano Guglielmino By: /s/ Charles J. Cavallaro
_______________________ ________________________
Name: Gaetano Guglielmino Name: Charles J. Cavallaro
Title: Director, Marketing and Sales Title: Sr. V.P. Operations,
7
<PAGE> 8
STATEMENT OF WORK NUMBER 01
This document is the Statement of Work referenced in the Internet Services
Agreement (the "Agreement") by and between EMC Corporation ("EMC") and Zap.Com
(the "Company") made on the 28h day of December, 1999 (the "Effective Date").
EXECUTIVE SUMMARY
Zap (Zap.com) has expressed a desire for an outsourced environment for its web
site. Zap.com requires that the site always be available and responsive, and for
system administrators to be available 24x7 to service the site. Zap.com has
partnered with Auergen for development and implementation of its site.
EMC proposes to provide a custom, dedicated Internet hosting environment to meet
Zap.com's requirements. The site will be hosted in EMC's Hopkinton, MA facility.
EMC will provide 24x7 year-round system monitoring and system administration of
the site. EMC will also provide sufficient bandwidth and storage to meet
Zap.com's present and projected needs.
The hosted solution for Zap.com will include
* All disk storage will be provided on EMC's Symmetrix storage systems. The
Fast Wide Differential SCSI connections to the Symmetrix storage system
will provide fast and reliable access to all data. This solution leverages
the state-of-the-art network infrastructure and automated backup
infrastructure provided by EMC Internet Services.
EXPLANATION OF PROJECT
Company has requested EMC to provision and operate equipment, software and
services to host Zap.com. Zap.com's initial site deployment will consist of
__________ owned by Zap.com.*
LOAD BALANCING
The load-balanced solution will consist of two systems connecting to the
front-end web servers as described above. Load balancing will be setup and in
place for the initial phase of this project. The load balancing solution is
subject to final technical review after receipt of technical application
information from Zap.com. The redundant load balancing solution is included in
this proposal.
ON-LINE BACKUP AND RECOVERY
EMCs' TimeFinder solution is available for 24 hour database availability,
on-line backup and disaster recovery solution, and has been included in this
proposal. TimeFinder makes a real-time copy of the database on the Symmetrix and
calls it a Business Continuance Volume (BCV). These volumes are continuously
updated on-line. When it's time to do backup, the BCV is disconnected from the
production database and backed up using one of our standard backup software
tools. The volume will be resynchronized with the database after the backup is
done with minimal impact to the server. All this is accomplished without any
downtime. Additional solutions are available for off-site disaster recovery
needs. Additional information and diagrams can be found in the TimeFinder
section of this document.
SOFTWARE
Software licensing and maintenance for Solaris and Oracle Application Server
have been included in this proposal. Oracle Database Pricing has been included
for both purchase and lease options - See Pricing charts for details.
*Certain Confidential information on this page has been omitted and filed
seperately with the Securities and Exchange Commission.
<PAGE> 9
RAPID DEPLOYMENT & CAPACITY PLANNING
From the time an order is received, EMC will procure and provision all the
specified hardware, install and test the application software, and will turn the
site over to Zap.com for content load. Implementation will be scheduled based on
data center availability. On an ongoing basis, EMC will provide proactive system
monitoring and administration of the site, including maintenance of the database
and operating system software. As the anticipated growth in demand of the
Zap.com site materializes, EMC will notify Zap.com of potential issues and
recommend changes in hardware, software or procedures to accommodate demand. EMC
will also assure that sufficient bandwidth and storage is available to meet
present and projected needs.
The specific details of the site design are discussed in the "EMC Solution"
section of the proposal. An overview of the standard services is as follows:
- - a dedicated project manager responsible for all issues impacting the
site
- - a primary technical lead with additional technical expertise available
as needed.
- - 24x7 automatic monitoring
- - capacity planning services
- - 24x7 Customer Support Hotline.
- - 24x7 System Administration and technical support including application-
specific support.
- - a highly secure and safe environment for the facility and the network
- - redundant power and air conditioning
- - premium grade service relationships with equipment suppliers
- - redundant T3 (45 Mb/s) connections from multiple Internet access
providers
- - redundant and highly available data storage on EMC Symmetrix storage
systems.
- - automated data backup mechanism
- - standard client access and site reporting
For purposes of this Statement of Work and the Internet Services Agreement of
which it is a part, "Application" shall mean the company's internet web site and
banner.
1.0 PROJECT COORDINATORS
EMC and Company will each designate a single point of contact, pursuant to
sections 3.1 and 4.3 of the Agreement.
2.0 SCHEDULE FOR PERFORMANCE
EMC will procure and provision the server hardware, install the operating system
and application software provided by Company, and will turn the site over to
Company for content load based on the agreed upon schedule.
3.0 REPORTS AND/OR MEETINGS REQUIRED
Weekly status meetings are required. The meetings will occur between EMC's
project manager and Zap's technical team project manager (Auragen
Communications).
4.0 LIST OF EQUIPMENT AND SERVICES
EMC will provide:*
*Certain Confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE> 10
5.0 PAYMENT SCHEDULE
Company agrees to the following payment schedule. Invoice will be issued and
payable upon request.
<TABLE>
<CAPTION>
DESCRIPTION PRICE
- ----------- -----
<S> <C>
*
</TABLE>
First payment shall be due the last day of the calendar month in which the
Definitive Agreement is executed with each subsequent monthly payment due on the
30th day of each month thereafter.
7.0 DELIVERY DATE
Friday, January 7, 2000.
COMPANY EMC CORPORATION
By: ______________________________ By: _______________________________
Name: Name: _____________________________
Title: Title: ____________________________
* Certain Confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE> 11
STATEMENT OF WORK NUMBER 02
This document is included by reference into the Internet Services Agreement (the
"Agreement") by and between EMC Corporation ("EMC") and Zap.Com (the "Company")
made on the 28th day of December, 1999 (the "Effective Date").
All terms and conditions of the Agreement remain in full effect, except as
modified herein.
1.0 EXPLANATION OF PROJECT
Company has requested EMC to provision the Allaire, JRun, software for its two
web servers. EMC will own and operate software.
2.0 PROJECT COORDINATORS
EMC and Company will each designate a single point of contact, pursuant to
sections 3.1 and 4.3 of the Agreement.
3.0 SCHEDULE FOR PERFORMANCE
EMC will procure and provision the software provided by EMC, and will turn the
site over to Company for content load based on the agreed upon schedule.
4.0 REPORTS AND/OR MEETINGS REQUIRED
No special reports or meetings are required. Meetings will be scheduled at the
discretion of Company and EMC.
5.0 LIST OF EQUIPMENT AND SERVICES
EMC will provide: *
6.0 PAYMENT SCHEDULE
Company agrees to the following payment schedule. Invoice will be issued and
payable upon request.
<TABLE>
<CAPTION>
DESCRIPTION PRICE
- ----------- -----
<S> <C>
</TABLE> *
First payment shall be due the last day of the calendar month in which the
Definitive Agreement is executed with each subsequent monthly payment due on the
30th day of each month thereafter.
COMPANY EMC CORPORATION
By: ______________________________ By: _______________________________
Name: Name: _____________________________
Title: Title: ____________________________
* Certain Confidential information on this page has been omitted and filed
separately with Securities and Exchange Commission.
<PAGE> 12
STATEMENT OF WORK NUMBER 03
This document is included by reference into the Internet Services Agreement (the
"Agreement") by and between EMC Corporation ("EMC") and Zap.Com (the "Company")
made on the 28th day of December, 1999 (the "Effective Date").
All terms and conditions of the Agreement remain in full effect, except as
modified herein.
1.0 EXPLANATION OF PROJECT
Company has requested EMC provide and operate DoubleClick software and services
to host Zap.Com Ad Serving Application. The Hardware has already been deployed
in SOW #01, so this would be an addition for Software Licensing and Services to
support the Ad Serving Application.
EMC will purchase the appropriate licensing and support for the DoubleClick
product set on behalf of Company pursuant to a DoubleClick Ad Server Network
License Agreement and Software Maintenance and Support Agreement in the form
annexed hereto as Exhibit A and Exhibit B, respectively, and assign all of its
right, title and interest therein to the Company and the Company will assume all
obligations thereunder except for the payment of any fees thereunder, all of
which shall be effected pursuant to an Assignment and Assumption Agreement in
the form of Exhibit C annexed hereto. The Assignment and Assumption Agreement
shall control over any conflicts between it and the Agreement.
EMC will purchase the appropriate licensing and support for the DoubleClick
product set on behalf of the Company.
2.0 PROJECT COORDINATORS
EMC and Company will each designate a single point of contact, pursuant to
Sections 3.1 and 4.3 of the Agreement.
3.0 SCHEDULE FOR PERFORMANCE
EMC will procure and provision the software, and will turn the site over to the
Company for content load based on the agreed upon schedule.
4.0 REPORTS AND/OR MEETINGS REQUIRED
No special reports or meetings are required. Meetings will be schedule at the
discretion of the Company and EMC.
5.0 LIST OF EQUIPMENT AND SERVICES
EMC will provide:
6.0 PAYMENT SCHEDULE
Company agrees to the following payment schedule. Invoice will be issued and
payable upon request.
COMPANY EMC CORPORATION
By: ______________________________ By:________________________________
Name: Name:
Title: Title:
<PAGE> 13
STATEMENT OF WORK NUMBER 04
This document is the Statement of Work referenced in the Internet Services
Agreement (the "Agreement") by and between EMC Corporation ("EMC") and Zap.Com
(the "Company") made on the 28th day of December, 1999 (the "Effective Date").
EXECUTIVE SUMMARY
- - The Company has expressed a desire for EMC to purchase a license for
_________ and services to install and setup the partitioning as needed.
EMC will own and operate the software, and will be fully and exclusively
responsible for its maintenance and repair. Company will provide any
application-specific software and data.
1.0 PROJECT COORDINATORS
EMC and Company will each designate a single point of contact, pursuant to
sections 3.1 and 4.3 of the Agreement.
2.0 SCHEDULE FOR PERFORMANCE
EMC will procure and provision the server hardware, install the operating system
and application software provided by Company, and will turn the site over to
Company for content load based on the agreed upon schedule.
3.0 REPORTS AND/OR MEETINGS REQUIRED
Weekly status meetings are required. The meetings will occur between EMC's
project manager and Zap's technical team project manager (Auragen
Communications).
4.0 LIST OF EQUIPMENT AND SERVICES
EMC will provide:*
*Certain Confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE> 14
5.0 PAYMENT SCHEDULE
Company agrees to the following payment schedule. Invoice will be issued and
payable upon request.
<TABLE>
<CAPTION>
DESCRIPTION PRICE
- ----------- -----
<S> <C>
*
</TABLE>
First payment shall be due the last day of the calendar month in which the
Definitive Agreement is executed with each subsequent monthly payment due on the
30th day of each month thereafter.
7.0 DELIVERY DATE
January 6, 2000
COMPANY EMC CORPORATION
By: ______________________________ By: __________________________
Name: Name: ________________________
Title: Title: _________________________
* Certain Confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE> 1
Exhibit 10.10
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT, is made as of the 10th day of
January, 2000 between EMC CORPORATION ("EMC") AND ZAP.COM CORPORATION
("Zap.Com").
R E C I T A L S:
A. Pursuant to a DoubleClick Adserver Network License Agreement dated
December 23, 1999, between EMC, as licensee, and DoubleClick, as licensor (the
"License Agreement"), a true and complete copy of which is attached hereto as
"Exhibit A", EMC has agreed to license from DoubleClick, Inc., certain AdServer
technology, as more particularly described therein, to use in connection with
services to be provided to Zap.Com.
B. Pursuant to a Software Maintenance and Support Agreement dated
December 28, 1999, between EMC and DoubleClick (the "Support Agreement"), a true
and complete copy of which is attached hereto as "Exhibit B", DoubleClick has
agreed to provide certain support and upgrades for the software and product
components licensed under the License Agreement, as more particularly described
therein.
