AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1999
REGISTRATION NO. 333-78129
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
NETTAXI, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 7370 82-0486102
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Classification Identification Number)
Code)
1696 DELL AVENUE
CAMPBELL, CALIFORNIA 95008
(408) 879-9880
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Executive Offices)
ROBERT A. ROSITANO, JR.
DEAN ROSITANO
NETTAXI, INC.
1696 DELL AVENUE
CAMPBELL, CALIFORNIA 95008
(408) 879-9880
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Co-Agents for Service)
-----------------------
COPY TO:
JAMES C. CHAPMAN, ESQ.
ALAN S. GUTTERMAN, ESQ.
ROMIN P. THOMSON, ESQ.
SILICON VALLEY LAW GROUP
50 WEST SAN FERNANDO STREET, SUITE 950
SAN JOSE, CALIFORNIA 95113
(408) 286-6100
<PAGE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
--------------------
If any of the securities being registered on this Form are being 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 of 1933, 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 of 1933, check the following box and list the
Securities Act Registration Statement number of the earlier Registration
Statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the
Securities Act Registration Statement number of the earlier 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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(2) PRICE(2) FEE
- ----------------------- ------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par
value per share 2,132,752(1) $ 13.750 $ 29,325,340 $ 10,564
- ----------------------- ------------- ---------------- ------------ -------------
<FN>
(1) The shares of Common Stock being registered can be received by the
holders of convertible debentures and warrants when and if they elect to convert
such debentures and exercise such investment options and warrants. The number
of shares being registered represents our good faith estimate of the maximum
number of shares we may issue upon conversion of the debentures and exercise
of the investment options and warrants. The actual number of shares of
Common Stock received upon conversion of the convertible debentures and
exercise of the investment options and warrants may vary from this number.
In addition to the shares set forth in the table, the amount of shares to be
registered under this Registration Statement includes an indeterminate number
of shares issuable upon conversion of or in respect of the convertible
debentures and the warrants, as such number may be adjusted as a result of
stock splits, stock dividends and antidilution provisions in accordance with
Rule 416 under the Securities Act of 1933.
<PAGE>
(2) Based on the average of the reported high and low prices of the Common
Stock reported on the National Association of Security Dealers Over-the-Counter
Market Bulletin Board on July 13, 1999 for the purpose of calculating
the registration fee in accordance with Rule 457(c) under the Securities
Act of 1933.
(3) In connection with the filing of this Amendment No. 3, the Registrant is
remitting an additional registration fee of $62.00 to cover an increase in the
number of shares of Common Stock covered by this Registration Statement by
16,304. The Registrant has previously remitted $10,502 as the registration fee
to cover the original 2,116,448 shares of Common Stock covered by this
Registration Statement.
</TABLE>
--------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and it is not soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted.
Subject to Completion, July _, 1999
[NETTAXI INCORPORATED LOGO]
INCORPORATED
2,132,752 SHARES
COMMON STOCK
__________________
We have prepared this prospectus to allow RGC International Investors LDC
and Wall Street Trading Group, or their pledgees, donees, transferees or other
successors in interest, to use a "shelf" registration process to sell up to
2,132,752 shares of our common stock which they may acquire upon conversion of
convertible debentures and exercise of investment options and warrants
previously acquired in private placements. We will receive no proceeds from the
sale of these shares, with the exception of the proceeds from the exercise of
the investment options and warrants.
Our common stock is listed on the NASD O-T-C Market Bulletin Board under
the symbol "NTXY." On July 13, 1999, the closing price of our common stock was
$13.750 per share.
__________________
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF MATERIAL ISSUES TO
CONSIDER BEFORE PURCHASING OUR COMMON STOCK.
__________________
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<PAGE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is _____________, 1999.
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<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . 4
Risk Factors.. . . . . . . . . . . . . . . . . . . . 8
Cautionary Note Regarding Forward-Looking Statements 21
Use of Proceeds. . . . . . . . . . . . . . . . . . . 21
Price Range of Common Stock and Dividend Policy. . . 22
Capitalization . . . . . . . . . . . . . . . . . . . 23
Selected Financial Data. . . . . . . . . . . . . . . 24
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . 25
Business . . . . . . . . . . . . . . . . . . . . . . 37
Management . . . . . . . . . . . . . . . . . . . . . 65
Related Party Transactions . . . . . . . . . . . . . 77
Selling Stockholders . . . . . . . . . . . . . . . . 80
Principal Stockholders . . . . . . . . . . . . . . . 82
Description of Capital Stock . . . . . . . . . . . . 84
Shares Eligible for Future Sale. . . . . . . . . . . 93
Plan of Distribution . . . . . . . . . . . . . . . . 94
Legal Matters. . . . . . . . . . . . . . . . . . . . 97
Experts. . . . . . . . . . . . . . . . . . . . . . . 97
Where You Can Find Additional Information. . . . . . 97
Index to Financial Statements. . . . . . . . . . . . F-1
</TABLE>
"Nettaxi," "Netro News," "URL," and "Internet the City" are trademarks and
service marks of Nettaxi. All other trademarks, service marks or tradenames
referred to in this prospectus are the property of their respective owners.
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<PAGE>
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. You should read the entire prospectus, including
"Risk Factors" and our financial statements and the related notes, before
deciding to invest in our common stock.
NETTAXI
We were organized in 1997 to capitalize on a significant opportunity that
exists today through the convergence of the media and entertainment industries
with the vast communications power of the Internet. We are defining a new type
of Internet company -- an e-commerce-based online community and portal to the
Internet -- that is dedicated to providing content-rich communities and an
entry point on the Internet for both consumers and businesses. Our site is
designed to seamlessly integrate content with e-commerce services for consumers
and businesses. Nettaxi.com provides comprehensive information about news,
sports, entertainment, health, politics, finances, lifestyle, and areas of
interest to the growing number of Internet users. Our mission is to establish
our site as an entry point or 'portal' to the Internet by continuing to develop
premium online communities which are both content-rich to our subscribers, the
"citizens" of our communities, and provide easy-to-use e-commerce services to
businesses of all sizes which reside in these communities.
While we have incurred significant losses since our site was launched,
traffic to our online community has increased consistently, with growth of the
subscriber base, increasing from 60,000 registered subscribers in December 1998
to over 85,000 subscribers in March 1999, and 110,000 in May 1999. This increase
in subscribers has also resulted in corresponding increases in both the number
of web pages and advertising banners viewed by visitors. Our records indicate
that the Nettaxi.com Web site has over 100 million page views per month and 182
million advertising impressions per month by May 1999. A visit by a user to a
page on our web site represents one page view and each advertising that appears
on that page to which a visitor is exposed is called an advertisement
impression. Based on unique visitors to our site, PC Data Online ranked
Nettaxi.com as the 139th most visited site in the world in May 1999. Web21, an
online service directory which compiles an objective listing of top Web sites,
measured by page views, called "100hot", ranked our site as the 15th most
popular site on the Web during this same month. Along the way, we have created
or acquired a number of powerful business tools and resources, including:
- - a growing database of user profiles;
- - a meta-search engine that enables users to search multiple sites
simultaneously and return the results, including comparative product pricing and
availability, to one-page; and
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<PAGE>
- - an expansive range of relationships with dynamic e-commerce, technology,
and content providers.
We are now poised to build on our early success by implementing a growth
strategy that, if successful, should make us a major ready-to-use e-commerce
storefront host, and allow us to meet our goal of becoming one of most
frequented community-based portals on the Internet. Our strategic growth plan
includes:
- - expansion of our content, products and services;
- - continued development of an expandable infrastructure;
- - widespread distribution of our Internet training tool to educate computer
users about the Internet and introduce them to our site;
- - an aggressive acquisition program.
While we believe that the objectives of our strategic growth plans our
reasonably attainable, we caution you that our ability to achieve these goals
are subject to the risks described in "Risk Factors" below, including the
limited resources that we may have available to pursue our plans, our reliance
on third parties for development of software and content and for essential
business operations, and the uncertainties associated with the rapidly-changing
business and technological environment for Internet companies.
Our principal executive offices are located at 1696 Dell Avenue, Campbell,
California 95008. Our telephone number at this address is (408) 879-9880.
5
<PAGE>
THE OFFERING
Common stock offered by selling 2,132,752 shares(1)
stockholders
Common stock to be outstanding 23,242,752 shares(1)(2)
after this Offering
Use of proceeds Other than the proceeds from the
exercise of the investment
rights and the warrants, none of
the proceeds from the sale of
the common stock offered by
this prospectus will be received
by us. Any proceeds received by
us will be utilized for working
capital and general corporate
purposes.
O-T-C Market Bulletin Board Symbol: NTXY (3)
__________
(1) Includes all shares issuable, as of July 13, 1999, upon conversion of
the convertible debentures and exercise of the investment rights and the
warrants.
(2) Does not include 969,166 shares reserved for issuance upon exercise of
outstanding stock options and warrants, other than the warrants which can be
exercised for the common stock offered by this prospectus.
(3) We have filed an application to have our common stock listed on the
Nasdaq National Market. If our application is approved, the common stock will
be traded on the Nasdaq National Market under the symbol "NTXI".
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<PAGE>
SUMMARY FINANCIAL DATA
Set forth below are summary statements of operations data for the period
from October 23, 1997, date of incorporation, to December 31, 1997, the year
ended December 31, 1998 and for the three months ended March 31, 1999, and
summary balance sheet data as of December 31, 1997 and 1998 and as of March 31,
1999. This information should be read in conjunction with the Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
For the Period from October 23, 1997, date of incorporation,
to December 31,1997, the Year ended December 31, 1998,
and for the Three Months ended March 31, 1999 (Unaudited)
1997 1998 1999
----------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
- ------------------------------------------ ----------- ------------ ------------
Net revenues . . . . . . . . . . . . . . . $ 144,900 $ 258,000 $ 280,200
- ------------------------------------------ ----------- ------------ ------------
Gross profit (loss). . . . . . . . . . . . $ 57,500 $ 18,200 $ (2,900)
- ------------------------------------------ ----------- ------------ ------------
Loss from operations . . . . . . . . . . . $ (142,100) $(3,082,300) $ (703,800)
- ------------------------------------------ ----------- ------------ ------------
Net loss . . . . . . . . . . . . . . . . . $ (159,700) $(3,113,600) $ (701,700)
- ------------------------------------------ ----------- ------------ ------------
Net loss available to common shareholders. $ (327,200) $(3,127,900) $ (701,700)
- ------------------------------------------ ----------- ------------ ------------
Basic loss per share . . . . . . . . . . . $ (0.06) $ (0.37) $ (0.05)
- ------------------------------------------ ----------- ------------ ------------
Diluted loss per share . . . . . . . . . . $ (0.06) $ (0.37) $ (0.05)
- ------------------------------------------ ----------- ------------ ------------
WEIGHTED-AVERAGE COMMON SHARES:
- ------------------------------------------ ----------- ------------ ------------
Basic outstanding shares . . . . . . . . . 5,483,500 8,499,781 14,110,000
- ------------------------------------------ ----------- ------------ ------------
Diluted outstanding shares . . . . . . . . 5,483,500 8,499,781 14,110,000
- ------------------------------------------ ----------- ------------ ------------
BALANCE SHEET DATA:
- ------------------------------------------ ----------- ------------ ------------
Working capital. . . . . . . . . . . . . . $ (222,900) $ 300,400 $ (519,600)
- ------------------------------------------ ----------- ------------ ------------
Total assets . . . . . . . . . . . . . . . $2,082,300 $ 1,652,700 $ 1,584,200
- ------------------------------------------ ----------- ------------ ------------
Long-term liabilities. . . . . . . . . . . $ 773,500 $ 5,400 $ 3,600
- ------------------------------------------ ----------- ------------ ------------
Total stockholders' equity . . . . . . . . $ 973,400 $ 1,332,100 $ 630,400
- ------------------------------------------ ----------- ------------ ------------
</TABLE>
7
<PAGE>
RISK FACTORS
You should consider carefully the following risks before you decide to buy
our common stock. Our business, financial condition or results of operations
could be materially and adversely affected by any of the following risks.
WE HAVE A LIMITED OPERATING HISTORY, HAVE INCURRED LOSSES SINCE INCEPTION, AND
EXPECT LOSSES FOR THE FORESEEABLE FUTURE
We were incorporated in October 1997. Accordingly, we have only a limited
operating history upon which you can evaluate our business and prospects. Since
our inception, we have incurred net losses, resulting primarily from costs
related to developing our Web site, attracting users to our Web site and
establishing the Nettaxi brand. At March 31, 1999, we had an accumulated deficit
of $4,160,000. Losses have continued to grow faster than our revenues during
our limited operating history over the last year and a half. This trend is
reflective of our continued investments in technology and sales and marketing
efforts to grow the business. Because of our plans to continue to invest
heavily in marketing and promotion, to hire additional employees, and to enhance
our Web site and operating infrastructure, we expect to incur significant net
losses for the foreseeable future. We believe these expenditures are necessary
to strengthen our brand recognition, attract more users to our Web site and
generate greater online revenues. If our revenue growth is slower than we
anticipate or our operating expenses exceed our expectations, our losses will
be significantly greater. We may never achieve profitability.
WE ARE SUBJECT TO THE RISKS AND UNCERTAINTIES FREQUENTLY ENCOUNTERED BY EARLY
STAGE COMPANIES IN NEW AND RAPIDLY EVOLVING MARKETS
Due to our limited operating history, we are subject to many of the risks
and uncertainties frequently encountered by early stage companies in new and
rapidly evolving markets, such as e-commerce. Among other things, we are faced
with the need to establish our credibility with customers, advertising, content
providers, and companies offering e-commerce products and services, and such
parties are often understandably reluctant to do business with companies that
have not had an opportunity to establish a track record of performance and
accountability. For example, our ability to enter into exclusive relationships
to provide content over the Internet will be dependent on our ability to
demonstrate that we can handle high volumes of traffic through our site.
Similarly, early stage companies must devote substantial time and resources to
recruiting qualified senior management and employees at all levels, and must
also make significant investments to establish brand recognition. If we are
unable to overcome some of these obstacles, we may be unable to achieve our
business goals and raise sufficient capital to expand our business.
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OUR REVENUE GROWTH IN PRIOR PERIODS IS NOT INDICATIVE OF FUTURE GROWTH AND WE
CANNOT ACCURATELY PREDICT OUR FUTURE REVENUES
We had revenues of approximately $280,000 and $258,000 for the first three
months of calendar year 1999 and for the year ended December 31, 1998,
respectively. While our growth rate has been strong, it is unlikely that
revenue will continue to grow at this rate in the future and our performance
during these periods should not be taken as being indicative of future trends.
Accurate predictions regarding our revenues in the future are difficult and
should be considered in light of our limited operating history and rapid changes
in the ever evolving Internet market. For example, our ability to generate
revenues in the future is dependent in part on the success of our
capital-raising efforts and the investments that we intend to make in sales and
marketing, infrastructure, and content development. Our revenues for the
foreseeable future will remain primarily dependent on the number of customers
that we are able to attract to our Web site, and secondarily on sponsorship and
advertising revenues. We cannot forecast with any degree of certainty the
number of visitors to our Web site, the number of visitors who will become
customers, or the amount of sponsorship and advertising revenues. Similarly, we
cannot provide any guarantees regarding the revenues that will be generated from
e-commerce products and services that we intend to make available on our site.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, THEREBY INCREASING
THE VOLATILITY OF OUR STOCK PRICE
In addition to the uncertainties regarding the rate of growth of our future
revenues, we anticipate that our operating results will fluctuate significantly
from quarter to quarter. These fluctuations may be due to seasonal and cyclical
patterns that may emerge in Internet e-commerce and advertising spending. For
example, we believe that the use of our Web site will be somewhat lower during
periods of the year if the patterns that currently effect traditional media,
such as television and radio where advertising sales are lower during the first
and third calendar quarters because of the summer vacation period and post
winter holiday season slowdown, develop in the Internet industry. It is likely
that similar seasonal patterns will develop in the Internet industry and thus
result in decreasing revenues for us during periods of the year. Quarterly
results may also vary for some of the same reasons that it is difficult to
predict the long-term revenue growth of our business. If investments in
marketing and content development are delayed, we may experience corresponding
delays in anticipated revenues from such investments, thereby leading to uneven
quarterly results. Because of these factors, we believe that quarter-to-quarter
comparisons of our results of operations are not good indicators of our future
performance. If our operating results fall below the expectations of investors
in future periods, then our stock price may decline.
FUTURE CONVERSION OF THE DEBENTURES AND EXERCISE OF THE WARRANTS AND INVESTMENT
OPTIONS MAY SIGNIFICANTLY DILUTE YOUR HOLDINGS
As of July 13, 1999 an aggregate of $5,000,000 principal amount of
debentures were outstanding, which debentures were convertible into shares of
our common stock. Such debentures entitle the holder to exercise investment
options to purchase additional shares of our common stock upon conversion of the
debentures. If fully converted and exercised on July 13, 1999, the debentures
and investment option would be convertible into an aggregate of 853,876 shares
of our common stock, but this number of shares could prove to be significantly
greater in the event of a decrease in the trading price of the common stock due
to required adjustments in the conversion price. Purchasers of our common stock
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could therefore experience substantial dilution of their investment upon
conversion of the debentures and exercise of the investment options. In
addition, as of July 13, 1999, warrants to purchase 150,000 shares of common
stock issued to the purchasers of debentures and exercisable over the next five
years at a price of $12.375, as may be adjusted from time to time pursuant to
antidilution provisions contained in the warrant agreement, were outstanding.
The shares of common stock into which the debentures may be converted and the
investment options and the warrants may be exercised are being registered
pursuant to this registration statement. For a discussion of the conversion
formula, please refer to the section below entitled "Description of Capital
Stock--Warrants and Debentures".
OUR NEED TO RAISE ADDITIONAL CAPITAL MAY CAUSE OUR STOCKHOLDERS TO EXPERIENCE
SIGNIFICANT DILUTION IN THE FUTURE
It is likely that we will need to raise additional funds in the future in
order to pursue our business objectives. If additional funds are raised through
the issuance of equity or convertible debt securities, the percentage ownership
of our stockholders will be reduced, stockholders may experience additional
dilution and such securities may have rights, preferences and privileges senior
to those of our common stock. This may make an investment in our common stock
less attractive to other investors, thereby weakening the trading market for our
common stock.
OUR PLANNED ONLINE AND TRADITIONAL MARKETING CAMPAIGNS MAY NOT ATTRACT
SUFFICIENT ADDITIONAL VISITORS TO OUR WEB SITE
We plan to pursue aggressive marketing campaigns online and in traditional
media to promote the Nettaxi brand and attract an increasing number of visitors
to our Web site. We believe that maintaining and strengthening the Nettaxi
brand will be critical to the success of our business. This investment in
increased marketing carries with it significant risks, including the following:
- Our advertisements may not properly convey the Nettaxi brand image, or may
even detract from our image. Advertising in print and broadcast media is
expensive and is often typically difficult to modify quickly in order to
take into account feedback that may indicate that we have failed to convey
the optimal message. If our advertisements fail to positively promote our
brand and image, the damage to our business may be long-lasting and costly
to repair.
- Even if we succeed in creating the right messages for our promotional
campaigns, these advertisements may fail to attract new visitors to our Web
site at levels commensurate with their costs. We may fail to choose the
optimal mix of television, radio, print and other media to cost effectively
deliver our message. Moreover, if these efforts are unsuccessful, we will
face difficult and costly choices in deciding whether and how to redirect
our marketing dollars.
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WE MAY FAIL TO ESTABLISH AN EFFECTIVE INTERNAL SALES ORGANIZATION TO ATTRACT
SPONSORSHIP AND ADVERTISING REVENUES
To date, we have relied principally on outside advertising agencies to
develop sponsorship and advertising opportunities. We believe that the growth of
sponsorship and advertising revenues will depend on our ability to establish an
aggressive and effective internal sales organization. Our internal sales team
currently has nine members. We will need to substantially increase this sales
force in the coming year in order to execute our business plan. Our ability to
increase our sales force involves a number of risks and uncertainties, including
competition and the length of time for new sales employees to become productive.
If we do not develop an effective internal sales force, our business will be
materially and adversely affected by our inability to attract sponsorship and
advertising revenues.
WE RELY HEAVILY ON THIRD PARTIES FOR DEVELOPMENT OF SOFTWARE AND CONTENT AND FOR
ESSENTIAL BUSINESS OPERATIONS AND MAY BE ADVERSELY AFFECTED BY OUR FAILURE TO
MAINTAIN SATISFACTORY RELATIONSHIPS WITH SUCH PARTIES
We depend on third parties for important aspects of our business,
including:
- Internet access;
- development of software for new Web site features;
- content; and
- telecommunications.
We have limited control over these third parties, and we are not their only
client. We may not be able to maintain satisfactory relationships with any of
them on acceptable commercial terms, and there is no guarantee that we will be
able to renew these agreements at all. Further, we cannot be sure that the
quality of products and services that they provide may remain at the levels
needed to enable us to conduct our business effectively.
WE ARE HEAVILY RELIANT ON THIRD PARTIES TO HOUSE AND SERVICE OUR WEB SITE AND
ARE VULNERABLE TO POSSIBLE DAMAGE TO OUR OPERATING SYSTEMS
We maintain substantially all of our computer systems at our Campbell,
California site and the Santa Clara, California site of Exodus Communications.
We are heavily reliant on the ability of Exodus to house and service our Web
site. This system's continuing and uninterrupted performance is critical to our
success. Growth in the number of users accessing our Web site may strain its
capacity, and we rely on Exodus to upgrade our system's capacity in the face of
this growth. Exodus also provides our connection to the Internet. Sustained or
repeated system failures or interruptions of our Web site connection services
would reduce the attractiveness of our Web site to customers and advertisers,
and could therefore have a material and adverse effect on our business due to
loss of membership and advertising revenues.
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In 1999 and 1998, we experienced several interruptions and degradation of
service as a result of our third-party service provider's inability to deliver
the contractual bandwidth required to handle our traffic volume. These
interruptions result in decreased Web usage volume and therefore impact our
ability to serve advertising impressions for our customers. These interruptions
can materially impact our revenues. We estimate that during 1998, we lost
approxiamtely $35,000 in revenue because of this and through June, 1999 the
impact of these lost revenues was an additional $35,000.
In addition, our operations are dependent in part on our ability to protect
our operating systems against physical damage from fire, floods, earthquakes,
power loss, telecommunications failures, break-ins or other similar events.
Furthermore, our servers are vulnerable to computer viruses, break-ins and
similar disruptive problems. The occurrence of any of these events could
result in interruptions, delays or cessations in service to our users and result
in a decrease in the number of visitors to our site.
WE ARE GROWING RAPIDLY, AND EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT
We are currently experiencing a period of significant expansion. In order
to execute our business plan, we must continue to grow significantly. This
growth will strain our personnel, management systems and resources. To manage
our growth, we must implement operational and financial systems and controls and
recruit, train and manage new employees. Some key members of our management have
only recently been hired, including our chief financial officer, controller and
senior director of sales. These individuals have had little experience working
with our management team. We cannot be sure that we will be able to integrate
new executives and other employees into our organization effectively. In
addition, there will be significant administrative burdens placed on our
management team as a result of our status as a public company. If we do not
manage growth effectively, we will not be able to achieve our financial and
business goals.
WE DEPEND ON OUR KEY PERSONNEL TO OPERATE OUR BUSINESS, AND WE MAY NOT BE ABLE
TO HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL AS OUR BUSINESS GROWS
Our performance is substantially dependent on the continued services and on
the performance of our executive officers and other key employees, particularly
Robert A. Rositano, Jr., our Chief Executive Officer, and Dean Rositano, our
Chief Operating Officer. The loss of the services of any of our executive
officers could materially and adversely affect our business due to their
experience with our business plan and the disruption in the conduct of our
day-to-day operations. Additionally, we believe we will need to attract, retain
and motivate talented management and other highly skilled employees to be
successful. Competition for employees that possess knowledge of both the
Internet industry and our target market is intense. We may be unable to retain
our key employees or attract, assimilate and retain other highly qualified
employees in the future.
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INTENSE COMPETITION FROM OTHER INTERNET-BASED BUSINESSES MAY REDUCE OUR MARGINS
AND MARKET SHARE AND CAUSE OUR STOCK PRICE TO DECLINE
The markets in which we are engaged are new, rapidly evolving and intensely
competitive, and we expect competition to intensify further in the future.
Barriers to entry are relatively low, and current and new competitors can launch
new sites at a relatively low cost using commercially-available software.
Competition could result in price reductions for our products and services,
reduced margins or loss of market share. Consolidation within the online
commerce industry may also increase competition.
We currently or potentially compete with a number of other companies,
including a number of large online communities and services that have expertise
in developing online commerce, and a number of other small services, including
those that serve specialty markets. Many of our potential competitors have
longer operating histories, larger customer bases, greater brand recognition in
other business and Internet markets and significantly greater financial,
marketing, technical and other resources than us.
WE MAY NOT BE ABLE TO OBTAIN FURTHER CAPITAL TO PURSUE OUR BUSINESS OBJECTIVES
Given our limited resources and our history of losses from operations, it
is likely that we will need to raise additional funds in order to fund expansion
of our business, to develop new or enhanced services or products, to respond to
competitive pressures or to acquire complementary products, businesses or
technologies. There can be no assurance that additional financing will be
available on terms favorable to us or at all. Our inability to raise
additional capital could have a material adverse effect on our business,
results of operations and financial condition due to our inability to finance
the elements of our business strategy.
WE MAY FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER WEB
SITES TO INCREASE NUMBERS OF WEB SITE USERS AND INCREASE OUR REVENUES
We intend to establish numerous strategic relationships with popular Web
sites to increase the number of visitors to our Web site. There is intense
competition for placements on these sites, and we may not be able to enter into
these relationships on commercially reasonable terms or at all. Even if we enter
into relationships with other Web sites, they themselves may not attract
significant numbers of users. Therefore, our site may not receive additional
users from these relationships. Moreover, we may have to pay significant fees to
establish these relationships. Our inability to enter into new distribution
relationships and expand our existing ones could have a material and adverse
effect on our business due to our inability to increase the number of users of
our site.
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WE MAY NOT BE ABLE TO ADAPT AS INTERNET TECHNOLOGIES AND CUSTOMER DEMANDS
CONTINUE TO EVOLVE
To be successful, we must adapt to rapidly changing Internet technologies
and continually enhance the features and services provided on our Web site. We
could incur substantial, unanticipated costs if we need to modify our Web site,
software and infrastructure to incorporate new technologies demanded by our
audience. We may use new technologies ineffectively or we may fail to adapt our
Web site, transaction-processing systems and network infrastructure to user
requirements or emerging industry standards. If we fail to keep pace with the
technological demands of our Web-savvy audience for new services, products and
enhancements, our users may not use our Web site and instead use those of our
competitors.
WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR TRADEMARKS, WEB ADDRESSES AND
PROPRIETARY RIGHTS
Our Nettaxi brand and our Web address, www.nettaxi.com, are critical to our
success. We have filed a trademark application for "Nettaxi", among other
trademark applications. We cannot guarantee that any of these trademark
applications will be granted. In addition, we may not be able to prevent third
parties from acquiring Web addresses that are confusingly similar to our
addresses, which could harm our business. Also, while we have entered into
confidentiality agreements with our employees, contractors and suppliers in
order to safeguard our trade secrets and other proprietary information, there
can be no assurance that technology will not be misappropriated or that others
may lawfully develop similar technologies.
WE WOULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR MATERIAL
THIRD-PARTY SYSTEMS ARE NOT YEAR 2000-COMPLIANT
We have not devised a Year 2000 contingency plan. The failure of our
internal systems, or any material third-party systems, to be Year 2000-compliant
could have a material and adverse effect on our business, results of operations
and financial condition if the compliance problems significantly impair access
to and use of our Web site.
To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. Most of our costs have related to, and
are expected to continue to relate to, the upgrades or replacements, when
necessary, of software or hardware, as well as costs associated with time spent
by employees in the evaluation process and Year 2000 compliance matters
generally. These expenses are included in our operating and capital expenditures
budget and are not expected to exceed $100,000. However, if these costs are
significantly higher than expected, they could have a material and adverse
effect on our business, results of operations and financial condition due to the
need to spend substantial amounts on compliance.
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We may fail to discover Year 2000 compliance problems in our systems that
will require substantial revisions or replacements. In the event that the
operational facilities that support our business, or our Web-hosting facilities,
are not Year 2000 compliant, portions of our Web site may become unavailable and
we would be unable to deliver services to our users. In addition, there can be
no assurance that third-party software, hardware or services incorporated into
our material systems will not need to be revised or replaced, which could be
time-consuming and expensive. Our inability to fix or replace third-party
software, hardware or services on a timely basis could result in lost
revenues, increased operating costs and other business interruptions.
Moreover, the failure to adequately address Year 2000 compliance issues in our
software, hardware or systems could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
In addition, there can be no assurance that governmental agencies,
utility companies, Internet access companies, third-party service providers and
others outside our control will be Year 2000 compliant. The failure by these
entities to be Year 2000 compliant could result in a systemic failure beyond our
control, including, for example, a prolonged Internet, telecommunications or
electrical failure, which could also prevent us from delivering our services to
our users, decrease the use of the Internet or prevent users from accessing
our services.
ACQUISITIONS MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON OUR BUSINESS
We may acquire or make investments in complementary businesses, products,
services or technologies on an opportunistic basis when we believe they will
assist us in carrying out our business strategy. Growth through acquisitions has
been a successful strategy used by other Internet companies. We do not have any
present understanding, nor are we having any discussions relating to any such
acquisition or investment. If we were to buy a content, service or technology
company, the amount of time and level of resources required to successfully
integrate their business operation could be substantial. The challenges in
assimilating their people and organizational structure, and in encountering
potential unforeseen technical issues in integrating their content, service or
technology into ours, could cause significant delays in executing other key
areas of our business plan. This could include delays in integrating other
content, services or technology into our communities, or moving forward on other
business development relationships, as management and employees, both of which
are time constrained, may be distracted. In addition, the key personnel of the
acquired company may decide not to work for us, which could result in the loss
of key technical or business knowledge to us. Furthermore, in making an
acquisition, we may have to incur debt or issue equity securities to finance the
acquisition, the issuance of which could be dilutive to our existing
shareholders.
WE ARE VULNERABLE TO ADDITIONAL TAX OBLIGATIONS THAT COULD BE IMPOSED ON ONLINE
COMMERCE TRANSACTIONS
We do not expect to collect sales or other similar taxes in respect of
transactions engaged in by customers on our Web site. However, various states
or foreign countries may seek to impose sales tax obligations on us and other
e-commerce and direct marketing companies. A number of proposals have been made
at the state and local levels that would impose additional taxes on the sale of
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goods and services through the Internet. These proposals, if adopted, could
substantially impair the growth of e-commerce and cause purchasing through our
Web site to be less attractive to customers as compared to traditional retail
purchasing. The United States Congress has passed legislation limiting for three
years the ability of the states to impose taxes on Internet-based transactions.
Failure to renew this legislation could result in the imposition by various
states of taxes on e-commerce. Further, states have attempted to impose sales
taxes on catalog sales from businesses such as ours. A successful assertion by
one or more states that we should have collected or be collecting sales taxes on
the sale of products could have a material and adverse effect on our business
due to the imposition of fines or penalties or the requirement that we pay for
the uncollected taxes.
WE MAY NOT BE ABLE TO TAKE FULL ADVANTAGE OF POTENTIAL TAX BENEFITS FROM OUR NET
OPERATING LOSS CARRYFORWARDS
At December 31, 1998 we had net operating loss carryforwards available to
reduce future taxable income that aggregated approximately $1,227,000 for
Federal income tax purposes. These benefits expire through 2018. Pursuant to a
"change in ownership" as defined by the provisions of the Tax Reform Act of
1986, utilization of our net operating loss carryforwards may be limited, if a
cumulative change of ownership of more than 50% occurs over a three-year period.
We have not determined if an ownership change has occurred. If it has, we may
not be able to take full advantage of potential tax benefits from our net
operating loss carry forwards.
WE ARE DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE INTERNET INFRASTRUCTURE
Our industry is new and rapidly evolving. Our business is highly dependant
on the growth of the internet industry and would be adversely affected if Web
usage and e-commerce does not continue to grow. Web usage may be inhibited for a
number of reasons, including:
- inadequate Internet infrastructure;
- security concerns;
- inconsistent quality of service;
- unavailability of cost-effective, high-speed service;
- imposition of transactional taxes; or
- limitation of third-party service provider's ability and willingness to
invest in new or updated equipment to handle traffic volume.
If Web usage grows, the Internet infrastructure may not be able to support
the demands placed on it by this growth, or its performance and reliability may
decline. We are highly dependant on third-party service providers. Any
interruption experienced by these service providers may have a material impact
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on our business due to our inability to serve our advertising customers or end
users. In addition, Web sites, including ours, have experienced a variety of
interruptions in their service as a result of outages and other delays occurring
throughout the Internet network infrastructure. If these outages or delays
frequently occur in the future, Web usage, including usage of our Web site,
could grow slowly or decline. This may have a material impact on future
revenues.
OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE E-COMMERCE MARKET, WHICH
IS UNCERTAIN
Our future revenues and profits substantially depend upon the widespread
acceptance and use of the Web as an effective medium of commerce by consumers.
Rapid growth in the use of the Web and commercial online services is a recent
phenomenon. Demand for recently introduced services and products over the Web
and online services is subject to a high level of uncertainty. The development
of the Web and online services as a viable commercial marketplace is subject to
a number of factors, including the following:
- - e-commerce is at an early stage and buyers may be unwilling to shift their
purchasing from traditional vendors to online vendors;
- - insufficient availability of telecommunication services or changes in
telecommunication services could result in slower response times; and
- - adverse publicity and consumer concerns about the security of commerce
transactions on the Internet could discourage its acceptance and growth.
ADOPTION OF THE INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN
The growth of Internet sponsorships and advertising requires validation of
the Internet as an effective advertising medium. This validation has yet to
fully occur. In order for us to generate sponsorship and advertising revenues,
marketers must direct a significant portion of their budgets to the Internet
and, specifically, to our Web site. To date, sales of Internet sponsorships and
advertising represent only a small percentage of total advertising sales. Also,
technological developments could slow the growth of sponsorships and advertising
on the Internet. For example, widespread use of filter software programs that
limit access to advertising on our Web site from the Internet user's browser
could reduce advertising on the Internet. Our business, financial condition and
operating results would be adversely affected if the market for Internet
advertising fails to further develop due to the loss of anticipated revenues.
BREACHES OF SECURITY ON THE INTERNET MAY SLOW THE GROWTH OF E-COMMERCE AND WEB
ADVERTISING AND SUBJECT US TO LIABILITY
The need to securely transmit confidential information, such as credit card
and other personal information, over the Internet has been a significant barrier
to e-commerce and communications over the Web. Any well-publicized compromise of
security could deter more people from using the Web or from using it to conduct
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transactions that involve transmitting confidential information, such as
purchases of goods or services. Furthermore, decreased traffic and e-commerce
sales as a result of general security concerns could cause advertisers to reduce
their amount of online spending. To the extent that our activities or the
activities of third-party contractors involve the storage and transmission of
proprietary information, such as credit card numbers, security breaches could
disrupt our business, damage our reputation and expose us to a risk of loss or
litigation and possible liability. We could be liable for claims based on
unauthorized purchases with credit card information, impersonation or other
similar fraud claims. Claims could also be based on other misuses of personal
information, such as for unauthorized marketing purposes. We may need to spend a
great deal of money and use other resources to protect against the threat of
security breaches or to alleviate problems caused by security breaches.
WE COULD FACE LIABILITY FOR INFORMATION DISPLAYED ON AND COMMUNICATIONS THROUGH
OUR WEB SITE
We may be subjected to claims for defamation, negligence, copyright or
trademark infringement or based on other theories relating to the information we
publish on our Web site. These types of claims have been brought, sometimes
successfully, against Internet companies as well as print publications in the
past. Based on links we provide to other Web sites, we could also be subjected
to claims based upon online content we do not control that is accessible from
our Web site. Claims may also be based on statements made and actions taken as a
result of participation in our chat rooms or as a result of materials posted by
members on bulletin boards at our Web site. We also offer e-mail services, which
may subject us to potential risks, such as:
- - liabilities or claims resulting from unsolicited e-mail;
- - lost or misdirected messages;
- - illegal or fraudulent use of e-mail; or
- - interruptions or delays in e-mail service.
- - These claims could result in substantial costs and a diversion of our
management's attention and resources.
EFFORTS TO REGULATE OR ELIMINATE THE USE OF MECHANISMS WHICH AUTOMATICALLY
COLLECT INFORMATION ON USERS OF OUR WEB SITE MAY INTERFERE WITH OUR ABILITY TO
TARGET OUR MARKETING EFFORTS AND TAILOR OUR WEB SITE OFFERINGS TO THE TASTES OF
OUR USERS
Web sites typically place a tracking program on a user's hard drive without
the user's knowledge or consent. These programs automatically collect data on
anyone visiting a Web site. Web site operators use these mechanisms for a
variety of purposes, including the collection of data derived from users'
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Internet activity. Most currently available Web browsers allow users to elect to
remove these mechanisms at any time or to prevent such information from being
stored on their hard drive. In addition, some commentators, privacy advocates
and governmental bodies have suggested limiting or eliminating the use of these
tracking mechanisms. Any reduction or limitation in the use of this software
could limit the effectiveness of our sales and marketing efforts.
WE COULD FACE ADDITIONAL BURDENS ASSOCIATED WITH GOVERNMENT REGULATION OF AND
LEGAL UNCERTAINTIES SURROUNDING THE INTERNET
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could have a material and adverse effect on
our business, results of operations and financial condition due to increased
costs of doing business. Laws and regulations directly applicable to Internet
communications, commerce and advertising are becoming more prevalent. The law
governing the Internet, however, remains largely unsettled, even in areas where
there has been some legislative action. It may take years to determine whether
and how existing laws governing intellectual property, copyright, privacy,
obscenity, libel and taxation apply to the Internet. In addition, the growth and
development of e-commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad. We also may be subject
to future regulation not specifically related to the Internet, including laws
affecting direct marketers.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE
To date, we have had a very limited trading volume in our common stock. As
of July 13, 1999, 1,910,000 shares of our common stock were immediately eligible
for sale in the public market without restriction or further restriction under
the Securities Act of 1933, unless purchased by or issued to any "affiliate" of
ours, as that term is defined in Rule 144 promulgated under that act. However,
in addition to the shares that will be eligible for sale under this prospectus,
11,950,337 shares of our common stock will become eligible for sale under Rule
144 on October 1, 1999. We may also shortly file a registration statement to
register all shares of common stock under our stock option plan. After that
registration statement is effective, shares issued upon exercise of stock
options, including options for 100,417 shares that were exercisable as of July
13, 1999, will be eligible for resale in the public market without restriction.
If our stockholders sell substantial amounts of our common stock under Rule 144
or pursuant to the aforementioned registration statement, the market price of
our common stock could be adversely affected and our ability to raise additional
capital at that time through the sale of our securities could be impaired.
ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD-PARTY ACQUISITION OF US DIFFICULT
We are a Nevada corporation. Anti-takeover provisions of Nevada law could
make it more difficult for a third party to acquire control of us, even if such
change in control would be beneficial to stockholders. Our articles of
incorporation provide that our board of directors may issue preferred stock
without stockholder approval. The issuance of preferred stock could make it
more difficult for a third party to acquire us. All of the foregoing could
adversely affect prevailing market prices for our common stock.
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OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AS IS TYPICAL OF INTERNET
COMPANIES
The market price of our common stock has been, and is likely to continue to
be, highly volatile as the stock market in general, and the market for
Internet-related and technology companies in particular, has been highly
volatile. Investors may not be able to resell their shares of our common stock
following periods of volatility because of the market's adverse reaction to
volatility. The trading prices of many technology and Internet-related
companies' stocks have reached historical highs within the last 52 weeks and
have reflected valuations substantially above historical levels. During the
same period, these companies' stocks have also been highly volatile and have
recorded lows well below historical highs. We cannot assure you that our stock
will trade at the same levels of other Internet stocks or that Internet stocks
in general will sustain their current market prices.
Factors that could cause such volatility may include, among other things:
- actual or anticipated fluctuations in our quarterly operating results;
- announcements of technological innovations;
- conditions or trends in the Internet industry; and
- changes in the market valuations of other Internet companies.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements." In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "could," "expects," "plans," "intends," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such terms
and other comparable terminology.
These forward-looking statements include, without limitation, statements
about:
- - our market opportunity;
- - our strategies;
- - competition;
- - expected activities and expenditures as we pursue our business plan, and
- - the adequacy of our available cash resources.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.
The accompanying information contained in this prospectus, including,
without limitation, the information set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" identify important factors that could adversely
affect actual results and performance. All forward-looking statements
attributable to us are expressly qualified in their entirety by the foregoing
cautionary statement.
USE OF PROCEEDS
Other than the proceeds from the exercise of the investment rights and the
warrants, none of the proceeds from the sale of the common stock offered by this
prospectus will be received by us. The holders of the investment rights and
warrants are not obligated to exercise their rights and warrants, and there can
be no assurance that we will receive any additional proceeds. If, however, all
the investment rights and warrants are exercised, the gross proceeds to us would
be approximately $7,928,284, assuming exercise as of July 13, 1999. We
currently intend to use the proceeds as follows:
- - Approximately 40% of the proceeds will be used to expand out marketing and
promotion campaigns in traditional and online media;
- - Approximately 30% of the proceeds will be used to continue to improve out
Internet and systems infrastructure and support;
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- - Approximately 10% of the proceeds will be used to further develop our
online sales force;
- - The balance of the proceeds, which should be approximately 20%, will be
used for working capital and general corporate purposes, including
possible acquisitions of or investment in complementary businesses,
products or technologies.
Pending these uses, the net proceeds will be invested in short-term,
investment grade instruments, certificates of deposit or direct or guaranteed
obligations of the United States.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock has been traded on the NASD O-T-C Market Bulletin Board
under the trading symbol "NTXY" since October 1, 1998. Prior to that date, our
common stock was not actively traded in the public market. The following table
sets forth, for the periods indicated, the high and low closing prices for our
common stock as reported by various Bulletin Board market makers. The
quotations do not reflect adjustments for retail mark-ups, mark-downs, or
commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
PERIOD LOW CLOSE HIGH CLOSE
- ------------------------------------------------ ---------- -----------
<S> <C> <C>
Fiscal Year Ended December 31, 1998:
Fourth Quarter (from October 1, 1998-
December 31, 1998) . . . . . . . . . . . . . . . $ 4.500 $ 8.750
Fiscal Year Ended December 31, 1999:
First Quarter (January 1, 1999 - March 31, 1999) $ 6.625 $ 17.625
Second Quarter (April 1 - June 30, 1999) . . . . $ 11.500 $ 29.500
Third Quarter (July 1 through July 13, 1999) . . $ 13.750 $ 16.500
</TABLE>
On July 13, 1999, the closing price for our common stock on the Bulletin
Board was $13.750 per share.
To date, no dividends have been declared or paid on any of our capital
stock. We currently intend to retain earnings, if any, to fund the development
and growth of our business and do not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion.
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CAPITALIZATION
The following table sets forth, as of March 31, 1999, the capitalization of
Nettaxi. This information should be read in conjunction with our Financial
Statements and the related Notes appearing elsewhere in this prospectus.
The following table set forth (A) the capitalization of the Company as of
March 31, 1999, (B) the pro forma capitalization of the Company after giving
effect to the conversion of $5,000,000 of convertible debentures (C) the pro
forma capitalization of the Company after giving effect to the exercise of
warrants, which vest immediately, to purchase 150,000 shares of the common stock
at $12.375, issued in connection with the convertible debentures.
<TABLE>
<CAPTION>
As of March 31, 1999
--------------------
(A) (B) (C) ProForma
(Unaudited) (Unaudited) (Unaudited) as adjusted
Actual Pro Forma Pro Forma (Unaudited)
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents . . . . . . . . . . . . . . . . $ 77,500 $ 5,000,000 $ 1,856,300 $ 6,933,800
------------ ------------ ------------ -------------
Long-term obligations:
Capital lease obligations (including current portion) . 10,900 5,000,000 10,900
5% Convertible note payable . . . . . . . . . . . . . . - (5,000,000) -
------------ ------------ ------------
Total long-term obligations (including current portion) 10,900 10,900
Stockholders' equity (net capital deficiency):
Preferred stock, $0.001 par value, 1,000,000. . . . . -
shares authorized;
no shares issued or outstanding
Common stock subscribed . . . . . . . . . . . . . . . (95,000) (95,000)
Common stock, $0.001 par value. . . . . . . . . . . . 10,800 400 200 11,400
Additional paid-in capital. . . . . . . . . . . . . . 4,872,100 4,999,600 1,856,100 11,727,800
Accumulated deficit . . . . . . . . . . . . . . . . . (4,157,500) - - (4,157,500)
Total stockholders' equity. . . . . . . . . . . . . . 630,400 5,000,000 1,856,300 7,486,700
Total capitalization. . . . . . . . . . . . . . . . . $ 641,300 $ 7,497,600
</TABLE>
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SELECTED FINANCIAL DATA
Set forth below are summary statements of operations data for the period
from October 23, 1997, date of incorporation, to December 31, 1997, the year
ended December 31, 1998 and for the three months ended March 31, 1999, and
summary balance sheet data as of December 31, 1997 and 1998 and as of March 31,
1999. This information should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
For the Period from October 23, 1997, date of incorporation,
to December 31,1997, the Year ended December 31, 1998,
and for the Three Months ended March 31, 1999 (Unaudited)
1997 1998 1999
----------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
- ------------------------------------------ ----------- ------------ ------------
Net revenues . . . . . . . . . . . . . . . $ 144,900 $ 258,000 $ 280,200
- ------------------------------------------ ----------- ------------ ------------
Gross profit (loss). . . . . . . . . . . . $ 57,500 $ 18,200 $ (2,900)
- ------------------------------------------ ----------- ------------ ------------
Loss from operations . . . . . . . . . . . $ (142,100) $(3,082,300) $ (703,800)
- ------------------------------------------ ----------- ------------ ------------
Net loss . . . . . . . . . . . . . . . . . $ (159,700) $(3,113,600) $ (701,700)
- ------------------------------------------ ----------- ------------ ------------
Net loss available to common shareholders. $ (327,200) $(3,127,900) $ (701,700)
- ------------------------------------------ ----------- ------------ ------------
Basic loss per share . . . . . . . . . . . $ (0.06) $ (0.37) $ (0.05)
- ------------------------------------------ ----------- ------------ ------------
Diluted loss per share . . . . . . . . . . $ (0.06) $ (0.37) $ (0.05)
- ------------------------------------------ ----------- ------------ ------------
WEIGHTED-AVERAGE COMMON SHARES:
- ------------------------------------------ ----------- ------------ ------------
Basic outstanding shares . . . . . . . . . 5,483,500 8,499,781 14,110,000
- ------------------------------------------ ----------- ------------ ------------
Diluted outstanding shares . . . . . . . . 5,483,500 8,499,781 14,110,000
- ------------------------------------------ ----------- ------------ ------------
BALANCE SHEET DATA:
- ------------------------------------------ ----------- ------------ ------------
Working capital. . . . . . . . . . . . . . $ (222,900) $ 300,400 $ (519,600)
- ------------------------------------------ ----------- ------------ ------------
Total assets . . . . . . . . . . . . . . . $2,082,300 $ 1,652,700 $ 1,584,200
- ------------------------------------------ ----------- ------------ ------------
Long-term liabilities. . . . . . . . . . . $ 773,500 $ 5,400 $ 3,600
- ------------------------------------------ ----------- ------------ ------------
Total stockholders' equity . . . . . . . . $ 973,400 $ 1,332,100 $ 630,400
- ------------------------------------------ ----------- ------------ ------------
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of Nettaxi should be read in conjunction with the Consolidated
Financial Statements and the Related Notes included elsewhere in this
prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including, but not limited to, those set forth under "Risk Factors" and
elsewhere in this prospectus.
OVERVIEW
We were incorporated in October 1997 and launched our Web site in July,
1998. For the period from inception through October, 1998 we had minimal sales
and our operating activities related primarily to the development of the
necessary computer infrastructure and initial planning and development of
Nettaxi. In addition, we began to assemble techology required to direct new
users to our website, including Internet the City, the sophisticated interactive
Internet training CD-ROM that connects users to our Website. We implemented
numerous modifications to the CD-ROM, including principally integrating our
"taxicab" search engine in the main user interface, and creating the mechanism
whereby the user could launch into our website directly from the CD-ROM
environment.
During 1998, we continued Website development activities and focused on
recruiting personnel, raising capital and developing programs to attract and
retain subscribers. In 1998, we improved and upgraded our services, and began
active promotion of our brand to increase market awareness. We also began
placing greater emphasis on building advertising revenues and memberships by
expanding our sales force. As a result of our efforts to upgrade services and
increase awareness of our site,the number of subscribers to our services
increased and the volume of traffic to our online communities increased
consistently, rising to 80 million page views in March 1999 and 100 million page
views in May 1999.
To date, our revenues have been derived principally from the sale of
advertisements and, to a lesser extent, from CD ROM distribution royalties and
premium account subscription revenues. E-commerce revenues have not been
significant to date, but are expected to increase as we increase the number of
contractual relationships with parties offering e-commerce related products and
services which can be made available to our subscribers and parties looking to
make online sales to our subscribers and other visitors to our site. Advertising
revenues constituted 69% of total revenues for the year ended December 31,1998.
We sell a variety of advertising packages to clients, including banner
advertisements, event sponsorship, and targeted and direct response
advertisements. Currently, our advertising revenues are derived principally
from short-term advertising arrangements, averaging one to two months, in which
we guarantee a minimum number of impressions for a fixed fee. Advertising
revenues are recognized ratably in the period in which the advertisement is
displayed, provided that we have no significant remaining obligations and that
collection of the resulting receivable is probable. Payments received from
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advertisers prior to displaying their advertisements on the site are recorded as
deferred revenues and are recognized as revenue ratably when the advertisement
is displayed. To the extent minimum guaranteed impression levels are not met, we
defer recognition of the corresponding revenues until guaranteed levels are
achieved.
In addition to advertising revenues, we derive other revenues primarily
from royalties from the distribution of our CD-ROM tutorial product and our
premium account membership subscriptions. Royalty revenues result from
relationships with computer manufactures that bundle and distribute our CD-ROM
product with their products. Our membership programs offer premium services for
a monthly fee, providing additional services such as incremental storage space
and the ability to host limited commercial activity. Although we expect
non-advertising revenues to continue, we expect to continue to derive the
majority of our revenue from the sale of advertising space on our Web site for
the foreseeable future.
Our recent e-commerce arrangements generally provide us with a share of any
sales resulting from direct links from our site. Revenues from these programs
will be recognized in the month that the service is providedTo date, revenues
from e-commerce arrangements have not been material. However, we expect
e-commerce derived revenues to become a more significant portion of our total
revenues.
We believe that the popularity of our website continues to validate our
strategy and proven the viability of the technology that we have acquired and
developed since we launched our business in 1997. We are now poised to build on
our early success by implementing a growth strategy that, if successful, should
make us a major ready-to-use e-commerce storefront host, and allow us to meet
our goal of becoming one of the top community-based portals on the Internet. Our
strategic growth plan includes expansion of our products and services, continued
development of an expandable infrastructure, widespread distribution of our
Internet training tool to educate computer users about the Internet and
introduce them to our site, and continued development of relationships with
content providers and parties capable of enhancing e-commerce opportunities for
our users.
We incurred net losses of $327,200, $3,127,900 and $701,700 for the
periods from October 23, 1997 the date of incorporation to December 31, 1997,
the year ended December 31, 1998, and the first quarter of fiscal 1999,
respectively. At March 31, 1999, we had an accumulated deficit of $4,157,500 .
The net losses and accumulated deficit resulted from our lack of substantial
revenues and the significant operational, infrastructure and other costs
incurred in the development and marketing of our services. As a result of our
expansion plans and our expectation that our operating expenses, especially in
the areas of sales and marketing, will continue to increase significantly, we
expect to incur additional losses from operations for the foreseeable future. To
the extent that increases in our operating expenses precede or are not
subsequently followed by commensurate increases in revenues, or that we are
unable to adjust operating expense levels accordingly, our business, results of
operations and financial condition would be materially and adversely affected.
There can be no assurance that we will ever achieve or sustain profitability or
that our operating losses will not increase in the future.
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To date, we have entered into business and technology license arrangements
and in order to build our website community, provide community-specific content,
generate additional traffic, and provide our subscribers with additional
products and services, including e-commerce tools. In May 1999, we completed the
merger with Plus Net, Inc., which operates a portal website with a web based
email program and a robust search engine that brings back the top ten results of
the most popular Internet search engines. We believe this acquisition also
enhances our electronic commerce and advertising opportunities. We intend to
continue to investigate potential acquisitions and to seek additional
relationships with content providers that fall within the scope of our business
strategy, and will serve to increase our subscriber base and overall site
traffic. Acquisitions carry numerous risks and uncertainties and we cannot
guarantee that we will be able to successfully integrate any businesses,
products, technologies or personnel that might be acquired in the future.
SEASONALITY
We believe that we may experience seasonality in our business, with use of
the Internet in general and our Nettaxi.com website traffic being somewhat lower
during periods of the year. In particular, we believe that advertising sales in
traditional media, such as television and radio, generally are lower in the
first and third calendar quarters of each year due to the summer vacation period
and post-Winter holiday season slowdown. If similar seasonal patterns emerge in
Internet advertising, our advertising revenues and operating results also may
vary significantly based upon these same patterns. In addition, as traditional
retail sales are generally higher in the fourth calendar quarter of each year
during the winter holiday season, and subsequently lower in the first calendar
quarter of each year, we anticipate that e-commerce revenues may follow a
similar seasonal pattern and that our e-commerce revenues and operating results
also may vary significantly based upon these patterns.
MARKET RISK
We could be exposed to market risk related to any and all of our debt
obligations for financing working capital and working capital equipment
requirements in the future. Historically we have financed such requirements from
the issuance of both preferred and common stock. In addition, we have augmented
our equity financing activities via the issuance of convertible debt financing.
We continue to consider financing alternatives, which may include the incurrence
of long-term indebtedness. Actual capital requirements may vary based on timing
and success of the expansion of our operations. We believe that based on the
terms and maturities of any future debt obligations that the market risk would
be minimal. We currently do not have any material market rate risks.
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RESULTS OF OPERATIONS
The following table sets forth the statement of operations data for the
periods indicated by each item reflected in our statement of operations. Given
our limited operating history, we believe that an analysis of our cost and
expense categories as a percentage of revenues is not meaningful.
<TABLE>
<CAPTION>
October 23, January 1, January 1, January 1,
To To To To
December 31, December 31, March 31, March 31,
1997 1998 1998 1999
- ----------------------------------------- -------------- -------------- ------------ ------------
(Unaudited) (Unaudited)
- ----------------------------------------- -------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues. . . . . . . . . . . . . . . $ 144,900 $ 258,000 $ 36,300 $ 280,200
- ----------------------------------------- -------------- -------------- ------------ ------------
Cost of revenues. . . . . . . . . . . . . $ 87,400 $ 239,800 $ 20,600 $ 283,100
- ----------------------------------------- -------------- -------------- ------------ ------------
Gross profit. . . . . . . . . . . . . . . $ 57,500 $ 18,200 $ 15,700 $ (2,900)
- ----------------------------------------- -------------- -------------- ------------ ------------
Operating expenses:
- ----------------------------------------- -------------- -------------- ------------ ------------
Sales and marketing . . . . . . . . . . . $ 3,100 $ 745,600 $ 90,600 $ 135,700
- ----------------------------------------- -------------- -------------- ------------ ------------
Research and development. . . . . . . . . $ 36,500 $ 634,700 $ 161,700 $ 217,800
- ----------------------------------------- -------------- -------------- ------------ ------------
General and administrative. . . . . . . . $ 160,000 $ 1,053,200 $ 146,600 $ 347,400
- ----------------------------------------- -------------- -------------- ------------ ------------
Asset impairment. . . . . . . . . . . . . $ - $ 667,000 $ - $ -
- ----------------------------------------- -------------- -------------- ------------ ------------
Total operating expenses. . . . . . . . . $ 199,600 $ 3,100,500 $ 398,900 $ (700,900)
- ----------------------------------------- -------------- -------------- ------------ ------------
Loss from operations. . . . . . . . . . . $ (142,100) $ (3,082,300) $ (383,200) $ (703,800)
- ----------------------------------------- -------------- -------------- ------------ ------------
Other income (expense):
- ----------------------------------------- -------------- -------------- ------------ ------------
Interest income . . . . . . . . . . . . . $ - $ 9,800 $ - $ 2,600
- ----------------------------------------- -------------- -------------- ------------ ------------
Interest expense. . . . . . . . . . . . . $ (17,000) $ (68,800) $ (25,500) $ (500)
- ----------------------------------------- -------------- -------------- ------------ ------------
Other income. . . . . . . . . . . . . . . $ - $ 28,500 $ - $ -
- ----------------------------------------- -------------- -------------- ------------ ------------
Loss before income taxes. . . . . . . . . $ (159,100) $ (3,112,800) $ (408,700) $ (701,700)
- ----------------------------------------- -------------- -------------- ------------ ------------
Income taxes. . . . . . . . . . . . . . . $ (600) $ (800) $ - $ -
- ----------------------------------------- -------------- -------------- ------------ ------------
Net loss. . . . . . . . . . . . . . . . . $ (159,700) $ (3,113,600) $ (408,700) $ (701,700)
- ----------------------------------------- -------------- -------------- ------------ ------------
Preferred stock dividend. . . . . . . . . $ (167,500) $ (14,300) $ (14,300) $ -
- ----------------------------------------- -------------- -------------- ------------ ------------
Net loss available to common shareholders $ (327,200) $ (3,127,900) $ (423,000) $ (701,700)
- ----------------------------------------- -------------- -------------- ------------ ------------
</TABLE>
FOR THE PERIOD FROM OCTOBER 23, 1997, THE DATE OF INCORPORATION, TO DECEMBER 31,
1997 AND FOR THE YEAR ENDED DECEMBER 31, 1998.
REVENUES. Revenues were $144,900 and $ 258,000 for the period from
October 23, 1997 the date of incorporation to December 31, 1997 and for the
year ended December 31, 1998 respectively. The period to period growth resulted
from an increase in the number of advertisers and the average contract duration
and value, an increase in our Web site traffic and to a lesser extent, increases
in our subscription memberships.
ADVERTISING REVENUES. Advertising revenues were $0.00 or 0% of total
revenues, and $177,200 or 69% of total revenues for the period from October 23,
1997 the date of incorporation to December 31, 1997 and for the year ended
December 31, 1998, respectively. We had deferred revenues of $0 and $47,000,
respectively, attributable to prepaid advertising.
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SUBSCRIPTION REVENUES. Our subscription membership revenues were $0.00 or
0% of total revenues, and $6,100 or 2% of total revenues for the period from
October 23, 1997, the date of incorporation, to December 31, 1997 and for the
year ended December 31, 1998, respectively.
CD ROM DISTRIBUTION ROYALTIES. Our CD ROM distribution revenues were
$124,600 or 86% of total revenues, and $61,700 or 24% of total revenues for the
period from October 23, 1997, the date of incorporation, to December 31 1997 and
for the year ended December 31, 1998, respectively.
COST OF REVENUES. Cost of revenues were $87,400 or 60% of total revenues,
and $239,800 or 93% of total revenues for the period from October 23, 1997,
the date of incorporation, to December 31, 1997, and for the year ended
December 31, 1998, respectively. Gross margins were 40% and 7% in 1997 and
1998, respectively. The general decline in gross margins as a percentage
of total revenues was attributable to the growth of the networking
infrastructure resulting in an increase in Internet connection, support and
maintenance charges, equipment costs as well as operations personnel costs.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consisted
primarily of salaries of our sales and marketing personnel, marketing,
promotion, advertising and related costs. Sales and marketing expenses were
$3,100 or 2% of total revenues, and $745,600 or 289% of total revenues for the
period from October 23, 1997, the date of incorporation, to December 31, 1997,
and for the year ended December 31, 1998, respectively. In the first year of
operation, we did not dedicate meaningful funds to sales and marketing
activities. The period to period increase in sales and marketing expenses from
1997 to 1998 was primarily attributable to expansion of our online and print
advertising, public relations and other promotional expenditures as well as
increased sales and marketing personnel and related expenses required to
implement our marketing strategy.
We expect selling and marketing expenses to increase significantly in
future periods. These increases will be principally related to hiring additional
sales and marketing personnel and increased spending on advertising in a variety
of media to increase brand awareness and attract additional visitors to our Web
site. There can be no assurance that these increased expenditures will result in
increased visitors to our Web site or additional revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$36,500 or 25% of total revenues, and $634,700 or 246% of total revenues for the
period from October 23, 1997, the date of incorporation, to December 31, 1997,
and for the year ended December 31, 1998, respectively. The increases in
absolute dollars in product development expenses were primarily attributable to
ongoing updating of the infrastructure and technological development of the
website.
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consisted primarily of salaries and related costs for our executive,
administrative, and finance, as well as legal, accounting and other professional
service fees. General and administrative expenses were $160,000 or 110% of total
revenues, and $1,053,200 or 408% of total revenues for the period from October
23, 1997, the date of incorporation, to December 31, 1997, and for the year
ended December 31, 1998, respectively. The period to period increase in general
and administrative expenses was primarily due to increases in the number of
general and administrative personnel and professional services. The increased
salaries reflect the highly competitive nature of hiring in the internet
software marketplace. We expect general and administrative expenses to grow as
we hire additional personnel and incur additional expenses related to the growth
of our business and our operations as a public company.
ASSET IMPAIRMENT. In November, 1997, we purchased rights to a
software application valued at $1,740,000. In 1998 we experienced several
functional problems with portions of the purchased technology due to those
components incompatibility with subsequent releases of upgraded versions of its
operating system. Following attempts to make it compatible, we decided in
December, 1998 not to spend additional monies on these components but to replace
them. We determined that 50% of the purchased technology was incompatible with
its operating system and therefore was not technologically viable. In December,
1998 we recorded an impairment charge of purchased technology with a net book
value of $667,000.
OTHER INCOME. In 1998 we realized a gain of $28,500 from the disposal of
capital equipment.
INTEREST EXPENSE. Interest expense, net was $17,000, and $59,000, for the
period from October 23, 1997, the date of incorporation, to December 31, 1997,
and for the year ended December 31, 1998, respectively. The increase in interest
expense for the year ended December 31, 1998 was primarily due to the
convertible promissory note which accrued interest over nine months in 1998
versus two months in 1997.
INCOME TAXES. At December 31, 1998, we had net operating loss carryforwards
available to reduce future taxable income that aggregate approximately
$1,227,000 for Federal income tax purposes. These benefits expire through 2018.
Pursuant to a "change in ownership" as defined by the provisions of the Tax
reform Act of 1986, utilization of our net operating loss carryforwards may be
limited, if a cumulative change of ownership of more than 50% occurs over a
three-year period. We have not determined if an ownership change has occurred.
FOR THE QUARTERS ENDED MARCH 31, 1998 AND MARCH 31, 1999.
REVENUES. Revenues were $36,300 and $ 280,200 for the three months ended
March 31, 1998 and 1999, respectively. The period to period growth resulted from
an increase in our Web site traffic and corresponding available advertisement
impressions, the number of advertisers and, to a lesser extent, increased
royalty and sales revenues from our CD-ROM product.
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ADVERTISING REVENUES. Advertising revenues were $0 or 0% of total
revenues and $199,300 or 71% of total revenues for the three months ended March
31, 1998 and 1999, respectively. We had deferred advertising revenues of $0
and $42,000 for the three months ended March 31, 1998 and 1999, respectively,
attributable to prepaid advertising.
ROYALTY AND SALES REVENUES. Our royalty and sales revenues from the
bundling and distribution of our CD-ROM product were $32,000 or 88% of total
revenues and $66,600 or 24% of total revenues for the three months ended March
31, 1998 and 1999, respectively. This increase resulted from larger volumes of
both the bundled distribution of our CD-ROM product and the stand-alone sales of
this product.
COST OF REVENUES. Cost of revenues were $20,600, or 57% of revenues, and
$283,100, or 101% of revenues, for the three months ended March 31, 1998 and
1999, respectively. Our year over year percentage increase in cost of revenue in
comparison to net revenues was higher as a result of our investment in equipment
and technology to support future growth of the internet traffic volume to our
website and communities. Gross margins were 43% and 0% in 1998 and 1999,
respectively. The general decline in gross margins as a percentage of
total revenues was attributable to the growth of the networking infrastructure
resulting in an increase in Internet connection, support and maintenance
charges, and new equipment costs.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consisted
primarily of salaries of our sales and marketing personnel, marketing,
promotion, advertising and related costs. Sales and marketing expenses were
$90,600 or 250% of total revenues, and $135,700 or 48% of total revenues for the
three months ended March 31, 1998 and 1999, respectively. The quarter over
quarter increase in sales and marketing expenses from 1998 to 1999 was primarily
attributable to increased sales and marketing personnel, expansion of our online
and print advertising, and an increase in public relations and other promotional
expenditures and related expenses required to implement our marketing strategy.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
include product development personnel salaries, consulting fees, expenses
related to the development, testing and upgrades to our web site and expenses
related to the editorial content and community management and support to our web
site. Product development expenses were $161,700 or 446% of total revenues, and
$217,800 or 78% of total revenues for the three months ended March 31, 1998 and
1999, respectively. The increases in absolute dollars in product development
expenses were primarily attributable to increased staffing to support ongoing
updating of the infrastructure and technological development of the website
features and content.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consisted primarily of salaries and related costs for our executive,
administrative, and finance personnel, facilities cost, as well as legal,
accounting and other professional service fees. General and administrative
expenses were $146,600 or 404% of total revenues, and $347,400 or 124% of total
revenues for the three months ended March 31, 1998 and 1999, respectively. The
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period over period increased general and administrative expenses were primarily
due to increased professional services and insurance, and increased general and
administrative personnel to support the growth of our operations. The increased
salaries reflect the highly competitive nature of hiring in the internet
software marketplace. Costs for professional services and insurance are related
to us operating as a public company such as directors' and officers' liability
insurance, investor relations programs and professional service fees. We
expect general and administrative expenses to grow as we hire additional
personnel and incur additional expenses related to the growth of our business
and our operations as a public company.
INTEREST EXPENSE. Interest expense was $25,500, and $500, for the three
months ended March 31, 1998 and 1999, respectively. The interest expense for the
three months ended March 31, 1998 was primarily due to the convertible
promissory note that was converted into common stock in September 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have primarily financed our operations through the
private placement of our common and preferred stock, through which we raised
$100,500 and $1,208,700 in 1997 and 1998, respectively. As of December 31,
1998, we had approximately $465,800 in cash and cash equivalents.
Net cash used in operating activities was $51,000 and $665,800 for the
period from October 23, 1997, the date of incorporation, to December 31, 1997,
and for the year ended December 31, 1998, respectively. We had significant
negative cash flows from operating activities in each fiscal and quarterly
period to date. Net cash used in operating activities resulted primarily from
our net operating losses, adjusted for non-cash items, and a higher level of
accounts receivable due to the time lag between revenue recognition and the
receipt of payments from advertisers, which were partially offset by
increases in accounts payable, accrued expenses, and deferred revenues.
Net cash used in investing activities was $0.00 and $124,600 for the period
from October 23, 1997, the date of incorporation, to December 31, 1997 and for
the year ended December 31, 1998, respectively. Net cash used in investing
activities was primarily related to the purchase of property and equipment in
connection with the build out of our infrastructure.
Net cash provided by financing activities was $100,500 and $1,206,700 for
the period from October 23 1997, the date of incorporation, to December 31,
1997, and for the year ended December 31, 1998, respectively. Net cash
provided by financing activities in 1998 consisted primarily of net proceeds
from the issuance of our common and preferred stock.
As of December 31, 1998, our principal commitments consisted of obligations
outstanding under capital and operating leases. In 1998, we acquired $14,700 of
equipment under a capital lease, and $159,200 of computers and equipment for
cash.
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Our capital requirements depend on numerous factors, including market
acceptance of our services, the amount of resources we devote to investments in
our Web site, the resources we devote to marketing and selling our services and
our brand promotions and other factors. We have experienced a substantial
increase in our capital expenditures and operating lease arrangements since
inception consistent with the growth in our operations and staffing, and we
anticipate that this will continue for the foreseeable future. Additionally, we
will continue to evaluate possible investments in businesses, products and
technologies, and plans to expand our sales and marketing programs and conduct
more aggressive brand promotions.
We believe that we will be able to meet our near term cash requirements
through lease lines of credit, bank financing, and from the proceeds received in
a $5,000,000 convertible debt financing that was successfully completed in April
1999. Our long-term liquidity needs will also be met through the above
financing strategies coupled with additional debt and equity financing currently
in negotiation. There can be no assurance that financing will be available in
amounts or on terms acceptable to us, if at all, and our failure to secure
adequate financing may prevent us from pursuing our business objectives.
IMPACT OF THE YEAR 2000
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems may therefore recognize a date using "00" as the year 1900 rather than
the year 2000. As a result, computer systems and/or software used by many
companies and governmental agencies may need to be upgraded to comply with Year
2000 requirements or risk system failure or miscalculations causing disruptions
of normal business activities.
STATE OF READINESS. The third-party vendor upon which we materially rely
is Exodus Communications, which houses and services our Web equipment and
provides our connection to the Internet. We have sought confirmation from
Exodus that its system is Year 2000 compliant and Exodus has informed us that
its system is Year 2000 compliant.
In addition, we plan to seek verification from other key vendors,
distributors and suppliers that they are Year 2000 compliant or, if they are not
presently compliant, to provide a description of their plans to become so. To
the extent that vendors fail to provide certification that they are Year 2000
compliant by September 1999, we will seek to terminate and replace these
relationships with those who are Year 2000 compliant. Until our vendors,
distributors and suppliers have provided verification of their compliance, we
will not be able to completely evaluate whether our systems will need to be
revised or replaced.
We are conducting an internal assessment of all material information
technology and non-information technology systems at our headquarters for Year
2000 compliance. Until we complete the assessment, we will not know whether
these systems are or will be Year 2000 compliant by September 1999.
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To date, we have not yet incurred any material costs in identifying or
evaluating Year 2000 compliance issues. Most of our costs have related to, and
are expected to continue to relate to, the upgrades or replacements, when
necessary, of software or hardware, as well as costs associated with time spent
by employees in the evaluation process and Year 2000 compliance matters
generally. These expenses are included in our operating and capital
expenditures budget and are not expected to exceed $100,000. However, if these
costs are significantly higher than expected, they could have a material and
adverse effect on our business, results of operations and financial condition.
RISKS. There can be no assurance that we will not discover Year 2000
compliance problems in our systems that will require substantial revisions or
replacements. In the event that the operational facilities that support our
business, or our Web-hosting facilities, are not Year 2000 compliant, we may be
unable to deliver goods or services to our customers and portions of our Website
may become unavailable. In addition, there can be no assurance that
third-party software, hardware or services incorporated into our material
systems will not need to be revised or replaced, which could be time-consuming
and expensive. Our inability to fix or replace third-party software, hardware or
services on a timely basis could result in lost revenues, increased operating
costs and other business interruptions, any of which could have a material and
adverse effect on our business, results of operations and financial condition.
Moreover, the failure to adequately address Year 2000 compliance issues in our
software, hardware or systems could result in claims of mismanagement,
misrepresentation or breach of contract and related litigation, which could be
costly and time-consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies and others outside our control will be
Year 2000-compliant. The failure by these entities to be Year 2000-compliant
could result in a systemic failure beyond our control, including, for example, a
prolonged Internet, telecommunications or electrical failure, which could also
prevent us from delivering our services to our users, decrease the use of the
Internet or prevent users from accessing our services, any of which would have a
material and adverse effect on our business, results of operations and financial
condition.
CONTINGENCY PLAN. As discussed above, we are engaged in an ongoing Year
2000 assessment and do not currently have a contingency plan to deal with the
worst case scenario that might occur if technologies on which we depend are not
Year 2000-compliant and fail to operate effectively after the Year 2000. The
results of our Year 2000 compliance evaluation and the responses received from
distributors, suppliers and other third parties with which we conduct business
will be taken into account in determining the need for and nature and extent of
any contingency plans.
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If our present efforts to address the Year 2000 compliance issues discussed
above are not successful, or if distributors, suppliers and other third parties
with which we conduct business do not successfully address such issues, our
users could seek alternate suppliers of our products and services. Any material
Year 2000 problem could require us to incur significant unanticipated expenses
to remedy and could divert our management's time and attention, either of which
could have a material and adverse effect on our business, operating results and
financial condition.
This is a Year 2000 readiness disclosure statement within the meaning of
the Year 2000 Information and Readiness Disclosure Act P.L. 105-271; however,
the disclosures made herein do not affect our liabilities under the federal
securities laws.
EFFECTS OF INFLATION
Due to relatively low levels of inflation in 1997 and 1998, inflation has
not had a significant effect on our results of operations since inception.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosure About Segments of an
Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. Statement of Financial Accounting Standards
No.131 requires that public companies report information about operating
segments in their annual financial statements and in subsequent condensed
financial statements of interim periods issued to shareholders. This statement
also requires that public companies report information about their products and
services, the geographic areas in which they operate and their major customers.
Reportable operating segments are determined based on the management approach,
as defined by Statement of Financial Accounting Standards No. 131. The
management approach is based on the way that the chief operating decision-maker
organizes the segments within an enterprise for making operating decisions and
assessing performance. We have determined that we do not have any separately
reportable business segments.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, Employer's Disclosure about Pension
and Other Post retirement Benefits, which standardized the disclosure
requirements for pension and other post retirement benefits. The adoption of
Statement of Financial Accounting Standards No. 132 had no impact on the
Company's current disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Statement of Financial Accounting Standards No.133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. Statement of Financial Accounting Standards No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Statement of
Financial Accounting Standards No. 133 is effective for fiscal years beginning
after June 15, 1999. Historically, we have not used derivatives and therefore
this new pronouncement is not applicable.
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In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-1, Software for Internal Use, which provides
guidance on accounting for the cost of computer software developed or obtained
for internal use. Statement of Position 98-1 is effective for financial
statements for fiscal years beginning after December 13, 1998. We do not expect
that the adoption of Statement of Position 98-1 will have a material impact on
its consolidated financial statements.
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BUSINESS
OUR BUSINESS
Nettaxi was incorporated in October, 1997 to capitalize on a significant
opportunity that exists today through the convergence of the media and
entertainment industries with the vast communications power of the Internet.
Our Web site, nettaxi.com, is an online community designed to seamlessly
integrate content with e-commerce services for businesses, providing
comprehensive information about news, sports, entertainment, health, politics,
finances, lifestyle, and areas of interest to the growing number of Internet
users. Our mission is to establish nettaxi.com as an entry point, or portal, to
the Internet by continuing to develop premium online communities which are both
content-rich to our users, and provide easy-to-use e-commerce services to
businesses which reside in these online communities. By successfully achieving
this, we expect to continue to generate substantial revenues through advertising
fees and, once our e-commerce capabilities are launched by the end of the third
quarter of 1999, e-commerce revenues and transaction fees through the sale of
products online.
