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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 2000
REGISTRATION NO. 333-93837
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ZAP.COM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NEVADA 76-0571159 7319
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER (PRIMARY STANDARD
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) CLASSIFICATION CODE INCORPORATION)
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)
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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
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APPROXIMATE DATE OF COMMENCEMENT DATE OR PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d)under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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EXPLANATORY NOTE
This registration statement 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 to ZapNetwork members under the ZapNetwork unique
user stock bonus plan (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 "The Offering", "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 different Dilution and Plan of Distribution sections 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.
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SUBJECT TO COMPLETION DATED MAY 2, 2000
PROSPECTUS
[ZAP.COM 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 deploy
its proprietary Web application, the ZapBox. This prospectus relates to
20,000,000 shares of our common stock which we are offering to select owners of
Web sites under the ZapNetwork unique user stock bonus plan as an incentive to
join and maintain their membership in the ZapNetwork. We will not receive any
proceeds for the issuance and sale of these shares. We are offering these shares
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 electronic bulletin board under the symbol "ZPCM." As of
April 27, 2000, we had 50,000,000 shares of common stock issued and outstanding.
On April 27, 2000, the last reported sales price for our common stock was $6.00.
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.
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TABLE OF CONTENTS
Prospectus Summary.......................................... 1
Risk Factors................................................ 8
Special Note Regarding Forward-Looking Statements........... 26
The Offering................................................ 27
Plan of Distribution........................................ 31
Use of Proceeds............................................. 33
Dilution.................................................... 33
Dividend Policy............................................. 33
Price Range of Zap.Com's Common Stock....................... 33
Capitalization.............................................. 34
Stockholder Return Performance Graph........................ 35
Selected Financial Data..................................... 36
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 37
Business.................................................... 41
Management.................................................. 53
Related Party Transactions.................................. 58
Principal Stockholders...................................... 61
Federal Income Tax Considerations........................... 61
Description of Securities................................... 63
Experts..................................................... 66
Legal Matters............................................... 66
Additional Information...................................... 66
Index to Financial Statements............................... F-1
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Our World Wide Web site is www.zap.com. Neither the information in this Web
site, the ZapBox nor any of our other Internet properties nor any Web site on
the ZapNetwork is incorporated by reference into this prospectus.
You should rely only on the information contained in this prospectus, the
related registration statement and any documents incorporated by reference into
the registration statement. Zap.Com has not authorized any person to provide you
with different or inconsistent information. If anyone provides you with
different or inconsistent information, you should not rely on it as having been
authorized by Zap.Com. The information in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus.
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, Florida, Georgia, Idaho, Illinois,
Louisiana, Mississippi, Nevada, New York, Oregon, Rhode Island, South Carolina,
Utah, Washington, Wisconsin and Wyoming. This is neither a solicitation to buy
nor an offer to sell the securities covered by this prospectus to persons in any
jurisdiction other than in these states and no purchase of these securities by
persons in any other jurisdictions is authorized.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information appearing elsewhere in this prospectus. The description of the
ZapNetwork membership 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 becoming ZapNetwork members. The exact terms of the ZapNetwork
membership 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 specialized Web
sites that are often overlooked by Internet advertisers.
Our business model involves the deployment of our proprietary Web
application, the ZapBox, on third party Web sites who join the ZapNetwork.
ZapNetwork members will be eligible to receive revenue sharing payments based on
banner advertising generated from their sites. We believe that as of the date of
this prospectus our banner advertising revenue sharing payment to ZapNetwork
members is one of the highest percentage sharing of banner advertising revenue
by a network sponsor in the internet networking advertising industry.
To build and maintain membership in the ZapNetwork, we are offering to Web
site owners who become ZapNetwork members the opportunity to participate in the
ZapNetwork unique user stock bonus plan. Under this plan, ZapNetwork members are
eligible to receive stock bonuses based on the estimated monthly unique user
traffic for their Web site. We believe that this stock bonus plan will align our
network members more closely with us and will induce them to remain associated
with us longer. We plan to offer shares under the ZapNetwork unique user stock
bonus plan until all of the shares available under this prospectus have been
exhausted.
The ZapBox provides personalized portal-like functionality and content
wrapped around an Internet advertising banner. The ZapBox provides users who
prefer specialized sites addressing their particular interests with the ability
to utilize the ZapBox's functionality as they travel the ZapNetwork and allows
Zap.Com to place advertising on member sites. Future ZapBox releases are
expected to be e-commerce enabled, allowing users to purchase merchandise
directly from within the ZapBox.
We believe that users of specialized sites typically 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 on the
Internet through a relationship with Zap.Com.
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 third parties to provide content for the ZapBox
and to support the ZapBox's 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.
We have deployed the ZapBox 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.
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We believe that the ZapNetwork will be attractive to Web site owners
because they will be able to:
- recognize direct value for their audience through revenue sharing
payments based on banner advertising generated from their sales and
equity in Zap.Com without giving up ownership or editorial control of
their Web site, outside of the ZapBox,
- participate in Zap.Com's potential future appreciation through equity in
Zap.Com and
- have the opportunity for increasing the value of their Web site as a
result of the potential for increased traffic through cross-promoting and
cross-linking with the ZapNetwork and increased stickiness (i.e., user
retention on the site due to the ZapBox).
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
and the acquisition and implementation of the technology necessary to operate
the ZapNetwork. 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
over-the-counter electronic 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.
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During April 2000, Zap.Com decided to restructure the relationship which it
will have with ZapNetwork members. Zap.Com had originally sought to build the
ZapNetwork by purchasing perpetual display rights to a Web site in exchange for
stock Zap.Com. Zap.Com is now seeking to enter into contractual relationships
with ZapNetwork members that are terminable on, among other things, 90 days
notice from either party thereby eliminating the purchase element. See "The
Offering -- ZapNetwork Membership Agreement." In addition Zap.Com has changed
the compensation to ZapNetwork members to revenue sharing payments based on
banner advertising and participation in the ZapNetwork unique user stock bonus
plan, which is described in this prospectus.
RELATIONSHIP BETWEEN ZAPATA AND ZAP.COM
As of the date of this prospectus, Zapata holds 48,972,258 shares of our
common stock, or 98% of our outstanding common stock. As a result, Zapata
controls our management and policies and will be able to control substantially
all matters submitted to our stockholders for consideration, including the
election of directors and all proposals for merger, liquidation, sale of
substantially all of our assets and charter amendments.
Officers and Directors
Executive officers of Zapata also serve as executive officers of Zap.Com.
In addition, Avram Glazer serves as a director of both corporations.
Contractual Arrangements
On October 20, 1999, we entered into a services agreement with Zapata under
which Zapata is required to provide us with general administrative services. The
services agreement also provides that Zapata will bill Zap.Com for services
based on an estimated cost basis for services provided. The services agreement
may be terminated by either party on 120 days notice. On October 20, 1999, we
also entered into an investment and distribution agreement, tax sharing and
indemnity agreement and registration rights agreement with Zapata.
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THE OFFERING
ZapNetwork Unique User Stock
Bonus Plan Zap.Com has established the ZapNetwork unique
user stock bonus plan to attract Web site
owners to join, and remain a member of, the
ZapNetwork. Under this plan, a stock bonus
amount is established for each 12 month period
that a Web site owner is a member of the
ZapNetwork and is eligible to receive bonuses.
All ZapNetwork members are eligible to receive
bonuses after Zap.com provides them with their
first bonus certificate which must occur within
60 days after joining the network. The stock
bonus is based on the monthly unique user
traffic visiting the member's Web site. All
bonuses vest over a three year period so long
as the Web site owner remains a member of the
ZapNetwork. The bonuses are issuable at no cost
to the member in three annual installments.
Thus, after their first bonus period,
ZapNetwork members will have up to three
bonuses vesting. The unique user bonuses will
be payable only in shares of our common stock
offered under this prospectus. A Web site
owner's unvested portion of its stock bonuses
will be forfeited upon termination of its
ZapNetwork membership.
Only Web site owners that reside in those
states where, if required, we have registered
or qualified the shares being offered under
this prospectus and we have registered our
officers as brokers, salesperson or agents, as
applicable, may participate in the ZapNetwork
unique user stock bonus plan and receive stock
bonuses.
Share Offering Price The number of shares to be issued a ZapNetwork
member on an annual issuance date will equal
the dollar amount of the installment due on
that date divided by the applicable share
price. The applicable share price will be the
higher of the average closing price of our
common stock for the 20 days ending on the
issuance date and the per share floor price in
effect on the last day before the commencement
of the 12 month period during which the unique
user bonus was established. 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 was $5.00. From time to time
during this offering, the Board of Directors
may change the per share floor price for bonus
periods commencing after the change.
Shares of Common Stock Offered 20,000,000 shares.
Shares of Common Stock
Outstanding After the Offering If all of the shares offered under this
prospectus are issued, and we issue no other
shares, we will have 70,000,000 shares
outstanding. 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 date on which all of the shares offered by
this prospectus have been reserved for specific
unique user stock bonuses established for
ZapNetwork members based on the applicable per
share floor
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price. We reserve the right to withdraw or end
the offering at any time.
Joining the ZapNetwork A Web site owner who wishes to join the
ZapNetwork and to become eligible to
participate in the ZapNetwork unique user stock
bonus plan can do so by following the
procedures described under "The Offering -- How
You Can Join the ZapNetwork" on page 31 of this
prospectus.
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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.
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
------------------- ----------------- -------------------
STATEMENT 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
========== =========== ===========
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(1) Includes approximately $325,000 of costs incurred in connection with a
rights offering abandoned by Zap.Com in September 1999.
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AS OF AS OF
DECEMBER 31, DECEMBER 31,
1998 1999
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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................................................... $ 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, 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
===== ============
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(1) The pro forma effect for the assumed issuance of the shares covered by this
prospectus and offered under the ZapNetwork unique user stock bonus plan has
not been presented due to the variable nature of the number of shares to be
issued under this plan. After stock bonuses are established for ZapNetwork
members under the plan, we will account for the commitment to issue shares
for those bonuses and the associated expense at their minimum value as
prescribed by the principles of the Financial Accounting Standards Board
Emerging Issues Task Force 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 unique user stock
bonuses" during the three year vesting period for these stock bonuses. At
the time the shares are issued to ZapNetwork members, the amount accrued for
the bonus for which the shares are issued will be reclassified into "common
stock" and "additional paid in capital" based on the shares' then current
fair value. If the per share floor price is $5.00 throughout the offering,
then the maximum value of the shares to be issued under the ZapNetwork
unique user stock bonus plan for financial statement reporting purposes will
be $100 million. This figure will be reduced if the per share value of the
shares issued to ZapNetwork members in satisfaction of unique user stock
bonuses based on the 20-day average closing price for our shares ending on
each of the three issuance dates for the stock bonuses is below the
applicable per share floor price. Please see "The Offering -- ZapNetwork
membership Agreement."
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RISK FACTORS
You should be aware that an investment in our common stock involves a high
degree of risk. The principal risks are described below. We urge you to
carefully consider these risk factors together with all of the other information
included in this prospectus, including our financial statements and the related
notes, before investing in our common stock. Our business, prospects, operating
results and financial condition could be adversely affected by any of these
risks. Further, the trading price of our common stock could decline
significantly due to any of these risks.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND
PROSPECTS
We were founded in April 1998. To date, our activities have consisted
primarily of organizational and capital raising activities, research and
analysis with respect to Internet industry opportunities, development of
strategic and commercial relationships and the creation and launch of our
homepage, the first two releases of the Zapbox and the acquisition and
implementation of the technology necessary to operate 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;
- establish relationships with potential customers, including advertisers
and e-commerce partners like vendors and distributors 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. We
expect our revenue to be generated from advertising sales and e-commerce
transactions on the ZapBox. Our ability to generate revenues will depend on our
ability to have Web site owners join the ZapNetwork, to select sites that are
attractive to potential customers and e-commerce partners, to make advertising
sales and to establish
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relationships with vendors, distributors and other e-commerce partners. We do
not expect to generate any revenues from the ZapNetwork until it has grown to a
size which is attractive to potential advertising customers and e-commerce
partners. As of the date of the prospectus we have no present plans, proposals,
arrangements or understandings with any Web site owners to join our network or
with any advertising customers or e-commerce partners. Further, we have not
confirmed the interests of Web site owners in the ZapNetwork under the terms
currently being offered 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 have, and will continue to incur significant expenditures to
continue to develop, 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 ZapNetwork members and for stock we may issue 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 and e-commerce relationships
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 built to a level of critical mass, our success will largely depend
on our ability to establish and substantially increase revenue generating
activities, including 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.
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WE WILL ONLY BE ABLE TO EXECUTE OUR BUSINESS PLAN IF INTERNET USAGE GROWS
Our future success is highly dependent on an increase in the use of the
Internet as a medium for commercial activities, including advertising, direct
marketing, for-fee content delivery and other commerce. The Internet market is
at a very early stage of development, is rapidly evolving and is characterized
by an increasing number of entrants that are introducing or developing competing
products and services. As is typical in the case of a new and rapidly evolving
industry, demand and market acceptance for recently introduced products and
services is uncertain and have a high level of risk. Because the Internet market
is new and evolving, we cannot predict with any assurance the market's size,
growth rate or durability.
Most of our potential network customers will have only limited experience
with the Web as a commercial medium and may not find it to be an effective way
to carry-on business. Consequently, they may allocate only limited portions of
their budget to Internet based advertising and transactions. Our ability to
generate revenues will depend on these potential customers accepting and
utilizing the Internet's new and novel emerging method of conducting business
and exchanging information.
WE ARE 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. One of the most important user benefits that we are
developing for the ZapBox is the ability to accommodate e-commerce transactions
within the ZapBox. The timing and success of future releases 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 ZapBox releases will be successfully finalized and
introduced. In addition, the current or any future ZapBox release 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 release 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 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. Potential ZapNetwork customers may not accept our (or third party)
measurements relating to the effectiveness of advertising on the ZapNetwork and
these measurements may contain errors. This could adversely affect our business
and our ability to generate advertising revenues and attract ZapNetwork members
with revenue sharing payments based on banner advertising. Even if new methods
of measuring effectiveness are developed, we may not be able to take advantage
of them. Moreover, inexpensive "filter" software programs that limit or prevent
banners from being delivered to a user's computer are currently available. The
widespread adoption of this software or the actual or perceived ineffectiveness
of a network of banners in general, could threaten the commercial viability of
our business and limit our long-term growth.