C. EMC wishes to assign and transfer to Zap.Com all of EMC's right,
title and interest in and to the License Agreement and the Support Agreement
(collectively, the "DoubleClick Agreements") as set forth herein.
D. The DoubleClick Agreements both expressly provide that this
Assignment may be accomplished without DoubleClick's consent.
A G R E E M E N T :
For and in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. EMC hereby assigns and transfers to Zap.Com effective as of the date
hereof all of EMC's right, title and interest in and to the DoubleClick
Agreements. Assignee accepts the assignment of all of Assignor's right, title
and interest in and to the DoubleClick Agreements.
2. Assignor represents and warrants that (a) it is the Licensee in the
License Agreement, being referred to therein as (b) the DoubleClick Agreements
are in full force and effect as of the date hereof, (c) Assignor has full power
and authority to execute and deliver this Assignment and has not previously
assigned or transferred any interest whatsoever in either of the DoubleClick
Agreements to anyone else.
3. Assignee assumes all obligations and liability of EMC under the
DoubleClick Agreements, provided, however, that EMC shall remain liable to
DoubleClick for all of the
<PAGE> 2
obligations to pay license, support, maintenance or other fees of any kind under
the DoubleClick Agreements. EMC agrees not to pay any fees due under the
DoubleClick Agreements until Zap.Com authorizes EMC to do so in writing.
4. This Agreement constitutes the entire agreement between the parties
hereto and shall not be amended or modified and no waiver of any provision
hereof shall be effective unless set forth in a written instrument authorized
and executed with the same formality as this Agreement. This Agreement shall
bind and adhere to the benefit of the parties hereto and their respective
successors and assigns. To facilitate execution, this Agreement may be executed
in as many counterparts as may be required. It shall not be necessary that the
signature on behalf of all parties hereto appear on each counterpart hereof, and
it shall be sufficient that the signature on behalf of each party hereto shall
appear on one or more of such counterparts. All counterparts shall collectively
constitute a single agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first set forth above.
ASSIGNOR: EMC CORPORATION
By:
----------------------------------
Name: Chuck Lorwy
Title:
ASSIGNEE: ZAP.COM CORPORATION
By:
---------------------------------
Name: Gaetano Guglielmino
Title: Director, Marketing & Sales
-2-
<PAGE> 3
DOUBLECLICK ADSERVER NETWORK LICENSE AGREEMENT
This ADSERVER NETWORK LICENSE AGREEMENT is made and entered into as of
this 23rd day of December, 1999 ("Effective Date") by and between DOUBLECLICK,
INC., a Delaware corporation, having its principal place of business at 41
Madison Avenue, 32nd Fl, New York, New York 10010 (before 11/15/99) and 450 W.
33rd St., Floors 12 & 16, New York, New York 10001 (after 11/15/99)
("DoubleClick") and the entity at the location listed on Exhibit A hereto
("Licensee").
R E C I T A L S :
A. DoubleClick is the owner of proprietary Internet web site advertising sales
and management software products, including AdServer.
B. Zap.Com would like, through the ZapBox, to offer advertising and e-commerce
services to its customers and clients, and desires to license AdServer
technology to assist it in doing so as set forth herein.
NOW, THEREFORE, for good and valuable consideration, the parties hereby
agree as follows:
1. DEFINITIONS.
The following terms shall have the following meanings:
1.1 "Software" means the proprietary Internet web site advertising sales and
management software program developed by DoubleClick known as AdServer Network
which is comprised of the Program Components, in object code form only, and any
updates and upgrades as may be issued to Licensee by DoubleClick after the
Effective Date.
1.2 "Program Component(s)" means the AdManager component, the AdServer NetWork
component, the AdClient NetWork component, the AdConsole component and the
AdInsight Server, all as further described on Exhibit A attached hereto.
1.3 "Zap.Com Services" shall mean an Internet web site advertising management
and e-commerce business provided by Zap.Com to third party customers.
1.4 "Zap.Com Servers" shall mean the computer hardware servers owned or
controlled by Zap.Com which host Zap.Com's Web site and other Internet
properties and are used by Zap.Com in connection with providing Zap.Com Service
or any servers of anyone who has agreed to provide such hosting services to
Zap.Com.
1.5 "Programming" means the standard HTML content and functionality which
Zap.Com selects to provide or otherwise deploy on the ZapBox or Zap.Com's other
Internet properties on the World Wide Web.
1.6 "ZapNetwork Site(s)" means Web sites that belong to the ZapNetwork.
1.7 "Zap.Com Site(s)" means Zap.Com's site or sites on the World Wide Web.
2. GRANT OF RIGHTS
2.1 Grant of License. Subject to the terms and conditions of this Agreement,
DoubleClick hereby grants to Licensee a perpetual, worldwide, nonexclusive,
license, to install and use the number of copies of each Program Component of
the Software as indicated on Exhibit A to manage the Programming on Zap.Com's
Sites and the ZapNetwork Site(s), on third party Websites and throughout the
Internet, including, but not limited to, manage Programming remotely from
Zap.Com's Servers for the ZapBox or other Zap.Com Internet properties on
ZapNetwork Sites. No license is granted to Licensee to distribute the Software
to its customers. Licensee may permit limited access to the Software on
Zap.Com's Servers and use of such Software by (a) customers of Zap.Com only so
long as such customers remain customers of Zap.Com and (b) any of the ZapNetwork
Sites, provided that such customers and owners of the ZapNetwork Sites have
acknowledged in writing that the Software is licensed and their rights are
limited to use on Zap.Com's
<PAGE> 4
Servers and have agreed in writing not to download, copy, distribute or attempt
to make any other unauthorized use of the Software. Licensee may make backup
copies of the Software for archival or disaster recovery purposes.
2.2 Restrictions. The license granted herein is granted solely to the person or
entity set forth on Exhibit A and the Licensee's parent and subsidiaries and to
no one else. All rights not expressly granted hereunder are reserved to
DoubleClick. Licensee may not copy, distribute, reproduce, use or allow access
to the Software except as explicitly permitted under this Agreement, and
Licensee will not modify, adapt, translate, prepare derivative works from,
decompile, reverse engineer, disassemble or otherwise attempt to derive source
code from the Software or any internal data files generated by the Software
except to the extent allowed by applicable law or as permitted in a separate
written agreement with DoubleClick; provided, however that nothing in this
Section 2.2 shall restrict in any way Licensee's right to use the AdServer
Software application programming interface to connect the Software to other
software and/or hardware products, including any software or hardware not
provided by DoubleClick. Licensee shall not remove, obscure, or alter
DoubleClick's copyright notice, trademarks, or other proprietary rights notices
affixed to or contained within the Software; provided, however, such notices,
trademarks, or other proprietary rights notices shall be hidden from viewers of
pages on ZapNewwork Sites or which are delivered by Licensee.
2.3 Ownership. DoubleClick owns and shall retain all right, title, and interest
in and to the Software, including all copyrights, patents, trade secret rights,
trademarks and other intellectual property rights therein. Licensee will, within
fifteen (15) days after DoubleClick's written notice (which notice may delivered
by DoubleClick only once in each consecutive twelve (12) month period), at the
Licensee's option, either permit DoubleClick to inspect Zap.Com's facilities to
confirm that the Licensee is materially complying with the terms of this
Agreement or have Licensee provide a written certification that Licensee is
materially complying with the material terms of this Agreement that apply to it
which shall be signed by an officer of Licensee. Zap.Com's failure to permit
such access or Licensee's failure to provide such officer's certification shall
be deemed a material breach of this Agreement if DoubleClick provides an
additional written notice to Licensee stating that a material breach under this
Agreement will be deemed to occur if compliance does not occur within fifteen
(15) days of delivery of such second notice.
3. DELIVERY OF THE SOFTWARE
3.1 Delivery. Within five (5) business days following the Effective Date,
DoubleClick shall deliver the Software electronically (or by other means
mutually agreed upon by the parties) to Licensee at the location(s) set forth on
Exhibit A.
3.2 Installation and Training. At Licensee's request, following delivery of the
Software, DoubleClick will provide reasonable assistance, at no additional
charge, to Licensee by telephone and e-mail to the extent necessary for Licensee
to install the Software. Additionally, Doubleclick shall provide, at no
additional charge, on-site installation assistance and training ("SureStart") as
listed on Exhibit A. The SureStart process is designed to install the Software.
For purposes of this Agreement, "Installation Date" shall mean the first date on
which all Program Components discussed in Section 1.2 of this Agreement and
defined on Exhibit A of this Agreement are functioning and that the Software can
deliver advertisements to the World Wide Web. The parties shall work together in
good faith towards an Installation Date of no later than April 01, 2000.
4. FEES
4.1 License Fee. In consideration for the rights granted hereunder, Licensee
shall pay DoubleClick license fees in the amounts and on the payment terms set
forth on Exhibit A.
4.2 Taxes. Licensee shall be responsible for all sales taxes, use taxes and any
other similar taxes imposed by any federal, state or local governmental entity
on the transactions contemplated by this Agreement, excluding U.S. taxes based
upon DoubleClick's income. When DoubleClick has the legal obligation to pay or
collect such taxes, the appropriate amount shall be invoiced to and paid by
Licensee unless Licensee provides DoubleClick with a valid tax exemption
certificate authorized by the appropriate taxing authority.
4.3 U.S. Dollars. All fees quoted and payments made hereunder shall be in U.S.
Dollars.
5. DOUBLECLICK SUPPORT
At Licensee's request, DoubleClick will offer to Licensee maintenance and
technical support with respect to the Software under its then current
-2-
<PAGE> 5
standard Software Maintenance Subscription and Support Agreement, a copy of
which is attached as Exhibit B. The Software and Maintenance Subscription and
Support Agreement shall be fully assignable by Licensee to Zap.Com at any time
without any notice to, or required consent by DoubleClick.
6. WARRANTY AND DISCLAIMER
6.1 Functional Warranty. DoubleClick warrants that for a period of ninety (90)
days following the Installation Date: (i) the Software shall operate
substantially in accordance with the then current documentation for such
Software, (ii) the Software shall schedule Programming through the AdManager,
deliver ads to ZapNetwork Sites, and have the ability to count and report
impressions, clickthroughs, and yield and the media on which the Software is
furnished shall be free from defects in materials and faulty workmanship under
normal use. Except as expressly provided herein, DoubleClick does not warrant
that the Software will meet all of Licensee's requirements or that the use of
the Software will be uninterrupted or error-free. DoubleClick's sole obligation
under this warranty is to use commercially reasonable efforts to promptly
correct any non-conforming Software to conform with this warranty and if the
Software cannot be corrected to return to Licensee the license fees paid
hereunder. EXCEPT AS EXPRESSLY PROVIDED HEREIN, DOUBLECLICK LICENSES THE
SOFTWARE TO LICENSEE ON AN "AS IS" BASIS. DOUBLECLICK MAKES NO OTHER WARRANTY OF
ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE INCLUDING WITHOUT
LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
6.2 Additional Warranties. DoubleClick warrants that it has the right to grant
the rights granted under this Agreement.
6.3 Year 2000 Warranty. DoubleClick further warrants that the Software shall
correctly process, provide and/or receive date data within and between the 20th
and 21st centuries, provided that all products used with the Software properly
exchange date data with the Software. In the event DoubleClick becomes aware
that the Software will not or does not process dates containing any date
subsequent to the year 1999 correctly, DoubleClick shall immediately notify
Licensee of that fact.
