AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1999
REGISTRATION NO. 333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NETTAXI, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 7370 82-0486102
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification
Incorporation or Code Number) Number)
Organization)
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
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<PAGE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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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, check
the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier Registration Statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier 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 2,116,448(1) $ 17.375 $ 36,773,284 $10,502
- - --------------------------------------------------------------------------------
<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 May 4, 1999 for the purpose of calculating the
registration fee in accordance with Rule 457(c) under the Securities Act of
1933.
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</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, MAY _, 1999
PROSPECTUS
[NETTAXI INCORPORATED LOGO]
2,116,448 SHARES
COMMON STOCK
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We have prepared this Prospectus to allow RGC International Investors, LDC
("RGC"), or its pledgees, donees, transferees or other successors in interest,
to sell up to 1,991,448 shares of our Common Stock which RGC may acquire upon
conversion of convertible debentures and exercise of investment options and of
warrants acquired in a private placement. See "Description of Capital
Stock--Warrants and Debentures" and "Selling Stockholders". We entered into a
Registration Rights Agreement with RGC on March 31, 1999. This Registration
Rights Agreement requires us to file a Registration Statement with the SEC for
the resale of the Common Stock that RGC may acquire from converting the
debentures and exercising the investment options and warrants.
1
<PAGE>
We also have prepared this Prospectus to allow Wall Street Trading Group
("Wall Street") to sell up to 125,000 shares of our Common Stock which Wall
Street may acquire upon exercise of warrants previously acquired by it. Those
warrants include a requirement that we file a Registration Statement with the
SEC for the resale of the Common Stock that Wall Street may acquire from
exercising its warrants.
We are registering these shares by filing a Registration Statement with the
SEC using a "shelf" registration process. The shelf registration process allows
RGC and Wall Street to sell their shares of Common Stock over a period of time
and in varying amounts as described in "Plan of Distribution". Throughout this
Prospectus, we may refer to RGC and Wall Street as the "Selling Stockholders."
We will receive no proceeds from the sale of these shares, with the exception of
the exercise price of our warrants as they are exercised by the Selling
Stockholders and the proceeds from any exercise by RGC of it right to purchase
additional shares of our Common Stock upon conversion of the debentures, and are
paying all expenses in connection with this Registration Statement. Usual and
customary or specifically negotiated brokerage fees or commissions may be paid
by the Selling Stockholders.
The Selling Stockholders have not advised us of their plans for the
distribution of Common Stock covered by this Prospectus. We expect that the
Common Stock may be sold from time to time in negotiated transactions and in
transactions on the National Association of Security Dealers Over-the Counter
Market Bulletin Board (the "OTC Bulletin Board") at market prices at the time
of sale. Further, the Selling Stockholders may also sell the Common Stock as
distributed under "Plan of Distribution." The Selling Stockholders and the
brokers and dealers who assist in the sale of their Common Stock may be
considered an underwriter according to the Securities Act. Also, their
commissions or discounts and other compensation may be considered underwriters'
compensation. We have agreed to indemnify the Selling Stockholders against
certain liabilities, including liabilities under the Securities Act. See "Plan
of Distribution."
Our Common Stock is listed on the OTC Bulletin Board under the symbol
"NTXY." On May 4, 1999, the Closing Price of our Common Stock on the Bulletin
Board was $16.75 share. See "Price Range of Common Stock and Dividend Policy."
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SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF SOME ISSUES TO
CONSIDER BEFORE PURCHASING OUR COMMON STOCK.
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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.
2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
----
Prospectus Summary. . . . . . . . . . . . . . . . . . . . . 5
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . 9
Cautionary Note Regarding Forward-Looking Statements. . . . 20
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . 20
Price Range of Common Stock and Dividend Policy . . . . . . 20
Capitalization. . . . . . . . . . . . . . . . . . . . . . . 22
Selected Financial Data . . . . . . . . . . . . . . . . . . 23
Management's Discussion and Analysis of Financial
Conditionand Results of Operations . . . . . . . . . . . 24
Business. . . . . . . . . . . . . . . . . . . . . . . . . . 34
Management. . . . . . . . . . . . . . . . . . . . . . . . . 61
Certain Transactions. . . . . . . . . . . . . . . . . . . . 71
Selling Stockholders. . . . . . . . . . . . . . . . . . . . 74
Principal Stockholders. . . . . . . . . . . . . . . . . . . 76
Description of Capital Stock. . . . . . . . . . . . . . . . 77
Shares Eligible for Future Sale . . . . . . . . . . . . . . 83
Plan of Distribution. . . . . . . . . . . . . . . . . . . . 85
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . 87
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Where You Can Find Additional Information . . . . . . . . . 87
Index to Financial Statements . . . . . . . . . . . . . . . F-1
</TABLE>
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"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.