INDUSTRY BACKGROUND
THE INTERNET
The Internet was launched in the late 1960's as an ambitious effort to
build a network of computers across the United States that could transmit vital
information in an expeditious manner and withstand threats to our national
security. To achieve this goal, the developers, chiefly military and defense
agencies and contractors, government agencies, and research agencies, felt that
it was necessary to have a network in which no one single part was essential for
its operation. Accordingly, an international network was built using a
configuration in which there was no central hub through which all information
flowed. Instead, information could flow through any number of computers, all of
which were connected to one another by telephone lines. These computers are
large file servers that store data and transmit it over the network.
Over time, the security- arid government-related aspects of the Internet
gave way to the masses, and now the general public has access to the power of
the Internet for dissemination of information, including text, data, database
content, software, graphics, sound and music, and video and audiovisual works.
These sources of data and content are often referred to as the World Wide Web,
or Web, and include Web sites and the supporting facilities, such as the
computer file servers that act as hosts for Web sites, that permit content to be
transmitted within the Internet.
GROWTH OF THE INTERNET AND E-COMMERCE. The Internet has rapidly become
significant global medium for communications, entertainment, news, information
and commerce. Commercialization of the Internet began in the mid-1980s, with
e-mail providing the primary means of communication. However, it was the
Internet's World Wide Web, which provided a means to link text and pictures,
that led to the blossoming of e-commerce and sparked the explosive growth of the
Internet in the 1990s. Today, millions of people around the world have the
capability to send and receive information, and purchase products and services,
through the Internet.
GROWTH OF ONLINE ADVERTISING AND DIRECT MARKETING. The Web has become an
attractive medium for advertisers, offering a level of targetability,
flexibility, interactivity and measurability not available in traditional media.
The Web enables advertisers to demographically target their messages to specific
groups of consumers as well as to change their advertisements frequently in
response to market factors, current events and consumer feedback. Moreover,
advertisers can track more accurately the effectiveness of their advertising
messages by receiving reports of the number of advertising impressions
delivered to consumers and the resulting click-through rate to their Web
sites.
THE INTERNET AS A MARKETING TOOL. Over 50 million companies and households
around the world use the Internet as a communications link through e-mail,
interactive advertisement, bulletin boards, research and online discussion
groups. At its most basic level, the Internet serves as a seemingly endless
catalog of marketing messages and advertising platforms presented in an
interactive fashion. Companies like IBM, Apple, AT&T, Microsoft and Lotus are
investing millions of dollars to develop new state-of-the-art tools and services
aimed at helping companies expand electronic business through the Internet.
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Business is rapidly adopting the Internet as the means through which it can
efficiently and economically conduct marketing, research and customer support.
With the number of users growing monthly at an estimated rate of 10%, or one
million users, the Internet is the fastest growing global telecommunications
network in the world. Large and small companies are embracing the Internet as a
fundamental communication tool used to conduct daily business. By the year
2000, a projected 60% of large companies and 30% of midsize companies around the
world will use the Internet or its equivalent for marketing and business
purposes.
ADVANTAGES OF THE INTERNET FOR CONTENT COMPANIES. The Internet offers
content providers significant and attractive economic mechanisms that combine
cost advantages with practices that are conducive to revenue generation or
premiums. Significantly, the Internet provides information dissemination at a
materially lower cost than do other forms of media, notably, both printed paper
and private networks. The Internet also offers the potential for easier access
to content, which can expand market coverage. We believe that by using
the capabilities of the Internet to enrich the convenience, utility, time, or
entertainment value of content, Internet content providers can garner
significant and even premium revenues.
The Internet also enables providers to change and enhance the form and mass
delivery of content so that information is dynamic, interactive, real-time, and
personalized, as opposed to static, passive and bland as traditional media is
trending. The ability to personalize content on a mass scale promises to offer
compelling utility to subscribers as well as a mechanism for providers to
sustain those same subscribers. Otherwise static information can be made to
come alive by using the multiple forms of media, such as hyper-text, audio, and
graphics, that are all made possible through the Internet.
THE NEED FOR ONLINE COMMUNITIES
As the Internet continues to grow, users seek from the Web the same
opportunity for expression, interaction, sharing, support and recognition they
seek in the everyday world. To date, a typical Internet user's experience
surfing the Web has been essentially one-way-searching and viewing Web sites
containing professionally created content on topics of general interest such as
current events, sports, finance, politics and weather. However, the Web in
general does not provide a context for users to publish, promote, search and
view personal Web pages. As a result, users publishing personal Web sites have
had limited means of attracting visitors to their sites or interacting with or
receiving recognition from visitors. Internet search and navigational sites
serve a valuable function for users seeking to navigate the Internet for
aggregated Web content; however, these sites are not primarily focused on
providing a platform for publishing and aggregating the rapidly increasing
volume of personalized content created by users or enabling such users to
interact with each other.
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Similarly, Web users engaged in passive browsing are increasingly seeking
ways of interacting and communicating with other individuals with similar
interests and accessing personalized content. While users are generally able to
obtain relevant professionally created content through traditional navigational
sites such as Web directories and search engines, the source of such content is
usually the media and not fellow Web users. Often, the most relevant content
for a user is generated by other users who share an interest in what is
published; however, most Web sites are not dedicated to providing a platform for
aggregating and accessing user-created content.
An important response to the perceived needs of Internet users, and the
weaknesses of traditional Web navigational or content sites, has been the
emergence of community Web sites. Community sites provide a single online
destination where like-minded users can interact and quickly find pertinent
information, products and services related to their particular interests or
needs. Community sites generally offer free services including access to e-mail
accounts, chat rooms, message boards, news and entertainment. Through these
features, online communities seek to establish a close relationship with their
audience and evolve over time according to the interests of their members. As a
result, we believe that users tend to be loyal to and spend more time online at
community sites.
Online communities also provide advertisers an attractive means of
promoting their products and services and allow businesses to reach the growing
number of users who will be purchasing goods over the Internet in the future.
The amount of advertising dollars spent on the Web is increasing substantially
and it is expected that revenues from e-commerce will grow to more than $220
billion by 2001 from just $2.6 billion in 1996. To date, advertisers and
businesses have typically used traditional navigational sites and professionally
created content sites to promote their products and services online. However,
online communities allow advertisers and businesses to reach highly targeted
audiences within a more personalized context, thus providing the opportunity to
increase advertising efficiency and improve the likelihood of a successful
sale.
OUR SOLUTION
Nettaxi was born of the vision of co-founders Robert and Dean Rositano,
veterans of the internet service provider industry. Even before founding
Nettaxi, they recognized that there was an enormous market for learning tools
targeted to beginner-level Internet users, and they were actively involved with
the development of the Ques Mega Web Directory. In 1994, they co-founded
Simply Interactive, Inc. to develop and market sophisticated, interactive Web
learning tools for this vast untapped marketplace. In connection with a
substantial early-stage financing of that company, which entailed the merger of
Simply Interactive, Inc. with another early-stage enterprise software
development company, the management control and focus of the combined entity
shifted away from Web learning tools. As a result of this shift in focus,
Robert and Dean left Simply Interactive to continue pursuit of their vision.
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The founders believed that to survive and thrive in the increasingly
crowded Internet industry, they needed to develop a website with a strong
persona. To accomplish this, they set out to create a comprehensive
theme-oriented website, targeted to the rapidly-growing "family" and home-based
business markets, which would provide up-to-date premium content, ready-to-use
e-commerce storefront services, and the ability to purchase an expanding variety
of goods and services, all within a single integrated web community. Their goal
was to position their new website not only as an entry point to the Internet,
but also as an attractive, premium online destination, in contrast to merely
acting as a web junction point, for content and e-commerce services, and to
generate substantial revenues through monthly subscriptions, banner advertising,
and e-commerce transaction fees.
Nettaxi launched its new online community in October 1997. Immediately
recognizing the value of developing and acquiring the tools necessary to drive
new users to the website, the founders acquired the assets of Simply
Interactive. in November 1997, including the rights to Internet the Citytm, the
sophisticated interactive Internet training CD-ROM that the Rositanos had
developed while at Simply Interactive. Upon acquiring these rights, we moved
quickly to implement numerous modifications to the training tool, including
principally:
- - integrating the Nettaxi "taxicab" in the main user interface;
- - developing and integrating promotional information regarding the Nettaxi
Web site community, including its free services, features and benefits;
and
- - creating the mechanism whereby users could launch into the Nettaxi
community Web site directly from within the CD-ROM environment.
Since launching our website in October 1997, we have been engaged primarily
in continued development and enhancement of our online website community, and
building traffic to the website. To these ends, we have been actively pursuing
corporate relationships in several areas that are key to the successful
implementation of our strategy, including co-marketing, content, and technology.
Thus far, we have been successful in securing co-marketing relationships whereby
Nettaxi bundles its CD-ROM product with products of other companies, as
described in more detail below. In addition, we have entered into agreements
with eCharge, InfoSpace.com, Cybereps, and other companies for important service
enhancements to our community website.
As traffic to our site began to build significantly, we launched our
advertising sales campaign in July 1998. Since then, as traffic to our community
has continued to grow consistently and prove its stability, growth in
advertising revenues, as well as growth of our monthly subscribers base has
begun to accelerate. Our records indicate that the Nettaxi.com Web site has over
100 million page views per month and 182 million advertising impressions per
month by May 1999. A visit by a user to a page on our web site represents one
page view and each advertising that appears on that page to which a visitor is
exposed is called an advertisement impression. Based on unique visitors to our
site, PC Data Online ranked Nettaxi.com as the 139th most visited site in the
world in May 1999. Web21, an online service directory which compiles an
objective listing of top Web sites, measured by page views, called "100hot",
ranked our site as the 15th most popular site on the Web during this same month.
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We believe that the success of our site confirms the original vision of the
founders that we can deliver a powerful new model with the capability to
generate substantial economic returns. By integrating ready-to-use e-commerce
capabilities with thematic community-based content and e-commerce Web sites, we
are creating a number of powerful business tools and resources:
USER PROFILE DATABASE. A substantial database of user profiles, according
to their interests, which enables us to offer large, highly targeted audiences
to our advertisers, and command the higher advertising rates that
demographically segmented audience profiles dictate.
WEB SITE TRAFFIC DRIVER. The ability to drive traffic to Nettaxi
subscriber Web sites, via our search engine, which first searches and lists
Nettaxi's premium providers' and subscribers' Web sites, then scours the World
Wide Web for additional search matches. We believe this feature will drive
customers to Nettaxi community e-commerce sites, thereby propelling transaction
processing fees and drawing new e-commerce business to our community.
EXPANDED RELATIONSHIPS. Opportunities to develop an expanded
range of relationships, by virtue of being able to match premium
content providers with consumer bases. We believe that such a combination not
only increases the variety of revenue-generating e-commerce services we offer to
subscribers, but also helps keep us at the forefront of new developments in
products and services that will attract additional subscribers, retain, current
subscribers, and encourage subscription upgrades.
POSITIVE PUBLIC PERCEPTION. The goodwill, trust, and loyalty of both
parents and children by providing a site on the World Wide Web where parents can
feel comfortable about their children's participation, and where children can
enjoy their own privacy. We believe that providing parents with filtering
technologies that make adult-content sites "invisible" to underage users will
attract family subscribers and many of their friends and relatives.
OUR STRATEGY
OUR STRATEGIC GROWTH PLAN
We are poised to build on our early success by implementing a growth
strategy that, if successful, should make us a major ready-to-use e-commerce
storefront host, and one of the top community-based portals on the Internet. Our
strategic growth plan includes the following principal components:
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EXPAND OUR PRODUCTS AND SERVICES. We have identified a variety services
and products that we intend to develop through in-house research and
development, licensing arrangements with third parties, or outright acquisition.
These products and services have been selected based on our belief that, by
helping users gain more value from the Web, we will attract new subscribers,
retain current subscribers, and encourage subscribers to upgrade to one of our
premium, paid subscription accounts. We intend to offer our subscribers an
expanded range of services that extend beyond the typical portal's e-mail, chat,
search engines, shopping, and financial, sports, and general news offerings,
such as ready-to-use e-commerce storefront business services, two types of
e-mail protocols, and a customizable search engine that not only drives traffic
to subscriber web pages, but also offers the capability to make selected Web
sites visible or invisible.
DEVELOP AN EXPANDABLE INFRASTRUCTURE. Integral to the implementation of
our concept is its development of an Internet-centered database system that
allows us to serve information and facilitate e-commerce transactions on behalf
of its members' Web sites. We are currently engaged in developing an
infrastructure that will allow us to realize our goal of providing to a vast
base of consumers with similar interests, as well as to subscribed small to
medium size businesses, the opportunity to meet and share information, products,
and services in thematic environments that are tailored to their respective
interests.
INCREASE TARGETED DISTRIBUTION OF OUR CONNECTED CD-ROM. A key component of
our growth plan, and an integral competitive advantage that we have over other
virtual communities and portals, is our proprietary interactive Internet CD-ROM
product. The CD-ROM, called Internet the City, is a comprehensive, interactive
training tool that enables new and intermediate users to learn about and begin
using the many powerful capabilities and features of the Internet. We plan
aggressive promotion of our site through targeted distribution of our CD-ROM
product to the consumer marketplace.
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EXPAND OUR BUSINESS DEVELOPMENT AND TECHNOLOGY RELATIONSHIPS. We have
established formal relationships with providers of premium content, including
InfoSpace.com, Inc., Lycos and Netopia. These relationships, and the continued
development of new relationships, will provide us with:
- - Premium content for news, sports, travel, politics, health, lifestyle, and
other information categories;
- - Relationships with providers of proprietary information content;
- - Ready-to-use e-commerce sales and fulfillment services through
relationships with technology and fulfillment companies; and
- - The deployment of a customer service organization keenly focused on
satisfying demand and creating customer loyalty.
In addition, we have retained the services of a marketing communications
company with extensive experience in successfully launching Internet-related
products and services, to provide public relations and marketing services,
including guidance on both strategic communications and tactical implementation
issues.
PURSUE OUR ACQUISITION STRATEGY. An important element of our strategic
growth plan is our acquisition program. We will continue to investigate
opportunities to acquire niche content-based website operators that lend
themselves to integration with a community-oriented site. In this area, we are
focusing on companies that have developed a significant and loyal user base.
We will also seek to identify companies that can significantly extend
functions of our operational infrastructure and/or add strategic proprietary
technology that management deems critical to maintaining our competitive
position. In this regard, we have recently completed the merger with Plus Net,
Inc., which provides us with access to a robust search engine and enhanced
e-commerce processing capabilities.
OUR GOALS
We believe that the current structure and future developments of the
Nettaxi website offer us a strong variety of sources for garnering significant
revenue. These sources include:
<TABLE>
<CAPTION>
<S> <C>
- - E-COMMERCE Direct Nettaxi sales of products, including products
linked to events in subscribers' Remind Me files,
and products targeted to users and subscribers on the
basis of their interests and patterns of activity when
surfing Nettaxi.com;
Transaction processing fees from credit card and
eCharge processing services;
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Support Service Fees, where applicable, for
providing specific business services that support the
e-commerce activities of Nettaxi subscribers;
Percentage splits with subscribers of the list price of
goods sold through their e-commerce storefronts in
Nettaxi communities; and
Sales commissions negotiated with vendors for
products sold directly by Nettaxi and through
Nettaxi subscriber e-commerce storefronts.
-------------------------------------------------------
- - ADVERTISING Spot and banner advertising can be sold at premium
prices to advertisers, by virtue of offering them
large, highly targeted audiences that are
demographically segmented, as well as the
opportunity to rotate and keep "fresh" the ads
presented to a viewer;
-------------------------------------------------------
- - SUBSCRIPTION FEES Premium service account monthly subscription fees;
- ------------------------------- -------------------------------------------------------
- - CD ROM DISTRIBUTION ROYALTIES Co-branding and licensing of our CD-ROM product
to select third parties;
-------------------------------------------------------
</TABLE>
In order to realize its strategic initiatives, we will seek to accomplish
the following principal goals:
DEVELOP INFRASTRUCTURE, BUILD PREMIUM CONTENT, LAUNCH E-COMMERCE. Over the
next 12 months, we are looking to further develop our managerial and technical
infrastructure, enhance the quality and depth of our content by developing new
relationships with premium content providers, develop and customize e-commerce
systems to meet our requirements, establish relationships with fulfillment
operations to support our e-commerce services, and launch our e-commerce
products and services.
REFINE OFFERING AND EXPAND DEMAND. Once our initial strategic goals have
been accomplished, we are looking to refine our offering of products and
services and expand demand by enhancing consumer services through call center
automation and e-mail service and deploying an aggressive marketing campaign to
create real excitement about our site. We also hope to raise additional capital
for brand development and expansion of our operations.
GAIN SIGNIFICANT SHARE AND CONSOLIDATE COMPETITORS. Within two to three
years, we hope to gain significant share and consolidate our competitive
position by acquiring strategic online community companies and continue an
aggressive plan of infrastructure expansion.
As perviously described, our ability to achieve the objectives of our
strategic plans are subject to the risks set forth in the section of this
prospectus called "Risk Factors" including the limited resources we have, our
ability to obtain additional resources, our reliance on third parties for the
development of software and content as well as the uncertainties involved with
the rapidly-changing business and technological environment for Internet
companies.
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RECENT ACQUISITION
In May, 1999, we completed the merger with Plus Net, Inc. Plus Net was
founded in 1998 and has licensed a wide range of Internet related tools to
generate revenue opportunities. Plus Net operates a portal website on the World
Wide Web with a robust search engine that brings back the top ten results of the
web's most popular search engines and return results within a specific subject
category, while enhancing electronic commerce and advertising opportunities.
Plus Net also has recently launched an e-commerce processing engine which is
compatible with interfaces enabling the acceptance of online credit card
transactions and the processing of these transactions with banking institutions.
The Plus Net e-commerce capabilities also support one-click buying opportunities
and programs designed to prevent credit card fraud. These features will
accelerate our research and development efforts, and will enrich the Internet
experience of our subscribers. We intend to implement and integrate the services
offered by Plus Net throughout 1999. The Plus Net merger also provides us with
access to a large pool of potential subscribers and provides us with an
opportunity to substantially increase the citizenship base within our community.
OUR WEB SITE AND SERVICES
OUR WEBSITE
The Nettaxi.com website, at http://www.nettaxi.com, is structured as a
virtual "urban" environment, populated by subscribers referred to as "citizens",
that is divided into broad "zones," which are further divided into thematic
"communities," and from there into "streets" and "homes."
When users first arrive at Nettaxi.com, they are in the broad "urban"
environment, where they find links to the "zones," which include categories such
as:
- Member Services, Registration, and Communities;
- community information links such as Message Boards, and
- links to premium content such as Sports Scores, Weather, Stock
Quotes, or Travel.
Clicking on one of the links -- for example, Communities -- takes users to
the next level, where they can choose from an extensive list of categories, or
"communities." Choosing one community, such as the Arena District theemed to
sports events and activities, takes users to a list of subcategories, or
"streets," such as the basketball-oriented Hoops Avenue. Once on the "street,"
users can select to visit any of the various "homes," which are the individual
web pages of our subscribers.
Clicking on a premium content link in the "urban" environment follows a
similar pattern, but may differ in the number and types of category and
subcategory levels, depending on the content they offer. The premium content
links lead to the special web pages of our major content providers, as opposed
to subscriber pages.
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NETTAXI'S "TAXI"
A key feature of our site is that users in a hurry to get somewhere will
be able to "step into" a "taxi", a specially configured search engine, which
they will find waiting in all areas and levels of our environment. Users simply
type in a "destination" such as "sports," and they are immediately whisked
first to our main sports areas which include the relevant premium content
provider's website, followed by the Top 10 subscriber sports "homes," and then
on to other sports sites, including those on the rest of the web. As a result,
the search engine has the ability to drive traffic to e-commerce sites in our
community, including premium content providers' sites, thereby propelling
transaction processing fees and drawing new e-commerce business to the
community. In addition, our search engine provides greater value to our users
since it presents small, manageable groups of "destination" choices in response
to a search, as opposed to an overwhelming volume of listings turned up by most
other search engines.
We are exploring the possibility of eventually serving content to users based on
their preferences, which will be determined by tracking their activities as
they surf through our overall Web site. The result will be content that is
automatically and seamlessly customized to a user's interests and tastes so
that, for example, two different users with differing interests who take a
"taxi" using the same search term might arrive at separate destinations or, if
at the same destination, are likely to be offered some differences in content,
based on their patterns of activity.
CONTENT
A key component of our current and future plans is the continued
development of relationships with providers of premium content in a variety of
categories. The purpose of these relationships is not to directly generate
revenue, but rather to enhance the quantity and quality of information and
content on our web site. We believe that enhanced information and content may
lead to increased visitors to our site as well as increased subscriptions to our
services. To date, we have established formal relationships with some premium
content providers. The companies listed below provide substantially all of the
content on our Web site that is currently provided by outside parties. The
providers are listed in order, by the amount of content they provide to us.
- - INFOSPACE.COM, INC. We have a nonexclusive content distribution agreement
with Infospace.com, an aggregator of a broad range of content services,
including sports scores, late-breaking news, weather, concerts, public
record searches, phone/address searches, classified ads, and daily
horoscopes, for syndication to Internet portals and destination sites. The
term of the agreement is one year. Although this agreement is technically
a revenue sharing agreement, it does not generate significant revenue for
us. InfoSpace.com currently provides the majority of our outside party
content.
- - LYCOS. We have recently made an affiliation with Lycos, one of the most
popular hubs on the Web, to offer personalized start pages called
"MyNettaxi" from our website. Under our nonexclusive, two year agreement
with Lycos, it will provide its suite of Web applications including
search, comprehensive directories, personal homepages, email, communities
and popular shopping functions in the form of a co-branded personal start
page. My Nettaxi enables end users to customize their start pages with
information such as news, stock prices, weather, sports scores and more
from Lycos.com and hotbot. Although this agreement is technically a
revenue sharing agreement, it does not generate significant revenue for
us.
- - BIG NETWORK.COM. We have entered into a co-marketing agreement with Big
Network.com which will provide our subscribers with immediate access to
the BigNetwork.com suite of classic board and card games including chess,
checkers, backgammon, reversi, spades, morph and more. The nonexclusive
agreement will also allow our subscribers to interact in real-time with
the 200,000 registered members of BigNetwork.com. This arrangement also
allows our subscribers to embed Java-based games into their own Web sites.
For those subscribers who have developed and integrated their own personal
Web pages into our community, they will be able to create an interactive
gaming environment suited to the specific needs of their visitors. The
term of the agreement is one year. This agreement is an expense sharing
agreement and does not generate significant revenue for us.
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- - PI GRAPHIX. We have a nonexclusive linking agreement with PI Graphix, a
provider of an online community with e-commerce capabilities and extensive
graphics capabilities under which we have linked and co-branded our site
with theirs in order to increase traffic. The term of the agreement is one
year. Although this agreement is technically a revenue sharing agreement,
it does not generate significant revenue for us.
- - NETOPIA, INC. We have a nonexclusive agreement with Netopia, a provider
of next generation products including web site services and high-speed
connectivity to the Internet, under which Netopia provides us with
technology that enhances our ability to provide services to our
subscribers. The term of the agreement is two years. This agreement is an
expense sharing agreement and does not generate significant revenue for
us.
Under our agreements, we provide co-branding services to the content providers
listed above. The content included on our web site is branded with the logo and
similar brand features of the relevant providers. We also increase the traffic
to their own web sites by linking our sites so that end users can easily move
from our web site to theirs. We are also working to identify and develop a
selection of relationships with providers of proprietary information content,
particularly individuals and organizations with archives and databases that
could be easily rendered into digital format. We believe that a carefully
developed selection of such databases, would act as a powerful attractant to
the type and volume of subscribers that our advertisers find desirable.
Our subscribers also provide personal or entrepreneurial/commercial
content that is available on our website. We offer each of our subscribers,
free of charge, 10 megabytes of server space to use for a home page and e-mail.
In addition, subscribers have access to free, easy-to-use website design
software to build their web home page, and they can designate the community and
street where they would like to have their home page located.
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E-MAIL SERVICES
Nettaxi.com's e-mail services surpass those of other portals and
full-featured internet service providers by being available though both Post
Office Protocol, POP, and the Web, IMAP. To the best of our knowledge, ours is
the only service today to simultaneously offer subscribers both types of e-mail
access for free. Nettaxi's e-mail service also allows its Citizens and small
businesses to offer a free Web-based email service with a unique domain name,
e.g., [email protected], giving the domain name free promotion with every email sent.
There's no software for the user to download and all mail and maintenance are
provided by Nettaxi, with no added inconvenience to the webmaster. The look
and feel can be customized to look like the subscribers home page.
POP e-mail is the type most commonly used by internet service providers.
Its advantages for users are that messages are sent and received quickly and
with more privacy, because they do not stay resident on a server for any length
of time. Its greatest disadvantage is that e-mail messages, once delivered to a
user, are generally no longer available for download again, so that a user who
downloads e-mail to a home computer, for example, will generally not be able to
download the same mail at a later time to another computer, such as one at work.
IMAP, or web-based e-mail, most commonly used by portal services, allows
users to retrieve e-mail messages from any location which offers access to the
Internet and a specific website. Sending and receiving messages may be a bit
slower than POP services, but messages are stored on a server, can be retrieved
multiple times, and remain available until they are either specifically deleted
by the user, or a set amount of time has passed.
Subscribers to all levels of our services will have both POP and IMAP
e-mail capabilities, and a distinct @nettaxi.com address or @ their own custom
domain name.
"REMIND ME" SERVICE
As a special feature, Nettaxi.com will offer its subscribers Remind Me, a
service that functions like an electronic datebook. Subscribers can enter their
important dates and appointments, with requests to be reminded of them at
specified times, which can be as far ahead as a month or a few hours. Remind Me
is structured to allow users to specify the type of event being listed, such as
a birthday or anniversary, by simply entering important dates and their
corresponding event. Keywords in these fields trigger Remind Me to suggest
event-appropriate products and/or services. Some of these will be available at
no charge to subscribers, e.g., electronic greeting cards and virtual flowers.
Others will be available for purchase or subscription directly through us or
through our subscriber "storefronts" and advertiser sites, driving traffic to
both, and offering us opportunities for generating revenues through transaction
processing and other fees, where appropriate.
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E-COMMERCE SERVICES
One of the key features that we will offer members is the opportunity to
become on-the-spot entrepreneurs. We are currently developing
ready-to-use-commerce capabilities that we plan on launching in the third
quarter of 1999. These product offerings are aimed at providing members and
corporate clients who wish to launch an online e-business with a bundled
ready-to-use variety of services designed to meet their needs. These services
will include a customized storefront, customer order processing, account
management, credit card processing, and, in certain cases, back-end order
fulfillment needs. In conjunction with these product offerings, member or
corporate clients will be able to purchase advertising packages within their
communities to help market their products or services, as well as email tools
that will provide them the capability to direct market to their customer base.
COMMERCIAL WEB SITE HOSTING. Premium account subscribers will be provided with
commercial website hosting services, on top-of-the-line servers with redundant
capabilities, to maintain an online presence 24 hours a day, 7 days a week.
Hosting services will include full commerce capability, including major credit
card and eCharge services, for secure online transactions, driving traffic to
the site, and a variety of other commerce-related services, such as sourcing and
fulfillment.
WHOLESALE SUPPLY OF PRODUCTS. As part of our ready-to-use e-commerce
business services, we intend to offer subscribers sourcing services to provide
them with the products they are marketing at wholesale prices and on a
just-in-time basis, eliminating the need for warehousing. Through negotiating
with vendors, we will be able to provide
subscribers with the convenience of access to a group of reputable, quality
suppliers identified as appropriate to their business, and the ability to source
products at wholesale and discounted price levels normally reserved for large
commercial enterprises. These services will be on an optional per transaction,
or contract volume basis. We benefit by receiving a pre-negotiated
commission/transaction fee from the wholesale vendor for each sale.
CREDIT CARD AND ECHARGE PROCESSING. We have entered into a merchant
services agreement with eCharge, a financial transaction company specializing in
Internet billing and collections. Under the agreement, we act as an agent
for eCharge in the sale of their innovative billing system to end users. We
have developed a modified version of their billing system that can be
offered as option functionality for end users who choose to install the
product. We will offer our premium account subscribers the ability to include
major credit card and eCharge billing services on their website, for secure
online transactions, and to simplify and concentrate billing transactions for
subscribers. Credit card services include verifying the validity of customer
card accounts, approving transactions, billing, tracking customer payments,
and passing payment amounts back to the subscriber. Customers enrolled in
eCharge programs can have their purchases charged to their telephone bills, with
the eCharge account servicers taking care of the account verification,
approval, billing, payment tracking, and passing payment amounts to the
subscriber. We benefit by receiving a pre-negotiated transaction fee from the
credit card or eCharge service.
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Our recent merger with Plus Net will also enhance our e-commerce ability.
Plus Net has recently launched e-commerce processing operations which is
compatible with interfaces enabling the acceptance of online credit card
transactions and the processing of these transactions with banking institutions.
The Plus Net e-commerce capabilities also support programs designed to prevent
credit card fraud.
INTERNET THE CITY CONNECTED CD ROM
It is a well-recognized truism that technology, and personal computers
particularly, are typically not used to their fullest potential. Paradoxically,
while vast arrays of information and services are already available to
proficient Internet users, prospective or neophyte users typically postpone or
limit their usage due to their lack of understanding and experience in
navigating the Internet. While it is true that 42.9% of U.S. households owned
personal computers in 1998, less than half of those households are active
Internet users. Furthermore, trends indicate that the remaining 57.1% of
households still without computers are steadily joining the ranks of computer
users and potential Internet users.
The Company's Internet training CD-ROM was born from management's
conviction that an enormous untapped opportunity to capture the novice user lies
in effectively initiating and tutoring this huge market in a one-on-one,
interactive, entertaining way. The CD-ROM, called Internet the City is a
comprehensive, interactive training tool that enables new and intermediate users
to learn about and begin using the many powerful capabilities and features of
the Internet.
The professionally produced CD-ROM features an animated cyber-cabbie --
URLtm -- who takes users wherever they wish to go. During the tour, URLtm
explains and demonstrates how features such as e-mail, chat rooms, search
engines, Web sites, etc., work and can actually connect the user to our website.
The CD-ROM, with its "front end" connection feature, is a key component of
the Company's marketing and promotions plan. The CD-ROM serves as vehicle
to drive users to our website in a manner that is far more efficient than
traditional means of advertising and promotion. We intend to explore a variety
of options for establishing co-branding and sponsorship opportunities for
promoting and distributing the CD-ROM.
We currently have an agreement with Media Technology Services to provide
CD-ROM duplication, delivery and packaging services. We have an agreement with
Fountain Technologies, which bundles the CD-ROM with computer systems from
its Quantex Microsystems and Pionex Technologies subsidiaries. Under the
one-year agreement, we receive a per copy royalty of $0.45. With our targeted
approach to distribution, we potentially allow users of specific interests to
connect to a community which addresses their interests. We have established an
agreement with Apple Computer whereby Apple bundles the CD-ROM with its K-12
curriculum bundle and as an optional upgrade to its iMac computer. We receive a
$1.00 per copy royalty under this agreement which is currently in place until
November 1999. In the future, we plan to offer the CD-ROM to numerous computer
software and hardware manufacturers, as well as other types of manufacturers,
for bundling with their respective products.
We have entered into an agreement with eBay, an online trading community,
under which we will develop a customized version of our instructional CD-ROM
product designed to familiarize end users with the services of eBay. This
product is expected to include basic Internet tutorials, a Nettaxi tour and
step-by-step interactive instructions on how to register on eBay, how to place a
bid and how to list an item for sale on the eBay site. Both companies will
finance development of the product and market and distribute it upon completion.
We will receive cash payments based on the number of new customers who use the
CD-ROM to join eBay.
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CUSTOMER ACCOUNT PLANS
We adhere to the principle that providing excellent customer service is
integral to attracting and, more importantly, retaining subscribers. To that
end, we have focused on the development of a customer service organization
keenly focused on satisfying demand and creating customer loyalty.
To provide subscribers, or "citizens," with choices that suit their
individual needs, we offer both free and premium accounts, on a tiered basis
similar to the way that cable systems do. Premium accounts are configured from
a large menu of options, to attract subscribers and address the needs and
desires of particular segments of online users.
BASIC FREE CITIZEN ACCOUNT. Like most portals, we offer a free basic
service package, the "free citizen" account, to attract a large number of
subscribers. We benefit through providing a broad variety of subscriber
Web pages and a substantial database of user profiles, which enables us to
offer large, highly targeted audiences to its advertisers, and command the
higher advertising rates that demographically segmented audience profiles
dictate.
This account offers the following package of features and services:
- - A four page Virtual Office;
- - MyNettaxi, personal start page;
- - 10 Megs of Disk Space;
- - Web Statistics - for analyzing who is coming to their site and when;
- - E-mail service for one personal e-mail account with a [email protected]
address;
- - Remind Me service, an electronic datebook;
- - Web hosting services for a free website - for personal or entrepreneurial
use -- with a /citizens/userID web address, or URL, located in the
subscriber's community of choice;
- - Child Protection Tools;
- - Special discounts on selected Nettaxi merchandise; and
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- - Access to chat sessions, message boards, and shopping, as well as premium
content such as weather, sports scores, stock quotes, services such as
travel arrangements and packages, introductions to people who share common
interests, and more.
Each account is allotted 10 megabytes of storage space for use. Subscribers are
provided with free, easy-to-use software for designing and building their web
page, tips and techniques for making their Web sites attractive and exciting to
visit, and our search engine to drive traffic to their website.
PREMIUM ACCOUNTS. Our premium accounts are especially attractive to
entrepreneurs who would like to establish an e-commerce storefront on a
ready-to-use basis. Citizens can build premium accounts from a menu of options,
allowing them the ability to pick and choose which items they are interested in.
Option can be added for additional fees. In addition to the services which are
provided to free service account subscribers, premium account holders are
provided with the following options:
- - Nettaxi Virtual Office, which allows users to build and maintain their own
virtual office, including their own message boards, chat rooms, calendar
and task manager, address book, etc. Users can build their virtual office
through and easy-to-use Web-based interface;
- - E-mail service for unlimited e-mail accounts, each with a distinct
@nettaxi.com address or your own domain and customized look and feel;
- - Commerce capability, including major credit card and eCharge services, for
secure online transactions;
- - Access to Nettaxi-sponsored advertising and banner ads, and other
cross-promotion opportunities;
- - Unique Domain name;
- - Disk space for Web page hosting;
- - Web Statistics for analyzing who is coming to their site and when; and
Subscribers are provided with professional website services for the initial Web
site's design and launch, to showcase the products and/or services in an
effective manner, as well as free, easy-to-use software for updating the site at
any time. In addition, subscribers are provided with special tips and
techniques for making their Web sites attractive and exciting to visit, as well
as mechanisms to drive traffic to their website, including our search engine and
strategically placed, highly visible links to the site from other desirable web
locations. Subscribers wishing to have their own domain are charged a one-time
fee to register the domain with InterNIC for a two-year period.
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CUSTOMER ASSISTANCE
To maintain Nettaxi.com as a portal that truly serves its subscribers and
reflects their interests and needs, we invite and encourage subscribers and
visitors to send in their comments and suggestions. We track visitor and
subscriber activities, and carefully monitor the nature and content of their
comments, as part of our strategy for continuing product refinement and
development.
Regardless of the type of account selected, subscribers have access to free
online help at any time by simply clicking on our Help icon and by visiting the
Message Boards, where they can review information posted by other subscribers,
or post a query of their own. Subscribers can also find information on billing
matters, special promotions, upcoming events, etc., quickly and easily on the
Nettaxi.com home page.
If they are unable to find what they are looking for, or if the information
they find is confusing, subscribers can send in queries, to which we will
actively and promptly respond with appropriate information or guidance. We are
also currently in the process of establishing and deploying
subscriber-to-subscriber support services, which are provided by online
volunteers in exchange for free account upgrades or other premiums.
ADVERTISING
ADVERTISING SALES AND DESIGN
We seek to distinguish ourselves from our competition through the creation
of advertising and sponsorship opportunities that are designed to build brand
loyalty for our corporate sponsors by seamlessly integrating their advertising
messages into our content. Through our close relationship with our subscribers,
we have the ability to deliver advertising to specific targets within our site's
theme content areas, allowing advertisers to single out and effectively deliver
their messages to their respective target audiences. For example, an advertiser
can target its message solely to women with an interest in recreation and
sports. We believe that such sophisticated targeting is a critical element for
capturing worldwide advertising budgets for the Internet. Additionally, we
intend to expand the amount and type of demographic information our site
collects from our members, which will allow us to offer more specific data to
our advertising clients.
We intend to build a direct sales organization of professionals dedicated
to maintaining close relationships with advertisers and advertising agencies
nationwide. We also intend to enter into arrangements with a number of
third-party advertising sales representatives pursuant to short-term agreements
that in general may be terminated by either party, without notice or penalty.
The sales organization would consult regularly with advertisers and agencies on
design and placement of their Web-based advertising, provide customers with
advertising measurement analysis and focus on providing a high level of customer
service and satisfaction.
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Currently, advertisers and advertising agencies enter into short-term
agreements, on average one to two months, pursuant to which they receive a
guaranteed number of impressions for a fixed fee. Advertising on our site
currently consists primarily of banner-style advertisements that are prominently
displayed at the top of pages on a rotating basis throughout our online
community, including members' personal Web sites. From each banner
advertisement, viewers can hyperlink directly to the advertiser's own website,
thus providing the advertiser an opportunity to directly interact with an
interested customer. Our standard cost per thousand impressions depends upon
a number of factors including the location of the advertisement, its size and
the extent to which it is targeted for a particular audience. Discounts from
standard cost per thousand impressions rates may be provided for higher volume,
longer-term advertising contracts.
We intend to increase our advertising revenues by focusing on a number of
key strategies, including expanding our advertising customer base, increasing
the cost per thousand impressions charged to advertisers by continuing to
improve our ability to target advertisements to demographically distinct
groups, increasing page views, increasing the average size and length of our
advertising contracts, increasing the number of our direct sales
representatives, and continuing to invest in improving advertising serving and
advertising targeting technology.
We also intend to offer special sponsorship and promotional advertising
programs, including contests, sampling and couponing opportunities to build
brand awareness, generate leads and drive traffic to an advertiser's site. We
also intend to sell sponsorships of special interest pages where topically
focused content is aggregated on a permanent area within a neighborhood.
ADVERTISING CUSTOMERS
Recently we have begun to successfully attract both mass market consumer
product companies as well as technology-related businesses advertising on the
Internet. Due to our advantages as a community Web site, we believe that we are
well positioned to capture a portion of the growing number of consumer product
and service companies seeking to advertise online. The following is a
representative list of companies in various industries that have advertised on
our site:
Intel eBay Biz Travel
Auto Connect INS Web NextCard
Prodigy Free Shop Big Star
Ynot Tu Cows Bell South
Hot100 Garden.com
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We do not contract directly with the companies listed above for advertising
space. Rather, we have agreements with several advertising agencies which deal
directly with us and with these companies. For the first three months ended
March 31, 1999 and for the year ended December 31, 1998, advertising revenues
represented 71% and 69%, respectively, of our net revenues. Four advertising
agencies, @dventure, Pioneer Technologies, FlyCast Communications, and Unique
Media Services, accounted for 28%, 13%, 12% and 21%, respectively, of our net
revenues during the year ended December 31, 1998. We entered into our agreement
with FlyCast Communications in June, 1998. The agreement can be terminated by
either party upon 30 days notice. Under the agreement we receive 60% of revenues
generated from the sale of advertising on our Web site. Under our one year
agreement with Unique Media Services, we receive 65% of revenues generated from
the sale of advertising on our Web site. Presently, we do not have formal
written agreements with @dventure or Pioneer Technologies.
BANNER ADVERTISING FOR SUBSCRIBERS
To help support and drive traffic to the e-commerce storefronts of our
Platinum Service account subscribers, and expand co-branding opportunities, we
intend to offer special cross-promotion opportunities, including periodic
Nettaxi-sponsored advertising and banner ads at a variety of locations
throughout our website. The banners will be of the same high quality as those
sold at premium prices to outside advertisers. Placement of the banner ads will
be determined by a variety of factors, including appropriateness of location,
opportunities for co-branding, and eventually even the activity patterns of
visitors and subscribers to our website.
We intend to implement special software on our website in the immediate
future. The software allows us to track a user surfing through the overall
website, follow the user's patterns of activity, present ads that are targeted
and relevant to the user's interests, and recommend particular products or
services, based on the user's activity profile.
In addition, the software will be able to track the particular banner and
other advertising to which the user has been exposed while visiting our site.
This will provide us with a record of the number and type of advertisement views
accessed by users over a specified period of time, useful for determining rates
for outside advertisers wishing to have a presence on our website. It will
also provide us with the opportunity to rotate the particular ads it presents
to a user to keep the ads "fresh" and appropriate in context. Eventually, we
hopes to expand our activity tracking functions to include serving content to
users based on their preferences. The result will be content that is customized
for a user, automatically and seamlessly.
We have also licensed advertisement management software from Accipiter
Technology, and written some custom code to extend the software's
capabilities. The software tracks how many ads are served on the website, which
areas and which pages to which they were served, and how many people have
"clicked" on them. The software allows us to manage its advertisement selection
and placement by providing an accurate advertisement count on both a real-time
and a compiled-over-a-specified-time basis, information crucial to billing an
advertiser. The software also provides advertisers with the ability to audit
their advertisement performance on our website on a real-time basis. We provide
a user ID and password to the advertiser, who can then come onto the website
and track their ads at any time.
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MARKETING AND PROMOTION
During its early stages, our direct sales program has been managed by our
executive management and implemented at the regional level by independent sales
representatives. As we broaden our marketing activities, we plan to expand our
sales and marketing organization to accommodate such increased activities. We
intend to recruit a Vice President of Marketing to manage our overall sales and
marketing efforts, and will also be looking to hire Regional Marketing Managers
to assume responsibility for generating the projected banner advertising sales
revenue in their respective regional markets. Among other things, Regional
Marketing Managers will oversee the activities of independent sales
representative organizations, promote our website as a successful advertising
medium to media companies and advertising agencies in their respective regions,
and close and manage key account customers in the region.
We intend to support our internal sales efforts with a combination of
in-house and independent sales representatives. In early 1999, we appointed The
Adsmart Network, a majority-owned subsidiary of CMGI, Inc. Under the agreement,
Adsmart utilizes Nettaxi's advertising inventory to provide publishers with a
full advertising sales solution. In addition, Adsmart Sponsorships complements
the site-specific sales divisions by developing unique, customized
beyond-the-banner advertising methods that help advertisers build brand
awareness and qualified site traffic. We also have entered into a similar
agreement with Flycast Communications and intend to continue expanding our
advertising reach.
We have also entered into an agreement with assistance from independent
sales representatives. In late 1998, we appointed Cybereps and Unique Media
Services, both are ready-to-use advertising sales and marketing organizations,
as our independent sales representatives. Both organizations specialize in
representing a number of Web sites and other Internet-related properties and
will provide us with assistance in developing and marketing our banner
advertising sales program. In addition, Cybereps is providing us with a
dedicated sales representative to create customized advertising and marketing
campaigns that are designed not only to increase advertising revenues, but to
ultimately create a branded image. Our agreement with Cybereps and Unique Media
Services enables us to continue our arrangements with other firms that
specialize in bundling various web properties based on category, for
co-marketing and promotional programs.
We will continue to seek formal strategic marketing alliances with major
national or international companies that already have widespread distribution or
coverage within our target markets, which include the consumer marketplace and
corporate advertisers.
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Our marketing and promotion strategy will also include aggressive
advertising and promotional programs on a targeted, national scale, and will
stage these programs as capacity is increased to handle user traffic. Specific
components of our ongoing advertising, promotional and public relations
activities will include direct mail, trade print media advertising, and trade
show participation.
LINKING AGREEMENTS. We are continuously looking for opportunities to
connect our website through links with other sites in a way that will increase
the number of visitors to, and potential new subscribers for, our community. We
have entered into a linking and promotion agreement with PI Graphix, which
provides e-commerce systems and related information services on its own website.
Under the agreement, our Web sites are linked and we work with PI Graphix to
develop methods of increasing cross traffic between the sites. Our agreement
with PI Graphix permits us to allow end users to post three-dimensional
descriptions of the products they wish to sell on our website.
ADVERTISING PROGRAMS. We plan to invest in online advertising to drive
traffic to our site by placing advertisements on selected high volume sites, as
well as purchasing targeted keywords on several popular search engines such as
Yahoo!, Excite, Lycos, Infoseek and others. We also plan to advertise in
traditional media such as print, radio and broadcast, on a selective, highly
targeted basis, to increase the awareness of our site.
PUBLIC RELATIONS SUPPORT. By virtue of its broad appeal and
"entrepreneurial" focus, we anticipate that a targeted public relations campaign
will yield material results in building both national and targeted local and
regional awareness for Nettaxi. We recently appointed The Benjamin Group to
assist us in crafting our image and positioning in the marketplace, and to
develop and execute periodic public relations campaigns in coordination with the
introduction of our new products, services, and technologies. The Benjamin
Group has extensive experience in successfully launching Internet-related
products and services, and will assist us not only by providing public relations
services, but also by providing guidance on both strategic communications and
tactical implementation issues.
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TRADE PUBLICATIONS. An effective and extreme inexpensive method of
bolstering awareness of the Nettaxi brand is editorial inclusion in trade
publications that target the various industry groups with which we seek to do
business. We believe that several factors make us a prime candidate for
editorial coverage in trade publications for the Internet industry, as well as
the general media. They include:
- - Our integration of online community with premium content and ready-to-use
e-commerce services;
- - Our "entrepreneurial" focus; and
- - The growth of traffic to our online community website.
Through our focused public relations efforts, we will seek out high-impact
editors and reporters at publications that serve the Internet industry. We will
also seek to place articles and columns written by our staff and management in
various publications. This will serve to enhance our credibility and establish
and promote our management and staff as experts.
OPERATIONS AND INFRASTRUCTURE
ADMINISTRATIVE OPERATIONS
To provide its subscribers with the most efficient, flexible, and
innovative services possible, our administrative operations combine in-house and
outsourced services and functions. Our strategy is to keep our in-house staff
small, with a focus on core competencies in technical and research and
development areas, and to outsource other functions and projects on an
as-needed basis.
Internal functions currently include account management, traffic
management, website service updates, and other network functions that rely on
UNIX shell scripts; the continued development and updating of the Internet the
City CD-ROM to add to its capabilities and increase co-branding opportunities;
and establishing and managing relationships with premium content providers,
product vendors, and other appropriate parties. We intend to further develop
our in-house production facilities to support the development of original
content, including interactive content for our site and specialty content for
our advertisers.
Outsourced functions include providing and maintaining network hardware and
Internet connections, providing premium content for our site and providing
subscribers with selected e-commerce business services, including credit card
and eCharge billing services, and managing an extensive product database and
tracking its related customer activities.
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INFRASTRUCTURE & SYSTEMS
The development of an infrastructure with an Internet-centered network and
database system that allows us to serve information and facilitate e-commerce
transactions on behalf of our subscribers' Web sites is integral to the
implementation of our web community and ready-to-use e-commerce storefront
concept. to accommodate the substantial transaction volume that we anticipate as
we build our online community of subscribers, or "citizens", vendors, and
information. At this time, the basic components of our technology
infrastructure are substantially in place and operational.
Our UNIX-based electronic network for Nettaxi.com operates on a 100 Mbps
Ethernet backbone, with two Cisco Systems Ethernet switches that prevent
collisions on the network. Traffic direction for the web servers is handled by
Cisco's LocalDirector software, which tracks server load conditions in real time
and sends traffic to the most appropriate server to spread around and balance
the load. The network is comprised primarily of Sun Microsystems high-capacity
servers, and include a mix of Enterprise, Ultra 1, Ultra 5, and SPARC 20
models, all running the newest version of Sun's Solaris operating environment
for network systems. These servers collectively provide approximately 90
Gigabytes of hard drive space for subscriber capacities.
In addition, the network currently includes NT servers to handle
registration and selected other database functions, using Microsoft's SQL
database software. However, we have embarked on an ambitious program to shift
our database functions over to a 3-tier database connectivity architecture that
relies heavily on Web Objects technology - database connectivity software
licensed from Apple Computer--to provide more robust and easier-to-use
capabilities for subscription registration, browsing through our communities,
and subscriber personalization of web pages, and to allow us to track and
extract user profile and activity data more easily and in more detail.
SERVER MAINTENANCE
Our electronic network is located both at our facility and at the Exodus
Communications Internet Data Center in Santa Clara, California. Exodus
Communications is a provider of server hosting and provides our web site with
its connection to the World Wide Web. Exodus operates Internet Data Centers in
several US locations, as well as in London, and includes several major Internet
companies among its clients.
Through its network co-location agreement with Exodus, we are provided with
a secure location for its network servers, multiple high-speed Internet
connections, and access to 24-hour-a-day, 7-day-a-week technical support
personnel and services. Exodus also provides critically important routing,
redundancy, and maintenance services for the network and its Internet
connections, as well as a back-up power supply capable of continuing network
operations for up to a week in the event of a power failure.
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COMPETITION
The markets in which we are engaged are new, rapidly evolving and intensely
competitive, and we expect competition to intensify further in the future.
Barriers to entry are relatively low, and current and new competitors can launch
new sites at a relatively low cost using commercially-available software. We
currently or potentially compete with a number of other companies for users,
advertisers and electronic commerce marketers, including a number of large
online communities and services that have expertise in developing online
commerce, and a number of other small services, including those that serve
specialty markets.
Other companies that are primarily focused on creating Internet online
communities include Tripod and AngelFire, subsidiaries of Lycos; GeoCities which
has been acquired by Yahoo, theGlobe.com, Xoom.com and Alloy Online and, in the
future, Internet communities may be developed or acquired by companies
currently operating Web directories, search engines, shareware archives,
content sites, Internet Service Providers and other entities, which may have
more resources than ours.
In addition, we currently and in the future face competition from
traditional media companies, a number of which, including Disney, CBS, CNN/Time
Warner and NBC, have recently made significant acquisitions or investments in
Internet companies.
Furthermore, we compete for users and advertisers with other content
providers and with thousands of Web sites operated by individuals, the
government and educational institutions. Such providers and sites include AOL,
Angelfire, CNET, CNN/Time Warner, Excite, Hotmail, Infoseek, Lycos,
Microsoft, Netscape, Switchboard, Xoom, ESPN.com and ZDNet.com and Yahoo!
We believe that the following are the principal competitive factors for
companies seeking to create online communities on the Internet:
- - community cohesion and interaction;
- - customer service;
- - brand recognition;
- - Web site convenience and accessibility;
- - price;
- - quality of search tools; and
- - system reliability.
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Once our e-commerce functions become fully operational, we will also be
competing with companies in the online commerce market. This market is new,
rapidly evolving and intensely competitive. Current and new competitors can
launch new Web sites at relatively low cost. The products and services that
might be offered through our site will compete with other retailers and direct
marketers, some of which may specifically target our potential customers. We
anticipate that we will compete with various mail-order and Web-based retailers;
various traditional retailers, either in their physical or online stores;
various online service providers that offers products of interest to our
potential customers, including AOL, Microsoft, and other providers mentioned
above; and e-commerce Web sites, such as Amazon.com, Etoys and CDnow.
We believe that the following are the principal competitive factors in the
online commerce market:
- - brand recognition;
- - quality of site content;
- - merchandise selection;
- - convenience;
- - price;
- - customer service; and
- - reliability and speed of fulfillment.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition in other business
and Internet markets and significantly greater financial, marketing,
technical and other resources than us. In addition, other online services
may be acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. Therefore, our competitors
with other revenue sources may be able to devote greater resources to
marketing and promotional campaigns, adopt more aggressive pricing policies and
devote substantially more resources to Web site and systems development than us
or may try to attract traffic by offering services for free. Increased
competition may result in reduced operating margins, loss of market share and
diminished value of our brand.
A key factor that sets us apart from other portals is our ability to
offer subscribers of ready-to-use e-commerce capabilities, including full
hosting of a subscriber's domain, e-commerce storefront building, and
fulfillment and billing services. However, there can be no assurance that we
will be able to compete successfully against other e-commerce providers who may
develop similar services. Further, as a strategic response to changes in the
competitive environment, we may, from time to time, make pricing, service or
marketing decisions or acquisitions that could have a material adverse effect
on our business, results of operations and financial condition. New
technologies and the expansion of existing technologies may increase the
competitive pressures on us by enabling our competitors to offer a lower-cost
service. Certain Web-based applications that direct Internet traffic to certain
Web sites may channel users to services that compete with us. Any and all of
these events could have a material adverse effect on our business, results of
operations and financial condition.
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INTELLECTUAL PROPERTY
We currently have pending applications before the United States Patent and
Trademark Office for trademark and service mark protection for "Nettaxi", as a
brand name for our website, "Internet the City", the Company's CD-ROM training
product, "URL", the Company's animated guide character, and the Nettaxi
"taxicab". If these applications are approved, protection will be available for
the periods prescribed by law.
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have entered into confidentiality and invention
assignment agreements with our employees and contractors, and nondisclosure
agreements with our suppliers in order to limit access to and disclosure of
our proprietary information. There can be no assurance that these contractual
arrangements or the other steps taken by us to protect our intellectual property
will prove sufficient to prevent misappropriation of our technology or to
deter independent third-party development of similar technologies. While
we intend to pursue registration of our trademarks and service marks in
the U.S. and internationally, effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which our
services are made available online.
We also rely on technologies that we license from third parties, such as
the suppliers of key database technology, the operating system and specific
hardware components for our products and services. These licenses extend for
terms ranging from one year to perpetuity and are subject to satisfaction of
conditions laid out in the specific licensing agreements. There can be no
assurance that these third-party technology licenses will continue to be
available to us on commercially reasonable terms. The loss of such technology
could require us to obtain substitute technology of lower quality or performance
standards or at greater cost, which could materially adversely affect our
business, results of operations and financial condition.
Although we do not believe that we infringe the proprietary rights of third
parties, there can be no assurance that third parties will not claim
infringement by us with respect to past, current or future technologies. We
expect that participants in our markets will be increasingly subject to
infringement claims as the number of services and competitors in our industry
segment grows. Any such claim, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service upgrade delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements might not be available on terms acceptable to us or at all.
As a result, any such claim could have a material adverse effect upon our
business, results of operations and financial condition.
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<PAGE>
GOVERNMENT REGULATION
Our company, operations and products and services are all subject to
regulations set forth by various federal, state and local regulatory agencies.
We take measures to ensure our compliance with all such regulations as
promulgated by these agencies from time to time. The Federal Communications
Commission sets standards and regulations regarding communications and related
equipment.
There are currently few laws and regulations directly applicable to the
Internet. It is possible that a number of laws and regulations may be adopted
with respect to the Internet covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality of
products and services. The growth of the market for online commerce may prompt
calls for more stringent consumer protection laws that may impose additional
burdens on those companies conducting business online. Tax authorities in a
number of states are currently reviewing the appropriate tax treatment of
companies engaged in online commerce, and new state tax regulations may subject
us to additional state sales and income taxes.
Several states have also proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws or the passage of new laws intended to address these
issues, including some recently proposed changes, could create uncertainty in
the marketplace that could reduce demand for our products and services or
increase the cost of doing business as a result of litigation costs or increased
service delivery costs, or could in some other manner have a material adverse
effect on our business, results of operations and financial condition. In
addition, because our services are accessible worldwide and we facilitate sales
of goods to users worldwide, other jurisdictions may claim that we are required
to qualify to do business as a foreign corporation in a particular state or
foreign country. Our failure to qualify as a foreign corporation in a
jurisdiction where it is required to do so could subject us to taxes and
penalties for the failure to qualify and could result in our inability to
enforce contracts in such jurisdictions. Any such new legislation or regulation,
or the application of laws or regulations from jurisdictions whose laws do not
currently apply to our business, could have a material adverse effect on our
business, results of operations and financial condition.
LEGAL PROCEEDINGS
After our public announcement of the filing of this registration statement
and our application for listing on the NASDAQ National Market System, four
disaffected shareholders in Simply Interactive, Inc., led by Ronald Ventre,
filed suit in the Santa Clara County Superior Court on July 9, 1999, naming
Warren J. Kaplan, the former Chief Executive Officer of Simply Interactive and
current Chief Operating Officer of AboveNet Communications, Inc., Frank McGrath,
Vice President of MCI WorldCom, Bruno Henry, former officer of Simply
Interactive, Alan K. Fetzer, former officer of Simply Interactive, Robert
Divenere Robert A. Rositano, Sr., Robert A. Rositano, Jr., Dean Rositano, Glenn
Goelz, Nettaxi, Inc., Nettaxi Online Communities, Inc., SSN Properties, LLC and
others as defendants.
The complaint filed by the Ventre group contains the following essential
allegations against Nettaxi: First, the suit claims that Nettaxi owed and
breached fiduciary duties to the Ventre group prior to Nettaxi's existence.
Second, the Ventre group claims that Nettaxi, prior to its existence, interfered
with the group's prospective economic advantage. The Ventre group's claims
against the other defendants, while not clear, include claims of ineffective
management, waste of assets and similar claims.
In August 1997, SSN Properties, LLC, in pursuing the collection of its
secured loan in the approximate amount of $5.5 million, foreclosed following
default upon the assets of Simply Interactive. As described elsewhere in this
registration statement, in October 1997, Nettaxi Online Communities, Inc.
purchased certain assets from SSN Properties including the original Internet the
City CD-ROM product, domain name and furniture fixtures and equipment plus other
assets which have since been abandoned. The assets acquired by Nettaxi Online
Communities from SSN Properties, LLC represented less than 50% of the value of
the foreclosed assets.
Ventre's group has demanded that our principal shareholders give to them
$2.08 million in Nettaxi shares. The Ventre group's original investment in
Simply Interactive was approximately $675,000.
We believe that the claim is without merit and we will vigorously defend
the litigation. In its agreement with us, SSN Properties agreed to indemnify
Nettaxi. Nettaxi is currently seeking a defense and confirmation of the
indemnity obligation from SSN Properties.
GeoCities has made a written demand that we cease and desist in our use of
the marks WALLSTREET and CAPITOL HILL in connection with our services claiming
that our use infringes upon GeoCities' trademark rights. GeoCities has applied
for Federal registration of the marks. To resolve this matter, we filed a
complaint against GeoCities in April 1999 in the United States District Court
for the Northern District of California seeking declaratory relief that our use
of the marks does not infringe upon the rights of GeoCities. We believe that we
have rights to use the marks and intend to protect our rights to do so. We
cannot assure you, however, that the results of the litigation will be favorable
to us.
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<PAGE>
EMPLOYEES
As of June 30, 1999, we had 27 employees, including:
- - 2 in customer support;
- - 6 in product development;
- - 14 in sales, marketing and business development; and
- - 5 in administration.
We believe that our future success will depend in part on our continued
ability to attract, integrate, retain and motivate highly qualified technical
and managerial personnel, and upon the continued service of our senior
management and key technical personnel. The competition for qualified personnel
in our industry and geographical location is intense, and there can be no
assurance that we will be successful in attracting, integrating, retaining and
motivating a sufficient number of qualified personnel to conduct our business in
the future. From time to time, we also engage independent contractors to support
our research and development, marketing, sales and support and administrative
organizations. We have never had a work stoppage, and no employees are
represented under collective bargaining agreements. We consider our relations
with our employees to be good.
FACILITIES
Our headquarters are currently located in a leased facility in Campbell,
California, consisting of approximately 8,600 square feet of office space to
accommodate management, operations, and research and development functions,
which is under a lease that expires in April 2002. We also lease 580 square
feet of office space in Las Vegas, Nevada which we use for general
administrative purposes. This lease was entered into on May 27, 1999 and has a
one year term and we have an option to renew it for an additional two years. We
believe that our current facilities are adequate for our present needs.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our directors, executive officers and other key employees, and their ages,
as of July 13, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert A. Rositano, Jr.(1) 30 Chief Executive Officer, Secretary and Director
- -------------------------- --- -----------------------------------------------------
Dean Rositano(1) 27 President and Director
- -------------------------- --- -----------------------------------------------------
Glenn Goelz 42 Vice President, Chief Financial Officer and Treasurer
- -------------------------- --- -----------------------------------------------------
Melanie McCarthy 44 Vice President of E-Commerce
- -------------------------- --- -----------------------------------------------------
Brian Stroh 29 Vice President of Information Services
- -------------------------- --- -----------------------------------------------------
Andrew Garroni (2) (3) 44 Director
- -------------------------- --- -----------------------------------------------------
Ron R. Goldie 48 Director
- -------------------------- --- -----------------------------------------------------
Roger Thornton (2) (3) 34 Director
- -------------------------- --- -----------------------------------------------------
Steven S. Antebi 55 Director
- -------------------------- --- -----------------------------------------------------
<FN>
(1) Robert A. Rositano, Jr. and Dean Rositano are brothers.
(2) Member of Compensation Committee
(3) Member of Audit Committee
</TABLE>
Each director holds his office until the next annual meeting on the
stockholders and until his successor is elected and qualified. Executive
officers are appointed by and serve at the pleasure of our board of directors.
Robert A. Rositano, Jr. Mr. Rositano Jr. co-founded Nettaxi Online
Communities, Inc., a Delaware corporation , in October, 1997. He has served
as Chief Executive Officer and Secretary of Nettaxi since the reorganization
with Swan Valley and prior to that served in the same capacities with Nettaxi
Online Communities from its inception. He has over seven years of experience
in the internet service provider and Internet industry. In February 1995, he
co-founded Simply Interactive, Inc. , an Internet/intranet software company,
and served as Executive Vice President in the areas of Inside Sales, Customer
Service and Product Development until he co-founded Nettaxi Online
Communities. In January 1994, he co-founded Digital Data Express, a company
focused on beginner level Internet users, and served as Chief Executive Officer
until February 1995 when Digital Data Express was acquired by Simply
Interactive. From 1992 to 1994, Mr. Rositano was hired on as the third employee
at Netcom On-line Communications in 1992 and served as a senior sales and
account manager until 1993.
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<PAGE>
Dean Rositano. Mr. Rositano co-founded Nettaxi Online Communities in
October, 1997. He has served as President of Nettaxi since the reorganization
with Swan Valley and prior to that served in the same capacities with Nettaxi
Online Communities. He has over seven years of experience in the ISP and
Internet industry. In February 1995, he co-founded Simply Interactive, Inc.
("Simply Interactive"), an Internet/intranet software company, and served as
Vice President of Technology until he co-founded Nettaxi Online Communities.
While at Simply Interactive, he assembled a digital production studio and
produced the Internet the City CD-ROM in a three month time frame on three
platforms, Windows 3.1, Windows 95, and Macintosh. In January 1994, he
co-founded Digital Data Express and served as President and Chief Executive
Officer until February 1995 when Digital Data Express was acquired by Simply
Interactive. At Digital Data Express, Mr. Rositano co-produced and directed the
world's first Internet training video "Introduction to the Internet."
Glenn Goelz. Mr. Goelz was appointed Vice President, Chief Financial
Officer and Treasurer in April, 1999. He has 19 years of broad financial
experience across several high technology fields. Prior to joining Nettaxi, he
was a principal of his own consulting firm specializing in strategic business
and financial consulting to multinational firms and Internet start-up companies.
From August 1997 to January, 1999 Mr. Goelz served as the Vice President of
Finance and Operations for Pictra, Inc., a photo e-commerce start-up company.
From April 1996 to July 1997, he served in various capacities with Simply
Interactive, including Vice-President-Controller and Chief Financial Officer.
From April of 1995 to April 1996, Mr. Goelz served as the Worldwide Controller
at Logitech, Inc., a worldwide provider of computer mice and senseware. Prior to
this, Mr. Goelz served as the Corporate Controller at Auspex Systems, Inc. a
provider of high performance data servers from 1993 to 1995. Mr. Goelz earned
his Bachelor's degree in Business and Economics, with a concentration in
accounting, from Lehigh University.
Melanie McCarthy. Ms. McCarthy was appointed Vice President of E-Commerce
in March, 1999. During her 22-year career, she has defined and implemented the
e-commerce strategies of several organizations. During its 1997-1998 term Ms.
McCarthy served as Chairperson for the Marketing Council of the Association of
Interactive Media in Washington, D.C. and sat on the Capital Hill Internet
Advisory Board. In 1997 she founded Product Partners, Inc., an online retail
company, and served as Chief Executive Officer until January 1999. From 1992 to
1996, Ms. McCarthy served as Vice President of Home Shopping Network's first
interactive effort, HSN Interactive, and negotiated the inclusion of HSN
Interactive on Compuserve, Prodigy, AOL and MSN. She recently served as
chairperson for the Interactive Marketing Council of the Association for
Interactive Media in Washington, D.C., and sat on the Capitol Hill Internet
Advisory Board. Ms. McCarthy earned her Bachelor's degree in Science from the
University of Maryland, and has completed course work toward a graduate degree
in Computer Science at the University of Texas.
Brian Stroh. Mr. Stroh was appointed Vice President of Information
Services in October, 1997. He has close to four years of experience in the
internet service provider and Internet industry. From December 1995 to June
1996 he was head of Customer Service of a customer service, inside sales
department which grew to eight employees. He assisted in the development of a
robust call center and customer database. He also served in a managerial
role, assisting in the development of the second edition to Ques Mega Web
Directory. Mr. Stroh earned his Bachelor's degree from the University of
Colorado at Boulder.
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<PAGE>
Andrew Garroni. Mr. Garroni has served as a director since completion of
our merger with Plus Net in May 1999. Under the terms of our merger agreement
with Plus Net, Mr. Garroni was appointed as a member of the board of directors.
Mr. Garroni has over 20 years experience in the development and management of
start-up entertainment companies. He currently serves as Executive Producer of
Showtime's movie series "Naked City," a position he has held since January,
1998. From 1990 to September, 1998 he served as President of Axis Films
International, Inc. supplying films to cable television networks such as Home
Box Office, Showtime Networks and DBS providers like Direct TV. He began his
career in New York as a principal partner in the motion picture Production
Company Cinerex Associates, Inc. whose clients included Twentieth Century Fox
and Orion Pictures. While in New York, he helped create Magnum Motion Pictures
and Magnum Entertainment. Mr. Garroni has a Bachelor's degree in Marketing from
Fairleigh Dickinson University.
Ron R. Goldie. Mr. Goldie has served as a director since completion of our
merger with Plus Net in May 1999. Under the terms of our merger agreement with
Plus Net, Mr. Goldie was appointed as a member of the board of directors. From
March 1990 to December 1995 he was a senior partner at the law firm of Jeffer,
Mangels, Butler and Marmaro. From March 1996 to February 1997 he was a senior
partner at Coudert Brothers. From February 1997 to March 1998 he was a senior
partner at Stroock and Lavan. In March, 1999 he became a senior member of the
corporate department of Mitchell Silberberg and Knupp, a ninety year old Los
Angeles based law firm. Mr. Goldie specializes in business planning and
transactions ranging from local to international matters. The practice includes
a range from mergers and acquisitions, securities practice, secured and asset
based lending transactions, advising regarding structure and development and
general and corporate business matters. Mr. Goldie Received his Bachelor's
degree and Law degree from the University of Southern California, and was
admitted to the California Bar in 1975.
Roger Thornton. Mr. Thornton has served as a director since March, 1999. He
has ten years of industry experience and has served as the Principal Consultant
and Capital Fund Partner for Media Lane Development Group, a Silicon Valley
based technology firm focused on the e-commerce marketplace since October, 1996.
As one of that firm's founding members, he consults on business strategy, system
architecture and engineering management for numerous Internet companies. Mr.
Thornton was a Product Manager with Apple Computer from February 1993 to
December 1995. He served as Marketing Development Manager for Sun Micro Systems
from December 1995 to November 1996. Mr. Thornton has designed and implemented
several of the earliest commercially deployed Web-based applications for such
companies and institutions as E*TRADE, Music Blvd., Stanford University,
InfoWorld Magazine, Bay Networks, Knight Ridder and Intellimatch. Previously he
has held engineering and marketing management positions in several technology
firms, including CenterLine Software Inc., Taligent Inc., an Apple Computer/IBM
joint venture, and JavaSoft, A Sun Microsystems company. Mr. Thornton received
his Bachelor's degree in Engineering and Master's degree in Engineering from San
Jose State University in 1988 and 1993, respectively.
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<PAGE>
Steven S. Antebi. Mr. Antebi has served as a director since May, 1999.
Since 1998, Mr. Antebi has been the Manager of Fontenelle LLC, a personal
holding company specializing in telecommunications and Internet investments.
Since 1994, he has also been the general partner of Maple Partners, a California
partnership with investments in equities. Since 1992, he has been the managing
partner of JLA Partners, a venture capital partnership specializing in late
stage development companies. Mr. Antebi is also President and Chairman of the
board of directors of Novante Communications, a Nevada corporation which invests
in debt and equity marketable securities. From March 1973 through June 1991, Mr.
Antebi was employed by Bear Stearns & Co. Inc., and from 1986 through 1991,
served as a Managing Director. From 1991 to 1993, Mr. Antebi was employed by
Drake Capital.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
EXECUTIVE EMPLOYMENT AGREEMENTS. On August 1, 1998 Nettaxi Online
Communities, Inc. entered into executive employment agreements with Robert A.
Rositano, Jr. and Dean Rositano, and these agreements continued in effect after
the reorganization with Swan Valley Snowmobiles, Inc. Pursuant to the terms of
their individual executive employment agreements, Robert A. Rositano, Jr. is
to perform the duties Chief Executive Officer and serve as a member of the board
of directors, and Dean Rositano is to perform the duties of President and serve
as a member of the board of directors. Each executive employment agreement
provides for an annual base salary of $125,000 which may be increased by the
board of directors, in its discretion. The base salary also is to increase by
ten percent per annum, which increase shall be cumulative for each year. Under
the executive employment agreements, each executive is also eligible for
annual bonus compensation in the minimum amount of $50,000 up to a maximum
amount equal to the base salary then payable. The board of directors is to
determine the amount of the annual bonus based upon performance targets
established by the board of directors. Under the executive employment
agreements, Robert A. Rositano, Jr. and Dean Rositano each received warrants to
purchase up to 883,952 shares of the common stock of Nettaxi Online
Communities. The warrants were to vest over three years and vesting was
accelerated upon the reorganization with Swan Valley. Robert A. Rositano, Jr.
and Dean Rositano each exercised their warrants in September, 1998. They have
each been granted registration rights with respect to shares of common stock
issued upon exercise of the warrants and they have each waived any such rights
with respect to this registration statement. Each executive is eligible to
receive three weeks paid vacation for the first year of employment and four
weeks per year thereafter. They are also eligible to participate in the health,
life insurance, medical, retirement and other benefit programs which we may
offer from time to time. Each executive receives a car allowance in an amount
not to exceed $600 per month plus insurance and costs of repair and may be
reimbursed for other reasonable expenses incurred during the course of
performing their duties.
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<PAGE>
The term of the executive employment agreements is four years and they are
automatically renewed for successive periods of one year unless terminated prior
to such renewal. We may terminate either executive at any time with or without
cause. The term "cause" is defined in the executive employment agreements as:
- - conviction or plea of no contest to a felony;
- - willful gross misconduct materially injurious to Nettaxi;
- - willful and material failure to substantially perform duties other than a
failure resulting from disability;
- - violation of the agreement's covenant not to compete; or
- - disclosure of material confidential information without prior written
consent.
If and executive is terminated without cause, he is to receive severance pay
equal to:
- - the base salary for the remainder of the term;
- - minimum bonus plus any pro rata bonus in excess of the minimum bonus;
- - pre payment of all automobile allowance for the remaining period of the
term; and
- - continued coverage for life, health and disability insurance for the
remainder of the term.
The above amounts shall be due in one lump sum payment three days following the
termination of his employment without cause. If there is a "change in
control" with respect to Nettaxi, the executives may terminate their executive
employment agreements and be entitled to severance in the amount of three years
of annual benefits to be realized in accordance with the terms of the executive
employment agreements, payable in one lump sum. "Change in control" is defined
in the executive employment agreements as:
- - any change of equity such that more than 50% of the outstanding shares
of our outstanding shares are transferred to a third party;
- - debt ownership such that more than 50% of our outstanding shares are
transferred to a third party; or
- - a sale of 70% or more of our assets.
The executive employment agreements also contain covenants restricting the
disclosure of our confidential information, the solicitation of our employees or
agents and the ability of the executives to engage in competing activities with
us.
In the course of the previous year, as a result of our limited human
resources both Robert A. Rositano and Dean Rositano have performed other
responsibilities not necessarily within the scope of the definition of their
positions under the executive employment agreements.
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<PAGE>
GLENN GOELZ. As of April 1, 1999 we have entered into an Employment
Agreement with Mr. Glenn Goelz. Under the agreement, Mr. Goelz is employed as
Chief Financial Officer of the Company and is expected to perform the duties
consistent with the position including the management of the financial
operations of the Company and the hiring of personnel. Mr. Goelz receives a
base salary of $125,000 until August 1, 1999 at which time the base salary will
increase to $150,000. He is also eligible for annual bonus compensation in the
minimum amount of $50,000 up to a maximum amount equal to the base salary then
payable. The board of directors is to determine the amount of the annual bonus
based upon performance targets established by the board of directors. He also is
to receive options to purchase up to 250,000 shares of our common stock, which
vest over three years, under our 1998 Stock Option Plan. He receives three weeks
paid vacation for the first year of employment and four weeks per year
thereafter. He is also eligible to participate in the health and other benefit
programs which we may offer from time to time.
The term of Mr. Goelz's agreement is three years and automatically renews
for successive periods of one year unless terminated prior to such renewal. We
may terminate him at any time with or without cause. The term "cause" is
defined in the executive employment agreements as:
- - conviction or plea of no contest to a felony;
- - willful gross misconduct materially injurious to Nettaxi;
- - willful and material failure to substantially perform duties other than a
failure resulting from disability; or
- - disclosure of material confidential information without prior written
consent.
Mr. Goelz is eligible to receive severance pay if he is terminated without cause
or if the Company experiences a change in control and he elects to terminate the
agreement. The severance payment would be:
- - the base salary for the remainder of the term;
- - minimum bonus plus any pro rata bonus in excess of the minimum bonus; and
- - continued coverage for health and other benefits for the remainder of the
term.
Additionally, the vesting of all options to purchase common stock of the Company
would be accelerated immediately. The severance payment would be due in one
lump sum three days following the termination of his employment. "Change in
control" is defined in the employment agreement as:
- - any change of equity such that more than 50% of the outstanding shares
of our outstanding shares are transferred to a third party;
- - debt ownership such that more than 50% of our outstanding shares are
transferred to a third party; or
- - a sale of substantially all of our assets.