7. INDEMNIFICATION
7.1 By DoubleClick. DoubleClick shall indemnify, and hold harmless Licensee from
any and all damages, liabilities, costs and expenses (including reasonable
attorneys' fees) incurred by Licensee as a result of any claim that the
Software, when used within the scope of this Agreement, infringes any copyright,
trademark, patent, trade secret or other intellectual property right of any
third party. Licensee shall promptly notify DoubleClick in writing of any such
claim and promptly tenders the control of the defense and settlement of any such
claim to DoubleClick at DoubleClick's expense and with DoubleClick's choice of
counsel to Licensee, provided that Licensee's failure to do any of the foregoing
shall not relieve DoubleClick of its obligations hereunder except to the extent
that it is actually prejudiced thereby and provided further that DoubleClick
shall not settle any such claim in a manner that would require Licensee to act
other than is expressly set forth in this Agreement without prior written
consent of Licensee. Licensee shall cooperate with DoubleClick, at
DoubleClick's expense, in defending such claim. Licensee may join in defense
with counsel of its choice at its own expense. If the Software is, or in the
opinion of DoubleClick may become, the subject of any claim for infringement or
if it is adjudicatively determined that the Software infringes then DoubleClick
may, at its option and sole expense, either (i) procure for Licensee the right
from such third party to use the Software or (ii) replace or modify the Software
with other suitable and reasonably equivalent products which complies with the
representations and warranties herein so that the Software becomes
non-infringing so long as Licensee does not experience an interruption in
service due to any infringement or (iii) if (i) and (ii) are not practicable,
terminate this Agreement on sixty (60) days advance written notice. If
DoubleClick terminates under subsection (iii) within five (5) years after the
execution of this Agreement, DoubleClick will refund a pro-rata portion of the
license fees based on a five year life of the Software (the refundable amount
being determined by the total license fees reduced each month by 1/60th of the
total). If DoubleClick terminates under subsection (iii) at any time after the
Effective Date, DoubleClick will refund any prepaid subscription and support
fees applicable to the remaining period for which the services will be
terminated.
7.2 Exclusions. DoubleClick shall have no liability for any infringement to the
extent that it arises from (i) the use of other than the then-current,
-3-
<PAGE> 6
commercially available version of the Software following the third month after
the release by DoubleClick of such version; (ii) the use of the Software other
than for serving advertisements on the World Wide Web or as otherwise set forth
in its accompanying documentation; or (iii) the modification of the Software
unless such modification was made or authorized by DoubleClick, when such
infringement would not have occurred but for such modification or (iv) the
combination or use of the Software with other software, hardware or other
products not approved by DoubleClick in advance if such infringement would have
been avoided by the use of the Software not in such combination. THIS SECTION 7
STATES DOUBLECLICK'S ENTIRE OBLIGATION WITH RESPECT TO ANY CLAIM REGARDING THE
INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.
8. LIMITATION OF LIABILITY
EXCEPT IN REGARDS TO DOUBLECLICK'S OBLIGATIONS UNDER SECTION 7 HEREIN, IN NO
EVENT WILL DOUBLECLICK'S LIABILITY ARISING OUT OF THIS AGREEMENT OR THE USE OR
PERFORMANCE OF THE SOFTWARE EXCEED THE SUM OF THE LICENSE FEES ACTUALLY PAID BY
LICENSEE HEREUNDER. IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY TO THE
OTHER PARTY FOR ANY LOST PROFITS OR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR
SERVICES, OR FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED
AND UNDER ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGE; PROVIDED, HOWEVER, THAT THIS LIMITATION SHALL
NOT APPLY TO ANY BREACH BY LICENSEE OF THE LICENSE RESTRICTIONS IN SECTION 2 OR
ITS CONFIDENTIALITY OBLIGATIONS IN SECTION 9. THE PARTIES AGREE THAT THIS
SECTION 8 REPRESENTS A REASONABLE ALLOCATION OF RISK.
9. CONFIDENTIALITY
9.1 Definition. The term "Confidential Information" shall mean any information
disclosed by one party to the other party in connection with this Agreement
which is disclosed in writing, orally or by inspection and is identified as
"Confidential" or "Proprietary" or which a party has reason to believe is
treated as confidential by the other party. Any information, in whatever form,
disclosed by DoubleClick that relates to the Software and that is not publicly
known is "Confidential Information." Any information, in whatever form,
disclosed by Licensee that relates to the ZapBox or the ZapNetwork and that is
not publicly known is also "Confidential Information."
9.2 Obligation. Each party shall treat as confidential all Confidential
Information received from the other party, shall not use such Confidential
Information except as expressly permitted under this Agreement, and shall not
disclose such Confidential Information to any third party without the other
party's prior written consent. Each party shall take reasonable measure to
prevent the disclosure and unauthorized use of Confidential Information of the
other party.
9.3 Exceptions. Notwithstanding the above, the restrictions of this Section
shall not apply to information that:
(a) was independently developed by the receiving party without any use
of the Confidential Information of the other party and by employees or other
agents of (or independent contractors hired by) the receiving party who have not
been exposed to the Confidential Information;
(b) becomes known to the receiving party, without restriction, from a
third party without breach of this Agreement and who had a right to disclose it;
(c) was in the public domain at the time it was disclosed or becomes in
the public domain through no act or omission of the receiving party;
(d) was rightfully known to the receiving party, without restriction,
at the time of disclosure; or
(e) is disclosed pursuant to the order or requirement of a court,
administrative agency, or other governmental body; provided, however, that the
receiving party shall provide prompt notice thereof to the other party and shall
use its reasonable best efforts to obtain a protective order or otherwise
prevent public disclosure of such information.
10. TERM AND TERMINATION
-4-
<PAGE> 7
10.1 Term. The term of this Agreement shall commence on the Effective Date and
shall continue in force until terminated as follows:
10.2 If Licensee fails to make any payment due within thirty (30) days after
receiving written notice from DoubleClick that such payment is delinquent,
DoubleClick may terminate this Agreement on written notice to Licensee at any
time following the end of such thirty (30) day period.
10.3 If Licensee materially breaches Section 2.2 or Section 9 of this Agreement
and fails to cure that breach within thirty (30) days after receiving written
notice of the breach, Doublelclick may terminate this Agreement on written
notice at any time following the end of such thirty (30) day period.
10.4 If DoublelClick materially breaches any term or condition of this Agreement
and fails to cure that breach within thirty (30) days after receiving written
notice of the breach, the Licensee party may terminate this Agreement on written
notice at any time following the end of such thirty (30) day period.
10.5 Survival. The following sections shall survive the termination, for any
reason, of this Agreement: 4, 6, 7, 8, 9, 10, and 12. Any breach of this
Agreement shall survive the termination of this Agreement.
10.6 Remedies. Licensee acknowledges that its breach of Section 2.2 or 9 would
cause irreparable harm to DoubleClick, the extent of which would be difficult to
ascertain. Accordingly, Licensee agrees that, in addition to any other remedies
to which DoubleClick may be legally entitled, DoubleClick shall have the right
to obtain immediate injunctive relief in the event of a breach of such sections
by Licensee or any of its officers, employees, consultants or other agents.
11. EXPORT REGULATIONS
Without affecting the scope of the license granted herein, in the event Licensee
is permitted to transfer the Software to any location outside the United States
under this Agreement, Licensee hereby agrees it will comply with all applicable
United States export laws and regulations.
12. MISCELLANEOUS
12.1 Assignment. Licensee may assign any or all of its rights or delegate any of
its obligations under this Agreement, whether by operation of law or otherwise,
without the prior express written consent of DoubleClick, to Zap.Com and, upon
such assignment, Zap.Com shall be entitled to all of the rights of the Licensee
hereunder. After such assignment, Zap.Com may assign any or all of its rights or
delegate any of its obligations under this Agreement to any person or entity who
purchases Zap.Com, a controlling interest in Zap.Com or any portion of Zap.Com's
business which uses the License or any wholly-owned subsidiary of Licensee.
Subject to the foregoing, this Agreement will bind and inure to the benefit of
the parties, their respective successors and permitted assigns.
12.2 Waiver and Amendment. No modification, amendment or waiver of any provision
of this Agreement shall be effective unless in writing and signed by the party
to be charged. No failure or delay by either party in exercising any right,
power, or remedy under this Agreement, except as specifically provided herein,
shall operate as a waiver of any such right, power or remedy.
12.3 Governing Law. This Agreement shall be governed by the laws of the State of
New York, USA, excluding conflict of laws provisions.
12.4 Notices. All notices, demands or consents required or permitted under this
Agreement shall be in writing. Notice shall be considered effective on the
earlier of actual receipt or (a) the day following transmission if sent by
facsimile followed by written confirmation by registered overnight carrier or
certified United States mail; or (b) one (1) day after posting when sent by
registered private overnight carrier (e.g., DHL, Federal Express, etc.); or (c)
five (5) days after posting when sent by certified United States mail. Notice
shall be sent to the DoubleClick at the addresses set forth on the first page of
this Agreement and to Licensee at the address set forth on Exhibit A, or at such
other address as shall be given by either party to the other in writing. Notices
to DoubleClick shall be addressed to the attention of Contracts Administrator.
12.5 Independent Contractors. The parties are independent contractors. Neither
party shall be deemed to be an employee, agent, partner or legal representative
of the other for any purpose and neither shall have any right, power or
authority to create any obligation or responsibility on behalf of the other.
12.6 Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be contrary to law, such provision
-5-
<PAGE> 8
shall be changed and interpreted so as to best accomplish the objectives of the
original provision to the fullest extent allowed by law and the remaining
provisions of this Agreement shall remain in full force and effect.
12.7 Complete Understanding. This Agreement, including all Exhibits attached
hereto, constitutes the final, complete and exclusive agreement between the
parties with respect to the subject matter hereof, and supersedes any prior or
contemporaneous agreement.
12.8 Force Majeure. Neither party shall be liable to the other party for any
failure or delay in performance caused by reasons beyond its reasonable control.
12.9 Purchase Orders. This Agreement shall control Licensee's use of the
Software. All different or additional terms or conditions in any Licensee
purchase order or similar document shall be null and void.
12.10 Execution. The parties have shown their acceptance of this Agreement by
causing it to be executed below by their duly authorized representatives. This
agreement may be executed in counterparts which together shall constitute one
agreement, and each party agrees that a copy of a counterpart executed by it and
sent to the other by any method including without limitation facsimile shall
constitute acceptance of this Agreement.
DOUBLECLICK
Signature: ________________________________
Printed Name: _____________________________
Title: ____________________________________
Date Signed: ______________________________
LICENSEE:
Signature: _______________________________
Printed Name:______________________________
Title: ___________________________________
Date Signed: _______________________________
-6-
<PAGE> 9
EXHIBIT A
LICENSEE:
ADSERVER SOFTWARE LICENSED COMPONENTS:
Program Components Description:
The ad manager component contains the user interface and management
database and the adserver network is a server application responsible for
delivering advertisements remotely, and the ad client network component is the
technology that integrates with server software to receive ads from the ad
server. The AdConsole component serves as a report publishing platform to
advertisers and agencies.
<TABLE>
<CAPTION>
Program Component Licensed Number of Copies
----------------- -------------------------
<S> <C>
AdManager 1
AdServer Network 4
AdClient Network 2
AdConsole 1
AdInsight 1
External Site License 100+
GeoTargeting 1yr
ACM (Fast Look-up) 1
Gold Support 24x7 See Support schedule 1
</TABLE>
*Licensee shall have the right to copy the AdServer for AdInsight (reporting)
purposes. This additional copy of AdServer shall not be used for additional
adserving capability.
SureStart Deployment
**Plus related travel expenses
PACKAGE PRICE:
Payment Terms:
Payment is due _______ from the Effective Date
<PAGE> 10
SOFTWARE MAINTENANCE AND SUPPORT AGREEMENT
BETWEEN
DOUBLECLICK, INC.
and
ZAP.COM CORPORATION
DoubleClick, Inc. ("DoubleClick") has granted Zap.Com Corporation
("Licensee") a license to certain software in accordance with a DoubleClick
Adserver Network License Agreement dated December 23, 1999 (the "License
Agreement"). Licensee wishes to obtain maintenance and support of such software
pursuant to this Agreement.