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WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN OUR QUARTERLY
OPERATING RESULTS, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE
Our 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;
- 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;
- 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 ZapNetwork member sites, 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.
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
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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".
FOR A NUMBER OF SERVICES WE RELY ALMOST EXCLUSIVELY ON THIRD PARTIES THAT WE DO
NOT CONTROL
We rely almost exclusively on third parties to provide infrastructure to
support the ZapBox and the ZapNetwork. 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. The Ad Server software addresses the task of
distributing the banner in the ZapBox and managing the banner inventory. 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, vendors and distributors for
product and service fulfillment for our e-commerce business. 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 success of our e-commerce business will be dependent upon the ability
of vendors and distributors who will supply our products and services to supply
adequate amounts of inventory on a timely basis. The failure of vendors and
distributors to meet their commitments would have a material adverse effect on
our business, results of operations and financial condition.
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
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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,
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 ZAPNETWORK
MEMBERS UNDER THE ZAPNETWORK UNIQUE USER STOCK BONUS PLAN
We expect to incur significant charges against earnings for the shares we
plan to issue to ZapNetwork members under the ZapNetwork unique user stock bonus
plan. We will account for the issuance of these shares at their fair value on
the date of issuance. Bonuses under this plan will vest over a fixed period. We
expect to expense these charges over the vesting period and that the reduction
in net income resulting from these non-cash 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 ability to quickly grow the ZapNetwork will depend on the consideration
we are able to offer Web site owners as an incentive to join, and maintain their
membership with, the ZapNetwork. One form of incentive consideration which we
plan to offer ZapNetwork members is our common stock in the form of unique user
stock bonuses. 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 not view our common stock as
attractive incentive for joining and belonging to the network. Under these
circumstances, we may be required to use cash in excess of the amount we plan to
use 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.
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If we raise additional funds in the future through the issuance of equity,
equity-related or debt securities any or all of those securities may have
rights, preferences or privileges senior to those of the rights of our common
stock and our stockholders may also experience significant dilution.
OUR BRAND MAY NOT ACHIEVE THE BROAD RECOGNITION NECESSARY TO SUCCEED AND
BUILDING BRAND IDENTITY IS LIKELY TO BE EXPENSIVE
We believe that quality recognition and perception of the Zap.Com brands is
vital to our success. Development and continued awareness of our brands will
depend largely on our success in establishing and maintaining a position as a
leading Internet business that operates a high quality network which is valuable
to potential advertising customers, and e-commerce partners, potential
ZapNetwork members and users of the ZapBox. We cannot assure you that we will be
able to establish and maintain this position. In order to promote and maintain
our brands, we may 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. We have filed a patent application
with the United States Patent and Trademark office that is directed at several
different aspects of the business processes we plan to employ in our business.
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
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 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 the 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.
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 ZapNetwork members 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, ZapNetwork members 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. We also expect to
compete against electronic commerce networks like Amazon.com, Shopping.com and
E-bay.com. 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 the date of this prospectus, 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
incur expenses that could unexpectedly materially adversely affect our financial
condition and
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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
develop an e-commerce platform, we plan to rely on encryption and authentication
technology licensed from third parties to provide the security and
authentication necessary to effect secure transmission of confidential
information over our network. It is possible that advances in computer
capabilities, new discoveries or other developments will result in a compromise
or breach of the algorithms that we select for this purpose. This could have a
material adverse effect on our business, including our reputation, and our
ability to secure and continue e-commerce relationships.
We may be required to expend significant capital and other resources to
protect against the threat of security breaches like this or to alleviate
problems caused by these breaches. The public's concern over the security of
Internet transactions and the privacy of users may also inhibit the growth of
the Web, especially as a means of conducting commercial transactions. To the
extent that our activities or those of third party contractors involve the
storage and transmission of proprietary information, like credit card numbers,
security breaches could expose us to a risk of loss or litigation and possible
liability. We can provide no assurance that our security measures will prevent
security breaches or that failure to prevent these types of security breaches
will not significantly limit our ability to pursue e-commerce opportunities or
expose us to third party liability.
IF WE ARE NOT ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE, OUR SERVICE WILL
BECOME LESS DESIRABLE
The Internet industry and its markets for commercial activities are
characterized by rapidly changing customer and user requirements, frequent new
service or product announcements, introductions and enhancements and evolving
industry standards and practices. In addition, these market characteristics are
heightened by the inclination of companies from many industries to offer
Internet-based products and services. As a result, our future success will
depend on our ability to adapt to rapidly changing technologies, to adapt our
service offerings to evolving industry standards and to continually improve the
performance, features and reliability of our services in response to competitive
service offerings and the evolving demands of the marketplace on a timely and
cost-effective basis. In addition, the widespread adoption of new Internet,
networking or telecommunications technologies or other technological changes
could require us to incur
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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
applicable to Internet communications, commerce and advertising are increasing.
The most recent session of the United States Congress resulted in laws regarding
children's privacy, copyrights, taxation and the transmission of sexually
explicit material.
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.
PRIVACY CONCERNS MAY PREVENT US FROM COLLECTING DEMOGRAPHIC OR OTHER CONSUMER
DATA.
We employ technology that targets advertising to users through the use of
identifying data, or "cookies" and other non-personally-identifying information.
The technology we employ enables the use of cookies to deliver targeted
advertising, to help compile demographic information, and to limit the frequency
with which an advertisement is shown to the user. The effectiveness of our sales
and marketing efforts and our targeting capabilities could be impaired if any
reduction or limitation develop in the use of cookies under applicable law. To
address privacy concerns, some Internet commentators, advocates and governmental
bodies seek to limit or eliminate the use of cookies. The effectiveness of
technology we employ in delivering targeted advertisements could be limited by
any regulation or limitation in the collection or use of information regarding
Internet users. The full impact of these regulations is difficult to assess as
of the date of this prospectus since many of the limitations are still in the
proposal stage. In addition, our ZapBox collects data from users through an
online registration process and from other sources.
We plan to collect and compile information in databases for our product
offerings. It is possible that in the future individuals or entities may claim
that our collection of this information is illegal. Although we believe that we
have the right to use and compile the information in these databases, we cannot
assure you that our ability to do so will remain lawful, that any trade secret,
copyright or other intellectual property protection will be available for our
databases, or that statutory protection that is or becomes available for
databases will enhance our rights. In addition, others may claim rights to the
information in our databases.
CHANGES IN LAWS AND STANDARDS RELATING TO DATA COLLECTION AND USE PRACTICES AND
THE PRIVACY OF INTERNET USERS AND OTHER INDIVIDUALS COULD HARM OUR BUSINESS.
Growing public concern regarding privacy and the collection, distribution
and use of information about individuals has led to increased federal and state
scrutiny and legislative and regulatory activity. In addition, the high
technology and direct marketing industries are considering various new,
additional or different self-regulatory standards. This focus, and any
legislation, regulations or standards promulgated, may impact us. The U.S.
federal and various state governments have recently proposed limitations on the
collection and
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use of information regarding Internet users. In October 1998, the European Union
adopted a directive that may limit our collection and use of information
regarding Internet users in Europe.
This issue is also being considered by various technology and direct
marketing industry groups. The Network Advertising Initiative, an industry
self-regulatory group comprised of third-party ad servers, has proposed a series
of self-regulatory principles. We cannot assure you that the Federal Trade
Commission and the Department of Commerce will endorse these principles, and the
position that these agencies adopt may be more adverse to us than those
currently under discussion. Additional trade associations have also been active.
The Online Privacy Alliance is examining fair information practices and may
offer proposals for industry acceptance. The Direct Marketing Association the
leading trade association of direct marketers, has adopted guidelines regarding
the fair use of information which it recommends that industry participants,
including us, follow. We are also subject to various federal and state
regulations concerning the collection and use of information regarding
individuals. These laws include the Children's Online Privacy Protection Act,
and state laws which limit or preclude the use of voter registration and drivers
license information, as well as other laws that govern the collection and use of
consumer credit information.
Although our compliance with applicable federal and state laws, regulations
and industry guidelines has not had a material adverse effect on us,
governments, trade associations and industry self-regulatory groups may enact
more burdensome laws, regulations and guidelines, including antitrust and
consumer privacy laws, for us and our clients. These regulations and guidelines
could materially and adversely affect the business, financial condition and
results of operations of our business. Furthermore, computer users may also use
software designed to filter or prevent the delivery of advertising to their
computers. We cannot assure you that the number of computer users who employ
filtering software will not increase or that additional Web publishers will not
seek contractual provisions barring us from developing profiles of users of
their Web sites, either of which could materially and adversely affect our
business, results of operations and financial condition. Also, as a consequence
of governmental legislation or regulation or enforcement efforts or evolving
standards of fair information collection practices, we may be required to make
changes to our products or services in ways that could diminish the
effectiveness of the product or service or its attractiveness to potential
customers, which could materially and adversely affect our business, financial
condition or results of operations.
IT IS DIFFICULT TO PREDICT WHETHER A MARKET FOR OUR STOCK WILL DEVELOP, AND IF A
MARKET DEVELOPS, THE MARKET PRICE OF OUR STOCK IS LIKELY TO CONTINUE TO 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 April 27, 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 April 27, 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;
- announcements of technological innovations or new services by us or our
competitors;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic relationships, joint ventures, capital
commitments and the status of the growth of our network;
- announcements by third parties of significant claims or proceedings
against us;
- future sales or issuances of equity by us;
- change in the status of our intellectual property rights;
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- the operating and stock price performance of other comparable companies;
- that our common stock is not followed by any market analysts as of the
date of this prospectus; and
- operating results that vary from expectations as to our future financial
performance or changes in financial estimates for us by securities
analysts and investors who may follow our company.
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 at that time our net assets are
below $5,000,000 (or after April 2002, $2,000,000) and our average annual
revenue for the previous 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
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.
All of the shares which are issued to ZapNetwork members in connection with
this offering will be freely tradable so long as the recipient is not an
affiliate of Zap.Com. In addition, 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.
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 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.
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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 our unique user bonus formula,
the number of shares of our common stock to be issued to network members will be
a function of trading prices prior to the issuance dates for the unique user
bonuses that are being paid through the issuance of our shares and the
applicable per share floor price. 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.
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 and promotions
or similar events. To the extent we issue shares of common stock in this manner
in the future, existing stockholders will experience dilution in their
percentage ownership.
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 under 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 MAY TERMINATE YOU AS A MEMBER OF OUR NETWORK IN THE FUTURE, AND IN THAT YOU
WILL FORFEIT ALL SHARES TO BE ISSUED IN PAYMENT OF THE UNVESTED PORTION OF YOUR
UNIQUE USER BONUSES
We may terminate ZapNetwork members from our network at our sole discretion
at any time within 90 days advance notice, or with 30 days advance notice after
the end of any 12 month bonus period. A ZapNetwork member's membership is also
terminated if it does not renew its annual ZapNetwork membership agreement. If a
ZapNetwork member terminates or is terminated as a member of our network, then
its unique user bonuses shall terminate and be forfeited to the extent unvested.
WE INTEND TO RELY ON REPRESENTATIONS, WARRANTIES AND INDEMNITIES IN CONNECTION
WITH WEB SITES JOINING THE ZAPNETWORK 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 membership agreement with respect to their Web sites and
related matters. We do not intend to perform any due diligence investigation in
connection with these transactions other than a third party audit of the unique
user traffic on the Web site. 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.
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THE ZAPNETWORK MEMBERSHIP AGREEMENT MAY VARY AMONG ZAPNETWORK MEMBERS AND ANY
MODIFICATIONS MAY PRESENT ADDITIONAL RISKS TO THE ZAPNETWORK MEMBERS TO WHICH
THOSE TERMS APPLY
We reserve the right to negotiate the final terms of the ZapNetwork
membership agreement for ZapNetwork members 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 ZapNetwork
members may present risks to that ZapNetwork member not disclosed in this
prospectus.
WEB SITE OWNERS WHO JOIN THE ZAPNETWORK WILL NOT KNOW THE EXACT UNIQUE USER
BONUSES WHICH THEY MAY EARN AT THE TIME THAT THEY SIGN THE ZAPNETWORK MEMBERSHIP
AGREEMENT, NOR WILL THEY KNOW THE NUMBER OF SHARES THEY WILL RECEIVE UNTIL AFTER
THE BONUSES ARE FULLY VESTED.
At the time a Web Site owner joins our network, it will only be able to
estimate the unique user stock bonus that it will be eligible to receive under
the ZapNetwork unique user stock bonus based on its estimation of its Web site's
unique user traffic. The Web site owner will know this only after we deliver to
it a bonus certificate. Further, the Web site owner will not know the number of
shares that are issuable to it in connection with a unique user bonus until the
unique user bonus has fully vested. This is because under our ZapNetwork unique
user stock bonus plan, the number of shares that a ZapNetwork member will
receive will depend on the average closing price of our common stock on the 20
days prior to each of issuance dates and the applicable per share floor price.
OUR OBLIGATION TO ISSUE SHARES FOR A UNIQUE USER BONUS MAY BE SUSPENDED IF OUR
SEC REGISTRATION STATEMENT COVERING THE SHARES OR OUR STATE REGISTRATION OR
QUALIFICATION IS NOT EFFECTIVE WHEN THE SHARES ARE TO BE ISSUED OR IF STATE
EXEMPTIONS ARE NOT AVAILABLE.
Shares of our common stock issued to ZapNetwork members on bonus
installment issuance dates under the ZapNetwork unique user stock bonus plan
will be freely tradeable if: (i) a registration statement under the Securities
Act of 1933, as amended, relating to the common stock is then in effect and (ii)
the common stock is qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various ZapNetwork members
reside. Although we will use our best efforts to maintain the effectiveness of a
current registration statement covering the common stock underlying the unique
user stock bonuses, there can be no assurance that we will be able to do so.