Mr. Goelz's employment agreements also contains covenants regarding the
assignment of inventions, restricting the disclosure of our confidential
information, the solicitation of our employees or agents and the ability of Mr.
Goelz to engage in competing activities.
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<PAGE>
BOARD COMMITTEES
The Compensation Committee of the board of directors determines the
salaries and incentive compensation of our officers and provides recommendations
for the salaries and incentive compensation of our other employees. The
compensation committee also administers our 1998 Stock Option Plan. The current
members of the Compensation Committee are Messrs. Thornton and Garroni. Prior to
May 3, 1999, we did not have a Compensation Committee or any other committee of
the board of directors that performed any similar functions.
The Audit Committee of the board of directors reviews, acts on and reports
to the board of directors with respect to various auditing and accounting
matters, including the selection of our independent auditors, the scope of the
annual audits, fees to be paid to the auditors, the performance of our
independent auditors and our accounting practices. The current members of the
audit committee are Messrs. Thornton and Garroni.
The board of directors does not have a nominating committee.
DIRECTORS' COMPENSATION
Directors who are also employees of Nettaxi receive no compensation for
serving on the board of directors. With respect to directors who are not
employees, we intend to reimburse such directors for all travel and other
expenses incurred in connection with attending meetings of the board of
directors and any committees of the board of directors. Non-employee directors
are also eligible to receive grants of non-qualified stock options under our
1998 Stock Option Plan, and we intend to establish a non-employee director stock
option plan which will provide for initial option grants of a fixed number of
shares to non-employee directors and successive annual option grants to such
non-employee directors covering an additional fixed number of shares to provide
us with an effective way to recruit and retain qualified individuals to serve as
members of the board of directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We did not have a Compensation Committee or other committee of the board of
directors performing similar functions during the fiscal years ending December
31, 1997 and 1998. Messrs. Robert A. and Dean Rositano are each officers of
Nettaxi and, as members of the board of directors, participated in deliberations
of the board of directors relating to the compensation of our executive
officers. As indicated above, the board of directors established a Compensation
Committee as of May 3, 1999.
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<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to our Chief Executive
Officer and President, collectively, the "Named Executives" during the year
ended December 31, 1998:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE(1)(2)
- --------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
- --------------------------------------------------------------------------
NUMBER OF SECURITIES
NAME AND UNDERLYING WARRANTS/
PRINCIPAL POSITION SALARY ($) BONUS ($) (4) OPTIONS (#)
- ----------------------- ----------- ------------- ---------------------
<S> <C> <C> <C>
Robert A. Rositano, Jr.
Chief Executive Officer $95,917 (3) -- 1,012,347
---------------------
Dean Rositano
President . . . . . . . $95,917 (3) -- 1,012,347
---------------------
- --------------------------------------------------------------------------
<FN>
(1) Information set forth herein includes services rendered by the Named
Executives while employed by Nettaxi Online Communities, Inc. prior to the
reorganization with Swan Valley Snowmobiles, Inc. and by Nettaxi following the
reorganization with Swan Valley. No other executive officer or employee
received compensation in excess of $100,000 during this period.
(2) The columns for "Other Annual Compensation" "Restricted Stock Awards"
"LTP Payouts" and "All Other Compensation" have been omitted because there is no
compensation required to be reported.
(3) For each Named Executive, includes $93,000 in cash compensation and
16,574 shares of common stock issued to each of the Named Executives in
February, 1998 in lieu of salary earned in 1998 having an ascribed value of
$2,198 as determined by the board of directors.
(4) Pursuant to their Executive Employment Agreements, each of the Named
Executives is eligible for annual bonus compensation in the minimum amount of
$50,000 up to a maximum amount equal to the base salary then payable. The
first bonus payment is not due until August 1999 and the amount of the bonus
earned by the Named Executives for the first bonus period, including a portion
of 1998, will not be determined until August 1999. Accordingly, no entry has
been made in the table for bonus compensation attributable to the year ended
December 31, 1998.
</TABLE>
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<PAGE>
WARRANT AND OPTION GRANTS IN LAST YEAR
The following table sets forth information concerning warrants and options
granted to the Named Executives during 1998.
<TABLE>
<CAPTION>
WARRANT AND OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998(1)
Number of % of Total
Securities Warrants/
Underlying Options Exercise Potential Realizable Value at Assumed
Warrants/ Granted to Price Per Annual Rates of Stock Price Appreciation
Options Employees Share Expiration for Option Term (7)
NAME Granted (#) (2) in 1998 (5) ($/Sh) Date(6) 0% 5% 10%
- --------- --------------- ----------- ----------- ----------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert A. 88,395(3) 3.3% $ 0.0396 3/08 $ 31,504 $ 55,657 $ 87,299
--------------- ----------- ----------- ----------- --------- -------- ---------
Rositano, 883,952 33.0% $ 0.0396 8/08 $315,040 $556,572 $872,991
--------------- ----------- ----------- ----------- --------- -------- ---------
Jr. . . . 40,000(4) 1.5% $ 0.88 10/08 $ 3,200 $ 16,928 $ 47,808
--------------- ----------- ----------- ----------- --------- -------- ---------
Dean. . . 88,395(3) 3.3% $ 0.0396 3/08 $ 31,504 $ 55,657 $ 87,299
--------------- ----------- ----------- ----------- --------- -------- ---------
Rositano 883,952 33.0% $ 0.0396 8/08 $315,040 $556,572 $872,991
--------------- ----------- ----------- ----------- --------- -------- ---------
40,000(4) 1.5% $ 0.88 10/08 $ 3,200 $ 16,928 $ 47,808
--------------- ----------- ----------- ----------- --------- -------- ---------
<FN>
(1) No SARs were granted to either of the Named Executives during
1998.
(2) Each warrant and option represents the right to purchase one share of
our common stock.
(3) These warrants became fully vested upon completion of the
reorganization with Swan Valley Snowmobiles, Inc.
(4) These options vest in twelve equal quarterly installments commencing
three months after the date of grant.
(5) In 1998, we granted officers, employees and consultants warrants and
options to purchase an aggregate of 2,679,298 shares of our common stock.
(6) Options may terminate before their expiration dates if the optionee's
status as an employee or consultant is terminated or upon the optionee's death
or disability.
(7) Amounts represent hypothetical gains that could be achieved for the
respective warrants and options if exercised at their end of their respective
terms. The 0%, 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange Commission and
do not represent our estimate or projection of the future prices of the common
stock. Actual gains, if any, on any exercises of warrants and options are
dependent upon the future performance of our common stock and overall stock
market conditions. The amounts reflected in the table may not necessarily be
achieved.
</TABLE>
73
<PAGE>
WARRANT AND OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named
Executives concerning their exercise of warrants during 1998 and exercisable and
unexercisable stock options held by them as of December 31, 1998.
AGGREGATE WARRANT AND OPTION EXERCISES IN 1998 AND YEAR END OPTION VALUES (1)
<TABLE>
<CAPTION>
Shares Value Value of Unexercised In-the-
Acquired On Realized Number of Unexercised Money Options at Year
NAME Exercise (#) (2) ($) Options at Year End(#) End($) (3)
- ----------------------- ------------ ---------- -------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Rositano, Jr. 972,347 $ 346,544 3,333 36,667 $ 25,397 $ 279,402
- ----------------------- ------------ ---------- ----------- --------------------------- ------------
Dean Rositano 972,347 $ 346,544 3,333 36,667 $ 25,397 $ 279,402
- ----------------------- ------------ ---------- ----------- --------------------------- ------------
<FN>
(1) No SARs were owned or exercised by any of the Named
Executives during 1998.
(2) There was no public trading market for our common stock at the time
these warrants were exercised. The amounts shown as the value realized by the
Named Executives on the exercise of the warrants is based on a value of
$0.396 per share, the fair market value on the date of exercise as determined by
our board of directors, less the exercise price of $0.0396. As authorized by
our board of directors, each of the Named Executives exercised their warrants
by delivery of promissory notes in favor of Nettaxi which bear interest at the
rate of 8% per annum and are secured by the shares.
(3) Based on a per share fair market value of our common stock equal to
$8.50 at December 31, 1998, the closing price for our common stock on that date
as reported by various market makers for our common stock on the
Over-The-Counter Market Bulletin Board.
</TABLE>
EMPLOYEE BENEFIT PLANS
1998 STOCK OPTION PLAN. Our 1998 Stock Option Plan was adopted by the
board of directors, and ratified and approved by our stockholders, as of
September 29, 1998. The following description of our 1998 Stock Option Plan is
a summary and qualified in its entirety by the text of the plan, which is filed
as an exhibit to the registration statement of which this prospectus is a part.
74
<PAGE>
The purpose of the 1998 Stock Option Plan is to enhance our
profitability and stockholder value by enabling us to offer stock based
incentives to employees, directors and consultants. The 1998 Stock Option Plan
authorizes the grant of options to purchase shares of common stock to
employees, directors and consultants of Nettaxi and its affiliates. Under
the 1998 Stock Option Plan, we may grant incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986 and non-qualified
stock options. Incentive stock options may only be granted our employees.
The number of shares available for options under the 1998 Stock Option Plan
is 3,000,000. The 1998 Stock Option Plan is administered by the Compensation
Committee of the board. Subject to the provisions of the 1998 Stock Option
Plan, the Compensation Committee has authority to determine the employees,
directors and consultants of Nettaxi who are to be awarded options and the
terms of such awards, including the number of shares subject to such option,
the fair market value of the common stock subject to options, the exercise price
per share and other terms.
Incentive stock options must have an exercise price equal to at least 100%
of the fair market value of a share on the date of the award and generally
cannot have a duration of more than 10 years. If the grant is to a stockholder
holding more than 10% of our voting stock, the exercise price must be at least
110% of the fair market value on the date of grant. Terms and conditions of
awards are set forth in written agreements between Nettaxi and the respective
option holders. Awards under the 1998 Stock Option Plan may not be made after
the tenth anniversary of the date of its adoption but awards granted before that
date may extend beyond that date.
If the employment with Nettaxi of the holder of an incentive stock option
is terminated for any reason other than as a result of the holder's death or
disability or for "cause" as defined in the 1998 Stock Option Plan, the holder
may exercise the option, to the extent exercisable on the date of termination of
employment, until the earlier of the option's specified expiration date and 90
days after the date of termination. If an option holder dies or becomes
disabled, both incentive and non-qualified stock options may generally be
exercised, to the extent exercisable on the date of death or disability, by the
option holder or the option holder's survivors until the earlier of the
option's specified termination date and one year after the date of death or
disability.
As of July 13, 1999, no shares had been issued as the result of the
exercise of options previously granted under the 1998 Stock Option Plan,
969,166 shares were subject to outstanding options and 1,855,916 shares were
available for future grants. The exercise prices of the outstanding options
ranged from $0.80 to approximately $15.00. The options under the 1998 Stock
Option Plan vest over varying lengths of time pursuant to various option
agreements that we have entered into with the grantees of such options.
We have not registered the 1998 Stock Option Plan, or the shares subject to
issuance thereunder, pursuant to the Securities Act of 1933. Absent
registration, such shares, when issued upon exercise of options, would be
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act of 1933.
75
<PAGE>
Optionees have no rights as stockholders with respect to shares subject to
option prior to the issuance of shares pursuant to the exercise thereof.
Options issued to employees under the 1998 Stock Option Plan shall expire no
later than ten years after the date of grant. An option becomes exercisable at
such time and for such amounts as determined at the discretion of the board of
directors or the Compensation Committee at the time of the grant of the option.
An optionee may exercise a part of the option from the date that part first
becomes exercisable until the option expires. The purchase price for
shares to be issued to an employee upon his exercise of an option is determined
by the board of directors or the Compensation Committee on the date the option
is granted. The purchase price is payable in full in cash, by promissory
note, by net exercise or by delivery of shares of our common stock when the
option is exercised. The 1998 Stock Option Plan provides for adjustment as to
the number and kinds of shares covered by the outstanding options and the
option price therefor to give effect to any stock dividend, stock split, stock
combination or other reorganization of or by Nettaxi.
PRE-REORGANIZATION WARRANTS. Prior to the reorganization with Swan
Valley Snowmobiles, Inc., Nettaxi Online Communities, Inc. granted warrants to
purchase an aggregate of 2,399,298 shares of its common stock for the same
purposes, and on substantially the same terms and conditions, as options to be
granted under the 1998 Stock Option Plan. As of the reorganization with Swan
Valley, all such warrants had been exercised by the holders thereof and are
no longer outstanding.
401(K) SAVINGS PLAN. Effective June 1, 1999 we instituted the Nettaxi
401(k) Savings Plan . Eligible employees may begin making deferrals under the
401(k) Savings Plan. The 401(k) Savings Plan is intended to be a qualified plan
under Internal Revenue Code Section 401(a), with a cash or deferred option
governed by Section 401(k) Savings of the Internal Revenue Code. Employees may
elect to defer their eligible current compensation up to the statutorily and
401(k) Savings Plan prescribed limits and have the amount of such deferral
contributed to the 401(k) Savings Plan. Contributions to the 401(k) Savings Plan
are invested in the investment funds described in the 401(k) Savings Plan. The
401(k) Savings Plan is filed as an exhibit to the registration statement of
which this prospectus is a part.
KEY MAN INSURANCE
We do not currently have any key man insurance. We do intend to purchase
key man insurance on the lives of the Named Executives in the near future.
INDEMNIFICATION AGREEMENTS
We intend to enter into indemnification agreements with our directors and
officers. These agreements will provide, in general, that we shall indemnify and
hold harmless such directors and officers to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement, and expenses incurred
in connection with, or in any way arising out of, any claim, action or
proceeding against, or affecting, such directors and officers resulting from,
relating to or in any way arising out of, the service of such persons as our
directors and officers. Currently, directors and officers are entitled to the
benefits of the limitation of liability provided under our charter documents and
the laws of the State of Nevada.
76
<PAGE>
RELATED-PARTY TRANSACTIONS
The following describes transactions to which we were or are a party and in
which any of our directors, officers, or significant stockholders, or members of
the immediate family of any of the foregoing persons, had or has a direct or
indirect material interest.
STOCK TRANSACTIONS BY NETTAXI ONLINE COMMUNITIES, INC.
ISSUANCES TO FOUNDERS. Nettaxi Online Communities, Inc. was formed in
October 1997 by Robert A. Rositano, Jr. and Dean Rositano. At the time of
formation, each of them was issued 1,288,044 shares of common stock of Nettaxi
Online Communities in consideration of their efforts in establishing that
company and developing its initial business strategy.
On February 12, 1998, Robert A. and Dean Rositano each were issued an
additional 66,297 shares of Nettaxi Online Communities common stock in lieu of
salary compensation earned by them between October 1997 and January 1998 in the
amount of $11,667.
In March 1998, Robert A. and Dean Rositano each were issued warrants to
purchase 88,395 shares of Nettaxi Online Communities common stock. On August
1, 1998, they were each issued warrants to purchase 883,952 shares of Nettaxi
Online Communities common stock pursuant to the executive employment agreements.
All the warrants issued to Robert A. and Dean Rositano each were exercised in
September 1998.
During 1998, Robert A. and Dean Rositano transferred 129,435 and 137,012
shares, respectively, of Nettaxi Online Communities common stock by gift to
individuals.
All the shares of Nettaxi Online Communities common stock held by Robert A.
and Dean Rositano and their donees were converted into shares of our common
stock in the reorganization with Swan Valley Snowmobiles, Inc. described below.
SSN PROPERTIES, LLC. In October 1997, Nettaxi Online Communities
purchased the assets of Simply Interactive, Inc. from SSN Properties LLC
pursuant to an asset purchase agreement. The purchase price for the assets was
$2,000,000. $1,020,000 was paid pursuant to a convertible interest bearing
promissory note and the remainder of the purchase price was paid by the issuance
of 2,475,066 shares of Nettaxi Online Communities common stock. In September
1998, SSN Properties converted its promissory note with accrued interest in
exchange for 2,792,763 shares of Nettaxi Online Communities common stock. In
September, 1998 Nettaxi Online Communities also issued 176,790 shares of its
Nettaxi Online Communities common stock to SSN Properties in exchange for the
cancellation of a $70,000 accounts payable to SSN Properties. All the shares
of Nettaxi Online Communities common stock held by SSN Properties were converted
into shares of our common stock in the reorganization with Swan Valley
Snowmobiles, Inc. described below. In April, 1999 a pro rata distribution of
the shares of common stock held by SSN Properties was made to all of its
members.
77
<PAGE>
Robert Rositano, Sr., father of Robert A, and Dean Rositano, is a managing
member of SSN Properties.
NETTAXI ONLINE COMMUNITIES, INC. PRIVATE OFFERINGS. From October 1997 to
September 1998 Nettaxi Online Communities, Inc. conducted a private offering of
its common stock. Pursuant to that offering, a total of 506,378 shares of
Nettaxi Online Communities common stock were sold for total cash consideration
of $200,500.
From October 1997 to September 1998 Nettaxi Online Communities conducted a
private offering of its Series A Preferred Stock. Pursuant to that offering, a
total of 367,215 shares of Nettaxi Online Communities Series A Preferred Stock
were sold for total cash consideration of $109,050. The Series A Preferred
Stock was convertible on a one-for-two basis into Nettaxi Online Communities
common stock. In September, 1998, the outstanding shares of Series A Preferred
Stock were converted into 734,438 shares of Nettaxi Online Communities common
stock.
All the shares of Nettaxi Online Communities, Inc. common stock issued to
investors in the private offerings were converted into shares of Nettaxi
common stock in the reorganization with Swan Valley Snowmobiles, Inc. described
below.
REORGANIZATION WITH SWAN VALLEY SNOWMOBILES, INC.
In September 1998, Nettaxi Online Communities entered into the
reorganization with Swan Valley with a non-operating public company, Swan Valley
Snowmobiles, Inc., a Nevada corporation incorporated in October 1995. From its
incorporation, Swan Valley engaged in the business of snowmobile repair. During
the first half of 1997, Swan Valley determined that this line of business was no
longer feasible and discontinued its operations. Under the terms of the
reorganization, the Nettaxi Online Communities stockholders received
approximately 2.53 shares of common stock of Swan Valley in exchange for each of
their shares of Nettaxi Online Communities common stock, and Nettaxi Online
Communities became a wholly-owned subsidiary of Swan Valley. An aggregate of
12,000,000 shares were issued to the former Nettaxi Online Communities
stockholders in the reorganization with Swan Valley and the Nettaxi Online
Communities stockholders owned approximately 85% of Swan Valley immediately
after the reorganization. As part of the reorganization, all of the executive
officers and directors of Swan Valley resigned and the executive officers and
directors of Nettaxi Online Communities became the executive officers and
directors of Swan Valley which changed its name to Nettaxi, Inc. Immediately
prior to the reorganization, Swan Valley completed a limited public offering of
its common stock which yielded gross proceeds of $1,000,000 that was available
to Nettaxi once the reorganization was completed.
78
<PAGE>
OFFERING OF DEBENTURES AND WARRANTS
On March 31,1999, we entered into a securities purchase agreement with RGC
International Investors pursuant to which RGC International Investors was
issued convertible debentures in the principal amount of $5,000,000 and
received warrants to purchase 150,000 shares of our common stock. The
convertible debentures bear interest at the rate of 5% per annum from the date
of issuance and mature on March 31, 2004. The debentures are convertible into
shares of our common stock and include a purchase option that permits holders to
acquire additional shares of our common stock at the time that the debentures
are converted. The warrants may be exercised at any time during the five-year
period following their issuance at an exercise price of $12.375 per share.
OTHER AGREEMENTS
We have entered into a consulting agreement with Fontenelle LLC, a
financial services provider of which one of our directors, Steven S. Antebi, is
a manager. Under the agreement, Fontenelle is to provide services we request in
connection with the financial planning, capital structure, continued development
of our business plan and the evaluation of financing alternatives for us. In
exchange for its services, Fontenelle is to receive option to purchase up to
150,000 shares of our common stock under our 1998 Stock Option Plan. The
underlying shares of common stock are to have registration rights that do not
effect this registration statement. The agreement provides that Fontenelle is
an independent contractor and includes provisions regarding the assignment of
inventions, prohibiting the disclosure of confidential information and the
solicitation of our employees. The term of the agreement is two years. Our
agreement with Fontenelle does not provide for Mr. Antebi's directorship.
As described above, in October 1998, each of Robert A. Rositano and Dean
Rositano were granted options to purchase up to 40,000 shares of our common
stock under the 1998 Stock Option Plan and Glenn Goelz was granted options to
purchase up to 250,000 shares of common stock under the 1998 Stock Option Plan.
As described above, we have entered into employment agreements and other
compensation arrangements with our officers.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested outside directors on the board of directors, and
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.
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<PAGE>
SELLING STOCKHOLDERS
This prospectus relates to the offering by the selling stockholders for
resale of shares of our common stock acquired by them upon conversion of
convertible debentures and exercise of warrants which the selling stockholders
received in private placement and other transactions. All of the shares of
common stock offered by this prospectus are being offered by the selling
stockholders for their own accounts.
The following table sets forth information with respect to the common stock
beneficially owned by the selling stockholders as of the date of this
prospectus, including shares obtainable under convertible debentures and/or
warrants convertible or exercisable within 60 days of such date. The selling
stockholders provided us the information included in the table below. To our
knowledge, each of the selling stockholders has sole voting and investment power
over the shares of common stock listed in the table below. No Selling
Stockholder, to our knowledge, has had a material relationship with us during
the last three years, other than as an owner of our common stock or other
securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF COMMON BENEFICIAL OWNERSHIP OF COMMON
STOCK PRIOR TO THE OFFERING STOCK AFTER THE OFFERING
--------------------------- ------------------------
NUMBER OF
SHARES TO BE
SELLING NUMBER OF SOLD UNDER NUMBER OF PERCENT OF
STOCKHOLDER SHARES THIS PROSPECTUS SHARES CLASS
- -------------------------------------- --------- --------------- --------- ----------
<S> <C> <C> <C> <C>
RGC International Investors (1)(2)(3) 2,007,752 2,007,752 -- --
- -------------------------------------- --------- --------------- --------- ----------
Wall Street Trading Group(1) 125,000 125,000 -- --
- -------------------------------------- --------- --------------- --------- ----------
<FN>
(1) The number of shares set forth in the table represents an estimate
of the number of shares of common stock to be offered by the selling
stockholders. We have assumed the sale of all of the common stock offered
under this prospectus will be sold. However, As the selling stockholders can
offer all, some or none of their shares of common stock, no definitive estimate
can be given as to the number of shares that the selling stockholders will hold
after this offering.
(2) The number of shares of common stock beneficially owned by RGC
International Investors consists of an estimated 1,707,752 shares issuable upon
conversion of debentures and exercise of investment options and an estimated
300,000 shares issuable upon exercise of warrants. This estimate is based on the
conversion rate of the convertible debentures in effect on July 13, 1999. As of
July 13, 1999, the $5,000,000 principal amount of the convertible debentures,
plus accrued interest thereon, could be converted into 426,938 shares, and a
like number of shares could be purchased by exercise of the purchase option at a
price per share equal to the conversion price of $11.88 per share. The number of
shares to be issued upon exercise of the warrents is based upon an exercise
price of $12.375 per share, subject to adjuxtment as set forth in the warrents.
The registration statement that includes this prospectus covers twice the number
of shares issuable as of July 13, 1999, and that number is included in the table
above. This number is our good faith estimate of the maximum number of shares we
may issue upon conversion of debentures and exercise of investment options and
warrants. However, the actual number of shares of common stock issuable upon
conversion of the debentures and exercise of the warrants is indeterminate, is
subject to adjustment and could be materially more than such estimated number
depending on factors which cannot be predicted by us at this time, including,
among other factors, the future market price of our common stock and the
issuance of our securities at prices below
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<PAGE>
the then-market price of our common stock. The actual number of shares of common
stock offered hereby, and included in the registration statement of which this
prospectus is a part, includes such additional number of shares of common stock
as may be issued or issuable upon conversion of the debentures or exercise of
the warrants by reason of any stock split, stock dividend or similar transaction
involving Rule 416 under the Securities Act of 1933.
(3) RGC International Investors is a party to an investment management
agreement with Rose Glen Capital Management, L.P., a limited partnership of
which the general partner is RGC General Partner Corp. Messrs. Wayne Bloch,
Gary Kaminsky and Steven Katznelson own all of the outstanding capital stock of
RGC General Partner Corp. and are parties to a shareholders agreement pursuant
to which they collectively control RGC General Partner Corp. Through RGC
General Partner Corp., these individuals control Rose Glen Capital Management,
L.P. These individuals disclaim beneficial ownership of our common stock owned
by RGC International Investors.
</TABLE>
81
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of July 13, 1999, and as adjusted to reflect
the sale of the shares of common stock offered by This prospectus, by:
- each person, or group of affiliated persons, who we know beneficially
owns 5% or more of our common stock;
- each of our directors and executive officers; and
- all of our directors and executive officers as a group.
The percentages of total shares of common stock set forth below assume that
only the indicated person or group has exercised options and warrants which are
exercisable within 60 days of July 13, 1999 and do not reflect the percentage
of common stock which would be calculated if all other holders of currently
exercisable options or warrants had exercised their securities.
Unless otherwise indicated in the footnotes to the table, (1) the following
individuals have sole vesting and sole investment control with respect to the
shares they beneficially own and (2) unless otherwise indicated, the address of
each beneficial owner listed below is c/o Nettaxi, Inc., 1696 Dell Avenue,
Campbell, California.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF
EXECUTIVE OFFICERS AND DIRECTORS: BENEFICIALLY OWNED (1) CLASS
- ------------------------------------------- ---------------------- -----------
<S> <C> <C>
Robert A. Rositano, Jr. (2) (3) . . . . . . 2,018,474 9.6%
- ------------------------------------------- ---------------------- -----------
Dean Rositano (3) (4) . . . . . . . . . . . 2,066,260 9.8%
- ------------------------------------------- ---------------------- -----------
Glenn Goelz(5). . . . . . . . . . . . . . . 20,833 *
- ------------------------------------------- ---------------------- -----------
Melanie McCarthy(6) . . . . . . . . . . . . 4,166 *
- ------------------------------------------- ---------------------- -----------
Brian Stroh(7). . . . . . . . . . . . . . . 113,784 *
- ------------------------------------------- ---------------------- -----------
Roger Thornton. . . . . . . . . . . . . . . 15,153 *
- ------------------------------------------- ---------------------- -----------
Andrew Garroni. . . . . . . . . . . . . . . 75,000 *
- ------------------------------------------- ---------------------- -----------
Ron R. Goldie . . . . . . . . . . . . . . . 50,000 *
- ------------------------------------------- ---------------------- -----------
Steven S. Antebi. . . . . . . . . . . . . . 0 *
- ------------------------------------------- ---------------------- -----------
All directors and executive officers as a
group (9 Persons)(8). . . . . . . . . . . . 4,363,670 20.6%
- ------------------------------------------- ---------------------- -----------
OTHER 5% STOCKHOLDERS:
- -------------------------------------------
Robert A. Rositano, Sr. (9) . . . . . 2,905,830 13.8%
- ------------------------------------------- ---------------------- -----------
Janice Rose Rositano-Battistella,
Trustee of the Janice Rose Rositano-
Battistella Trust (10) . . . . . . . 1,863,018 8.7%
- ------------------------------------------- ---------------------- -----------
John J. Gallagher (11). . . . . . . . 1,080,000 5.1%
- ------------------------------------------- ---------------------- -----------
82
<PAGE>
<FN>
* Less than one percent.
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock options or warrants held by that person that are
currently exercisable or exercisable within 60 days of July 13, 1999 are deemed
outstanding. Such shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of each other person.
(2) Robert A. and Dean Rositano are brothers.
(3) Includes 10,000 shares of common stock subject to options that are
currently exercisable. Excludes 30,000 shares of common stock subject to
options that will not be exercisable within 60 days of July 13, 1999.
(4) Includes 10,000 shares of common stock subject to options that are
currently exercisable. Excludes 30,000 shares of common stock subject to
options that will not be exercisable within 60 days of July 13, 1999.
(5) Includes 20,833 shares of common stock subject to options that will
be exercisable within 60 days of July 13, 1999. Excludes 229,167 shares of
common stock subject to options that will not be exercisable within 60 days of
July 13, 1999.
(6) Includes 4,166 shares of common stock subject to options that are
currently exercisable. Excludes 45,834 shares of common stock subject to
options that will not be exercisable within 60 days of July 13, 1999.
(7) Includes 7,500 shares of common stock subject to options that are
currently exercisable. Excludes 22,500 shares of common stock subject to options
that will not be exercisable within 60 days of July 13, 1999.
(8) See footnotes (2), (3), (4), (5) and (6) above.
(9) Shares were received as part of a pro-rata distribution to the members
of SSN Properties, LLC in April 1999. Mr. Rositano is a managing member of SSN
Properties and the father of Robert A. Rositano, Jr. and Dean Rositano. Mr.
Rositano's address is 14836 Three Oaks Court, Saratoga, California 95070.
(10) Shares were received as part of a pro rata distribution to the members
of SSN Properties, LLC in April 1999. Ms. Rositano-Battistella is the mother
of Robert A. Rositano, Jr. and Dean Rositano. Ms. Rositano-Battistella's address
is 143 El Altillo Court, Los Gatos, California 95030.
(11) John J. Gallagher's address is 316 W. 20th Street, Manhattan Beach,
California 90266.
</TABLE>
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our securities and various provisions of our
articles of incorporation and our bylaws are summaries. Statements contained in
this prospectus relating to such provisions are not necessarily complete, and
reference is made to the articles of incorporation and bylaws, copies of which
have been filed with the Securities and Exchange Commission as exhibits to our
registration statement of which this prospectus constitutes a part, and
provisions of applicable law. Our authorized capital stock consists of
50,000,000 shares of common stock, par value $.001 per share, of which
21,110,000 shares were issued and outstanding as July 13, 1999, and 1,000,000
shares of preferred stock, par value $.001, of which no shares were issued and
outstanding as of July 13, 1999. As of July 13, 1999, we estimated that there
were approximately 352 holders of record of our common stock.
COMMON STOCK
The holders of outstanding shares of common stock are entitled to share
ratably in dividends declared out of assets legally available therefor at such
time and in such amounts as the board of directors may from time to time
lawfully determine. Each holder of common stock is entitled to one vote for each
share held. Cumulative voting in elections of directors and all other matters
brought before stockholders meetings, whether they be annual or special, is not
provided for under our articles of incorporation or bylaws. However, cumulative
voting rights in the election of our directors currently applies under
California law. California Corporations Code Section 2115 requires us to provide
our stockholders cumulative voting rights in the election of directors because
the average of our property factor, payroll factor and sales factor deemed to be
in California during our latest fiscal year was almost 100%, and over 60% of our
outstanding voting securities are held of record by persons having addresses in
California, and our securities do not currently qualify as a national market
security on NASDAQ. California Corporations Code Section 2115 is discussed in
greater detail below. The common stock is not entitled to conversion or
preemptive rights and is not subject to redemption or assessment. Upon
liquidation, dissolution or winding up of Nettaxi, any assets legally available
for distribution to stockholders as such are to be distributed ratably among the
holders of the common stock at that time outstanding. The common stock
presently outstanding is fully paid and nonassessable. As described below, the
board of directors is authorized, without further stockholder approval, to issue
preferred stock. Such an issuance could potentially effect the rights and
preferences of holders of common stock. Other than by the issuance of preferred
stock by the board of directors, the rights of security holders may not be
modified otherwise than by a vote of a majority or more of the shares
outstanding.
Currently, our bylaws provide that stockholder action may be taken at a
meeting of stockholders and may be effected by a consent in writing if such
consent is signed by the holders of the majority of outstanding shares, unless
Nevada law requires a greater percentage. Our articles of incorporation provide
that they may be amended by the affirmative vote of a majority of the shares
entitled to vote on such an amendment. These are the only provisions of our
bylaws or articles of incorporation that specify the vote required by security
holders to take action
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<PAGE>
PREFERRED STOCK
The board of directors is authorized, without further stockholder approval,
to issue from time to time up to an aggregate of 1,000,000 shares of preferred
stock. The preferred stock may be issued in one or more series and the board of
directors may fix the rights, preferences and designations thereof. No shares
of preferred stock are currently outstanding and we have no present plans to
issue any shares of preferred stock. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of our outstanding voting stock.
WARRANTS AND DEBENTURES
WALL STREET TRADING GROUP WARRANTS. In March 1999, we issued warrants to
Wall Street Trading Group to purchase up to 125,000 shares of our common stock.
The warrants issued to Wall Street Trading Group may be exercised at any time
during the two-year period following their issuance at an exercise price of
$8.00 per share. The warrants contain provisions for the adjustment of the
exercise price under circumstances set forth therein, including stock dividends,
stock splits, reorganizations, reclassifications, combination and other
dilutive issuances of securities. As described below, we have agreed to
register under the Securities Act of 1933 the resale of the common stock to be
issued upon exercise of the warrants held by Wall Street Trading Group.
RGC INTERNATIONAL INVESTORS DEBENTURES AND WARRANTS. On March 31, 1999,
we entered into a securities purchase agreement with RGC International Investors
under which we agreed to issue convertible debentures in the amount of
$5,000,000 and warrants to purchase 150,000 shares of our common stock. The
debentures bear interest at a rate of 5% per annum commencing on the date of
issuance and mature on March 31, 2004. The debentures are convertible at the
option of the holder into that number of shares of our common stock equal to
the principal amount of the debentures to be converted including all accrued
interested, divided by the conversion price specified in the debentures. The
conversion price is the lesser of a "variable" or "fixed" conversion price. The
variable conversion price is based on the trading price of our common stock over
a fixed period prior to conversion of the debentures, and the fixed conversion
price is $11.88, subject to adjustment as provided under the terms of the
debentures. In addition, at the time that a holder converts all or any
portion of the debentures, such holder has an "investment option" which gives
the holder a right to purchase one additional share of common stock for every
share of common stock issuable as a result of such conversion at an exercise
price equal to the applicable conversion price.
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As of July 13, 1999, the $5,000,000 principal amount of the convertible
debentures, plus an amount equal to 5% of such principal amount accrued since
March 31, 1999, could be converted into common stock at a conversion price of
$11.88 per share. Accordingly, as of July 13, 1999, conversion of the entire
principal amount of the convertible debentures and accrued interest thereon,
would yield 426,938 shares of common stock. In addition, as of July 13, 1999,
RGC International Investors's election to fully exercise its option to
purchase additional shares of common stock would yield an additional 426,938
shares of common stock, resulting in the issuance of an aggregate of 853,876
shares to RGC International Investors as of that date. Based upon the interest
rate and the conversion price of $11.88, which is subject to downward adjustment
as described above, the number of shares of common stock issuable upon
conversion of the debentures will increase by approximately 58 shares daily
until conversion, as will the number of shares subject to the purchase option.
If the debentures have not been converted or redeemed on March 31, 2004,
they will automatically convert into shares of common stock as of that date.
Upon the occurrence of events specified in the securities purchase agreement,
the holders of 50% of the debentures may elect to have us redeem the debentures
at a premium to their purchase price. These events include, but are not limited
to:
- Failure by us to issue shares of our common stock upon conversion of
the debentures;
- Failure by us to transfer to the converting debenture holders stock
certificates for shares of our common stock upon conversion of the
debentures; and
- Failure by us to keep the specified number of shares of our common
stock reserved for issuance upon conversion of the debentures.
The occurrence of other specified events results in a mandatory redemption
by us of the debentures at a premium even without the election of the holders of
the debentures. These mandatory redemption events include, but are not limited
to, our making an assignment for the benefit of our creditors or our bankruptcy,
insolvency, reorganization or liquidation.
The premium payable by us upon any required redemption of the debentures is
based upon a formula set forth in the debentures which takes into account the
trading price of our common stock at the time of the redemption; provided,
however, that in no event would the redemption price be less than 120% of the
sum of the then-outstanding principal amount of the debentures and all accrued
and unpaid interest thereon at the time of the redemption.
The warrants issued to RGC International Investors may be exercised at any
time during the five-year period following their issuance at an exercise price
of $12.375 per share. The debentures and warrants contain provisions which limit
the number of shares of common stock into which the debentures are convertible
and the warrants are exercisable. Under these provisions, the number of shares
of common stock into which the debentures are convertible and the warrants are
exercisable on any given date, together with any additional shares of common
stock held by RGC International Investors, will not exceed 4.99% of our then
outstanding common stock.
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The foregoing has been a brief description of some of the terms of the
debentures and warrants. For a more detailed description of the rights of the
holders of the debentures and warrants, prospective investors are directed to
the actual form of debenture that has been filed as an exhibit to the
registration statement of which this prospectus is a part.
As described below, we have agreed to register under the Securities Act of
1933, the resale of the common stock to be issued upon conversion of the
debentures or exercise of the warrants held by RGC International Investors.
REGISTRATION RIGHTS
RGC INTERNATIONAL INVESTORS. Under a registration rights agreement with
RGC International Investors entered into on March 31, 1999, we agreed to
register the shares of common stock issuable to RGC International Investors
upon conversion of their debentures and exercise of their warrants. This
prospectus is part of the registration statement intended to satisfy this
obligation. The registration rights agreement requires us to file a
registration statement with respect to the shares within a specified period of
time and to have the registration statement be declared effective within a
specific period of time. We must also keep the registration statement effective
until all of the securities offered have been sold. We are responsible for the
payment of all fees and costs associated with the registration of the
securities, except that we are not responsible for fees generated by RGC
International's counsel in excess of $30,000. We are required to indemnify and
hold harmless each investor and its representatives and RGC International
Investors and its agents or representatives against:
- - any untrue statement of a material fact in a registration statement;
- - any untrue statement or alleged untrue statement contained in any
preliminary prospectus if used prior to the effective date of the
registration statement; or
- - any violation or alleged violation of the Securities Act of 1933 or the
Securities Exchange Act of 1934. Specific procedures for carrying out
such indemnification are set forth in the Agreement.
Under the registration rights agreement, RGC International Investors also has
the right to include all or a part of its common stock in a registration filed
by us for purposes of a public offering in the event that we fail to satisfy
our other obligations as to the registration of the common stock acquired by RGC
International Investors.
BAYTREE CAPITAL. On September 3, 1998, Nettaxi Online Communities, Inc.
engaged Baytree Capital Associates to provide financial and business consulting
in connection with the reorganization with Swan Valley Snowmobiles, Inc. In
consideration of such services, Baytree was issued 200,000 shares of our common
stock in October 1998 and granted registration rights with respect to such
shares. Specifically, we must register the shares held by Baytree upon
receipt of a registration request after April 1, 1999. Baytree also has
piggyback registration rights for their shares, but has waived the right to
have such shares included in this prospectus.
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WALL STREET TRADING GROUP. Wall Street Trading Group is entitled to
registration rights with respect to the 125,000 shares of our common stock that
Wall Street Trading Group may receive upon exercise of warrants previously
issued to Wall Street Trading Group. Subject to various and customary
exceptions, if we propose to register shares of our common stock, Wall Street
Trading Group is entitled to notice of the registration and are entitled to
include their shares of common stock in the registration at our expense. This
prospectus is part of the registration statement intended to satisfy our
obligations to Wall Street Trading Group with respect to the registration.
PLUS NET. Under the terms of the merger between us and Plus Net,
shareholders of Plus Net were granted piggyback registration rights with respect
to the shares of our common stock which they received in the merger. Generally,
they receive registration rights on a pro rata basis with our other
shareholders. The registration rights do not have any impact or effect with
respect to the registration statement of which this prospectus is a part.
EXECUTIVE OFFICERS. Pursuant to their executive employment agreements,
Robert A. Rositano, Jr. and Dean Rositano were granted registration rights
with respect to the registration of their shares of common stock. Each of them
have waived any registration rights they may have with respect to the
registration statement of which this prospectus is a part.
ANTI-TAKEOVER EFFECTS OF VARIOUS PROVISIONS OF NEVADA LAW AND NETTAXI'S
ARTICLES OF INCORPORATION AND BYLAWS
We are incorporated under the laws of the State of Nevada and are therefore
subject to various provisions of the Nevada corporation laws which may have the
effect of delaying or deterring a change in the control or management of
Nettaxi.
Nevada's "Combination with Interested Stockholders Statute," Nevada
Revised Statutes 78.411-78.444, which applies to Nevada corporations like us
having at least 200 stockholders, prohibits an "interested stockholder" from
entering into a "combination" with the corporation, unless specific
conditions are met. A "combination" includes:
- - any merger with an "interested stockholder," or any other corporation
which is or after the merger would be, an affiliate or associate of the
interested stockholder;
- - any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets, in one transaction or a series of transactions, to
an "interested stockholder," having:
- an aggregate market value equal to 5% or more of the aggregate
market value of the corporation's assets,
- an aggregate market value equal to 5% or more of the aggregate market
value of all outstanding shares of the corporation, or
- representing 10% or more of the earning power or net income of the
corporation;
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- - any issuance or transfer of shares of the corporation or its
subsidiaries, to the "interested stockholder," having an aggregate market
value equal to 5% or more of the aggregate market value of all the
outstanding shares of the corporation,
- - the adoption of any plan or proposal for the liquidation or dissolution
of the corporation proposed by the "interested stockholder,"
- - transactions which would have the effect of increasing the proportionate
share of outstanding shares of the corporation owned by the "interested
stockholder," or
- - the receipt of benefits, except proportionately as a stockholder, of
any loans, advances or other financial benefits by an "interested
stockholder."
An "interested stockholder" is a person who
- - directly or indirectly owns 10% or more of the voting power of the
outstanding voting shares of the corporation;
- - an affiliate or associate of the corporation which at any time within
three years before the date in question was the beneficial owner, directly
or indirectly, of 10% or more of the voting power of the then outstanding
shares of the corporation.
A corporation to which the statute applies may not engage in a
"combination" within three years after the interested stockholder acquired its
shares, unless the combination or the interested stockholder's acquisition of
shares was approved by the board of directors before the interested stockholder
acquired the shares. If this approval was not obtained, then after the
three-year period expires, the combination may be consummated if all the
requirements in the articles of incorporation are met and either:
- - the board of directors of the corporation approves, prior to such person
becoming an "interested stockholder," the combination or the purchase of
shares by the "interested stockholder" or the combination is approved by
the affirmative vote of holders of a majority of voting power not
beneficially owned by the "interested stockholder" at a meeting called no
earlier than three years after the date the "interested stockholder"
became such; or
- - the aggregate amount of cash and the market value of consideration other
than cash to be received by holders of common shares and holders of any
other class or series of shares meets the minimum requirements set forth
in Sections 78.411 through 78.443, inclusive, and prior to the
consummation of the combination, except in limited circumstances, the
"interested stockholder" will not have become the beneficial owner of
additional voting shares of the corporation.
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Nevada's "Control Share Acquisition Statute," Nevada Revised Statute
Sections 78.378-78.379, prohibits an acquiror, under some circumstances,
from voting shares of a target corporation's stock after crossing threshold
ownership percentages, unless the acquiror obtains the approval of the target
corporation's stockholders. The Control Share Acquisition Statute only applies
to Nevada corporations with at least 200 stockholders, including at least 100
record stockholders who are Nevada residents, and which do business directly or
indirectly in Nevada. While we do not currently exceed these thresholds, we may
well do so in the near future. In addition, although we do not presently "do
business" in Nevada within the meaning of the Control Share Acquisition Statute,
we may do so in the future. Therefore, it is likely that the Control Share
Acquisition Statute will apply to us in the future. The statute specifies three
thresholds: at least one-fifth but less than one-third, at least one-third but
less than a majority, and a majority or more, of all the outstanding voting
power. Once an acquiror crosses one of the above thresholds, shares which it
acquired in the transaction taking it over the threshold or within ninety days
become "Control Shares" which are deprived of the right to vote until a majority
of the disinterested stockholders restore that right. A special stockholders'
meeting may be called at the request of the acquiror to consider the voting
rights of the acquiror's shares no more than 50 days, unless the acquiror agrees
to a later date, after the delivery by the acquiror to the corporation of an
information statement which sets forth the range of voting power that the
acquiror has acquired or proposes to acquire and other information concerning
the acquiror and the proposed control share acquisition. If no such request for
a stockholders' meeting is made, consideration of the voting rights of the
acquiror's shares must be taken at the next special or annual stockholders'
meeting. If the stockholders fail to restore voting rights to the acquiror or
if the acquiror fails to timely deliver an information statement to the
corporation, then the corporation may, if so provided in its articles of
incorporation or bylaws, call some of the acquiror's shares for redemption. Our
articles of incorporation and bylaws do not currently permit us to call an
acquiror's shares for redemption under these circumstances. The Control Share
Acquisition Statute also provides that the stockholders who do not vote in favor
of restoring voting rights to the Control Shares may demand payment for the
"fair value" of their shares. This amount is generally equal to the highest
price paid in the transaction subjecting the stockholder to the statute.
Provisions of our bylaws which are summarized below may affect potential
changes in control of Nettaxi. The board of directors believes that these
provisions are in the best interests of stockholders because they will encourage
a potential acquiror to negotiate with the board of directors, which will be
able to consider the interests of all stockholders in a change in control
situation. However, the cumulative effect of these terms maybe to make it more
difficult to acquire and exercise control of Nettaxi and to make changes in
management more difficult.
The bylaws provide the number of directors of Nettaxi shall be established
by the board of directors, but shall be no less than one. Between stockholder
meetings, the board of directors may appoint new directors to fill vacancies or
newly created directorships. A director may be removed from office by the
affirmative vote of 66-2/3% of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors.
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As discussed above, our bylaws further provide that stockholder action
may be taken at a meeting of stockholders and may be effected by a consent in
writing if such consent is signed by the holders of the majority of outstanding
shares, unless Nevada law requires a greater percentage.
We are not aware of any proposed takeover attempt or any proposed attempt
to acquire a large block of our common stock.
The provisions described above may have the effect of delaying or deterring
a change in the control or management of Nettaxi.
APPLICATION OF CALIFORNIA GENERAL CORPORATION LAW
Although we are incorporated in Nevada, our headquarters is in the State of
California. Section 2115 of the California General Corporation Law provides
that provisions of the California General Corporation Law shall be applicable to
a corporation organized under the laws of another state to the exclusion of
the law of the state in which it is incorporated, if the corporation meets
tests regarding the business done in California and the number of its
California stockholders.
An entity such as us can be subject to Section 2115 if the average of the
property factor, payroll factor and sales factor deemed to be in California
during its latest full income year is more than 50 percent and more than
one-half of its outstanding voting securities are held of record by persons
having addresses in California. Section 2115 does not apply to corporations
with outstanding securities listed on the New York or American Stock Exchange,
or with outstanding securities designated as qualified for trading as a national
market security on NASDAQ, if such corporation has at least 800 beneficial
holders of its equity securities. Since the average of our property factor,
payroll factor and sales factor deemed to be in California during our latest
fiscal year was almost 100%, and over 60% of our outstanding voting securities
are held of record by persons having addresses in California, and our securities
do not currently qualify as a national market security on NASDAQ, we are subject
to Section 2115.
During the period that we are subject to Section 2115, the provisions of
the California General Corporation Law regarding the following matters are made
applicable to the exclusion of the law of the State of Nevada:
- - general provisions and definitions;
- - annual election of directors;
- - removal of directors without cause;
- - removal of directors by court proceedings;
- - filling of director vacancies where less than a majority in office were
elected by the stockholders
- - directors' standard of care;
- - liability of directors for unlawful distributions;
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- - indemnification of directors, officers and others;
- - limitations on corporate distributions of cash or property;
- - liability of a stockholder who receives an unlawful distribution;
- - requirements for annual stockholders meetings;
- - stockholders' right to cumulate votes at any election of directors;
- - supermajority vote requirements;
- - limitations on sales of assets;
- - limitations on mergers;
- - reorganizations;
- - dissenters' rights in connection with reorganizations
- - required records and papers;
- - actions by the California Attorney General; and
- - rights of inspection.
Pursuant to our agreements with RGC International Investors, we intend to
take appropriate action to qualify our common stock as a national market
security on NASDAQ. If such qualification becomes effective, and the other
conditions for exemption from Section 2115 can be satisfied, we would no
longer be subject to Section 2115. There can be no assurance that all the
conditions from exemption, including successful completion of the
qualification of our common stock as a national market security on NASDAQ, will
be satisfied.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We believe that provisions of our articles of incorporation and bylaws will
be useful to attract and retain qualified persons as directors and officers.
Our articles of incorporation limit the liability of directors and officers to
the fullest extent permitted by Nevada law. This is intended to allow our
directors and officers the benefit of Nevada's corporation law which provides
that directors and officers of Nevada corporations may be relieved of monetary
liabilities for breach of their fiduciary duties as directors, except under
circumstances which involve acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or the payment of unlawful
distributions.
We have obtained officer and director liability insurance with respect to
liabilities arising out of certain matters, including matters arising under the
Securities Act of 1933.
TRANSFER AGENT AND REGISTRAR
Interwest Transfer Co., Inc. is the transfer agent and registrar for our
capital stock.
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SHARES ELIGIBLE FOR FUTURE SALE
On July 13, 1999, 21,110,000 shares of our common stock were outstanding,
and 630,000 shares of common stock were subject to options granted under our
1998 Stock Option Plan. In addition, 2,132,752 shares of common stock were
issuable upon conversion or exercise of the convertible debentures and warrants
held by the selling stockholders, and 50,000 shares of common stock were
issuable upon exercise of outstanding warrants held by parties other than the
selling stockholders. Of the outstanding shares, 1,910,000 shares of common
stock are immediately eligible for sale in the public market without
restriction or further registration under the Securities Act of 1933, unless
purchased by or issued to any "affiliate" of ours, as that term is defined in
Rule 144 promulgated under the Securities Act of 1933, described below. All
other outstanding shares of our common stock are "restricted securities" as such
term is defined under Rule 144, in that such shares were issued in private
transactions not involving a public offering and may not be sold in the absence
of registration other than in accordance with Rule 144, 144(k) or 701
promulgated under the Securities Act of 1933 or another exemption from
registration.
In general, under Rule 144, as currently in effect, a person, including
an affiliate, who has beneficially owned shares for at least one year is
entitled to sell, within any three-month period commencing 90 days after the
date of this prospectus, a number of shares that does not exceed the greater
of 1% of the then outstanding shares of our common stock or the average weekly
trading volume in our common stock during the four calendar weeks preceding the
date on which notice of such sale is filed, subject to various restrictions. In
addition, a person who is not deemed to have been an affiliate of ours at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years would be entitled to sell
those shares under Rule 144(k) without regard to the requirements described
above. To the extent that shares were acquired from an affiliate, such person's
holding period for the purpose of effecting a sale under Rule 144 commences on
the date of transfer from the affiliate. As of July 13, 1999, none of our
outstanding shares were eligible for sale under Rule 144; however, on October 1,
1999, 11,950,337 shares of common stock will become eligible for sale under Rule
144.
The shares of common stock issuable upon conversion or exercise of the
convertible debentures and warrants held by the selling stockholders are being
registered on the registration statement of which this prospectus is a part.
Upon effectiveness of that registration statement, such shares will also be
immediately eligible for sale in the public market subject to restrictions
included in our agreements with the selling stockholders. We also intend to file
a registration statement to register for resale the 3,000,000 shares of common
stock reserved for issuance under our 1998 Stock Option Plan. That registration
statement will become effective immediately upon filing. Accordingly, shares
covered by that registration statement would become eligible for sale in the
public market subject to vesting restrictions. As of July 13, 1999, 100,417 of
these options were exercisable. Finally, some of our stockholders have demand
registration rights with to their shares of common stock.
There has been very limited trading volume in our common stock to date.
Sales of substantial amounts of our common stock under Rule 144, this prospectus
or otherwise could adversely affect the prevailing market price of our common
stock and could impair our ability to raise capital through the future sale of
our securities.
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PLAN OF DISTRIBUTION
We previously issued our convertible debentures and warrants to purchase
common stock to the selling stockholders in a private offering and other
transactions. This prospectus relates to the offer and sale of the shares of
our common stock to be received by the selling stockholders when and if they
convert their debentures and/or exercise their warrants. We are registering
the shares of common stock to fulfill our obligations under various
registration rights agreements with the selling stockholders. The registration
of the shares of common stock does not necessarily mean that any of the shares
will be offered or sold by the selling stockholders under this prospectus.
The selling stockholders and their pledgees, donees, transferees or other
successors in interest may offer their shares at various times in one or more of
the following transactions:
- - a block trade on the O-T-C Market Bulletin Board or other market on which
the common stock may be traded in which the broker-dealer so engaged
will attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction;
- - purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
- - ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- - privately negotiated, face-to-face transactions between the selling
stockholders and purchasers without a broker-dealer;
- - through the writing of options or short sales; and
- - any combination of the above.
The sale price to the public may be the market price prevailing at the time
of sale, a price relating to such prevailing market price or such other price as
the selling stockholders determine from time to time.
The selling stockholders may also sell the shares directly to market makers
acting as principals or broker-dealers acting as agents for themselves or their
customers. Brokers acting as agents for the selling stockholders will receive
usual and customary commissions for brokerage transactions, and market makers
and block purchasers purchasing the shares will do so for their own account and
at their own risk. It is possible that the selling stockholders will attempt to
sell shares of our common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. There
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can be no assurance that all or any of the shares offered hereby will be issued
to or sold by the selling stockholders. The selling stockholders and any
brokers, dealers or agents effecting the sale of any of the shares may be deemed
to be "underwriters" under the Securities Act of 1933. In addition, any
securities covered by this prospectus may also be sold under Rule 144
promulgated under the Securities Act of 1933 rather than pursuant to this
prospectus. The selling stockholders have the sole discretion not to accept any
offer to purchase shares or make any sale of shares if they conclude the
purchase price is inadequate.
The selling stockholders, alternatively, may sell the shares offered under
this prospectus through an underwriter. The selling stockholders have not
entered into any agreement with a prospective underwriter. We can not guarantee
that this type of agreement will not be entered into. If the selling
stockholders enter into this type of agreement, we will supplement or revise
this prospectus.
Upon being notified by the selling stockholders that any material
arrangement has been entered into with a broker or dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, we will file a supplemented
prospectus, if required, pursuant to Rule 424(c) under the Securities Act
of 1933, disclosing:
- - the name of each broker or dealer;
- - the number of shares involved;
- - the price at which the shares were sold;
- - the commissions paid or discounts or concessions allowed to the
broker(s) or dealer(s), where applicable;
- - that the broker(s) or dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus, as supplemented; and
- - other facts material to the transaction.
To comply with the securities laws of various jurisdictions, the shares
offered by this prospectus may need to be offered or sold in such jurisdictions
only through registered or licensed brokers or dealers.
The selling stockholders and any other persons participating in the sale or
distribution of the shares of common stock will be subject to the relevant
provisions of the Securities Exchange Act of 1934 and the rules and
regulations thereunder, which provisions may limit the timing of purchases and
sales of any of the shares by the selling stockholders or any other person.
The foregoing may affect the marketability of such shares.
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We will indemnify the selling stockholders, or their transferees or
assignees, against some liabilities, including liabilities under the Securities
Act of 1933, or to contribute to payments the selling stockholders or their
respective pledgees, donees, transferees or other successors in interest, may
be required to make in respect thereof.
We are bearing all costs relating to the registration of the shares. The
selling stockholders will pay any commissions, discounts or other fees payable
to broker-dealers in connection with any sale of the shares.
The selling stockholders have agreed to suspend sales for limited periods
upon notification that actions, such as amending or supplementing this
prospectus, are required in order to comply with federal or state securities
laws.
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LEGAL MATTERS
The validity of the issuance of the common stock offered hereby has been
passed upon for us by Silicon Valley Law Group, San Jose, California.
EXPERTS
The financial statements and schedules included in the registration
statement on Form S-1 have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
reports appearing elsewhere herein and in the registration statement, and are
included in reliance upon such reports given upon the authority of said firm as
experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form S-l. This prospectus, which is a part of the
registration statement, does not contain all of the information included in
the registration statement. Some information is omitted and you should refer to
the registration statement and its exhibits. With respect to references made in
this prospectus to any contract, agreement or other document of Nettaxi, such
references are not necessarily complete and you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. You may review a copy of the registration
statement, including exhibits, at the Securities and Exchange Commission's
public reference room at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 or Seven World Trade Center, 13th Floor, New York, New York 10048 or
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The public may obtain information on the operation of the public reference
room by calling the Securities and Exchange Commission at 1-800-SEC-0330.
We will also file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may
read and copy any reports, statements or other information on file at the
public reference rooms. You can also request copies of these documents, for
a copying fee, by writing to the Securities and Exchange Commission.
Our Securities and Exchange Commission filings and the registration
statement can also be reviewed by accessing the Securities and Exchange
Commission's Internet site at http://www.sec.gov, which contains reports, proxy
and information statements and other information regarding registrants that
file electronically with the Securities and Exchange Commission.
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NETTAXI, INC.
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Unaudited Pro Forma Combined Consolidated Financial Statements F-2
Pro forma combined consolidated balance sheet merger with Plus Net, Inc. F-3 - F-4
Pro forma combined consolidated statement of operations merger with Plus Net, Inc. F-5
Pro forma combined consolidated statement of operations merger with Plus Net, Inc. F-6
NETTAXI, INC.
Report of Independent Certified Pubic Accountants F-7
Consolidated balance sheets F-8 - F-9
Consolidated statements of operations F-10
Consolidated statements of shareholders' equity F-11
Consolidated statements of cash flows F-12
Notes to consolidated financial statements F-13-F-31
PLUS NET, INC.
Report of Independent Certified Pubic Accountants F-32
Balance Sheets F-33
Statements of operations F-34
Statements of shareholders' (deficiency) equity F-35
Statements of cash flows F-36
Notes to financial statements F-37-F-39
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma combined consolidated financial information reflects the
proposed acquisition of all of the outstanding stock of Plus Net, Inc.
The accompanying unaudited pro forma combined consolidated balance sheet
presents the financial position of Nettaxi, Inc. as if the proposed merger
(treated as pooling of interests) had occurred on March 31, 1999. The unaudited
pro forma combined consolidated statements of operations for the year ended
December 31, 1998 and the three months ended March 31, 1999 give effect to the
proposed merger as if it had occurred at the beginning of the earliest period
presented.
In the proposed merger, Nettaxi will acquire all the outstanding equity
securities of Plus Net in exchange for 7,000,000 shares of Nettaxi common stock.
All shares will be issued to Plus Net stockholders of record.
The unaudited pro forma combined consolidated financial statements have been
prepared from, and should be read in conjunction with, the historical financial
statements and notes thereto of Nettaxi and Plus Net, appearing elsewhere in
this Joint Proxy Statement/Prospectus. These statements are not necessarily
indicative of future operations or the actual results that would have occurred
had the transactions been consummated at the beginning of the periods indicated.
F-2
<PAGE>
NETTAXI, INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
MERGER WITH PLUS NET, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nettaxi, Inc.
Combined
Nettaxi, Inc. Plus Net, Inc. Pro Forma Consolidated
3/31/99 3/31/99 Adjustments Pro Forma
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 77,500 $ 1,437,600 $ - $ 1,515,100
Accounts receivable, less allowance for doubtful 285,600 - - 285,600
accounts
Prepaid expenses and other assets 67,500 - - 67,500
--------------- ---------------- ------------- ---------------
TOTAL CURRENT ASSETS 430,600 1,437,600 - 1,868,200
--------------- ---------------- ------------- ---------------
PROPERTY AND EQUIPMENT, net 399,000 600 - 399,600
PURCHASED TECHNOLOGY, net 623,500 - - 623,500
OTHER INTANGIBLES, net 107,500 - - 107,500
DEPOSITS 23,600 - - 23,600
--------------- ---------------- ------------- ---------------
$ 1,584,200 $ 1,438,200 $ - $ 3,022,400
=============== ================ ============= ===============
</TABLE>
F-3
<PAGE>
NETTAXI, INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
MERGER WITH PLUS NET, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nettaxi, Inc.
Combined
Nettaxi, Inc. Plus Net, Inc. Pro Forma Consolidated
3/31/99 3/31/99 Adjustments Pro Forma
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 610,300 $ 1,138,800 $ - $ 1,749,100
Accrued expenses 90,600 - - 90,600
Deferred revenue 42,000 - - 42,000
Income tax payable - 100,000 - 100,000
Current portion of capital lease 7,300 - - 7,300
Notes payable to shareholder 200,000 - - 200,000
- --------------------------------------------- --------------- ---------------- ------------- ---------------
TOTAL CURRENT LIABILITIES 950,200 1,238,800 - 2,189,000
- --------------------------------------------- --------------- ---------------- ------------- ---------------
LONG-TERM LIABILITIES:
Capital lease, net of current portion 3,600 - - 3,600
- --------------------------------------------- --------------- ---------------- ------------- ---------------
TOTAL LIABILITIES 953,800 1,238,800 - 2,192,600
- --------------------------------------------- --------------- ---------------- ------------- ---------------
SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value; 1,000,000 - - - -
shares authorized; no shares outstanding
Common stock subscribed (95,000) - - (95,000)
Common stock, $0.001 par value; 50,000,000 10,800 7,000 - 17,800
shares authorized, 14,110,000 and 21,110,000
shares issued and outstanding, historical and
pro forma, respectivley
Additional paid-in capital 4,872,100 - - 4,872,100
Accumulated deficit (4,157,500) 192,400 - (3,965,100)
- --------------------------------------------- --------------- ---------------- ------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 630,400 199,400 - 829,800
- --------------------------------------------- --------------- ---------------- ------------- ---------------
$ 1,584,200 $ 1,438,200 $ - $ 3,022,400
=============== ================ ============= ===============
</TABLE>
F-4
<PAGE>
NETTAXI, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT
OF OPERATIONS MERGER WITH PLUS NET, INC.
<TABLE>
<CAPTION>
Plus Net
Nettaxi, Inc. For the period Nettaxi, Inc.
For the year 10/28/98 (date of Combined
ended Incorporation) to Pro Forma Consolidated
12/31/98 12/31/98 Adjustments Pro Forma
- ------------------------------------------ --------------- ------------------- ------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES $ 258,000 $ - $ - $ 258,000
COST OF REVENUES 239,800 - - 239,800
- ------------------------------------------ --------------- ------------------- ------------- ---------------
GROSS PROFIT 18,200 - - 18,200
OPERATING EXPENSES:
Sales and marketing 745,600 - - 745,600
Research and development 634,700 - - 634,700
General and administrative 1,053,200 200 - 1,053,400
Asset impairment 667,000 - - 667,000
- ------------------------------------------ --------------- ------------------- ------------- ---------------
TOTAL OPERATING EXPENSES 3,100,500 200 - 3,100,700
- ------------------------------------------ --------------- ------------------- ------------- ---------------
LOSS FROM OPERATIONS (3,082,300) (200) - (3,082,500)
OTHER INCOME (EXPENSE):
Interest income 9,800 - - 9,800
Interest expense (68,800) - - (68,800)
Other income 28,500 - - 28,500
- ------------------------------------------ --------------- ------------------- ------------- ---------------
LOSS BEFORE INCOME TAXES (3,112,800) (200) - (3,113,000)
INCOME TAXES (800) - - (800)
- ------------------------------------------ --------------- ------------------- ------------- ---------------
NET LOSS $ (3,113,600) $ (200) $ - $ (3,113,800)
========================================== =============== =================== ============= ===============
PREFERRED STOCK DIVIDEND (14,300) - - (14,300)
- ------------------------------------------ --------------- ------------------- ------------- ---------------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (3,127,900) $ (200) $ - $ (3,128,100)
========================================== =============== =================== ============= ===============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.37) $ (0.20)
========================================== =============== =================== ============= ===============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,499,781 15,499,781
========================================== =============== =================== ============= ===============
</TABLE>
F-5
<PAGE>
NETTAXI, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT
OF OPERATIONS MERGER WITH PLUS NET, INC.
<TABLE>
<CAPTION>
Nettaxi, Inc. Plus Net
For the three For the three Nettaxi, Inc.
months months Combined
ended ended Pro Forma Consolidated
3/31/99 3/31/99 Adjustments Pro Forma
- ------------------------------------------ --------------- --------------- ------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES $ 280,200 $ 409,100 $ - $ 689,300
COST OF REVENUES 283,100 40,300 - 323,400
- ------------------------------------------ --------------- --------------- ------------- ---------------
GROSS PROFIT (2,900) 368,800 - 365,900
OPERATING EXPENSES:
Sales and marketing 135,700 - - 135,700
Research and development 217,800 - - 217,800
General and administrative 347,400 75,400 - 423,600
- ------------------------------------------ --------------- --------------- ------------- ---------------
TOTAL OPERATING EXPENSES 700,900 75,400 - 777,100
- ------------------------------------------ --------------- --------------- ------------- ---------------
LOSS FROM OPERATIONS (703,800) 293,400 - (410,400)
OTHER INCOME (EXPENSE):
Interest income 2,600 - - 2,600
Interest expense (500) - - (500)
- ------------------------------------------ --------------- --------------- ------------- ---------------
LOSS BEFORE INCOME TAXES (701,700) 293,400 - (408,300)
- ------------------------------------------ --------------- --------------- ------------- ---------------
INCOME TAXES - (100,800) - (100,800)
- ------------------------------------------ --------------- --------------- ------------- ---------------
NET LOSS $ (701,700) $ 192,600 $ - $ (509,100)
========================================== =============== =============== ============= ===============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.05) $ (0.02)
========================================== =============== =============== ============= ===============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING 14,110,000 21,110,000
========================================== =============== =============== ============= ===============
</TABLE>
F-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors and Shareholders of
Nettaxi, Inc.
We have audited the accompanying consolidated balance sheets of Nettaxi, Inc. as
of December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity and cash flows for the year ended December 31,
1998 and for the period from October 23, 1997 (date of incorporation) to
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform our audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Nettaxi, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the year ended December 31, 1998 and for the
period from October 23, 1997 (date of incorporation) to December 31, 1997, in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
San Jose, California
March 16, 1999, except for matters discussed in Note 2 for which the date is
June 5, 1999.
F-7
<PAGE>
NETTAXI, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------- March 31,
1997 1998 1999
---------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 10) $ 49,500 $ 465,800 $ 77,500
Accounts receivable, net of allowance for doubtful accounts 60,100 133,700 285,600
of $0, $31,200 and $28,000, respectively (Note 10)
Prepaid expenses and other assets 2,900 16,100 67,500
---------- ---------- ------------
TOTAL CURRENT ASSETS 112,500 615,600 430,600
---------- ---------- ------------
PROPERTY AND EQUIPMENT, net (Note 3) 142,800 255,100 399,000
PURCHASED TECHNOLOGY, net (Note 4) 1,682,000 667,000 623,500
OTHER INTANGIBLES, net (Note 4) 145,000 115,000 107,500
DEPOSITS - - 23,600
---------- ---------- ------------
$2,082,300 $1,652,700 $ 1,584,200
========== ========== ============
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------- March 31,
1997 1998 1999
- ---------------------------------------------------------- ----------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,000 $ 186,900 $ 610,300
Accrued expenses (Note 5) 77,300 74,000 90,600
Deferred revenue - 47,000 42,000
Income taxes payable (Note 9) 600 - -
Current portion of capital lease obligations (Note 7) - 7,300 7,300
Notes payable to shareholder (Note 6) - - 200,000
Current portion of convertible notes payable, 246,500 - -
related party (Note 6)
- ---------------------------------------------------------- ----------- ------------ ------------
TOTAL CURRENT LIABILITIES 335,400 315,200 950,200
- ---------------------------------------------------------- ----------- ------------ ------------
LONG-TERM LIABILITIES:
Capital lease obligations, less current portion (Note 7) - 5,400 3,600
Convertible notes payable, related party (Note 6) 773,500 - -
- ---------------------------------------------------------- ----------- ------------ ------------
TOTAL LONG-TERM LIABILITIES 773,500 5,400 3,600
- ---------------------------------------------------------- ----------- ------------ ------------
TOTAL LIABILITIES 1,108,900 320,600 953,800
COMMITMENTS AND CONTINGENCIES (Notes 7, 13, and 14)
SHAREHOLDERS' EQUITY (Notes 6, 8 and 14)
Preferred stock, $0.001 par value; 1,000,000 shares 100 - -
authorized; 134,000 shares and no shares issued
and outstanding, respectively
Common stock subscribed - (95,000) (95,000)
Common stock, $0.001 par value; 50,000,000 shares 2,600 10,800 10,800
authorized; 5,238,991 and 14,110,000 shares
issued and outstanding, respectively
Additional paid-in capital 1,297,900 4,872,100 4,872,100
Accumulated deficit (327,200) (3,455,800) (4,157,500)
- ---------------------------------------------------------- ----------- ------------ ------------
TOTAL SHAREHOLDERS' EQUITY 973,400 1,332,100 630,400
- ---------------------------------------------------------- ----------- ------------ ------------
$2,082,300 $ 1,652,700 $ 1,584,200
----------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
F-9
<PAGE>
NETTAXI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year ended December 31, 1998 and for the Period from Three Months Ended March 31,
------------------------- --------------------------
October 23, 1997 (date of incorporation) to December 31, 1997 1997 1998 1998 1999
- -------------------------------------------------------------- ----------- ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES (Notes 10 and 11) $ 144,900 $ 258,000 $ 36,300 $ 280,200
COST OF REVENUES 87,400 239,800 20,600 283,100
- -------------------------------------------------------------- ----------- ------------ ------------ ------------
GROSS PROFIT 57,500 18,200 15,700 (2,900)
OPERATING EXPENSES:
Sales and marketing 3,100 745,600 90,600 135,700
Research and development 36,500 634,700 161,700 217,800
General and administrative 160,000 1,053,200 146,600 347,400
Asset impairment (Note 4) - 667,000 - -
- -------------------------------------------------------------- ----------- ------------ ------------ ------------
TOTAL OPERATING EXPENSES 199,600 3,100,500 398,900 700,900
- -------------------------------------------------------------- ----------- ------------ ------------ ------------
LOSS FROM OPERATIONS (142,100) (3,082,300) (383,200) (703,800)
OTHER INCOME (EXPENSE):
Interest income - 9,800 - 2,600
Interest expense (Note 6) (17,000) (68,800) (25,500) (500)
Other income - 28,500 - -
LOSS BEFORE INCOME TAXES (159,100) (3,112,800) (408,700) (701,700)
- -------------------------------------------------------------- ----------- ------------ ------------ ------------
INCOME TAXES (Note 9) (600) (800) - -
- -------------------------------------------------------------- ----------- ------------ ------------ ------------
NET LOSS $ (159,700) $(3,113,600) $ (408,700) $ (701,700)
============================================================== =========== ============ ============ ============
PREFERRED STOCK DIVIDEND (167,500) (14,300) (14,300) -
- -------------------------------------------------------------- ----------- ------------ ------------ ------------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (327,200) $(3,127,900) $ (423,000) $ (701,700)
============================================================== =========== ============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.06) $ (0.37) $ (0.07) $ (0.05)
============================================================== =========== ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 5,483,500 8,499,781 6,125,230 14,110,000
============================================================== =========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
NETTAXI, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Additional
Preferred Stock Common Stock Stock Paid-in
Shares Amount Shares Amount
---------------- -------------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCES, October 23, 1997 - $ - 2,576,088 $ 100
Issuance of common stock for services and - - 187,837 -
salaries
Issuance of common stock for property, - - 2,475,066 2,500
equipment and technology (Note 4)
Proceeds from sale of preferred stock 134,000 100 - -
Net loss available to common shareholders - - - -
- ----------------------------------------------------------- ---------------- -------------- ---------- -----------
BALANCES, December 31, 1997 134,000 100 5,238,991 2,600
Net proceeds from sale of preferred stock 11,400 - - -
Net proceeds from sale of common stock - - 1,756,378 1,800
Issuance of common stock for services and - - 328,132 300
salaries
Exchange of convertible notes payable and - - 2,792,763 2,800
accrued interest (Note 6)
Exchange of preferred stock for common stock (145,400) (100) 734,438 -
Compensation expense related to warrants granted - - - -
(Note 8)
Warrants exchanged for common stock - - 2,399,298 2,400
Issuance of common stock to Placement Agent - - 200,000 200
Common stock issued in connection with - - 660,000 700
Reorganization
Net loss available to common shareholders - - - -
- ----------------------------------------------------------- ---------------- -------------- ---------- -----------
BALANCES, December 31, 1998 - - 14,110,000 10,800
Balance of information is unaudited through March 31, 1999
Net loss available to common shareholders - - - -
- ----------------------------------------------------------- ---------------- -------------- ---------- -----------
BALANCES, March 31, 1999 - $ - 14,110,000 $ 10,800
=========================================================== ================ ============== ========== ===========
Accumulated
Subscribed Capital Deficit Total
- ----------------------------------------------------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCES, October 23, 1997 $ - $ - $ - $ 100
Issuance of common stock for services and - 52,500 - 52,500
salaries
Issuance of common stock for property, - 977,500 - 980,000
equipment and technology (Note 4)
Proceeds from sale of preferred stock - 267,900 - 268,000
Net loss available to common shareholders - - (327,200) (327,200)
- ----------------------------------------------------------- ------------- ---------- ------------ ------------
BALANCES, December 31, 1997 - 1,297,900 (327,200) 973,400
Net proceeds from sale of preferred stock - 22,900 - 22,900
Net proceeds from sale of common stock - 1,198,300 - 1,200,100
Issuance of common stock for services and - 142,500 - 142,800
salaries
Exchange of convertible notes payable and - 1,103,000 - 1,105,800
accrued interest (Note 6)
Exchange of preferred stock for common stock - 100 - -
Compensation expense related to warrants granted - 855,000 - 855,000
(Note 8)
Warrants exchanged for common stock (95,000) 92,600 - -
Issuance of common stock to Placement Agent - 159,800 - 160,000
Common stock issued in connection with - - (700) -
Reorganization
Net loss available to common shareholders - - (3,127,900) (3,127,900)
- ----------------------------------------------------------- ------------- ---------- ------------ ------------
BALANCES, December 31, 1998 (95,000) 4,872,100 (3,455,800) 1,332,100
Balance of information is unaudited through March 31, 1999
Net loss available to common shareholders - - (701,700) (701,700)
- ----------------------------------------------------------- ------------- ---------- ------------ ------------
BALANCES, March 31, 1999 $ (95,000) $4,872,100 $(4,157,500) $ 630,400
=========================================================== ============= ========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
NETTAXI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 12)
<TABLE>
<CAPTION>
For the Year ended December 31, 1998 and for the Period from Three Months Ended March 31,
--------------------------
October 23, 1997 (date of incorporation) to December 31, 1997 1997 1998 1998 1999
- ---------------------------------------------------------------------- ---------- ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(159,700) $(3,113,600) $ (408,700) $ (701,700)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Gain on disposal of equipment - (28,500) - -
Depreciation and amortization 70,200 433,500 104,900 75,700
Allowance for doubtful accounts - 31,200 - (3,200)
Issuance of common stock for interest on convertible notes - 68,800 - -
Issuance of common stock for services and salaries 52,500 302,800 5,800 -
Asset impairment (Note 4) - 667,000 - -
Compensation expense related to options granted - 855,000 - -
Changes in operating assets and liabilities:
Accounts receivable (60,000) (104,800) 60,000 (148,700)
Prepaid expenses and other assets (2,900) (13,200) 1,800 (51,400)
Accounts payable 11,000 175,900 600 423,400
Accrued expenses 37,300 13,700 31,900 16,600
Deferred revenue - 47,000 - (5,000)
Income taxes payable 600 (600) (600) -
- ---------------------------------------------------------------------- ---------- ------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (51,000) (665,800) (204,300) (394,300)
- ---------------------------------------------------------------------- ---------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of equipment - 34,600 - -
Deposits - - - (23,600)
Capital expenditures - (159,200) (500) (168,600)
- ---------------------------------------------------------------------- ---------- ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES - (124,600) (500) (192,200)
- ---------------------------------------------------------------------- ---------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on obligations under capital lease - (2,000) - (1,800)
Notes payable to shareholder - - - 200,000
Net proceeds from issuance of preferred stock 100,500 8,600 8,600 -
Net proceeds from issuance of common stock - 1,200,100 147,500 -
- ---------------------------------------------------------------------- ---------- ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 100,500 1,206,700 156,100 198,200
- ---------------------------------------------------------------------- ---------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 49,500 416,300 (48,700) (388,300)
CASH AND CASH EQUIVALENTS, beginning of period - 49,500 49,500 465,800
- ---------------------------------------------------------------------- ---------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 49,500 $ 465,800 $ 800 $ 77,500
====================================================================== ========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
1. SUMMARY OF ACCOUNTING POLICIES
The Company Nettaxi, Inc. (formerly Swan Valley Snowmobiles, Inc., a
publicly traded corporation-the Company), is a Nevada Corporation,
which was incorporated on October 26, 1995.