SECTION 1
DEFINITIONS
1.1 "Product(s)" means the software programs licensed to Licensee pursuant to
the License Agreement together with any Updates and Upgrades furnished by
DoubleClick to Licensee under this Agreement and any modifications to the
Products furnished to Licensee under the product warranty in the License
Agreement.
1.2 "Updates" means a software Product release containing error corrections and
minor enhancements, in object code form, which is made commercially available by
DoubleClick and generally indicated by a change in the revision number in the
tenths or hundredths digit to the right of the decimal point (e.g., a change
from version x.xx to x.xy or x.yx) and any corrections and updates to the
associated documentation.
1.3 "Upgrades" means a software Product release containing significant
functional enhancements and feature additions of the Software, in object code
form, which is made commercially available by DoubleClick and generally
indicated by a change in the revision number to the left of the decimal point
(i.e., 4.00).
SECTION 2
TECHNICAL SUPPORT
2.1 Support. DoubleClick will provide Licensee with technical support
("Support") during the hours indicated on the attached Schedule 1. Support will
be provided by at least one of the following methods: telephone, email, World
Wide Web, or fax. DoubleClick, at its sole discretion, will choose which
method(s) it uses to provide support to Licensee. Support will include:
(a) assistance related to questions on the installation and operational
use of the Product(s);
(b) assistance in identifying and verifying the causes of suspected
errors in the Products(s);
(c) providing workarounds for identified Product errors or malfunctions
as set forth in sections 2.2 and 2.3 below; and
(d) support provided under DoubleClick's policies set forth on Schedule
2 attached hereto.
Licensee will designate the number of persons set forth in Schedule 1
to act as support liaisons to utilize the support and will ensure that such
person will be properly trained in the operation and usage of the Products. Upon
request, Licensee will allow the use of on-line diagnostics of the Products
during error diagnosis.
2.2 Error Corrections. Upon DoubleClick's receipt of written notification from
Licensee that there is any defect or error in the Products, DoubleClick shall
use commercially reasonable efforts to reproduce such defect or error as soon as
reasonably practicable. If DoubleClick is so able to reproduce such defect or
error, then DoubleClick
<PAGE> 11
shall provide commercially reasonable assistance to correct such defect or error
according to the timeframes set forth in Schedule 2. DoubleClick shall have no
obligation to correct all errors in the Product other than as set forth herein.
Upon identification of any error, Licensee shall notify DoubleClick of such
error and shall provide DoubleClick with enough information to reproduce the
error. Forthwith upon such correction being completed DoubleClick shall deliver
to Licensee documentation describing generally the nature of the correction and
providing instructions for the proper use of the corrected version of the
Products.
2.3 Error Corrections. DoubleClick shall not be responsible for correcting any
errors on the Product that are not reproduceable by either party or errors to
the extent caused by: (i) Licensee's failure to implement all Updates issued
under this Agreement; (ii) changes to the operating system or environment not
supported by DoubleClick which adversely affect the Product (it being understood
that DoubleClick is not, as of the date of this Agreement, supporting any
operating system or environment); (iii) any alterations of or additions to the
Product made by parties other than DoubleClick or other parties expressly
consented in writing by DoubleClick; (iv) use of the Product in a manner for
which it was not designed; (v) interconnection of the Product with other
software that does not meet the specifications for the Products contained in the
Products' documentation or (vi) use of the Product on an unsupported platform.
2.4 On-site Training and Support. Upon request, and provided that Licensee is
current with fees due under this Agreement, DoubleClick will provide training
for Licensee's administrators and trainers and/or direct support at Licensee's
site at DoubleClick's then applicable standard training rates and charges.
2.5 Versions Supported. DoubleClick shall be obligated to support the then
current production version of the Product and the immediately prior release for
a period of three (3) months after such new release. Support for any earlier
versions or for errors not covered under this Agreement may be obtained at
DoubleClick's then current rates.
SECTION 3
MAINTENANCE SUBSCRIPTION
3.1 DoubleClick will provide each Update and Upgrade to Licensee promptly after
they become available when and as they become available ("Subscription"). In
reasonable time prior to the delivery of a new release, DoubleClick shall make
available to Licensee all amendments to the Software's specification which shall
describe the facilities and functions of the new release. Licensee may acquire
additional copies of the documentation at DoubleClick's then current standard
rates.
3.2 DoubleClick agrees to make available to Licensee the option to enroll as a
registrant under its Source Code Escrow Agreement. The conditions for release of
source code shall be limited to (i) DoubleClick's material breach of its
obligations under this Software Maintenance and Support Agreement which remains
uncured for thirty (30) days after DoubleClick's receipt of notice to cure or if
not capable of being cured within such thirty (30) day period, DoubleClick fails
to begin to cure or fails to continue to diligently pursue cure within such
thirty (30) day period; (ii) DoubleClick ceases to do business in the ordinary
course for a period of sixty (60) days or more; or (iii) the institution by or
against DoubleClick of bankruptcy proceedings for total liquidation which are
not dismissed within sixty (60) days or if this Agreement is rejected in a
bankruptcy proceeding. In the event of release of source code from the escrow,
Licensee shall have the right to correct errors in and make modifications to the
Product for internal use consistent with the license granted in the License
Agreement. Licensee shall be responsible for all associated escrow fees.
<PAGE> 12
SECTION 4
FEES
4.1 Support and Subscription Fees. For DoubleClick technical Support services
covered by Section 2 of this Agreement, Licensee shall pay to DoubleClick in
advance the annual technical Support fee in the amount set forth in Schedule 1
for the first year following the earlier of: (a) the date that Licensee requests
Support to commence; or (b) March 30, 2000 (such period and each successive one
(1) year period, an "Annual Period"). Licensee shall pay the applicable annual
fees each year in advance of the beginning of each subsequent Annual Period as
set forth in Schedule 1. For DoubleClick Subscription Service provided under
Section 3 of this Agreement, Licensee shall pay the applicable annual
Subscription fee, as set forth in Schedule 1, at the beginning of each annual
period. DoubleClick reserves the right to change the annual fees from time to
time effective at the commencement of the next renewal term by giving Licensee
at least sixty (60) days' prior written notice of such change and such increase
shall be no greater than six percent (6%) over the immediate previous year's
fees. DoubleClick reserves the right to charge Licensee a reinstatement fee to
resume services if Licensee has not continuously maintained this Agreement in
effect. Annual fees on any additional units licensed beyond the initial license
will be prorated and billed at the time of the applicable license grant.
4.2 Payment. Any amount payable to DoubleClick under this Agreement will be due
and payable within thirty (30) days after Licensee's receipt of DoubleClick's
invoice therefor. All monetary amounts are specified and shall be paid in the
lawful currency of the United States of America. Licensee shall pay all amounts
due under this Agreement to DoubleClick at the address indicated at the
beginning of this Agreement or such other location as DoubleClick designated in
writing. Any amount not paid when due will bear interest at the rate of one and
one-half percent (1.5%) per month or the maximum rate permitted by applicable
usury law, which is less, determined and compounded on a daily basis from the
date due until the date paid.
4.3 Taxes. Unless otherwise specified, the fees, charges and other amounts
specified in this Agreement do not include any sales, use, excise or other
applicable taxes. Licensee will pay or reimburse DoubleClick for any and all
such taxes (excluding any applicable federal and state taxes based on
DoubleClick's income).
SECTION 5
TERMINATION
5.1 Term. The term of this Agreement shall begin as of the date of DoubleClick's
signature below and continue for three (3) years thereafter, unless Licensee
notifies DoubleClick of its intention to terminate this Agreement at least
thirty (30) days prior to the effective date of the termination. In the event
that DoubleClick terminates the License Agreement pursuant to Section 7.1
thereof, DoubleClick shall refund a pro rata portion of the support and
subscription fees paid hereunder as provided in such Section 7.1.
5.2 Termination For Default. If either party defaults in the performance of or
compliance with any of its material obligations under this Agreement, and such
default has not been remedied or cured within thirty (30) days after written
notice specifying the default or, if the nature of the default is such that more
than thirty (30) days are required for the cure thereof, the defaulting party
fails to commence its efforts to cure such breach or default within such thirty
(30) day period and to diligently prosecute the same to completion thereafter,
then the nondefaulting party may terminate this Agreement in addition to its
other rights and remedies under law.
5.3 Survival. Sections 4.2, 4.3, 5, 6 and 7 shall survive the termination of
this Agreement.
SECTION 6
LIMITATIONS OF LIABILITY
LIMITATION. DOUBLECLICK'S LIABILITY (WHETHER IN CONTRACT, WARRANTY,
TORT OR OTHERWISE; AND NOTWITHSTANDING ANY FAULT, NEGLIGENCE, REPRESENTATION,
STRICT LIABILITY OR PRODUCT LIABILITY OF DOUBLECLICK) UNDER THIS AGREEMENT WITH
REGARD TO ANY PRODUCT, DOCUMENTATION, SERVICES OR OTHER ITEMS SUBJECT TO THIS
AGREEMENT SHALL IN NO EVENT EXCEED THE TOTAL COMPENSATION PAID BY LICENSEE TO
DOUBLECLICK UNDER THIS AGREEMENT. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
THE OTHER PARTY OR ANY OTHER PARTY FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT
OR SPECIAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT
OF OR RELATING TO THIS AGREEMENT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
<PAGE> 13
SECTION 7
MISCELLANEOUS
7.1 Assignment. Licensee may not assign any of its rights or delegate any of its
obligations under this Agreement, whether by operation of law or otherwise,
without the prior express written consent of DoubleClick, provided that Licensee
may assign this entire Agreement to any person or entity who purchases Licensee,
to a controlling interest in Licensee or to any wholly-owned subsidiary of
Licensee. Subject to the foregoing, this Agreement will bind and inure to the
benefit of the parties, their respective successors and permitted assigns.
7.2 Waiver and Amendment. No modification, amendment or waiver of any provision
of this Agreement shall be effective unless in writing and signed by the party
to be charged. No failure or delay by either party in exercising any right,
power, or remedy under this Agreement, except as specifically provided herein,
shall operate as a waiver of any such right, power or remedy.
7.3 Governing Law. This Agreement shall be governed by the laws of the State of
New York, excluding conflict of laws provisions.
7.4 Notices. All notices, demands or consents required or permitted under this
Agreement shall be in writing. Notice shall be considered effective on the
earlier of actual receipt or (a) the day following transmission if sent by
facsimile followed by written confirmation by registered overnight carrier or
certified United States mail; or (b) one (1) day after posting when sent by
registered private overnight carrier (e.g., DHL, Federal Express, etc.); or (c)
five (5) days after posting when sent by certified United States mail. Notice
shall be sent to the parties at the addresses set forth on the first page of
this Agreement or at such other address as shall be given by either party to the
other in writing. Notices to DoubleClick shall be addressed to the attention of
Contracts Administrator.
7.5 Independent Contractors. The parties are independent contractors. Neither
party shall be deemed to be an employee, agent, partner or legal representative
of the other for any purpose and neither shall have any right, power or
authority to create any obligation or responsibility on behalf of the other.
7.6 Severability. If any provision of this Agreement is held by a court of
competent jurisdiction to be contrary to law, such provision shall be changed
and interpreted so as to best accomplish the objectives of the original
provision to the fullest extent allowed by law and the remaining provisions of
this Agreement shall remain in full force and effect.
7.7 Complete Understanding. The License Agreement and this Agreement, including
all Exhibits attached thereto and hereto, constitutes the final, complete and
exclusive agreement between the parties with respect to the subject matter
hereof, and supersedes any prior or contemporaneous agreement and may only be
modified or supplemented by a writing signed by both parties.
7.8 Excused Performance. Neither party will be liable for, or be considered to
be in breach of or default under this Agreement on account of, any delay or
failure to perform as required by this Agreement (other than monetary
obligations) as a result of an event of force majeure or any cause or condition
beyond such party's reasonable control.