There can also be no assurance that exemptions from the registration or
qualification requirements under the laws of the State in which a particular
ZapNetwork member resides will be available at the time shares are due the
ZapNetwork member or that our shares will be registered under those laws.
Although we will use our best efforts to avail ourselves of available exemptions
or to register and qualify our shares if they have been previously registered or
qualified in your state, there can be no assurance that we will be able to do
so. If our registration statement with the SEC is not effective or if
appropriate exemptions are not available or State registrations or
qualifications in effect, then Zap.Com will have no duty to issue shares or
satisfy unique users bonuses due under ZapNetwork members.
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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.
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THE OFFERING
As an incentive to join and remain a member of the ZapNetwork, we are
offering to Web site owners who join our network shares of our common stock
covered by this prospectus under the ZapNetwork unique user stock bonus plan.
The terms of the ZapNetwork unique user stock bonus plan are contained in the
ZapNetwork membership agreement provided by Zap.Com to solicited Web site
owners. See "The Offering -- ZapNetwork Membership Agreement".
We will begin soliciting Web site owners in the ZapNetwork unique user
stock bonus program as soon as practical after the registration statement, of
which this prospectus forms a part, becomes effective. We will end the offering
on the date on which all of the shares offered by this prospectus have been
committed to stock bonuses under the plan based on the applicable per share
floor price. We reserve the right to withdraw or end this offering at any time.
ZAPNETWORK MEMBERSHIP AGREEMENT
The ZapNetwork membership agreement is the instrument in which a Web site
owner will become a ZapNetwork member and grant us rights that entitle us to,
among other things, deploy on its Web site our proprietary Web application, the
ZapBox. A copy of the form of this agreement is set forth in Annex A to this
prospectus. We reserve the right to agree with any ZapNetwork member to
different terms than those set forth in the form ZapNetwork membership agreement
and we do not intend to provide a supplement to this prospectus for any change
made to the form of agreement presented to a ZapNetwork member. The following
summary description of the ZapNetwork membership agreement is of the form
agreement. This description is qualified in its entirety by reference to the
ZapNetwork membership agreement provided to you with this prospectus as it may
be modified by addendum. You are encouraged to read the agreement in its
entirety.
Acceptance Into The ZapNetwork
Each Web site owner who chooses to join our ZapNetwork must execute and
deliver to us a ZapNetwork membership agreement. Please see "Plan of
Distribution -- How Do I Join the ZapNetwork." We may in our sole discretion
accept or reject any agreement submitted to us by a Web site owner.
Zap.Com's Display Rights
Under the ZapNetwork membership agreement, each ZapNetwork member will
grant us the right to have at all times the ZapBox 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 600 x 800 pixel (or higher) resolution or any applicable industry
standard. The ZapBox, however, may not exceed twenty percent (20%) of the
initial viewing area of each and every page of the Web site. There is, however,
no limitation on the size of any Internet properties emanating from the ZapBox
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 ZapNetwork member will retain control over all other aspects of
the Web site and will be entitled to object to any advertising being placed on
the ZapBox displayed on its site.
Member Compensation
ZapNetwork members will be eligible to receive revenue sharing payments
based on banner advertising generated from their sites and if participating in
the ZapNetwork unique user stock bonus plan, stock bonuses which vest and are
issuable over a three-year period. A unique user stock bonus is available to
participating ZapNetwork members for each 12 month period that they are a member
of the network following delivery to them of their initial stock bonus
certificate. Thus, after their first 12 month bonus period ZapNetwork members
will have up to three bonuses vesting. A member's 12 month bonus will equal
$1.00 multiplied by the number of monthly unique users estimated to visit the
member's Web site in the course of a month. For the initial 12 month bonus
period, we will estimate this figure for a particular month which ends within 60
days after you join the ZapNetwork, as selected by us. For each subsequent 12
month bonus period after the initial
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bonus period, we will determine the number of average monthly unique users for
your Web site based on the sites' traffic during the immediately preceding bonus
period. Our estimation of a Web site's monthly unique users will be verified by
a third party selected by us through an analysis of log files generated by the
ZapBox or through such other method as we select.
We will notify a ZapNetwork member of the unique user bonus which it will
be eligible to receive (subject to vesting) for each 12 month bonus period by
delivery of a bonus certificate to the ZapNetwork member. We will deliver the
first bonus certificate within 60 days after a Web site owner joins the
ZapNetwork. For all bonus periods commencing after the first bonus period we
will deliver to the ZapNetwork member a bonus certificate within 30 days of the
commencement of the bonus period.
Each unique user bonus will vest over the three year period following the
commencement of the bonus period for which the bonus is established. The maximum
amount that will vest will equal 25%, 25% and 50% of the unique user bonus for
the first, second and third 12 month periods following the commencement of the
bonus period. These amounts will vest during each of these 12 month periods on a
pro rata basis based on the number of days that have elapsed compared to 365
days. Upon termination of the agreement, all vesting shall cease and the
unvested portion of any unique user bonuses shall terminate and be forfeited and
the ZapNetwork member shall have no further rights with respect to that portion
of their bonuses.
Under the ZapNetwork unique user stock bonus plan, on the last day of each
of the following calendar months the percentage of each unique user bonus set
opposite those months shall be issuable:
PERCENTAGE OF
NUMBER OF MONTHS UNIQUE USER
BONUS AFTER COMMENCEMENT BONUS DUE ON BONUS
INSTALLMENT OF THE BONUS PERIOD INSTALLMENT ISSUANCE DATE
- ----------- ------------------- -------------------------
1 12 25%
2 24 25%
3 36 50%
Unique user bonuses will be payable only with the issuance of shares of
common stock offered by this prospectus. The number of shares to be issued on a
bonus installment issuance date will equal the bonus installment dollar amount
due on that date divided by the greater of the average closing price of our
stock during the 20 days ending on the bonus installment issuance date and the
per share floor price last set by the Zap.Com Board of Directors prior to the
commencement of the bonus period. As of the date of this prospectus, the per
share floor price last set by the Board was $5.00.
Within 45 days following each bonus installment issuance date, we will
deliver the shares due on that date either via electronic transfer to the
ZapNetwork member's brokerage account or by mailing a stock certificate to the
ZapNetwork member. Until the certificates are issued or the electronic transfer
is made, the ZapNetwork member will not be a record or beneficial holder of the
shares. Fractional shares will not be issued, but will be eliminated from the
unique user bonus due the ZapNetwork member. The market price of Zap.Com common
shares that a ZapNetwork member is due on each issuance date may fluctuate
before the ZapNetwork member receives ownership and control over the shares.
We have included below a table to illustrate the total payment and number
of Zap.Com common shares that a ZapNetwork member would receive under the
ZapNetwork unique user stock bonus plan for a given bonus period based on 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 three
bonus installment issuance dates of $10.00, $20.00 and $25.00, respectively, and
the per share floor price is $5.00. We have also assumed that the Web site owner
remains a member of the ZapNetwork for the entire three year vesting period.
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BONUS INSTALLMENT ISSUANCE ILLUSTRATION NO. 1
ISSUANCE DATES
---------------------------
12 24 36
MONTHS MONTHS MONTHS TOTALS
------- ------- ------- --------
Percentage of Unique User Bonus Issuable.................... 25% 25% 50% 100%
Unique User Bonus Installment Dollar Amount................. $25,000 $25,000 $50,000 --
20-Day Average Closing Stock Price.......................... $ 10.00 $ 20.00 $ 25.00 --
Number of Shares Issued..................................... 2,500 1,250 2,000 5,750
Value of Shares Issued on Issuance Date..................... $25,000 $25,000 $50,000 $100,000
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 ZapNetwork
member would receive for a $100,000 unique user bonus. 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 three bonus
installment issuance dates, then the aggregate total dollar amount received by
the ZapNetwork member as of the issuance dates will be lower than the bonus
amount stated in the bonus certificate originally delivered to the ZapNetwork
member for a 12 month bonus period. For the purposes of this table, we have
assumed that the 20-day average closing price of Zap.Com common stock at the
three issuance dates is $5.00, $4.00 and $10.00, respectively, and that the per
share floor price is $5.00. We have also assumed that the Web site owner remains
a member of the ZapNetwork for the entire three year vesting period.
BONUS INSTALLMENT ISSUANCE ILLUSTRATION NO. 2
ISSUANCE DATES
---------------------------
12 24 36
MONTHS MONTHS MONTHS TOTALS
------- ------- ------- --------
Percentage of Unique User Bonus Issuable.................... 25% 25% 50% 100%
Unique User Bonus Installment Dollar Amount................. $25,000 $25,000 $50,000 --
20-day Average Closing Stock Price.......................... $ 5.00 $ 4.00 $ 10.00 --
Number of Shares Issued..................................... 5,000 5,000 5,000 15,000
Value of Shares Issued on Issuance Date..................... $25,000 $20,000 $50,000 $ 95,000
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 bonus installment issuance dates. We cannot predict what the Zap.Com
stock closing price will be during the period prior to any bonus installment
issuance date. There may be significant fluctuations in Zap.Com's stock price
after the commencement of any bonus period, and any change in Zap.Com's stock
price after that date and prior to the time that a member receives Zap.Com
shares should not be viewed as representative of what the stock price will be
when the member receives its shares.
Other Terms
The ZapNetwork membership agreement also includes, among other terms and
conditions:
- Representations and warranties by the ZapNetwork member as to its form of
organization, the lack of conflict with any third party agreement and
that the member has received and reviewed this prospectus and all
supplements.
- Covenants by the ZapNetwork member to: continue to operate its Web site
consistent with the site's historic operations and content quality;
exclude objectionable material from its Web site; and maintain and not
use Zap.Com's confidential information.
- A covenant by the ZapNetwork member, at its own expense, via the Internet
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
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available to the ZapNetwork member that may be useful to Zap.Com for any
purposes, including promoting the ZapNetwork.
- A covenant by the ZapNetwork member 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 ZapNetwork member to not artificially inflate its
traffic counts using a device, program or other means and to not place
the ZapBox on pages that are unrelated to the Web site.
- A covenant by ZapNetwork member to exercise best efforts to have its Web
site fully operational at all times.
- An indemnity by the ZapNetwork member in favor of Zap.Com regarding the
representations and warranties contained in the ZapNetwork member
agreement and third-party claims arising from the operation of the Web
site by the ZapNetwork member with a right, at Zap.Com's election, to
offset the amounts due Zap.Com under the indemnity against compensation
due the ZapNetwork member under the ZapNetwork membership agreement.
Term and Termination
The ZapNetwork membership agreement will become effective upon Zap.Com's
acceptance of a Web site into the ZapNetwork and shall remain in effect until
terminated. Zap.Com may terminate the ZapNetwork agreement immediately for any
reason prior to the delivery of the first bonus certificate by written notice to
the ZapNetwork member and thereafter on 90 days advance written notice to the
ZapNetwork member. Zap.Com may also terminate the ZapNetwork membership
agreement at any time upon written notice to the ZapNetwork member if the
ZapNetwork member breaches any of its representations, warranties, or covenants
in the ZapNetwork membership agreement, or becomes subject to bankruptcy or
insolvency. The ZapNetwork member may terminate the ZapNetwork membership
agreement at any time on 90 days advance written notice to Zap.Com. Upon
termination of the ZapNetwork agreement, Zap.Com will issue shares as payment of
the ZapNetwork member's vested unique user stock bonuses that have not yet been
issued and will pay the ZapNetwork member any unpaid revenue sharing payments
based on banner advertising generated from their site.
Miscellaneous
The ZapNetwork membership 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 ZapNetwork member except in connection with the sale of
its web site. Zap.Com may transfer or assign any and all of its rights under the
agreement. The ZapNetwork membership agreement provides that in the event that
the ZapNetwork member breaches its covenants, Zap.Com will be entitled to
enforce its rights through specific performance. The ZapNetwork membership
agreement may only be modified by a written instrument signed by both parties.
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PLAN OF DISTRIBUTION
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 to join our
network and to participate in the ZapNetwork unique user stock bonus plan 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 candidates for the ZapNetwork.
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
connection with the offering.
In addition to this prospectus, Web site owners who are solicited to join
our network and to participate in the ZapNetwork unique user stock bonus plan
will be provided with a package, generally consisting of a cover letter, a
brochure, a ZapNetwork membership agreement and a summary of terms or comparable
materials. The cover letter will direct the Web site owners to
http://www.zap.com/prospectussupplement, which will require their consent to
receive a prospectus supplement on line and 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, so called "tombstone" advertisements and a Web site. The
offering of shares under the ZapNetwork unique user plan, however, is made only
by means of this prospectus. Although the information contained in the
supplemental 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 and required. As of the date of this
prospectus, we intend to offer and sell shares in this offering only to Web site
owners residing in the States of Colorado, Delaware, Florida, Georgia, Idaho,
Illinois, Louisiana, Mississippi, Nevada, New York, Oregon, Rhode Island, South
Carolina, Utah, Washington, Wisconsin 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.
HOW YOU CAN JOIN THE ZAPNETWORK
In order to join the ZapNetwork and be eligible to receive shares offered
under the ZapNetwork unique user stock bonus plan, you must:
- read this prospectus and any prospectus supplement appearing at
http:/www.zap.com
/prospectussupplement;
- complete, sign and submit to us the ZapNetwork membership agreement; and
We must accept your signal ZapNetwork membership agreement and return a
fully executed copy of the agreement to you.
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We will only consider a Web site owner's and ZapNetwork membership
agreement if:
- an executed ZapNetwork membership agreement has been submitted to us;
- the ZapNetwork membership agreement has been properly signed and dated;
and
- the signed ZapNetwork membership agreement has been received before the
expiration of the offering.