On September 29, 1998 the Company completed the acquisition of 100% of
the outstanding common stock of Nettaxi OnLine Communities, Inc., in
exchange for 660,000 shares of the Company's $0.001 par value common
stock and changed its name to Nettaxi, Inc. For accounting purposes,
the acquisition has been treated as the acquisition of the Company by
Nettaxi OnLine Communities, Inc. with Nettaxi OnLine Communities, Inc.
as the acquiror (Reverse Acquisition). Since the Company prior to the
Reverse Acquisition was a public shell corporation with no significant
operations, pro-forma information giving effect to the acquisition is
not presented. All shares and per share data prior to the acquisition
have been restated to reflect the stock issuance and related stock
split (Note 8).
As the former shareholders of Nettaxi OnLine Communities, Inc.
received 85% of the shares in the Company immediately after the
acquisition, the financial statements for periods prior to the
reorganization are those of Nettaxi OnLine Communities, Inc.
Nettaxi OnLine Communities, Inc., a Delaware corporation, was
incorporated on October 23, 1997. Nettaxi OnLine Communities, Inc.
provides a theme-oriented community and launch point for entrepreneurs
and consumers on the Internet.
Use of Estimates
The preparation of consolidated 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 consolidated financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
F-13
<PAGE>
The accompanying interim consolidated financial statements as of March
31, 1999, and for the three months ended March 31, 1999 and 1998, are
unaudited. The unaudited interim consolidated financial statements
have been prepared on the same basis as the annual consolidated
financial statements and, in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments,
necessary to present fairly the Company's financial position, results
of operations and cash flows as of March 31, 1999 and for the three
months ended March 31, 1999 and 1998. The financial data and other
information disclosed in these notes to consolidated financial
statements related to these periods are unaudited. The results for the
three months ended March 31, 1999 and 1998 are not necessarily
indicative of the results to be expected for the year ending December
31, 1999.
Consolidation
The accompanying consolidated financial statements include the
accounts of Nettaxi, Inc. (formerly Swan Valley Snowmobile, Inc.) and
its wholly-owned subsidiary, Nettaxi OnLine Communities, Inc. All
intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments having original
maturities of 90 days or less to be cash equivalents.
Accounts Receivable and Allowances For Doubtful Accounts
The Company grants credit to its customers after undertaking an
investigation of credit risk for all significant amounts. An allowance
for doubtful accounts is provided for estimated credit losses at a
level deemed appropriate to adequately provide for known and inherent
risks related to such amounts. The allowance is based on reviews of
losses, adjustment history, current economic conditions and other
factors that deserve recognition is estimating potential losses. While
management uses the best information available in making its
determination, the ultimate recovery of recorded accounts receivable
is also dependent upon future economic and other conditions that may
be beyond management's control.
F-14
<PAGE>
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated economic useful
lives of the assets, as follows:
<TABLE>
<CAPTION>
Estimated useful lives
----------------------
<S> <C>
Furniture and fixtures 7 years
Office equipment 5 years
Computers and equipment 3 years
</TABLE>
Assets held under capital leases are amortized on a straight-line
basis over the shorter of the lease term or the estimated useful lives
of the related assets.
Purchased Technology and Other Intangibles
The Company amortizes, on a straight-line basis, the cost of purchased
technology over the shorter of five (5) years or the useful life of
the related technology, and the other intangibles over a 5 year
period.
Software Development Costs
In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or
otherwise Marketed, software development costs are expensed as
incurred until technological feasibility has been established, at
which time such costs are capitalized until the product is available
for general release to customers. To date, the establishment of
technological feasibility of the Company's products and general
release of such software have substantially coincided. As a result,
software development costs qualifying for capitalization have been
insignificant, and therefore, the Company has not capitalized any
software development costs.
F-15
<PAGE>
Revenue Recognition and Deferred Revenue
The Company's revenues are derived principally from the sale of banner
advertisements and from products from its online malls. Advertising
revenues are recognized in the period in which the advertisement is
delivered, provided that collection of the resulting receivable is
probable. Advertisers are charged on a per impression or delivery
basis up to a maximum as specified in the contract. To date, the
duration of the Company's advertising commitments has not exceeded one
year. When the Company guarantees a minimum number of impressions or
deliveries, revenue is recognized ratably in proportion to the number
of impressions or deliveries recorded to the minimum number of
impressions and deliveries guaranteed. Deferred revenue resulting from
advertising agreements aggregated $47,000 and $0 as of December 31,
1998 and 1997, and is amortized on a straight-line basis over the life
of the advertising agreement. Product revenue is recognized upon
shipment.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes, which requires an asset and liability approach. This approach
results in the recognition of deferred tax assets (future tax
benefits) and liabilities for the expected future tax consequences of
temporary differences between the book carrying amounts and the tax
basis of assets and liabilities. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be deductible or taxable when the
assets and liabilities are recovered or settled. Future tax benefits
are subject to a valuation allowance when management believes it is
more likely than not that the deferred tax assets will not be
realized.
F-16
<PAGE>
Advertising Costs
The cost of advertising is expensed as incurred. Advertising costs for
the year ended December 31, 1998 and for the period ended December 31,
1997 were approximately $3,100 and $300, respectively, and for the
three months period ended March 31, 1999 $10,000.
Long-Lived Assets
The Company periodically reviews its long-lived assets for impairment.
When events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, the Company writes the
asset down to its fair value.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents:
The carrying amount reported in the consolidated balance sheets
for cash and cash equivalents approximate fair value for cash and
cash equivalents.
Long-term debt:
The fair value of long-term debt is estimated based on current
interest rates available to the Company for debt instruments with
similar terms and remaining maturities.
Related party notes receivable and payable:
The fair value of the notes receivable and notes payable to
shareholders is based on arms-length transactions and bear
interest at rates comparable to similar debt obligations.
At December 31, 1998 and 1997, the fair values of the Company's debt
instruments approximate their historical carrying amounts.
F-17
<PAGE>
Stock-Based Incentive Program
SFAS No. 123, Accounting for Stock-Based Compensation, encourages
entities to recognize compensation costs for stock-based employee
compensation plans using the fair value based method of accounting
defined in SFAS No. 123, but allows for the continued use of the
intrinsic value based method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. The Company continues to use the accounting prescribed by
APB Opinion No. 25 and as such is required to disclose pro forma net
income (loss) and earnings (loss) per share as if the fair value based
method of accounting had been applied (Note 8).
Adoption of New Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 132, Employer's Disclosure about Pensions and Other
Postretirement Benefits, which standardizes the disclosure
requirements for pension and other postretirement benefits. The
adoption of SFAS No. 132 had no impact on the Company's current
disclosures.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires companies to
recognize all derivatives contracts as either assets or liabilities in
the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of the
hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the
period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000.
F-18
<PAGE>
Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new standard
to affect its consolidated financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) No. 98-1, Software for Internal
Use, which provides guidance on accounting for the cost of computer
software developed or obtained for internal use. SOP No. 98-1 is
effective for financial statements for fiscal years beginning after
December 15, 1998. The Company does not expect that the adoption of
SOP No. 98-1 will have a material impact on its consolidated financial
statements.
Earnings Per Common Share
In February 1997, the FASB issued SFAS No. 128, Earnings Per Share,
which was effective December 28, 1997. Conforming to SFAS No. 128, the
Company changed its method of computing earnings per share and
restated all prior periods included in the consolidated financial
statements. Under SFAS No. 128, the dilutive effect of stock options,
warrants and convertible stock is excluded from the calculation of
basic earnings per share.
2. BUSINESS COMBINATION
Effective May 7, 1999, Nettaxi, Inc. completed a merger in a single
transaction with Plus Net, Inc. by exchanging 7 million shares of its
common stock for all of the common stock of Plus Net, Inc. Each share
of Plus Net was exchanged for 1,000 shares of Nettaxi common stock.
The merger constituted a tax-free reorganization and has been
accounted for as a pooling of interests under Accounting Principles
Board Opinion No. 16.
For periods proceeding the merger, there were no intercompany
transactions which require elimination from the combined consolidated
results of operations and there were no adjustments necessary to
conform the accounting practices of the two companies.
F-19
<PAGE>
The following unaudited pro forma consolidated financial information
reflects the results of operations for the year ended December 31,
1998 and the three months ended March 31, 1999, as if the merger had
occurred on October 28, 1998, the date Plus Net was incorporated.
These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what operating results
would have been had the merger actually taken place on October 28,
1998, and may not be indicative of future operating results.
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Period Ended
1998 March 31, 1999
<S> <C> <C>
Net revenues:
Nettaxi $ 258,000 $ 280,200
Plus Net - 409,100
- ----------------------------------------------------- -------------- ---------------
Combined $ 258,000 $ 689,300
===================================================== ============== ===============
Net (Loss) Income Available to Common Shareholders:
Nettaxi $ (3,127,900) $ (701,700)
Plus Net (200) 192,600
- ----------------------------------------------------- -------------- ---------------
Combined $ (3,128,100) $ (509,100)
===================================================== ============== ===============
</TABLE>
3. PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
December 31,
------------------ March 31,
1997 1998 1999
-------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
Furniture and fixtures $ 5,000 $ 5,000 $ 5,000
Office equipment 45,000 59,700 59,700
Computers and equipment 100,000 250,200 418,800
-------- -------- -----------
150,000 314,900 483,500
Less accumulated depreciation 7,200 59,800 84,500
-------- -------- -----------
$142,800 $255,100 $ 399,000
======== ======== ===========
</TABLE>
F-20
<PAGE>
Equipment under capital lease obligations aggregated $14,700 as of
December 31, 1998 and March 31, 1999, with related accumulated
amortization of $500 and $1,200, respectively.
4. PURCHASED TECHNOLOGY AND OTHER INTANGIBLES
In November 1997, the Company issued a convertible secured promissory
note in the amount of $1,020,000 (Note 6) and 2,475,066 shares of
common stock, valued at $980,000, to a related party in exchange for
fixed assets, liabilities and technology. Core to the technology
acquired was a web to database software application and the underlying
technology to the Company's Internet The City products. Based on the
fair market value of the consideration exchanged, as determined by an
independent appraisal service, the aggregate purchase price was
$2,000,000, and was allocated to the following respective assets and
liabilities based on their fair market value at the time of the
transaction:
<TABLE>
<CAPTION>
<S> <C>
Purchased technology, aggregate $1,740,000
- ---------------------------------------- -----------
Other intangibles 150,000
Computers and equipment 100,000
Office equipment 45,000
Furniture and fixtures 5,000
Contracts payable and accrued expenses (40,000)
- ---------------------------------------- -----------
$2,000,000
======================================== ===========
</TABLE>
In 1998, the Company experienced several significant functional
problems with portions of the purchased technology, namely the web to
database software application, due to those components incompatibility
with subsequent releases of upgraded versions of its operating system.
Following attempts to make these components of the acquired technology
compatible, the Company decided, in December 1998, not to spend
additional monies on these components but to replace them. As
approximately 50% of the components of the acquired technology were no
longer technically viable with the upgraded versions of the Company's
operating systems and provided no alternative future use, the Company
wrote off the unamortized portion of the impaired technology.
F-21
<PAGE>
In December 1998, the Company recorded an impairment of purchased
technology with a net book value of $667,000.
A summary of purchased technology and other intangibles follows:
<TABLE>
<CAPTION>
December 31,
------------------- March 31,
1997 1998 1999
- -------------------------------- ---------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
Purchased technology $1,740,000 $870,000 $ 870,000
Less accumulated amortization 58,000 203,000 246,500
- -------------------------------- ---------- -------- -----------
$1,682,000 $667,000 $ 623,500
================================ ========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------- March 31,
1997 1998 1999
- -------------------------------- ---------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
Other intangibles $ 150,000 $150,000 $ 150,000
Less accumulated amortization 5,000 35,000 42,500
- -------------------------------- ---------- -------- -----------
$ 145,000 $115,000 $ 107,500
================================ ========== ======== ===========
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------- March 31,
1997 1998 1999
- -------------------------------- --------- ------- -----------
(Unaudited)
- ----------------------------------
<S> <C> <C> <C>
Payroll and related expenses $17,500 $10,000 $ 14,300
Professional fees - 52,700 55,000
Accrued interest, related party 17,000 - -
Other 42,800 11,300 21,300
- -------------------------------- --------- ------- -----------
$77,300 $74,000 $ 90,600
================================ ========= ======= ===========
</TABLE>
F-22
<PAGE>
6. NOTES PAYABLE
On November 1, 1997, the Company issued a 10% five year convertible
secured promissory note in the amount of $1,020,000. In September
1998, this note, with accrued interest of $85,800, was converted into
2,792,763 shares of common stock, in accordance with the terms of the
original debt agreement. Interest expense on the note aggregated
$68,800 in 1998 and $17,000 in the period ended December 31, 1997.
In March 1999, a shareholder advanced the Company $200,000 under a
short-term note. The note bears interest at 5% and was repaid in May
1999.
7. LEASE COMMITMENTS
The Company leases its facility under an operating lease, which
expires on October 31, 1999. The facility lease requires the Company
to pay certain maintenance and operating expenses, such as taxes,
insurance, and utilities. Rent expense related to the operating lease
was $35,500 in 1998, and $6,800 for the period ended December 31,
1997. The Company believes that it will be able to renew or find
another lease with similar terms and conditions and not experience any
business interruptions in 1999 as a result of the above.
A summary of the future minimum lease payments under capitalized
leases together with the present value of such minimum lease payments
and future minimum payments required under non-cancelable operating
leases with terms in excess of one year follows:
<TABLE>
<CAPTION>
December 31, Operating Lease Capital Leases
- ------------------------------------------- ---------------- ---------------
<S> <C> <C>
1999 $ 33,800 $ 7,500
2000 - 5,500
- ------------------------------------------- ---------------- ---------------
33,800 13,000
================
Less amounts representing interest (8.00%) 300
---------------
Present value of minimum lease payments 12,700
Less current maturities 7,300
$ 5,400
===============
</TABLE>
F-23
<PAGE>
8 SHAREHOLDERS' EQUITY
PREFERRED STOCK
In October 1997, the Company offered shares of its preferred stock
through a private placement offering. This offering established a
maximum of 150,000 shares of Series A preferred stock at $0.75 per
share, each share convertible into 5.05 shares of the Company's common
stock at any time.
During the year ended December 31, 1998 and the period ended December
31, 1997, the Company issued 11,400 and 134,000 shares of Series A
preferred stock in this offering for net cash proceeds of $8,600 and
$100,500, respectively. As these shares were issued at a discount from
the then fair market value of the stock the Company recorded deemed
preferred stock dividends of $14,300 and $167,500 in the year ended
December 31, 1998 and for the period ended December 31, 1997,
respectively.
In September 1998, all of the shares of Series A preferred stock were
converted into 734,438 shares of the Company's common stock.
COMMON STOCK
In October 1997, the Company offered shares of its common stock
through a private placement offering. This offering established a
maximum of 1,262,650 shares of common stock at $0.40 per share. During
1998, the Company issued 506,378 shares of common stock in this
offering for net proceeds of $200,500.
During the year ended December 31, 1998 and the period ended December
31, 1997, the Company issued 252,045 and 88,395 shares of common stock
with ascribed values of $120,000 and $35,000 as payments for services,
respectively. The shares issued in connection with the services
performed were valued at the then fair market value of the shares
issued based on the October 1997 Private Placement Offering.
F-24
<PAGE>
During the year ended December 31, 1998 and the period ended December
31, 1997, the Company issued 76,087 and 99,442 shares of common stock
with ascribed values of $22,800 and $17,500 to officers and employees
of the Company in lieu of salaries, respectively.
In September 1998, the Company's Board of Directors declared a 2.53 to
1 stock split, in connection with the Acquisition as discussed in Note
1. All references to number of shares of common stock and per share
data in the consolidated financial statements have been adjusted to
reflect the stock split on a retroactive basis.
In September 1998, in connection with the Acquisition, the Company
offered shares of its common stock through a private placement
offering (the Offering). The Offering established a maximum of
1,250,000 shares of common stock at $0.80 per share. The Placement
Agent received 200,000 shares of common stock with a fair market value
of $160,000. The Company issued 1,250,000 shares of common stock in
the Offering for net proceeds of $999,600.
WARRANTS
In 1998, prior to the adoption of the Stock Option Plan as discussed
below, the Company granted warrants to officers and employees of the
Company, to purchase 2,399,298 shares of common stock at $0.04.
In September 1998, these warrants were exchanged for 2,399,298 shares
of common stock via the issuance of promissory notes for $95,000,
concurrent with the reorganization of the Company. The promissory
notes have been accounted for as common stock subscribed and are an
offset to shareholders' equity until such notes are collected.
In accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees, the Company recorded $855,000 of compensation costs
associated with the above warrants.
F-25
<PAGE>
STOCK OPTION PROGRAM
On September 29, 1998, the Company adopted a Stock Option Plan (the
Plan). The Plan is restricted to employees, officers, and consultants
of the Company. Options granted under the Plan generally vest over
three years and are exercisable over ten years. Non-stautory options
are granted at prices not less than 85% of the estimated fair value of
the stock on the date of grant as determined by the Board of
Directors. Incentive options are granted at prices not less than 100%
of the estimated fair value of the stock on the date of grant.
However, options granted to shareholders who own greater than 10% of
the outstanding stock are established at no less than 110% of the
estimated fair value of the stock on the date of grant.
The Company has reserved three million shares of common stock for
issuance under The Plan. Options granted during the period September
29, 1998 to December 31, 1998 were granted at an exercise price, which
equaled the then fair market value of the Company's common stock based
on the Private Placement Offering in September 1998.
A summary of the status of the Company's Stock Option Plan as of
December 31, 1998, and changes during the year then ended is presented
in the following table:
<TABLE>
<CAPTION>
Options Outstanding
--------------------
Weighted-
Options Average
Available Exercise
for Grant Shares Price
- ------------------------------------ ---------- -------- ----------
<S> <C> <C> <C>
Balances, September 29, 1998 - - $ -
Shares reserved 3,000,000 - -
Granted (280,000) 280,000 0.82
- ------------------------------------ ---------- -------- ----------
Balances, December 31, 1998 2,720,000 280,000 $ 0.82
==================================== ========== ======== ==========
Exercisable at year-end 23,333 $ 0.82
==================================== ========== ======== ==========
Weighted-average fair value of
options granted during the period: $ 0.82
==========
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1998:
F-26
<PAGE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------- ---------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Exercise Number Contractual Exercise Price Number Exercise Price
Price Outstanding Life (Years) per Share Exercisable per Share
----------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
0.80 - $1.00 280,000 9.75 $ 0.82 23,333 $ 0.82
----------- ----------------- --------------- ----------- ---------------
</TABLE>
In the first quarter of 1999, the Company granted an additional
100,000 stock options at the then fair market value of the Company's
common stock.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
Company to provide pro forma information regarding net (loss) income
and (loss) earnings per share as if compensation cost for the
Company's stock option plan had been determined in accordance with the
fair value based method prescribed in SFAS No.123. The Company
estimates the fair value of stock options at the grant date by using
the Black-Scholes option pricing-model with the following weighted
average assumptions used for grants in 1998: dividend yield of 0;
expected volatility of 180%; risk-free interest rate of 5.7%; and
expected lives of three years for all plan options.
Under the accounting provisions of SFAS No. 123, the Company's pro
forma net loss and basic loss per common share would have been
$(3,183,000) and $(0.37), respectively at December 31, 1998, having
used the fair recorded intrinsic value of stock options, as determined
by using the Black-Scholes pricing-model.
9. INCOME TAXES
The provision for income taxes for the year ended December 31, 1998
and the period ended December 31, 1997 consisted of minimum state
taxes.
F-27
<PAGE>
The following summarizes the differences between income tax expense
and the amount computed applying the Federal income tax rate of 34%
for the year ended December 31, 1998 and for the period ended December
31, 1997:
<TABLE>
<CAPTION>
1997 1998
- -------------------------------------------- --------- ------------
<S> <C> <C>
Federal income tax benefit at statutory rate $(54,100) $(1,058,400)
State income tax benefit (9,800) (180,800)
Tax benefit not currently recognizable 64,500 835,400
Other - 404,600
- -------------------------------------------- --------- ------------
Provision for income taxes $ 600 $ 800
============================================ ========= ============
</TABLE>
Deferred income taxes and benefits result from temporary timing
differences in the recognition of certain expenses and income items
for tax and financial reporting purposes, as follows:
<TABLE>
<CAPTION>
December 31, 1997 1998
- --------------------------------- --------- ----------
<S> <C> <C>
Net operating loss carryforward $ 67,400 $ 473,900
Depreciation and amortization (10,100) (90,300)
Accrued compensation and benefits - 4,000
Reserves not currently deductible 200 316,200
- --------------------------------- --------- ----------
Total deferred tax asset 57,500 884,400
Valuation allowance (57,500) (884,400)
- --------------------------------- --------- ----------
Net deferred tax asset $ - $ -
================================= ========= ==========
</TABLE>
The Company has net operating loss carryforwards available to reduce
future taxable income, if any, of approximately $1,227,000 for Federal
income tax purposes. The benefits from these carryforwards expire
through 2018. As of December 31, 1998, management believes it cannot
be determined that it is more likely than not that these carryforwards
and its other deferred tax assets will be realized, and accordingly,
fully reserved for these deferred tax assets.
F-28
<PAGE>
Pursuant to the "change in ownership" provisions of the Tax Reform Act
of 1986, utilization of the Company's net operating loss and research
and development tax credit carryforwards may be limited, if a
cumulative change of ownership of more than 50% occurs within any
three-year period. The Company has not determined if an ownership
change has occurred.
10. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash
equivalents and trade receivables. The Company places its cash and
cash equivalents with high quality financial institutions and, by
policy, limits the amounts of credit exposure to any one financial
institution.
The Company's accounts receivable are derived from many customers in
various industries. The Company believes any risk of accounting loss
is significantly reduced due to the diversity of its end-customers and
geographic sales areas. The Company performs credit evaluation of its
customers' financial condition whenever necessary, and generally does
not require cash collateral or other security to support customer
receivables.
11. MAJOR CUSTOMERS
For the year ended December 31, 1998, four customers accounted for
approximately 28%, 21%, 13% and 12% of revenues, respectively with
related accounts receivable as of December 31, 1998 of $52,100,
$38,100, $0 and $23,800, respectively.
For the period ended December 31, 1997, one customer accounted for
approximately 84% of revenues, with related accounts receivable at
December 31, 1997 of $59,100.
F-29
<PAGE>
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following is supplemental disclosure for the statements of cash
flows.
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31, March 31,
----------------------
Periods Ended 1997 1998 1999
- -------------------------------- ---------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Cash Paid:
- --------------------------------
Income taxes $ - $ 1,400 $ -
Interest $ - $ 100 $ -
Noncash Investing and Financing
- --------------------------------
Activities:
- --------------------------------
Note payable and common stock
issued for purchased
technology and other assets $2,000,000 $ - $ -
Purchase of equipment under
capital lease $ - $ 14,700 $ -
Issuance of common stock for
convertible notes payable plus
accrued interest $ - $1,020,000 $ -
Conversion of preferred stock to
common stock $ - $ 109,100 $ -
Promissory notes received for
common stock subscribed $ - $ 95,000 $ -
================================ ========== ========== ============
</TABLE>
13. CONTINGENCIES
The Company is involved in litigation arising in the ordinary course
of business. In the opinion of management, after consulting with legal
counsel, these matters are without merit and will be resolved without
material adverse effect on the Company's financial position, results
of operations or cash flows.
F-30
<PAGE>
14. SUBSEQUENT EVENTS
On March 31, 1999, the Company entered into a $5,000,000 Convertible
Debt Financing Agreement (the Agreement) for which proceeds was
received in April 1999. The convertible debenture bears interest at 5%
and matures on March 31, 2004. The debentures are convertible at the
option of the holder into that number of shares of common stock equal
to the principal amount of the debentures to be converted including
all accrued interest, divided by the conversion price specified in the
debentures. The conversion price is the lesser of a variable or fixed
conversion price. The variable conversion price is based on the
trading price of the Company's common stock over a fixed period to
conversion of the debentures, and the fixed conversion price is
$11.88. The fixed conversion price represents 120% of the average of
the three lowest trades ten days prior to the effective date of the
Agreement. In conjunction with the Agreement, the Company issued
warrants, which vest immediately, to purchase 150,000 shares of common
stock at $12.375. Utilizing the Black-Scholes model the Company will
record an additional $130,500 of interest expense over the life of the
debt to the date of convertibility.
Subsequent to March 31, 1999, the Company granted 635,000 options at
an exercise price that equaled the then fair market value of the
Company's common stock.
F-31
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders and Board of Directors
Plus Net, Inc.
We have audited the accompanying balance sheet of Plus Net, Inc. as of December
31, 1998, and the related statements of operations, shareholders' deficiency,
and cash flows for the period October 28, 1998 (date of incorporation) to
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform our 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Plus Net, Inc. as of December
31, 1998, and the results of its operations and its cash flows for the period
October 28, 1998 (date of incorporation) to December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ BDO Seidman, LLP
San Jose, California
June 5, 1999
F-32
<PAGE>
PLUS NET, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
- ----------------------------------------------------------- -------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ 1,437,600
- ----------------------------------------------------------- -------------- -----------
TOTAL CURRENT ASSETS - 1,437,600
- ----------------------------------------------------------- -------------- -----------
PROPERTY AND EQUIPMENT, net (Note 2) 700 600
- ----------------------------------------------------------- -------------- -----------
$ 700 $ 1,438,200
=========================================================== ============== ===========
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
CURRENT LIABILITIES:
Accounts payable $ - $ 1,138,800
Note payable, related party 900 -
Income tax payable - 100,000
- ----------------------------------------------------------- -------------- -----------
TOTAL CURRENT LIABILITIES 900 1,238,800
- ----------------------------------------------------------- -------------- -----------
SHAREHOLDERS' (DEFICIENCY) EQUITY:
Common stock, $1.00 par value; 10,000 shares authorized; 7,000 7,000
7,000 issued and outstanding
Notes receivable (7,000) -
Retained earnings (200) 192,400
- ----------------------------------------------------------- -------------- -----------
TOTAL SHAREHOLDERS' (DEFICIENCY) EQUITY (200) 199,400
- ----------------------------------------------------------- -------------- -----------
$ 700 $ 1,438,200
=========================================================== ============== ===========
</TABLE>
See accompanying notes to financial statements
F-33
<PAGE>
PLUS NET, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period from October 28, 1998 (date of incorporation) to
December 31, 1998 and for the three months ended March 31, 1999 1998 1999
- --------------------------------------------------------------- ------ ------------
(Unaudited)
<S> <C> <C>
REVENUES $ - $ 409,100
COST OF REVENUES - 40,300
- --------------------------------------------------------------- ------ ------------
GROSS PROFIT - 368,800
- --------------------------------------------------------------- ------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES 200 75,400
- --------------------------------------------------------------- ------ ------------
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES (200) 293,400
- --------------------------------------------------------------- ------ ------------
INCOME TAXES - (100,800)
- --------------------------------------------------------------- ------ ------------
NET (LOSS) INCOME $(200) $ 192,600
=============================================================== ====== ============
</TABLE>
See accompanying notes to financial statements
F-34
<PAGE>
PLUS NET, INC.
STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
<TABLE>
<CAPTION>
Common Stock Notes Retained
---------------
Shares Amount Receivable Earnings Total
- ----------------------------------- ------ ------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, October 28, 1998 6,000 $ 6,000 $ (6,000) $ - $ -
Common stock issued for notes 1,000 1,000 (1,000) - -
receivable
Net loss - - - (200) (200)
- ----------------------------------- ------ ------- ------------ ---------- ---------
BALANCE, December 31, 1998 7,000 $ 7,000 $ (7,000) $ (200) $ (200)
Balance of information is unaudited
through March 31, 1999:
Notes receivable collected - - 7,000 - 7,000
Net income - - - 192,600 192,600
- ----------------------------------- ------ ------- ------------ ---------- ---------
BALANCE, March 31, 1999 7,000 $ 7,000 $ - $ 192,400 $199,400
=================================== ====== ======= ============ ========== =========
</TABLE>
See accompanying notes to financial statements
F-35
<PAGE>
PLUS NET, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period from October 28, 1998 (date of incorporation) to
December 31, 1998 and for the three months ended March 31, 1999 1998 1999
- ------------------------------------------------------------------------ ------ ------------
(Unaudited)
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(200) $ 192,600
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 200 100
Changes in current operating assets and liabilities:
Accounts payable - 1,138,800
Note payable 900 (900)
Income tax payable - 100,000
- ------------------------------------------------------------------------ ------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 900 1,430,600
- ------------------------------------------------------------------------ ------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (900) -
- ------------------------------------------------------------------------ ------ ------------
NET CASH USED IN INVESTING ACTIVITIES (900) -
- ------------------------------------------------------------------------ ------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock - 7,000
- ------------------------------------------------------------------------ ------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 7,000
- ------------------------------------------------------------------------ ------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ - $ 1,437,600
CASH AND CASH EQUIVALENTS, beginning of period - -
CASH AND CASH EQUIVALENTS, end of period $ - $ 1,437,600
======================================================================== ====== ============
</TABLE>
See accompanying notes to financial statements
F-36
<PAGE>
1. SUMMARY OF ACCOUNTING POLICIES
The Company Plus Net, Inc. (the Company) was incorporated in 1998 to
take advantage of the many opportunities on the Internet. The Company
began its operations in January 1999 and is developing and licensing a
wide range of tools to generate revenue opportunities that are
showcased in Traffico.com. This portal site includes a powerful search
engine and Internet guide, and a free web-based e-mail service. In
addition, the Company has developed a robust engine to process on-line
credit card transaction, along with contracts for advertising
placement and colocation services. The Company is dedicated to
providing web visitors with the Internet's most useful and powerful
tools to enhance the Web experience.
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, disclosure of contingent 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.
Cash and Cash Equivalents
The Company considers all highly liquid investments having original
maturities of 90 days or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation on equipment
is calculated on a straight-line basis over the estimated useful lives
of the assets, generally five years.
Long-Lived Assets
The Company periodically reviews its long-lived assets for impairment.
When events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, the Company writes the
asset down to its fair value.
F-37
<PAGE>
Revenue Recognition
Revenue is principally derived from successful credit evaluations and
from the processing of on-line monetary transactions.
Revenue is recorded only upon successful fulfillment of credit checks
and completion of transactions.
Adoption of New Accounting Pronouncements
In February 1998, the FASB issued SFAS No. 132, Employer's Disclosure
about Pensions and Other Postretirement Benefits, which standardizes
the disclosure requirements for pension and other postretirement
benefits. The adoption of SFAS No. 132 did not have a material impact
the Company's current disclosures.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires companies to
recognize all derivatives contracts as either assets or liabilities in
the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of the
hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the
period of change. SFAS No. 133 is effective for all fiscal years
beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new standard
to affect its financial statements.
F-38
<PAGE>
PLUS NET, INC.
NOTES TO FINANCIAL STATEMENTS
2. PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
- ----------------------------- ------------- -----------
(Unaudited)
<S> <C> <C>
Equipment $ 900 $ 900
- ----------------------------- ------------- -----------
900 900
Less accumulated depreciation 200 300
- ----------------------------- ------------- -----------
$ 700 $ 600
============================= ============= ===========
</TABLE>
3. SUBSEQUENT EVENTS
Effective May 7, 1999 the Company completed a merger with Nettaxi,
Inc. by exchanging all of its common stock for 7 million shares of the
common stock of Nettaxi, Inc.
The merger constituted a tax-free reorganization and has been
accounted for as a pooling of interests under Accounting Principles
Board Opinion No. 16.
F-39
<PAGE>
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. Neither we nor the
selling stockholders have authorized anyone else to provide you with different
information. Neither we nor the selling stockholders are asking an offer to
sell, or soliciting an offer to buy, these securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or our affairs have not
changed since the date hereof.
Until __________, 1999, 25 days after the date of this prospectus, all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
NETTAXI, INC.
2,132,752 Shares of
Common Stock
____________________
PROSPECTUS
____________________
_________, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of various expenses, all of
which we will pay, in connection with the sale and distribution of the
securities being registered. All of the amounts shown are estimates, except the
Securities and Exchange Commission registration fee.
Securities and Exchange Commission Registration Fee $10,564
Accounting Fees and Expenses $
Legal Fees and Expenses $
NASD (National Market System Filing Fee) $95,000
Miscellaneous $
Total $
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Nevada Private Corporation Law provides that a corporation may
indemnify any person who was or is a party or is threatened to be made a party,
by reason of the fact that such person was an officer or director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to:
- - any action or suit by or in the right of the corporation against
expenses, including amounts paid in settlement and attorneys' fees,
actually and reasonably incurred, in connection with the defense or
settlement believed to be in, or not opposed to, the best interests of the
corporation, except that indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction to be liable to the corporation or for amounts paid
in settlement to the corporation; and
- - any other action or suit or proceeding against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement, actually
and reasonably incurred, if he or she acted in good faith and in a manner
which he or she reasonably believed to be in, or not opposed to,
reasonable cause to believe his or her conduct was unlawful.
To the extent that a director, officer, employee or agent has been "successful
on the merits or otherwise" the corporation must indemnify such person. The
articles of incorporation or bylaws may provide that the expenses of officers
and directors incurred in defending any such action must be paid as incurred and
in advance of the final disposition of such action. The Nevada Private
Corporation Law also permits the corporation to purchase and maintain insurance
on behalf of the corporation's directors and officers against any liability
arising out of their status as such, whether or not the corporation would
have the power to indemnify him against such liability. These provisions may be
sufficiently broad to indemnify such persons for liabilities arising under the
Securities Act.
<PAGE>
The Company's articles of incorporation include a provision eliminating the
personal liability of directors for breach of fiduciary duty except that such
provision will not eliminate or limit any liability which may not be so
eliminated or limited under applicable law.
The Company intends to enter into indemnification agreements with its
directors and officers substantially in the form attached to this registration
statement as Exhibit 10.35. These agreements provide, in general, that the
Company will indemnify such directors and officers for, and hold them harmless
from and against, any and all amounts paid in settlement or incurred by, or
assessed against, such directors and officers arising out of or in connection
with the service of such directors and officers as a director or officer of the
Company or its Affiliates to the fullest extent permitted by Nevada law.
The Company maintains liability insurance for its directors and officers
covering, subject to exceptions, any actual or alleged negligent act, error,
omission, misstatement, misleading statement, neglect or breach of duty by such
directors or officers, individually or collectively, in the discharge of their
duties in their capacity as directors or officers of the Company.
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth in chronological order is information regarding shares of common
stock issued and options and warrants and other convertible securities granted
by the Company during the past three years. Also included is the consideration,
if any, received by the Company for such shares and options and information
relating to the section of the Securities Act of 1933, or rule of the
Securities and Exchange Commission under which exemption from registration
was claimed.
Transactions described in Items (1) through (10) below refer to the
securities of Nettaxi Online Communities, Inc., a Delaware corporation which
was the predecessor entity of the filer of this registration statement, and
transactions described in Items (11) through (18) below refer to the
securities of Nettaxi, Inc., a Nevada corporation which is the filer of this
Registration Statement.
(1) In October, 1997, the Company issued each of Robert A. Rositano,
Jr. and Dean Rositano 1,288,044 shares for $51.00 in cash. The issuances
were made in reliance on Section 4(2) of the Securities Act of 1933 and were
made without general solicitation or advertising. The purchasers were
sophisticated investors with access to all relevant information necessary to
evaluate the investments, and who represented to the Company that the shares
were being acquired for investment.
(2) In October, 1997, the Company entered into the Asset Purchase
Agreement with SSN Properties, LLC pursuant to which the Company issued the
aggregate amount of 2,475,066 shares of common stock to SSN Properties, LLC
valued at $0.396 per share. SSN Properties made a pro rata distribution of such
shares to its members in April, 1999. The issuance was made in reliance on
Section 4(2) of the Securities Act of 1933 and/or Regulation D promulgated
under the Securities Act of 1933 and was made without general solicitation or
advertising. The purchaser was a sophisticated investor with access to all
relevant information necessary to evaluate the investment, and who represented
to the Company that the shares were being acquired for investment.
(3) In November, 1997 the Company issued 88,395 shares of common stock
to two consultants of the Company in exchange for services performed for the
Company. The issuances were made in reliance on Section 4(2) of the Securities
Act of 1933 and/or Regulation D promulgated under the Securities Act of 1933 and
were made without general solicitation or advertising. The purchasers were
sophisticated investors with access to all relevant information necessary to
evaluate these investments, and who represented to the Company that the shares
were being acquired for investment.
(4) In November, 1997, the Company conducted a private offering of its
common stock. Pursuant to that offering, a total of 506,378 shares of common
stock were issued in exchange for $200,500. The issuance was made in
reliance on Section 4(2) of the Securities Act of 1933 and/or Regulation D
promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The purchasers were sophisticated investors with
access to all relevant information necessary to evaluate these investments, and
who represented to the Company that the shares were being acquired for
investment.
<PAGE>
(5) In November 1997, the Company conducted a private offering of its
Series A Preferred Stock. Pursuant to that offering, a total of 367,219 shares
of Series A Preferred Stock were issued for total cash consideration of
$109,050. The Series A Preferred Stock was convertible on a one-for-two basis
with Common Stock. In September 1998, the outstanding shares of Series A
Preferred Stock were converted into 734,438 shares of common stock. The
issuances were made in reliance on Section 4(2) of the Securities Act of 1933
and/or Regulation D promulgated under the Securities Act of 1933 and were made
without general solicitation or advertising. The purchasers were sophisticated
investors with access to all relevant information necessary to evaluate these
investments, and who represented to the Company that the shares were being
acquired for investment.
(6) In February, 1998 the Company issued 66,297 shares of common stock
to each of Robert A. Rositano, Jr. and Dean Rositano in lieu of foregone salary
which was earned between October, 1997 and January, 1998. The issuances
were made in reliance on Section 4(2) of the Securities Act of 1933 and/or
Regulation D promulgated under the Securities Act of 1933 and were made without
general solicitation or advertising. The purchasers were sophisticated
investors with access to all relevant information necessary to evaluate these
investments, and who represented to the Company that the shares were being
acquired for investment.
(7) In September, 1998 the Company issued 2,792,763 shares of common
stock to SSN Properties, LLC pursuant to the Conversion Agreement providing for
an exchange of convertible notes payable and accrued interest. SSN Properties
made a pro rata distribution of such shares to its members in April, 1999.
The issuance was made in reliance on Section 4(2) of the Securities Act of 1933
and/or Regulation D promulgated under the Securities Act of 1933 and were made
without general solicitation or advertising. The purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate these
investments, and who represented to the Company that the shares were being
acquired for investment.
(8) In September, 1998, the Company issued 176,790 shares of common
stock to SSN Properties, LLC in debt conversion. SSN Properties made a pro rata
distribution of such shares to its members in April, 1999. The issuance
was made in reliance on Section 4(2) of the Securities Act of 1933 and/or
Regulation D promulgated under the Securities Act of 1933 and were made without
general solicitation or advertising. The purchaser was a sophisticated investor
with access to all relevant information necessary to evaluate these investments,
and who represented to the Company that the shares were being acquired for
investment.
(9) In August and September, 1998, the Company issued 118,190 shares of
common stock to key employees and consultants in consideration for services
rendered to the Company valued at $67,000. The issuances were made in reliance
on Section 4(2) of the Securities Act of 1933 and/or Regulation D promulgated
under the Securities Act of 1933 and were made without general solicitation or
advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate these investments, and who
represented to the Company that the shares were being acquired for investment.
<PAGE>
(10) In September, 1998, the Company issued 2,399,298 shares of common
stock to officers, key employees and consultants who exchanged their
warrants for shares of Common Stock via the issuance of promissory notes.
Warrants to purchase the aggregate amount of 631,394 of the shares of common
stock were issued in March, 1998 to six employees, two directors and two
consultants of the Company. The exercise price for the warrants was $0.0396.
Warrants to purchase the aggregate amount of 1,767,904 shares of common stock
were issued in August, 1998, to Robert A. Rositano, Jr. and Dean Rositano
pursuant to their Employment Agreements. The exercise price for the warrants
was $0.0396. The issuances were made in reliance on Section 4(2) of the
Securities Act of 1933 and/or Regulation D promulgated under the Securities Act
of 1933 and were made without general solicitation or advertising. The
purchasers were sophisticated investors with access to all relevant information
necessary to evaluate these investments, and who represented to the Company that
the shares were being acquired for investment.
(11) In September 1998, the Company and its stockholders entered into a
Reorganization Agreement with Swan Valley Snowmobiles, IncUnder the terms
of the Reorganization Agreement, the stockholders of the Company received
approximately 2.53 shares of common stock of Swan Valley for each share of the
Company they owned prior to the reorganization and the Company became a
wholly-owned subsidiary of Swan Valley. Swan Valley changed its name to
Nettaxi, Inc. and references to "the Company" hereafter refer to Nettaxi,
Inc. the filer of this registration statement. The issuance was made in
reliance on Section 4(2) of the Securities Act of 1933 and/or Regulation D
promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The purchasers were sophisticated investors with
access to all relevant information necessary to evaluate these investments, and
who represented to the Company that the shares were being acquired for
investment.
(12) In September, 1998, pursuant to the terms of the Reorganization
Agreement, the Company conducted a private offering of its common stock.
Pursuant to that offering, a total of 1,250,000 shares of common stock were sold
for total cash consideration of $1,000,000. The issuance was made in
reliance on Section 4(2) of the Securities Act of 1933 and/or Regulation D
promulgated under the Securities Act of 1933 and were made without general
solicitation or advertising. The purchasers were sophisticated investors with
access to all relevant information necessary to evaluate these investments, and
who represented to the Company that the shares were being acquired for
investment.
(13) In September, 1998, the Company, pursuant to its 1998 Stock Option
Plan, issued options to purchase 280,000 shares of common stock to officers and
employees of the Company, with an exercise price of $0.88 and $0.80 per share,
respectively. These issuances were made in reliance on Section 4(2) of the
Securities Act of 1933 and/or Rule 701 promulgated under the Securities Act of
1933 and were made without general solicitation or advertising. The purchasers
were sophisticated investors with access to all relevant information necessary
to evaluate these investments, and who represented to the Company that the
shares were being acquired for investment.
<PAGE>
(14) In October, 1998, the Company issued 200,000 shares of common
stock to Baytree Capital Associates pursuant to the terms of a Letter Agreement
with Baytree Capital Associates for financial business consulting services.
The issuance was made in reliance on Section 4(2) of the Securities Act of 1933
and/or Regulation D promulgated under the Securities Act of 1933 and were made
without general solicitation or advertising. The purchasers were sophisticated
investors with access to all relevant information necessary to evaluate these
investments, and who represented to the Company that the shares were being
acquired for investment.
(15) From January, 1999 to July, 1999, the Company pursuant to its
1998 Stock Option Plan, issued options to purchase 585,000 shares of common
stock to its key employees, with exercise prices ranging from $7.437 to $15.00
per share. These issuances were made in reliance on Section 4(2) of the
Securities Act of 1933 and/or Rule 701 promulgated under the Securities Act of
1933 and were made without general solicitation or advertising. The purchasers
were sophisticated investors with access to all relevant information necessary
to evaluate these investments, and who represented to the Company that the
shares were being acquired for investment.
(16) In March, 1999 the Company issued an option to purchase an
aggregate of 125,000 shares of Common Stock to Wall Street Trading Group
pursuant to the Common Stock Purchase Option to Purchase Common Shares of
Nettaxi. The exercise price for the Option is $8.00 per share. The issuance
was made in reliance on Section 4(2) of the Securities Act of 1933 and/or
Regulation D promulgated under the Securities Act of 1933 and were made without
general solicitation or advertising. The purchaser was a sophisticated investor
with access to all relevant information necessary to evaluate these investments,
and who represented to the Company that the shares were being acquired for
investment.
(17) On March 31, 1999, the Company issued convertible debentures in
the amount of $5,000,000 and warrants to purchase 150,000 shares of common stock
of the Company. The issuance was made in reliance on Section 4(2) of the
Securities Act of 1933 and/or Regulation D promulgated under the Securities Act
of 1933 and were made without general solicitation or advertising. The
purchasers were sophisticated investors with access to all relevant information
necessary to evaluate these investments, and who represented to the Company that
the shares were being acquired for investment.
(18) In May, 1999 the Company issued an aggregate amount of 7,000,000
shares of common stock to the former shareholders of Plus Net, Inc. pursuant to
the Merger Agreement and Plan of Reorganization between the Company and Plus
Net. The issuance was made in reliance on Section 4(2) of the Securities Act of
1933 and/or Regulation D promulgated under the Securities Act of 1933 and were
made without general solicitation or advertising. The purchasers were
sophisticated investors with access to all relevant information necessary to
evaluate these investments, and who represented to the Company that the shares
were being acquired for investment.
<PAGE>
(19) In May, 1999 the Company issued options to purchase up to 150,000
shares of common stock to Fontenelle LLC. The options vest upon the completion
of financial consulting services to be provided to the Company by Fontenelle
LLC. The exercise price for the options is $14.875 per share. This issuance was
made in reliance on Section 4(2) of the Securities Act of 1933 and/or Rule 701
promulgated under the Securities Act of 1933 and was made without general
solicitation or advertising. The purchaser was a sophisticated investor with
access to all relevant information necessary to evaluate these investments, and
who represented to the Company that the shares were being acquired for
investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
The following Exhibits are attached hereto and incorporated herein by
reference:
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
- ------------------- --------------------------------------------------------------------------------
<C> <S>
**2.1 Agreement and Plan of Reorganization dated
September 24, 1998 by and among Nettaxi
Online Communities, Inc., the owners of all
the outstanding shares of common stock of
Nettaxi Online Communities, Inc. and the
Company.
**2.2 Merger Agreement and Plan of Reorganization
dated April 1, 1999 by and between Plus Net,
Inc. and the Company
**3.1 Articles of Incorporation of the Company
**3.2 Certificate of Amendment to the Articles of
Incorporation of the Company
**3.3 By-Laws of the Company
**4.1 Specimen Common Stock Certificate of the
Company
**4.2 See Exhibits 3.1, 3.2 and 3.3 for provisions of
the Articles of Incorporation and By-Laws of
the Company defining the rights of holders of
Common Stock of the Company.
**4.3 Convertible Debenture dated March 31, 1999
in favor of RGC International Investors, LDC
*5.1 Opinion of Silicon Valley Law Group with
respect to the legality of securities being
registered
**10.1 Asset Purchase and Sale Agreement dated
October 1, 1997 by and between SSN
Properties, LLC and the Company
<PAGE>
**10.2 Sub Lease dated September 3, 1997 by and
between Execustaff and the Company
10.3 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.42]
10.4 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.43]
**10.5 Stock Option Agreement dated March 20, 1998
by and between Robert A. Rositano, Jr. and the
Company
**10.6 Stock Option Agreement dated March 20, 1998
by and between Dean Rositano and the
Company
10.7 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.44]
10.8 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.45]
**10.9 Employment Agreement dated August 1, 1998
between Dean Rositano and the Company
**10.10 Employment Agreement dated August 1, 1998
between Robert A. Rositano, Jr. and the
Company
**10.11 Stock Option Agreement dated August 1, 1998
by and between Robert A. Rositano, Jr. and the
Company
**10.12 Stock Option Agreement dated August 1, 1998
by and between Dean Rositano and the
Company
10.13 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.46]
**10.14 Letter Agreement dated September 3, 1998
between Bay Tree Capital Associates, LLC and
the Company
10.15 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.47]
10.16 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.48]
**10.17 1998 Stock Option Plan of the Company
**10.18 Form of Stock Option Agreement for options
issued pursuant to 1998 Stock Option Plan of
the Company
**10.19 Stock Option Agreement under the 1998 Stock
Option Plan by and between Dean Rositano
and the Company
<PAGE>
**10.20 Stock Option Agreement under the 1998 Stock
Option Plan by and between Robert A.
Rositano, Jr. and the Company
10.21 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.49]
**10.22 Technology Licensing Agreement dated
February 3, 1999 by and between Go Hip, Inc.
and the Company
**10.23 First Amendment to Technology Licensing
Agreement dated as of
April 1, 1999 by and between Go Hip, Inc. and
the Company
10.24 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.50]
10.25 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.40]
10.26 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.51]
10.27 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.52]
**10.28 Settlement Agreement dated March 2, 1999 by
and among Michael Gardner, Bay Tree Capital
Associates, LLP, Wall Street Trading Group,
Bruce K. Dorfman, Robert A. Rositano, Jr.,
Dean Rositano and the Company
**10.29 Common Stock Purchase Option to Purchase
Common Shares of Nettaxi, Inc. dated March
4, 1999 between Wall Street Trading Group
and the Company
**10.30 Securities Purchase Agreement dated March
31, 1999 by and among RGC International
Investors, LDC and the Company
**10.31 Stock Purchase Warrant dated March 31, 1999
by and among RGC
International Investors, LDC and the Company
**10.32 Registration Rights Agreement dated March
31, 1999 by and among RGC International
Investors, LDC and the Company
**10.33 Oppenheimer Funds 401K Plan
**10.34 Standard Office Lease- Gross dated March
1999 by and between South Bay Construction
and Development Co. III & South Bay
Construction and Development Co. VII and the
Company
*10.35 Form of Indemnification Agreement between
the Company and each of its Directors and
Executive Officers
<PAGE>
10.36 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.53]
**10.37 Employment Agreement dated April 1, 1999
by and between Mr. Glenn Goelz and the
Company
**10.38 Consulting Agreement dated May 10, 1999 by
and between Fontenelle LLC and the Company
10.39 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.54]
10.40 [Intentionally Blank/Updated form of
agreement filed as Exhibit 10.55]
**10.41 Lease Agreement dated as of May 27, 1999 by
and between H&L Realty and Management
Company, Agent for owners Flamingo
Fountains and the Registrant
10.42 Master Software License Bundling and
Distribution Agreement dated November 13,
1997 between Apple Computer, Inc. and the
Company
10.43 Master Software License, Bundling and
Distribution Agreement dated March 14, 1997
between Fountain Technologies, Inc. and the
Company
10.44 Web Advertising Services Agreement dated
June 3, 1998 between Fly Cast
Communications Corporation and the
Company
10.45 Sales and Representation Contract dated July
7, 1998 between Michael Weiner dba Unique
Media Services and the Company
10.46 Merchant Services Agreement dated August 3,
1998 by and between eCharge Corporation and
the Company
10.47 Conversion Agreement dated September 4,
1998 by and between SSN Properties, LLC and
the Company
10.48 Internet Infospace Content (World Wide Web
Site) Distribution Agreement dated October 8,
1998 by and between InfoSpace.com, Inc., a
Delaware corporation and the Company
10.49 Agreement for Terminal Facility Co-Location
Space dated January 18, 1999 between
Alchemy Communications, Inc. and the
Company
10.50 Letter Agreement dated January 15, 1999
between Babenet, Ltd. and the Company
10.51 License and Distribution Agreement dated
March 30, 1999 by and between Netopia, Inc.
and the Company
<PAGE>
10.52 Website Linking and Promotion Agreement
dated March 5, 1999 between PI Graphix, Inc.
and the Company
10.53 Development Agreement dated as of December
16, 1998 between the Big Network Inc. and the
Company
10.54 Development and License Agreement dated
May, 1999 by and between eBay, Inc. and the
Company
10.55 Internet Services Suite Agreement dated May
5, 1999 by and between Wired Digital, Inc.,
Lycos, Inc. and the Company
10.56 Financial Consulting Agreement dated June
29, 1999 by and between The Phoenix Group
International, LLC and the Company
**21.1 Subsidiaries of the Company
**23.1 [Intentionally Blank/ Updated as Exhibit 23.3]
*23.2 Consent of Silicon Valley Law Group
(included in Exhibit 5.1)
**23.3 [Intentionally Blank / Updated as Exhibit 23.4]
23.4 Consent of BDO Seidman
**24.1 Powers of Attorney (included on signature
pages to this Registration
Statement)
**27.1 Financial Data Schedule
<FN>
* To be Filed by amendment
** Previously filed with the Securities and
Exchange Commission
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules omitted because the information is included
in the Financial Statements or notes thereto.
<PAGE>
ITEM 17. UNDERTAKINGS
(a) 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 described under Item 14
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 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 will be governed by the
final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually,
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum Offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
(230.424(b) of this Chapter) if, in the aggregate, the changes
in volume and price represent no more than a 20% change in the
maximum aggregate Offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration
Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
Registration Statement.
Provided, however, that paragraphs (b)(1)(i) and (b)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities and Exchange of 1934 that are
incorporated by reference in the registration statement.
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each 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.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of
the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
Incorporated by reference in the Registration Statement 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the , the Registrant certifies that it has
duly caused this Amendment No. 3 to the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Jose, State of California, on July 21, 1999.
NETTAXI, INC.
By: /s/ ROBERT A. ROSITANO, Jr.
- ------------------------------------
Robert A. Rositano, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ ROBERT A. ROSITANO, JR Chief Executive Officer, July 21, 1999
- ----------------------------
Robert A. Rositano, Jr. Secretary and Director
(principal executive officer)
* President and Director July 21, 1999
- ----------------------------
Dean Rositano.
* Vice President Chief July 21, 1999
- ---------------------------- Financial Officer (principal
Glenn Goelz accounting officer)
* Director July 21, 1999
- ----------------------------
Roger Thornton
* Director July 21, 1999
- ----------------------------
Andrew Garroni
* Director July 21, 1999
- ----------------------------
Ronald Goldie
* Director July 21, 1999
- ----------------------------
Steven S. Antebi
* By executing his name hereto on July 21, 1999, Robert A. Rositano, Jr. is
signing this document on behalf of the persons indicated above pursuant to
powers of attorney duly executed by such persons and filed with the Securities
and Exchange Commission.
By: /s/ ROBERT A. ROSITANO, Jr.
- ------------------------------------
Robert A. Rositano, Jr.
(Attorney-in-Fact)
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
**2.1 Agreement and Plan of Reorganization dated September 24, 1998 by
and among Nettaxi Online Communities, Inc., the owners of all the
outstanding shares of common stock of Nettaxi Online Communities,
**2.2 Merger Agreement and Plan of Reorganization dated April 1, 1999 by
and between Plus Net, Inc. and the Company
**3.1 Articles of Incorporation of the Company
**3.2 Certificate of Amendment to the Articles of Incorporation of the Company
**3.3 By-Laws of the Company
**4.1 Specimen Common Stock Certificate of the Company
**4.2 See Exhibits 3.1, 3.2 and 3.3 for provisions of the Articles of
Incorporation and By-Laws of the Company defining the rig
**4.3 Convertible Debenture dated March 31, 1999 in favor of RGC
International Investors, LDC
*5.1 Opinion of Silicon Valley Law Group with respect to the legality of
securities being registered
**10.1 Asset Purchase and Sale Agreement dated October 1, 1997 by and between
SSN Properties, LLC and the Company
**10.2 Sub Lease dated September 3, 1997 by and between Execustaff and the Company
10.3 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.42]
10.4 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.43]
**10.5 Stock Option Agreement dated March 20, 1998 by and between
Robert A. Rositano, Jr. and the Company
**10.6 Stock Option Agreement dated March 20, 1998 by and between
Dean Rositano and the Company
<PAGE>
10.7 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.44]
10.8 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.45]
**10.9 Employment Agreement dated August 1, 1998 between Dean Rositano and the Company
**10.10 Employment Agreement dated August 1, 1998 between Robert A. Rositano, Jr.
and the Company
**10.11 Stock Option Agreement dated August 1, 1998 by and between
Robert A. Rositano, Jr. and the Company
**10.12 Stock Option Agreement dated August 1, 1998 by and between
Dean Rositano and the Company
10.13 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.46]
**10.14 Letter Agreement dated September 3, 1998 between Bay Tree Capital
Associates, LLC and the Company
10.15 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.47]
10.16 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.48]
**10.17 1998 Stock Option Plan of the Company
**10.18 Form of Stock Option Agreement for options issued pursuant to 1998
Stock Option Plan of the Company
**10.19 Stock Option Agreement under the 1998 Stock Option Plan by and
between Dean Rositano and the Company
**10.20 Stock Option Agreement under the 1998 Stock Option Plan by and between
Robert A. Rositano, Jr. and the Company
10.21 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.49]
**10.22 Technology Licensing Agreement dated February 3, 1999 by and between
Go Hip, Inc. and the Company
**10.23 First Amendment to Technology Licensing Agreement dated as of
April 1, 1999 by and between Go Hip, Inc. and the Company
10.24 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.50]
<PAGE>
10.25 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.40]
10.26 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.51]
10.27 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.52]
**10.28 Settlement Agreement dated March 2, 1999 by and among Michael Gardner,
Bay Tree Capital Associates, LLP, Wall Street Tr
**10.29 Common Stock Purchase Option to Purchase Common Shares of Nettaxi, Inc.
dated March 4, 1999 between Wall Street Trading
**10.30 Securities Purchase Agreement dated March 31, 1999 by and among RGC
International Investors, LDC and the Company
**10.31 Stock Purchase Warrant dated March 31, 1999 by and among RGC
International Investors, LDC and the Company
**10.32 Registration Rights Agreement dated March 31, 1999 by and among RGC
International Investors, LDC and the Company
**10.33 Oppenheimer Funds 401K Plan
**10.34 Standard Office Lease- Gross dated March 1999 by and between
South Bay Construction and Development Co. III & South Ba
*10.35 Form of Indemnification Agreement between the Company and each of its
Directors and Executive Officers
10.36 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.53]
**10.37 Employment Agreement dated April 1, 1999 by and between Mr. Glenn
Goelz and the Company
**10.38 Consulting Agreement dated May 10, 1999 by and between
Fontenelle LLC and the Company
10.39 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.54]
10.40 [Intentionally Blank/Updated form of agreement filed as Exhibit 10.55]
<PAGE>
**10.41 Lease Agreement dated as of May 27, 1999 by and between H&L Realty and
Management Company, Agent for owners Flamingo Fo
10.42 Master Software License Bundling and Distribution Agreement dated November
13, 1997 between Apple Computer, Inc. and the
10.43 Master Software License, Bundling and Distribution Agreement dated
March 14, 1997 between Fountain Technologies, Inc. and
10.44 Web Advertising Services Agreement dated June 3, 1998 between Fly Cast
Communications Corporation and the Company
10.45 Sales and Representation Contract dated July 7, 1998 between Michael Weiner
dba Unique Media Services and the Company
10.46 Merchant Services Agreement dated August 3, 1998 by and between eCharge
Corporation and the Company
10.47 Conversion Agreement dated September 4, 1998 by and between SSN
Properties, LLC and the Company
10.48 Internet Infospace Content (World Wide Web Site) Distribution Agreement
dated October 8, 1998 by and between InfoSpace.co
10.49 Agreement for Terminal Facility Co-Location Space dated January 18, 1999
between Alchemy Communications, Inc. and the Com
10.50 Letter Agreement dated January 15, 1999 between Babenet, Ltd. and the Company
10.51 License and Distribution Agreement dated March 30, 1999 by and between
Netopia, Inc. and the Company
10.52 Website Linking and Promotion Agreement dated March 5, 1999 between PI
Graphix, Inc. and the Company
10.53 Development Agreement dated as of December 16, 1998 between the Big
Network Inc. and the Company
10.54 Development and License Agreement dated May, 1999 by and between
eBay, Inc. and the Company
10.55 Internet Services Suite Agreement dated May 5, 1999 by and between Wired
Digital, Inc., Lycos, Inc. and the Company
<PAGE>
10.56 Financial Consulting Agreement dated June 29, 1999 by and between The\
Phoenix Group International, LLC and the Company
**21.1 Subsidiaries of the Company
**23.1 [Intentionally Blank/ Updated as Exhibit 23.3]
*23.2 Consent of Silicon Valley Law Group (included in Exhibit 5.1)
**23.3 [Intentionally Blank / Updated as Exhibit 23.4]
23.4 Consent of BDO Seidman
**24.1 Powers of Attorney (included on signature pages to this Registration
Statement)
**27.1 Financial Data Schedule
<FN>
* To be Filed by amendment
** Previously filed with the Securities and Exchange Commission
</TABLE>
<PAGE>
MASTER SOFTWARE LICENSE, BUNDLING
AND DISTRIBUTION AGREEMENT
CONTRACT #1304
THIS MASTER SOFTWARE LICENSE, BUNDLING AND DISTRIBUTION AGREEMENT is entered
into as of November 13, 1997 ("Effective Date") between Apple Computer, Inc., a
California corporation having its principal place of business at 1 Infinite
Loop, Cupertino, CA 95014-2084 ("Apple Computer") and NETTAXI Online
Communications, Inc., a Delaware corporation having its principal place of
business at 2165 So. Bascom Avenue, Campbell, California 95008 ("Developer").
RECITALS
Apple Computer is in the business of manufacture, sale, licensing and
distribution of computer including the sale and distribution of third party
products in combination with Apple manufactured products.
Apple Computer desires the right, on its own behalf and on behalf of its
subsidiaries, to copy and/or distribute proprietary software products owned by
Developer to authorized Apple resellers and end users in combination with Apple
and/or third party computer products.
Developer desires to grant Apple Computer and its subsidiaries the non-exclusive
right to copy and/or distribution of Developer's proprietary software products,
and for the exhibits to this Agreement to define the terms and conditions
specific to each respective product of Developer.
NOW THEREFORE, Apple and Developer hereby agree as follows:
AGREEMENT
1. DEFINITIONS
1.1 "Agreement" means this Software License, Bundling and Distribution
Agreement, including all exhibits and attachments hereto.
1.2 "Apple means, collectively, Apple Computer and all Apple Computer
Subsidiaries.
1.3 "Apple Software" means any Apple labeled software product.
1.4 "Apple's Subcontractor" means an independent subcontractor(s) who
provides software reproduction, bundling and/or distribution services to Apple.
1.5 "Bundle" means the combination of (a) software products ("Soft Bundle")
or (b) software products and hardware products ("Hard Bundle") as specified in
Exhibit 1 which are to be assembled and/or packaged for sale by Apple as a unit
under this Agreement, which unit includes a Program Copy (or coupon evidencing
right
1
<PAGE>
to receive a copy) and any related Documentation.
1.6 "Confidential Information" means: (a) any information relating to the
parties' product plans, designs, costs, prices and names, finances, marketing
plans, business opportunities, personnel, research, development or know-how; (b)
any information that is designated by the disclosing party as confidential
writing or, if disclosed orally, reduced in writing and designated as
confidential within thirty (30) days; and (c) the terms and conditions of this
Agreement; provided, however, that "Confidential Information" shall not include
information that: (i) was generally available to the public at the time of
receipt from the disclosing party, or thereafter becomes generally available to
the public other than through a breach of this Agreement by the recipient party;
(ii) is known to the recipient party on a non-confidential basis prior to its
receipt from the disclosing party; (iii) is disclosed with the prior written
consent of the disclosing party; (iv) becomes known to the recipient party from
a source other than the disclosing party without breach of this Agreement by the
recipient party; (v) was required to be disclosed pursuant to law; or (vi) was
developed independently by personnel of the recipient party who had no
substantive knowledge of the disclosing party's Confidential Information at the
time of such independent development.
1.7 "Customer" means any person or entity who purchases a Bundle from Apple
or Apple's Subcontractor, whether as a Reseller or End User.
1.8 "Developer" means the individual or entity identified in the opening
paragraph of this Agreement, who is either the owner of the Program or who has
the right to enter into this Agreement on behalf of the owner by written
agreement with the owner.
1.9 "Distribution Area" means those countries or geographic regions of the
world in which Apple is authorized to distribute the Bundles as defined in
Exhibit 1.
1.10 "Documentation" means the documents or other information pertaining to
each Program, which items are to be distributed to Customers in combination with
said Program (whether in the form of printed materials or software residing on
the same media as the Program), as specified in the corresponding Exhibit 1.
1.11 "Documentation Master" means, if Apple is responsible for reproduction
of printed copies of any of the Documentation pursuant to Exhibit 2, the master
copy of such Documentation (in electronic or other form), including any
applicable artwork and/or film, to be delivered to Apple or Apple's
Subcontractor for use in such reproduction process.
1.12 "End User" means the purchase of a Bundle a) by a person for his/her
own use; or b) by an entity for its internal use.
1.13 "Hardware" means any Apple labeled hardware product.
1.14 "Program" means the most current commercially available version of each
of Developer's software programs which Apple is authorized to copy, bundle
and/or distribute under this Agreement, or any subsequent Amendment hereto.
1.15 "Program Copy" means a copy of a Program residing on the storage media
form (e.g., hard disk, CD Rom, floppy diskette) in which it is to be bundled and
distributed to the Customer, as specified in the corresponding Exhibit 1.
2
<PAGE>
1.16 "Program Master" means the golden master copy of each Program, to be
delivered to Apple by Developer in the storage media form described in the
corresponding Exhibit 2 for Apple's use in manufacture of the Program Copies.
1.17 "Reseller" means a party authorized by Apple to purchase the Bundle for
resale to End Users and/or to other authorized resellers.
1.18 "Subsidiary" means a corporation, partnership, joint venture, limited
liability company or other legal entity at least fifty-one percent (51%) of
whose outstanding shares, securities or other ownership rights representing the
right to vote for the election of directors or other managing authority are
owned or controlled directly or indirectly, by another company.
2. RIGHT TO COPY AND DISTRIBUTE
2.1 Rights Granted. Developer hereby grants to Apple a nonexclusive
---------------
license, as to each Program, to: (a) make or have made Program Copies from the
Program Master, in the media form specified in the corresponding Exhibit 1; (2)
make or have made copies of the Documentation from the Documentation Master (if
applicable, pursuant to Exhibit 2); (3) assemble the Program Copies and
corresponding Documentation in Bundles for distribution; (4) distribute the
Program Copies to Customers in the Distribution Area as part of a Bundle; and
(5) to, directly or indirectly, do all acts reasonably necessary for the
marketing, distribution, and sale of the Bundle. Additionally, Apple will have
the right to copy, use and distribute, at no cost, a reasonable number of
Program Copies of each Program, as part of its software compatibility testing
and/or its sales/marketing demonstration programs. Developer authorizes Apple
to grant (a) to Apple's Subcontractor any of the rights granted Apple by this
Section 2.1; and (b) to Apple's Resellers any of the same rights to market,
distribute and sell the Program(s) as part of a Bundle, including the right to
distribute to other Resellers.
2.2 No Obligation. Apple shall have no obligation to distribute the
--------------
Program, either as part of a bundle or a standalone unit, with any specific
Apple Hardware or Apple Software or to distribute any given number of Program
Copies.
2.3 Developer's Ownership. Developer retains all rights, title, and
----------------------
interest to: (i) each Program; (ii) Developer's service marks, trademarks
and/or trade names; and (iii) all copyrights, patent rights or trade secret
rights associated with each of the Programs and the Documentation.
2.4 Copyright and Trademark Rights. In connection with Apple's marketing
------------------------------
and distribution of the Bundle, Developer grants to Apple, Apple's
Subcontractors and Apple's Resellers the non-exclusive, non transferable right
during the term of Apple's rights of distribution under this Agreement to use
(1) all copyrighted materials contained in the Program(s) (including but not
limited to screen shots from the Program(s)), the Documentation, and any
packaging or other materials provided by Developer and (2) all trademarks
associated with the Program(s).
2.5 Limitations on Use. Apple shall not use or duplicate any Program for
------------------
any purpose other than as specified in this Agreement. Apple shall not
disassemble, decompile, reverse engineer, modify or otherwise change any part of
a Program.
3
<PAGE>
3. DEVELOPER'S RESPONSIBILITIES
3.1 Transfer of Master Copies. The Developer shall provide to Apple or
---------------------------
Apple's Subcontractor, at no cost, the Program Master and, if Apple is
responsible for reproduction of the Documentation, the Documentation Master,
both according to the Schedule set forth in the corresponding Exhibit 2.
3.2 Program Compatibility. The Developer shall verify the compatibility
----------------------
of the Program with the Apple system software version defined in the
corresponding Exhibit 2. Upon request, Developer's test methodology and a brief
summary of the test results shall be provided to Apple. Developer shall provide
to Apple, at no cost, a reasonable number of additional copies of the Program
for testing. Apple shall have the right to test each Program for compatibility
with the Apple Hardware, Apple Software and/or any third party product to be
bundled with the Program. Apple's acceptance of the Program for inclusion in
the Bundle ("Acceptance") shall be conditioned upon satisfactory completion of
all compatibility testing, as determined by Apple in its sole discretion.
3.3 Developer's Points of Contact. As set forth in Exhibit 2, Developer
------------------------------
has identified its primary contact, together with a list of its representatives
having responsibility for resolution of increasingly critical issues related to
this Agreement. In the event of any change in names of these points of contact,
Developer will immediately notify Apple of the replacement representative.
3.4 Delivery of Purchased Documentation. If printed copies of the
--------------------------------------
Documentation are to be purchased from Developer pursuant to the corresponding
Exhibit 2, upon receipt of an authorized purchase order from Apple or Apple's
Subcontractor, Developer will deliver the number of requested copies of the
Documentation to the address indicated. Documentation shall be delivered on or
before the shipment date set forth in the purchase order. In addition,
Developer will provide Apple, at no cost, with advance copies of the
Documentation according to the schedule set forth in the corresponding Exhibit2.
3.5 End User Support. Developer will provide End Users with the same
------------------
level of support normally provided to customers who purchase its Program through
Developer's standard primary distribution channels. This includes, but is not
limited to, providing Program upgrades, technical support and related materials.
Apple is under no obligation to provide any End User support or training for any
Program. All End User support requests received by Apple will be referred to
Developer.
3.6 Technical Support and Training. Developer will provide reasonable
---------------------------------
technical support and training to Apple or Apple's Subcontractor, if requested
by Apple. As set forth in Exhibit 2, Developer has identified its
representative(s) having primary responsibility for coordinating/resolving
technical support issues related to the Program. In the event that Apple elects
to participate in the resolution of an End User's technical problem, the
Developer shall provide a problem resolution/response plan to Apple within 2
working days of Apple's request.
3.7 Program Revisions. If Developer plans to revise a Program and
------------------
distribute such revised version to Developer's customers, at any time during the
term of this Agreement and for a period of ninety (90) days thereafter,
Developer will submit a summary of the intended functional Program revisions to
Apple at least ninety
4
<PAGE>
(90) days prior to the schedule release of the revision. Developer will make
the revised version of the Program available to Apple upon release of its golden
master from engineering, but in no event later than its production release date,
and under the same terms and conditions as the original versions licensed to
Apple.
4. FEES AND PAYMENT
4.1 Royalty Fees. Apple or Apple's Subcontractor will pay to Developer a
------------
royalty for each Program Copy. The royalty fee shall be the amount set forth in
the corresponding Exhibit 1 minus any applicable withholding required by the
taxing authority of the country in which the Bundle is distributed (the "Royalty
Fee"). Payment will be made either by Apple's Subcontractor based on units
manufactured and shipped into Apple's Distribution Centers or by Apple based on
units sold into the distribution channel. Apple's and Apple's Subcontractor's
royalty obligation will accrue on the date of sale to Apple's Customer; however,
royalty payments to Developer for any quarter will not be due until 45 days
after the end of that quarter, based on the applicable Quarterly Report pursuant
to Section 4.3. Developer may seek payment from Apple if Apple's subcontractor
fails to make payment under this Section 4.1.
4.2 Withholding Tax on Royalties. Developer acknowledges that if an
-------------------------------
Apple Subsidiary is required by any taxing authority in any country in which the
Bundle is distributed to pay a withholding tax on royalties paid for the
Program, the Developer will be subject to and liable for such withholding tax.
The Developer acknowledges that the Apple Subsidiary will act as withholding
agent and remit the applicable withholding tax to the applicable taxing
authority on behalf of the Developer, notwithstanding that Developer may receive
Royalty Fees directly from Apple. In such instance, the payment of the Royalty
Fee by Apple to Developer will be made by Apple as agent of the Apple
Subsidiary.
4.3 Royalty Reporting. As to each Program covered by this Agreement,
------------------
Apple or Apple's Subcontractor shall maintain complete and accurate records of
the following: (i) the number of Bundles which are either manufactured and
shipped to distribution or sold into the Channel; (ii) the number of Program
Copies which are Reconfigured pursuant to Section 4.5(a); (iii) the number of
Customer Returns pursuant to Section 4.5(b); and (iv) the amount of any
applicable withholding required by the taxing authority in the countries in
which the Bundle is distributed pursuant to Section 4.2. Within forty-five (45)
days after the close of each calendar quarter, Apple and/or Apple's
Subcontractor shall submit a report ("Quarterly Report") to the Developer
listing the above information, by each of these four categories, for the
preceding quarter.
4.4 Royalty Payments. Apple or Apple's Subcontractor shall include with
-----------------
each Quarterly Report a royalty payment in accordance with Section 4.1 and 4.5.
4.5 Royalty Credits. Apple and Apple's Subcontractor will be entitled to
---------------
receive credits against its royalty payment obligations based on reconfiguration
of Bundles and Reseller and End User returns as follows:
(a) Product Reconfiguration. Apple may, at any time and in its sole
------------------------
discretion, elect to reconfigure its inventory items by removal of the Program
Copies from existing Bundles ("Reconfiguration"). In such event, Apple or
Apple's Subcontractor shall report in its
5
<PAGE>
Quarterly Report the number of Reconfigurations during the prior quarter. No
other notice of Reconfigurations will be required to be given to Developer.