DOUBLECLICK
Signature:_____________________________
Printed Name:__________________________
Title:_________________________________
Date Signed:___________________________
Licensee:
Signature:_____________________________
Printed Name:__________________________
Title:_________________________________
Date Signed:___________________________
<PAGE> 14
SCHEDULE 1
[SUBJECT TO FURTHER REVIEW BY DOUBLECLICK]
SUPPORT HOURS: AdService 24 (24 hours a day - 7 days a week)
SUPPORT CONTACTS: Please List 5:
FEES:
<TABLE>
<CAPTION>
Products License Date Annual Support Fee Annual Subscription Fee
-------- ------------ ------------------ -----------------------
<S> <C> <C> <C>
</TABLE>
Fees are payable annually in advance.
<PAGE> 15
SCHEDULE 2
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Priority Criteria Response target within Resolution Target Solution
business hours
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Production/Development 1 hour 24 hours- Workaround Fix incorporated into next
system down; Product Engineering working release, Fix or Workaround
1 unusable, resulting in round the clock if a incorporated into Knowledge
total disruption/product patch is required. Base*
outage
- -----------------------------------------------------------------------------------------------------------------------------------
2 Major feature/function 4 hours 48 hours-Workaround Fix incorporated into next
failure: Operation Engineering working release, Fix or Workaround
severely restricted, no round the clock if a incorporated into Knowledge Base
convenient Workaround patch is required.
- -----------------------------------------------------------------------------------------------------------------------------------
3 Minor feature/function 8 hours 10 business Fix incorporated into next
failure: Product does days-Workaround Fix release, Fix or Workaround
not operate as designed, delivered in next release incorporated into Knowledge Base
minor impact on usage
- -----------------------------------------------------------------------------------------------------------------------------------
4 Minor problem: i.e., 8 hours Answer technical Incorporated into Knowledge
Documentation information requests. Base.
information enhancement Forward other issues to
request, etc. appropriate group,
(Sales/Marketing/Consulting)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Knowledge Base: DataBase of solutions, frequently asked questions, and
technical application notes.
<PAGE> 1
EXHIBIT 10.11
DEVELOPMENT, LICENSE AND SERVICES AGREEMENT
This DEVELOPMENT, LICENSE AND SERVICES AGREEMENT is made and entered
into on the 2nd day of March, 2000 by and between AURAGEN COMMUNICATIONS, INC.,
a New York corporation, with an address at 620 Park Avenue, Suite 177,
Rochester, New York 14607 ("AURAGEN"), and ZAP.COM CORPORATION, a Nevada
corporation, with an address at 100 Meridian Centre, Suite 350, Rochester, New
York 14618 ("ZAP.COM").
R E C I T A L S :
A. Avram Glazer, Zap.Com's President and Chief Executive Officer,
conceived the idea to create a multifunctional portal-like Internet banner and
application and assigned all of his rights to this and related matters to
Zap.Com.
B. Zap.Com developed a business plan to exploit the multifunctional,
portal-like banner and named it the ZapBox.
C. On April 8, 1999, Zap.Com filed with the United States Patent and
Trademark Office (the "PTO") a patent application claiming certain rights to the
ZapBox and currently identified as "System of Persistent Internet Web Site
Banners That Provide Portal-Like Functionality" (the "PPA") and, on February 9,
2000, Zap.Com filed a service mark application with the PTO for the mark ZapBox
in Classes 35 and 42.
D. On or about June 1, 1999 (the "EFFECTIVE DATE"), Zap.Com engaged
Auragen to develop the software and other technology necessary to implement the
ZapBox and to assist Zap.Com in establishing certain third party relationships.
E. Auragen has prepared a written project plan (the "INITIAL
DEVELOPMENT PLAN"), a copy of which is annexed hereto as EXHIBIT A, which sets
forth its final findings and recommendations, describes with specificity the
steps to be taken to develop the ZapBox, and includes detail and specifications
for the work to be done to implement the ZapBox and a timetable for the
completion of the work.
F. In accordance with the Development Plan, Auragen has developed a
working prototype of the ZapBox and has completed ZapBox 2.0.
G. Zap.Com and Auragen have agreed that Auragen will continue to
provide development and other services for Zap.Com and the parties now wish to
confirm the terms and conditions of their relationship by entering into this
Agreement.
P R O V I S I O N S :
NOW, THEREFORE, in consideration of the mutual promises contained in
this Agreement, the parties agree as follows:
<PAGE> 2
1. CERTAIN DEFINITIONS.
(a) For purposes of this Agreement, the following terms shall
have the meanings given thereto.
"AFFILIATE" with respect to a party, means a
corporation, partnership or other entity controlling, controlled by or under
common control with such party. For purposes hereof, "control" means (i) a
direct or indirect ownership interest of fifty percent (50%) or more or (ii)
management control, including without limitation the power to elect or appoint
the board of directors of a corporation or the managing general partner of a
partnership or control through a management agreement or similar contractual
arrangement. Zap.Com shall also be entitled to propose, for approval by Auragen
(which approval shall not be unreasonably withheld), other entities in which it
has ownership interests or management levels lower than those in this
definition. Where the term "affiliate" is used without capitalization, an
"affiliate" of a party means an entity that controls, is controlled by or is
under common control with either named party to this Agreement.
"AGREEMENT" means this Development, License and
Service, Agreement between Zap.Com and Auragen together with the attached
exhibits and Scopes of Work, and any amendments made in accordance with the
terms hereof.
"AURAGEN MATERIAL" means the Auragen Software and the
ZapBox Software.
"AURAGEN SOFTWARE" means software and other
technology developed by Auragen for clients other than Zap.Com but used in a
ZapBox Deliverable and identified in EXHIBIT B attached hereto.
"CERTIFICATE OF ACCEPTANCE" shall mean a certificate
in the form of EXHIBIT C attached hereto signed by an officer of Auragen.
"CHANGE ORDER" means an order reached as a result of
the change order process described in Section 10 below.
"CONFIDENTIAL INFORMATION" shall have the meaning
given thereto in Section 12.1.
"CRITICAL FUNCTION" means each of the functions of
the ZapBox Deliverables which Zap.Com identifies as being critical to the
performance of a ZapBox Deliverable in each statement of work.
"CUSTOMIZED PROGRAMS" shall have the meaning given
thereto in Section 2.1(d).
"DEVELOPMENT PLAN" shall mean the Initial Development
Plan, as modified, at the direction of Zap.Com and with the approval of Zap.Com
and Auragen, from time to time.
2
<PAGE> 3
"DOCUMENTATION" means (i) high level architecture
documentation for each ZapBox Deliverable, outlining the major components of the
ZapBox Deliverable, (ii) comments in the Source Code sufficient to enable a
computer programming professional having ordinary skills and experience in
computer programming and in the technologies used in the ZapBox Deliverables to
understand, operate, maintain and modify each such ZapBox Deliverable, and (iii)
object diagrams and database ER diagrams that show how the pieces of each ZapBox
Deliverable fit together.
"EFFECTIVE DATE" shall have the meaning given thereto
in Paragraph D of the Recitals.
"INDEMNITEE" shall have the meaning given thereto in
Section 8.4.
"INDEMNITOR" shall have the meaning given thereto in
Section 8.4.
"INITIAL DEVELOPMENT PLAN" shall have the meaning
given thereto in Paragraph E of the Recitals.
"IP RIGHTS" means any patent, trademark, copyright,
trade secret or other proprietary rights of any kind.
"NETWORK SITE DEVELOPMENT CODE" shall have the
meaning given thereto in Section 2.1(b).
"PROJECT MANAGER" means the Auragen project manager
identified in a Scope of Work.
"RELATIONSHIP MANAGER" means Stephen Gissin or such
other Auragen employee appointed by Auragen and approved in writing by Zap.Com,
such approval not to be unreasonably withheld.
"SCOPE OF WORK" means a written description of the
ZapBox Deliverable thereunder and the necessary Services to be provided by
Auragen in connection therewith (as the same may be modified or supplemented by
a Change Order) which has been executed by the Project Manager, Relationship
Manager or other authorized representative of Auragen and any authorized
representative of Zap.Com. A Scope of Work shall not be effective until it has
been executed by both parties. At a minimum, each Scope of Work shall include,
among other things, detailed functional and technical specifications (including
the Critical Functions), a time schedule, a cost estimate or fixed fee amount
(including a detailed breakdown), testing and acceptance procedures, and the
identity of the Project Manager. The parties have previously entered into a
Scope of Work for ZapBox 2.0 and such Scope of Work is hereby ratified by the
parties, notwithstanding that such Scope of Work does not include all of the
items as required above. A copy of such Scope of Work is annexed hereto as
EXHIBIT D. The parties acknowledge that there was no Scope of Work for release
2.1 and 2.2 which have been completed, and that no written Scope of Work shall
be required for such releases except to the extent that they involve ZapBox 2.0.
3
<PAGE> 4
"SERVICES" means the work to be performed by Auragen
under this Agreement, including any and all labor and support necessary to
perform such work.
"SERVICES REQUIREMENTS" means (a) the description of
the functional, performance, compatibility, operational and technical criteria
or other requirements for the Services set forth in (1) the Development Plan and
(2) the Scope of Work relating to the Services (for the period during which such
Scope of Work is in effect) and (b) any other criteria or requirements for the
Services that are set forth in a subsequent Scope of Work or otherwise mutually
agreed to by Zap.Com and Auragen from time to time, all of which are
incorporated by reference herein.
"SOFTWARE" means all software used in any ZapBox
Deliverable, including Third Party Software and any modifications thereto under
the product warranty in this Agreement.
"SOURCE CODE" means human-readable copy of the
computer code from which the ZapBox Software is compiled or otherwise derived.
"SPECIFICATIONS" means a written description of the
functional, performance, compatibility, operational and technical standards to
which a ZapBox Deliverable is to conform, as set forth in the Development Plan
or a Scope of Work, or otherwise mutually agreed to and expressly incorporated
into this Agreement in writing by Zap.Com and Auragen from time to time.
"THIRD-PARTY SOFTWARE" means the software licensed or
otherwise acquired by Auragen or Zap.Com from third parties to operate in
connection with a ZapBox Deliverable.
"UPDATES" means a software release containing
error corrections and minor enhancements which will generally be indicated by a
change in the revision number in the tenths or hundredths digit to the right of
the decimal point (e.g., a change from version x.xx to x.xy or x.yx) and any
corrections and updates to the associated Documentation.
"UPGRADES" means software containing significant
functional enhancements and feature additions of the Software which will
generally indicated by a change in the revision number to the left of the
decimal point (i.e., 3.00).
"WARRANTY PERIOD" shall have the meaning given
thereto in Section 6.1(h).
"ZAPBOX COMPILATION" means the collection, assembly,
selection, coordination and arrangement of Software, technology and content
(including the Auragen Material) that comprises each ZapBox Deliverable, all
screens, graphics, domain names included therein and the "look-and-feel" of each
Zap.Box Deliverable.
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"ZAPBOX DELIVERABLE" means ZapBox 2.0 and all
Upgrades and Updates to ZapBox 2.0, or other software or technology to be
developed and delivered to Zap.Com under any Scope of Work, including, without
limitation, the Auragen Material.
"ZAPBOX ITEMS" means the ZapBox Compilation, the
Development Plan, all Network Site Deployment Codes and Customized Programs.
"ZAPBOX SOFTWARE" means software and other technology
developed by Auragen for a ZapBox Deliverable and identified in EXHIBIT E
attached hereto.
"ZAP.COM MATERIAL" means technology and content
created by or for Zap.Com prior to the Effective Date and used in a ZapBox
Deliverable.
(b) The words "hereof," "herein", "hereto" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
Section and exhibit references are to this Agreement unless otherwise specified.