After being submitted to Zap.Com, a prospective member's ZapNetwork
membership agreement can be withdrawn prior to acceptance by Zap.Com on three
days notice to Zap.Com. No offer to join the ZapNetwork shall be deemed accepted
and no ZapNetwork membership 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
ZapNetwork membership agreement by having an officer of Zap.Com sign and return
one of the agreements to the Web site owner. If accepted, we will promptly
return a copy of the countersigned ZapNetwork membership agreement to the
ZapNetwork member.
Zap.Com may, in its sole discretion, refuse to admit any Web site owner to
the ZapNetwork and reject any offer to join the network for any reason. Zap.Com
may be required to reject a Web site owner's offer to join the ZapNetwork if the
offering is not registered in the state in which the applying 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 in the state where the Web site owner resides. If Zap.Com has
not notified a Web site owner that it has been admitted as a member of the
network within 60 days after the Web site owner first submits its signed
ZapNetwork membership agreement to us, then it's offer to join the network will
be deemed rejected by Zap.Com and will be null and void and not capable of
acceptance.
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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USE OF PROCEEDS
Zap.Com will not receive any cash proceeds from the issuance and sale of
shares offered in this prospectus.
DIVIDEND POLICY
Zap.Com has not declared or paid any cash dividends on its common stock
since its inception and does not expect to pay any cash dividends on its common
stock in the foreseeable future. Zap.Com currently intends to retain future
earnings, if any, to finance the expansion of its business.
DILUTION
Our ZapNetwork members who receive shares of our common stock covered by
this prospectus will experience no dilution since they will make no monetary
payment for those shares under the terms of the ZapNetwork unique user stock
bonus plan.
PRICE RANGE OF ZAP.COM'S COMMON STOCK
Our common stock began trading on the over-the-counter electronic bulletin
board maintained by the NASD under the symbol "ZPCM" on November 30, 1999. We
believe that approximately five dealers are engaged in making a market in our
common stock. The electronic 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 electronic 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
electronic bulletin board.
HIGH PRICE LOW PRICE
---------- ---------
1999
Fourth Quarter (November 30, 1999
through December 31, 1999)............................. $ 10.75 $2.25
2000
First Quarter (January 1, 2000
through March 31, 2000)................................ $10.875 $5.50
Second Quarter (April 1, 2000
through April 27, 2000)................................ $ 6.875 $5.50
On April 25, 2000, the last sale price reported on the electronic bulletin
board for our common stock was $6.00. As of April 27, 2000, there were 1,685
holders of record of our common stock.
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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.
AS OF
DECEMBER 31,
1999
------------
Common stock, $.001 par value, 1,500,000,000 shares
authorized, 50,000,000 issued and outstanding as of
December 31, 1999......................................... 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, 1999.................................................. --
Deficit accumulated during the development stage............ (3,535,733)
Deferred consulting expense................................. (10,328,720)
------------
Total stockholders' equity(1)............................. $ 7,735,543
============
- ---------------
(1) The pro forma effect for the assumed issuance of the shares covered by this
prospectus and offered under the ZapNetwork unique user stock bonus plan has
not been presented due to the variable nature of the number of shares to be
issued under this plan. After stock bonuses are established for ZapNetwork
members, we will account for the commitment to issue shares for those
bonuses and the associated expense at their minimum value as prescribed by
the principles of the Financial Accounting Standards Board Emerging Issues
Task Force 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 unique user stock bonuses"
during the three year vesting period for these stock bonuses. At the time
the shares are issued to ZapNetwork members, the amount accrued for the
bonus for which the shares are issued will be reclassified into "common
stock" and "additional paid in capital" based on the shares' then current
fair value. If the per share floor price is $5.00 throughout the offering,
then the maximum value of the shares to be issued under the ZapNetwork
unique user stock bonus plan for financial statement reporting purposes will
be $100 million. This figure will be reduced if the per share value of the
shares issued to ZapNetwork members in satisfaction of unique user stock
bonuses based on the 20-day average closing price for our shares ending on
each of the three issuance dates for the stock bonuses is below the
applicable per share floor price. Please see "The Offering -- ZapNetwork
membership Agreement."
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STOCKHOLDER RETURN AND PERFORMANCE GRAPH
Presented below is a line graph comparing the percent change in the
cumulative total stockholder return on our common stock against the Russell 2000
Index and the Chase Hambrecht & Quist Internet 100 Index. The graph assumes that
$100 was invested in our common stock and each index on November 30, 1999 and
the reinvestment of all dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG ZAP.COM CORPORATION, RUSSELL 2000 INDEX,
AND THE CHASE H & Q INTERNET 100 INDEX
SINCE NOVEMBER 30, 1999
ZAP.COM CHASE H & Q
CORPORATION RUSSELL 2000 INTERNET 100
----------- ------------ ------------
Nov 99 100.00 100.00 100.00
Dec 99 255.56 103.07 138.91
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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.
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
------------------- ----------------- -------------------
STATEMENT 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
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
=========== =========== ===========
- ---------------
(1) Includes approximately $325,000 of costs incurred in connection with a
rights offering abandoned by Zap.Com in September 1999.
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
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
- ------------------------
(1) See Note 1 to Capitalization table under "Capitalization."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
OVERVIEW AND RESULTS OF OPERATIONS
Zap.Com is a development stage company that seeks to build its network, the
ZapNetwork, into a global network of independently owned Web sites that deploy
our Web application, the ZapBox. We intend to distribute advertising and
e-commerce opportunities over the ZapNetwork. 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.
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 NASD's
over-the-counter electronic 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, the development and launch of our home page at
www.zap.com and ZapBox releases 1.0 and 2.0 and the acquisition and
implementation of the technology necessary to operate the ZapNetwork. 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 development
and implementation of future ZapBox releases, the establishment and continuation
of strategic and commercial relationships, increasing our employee base, growing
and maintaining the ZapNetwork, attracting and retaining advertising customers
and e-commerce partners, 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. Our future revenues
are expected to be generated from advertising placed on the ZapBox and
electronic commerce transacted within the ZapBox. Zap.Com's ability to generate
revenue from these activities will depend on its ability to contract with Web
site owners to join the ZapNetwork, to successfully market the ZapBox to
potential advertising customers, to establish e-commerce technological
capabilities within the ZapBox and to establish and maintain relationships with
vendors and distributors for the sale and distribution of products. 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 join its
network, it will not be able to 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 a $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 an additional 5,000 shares of common stock at a $5.50 per share
exercise price. 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.
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Zap.Com accounts for the options pursuant to the provisions of APB Opinion
No. 25 "Accounting for Stock Issued to Employees" and has included in the notes
to the financial statements 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 recorded in connection with the
grant of these options. Zap.Com accounts for the warrants in accordance with
EITF Issue No. 96-18. Accordingly, Zap.Com records non-cash 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 the warrants.
From the date of inception through December 31, 1999 Zap.Com incurred
expenses and a cumulative operating loss of approximately $3,536,000, 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 continuing development of
the ZapBox and the supporting infrastructure for the ZapNetwork, 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 ZapNetwork members 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 ZapNetwork members 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. 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 also believe that our revenue will be influenced by seasonal
fluctuations because advertisers generally place fewer advertisements during the
first and third calendar quarters of each year. Expenditures by advertisers also
tend to be cyclical, reflecting overall economic conditions as well as budgeting
and buying patterns. We also anticipate that e-commerce activity will trend
higher in the fourth quarter. 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 "Risk Factors -- We May Fail to Meet Market
Expectations Because of Fluctuation In Our Quarterly Operating Results Which
Could Cause Our Stock Price to Decline".
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LIQUIDITY AND CAPITAL RESOURCES
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 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
e-commerce as a source of cash, the ZapBox and operational expenses associated
with the implementation of its business plan. As of April 27, 2000, Zap.Com had
approximately $5.8 million in cash and cash equivalents.
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 and e-commerce relationships established. 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
advertising sales or e-commerce transactions 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 sufficient 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 are not made 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 also 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 will need to raise additional funds.
In order to facilitate the initial growth of our network over the next 12
months, we plan to offer a limited amount of cash to Web site owners to induce
them to join our network. Zap.Com also plans to issue common stock to ZapNetwork
members who participate in the ZapNetwork unique user stock bonus plan. Please
see "Business -- Building The ZapNetwork". This plan is intended to attract Web
site owners to our network and to retain them as members. 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 Continue to be Volatile." We believe that the attraction
to Web site owners of our unique user stock bonus plan 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 do not perceive Zap.Com common stock as an attractive incentive
to join and retain their memberships in the ZapNetwork, Zap.Com may need to
raise additional funds to facilitate 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
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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 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 the date of this prospectus, Zap.Com has not experienced any Year
2000 related disruptions to its computer systems or business operations.
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.
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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 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 an 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 merchants or vendors 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 the network will be linked by
Zap.Com's proprietary Web application, the ZapBox. The ZapBox provides
personalized ported-like functionality to users as they travel the ZapNetwork.
The ZapBox also allows Zap.Com to place on member sites advertising and, subject
to successful development of future ZapBox releases, e-commerce opportunities.
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 facilitate the growth of the ZapNetwork
by offering ZapNetwork members the benefits of the ZapBox together with one of
the highest banner advertising revenue sharing percentages in the Internet
advertising network industry and participation in the ZapNetwork unique user
stock bonus plan. The stock bonus plan is also intended to align the interests
of ZapNetwork members with those of Zap.Com and to induce them to remain
associated with us longer.
Deploy the ZapBox. Zap.Com intends to deploy the ZapBox on the Web sites
of ZapNetwork members. Zap.Com believes that the ZapBox will be a value-added
service to users of member sites and is expected to add traffic and stickiness
to the member's Web site.
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 by: (1) building
the ZapNetwork and thereby building a user base; (2) selling advertising; (3)
developing the ability to target e-commerce and other commercial programming to
demographically distinct user groups;
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(4) creating e-commerce relationships; and (5) 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 its business model
has inherent economic advantages over other Internet networks because of the
ZapBox. The ZapBox is expected to provide Zap.Com with the opportunity to profit
from multiple revenue streams, 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.
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.
During April 2000, Zap.Com decided to restructure the relationship which it
will have with ZapNetwork members. Zap.Com originally sought to purchase
perpetual display rights to a Web Site in exchange for stock. Zap.Com is now
seeking to enter into contractual relationships with ZapNetwork members that are
terminable on, among other things, 90 days notice from either party thereby
eliminating the purchase element. See "The Offering -- ZapNetwork Membership
Agreement." In addition, Zap.Com has changed the compensation of ZapNetwork
members. We have added banner advertising revenue sharing and set the percentage
sharing at what we believe to be one of the highest rates by a network sponsor
in the internet networking advertising industry. We also added the opportunity
to participate in the ZapNetwork unique user stock bonus plan. We believe that
this stock bonus plan will align our network more closely with us and will
induce them to remain associated with us longer. We plan to offer shares under
the ZapNetwork unique user stock bonus plan until all of the shares available
under this prospectus have been exhausted. Please see "The
Offering -- ZapNetwork Membership Agreement." As an additional incentive for the
first group of anchor sites to join the ZapNetwork, we will offer cash or other
inducements to these sites. Please see "Business -- Web Site Owner Recruiting."
The effectiveness of the ZapNetwork unique user stock bonus plan as a
recruiting tool for the ZapNetwork may 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 not find the
ZapNetwork unique stock bonus plan to be attractive 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 Continue to 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 and adversely this would affect our business, results of operation or
financial condition.
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When Zap.Com issues stock in connection with unique user stock bonuses, 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 stock issuances 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 ZapNetwork Members 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 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 through revenue sharing
payments based on banner advertising revenue generated from their site
and equity in Zap.Com without giving up ownership or editorial control of
their Web sites other than the space occupied by the ZapBox;
- increase the value of their Web sites as a result of potential increased
traffic through cross-promoting and cross-linking with the ZapNetwork and
increased "stickiness" (i.e., user retention on the site) due to the
ZapBox;
- have the opportunity to participate in Zap.Com's potential future
appreciation after receiving Zap.Com common stock in connection with the
ZapNetwork unique user stock bonus plan.
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 compensate them for 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 under the
terms currently being offered to potential ZapNetwork members. 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
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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 and maintain the ZapBox, with third parties to deliver content,
functionality and search capabilities for the ZapBox and Zap.Com's homepage.
Although ZapBox 1.0 and ZapBox 2.0 have been created and launched, we cannot
predict when other releases, offering enhanced functionality and e-commerce
capabilities, will be available or whether we will encounter difficulties in
deploying the ZapBox across the ZapNetwork. Please see "Risk Factors -- We Are
Developing Future Releases Of The ZapBox, 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, Zap.Com should be
able to customize 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 control all aspects of the ZapBox, including displayed content
and advertising and e-commerce opportunities, except that member sites may
object to advertising being displayed on its site. The member sites will control
all other aspects of their Web site.
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 member sites in the network. Zap.Com
plans to divide member sites 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
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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 Server solution. This platform enables Zap.Com to
measure page views on the ZapNetwork and to rotate, change or target banner
advertising and e-commerce opportunities on the ZapBox.
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 potential ZapNetwork
members. 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 ZapNetwork members 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 ZapNetwork members 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.
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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, Auragen Communications, EMC and other strategic partners. While
Zap.Com may develop internally the ability to render all of the outsourced
services provided by these entities, Zap.Com intends to continue developing
strategic relationships and partnerships so that it can have adequate access to
those services for the foreseeable future.
EMPLOYEES
As of the date of this prospectus, Zap.Com has seven employees. Avram
Glazer, our President and CEO, and Leonard DiSalvo, our VP-Finance and Chief
Financial Officer, 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, ZapNetwork members and others
to protect its proprietary rights. A patent application has been filed with the
United States Patent and Trademark Office for a business process patent which is
directed to several aspects of Zap.Com's business model. 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.
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Zap.Com may license to third parties in the future some of its proprietary
rights, like trademarks/service marks. While Zap.Com will attempt to ensure that
the quality of its brands are maintained by those licensees, licensees may take
actions that materially adversely affect the value of Zap.Com's proprietary
rights or reputation. We cannot guarantee you that the steps taken by Zap.Com to
protect its proprietary rights will be adequate or that third parties will not
infringe or misappropriate Zap.Com's trademarks, trade dress and other
proprietary rights.