(b) Returns. Apple may at any time, in its discretion, accept the
-------
return of (opened or unopened) Bundles from Resellers and End Users ("Returns").
In such event, Apple or Apple's Subcontractor shall report on its Quarterly
Report the number of Returns during the prior quarter. No other notice of
Returns will be required to be given to Developer.
(c) Net Royalty Credits. Apple and Apple's Subcontractor will be
---------------------
entitled to receive a credit on its quarterly payment obligation equal to the
number of Reconfigurations and Customer Returns, up to a total of one hundred
(100) units in the prior quarter times the applicable Royalty Fee. If, in any
quarter, Apple does not owe the Developer a sum equal to or greater than the
total credits due as a result of Reconfigurations and/or Returns, Developer
shall pay to Apple the net credit amount within forty-five (45) days from the
date of the Quarterly Report.
(d) Expiration/Termination. Upon expiration or termination of this
----------------------
Agreement, Apple and Apple's Subcontractor will have the right to submit reports
on, and obtain royalty credits for, up to one hundred (100) units of
Reconfigurations and Returns occurring within ninety (90) days after said
expiration or termination. Developer shall pay all credits to Apple or Apple's
Subcontractor within forty-five (45) days from the date of such reports.
4.6 Right to Audit. The Developer shall have the right at its expense and
----------------
on thirty (30) days written notice, to have an independent certified public
accountant audit the records of Apple or Apple's Subcontractor to verify the
information provided in the Quarterly Reports. Records subject to audit under
this section shall extend no more than three (3) years prior to the request
date. If, as a result of such audit, an underpayment is verified Apple or
Apple's Subcontractor will rectify payment of inconsistencies or mistakes within
thirty (30) days, and, if greater than ten percent (10%) underpayment for any
reporting period is found, also reimburse Developer for the cost of the audit.
The Developer may exercise its right to audit no more than once per year unless
an underpayment of over ten percent (10%) has been discovered in the prior
audit. In such cases, the Developer shall have the right to audit once every
three months until the results of the last audit show less than a ten percent
(10%) underpayment. Audit scheduling shall be by mutual agreement between Apple
or Apple's Subcontractor and the Developer, and all audits must be completed
within five working days. Upon completion of the audit the independent
certified public accountant shall provide a copy of the report to Apple or
Apple's Subcontractor. Developer acknowledges and agrees that all such records
of Apple or Apple's Subcontractor shall be considered Confidential Information
and shall be subject to the restrictions set forth in Section 8 of this
Agreement.
4.7 Documentation Fee. If Apple or Apple's Subcontractor will purchase
------------------
hard copy Documentation from Developer pursuant to the applicable Exhibit 2,
Developer will be entitled to the fee stated therein for each hard copy of the
Documentation
6
<PAGE>
delivered by Developer pursuant to this Agreement ("Documentation Fee").
Documentation Fees will be due within forty-five (45) days of invoice.
Developer will not be entitled to any Documentation-related fees if, instead,
Apple or Apple subcontractor is responsible for the copying or hard copy
reproduction of the Documentation pursuant to the applicable Exhibit 2.
4.8 Documentation Returns. Unless otherwise noted, for a period of
----------------------
ninety (90) days after the expiration or other termination of this Agreement,
Apple or Apple's Subcontractor may return Documentation in Apple's or Apple's
Subcontractor's inventory that has been purchased from Developer. Developer
shall, within thirty (30) days refund or credit Apple or Apple's Subcontractor
an amount equal to the purchase price for such Documentation (per the
corresponding Exhibit 2) times the number of copies of such Documentation
returned.
5. REPRESENTATIONS AND WARRANTIES
5.1 Ownership. Developers represents and warrants: (i) that it is the
---------
owner of, or has obtained a license from the owner of, all right, title and
interest, including copyright, if any, in and to all preexisting images, icons,
characters, graphics, sounds, music, photographs, recordings, video, film,
animation, cartoons, illustrations, accompanying text, captions, scripts, or
related materials in each of the Program(s) and Documentation, or that the
preexisting images, icons, characters, graphics, sounds, music, photographs,
recordings, video, film, animation, cartoons, illustrations, accompanying text,
captions, scripts, or related materials in each of the Program(s) and
Documentation are within the public domain and not subject to the protections of
copyright law; (ii) that it has obtained or will obtain prior to delivery under
this Agreement, all licenses and releases required to enable Apple to exercise
the license granted in this Agreement, including without limitation, the release
of each person or organization whose name, voice, likeness, portrayal,
impersonation or performance is included in any Program or Documentation; and
(iii) that it has not previously granted and will not grant any rights in any
Program to any third party inconsistent with the rights granted to Apple herein.
5.2 Program Warranty to Apple. Developer warrants that each of the
----------------------------
Programs will perform substantially in accordance with the Documentation for one
year after delivery of the Program Master.
5.3 Program Warranty to Customer Developer shall provide the sole
-------------------------------
warranty to the Customer pertaining to the performance of each Program, which
warranty shall provide, at a minimum, that the Program is capable of
substantially performing the functions described in the Documentation. In
addition, if Apple or Apple's Subcontractor is to purchase Program Copies from
Developer rather than reproducing them from the Program Master, then Developer
shall provide the sole warranty to the Customer pertaining to the media upon
which the Program resides. Developer will incorporate this warranty or
warranties into the Program Master and/or the Documentation Master delivered to
Apple or Apple's Subcontractor (or, if Apple or Apple's Subcontractor purchases
the Documentation from Developer rather than reproducing it from the
Documentation Master, into the Documentation). In no event shall Apple be
liable to the Developer for any failure by a Customer to comply with the terms
and conditions of any end-user license agreement for the Program.
5.4 No Apple Program Warranty. Apple shall not provide any warranty
----------------------------
whatsoever
7
<PAGE>
to Customer with respect to the Program, including, without limitation any
warranty related to Program content or functionality, or any warranty against
viruses or bugs contained in the Program. In no event will Apple be responsible
to Customer for any damage caused by any Program. Apple may provide a limited
warranty on the media on which the Program Copy resides when it is Apple's or
Apple's Subcontractor responsibility to reproduce the Program Copy onto media
from the Program Master.
5.5 Replacement Copies of the Program. In the event that Apple or an
-------------------------------------
Apple authorized service provider elects to provide Customer with a replacement
for a defective or damaged Program Copy, no additional fee will be due Developer
for the replacement copy or the related Documentation.
6. INDEMNIFICATION
6.1 Proprietary Rights Indemnity. Developer agrees to defend, indemnify
-----------------------------
and hold harmless Apple and Apple's affiliates, directors, officers, employees,
agents and contractors from any and all losses, damages, liabilities, costs,
expenses (including reasonable attorney's fees), judgments or settlement amounts
arising out of or in connection with any claim that the marketing, sale or use
of a Program infringes any patent, copyright, trademark, trade secret, privacy
right, right of publicity or other proprietary right of a third party.
6.2 Duty to Correct. If any Program becomes or is likely to become the
-----------------
subject of a claim or action covered by Section 6.1 Developer will, at its
expense, either: (i) procure for Apple the past right to make, use and sell and
the future right to continue to make, use and sell the Program or (ii) replace
or modify the Program to make it non-infringing, provided that the same function
is performed by the replacement or modified Program to Apple's satisfaction. If
Developer reasonably believes that the past and future rights to continue to
make, use and sell cannot be procured and the Program cannot be replaced or
modified at reasonable expense, Developer may discontinue the Program by notice
to Apple, whereupon Apple will cease further marketing and distribution of that
Program and the Agreement will be terminated partially as to that Program.
6.3 General Indemnity. Developer agrees to defend, indemnify and hold
------------------
harmless Apple, and Apple's affiliates, directors, officers, employees, agents
and contractors, from and against any and all losses, damages, liabilities,
costs, expenses (including costs and reasonable fees of attorneys and other
professionals), judgments or settlement amounts arising out of or in connection
with a claim that any of the Program(s) caused injury or damage to persons or
property, or a claim that any Program failed to perform as represented or was
defective.
7. LIMITATION OF LIABILITY
EXCEPT AS SPECIFICALLY PROVIDED HEREIN, IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR
RELATING TO BREACH OR FAILURE TO PERFORM UNDER THIS AGREEMENT, EVEN IF THAT
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Apple's total
liability (i.e., the total liability of Apple Computer and all Apple
subsidiaries) for all damages, losses and causes of action, whether in contract,
tort (including negligence) or otherwise, shall in no event exceed the
8
<PAGE>
amount paid by Apple (i.e., Apple Computer and all Apple subsidiaries) to
Developer pursuant to this Agreement.
8. CONFIDENTIALITY
8.1 Disclosure: Standard of Care. The parties acknowledge that, in the
------------------------------
course of performance of their obligations under this Agreement, each party may
disclose Confidential Information to the other. Each party will protect the
other's Confidential Information from unauthorized dissemination and use with
the same degree of care that each such party uses to protect and safeguard its
own like information, but not less than the degree of care that would be
exercised by a prudent person given the sensitivity and strategic value of such
Confidential Information. Confidential Information shall be disclosed only to
the employees of the recipient who have a "need to know" and who have executed
an internal nondisclosure agreement at least as restrictive as the terms of this
Agreement. Developer shall not disclose any Confidential Information to any
third party without first obtaining Apple's written consent to such disclosure.
8.2 No Warranties, Reproductions or Liability. In furnishing any
---------------------------------------------
Confidential Information hereunder, Apple makes no warranty, guarantee or
representation, either express or implied (a) as to the adequacy, accuracy,
sufficiency or freedom from defect of such Confidential Information, or (b) that
the use or reproduction of any Confidential Information received hereunder shall
be free from any patent, trade secret or copyright infringement.
9. TERM AND TERMINATION
9.1 Term. This Agreement shall commence on the Effective Date, shall
----
continue in full force and effect for a period of one (1) year, and shall be
automatically renewed thereafter for successive one (1) year periods unless
notice of intent not to renew is received by either party at least ninety (90)
days days prior to the commencement of any subsequent term.
9.2 Termination Without Cause. Apple shall have the right to terminate
---------------------------
this Agreement at will, with or without cause, upon thirty (30) days written
notice.
9.3 Termination For Cause. Either party will have the right to terminate
---------------------
this Agreement immediately upon written notice at any time if:
(a) The other party is in material breach of any term, condition or
covenant of this Agreement other than those contained in Section 8.1 and fails
to cure that breach within thirty (30) days after written notice of such breach;
(b) The other party is in material breach of any term, condition or
covenant of this Agreement contained in Section 8.1; or
(c) The other party: (i) becomes insolvent; (ii) fails to pay its
debts or perform its obligations in the ordinary course or business as they
mature; or (iii) makes an assignment for the benefit of creditors.
9.4 Archiving/Destruction of Program Master Copies. Upon expiration or
------------------------------------------------
termination of this Agreement, Apple or, if applicable, Apple's Subcontractor,
shall archive or destroy each Program Master and, if applicable, each
9
<PAGE>
Documentation Master received from Developer.
9.5 Right to Distribute After Termination. Upon expiration or
-----------------------------------------
termination other than for cause of the Agreement and subject to payment
--
obligations in Section 4, Apple and Apple's Subcontractor shall continue to have
the right to (a) distribute Program Copies of the Program(s) until the end of
the product life cycle of all Bundles current at the time of termination or
expiration; and (b) distribute all Bundles in inventory until such bundles are
exhausted.
10. GENERAL TERMS
10.1 Nonexclusivity. Nothing in this Agreement shall prevent either
--------------
party from entering into a similar agreement with any other party. This
Agreement shall not be construed to restrict either party from engaging in any
activities with respect to the other party's competitors' products or services.
10.2 Relationship of the Parties. In all matters relating to this
------------------------------
Agreement, Apple is an independent contractor. Neither party will represent
that it has any authority to assume or create any obligation, express or
implied, on behalf of the other party. Nothing stated in this Agreement shall
be construed as constituting Apple and Developer as partners or joint venturers,
or as creating the relationship of employer and employee, principal and agent,
master and servant, or licensor and licensee between Apple and Developer.
10.3 No Assignment. This Agreement is not assignable by either party
--------------
without the prior written consent of the other party. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties, their
successors, and permitted assigns.
10.4 Notice. All notices sent to Apple shall be sent to the following
------
address:
Apple Computer, Inc.
One Infinite Loop
M/S 35-SC
Cupertino, CA 95014
ATTN: Susan Priore
Software Business Management
And copied to the following address:
Apple Computer, Inc.
900 E. Hamilton Ave.
M/S 73LG
Campbell, CA 95009
ATTN: LAW DEPARTMENT
10.5 Governing Law/Venue. This Agreement shall be governed by and
--------------------
construed in accordance with the laws of the State of California, except that
body of law known as Conflicts of Law. All actions or proceedings arising
directly or indirectly between the parties, other than those for injunctive
relief, shall be litigated in courts located within the County of Santa Clara,
California. Developer consents to the jurisdiction thereof and agrees not to
disturb such choice of forum. If Developer is not a resident of California,
Developer waives the personal service of any and all process upon it, and agrees
that all such service
10
<PAGE>
or process may be made by certified or registered mail, return receipt
requested, addressed to Developer.
10.6 Severability. In the event that any of the provisions of this
------------
Agreement shall be held by a court or other tribunal of competent jurisdiction
to be invalid or unenforceable, the remaining portions of this Agreement shall
remain in full force and effect and shall be construed so as to best effectuate
the intention of the parties in executing it.
10.7 No Waiver Failure by either party to enforce any provision of this
----------
Agreement shall not be deemed a waiver of the right to thereafter enforce that
or any other provision of this Agreement.
10.8 Survival. Any obligations which either expressly or by their nature
--------
are to continue after the termination or expiration of this Agreement shall
survive and remain in effect.
10.9 Modification. Any modifications of this Agreement must be in
------------
writing and signed by both parties hereto.
10.10 Force Majeure. Neither party shall be liable for any failure or
--------------
delay in the performance of an obligation hereunder on account of strikes,
riots, fires, explosions, acts of God, war, governmental action, or any other
cause which is beyond the reasonable control of such party.
10.11 Entire Agreement. This Agreement constitutes the entire agreement
-----------------
between the parties with respect to the subject matter hereof, and any and all
written or oral Agreements heretofore existing between the parties are expressly
canceled. Developer acknowledges that it is not entering this Agreement on the
basis of any representations not expressly contained herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
NETTAXI ONLINE APPLE COMPUTER, INC.
COMMUNICATIONS, INC.
BY: BY:
NAME: NAME:
TITLE: TITLE:
DATE: DATE:
11
<PAGE>
EXHIBIT 1
PRODUCT DESCRIPTION, PRODUCT PRICING AND DISTRIBUTION
Program Name/Version Price Per Copy
- --------------------- --------------
Internet the City V1.0 $ 1.00
For Macintosh (2 CD's)
Documentation
- -------------
Registration Card -0-
Software License Agreement
User Manual
Language Versions:
- -------------------
U.S. English
Customers:
- ----------
All Apple Customers
Distribution Area:
- -------------------
Worldwide
Media Type(s): ___ Floppy X CD ___ Zip ______ Other
---
Other Terms:
- -------------
1) Developer shall provide all artwork required to duplicate the Documenation
to Apple or Apple's Subcontractor and grand Apple and Apple's Subcontractor
the right to duplicate the Documentation for distribution in the Bundle.
Fees for the Documentation shall be paid by Apple or Apple's Subcontractor
directly to the printer(s) with no fee for the Documentation due to the
developer. Apple shall have financial liability for all inventory of the
Documentation duplicated by Apple or Apple's Subcontractor a nd shall give
up the right to return such Documentation as stated in Section 4.3 and 4.4
of the Agreement. In the event that Apple or Apple's subcontractor choose
to purchase the Documentation directly from the Developer, the price shall
be negotiated and agreed to betwwen the parties at that time.
12
<PAGE>
EXHIBIT 2
DEVELOPER DELIVERABLES
Delivery
Program Name/Version Deliverables Schedule
- --------------------- ------------ --------
Internet the City V1.0 Compatibility Testing Complete 11/13/97
Program Copies for Testing 11/14/97
Program Master 11/14/97
Documentation Master 11/14/97
If applicable
Hard Copy Documentation (#_____) N/A
If applicable
THE PROGRAM MUST BE COMPATIBLE WITH THE FOLLOWING:
APPLE'S SYSTEM SOFTWARE VERSION 8.0 AND 8.1
Developer Contacts
- -------------------
Primary Contact: Bob Rositano, 408-879-9880, [email protected]
---------------
Escalation Contact(s):
Developer's Technical Representative
- --------------------------------------
Primary Technical Support Representative:
Brian Stroh, 888-879-9880, [email protected]
13
<PAGE>
SMITH & ASSOCIATES
Attorneys at Law
Eighteenth Floor
1901 Avenue of the Stars
Los Angeles, California 90067
Telephone (310) 277-1250
Facsimile (310) 286-1816
Apple Computer
Susan Prior
Re: "Internet the City" CD-ROM
Date: 11/11/97
Dear Susan:
We understand the current situation concerning Apple's current contract with
Simply Interactive, Inc. and are conveying to you in writing what has transpired
over the course of the last 60 days.
Simply Interactive, Inc. (the Company) was acquired as of (August 6, 1997)
pursuant to default provisions entered into between Simply Interactive, Inc. and
SSN properties (a California Corporation) all assets, product, contracts, and
intellectual property rights then became the assets of SSN properties.
During the course of this transaction SSN entered into an agreement to then
sell, assign, grant and convey all property/contract rights to NETTAXI Online
Communities, Inc. (a Delaware Corporation).
The conveyance and transfer of these assets includes "Internet the City" CD-ROM
software, and any excising contracts relating to the software that were
currently established and held by Simply Interactive, Inc. "re: Apple Computer
Contract."
As of November 1, SSN properties has transferred and conveyed all property,
software, and contract rights to NETTAXI Online Communities, Inc. From this day
forward NETTAXI at its sole discretion may amend, transfer, or establish new
contracts/relationships with any and all vendors relating to Simply Interactive,
Inc. or the "Internet the City" CD-ROM software.
NETTAXI is in good standing and is a Delaware Corporation. Current officers of
the company are:
Robert A. Rositano Jr. Chairman/CEO Company Address:
Dean Rositano President/COO 2165 S. Bascom Ave.
Campbell, CA 95008
888 879 9880
Customer Service Contact: Brian Stroh 408 879 9880
Should you require any further information or documentation please advise the
undersigned and it will be forthcoming.
Very truly yours,
/S/ John Holt Smith
-----------------
John Holt Smith
<PAGE>
S I M P L Y I N T E R A C T I V E.
MASTER SOFTWARE LICENSE, BUNDLING
AND DISTRIBUTION AGREEMENT
CONTRACT # 21997
THIS MASTER SOFTWARE LICENSE, BUNDLING AND DISTPJBUTION AGREEMENT is entered
into as of March 14,1997 ("Effective Date") between Simply Interactive, Inc.
("SII"), a California corporation having its principal place of business at 650
Saratoga Avenue, San Jose, CA 95129 ("DEVELOPER") and FOUNTAIN TECHNOLOGIES,
INC, ("FOUNTAIN"), having its principal place of business at 3 Riverview Drive,
Somerset, NJ 0887) C'REPSELLER").
RECITALS
RESELLER is in the business of manufacture, sale, licensing and distributing of
computer software products, including the sale and distribution of third party
products.
RESELLER desires the right, on its own behalf and on behalf of subsidiaries, to
reproduce and/or distribute proprietary software products owned by DEVELOPER
DEVELOPER desires to grant RESELLER and its subsidiaries the non-exclusive right
to reproduce and/or distribute its proprietary software products, and for the
exhibits to this Agreement to define the terms and conditions specific to each
respective product of DEVELOPER.
NOW THEREFORE, SII and FOUNTAIN hereby agree as follows:
AGREEMENT
1. DEFINITIONS
1.1 "Agreement"means this Software License, Bundling and Distribution
-----------
Agreement, including all exhibits and attachments hereto.
1.2 "SII" means, collectively, Simply Interactive and all Simply
-----
Interactive Subsidiaries.
1.3 "Hardware" means any RESELLER labeled hardware product.
----------
1.4 "SII's Subcontractor" means an independent subcontractor(s) who
----------------------
provides software reproduction, bundling and/or distribution services to S11,
1.5 "Bundle" means the combination of all hardware and software
--------
products which are to be assembled and/or packaged for sale by RESELLER as a
unit under, this Agreement which
1
<PAGE>
unit includes a Program Copy (or coupon evidencing right to receive a copy) of
each Program and any related Documentation.
1.6 "Confidential Information" means: (a) any information relating to
--------------------------
SII's product plans, designs, costs, prices and names, finances, marketing
plans, business opportunities, personnel, research, development or know-how; (b)
any information that is designated by the disclosing party as confidential in
writing or, if disclosed orally, reduced in writing and designated as
confidential within thirty (30) days; and (c) the terms and conditions of this
Agreement; provided, however that "Confidential Information" shall not include
information that: (i) was generally available to the public at the time of
receipt from the disclosing party, or thereafter becomes generally available to
the public other than through a breach of this Agreement by the recipient party;
(ii) is known to the recipient party on a non-confidential basis prior to its
receipt from the disclosing party; (iii) is disclosed with the prior written
consent of the disclosing party; (iv) becomes known to the recipient party from
a source other than the disclosing party without breach of this Agreement by the
recipient party; (v) was required to be disclosed pursuant to law; or (vi) was
developed independently by personnel of the recipient party who had no
substantive knowledge of the disclosing party's Confidential Information at the
time of such independent development.
1.7 "Customer" means any person or entity who purchases a Bundle from
----------
Reseller or Reseller's Subcontractor.
1.8 "Developer" means the individual or entity identified in the
-----------
opening paragraph of this Agreement, who is either the owner of the Program or
who has the right to enter into this Agreement on behalf of the owner by written
agreement with the owner.
1.9 "End User" means any person or entity who purchases a Bundle for
-----------
his or her own use or, if an entity, for its internal use, rather than for
purpose of resale.
1. 10 "Distribution Area" means those countries or geographic regions of
--------------------
the world in which Reseller is authorized to distribute the Bundles as defined
in Exhibit 1.
1.11 "Documentation" means the documents or other information
---------------
pertaining to each Program, which items are to be distributed to Customers in
combination with said Program (whether in the form of printed materials or
software residing on the same media as the Program), as specified in the
corresponding Exhibit 1.
1 12 "Documentation Master" means Reseller is responsible for
----------------------
reproduction of printed copies of any of the Documentation pursuant to Exhibit
2, the master copy of such Documentation (in electronic or other form),
including any applicable artwork and/or film, will be delivered to Reseller or
Reseller's Subcontractor for use in such reproduction process.
2
<PAGE>
1. 13 "Program Master" means the golden master copy of each Program,
----------------
to be delivered to Reseller by S11 in the storage media form described in the
corresponding Exhibit 2 for Resellers use in manufacture of the Program Copies.
1. 14 "Program" means the most current commercially available version
---------
of each of SIPS software programs which Reseller is authorized to copy, bundle
and/or distribute under this Agreement, or any subsequent Amendment hereto.
1. 15 "Program Copy" means a copy of a Program residing on the storage
--------------
media form (e.g.-, hard disk, CD Rom, floppy diskette) in which it is to be
bundled and distributed to the Customer, as specified in the corresponding
Exhibit 1.
1. 16 "Reseller" means a party authorized by SII to purchase the Bundle
---------
for resale to end users and/or to other authorized Resellers.
1.17 "Subsidiary" means a corporation, partnership, joint venture,
------------
limited liability company or other legal entity at least fifty-one percent (51%)
of whose outstanding shares, securities or other ownership rights representing
the right to vote for the election of directors or other managing authority are
owned or controlled, directly or indirectly, by another company.
2. RIGHT TO COPY AND DISTRIBUTE
2.1 Rights Granted. SII hereby grants to Reseller a nonexclusive
---------------
license as to each Program, to: (a) make or have made Program Copies from the
Program Master, in the media form specified in the corresponding Exhibit 1; (b)
make or have made copies of the Documentation from the Documentation Master, (if
applicable) pursuant to Exhibit 2; (c) assemble the Program Copies and
corresponding Documentation in Bundles for distribution; (d) distribute the
Program Copies to Customers in the Distribution Area as part of a Bundle; and
(e) to, directly or indirectly, do all acts reasonably necessary for the
marketing, distribution, and sale of the Bundle. S11 authorizes Reseller to
grant: (a) Reseller's Subcontractor any of the rights granted Reseller by this
Section 2.1 ; and (b) Reseller's Subcontractor any of the same rights to market,
distribute and sell the Program(s) as part of a Bundle, including the right to
distribute and sell the Program(s) as part of a Bundle, including the right to
distribute to other Resellers.
2.2 Developer's Ownership. SII retains all rights, title, and interest
----------------------
to: (i) each Program; (ii) SII's service marks, trademarks and/or trade names;
and (iii) all copyrights, patent rights or trade secret rights associated with
each of the Programs and the Documentation.
2.3 Copyright and Trademark Rights. In connection with Resellers
---------------------------------
marketing and distribution of the Bundle, SII grants to Reseller, and to
Resellers Subcontractors, the non-exclusive, non transferable right during the
term of Resellers Rights of Distribution under this Agreement to use (a) all
copyrighted materials contained in the Programs(s) (including but not limited to
screen shots from the Program(s)), the Documentation, and any packaging or other
materials provided by SII and (b) all trademarks associated with the Program(s).
3
<PAGE>
2.4 Limitations on Use. Reseller shall not use or duplicate any Program
-------------------
for any purpose other than as specified in this Agreement. Reseller shall not
disassemble, decompile, reverse engineer, modify or otherwise change any part
of a Program.
3. DEVELOPER'S RESPONSIBILITY
3.1 Transfer of Master Copies, SII shall provide to Reseller or
-----------------------------
Reseller's Subcontractor, at no cost, the Program Master and the Documentation
Master, both according to the Schedule set for-the in the corresponding Exhibit
2.
3.2 Program Compatibility. SII shall verify the compatibility of the
-----------------------
Program with the Resellers system software revision defined in the corresponding
Exhibit 2. Upon request, SII's test methodology and a brief summary of the test
results shall be provided to Reseller. SII shall provide to Reseller, at no
cost, a reasonable number of additional copies of the Program for testing.
Reseller shall have the right to test each Program for compatibility with
Resellers Hardware, Resellers Software and/or any third party product to be
bundled with the Program.
3.3 SII's Points of Contact. As set forth in Exhibit 2, SII has
-------------------------
identified its primary contact, together with a list of its representatives
having responsibility for resolution of increasingly critical issues related to
this Agreement. In the event of any change in names of the" points of contact,
SII will immediately notify Reseller of the replacement representative.
4. FEES AND PAYMENTS
4.1 Royalty Fees. Reseller or Reseller's Subcontractor will pay to SII
-------------
the Royalty Fee in the amount set forth in the corresponding Exhibit I ("the
Royalty Fee") for each Program Copy. Payment will be made by Reseller based on
units sold into the channel. Resellers Royalty obligation will accrue on the
date of sale into the channel. However, Royalty Payments to SII for any quarter
will not be due until thirty (30) days after the end of that quarter, based on
the applicable Quarterly Report pursuant to Section 4.2.
4.2 Royalty Reporting. As to each Program covered by this Agreement,
-------------------
Reseller shall maintain complete and accurate records of the following: (i) the
number of Bundles containing the Program Copies which are either, manufactured
and shipped to distribution or sold into the Channel, (ii) the number of
Program Copies which are reconfigured pursuant to Section 4-4(a); and (iii) the
number of Customer Returns pursuant to Section 4.4(b) At the end of each
calendar quarter, Reseller shall submit a report ("Monthly Report") to SII
listing the above information, by each of these three (3) categories, for the
preceding month.
4
<PAGE>
4.3 Royalty Payments. Reseller shall included with each Royalty
------------------
Payment, a quarterly report summarizing the three (3) previous calendar months
in accordance with Section 4.1, 4.2 and 4.4.
4.4 Expiration/Termination. Upon expiration or termination of this
-----------------------
Agreement, Reseller will have the right to submit reports on, and obtain royalty
credits for, up to one hundred (100) units of Reconfigurations and Returns
occurring within sixty (60) days after said expiration or termination.
4.5 Right to Audit. SII shall have the right, at its expense and on
----------------
thirty (30) days written notice, to have an independent certified public
accountant audit the records of Reseller to verify the information provided in
the Monthly and Quarterly Reports. Records subject to audit under this section
shall extend no more than one (1) year prior to the request date. If, as a
result of such audit, an underpayment is verified, Reseller will rectify payment
of inconsistencies or mistakes within thirty (30) days, and, if greater than
five percent (5%) underpayment for any reporting period is found, also reimburse
SII for the cost of the audit. SII may exercise its right to audit no more than
once per year unless an underpayment of over five percent (5%) has been
discovered in the prior audit. In such cases, the SII shall have the right to
audit once every three months until the results of the last audit show less than
a five percent (5%) underpayment. Audit scheduling shall be by mutual agreement
between SU and the Reseller, and all audits must be completed within five
working days. Upon completion of the audit, the independent certified public
accountant shall provide a copy of the report to SII and the Reseller. SII
acknowledges and agrees that all such records of Reseller shall be considered
Confidential Information and shall be subject to the restrictions set forth in
Section 7 of this Agreement. The CPA shall execute and observe the terms of this
Agreement.
5. REPRESENTATIONS AND WARRANTIES
5.1 Ownership. SII represents and warrants: (i) that it is the owner
----------
of, or has obtained a license from the owner of, all right, title and interest,
including copyright, if any, in and to all preexisting images, icons,
characters, graphics, sounds, music, photographs, recordings, video, film,
animation, cartoons, illustrations, accompanying text, captions, scripts, or
related materials in each of the Program(s); (ii) that it has obtained or will
obtain prior to delivery under this Agreement, all licenses and releases
required to enable Reseller to exercise the license granted in this Agreement,
including without limitation, the release of each person or organization whose
name, voice, likeness, portrayal, impersonation or performance is included in
any Program ' and (iii) that it has not previously granted and will not grant
any rights in any Program to any third party inconsistent with the rights
granted to Reseller herein.
5.2 Program Warranty SII warrants that each of the Programs will
-----------------
perform substantially in accordance with the Documentation for one year after
delivery of the Program Master.
5
<PAGE>
5.3 Program Warranty to Customer. SII shall provide the sole warranty
-----------------------------
to the Customer pertaining to the performance of each Program, which warranty
shall provide, at a minimum, that the Program is capable of substantially
performing the functions described in the end user Documentation.
5.4 Replacement Copies of the Program. In the event that Reseller or
----------------------------------
an authorized service provider elects to provide Customer with a replacement for
a defective or damaged Program Copy from a Bundle, no additional fee will be due
SII for the replacement copy of the related Documentation.
6. INDEMNIFICATION
6.1 Proprietary Rights Indemnity. SII agrees to defend, indemnify and
-----------------------------
hold harmless Reseller and Reseller's affiliates, directors, officers,
employees, agents and contractors from any and all losses, damages, liabilities,
costs, expenses (including reasonable attorney's fees), judgments or settlement
amounts arising out of or in connection with any claim that the' marketing, sale
or use of a Program infringes any patent, copyright, trademark, trade secret,
privacy right, right of publicity or other proprietary right of a third party.
6.2 General Indemnity. SII agrees to defend, indemnify and hold
-------------------
harmless Reseller, and Reseller's affiliates, directors, officers, employees,
agents and contractors, from and against any and all losses, damages,
liabilities, costs, expenses (including costs and reasonable fees of attorneys
and other professionals), judgments or settlement amounts arising out of or in
connection with a claim that any of the Program(s) caused injury or damage to
persons or property, or a claim that any Program failed to perform as
represented or was defective.
7. CONFIDENTIALITY
7.1 Disclosure; Standard of Care. The parties acknowledge that, in the
------------------------------
course of performance of their obligations under this Agreement, each party may
disclose Confidential Information to the other. Each party will protect the
other's Confidential Information from unauthorized dissemination and use with
the same degree of care that each such party uses to protect and safeguard its
own like information, but not less than the degree of care that would be
exercised by a prudent person given the sensitive and strategic value of such
Confidential Information, Confidential Information shall be disclosed only to
the employees of the recipient who have a "need to know" and who have executed
an internal nondisclosure agreement at least as restrictive as the terms of this
Agreement. Reseller shall not disclose any Confidential Information to any third
party without first obtaining SII's written consent to such disclosures.
7.2 No Warranties, Representations or Liability. In furnishing any
------------------------------------------------
Confidential Information hereunder, SII makes no warranty, guarantee or
representation, either express or implied (a) as to the adequacy, accuracy,
sufficiency or freedom from defect of such Confidential
6
<PAGE>
Information. or (b) that the use or reproduction of any Confidential Information
received hereunder shall be free from any patent, trade secret or copyright
infringement.
8. TERM AND TERMINATION
8.1 Term. This Agreement shall commence on the Effective Date, shall
-----
continue in full force and effect for a period of one (1) year, and shall be
automatically renewed thereafter for successive one (1) year periods unless
notice of intent not to renew is received by either party at least ninety (90)
days prior to the commencement of any subsequent term.
8.2 Termination Without Cause. SII shall have the right to terminate
----------------------------
this Agreement at will, with or without cause, upon thirty (30) days written
notice.
8.3 Termination For Cause. Either party will have the right to terminate
------------------------
this Agreement immediately upon written notice at any time if:
(a) The other party is in material breach of any term, condition
covenant of this Agreement other than those contained in Section 7 and fails to
cure that breach within thirty ('30) days after written notice of such breach;
(b) The other party is in material breach of any term, condition
or covenant of this Agreement contained in Section 7; or
(c) The other party; (i) becomes insolvent; (ii) fails to pay its
debts or perform its obligations in the ordinary course or business as they
mature; or (iii) makes an assignment for the benefit of creditors.
8.4 Archiving/Destruction of Program Master Copies. Upon expiration or
-----------------------------------------------
termination of this Agreement, Reseller or if applicable, Reseller's
Subcontractor, shall archive or destroy each Program Master and, if applicable,
each Documentation Master received from SII.
9. GENERAL TERMS
9.1 Nonexclusivity. Nothing in this Agreement shall prevent either
---------------
party from entering into a similar agreement with any other party. This
Agreement shall not be construed to restrict either party from engaging in any
activities with respect to the other party's competitors' products or services.
9.2 Relationship of the Parties. In all matters relating to this
------------------------------
Agreement, SII is an independent contractor. Neither party will represent that
it has any authority to assume or create any obligations, express or implied, on
behalf of the other party. Nothing stated in this Agreement shall be construed
as constituting Reseller and SII as partners or joint ventures, or as creating
the relationship of employer and employee, principal and agent, master and
servant, or licenser and licensee between Reseller and SII.
7
<PAGE>
9.3 No Assignment. This Agreement is not assignable by either party
--------------
without the prior written consent of the other party. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties, their
successors, and permitted assigns.
9.4 Notice. All notices sent to SII shall be sent to the following
------
addresses:
Simply Interactive, Inc. Fountain Technologies, Inc.
650 Saratoga Avenue 3 Riverview Drive
San Jose, CA 95129 Somerset, NJ 08873
ATTN: LEN FARACE ATTN: JERRY SILVERMAN
CONTROLLER
and copies to the following addresses:
Simply Interactive, Inc.
650 Saratoga Avenue
San Jose, CA 95129
ATTN: GLENN GOELZ
9.5 Governing Law/Venue. This Agreement shall be governed by and
---------------------
construed in accordance with the Laws of the State of California, except that
body of law known as Conflicts of Law. All actions or proceedings arising
directly or indirectly between the parties, other than those for injunctive
relief, shall be litigated in courts located within the County of Santa Clara,
California. Reseller consents to the jurisdiction thereof and agrees not to
disturb such choice of forum. If Reseller is not a resident of California,
Reseller waives the personal service of any and all process upon it, and agrees
that all such service or process may be made by certified or registered mail,
return receipt requested, addressed to Reseller.
9.6 Severability. In the event that any of the provisions of this
------------
Agreement shall be held by a court or other tribunal of competent jurisdiction
to be invalid or unenforceable, the remaining provision of this Agreement shall
remain in full force and effe2t and shall be construed so as to best effectuate
the intention of the parties in executing it.
9.7 No Waiver. Failure by either party to enforce any provision of
----------
this Agreement shall not be deemed a waiver of the right to thereafter enforce
that or any other provision of this Agreement.
9.8 Survival.Any obligations which either expressly or by their nature
---------
are to continue after the termination or expiration of this Agreement shall
survive and remain in effect
8
<PAGE>
9.9 Modification. Any modifications of this Agreement must be in
-------------
writing and signed by both parties hereto.
9.10 Force Majeure. Neither party shall be liable for any failure or
--------------
delay in the performance of an obligation hereunder on account of strikes,
riots, fires, explosions, acts of God, war, governmental action, or any other
cause which is beyond the reasonable control of such party.
9.11 Entire Agreement. This Agreement constitutes the entire agreement
-----------------
between the parties with respect to the subject matter hereof, and any and all
written or oral Agreements heretofore existing between the parties are expressly
canceled. SII acknowledges that it is not entering this Agreement on the basis
of any representations not expressly contained herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
SIMPLY INTERACTIVE FOUNTAIN TECHNOLOGIES, INC.
BY: Robert A. Rositano Jr. BY: Steven B Marker
NAME: Robert A. Rositano Jr. NAME: Steven B Marker
TITLE: EVD /S/ Steven B Marker
----------------------
DATE: 3/14/97 DATE: 4/17/97
9
<PAGE>
EXHIBIT I
PRODUCT DESCRIPTION, PRODUCT PRICING AND DISTRIBUTION
Program NameNersion: Price Per Copy
--------------------- ----------------
Internet the City - V 2 $ 0.45
1 CD for PC/Win95
Documentation:
--------------
Registration Card
End User License
User Manual (in electronic form)
Language Versions:
-------------------
English
Customers:
----------
All FOUNTAIN Customers
Distribution Area:
-------------------
World Wide
10
<PAGE>
EXHIBIT 2
DEVELOPER DELIVERABLES
Program Name/Version Deliverables Delivery Schedule
- --------------------- ------------ ------------------
Internet the City - V 2 Compatibility* Testing Complete Upon Signature
of Contract by both
Program Copies for Testing Parties.
Program Master (I GM)
Documentation Master
CD Silk Screens
Hard Copy Documentation
Samples
Developer Contacts
- -------------------
Primary Contact: Len Farace (408) 260-6600
Escalation Contact: Glenn Goelz (408) 260-6589
Reseller Contacts
- ------------------
Primary Contact: Fountain Technologies
Stephen Smith (908) 764-5680
Fountain Technologies
Debbie Sinowell (908) 563-4800 x 1311
50 Randolph Road
Somerset, NJ 08873
11
<PAGE>
Dear Neil:
We understand the current situation concerning Fountain Technologies current
contract with Simply Interactive, Inc. and are conveying to you in writing what
has transpired.
Simply Interactive, Inc. (the Company) was acquired as of (August 6, 1997)
pursuant to default provisions entered into between Simply Interactive, Inc. and
SSN properties (a California Corporation) all assets, product, contracts, and
intellectual property rights then became the assets of SSN properties.
During the course of this transaction SSN entered into an agreement to then
sell, assign, grant and convey all property / contract rights to NETTATI Online
Communities, Inc. (a Delaware Corporation.) UNDER THE TERMS SET FORTH IN THE
ASSET PURCHASE AGREEMENT NETTAXI WILL ALSO ASSUME ALL OBLIGATIONS PRIOR AND
FUTURE PERTAINING TO ALL EXISTING CONTRACTUAL AGREEMENTS(OUTLINED IN THE MASTER
SOFTWARE LICENSE AND DISTRIBUTION CONTRACT.)
THE CONVEYANCE AND TRANSFER OF THESE ASSETS INCLUDES "INTERNET THE CITY" CD-ROM
SOFTWARE, AND ANY EXCISING CONTRACTS RELATING TO THE SOFTWARE THAT WERE
CURRENTLY ESTABLISHED AND HELD BY SIMPLY INTERACTIVE, INC. "re: FOUNTAIN
TECHNOLOGIES CONTRACT" AND ALL PRIOR OR FUTURE OBLIGATIONS OUTLINED IN THE
MASTER SOFTWARE LICENSE AND DISTRIBUTION CONTRACT.
As of November 1, SSN properties has transferred and conveyed all property,
software, and contract rights to NETTAXI Online Communities, Inc. From this day
forward NETTAXI at its sole discretion may amend, transfer, or establish new
contracts/ relationships with any and all vendors relating to Simply
Interactive, Inc. or the "Internet the City" CD-ROM software. All monies due,
with respect to software bundling agreements are to be made directly to NETTAXI
Online Communities, Inc.
Sincerely
/S/ Robert A. Rositano Jr. Chairman
-------------------------------------
Robert A. Rositano Jr. Chairman / CEO Company Address:
2165 S. Bascom Ave.
Campbell, CA. 95008
Customer Service Contact: Brian Stroh 888 8799880
408 8799880
Should you require any further information or documentation, please advise the
undersigned and it will be forthcoming.
<PAGE>
ADMINISTRATIVE FLYCAST
- ------------------------------------------------------------------------
FLYCAST(TM) COMMUNICATIONS
CORPORATION
WEB ADVERTISING SERVICES AGREEMENT
For Sellers
V2.0-Sellers
Company Name ("Seller") Nettaxi Online Communities
- ------------------------------ ------------------------------
Primary Site(s) URL(s) www.nettaxi.com
- ------------------------------ ------------------------------
Contact Person(s) Name Robert or Dean Rositano
- ------------------------------ ------------------------------
Phone 408-879-9880
- ------------------------------ ------------------------------
Email [email protected] dean@nettaxi
- ------------------------------ ------------------------------
Flycast Sales Representative Shan Franklin
- ------------------------------ ------------------------------
Flycast Customer Support
Representative
- ------------------------------ ------------------------------
This agreement, dated June 3, 1998, describes the entire terms and conditions
for the sale of web advertising impressions on the Flycast Open Network(TM)
between Flycast Communications Corporation ("Flycast") and Nettaxi Online
Communities (the "Seller").
<PAGE>
Section 1.0 Definitions
1.1. AdAgent(TM).
The client software provided by Flycast for the purpose of purchasing
Impressions on the Flycast Open Network.
1.2. Ad Spaces.
The web page section(s) on Seller's web site registered with Flycast that
generate Impressions.
1.3. Buyers.
Customers who buy Impressions on the Flycast Open Network.
1.4. Buyer Terms and Conditions.
The Terms and conditions that apply to purchases of Impressions on the Flycast
Open Network. Copies are available from Flycast.
1.5. Default Advertisements.
Advertisements promoting Seller's web site (or Seller's goods or services) that
are displayed in the event there is no qualified Buyer for Impressions on
Seller's Ad Spaces.
1.6. Flycast.
Flycast Communications Corporation, a California corporation.
1.7. Flycast Ad Management System.
The tools and services provided by Flycast to manage web advertising campaigns,
including AdAgent, Ad Reporter, Site Registry, and Site Reporter.
1.8. Flycast Blind Buy Sale.
A transaction on the Flycast Open Network in which the Impression is sold as
part of a pool of Impressions from multiple sites, and the Buyer is unable to
specify web sites or Ad Spaces.
1.9. Flycast Open Network.
The network of web sites on which Buyers can purchase Impressions.
1.10. Flycast Spot Sale.
A transaction on the Flycast Open Network where the Impression is sold pursuant
to a real-time bidding process to the highest bidder that bids above the
Seller's minimum bid price.
1.11. Flycast Upfront Sale.
A transaction on the Flycast Open Network where a fixed number of Impressions
are sold to a specific Buyer (including Flycast) for a fixed, predetermined
price. A Flycast Upfront Sale cannot be canceled by the Seller or by the Buyer.
1.12. Impressions.
Web advertising impressions sold or made available for sale over the Flycast
Open Network.
1.13. Sellers.
Web sites that register Ad Spaces for sale on the Flycast Open Network.
1.14. Seller Status Information.
The Seller's Impression sale parameters with respect to each Ad space, including
the number of Impressions available to be sold on the Flycast Open Network, the
minimum price for the sale of the Impressions, etc.
1.15. Site Registry.
The HTML form(s) on Flycast's web site used by Sellers to register their Ad
Spaces with the Flycast Open Network, and to set and adjust Seller Status
Information.
Section 2.0. Selling Impressions
Section 2.1. General
Seller agrees to make Impressions available for sale on the Flycast Open Network
in the amount, price and Ad Space locations reflected in the Site Registry.
Seller agrees that by participating in the Flycast Open Network, it has made an
offer to sell Impressions at or above the minimum designated price. Flycast
does not represent or warrant that Seller will sell any Impressions through the
Flycast Open Network. Seller agrees that any Impressions otherwise unsold on
the Flycast Open Network will be offered for sale as part of a Flycast Blind Buy
Sale.
Section 2.2. Site Registration and Information
Seller agrees to complete the Site Registry information accurately and
completely, including setting "rate card,* minimum bid,* and Bind Buy" prices
for all of the Ad Spaces available for sale. Seller further agrees to update
Seller Status Information on a monthly basis.
Section 2.3. Fulfillment
Seller understands that Buyers use information about available Impressions on
Seller's site to plan their web media buys. Accordingly, Seller agrees to
provide all the Impressions reflected in the Site Registry for sale over the
Flycast Open Network. In addition, Seller agrees that if it sells Impressions
pursuant to a Flycast Upfront Sale, it will deliver all of the Impressions with
respect to such sale, and that it will provide "make-good" impressions as soon
as practicable in the event of an underdelivery.
Section 2.4. Payment to Seller
Flycast will pay Seller the following amount for Impressions made available for
sale through the Flycast Open Network:
60% of revenues generated from the sale of Impressions on the Seller's
Ad Spaces.
Section 2.5. Payment Terms
Flycast will remit a monthly payment to seller sixty (60) days after the end of
the month in which Impressions are sold through the Flycast Open Network. For
example, Seller will be paid by March 30 for ads placed during the preceding
month of January. A Flycast payment report summarizing the Seller's activity
will accompany payment for the month. Flycast will accrue and hold monthly
payments due to Seller until the aggregate amount due exceeds $200 (or such
lesser amount due Seller in the event Seller terminates its relationship with
Flycast). If Seller is also a buyer, Flycast has the option to offset a payment
by the amount of any balance due Flycast from Seller's purchases of Impressions
on the Flycast Open Network.
Section 2.6. Discrepancies
Seller has thirty (30) days from the receipt of payment to report any
discrepancy or to question the payment. Flycast and Seller will use their best
efforts to resolve any discrepancy or question quickly and fairly. In case of a
discrepancy between any report generated by Flycast's SiteReporter and Flycast's
final billing information, the filling information will control.
Section 2.7. Ad Blocking
Flycast provides Seller an automated procedure for blocking selected advertisers
or advertisements from appearing on their Ad Spaces. Seller is responsible for
utilizing Flycast's ad blocking system in accordance with the procedures set
forth on Flycast's Web site. Seller acknowledges that Flycast's ad blocking
system provides adequate protection against the appearance of unwanted or
inappropriate advertisements or advertisers on Seller's Ad Spaces. SELLER
AGREES THAT NEITHER FLYCAST OR ANY BUYER SHALL BE LIABLE FOR THE CONTENT OF ANY
ADVERTISEMENTS DELIVERED BY FLYCAST ON SELLER'S AD SPACES.
Section 2.8. Impression Pricing
Seller agrees to cooperate with Flycast in pricing Impressions to enable Flycast
to offer Impressions on several sites with content similar to Seller at a single
price or consistent range of prices.
Section 2.9. Minimum Impressions; Term
Seller agrees to make a minimum of 100,000 Impressions available for sale per
month on the Flycast Open Network for at least three (3) months from the date
hereof. This Agreement will automatically renew at the end of the initial term
and will remain in effect unless terminated by either party with 30 day's
notice. Either party may, at its sole option, terminate this Agreement in its
entirety in the event that (i) the other party breaches any of its material
obligations, representations or warranties under this Agreement and fails to
cure such breach within thirty (30) days of receiving notice thereof, (ii) the
other party is acquired by a third party that would reasonably be determined to
be involved in substantial business activities that are directly competitive
with the business of the terminating party, or (iii) the other party institutes
insolvency, receivership or bankruptcy proceeding or any other proceedings for
the settlement of debt, which are not dismissed or resolved in such other
party's favor within sixty (60) days thereafter.
Section 2.10. Reporting
Seller is entitled to use Site Reporter, Flycast's online reporting application.
Flycast may limit Seller's use of Site Reporter pursuant to a reasonable policy
applied objectively to sites participating in the Flycast Open Network.
Section 2.11. Promotional Impressions
Seller agrees to provide three percent (3%) of its unsold Impressions (across
all of the sites sold through the Flycast Open Network) with respect to the Ad
Spaces covered by this contract available to Flycast fee of charge for use in
promoting the Seller and the Flycast Open Network. In addition, Seller agrees
to provide Flycast with reasonable amounts of additional promotion inventory
from time to time in connection with specific programs or promotions.
Section 2.12. Deleted
Section 2.13. Rights Upon Termination
On termination of this Agreement, all of Seller's rights under the AdAgent
License Agreement (attached hereto as Exhibit A). If this Agreement is
terminated for any reason, neither party will be liable to the other because of
such termination for damages for the loss of prospective profits, anticipated
sales, good will, or for expenditures, investments or commitments made in
connection with this Agreement. The termination of this Agreement shall not
relieve either party from its liability to pay any fees that have accrued to the
other party prior to the date of termination. The parties' rights and
obligations under Section 4.2-4 shall survive expiration or termination of this
Agreement.
Section 3.0. Advertising Management Services
Section 3.1. Default Advertising
Subject to the terms and conditions of the AdAgent License Agreement (attached
hereto as Exhibit A). Seller can use Flycast's Ad Management System to manage
Default Advertising. Seller is bound by the AdAgent License Agreement (attached
hereto as Exhibit A). Seller rights under this Section 3.1 are limited to
ten percent (10%) of Seller's inventory made available for sale through the
Flycast Open network, or 20,000 impressions per month, whichever is less.
Section 3.2. Outsourced Ad Management
Seller can use Flycast's Ad Management System to manage web advertising
campaigns originated by Seller on behalf of third-party advertisers appearing on
the Ad Spaces covered by this contract in accordance with the following terms
(which terms override Section 2.4):
- - Section 3.2.1. Commission. Flycast is entitled to a commission equal to
$2.00 per thousand Impressions delivered by Seller utilizing the Flycast Ad
Management System to manage ad campaigns on the Ad Locations covered by this
contract.
- - Section 3.2.2. Billing and Collection. Flycast will invoice Seller for
the commission described in Section 3.2.1, and retains the right to offset any
payment due Seller by the amount of the commission. Seller bears sole
responsibility for billing and collecting payment from advertisers for
advertisements delivered pursuant to this Section 3.2.2.
Section 3.3. Purchasing Impressions
Subject to the terms and conditions of the AdAgent License Agreement (attached
hereto as Exhibit A). Seller can use the Flycast Ad Management System to
purchase Impression on the Flycast Open Network. Seller will be subject to the
Buyer Terms and Conditions with respect to the purchase of Impressions.
Section 4.0. Standard Terms and Conditions
Section 4.1. Programming
Seller will effect all necessary HTML changes with respect to the Ad Spaces as
described in Flycast Site Registry so as to enable Flycast to deliver
Impressions to Buyers in accordance with this Agreement.
Section 4.2. Quality Assurance
Seller will maintain its web site and Ad Spaces in accordance with the highest
industry standards. Seller acknowledges that Flycast has no responsibility to
review the content of its web site(s) or Ad Spaces. Without limiting the
foregoing, Seller represents and warrants that:
- - Section 4.2.1. Content Restrictions. Seller's web site(s) and Ad Spaces
shall not contain, or contain links to, content promoting the use of alcohol,
tobacco or illegal substances; nudity, sex, pornography, or adult-oriented
content; expletive or inappropriate language; content promoting illegal
activity, racism, hate, "spam," mail fraud, pyramid schemes, or investment
opportunities or advice not permitted under law; content that is libelous,
defamatory, contrary to public policy, or otherwise unlawful, or any other
content deemed inappropriate by Flycast in its sole discretion.
- - Section 4.2.2. Ad Space Location; Limitation. Seller agrees to place
Flycast Ad Spaces in a conspicuous location on pages on its web site(s), either
at the top of the web page, or on the top one-third of an expanded view of the
page on a 640x480 monitor. In addition, Seller agrees that it shall not display
more than one advertisement (whether or not provided by Flycast) on any single
page on which a Flycast Ad Space appears.
- - Section 4.2.3. Valid Impressions. Seller shall not to run "robots" or
"spiders" against its web site(s) or use any means to artificially increase the
Impressions available with respect to any Ad Spaces.
- - Section 4.2.4. Refresh rates. Seller may utilize "meca refresh banner
rotations" only for pages that have chat, video broadcast, audio broadcast, or
active gaming content. The refresh rates for these rotations must exceed five
(5) minutes.
- - Section 4.2.5. Cooperation. Seller will cooperate with any reasonable
Flycast efforts or initiatives relating to auditing sites on the Flycast Open
Network, obtaining enhanced demographic information about visitors to Seller's
site(s), etc.
Seller understands and agrees that a violation of this Section 4.2 may result in
the suspension or termination of active advertising campaigns running on
Seller's Ad Spaces, removal of Seller's web site(s) from the Flycast Open
Network, or any other action deemed necessary in Flycast's sole discretion.
Section 4.3. Proprietary Rights
Seller agrees that it shall not have, nor will it claim, any right, title or
interest in any advertising content delivered by Flycast (other than Seller's
own advertising content). Seller understands that, other than the licenses
granted in the AdAgent License Agreement attached hereto, Flycast grants Seller
no license to Flycast advertising content, the name "Flycast" or any derivative
thereof, or any other trademarks, logos, copyrights, patents, trade secrets, or
other intellectual property rights which are owned or controlled by Flycast and
made available to Seller in any manner.
Section 4.4. Public Relations
Flycast retains the right to refer to Seller as a customer in its web site,
press releases and marketing collateral.
Section 4.5. Representation and Warranties
Each party represents and warrants to the other party that such party has the
full corporate right, power and authority to enter into this Agreement and to
perform the acts required of it hereunder; and the execution of this Agreement
and the performance by such party of its obligations and duties hereunder, do
not and will not violate any agreement to which such party is a party or by
which it is otherwise bound; and when executed and delivered by such party, this
Agreement will constitute the legal, valid and binding obligation of such party,
enforceable against such party in accordance with its terms. Such party
acknowledges that the other party makes no representations, warranties or
agreements (written or oral) related to the subject matter except as expressly
provided for in this Agreement.
Section 4.6. Limitation of Liability
The parties agree that: (i) Flycast exercises no control and has no
responsibility whatsoever over the content or quality of any advertising
materials or any AdSpaces, (ii) use of Flycast's services is at Seller's own
risk, and (iii) this is not a contract for the sale of goods and, therefore, is
not subject to the Uniform commercial Code. EXCEPT AS EXPRESSLY PROVIDED
HEREIN, THE SERVICES ARE PROVIDED "AS IS" AND "AS AVAILABLE" AND FLYCAST
DISCLAIMS ALL WARRANTIES OF ANY KIND, WHETHER EXPRESS OR IMPLIED, FOR THE
ADVERTISING SERVICES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLED WARRANTIES
ARRISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. Flycast shall not be
liable for any advertisers whose content appear on the Flycast Open Network, nor
the contents of any advertisement, nor shall Flycast be liable for any loss,
cost, damage, or expense (including attorney's fees) incurred by Seller or any
advertiser in connection with an advertiser's or Seller's participation in the
Flycast Open Network. Flycast makes no guarantees with respect to the services
rendered under this Agreement, and neither Flycast nor any of its officers,
directors, agents, Flycast Open Network members or sponsors shall have any
liability as a result of Flycast's performance of this Agreement, including,
without limitation, Internet disruption, interrupted service, errors or delays
in providing the service, levels of use or impressions, loss of data, failure to
provide requested subject categories, failure to meet Seller or advertiser's
requirements, or other injury, damage or disruption to advertiser or
advertiser's web site. Without limiting the foregoing, Flycast's entire
liability under, for breach of, arising under, or related to this Agreement or
the services to be provided hereunder (whether in tort, contract or any other
theory), and Seller's solo remedy is for Flycast, if possible, to provide the
services agreed hereunder or refund any amounts prepaid by Seller related to the
services giving rise to such liability, provided such refund shall not exceed
the aggregate charges for services rendered for the prior six months under this
Agreement that gave rise to such liability. In no event shall Flycast be liable
for indirect, exemplary, special, incidental or consequential damages, or costs,
including but not limited to, any lost profits or revenues, loss of use or
goodwill, or any third party claims, even if such party has been advised of the
possibility of such damages.
Section 4.7. Nondisclosure and Proprietary Information
Seller shall not disclose any of the terms and conditions of the Agreement to
any third party without the express written consent of Flycast. Neither party
shall disclose to any third party the Confidential Information of the other
party and shall not use any such Confidential Information for any purpose other
than the purpose for which it was originally disclosed to the receiving party.
"Confidential Information means any information of a party disclosed to the
other party, which is identified as, or should be reasonably understood to be,
confidential to the disclosing party, including, but not limited to the results
of Seller's sale of Impressions on the Flycast Open Network, know-how, trade
secrets, technical processes and formulas, software, customer lists, unpublished
financial information, business plans, projections, and marketing data.
"Confidential Information" shall not include information that (i) is known to
the receiving party at the time it receives Confidential Information; (ii) has
become publicly known through no wrongful act of the receiving party; (iii) has
been rightfully received by the receiving party from a third party authorized to
make such communication without restriction; (iv) has been approved for release
by written authorization of the disclosing party; or (v) is required by law to
be disclosed.
Section 4.8. Indemnification
Seller, at its own expense, shall indemnify, defend and hold Flycast and its
officers, directors, employees, agents, distributors and licensees harmless from
and against any judgment, losses, deficiencies, damages, liabilities, costs and
expenses (including reasonable attorney's fees and expenses) incurred in
connection with or arising from any claim, suit, action or proceeding
(collectively, a "Claim") to the extend the basis of such Claim relates to a
breach by Seller under this Agreement or in connection with claims arising out
of publication of any content or information published by Seller hereunder
(including, without limitation, any claim of trademark or copyright
infringement, libel, defamation or breach of confidentiality) or any product or
service related to such content or information or any breach of a third party
contract.
Section 4.9. Miscellaneous
a. Independent Contractors. The parties to this Agreement are independent
contractors. Neither party is an agent or partner of the other party. Neither
party shall have any right, power or authority to enter into any agreement for
or on behalf of, or incur any obligation or liability of, or to otherwise bind,
the other party. This Agreement shall not be interpreted or construed to create
an association, agency, joint venture or partnership between the parties or to
impose any liability attributable to such a relationship upon either party.
b. Entire Agreement. This Agreement and the AdAgent License Agreement
attached hereto as Exhibit A sets forth the entire Agreement between the parties
and supersedes prior proposals, agreements, and representations between the
parties, whether written or oral, regarding the subject matter contained herein.
This Agreement may be changed only my mutual agreement of the parties in
writing. This Agreement may be changed only by mutual agreement of the parties
in writing. This Agreement may be executed in any number of counterparts, each
of which shall be an original and all of which shall constitute together but one
and the same document.
c. Assignment. Seller may not assign or otherwise transfer, whether
voluntarily or by operator of law, any rights or obligations under this
Agreement without the prior written consent of Flycast.
d. Governing Law/Notice. This Agreement shall be construed and interpreted
according to the laws of the State of California without reference to conflicts
of law provisions. The parties hereby consent to the exclusive jurisdiction of
the courts of San Francisco County, California. All written notices between the
parties shall be deemed to have been given if personally delivered, sent by
courier or certified, registered or express mail, transmitted by electronic mail
via the Internet (with copy sent by registered or certified airmail) to the
address set forth above (or as otherwise directed in writing). Unless otherwise
provided herein, all notices shall be deemed to have been duly given on: (a) the
date of receipt (or if delivery is refused, the date of such refusal) if
delivered personally, by electronic mail or by courier; or (b) three (3) days
after the date of posting if transmitted by mail.
e. Waiver/Severability. The waiver by either party of a breach or right
under this Agreement will not constitute a waiver or any other or subsequent
breach or right. If any provision of the Agreement is found to be invalid or
unenforceable by a court of competent jurisdiction, such provision shall be
covered from the remainder of this Agreement, which will remain in full force
and effect.
f. Force Majeure. Flycast shall not be in default or otherwise liable for
any delay in or failure of its performance under this Agreement where such delay
or failure of its performance under this Agreement arises by reason of any Act
of God, or any government or any governmental body, acts of war, the elements,
strikes or labor disputes, or other cause beyond the control of Flycast.
Flycast Communications Corporation
__________________________________
By:_______________________________
Title:____________________________
Flycast Communications Corporation
Seller
__________________________________
By:_______________________________
Title:____________________________
(Company Name):__________________
<PAGE>
Exhibit A
AdAgent License Agreement
ONCE YOU DOWNLOAD FLYCASTS SOFTWARE, YOU AND THE COMPANY OR ENTITY THAT YOU
REPRESENT ("YOU") WILL BE BOUND BY THE FOLLOWING LICENSE AGREEMENT
("AGREEMENT").
1. GRANT. Subject to the terms of this Agreement, Flycast Communications
Corporation ("Flycast") hereby grants You a limited, personal nontransferable,
nonsublicensable, royalty-free, nonexclusive license to use the AdAgent software
product that You are about to download in object code form, along with the
documentation that accompanies it ("Software") for managing, displaying, and
placing advertising on the world wide Web. The Software consists of various
components, which are identified by appropriate filenames in the download. You
may copy, distribute, install, and use AdAgent for internal use only. You may
only install and use one copy of the AdAgent and other components of the
Software. You may also copy the Software for archival purposes, provided any
copy must contain all of the original Software's proprietary notices.
2. RESTRICTIONS. You may not, directly or indirectly: modify, translate,
reverse, engineer, decompile, disassemble (except to the extend applicable laws
specifically prohibit such restriction), create derivative works based on, or
otherwise attempt to discover the source code or underlying ideas or algorithms
of the Software; or copy and distribute (except for the purposes set forth
above) rent, lease, or otherwise transfer rights to the Software; use the
Software for timesharing or service bureau purposes, or for performing
comparisons or other "benchmarking" activities, either alone or in connection
with any other software (and you will not publish the results of such
activities); or remove any proprietary notices or labels on the Software. As
between the parties, title, ownership rights, and intellectual property rights
in and to the Software, and any copies or portions thereof, shall remain in
Flycast and its suppliers or licensors. The Software is protected by the
copyright laws of the United States and international copyright treaties.
3. SUPPORT AND UPGRADES. This Agreement does not obligate Flycast to
provide any support or upgrades, patches, enhancements, and fixes (collectively
"Upgrades") for the Software. Notwithstanding the foregoing, any Upgrades that
You may receive become part of the Software and the terms of this Agreement
apply to them.
4. CONTENT. Title, ownership rights, and intellectual property rights in
and to any advertisements, information, text, pictures, images, characters,
sounds, personalities, code (source and object), data, and other materials
("Content") provided by third parties, or accessed through, managed with,
processed with, or otherwise used in connection with the Software is the
property of the applicable owner and may be protected by applicable copyright or
other law. This agreement give You no rights, title, or interest to Content
(including without limitation Content that You post or create suing the
Software). Flycast exercises no screening, editorial, or other control over
Content, and Content may include material that could be deemed distasteful,
misleading, inaccurate, offensive, pornographic or otherwise objectionable. You
hereby agree to indemnify and hold harmless Flycast from any and all damages,
liability, costs, and expenses (including attorney's fees) arising from claims
related to your use of the Content, including, without limitation, infringement,
misappropriation, privacy, security, right of publicity, false advertising,
fraud, consumer protection, and claims that Content is obscene, pornographic,
indecent, or otherwise objectionable.
5. WARRANTY AND DISCLOSURE. FLYCAST PROVIDES THE SOFTWARE AND ANY SERVICES
THAT YOU RECEIVE "AS IS" AND WITHOUT WARRANTY OF ANY KIND, AND FLYCAST HEREBY
DISCLAIMS ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING WITHOUT LIMITATION
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, PERFORMANCE,
ACCURACY, RELIABILITY, AND NON-INFRINGEMENT. THIS DISCLAIMER OF WARRANTY
CONSTITUTES AN ESSENTIAL PART OF THIS AGREEMENT.
6. LIMITATION OF LIABILITY. You assume the entire risk as to the quality
and performance of the Software. Flycast assumes no liability for the cost of
any service or repair if the Software is defective. Further, You assume the
responsibility of, and any costs or liability associated with, making a
connection (by any means) to the Internet, or other online service, or network
and You understand that some features of the Software will not operate without
such a connection. UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY, TORT,
CONTRACT, STRICT LIABILITY, OR OTHERWISE, SHALL FLYCAST OR ITS LICENSORS,
SUPPLIERS OR RESELLERS BE LIABLE TO YOU OR ANY OTHER PERSON FOR ANY DIRECT,
INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER
INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOST PROFITS, LOSS OF GOODWILL, WORK
STOPPAGE, ACCURACY OF RESULTS, COMPUTER FAILURE OR MALFUNCTION, DAMAGES
RESULTING FROM DISABLING OF THE SOFTWARE, OR ANY AND ALL OTHER COMMERCIAL
DAMAGES OR LOSSES. IN NO EVENT WILL FLYCAST BE LIABLE FOR ANY DAMAGES IN EXCESS
OF THE LICENSE FEES PAID IN CONNECTION WITH THE SOFTWARE, EVEN IF FLYCAST SHALL
HAVE BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY
OTHER PARTY.
7. TERMINATION. This Agreement will become effective upon the effective
date of the web Advertising Services Agreement between You and Flycast and will
last until terminated under this Section. You may terminate this Agreement and
the license granted herein at any time by destroying or removing from all hard
drives, networks, and other storage media all copies of the Software, and paying
all amounts due to Flycast under the web Advertising Services Agreement.
Flycast may terminate this Agreement and the license granted herein immediately
if You breach any provision of this Agreement. This Agreement will
automatically terminate, without notice from Flycast upon the termination of the
web Advertising Services Agreement between You and Flycast. Upon termination of
the Agreement You agree to destroy or removed from such storage media all copies
of the Software, Sections 2 and 4 through 11 shall survive termination of this
Agreement.
8. EXPORT CONTROLS. You shall comply with all export laws and restrictions
and regulations of the Department of Commerce, the United States Department of
Treasure Office of Foreign Assets Control ("OFAC"), or other United States or
foreign agency or authority, and agree not to export, or allow the export or
re-export of the Software in violation of any such restrictions, laws or
regulations (including, without limitation, export or re-export to destinations
prohibited either in Country Groups Q, S, W, Y or Z country specified in the
then current Supplement No. 1 to Section 770 of the U.S. Export Administration
Regulations (or any successor supplement or regulations), or the OFAC
regulations found at 31 C.F.R. 500 et seq.) By downloading or using the
Software, You are agreeing to the foregoing and You are representing and
warranting that You are not located in, under the control of, or a national or
resident of any restricted country or on any such list.
9. U.S. GOVERNMENT RESTRICTED RIGHTS. Use, duplication or disclosure of the
Software by the Government is subject to restrictions set forth in subparagraph
(c)(1)(ii) of The Rights in Technical Data and Computer Software clause at DFAR
252.227-7013 or subparagraphs (c)(1) and (2) of the Commercial Computer
Software--Restricted Rights at FAR 52.227-19, as applicable, and all other
Federal laws and regulations that protect Flycast's rights in privately
developed computer software.
10. MISCELLANEOUS. This Agreement represents the complete agreement
concerning this license between the parties and supersedes all prior agreements
and representations between them. It may be amended only by a writing executed
by both parties. If any provision of this Agreement is held to be unenforceable
for any reason, such provision shall be reformed only to the extent necessary to
make it enforceable. This Agreement shall be governed by and construed under
California law, without reference to conflict of law provisions.
11. CONFIDENTIALITY. The Software and other technical, business, and
financial information, including, without limitation, all pricing information,
that You receive from Flycast is the confidential information of Flycast
("Confidential Information"). You agree not to disclose or use Confidential
Information for any purpose except the purposes permitted in this Agreement.
Confidential Information shall remain confidential until you can document that
such Confidential Information is generally available to the public. You
acknowledge that a breach of the obligations of this Section will cause
irreparable harm to Flycast, and you hereby consent to Flycast being entitles to
equitable relief (in addition to any other remedies) to enforce the terms of
this section.
BUYERS SELLERS MEMBERS FLYCAST CONTRACT
<PAGE>
Sales and Representation Contract
It is hereby agreed Nettaxi Online Communities, Inc. (hereinafter client) will
use the services of Michael Weiner dba Unique Media Service's (hereinafter
Unique) as its advertising representative for the client internet site, known as
Nettaxi Online Communities, Inc, located at the internet address of
http://vww.nettaxi.com and any and all succeeding pages of internet address, and
whose actual address is 2165 South Bascom Avenue, Campbell, California 95008.
Reasonable rates for said advertising will be set by client through consultation
with Unique, and a formal Tate card will be published by client for Unique's use
and understanding. Any rate deviation from said rate card for advertisers will
be discussed and agreed upon by both client and Unique, and Unique shall not
confirm a sale to an advertiser until client has agreed with Unique, orally or
in writing, to accept such a confirmation for an advertiser. Any trade for
product of any kind, including but not limited to merchandise, time, space,
shall be at the agreement of client and Unique.
Client maintain the right to limit the types of advertising (i.e.: no
cigarettes), and shall notify Unique of such limitations and requirements in
advance with thirty days written notice and/or the limitation, shall be made a
part of this contract.
Client agrees to furnish Unique with all research and data, including audience
research available to it, and further agrees to conduct an audience research
survey at least once per year.
In consideration of client's agreement to enter into this contract, Unique
agrees to generate advertising funds through sales calls to advertising
agencies, manufacturers, publishers, other internet sites and any and all other
resources available to it with a fair and reasonable effort Unique shall inform
client of negotiations with potential advertisers in progress at client's
request.
Unique agrees to assist client in promotions, including on site promotions, and
cross promotions with various other sites and media.
Unique and client agree to maintain an open book policy in regard to
advertising, whereby either may inspect the others books with proper notice to
obtain any further assurances of contract being carried out per agreement
Unique shall be responsible for the collection of funds for advertising
contracts sold by Unique, and the proper distribution thereof. Unique shall
retain no liability for the advertisers' payment, but shall make every effort to
assure payment through proper credit checks and other sources available,
Client agrees to allow recognized advertising agencies a 15% agency agency
commission. Client and Unique agree to the following fees for services rendered
by Unique to be paid to Unique:
Fees for Unique Media Services services:
35% of all net dollars of advertising sold and collected by Unique for
client. 35% of my trades for products, time, space, services, etc. Net
dollars shall be defined as advertising dollars after agency commission has been
deducted.
The term of this contract is for one year from the date of the execution of this
contract, and may be canceled by giving ninety days' prior written and signed
notification after the first ninety days of contract being in effect, by either
party, during which time all time; and conditions will remain in full force.
Unique shall have the right to extend the term for an additional year with the
mutual consent of client. Client shall notify Unique of non-renewal of contract,
in writing, thirty days prior to the expiration of this contract or it will be
understood by both parties that the contract has been mutually renewed. Should
no such instrument be delivered, then it shall be considered mutually agreed
without further notice.
<PAGE>
All advertising clients and advertising leads generated by Unique shall be
considered Property of Unique for a total of five years from any date of
cancellation of contract with Unique, and all commissions agreed upon to be paid
Unique shall carry forth throughout said period.
Should Unique incorporate, Client agrees that this contract may be assigned m
whole to such corporation
This contract constitutes the entire agreement of the parties, and may be
changed, altered or amended only by instrument in writing, executed by all
parties.
This contract shall be governed by the laws of the State of South Carolina, said
state being the forum for this contract.
Agreed to this 7th day of July 1998 by Michael Spencer Weiner, President of
Unique Media Services, 151 Pleasant View Road, Blythewood, South Carolina 29016
and Dean Rositano
--------------
President (Title) of Nettaxi Online Communities,.Inc., 2165 South Bascom
- ---------
Avenue, Campbell. California 95008.
- ------
Signed for Unique Media Services by /S/ Michael Weiner
--------------------
Michael Weiner
Title: President
Signed for Client by /s/ Dean Rositano
-------------------
Name: Dean Rositano
--------------
Title President
---------
<PAGE>
ECHARGE(TM) CORPORATION
MERCHANT SERVICES AGREEMENT
Proprietary and Confidential
This Agreement is entered into as of this ____th day of __________, 199__ (the
"Effective Date") by and between eCHARGE(TM) Corporation (hereinafter referred
to as "eCHARGE(TM)"), a Washington based corporation with a place of business at
Suite 745, 500 Union Street, Seattle, WA, 98101, and Suite 401, 1770 West 7th
Street, Vancouver, BC, V614Y6, and
Merchant Name: Nettaxi Online Communities, Inc.
Street Address: 2165 S. Bascom Ave., Campbell, CA 95008
Mailing/Billing Address: _______________________________________
Federal Tax ID Number (Social Security Number)___________________
Contact: _____________________________________________
Telephone: ____________________ Fax:__________________________
Program Name: ________________ Program Start Date:___________
eCHARGE(TM) and Merchant hereby agree that the following terms and conditions
apply to the services specified herein and in any Exhibit(s) or Amendments(s)
attached hereto, or as may be mutually agreed upon in writing at some future
date. This Agreement shall not be effective until executed by the Merchant and
accepted by eCHARGE(TM) at its principal place of business. This Agreement will
be binding upon the successors, assignees and legal representatives of the
parties. The terms of this Agreement and the Program it authorizes are subject
to all applicable state, local and federal laws, and the rules of the CARRIER.
1. SERVICES
eCHARGE(TM) agrees to provide to Merchant those services specified on the
attached Exhibit BB (the "Services"). The parties acknowledge that Merchant
intends to use the Services in connection with its information offerings, web
pages and programs (the Program"(s)).
2. PRICING
eCHARGE(TM) shall perform the Services for the prices described on attached
Exhibit A. eCHARGE(TM) reserves the right to pass on any price increases from
the CARRIER, including but not limited to line fees, transport charges, and
billing and collection fees. In addition, upon thirty (30) days notice, the
prices set forth on Exhibit A may be adjusted by eCHARGE(TM) to the then
standard of eCHARGE(TM) rates.
3. TERM
The term of this Agreement shall be for a period of ____ months ("Primary Term")
from the Effective Date. Following completion of the Primary Term, this
Agreement will be extended automatically indefinitely until written notice of
termination is received by either party at least thirty (30) days in advance of
the effective date of termination. The term of this Agreement shall be a
minimum of ninety (90) days after the starting date of program. Subject to
completion of the ninety (90) day minimum period, this Agreement or any Program
Scheduled hereto, may be terminated according to the terms set out in Section 6
(Termination).