(c) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
2. SERVICES.
2.1 During the term of this Agreement, Auragen shall, unless
otherwise directed in writing by Zap.Com:
(a) Continue to design, develop, update and upgrade
the ZapBox, the Documentation and the Source Code in accordance with the
Development Plan and each Scope of Work. Each Scope of Work is hereby
incorporated herein and is considered a part of this Agreement as if fully set
forth herein. Upon completion of a working version of each ZapBox Deliverable,
Auragen shall install the ZapBox Deliverable on the server which will host it
and test the operation of the ZapBox Deliverable as installed to ensure that it
conforms to the applicable Specifications. After Auragen performs such testing
and is satisfied that the ZapBox Deliverable meets the applicable
Specifications, Auragen will certify this fact in writing to Zap.Com by
executing a Certificate of Acceptance and delivering it to Zap.Com. A ZapBox
Deliverable shall be deemed to be accepted by Zap.Com upon receipt of a
Certificate of Acceptance therefor, unless Zap.Com objects thereto within ten
(10) days after receipt of the Certificate of Acceptance by demonstrating
reproducible errors which cause the ZapBox Deliverable not to substantially
conform to the applicable Specifications in the manner required under Section
6.1(h). For purposes of clarification, the ZapBox Deliverable shall not be
deemed to be accepted upon installation, but only following receipt of the
Certificate of Acceptance as set forth herein.
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(b) Exercise best efforts to develop and deploy the
software and all other technology necessary for each ZapBox Deliverable to be
used on third party web sites that join the ZapNetwork (the "NETWORK SITE
DEPLOYMENT CODE"), as set forth in applicable Scopes of Work.
(c) Take all actions necessary to ensure that each
current version of the ZapBox Deliverable then in use is capable of remaining
online and fully deployed and operational twenty-four (24) hours a day, seven
days a week. Auragen shall not be responsible for the failure of a ZapBox
Deliverable to remain online and fully deployed and operational twenty four (24)
hours a day, seven days a week, to the extent such failure is caused by Zap.Com,
by third parties or by other circumstances outside of Auragen's control.
(d) Act as Zap.Com's technical liaison in identifying
and recommending service providers which may be required by Zap.Com during the
term of this Agreement, provided that responsibility and authority for selecting
and contracting with said service providers shall remain with Zap.Com; act as
Zap.Com's technical liaison in managing and monitoring the performance of
services rendered by EMC Corporation, DoubleClick, Inc., iSyndicate, Inc.,
Direct Hit, Inc. and all other service providers which may be designated by
Zap.Com during the term of this Agreement, and report to Zap.Com on the
timeliness of such performance and whether such performance is in accordance
with the agreements between said service providers and Zap.Com, including the
requirements of all applicable warranties and guarantees, current service and
product literature available for such service providers and prudent industry
practices. In such capacity, Auragen shall direct and coordinate the efforts of
such parties so that the technology provided properly supports the Development
Plan and all other Documentation and otherwise results in the then current
version of a ZapBox Deliverable being online, fully deployed across the
ZapNetwork and fully operational twenty-four (24) hours a day, seven (7) days a
week, subject to the terms and conditions of the applicable agreements between
said service providers and Zap.Com. This may include, without limitation,
Auragen creating or customizing the software and other technology ("CUSTOMIZED
PROGRAMS") necessary to integrate a ZapBox Deliverable with software provided by
such service provider.
(e) Act as Zap.Com's technical liaison for Zap.Com's
customer service representatives and the owners of Web sites who join or are
considering joining the ZapNetwork in connection with the deployment of the
ZapBox throughout the Web site of these Web site owners.
(f) Train Zap.Com's customer service representatives
and other employees or agents on technical aspects of the ZapBox identified by
Zap.Com.
(g) Provide Zap.Com with business consulting advice
with respect to the ZapBox on an as needed, as requested basis.
(h) Preserve all its original test data, charts and
other records related to testing and other Services described in this Section
2.1 and the Scope of Work for each ZapBox Deliverable (including such notes,
sketches and drawings as may be
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specified by Zap.Com), make such records available for inspection or
verification by Zap.Com on as needed basis when requested by Zap.Com, and
deliver such records and data to Zap.Com upon termination of this Agreement for
any reason.
(i) Cause the Project Manager to participate in
periodic status meetings held by Zap.Com (generally weekly) to review the status
of all services rendered and to be rendered by Auragen hereunder and other
pertinent information. Additional technical personnel from both Auragen and
ZAP.COM shall participate in such meetings as reasonably required by Zap.Com.
Additional meetings shall be held upon the reasonable request of either party.
Auragen shall provide Zap.Com with such reports as it may require describing
actions taken by Auragen in connection with the performance of its Services
hereunder.
Notwithstanding the foregoing, Auragen shall not be considered to be in breach
of this Section 2.1 (other than Section 2.1 (c) for failure to provide the
Services called for thereunder so long as it provides the services necessary to
complete each Scope of Work and to meet the Zap.Com Incremental Services
Forecast.
2.2 Zap.Com shall have the right to approve any changes in the
identity of the Project Manager or Relationship Manager, such approval not to be
unreasonably withheld.
2.3 Forty-five (45) days prior to the commencement of each
calendar quarter during the Term (unless a notice to terminate has been
delivered by either party pursuant to Section 11), Zap.Com shall provide Auragen
with a three (3) month forecast (the "ZAP.COM INCREMENTAL SERVICES FORECAST") of
the anticipated Services that it will need ("INCREMENTAL SERVICES") during such
three (3) month period other than for Services for all existing Scopes of Work
and for deploying the ZapBox on all web sites which have joined the ZapNetwork
or which Zap.Com has identified as future ZapNetwork site members. Auragen may
respond to the Zap.Com Incremental Services Forecast with a proposed Scope of
Work. In addition, Auragen shall, within said forty-five (45) day period,
provide Zap.Com with a forecast of the fees for which it anticipates it will
submit invoices for all existing Scopes of Work to be performed during the next
three (3) months, which shall be subject to review and acceptance by Zap.Com
(the "AURAGEN FEE FORECAST").
3. CONSIDERATION AND REIMBURSEMENT OF EXPENSES.
3.1 Except as otherwise provided in Section 6.2, in
consideration for Auragen's Services rendered under this Agreement,
(a) with respect to Services performed under one or
more Scopes of Work, Zap.Com shall pay Auragen the fees set forth on EXHIBIT F
attached hereto for the Services rendered hereunder, and
(b) with respect to any Zap.Com Incremental Services
Forecast, if Zap.Com and Auragen have not executed a Scope of Work resulting in
fees equal to at least 60% of the fees which would have resulted from the
Incremental Services (the "MINIMUM SERVICES"), Zap.Com shall pay Auragen the
difference between the fees which
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would have been due for the Minimum Services for the three (3) previous months
and the fees due for Services actually rendered for such three (3) months.
3.2 Except as otherwise provided in a Scope of Work, at the
end of each month, Auragen shall prepare and submit to Zap.Com an invoice
setting forth the nature of the Services performed, identifying the actual
Incremental Services rendered, the number of hours devoted to performing such
Services and the amount of fees due Auragen in connection therewith. Auragen
shall provide reasonable supporting documentation concerning any disputed amount
of an invoice to Zap.Com within forty-five (45) days after Zap.Com provides
written notification of the dispute to Auragen.
3.3 Except as otherwise provided in a Scope of Work, invoices
for Services rendered shall be paid by Zap.Com within fifteen (15) days
following receipt of an invoice from Auragen, unless disputed by Zap.Com. If any
amount is disputed, then invoiced amounts not in dispute shall be paid as stated
above and any disputed invoice shall be paid within five (5) days following
resolution of the disputed amount. Payment of an invoice shall not be considered
an acceptance or a waiver of defects or non-conformities in defective or
non-conforming Services or ZapBox Deliverable.
3.4 Zap.Com shall reimburse Auragen for reasonable travel
expenses which it incurs in the course of providing the Services described in
Section 2, within thirty (30) days following submission to Zap.Com of an expense
reimbursement request, accompanied by such documentation as Zap.Com may require.
Zap.Com shall have no obligation to reimburse Auragen for expenses that exceed
$100 and were not approved in advance by Zap.Com.
3.5 Auragen shall make available to Zap.Com or its
representatives or agents any and all information, which Zap.Com reasonably
deems necessary or appropriate to substantiate the invoices, and expense
reimbursement requests referred to in Sections 3.2 and 3.4.
3.6 Except as provided in this Section 3, Zap.Com shall have
no other obligation to pay any compensation or other consideration to Auragen
for its Services, or license fees for use of any software or other rights.
4. OWNERSHIP.
4.1 Auragen acknowledges and agrees that the ZapBox
Compilation, the Development Plan, the Network Site Deployment Code and the
Customized Programs constitute a work made-for-hire, as that term is defined in
17 U.S.C. Section 101, and as such belongs to Zap.Com; if all or any part of the
ZapBox Items, for any reason, is deemed not to be a work made-for-hire, then
Auragen hereby assigns to Zap.Com, without further consideration, all of
Auragen's right, title and interest in and to such ZapBox Items and all IP
Rights applicable thereto. Auragen agrees to execute any and all further
applications and documents and to do any and all acts which Zap.Com may
reasonably request in order to irrevocably vest said rights in Zap.Com and to
secure to itself any rights relating to such
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IP Rights in the United States and in any foreign country. Each ZapBox
Deliverable shall contain conspicuous notice of Zap.Com's copyright.
4.2 Auragen acknowledges that, as between Zap.Com and Auragen,
all forms of invention (as understood from Title 35 of the United States Code),
including applicable rights to patents, patent applications and all divisions,
parts and continuations thereof, in each ZapBox Deliverable (excluding any
patent rights that may pertain solely to any portion or item of Auragen
Material) and the Development Plan, including without limitation the PPA, and in
each, the corresponding or similar rights in foreign jurisdictions, belong to
Zap.Com, and Auragen shall acquire and claims no rights therein by reason of the
performance of any Services for Zap.Com or otherwise. Auragen also acknowledges
that (a) as between Zap.Com and Auragen, Zap.Com is the owner of all right,
title and interest in and to all forms of identification (as understood from
Title 15 of the United States Code, Section 1051 et seq.) including all
trademarks and service marks (registered or unregistered), trade names and logos
included in the ZapBox, including, without limitation, the "ZapBox." and in
each, the corresponding or similar rights in foreign jurisdictions, and (b)
Zap.Com shall retain all right, title and interest in and to the Zap.Com
Material.
4.3 Zap.Com acknowledges that Auragen shall retain all right,
title and interest in and to the Auragen Material, and all IP Rights applicable
thereto except for those rights belonging to Zap.Com as provided in Sections 4.1
and 4.2 hereof.
4.4 All acknowledgements made under this Section 4 and rights
granted under this Section 4 shall be deemed to have been made as of and have
continued from the Effective Date.
5. LICENSES.
5.1 Auragen hereby grants to Zap.Com an exclusive,
irrevocable, fully transferable, fully paid-up, perpetual, worldwide right and
license to use, reproduce, distribute, make, sell or license to third parties,
perform, display (whether publicly or otherwise) and prepare derivative works
based on, and otherwise modify, all or any portions of the ZapBox Software and
derivative works thereof, including all object code, and any IP Rights related
thereto or based thereon to the extent not owned by Zap.Com, solely in
connection with a ZapBox Deliverable and any future version of the ZapBox or
similar applications developed by Zap.Com or for Zap.Com by a third party. For
clarity's sake, this license does not prohibit the use by Auragen of the Auragen
Material for any purpose not related to a ZapBox Deliverable or a comparable
product.
5.2 Auragen hereby grants to Zap.Com a non-exclusive,
irrevocable, fully-transferable, fully paid-up, perpetual, worldwide right and
license to use, reproduce, distribute, make, sell or license to third parties,
perform, display (whether publicly or otherwise) and prepare derivative works
based on, and otherwise modify, all or any portion of the Auragen Material not
otherwise covered by the license granted under Section 5.1 of this Agreement,
including all object and source code, and any IP Rights related thereto or based
thereon to the extent not owned by Zap.Com, solely in connection with a ZapBox
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Deliverable and any future version of the ZapBox or similar applications
developed by Zap.Com or for Zap.Com by a third party.