The contracts that Zap.Com will seek with Web site owners who join the
ZapNetwork will entitle Zap.Com to receive data derived from user activity on
the owner's Web sites. This information 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;
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- 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;
- 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. We
also expect to compete against electronic commerce networks like Amazon.com,
Shopping.com, Buy.com and Ebay.com. Potential competitors also include current
and future Web search engine companies and general information services, high
traffic Web sites and Internet service providers. These competitors include free
information, search and content sites or services, like America Online, CNET,
CNN/Time Warner, Excite@Home, Infoseek, Lycos, Microsoft, Yahoo! and Disney.
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
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application or interpretation of existing laws, may decrease the growth in the
use of the Internet, which could in turn decrease the demand for Zap.Com's
service, increase Zap.Com's cost of doing business or otherwise have a material
adverse effect on Zap.Com's prospects and revenues.
Liability For Information Retrieved From Zap.Com Web Sites Belonging to the
ZapNetwork and From Other Internet Sites. Content may be accessed on Web sites
that belong to the ZapNetwork or on other Internet sites that are linked to the
ZapNetwork or the Zap.Com home page. This content may be downloaded by users and
subsequently transmitted to others over the Internet. By providing those links,
Zap.Com is exposed to claims that it is liable for wrongful actions by the
owners of these sites. Claims of this nature have been brought, sometimes
successfully, against providers of Internet services. Zap.Com could also be
exposed to liability with respect to third-party content that may be posted by
users in chat rooms or bulletin boards which may be offered by Web sites which
belong to the ZapNetwork or which are otherwise linked to the ZapNetwork. Also,
there may be claims, alleging that Zap.Com, by directly or indirectly providing
links to other Web sites, is liable for copyright or trademark infringement or
the wrongful actions of third parties through their respective Web sites. The
Digital Millennium Copyright Act of 1998, however, has established limited
liability for online copyright infringement by online service providers for
listing or linking to third party Web sites that include copyright-infringing
materials, provided certain conditions are met.
Zap.Com's general liability insurance may not cover all potential claims to
which Zap.Com is exposed and may not be adequate to indemnify Zap.Com for all
liability that may be imposed. Any imposition of liability that is not covered
by insurance or is in excess of insurance coverage could result in significant
expense and cash demands which would adversely affect operating results and
financial condition. Even to the extent that these claims do not result in
liability to Zap.Com, Zap.Com could incur significant costs in investigating 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 ZapNetwork members 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.
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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 ZapNetwork members or Zap.Com could limit the effectiveness of Zap.Com's
targeting of advertising and other programming delivered to its network. This
could have a material adverse effect on Zap.Com's revenues and growth prospects.
The European Union recently enacted its own privacy regulations that may
result in limits on the collection and use of user information. The laws
governing the Internet, however, remain largely unsettled, even in areas where
there has been some legislative action. Zap.Com cannot be sure that violations
of local laws or new laws will not be alleged by one or more governments,
Zap.Com will not violate those laws or laws will not be modified or ones enacted
in the future. Any of these events could materially adversely effect our
revenues and growth prospects.
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.
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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:
NAME AGE POSITION
- ---- --- --------
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
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 accounting, most recently
at Arthur Andersen, LLP. From 1992 to 1995, Mr. Jones was a financial analyst at
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Citibank, N.A.. Mr. Jones received his B.A. in Economics at SUNY Geneseo and his
MBA from Rochester Institute of Technology. He is also a Certified Public
Accountant.
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 has been and will continue to be paid by Zapata until April 30, 2000, and
a portion of that cost was 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. These costs were
based upon an estimate of the amount of time devoted by those employees to the
operation and affairs of each corporation. On April 30, 2000 Zapata notified
Zap.Com that it was waiving its right for reimbursements of these compensation
payments.
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 $100,000 as
of December 31, 1999.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
SECURITIES
FISCAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS #
- --------------------------- ------ ---------- --------- ------------
Avram A. Glazer, President and Chief Executive
Officer..................................... 1999 $206,250(1) -- 365,000(2)
- ---------------
(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 $2.00 per share, generally vest over three
years from the date of grant.
INDIVIDUAL GRANTS
The following table provides information concerning the grant of stock
options for Zap.Com's common stock made to the Named Officers during Fiscal
1999:
OPTION GRANTS IN FISCAL 1999
NUMBER OF PERCENT OF
SECURITIES TOTAL POTENTIALLY REALIZABLE
UNDERLYING OPTIONS VALUE AT ASSUMED
OPTIONS GRANTED TO EXERCISE ANNUAL RATE OF STOCK
GRANTED EMPLOYEES IN PRICE EXPIRATION PRICE APPRECIATION
NAMED OFFICERS (#)(1) FISCAL YEAR ($/SHARE) DATE FOR OPTION TERM(1)
- -------------- ---------- ------------ --------- ---------- ----------------------
Avram A Glazer, President and
Chief Executive Officer........ 365,000 63% $2.00(1) 10/20/2004 $3,090,935
- ---------------
(1) The amounts shown as potentially realizable values are based on arbitrarily
assumed rates of stock price appreciations of 10% over the April 17, 2000
closing price of Zap.Com's common stock over the full term of the options (5
years), as required by applicable regulations and are provided for
illustrative purposes only.
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All of the options awarded during Fiscal 1999 were granted, in our opinion,
with an exercise price equal to or above the fair market value of the common
stock on the date of grant. At the time of the award, all of the options were
exercisable in cumulative one-third installments, commencing one year after the
date of award, with full vesting occurring on the third anniversary of the
award.
OPTION VALUES
The following sets forth for each of the Named Officers options exercised
and the number and value of securities underlying unexercised options that are
held by the Named Officers as of December 31, 1999.
AGGREGATED OPTION EXERCISES IN FISCAL 1999
AND 1999 FISCAL YEAR END OPTION VALUES
NUMBER OF
SECURITIES ($) 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)
- ---- -------- -------- --------------- ----------------
Avram A. Glazer............................ -- $-- 0/365,000 $0/$1,140,625
- ---------------
(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 electronic bulletin board
to be $5.125.
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BOARD OF DIRECTORS AND BOARD COMMITTEES
The authorized number of directors of Zap.Com is presently fixed at one.
Avram Glazer is the sole director. Mr. Glazer anticipates expanding the board to
three or more directors 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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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 3,000 shares were granted to two other key persons 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 to purchase 25,000 shares to
Mr. Guglielmino at an exercise price of $9.00 and on January 14, 2000, granted
options to purchase 5,000 shares to Ms. Stone at an exercise price of $5.50 per
share. Ms. Stone has notified Zap.Com that she intends to resign on or about May
8, 2000 at which time her options will terminate. All of these options will
generally vest ratably on an annual basis over the three year period following
the grant and are for a term of five years.
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RELATED PARTY TRANSACTIONS
ZAPATA CORPORATION
Prior to the distribution by Zapata of 477,742 shares of Zap.Com common
stock to its stockholders on November 12, 1999, Zapata provided Zap.Com with
administrative and management services, including payroll, consulting and legal.
Zapata billed Zap.Com for these services on a cost basis. These services totaled
approximately $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. On April 30, 2000 Zapata notified Zap.Com that effective as of May
1, 2000, it waived its right to reimbursement of these compensation payments for
at least the next 12 months.
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.
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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 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
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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 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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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to Zap.Com regarding
beneficial ownership of Zap.Com common stock as of April 27, 2000 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.
SHARES BENEFICIALLY OWNED
---------------------------
PERCENTAGE
NAME OF BENEFICIAL OWNER NO. OF SHARES OWNERSHIP
- ------------------------ ------------- ----------
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%
- ---------------
(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 or any
other shares.
(3) Avram Glazer's address is 100 Meridian Centre, Suite 350, Rochester, New
York 14618.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material U.S. federal income
tax considerations applicable to ZapNetwork members who become eligible to
receive shares under the ZapNetwork unique user stock bonus plan and are issued
shares of common stock. This summary is based on provisions of the Internal
Revenue Code of 1986, Treasury Regulations, including temporary and proposed
regulations, rulings and decisions currently in effect, all of which may be
changed with possible retroactive effect. This discussion does not encompass all
of the aspects of federal taxation that may be relevant to ZapNetwork members.
Further, this discussion does not consider the effect of any foreign, state,
local, gift, estate or other tax laws that may be applicable to a particular
ZapNetwork members.
ZAP.COM has not obtained a private letter ruling from the Internal Revenue
Service nor an opinion of tax counsel with respect to possible federal income
tax consequences described in this prospectus. ZAP.COM, however, is generally
aware of the taxability of the issuance of stock under the circumstance
described in the prospectus. ZAP.COM believes that, under current
interpretations of case law, the Code and applicable regulations, the federal
income tax consequences applicable to ZapNetwork members receiving stock under
the ZapNetwork unique user stock bonus plan are as described below. No assurance
can be given that positions contrary to those described below will not be taken
by the Internal Revenue Service or any court of law.
TAX TREATMENT OF UNIQUE USER BONUS SHARES
Characterization of Contractual Rights to Bonus Shares. We expect that a
ZapNetwork member's potential right to receive shares of our stock under the
ZapNetwork unique user stock bonus plan should not be treated as equity for
federal income tax purposes.
Issuance of Shares. The fair market value of the shares received by a
ZapNetwork member with respect to a bonus installment issuance date should be
includible in the holder's gross income as an item of ordinary income under Code
Sections 61.
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The fair market value of the shares received by a ZapNetwork member will be
determined by the closing price for the shares on the trading market for our
shares on the date received. For tax purposes, the holding period of the shares
acquired upon issuance will begin as of that date. The holding period for such
shares will not include any period prior to the date on which such shares are
received. Upon a sale of the common stock by the ZapNetwork member, the holding
period determines whether long or short-term capital gain treatment is
applicable.
Tax Basis in Our Common Stock. When shares are issued to a member under
the ZapNetwork unique user stock bonus plan, the member should acquire a basis
in those shares equal to the amount of income the member is required to
recognize upon issuance of the shares. This should be the fair market value of
such shares on the date of issuance.
Termination. If a ZapNetwork member's rights with respect to unvested
bonus shares terminates, the ZapNetwork member should not recognize any gain or
loss in connection with the termination.
Tax Treatment to Zap.Com of ZapNetwork Unique User Stock Bonus Plan. We
will not recognize a taxable gain or loss upon the creation of the potential
right to receive the bonus to a ZapNetwork member with respect to the ZapNetwork
unique user stock bonus plan or the issuance of bonus shares. Upon the issuance
of bonus shares, we expect to be allowed a deduction for ordinary and necessary
business expenses under Code Section 162(a)(1) in an amount equal to the fair
market value of those shares upon the date of issuance. We will not recognize a
gain or loss upon the termination of any ZapNetwork member's unvested rights
with respect to bonus shares.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under federal income tax law, a ZapNetwork member may, under some
circumstances, be subject to "backup withholding" unless the member provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. The withholding rate is 31% of "reportable
payments," which may apply to the receipt of shares by the ZapNetwork member.
When applicable, we will issue ZapNetwork members a Form 1099-Misc reporting the
value of any bonus shares issued to them for any year in which the shares have a
cumulative value on the date of distribution in excess of $600.
REFUNDS
Any amounts withheld under the backup withholding rules from a payment to a
ZapNetwork member will be allowed as a refund or a credit against the holder's
United States federal income tax liability, provided that the required
information is furnished to the IRS.
OTHER TAX CONSIDERATIONS
There may be other federal, state, local or foreign tax considerations
applicable to a particular ZapNetwork member. Accordingly, a ZapNetwork member
should consult his, her or its tax advisor as to the particular tax consequences
to it of participating in the ZapNetwork unique user stock bonus plan and or
holding and disposing of our common stock.
Each ZapNetwork member 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.
ZapNetwork members should consult their own tax advisor concerning tax
consequences of the granting of the Web site rights to Zap.Com and holding or
disposing of the shares received from Zap.Com under applicable state and local
laws. Site owners that are Non-U.S. persons should also consult their tax
advisors regarding the United States and foreign tax consequences of the
acquisition, holding or disposition of the Web site rights and the shares.
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DESCRIPTION OF SECURITIES
AUTHORIZED CAPITAL STOCK
Zap.Com's authorized capital stock consist of (1) 1,500,000,000 shares of
Zap.Com common stock, par value $.001 per share and (2) 150,000,000 shares of
preferred stock, par value $.01 per share, all of which are undesignated. As of
the date of this prospectus, Zap.Com has outstanding 50,000,000 shares of common
stock. The following summary description of Zap.Com's capital stock and other
securities is qualified in its entirety by reference to Zap.Com's Restated
Articles of Incorporation and Amended and Restated By-Laws, each of which is
filed as an exhibit to the registration statement of which this prospectus forms
a part and to the applicable provisions of the Nevada Corporate Law.
Common Stock
The holders of the outstanding common stock are entitled to receive and
share ratably dividends if, as and when declared by the board of directors out
of funds legally available with respect to Zap.Com's outstanding common stock.
Please see "Dividend Policy." In addition, in the event of a liquidation,
dissolution or winding-up of Zap.Com, the holders of common stock are entitled
to share equally and ratably in the net assets of Zap.Com, if any, remaining
after paying all debts and liabilities of Zap.Com and payment of all liquidation
preferences of any outstanding shares of preferred stock.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights.
Each outstanding share of common stock is fully paid and nonassessable. The
rights, preferences, and privileges of the holders of common stock may be
adversely affected by any class or series of preferred stock which Zap.Com may
designate and issue in the future.
Preferred Stock
The Zap.Com board has the authority to issue up to 150,000,000 shares of
preferred stock in one or more series and to fix the number of shares
constituting the series and the preferences, limitations and relative rights,
including dividend rights, dividend rate, voting rights, terms of redemption,
redemption price or prices, conversion rights and liquidation preferences of the
shares constituting any series, without any further vote or action by the
Zap.Com stockholders. The issuance of preferred stock by the Zap.Com board could
adversely affect the rights of holders of common stock.