THIS AGREEMENT SHALL NOT BE EFFECTIVE UNTIL EXECUTED BY THE CUSTOMER AND
ACCEPTED BY AN AUTHORIZED REPRESENTATIVE OF eCHARGE(TM) .
eCHARGE(TM) Corporation
By:______________________________________________
Authorized Signature
MERCHANT
_________________________________________________
By:______________________________________________
Name (Print):____________________________________
(Title) ____________________________________
<PAGE>
1. DEFINITIONS
A. Definitions: For purposes of thus document, "eCHARGE(TM)" shall be
deemed to include eCHARGE(TM) Corporation, its subsidiaries, and their
affiliates and the directors, officers, employees, agents, representative,
subcontractors and suppliers of all of them, and "damages" shall be doomed to
refer collectively to all injury, loss or expenses incurred.
In addition to the terms defined in the Agreement(s), the following terms will
have the meanings set forth below:
The words "eCHARGE(TM)", "we", "our", and "as" mean eCHARGE(TM)" Corporation and
the words "you" and "your" mean the Merchant and its employees and Agents, if
any.
Billing Month-Each billing cycle, consisting of approximately 30 days and ending
on the last Friday of each month, used by eCHARGE(TM) to bill its Subscribers
for the Service.
2. AGREEMENT
A. Billing Services: eCHARGE(TM) will secure bill processing, bill
rendering, inquiry, collection and remittance services ("Billing Services") for
all numbers from the CARRIER of choice. This Agreement is expressly contingent
upon the ability of the CARRIER to secure necessary Billing Services from Local
Exchange CARRIER, ("LECs"), eCHARGE(TM) has no control over the CARRIER's
ability or willingness to provide call detail information.
B. Intellectual Property:
i. General. All right, title and interest in and to any original works of
authorship, inventories, discoveries, patents, ideas, concepts or any
improvements relating to the Program(s) or Services which are created by or
conceived, first reduced to practice, made or developed by eCHARGE(TM) prior to
the Effective Date or in anticipation of, in the course of or as a result of
design and development work pursuant to this Agreement, including without
limitations any source code (collectively, the "Intellectual Property"), shall
be solely owned by eCHARGE(TM). Source code. In any application in which
eCHARGE(TM) develops the programming, unless otherwise agreed in writing,
eCHARGE(TM) is the sole owner of the Source code.
ii. Trademarks. Neither party shall publish or use or change the other
party's names, logos, trademarks or service marks (collectively, "Marks") in any
manner inconsistent with the functional use of the eCHARGE(TM) application
without mutual prior written consent. Merchant agrees to prominently display
the eCHARGE(TM) "ICON" and other materials provided while this Agreement is in
effect or until notified by eCHARGE(TM) it cease its display or use.
iii. Restriction on Use and Disclosure. All documentation regarding
Intellectual Property, technical information, software, confidential business
information or other materials, in written form and clearly marked as
"proprietary" or "Confidential" ("Proprietary Information"), furnished by either
party in connection with this Agreement and all copies of such Proprietary
Information shall remain the property of the disclosing party and shall be held
in confidence and safeguarded by the receiving party.
C. Telephone Numbers: Merchant shall not have ownership of the telephone
number(s) assigned in connection with the Program(s).
D. Tariffed Services: Merchant's use of the Services is subject to any and
all tariff provisions related to said Services, to the extend that the Services
are tariffed. Charges under this Agreement will not be abated or refunded in
the event of outages or degradation in tariffed services, and charges for
tariffed services will not be abated or refunded in the event of delay or
failure of performance of this Agreement.
E. Merchant Obligations: Payment of any amounts billed for CARRIER charges,
service bureau fees, Billing Services, taxes, etc. Which are in excess of the
monthly CARRIER remittance for a dedicated 900 or other number, shall be paid by
the Merchant no later than the 20th day after the invoice date. In the event
payment is not received by the 20th day after the invoice date, then eCHARGE(TM)
may, in its discretion and without notice, require the placement of a deposit to
secure future payment, disconnect the Service, or undertake any action necessary
to secure payment in full. Late payments will be charged a $15 late fee, and
shall accrue interest at the rate of 1.5% per month (18% per annum) or the
maximum amount allowed by law. Merchant will be liable to eCHARGE(TM) for any
collection or attorney feels that are incurred in the event action is taken by
eCHARGE(TM) to collect any past due balance.
F. "900" or other Number Services: Under all applications, eCHARGE(TM)
accepts remittance payment directly from the network provider (the "CARRIER").
The following provisions apply on all applications:
i. The CARRIER will bill the Merchant's customers ("Callers") for the
charges associated with the Program(s).
ii. The CARRIER will make payments to eCHARGE(TM) . These payments are
established in an agreement between the CARRIER and eCHARGE(TM) and are, in
essence, the charges collected from Callers less the Carrier's charges for
network service including taxes, any adjustments resulting from Caller inquiry,
the billing fee of the CARRIER, including taxes and any applicable billing
surcharges, and any other charges ("Net Carrier Payments").
iii. The CARRIER reserves the rights to remove from a Caller's bill any
amounts associated with the Services that a Caller disputes or refuses to pay.
Where amounts have been removed the Caller's bill, Merchant will remain
obligated to eCHARGE(TM) and will be billed eCHARGE(TM)'s service bureau fees
for the respective call, as well any billing, transport or other related charges
for network services and services features that eCHARGE(TM) may incur.
iv. eCHARGE(TM) may establish a reserve fund subsequent billing adjustments
through a "Merchant Reserve Program" (MRP) from _________ to Merchant.
eCHARGE(TM) may require Merchant to deposit funds for this purpose as security.
In the event there is less than six months history of Merchant billings, the
Holdback MRP will generally be fifteen percent (15%) of the gross premiums
charged to callers. If Merchant breaches this agreement, eCHARGE(TM) reserves
the right to offset against the MRP Holdback any damages sustained by
eCHARGE(TM) as a result of the Merchant's breach, provided, however, that such
an offset shall not limit eCHARGE(TM)'s other remedies for breach of this
Agreement by Merchant. eCHARGE(TM) will not be liable to Merchant for any losses
or damages resulting from any charge back or collection of any charge back or
other amounts due under this agreement.
v. Merchant agrees to grant eCHARGE(TM) a security interest in all
receivables, and any other Merchant property maintained or in eCHARGE(TM)
possession as security for the performance of Merchant obligations and our right
of charge back under this Agreement.
vi. The Net CARRIER Payments shall further be adjusted by eCHARGE(TM) by the
service charges set forth herein and by the MRP Holdback(s). Remittance of the
new payment after service charges and MRP Holdback(s) will be made by
eCHARGE(TM) to Merchant within fifteen (15) days after receipt by eCHARGE(TM) of
payment from CARRIER.
vii. The CARRIER may implement a chargeback and refund system wherein
chargebacks of payments made to eCHARGE(TM) and Merchant will occur if the
Caller(s) do not pay, either by denying all knowledge of the call or for other
reasons. All chargebacks will be for the account and responsibility of the
Merchant. Such chargebacks will be satisfied out of current revenue amounts
and, if necessary, the MRP Holdback account will be charged. In the event that
these totals do not satisfy the chargeback liability, Merchant agrees to pay all
CARRIER documented chargebacks until liability is satisfied. This obligation
survives termination of the Agreement. eCHARGE(TM) will provide to Merchant any
refund reports which are received from the CARRIER.
viii. eCHARGE(TM) reserves the right to modify the amount of the MRP Holdback in
its sole discretion. In addition eCHARGE(TM), may establish additional
reserves. Upon termination of this Agreement, eCHARGE(TM) will refund any
funds remaining in the reserve account after fourteen months from the
termination date.
ix. In the event of any dispute regarding the number of calls received in
any billing period, the CARRIER shall control.
G. Credit Checks: eCHARGE(TM) may, at its option, perform a credit check on
all new or existing Merchants.
3. OBLIGATIONS OF MERCHANT
A. Merchant Costs: Merchant is responsible for all costs and management
related to the production, updating and promotion of all information used in its
Program(s), and for expenses incurred to obtain order.
B. Disclosure: Merchant shall fully disclose the following in a clear and
understandable manner in all internet, print, broadcast or telephone advertising
and any announcements promoting Merchant's Program(s): (i) the charges for the
Program(s) offering, (ii) any geographic time of day, or other limitations upon
the availability of the Program(s) (iii) that Merchant is solely responsible for
the content of all messages, products or services delivered and all
representations made during contact with Callers; and (vi) any other information
required by CARRIERs or regulators.
C. Endorsement: Merchant shall not indicate in its Program(s) or in any
advertising or announcements promoting its Program(s) that the CARRIER or
eCHARGE(TM) endorses the Program(s), or Merchant's products or services offered
through the Program(s), in any way.
D. Content Notification: Merchant will provide eCHARGE(TM) the web address
and a complete and accurate written description of is Program describing the
products and/or services comprising each Program and an outline of the
advertising of the Program, prior to the commencement of each Program and will
provide a new written description of the Program in the event of any changes in
such Program or Advertising. Merchant understands that eCHARGE(TM) will not
provide services for any Program that eCHARGE(TM), in its sole discretion,
determines is objectionable or is advertised in an objectionable manner.
Merchant acknowledges that it shall be solely responsible for (i) its
Program(s); (ii) the Program content;; (iii) all representations made during the
Program; (iv) the content and nature of all promotions and advertising; and (v)
the quality of products and/or services covered by the Program(s).
E. Legal Compliance: Merchant warrants that its Program(s) will at all
times comply in full with any and all requirements of federal, state and local
laws, including but not limited to any gaming statutes or the solicitation of
charitable or political contributions that apply to the Program(s).
F. Price Changes: In order for Merchant to charge the charge to Callers for
a Program, Merchant must notify eCHARGE(TM) at least thirty (30) days, or the
number of days notice required by the CARRIER if greater, in advance of the
change.
G. Traffic Increases: Merchant is required to provide forty-eight (48)
hours notice to eCHARGE(TM) before stimulating any Program inn a manner which
might be expected to result insignificant traffic surges.
H. Caller Tax Responsibility: eCHARGE(TM) is not responsible for the
determination, application, collection or remittance of any taxes due or which
may become due with respect to fees charged to Callers for the Services.
I. Honor all transactions: (i) Merchant agrees to honor all transactions
presented in connection with sales or service transactions via eCHARGE(TM)
without discrimination, subject to the procedures set forth in this Agreement.
(ii) Merchant agrees to honor these transactions unconditionally and not to
discriminate against a transaction in favor of a transaction completed with
cash, check, credit card or other form of payment.
J. Fraudulent transactions: Merchant agrees not to create a transaction
that Merchant knows or should have known to be fraudulent.
K. Performance: The access, merchandise or services described for sale by
the Merchant must actually be delivered or performed immediately or in fully
disclosed time frame otherwise specified to all users.
L. Cash advances: Merchant agrees not to engage in any transactions
involving cash advances or extensions of credit for any purpose, unless
specifically authorized in writing by eCHARGE(TM) to do so.
M. Uncollectible replacement: Merchant agrees not to encourage a
transaction to replace uncollected funds from another payment method, such as to
cover a returned check.
N. Privacy: Merchant agrees not to require personal information about the
customer, such as the home or work address, telephone or driver's license number
or Social Security number, as a condition of sale.
O. Customer Contact: Merchant agrees that eCHARGE(TM) may contract or
directly communicate with any customer concerning any sale or transaction
submitted to or through eCHARGE(TM).
4. RETURNS AND EXCHANGES
A. Merchant agrees to establish and maintain a fair and uniform policy for
the exchange and return of products or services sold.
B. Merchant agrees to give only non-cash credit, upon caller request for
return, and not to refund cash unless otherwise provided for by the CARRIER.
C. All disputes involving the goods or services purchased via eCHARGE(TM)
will be settled between the Merchant, the CARRIER and the caller. Merchant
agrees to indemnify and hold eCHARGE(TM) harmless from any claim or liability
relating to any such dispute.
D. Merchant agrees to provide eCHARGE(TM), upon demand, with any
information, evidence, assignments or other assistance eCHARGE(TM) may need to
help resolve any customer billing disputes regarding the nature, quality or
performance of the goods or services, or in connection with any return or
rejections of such goods and services.
5. WARRANTY, LIMITATION OF LIABILITY AND INDEMNIFICATION
A. No Warranty: eCHARGE(TM) MAKES NO WARRANTY, EXPRESSED OR IMPLIED, WITH
RESPECT TO CALL VOLUMES OR TO THE QUALITY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE OR SUITABILITY OF CALLERS FOR CUSTOMER'S APPLICATION,
PRODUCTS OR SERVICES.
B. Limitation of Liability: eCHARGE(TM)'S ENTIRE LIABILITY RESULTING FROM
eCHARGE(TM)'S FAILURE TO PERFORM ANY OF ITS OBLIGATIONS UNDER THIS AGREEMENT
SHALL BE CUSTOMER'S ACTUAL, DIRECT DAMAGES AS MIGHT BE PROVABLE IN A COURT OF
LAW, BUT NOT TO EXCEED THE AMOUNT PAID TO eCHARGE(TM) BY CUSTOMER FOR SERVICES
PURSUANT TO THIS AGREEMENT. IN NO EVENT SHALL eCHARGE(TM) BE LIABLE FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, RELIANCE OR SPECIAL, EXEMPLLARY OR PUNITIVE
DAMAGES OR FOR LOST PROFITS, SAVINGS OR REVENUES OF ANY KIND, WHETHER OR NOT
eCHARGE(TM) HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE
LIMITATIONS OF LIABILITY SET FORTH IN THIS SECTION 5 SHALL APPLY (i) REGARDLESS
OF THE FORM OF CLAIM OR ACTION, AND (ii) WHETHER ORN OT DAMAGES WERE
FORESEEABLE. IN NO EVENT SHALL eCHARGE(TM) BE LIABLE FOR: (i) ANY BILLING,
COLLECTION, TECHNICAL, OR OTHER MISTAKES, ERRORS, OR OMISSIONS OF CARRIER; OR
(ii) CLAIMS, DEMANDS OR ACTIONS AGAINST CUSTOMER BY ANY OTHER PARTY.
C. Indemnification/Hold Harmless: Merchant shall indemnify and hold
harmless eCHARGE(TM) , its agents, employees, officers and directors from and
against any and all fines, penalties, losses, damages, injuries, claims,
(including attorney's fees) or other liabilities arising out of or in connection
with this Agreement or the performance of this Agreement and caused by the acts
of omission, negligent or otherwise, of Merchant or a subcontractor employee or
an agent of Merchant indicating but not limited to claims of third parties
resulting from or in connection with the Merchant's products, services, messages
or Program(s). Caller contracts, promotions and advertising disseminated,
broadcast, furnished or supplied by Merchant or any employee or customer or any
one of them or any claims for trademark or patent infringement or any claim for
libel or slander or any failure of the Program(s) t comply with applicable law.
Non-payment of remittance: eCHARGE(TM) will not be liable for payment of any
remittance or portion thereof which result from: (i) transactions that are
ineligible, fraudulent or illegal, or that violate the rules of the CARRIER,
(ii) transactions the consumer claims to have been performed without their
consent, (iii) transactions in which the Consumer disputes any liability because
the merchandise or services were not received or were returned, rejected, or
defection, or because you have failed to perform any obligation in connection
which such merchandise or services.
6. TERMINATION
A. By eCHARGE(TM): eCHARGE(TM)" may terminate this Agreement seize any
incoming funds and disconnect Merchant's Program immediately if: (i) Merchant
fails to pay any charge when due; (ii) Merchant significantly changes the scope
or focus of the program/application without the prior written consent of
eCHARGE(TM) and the CARRIER (where required); (iii) breaches any part of this
Agreement and such condition continues un-remedied for ten (10) days after
receipt of written notice; (iv) your insolvency, bankruptcy, receivership, or
dissolution; (v) your actual or attempted assignment of the Agreement or any of
you duties under this Agreement to another party, except as specified in section
7(B) of this Agreement; (vi) your making gross misrepresentations to actual or
prospective customer that have not been remedied within 30 days; (vii) your
death or incapacity if you are a natural person; or (viii) if the Merchant
terminates service due to (1)adverse affect of Merchant's Program on CARRIER's
tariffed services, public image or goodwill, (2) a LEC's failure to provide
necessary Billing Services at reasonable rates, or (3) receipt of complaints
regarding Merchant messages, representations, promotions, advertising, products
or services or if claims are made arising from them.
B. Effect of Termination: Upon termination by eCHARGE(TM), Merchant shall
be liable for any applicable charges, including termination charges. In
addition, eCHARGE(TM) may terminate this Agreement without cause with at least
thirty (30) days prior written notice to Merchant specifying the exact date and
time of such termination. Notwithstanding any Notice of Termination under
Agreement, this Agreement shall remain effective with respect to any transaction
occurring prior to such termination for a period of one year.
C. BY Merchant: If eCHARGE(TM) fails to perform or observe any material
term or condition of this agreement and such failure continues un-remedied for
thirty (30) days after receipt of written notice, Merchant may cancel this
Agreement without liability for cancellation or termination charges.
D. Failure to Activate 900 or other Number Service(s): This Agreement will
automatically terminate if Merchant does not activate the service within sixty
(60) days of original 900 or other number(s) assignment unless mutually extended
in writing by both parties hereto.
7. MISCELLANEOUS
A. Force Majeure: Neither party nor their respective affiliates,
subsidiaries, or subcontractors shall have liability for delays or damages due
to: fire, explosion, lightning, pest damage, power surges or failures, strikes
or labor disputes, water, acts of God, the elements, war, civil disturbances,
acts of civil or military authorities or the public enemy, inability to obtain
parts or supplies or network access, transportation (acillities, fuel or energy
shortages, acts or omissions of any common CARRIER or its Agent (including the
local exchange companies), or other causes beyond a party's control whether or
not similar to the foregoing.
B. Neither party may assign this Agreement without the prior written consent
of the other party, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, eCHARGE(TM) may assign this Agreement, without
consent to: (i) a subsidiary, affiliate, or parent company; (ii) any firm,
corporation or entity which eCHARGE(TM) controls, is controlled by, or under
common control with; (iii) any partnership in which eCHARGE(TM) has a majority
interest; or (iv) to any entity which succeeds to all or substantially all of
eCHARGE(TM) assets whether by merger, sale or otherwise.
C. Merchant Investigations: Merchant acknowledges and agrees that it is
entering into the Agreement based upon its own independent decision and
investigation.
D. Severability: If any portion of the Agreement is found to be invalid or
unenforceable, the parties agree that the remaining portions shall remain in
effect. The parties further agree that in the event such invalid or
unenforceable portion is an essential part if this Agreement, they will
immediately begin negotiations for a replacement.
E. Modification and Waiver: This Agreement shall not be modified, altered,
changed or amended in any respect, except where initialed by both parties.
F. Notices: Any notice required by this Agreement will be effective and
deemed delivered three (3) business days after posting with the United States
Postal Service when mailed by certified mail, return receipt requested, properly
addressed and with the correct postage, one (1) business day after pick-up by
the courier service when sent by overnight courier, properly addressed and
prepaid on one (1) business day after the date of the sender's electronic
confirmation or receipt when sent by facsimile transmission. Notices will be
sent to the address or FAX numbers set forth in this Agreement, unless either
party notifies the other in writing of an address or FAX number change.
G. Limitation of Actions: Any legal action brought by Merchant against
eCHARGE(TM) with respect to this Agreement must being within two years after the
cause of action arises.
H. Governing Law/Versus Interpretation: This Agreement shall be governed by
and construed in accordance with the laws of the State of Washington. Any
litigation relative to this Agreement shall be litigated in the appropriate
legal forum in Seattle, Washington, or the U.S. District Court for the District
of Washington.
EXHIBIT B
DESCRIPTION OF SERVICES
- -------------------------
eCHARGE(TM) will provide to merchant the following services:
1) Contracted billing and collection via the CARRIER as specified in the
Merchant Services Agreement
2) Transaction processing through the eCHARGE(TM) Secure Billing System
3) eCHARGE(TM)/Merchant web page interface
4) Known Uncollectible/Recharge Blocking
5) Transaction documentation
6) Customer support services
<PAGE>
ECHARGE(TM) CORPORATION
MERCHANT SERVICES AGREEMENT
Proprietary and Confidential
EXHIBIT A
PRICES
For Services provided for in this agreement:
1) Merchant agrees to pay eCHARGE(TM) the following amounts upon execution
of this agreement:
(a) Registration Fee $ 50.00
(b) Security Deposit: $_____________
(c) Programming: $_____________
(d) Interface: $_____________
2) Merchant agrees to pay eCHARGE(TM) the following amounts monthly:
(a) Fixed Monthly Service Fee $25.00
This fee is refundable if the total transaction volume exceeds $500.00 per
month.
3) Merchant agrees to pay eCHARGE(TM) the following amounts on a per
transaction basis:
1-499 transactions 9% per Transaction
500-999 transactions 8.25% per Transaction
1000+ transactions 7.50% per Transaction
4) Merchant acknowledges and understands that additional fees will be levied
by eCHARGE(TM) to their customers according to the following schedule:
For transactions $10.00 or less $0.50 per transaction
For transactions from $10.01 to $35.00 $1.00 per transaction
For transactions from $35.01 to $50.00 $2.00 per transaction
Attached to and made part of that certain Merchant Services Agreement dated:
__________ _________ ____________
Month Day Year
______________________________________ ____________________________________
Approved by Merchant Approved by eCHARGE(TM)
<PAGE>
ECHARGE(TM) CORPORATION
AGENT SERVICES AGREEMENT
Proprietary and Confidential
This Agent Agreement (this "Agreement"), dated as of 07-29-98, is between
eCHARGE(TM) Corporation, a Washington corporation (eCHARGE) and
Net Taxi, 2165 S. Bascom Avenue, Campbell, CA 95009 ("Agent").
Whereas, eCHARGE(TM) is a financial transaction company specializing in
Internet billing and collections and the Agent wishes to act as an agent for
eCHARGE(TM) in the sale of the eCHARGE(TM) system to third parties,
Now, therefore, the parties agree to the following:
1. APPOINTMENT. eCHARGE(TM) hereby appoints the Agent as its
non-exclusive agent to incorporate eCHARGE(TM) Billing System within Agents
commerce products on the terms and conditions contained herein.
1.1 Agent will develop a modified version of its commerce products or
technologies that will integrate the eCHARGE(TM) Billing System. The
development will result in a version of the product that can be offered as
optional functionality for Merchants or end-users who can install the
eCHARGE(TM) Billing option in an intuitive and/or prompted manner.
1.2 Upon completion of the development of the modified product, Agent will
produce a demonstration, either scripted and live, or self-running, that
illustrates the functionality and interoperation of the product incorporating
the eCHARGE(TM) System.
1.3 Agent shall designate a contact who is knowledgeable about the
functionality and interoperation of its products with the eCHARGE(TM) Billing
System and who is accessible to respond to inquiries.
2. ORDERS.
2.1 Agent will submit orders from potential eCHARGE(TM) Merchant customers
to eCHARGE(TM) at its address or fax number set forth on the signature page
hereof, on completed order forms provided by eCHARGE(TM), eCHARGE(TM) may change
order submission procedures and forms at any time upon reasonable written
notice.
2.2 All orders are subject to the final approval of eCHARGE(TM) and its
telephone carrier(s), and either eCHARGE(TM) or any carrier may reject any
order in its sole discretion.
2.3 Agent acknowledges that eCHARGE(TM) shall be under no obligation to
provide any services to any customer (including without limitation Agent, in the
event that Agent wishes to become a customer of eCHARGE(TM)) until such customer
has executed eCHARGE(TM)'s standard forms of Master Agreement and Merchant
Services Agreement, or some variation thereof which is satisfactory to
eCHARGE(TM).
3. COMMISSIONS.
3.1 Subject to Section 3.3, during the term of this Agreement and for a
period of one year after the expiration or termination hereof, eCHARGE(TM) will
pay Agent commissions on the accounts of eCHARGE(TM) customers introduced to
eCHARGE(TM) by Agent in accordance with the Agent Fee Schedule set forth in
Exhibit A. Such fees may be revised annually by eCHARGE(TM) upon written notice
to the Agent, provided that in no event may they be reduced more than 10%
without Agent's prior written consent.
3.2 Commissions shall be paid on the fifteenth day of each month for all
transactions occurring during the previous calendar month. In the event that
any amount payable to Agent is not paid within 30 days of is due date, then
interest at the rate of 10% per annum (or such lesser amount as constitutes the
maximum rate allowed by law) will accrue on the unpaid amount until it is paid.
3.3 eCHARGE(TM) may cease to pay commissions to Agent in the event that
Agent violates its covenant set forth in section 4.
4. NON-COMPETITION. During the term of, or during the one year period after
the expiration or termination of, this Agreement, Agent shall not contact any of
the eCHARGE(TM) customers procured pursuant hereto for the purpose of inducing
them to switch to another provider of Internet billing services.
5. TRADE NAMES AND MARKS. eCHARGE(TM) grants Agent a limited license to use
its name and federally registered marks only in connection with obtaining orders
under this Agreement. This limited license will terminate upon the earlier of
(a) the expiration or termination of this Agreement and (b) eCHARGE(TM)'s giving
Agent written notice to stop using its trade names and service marks.
6. TERMS AND TERMINATION.
6.1 The Term of this Agreement shall be for a period of one year from the
date hereof. Thereafter, it will continue on a month-to-month basis until it is
terminated by either party upon at least thirty days prior written notice to the
other party or by eCHARGE(TM) in accordance with Section 6.2 below.
6.2 eCHARGE(TM) may terminate this Agreement upon written notice to Agent in
the event that Agent violates the covenant set forth in Section 4.
7. INDEPENDENT CONTRACTOR. The Agent is an independent contractor
hereunder. This Agreement does not create any partnership or agency
relationship between the parties, and neither party will have the right, nor
will it attempt, to bind, act for, or otherwise make representations on behalf
of the other party, unless expressly agreed to in a writing signed by the
parties.
8. eCHARGE(TM) will allocate a Marketing Flex Fund in the amount of Thirty
Thousand Dollars ($30,000) to Agent upon the signing of the Agent Agreement. The
fund can be used for mutually agreed upon payments or credits in the following
manner:
- - Buy down of Transaction charges for Merchants
- - Purchase of Banner Advertising on and/or of the placement of the
eCHARGE(TM) logo on the front page of Agent web site for a period of at least
six months or purchase Co-op Advertising in Trade Magazines.
- - Payment for a third party software Integration technical team to
accelerate the implementation of the eCHARGE(TM) billing option.
- - Joint promotional programs such as Trade Shows, Seminars, International
Marketing programs or other items as jointly agreed upon between Agent and
eCHARGE(TM) .
- - This agreement must be signed and returned to eCHARGE(TM) before July 28,
1998 to take advantage of the Marketing Flex Fund.
- - Upon execution of this Agreement, eCHARGE(TM) agrees to allocate $30,000
to advertising on the nettaxi.com website. Payments of the $30,000 will be as
follows:
a. first installment of $10,000 upon signing will be paid to Nettaxi.
b. balance of $20,000 paid out over next four months, as monthly
installments of $5,000 each.
9. MISCELLANEOUS
9.1 eCHARGE(TM) reserves the right to review and approve all marketing
programs designed to promote eCHARGE(TM) or the Agent's relationship with
eCHARGE(TM) .
9.2 Agent agrees to prominently display the eCHARGE(TM) logo on its site,
and to provide eCHARGE(TM) with a banner ad on their home page.
9.3 No failure of any party to exercise any right or remedy hereunder shall
constitute a waiver of such or any other right or remedy on any subsequent
occasion.
9.4 This Agreement inures to the benefit of and binds the parties and their
successors and assigns.
9.5 This Agreement may be amended only by an instrument in writing signed by
both parties.
9.6 If any provision hereof is determined to be invalid or unenforceable,
such provision shall be deemed to be severably from the remainder of this
Agreement and shall not cause the invalidity or unenforceability of the
remainder of this Agreement.
9.7 This Agreement contains the entire understanding between the parties
concerning the subject matter hereof.
10. NOTICES. All notices delivered pursuant to the provisions hereof shall
be deemed delivered when (a) actually delivered by hand, (b) ten days after
being sent postage prepaid by United States first class mail, postage prepaid,
(c) or two days after being sent via a nationally recognized courier service, or
(d) one day after being sent by facsimile, to the recipient's address or
facsimile number set forth on the signature page hereof, or to such other
address or facsimile number of which the recipient last shall have notified the
other party in writing.
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to sign this Agreement as of the date first above written.
eCHARGE(TM) Corporation AGENT
______________________________ _________________________________
Authorized Signature Authorized Signature
______________________________ _________________________________
Title Title
______________________________ _________________________________
Date Date
<PAGE>
EXHIBIT A - AGENT FEE SCHEDULE
MERCHANT FEES (PAID BY MERCHANT)
- ------------------------------------
PRICING SCHEDULE
AGENT AGENT ECHARGE
CHARGES RECEIVES RECEIVES
1) REGISTRATION FEE $50.00 $35.00 $15.00
2) MONTHLY RECURRING (IF
UNDER $500 PER CYCLE) $25.00 $ 5.00 $20.00
3) BILLING FEE (PERCENT OF
GROSS TRANSACTIONS)
0-500 TRANSACTIONS PER MONTH 9%
501-1000 8.25%
1001+ 7.50%
CONSUMER FEES (PAID BY CONSUMER)
- ------------------------------------
TRANSACTION VALUE PRICING SCHEDULE
SECURE TRANSACTION FEES AGENT ECHARGE
(0-10000 TRANSACTIONS) FEE RECEIVES RECEIVES
$0-$10 $0.50 $0.10 $0.40
$10.01-35 $1.00 $0.15 $0.85
$35.01- $2.00 $0.20 $1.80
SECURE TRANSACTION FEES
(10001-20000 TRANSACTIONS)
$0-$10 $0.50 $0.11 $0.39
$10.01-35 $1.00 $0.16 $0.84
$35.01- $2.00 $0.22 $1.78
SECURE TRANSACTION FEES
(20001+ TRANSACTIONS)
$0-$10 $0.50 $0.12 $0.38
$10.01-35 $1.00 $0.17 $0.83
$35.01- $2.00 $0.24 $1.75
<PAGE>
CONVERSION AGREEMENT
--------------------
This Agreement is made and entered Into by and between NETTAXI ONLINE
COMMUNITIES INC, a Delaware corporation ("NeTTaxi"), and SSN Properties, LLC, a
California limited liability company (SSN'), with respect to that certain Asset
Purchase Agreement dated as of October 1. 1997, by and between the parties
hereto and that certain Convertible Secured Promissory Note of the same date and
in the form of Exhibit D to the Asset Purchase Agreement.
RECITALS:
WHEREAS, under the terms of the Asset Purchase Agreement and under the
Convertible Secured Promissory Note, SSN has the right to convert up to fifty
percent (50%) of the amount of the Convertible Secured Promissory Note into
common stock of NeTTaxi at $1.00 per share, and
WHEREAS, NeTTaxi is additionally indebted to SSN in the amount of $70,000 net of
the legal fees payable by reason of the Proskaur Rose litigation; and
WHEREAS, the parties hereto desire to dispose of and conclude any and all
outstanding matters and issues I between them respecting the Asset Purchase
Agreement and the Convertible Secured Promissory Note;
NOW, THEREFORE, in consideration of the premises and mutual representations,
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which Is hereby acknowledged, the
parties hereto agree as follows:
Section 1. CONVERSION OF THE CONVERTIBLE SECURED PROMISSORY NOTE. The
principal of the Convertible , Secured Promissory Note, $1,020,000, and accrued
. interest, through 307 days to September 4, 1998 of $85,792 is hereby agreed to
be; converted into 1,105,792 shares of the common stock of NeTTaxi.
Section 2. PAYMENT OF $70,000. Additionally, SSN agrees to accept in
full payment for the outstanding account. receivable in the amount of $70,000 an
additional 70,000 shares of the common stock of NeTTaxi, for an aggregate amount
of 1,175,792.
Section 3. RELEASE OF ALL CLAIMS AND SECURITY INTERESTS. In
consideration of the conversion and payment set forth in Sections I and 2
hereinabove, SSN hereby accepts such payments In stock in lieu of cash and
hereby releases and discharges NeTTaxi from any and all claims, causes of action
or other obligations respecting said Convertible Secured Promissory Note and
account'. receivable.
Section 4. INDEMNIFICATION. SSN agrees to indemnify and hold harmless
NeTTaxi and its respective employees, directors, officers, agents or affiliates
from and against any losses, claims, damages, liabilities, joint and several,
including all legal and other expenses reasonably incurred in connection with
any and all obligations or claims for payment or causes of action against
NeTTaxi arising out of the assets or the transaction represented by the Asset
Purchase Agreement to the extent of the indemnification contained in the Asset
Purchase Agreement
Section 5. SEVERABILITY. If any provision of this Agreement shall be
held or made invalid by a statute, rile, regulation, decision of a tribunal or
otherwise, the remainder of this Agreement shall not be affected thereby and. to
this extent, the provisions of this Agreement shall be deemed to be severable,
Section 6. AUTHORIZATION / ADDITIONAL AGREEMENTS. SSN and NeTTaxi represent
and warrant that each has all requisite power and authority, and all necessary
authorizations, to enter into and carry out the terms and provisions of this
Agreement. SSN hereby undertakes and
<PAGE>
agrees to execute and deliver any additional agreements required to carry out
the terms of this Agreement
SECTION 7. SUCCESSORS. This Agreement and all rights, liabilities and
obligations hereunder shall be binding upon and inure to the benefit of each
party's successors but may not be assigned without the prior written approval of
the other party. Any such approval shall not be unreasonably withheld.
Section 8. HEADINGS. The descriptive headings of the sections of this
Agreement are inserted for convenience only, do not constitute a part of this
Agreement and shall not affect in any way the meaning or interpretation of this
Agreement.
Section 9. NOTICES. Any notice or other communication to be given to NeTTaxi
hereunder may be given by delivering the same in writing to 2165 South Bascom
Avenue, Campbell, California 95008, and any notice or other communication to be
given to SSN may be given by delivering the same to SSN Properties, LC, 14836
Three Oaks Court, Saratoga, California 95070, or in each case, such other
address of which a party shall have received notice. Any notice or other
communication hereunder shall be deemed given three days after deposit in the
mail if mailed by certified mail, return receipt requested, or on the day after
deposit with an overnight courier service for next day delivery, or on the date
personally delivered.
EXECUTE this 4th day of September, 1998.
NETTAXI ONLINE COMMUNITES, INC. SSN PROPERTIES, LLC
By: /s/ Robert A. Rositano, Jr. By: /s/ Robert A. Rositano, Sr.
------------------------------- ----------------------------
Robert A. Rositano, Jr. Robert A. Rositano, Sr.
Chairman and Chief Executive Officer Manager
2
<PAGE>
[INFO SPACE.COM]
INTERNET INFOSPACE CONTENT (WORLD WIDE WEB SITE) DISTRIBUTION AGREEMENT
-----------------------------------------------------------------------
THIS AGREEMENT, dated as of October 8, 1998, is made by and between
InfaSpace.com, Inc., a Delaware corporation, ("Company"), with offices at 15375
NE 901 Street, Redmond, WA 98052, and Net Taxi On-line Communities, a Delaware
--------
corporation ("Company"), with offices at 2165 S. Bascom Avenue, Campbell, CA
95008.
This Agreement is entered into with reference to the following facts:
A. InfoSpace maintains on certain locations of its Web Sites (as
defined below) and makes available to Internet users certain content, resources,
archives, indices, catalogs and collections of information (collectively, such
materials are identified in Exhibit A and referred to herein as the "Content").
B. InfoSpace wishes to grant certain rights and licenses to Company
with respect to access to the Content and certain other matters, and Company
wishes to grant certain rights and licenses to InfoSpace with respect to the
Company Web Sites (as defined below) and certain other matters, as set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
AGREEMENT
SECTION 1. DEFINITIONS.
As used herein, the following terms have the following defined meanings:
"ADVERTISING REVENUE" means the net received (i.e., gross revenues less
any taxes) by a party (the "Selling Parry") for delivering Impressions of Banner
Advertisements served on Results Pages,
"BANNER ADVERTISEMENT" means a rotating banner advertisement of 600 x
400 pixels located at the top and/or bottom of a Web Page.
"CO-BRANDED PAGES" means, collectively, Query Pages and Results Pages.
"COMPANY MARKS" means those Trademarks of Company set forth on Exhibit
B hereto and such other Trademarks (if any) as Company may from time to time
notify InfoSpace in writing to be "Company Marks" within the meaning of this
Agreement.
"COMPANY WEB SITES" means, collectively, all Web Sites maintained by or
an behalf of Company and its affiliates,
1
<PAGE>
"GRAPHICAL USER INTERFACE" means a graphical user interface, to be
designed by Company and InfoSpace and implemented by INFOSPACE pursuant to the
terms of this Agreement, that contains or implements branding, graphics,
navigation, content or other characteristics or features such that a user
reasonably would conclude that such interface is part of the Company Web Sites.
"IMPRESSION" means a user's viewing of any discrete screen containing
any Banner ,advertisement an a Results Page.
"INFOSPACE MARKS" means those Trademarks of InfoSpace (if any) set
forth on Exhibit B hereto and such other Trademarks a3 InfoSpace may from time
to TIME notify Company in writing to be "Company Marks" within the meaning of
this Agreement.
"INFOSPACE WEB SITUATION" means, collectively: (a) the Web Site the
primary home page of which is located at ERROR! BOOKMARK NOT DEFINED.; and (b)
other Web Sites maintained by InfoSpace and its affiliates.
"INTELLECTUAL PROPERTY RIGHTS" means any patent, copyright, rights in
Trademarks, trade secret rights, moral rights and other intellectual property or
proprietary rights arising under the laws of any jurisdiction.
"PERSON" means any natural person, corporation, partnership, limited
liability company or other entity.
"QUERY PAGE" means any page hosted on the Company Web Sites which
incorporates the Graphical User Interface and on which users may input queries
and starches relating to the Content.
"RESULTS PAGE" means any page hosted on the InfoSpace Web Sites which
incorporates the Graphical User Interface and displays Content in response. to
queries and searches made on a Query Page.
"TRADEMARKS" means any trademarks, service marks, trade dress, trade
names, corporate names, proprietary logos or indicia and other source or
business identifiers.
"WEB SITE" means any point of presence maintained an the Internet or on
any other public data network, With respect to any Website maintained on the
World Wide Web, such Website includes all HTML pages (or similar unit of
information presented in any relevant data protocol) that either (a) are
identified b "the same second-level domain (such as infospace.com) or by the
same equivalent level identifier in any relevant address scheme, or (b) contain
branding, graphics, navigation or other characteristics such that a user
reasonably would conclude that the pages are pan of in integrated information or
service offering.
2. CERTAIN RIGHTS GRANTED.
2.1 INFOSPACE GRANT. Subject to the term and conditions of this
Agreement, InfoSpace hereby grants to Company the following rights;
(a) the right to include on the Company Web Sites hypertext links
(whether in graphical, text or other format) which enable "point and click"
access to locations of the InfoSpace Web Sites specified by InfoSpace (and
subject to change by InfoSpace from time to time);
(b) the right to permit users to link to Results Pages via Query Pages
hosted on the Company Web Sites; and
2
<PAGE>
(c) the right to serve Banner Advertisements directly an the Co-branded
Pages as provided in Section 4.
2.2 Company Grant. Subject to the terms and conditions of this
Agreement, Company hereby grants InfoSpace the following rights:
(a) the right to include on the InfoSpace Web Sites hypertext links
(whether in graphical, text or other format) which enable "point and click"
access to locations of the Company Web Sites specified by Company (and subject
to change by Company from time to time);
(b) the right to serve Banner Advertisements directly an the Co-branded
Pages as provided in Section 4; and
(c) the right to track the number of Impressions of Banner
Advertisements served by Company to Results Pages.
2.3 LIMITATIONS. Company and its affiliates shall have no right to
reproduce or sub-license, TC-sell or otherwise distribute all or any portion of
the Content to any Person via the Internet (including the World Wide Web) or any
successor public or private data network. In addition, neither party shall have
any right to: (a) edit or modify any Banner Advertisements served a Co-branded
Page (but without limiting such party's right to edit or modify any Banner
Advertisements pursuant to Section 4. 1); or (b) remove, obscure or alter any
notices of Intellectual Property Rights appearing in or an any materials
(including Banner Advertisements) provided by the other party.
2.4 COMPANY MARKS LICENSE. Subject to Section 2.6, Company hereby
grants InfoSpace the right to use, reproduce, publish, perform and display the
Company Marks: (a) on the InfoSpace Web Sites in connection with the posting of
hyperlinks to the Company Web Sites; (b) in and in connection with the
development, use, reproduction, modification, adaptation, publication, display
and performance of the Graphical User Interface and Results Pages; and (c) in
promotional and marketing materials, content directories and indexes, and
electronic printed advertising, publicity, press releases, newsletters and
mailings about InfoSpace.
2.5 INFOSPACE MARKS LICENSE. Subject to Section 2.6, InfoSpace
hereby grants the right to use, reproduce, publish, perform and display the
InfoSpace Marks: (a) on the Company Web Sites in connection with the posting of
hyperlinks to the InfoSpace Web Sites; (b) in and in connection with the
development use, reproduction in promotional and marketing materials, content
directories and indexes, and electronic and printed advertising, publicity,
press releases, newsletters and mailings about Company.
2.6 APPROVAL OF TRADEMARK USAGE. InfoSpace shall not use or exploit in
any manner any of the -Company Marks, and Company shall not use or exploit in
any manner any of the InfoSpace Marks, except in such manner and media as the
other party may consent to in writing, which consent shall not be unreasonably
withheld or delayed. Either party may revoke or modify any such consent upon
written notice to the other party.
2.7 NONEXCLUSIVELY. Except as expressly provided in Section 4, 1,
each party acknowledges and agrees that the rights granted to the other party in
this Section 2 are non-exclusive, and that, without limiting the generality of
the foregoing, nothing in this Agreement shall be deemed or construed to
prohibit either party from participating in similar business arrangements as
THOSE described herein including soliciting third parry advertisements or other
materials, serving advertisements or other materials to third parties' Web
Sites, or hosting or permitting third parties to place advertisements on such
party's Web Site, whether or not in each such case, such advertisements are
competitive with the products, services or advertisements of the other party.
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3. CERTAIN OBLIGATIONS OF THE PARTIES.
3.1 GRAPHICAL USER INTERFACE AND CO-BRANDED PAGES. Company and
InfoSpace will cooperate to design the user-perceptible elements of the
Graphical User Interface, with the goals of. (a) conforming the display output
of the "look and feel" associated with the applicable Company Web Sites; and (b)
maximizing the commercial effectiveness thereof. Following agreement by the
parties upon the design specifications thereof, InfoSpace will use commercially
reasonable efforts to develop the Graphical User Interface and to implement the
same on Co-brand Pages. InfoSpace shall have no liability or obligation for
failure to develop or implement the Graphical User Interface or any Co-branded
Pages as contemplated by this Section 3. 1, or for any nonconformity with the
design specifications agreed upon by the parties, provided InfoSpace has used
commerciallyreasonable efforts to develop and implement the same as provided in
----------
this Section 3. 1.
3.2 COMPANY OBLIGATIONS. Company shall integrate links to pages of
the InfoSpace Web Sites determined by InfoSpace (and subject to change by
InfoSpace from time to time) on the primary home page for each of the Company
Web Sites. In addition, the InfoSpace logo and at least one other link pointing
to pages of the InfoSpace Web Sites specified by InfoSpace (and subject to
change by InfoSpace from time to time) will be present an all Co-branded Pages.
Each link contemplated by this Section 3.2 shall be: (a) prominent in relation
to links to other Web Sites on the applicable page (and in any event at least as
prominent as any link to any third party Web Site); and (b) above-the-fold
(i.e., immediately visible to any user accessing the applicable page without the
necessity of scrolling downward or horizontally).
3.3 ACCESSIBILITY OF WEB SITES. Each party will use commercially
reasonable efforts to ensure accessibility of its Web Sites (including, in the
case of InfoSpace, the accessibility of the Content).
3.4 IMPRESSION INFORMATION. InfoSpace shall track, and within
fifteen (15) days after the end of each calendar quarter, provide to the Company
remotely and in electronic form, the number of Impressions served by Company on
Results Pages.
3.5 Publicity. The parties may work together to issue publicity and
general marketing communications concerning their relationship and other
mutually agreed-upon matters, provided, however, that neither party shall have
any obligation to do so. In addition, neither party shall issue such publicity
and general marketing communications concerning their relationship without the
prior written consent of the other party (not to be unreasonably withheld).
Neither party shall disclose the terms of this Agreement to any third party
other than its outside counsel, auditors, and financial advisors, except as
required by law.
4. ADVERTISING AND REVENUE SHARE.
4.1 PLACEMENT OF BANNER ADVERTISEMENTS. Each party shall have the
right to serve Banner Advertisements on the Co_6nded Pages. The appearance of
the Banner Advertisements will be as reasonably determined by the party serving
such Banner Advertisements; provided, that InfoSpace may reject any Banner
Advertisement to be served by Company on any Results Page, and Company may
reject any Banner Advertisement to be served by InfoSpace an any Query Page, if
such Banner Advertisement would materially adversely affect the download time or
performance of such page. (Each party further agrees that it shall not serve to
any Co-branded Page any Banner Advertisement which contains any link to any Web
Site maintained by or on behalf of, or which is otherwise intended to promote
the products or services of, any Person which could reasonably be deemed to be a
material competitor of such party.)
4.2 REMUNERATION. The parties agree to share in the Advertising
Revenues as act forth on Exhibit C. Advertising Revenue share payments will be
reconciled and paid within thirty (30) days following the calendar quarter in
which the applicable Advertising Revenues are received. The Selling Party will
provide with each such payment a report setting forth Advertising Revenues
received by it for such quarter and the percentage thereof payable to the other
party.
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4.3 RECORDS AND AUDIT; LATE PAYMENTS. During the Term, each party
shall maintain accurate records of Banner Advertisements served to the Results
Pages, Impressions thereof, and Advertising Revenues received and calculations
of the fees payable to the other party pursuant to Section 4.2. either party, at
its expense, and upon ten (10) days' advance notice to the other party, shall
have the right once during the Term to examine or audit such records in order to
verify the figures reported in any quarterly report and the amounts owned to
such party under this Agreement Any such audit shall be conducted, to the extent
possible, in a mariner that does not interfere with the ordinary business
operations of the audited party. In the event that any audit shall reveal an
underpayment of more than ten percent (10%) of the amounts due to the auditing
party for any quarter, the other party will reimburse such party for the
reasonable cost of such audit.
5. WARRANTIES, INDEMNIFICATION AND LIMITATION OF DIRECT LIABILITY
5.1 WARRANTIES
Each party to THIS Agreement represents and warrants to the other party
that
a) it has the full corporate right, power and authority to enter into
this Agreement and to perform the acts required of it hereunder;
b) its execution of THIS Agreement by such party and performance of its
obligations hereunder,
do not and will not violate any agreement to which it is a party or by
which it is bound;
c) when executed and delivered, this Agreement will constitute the
legal, valid and binding obligation of such party, enforceable against it in
accordance with its terms; and
d) its Web Sites and the content contained therein, and Banner
Advertisements served by it to the Co-branded Pages, will not contain any
material that is obscene, libelous or defamatory, or infringing of any third
party Intellectual Property Rights.
5.2 INDEMNIFICATION. Each party (the "Indemnifying Party") will
defend, indemnify and hold harmless the other parry (the "IndemnifiedParty"),
------------
and the respective directors, officers, employees and agent of the Indemnified
Party, from and against any and all claims, costs, losses, damages, judgments
and expenses (including reasonable attorneys' fees) arising our of or in
connection with any third-party claim alleging any breach of such parties
representations of warranties or covenants set forth in this Agreement. The
Indemnified Party shall promptly notify the Indemnifying Party of any such claim
of which it becomes aware and shall: (a) at the Indemnifying Party's expense,
provide reasonable cooperation to Such other in connection with the defense or
settlement of any such claim; and (b) at the Indemnified Party's expense, be
entitled to participate in the defense of any such claim. The Indemnifying party
shall not acquiesce to any judgment or enter into any settlement that adversely
affects the Indemnified Party's rigbts, or interests without prior written
consent of the Indemnified Party.
5.3 LIMITATION OF LIABILITY; DISCLAIMER.
(a) Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO
THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY
DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES), ARISING FROM ANY PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED
TO, LOSS OF REVENUE OR ANTICIPATED PROMS OR LOST BUSINESS.
(b) No Additional Warranties. EXCEPT AS SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED (INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND
5
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IMPLIED WARRANTIES APUSING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.),
AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS A-NY CLAIM IN TORT (INCLUDING
NEGLIGENCE), IN EACH CASE, REGARn1NG THEIR WEB SITES, ANY PRODUCTS OR SERVICES
DESCRI33ED THEREON, ANY BANNER ADVERTISEMENTS, OR ANY OTHER ITEMS OR SERVICES
PROVIDED UNDER THIS AGREEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
COMPANY ACKNOWLEDGES THAT THE INFOSPACE WEB SITES AND THE CONTENT (INCLUDING ANY
SERVERS OR OTHER HARDWARE, SOFTWARE AND ANY OTHER ITEMS USED OR PROVIDED BY
INFOSPACE OR ANY THIRD PARTIES IN CONNECTION WITH HOSTING THE INFOSPACE WM SITES
OR THE CONTENT OR PERFORMANCE OF ANY SERVICES HEREUNDER) ARE PROVIDED 'AS IS "
AND THAT INFOSPACE MAKES NO WARRANTY THAT IT WILL CONTINUE TO OPERATE ITS WEB
SITES TN THEIR CURRENT FORM, THAT ITS WEB SITES WILL BE ACCESSIBLE WITHOUT
INTERRUPTION, THAT THE SUES WILL MEET THE REQUIREMENTS OR EXPECTATIONS OF THE
OTHER PARTY, OR THAT THE CONTENT OR ANY OTHER ANY MATERIALS ON ITS WEB SITES OR
THE SERVERS AND SOFTWARE THAT MAKES ITS WEB SITES AVAILABLE ARE FREE FROM
ERRORS, DEFECTS, DESIGN FLAWS OR OMISSIONS.
6. TERM AND TERMINATION.
6.1 TERM. The Term shall commence an the date of this Agreement
and, unless earlier terminated or extended as provided below, shall end upon the
one year anniversary of this Agreement,
6.2 TERMINATION. Either party may terminate the Term upon not less
than thirty (30) days prior written notice to the other party of any material
breach hereof by such other party, provided that such other parry has not cured
such material breach within such thirty (30) day Period.
6.3 EFFECT OF TERMINATION. Upon termination or expiration of the
Term for any reason, all rights and obligations of the parties under this
Agreement shall be extinguished, except that: (a) all accrued payment
obligations hereunder shall survive such termination or expiration; and (b) the
rights and obligations of the parties under Sections 4.2,4.3, 5, 6,7 and 8 shall
survive such termination or expiration.
7. INTELLECTUAL PROPERTY
7.1 COMPANY. As between the parties, Company retains all right,
title and interest in and to the Company Web Sites (including, without
limitation, any and all content data, URLs, domain names, technology, software,
code, user interfaces, "look and feel", Trademarks and other items posted
thereon or used in connection or associated therewith; but excluding any Content
or other items supplied by InfoSpace) and the Company Marks along with all
intellectual Property Rights associated with any of the foregoing. All goodwill
arising out of InfoSpace's use of any of the Company Marks shall inure solely to
the benefit of Company,
7.2 INFOSPACE As between the parties, InfoSpace retains all right,
title and interest in and to the Content and the InfoSpace Web Sites (including,
without limitation, any and all content, data, URLs, domain names, technology,
software, code, user interfaces, "look and feel", Trademarks and other items
posted thereon or used in connection or associated therewith; but excluding any
items supplied by Company) and the InfoSpace Marks, along with an Intellectual
Property Rights associated with any of the foregoing. All goodwill arising out
of Company's use of any of the InfoSpace Marks shall inure solely to the benefit
of InfoSpace.
7.3 COPYRIGHT NOTICES. All Co-branded Pages will include the
following acknowledgment, along with the InfoSpace logo.
"Powered by InfoSpace" or "Powered by InfoSpace.com"
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InfoSpace and Company acknowledge that the Co-branded Pages may also
contain copyright and patent notices of copyrighted or copyrightable works,
including those of InfoSpace Content providers.
7.4 OTHER TRADEMARKS. InfoSpace shall not register or attempt to
register any of the Company Marks or any Trademarks which Company reasonably
deems to be confusingly similar to any of the Company Marks. Company shall not
register or attempt to register any of the InfoSpace Marks or any Trademarks
which InfoSpace reasonably deems to be confusingly similar to any of the Company
Marks.
7.5 FURTHER ASSURANCES. Each party shall take, at the other parry's
expense, such action (including, without limitation, execution of affidavits or
other documents) as the other party may reasonably request to effect, perfect or
confirm such other party's ownership interests and other rights as set forth
above in this Section 7.
8. GENERAL PROVISIONS
8.1 CONFIDENTIALITY. Each parry (the "Receiving Party") undertakes
to retain in confidence the terms of this Agreement and all other non-public
information and know-how of the other parry disclosed or acquired by the
Receiving Party pursuant to or in connection with this Agreement which is either
designated as proprietary and/or confidential or by the nature of the
circumstances surrounding disclosure, ought in good faith to be treated as
proprietary and/or confidential ("Confidential Information"); provided that each
party may disclose the terms and conditions of this Agreement to its immediate
legal and Financial consultants in the ordinary course of its business. Each
party agrees to use commercially reasonable efforts to protect Confidential
Information of the other party, and in any event, to take precautions at least
as great as those taken to protect its own confidential information of a similar
nature. Company acknowledges that the terms of this Agreement are Confidential
Information of InfoSpace. The foregoing restrictions shall not apply to any
information that: (a) was known by the Receiving Party prior to disclosure
thereof by the other party; (b) was in or entered the public domain through no
fault of the Receiving Party; (c) is disclosed to the Receiving Parry by a third
party legally entitled to make such disclosure without violation of any
obligation of confidentiality; (d) is required to be disclosed by applicable
laws or regulations (but in such even; only to the extent required to be
disclosed); or (e) is independently developed by the Receiving Parry without
reference to any Confidential Information of the other party, Upon request of
the other parry, or in any event upon any termination or expiration of the Term,
each party shall return to the other all materials, in any medium, which
contain, embody, reflect or reference all or any part of any Confidential
Information of the other party. Each party acknowledges that breach of this
provision by it would result in irreparable harm to the other party, for which
money damages would be an insufficient remedy, and therefore that the other
party shall be entitled to seek injunctive relief to enforce the provisions of
this Section 8.1.
8.2 INDEPENDENT CONTRACTORS. Company and InfoSpace are independent
contractors under this Agreement, and nothing herein shall be construed to
create a partnership, joint venture, franchise or agency relationship between
Company and InfoSpace. Neither party has any authority to enter into Agreements
of any kind on behalf of the other party.
8.3 ASSIGNMENT. Neither parry may assign this Agreement or any of
its rights or delegate any of its duties under this Agreement without the prior
written consent of the other party, not to be unreasonably withheld, except that
either party may, without the other party's consent, assign this Agreement or
any of its rights or delegate any of its duties under this Agreement: (a) to any
affiliate of such party; or (b) to any purchaser of all or substantially all of
such party's assets or to any successor by way of merger, consolidation or
similar transaction. Subject to the foregoing, this Agreement will be binding
upon, enforceable by, and inure to the benefit of the parties and their
respective successors and assigns.
8.4 CHOICE OF LAW; FORUM SELECTION. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Washington without reference to its choice of law rules.
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Company hereby irrevocably consents to exclusive personal jurisdiction and venue
in the state and federal courts located in King County, Washington With respect
to any actions, claims or proceedings arising out of or in connection with this
Agreement, and agrees not to commence or prosecute any such action, claim or
proceeding other than in the aforementioned courts.
8.5 NONWAIVER. No waiver of any breach of any provision of this
Agreement shall constitute a waiver of any prior, concurrent or subsequent
breach of the same or any other provisions hereof, and no waiver shall be
effective unless made in writing and signed by an authorized representative of
the waiving party.
8.6 FORCE MAJEURE. Neither party shall be deemed to be in default
of or to have breached any provision of this Agreement as a result of any delay,
failure in performance or interruption of service, resulting directly or
indirectly from acts of God, acts of civil or military authorities, civil
disturbances, wars, strikes or other labor disputes, fires, transportation
contingencies, interruptions in telecommunications or Internet services or
network provider services, failure of equipment and/or software, other
catastrophes or any other occurrences which are beyond such party's reasonable
control.
8.7 NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be given in writing and delivered in
person, mailed via confirmed facsimile or e-mail, or delivered by recognized
courier service, properly addressed and stamped with the required postage, to
the person signing this Agreement on behalf of the applicable party at its
address specified in the opening paragraph of the agreement and shall be deemed
effective upon receipt. Either party may from time to time change the person to
receive notices or its address by giving the other party notice of the change in
accordance with this section.
8.8 INTEGRATION. This Agreement contains the entire understanding
of the parties hereto with respect to the transactions and matters contemplated
hereby, supersedes all previous agreements or negotiations between InfoSpace and
Company concerning the subject matter hereof, and cannot be amended except by a
writing signed by both parties.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date set forth above.
Net Taxi On-Line Community InfoSpace.com, Inc.
("Company") ("InfoSpace")
By (signature) /S/ Dave Schlenz By (signature) /S/ Naveen
- --------------------------------- ---------------------------
Jain
- ----
Name DAVE SCHLENZ Name NAVEEN JAIN
- ---- ------------- ------------------
Title Manger of Sales Title President and CEO
- ------------------------ --------------------------
Date: 11/5/98 Date: 11/5/98
- -------------- --------------
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EXHIBIT A
CONTENT
The Content consists of, but is not limited to, the following indexes,
directories and other items and services (as the same may by updated, revised or
modified by InfoSpace in its sole discretion from time to time):
1. Yellow Pages
2. White Pages
3. Classifieds
4. City Guides
5. Investing
6. News
7. Space Scores
8. Community
9. Government
10. E-Shopping
11. International Listings
12. other items and services that may from time to time bc added to the
InfoSpace Web Sites by InfoSpace (in its sole discretion)
Note: The actual name of these services may change,
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EXHIBIT B
TRADEMARKS
Company Marks
- --------------
InfoSpace Marks
- ----------------
InfoSpace
InfoSpace.com
[INFOSPACE.COM LOGO] Powered By InfoSpace
Powered by InfoSpace.com
The Ultimate Directory
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EXHIBIT C
ADVERTISING REVENUE SPARE AND ADDTIONAL CONDITIONS
BANNER ADVERTISEMENT REVENUE SHARE
1. If Company site demonstrates at least 20,000 site page views per month,
then during the initial month of the agreement InfoSpace will serve 100% of
the ads displayed on Client site where InfoSpace content appears. This will
serve as the benchmark for the average number of ads displayed during any 30-day
period (to be re-evaluated quarterly, or as needed). Thereafter, InfoSpace and
Company will agree on a 50%/50% inventory split with each party retaining all
Revenue from its ad sales,
2. Company will pay a total of $5000 to InfoSpace.com, $2500 of which
will be paid at signing. The remainder will be paid in equal increments over the
next three months.
This offer is valid for 30 days from date of this agreement.
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AGREEMENT FOR TERMINAL FACILITY
COLLOCATION SPACE
THIS AGREEMENT made this IS"' day of January, 1999, (the "Effective Date")
by and between, ALCHEMY COMMUNICATIONS, INC., a California corporation,
(hereinafter called "Alchemy") and PLUS NET, INC., a California corporation
(hereinafter called "Customer").
RECITALS
WHEREAS, Alchemy owns or controls a leasehold interest in certain office
and storage Collocation Space within a commercial building in the State of
California (generally described herein as the "Premises") which may be suitable
for the placement and operation of telecommunications equipment; and
WHEREAS, Customer desires access to the Premises for the purpose of placing
therein certain telecommunications equipment and cabling (hereinafter, the
"Equipment") the individual location for such Equipment to be referred to herein
as the "Terminal Facility"; and
WHEREAS, Alchemy may be willing to grant Customer the right to occupy or
use portions of the Terminal Facility (hereinafter, the "Collocation Space")
upon the ten-ns and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
Alchemy and Customer (collectively the "Parties") hereby agree as follows:
1. LICENSE TO OCCUPY, PERMISSIBLE USE AND RELOCATION PROVISIONS:
A. This document shall comprise a complete and binding agreement
between Customer and Alchemy only upon execution by Alchemy and Customer of a
Collocation Schedule pertaining to the Terminal Facility in which Alchemy has a
leasehold interest. The Collocation Schedule, and any amendments thereto, when
dated and subscribed by Customer and Alchemy shall incorporate the terms and
conditions of this Agreement. In the event of any conflict or inconsistency
between this Agreement and the terms set forth in the Collocation Schedule,
terms of the Collocation Schedule shall in all cases prevail.
B. The Collocation Schedule shall have attached thereto the following
Exhibits: General Description of Work Tasks and Special Terms and Conditions
identified as "Exhibit I"; and Dispatch Labor Charges; identified as "Exhibit
2."
C. Customer shall utilize the Collocation Space only for
interconnection of the Equipment to the network services of Alchemy.
D. In connection with the Collocation Space made available hereunder,
Alchemy shall perform services which support the overall operation of the
Terminal Facility (e.g., janitorial services, environmental systems maintenance,
and power plant maintenance) at no additional charge to Customer. However,
Customer shall be required to maintain the Collocation Space in an orderly
manner and shall be responsible for the removal of trash, packing cartons, etc.
from the Collocation Space. Further, Customer shall maintain the Collocation
Space in a safe condition, including but not limited to the preclusion of
storing combustible materials in the Collocation Space.
E. Unless otherwise provided in the Collocation Schedule, each visit by
Customer to the Collocation Space will be deemed to utilize escort services
furnished by Alchemy from the time Customer's Employee(s) sign(s) in upon
entering the Terminal Facility to the time Customer's employee(s) sign(s) out
upon leaving the Terminal Facility. Charges for escort - 1
<PAGE>
services are consistent with the dispatch labor charges (the "Dispatch Labor
Charges") depicted in Exhibit 2 to the Collocation Schedule.
F. Customer acknowledges that it has been granted only a license to
occupy the Collocation Space and that it has not been granted any real property
interests in the Collocation Space.
2. ADDITIONAL SERVICES:
(1). System Administration: Alchemy shall provide complete system
-----------------------
administration for Customer. For a monthly fee stated in the Collocation
Schedule.
(11). Electronic Commerce Services: Alchemy shall provide Customer
-----------------------------
with electronic commerce ("e- commerce") services, including credit card
processing and applicable record keeping at $0.25 per transaction.
(iii). Programming Services: Alchemy will provide programming
----------------------
services, including digitizing of text, graphics and sound. An additional fee of
one hundred ($100) dollars per hour is attached to this service.
3. TERM OF AGREEMENT, TERMINATION AND RENEWAL:
A. Customer's license to occupy the Collocation Space shall begin on
the "Requested Service Date," as set forth in paragraph 3 of the Collocation
Schedule. The minimum term of the Customer's license to occupy the Collocation
Space shall be the period set forth in the Collocation Schedule (the "Minimum
Term".)
B. Following the expiration of the Tenn for the Collocation Space,
Customer's license shall continue in effect on a month-to-month basis upon the
same terms and conditions specified herein, unless terminated by Alchemy upon
thirty (30) day's prior written notice.
C. Upon termination or expiration of the Term for the Collocation
Space, Customer agrees to remove the Equipment and other property that has been
installed by Customer or Customer's agent. In the event such Equipment or
property has not been removed within thirty (30) days of the effective
termination or expiration date, the Equipment shall be deemed abandoned and
Customer shall lose all rights and title thereto.
D. In the event the Terminal Facility becomes the subject of a taking
by eminent domain by any authority having such power, Alchemy shall have the
right to terminate this Agreement. Alchemy shall attempt to give Customer
reasonable advance notice of the removal schedule. Customer shall have no claim
against Alchemy for any relocation expenses, any part of any award that may be
made for such taking or the value of any unexpired term or renewed periods that
result from a termination by Alchemy under this provision, or any loss of
business from full or partial interruption or interference due to any
termination. However, nothing contained in this Agreement shall prohibit
Customer from seeking any relief or remedy against the condemning authority in
the event of an eminent domain proceeding or condemnation that affects the
Collocation Space.
4. PRICES AND PAYMENT TERMS:
A. Customer shall pay Alchemy monthly recurring fees (the "Recurring
Fees"), which shall include charges for use and occupancy of the Collocation
Space (the "Occupancy Fees"), connectivity (or cross- connect fees, if
applicable), power charges, if applicable and system administration. In addition
to any Recurring Fees, Customer shall be charged non-recurring fees for
build-out of the Collocation Space (the "Build-Out Charges"), including, where
applicable, cross-connect installation fees and/or Dispatch Labor Charges, where
applicable, which shall be set forth in the relevant Collocation Schedule and
the Exhibits thereto. If Customer requests that
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Alchemy provide services not delineated herein or in the Collocation Schedule at
any time during the Term, Customer agrees to pay Alchemy's price for such
services in effect at the time such service was rendered.
B. Prices do not include taxes, except as specifically stated herein.
Customer agrees to pay or reimburse Alchemy for any applicable taxes that are
levied based on the transactions hereunder, exclusive of taxes on income and
real estate taxes on the Ten-ninal Facility. Any such charges shall be invoiced
and payable within the payment terms of this Agreement. Alchemy agrees to
provide Customer with reasonable documentation to support invoiced amounts
applied to taxes within thirty (30) calendar days of receipt of a Customer's
written request.
C. The Occupancy Fee and/or Power Charges shall be increased to
reflect any increases incurred by and required under the lease relevant to the
Premises in which the Collocation Space is located. Customer shall pay to
Alchemy its pro rata share of any such increases based on the number of square
feet of the Collocation Space compared to the number of square feet leased by
Alchemy under the applicable lease. Alchemy shall notify Customer of any such
increase as soon as practicable.
D. All Recurring Fees shall be invoiced thirty (30) days prior to the
beginning of each month commencing thirty (30) days prior to the first day of
the Term as identified in the Collocation Schedule and thereafter, on the first
day of each calendar month. Charges for partial months shall be prorated
accordingly. All Recurring Fees shall be payable net thirty (30) days from date
of invoice and prior to the beginning of the invoiced period. Customer shall be
subject to late charges if payment is not received within the payment ten-n
period. The late payment charges will be calculated based on 1.5% per month of
the unpaid amount.
E. Charges delineated in the Collocation Schedule for build-out of the
Collocation Space shall be invoiced and paid by Customer when invoiced. Alchemy
may require payment of up to fifty percent (50%) of the "Build Out Fees" prior
to commencing construction.
F. Customer agrees to reimburse Alchemy for all reasonable repair or
restoration costs associated with damage or destruction caused by Customer's
personnel, Customer's agent(s) or Customer's suppliers/contractors or Customer's
visitors during the Term or as a consequence of Customer's removal of the
Equipment or property installed in the Collocation Space.
5. ADDITIONAL TERMS GOVERNING USE OF COLLOCATION SPACE AND INSTALLATION OF
EQUIPMENT:
A. Before beginning any delivery, installation, replacement or removal
work, Customer must obtain Alchemy's wnitten approval of Customer's choice of
suppliers and contractors which approval shall not be unreasonably withheld or
delayed. Alchemy may request additional information before granting approval and
may require scheduling changes and substitution of suppliers and contractors as
conditions of its approval. Approval by Alchemy is not an endorsement of
Customer's supplier or contractor, and Customer will remain solely responsible
for the selection of the supplier or contractor and all payments for
construction work.
B. Customer shall not make any construction changes or material
alterations to the interior or exterior portions of the Collocation Space,
including any cabling or power supplies for the Equipment, without obtaining
Alchemy's written approval for Customer to have the work performed or have
Alchemy perform the work. Alchemy reserves the right to perform and manage any
construction or material alterations within the Terminal Facility and
Collocation Space areas at rates to be negotiated between the Parties hereto.
C. Customer's use of the Collocation Space, installation of Equipment
and access to the Terminal Facility shall at all times be subject to Customer's
adherence to the generally accepted industry standards, security rules and rules
of conduct established by Alchemy for the Terminal Facility. Customer agrees not
to erect any signs or devices to the exterior portion of the -3-
3
<PAGE>
Collocation Space without submitting the request to Alchemy and obtaining
Alchemy's written approval.
D. Customer may not provide, or make available to any third party,
collocation space within the Collocation Space without Alchemy's prior written
consent. If Customer should provide, or make available to any third party,
collocation space within the Collocation Space without obtaining the written
consent of Alchemy, Customer shall be in breach of this Agreement and Alchemy
may pursue any legal or equitable remedy, including but not limited to 9 the
immediate termination of this Agreement.
E. Alchemy shall not arbitrarily or discriminatorily require Customer
to relocate the Equipment; however, upon sixty (60) days prior written notice
or, in the event of an emergency, such time as may be reasonable, Alchemy
reserves the right to change the location of the Collocation Space or the
Terminal Facility to a site which shall afford comparable environmental
conditions for the Equipment and comparable accessibility to the Equipment.
Alchemy and Customer will work together in good faith to minimize any disruption
of Customer's services as a result of such relocation. Alchemy shall be
responsible for the cost of improving the Collocation Space to which the
Equipment may be relocated, and for relocation of Equipment interconnected to
Alchemy services, except that Alchemy shall not be responsible for relocating
facilities installed in violation of this Agreement.
6. INSURANCE:
Customer agrees to maintain, at Customer's expense, during the entire time
this Agreement is in effect for each Collocation Space (1) Comprehensive General
Liability Insurance in an amount not less than One Million Dollars ($
1,000,000.00) per occurrence for bodily injury or property damage, (ii)
Employers Liability in an amount not less than Five Hundred Thousand Dollars
($500,000.00) per occurrence, and (ill) Workers' Compensation in an amount not
less than that prescribed by statutory limits. Prior to taking occupancy of the
Collocation Space, Customer shall furnish Alchemy with certificates of insurance
which evidence the minimum levels of insurance set forth herein and which name
Alchemy as an additional insured. Customer shall also maintain sufficient
property insurance to cover any Equipment placed in the Collocation Space.
7. DEFAULT:
A. If Customer fails to perform its obligations, or fails to pay for
services rendered hereunder, Alchemy may, at its sole option and with written
notice, issue a default notice letter to Customer, demanding the default
condition be cured. If the default condition is not remedied within the time
period specified in the notice letter, which shall not be less than fourteen
(14) calendar days, Alchemy may then, without the necessity of any further
notice, discontinue performance and terminate this Agreement, for default, and
pursue any other remedies available at law or in equity. Alchemy's failure to
exercise any of its rights hereunder shall not constitute or be construed by
Customer as being a waiver of any past, present, or future right or remedy.
B. At any time during the term of this Agreement, Alchemy may, at
Alchemy's sole option, immediately terminate this Agreement if Customer is not
then maintaining the Equipment solely for the purpose of originating and/or
terminating telecommunications transmissions carried over the Alchemy Network or
as otherwise set forth in Paragraph I of this Agreement, or pursuant to the
terms and conditions, if any, contained in any Collocation Schedule identified
herewith.
C. If Customer commits an act of default with respect to the purchase
of telecommunications services from Alchemy, which would entitle Alchemy under
its separate tariffs and agreements to terminate its services to Customer, then
Alchemy shall he entitled to terminate this Agreement and all Collocation
Schedules to which this Agreement pertains.
4
<PAGE>
8. WARRANTIES, REMEDIES AND DISCLAIMERS:
A. Alchemy shall, at Alchemy's own expense, defend Customer against
any and all claims that the Collocation Space used by Customer hereunder
infringes on any third party's property or ownership rights. Alchemy shall, at
Alchemy's sole option, either (1) settle any such claim, (11) secure valid
rights for Customer's continued use, or (111) furnish equivalent Collocation
Space that is not infringing and that can be used to satisfy the original
specifications in Alchemy's determination. This warranty and remedy by Alchemy
shall be valid only if (i) Customer gives Alchemy prompt written notice upon
Customer's receipt of any such claim, (ii) Customer provides Alchemy with all
pertinent information in its possession relative to such claim and (Iii) Alchemy
shall have sole control over the settlement or defense of such claim.
B. THE COLLOCATION SPACE IS ACCEPTED "AS IS" BY CUSTOMER. CUSTOMER
ACKNOWLEDGES THAT NO REPRESENTATION HAS BEEN MADE BY ALCHEMY AS TO THE FITNESS
OF THE COLLOCATION SPACE FOR CUSTOMER'S INTENDED PURPOSE. EXCEPT FOR THE
WARRANTIES SET FORTH IN THIS ARTICLE, THERE ARE NO WARRANTIES, WHETHER EXPRESS,
IMPLIED, OR-AL, OR WRITTEN, WITH RESPECT TO THE COLLOCATION SPACE OR SERVICES
COVERED OR FURNISHED PURSUANT TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO,
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
MOREOVER, THE REMEDIES PROVIDED IN THIS ARTICLE ARE EXCLUSIVE AND IN LIEU OF ALL
OTHER REMEDIES.
9. EXCUSED PERFORMANCE:
Neither Party shall be liable to the other Party under this Agreement for
any failure nor delay in performance that is due to causes beyond its reasonable
control, including but not limited to, acts of nature, governmental actions,
fires, civil disturbances, interruptions of power, or transportation problems.
10. ASSIGNMENT OR TRANSFER:
Customer shall not assign or transfer the rights or obligations associated
with this Agreement, in whole or in part, without Alchemy's prior written
consent.
11. PUBLICITY:
Customer shall not use Alchemy's name in publicity or press releases
without Alchemy's prior written consent.
12. LIMITATION OF LIABILITY:
A. In no event shall Alchemy, Customer, or any of their respective
officers, directors, agents, contractors or employees, be liable, one to the
other, for any loss of profit or revenue or for indirect, incidental, special,
punitive or exemplary damages incurred or suffered by each other, arising from
or pertaining to Customer's use or occupancy of the Collocation Space including,
without limitation damages arising from interruption of electrical power or HVAC
services.
B. Customer shall indemnify and hold harmless Alchemy, and its
respective officers, directors, agents, contractors and employees, from and
against any and all claims, costs, expenses or liability (including by any
representation or promise not specifically expressed in this Agreement). Any
modification made hereto shall not be valid and binding unless it is in writing
and signed by both Parties.
5
<PAGE>
13. NOTICES:
A. Any notice required to be given pursuant to this Agreement shall be
in writing and mailed by certified or registered mail, return receipt requested,
or delivered by a national overnight express service or by facsimile, with a
written acknowledgment of receipt to the following addresses:
(i) Customer:
Plus Net Inc.
24633 Mulholland Highway
Calabasas, California 91302
Attn: Mr. Bruce K. Muhlfeld
(ii) Alchemy:
Alchemy Communications, Inc.
9610 DeSoto Avenue
Chatsworth, California 91311-5012
Attn: Mr. Nolan Quan
B. Either party may change the address to which notice or payment is to
be sent by written notice to the other party pursuant to the provisions of this
paragraph.