5.3 Auragen has not and shall not use any Third Party Software
without the advance written consent of Zap.Com. To the extent any Third Party
Software is used in any ZapBox Deliverable, such Third Party Software shall, at
Zap.Com's election, be purchased or licensed directly by Zap.Com from the third
party, and shall be subject to the terms and conditions set forth in the
agreement between Zap.Com and the third party.
5.4 To the extent not owned by Zap.Com, Zap.Com shall be
entitled to use the Source Code for the Auragen Material to use, display,
perform, copy, modify, have modified, improve, prepare derivative works of,
maintain and support or otherwise enjoy the rights granted to Zap.Com hereunder,
the Auragen Material, solely in connection with a ZapBox Deliverable and any
future version of the ZapBox or similar applications developed by Zap.Com or for
Zap.Com by a third party. During the term of this Agreement, Auragen shall
continually update and deliver the Source Code to Zap.Com on a periodic basis,
but no less frequently than monthly.
5.5 All licenses granted under this Section 5 shall be deemed
to have been granted as of, and have continued from, the Effective Date.
6. WARRANTIES.
6.1 Auragen represents, warrants and covenants to Zap.Com on a
continuing basis that:
(a) Auragen has full corporate power to enter into
this Agreement.
(b) As of the date hereof Auragen is the sole
author/creator of all ZapBox Items and Auragen Materials.
(c) Auragen has the full authority necessary to
perform its obligations under this Agreement, and to grant the licenses and
rights contemplated hereunder without the consent of any other person or entity
(including any owner of any Third Party Software and any related IP Rights).
(d) Neither the ZapBox Items, the Auragen Materials
nor the Documentation is subject to any liens or encumbrances.
(e) To the best of Auragen's knowledge, neither the
ZapBox Compilation nor the Development Plan misappropriates or otherwise
violates the IP Rights of any third party, and Auragen has no knowledge of any
basis for a claim of such infringement, misappropriation or violation.
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(f) Neither the Auragen Materials, the Source Code
nor the Documentation infringes, misappropriates or otherwise violates the IP
Rights of any third party.
(g) Each of the ZapBox Deliverables, the Network Site
Deployment Code and the Customized Programs (i) has been and will be designed,
developed and installed in a workmanlike and professional manner, (ii) is free
from defects in workmanship and material or any defects that prevent it from
operating in accordance with the applicable Specifications.
(h) Each of the ZapBox Deliverables, the Network Site
Deployment Code and the Customized Programs operates substantially in accordance
with the applicable Specifications, and will continue to do so for a period of
ninety (90) days after the issuance of a Certificate of Acceptance for such
ZapBox Deliverable (the "WARRANTY PERIOD"). A ZapBox Deliverable will be deemed
to be operating substantially in accordance with applicable specifications if it
can be accessed by 80% of all possible Internet users and performs all the
Critical Functions identified in the applicable Scope of Work, 98% of the time.
(i) All Software included in a ZapBox Deliverable,
the Network Site Deployment Code or the Customized Programs will consistently
perform in such that Zap.Com will not experience any abnormal ending of
programs, or invalid or incorrect results from the Software related to the year
2000 data element or special dates such as 02/29/00. Auragen warrants that the
Software will accommodate the "Turn of the Century" and all data elements
impacted by this event. This warranty shall not apply with respect to any other
failure arising out of the combination with or utilization of any other software
or equipment not provided to Zap.Com by or upon the recommendation of Auragen,
or to any failure caused by modifications to the Software not made by or
authorized by Auragen.
THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
6.2 If a nonconformity from any of the warranties made herein
appears or is discovered in the Software or other technology in any of the
ZapBox Deliverables, Network Site Deployment Code or Customized Programs during
the term of this Agreement, Auragen shall communicate this fact orally and in
writing to Zap.Com, and Auragen shall promptly take any and all steps necessary
to correct such nonconformity and Auragen will thereupon promptly deliver to
Zap.Com the Source Code for the corrected Software and technology.
Notwithstanding anything herein to the contrary, Auragen shall not be entitled
to any compensation for any Services rendered by Auragen pursuant to this
Section 6.2 for any nonconformity occurring during any Warranty Period
7. ZAP.COM WARRANTY. Zap.Com represents, warrants and covenants to
Auragen on a continuing basis that:
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7.1 Zap.Com has full corporate power to enter into this
Agreement and to perform its obligations hereunder.
7.2 To Zap.Com's knowledge, the Zap.Com Material and the
ZapBox Compilation do not infringe, misappropriate or otherwise violate the IP
Rights of any third party and Zap.Com has no knowledge of any basis for a claim
of such infringement, misappropriation or violation.
8. INDEMNIFICATION.
8.1 Auragen shall indemnify and hold Zap.Com and its owners,
parents, partners, affiliates, subsidiaries, agents, subcontractors, officers,
directors and employees harmless from all actions, claims, judgments, orders,
awards, losses, damages, costs, expenses (including, but not limited to, court
costs and attorneys' fees) and all other liabilities ("Losses") arising from or
related to (a) Auragen's intentional, grossly negligent or negligent acts or
omissions in connection with this Agreement or (b) Auragen's breach of any of
the representations, warranties, covenants, terms, or conditions of this
Agreement (other than Section 6.1(e) for which Section 8.2 shall be Zap.Com's
sole remedy and Sections 6.1(g), 6.1(h) and 6.1(i), for which Section 6.2 shall
be Zap.Com's sole remedy).
8.2 Auragen shall indemnify, defend and hold harmless Zap.Com
and its owners, parents, affiliates, subsidiaries, agents, subcontractors,
officers, directors and employees from and against all Losses arising from or
related to any infringement or claim of infringement of any IP Right relating to
the Services, the ZapBox Items, the Auragen Materials, the Source Code and/or
the use thereof in breach of Section 6.1(e). Notwithstanding the foregoing,
Auragen shall have no obligation to defend and indemnify Zap.Com to the extent
that the claim or liability (a) is based upon modifications not made or
specifically recommended or approved the Project Manager, the Relationship
Manager or another authorized representative of Auragen, (b) arises out of the
use in the ZapBox Items or ZapBox Deliverables of Third Party Software or (c)
arises out of or resulting from its compliance with or adoption of any
specification, design, feature, mark or symbol required by Zap.Com.
Notwithstanding anything herein to the contrary, Auragen shall not have the
authority to settle any claim for which it is obligated to indemnify, defend or
hold harmless Zap.Com hereunder to the extent it would obligate or affect
Zap.Com's rights hereunder without Zap.Com's express written consent.
8.3 Zap.Com shall indemnify and hold Auragen and its owners,
parents, partners, affiliates, subsidiaries, agents, subcontractors, officers,
directors and employees harmless from any Losses arising from or related to (a)
the use of the Zap.Com Material in any ZapBox Deliverable, (b) the combination,
operation or use of any ZapBox Deliverable with any other equipment, code,
programs or data supplied or used at the direction of Zap.Com, (c) the hypertext
linking of any ZapBox Deliverable to other sites on a Web site not recommended
or approved by Auragen (c) any modifications of any ZapBox Deliverable by any
party other than Auragen which is not recommended or approved by Auragen, (d)
any use of any Auragen Material outside the scope of the licenses granted herein
after the term of this Agreement, or (e) any breach of Section 7.2.
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8.4 A party being indemnified hereunder ("INDEMNITEE") shall
give the party providing the indemnification (the "INDEMNITOR") prompt,
reasonable notice of any existing or potential Losses known to Indemnitee.
Failure by Indemnitee to provide prompt, reasonable notice of any such Losses
shall not relieve Indemnitor of its obligations under this Article, except to
the extent that Indemnitor is materially prejudiced by such failure. Indemnitee
may have its own counsel participate in the defense of any such matter, provided
that the cost of such counsel shall be borne exclusively by Indemnitee. If
Indemnitor fails to assume its defense obligations hereunder promptly upon
notice, Indemnitee shall be entitled to select counsel and to defend itself at
Indemnitor's expense. Indemnitor will advance to Indemnitee all costs of defense
upon submission of documentation thereof to Indemnitor.
9. LIMITATION OF LIABILITY. Excepting for liabilities arising from (a)
either party's breach of its confidentiality obligations or the other party's IP
Rights and (b) the obligations set forth in Sections 8.2 and 8.3 and Auragen's
obligations under Section 6.2 hereof, in no event shall:
9.1 Zap.Com's liability arising out of this Agreement exceed
the amounts which Zap.Com has committed to pay but has not yet paid hereunder.
9.2 Auragen's liability arising out of this Agreement shall
not exceed the amounts paid by Zap.Com to Auragen from the Effective Date.
THESE LIMITATIONS APPLY TO ALL CAUSES OF ACTION IN THE AGGREGATE, INCLUDING,
WITHOUT LIMITATION, BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, STRICT
LIABILITY AND OTHER TORTS. FURTHER, NEITHER PARTY SHALL BE LIABLE TO THE OTHER
FOR ANY AMOUNTS REPRESENTING THEIR LOSS OF PROFITS, OR OTHER INDIRECT, SPECIAL,
EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES, ARISING FROM THE PERFORMANCE OR
NONPERFORMANCE OF THIS AGREEMENT, REGARDLESS OF THE BASIS OF THE LIABILITY.
10. CHANGE ORDER PROCESS.
10.1 Either party may request a change to a Scope of Work by
submitting to the other a written, formal change request reasonably detailing
the scope of such change. Each party may accept or reject a change requested by
the other in its sole, reasonable discretion. All correspondence regarding
changes shall be in writing. All approved Change Orders may be initiated via
e-mail, but shall be followed within three (3) days by a writing signed by both
parties and shall be considered as amendments to the applicable Scope of Work.
10.2 In the event that a request is made by Zap.Com for
Auragen to commence Services that in Auragen's reasonable, good faith belief is
outside of the scope of its required effort under a Scope of Work, and which
therefore requires a Change Order, then Auragen may, promptly and in writing,
propose such Change Order. Zap.Com will promptly respond in writing. In that
case, Auragen's failure to commence the requested
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work until the parties have mutually agreed to a Change Order will not be a
breach of Auragen's responsibility under the Scope of Work.
11. TERM AND TERMINATION.
11.1 This Agreement shall be deemed to have commenced as of
the Effective Date and shall continue until terminated in accordance with
Section 11.2.
11.2 This Agreement may be terminated:
(a) By Zap.Com in whole or in part (e.g., a single
Scope of Work) at any time upon forty-five (45) days prior written notice to
Auragen specifying the extent to which the Agreement or any part hereof is
terminated and the date upon which such termination becomes effective.
(b) By either party upon ten (10) days written notice
to the other party if the other party breaches any material provision herein and
fails to remedy such breach within ten (10) days of such notice.
(c) By either party if the other party petitions for
or consents to any relief under any bankruptcy, reorganization or similar
statute, makes an assignment for the benefit of its creditors, or petitions for
the appointment of a receiver, liquidator, trustee or custodian of all or a
substantial part of its assets, or a receiver, liquidator, trustee or custodian
is appointed for all or a substantial part of its assets and is not discharged
within thirty (30) days after the date of such appointment.
(d) By Auragen upon completion of all Services to be
performed under all existing Scopes of Work or upon ninety (90) days written
notice to Zap.Com, whichever is later. Services to be performed under a Scope of
Work shall be deemed to be completed when a Certificate of Acceptance has been
delivered to Zap.Com for the ZapBox Deliverable covered thereby and the ten (10)
day period for objection has expired without objection on the part of Zap.Com,
or in the event of an objection by Zap.Com, the non-conformities complained of
have been corrected to the reasonable satisfaction of Zap.Com.