Except as otherwise required by the context, all references in this Prospectus
to (a) "we," "us," "our" or "Nettaxi" refer to the consolidated operations of
Nettaxi, Inc., a Nevada corporation, and its wholly-owned subsidiary, Nettaxi
Online Communities, Inc., a Delaware corporation ("NOL"), (b) "you" refers to
prospective investors in the Common Stock, (c) the "Web" refer to the World Wide
Web and (d) the "site" refer to our Web site. Unless otherwise indicated or
unless the context otherwise requires, all information in this Prospectus
assumes the conversion of all outstanding debentures and the exercise of all the
outstanding warrants and investment options by the Selling Stockholders as more
fully described in "Description of Capital Stock" and "Plan of Distribution."
3
<PAGE>
This Prospectus includes statistical data regarding us and the Internet
industry. Such data are based on our records or are taken or derived from
information published by various sources, including Media Metrix, Inc., a media
research firm specializing in market and technology measurement on the Internet
("Media Metrix"), Jupiter Communications, LLC, a media research firm focusing on
the Internet industry ("Jupiter Communications"), International Data
Corporation, a provider of market information and strategic information for the
information technology industry ("IDC"), ABC Interactive, an auditor of
statistical information for the Internet industry, Hambrecht & Quist, an
investment banking firm ("H&Q"), Price Waterhouse, ActivMedia Research, the
Direct Marketing Association, NUA Ltd., the Yankee Group, and Find/SVP. Although
we believe that data from these companies is generally reliable, this type of
data is inherently imprecise. We caution you not to place undue reliance on this
data.
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<PAGE>
PROSPECTUS SUMMARY
This summary contains basic information about us and this offering. Because
it is a summary, it does not contain all of the information that may be
important to you. You should read the entire Prospectus carefully, including the
section entitled "Risk Factors" and our financial statements and the related
notes to those statements included in this Prospectus. This Prospectus contains
certain forward-looking statements and intentions. The cautionary statements
made in this Prospectus should be read as being applicable to all related
forward-looking statements wherever they appear in this Prospectus. Our actual
results could differ materially from those discussed in this Prospectus. See
"Cautionary Note Regarding Forward-Looking Statements."
NETTAXI
Nettaxi was 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. Nettaxi is
defining a new type of Internet company -- an e-commerce-based virtual community
and vertical portal -- that is dedicated to providing enabled communities and
launch point for consumers on the Internet. Nettaxi.com is the first online
community designed to seamlessly integrate content with an economic revenue
model, providing comprehensive information about news, sports, entertainment,
health, politics, finances, lifestyle, and areas of interest to the growing
number of Internet users. Our goal is to position our 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 revenues through monthly subscriptions,
banner advertising, and e-commerce transaction fees.
Since our website was launched, traffic to our online community has
increased consistently, and growth of the monthly subscriber ("citizen") base
has begun to accelerate. The Nettaxi.com website has become one of the
Internet's busiest sites, growing quickly to over 80 million page views per
month (5 million ad views per day) by March 1999. In March 1999, Nettaxi was
ranked by 100hot in the top 28 most popular sites on the World Wide Web, and in
August 1998 was ranked number 44 on the Media Metrix/PC Meter Fastest Growing
Website list. Along the way, we have created a number of powerful assets,
including a substantial database of user profiles, a unique and proprietary
search engine that drives traffic to our community e-commerce sites, and an
expansive range of strategic alliances with dynamic e-commerce, technology, and
content partners.
We are now poised to build on our early success by implementing a growth
strategy that, if successful, should make us a major turnkey 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 award-winning Internet training
tool to educate computer users about the Internet and introduce them to our
website, continued development of strategic partnerships, and an aggressive
acquisition program. See "Business- Our Strategy."