The potential issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of Zap.Com and may discourage bids
for Zap.Com common stock at a premium over its market price and may adversely
affect the market price of, and the voting and other rights of the holders of,
the Zap.Com common stock. Zap.Com has no current plans to issue any shares of
preferred stock.
ANTI-TAKEOVER EFFECTS OF NEVADA LAW AND CHARTER
Board of Directors
Zap.Com's Restated Articles of Incorporation provide that, except as
otherwise fixed by the provisions of a certificate of designation containing the
rights of the holders of any class or series of preferred stock, the number of
the directors of Zap.Com will be fixed from time to time exclusively through a
resolution adopted by a majority of the total number of directors which Zap.Com
would have if there were no vacancies. After the size of the board is expanded
to three or more directors, the directors, other than those who may be elected
by the holders of preferred stock, will be automatically classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible. The terms of the directors elected first to
the Zap.Com board will expire at the next annual meeting of stockholders after
which the classified board becomes effective and the remaining directors will be
designated by the directors first elected to the board to one of the other two
classes. The terms of these two classes will expire at the second and third
annual stockholders' meeting occurring after the classified board becomes
effective. Commencing with the
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first annual meeting of stockholders occurring after the classified board
becomes effective, directors elected to succeed directors whose terms then
expire will be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election, with each director to hold
office until the person's successor is duly elected and qualified.
The Articles provide that except as otherwise provided for or fixed by a
certificate of designation containing the rights of the holders of any class or
series of preferred stock, newly created directorships resulting from any
increase in the number of directors and any vacancies on the Zap.Com board
resulting from death, resignation, disqualification, removal or other cause will
be filled by the affirmative vote of a majority of the remaining directors then
in office, even though less than a quorum of Zap.Com's board, and not by the
stockholders. Any director elected in accordance with the preceding sentence
will hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until the
director's successor shall have been duly elected and qualified. No decrease in
the number of directors constituting the Zap.Com board will shorten the term of
any incumbent director. Any director elected by the holders of our common stock
may be removed from office only for cause by the affirmative vote of the holders
of at least 66 2/3% of the voting power of all voting stock then outstanding,
voting together as a single class.
Once the classified board is effective, these provisions will preclude a
third party from removing incumbent directors and simultaneously gaining control
of the Zap.Com board by filling the vacancies created by removal with its own
nominees. Under the classified board provisions described above, it would take
at least two elections of directors for any individual or group to gain control
of the Zap.Com board. Accordingly, these provisions could discourage a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of Zap.Com.
Special Meetings of Stockholders
Zap.Com's Articles provide that special meetings of the stockholders of
Zap.Com can be called only by the chairman of the board of directors, or a
majority of the members of the board of directors. A special meeting may also be
called by Zapata so long as it continues to hold 50% or more of the voting power
of all classes of outstanding capital stock of Zap.Com.
Written Consent
Under Zap.Com's Articles, the stockholders of Zap.Com may not take action
in writing without a meeting of the stockholders after the date on which Zapata
no longer beneficially owns at least 50% of the voting power of all classes of
outstanding capital stock.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Zap.Com's by-laws require that timely notice in writing be provided by
stockholders seeking to bring business before, or to nominate candidates for
election as directors at, the annual meeting of stockholders. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of Zap.Com not less than 120 days nor more than 150
days prior to the first anniversary of the date of Zap.Com's notice of annual
meeting provided with respect to the previous year's annual meeting of
stockholders. If no annual meeting of stockholders was held in the previous year
or the date of the annual meeting of stockholders has been changed to be more
than 30 days earlier than or 60 days after that anniversary, notice will be
timely if received no more than 90 days later than the later of
- 60 days prior to the annual meeting of stockholders, or
- the close of business on the 10th day following the date on which notice
of the date of the meeting is given to stockholders or made public,
whichever first occurs.
Zap.Com's by-laws also specify requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from timely
bringing matters before, or from nominations for directors at, an annual meeting
of stockholders.
64
69
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
65
70
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 LLP is legal counsel
to both Zapata and Zap.Com and a partner of the firm is corporate secretary for
both corporations.
ADDITIONAL INFORMATION
Zap.Com has filed with the Securities and Exchange Commission a
registration statement, which includes exhibits, under the Securities Act of
1933 for the securities offered by this prospectus. This prospectus contains
general information about the contents of contracts and other documents filed as
exhibits to the registration statement. However, this prospectus does not
contain all of the information set forth in the registration statement and the
exhibits filed with the registration statement. You should read the registration
statement and the exhibits for further information about Zap.Com. You may read
and copy all or any portion of the registration statement or any other
information the company files at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's web site (http://www.sec.gov).
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended. In accordance with those
requirements, we file periodic reports, proxy statements and other information
with the SEC.
66
71
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
INDEX TO FINANCIAL STATEMENTS
PAGE
----
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
F-1
72
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
New Orleans, Louisiana
January 28, 2000
F-2
73
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
BALANCE SHEETS
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
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
===== ============
The accompanying notes are an integral part of these financial statements.
F-3
74
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENTS OF OPERATIONS
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
------------------- ----------------- -------------------
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
========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
75
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENTS OF CASH FLOWS
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
-------------------- ----------------- --------------------
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
===== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
76
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
DEFICIT
ACCUMULATED TOTAL
COMMON STOCK DURING THE DEFERRED STOCKHOLDERS'
-------------------- PAID IN DEVELOPMENT CONSULTING EQUITY
SHARES AMOUNT CAPITAL STAGE EXPENSE (DEFICIT)
---------- ------- ----------- ----------- ------------ -------------
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
========== ======= =========== =========== ============ ===========
The accompanying notes are an integral part of these financial statements.
F-6
77
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. The ZapBox provides personalized portal-like
functionality and content wrapped around an Internet advertising banner. The
ZapBox provides users with the ability to utilize the ZapBox's functionality as
they travel the ZapNetwork and allows Zap.Com to place advertising on member
sites. Future ZapBox releases are expected to also allow Zap.Com to place
e-commerce opportunities on member sites. 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 as an incentive to join and remain a
member of the ZapNetwork by providing them the ability to participate in the
ZapNetwork unique user stock bonus plan. 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.
F-7
78
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
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
F-8
79
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
differences between the financial reporting and tax reporting basis of assets
and liabilities, and operating loss and tax credit carry forwards for tax
purposes. The Company is included in Zapata's consolidated U.S. federal income
tax return and its income tax effects are allocated to the Company in proportion
to its contribution to consolidated taxable income.
A valuation allowance is provided to reduce 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
F-9
80
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
81
ZAP.COM CORPORATION
[A DEVELOPMENT STAGE COMPANY]
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
Accrued audit and legal costs...................... $-- $145,000
Accrued printing costs............................. -- 203,553
Accrued expenses................................... -- 61,626
-- --------
$-- $410,179
== ========
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:
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
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................................. $ -- $ --
==== ==========
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
82
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.
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
---------------- ----------------
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.................... -- $ --
======= =====
Additional information with respect to the outstanding options as of
December 31, 1999 is as follows:
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE AVERAGE
RANGE OF SHARES REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTR. LIFE PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
$2.00 578,000 5.00 $2.00 -- --
======= ======== ===== == ==
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
83
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:
APRIL 2, 1998
(DATE OF INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------------- ------------
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)
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
84
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)
QUARTER ENDED
-----------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----------- ----------- ------------- ------------
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
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
85
ZAPNETWORK MEMBERSHIP AGREEMENT
Complete and sign this Agreement. Return it in the
enclosed postage paid envelope or fax it back to (716)-8210.
If you have any questions, please call us toll free at
(877) 392-7266 or e-mail us at zapnetwork@zap.com
- --------------------------------------------------------------------------------
Please print the following
Name
- --------------------------------------------------------------------------------
Title
- --------------------------------------------------------------------------------
Web Site URL
- --------------------------------------------------------------------------------
Company Name
(if applicable)
- --------------------------------------------------------------------------------
Web Site's Estimated Number
Of Current Unique Users Per Month
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City State Zip
- --------------------------------------------------------------------------------
Telephone Fax Email
- --------------------------------------------------------------------------------
State In Which The
Web Site Owner Resides
- ------------------------------------------------------------------------
My web site is owned by a: (please check one) ---- Corporation ---- Partnership
---- Limited Liability Corp. ---- Sole Proprietorship
---- Other (please describe)
- --------------------------------------------------------------------------------
PLEASE CHECK THE ZAPNETWORK CHANNEL THAT YOU WISH YOUR WEB SITE TO BE LISTED
UNDER:
[ ] Arts/Humanities
Zines, Literature, Photography
[ ] Business
Companies, Industries, Economy, Jobs
[ ] Family/Home
Food, Real Estate, Gardens, Religion
[ ] Finance/Investing/Stocks
Money, Insurance, Finance
[ ] Men/Women
Relationships
[ ] Search Engines/Portal
Reference
[ ] Sports/Recreation
Outdoors, Professional, College, Aviation
[ ] Teenagers/Kids
[ ] Automotive
Classic, Dealers, Manufacturers, Parts, Repair
[ ] Entertainment/Games
Movies, TV, Broadcast, Humor, Music, Video,
Games
[ ] Fashion & Beauty
[ ] Health & Fitness
Medicine, Alternative
[ ] News
Weather, Regional, National
[ ] Shopping
Auctions, Classifieds, Clothing, Gifts
[ ] Technology
Computers, Internet, Software
[ ] Travel
Lodging, Destinations, Air
- --------------------------------------------------------------------------------
THE UNDERSIGNED WEB SITE OWNER IS APPLYING TO JOIN THE ZAPNETWORK
ON THE TERMS AND CONDITIONS STATED IN THE ZAPNETWORK MEMBERSHIP AGREEMENT.
Company Name
(if applicable -- please print):
--------------------------------------------------------------------------
Signature Of Owner
Or Authorized Representative:
--------------------------------------------------------------------------
Date (please print):
--------------------------------------------------------------------------
86
This ZAPNETWORK MEMBERSHIP AGREEMENT (this "AGREEMENT") contains all of the
terms and conditions that apply to a web site owner's membership in the
ZapNetwork. The terms "Zap.Com," "we" or "our" means Zap.Com Corporation, a
Nevada Corporation. The terms "you" and "your" means the undersigned web site
owner.
We operate a web site at the URL http://www.zap.com on the World Wide Web
("WWW") and deploy a web application known as the ZapBoxSM on web sites located
on the WWW that are owned and operated by third parties (the "ZAPNETWORK"). We
understand that you own and operate a web site (the "WEB SITE") that can be
accessed through the domain name provided on the cover sheet to this Agreement.
We further understand that you wish to join the ZapNetwork, and we desire to
accept you into the ZapNetwork on the terms and conditions stated herein.
Accordingly, the parties agree as follows:
1. JOINING THE ZAPNETWORK. By executing and delivering this Agreement to
us, you offer to become a member of the ZapNetwork on the terms and conditions
contained herein. We will accept your offer only by countersigning this
Agreement and delivering to you a fully executed copy of this Agreement. Prior
to our acceptance, you may withdraw your offer only by giving us three (3) days
advance written notice.
2. ZAP.COM'S DISPLAY RIGHTS. (a) From the date we accept you as a member
of the ZapNetwork (the "MEMBERSHIP DATE") until the termination of the Agreement
pursuant to Section 11 (the "TERM") we shall have the right at all times to have
the ZapBox displayed on your Web Site. The ZapBox shall be immediately and fully
apparent and prominently displayed without scrolling on each page of your Web
Site when that page is viewed by a user in 800 x 600 pixel (or higher)
resolution in each case as set forth in the instructions for the then current
release of the ZapBox and shall otherwise comply with such industry standards as
we may determine to be applicable from time to time (together with all other
rights granted to us in this Agreement, the "DISPLAY RIGHTS").
(b) Except for your right to object to certain banner advertising under
Section 3(a), we shall have sole control and discretion over all aspects of the
ZapBox, including functionality, content, utility and "look and feel." The size
of the ZapBox will not exceed twenty percent (20%) of the initial viewing area
of each page of your Web Site based on the greater of a 800 x 600 pixel
resolution or the industry's then current standard resolution. There shall be no
size limitation on any other Internet applications invoked by user initiated
functionality emanating from the ZapBox (i.e., pop-up windows).
(c) During the Term, we shall have the right to have one or more unique
tags for the ZapBox ("ZAPBOX TAGS") inserted into or affixed to, as appropriate,
the software code for your Web Site (the "SITE CODE") so that the ZapBox is
displayed and functions properly in your Web Site so that we may exercise our
rights under this Agreement. We will deliver ZapBox Tags to you, and you will
use your best efforts to, in a timely fashion, insert or affix, the most current
version of the ZapBox Tags to the Site Code. During the Term, we may verify the
placement and size of the ZapBox as it appears on your Web Site and you agree to
cooperate with us.
3. MEMBERSHIP COMPENSATION. Subject to the terms and conditions hereof and
in reliance on your representations and warranties herein, as the entire
consideration for being a member of the ZapNetwork and the grant to us of rights
herein, during the Term we will make to you Revenue Sharing Payments pursuant to
Section 3(a) and, as an incentive, we will provide you with Unique User Bonuses
pursuant to Section 3(b).
(a) Revenue Sharing. Your Revenue Sharing Payment will equal 75% of
the banner advertising gross margin collected by Zap.Com from the sale of
advertising served in the ZapBox advertising section displayed on your Web
Site each month, as determined by Zap.Com, using such methods as we deem
appropriate. Banner advertising gross margin means revenue attributable to
such banner advertising less all commissions payable with respect to those
revenues. Your Revenue Sharing Payment will be paid within thirty (30) days
after we collect the advertising revenues. Banner advertising does not
include revenue from e-commerce, sponsorships, house advertising or barter
advertisement. Zap.Com shall provide you with notice, via on-line posting,
of new banner advertising that has been solicited by us to be displayed on
your Web Site's pages, and to use its reasonable efforts to honor any deci-
2
87
sion by you to decline any advertising, in accordance with the provisions
in 4(h) below.