14. JURISDICTION AND DISPUTES:
A. This Agreement shall be governed by the laws of the State of California.
B. All disputes hereunder shall be resolved in the applicable state or
federal courts of California, the county of Los Angeles. The parties consent to
the jurisdiction of such courts, agree to accept service of process by mail, and
waive any jurisdictional or venue defenses o1herwise available.
15. INTEGRATION:
This Agreement constitutes the entire understanding of the parties, and
revokes and supersedes all prior agreements between the parties and is intended
as a final expression of their Agreement. It shall not be modified or amended
except in writing signed by the parties hereto and specifically referring to
this Agreement. This Agreement shall take precedence over any other documents
that may be in conflict therewith.
IN WITNESS WHEREOF, the Par-ties have executed this Agreement as of the
date first above written.
ALCHEMY COMMUNICATIONS, INC. PLUS NET, INC.
By: /S/ Nolan Quan By: /S/ Bruce K. Muhlfeld
---------------- ------------------------
Name: Nolan Quan Name: Bruce K. Muhlfeld
Title: President Title: President
6
<PAGE>
COLLOCATION SCHEDULE
This Collocation Schedule is made on this W'day of January, 1999 (the
"Effective Date") and subject to all definitions, terms and conditions of that
certain Agreement for Terminal Facility Collocation Space, dated January 18,
1999, the ("Agreement") by and between ALCHEMY COMMINICATIONS, INC., ("Alchemy")
and PLUS NET, INC., ("Customer"). Customer accepts and ratifies the terms and
conditions of the Agreement, with respect to the Terminal Facility identified
below, as specifically set forth herein.
1. ADDRESS OF TERMINAL FACILITY: 2. COLLOCATION SPACE:
1200 West 7 1h Street
Level One Cages: Up to 150 Square Feet.
Los Angeles, California
3. TERM:
Requested service date: May 1, 1999
Initial period: one (1) year.
4. MONTHLY RECURRING SERVICE FEES:
Occupancy Fees: $3,000.00 usage of up to 150 square feet.
Cross-Connect Fees: * $25.00 per DS-0, $100.00 per DS-1, $300.00 per DS-3.
Power Charge:
AC (120 Volt) squared**: First 100 amps included in monthly charge. Battery
Back-up.
Thereafter $0.10 per KWH
5. HOSTING VARIABLE MONTHLY FEE:
Pricing for bandwidth usage shall be at Alchemy's cost plus ten (10%)
percent.
6. SPECIAL SERVICES FEES:
System Administration: $5,000.00 month for "Eyes/Hands Support."
Programming Services: $100.00 per hour.
Electronic Commerce Services: $0.25 per transaction.
7
<PAGE>
* A "cross-connect" is an electrical connection made between two DS-1 circuits
on a WX-1 cross-connect panel or two DS-3 circuits on a DSC-3 cross-connect
panel which interconnects the Equipment with other telecommunications services.
Alchemy shall provide appropriate cable facilities (i.e., patch cords and cables
required to connect WX-N jacks) between the Equipment and Alchemy common
cross-connect panel located at the Premises. Cross-connect charges are
determined by the level and type of facilities connected. No cross-connect shall
be provided for any period past the expiration of the Agreement.
* *AC Power charges will be applied based on Customer connected Equipment load
based on an initial survey and adjusted annually based on surveys performed on
or about the anniversary of the original survey.
ALCHEMY COMMUNICATIONS, INC. PLUS NET, IN
By: /s/ Nolan Quan By: /s/ Bruce K. Muhlfeld
---------------- ------------------------
Authorized Signature Authorized Signature
Date: 01-18-99 Date: 01/18/99
8
<PAGE>
EXHIBIT I to Collocation Schedule
GENERAL DESCRIPTION OF WORK TASKS AND SPECIAL TERMS AND CONDITIONS
1. GENERAL DESCRIPTION - ALCHEMY WORK TASKS:
-----------------------------------------------
Alchemy will provide standard 100 amps/60 hertz, U-Plex for AC Power. Included
with 10 meg service.
2. GENERAL DESCRIPTION - CUSTOMER WORK TASKS:
------------------------------------------------
Customer will provide a list of persons authorized to access Collocation Space.
3. SPECIAL TERMS AND CONDITIONS(AS APPLICABLE)-
-----------------------------------------------
Visitor parking is currently available at no additional cost. Office space is
available on a first-come basis. Guaranteed office space may be arranged at an
additional cost, as available.
9
<PAGE>
EXHIBIT 2
to Collocation Schedule
DISPATCH LABOR CHARGES
The following charges shall be applied for labor performed by Alchemy on the
request of Customer.
1. Normal Alchemy business hours: $100.00 for first 1/2 hour, $50.00
each additional l 1/2hour, (Monday to Saturday 7:00 a.m. to 7:00 p.m., except
Alchemy holidays.)
2. Off hour Alchemy business hours: $300.00 for first 1/2 hour, $75.00
each additional 1/2 hour (Monday to Saturday 7:00 p.m. to 7:00 a.m., except
Alchemy holidays.)
3. Sundays and Holidays: $500.00 for first 1/2 hour, $125.00 each
additional 1/2hour.
Note: Labor hours are billed in half hour increments. Alchemy off-hour labor
hours are based on a four hour minimum.
10
<PAGE>
PLUS NET, INC.
24633 Mulholland Highway
Calabasas, California 91302
Dated as of January 15, 1999
BABENET, LTD.
9610 DeSoto Avenue
Chatsworth, California 91311-5012
Gentlemen:
This letter sets forth the basic terms of the agreement (the
"Agreement")between Plus Net, Inc., a California corporation ("Company"), and
Babenet, Ltd., a California corporation ("Client"), relating to the processing
of financial transactions.
SECTION 1. TRANSACTIONS. Subject to the terms and conditions
-------------
contained herein, Company shall process all financial transactions on behalf of
Client that result from services provided by websites developed and maintained
by Client.
SECTION 2. FEES. Client agrees to pay Company the following fees
on all financial transactions that the Company processes:
Discount Rate: 10%
Transaction fee: $0.25 per transaction
SECTION 3. OFF SETS. Client expressly authorizes Company to deduct
or retain from any payments due to Client sums equal to any chargebacks,
credits, fees or adjustments due from Client.
SECTION 4. TERM. This Agreement shall be effective as of the date
of execution by both parties and shall extend for a period of one (1) year.
SECTION 5. REPRESENTATIONS AND WARRANTIES. (a) Client hereby
---------------------------------
represents and warrants that (i) Client has the right, power and authority to
enter into this Agreement and the execution, delivery and performance by Client
of its obligations hereunder have been duly authorized by all necessary action,
(ii) this Agreement is the legal, valid and binding obligation of Client in
accordance with its terms.(b) Company hereby represents and warrants that (i)
Company is a California corporation duly organized, validly existing and in good
standing under the laws thereof, (ii) Company has the right, power and authority
to enter into this Agreement and the execution, delivery and performance by
Company of its obligations hereunder have been duly authorized by all necessary
corporate action, (iii) this Agreement is the legal, valid and binding
obligation of Company in accordance with its terms.
<PAGE>
Babenet
January 15, 1999
Page Two
SECTION 6. ACCOUNTING. Statements with respect to transaction
-----------
processing will be rendered on a monthly basis. Each statement shall show in
summary form the calculation of Company receipts processed on behalf of Client
and remit payments due to Client. Accurate accounting records relating to all
transactions processed shall be maintained at Company's headquarters. Such
records shall be available for audit on three weeks notice, at reasonable times
during business hours, to an accounting firm acting on behalf of Client.
SECTION 7. MISCELLANEOUS. This Agreement expresses the entire
--------------
understanding of the parties hereto and replaces any and all former agreements,
understandings or representations relating in any way to the subject matter
hereof, and is binding upon Client and Company. No amendment or waiver of any
provision of this Agreement, shall in any event be effective unless the same
shall be in writing and signed by Client and Company, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purposes of which given. Client and Company shall from time to time execute,
acknowledge and deliver such instruments, notices, instructions and other
documents as may be necessary and proper to evidence, maintain, effectuate,
implement or defend any and all of the rights of the parties under any provision
of this Agreement.
SECTION 8. ASSIGNMENT. Client may not assign this Agreement without
-----------
the express written consent of Company which will not be unreasonably withheld.
SECTION 9. NO PARTNERSHIP. Nothing contained herein shall
----------------
constitute a partnership between, or joint venture by, the parties hereto or
constitute either party the trustee, fiduciary or agent of the other (except as
may be expressly provided to the contrary elsewhere herein).
Section 10. Notices. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telecopy, telax or cable
communication) and mailed, telegraphed, telecopied, telexed, cabled or
delivered, if to:
CLIENT: Babenet, Ltd.
9610 DeSoto Avenue
Chatsworth, California 91311-5012
Attn: John J. Gallagher
<PAGE>
Babenet
January 15, 1999
Page Three
COMPANY: Plus Net, Inc.
24633 Mulholland Highway
Calabasas, California 91302
Attn: Bruce K. Muhlfeld
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other parties. All such notices and communications
shall, when mailed, telegraphed, telecopied, telexed or cabled, be effective
when deposited in the mails, delivered to the telegraph company, transmitted by
telecopier, confirmed by telex answerback or delivered to the cable company,
respectively.
SECTION 11. EXECUTION IN COUNTERPARTS. This Agreement may be
----------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 14. GOVERNING LAW. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of California.
Very truly yours,
PLUS NET, INC.
By: /s/ Bruce K.Muhlfeld
----------------------
Bruce K.Muhlfeld
President
Accepted and Agreed:
BABENET, LTD.
By: /s/ John J. Gallagher
------------------------
John J. Gallagher
President
<PAGE>
LICENSE AND DISTRIBUTION AGREEMENT
This License and Distribution Agreement ("Agreement) is made and entered into
this 30th day of March, 1999 ("Effective Date"), by and between NETOPIA, INC., a
Delaware corporation, with offices at 2470 Mariner Square Loop, Alameda, CA
94501 ("Netopia"), and Nettaxi Online Communities, Inc., a Delaware corporation,
with offices at 2165 S. Bascom Ave.,
Campbell, CA. 95008 ("Distributor").
The parties agree as follows;
1.LICENSE GRANT
----------------
Netopia grants to Distributor, and Distributor accepts from Netopia, a
royalty-bearing, nonexclusive license right:
(a) to use the site server software object code for Netopia's "Netopia
Virtual Office" product and the related template software development toolset
(the "Server Product") to host end users of the Product;
(b) to use, reproduce, manufacture, and display a Distributor-branded
version of the client software object code of Netopia's Netopia Virtual Office"
product and the related product documentation (the client object code and
related documentation being referred to herein as the "Product"); and
(c) to promote. distribute, license and otherwise market, host, maintain
and support the Product to and for end users only, under the terms of Netopia's
end user license agreement, in conjunction with the sale of Distributor's
internet-related products and services.
All rights not expressly granted are reserved by Netopia and its licensors.
Provided that Distributor shall have paid all amounts due for the annual
maintenance fee as provided in Section 2(d), Distributor's license shall extend
to all updates, revisions and new releases of the Server Product and the Product
made generally available by Netopia to its customers during the term of this
Agreement. Subject to the provisions of Section 3(a), such updates, revisions
and new releases shall be provided to Distributor with no increase in license
fee payments.
Distributor will offer a minimum of two Product services to Distributor's end
users, including the following:
Distributor's will offer without charge to end users a Product "Lite" service
that will consist of only the Product home
Page, contact page, and the picture upload functionality.
Distributor will offer to end users on a subscription cost basis a minimum of
one Product service that will consist of the
Product "Lite" service plus the added Product functionality included with the
Product site server.
2. PRICE AND PAYMENT
-----------------------
(a) Distributor agrees to pay a one time, non-refundable license fee
in the amount of $95,000 with respect to (i) the Server Product to be used by
Distributor to host end users of the Product, and (ii) the hosting by
Distributor of an unlimited number of active sites of the Product being used by
Distributor's end users. Distributor agrees to pay such license fee as follows:
(i) $35,000 within thirty (30) days after the Effective Date, (ii) $30,000
within sixty (60) days after the Effective Date, and (iii) the remaining
$30,000 within ninety (90) days after the Effective Date.
(b) Distributor further agrees to pay Netopia an on-going monthly
royalty as set forth below with respect to all end user customers subscribing
for Product services (excluding no charge subscribers to the Product "Lite"
service):
Aggregate Monthly Subscribers Royalty Due Netopia
- ------------------------------- ---------------------
0-5,000 $ 6.00
5,001-10,000 $ 5.00
10,001-20,000 $ 4.50
20,001-50,000 $ 3.75
50,001-100,000 $ 3.00
100.001+ $ 2.25
1
<PAGE>
(c) Notwithstanding the expiration or earlier termination of this
Agreement, Distributor agrees to pay Netopia the royalty set forth above for so
long as Distributor continues to host end user customers using the Product.
(d) Netopia agrees to pay Distributor a monthly promotional fee as set
forth below with respect to all end user customers subscribing for Product
services (excluding no charge subscribers to the Product "Lite" service):
Aggregate Monthly Subscribers Promotional Fee Due Distributor
- ------------------------------- ----------------------------------
0-5,000 $ 2.00
5,001-10,000 $ 1.75
10,001-20,000 $ 1.50
20,001-50,000 $ 1.25
50,001-100,000 $ 1.00
100,001+ $ 0.75
(e) Notwithstanding the expiration or earlier termination of this
Agreement, Netopia agrees to pay Distributor this promotional expense for so
long as Distributor continues to host end user customers using the Product.
(f) If at the end of the first year of this Agreement. if less than 10,000
of Distributor's end user customers are subscribing for the Product services
(excluding no charge subscribers to the Product "Lite" service), Distributor
agrees to pay Netopia an additional license fee according to the schedule set
forth below:
Aggregate Product Service Web Sites at End of First Year Additional License
- --------------------------------------------------------- ------------------
Fee for Year Two
- -------------------
0-2,500 $ 95,000
2,501-5,000 $ 75,000
5,001-7,500 $ 55,000
7,501-10,000 $ 40,000
10,000+ $ 0.00
(g) Distributor further agrees to pay Netopia an annual maintenance fee
in the amount of $15,000. The maintenance fee shall be payable within thirty
(30) after the Effective Date and thereafter on each anniversary of the
Effective Date Notwithstanding the expiration or earlier termination of this
Agreement, and provided that Netopia makes maintenance services generally
available to its customers, Netopia shall continue to provide Distributor all
updates, revisions and new releases of the Server Product and the Product for so
long as Distributor pays the maintenance fee.
(h) Within fifteen (15) days after the end of each calendar quarter,
Distributor will send to Netopia (i) a report setting forth the number of active
sites of the Product being hosted for Distributor's end users during the
previous calendar quarter; and (ii) a computation and payment of royalties.
Distributor may deduct from the royalty payment the amount otherwise payable by
Netopia pursuant to Section 2(d) with respect to the quarterly reporting period.
(i) Distributor agrees that it will maintain records regarding all sites of
the Product it has hosted. Distributor further agrees that it will permit
Netopia to have access, upon fifteen (15) days advance written notice, at a
mutually agreed time during Distributor's normal business hours, to audit
Distributor's records and books of account for the purpose of determining
whether the appropriate royalties have been paid. Such audits may not be
required more than once every twelve (12) months unless a prior audit has
revealed a discrepancy, and shall be conducted by a firm of certified public
accountants chosen by Netopia. If the accountants' report reveals a discrepancy,
within thirty (30) days Distributor will pay Netopia any amount determined to be
owing. Netopia will pay the cost of each audit, provided that if the audit
determines that Distributor has underpaid supplemental royalties owing to
Netopia then Distributor will pay Netopia the direct third party costs of the
audit.
(j) Except for taxes on Netopia's income, Distributor agrees to pay
any and all sale, use, value added, withholding, excise and similar taxes on
payments under this Agreement, as well as all insurance and shipping charges.
(k) Except as expressly agreed otherwise by the parties in writing, each
party will bear all of its own expenses arising from its performance of its
obligations and exercise of its rights under this Agreement, including without
limitation, the costs of occupancy, facilities, hosting hardware, work space,
utilities, payroll, management, clerical, reproduction services, supplies,
overhead, marketing and like expenses.
2
<PAGE>
3. UPGRADES, DELIVERY AND WARRANTY
--------------------------------------
(a) Promptly after execution of this Agreement, Netopia shall deliver to
Distributor an electronic master copy of the Server Product and the Product.
Thereafter, provided that Distributor shall have paid the annual maintenance
fee, Netopia shall deliver to Distributor without additional charge any and all
updates, revisions and new releases of the Server Product and the Product at
such time that Netopia makes such new releases available generally to its
customers.
(b) Netopia warrants that for ninety (90) days following delivery, unless
modified by Distributor, the Server Product and the Product will perform
substantially the functions described in the related documentation provided by
Netopia. Netopia does not warrant that the Server Product and the Product will
meet Distributor's or any end user customers' specific requirements or that its
operation will be uninterrupted or error-free. Netopia expressly is not
responsible for any problems, including any problem which otherwise would be a
breach of warranty, caused by (i) changes in computer hardware or computer
operating systems; (ii) accident, abuse, or misapplication.
(c) Netopia's entire liability and Distributor's sole remedy under the
foregoing warranty during the ninety (90) day warranty period is that Netopia,
at its sole and exclusive option, shall either use commercially reasonable
efforts to correct any reported material deviation, replace the Server Product
and the Product with a functionally comparable program, or refund all license
fees paid, in which case this Agreement and the license granted hereunder shall
terminate immediately, and Netopia shall have no further obligations to
Distributor.
4. INDEMNIFICATION FOR INFRINGEMENT
--------------------------------------
(a) Netopia represents and warrants that: (i) the Server Product and
the Product do not infringe any patent or copyright or violate the trade secret
or other proprietary rights of any third party; (ii) Netopia or Netopia's
licensors own all patents, copyrights, trade secrets and other proprietary
rights in and to the Server Product and the Product; and (iii) Netopia possesses
the legal right and authority to execute and perform this Agreement.
(b) Netopia agrees to indemnify, hold harmless, and defend ( from and
against any and all damages, costs, and expenses. including reasonable
attorneys' fees and costs, incurred in connection with a claim of a third party
which, if true, would constitute a breach of the foregoing warranties
(hereinafter "Infringement Claims"), provided Distributor notifies Netopia
promptly in writing of the existence of an Infringement Claim and grants Netopia
sole control over its defense or settlement, and Distributor provides reasonable
assistance in the defense of the same.
(c) Following notice of an Infringement Claim, Netopia shall use
commercially reasonable efforts to procure for Distributor the right to continue
to market, use and have others use, the allegedly infringing Server Product or
Product or may replace or modify the Server Product and the Product with a
functionally comparable product to make it non-infringing. In the event that
Netopia does not or cannot comply with this Section 4(c), Netopia shall refund
to Distributor all license fees paid, in which case this Agreement and the
license granted hereunder shall terminate immediately, and Netopia shall have no
further obligations to Distributor.
(d) Netopia shall have no liability for any Infringement Claim based on
Distributor's (i) use of the Server Product, and hosting or distribution of the
Product after Netopia's notice that Distributor should cease use, hosting or
distribution due to an Infringement Claim, or (ii) combination of the Server
Product or the Product with a non-Netopia program or data, if such Infringement
Claim would have been avoided by the exclusive use of the Server Product or the
Product.
(e) The provisions of this Section 4 state Netopia's entire liability to
Distributor with regard to Infringement Claims.
5. LICENSE RESTRICTIONS AND OBLIGATIONS
-------------------------------------------
(a) Distributor shall market, distribute and host use of the Product
only to and by end user customers in conjunction with the sale of Distributor's
internet-related products and services.
(b) Distributor shall not reverse engineer, decompile or disassemble the
Server Product and the Product.
(c) Distributor shall market, distribute, and host use of the Product to
and by and users only pursuant to Netopia's or Distributor's standard end user
license agreement, which may be a "click wrap" license agreement. In no event
will Distributor remove or disable any electronic acknowledgment or agreement
embedded in the Product. The limitations of liability and remedies in
Distributor's end user license agreement shall inure to the benefit of Netopia.
Distributor shall be the "Licensor" under its end user license agreement.
3
<PAGE>
6. COPYRIGHT NOTICES; TRADEMARK & PRODUCT NAME
------------------------------------------------
(a) Distributor will cause to appear on the container and labels of
each CDrom or other storage medium containing the Product, the copyright notices
that appear on the applicable release of the Product as provided to Distributor.
Distributor shall cause to appear on the title page of the documentation, and at
any other location where any copyright notice appears, the Netopia and third
party copyright or other proprietary rights notices that appear in the release
of documentation as provided to Distributor.
(b) Distributor shall market the Product under a name of Distributor's
choosing, provided, however, that Distributor agrees to use the appropriate
trademark symbol (either (R) or "tm" in a superscript) and clearly indicate
Netopia's ownership of the Product and its trademark(s) whenever the Product
name is first mentioned in any advertisement, brochure or in any other manner in
connection with the Product. In addition, Distributor shall indicate Netopia's
ownership of the Product on the screen display in such format as Netopia shall
designate. Distributor shall not at any time use any name or trademark
confusingly similar to a Netopia trademark, trade name and/or product name and
agrees that its use of such Netopia trademarks. trade names and/or product names
shall not directly or indirectly create in Distributor any right, title or
interest therein. Distributor shall not use or display any Netopia logo in its
materials or packagingwithout Netopia's prior written permission. Distributor
shall not use or imitate the trade dress of Netopia's products. Distributor
shall undertake no action that will interfere with or diminish Netopia's right,
title and/or interest in Netopia's trademark(s), trade name(s) or Product
name(s). Upon Netopia's request, Distributor also shall provide Netopia with
samples of all Distributor literature which uses Product name(s)
(c) Distributor agrees that during the term of this Agreement, it will
not market the Product using the words room". "planet", "dwp", "nvo", "mynvo",
"web center". "small business web center", "business web now". or "nextweb" as a
descriptor for the Product.
7. TERM OF AGREEMENT
-----------------------
The initial term of this Agreement shall run from the Effective Date for a
period of two (2) years. Thereafter, this Agreement shall renew automatically
for successive renewal terms of one (1) year unless either party gives notice of
termination no later than sixty (60) days before the end of the initial term
or any renewal term.
8. DEFAULT AND OBLIGATIONS UPON TERMINATION
------------------------------------------------
(a) This Agreement will terminate if either party materially breaches
this Agreement or any provision hereof, and the breach has not been cured within
thirty (30) days after notice to the breaching party. The rights and remedies of
the parties provided herein shall not be exclusive and are in addition to any
other rights and remedies provided by law or this Agreement.
(b) Within ten (10) days after termination or expiration of this Agreement,
Distributor shall cease distribution of the Product in any manner. Distributor
may retain and continue to use the Server Product to host end users that began
using the Product prior to the effective date of termination.
(c) Termination of this Agreement as a result of Distributor's default
shall result in acceleration of Distributor's obligation to pay to Netopia all
maintenance and supplemental license fees owed as of the effective date of
termination, including royalties for orders pending on the effective date of
termination,
(d) End user licenses properly granted pursuant to this Agreement and
prior to termination of this Agreement shall not be diminished or abridged by
termination. In addition, notwithstanding anything to the contrary contained
herein, Distributor may fill orders pending on the effective date of
termination, provided that such orders were placed and accepted prior to notice
of termination. As provided in and subject to the provisions of Section 2(c),
Distributor agrees to continue to pay monthly royalties to Netopia with respect
to such end users for so long as Distributor continues to host end user
customers using the Product.
(e) As provided in and subject to the provisions of Section 2(d), after the
expiration or earlier termination of this Agreement, Netopia shall continue to
provide Distributor all updates, revisions and new releases of the Server
Product and the Product for so long as Distributor pays the maintenance fee to
Netopia.
(f) All provisions of this Agreement that remain to be performed or by
their nature would be intended to continue to be applicable shall survive
termination or expiration of this Agreement.
9. LIMITATION OF LIABILITY AND REMEDY;DISCLAIMER OF WARRANTIES
---------------------------------------------------------------------
(A) LIMITATION OF LIABILITY
--------------------------------------------------------------
EXCEPT AS SET FORTH IN SECTION 4 NOTWITHSTANDING ANYTHING TO THE CONTRARY
HEREIN, NEITHER PARTY NOR ITS AGENTS, REPRESENTATIVES OR EMPLOYEES SHALL BE
LIABLE TO THE OTHER PARTY PURSUANT TO THIS AGREEMENT FOR AMOUNTS REPRESENTING
LOSS OF REVENUES, LOSS OF PROFITS, LOSS OF BUSINESS OR INDIRECT, CONSEQUENTIAL,
SPECIAL OR PUNITIVE DAMAGES OF THE OTHER PARTY, EVEN IF THE OTHER PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. REGARDLESS OF WHETHER ANY
REMEDY PROVIDED IN THIS AGREEMENT FAILS OF ITS ESSENTIAL PURPOSE, EXCEPT AS SET
FORTH IN SECTION 4 IN NO EVENT WILL NETOPIA'S LIABILITY UNDER THIS AGREEMENT
EXCEED THE AGGREGATE AMOUNT OF PAYMENTS ACTUALLY PAID BY DISTRIBUTOR TO NETOPIA
REGARDLESS OF WHETHER A CLAIM IS BROUGHT IN TORT, CONTRACT OR OTHERWISE.
(B) DISCLAIMER OF WARRANTIES.EXCEPT AS EXPRESSLY PROVIDED HEREIN,
---------------------------
NETOPIA HEREBY SPECIFICALLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WITH
REGARD TO THE NETOPIA PRODUCT, INCLUDING ANY IMPLIED WARRANTIES OF
NONINFRINGEMENT MERCHANTABILITY OR FITNESS OF THE NETOPIA PRODUCT FOR A
PARTICULAR PURPOSE OR USE.
10. NOTICES
------------
All notices, authorizations and requests in connection with the Agreement shall
be deemed given on the day they are: (i) deposited on the United States mails,
postage prepaid, certified or registered, return receipt requested. (ii)sent by
----
air express courier, charges prepaid, and addressed to the addresses set forth
below. or (iii) sent by facsimile transmission, with confirmation of receipt.
Either party may change its address for notices by written notice to the other
party.
Distributor: ____________________
____________________
____________________
Attention: ____________________
Telephone: ____________________
FAX: ____________________
Netopia: Netopia Inc.
2470 Mariner Square Loop
Alameda, CA 94501
Attention: Tom Spadafore
Telephone: (510) 814-5123
FAX: (510) 814-5021
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11. GOVERNING LAW; ARBITRATION; ATTORNEYS' FEES
----------------------------------------------------
(a) The rights and obligations under this Agreement shall be governed
by the laws of the State of California excluding its conflicts of law rules and
United States law and international treaties governing copyrights. The
applications to this Agreement of the United Nations Convention on Contracts for
the International Sale of Goods is hereby expressly excluded.
(b) Any dispute arising out of or relating to this Agreement shall be
referred for resolution by binding arbitration under the Commercial Arbitration
Rules of the American Arbitration Association. Any arbitration shall be
conducted by one arbitrator appointed pursuant to such rules, and shall be held
in San Francisco, California. The arbitrator shall be authorized to award
reasonably attorneys' fees and costs to the prevailing party in any arbitration.
The award of any arbitration shall be final and binding, and enforceable in any
court having jurisdiction over the party against which an award is sought to be
enforced.
12. SUPPORT
- ------------
(a) Distributor will be responsible for all activities associated with
customer account sign-up and billing and related database records, and template
development and deployment. At Distributor's request and subject to Netopia's
standard terms for consulting set-vices, Netopia will make available consulting
services to assist Distributor in the effective consummation of these
activities, including technical support to assist Distributor in be the Server
Product and hosting the Product, developing templates and implementing the
registration process.
(b) Distributor will be responsible for providing and maintaining all
technical equipment and be (including but not limited to server and storage
hardware, network connectivity and access to the internet via high speed access)
required to host users of the Product, for operations support, direct customer
support, and all billing and collection activities.
(c) Distributor exclusively shall be responsible for providing support
services relating to use of the Product directly to its end user customers.
Netopia will provide Distributor with backline support via e-mail to the same
extent that it provides such support to be other OEM customers.
(d) Distributor agrees to cooperate fully with Netopia with respect to any
warranty problems or bugs that may be discovered in the Product by Distributor
or its customers. Netopia will use reasonable commercial efforts to correct in
the next release of the Product any significant bugs identified by Distributor
or its customers.
(e) Each party will designate a competent technical contact who will serve
as the primary person responsible for resolution of and be contacted to resolve
technical and support issues arising under this Agreement.
13. GENERAL
- ------------
(a) This Agreement may not be assigned or sublicensed in whole or in
part by either party without the prior written consent of the other party, which
be shall not be withheld unreasonably, provided, however, that either party may
assign its rights and obligations hereunder without the other party's prior
written consent to a successor entity in connection with a merger or sale of
substantially all assets (a "Merger") provided that the successor agrees in
writing to perform all obligations of the assigning party. Notwithstanding the
foregoing, in the event of a Merger with an entity that is a direct competitor
of the other party, such party may terminate this Agreement effective on the
date the Merger is consummated upon prior written notice to the other party.
(b) If Distributor distributes, hosts or licenses the Product to or on
behalf of the United States of America, its agencies and/or instrumentalities
(the "Government"), the Product is provided to Distributor be Restricted Rights,
as defined in Title 27 of the Code of Federal Regulations. Distributor shall
comply with any requirements of the Government to obtain such Restricted Rights
protection, including without limitation, the placement of any restrictive
legends on the Product, related documentation, and any license agreement used in
connection with the Product.
(c) Distributor agrees that neither it nor its customers intends to or
will, directly or indirectly, export, host or transmit (i) any copies of the
Product or related documentation and technical data, or (ii) any product (or any
part thereof), process, or service that is the direct product of the Product
without the prior written consent, if required, of the Bureau of Export
Administration of the United States Department of Commerce, or such other
governmental entity as my have jurisdiction over such export or transmission.
Distributor warrants and represents that the Product is importable into any
country in or into which Distributor ships, hosts or otherwise makes available
copies of the Product.
(d) This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and merges all prior and
contemporaneous communications. It shall not be modified except by a written
agreement dated subsequent to the Effective Date and signed on behalf of
Distributor and Netopia by their respective duly authorized representatives.
This Agreement shall control any provisions in purchase orders which are
inconsistent with this Agreement.
(e) Distributor agrees that the terms of this Agreement are confidential
and agrees not to disclose such terms to any third party other than its
attorneys and independent accountants. and as otherwise may be required by law
or regulation, without Netopia's prior written approval.
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(f) If any provision of this Agreement shall be held to be illegal, invalid
or unenforceable, the remaining provisions shall remain in full force and
effect, and the provision shall be deemed amended to substitute a valid
provision so as to implement the intent of the parties.
(g) No waiver of any breach of any provision of this Agreement shall
constitute a waiver of any prior, concurrent or subsequent breach of the same or
any other provisions hereof, and no waiver shall be effective unless made in
writing and signed by an authorized representative of the waiving party.
(h) The section headings are intended for convenience only and shall not be
deemed to supersede or modify any provisions.
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement as of the Effective Date. All signed
copies of this Agreement shall be deemed originals.
NETOPIA, INC. NEXTTAXI ONLINE COMMUNITIES, INC.
By:____________ By:____________
Printed Name:__Alan Lefkof_____ Printed Name:__Dave Schlenz___
Title:____CEO______ Title:_MGR BUS. DEVELOPMENT____
<PAGE>
WEBSITE LINKING AND PROMOTION AGREEMENT
Dated as of ("Effective Date") Agreement No. DEN-980416-5204
-----
NETTAXI, INC. PI GRAPHIX, INC.
("PI GRAPHIX")
Address: Address: 517 Boccaccio Avenue
Venice, CA 90291
Contact: Dean Rositano Contact: Lawrence Weisdorn
Phone: 480.879.9880 Ext. 102 Phone: 310.301.6733
Fax: Fax: 310.301.6730
Email Address: [email protected] E-Mail Address:lawrencewpigraphix.com
This Agreement may refer to PI Graphix or to NetTaxi as a "Party" or PI Graphix
and NetTaxi together as "Parties" to this Agreement.
1. PURPOSE. NetTaxi provides an entertainment, education, and information
service as a part of its NetTaxi Systems ("NETTAXI SERVICE") on numerous sites
("NETTAXI SITES") on the World Wide Web ("WWW") part of the Internet. PI
Graphix provides electronic commerce systems and related information services on
the WWW ("PI GRAPHIX SITE(S)"). NetTaxi and PI Graphix desire to provide links
to the other's sites (collectively, "SITES") and engage in other activities on
the terms and conditions set forth in this Agreement.
2. RESPONSIBILITIES OF THE PARTIES.
2.1 Linking.
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(a) PI Graphix shall:
------------------
(i) Manage, maintain, handle all electronic commerce transaction,
and provide all customer services relating to PI Graphix's sites;
(ii) Establish and maintain prominent hypertext links ("SITE
LINKS") from the PI Graphix Sites to the NetTaxi Sites maintained by PI Graphix
as mutually agreed to by the Parties;
(iii) Provide a logo and hypertext mark-up language ("HTML") that
together shall be displayed in the PI Graphix area of the NetTaxi Site ("PI
GRAPHIX BUTTON");
(iv) Use reasonable commercial efforts to provide NetTaxi monthly
sales, usage and demographic data available regarding use of the Sites in
relevant categories; and,
(v) Work with NetTaxi, on an ongoing basis, to identify areas
within the PI Graphix sites where it would be appropriate to provide Site links
to the NetTaxi Sites based on users seeking local information of a type included
in the NetTaxi Sites.
(b) NetTaxi shall:
--------------
(i) In cooperation with PI Graphix, produce Co-branded versions of
the NetTaxi Sites' to be maintained on the NetTaxi servers for users to have
access to the PI Graphix Site. Such Co-branded Pages shall include a graphic
provided by PI Graphix to be displayed in the size agreed to by the Parties and
will be similar in all respects to the primary NetTaxi home pages with the
exception of the addition of the prominently placed PI Graphix logo. The
information accessed through the Co-branded Pages will include but not be
limited to: the PI Graphix 3Dshopping.com areas and related information and
sites. The Co-branded Pages shall provide a Site link back to the PI Graphix
site of origin. A "Back Button" shall be used to accomplish the Site links
back. Such Back Buttons shall be
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comprised of a graphic provided by PI Graphix and shall be displayed in the size
specified by PI Graphix and agreed upon by NetTaxi;
(ii) Establish and maintain prominent Site links from its NetTaxi
Sites to PI Graphix Site including but not limited to: the PI Graphix area in
the format of the PI Graphix Button and as mutually agreed to by the Parties;
(iii) Work with PI Graphix, on an ongoing basis, to identify areas
within the NetTaxi Site where it would be appropriate to provide Site links to
the PI Graphix Sites based on users seeking information of a type included in
the PI Graphix's Sites; and
(iv) Use reasonable commercial efforts to provide PI Graphix
monthly usage and demographic data available regarding use of the PI Graphix
Sites in relevant categories.
2.2 Licenses. Each Party grants to the other Party during the term of this
--------
Agreement a non-exclusive, royalty-free, world-wide right and license to use its
trade names, trademarks, service names and service marks ("MARKS") in compliance
with any guidelines which may be provided from time to time. Such use shall be
solely in connection with the NetTaxi Site and PI Graphix Sites, including, but
not limited to, use for promotion and demonstration purposes. Each Party agrees
to maintain a standard of quality for any services offered under the other
Party's Marks commensurate with standards previously achieved and maintained by
the other Party or as may be set by the other Party from time to time. Each
Party has the right to inspect the services offered by the other Party under the
inspecting Party's Marks and may terminate this trademark license grant as set
forth in Section 4 of this agreement. The Parties agree to cooperate with the
other in facilitating the monitoring and control of the other's Marks. Nothing
in this Agreement shall be deemed to grant to the other Party any ownership
interest in the Marks.
2.3 Promotional Efforts.
--------------------
2.3.1 The Parties agree to work together in identifying and pursuing
promotional activities designed to enhance the value of their respective Sites.
These efforts may include the development of a joint co-marketing program that
will allow each Party to access the other's customers/clients, participation in
public relations activities, use of each other's Marks on specific targeted
creative advertising executions, press releases, agreed upon advertising
placement within each other's Sites, and other promotions that benefit both
Parties. NetTaxi will be responsible for the placement and promotion of
banners, editorials, hyperlinks, etc., within NetTaxi's local commerce
community. PI Graphix will provide NetTaxi with the graphics for the Banners
and hyperlinks and with raw data and research material.
2.3.2 Each Party will submit to the other Party, for its prior written
approval, which shall not be unreasonably withheld or delayed, any marketing,
advertising, press releases, and all other promotional materials related to the
NetTaxi Sites or the PI Graphix Sites that reference the other Party and/or its
Marks (the "MATERIALS"). Each Party shall solicit and reasonably consider the
views of the other Party in designing and implementing such Materials. Once
approved, the Materials (other than press releases) may be used by a Party for
the purpose of promoting the NetTaxi Sites or the PI Graphix Sites contained
therein and reused for such purpose until such approval is withdrawn with
reasonable prior notice. In the event such approval is withdrawn (which either
Party may do at its sole discretion), existing inventories of Material may be
depleted. Notwithstanding the foregoing, either Party may issue press releases
and other disclosures as required by law or as reasonably advised by legal
counsel without the consent of the other Party and, in such event, prompt notice
thereof shall be provided to the other Party.
2.4 General.
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2.4.1 Each Party shall be solely responsible for supplying and managing its
Site(s) at its own expense and neither Party shall have any obligations
whatsoever with respect to the Site(s) of the other. Each Party shall manage,
review, delete, edit, create, update and otherwise manage all content and
services available on or
2
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through its respective Site(s). Neither Party has any obligation to the other
Party to pre-screen content posted by users of its Site(s).
2.4.2 Neither Party shall be required to provide any personal information
regarding specific users, including, without limitation, their names and
addresses or any other information the provision of which could violate any
privacy or other rights of users or third-parties. Neither Party will be
required to include in any reports any information the provision of which to the
other would cause such Party to violate any law, rule or regulation or any
contractual or legal obligation of such Party to any other person.
2.4.3 Each Party shall: (1) provide the other with specified graphic files
and Site link addresses and notify the other in advance of any changes in its
URL(s) and, (ii) if developed and maintained by a Party, provide a Site link
from such Party's appropriate business alliance index (or similar link listing
index) to the other Party's Site(s).
2.4.4 Each Party shall promptly inform the other of (i) any information
related to its Site(s) that could reasonably lead to a claim, demand, or
liability of or against the other Party by any third-party; and (ii) any changes
in its Sites which would substantially change the content in any area to which
the other Party has linked.
2.4.5 Each Party retains the right, in its sole discretion, to immediately
cease linking to the other Party's Site if in such Party's opinion, the other
Party's Site(s) infringes on or violates any applicable law or regulation; any
proprietary right of any third-party; or is defamatory, obscene, offensive or
controversial. Notwithstanding any exercise of, or failure to exercise, such
right, each Party shall have the sole and exclusive responsibility for its
respective Site(s).
2.4.6 Neither Party will place advertising on the Co-branded Pages for
entities which are direct competitors of the other (such as other high-speed
Internet service providers, cable service providers or providers of locally
focused online entertainment, education and information services which are not
owned or controlled by the Party) or advertising for weapons, tobacco products,
distilled spirits, or services related to sexual themes or content.
2.4.7 PI Graphix shall retain all right, title, and interest in and to the
PI Graphix Sites. NetTaxi shall retain all right, title, and interest in and to
the NetTaxi Site. Unless otherwise agreed to in writing, if content is jointly
created by the Parties, the intellectual property rights to such content shall
be jointly owned by the Parties. Neither Party shall license to any third-party
such jointly owned content without the other's written approval.
2.5 Caching. PI Graphix hereby grants to NetTaxi during the term of
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this Agreement a nonexclusive, royalty-free, worldwide license to reproduce,
distribute, perform and display, in whole or in part, the content on the PI
Graphix Site on, from, and in connection with, any NetTaxi Sites and for
promotion and demonstration purposes provided however, that a party licensing
jointly owned content after the termination of this Agreement shall not be
required to account for, or share any royalties, license fees or other
compensation received from the license of jointly owned content.
3 FEES/PAYMENT.
3.1 The parties agree to make payments as set forth in the Fee/Payments
Schedule attached hereto.
3.2 Other than for payments of fixed amounts, payment of all amounts due
under this Agreement shall be made by the responsible Party within thirty (30)
days of the end of each quarter representing payments for the preceding calendar
quarter when such payments accumulate to or exceed one hundred dollars ($100.00)
or within thirty (30) days of from the expiration or termination of the
Agreement. Reports containing sufficient information for the calculation of
such amounts will be provided to the Party receiving payment. In the event
there is a dispute regarding the amount due, upon reasonable request, a Party
will provide copies of all records or other documentation relevant to the
calculation of such amounts. The Parties agree to maintain records supporting
3
<PAGE>
fees payable by either Party for a period three (3) years following the date
that the payment was made. The relevant portion of such records and accounts
shall be available for inspection and audit by an auditing Party or its
representative (but not more than once in twelve (12) month period during
regular business hours and upon reasonable advance written notice.
3.3 Each Party agrees to pay directly taxes it incurs under the law.
4 TERM/TERMINATION.
4.1 The initial term of this Agreement shall begin on the Effective Date and
shall continue for a period of period of one (1) year from the date the
Co-branded Pages and the Back Button are operational ("INITIAL TERM"). This
Agreement shall be automatically extended for successive one (1) year periods
(each a "RENEWAL TERM") unless the Agreement has been terminated in accordance
with this Section 4.
4.2 Either Party may terminate this Agreement at any time in the event of a
material breach by any of the other Parties which remains uncured after fifteen
(15) days' written notice thereof. Either Party may terminate this Agreement
for any reason, in whole or in part, without liability to the other Party upon
sixty (60) days written notice to the other Party.
4.3 Notwithstanding anything to the contrary herein, upon written notice,
either Party may immediately terminate this Agreement, in whole or in part,
without liability to the other Party if such Party cancels their Site(s) or any
component thereof necessary to offer the Site links as contemplated hereby.
5 CONFIDENTIALITY.
5.1 Each Party acknowledges and agrees that any and all information relating
to the other Party's business and not publicly known, including without
limitation, the contents of this Agreement, technical processes and formulas,
source codes, names, addresses and information about users and advertisers,
product designs, sales, costs and other unpublished financial information,
product plans, and marketing data is confidential and proprietary information.
Each Party agrees that it shall take reasonable steps, at least substantially
equivalent to the steps as it takes to protect its own proprietary information,
during the term of this Agreement, and for a period of one (1) year following
expiration or termination of this Agreement, to prevent the duplication or
disclosure of any such confidential or proprietary information, other than by or
to its employees or agents who must have access to such information to perform
such Party's obligations hereunder, who shall each treat such information as
provided herein, and as may be required by either of the Parties for public or
private financing. To the extent that such information is publicly known,
already known by, or previously in the possession of the non-disclosing Party;
is independently developed by the non-disclosing Party; is thereafter rightly
obtained by the non-disclosing Party from a source other than the disclosing
Party; or is required to be disclosed by law, regulation, or court order; then
there shall be no restriction of the use of such information.
5.2 Upon the termination or expiration of this Agreement, (i) each Party
shall promptly return or certify as to the destruction of all confidential and
proprietary information and other information, documents, manuals, equipment and
other materials belonging to the other Party; (ii) each Party shall immediately
cease using all materials of the other Party in any form, and (iii) all licenses
granted herein shall terminate. In the event of a partial termination, all
terms and conditions of this Agreement shall remain in full force and effect
with respect to rights and obligations not affected by the partial termination.
6 REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION.
6.1 Representations and Warranties. Each Party represents and warrants
------------------------------
to the other that (i) its Site(s) are or will be functional Internet site(s)
accessible to subscribers and users of the Internet; (ii) the Sites do not and
will not knowingly contain any content, materials, advertising or services that
infringe on or violate any applicable law or regulation, any proprietary right
of any third-party (including copyright, trademark, patent, and trade secret),
or which is defamatory; (iii) it has the right and authority to enter into and
perform all obligations under this Agreement; (iv) it shall comply with all
applicable laws, statutes, ordinances, rules and regulations with respect
4
<PAGE>
to its Site(s); (v) its site and electronic commerce apparatus are "year 2000"
compliant and can process dates including year 2000 and beyond and will not
crash, slow down or fail to operate as the normal course as a result of its
inability to properly process date information. In the event of an error,
delay, defect, breakdown or failure of its Site, the Party's obligation shall be
limited to the use of reasonable diligence under the circumstances to restore
its Site(s) to operation.
6.2 Indemnity. Each Party will defend, indemnify, save and hold
---------
harmless the other Party's Affiliates, and their officers, directors, agents,
and employees from any and all third-party claims, demands, liabilities, costs
or expenses, including reasonable attorney's fees ("LIABILITIES"), resulting
from the indemnifying Party's breach of any material duty, representation, or
warranty contained in this Agreement, except there shall be no obligation to
indemnify, defend, save and hold harmless where Liabilities result from the
gross negligence or knowing and willful misconduct of the other Party. Each
Party agrees to (i) promptly notify the other Party in writing of an
indemnifiable claim and (ii) give the other Party the opportunity to defend or
negotiate a settlement of any such claim at such other Party's expense and
cooperate fully with the other Party, at that other Party's expense, in
defending or settling such claim. Each Party reserves the right, at its own
expense, to participate in the defense of any matter otherwise subject to
indemnification by the other Party.
6.3 PI Graphix further represents and warrants that the Electronic Commerce
Transactions by it or its assignees and transaction processing apparatus shall
be secure and no third parties or unauthorized PI Graphix employees shall have
access to, or obtain credit card numbers, bank information, account numbers or
other financial information from Nettaxi members engaging in electronic
transactions through PI Graphix Sites or Electronic Commerce apparatus.
7 LIMITATION OF LIABILITY AND DISCLAIMER.
7.1 LIABILITY. EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS SPECIFICALLY
---------
SET FORTH IN SECTIONS 5 AND 6.2 OF THIS AGREEMENT OR DAMAGES FOR PERSONAL INJURY
OR PROPERTY DAMAGE, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR (1)
DIRECT DAMAGES IN EXCESS OF FIVE THOUSAND DOLLARS ($5,000.00); OR (2) ANY
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR EXEMPLARY DAMAGES (EVEN IF THAT
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) ARISING FROM THIS
AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS
OR LOST BUSINESS, EXCEPT THAT EITHER PARTY SHALL BE ENTITLED TO RECEIVE
CONSEQUENTIAL DAMAGES FOR A BREACH OF SECTION 5 (CONFIDENTIALITY) OR BREACH OF
ANY LICENSES GRANTED UNDER THIS AGREEMENT IN AN AMOUNT NOT TO EXCEED FIVE
THOUSAND DOLLARS ($5,000.00).
7.2 NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
--------------------------
AGREEMENT, NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS,
ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING ANY MATTER
SUBJECT TO THIS AGREEMENT, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR IMPLIED WARRANTIES ARISING FROM COURSE OF
DEALING OR COURSE OF PERFORMANCE.
8 GENERAL PROVISIONS.
8.1 Amendment. No change, amendment or modification of any provisions
---------
of this Agreement shall be valid unless set forth in a written instrument signed
by all Parties. This Agreement sets forth the entire agreement and supersedes
any and all prior agreements, written or oral, of the Parties with respect to
the transactions set forth herein.
8.2 Assignment. Neither this Agreement, nor any rights hereunder in
----------
whole or in part, shall be assignable or otherwise transferable by either Party
without the express written consent of the other; provided that NetTaxi may
assign this Agreement: (i) to any successor in interest to all or substantially
all of its Service, (ii) to any parent, subsidiary, or Affiliate of NetTaxi,
and/or (iii) to any joint venture with Time Warner for the provision
5
<PAGE>
of broadband information services, if such assignee agrees in writing to be
bound by the terms and conditions of this Agreement. For purposes of this
Agreement, the term "AFFILIATE" means any entity wholly owned by NetTaxi or
which, directly or indirectly through one or more intermediaries, controls, or
is controlled by, or is under common control with, NetTaxi. For purposes of
this paragraph, "control" means (i) in the case of corporate entities, direct or
indirect ownership of more than twenty (20%) of the stock or shares entitled to
vote for the election of the board of directors or other governing body of the
entity; or (ii) in the case of non-corporate entities, direct or indirect
ownership of more than twenty (20%) of the equity interest.
8.3 Compliance with Laws. This Agreement and the Parties' actions under
--------------------
this Agreement shall comply with all applicable federal, state, and local laws,
rules, regulations, court orders, and governmental or regulatory agency orders.
8.4 Construction. In the event that any provision of this Agreement
------------
conflicts with the law under which this Agreement is to be construed, or if any
such provision is held invalid by a court with jurisdiction over the Parties to
this Agreement, such provision shall be deemed to be restated to reflect as
nearly as possible the original intentions of the Parties in accordance with
applicable law, and the remainder of this Agreement shall remain in full force
and effect.
8.5 Dispute Resolution. Any claim, controversy, or dispute between the
-------------------
Parties, their Affiliates, their approved assignees, agents, employees,
officers, or directors ("DISPUTE") shall be resolved by arbitration conducted by
a single arbitrator engaged in the practice of law and familiar with the subject
matter of the Dispute, under the then current rules of the American Arbitration
Association ("AAA"). The arbitrator shall have authority to award injunctive
relief and/or compensatory damages only, as allowed herein. The arbitrator's
award shall be final and binding and may be entered in any court having
jurisdiction thereof. The prevailing Party, as determined by the arbitrator,
shall be entitled to an award of reasonable attorneys' fees and costs. The
arbitration shall occur in the City and State of the Party against whom the
arbitration is brought, and the laws of the State of California shall govern the
construction and interpretation of the Agreement. It is expressly agreed that
the arbitrator shall be authorized to issue injunctive relief pending a final
arbitration decision and either Party may seek a temporary restraining order
from an appropriate court of law for a period of time needed for the designation
of an arbitrator and the arbitrator's assuming responsibility for the Dispute
including whether to issue injunctive relief pending a final arbitration
decision.
8.6 Independent Contractors. The Parties to this Agreement are
------------------------
independent contractors. No Party is an agent, representative, or partner of
the other Party. No party shall have any right, power or authority to enter
into any agreement for, or on behalf of, or incur any obligation or liability
of, or to otherwise bind, the other Party. This Agreement shall not be
interpreted or construed to create an association, agency, joint venture or
partnership between the Parties or to impose any liability attributable to such
a relationship upon either Party.
8.7 No Waiver. The failure of either Party to insist upon or enforce
----------
strict performance by the other Party, of any provision of this Agreement, or to
exercise any right under this Agreement, shall not be construed as a waiver or
relinquishment of such Party's right to enforce any such provision or right in
any other instance.
8.8 Notice. Any notice, approval, request, authorization, direction or
------
other communication under this Agreement shall be given in writing and shall be
deemed to have been delivered and given for all purposes (i) on the delivery
date if delivered by electronic mail; (ii) on the delivery date if delivered
personally to the Party to whom the same is directed; (iii) one (1) business day
after deposit with a commercial overnight carrier with written verification of
receipt; or (iv) five (5) business days after the mailing date whether or not
actually received, if sent by U. S. mail, return receipt requested, postage and
charges prepaid, or any other means of rapid mail delivery for which a receipt
is available to the Contact at the address of the Party to whom the same is
directed.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
NETTAXI PI GRAPHIX
Signatory: Signatory:
Title: Title:
Date: Date:
CONFIDENTIAL AND PROPRIETARY
The contents of this document are confidential and proprietary and may not be
disclosed to any person who does not have a need to know.
7
<PAGE>
FEE/PAYMENT SCHEDULE
--------------------
NetTaxi and PI Graphix agree to equally split the gross sales commission
received from third parties for sales of products and services from the
Co-branded pages. PI Graphix will pay NetTaxi its portion of the Commission on
a monthly basis. NetTaxi shall have administrative access into PI Graphix's
financial transaction web server for confirmation of sales reporting.
CONFIDENTIAL AND PROPRIETARY
The contents of this document are confidential and proprietary and may not be
disclosed to any person who does not have a need to know.
8
<PAGE>
DEVELOPMENT AGREEMENT
(NETTAXI)
This Development Agreement (the "Agreement') is dated as of December 16, 1998
between the Big Not-work Inc., a Delaware corporation, with its principal place
of business located at 2680 Bancroft Way, Berkeley, CA 94704 (the "Company") and
NetTaxi On-Line Communities, a Delaware corporation, with its principal place of
business located at 2165 S. Bascom Ave., Campbell, CA. 95008 ("Net:Taxi"),
Pursuant to this Agreement, the Company and NetTaxi will develop, publish,
display and promote Internet-based games for users of NetTaxi's Internet
aggregation service. The Company and NetTaxi will share the revenue resulting
from the business relationship, as described herein.
Accordingly, in exchange for the mutual promises contained herein, the parties
hereby agree as follows;
1. BACKGROUND.
1.1 The Company. The Company offers Internet-based games from its
Internet site located at http://www,bignetwork.com.
1.2 NetTaxi. NetTaxi operates a website community and aggregation site
on the World Wide Web located at http://www.nettaxi.corn.
2. DEFINITIONS.
"Advertisements" means all banner advertisements, portals, links, buttons and
other promotions for third parties displayed on the Game Pages.
"Company Marks" means any trademarks, trade names, service marks and logos that
may be delivered by the Company to NetTaxi expressly for inclusion in promotions
for the Games,
"Company Service" means any product or service sold or otherwise distributed by
the Company (but not third parties) on or through the Game Pages or the Company
Site,
"Company Site" means the Internet site currently located at
http;//www.bignetwork.com, through which the Company offers Internet-based games
directly to end users, together with any successors thereto.
"Development Schedule" means the mutually agreed upon development schedule set
forth in Exhibit A (the "Development Schedule", as such development schedule may
be modified or amended from time to time through written agreement between the
parties.
"Game Pages" Means Internet pages to be developed and hosted by the Company, in
accordance with this Agreement, through which Users will be able to register for
and/or play the Games via the NetTaxi Site, including through individual member
pages on the NetTaxi site.
"Game Revenue" means revenue derived by NetTaxi, through Advertisements on the
Game Pages or through other means in connection with the publication, display or
other use of the Games, less any associated advertising agency commissions
(provided, however, that such
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advertising agency commissions may not in any case exceed 35% of the Game
Revenue).
"Games" means Java-based card games, board games and other games to be offered
to Users of the Game Pages.
"Look and reel" means the look and feel, user interface and flow of user
experience of an Internet site.
"Minimum Deliverables" means the minimum Game Pages and Games sufficient to
launch the Game Pages as part of the NetTaxi site, as more specifically
identified in the Development Schedule.
"NetTaxi Marks" means any trademarks, trade names, service marks and logos
delivered by NetTaxi to the Company expressly for inclusion in the Game Pages.
"NetTaxi Site" means the Internet site currently located at
http://www.nettaxi.com, and any successors thereto.
"Term" means the term of this Agreement, as set forth in Section 5.
-----------
"User" means a user of the NetTaxi Site.
"User Data" means name, address and other registration or demographic data and
any information concerning traffic or usage levels or patterns.
3. DEVELOPMENT AND IMPLEMENTATION.
3.1 The Company will develop the Game Pages and the Games in accordance with
the Development Schedule.
3.2 The Company will insure that the Look and Feel of the Game Pages is
reasonably consistent with the Look and Feel of the NetTaxi Site throughout
the Term, so that the Game Pages appear to be part of the NetTaxi Site
rather than a separate site. The Company and NetTaxi will cooperate reasonably
and in good faith to ensure a seamless user experience as Users move between
the NetTaxi Site and the Game Pages. NetTaxi will provide mock-ups, logos
and other materials as reasonably necessary to allow the Company to achieve
the required Look and Feel for the Game Pages. Company Marks included on the
Game Pages will link back to the Company Site. Each Game Page will include a
promotional tag for the Company, reasonably acceptable to NetTaxi and the
Company, indicating that the Company is the sole provider of Games for NetTaxi
and including a link to a site designated by the Company,
3.3 The Company will host and maintain the Game Pages on its servers and
will be responsible for providing all necessary computer hardware, software
and bandwidth for such purposes. The Company and NetTaxi will use reasonable
efforts (including by selecting appropriate URL:s for the Game Pages within
the NetTaxi.com domain) to ensure that it appears to Users that the Game Pages
are part of the NetTaxi Site.
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3.4 The Company will ensure that the quality, functionality and reliability
of the Game Pages and the Games does not decline in any material respect
after initial acceptance by NetTaxi.
3.5 In addition to the specific requirements set forth above, the Company
will be responsible for ensuring that the Games and the, Game Pages function
with reasonable reliability and in a commercially reasonable manner
throughout the Term.
3.6 The Company will provide support services to NetTaxi personnel and to
Users of the Game Pages as described in Exhibit B.
-----------
4. PROMOTION OF THE GAME PAGES. Following acceptance by NetTaxi of the
Minimum Detiverables, NetTaxi will incorporate links to the Came Pages into the
NetTaxi Site for the purpose of generating traffic to the Came Pages, which
shall be subject to reasonable review and approval by the Company. In
particular, NetTaxi will display promotions for the Game Pages on the "home" or
first page of the NetTaxi Site and through links within the Arcade community
within the Site, subject to reasonable review and approval by the Company.
5. REVENUE SHARING.
5.1 NetTaxi will manage the sales effort with respect to all Advertisements
to be sold on the Game Pages, and will be responsible for delivering such
Advertisements to the Company for display on the Game Pages and for all related
billing and collecting services. The Company will cooperate reasonably and in
good faith with NetTaxi with respect to such sales activities. The Company and
NetTaxi will cooperate reasonably and in good faith to develop appropriate
procedures and technologies to allow NetTaxi to serve Advertisements for the
Game Pages remotely.
5.2 Within 30 days after the end of each month during the Term, NetTaxi will
pay the Company an amount equal to 50% of all Game Revenue generated during such
month from the NetTaxi Site, An invoice showing the calculation of the amount
owed to the Company will accompany each payment.
5.3 Upon reasonable request, the Company may engage an independent
accounting firm to audit the books and records of NetTaxi directly applicable to
the calculation of required payments hereunder by providing written notice to
NetTaxi at least 30 days before initiation of such audit. The Company shall be
limited to two audits in any 12 month period, and each audit shall be conducted
during a specified audit period of reasonable length, which will be established
by NetTaxi at least once during each calendar quarter.
6. TERM AND TERMINATION.
6.1 The term of this Agreement (the "Term") will begin on the date hereof
and will continue until the first anniversary of the date hereof, unless
otherwise terminated as provided in this Agreement. Thereafter, the Term
will be automatically extended for successive one month periods until terminated
by either party on 30 days written notice.
6.2 If either party commits a material breach of its obligations hereunder
that is not cured within 30 days after notice thereof from the non-breaching
party, the non-breaching
3
<PAGE>
party may terminate this Agreement at any time by giving written notice of
termination to the breaching party.
6.3 The Company or its successor may terminate this Agreement upon 60 days
prior written notice in the event of a sale of all or substantially all of the
assets of the Company.
6.4 The provisions of Section 11.6 and any obligations arising prior to
termination will survive any termination of this Agreement.
7. Users. All Users sent to the Game Pages must be able to register and
authenticate using existing NetTaxi member names and passwords.
8. INTELLECTUAL PROPERTY.
8.1 As between the Company and NetTaxi, the Company will retain all right,
title and interest in and to the Games and to the content of the Game Pages,
excluding the Look and Feel of the NetTaxi Site to the extent embodied in the
Game Pages. NetTaxi will be responsible for providing the Company with any
necessary or appropriate license agreements to be entered into online within
the Game Pages by Users of the Games,
8.2 The Company hereby grants to NetTaxi a non-exclusive, royalty-free
license, effective throughout the Term, to use, display and publish the Company
Marks solely within promotions for the Game Pages. Any use of the Company Marks
by NetTaxi must comply with any reasonable usage guidelines communicated by the
Company to NetTaxi from time to time. Nothing contained in this Agreement will
give NetTaxi any right, title or interest in or to the Company Marks or the
goodwill associated therewith, except for the limited usage rights expressly
provided above. NetTaxi acknowledges and agrees that, as between the Company and
NetTaxi, the Company is the sole owner of all rights in and to the Company
Marks.
8.3 NetTaxi hereby grants to the Company a non-exclusive, royalty free
license, effective throughout the Term, to use, display and publish the NetTaxi
Marks solely within the Game Pages and to use the Look and Feel of the NetTaxi
Site on the Game Pages as contemplated by Section 3.2. Any use of the NetTaxi
Marks or such Look and Feel by t'he Company must comply with any reasonable
usage guidelines communicated to the Company by NetTaxi from time to time.
Nothing contained in this Agreement will give the Company any right, title or
interest in or to the NetTaxi Marks, such Look and Feel or the goodwill
associated therewith, except for the limited usage rights expressly provided
above. The Company acknowledges and agrees that, as between the Company and
NetTaxi, NetTaxi is the sole owner of all rights in and to the NetTaxi Marks and
the Look and Feel of the NetTaxi Site.
9. RESPONSIBILITY FOR Games and Company Services. The Company acknowledges
and agrees that, as between the Company and NetTaxi, the Company will be
responsible for any claims or other losses associated with or resulting from the
distribution or use of the Games, the operation of the Game Pages and the sale
or other distribution of any Company Services by the Company or through the Game
Pages; provided however that the Company shall be liable only to the extent of
its own negligence in connection with claims for which NetTaxi is contributorily
negligent. NetTaxi is not authorized to make, and agrees not to make, any
representations or
4
<PAGE>
warranties concerning the Games, the Game PAGES or any Company Services, except
to the extent (if any) contained within promotions for the Game Pages delivered
to NetTaxi by the Company or approved by the Company.
10. MUTUAL INDEMNIFICATION.
10.1 Indemnification by NetTaxi. NetTaxi shall indemnify and hold the
Company harmless from and against any costs, losses, liabilities and expenses,
including all court costs, reasonable expenses and reasonable attorneys' fees
(collectively, "Losses") that NetTaxi may suffer, incur or be subjected to by
reason of any legal action, proceeding, arbitration or other claim by a third
party, whether commenced or threatened, arising out of or as a result of (a) the
use of NetTaxi Marks by the Company in accordance with this Agreement; (b) the
content of the NetTaxi Site (except for content provided by NetTaxi); (c) any
content provided by NetTaxi for display on the Game Pages and any negligent act
of NetTaxi with respect to the Game Pages.
10.2 Indemnification by the Company. The Company shall indemnify and hold
NetTaxi harmless from and against any Losses that NetTaxi may suffer, incur or
be subjected to by reason of any legal action, proceeding, arbitration or other
claim by a third party, whether commenced or threatened, arising out of or as a
result of (a) the use of the Company Marks by NetTaxi in accordance with this
Agreement; (b) any content provided by the Company to NetTaxi for display on the
Company Site; (e) the operation of the Game Pages or the Company Site or the
distribution of the Games or any Company Services by the Company or through the
Game Pages.
10.3 Indemnification Procedures. If any party entitled to indemnification
under this Section (an "Indemnified Party") makes an indemnification request to
the other, the Indemnified Party shall permit the other party (the "Indemnifying
Party") to control the defense, disposition or settlement of the matter at its
own expense; provided that the Indemnifying Party shall not, without the consent
of the Indemnified Party enter into any settlement or agree to any disposition
that imposes an obligation on the Indemnified Party that is not wholly
discharged or dischargeable by the Indemnifying Party, or imposes any conditions
or obligations on the Indemnified Party other than the payment of monies that
are readily measurable for purposes of determining the monetary indemnification
or reimbursement obligations of Indemnifying Party. The Indemnified Party shall
notify Indemnifying Party promptly of any claim for which Indemnifying Party is
responsible and shall cooperate with Indemnifying Party in every commercially
reasonable way to facilitate defense of any such claim; provided that the
Indemnified Party's failure to notify Indemnifying Party shall not diminish
Indemnifying Party's obligations under this Section except to the extent that
Indemnifying Party is materially prejudiced as a result of such failure. An
Indemnified Patty shall at all times have the option to participate in any
matter or litigation through counsel of its own selection and at its own
expense.
11. MISCELLANEOUS.
11. 1 LIMITATION OF DAMAGES. NEITHER PARTY WILL BE LIABLE FOR ANY SPECIAL,
INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING OUT OF OR RELATED TO THIS
AGREEMENT, HOWEVER CAUSED AND ON
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<PAGE>
ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), AND EVEN IF SUCH PARTY HAS BEEN
ADVISED OF TM POSSIBILITY OF SUCH DAMAGES. FURTHEIZ, EXCEPT FOR ANY CLAIM FOR
TNDEMNTFICATION ARISING UNDER SECTION 10 ABOVE AND 11.6, IN NO EVENT SHALL
EITI-WR PARTY BE LIABLE FOR DAMAGES IN EXCESS OF TBE TOTAL PAYMENTS REQUIRED TO
BE MADE UNDER THIS AGREEMENT DURING THE PRIOR t2 MONTHS.
11.2 Assignment. NetTaxi may not assign this Agreement, except (a) in
connection with the transfer of substantially all of the business operations of
NetTaxi (whether by asset sale, stock sale, merger or otherwise); or (b) with
the written permission of the Company, which will not be unreasonably withheld.
The Company may not assign this Agreement, except (a) in connection with the
transfer of substantially all of the business operations of the Company (whether
by asset sale, stock sale, merger or otherwise); or (b) with the written
permission of the Company, which will not be unreasonably withheld,
11.3 Relationship of Parties. This Agreement will not be construed to
create a joint venture, partnership or the relationship of principal and agent
between the parties hereto, nor to impose upon either party any obligations for
any losses, debts or other obligations incurred by the other party except as
expressly set forth herein,
11.4 Entire Agreement. This Agreement constitutes and contains the
entire agreement between the parties with respect to the subject matter hereof
and supersedes any prior oral or written agreements, This Agreement may not be
amended except in writing signed by both parties. Each party acknowledges and
agrees that the other has not made any representations, warranties or agreements
of any kind, except as expressly set forth herein.
11.5 Applicable Law. This Agreement will be construed in accordance with
and governed by the laws of the State of California, without regard to
principles of conflicts of law.
11.6 Confidentiality. In connection with the activities contemplated by
this Agreement each party may have access to confidential or proprietary
technical or business information of the other party, including without
limitation (a) proposals, ideas or research related to possible new products or
services; (b) financial information; and (c) the material terms of the
relationship between the parties; provided, however, that such information will
be considered confidential only if it is expressly designated as Confidential
Information in this Agreement or conspicuously designated as "Confidential" in
writing or, if provided orally, identified as confidential at the time of
disclosure and confirmed in writing within 10 days of disclosure (collectively,
"Confidential Information"). Each party will take reasonable precautions to
protect the confidentiality of the other party's Confidential information, which
precautions will be at least equivalent to those taken by such party to protect
its own Confidential Information. Except as required by law or as necessary to
perform under this Agreement, neither party will knowingly disclose the
Confidential Information of the other party or use such Confidential Information
for its own benefit or for the benefit of any third party. Each party's
obligations in this Section with respect to any portion of the other party's
Confidential Information shall terminate when the party seeking to avoid its
obligation under this Section can document that: (i) it was in the public domain
at or subsequent to the time it was communicated to the receiving party
("Recipient") by the disclosing party ("Discloser") through no fault of
Recipient; (ii) it was
6
<PAGE>
rightfully in Recipient's possession free of any obligation of confidence at or
subsequent to the time it was communicated to Recipient by Discloser; (iii) it
was developed by employees or agents of Recipient independently of and without
reference to any information communicated to Recipient by Discloser; or (iv) the
communication was in response to a valid order by a court or other governmental
body, was otherwise required by law or was necessary to establish the rights of
either party under this Agreement
11.7 Press Release. Each party may issue a press release concerning the
business relationship contemplated in this Agreement, and each party will
provide an appropriate quote from one of its senior executive officers for use
in the other party's release. Each party will provide the other with a
reasonable opportunity to review and comment on its press release.
11.8 Attorney Fees. In any action or suit to enforce any right or remedy
under this Agreement or to interpret any provision of this Agreement, the
prevailing party shall be entitled to recover its costs, including reasonable
attorneys' fees.
11.9 Dispute Resolution. In the event that any dispute arises hereunder, the
parties agree that prior to commencing litigation, arbitration, or any other
legal proceeding, each party shall send an officer of such party to negotiate a
resolution of the dispute in good faith at a time and place as may be mutually
agreed. Each officer shall have the power to bind its respective party in a.11
material respects related to the dispute. If the parties cannot agree on a time
or place, upon written notice from either party to the other, the negotiations
shall be held at the principal executive offices of the Company 21 days
following such notice (or on the next succeeding business day, if the 21 st day
is a weekend or holiday).
11.10 Authority; No Conflicts. NetTaxi hereby represents and warrants to the
Company that it has the right and authority to enter into this Agreement and to
carry out its obligations hereunder. The execution, delivery and performance of
NetTaxi's obligations under this Agreement do not conflict with any other
agreement to which NetTaxi is a party.
IN WITNESS WIMREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date first written above.
THE BIG NETWORK, INC. NETTAXI, INC.
By: /S/ SDP Sellers By:
Name: SDP Sellers Name:
Title: CEO Title:
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EXHIBIT A
DEVELOPMENT SCHEDULE
8
<PAGE>
EXHIBIT B
Support Services
1. Definition
----------
"Hours of Operation" means Monday to Friday 6:OOAM - 5:OOPM PST (Pacific
Standard Time) or other hours of operation at least as favorable to end users of
the Game Pages,
"Problem" means any error, bug, or malfunction that causes any feature of the
Game Pages to perform unpredictably or to otherwise become intermittently
unavailable or that causes the Game Pages to have a material degradation in
response time performance,
"Severe Problem" means any error, bug, or malfunction that causes the Game Pages
to become inaccessible to Users for 15 consecutive minutes or longer.
"Enhancement Request" means any suggestion regarding the design, aesthetics,
functionality, content, or other feature, of the Game Pages or the Games that is
not a Problem or a Severe Problem.
"Fix" means a correction, fix, alteration or workaround that solves a Problem or
a Severe Problem.
2. Contact points.
----------------
2.1 NetTaxi Technical Support Personnel. NetTaxi will designate no more than
two NetTaxi employees or contractors as qualified to contact the Company for
technical support. NetTaxi will ensure NetTaxi Technical Support Personnel have
received adequate training from the Company, as described in this Exhibit, and
are otherwise capable of providing technical support. NetTaxi will provide the
Company with the names, email addresses, telephone numbers and pager numbers of
NetTaxi Technical Support Personnel no later than one week prior to the launch
date of the Game Pages, NetTaxi may change its designated Technical Support
Personnel at its discretion with reasonable notice to the Company.
2.2 Company Technical Support Personnel, The Company will designate one
primary and one backup Technical Support employee or contractor to provide
technical support to NetTaxi. The Company will ensure that its Technical Support
Personnel are adequately trained to provide technical support to NetTaxi. The
Company will provide NetTaxi with the names, email addresses, telephone numbers
and pager numbers of the Company Technical Support Personnel no later than one
week prior to the launch date of the Game Pages. The Company may change its
designatBd Technical Support Personnel at its discretion with reasonable notice
to NetTaxi.
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3. Support procedures.
--------------------
3.1 All Problems reported by NetTaxi Technical Support Personnel to the
Company must be submitted via email to [email protected]
3.2 If NetTaxi believes it is reporting a Severe Problem, NetTaxi will
accompany its email request with a phone call and page to the Company Technical
Personnel.
3.3 Upon receiving an email report from NetTaxi, the Company will, in its
reasonable discretion, determine whether the email request is a Problem, a
Severe Problem or an Enhancement Request. The Company will respond to the email
request and provide a Fix as described in Section 4,of this Exhibit.
-----------
3.4 The Company will use commercially reasonable efforts to inform NetTaxi
Technical Support Personnel of Fixes.
4. Support, levels.
-----------------
4.1 The Company will provide technical support to Users of the Game Pages or
the Games who email or otherwise contact the Company directly with questions
about the Game Pages or the Games. The Company will use its commercially
reasonable efforts to respond to such emails within two business days, and to
Fix any Problems as fast as is commercially reasonable, NetTaxi will use its
commercially reasonable efforts to inform the Company of any Enhancement
Requests that NetTaxi receives from Users of the Game Pages or that NetTaxi
otherwise develops through its own efforts.
4.2 The Company will provide the following technical support solely to
NetTaxi Technical Support Personnel:
<TABLE>
<CAPTION>
RECEIPT OF TYPE OF EMAIL TARGET RESPONSE TARGET FIX TIME AND REPORTING
EMAIL REQUEST TIME FROM EMAIL
REQUEST RECEIPT
<S> <C> <C> <C>
During Problem Within four hours Commercially reasonable with
Hours of weekly status reports to NetTaxi
Operation or
other times
During Severe Problem Within two hours Commercially reasonable efforts
Hours of with daily status reports to
Operation NetTaxi
During other Severe Problem Within three hours Commercially reasonable efforts
times with daily status reports to
NetTaxi
During Enhancement As soon as In the Company's reasonable
Hours of Request commercially discretion
Operation or reasonable
others times
</TABLE>
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EXHIBIT A
EXHIBIT A: NETTAXI DEVELOPMENT SCHEDULE
Web Integration
Registraton system conference call 03/08/99
Templates delivered by NetTaxi 03/10/99
Web Integration COMPLETE 03/15/99
Game launch (Minimum Deliverables) 03/22/99
Chess
Checkers
Reversi
Backgammon
Morph
Spades
Phase 11 Games
Hearts April
Poker April
Blackjack May
Phase III Games
Game 1 May
Game 2 May
Game 3 May
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NETTAXI ONLINE COMMUNITIES, INC.
DEVELOPMENT AND LICENSE AGREEMENT
THIS NETTAXI ONLINE COMMUNITIES DEVELOPMENT AND LICENSE AGREEMENT,
including the Exhibits (the "Agreement"), effective as of May, 1999 (the
"Effective Date"), is hereby entered into by and among Nettaxi Online
Communities, Inc., a Delaware corporation having principal offices at 2165 South
Bascom Avenue, Campbell, California 95008 ("Nettaxi") and eBay, a Delaware
corporation, having principal offices at 2005 Hamilton Avenue, Suite 350, San
Jose, California 95125 ("eBay").
1. DEFINITIONS.
1.1 "Artwork" means the custom artwork for the eBay Product sleeves prepared
by Nettaxi.
1.2 "Character" means a distinct and identifiable personality, animal or
entity of a party or its licensors which is contained on a Storyboard.
1.3 "eBay Competitor" means any entity providing an Internet
person-to-person auction service or any such similar service.
1.4 "eBay Content" means all content or information (including without
limitation any text, music, sound, photographs, video, graphics, data or
software), in any medium, provided by eBay for use in conjunction with the eBay
Tutorial. "eBay Content" does not include the Storyboard.
1.5 "eBay Product" means the CD-ROMs containing the elements enumerated in
the Statement of Work.
1.6 "eBay Trademarks" means the trademarks, services marks, logos, trade
names, domain name, and slogans of eBay designated by eBay for Nettaxi's use in
conjunction with Nettaxi's performance under this Agreement.