11.3 A party's right to terminate for cause will be in
addition to any other remedies it may have under this Agreement or under
applicable law.
11.4 Upon termination of this Agreement, (a) Auragen shall (i)
return to Zap.Com the unused pro-rated portion of any fees paid by Zap.Com in
advance of Services to be performed and (ii) take such action as may be
necessary to protect and preserve the property related to the Services, the
ZapBox Items, ZapBox Deliverables and Documentation which are in Auragen's
possession and in which Zap.Com has or may acquire an interest; and (b) in the
event that Zap.Com terminates this Agreement or a Scope of Work pursuant to
Section 11.2(a), Zap.Com will, for the next sixty (60) days, pay Auragen 60% of
the fees projected under the Zap.Com Incremental Services Forecast and the
Auragen Fee Forecast
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during that period; provided that Zap.Com shall be relieved of its obligation to
pay such compensation at such time as the Services to be performed by Auragen
under this Agreement occupy fewer than 10% of Auragen's total client hours, at
the beginning of the month during which said termination occurs. In the event of
a termination to which this Section 11.4(b) applies, Auragen shall certify to
Zap.Com in writing the total number of client hours timed by Auragen employees
and the number of hours timed for said Services, and Zap.Com shall have no
obligation to pay Auragen the compensation contemplated by this Section 11.4 in
the absence of said certification.
11.5 Termination under this Section 11 shall be without
prejudice to enforcement of any breaches of this Agreement existing at the time
of termination.
11.6 The provisions of Sections 4, 5, 6, 7, 8, 9, 11, 12, 13
and 14 of this Agreement shall survive termination of this Agreement.
12. CONFIDENTIALITY; NON-SOLICITATION.
12.1 As used herein, "CONFIDENTIAL INFORMATION" means
technical or business information, in whatever form or medium, furnished or
disclosed by one party to the other in connection with this Agreement
(including, but not limited to, product/service specifications, prototypes,
computer programs, models, drawings, marketing plans, customer lists, financial
data, personnel statistics or third party information), which (a) the recipient
should reasonably know to be the confidential information of the disclosing
party, (b) is marked as confidential or proprietary or (c) for information which
is orally disclosed, the disclosing party indicates to the other at the time of
disclosure the confidential or proprietary nature of the information and
provides a summary and notice of the confidentiality of the orally disclosed
information in writing to the receiving party within 20 days after the
disclosure. Any third party information furnished or disclosed and marked as or
stated to be confidential or proprietary shall be deemed Confidential
Information and shall be subject to the terms and conditions herein.
12.2 Each party shall treat such Confidential Information as
confidential and shall use such Confidential Information solely for the purposes
of performing its obligations under this Agreement or as otherwise permitted
under this Agreement or authorized in writing by the disclosing party. Each
party agrees: (a) not to copy such Confidential Information of the other unless
specifically authorized in writing; (b) not to disclose of any such Confidential
Information to anyone (including subcontractors) except employees and
independent contractors of such party to whom disclosure is necessary for its
performance of this Agreement; (c) to appropriately notify such employees and
independent contractors that the disclosure is made in confidence and shall be
kept in confidence in accordance with this Agreement; and (d) to make requests
for Confidential Information of the other only if necessary to perform its
obligations under this Agreement, and to take any and all other steps necessary
to prevent the unauthorized use or disclosure of the Confidential Information.
Notwithstanding any other provisions of this Section, Confidential Information
may be disclosed as may be required by law, regulation or court or agency order
or demand, after prompt prior notification to the other party of such required.
15
<PAGE> 16
12.3 Each party agrees that in the event permission is granted
by the other to copy Confidential Information, or that copying is permitted
hereunder, each such copy shall contain and state the same confidential or
proprietary notices or legends, if any, which appear on the original. Nothing in
this Section 12 shall be construed as granting to either party any right or
license under any copyrights, inventions, or patents now or hereafter owned or
controlled by the other party. Upon termination, cancellation or expiration of
this Agreement for any reason or upon the reasonable request of the disclosing
party, and except to the extent that the recipient retains a license to use such
Confidential Information, all Confidential Information, together with any copies
that may be authorized herein, shall be returned to the disclosing party or, if
requested by the disclosing party, certified destroyed by the receiving party.
12.4 The obligations imposed in this Section shall not apply
to any information that is: (a) proven to be already in the possession of or
known to the recipient at the time of disclosure; (b) publicly available through
no fault of the recipient; (c) obtained by the recipient from a third party not
in breach of any obligation of confidentiality; or (d) independently developed
by personnel or agents of one party without access to the Confidential
Information of the other.
12.5 In addition to any remedies which either party may have
under this Agreement or at law or in equity, each party shall be entitled to
injunctive and/or equitable relief to prevent the breach or continued breach of
any of the terms or provisions herein, and the breaching party agrees not to
raise as a defense to any action or proceeding for an injunction the claim that
the other party would be adequately compensated by monetary damages.
12.6 Each party agrees that during the term of this Agreement
and for a period of six (6) months following termination hereof, neither shall,
directly or indirectly, solicit or retain, or assist others in soliciting or
retaining a current or former employee of the other, without the advance written
consent of the other.
13. AURAGEN'S OBLIGATION NOT TO DEVELOP MULTIFUNCTIONAL BANNER. During
the term of this Agreement and for a period of three (3) years thereafter (the
"RESTRICTIVE PERIOD"), Auragen shall not (a) design or develop a
multi-functional, portal-like Internet banner or a similar Internet application
or property for any parties other than Zap.Com, or (b) perform for any Internet
advertising network (i.e., DoubleClick, Inc., Flycast, Inc., 24/7 Media, Inc.,
Engage, etc.) other than Yahoo!, America On-Line or Microsoft Network, services
similar to those performed for Zap.Com (note: Yahoo, America On-Line and
Microsoft Network are not considered advertising networks); provided that the
Restrictive Period shall be reduced to three (3) months after the termination of
this Agreement in the event Zap.Com petitions for or consents to any relief
under any bankruptcy, reorganization or similar statute, makes an assignment for
the benefit of its creditors, or petitions for the appointment of a receiver,
liquidator, trustee or custodian of all or a substantial part of its assets, or
a receiver, liquidator, trustee or custodian is appointed for all or a
substantial part of its assets and is not discharged within thirty (30) days
after the date of such appointment.
16
<PAGE> 17
14. MISCELLANEOUS.
14.1 This Agreement may not be assigned by either party in
whole or in part without the other party's prior written consent, such consent
not to be unreasonably withheld, and any attempted assignment shall be void.
14.2 Auragen will obtain and maintain in effect written
agreements with all personnel who participate in the development of ZapBox
Deliverables. Such agreements will contain terms sufficient for Auragen to
comply with the terms of this Agreement.
14.3 Zap.Com may have its rights and licenses under this
Agreement exercised by, and may sublicense its rights and licenses hereunder to,
Affiliates of Zap.Com, provided that (a) such Affiliates acting hereunder will
be subject to the terms and conditions of this Agreement, and (b) no act or
omission of an Affiliate will affect Zap.Com's obligations under this Agreement.
14.4 This Agreement supercedes any and all other agreements
between the parties as they relate to the ZapBox, whether written or oral,
including but not limited to a Confidentiality Agreement dated April 28, 1999
and (solely as it relates to the ZapBox) a Consulting Agreement dated June 1,
1999. The foregoing Confidentiality Agreement and Consulting Agreement shall
remain in effect with respect to all other aspects of Zap.Com's relationship
with Auragen that do not involve and are unrelated to the ZapBox. This Agreement
may be modified or amended only in writing executed by both parties.
14.5 All notices required by this Agreement shall be in
writing and shall be deemed delivered (a) as of the day personally delivered; or
(b) three (3) business days after mailed, postage prepaid, certified or
registered mail, return receipt requested; or (c) as of the day telecopied, with
a confirming copy sent by mail, addressed to the appropriate party at the
address set forth at the beginning of this Agreement or such other address as
the party may request in writing.
14.6 Except as specifically provided in Sections 2.1 (d) and
(e) herein, no party hereto is an agent or representative of the other and no
party shall be liable for or bound by any representation, act or omission
whatsoever of the other party. With respect to the Services provided under
Section 2.1 (d) and (e), Auragen shall have no authority to modify any
agreements between Zap.Com and the parties identified therein. This Agreement is
not for the benefit of any third party other than permitted successors and
assigns.
14.7 This Agreement shall in no way constitute the parties
hereto in a partnership, joint venture or co-venture or as fiduciaries to one
another. Each party hereby declares and agrees that it is engaged in an
independent business from the other's, and will perform its obligations under
this Agreement as an independent contractor and not as an employee of the other
or (except as provided in Sections 2.1 (d) and (e)) as an agent of the other.
All persons performing Services hereunder shall be considered solely the
employees
17
<PAGE> 18
or agents of Auragen. Each party has and hereby retains the right to exercise
full control of and supervision over the performance of its obligations
hereunder and full control over the employment, direction, compensation and
discharge of its employees assisting in the performance of such obligations.
Each party shall be solely responsible for compliance with all laws and rules
and regulations including, but not limited to, employment of labor, hours of
labor, working conditions, payment of wages and payment of taxes such as
unemployment, social security and other payroll taxes, in addition to any
employment benefits claimed by persons furnished by that party. Auragen will
comply with all requirements for withholding and payment of federal, social
security, state, provincial, local or other payroll taxes on amounts paid under
this Agreement or otherwise. Each party will be responsible for its own acts and
those of its agents, employees and subcontractors during the performance of its
obligations under this Agreement. Neither party nor its employees are entitled
to unemployment insurance benefits unless unemployment compensation coverage is
provided by that employer or such worker. Auragen is responsible for and shall
pay all assessable federal, state, provincial and local income tax on amounts
paid to it under this Agreement.
14.8 This Agreement shall be governed by the laws of the State
of New York. Both parties consent to the jurisdiction of the state and federal
courts seated in Rochester, New York with respect to any disputes arising
between the parties.
14.9 No term of this Agreement shall be deemed waived by
either party unless the waiver is executed in writing. No such waiver shall be
deemed a waiver of any other breach unless expressly set forth in such waiver.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
ZAP.COM CORPORATION
By: /s/ Avram Glazer
------------------------------
Name: Avram Glazer
Title: CEO and President
AURAGEN COMMUNICATIONS, INC.
By: /s/ Fredrick Beer
------------------------------
Name: Fredrick Beer
Title: CEO and President
LIST OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Exhibit A - Initial Development Plan*
Exhibit B - Auragen Software*
Exhibit C - Certificate of Acceptance*
Exhibit D - Scope of Work for ZapBox 2.0*
</TABLE>
* These exhibits contain confidential information and therefore have been
omitted and filed separately with The Securities & Exchange Commission.
18
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Exhibit E - ZapBox Software
Exhibit F - Auragen Fees
</TABLE>
19
<PAGE> 20
EXHIBIT D
SCOPE OF WORK FOR ZAPBOX 2.0
<PAGE> 21
EXHIBIT F
AURAGEN FEES
<PAGE> 22
EXHIBIT E
ZAPBOX SOFTWARE
<PAGE> 23
EXHIBIT B
AURAGEN SOFTWARE
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated January 28, 2000, relating to the financial statements of ZAP.COM
Corporation, which appear in such Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
New Orleans, Louisiana
February 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,579,363
<SECURITIES> 0
<RECEIVABLES> 45,914
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,174,743
<PP&E> 322,110
<DEPRECIATION> 8,105
<TOTAL-ASSETS> 8,488,748
<CURRENT-LIABILITIES> 753,205
<BONDS> 0
0
0
<COMMON> 50,000
<OTHER-SE> 7,685,543
<TOTAL-LIABILITY-AND-EQUITY> 8,488,748
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 141,160
<TOTAL-COSTS> 3,589,099
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,534,940)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,534,940)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,534,940)
<EPS-BASIC> (.07)
<EPS-DILUTED> (.07)
</TABLE>