(b) Unique User Bonus. (i) For each twelve (12) month period
following delivery of the first bonus certificate pursuant to Section
5(b)(ii) (each a "BONUS PERIOD") you are eligible to receive at no dollar
cost to you a Unique User Bonus, which vests over thirty-six (36) months in
accordance with Section 11(c)(iii). The amount of the Unique User Bonus you
are eligible to receive for the first Bonus Period equals the number of
your Web Site's unique users over a thirty (30) day period selected by us
multiplied by $1.00. Subsequent annual Unique User Bonuses will equal the
average number of monthly unique users for your Web Site during the twelve
(12) months immediately preceding the Bonus Period multiplied by $1.00.
Thus, after the first Bonus Period, ZapNetwork members will have up to
three bonuses vesting.
(ii) For purposes of this Section 3(b) unique users per month will be
determined through an analysis of log files gathered by software contained
within the ZapBox placed on your Web Site, which, among other things,
tracks unique IP addresses, unique cookies and unique user registrations,
or through such other methods as we determine. The analysis of the log
files will be conducted by a third party selected by us. Within 60 days of
the Membership Date we will issue to you a Bonus Certificate stating the
unique user bonus you are eligible to receive for the first Bonus Period.
For each Bonus Period commencing after the first Bonus Period, a Bonus
Certificate stating the Unique User Bonus you are eligible to receive for
such Bonus Period will be sent to you upon the earlier of our calculation
of the Unique User Bonus or thirty (30) days after commencement of the
Bonus Period. During the Term, you shall make available to us any
information which we deem appropriate to determine the unique users per
month for your Web site.
(iv) Each Unique User Bonus shall be due in three (3) installments
(each a "BONUS INSTALLMENT") on the last day (the "BONUS INSTALLMENT
ISSUANCE DATE") of each of the following calendar months in the amount set
opposite those months:
PERCENTAGE OF
NUMBER OF UNIQUE USER
MONTHS AFTER BONUS DUE ON
COMMENCEMENT OF BONUS INSTALLMENT
BONUS PERIOD ISSUANCE DATE
--------------- -----------------
12....................... 25%
24....................... 25%
36....................... 50%
(v) Each Unique User Bonus and each Bonus Installment shall be payable
solely with shares of our common stock offered under our Prospectus. The
number of shares to be issued to you on a Bonus Installment Issuance Date
(the "BONUS SHARES") will equal the Bonus Installments dollar amount due on
that date divided by the greater of the "20-day Average Closing Price"
ending on the Bonus Installment Issuance Date and the per share floor price
last determined by our Board of Directors prior to the commencement of the
Bonus Period for which the Unique User Bonus is established (the "PER SHARE
FLOOR PRICE"). Fractional shares will not be issued, but rather will be
eliminated from the Unique User Bonus due you. The "20-day Average Closing
Price" shall equal the average Closing Price for our common stock during
the applicable twenty (20) trading days. As used herein, the "CLOSING
PRICE" of our common stock on a trading day shall be (1) if sales prices
are reported on a consolidated transaction reporting system, automated
dissemination of quotations, electronic bulletin board or other reporting
service, the last reported sale price on such stock system (if more than
one of these exist, then the one selected by our, Board of Directors) or
(2) if actual sales in our stock are not reported in any system, then the
price determined by our Board of Directors to be the fair market value of
such stock without any discount. Within forty-five (45) days following each
Bonus Installment Issuance Date, we will prepare and issue, or cause to be
prepared and issued, to you a stock certificate representing the number of
whole Bonus Shares payable on that date.
4. CERTAIN OTHER WEB SITE OWNER OBLIGATIONS. During the Term:
(a) You shall: (i) have sole responsibility, at your own cost and
expense, to host and
3
88
maintain your Web Site and to develop, manage, track, support,' and
maintain your Web Site, (ii) continue to operate your Web Site in a manner
substantially consistent with the intent and purpose of your Web Site as
described in your Application so that your Web Site continues to attract
users of generally the same demographic and psychographic profile as it
attracts as of such date, provided, however, your Web Site may add
additional areas of focus and interest which do not violate Sections 4(b)
or (c) below, (iii) ensure that your Web Site's content is kept current and
updated on a regular basis, and (iv) use your best efforts to ensure that
your Web Site is continually operational and functional during the Term.
(b) You shall not include or provide via your Web Site (as a result of
links or other means of access) or on any of your Web Site's pages any
material that is or could be considered to be: (i) libelous, illegal or
defamatory under any federal or state law, (ii) an infringement or other
violation of the intellectual property rights (including copyright, patent,
trademark, trade secret or other proprietary rights) of any third party,
(iii) an infringement or other violation on any third party's rights of
publicity or privacy, (iv) the promotion of violence, an engagement in
harassing activities or a promotion of discrimination based on race, sex,
religion, nationality, disability, sexual orientation or age, (v) the
encouragement of illegal activity or instructions or discussions about
performing illegal activities, (vi) software, programs or other material
that contains viruses, corrupted files, or that may or are intended to
damage the operation of another's computer, or defeat the security measures
of any computer, system or programs or the engagement in hacking, or (vii)
the engagement in any activity otherwise inappropriate or unacceptable to
us in our sole opinion.
(c) You shall comply with all laws, statutes, ordinances and
governmental regulations applicable to the operation of your Web Site.
(d) You shall, at your own expense, via the Internet or through any
other means reasonably acceptable to us provide us with access to your Web
Site's log files and any reports generated from them. Upon our request, you
shall furnish us with any and all reports of subscribership, viewership,
advertisement inventory and usage, reviews and audience studies,
deliveries, census requirements and other information regarding your Web
Site.
(e) You shall include in your 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) provided by us indicating
that you are affiliated with us. The graphic shall consist of a size no
less than 5% of the ad (or no less than 10% of the audio time for an audio
or TV ad). Any such graphic shall be delivered or displayed in a manner
consistent with our instructions and guidelines.
In connection with such use, we hereby grant to you during the Term a
non-transferable, non-exclusive, royalty-free, worldwide license, without the
right to sublicense, to use and to display any Zap.Com trademarks, service marks
or trade names included with the graphic provided to you. We reserve the right
to terminate this license if, in our sole judgment, your use of such trademarks,
service marks and trade names does not conform to our instruction and guidelines
or otherwise harms our business, image or goodwill.
(f) You shall not artificially inflate your Web Site's unique users, page
views or other traffic counts using a device, program, or other means.
(g) You may not place the ZapBox on pages that are unrelated to your Web
Site.
(h) You shall notify us within one business day from the time of notice of
any new banner advertising is given of your rejection of any new banner
advertising. Your failure to provide timely notice of rejection of the
new banner advertising shall be deemed acceptance from the ZapBox then
being displayed on your Web Site, until such time as you notify us of
rejection at which time we will use its reasonable efforts to remove
the banner advertising;
5. REPRESENTATIONS AND WARRANTIES. You represent and warrant to us on a
continuing basis that:
(a) The execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby and the
fulfillment of the terms hereof have
4
89
been duly authorized and will not breach or constitute violation of or
default under, any document, agreement or other instrument to which you
are a party or by which you are bound or your assets are subject.
(b) All of the information contained on the cover sheet of this Agreement
is true and accurate, including, without limitation, that your are a
bona fide resident of, and are domiciled in the State, or jurisdiction,
stated therein.
(c) You acknowledge and agree that (i) you have received and reviewed a
copy of our prospectus, including all supplements thereto, which you
have accessed and reviewed at the URL
http://www.zap.com/prospectussupplement at least forty-eight (48) hours
prior to the date you delivered this signed Agreement to us; (ii) your
receipt of the prospectus preceded or was contemporaneous with your
receipt of any other written materials from Zap.Com; and (iii) you have
not relied upon any verbal representation made by any of our officers,
employees or agents. Notwithstanding the availability of other sources
of information on us, you represent that your decision to join the
ZapNetwork under the terms of this agreement is based solely on the
terms of this Agreement and the information contained within our
prospectus. Further, you acknowledge and agree that any information
furnished by us or any of our officers, employees or agents does not
constitute investment, accounting, legal or tax advice and you are
relying on your own professional advisers for such advice.
(d) No broker, finder, investment banker or other person or entity is
entitled to any brokerage, finder's or other fee or commission in
connection with the transactions contemplated by this Agreement.
6. CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION" means all
information existing or hereafter developed, regarding us, the ZapNetwork, the
ZapBox, the transaction reflected in this Agreement, or our other products,
services or business affairs, whether communicated to you orally, electronically
or in writing, or learned by you through observation of our business, processes
or otherwise, whether or not such information is identified by us as
"confidential." You shall hold such Confidential Information in strict
confidence and shall not, except as authorized in writing by one of our officers
in writing, use or disclose such Confidential Information, except to the extent
necessary to perform your obligations under this Agreement.
7. INTELLECTUAL PROPERTY AND TECHNOLOGY. (a) You acknowledge and agree that
(i) as between you and us, we (or our suppliers) own or have the right to use
all right, title and interest in the valid copyrights, patents, trade names,
registered and unregistered trademarks, service marks, trade dress, franchises,
domain names, know-how, processes, trade secrets or other proprietary rights
("INTELLECTUAL PROPERTY") and any software, programs, codes, hardware or
telecommunications connections (the "ZAP.COM TECHNOLOGY") used by or associated
with us, the Zap.Com Web Site, the ZapNetwork and the ZapBox; (ii) you shall not
acquire any interest in any of the Zap.Com Technology by virtue of this
Agreement, the performance of your duties hereunder or otherwise; (iii) nothing
herein grants or shall be construed as granting you any licenses or other
rights, whether express or implied or otherwise, in, to or under any Zap.Com
Technology, except as expressly stated herein; and (iv) you shall not, during
the Term or thereafter, challenge our ownership of or right to any Zap.Com
Technology or take any action inconsistent with our ownership thereof,
including, without limitation, filing with any governmental or other authority,
domestic or foreign, an application or other instrument claiming ownership with
respect to any Zap.Com Technology.
(b) You hereby grant to us a fully paid, non-exclusive, worldwide, license to
use during the Term your trade names, logos and other trademarks and service
marks as set forth on your Application (the "WEB SITE MARKS") in connection with
our advertising, marketing, promotion, display and distribution of the ZapBox
and the ZapNetwork. We shall not be liable to you for our use of the Web Site
Marks. We may use your Web Site's names, domain names, URL, all records and
information (including, without limitation, user and other data, statistical
information and other traffic information) for any purpose, including lists of
the busiest ZapNetwork sites, lists of member sites, etc. We may also use in our
promotional materials any representation (including screen shots) of any Web
page within your Web Site. You further agree that we may use your Web Site's
traffic count in the
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traffic count for the ZapNetwork reported to Media Metrix, or any other
reporting service.
8. INDEMNIFICATION. (a) At your own expense, you shall indemnify and hold
harmless Zap.Com, our employees, officers and directors, affiliates, successors
and assigns, advertisers, customers, suppliers and any other third parties with
whom we do business (each an "INDEMNITEE") from and against any and all claims,
actions, proceedings (formal and informal), investigations, losses, judgments,
deficiencies, damages, settlements, liabilities, legal fees and other costs and
expenses incurred or suffered by any Indemnitee ("ADVERSE CONSEQUENCES"), as and
when incurred, whether required to be paid to a third party or otherwise, in
connection with, arising from or based upon (i) any act or omission or alleged
act or omission by you in connection with the acceptance of, or the performance
or non-performance by you of any of your duties or obligations under this
Agreement, (ii) the breach by you of any of your representations, warranties or
covenants contained in this Agreement (or if any third party alleges facts that,
if true, would mean that you have breached any of your representations or
warranties in this Agreement) or (iii) the operation of your Web Site, including
any infringement or other violation of third party Intellectual Property rights.
Each Indemnitee shall have the right to control and direct the investigation,
preparation, defense and settlement of any Adverse Consequence for which it is
indemnified hereunder, provided that if any settlement results in any ongoing
material liability to, or materially prejudices or detrimentally impacts you in
any material manner, then such settlement shall require your written consent,
which consent shall not be unreasonably withheld. You shall cooperate with us in
the defense or settlement of such Adverse Consequence.
(b) We shall have the option of offsetting all or any part of any Adverse
Consequences any Indemnitee may suffer by notifying you that we are reducing the
amount of the Revenue Sharing Payment or the Unique User Bonus, at our sole
election, remaining unpaid by the amount of the Adverse Consequences. Any
adjustment made to the Unique User Bonus pursuant to this Section 8(b) shall be
made by reducing the Bonus Installment amount next due until the Adverse
Consequences have been fully paid. For purposes hereof, the reduction in Bonus
Installments shall be based on the valuation of shares at the higher of the per
share floor price and the 20-day Average Closing Price during the twenty (20)
days prior to the occurrence of the claim giving rise to the Adverse Consequence
as determined by us. Our rights under this Section 8(b) are not exclusive and we
may pursue any other remedy to collect the amounts due us under this Section 8.
9. WARRANTY DISCLAIMER/LIMITATION OF LIABILITY. (a) EXCEPT AS EXPRESSLY
PROVIDED HEREIN, YOU ACKNOWLEDGE THAT WE MAKE NO REPRESENTATIONS OR WARRANTIES
OF ANY KIND AND ASSUME NO OBLIGATION OF ANY KIND WITH RESPECT TO THE ZAPNETWORK,
THE ZAPBOX (INCLUDING ANY INFORMATION, CONTENT OR PRODUCT CONTAINED THEREIN OR
ACCESSIBLE THEREFROM), ANY ZAP.COM TECHNOLOGY OR ANY OTHER ITEM OR MATTER,
WHETHER EXPRESSED OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OR ARISING OUT OF A COURSE
OF PERFORMANCE, DEALING OR TRADE USAGE. YOU ACKNOWLEDGE THAT THE ZAPBOX WILL BE
PROVIDED ON AN "AS IS" BASIS AND IS SUBJECT TO CHANGE AT ANY TIME WITHOUT NOTICE
TO YOU.