1.7 "eBay Tutorial" means the tutorial program designed, written, prepared
and delivered by Nettaxi from the Storyboard, which for purposes of this
Agreement, constitutes a file, within a larger training program, commonly
referred to as "Internet in the City."
1.8 "Golden Master" means a version of the eBay Product from which copies
can be made.
1.9 "Intellectual Property Rights" means all current and future worldwide
patents and other patent rights, utility models, copyrights, mask work rights,
trade secrets, trademark, and all other intellectual property rights and the
related documentation or other tangible expression thereof.
<PAGE>
1.10 "Nettaxi Content" means all content or information (including without
limitation any text, music, sound, photographs, video, graphics, data or
software, Characters), in any medium, provided by Nettaxi displayed on or in
conjunction with the Products, other than the Storyboard.
1.11 "Nettaxi Product" means the CD-ROMs containing the elements enumerated
in Exhibit A including but not limited to Nettaxi's "Internet the City" Product.
1.12 "Nettaxi Trademarks" means the trademarks, services marks, logos, trade
names, domain name, and slogans of Nettaxi designated by Nettaxi for eBay's
use in conjunction with eBay's performance under this Agreement.
1.13 "Products" shall mean collectively, the eBay Product and the Nettaxi
Product.
1.14 "Registered User" means a user who completes the eBay registration
process by confirming his or her registration with an eBay-supplied password
sent to such user by email.
1.15 "Software" means software of Nettaxi or its licensors included in the
Products.
1.16 "Specifications" means the Specification for the Products enumerated in
Exhibit A and any other Specification for the Products to be developed
under the terms of this Agreement as set forth in the Statement of Work. The
Specifications shall comply with the following general product description: a
short form version of Internet the City containing: (i) a custom designed eBay
building with the eBay logo prominently displayed within the "City", linked to
the eBay Tutorial; (ii) a general description of the manner in which Nettaxi's
services can enhance an end user's use of the eBay services; (iii) a NETTAXI
Building with corresponding tutorial program designed to familiarize users with
the services offered by NETTAXI; (iv) a World Wide Web Building designed to
familiarize users with the basic functions and protocol of the Internet; and (v)
and internet service provider bundle. It is also anticipated that the eBay
building, eBay logo and linked eBay Tutorial will be included in the Nettaxi
Product.
1.17 "Statement of Work" shall mean the information set forth in Exhibit A
(other than the Specifications).
1.18 "Storyboard" means eBay's artwork, verse content, and storyboard for a
tutorial about the eBay site and the functions available on such site, and any
copy, Characters, scripting and other works of authorship included therein.
2. DEVELOPMENT.
2.1 STORYBOARD. On or before May 21, 1999, eBay shall deliver ideas for the
Storyboard to Nettaxi.
<PAGE>
2.2 DEVELOPMENT. Using the Storyboard, Nettaxi will develop the eBay
Tutorial and the Artwork in accordance with the Specifications, which shall be
mutually developed by the parties, and the Statement of Work. In the event that
the parties are unable to mutually agree upon the development of the
Specifications, eBay may, in its sole discretion, elect to terminate the
Agreement and refund to Nettaxi any amounts actually paid to Nettaxi pursuant to
Section 7 of this Agreement.
2.3 CHANGES. If during development, eBay proposes in writing a change to
the Statement of Work or the Specifications, Nettaxi agrees to attempt in good
faith to make such changes. In the event any such change materially increases
Nettaxi's development costs hereunder or requires a modification to the schedule
for development, eBay and Nettaxi shall negotiate in good faith for
adjustment to the development charges payable by eBay to Nettaxi and to the
schedule for development.
2.4 OWNERSHIP.
(A) OWNERSHIP BY NETTAXI. Nettaxi shall own all right, title, and interest
in the Nettaxi Content, Nettaxi's Characters, the Software, the product designed
and developed by Nettaxi commonly referred to as "Internet the City", the
Nettaxi Trademarks, and any derivatives, improvements or modifications thereof,
and all Intellectual Property Rights therein (collectively, the "Nettaxi
Property"). eBay shall execute such documents, render such assistance, and take
such other action as Nettaxi may reasonably request, at Nettaxi's expense, to
apply for, register, perfect, confirm, and protect Nettaxi's rights to the
Nettaxi Property.
(B) OWNERSHIP BY EBAY. eBay shall own all right, title, and interest in the
eBay Content, the eBay Trademarks, the Storyboard, the Artwork, the eBay
Tutorial, and any derivatives, improvements or modifications thereof and all
Intellectual Property Rights therein, excluding the Nettaxi Property. Nettaxi
shall execute such documents, render such assistance, and take such other action
as eBay may reasonably request, at eBay expense, to apply for, register,
perfect, confirm, and protect eBay's rights as set forth in this Section 2.4(b).
3. ACCEPTANCE.
3.1 EBAY TUTORIAL. When completed, Nettaxi shall deliver the eBay Tutorial
to eBay to test whether, in eBay's reasonable opinion, the completed eBay
Tutorial conforms to the Storyboard and the Specifications. The eBay Tutorial
shall not be deemed to be approved by eBay unless eBay gives Nettaxi written
notice of such approval. However, if no notice of approval is delivered within
twenty (20) days, it shall be deemed accepted. If eBay rejects the completed
eBay Tutorial, eBay shall provide a notice of rejection specifying the reasons
for rejection. Nettaxi shall use commercially reasonable efforts to promptly
redeliver the corrected eBay Tutorial to eBay for acceptance testing pursuant to
the process described in this Section 3.1 until approved. Once the eBay
Tutorial is approved, Nettaxi shall use commercially reasonable efforts to
diligently implement its obligations under the Statement of Work to develop and
manufacture the Products.
<PAGE>
3.2 EBAY PRODUCT. When completed, Nettaxi shall deliver the eBay Product to
eBay to test whether, in eBay's reasonable opinion, the completed eBay
Product substantially conforms to the Specifications and any applicable
Statement of Work. The eBay Product shall not be deemed to be approved by eBay
unless eBay gives Nettaxi written notice of such approval. However, if no notice
of approval is delivered within twenty (20) days, it shall be deemed accepted.
If eBay rejects the completed eBay Product, eBay shall provide a notice of
rejection specifying the reasons for rejection. Nettaxi shall use commercially
reasonable efforts to promptly redeliver the corrected eBay Product to eBay for
acceptance testing pursuant to the process described in this Section 3.2 until
approved. Once the eBay Product is approved, Nettaxi shall use commercially
reasonable efforts to diligently implement its obligations under the Statement
of Work to manufacture the eBay Product.
3.3 CUSTOM ARTWORK. Nettaxi shall deliver to eBay the Artwork for approval.
The Artwork shall not be deemed to be approved by eBay unless eBay gives Nettaxi
written notice of such approval. However, if no notice of approval is
delivered within twenty (20) days, it shall be deemed accepted. If eBay rejects
the Artwork, eBay shall provide a notice of rejection specifying the reasons for
rejection. Nettaxi shall use commercially reasonable efforts to promptly
redeliver the corrected Artwork to eBay for acceptance testing pursuant to the
process described in this Section 3.3 until approved. Once the Artwork is
approved, Nettaxi shall; (a) use commercially reasonable efforts to diligently
implement its obligations under the Statement of Work to develop and manufacture
the Products, (b) not use the Artwork without eBay's prior approval, and (c) not
change the Artwork in any way without eBay's prior written approval.
4. IMPLEMENTATION.
4.1 SHIPMENT AND EXPENSES. Shipment of the eBay Product shall be made to
eBay at an address specified in writing by eBay. Nettaxi shall bear all costs
and expenses related to manufacturing the Products. All eBay Product shall be
delivered DDP eBay's facilities.
4.2 ORDER QUANTITIES.
(A) INITIAL ORDER QUANTITY. Nettaxi will provide 150,000 copies of the eBay
Product ("Initial Order Quantity") to eBay at no charge, within 90 days
following eBay's approval of the eBay Product ("Initial Order Quantity Period").
During the Initial Order Quantity Period, Nettaxi shall deliver to eBay the
amount of copies of the Initial Order Quantity that eBay shall request within
thirty (30) days of any such request.
(B) ADDITIONAL ORDER QUANTITIES. After the Initial Order Quantity has been
delivered to eBay, eBay may order, and Nettaxi shall deliver, such reasonable
quantities of additional eBay Product as eBay may require in the quantity and on
the schedule described on any purchase order submitted by eBay to Nettaxi
("Purchase Order"). All Purchase Orders are hereby accepted by Nettaxi.
<PAGE>
(C) PURCHASE ORDERS.
(I) Purchase Orders shall be governed by the terms of this Agreement, and
nothing contained in any such Purchase Order shall in any way modify such terms
of purchase or add any additional terms or conditions. Any such additional or
inconsistent terms shall be deemed rejected.
(II) In the event that Nettaxi notifies eBay that it is unable to fulfill
any eBay order (subsequent to delivery of the Initial Order Quantity) or any
eBay order remains unfulfilled for a period of 30 days (unless eBay, in its sole
discretion, agrees in writing to extend this 30 day period) eBay shall be
entitled to receive a copy of the Golden Master of the eBay Product.
4.3 NONCONFORMING DELIVERIES. If, at any time, eBay determines that an eBay
Product delivered by Nettaxi does not conform to the Specifications or the
terms of this Agreement, is on defective media, or otherwise is not
distributable by eBay, eBay may return such Product to Nettaxi at Nettaxi's sole
expense and, within 5 days, Nettaxi shall redeliver an equivalent number of
conforming replacement eBay Product to eBay DDP eBay's facility.
5. LICENSE GRANTS.
5.1 EBAY LICENSE TO NETTAXI. Subject to the terms and conditions of this
Agreement, eBay hereby grants to Nettaxi a nonexclusive, worldwide, royalty-free
right to (a) use, reproduce, distribute, create derivative works of,
publicly perform, publicly display and digitally perform the Storyboard solely
to transform such Storyboard into the eBay Tutorial and to reproduce, distribute
(through multiple tiers of distribution), publicly perform, publicly display and
digitally perform the eBay Tutorial only as incorporated on the Products, (b) to
use, reproduce, distribute, create derivative works of, publicly perform,
publicly display and digitally perform any Characters owned by eBay solely as
necessary to exercise the rights granted in clause (a) above; and (c) use,
reproduce, distribute (through multiple tiers of distribution), create
derivative works of, publicly perform, publicly display and digitally perform
the eBay Content and Artwork solely in conjunction with the Products and in
accordance with the Specifications.
5.2 NETTAXI LICENSE TO EBAY. Subject to the terms and conditions of this
Agreement, Nettaxi hereby grants eBay a nonexclusive, worldwide, royalty-free
right (a) to use, reproduce (only in the event eBay is given the Golden Master)
and distribute (through multiple tiers of distribution), publicly display,
publicly perform, digitally perform the eBay Product; (b) to use, distribute,
create derivative works of, publicly perform, publicly display and digitally
perform the eBay Tutorial; and (c) to use and distribute (through multiple tiers
of distribution) Nettaxi's Characters solely in conjunction with the eBay
Tutorial.
5.3 RESTRICTIONS. Characters shall be used substantially in the form
provided to the other party and without material modification. eBay shall not
reverse engineer, decompile or disassemble the eBay Product or use other
techniques to derive the trade secrets embedded in the eBay Product. Nettaxi
agrees that only the approved version of the eBay Tutorial may be distributed by
Nettaxi in conjunction with the Nettaxi Product.
5.4 CONTENT STANDARDS. eBay shall not provide any eBay Content, and Nettaxi
shall not provide any content in the eBay Tutorial (other than the eBay
Content) Nettaxi Content, that: (a) infringes any intellectual property or
publicity/privacy right; (b) violates any law or regulation; (c) is defamatory,
obscene, harmful to minors or child pornographic; (d) contains any viruses,
Trojan horses, worms, time bombs, cancelbots or other computer programming
routines that are intended to damage, detrimentally interfere with,
surreptitiously intercept or expropriate any system, data or personal
information; or (e) is materially false, misleading or inaccurate.
5.5 PROPRIETARY RIGHTS NOTICES. All copies of the eBay Tutorial shall
contain the proprietary rights notices of both parties in a location to be
mutually determined.
5.6 SUBLICENSING. Except where permitted under this Agreement, the rights
granted herein are not sublicenseable. Notwithstanding the foregoing:
(I) In the event that Nettaxi delivers to eBay the Golden Master of the eBay
Product as provided for in Section 4.2(c) of this Agreement, Nettaxi hereby
grants to eBay the right to sublicense its right to reproduce the eBay Product
solely for the purposes of granting such right to a third party manufacturer to
reproduce the eBay Product for delivery to eBay.
(II) eBay grants to Nettaxi the right to sublicense its right to reproduce
the eBay Tutorial solely for the purposes of granting such right to a third
party manufacturer to reproduce the Products for delivery to Nettaxi.
6. TRADEMARKS.
6.1 LICENSE GRANT FROM NETTAXI. Subject to the terms and conditions of this
Agreement, Nettaxi hereby grants to eBay the worldwide, nonexclusive,
royalty-free right to use the Nettaxi Trademarks in conjunction with the
marketing of the eBay Product.
6.2 LICENSE GRANT FROM EBAY. Subject to the terms and conditions of this
Agreement, eBay hereby grants to Nettaxi the worldwide, nonexclusive,
royalty-free right to use the eBay Trademarks only in conjunction with the
marketing of the Nettaxi Product.
6.3 TRADEMARK RESTRICTIONS. The owner of a Trademark (defined as the eBay
Trademark and the Nettaxi Trademark, collectively) may terminate the foregoing
trademark license if, in its reasonable discretion, the licensee's use of the
Trademarks tarnishes, blurs or dilutes the quality associated with the
Trademarks or the associated goodwill and such problem is not cured within 10
days of notice of breach; alternatively, instead of terminating the license in
total, the owner may specify that certain uses by the licensee may not contain
the Trademarks. Title to and ownership of the owner's Trademarks shall remain
with the owner. The licensee shall use the Trademarks exactly in the form
provided and in conformance with any trademark usage policies. The licensee
shall not take any action inconsistent with the owner's ownership of the
Trademarks, and any benefits accruing from use of such Trademarks shall
automatically vest in the owner. The licensee shall not form any combination
marks with the other party's Trademarks.
7. PAYMENT
7.1 DEVELOPMENT COSTS. eBay shall pay Nettaxi $50,000 on the Effective Date
of this Agreement for Nettaxi's development of the eBay Tutorial.
7.2 EBAY PRODUCT COSTS. For any amount of the eBay Product ordered by eBay
above the Initial Order Quantity, eBay agrees to pay Nettaxi $.75 per unit.
7.3 REGISTERED USER FEE.
(A) Except as specified below in Section 7.3(b), eBay shall pay Nettaxi
$10.00 for each Registered User (the "Bounty") that registers by way of the
unique URL on the Nettaxi Product distributed by Nettaxi. eBay shall pay
Nettaxi $2.00 for each Registered User that registers by way of the unique URL
on the eBay Product distributed by eBay. All Bounty payments shall be made
within 30 days following the end of a calendar quarter.
(B) In no event shall eBay owe a Bounty (i) for Registered Users who have
one or more existing accounts with eBay, or (ii) for Registered Users whose
accounts are terminated by eBay within 90 days following their registration.
7.4 TAXES. All payments made by eBay include, and Nettaxi shall pay all
sales, use and other taxes associated with such payments or related to the
parties' performance of their obligations or exercise of their rights under this
Agreement, excluding taxes based on eBay's net income.
8. RECORDS AND AUDITS.
eBay shall maintain accurate records with respect to the number of Registered
Users and the source URL's of the Registered Users. Nettaxi may, upon no less
than 30 days prior written notice to eBay and not more than once per year, cause
an accountant to inspect the foregoing records during eBay's normal business
hours. If an audit requested by Nettaxi reveals that eBay has underreported by
10% or more for any audited period of time, eBay shall pay Nettaxi all
reasonable costs and expenses incurred by Nettaxi in conducting such audit,
including, but not limited to, any amounts paid to any auditor or attorney and,
in addition, make the underreported payments or refund pro rata based on the
underreported performance, as applicable.
9. EXCLUSIVITY.
9.1 During the term of this Agreement:
(A) Nettaxi's license grant with respect to any Nettaxi Content on the eBay
Product shall be exclusive as to eBay with respect to any other Internet auction
site.
(B) Nettaxi's license grant to eBay for any Nettaxi Intellectual Property
Rights contained in the eBay Tutorial shall be exclusive in the field of
tutorials for Internet auction sites.
<PAGE>
10. TERM AND TERMINATION.
10.1 TERM. This Agreement shall commence on the Effective Date and shall
continue for 3 years, unless earlier terminated as provided in this Section 10.
Thereafter the parties may mutually agree to renew this Agreement for
additional 1 year terms.
10.2 TERMINATION FOR BREACH. Either Nettaxi or eBay may terminate this
Agreement if the other party materially breaches this Agreement and such failure
continues for a period of thirty (30) days following receipt of written
notice thereof by the breaching party.
10.3 EFFECTS OF TERMINATION. Upon expiration or termination:
(A) All licenses granted hereunder shall terminate; however, eBay may
continue to distribute the eBay Product for as long as necessary to deplete its
inventory.
(B) Nettaxi shall only be obligated to deliver, and eBay shall only be
obligated to pay for, those quantities of eBay Product which are the subject of
any Purchase Order that Nettaxi has accepted in writing; provided that eBay may
continue to distribute the eBay Product for as long as necessary to deplete its
inventory.
(C) All obligations of eBay to pay Nettaxi any Bounty pursuant to Section
7.3 of this Agreement shall be terminated.
10.4 SURVIVAL. Sections 1, 2.4, 10.3, 10.4, 12, 14, and 15 shall survive
termination of this Agreement.
11. WARRANTIES.
11.1 PERFORMANCE OF SERVICES. Nettaxi warrants that (a) it, and each of the
subcontractors that it uses to provide and perform the services set forth
in the Statement of Work ("Services"), will have the necessary knowledge,
skills, experience, qualifications and resources to provide and perform the
Services in accordance with this Agreement; and (b) the Services will be
performed in a diligent, workmanlike manner which meets or exceeds industry
standards applicable to the performance of such services.
11.2 OPERATION. Nettaxi warrants that the Products shall conform to the
Specifications.
<PAGE>
11.3 DISCLAIMER. EXCEPT AS OTHERWISE EXPRESSLY STATED HEREIN, EACH PARTY
PROVIDES ALL MATERIALS AND SERVICES TO THE OTHER PARTY "AS IS," AND EACH PARTY
DISCLAIMS ALL WARRANTIES AND CONDITIONS, EXPRESS, IMPLIED OR STATUTORY,
INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT,
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. EXCEPT AS OTHERWISE
EXPRESSLY STATED HEREIN, NETTAXI DOES NOT WARRANT THAT THE PRODUCTS OPERATE
UNINTERRUPTED OR ERROR-FREE. Each party acknowledges that it has not entered
into this Agreement in reliance upon any warranty or representation except those
specifically set forth herein.
12. INDEMNIFICATION.
Each party (the "Indemnifying Party") shall indemnify the other party (the
"Indemnified Party") against any and all claims, losses, costs and expenses,
including reasonable attorneys' fees, which the Indemnified Party may incur as a
result of claims in any form by third parties arising from the Indemnifying
Party's acts, omissions or misrepresentations to the extent that the Indemnified
Party is deemed a principal of the Indemnifying Party. In addition, eBay shall
indemnify Nettaxi against any and all claims, losses, costs and expenses,
including reasonable attorneys' fees, which Nettaxi may incur as a result of
claims in any form by third parties arising from eBay Content. In addition,
Nettaxi shall indemnify eBay against any and all claims, losses, costs and
expenses, including reasonable attorneys' fees, which eBay may incur as a result
of claims in any form by third parties arising from the Products (excluding
those attributable to eBay Content. The foregoing obligations are conditioned
on the Indemnified Party: (i) giving the Indemnifying Party notice of the
relevant claim, (ii) cooperating with the Indemnifying Party, at the
Indemnifying Party's expense, in the defense of such claim, and (iii) giving the
Indemnifying Party the right to control the defense and settlement of any such
claim, except that the Indemnifying Party shall not enter into any settlement
that affects the Indemnified Party's rights or interest without the Indemnified
Party's prior written approval. The Indemnified Party shall have the right to
participate in the defense at its expense.
13. COMPLIANCE WITH LAWS.
At its own expense, Nettaxi shall comply with all applicable laws and
regulations regarding the performance of its obligations under this Agreement.
<PAGE>
14. LIMITATION OF LIABILITY.
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY LOSS OF
PROFITS OR FOR INDIRECT, SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OF ANY KIND, WHETHER BASED ON CONTRACT, TORT (INCLUDING,
WITHOUT LIMITATION, NEGLIGENCE), WARRANTY, GUARANTEE OR ANY OTHER LEGAL OR
EQUITABLE GROUNDS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES. NEITHER PARTY SHALL MAKE REPRESENTATIONS OR WARRANTIES TO ANY
REGISTERED USER OR THIRD PARTY ON BEHALF OF THE OTHER PARTY AND IN NO EVENT WILL
EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY REPRESENTATION OR WARRANTY
MADE TO ANY REGISTERED USER OR THIRD PARTY BY THE OTHER PARTY.
EXCEPT WITH RESPECT TO SECTION 12, IN NO EVENT SHALL EITHER PARTY'S LIABILITY
UNDER THIS AGREEMENT EXCEED THE AMOUNTS ACTUALLY PAID BY EBAY TO NETTAXI
HEREUNDER.
15. GENERAL PROVISIONS.
15.1 GOVERNING LAW. This Agreement will be governed and construed in
accord-ance with the laws of the State of California without giving effect to
conflict of laws principles. Both parties submit to personal jurisdiction in
California and further agree that any cause of action arising under this
Agreement shall be brought in a court in Santa Clara County, California.
15.2 SEVERABILITY; HEADINGS. If any provi-sion herein is held to be invalid
or unenforceable for any reason, the remaining provisions will continue in
full force without being impaired or invalidated in any way. The parties agree
to replace any invalid provision with a valid provision that most closely
approximates the intent and economic effect of the invalid provision. Headings
are for reference purposes only and in no way define, limit, construe or
describe the scope or extent of such section.
15.3 PUBLICITY. Neither party shall issue any press release or similar
publicity statement regarding this Agreement without the prior approval of both
parties (not to be unreasonably withheld) or as required by law.
15.4 FORCE MAJEURE. Either party shall be excused from any delay or failure
in performance hereunder caused by reason of any occurrence or contingency
beyond its reasonable control, including but not limited to, acts of God,
earthquake, labor disputes and strikes, riots, war, and governmental
requirements. Notwithstanding the foregoing, a change in economic conditions or
technology shall not be deemed a Force Majeure event. The obligations and
rights of the party so excused shall be extended on a day-to-day basis for the
period of time equal to that of the underlying cause of the delay. In the event
of a force majeure materially affecting the parties' performance under this
Agreement that lasts for more than 30 days, either party may terminate this
Agreement.
15.5 INDEPENDENT CONTRACTORS. The parties are independent contractors, and
no agency, partnership, joint venture, employee-employer or
franchisor-franchisee relationship is intended or created by this Agreement.
Neither party shall make any warranties or representations on behalf of the
other party.
15.6 TERMINATION FOR ASSIGNMENT/CHANGE OF CONTROL. By providing written
notice, eBay may, in its sole discretion, immediately terminate this Agreement
if Nettaxi acquires or is acquired by an eBay Competitor. By providing written
notice, Nettaxi may, in its sole discretion, immediately terminate this
Agreement if eBay acquires or is acquired by an entity that develops tutorials
and provides services substantially similar to those provided by Nettaxi for
eBay pursuant to this Agreement.
15.7 NOTICE. Any notices hereunder shall be given to the appropriate party
at the address specified above or at such other address as the party shall
specify in writing. Notice shall be deemed given: upon personal delivery; if
sent by fax, upon confirmation of receipt; or if sent by a reputable overnight
courier with tracking capabilities, 1 day after the date of mailing.
15.8 ENTIRE AGREEMENT; WAIVER. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof and
supersedes all prior contracts, memoranda, agreements, arrangements,
communications and discussions, whether oral or written with respect to such
subject matter. The parties hereby expressly reject any conflicting term in any
purchase order, invoice, order acknowledgment or any similar business form,
which terms shall have no effect. It may be changed only by a writing signed by
both parties. The waiver of a breach of any provision of this Agreement
will not operate or be interpreted as a waiver of any other or subsequent
breach.
15.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be taken together and deemed to be one instrument.
15.10 ATTORNEYS' FEES. In addition to any other relief awarded, the
prevailing party in any action arising out of this Agreement shall be entitled
to its attorneys' fees and costs.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the Effective Date set forth above.
EBAY, INC.: NETTAXI ONLINE COMMUNITIES, INC.:
By: /s/ Steve Westly By: /s/ Robert Rositano Jr.
-------------------------- ------------------------
Title: VP Business Dev Title: CEO
-------------------------- ------------------------
<PAGE>
INTERNET SERVICES SUITE AGREEMENT
THIS INTERNET SERVICES SUITE AGREEMENT (this "Agreement") is entered into
---------
as of May 5,1999 (the "Effective Date") between WIRED DIGITAL, INC., a Delaware
--------------
corporation ("Wired"), LYCOS, INC., a Delaware corporation ("Lycos"), and
----- -----
NETTAXI ONLINE COMMUNITIES, INC., a Delaware corporation. ("Nettaxi").
-------
Recitals
--------
A. Wired is the owner or licensee of certain Web-based services
(collectively, the"Wired Services"), which are accessible through the URL
www.hotbot.com (the "HotBot Site");
B. Lycos is the owner or licensee of certain Web-based personalized
start page services
(the "Lycos Start Pages"), which are accessible through the URL www.lycos.com
(the"Lycos Site");
C. Nettaxi maintains a site on the Internet at http://www.nettaxi.com
(the "Nettaxi Site"), and desires to make the Wired Services and co-branded
versions of the Lycos Start Pages available to users of the Nettaxi Site;
D. Wired and Lycos are willing to co-brand and/or operate certain of
their respective
Services on behalf of Nettaxi, pursuant to the terms hereof;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Wired, Lycos and Nettaxi hereby
agree as follows:
Terms
-----
SECTION 1. DEFINITIONS.
1.1 "Advertising Rights" means all advertising or promotional rights,
-------------------
including
without limitation banner advertisements, "pop-up" windows, surveys and
sponsorships.
1.2 "HotBot Personal Search Tool" means Wired's Web-based customizable
----------------------------
search panel
incorporating the HotBot Search functionality, as the same may be updated or
modified from time to time in Wired's sole discretion.
1.3 "HotBot Search" means Wired's Web-based search engine service,
--------------
currently commercially referred to as HotBot, as the same may be updated or
modified from time to time in Wired's sole discretion.
<PAGE>
1.4 "Lycos Brand Features" means Lycos' name, logo and other
----------------------
trademarks, trade names and service names that Lycos uses from time to time with
respect to Lycos' services offered on Web Sites owned or operated by Lycos.
1.5 "Lycos Start Pages" means Lycos' Web-based personalized start page
------------------
that incorporates certain of the Lycos Services, as the same may be updated or
modified from time to time in Lycos' sole discretion.
1.6 "Nettaxi Brand Features" means Nettaxi's name and logo and such
------------------------
other trademarks, trade names, service names and trade dress that Nettaxi uses
from time to time with respect to the Nettaxi Site.
1.7 "Referral" takes place when a user clicks on a hyperlink or uses an
--------
HTML tool to connect to the following Wired Services: Wired Content and HotBot
Search, at the redirect URLs designated by Wired and as measured by Wired's
server logs.
1.8 "Wired Brand Features" means Wired's name, logo and other
----------------------
trademarks, trade names and service names that Wired uses from time to time with
respect to Wired's services offered on Web Sites owned or operated by Wired.
1.9 "Wired Content" means Wired's Web-based news, information and
--------------
entertainment services, as well as the e-mail newsletter versions of these
services, including Wired News (http://www.wired.com), Webmonkey
(http://www.webmonkey.com), and Suck (http://www.suck.com), as may
be update or modified from time to time in Wired's sole discretion.
SECTION 2. NETTAXI START PAGES DEVELOPMENT AND MAINTENANCE.
2.1 Development of Nettaxi Start Pages. Lycos shall use reasonable
-----------------------------------
commercial efforts to develop, within thirty (30) days after the Effective Date,
the following service for use exclusively by users of the Nettaxi Site and
accessible from the Nettaxi Site: a co-branded version of Lycos Start Pages
("Nettaxi Start Pages") which shall contain a Nettaxi-branded links box, HotBot
Search or Lycos Search functionality, and other standard features of Lycos Start
Pages. Nettaxi's sole remedy for Lycos' breach of the first sentence of this
Section 2.1 shall be termination of this Agreement in accordance with Section
11.2(a), and Nettaxi shall not be entitled to any other legal or equitable
relief of any kind in connection therewith.
2.2 Branding and User Interface.
------------------------------
(a) Branding. The Nettaxi Start Pages shall be branded in a
--------
manner substantially similar to the example(s) set forth in Exhibit B hereto.
All Nettaxi Start Pages shall display appropriate intellectual property legends,
including but not limited to copyright notice and trademark references. Subject
to the foregoing provisions of this Section 2.2(a), the parties shall agree upon
the prominence and location of all displays of the Nettaxi Brand Features,
theLycos Brand Features on the Nettaxi Start Pages; provided that the Lycos name
shall be above the fold and prominently displayed on all co-branded pages. Lycos
<PAGE>
shall not be obligated to co-brand those pages containing content which Lycos
has branded with a third party, which Lycos is prohibited from co-branding
pursuant to another Lycos agreement, which Lycos is technically unable to
co-brand, and that are commercially unreasonable for Lycos to co-brand.
(b) User Interface. The user interface for Nettaxi Start Pages
--------------
shall be substantially similar to the user interfaces of the Lycos Start Pages,
which Lycos may modify from time to time in its sole discretion.
2.3 Hosting/Traffic. Nettaxi Start Pages shall be hosted by Lycos.
---------------
The Nettaxi Start Pages shall be served from Lycos sub-domains (e.g.,
www.lycos.com/partners/nettaxi). As between the parties, only Lycos shall
receive credit for all unique visitor traffic and page views generated by the
Nettaxi Start Pages. As such, the parties agree to assist each other in taking
any steps that may be required to obtain or perfect the rights of Lycos to
receive credit from Relevant Knowledge/Media Metrix (or any other organization
reasonably designated by Lycos that is reasonably deemed to be, recognized in
the Internet industry as a reliable authority for tracking unique visitors or
page views) for all unique visitor traffic and pages views generated by the
Nettaxi Start Pages.
2.4 Sale of Advertising Rights. Lycos shall have the sole right to
---------------------------
sell Advertising Rights on the Nettaxi Start Pages.
2.5 Customer Service. Lycos shall include an email link on one or
-----------------
more of the Nettaxi Start Pages to Lycos' customer service staff. Lycos shall
use reasonable commercial efforts to respond to all customer service inquiries
promptly after receipt.
SECTION 3. MARKETING AND PROMOTIONS.
3.1 Marketing Activities. Throughout the Term of this Agreement,
---------------------
Nettaxi shall use reasonable commercial efforts to market HotBot Search and
Wired Content in order to maximize the nunber of Nettaxi Site users visiting
these sites, including without limitation, direct email campaigns, advertising
and promotions on the Nettaxi Site and targeted activities by Nettaxi.
Immediately upon Lycos' launch of the Nettaxi Start Pages, Nettaxi shall use
reasonable commercial efforts to market Nettaxi Start Pages in order to maximize
the number of users of the Nettaxi Start Pages, including without limitation,
direct email campaigns, advertising and promotions on the Nettaxi Site and
targeted activities by Nettaxi. The parties shall review Nettaxi's marketing
activities on a quarterly basis in order to assess performance and agree upon
additional activities, if necessary, in order to increase usage of Nettaxi Start
Pages.
3.2 Promotional Placements. During the Term of this Agreement,
-----------------------
Nettaxi shall provide promotional placements for Wired and Lycos as set forth in
this Section 3.2. Wired and Lycos shall provide Nettaxi with electronic copies
of the artwork for the appropriate Wired and Lycos icons, logos, search boxes
and links to be displayed on the Nettaxi Site in connection with the promotional
<PAGE>
placements described below. Nettaxi shall be responsible for programming and
integrating the search box, icons, logos and links into the Nettaxi Site:
(a) Nettaxi shall integrate links to Wired Content and to the
Nettaxi Start Pages,
in a substantially similar manner to the specifications and "look and feel" of
the examples set forth on Exhibit B. The links to the Nettaxi Start Pages shall
be displayed on every page of the Nettaxi Site produced by Nettaxi.
(b) Nettaxi shall prominently offer the HotBot Personal Search Tool
and the
Nettaxi Start Pages to every visitor and to every new registered member on the
Nettaxi Site. Nettaxi shall integrate the HotBot Personal Search Tool in "The
Nettaxi Citizen Page Builder" process. For those users of the Nettaxi Site
building pages using Nettaxi FTP services, Nettaxi shall promote the HotBot
Personal Search Tool in the "Other Nettaxi Help" and "Resources"pages of the
Nettaxi Site. The HotBot Personal Search Tool shall be the only search engine
tool made available to Nettaxi home-page builders. Nettaxi shall redirect all
users of the Nettaxi Site who conduct searches through the HotBot Personal
Search Tool or who select the Wired and Lycos links to the URL of the
appropriate service.
(c) Nettaxi shall integrate the following links to Wired Content:
(i) Webmonkey
in the "Homepage Utils/HTML Resources" section of the Nettaxi Site, currently
located at http://www.nettaxi.com/help/resources.html; (ii) Wired News and Suck
in all relevant topic sections of the Nettaxi Site, at Nettaxi's discretion;
(iii) Wired Content newsletter subscriptions in all relevant sections of the
Nettaxi Site, at Nettaxi's discretion.
3.3 Referral Guarantee. During the Term of this Agreement, Nettaxi
-------------------
guarantees that Nettaxi's promotional placements for the HotBot Personal Search
Tool and Wired Content shall result in not less than I 00,000 Referrals per
month. For purposes of determining whether Nettaxi has performed on its Referral
guarantee, the Referral tally shall begin at zero at the beginning of each
contract quarter.
(a) If Nettaxi fails to achieve the guaranteed level of 300,000
Referrals in a
particular quarter, Wired's obligation to make such quarter's Referral Payment
(as described below in Section 5.3) shall be deferred until the due date of the
next quarterly payment.
(b) If Nettaxi fails to achieve the guaranteed level of 300,000
Referrals for two consecutive contract quarters, the payment per thousand
Referrals quoted in Section 5.1(a) shall be decreased to $5 CPM.
<PAGE>
3.4 Additional Marketing Provisions. The additional marketing
---------------------------------
provisions set forth in Exhibit A are incorporated herein.
SECTION 4. OWNERSHIP AND LICENSE.
4.1 Ownership. Nettaxi acknowledges and agrees that, as between the
---------
parties, Lycos owns all title to, and all ownership rights in the Nettaxi Start
Pages, including without limitation the underlying software but excluding the
Nettaxi-brand element of the Lycos.com domain name for Nettaxi Start Pages and
the Nettaxi Brand Features, which are the sole property of Nettaxi.
Under no circumstances shall any part of Nettaxi Start Pages be physically
transferred to Nettaxi or shall Nettaxi be entitled to a license to the
underlying software.
4.2 Nettaxi License Grant. Nettaxi hereby grants Lycos, during the
----------------------
Term (as defined below) of this Agreement, a worldwide, royalty-free,
nonexclusive license (with no right to sublicense) to use, reproduce and
distribute the Nettaxi Brand Features on the Nettaxi Start Pages in accordance
with this Agreement and Nettaxi's guidelines for use of the Nettaxi Brand
Features, which guidelines Nettaxi may change from time to time upon at least
thirty (30) days' prior written notice to Lycos.
4.3 Lycos License Grant. Lycos hereby grants Nettaxi a worldwide,
---------------------
royalty-free, nonexclusive license (with no right to sublicense) to use the
Lycos Brand Features in connection with the marketing and promotion of Lycos and
the Nettaxi Start Pages in accordance with this Agreement and Lycos' guidelines
for use of the Lycos Brand Features, which guidelines Lycos may change from time
to time, upon at least thirty (30) days' prior written notice to Nettaxi.
4.4 Wired License Grant. Wired hereby grants Nettaxi a worldwide,
---------------------
royalty-free, nonexclusive license (with no right to sublicense) to use the
Wired Brand Features in connection with the marketing and promotion of Wired,
the HotBot Search and the Wired Content in accordance with this Agreement and
Wired's guidelines for use of the Wired Brand Features, which guidelines Wired
may change from time to time upon at least thirty (30) days' prior written
notice to Nettaxi.
4.5 No Other Rights. Except as expressly provided above, the
parties retain all title to, and all rights in, their respective Brand Features.
SECTION 5. PAYMENT TERMS.
5.1 Wired Services Referral Payments. Nettaxi shall be entitled to
----------------------------------
payment for Referrals throughout the Term, as follows
a. For every Referral between 1 and 300,000 Referrals per contract
quarter
<PAGE>
during the Term, Wired shall pay Nettaxi $0.010 per Referral ($10
CPM), unless Nettaxi fails to achieve the guaranteed level of
300,000 Referrals for two consecutive contract quarters, in which
case the payment per thousand Referrals shall be decreased to $5
CPM, as described in Section 3.3(b) above.
b. For every Referral between 300,001 and 1,500,000 Referrals per
contract
quarter during the Term, Wired shall pay Nettaxi $0.015 per
Referral ($15 CPM).
c. For every Referral over 1,500,000 per contract quarter during
the Term,Wired shall pay Nettaxi $0.02 per Referral ($20
CPM).
5.2 Nettaxi Start Pages Advertising Revenue Share. Lycos shall pay
----------------------------------------------
Nettaxi the amounts set forth in Exhibit A with respect to Net Advertising
Revenue for the Nettaxi Start Pages received by Lycos during the relevant
period. For the purposes of this Agreement, "Net Advertising Revenue" means the
actual amounts received for the sale of Advertising Rights targeted to Nettaxi
Start Pages, less applicable sales or use taxes, direct costs of collection and
third party and internal sales commissions paid, which commissions shall be
deemed to be 20% of actual amounts received.
5.3 Payment Timing; Reporting. Except as provided in Section 3.3(a)
-------------------------
above, within thirty (30) days following the conclusion of each contract quarter
during the Term (the "Payment Schedule"), Wired shall calculate and pay to
Nettaxi the amounts described in Section 5.1 and 5.2 for the preceding contract
quarter. Referral volumes shall be tracked by Wired and reported to Nettaxi with
each payment.
5.4 No Artificial Inflating of Referral Numbers. Nettaxi shall not,
-------------------------------------------
nor shall it permit or encourage others to, engage in behavior that would cause
Referrals other than by bona fide users who are not employees or contractors of
Nettaxi. Without limiting the foregoing, Nettaxi shall not: (i) use, or permit
to be used, robots that would cause Referrals, or (ii) compensate employees or
contractors for manually causing Referrals.
5.5 Other Revenue Opportunities. Lycos and Nettaxi shall work
-----------------------------
together to develop additional revenue opportunities related to Nettaxi
Services. Allocation of any such revenues shall be agreed on a case-by-case
basis.
5.6 Taxes. All fees and payments stated herein exclude, and Nettaxi
-----
shall pay, any sales, use, property, license, value added, withholding, excise
or similar tax, federal, state or local, related to the Parties' performance of
their obligations or exercise of their rights under this Agreement and any
related duties, tariffs, imposts and similar charges, exclusive of taxes based
on Wired's net income.
5.7 Inspection Rights. Each party shall maintain accurate records
------------------
with respect to the calculation of all payments due under this Agreement. Each
party shall have the right, at its expense (except as provided below) to audit
the other party's books and records for the purpose of verifying such payments.
<PAGE>
Such audits shall be made not more than twice per year, on not less than ten
(10) days written notice, during regular business hours, by auditors reasonably
acceptable to the party being audited. If the auditor's figures reflect records
higher than those-reported by the party being audited, then the party being
audited shall pay the difference. If the auditor's figures vary more than 10%
from the figures provided by the party being audited, then the party being
audited shall also pay the reasonable cost of the audit.
SECTION 6. EXCLUSIVITY.
During the Term, Wired and Lycos will be the exclusive providers of
Internet search, navigation, directory services, personal start pages, personal
home pages and email services on
the Nettaxi Site (including any successor sites); provided that Wired and Lyrcos
are not obligated
to provide any such additional services not provided for in this Agreement
unless it expressly agrees to do so in writing. Nettaxi shall not display any
reference to any competitor of Wired or Lycos on the Nettaxi Site. The term
"competitor" is defined as: Yahoo, Northern Lights, Excite/AtHome, InfoSeek,
Snap, Cnet, Planet Direct, AltaVista, GeoCities, LookSmart, MetaCrawler, Mining
Company, GoTo and Go Network, or other competitor as Wired may designate once
per contract quarter.
SECTION 7. DISCLAIMER OF WARRANTIES.
HOTBOT SEARCH, WIRED CONTENT AND NETTAXI START PAGES, ALL UNDERLYING
SOFTWARE AND ALL DATA CONTAINED THEREIN ARE PROVIDED"AS IS."' WIRED AND LYCOS
DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED,WITH RESPECT TO SUCH SERVICES,
INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF ACCURACY OR RELIABILITY OF DATA,
NONINFRINGEMENT, MERCHANTABILITY, FITNESS FOR A PARTICULAR USE, OR ARISING FROM
THE COURSE OF DEALING BETWEEN THE PARTIES OR USAGE OF TRADE.
SECTION 8. CONFIDENTIAL INFORMATION.
8.1 Definition. "Confidential Information" means confidential and
---------- -------------------------
proprietary information which relates to the parties' business, products and
services, including but not limited to data, trade secrets, discoveries, ideas,
concepts, know-how, techniques, software, business activities and operations,
reports, studies and other technical and business information and, under the
circumstances of disclosure, would be deemed confidential or proprietary by a
reasonable business person. Notwithstanding the foregoing, Confidential
Information shall not include any information which is (a) information which has
become publicly available without breach hereunder by the receiving party or
another person, (b) information which was rightfully received by the receiving
party from a source not under obligation of confidentiality to the disclosing
party, (c) information in the possession of the receiving party, in written or
other recorded form, prior to disclosure by the disclosing party, (d)
<PAGE>
information which is developed by the receiving party independent of any
information disclosed hereunder, and (e) information which the disclosing party
has approved in writing for release by the receiving party without restriction.
8.2 No Disclosure. Each party agrees that it will keep in
--------------
confidence all Confidential Information of the other party and that it will not
directly or indirectly disclose to any third party or use for its own benefit,
or use for any purpose other than the performance of its obligations under this
Agreement, any Confidential Information it receives from the other party. Each
party agrees to use reasonable care to protect the other party's Confidential
Information, and in no event less than the same degree of care to protect the
other party's Confidential Information as it would employ with respect to its
own information of like importance which it does not desire to have published or
disseminated. Notwithstanding the foregoing, either party hereto may disclose
any Confidential Information hereunder to such party's attorneys and other
representatives, if required to do so under law or in a judicial or other
governmental investigation or proceeding, provided the other party has been
given prior notice and the disclosing party has sought all available safeguards
against widespread dissemination prior to such disclosure, or any court or other
tribunal of competent jurisdiction as reasonably required to resolve any dispute
between the parties hereto.
8.3 Remedies. The parties each agree that any breach of this
--------
Section 8 would cause irreparable harm or injury to the other party
significantly in excess of the value received by such other party pursuant to
this Agreement, and that such other party shall be entitled to declaratory,
injunctive or other equitable relief, in addition to any other legal or
equitable remedies it may have, for any such breach.
8.4 Return of Confidential Information. Each party shall return or
------------------------------------
destroy all Confidential Information promptly upon the request of the other
party or upon termination of this Agreement.
SECTION 9. LIMITATION OF LIABILITY.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARYAND EXCEPT WITH
RESPECT TO OBLIGATIONS TO PAY MONEY UNDER SECTION 5 AND THE INDEMNITY
OBLIGATIONS UNDER SECTION 10, UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT
UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE
THEORY FOR (A) ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE, SPECIAL OR
EXEMPLARY DAMAGES (INCLUDING, WITHOUT LIMITATION, LOSS OF REVENUE OR GOODWILL OR
ANTICIPATED PROFITS OR LOST BUSINESS), EVEN IF SUCH PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES; OR (B) THE COST OF PROCUREMENT OF SUBSTITUTE
SERVICES,TECHNOLOGY, DATA OR CONTENT.
<PAGE>
SECTION 10. INDEMNIFICATION.
10.1 By Wired. Wired, at its own expense, shall indemnify, defend
---------
and hold harmless Nettaxi, and its officers, directors, employees,
representatives and agents, and each of them, against any third party claim,
demand, suit, action, or other proceeding brought against such person, and all
damages, awards, settlements, liabilities, losses, costs and expenses related
thereto (including without limitation attorneys' fees) to the extent that such
claim, suit, action or other proceeding is based an or arises from any claim
that (a) the underlying source code or object code for the HotBot Personal
Search Tool infringes any copyright or U.S. patent or (b) any of the Wired Brand
Features infringes any valid copyright or trademark.
10.2 By Lycos Lycos, at its own expense, shall indemnify, defend
---------
and hold harmless Nettaxi, and its officers, directors, employees,
representatives and agents, and each of them, against any third party claim,
demand, suit, action, or other proceeding brought against such person, and all
damages, awards, settlements, liabilities, losses, costs and expenses related
thereto (including without limitation attorneys' fees) to the extent that such
claim, suit, action or other proceeding is based on or arises from any claim
that (a) the underlying, source code or object code for Nettaxi Start Pages
infringes any copyright or U.S. patent (b) any of the Lycos Brand Features
infringes any valid copyright or trademark.
10.3 By Nettaxi. Nettaxi, at its own expense, shall indemnify,
-----------
defend and hold harmless Lycos and Wired, and their respective officers,
directors, employees, representatives and agents, and each of them, against any
third party claim, suit, action, or other proceeding brought against such
person, and all damages, awards, settlements, liabilities, losses, costs and
expenses related thereto (including without limitation attorneys' fees) to the
extent that such claim, suit, action or other proceeding is based on or arises
from (a) any claim that any of the Nettaxi Brand Features infringe any valid
copyright or trademark or (b) operation of the Nettaxi Site.
10.4 Procedure. All indemnification obligations under this Section
---------
10 shall be subject to the following requirements: (a) the indemnified party
shall provide the indemnifying party with prompt written notice of any claim;
(b) the indemnified party shall permit the indemnifying party to assume and
control the defense of any action (unless, in the opinion of counsel of the
indemnified party, such assumption would result in a material conflict of
interest); and (c) the indemnified party shall not enter into any settlement or
compromise of any claim without the indemnifying party's prior written consent.
In addition, the indemnified party may, at its own expense, participate in its
defense of any claim.
SECTION 11. TERMINATION.
11.1 Term. This Agreement shall have an initial term of two (2)
----
years from the Effective Date and shall automatically renew for successive
one-year terms unless (a) either party provides the other party written notice
of non-renewal at least thirty (30) days prior to the expiration of the then
<PAGE>
current term or (b) terminated earlier in accordance with Section 11.2. The
initial term and all renewal terms are collectively referred to in this
Agreement as the "Term."
11.2 Early Termination.
------------------
(a) Termination Conditions. This Agreement may be terminated (i) by
-----------------------
any Party
immediately upon written notice if the other party (A) becomes insolvent; (B)
files a petition in bankruptcy; or (C) makes an assignment for the benefit of
its creditors; (ii) by any Party at such time as Wired or Lycos ceases offering
any of the above-described services to third parties; or (iii) by any Party for
any reason or no reason upon ninety (90) days prior written notice,
(b) Non-Exclusive Remedy. Except as explicitly set forth elsewhere in
--------------------
this
Agreement, the foregoing rights of termination shall be in addition to any other
legal or equitable remedies that the terminating party may have.
11.3 Survival of Certain Provisions. The provisions of Sections I
---------------------------------
(Definitions), 4.1 (Ownership), 4.3 (No Other Rights), 7 (Disclaimer of
Warranties), 8 (Confidential Information),
9 (Limitation of Liability), 10 (Indemnification), 12 (General Provisions) and
this Section 11.3, as well as any accrued payment obligations under Section 5,
shall survive any termination of this Agreement.
SECTION 12. GENERAL PROVISIONS.
12.1 Entire Agreement. This Agreement, including the Exhibit hereto,
----------------
represents the entire agreement between the parties with respect to the subject
matter hereof and thereof and shall supersede all prior agreements and
communications of the parties, oral or written.
12.2 Amendment and Waiver. No amendment to any provision of this
----------------------
Agreement shall be effective unless in writing and signed by all parties. The
waiver by either party of a breach or a default of any provision of this
Agreement by the other party shall not be construed as a waiver of any
succeeding breach of the same or any other provision, nor shall any delay or
omssion on the part of either party to exercise or avail itself of any right,
power or privilege that it has, or may have, hereunder, operate as a waiver of
any right, power or privilege by such party.
12.3 Choice of Law and Forum. This Agreement, its interpretation,
--------------------------
performance or any breach thereof, shall be construed in accordance with, and
all questions with respect thereto shall be determined by, the laws of the State
of California applicable to contracts entered into and wholly to be performed
within said state. The parties hereby consent to the personal jurisdiction of
California, acknowledge that venue is proper in any state or Federal court in
<PAGE>
the California, agrees that any action related to this Agreement must be brought
in a state or Federal court in the California, and waive any objection such
party has or may have in the future with respect to any of the foregoing.
12.4 Legal Fees. The prevailing party in any legal action brought by
----------
one party against the other and arising out of this Agreement shall be entitled,
in addition to any other rights and remedies it may have, to reimbursement for
its expenses, including court and arbitration costs, as well as reasonable
attorneys' fees.
12.5 Successors and Assigns. Neither party shall assign its rights
------------------------
or obligations under this Agreement without the prior written consent of the
other party, provided that Wired and Lycos shall be permitted to assign its
rights and obligations to an acquiring or successor entity in connection with a
merger, a sale of Wired's or Lycos' business or a sale of all or substantially
all of Wired's or Lycos' assets. All terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective permitted transferees, successors and assigns.
12.6 Notices. All notices, requests, consents and other
-------
communications which are required or permitted hereunder shall be in writing,
and shall be delivered by registered U.S. mail, postage prepaid (effective three
(3) days after mailing) or sent by facsimile or electronic mail, with a
confirmation copy simultaneously sent by U.S. mail, postage prepaid (effective
upon transmission), at the addresses set forth on the signature page hereto.
Notice of change of address shall be given in the same manner as other
communications.
12.7 Severability. If any provision of this Agreement is held to be
------------
invalid, illegal or unenforceable for any reason, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
12.8 Good Faith. The parties agree to act in good faith with respect
-----------
to each provision of this Agreement and any dispute that may arise related
hereto.
12.9 Headings. The section headings contained in this Agreement are
--------
included for convenience only, and shall not limit or otherwise affect the terms
of this Agreement.
12.10 Counterparts. This Agreement may be executed in two
------------
counterparts, both of which taken together shall constitute a single instrument.
Execution and delivery of this Agreement may be evidenced by facsimile
transmission.
<PAGE>
This Internet Services Suite Agreement has been executed by the parties
effective as of the Effective Date.
WIRED DIGITAL, INC. LYCOS, TNC.
By: /s/ Elizabeth Vandendike By: /s/ Thomas E. Guilford
Name: Elizabeth Vandendike Name: Thomas E.Guilford
Title: President Title: VP Finance/Admin.
Address: Address:
Wired Digital, Inc. Lycos, Inc.
Attn.: General Counsel 400-2 Totten Pond Road
660 Third Street, 4h Floor Waltham, MA 02154
San Francisco, CA 94107 Tel.: (781) 370-2700
Tel.: (415) 276-8400 Fax: (781) 370-2800
Fax: (415) 276-8499 Attn.: General Counsel
Reviewed By
WIRED DIGITAL LEGAL
Initial /s/ CP
NETTAXI
By: /s/ Dean Rositano
Name: Dean Rositano
Title: President
Address:
2165 S. Bascom Ave.
Campbell, CA 95008
Attn.:
Tel.: (408) 879-9880
Fax: (408) 879-9907
Email: [email protected]
<PAGE>
EXHIBIT A
---------
1. ADDITIONAL MARKETING PROVISIONS
A. HOTBOT BANNER ADVERTISEMENTS:
i. Throughout the Term, Nettaxi shall serve 1,000,000 "468 x 60"
banner impressions per month promoting Nettaxi Start Pages on a
"run-of-site" basis across the Nettaxi Site, which creative materials will
be furnished by Lycos and modified by Lycos from time to time at Lycos'
sole discretion.
ii. Throughout the Term, Nettaxi shall serve 1,000,000 "468 x 60"
banner impressions per month promoting the HotBot Personal Search Tool on a
"run-of-site" basis across the Nettaxi Site, which creative materials will
be furnished by Wired and modified by Wired from time to time at Wired's
sole discretion.
B. 9-MAIL PROMOTIONS: At least once per contract quarter of the Term,
Nettaxi shall deliver a direct e-mail to each of Nettaxi's registered users
containing a marketing message written by Wired and/or Lycos regarding new
features in the Wired and Lycos services. Such e-mails shall not contain
any other promotional elements.
2. NET ADVERTISING REVENUE
Lycos shall pay Nettaxi according to the Payment Schedule an amount
equal to forty percent (40%) of Net Advertising Revenue derived from
Nettaxi Start Pages. If Nettaxi fails to deliver the guaranteed level of
Referrals during two consecutive contract quarters during the Term, the
percentage of Net Advertising Revenue used in the Formula for computation
of Nettaxi quarterly payment shall decrease to thirty-five percent (35%),
as described above in Section 3.3(b).
<PAGE>
AGREEMENT TO ENGAGE THE PHOENIX GROUP INTERNATIONAL, LLC
AS FINANCIAL CONSULTANTS FOR NETTAXI INC.
The Phoenix Group International, LLC ("TPGI" or the "Consultant") hereby submits
to Nettaxi, Inc. ("Nettaxi" or the "Company') this Financial Consulting
Agreement (the "Agreement") outlining the terms pursuant to which TPGI would be
willing to act as Financial Consultants to Nettaxi in the Company's efforts to
seek additional business/business relationships that will be of benefit to the
Company.
I. ENGAGEMENT
----------
Nettaxi hereby engages and retains TPGI as Financial Consultants to perform the
Services (as that term is hereinafter defined) and TPGI hereby accepts such
appointment on the terms and subject to the conditions hereinafter set forth and
agrees to use its best efforts in providing such Services.
II. INDEPENDENT CONTRACTOR
-----------------------
TPGI shall be, and in all respects be deemed to be, an independent
contractor in the performance of its duties hereunder, any law of any
jurisdiction to the contrary notwithstanding.
A. TPGI shall be solely responsible for making all payments to and on
behalf of its employees and subcontractors, including those required
by law, and Nettaxi shall in no event be liable for any debts or other
liabilities of TPGI.
B. TPGI shall not, by reason of this Agreement or the performance of the
Services, be or be deemed to be, an employee, agent, partner,
co-venturer or controlling person of Nettaxi, and TPGI shall have no
power to enter into any agreement on behalf of, or otherwise bind
Nettaxi. Without limiting the foregoing, TPGI shall not enter into any
contract or commitment on behalf of Nettaxi.
C. Subject to II D below, TPGI shall not have or be deemed to have,
fiduciary obligations or duties to Nettaxi and shall be free to
pursue, conduct and carry on for its own account (or for the account
of others) such activities, employments, ventures, businesses and
other pursuits as TPGI in its sole, absolute and unfettered
discretion, may elect.
D. Notwithstanding the above, no activity, employment, venture, business
or other pursuit of TPGI during the term of this agreement shall
conflict with TPGI's obligations under this Agreement or be adverse to
Nettaxi's interests during the term of this Agreement.
III. SERVICES
--------
TPGI agrees to provide the following, hereinafter collectively referred to as
the "Services":
Serve as Financial Consultants for Nettaxi, which shall include, but not be
limited to, those activities outlined herein and in the Support Services
schedule, attached hereto and hereby incorporated as part of this Agreement
as Exhibit B. TPGI shall: a) complete an analysis of Nettaxi's business and
industry, and follow with a comprehensive background report that summarizes
Nettaxi's corporate and financial profile that shall be distributed to
investment professionals and the press, b) issue regular updates of said
report, (TPGI shall submit the above referenced report and update to
Nettaxi no later than five days prior to the proposed release date for
Nettaxi's review of factual content as it relates to Nettaxi and for the
general comment(s) of Nettaxi and/or its legal counsel. However, analysis
of the Company, industry and market conditions shall be conducted by TPGI
in its sole discretion and without bias.) c) coordinate with and offer
input to, the Company's Public Relations and Investor Relation Firms in the
development of a complete financial public relations program designed to
enable Nettaxi to establish its business objectives and broaden recognition
of Nettaxi in the financial community in the U.S. and abroad, d) TPGI shall
coordinate with the Company's Investor Relations representative(s) to
establish a comprehensive mailing list for Nettaxi, and maintain and update
the list as necessary, e) utilize its commercially reasonable efforts to
meet with and/or arrange management meetings with, "buy-side" traders,
analysts and portfolio managers, and f) utilize its commercially reasonable
efforts to meet with and/or arrange management meetings with "sell-side"
analysts in an effort to secure additional research coverage of Nettaxi.
A. TPGI acknowledges and agrees that it is being granted non-exclusive
rights with respect to the Services to be provided to Nettaxi and that
Nettaxi is free to engage other parties to provide services and
products similar to those being provided by TPGI hereunder.
<PAGE>
B. Assist Nettaxi in efforts to seek additional business/business
relationships that will be of benefit to Nettaxi.
C. Introduce Nettaxi to potential underwriters for a secondary
underwriting in an amount of Thirty to Fifty Million dollars ($30 -
$50,000,000) and advise Nettaxi in their negotiations for the terms
and timing of said financing.
D. Advise Nettaxi and/or any of its affiliates in its negotiations with
one or more individuals, firms or entities (the "Candidate(s)") who
may have an interest in providing investment capital in the form of
bridge financing, private placement financing, media financing, or in
pursuing a form of Business Combination with Nettaxi. As used in this
Agreement, the term "Business Combination" shall be deemed to mean any
form of merger, acquisition, joint venture, licensing agreement,
product sales and/or marketing, distribution, combination and/or
consolidation, etc. involving Nettaxi and/or any of its affiliates and
any other entity.
E. BEST EFFORTS. TPGI shall devote such time and effort as it deems
commercially reasonable under the circumstances to the affairs of
Nettaxi as is reasonable and adequate to render the consulting
services contemplated by this agreement. TPGI is not responsible for
the performance of any services which may be rendered hereunder
without Nettaxi providing the necessary information in writing prior
thereto, nor shall TPGI include any services that constitute the
rendering of any legal opinions or performance of work that is in the
ordinary purview of the Certified Public Accountant. TPGI cannot
guarantee results on behalf of Nettaxi, but shall pursue all
reasonable avenues available through its network of contacts. At such
time as an interest is expressed by a third party in Nettaxi's needs,
TPGI shall notify Nettaxi and advise it as to the source of such
interest and any terms and conditions of such interest. The acceptance
and consumption of any transaction is subject to acceptance of the
terms and conditions by Nettaxi in its sole discretion. It is
understood that a portion of the compensation paid hereunder is being
paid by Nettaxi to have TPGI remain available to advise it on
transactions on an as-needed basis.
F. In conjunction with the Services, TPGI agrees to:
1. Make itself available to the officers of Nettaxi at such mutually
agreed upon place during normal business hours for reasonable
periods of time, subject to reasonable advance notice and
mutually convenient scheduling, for the purpose of advising
Nettaxi in the preparation of such reports, summaries, corporate
and/or transaction profiles, due diligence packages and/or other
material and documentation ("Documentation") as shall be
necessary, in the opinion of TPGI, to properly present Nettaxi to
other entities and individuals that could be of benefit to
Nettaxi.
2. Make itself available for telephone conferences with the
principal financial sales and/or operating officer(s) of Nettaxi
during normal business hours.
3. Advise Nettaxi's management in corporate finance, structuring the
nature, extent and other parameters of any private or other
offer(s) to be made to Candidate(s).
4. Advise Nettaxi management in evaluating proposals and
participating in negotiations with Candidate(s).
5. Advise Nettaxi regarding company operations, staffing, strategy,
and other issues related to building shareholder value as Nettaxi
may reasonably request, consistent with the provisions of this
Agreement.
6. Provide Nettaxi with monthly reports summarizing TPGI's
activities under the terms of this Agreement and its planned
activities for the month ahead.
IV. EXPENSES
--------
It is expressly agreed and understood that each party shall be responsible for
its own normal and reasonable out-of-pocket expenses which shall include:
accounting, long distance communication, and the printing and mailing of
materials, except as outlined in Exhibit B hereto.
V. COMPENSATION
------------
In consideration for the Services, Nettaxi agrees that TPGI shall be entitled to
compensation as follows:
A. Nettaxi shall grant and deliver to TPGI an Option to purchase:
<PAGE>
1. 35,000 shares of Nettaxi at $(the closing bid price on the date
of Agreement of terms)
2. 22,500 shares of Nettaxi at $ (150% of the closing bid price on
the date of Agreement of terms)
3. 22,500 shares of Nettaxi at $ (200% of the closing bid price on
the date of Agreement of terms)
4. 22,500 shares of Nettaxi at $ (250% of the closing bid price on
the date of Agreement of terms)
5. 22,500 shares of Nettaxi at $ (300% of the closing bid price on
the date of Agreement of terms)
The Option shall be valid for a period of twenty-four (24) months from the
date hereof and the shares underlying the Option shall carry piggyback
registration rights.
B. If, at any time during the term of this Agreement Nettaxi obtains any
financing from any of the entities, affiliations or persons TPGI, its
employees or former employees, agents, representatives advisors, or
consultants introduces to Nettaxi, Nettaxi will pay a finder's fee to
TPGI. This fee shall be subject to the approval the Board of Directors
and shall be negotiated in good faith by both parties and shall be
consistent with commercially reasonable industry practice.
VI. REPRESENTATIONS, WARRANTIES AND COVENANTS SEC & LEGAL COMPLIANCE. TPGI
--------------------------------------------------------------------
hereby represents that it has in place policies and procedures relating to,
and addressing, with the commercially reasonable intent to ensure
compliance with, applicable securities laws, rules and regulations,
including, but not limited to:
1. The use, release or other publication of forward-looking
statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act
2. Disclosure requirements outlined in Section 17B of the Exchange
Act regarding the required disclosure of the nature and terms of
TPGI's relationship with Nettaxi in any and all TPGI literature
or other communication(s) relating to Nettaxi, including, but not
limited to: Research Reports, Press Releases, Publications on
TPGI's website, letters to investors and telephone or other
personal communication(s) with potential or current investors.
TPGI further acknowledges that by the very nature of its relationship
with Nettaxi it will, from time to time, have knowledge of or access
to material non-public information (as such term is defined by the
Exchange Act) TPGI hereby agrees and covenants that:
1. TPGI will not make any purchases or sales in the stock of Nettaxi
based on such information.
2. TPGI will utilize its commercially reasonable efforts to
safeguard and prevent the dissemination of such information to
third parties unless authorized in writing by Nettaxi to do so as
may be necessary in the performance of its Services under this
Agreement.
3. TPGI will not, in any way, utilize or otherwise include such
information, in actual form or in substantive content, in its
analysis for, preparation of or release of any TPGI literature or
other communication(s) relating to Nettaxi, including, but not
limited to: Research Reports, Press Releases, Publications on
TPGI's website, letters to investors and telephone or other
personal communication(s) with potential or current investors.
B. EXECUTION. The execution, delivery and performance of this Agreement,
---------
in the time and manner herein specified, will not conflict with,
result in a breach of, or constitute a default under any existing
agreement, indenture, or other instrument to which either Nettaxi or
TPGI is a party or by which either entity may be bound or affected.
C. NON-CIRCUMVENTION. Nettaxi hereby irrevocably agrees not to
-----------------
circumvent, avoid, bypass, or obviate, directly or indirectly, the
intent of this Agreement, to avoid payment of fees in any transaction
with any corporation, partnership or individual introduced by TPGI to
Nettaxi, in connection with any project, any loans or collateral, or
other transaction involving any products, transfers or services, or
addition, renewal extension, rollover, amendment, renegotiations, new
contracts, parallel contracts/agreements, or third party assignments
thereof.
D. TIMELY APPRISALS. Nettaxi shall use its commercially reasonable
-----------------
efforts to keep TPGI up to date and apprised of all business, market
and legal developments related to Nettaxi and its operations and
management.
<PAGE>
1. Accordingly, Nettaxi shall provide TPGI with copies of all
amendments, revisions and changes to its business and marketing
plans, bylaws, articles of incorporation, private placement
memoranda, key contracts, employment and consulting agreements
and other operational agreements.
2. Nettaxi shall promptly notify TPGI of all new contracts,
agreements, joint ventures or filings with any state, federal or
local administrative agency, including without limitation the
SEC, NASD or any state agency, and shall provide all related
documents, including copies of the exact documents filed, to
TPGI, including without limitation, all annual reports, quarterly
reports and notices of change of events, and registration
statements filed with the SEC and any state agency, directly to
TPGI.
3. Nettaxi shall also provide directly to TPGI current financial
statements, including balance sheets, income statements, cash
flows and all other documents provided or generated by Nettaxi in
the normal course of its business and requested by TPGI from time
to time.
4. TPGI shall keep all documents and information supplied to it
hereunder confidential as described in the section below titled,
"CONFIDENTIAL DATA".
E. CORPORATE AUTHORITY. Both Nettaxi and TPGI have full legal authority
--------------------
to enter into this Agreement and to perform the same in the time and
manner contemplated.
F. The individuals whose signatures appear below are authorized to sign
this Agreement on behalf of their respective corporations.
G. Nettaxi will cooperate with TPGI, and will promptly provide TPGI with
all pertinent materials and requested information in order for TPGI to
perform its Services pursuant to this Agreement.
H. When delivered, the shares of Nettaxi's Common Stock shall be duly and
validly issued, fully paid and non-assessable.
I. Nettaxi acknowledges and understands that TPGI is not a broker-dealer
and Nettaxi may be required to pay additional underwriting fees in
connection with any offerings, underwritings or financings to the
appropriate underwriter and/or funding entity in addition to any fees
paid to TPGI.
J. TPGI represents and warrants to Nettaxi that a) it has the experience
and ability as may be necessary to perform all the required Services
with a high standard of quality, b) all Services will be performed in
a workmanlike and professional manner, and c) all individuals it
provides to perform the Services will be appropriately qualified and
subject to appropriate agreements concerning the protection of trade
secrets and confidential information of Nettaxi which such persons may
have access to over the term of this Agreement
K. Nettaxi also agrees to enter into such additional agreements, sign
such additional documents, and provide such additional certifications
and documentation as may be requested by TPGI, the Escrow Agent, the
Placement Agent, Underwriter or such other parties related to the
obtaining of capital for Nettaxi on such terms as may be acceptable to
Nettaxi and TPGI.
L. Until termination of the engagement, Nettaxi will notify TPGI promptly
of the occurrence of any event, which might materially affect the
condition (financial or otherwise), or prospects of Nettaxi.
M. Nettaxi also agrees to provide on a monthly basis, a summary of
current shareholders of Nettaxi's stock, and shall deliver monthly
Depository Trust Corporation (DTC) shareholder summary sheets, or
other such information as requested by TPGI to be delivered to TPGI
within seven (7) days.
VII. TERM AND TERMINATION The term of this Agreement shall be two years from the
--------------------
date of execution.
VIII. CONFIDENTIAL DATA
-----------------
A. TPGI shall not divulge to others, any trade secret or confidential
information, knowledge, or data concerning or pertaining to the
business and affairs of Nettaxi, obtained by TPGI as a result of its
engagement hereunder, unless authorized, in writing by Nettaxi. TPGI
represents and warrants that it has established appropriate internal
procedures for protecting the trade secrets and confidential
information of Nettaxi, including, without limitation, restrictions on
disclosure of such information to employees and other persons who may
be engaged in rendering services to any person, firm or entity which
may be competitor of Nettaxi.
<PAGE>
B. Nettaxi shall not divulge to others, any trade secret or confidential
information, knowledge, or data concerning or pertaining to the
business and affairs of TPGI, obtained as a result of its engagement
hereunder, unless authorized, in writing, by TPGI.
C. TPGI shall not be required in the performance of its duties to divulge
to Nettaxi, or any officer, director, agent or employee of Nettaxi,
any secret or confidential information, knowledge, or data concerning
any other person, firm or entity (including, but not limited to, any
such person, firm or entity which may be a competitor or potential
competitor of Nettaxi) which TPGI may have or be able to obtain other
than as a result of the relationship established by this Agreement.
IX. OTHER MATERIAL TERMS AND CONDITIONS:
-----------------------------------
A. INDEMNITY. The parties hereto agree to provide indemnification to each
---------
other according to the provisions attached hereto as Exhibit A (the
"Indemnification Provisions").
B. PROVISIONS. Neither termination nor completion of the assignment shall
----------
affect the provisions of this Agreement, and the Indemnification
Provisions which are incorporated herein, which shall remain operative
and in full force and effect.
C. ADDITIONAL INSTRUMENTS. Each of the parties shall from time to time,
-----------------------
at the request of others, execute, acknowledge and deliver to the
other party any and all further instruments that may be reasonably
required to give full effect and force to the provisions of this
Agreement.
D. ENTIRE AGREEMENT. Each of the parties hereby covenants that this
-----------------
Agreement, together with the exhibits attached hereto as earlier
referenced, is intended to and does contain and embody herein all of
the understandings and agreements, both written or oral, of the
parties hereby with respect to the subject matter of this Agreement,
and that there exists no oral agreement or understanding expressed or
implied liability, whereby the absolute, final and unconditional
character and nature of this Agreement shall be in any way
invalidated, empowered or affected. There are no representations,
warranties or covenants other than those set forth herein.
E. LAWS OF THE STATE OF CALIFORNIA. This Agreement shall be deemed to be
-------------------------------
made in, governed by and interpreted under and construed in all
respects in accordance with the laws of the State of California,
irrespective of the country or place of domicile or residence of
either party. In the event of controversy arising out of the
interpretation, construction, performance or breach of this Agreement,
the parties hereby agree and consent to the jurisdiction and venue of
the District or County Court of San Francisco County, California, or
the United States District Court for the District of California, and
further agree and consent that personal service or process in any such
action or proceeding outside of the State of California and San
Francisco County shall be tantamount to service in person within San
Francisco County, California and shall confer personal jurisdiction
and venue upon either of said Courts.
F. ASSIGNMENTS. The benefits of the Agreement shall inure to the
-----------
respective successors and assignees of the parties hereto and of the
indemnified parties hereunder and their successors and assigns and
representatives, and the obligations and liabilities assumed in this
Agreement by the parties hereto shall be binding upon their respective
successors and assigns; provided that the rights and obligations of
Nettaxi under this Agreement may not be assigned or delegated without
the prior written consent of TPGI, and any such purported assignment
shall be null and void. Notwithstanding the foregoing, TPGI may assign
any portion of its Compensation as outlined herein to its employees,
affiliates, sub-contractors or subsidiaries in its sole discretion.
G. ORIGINALS. This Agreement may be executed in any number of
---------
counterparts, each of which so executed shall be deemed an original
and constitute one and the same agreement. Facsimile copies with
signatures shall be given the same legal effect as an original.
H. ADDRESSES OF PARTIES. Each party shall at all times keep the other
----------------------
informed of its principal place of business if different from that
stated herein, and shall promptly notify the other of any change,
giving the address of the new place of business or residence.
I. NOTICES. All notices that are required to be or may be sent pursuant
-------
to the provision of this Agreement shall be sent by certified mail,
return receipt requested, or by overnight package delivery service to
each of the parties at the addresses appearing herein, and shall count
from the date of mailing or the validated air bill.
<PAGE>
J. MODIFICATION AND WAIVER. A modification or waiver of any of the
-------------------------
provisions of this Agreement shall be effective only if made in
writing and -- - executed with the same formality as this Agreement.
The failure of any party to -- insist upon strict performance of any
of the provisions of this Agreement shall not be construed as a waiver
of any subsequent default of the same or similar nature or of any
other nature.
K. INJUNCTIVE RELIEF. Solely by virtue of their respective execution of
-----------------
this Agreement and in consideration for the mutual covenants of each
other, Nettaxi and TPGI hereby agree, consent and acknowledge that, in
the event of a breach of any material term of this Agreement, the
non-breaching party will be without adequate remedy-at-law and shall
therefore, be entitled to immediately redress any material breach of
this Agreement by temporary or permanent injunctive or mandatory
relief obtained in an action or proceeding instituted in the District
or County Court of San Francisco County, State of California or the
United States District Court for the District of California without
the necessity of proving damages and without prejudice to any other
remedies which the non-breaching party may have at law or in equity.
For the purposes of this Agreement, each party hereby agrees and
consents that upon a material breach of this Agreement as aforesaid,
in addition to any other legal and/or equitable remedies, the
non-breaching party may present a conformed copy of this Agreement to
the aforesaid courts and shall thereby be able to obtain a permanent
injunction enforcing this Agreement or barring, enjoining or otherwise
prohibiting the other party from circumventing the express written
intent of the parties as enumerated in this Agreement.
L. ATTORNEY'S FEES. If any arbitration, litigation, action, suit, or
----------------
other proceeding is instituted to remedy, prevent or obtain relief
from a breach of this Agreement, in relation to a breach of this
Agreement or pertaining to a declaration of rights under this
Agreement, the prevailing party will recover all such party's
attorneys' fees incurred in each and every such action, suit or other
proceeding, including any and all appeals or petitions therefrom. As
used in this Agreement, attorneys' fees will be deemed to be the full
and actual cost of any legal services actually performed in connection
with the matters involved, including those related to any appeal or
the enforcement of any judgment calculated on the basis of the usual
fee charged by attorneys performing such services.
If you are in agreement with the foregoing, please execute and return one copy
of this letter to the undersigned. Thank you. We look forward to working with
you.
APPROVED AND AGREED:
The Phoenix Group International, LLC. Nettaxi, Inc.
__________________________ /s/ Robert Rositano, Jr.
---------------------------
By Paul B. Abramson, Jr. By:
Its President Its:
_____________________ 6/29/99
Date of execution Date of execution
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Nettaxi, Inc.
We hereby consent to the use of our report, in the Registration Statement on
Form S-1, dated
March 16, 1999, except for matters discussed in Note 2 for which the date is
June 5, 1999, relating to the balance sheets of Nettaxi, Inc. as of December 31,
1997 and 1998, and the related statements of operations, shareholders' equity
and cash flows for the period from October 23, 1997 (date of incorporation) to
December 31, 1997 and for the year ended December 31, 1998.
We also consent to the reference to our firm under the heading "Experts" in the
Registration Statement on Form S-1.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
San Jose, California
July 16, 1999
<PAGE>