(b) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, NEITHER WE NOR
ANY INDEMNITEE SHALL BE LIABLE TO YOU OR ANY THIRD PARTY RELATED TO YOU FOR ANY
LOSS, COST, DAMAGE OR EXPENSE INCURRED IN CONNECTION WITH THE PERFORMANCE OR
NONPERFORMANCE OF THE ZAPNETWORK OR THE ZAPBOX, INCLUDING AS A RESULT OF ANY
TECHNICAL MALFUNCTION, COMPUTER ERROR, LOSS OF DATA OR OTHER INJURY, DAMAGE OR
DISRUPTION OF ANY KIND OR ANY OTHER INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL
OR EXEMPLARY DAMAGES, EVEN IF SUCH DAMAGES ARE FORESEEABLE OR WE OR ANY
INDEMNITEE HAS BEEN ADVISED PREVIOUSLY OF THE POSSIBILITY OF SUCH DAMAGES AND
WHETHER SUCH DAMAGES ARE IN CONTRACT, NEGLIGENCE, TORT, UNDER STATUTE, IN
EQUITY, AT LAW OR OTHERWISE.
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10. OUR RELATIONSHIP WITH YOU. Our relationship with you is that of
independent contractors, and nothing in this Agreement shall create any
partnership, joint venture, agency, franchise, sales representative, fiduciary
duty or employment relationship between the parties. You shall have no authority
to make any representations or accept any offers or incur any obligations on our
behalf and you will not make any statement, whether on your Web Site or
otherwise, inconsistent with this Agreement. Each party shall be solely
responsible for the actions of all their respective employees, agents and
representatives.
11. TERM AND TERMINATION. (a) This Agreement and the parties' obligations
hereunder shall become effective at the Membership Date and shall continue until
terminated pursuant to Section 11(b).
(b) This Agreement may be terminated:
(i) by our written notice to you at any time prior to the issuance of the
first Bonus Certificate and thereafter at any time on ninety (90) days
advance written notice to you;
(ii) by you at any time on ninety (90) days advance written notice to us;
(iii) our written notice to you at any time upon the occurrence of any of
the following events: (A) If you breach any of your representations,
warranties, obligations or covenants in this Agreement; (B) if (1)
you file a petition for bankruptcy or are adjudicated bankrupt; (2) a
petition in bankruptcy is filed against you; (3) you become insolvent
or make an assignment for the benefit of creditors or make an
arrangement for your creditors pursuant to any bankruptcy law; (4)
you discontinue your business; or (5) a receiver is appointed for you
or your business; (C) if you commence any legal or other action or
proceeding against us or any party related to or affiliated with us
(including, but not limited to, any Indemnitee) for any reason
whatsoever; or (D) if we determine that you are operating your Web
Site in a manner that may damage or cause injury to us or that
reflects unfavorably on our reputation or if you engage in any fraud
or illegality in connection with this Agreement.
(c) Each Unique User Bonus will initially be unvested and vesting will begin at
the commencement of the Bonus Period and will continue so long as you remain a
member of the ZapNetwork. A percentage of each Unique User Bonus will vest
during the first, second and third 12 month periods following the commencement
of the Bonus Period. The vesting percentages are 25%, 25% and 50% respectively.
All vesting will be on a cumulative basis. Vesting during each of these 12 month
periods will be on a pro rata basis based on the number of days that have
elapsed compared to three hundred sixty-five (365) days. Upon termination of
this Agreement, all Unique user Bonuses shall terminate and be forfeited and you
shall have no further rights thereto.
(d) Within forty-five(45) days after the date on which the termination is
effective, we will (i) make Revenue Sharing Payments earned prior to the date on
which the termination is effective and (ii) issue any vested Bonus Shares.
Sections 5, 6, 7, 8, 9, 11 (d) and 12 of this Agreement shall survive any
termination of this Agreement and continue in full force and effect thereafter.
Upon termination of this Agreement, you shall promptly return to us any and all
Confidential Information in your possession, in any media and you shall
immediately cease displaying the ZapBox on your Web Site. Termination of this
Agreement by you shall not be a waiver of any breach of this Agreement by you
and shall not release you from any liability for your breach of this Agreement.
12. MISCELLANEOUS. (a) Money Damages Inadequate. It is impossible to
measure in money the damages that will accrue to us by reason of your failure to
perform any of your obligations under this Agreement. Therefore, if we institute
any action or proceeding to enforce the provisions hereof of this Agreement, you
hereby waive the claim or defense therein that we have an adequate remedy at law
and you will not urge in any action, proceeding, claim or defense that such
remedy at law exists. In such event, we shall be entitled to injunctive relief
requiring you to comply with this Agreement and you shall not request that we
post a bond.
(b) Other ZapNetwork Agreements, Etc. You acknowledge that we may at any time
enter into agreements with owners of other Web Sites joining the ZapNetwork on
terms that differ from those contained in this Agreement, and that we may
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92
operate or enter into agreements with parties that operate Web Sites that are
similar to or compete with your Web Site. You further acknowledge that the
ZapBox features may vary from Web Site to Web Site participating in the
ZapNetwork at any and all times.
(c) Amendment, Modification and Waiver. No provision of this Agreement may be
amended, modified, waived or discharged unless such amendment, waiver,
modification or discharge is agreed to in writing and signed by each of the
parties hereto or a duly authorized representative thereto. No waiver by any
party hereto at any time of any breach by any other party hereto of, or in
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
(d) Entire Agreement. This Agreement together with each Bonus Certificate
hereafter delivered to you as provided herein represents the entire
understanding between the parties with respect to the subject matter of this
Agreement, and supersedes any and all prior understandings, agreements, plans,
and negotiations, whether written or oral, with respect to the subject matter
hereof.
(e) Notices. All notices and certificates required or permitted to be given or
delivered by you to us hereunder shall be in writing, mailed by certified fast
class mail, postage prepaid, to Zap.Com Corporation, 100 Meridian Centre, Suite
350, Rochester, New York 14618. All notices and certificates required or
permitted to be given or delivered by us to you shall be in writing and either
hand-delivered, telecopied, mailed by certified first class mail, postage
prepaid, or sent via electronic mail to you at the address, facsimile number or
e-mail address set forth in the cover sheet to this Agreement. A notice shall be
deemed given when delivered personally, when the telecopied notice is
transmitted by the sender, on the day of mailing by certified first class mail,
or on the delivery date if delivered to you by electronic mail. The addresses
and e-mails for the parties hereto for purposes of this Section 12(e) may be
changed by written notice to the other party that complies with this Section
12(e).
(f) Assignment. Notwithstanding anything to the contrary, all of our rights
hereunder shall be fully assignable and transferable by us without any
restriction of any kind. This Agreement and all of your rights here under are
not assignable or transferable except in connection with the sale, transfer or
conveyance of your Web Site, the assets used to operate your Web Site or the
business embodied within your Web Site. In the event of such a transaction, you
agree that this Agreement and all of the provisions hereof shall be transferred
to and assumed by the purchaser of your Web Site, assets and/or business and
shall be binding upon, such purchase and shall continue to inure to our benefit.
(g) Counterparts and Facsimile Signatures. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one and the
same instrument. For purposes hereof, a facsimile copy of this Agreement,
including the signature pages hereto, shall be deemed to be an original.
(h) No Third Party Beneficiaries. Nothing expressed or implied in this Agreement
is intended to confer, nor shall anything herein confer, upon any person other
than the parties and the respective successors or permitted assigns of the
parties, any rights, remedies, obligations or liabilities whatsoever.
(i) Fees and Expenses. Each party shall be responsible for their own costs and
expenses, including attorneys' fees and expenses, in connection with the
negotiation and execution of this Agreement. If we prevail in any actions,
claims or litigation which you bring against us or which we bring against you
involving this Agreement, you agree to reimburse us for all attorneys' fees
which we incur in defending or prosecuting such actions, claims or litigation.
(j) Usage. References to sections and the like refer to those in this Agreement
unless otherwise specified. "Including" means "including, but not limited to".
"Or" means one or more, or all, of the alternatives listed or described.
(k) Effectiveness of Registration Statement. Notwithstanding anything herein to
the contrary, we shall have no obligation to issue you any Bonus Shares if our
registration statement containing the prospectus covering the Bonus Shares filed
with the Securities and Exchange Commission ("SEC") or in the state in which you
are a resident, if necessary, are not effective. Our obligation with respect to
any unregistered Bonus Shares or to otherwise pay the Unique User Bonus shall be
suspended until our registration statement is declared or becomes effective.
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(l) Severability. If any of the provisions of this Agreement with respect to any
particular facts or circumstances shall be held to be invalid or unenforceable
by any court of competent jurisdiction, then: (i) the validity and
enforceability of such provision or provisions as applied to any other
particular facts or circumstances and the validity of other provisions of this
Agreement shall not in any way be affected or impaired thereby; and (ii) such
provision or provisions shall be reformed without further action by the parties
hereto and only to the extent necessary to make such provision or provisions
valid and enforceable when applied to such particular facts and circumstances.
(m) Governing Law . Except to the extent that the issuance of the Bonus Shares
is governed by Nevada corporate law, this Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
(excluding application of any choice of law doctrines that would make applicable
the law of any other state or jurisdiction) and, where appropriate, applicable
federal law.
(n) Choice of Jurisdiction and Venue. The parties hereto hereby irrevocably
submit to the jurisdiction of the courts of the State of New York and the
federal courts of the United States of America located in the Western District
of New York and appropriate appellate courts therefrom, over any dispute arising
out of or relating to this Agreement or any of the transactions contemplated
hereby, and each party hereby irrevocably agrees that all claims in respect of
such dispute or proceeding may be heard and determined in such courts. The
parties hereby irrevocably waive, to the fullest extent permitted by applicable
law, any objection which they may now or hereafter have to the laying of venue
of any dispute arising out of or relating to this Agreement or any of the
transactions contemplated hereby brought in such court or any defense of
inconvenient forum for the maintenance of such dispute. Each of the parties
hereto agree that a judgment in any such dispute may be enforced in other
jurisdictions. You hereby waive personal service of process and agree that all
such service of process may be made by registered or certified mail directed to
you at the address to which notices are required to be sent by us under this
Agreement and that such service shall be deemed in every respect effective
service of process upon it in any suit, action or proceeding.
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95
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[ZAP.COM LOGO]
PROSPECTUS
20,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
DATED MAY 2, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ZAP002
96
ALTERNATE COVER PAGE FOR SHELF PROSPECTUS
PROSPECTUS
[LOGO]
30,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
------------------------
This prospectus covers 30,000,000 shares of common stock which may be
offered and issued by Zap.Com Corporation, from time to time, in connection with
one or more future acquisitions of companies, businesses or assets complementary
to Zap.Com's existing business (including future acquisitions of rights granted
with respect to one or more Web sites by Web site owners who join the
ZapNetwork) or in connection with future promotions or similar events. These
shares will ordinarily represent consideration paid by Zap.Com. The
consideration for any of these transactions may consist of common stock, cash,
notes or other evidences of debt, convertible or exchangeable securities,
assumptions of liabilities or a combination of these. As of the date of this
prospectus, Zap.Com has not issued any shares of common stock for any
transaction described in the prospectus and has not definitively identified any
transaction in which it may issue additional shares covered by this prospectus.
At the time that Zap.Com identifies a specific transaction in which shares will
be issued, Zap.Com will amend or supplement this prospectus and the registration
statement of which this prospectus is a part to add information about the
transaction and if applicable and to the extent required by applicable rules and
policies of the Securities and Exchange Commission, the company, business or
assets being acquired.
It is expected that the terms of the acquisitions involving the issuance of
securities covered by this prospectus will be determined by direct negotiations
with the owners or controlling persons of the businesses or assets to be merged
with or acquired by Zap.Com, through exchange offers to stockholders or
documents soliciting the approval of statutory mergers, consolidations or sales
for more widely held entities, or through offers containing terms established by
Zap.Com in the case of offers to Web site owners to join the ZapNetwork and
otherwise on the terms contained within the agreements entered into in
connection with the transaction. No underwriting discounts or commissions will
be paid, although finder's fees may be paid from time to time with respect to
specific mergers or acquisitions. Any person receiving any such fees may be
deemed to be an underwriter within the meaning of the Securities Act of 1933, as
amended.
This prospectus also relates to the offer for sale or other distribution of
the shares by persons who acquire shares in one of the transactions described in
this prospectus. These shares may be sold or distributed from time to time by or
for the account of the selling stockholders through underwriters or dealers,
through brokers or other agents, or directly to one or more purchasers, at
prices comparable to market prices prevailing at the time an agreement is
entered into in connection with the transaction, and the consummation of the
transaction at the time of delivery of the shares or at prices otherwise
negotiated. This prospectus also may be used, with Zap.Com's prior consent, by
donees of the selling stockholders, or by other persons acquiring shares and who
wish to offer and sell such shares under circumstances requiring or making
desirable its use.
Zap.Com's common stock is traded on the otc electronic bulletin board under
the symbol "ZPCM". At April 27, 2000, Zap.Com had 50,000,000 shares of common
stock outstanding. On April 27, 2000, the last reported sale price of the common
stock was $6.00 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
97
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.
98
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.
99
ALTERNATE BACK COVER PAGE FOR SHELF PROSPECTUS
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ZAP.COM LOGO
PROSPECTUS
30,000,000 SHARES
ZAP.COM CORPORATION
COMMON STOCK
DATED:
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100
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.
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
========
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
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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.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS -- SCHEDULES.
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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
- ---------------
* Incorporated by reference to the exhibit number referenced in the parenthesis
and filed with Zap.Com's Registration Statement on 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.
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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.
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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
May 1, 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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ AVRAM GLAZER Chairman of the Board of May 1, 2000
- --------------------------------------------------- Directors, Director, Chief
(Avram Glazer) Executive Officer and
President
[insert signatures for new directors]
/s/ LEONARD DISALVO Vice President Finance, May 1, 2000
- --------------------------------------------------- Chief Financial Officer
(Leonard DiSalvo) and Principal Accounting
Officer
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105
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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
- ---------------
* 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.