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<PAGE>
Our business was initially operated by Nettaxi Online Communities, Inc.
("NOL"), which was incorporated in Delaware in October 1997. In September 1998,
NOL entered into a reorganization (the "Reorganization") with a non-operating
public company, Swan Valley Snowmobiles, Inc., a Nevada corporation incorporated
in October 1995 ("SVSI"). From its incorporation, SVSI engaged in the business
of snowmobile repair. During the first half of 1997, SVSI determined that this
line of business was no longer feasible and discontinued its operations. At the
time of the Reorganization, SVSI was not actively engaged in any trade or
business. In the Reorganization, (i) the stockholders of NOL received shares of
Common Stock of SVSI, (ii) NOL became a wholly-owned subsidiary of SVSI, (iii)
all of the executive officers and directors of SVSI resigned and the executive
officers and directors of NOL became the executive officers and directors of
SVSI; and (iv) SVSI changed its name to Nettaxi, Inc. Our principal executive
offices are located at 1696 Dell Avenue, Campbell, California 95008. Our
telephone number at this address is (408) 879-9880.
INFORMATION CONTAINED ON OUR WEB SITE SHOULD NOT BE CONSIDERED A PART OF THIS
PROSPECTUS.
6
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<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock offered by Selling 2,116,448 shares(1)
Stockholders
Common Stock to be outstanding 23,226,448 shares(1)(2)
after this Offering
Use of proceeds Other than the exercise price of such of the
warrants as may be exercised, and the amount
received by us in the event that RGC exercises
its option to acquire additional shares of our
Common Stock upon conversion of the
convertible debentures, none of the proceeds
from the sale of the shares by the Selling
Stockholders will be received by us. The gross
proceeds to us in the event that all of the
warrants are exercised and RGC exercises its
option to acquire additional shares of our
Common Stock would be approximately
$7,879,861. Any proceeds received by us will
be utilized for working capital and general
corporate purposes.
Nasdaq Bulletin Board Symbol NTXY
- - -----------
<FN>
(1) Includes all shares issuable, as of May 4, 1999, upon conversion of the
convertible debentures and exercise of the warrants. See "Selling Stockholders."
(2) Does not include 680,000 shares reserved for issuance upon exercise of
outstanding stock options and warrants, other than the warrants held by the
Selling Stockholders.
</TABLE>
7
<PAGE>
RISK FACTORS
Purchasers of our Common Stock should carefully consider the risk factors
set forth under the caption "Risk Factors" beginning on page 9 and the other
information included in this Prospectus prior to making an investment decision
regarding the Common Stock. An investment in the shares of our Common Stock
offered hereby involves a high degree of risk. We have a limited operating
history and anticipate losses and negative operating cash flow for the
foreseeable future. Our operations are dependent on the growth and commercial
viability of the Internet and an unproven business model, and are subject to
government regulation and legal uncertainties associated with the Internet,
security risks and intense competition. See "Risk Factors" for a description of
these and other risks.
SUMMARY FINANCIAL DATA
Set forth below are summary statements of operations data for the period
from October 23, 1997 (inception) to December 31, 1997 and the year ended
December 31, 1998, and summary balance sheet data as of December 31, 1998. This
information should be read in conjunction with the Financial Statements and
Notes thereto appearing elsewhere in this Prospectus. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
For the Period From October 23, 1997
(Date of Incorporation)To December31, 1997
and for the Year ended December 31, 1998
----------------------------------------
1997 1998
------------ -------------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Net revenues $ 144,900 $ 258,000
Gross profit $ 57,500 $ 18,200
Loss from operations $ (142,100) $(3,082,300)
Net loss $ (159,700) $(3,113,600)
Net loss available
to common shareholders $ (327,200) $ (3,127,900)
Basic loss per share $ (0.06) $ (0.37)
Diluted loss per share $ (0.06) $ (0.37)
WEIGHTED-AVERAGE COMMON SHARES:
Basic outstanding shares 5,483,500 8,499,781
Diluted outstanding shares 5,483,500 8,499,781
BALANCE SHEET DATA:
Working capital $ (222,900) $ 300,400
Total assets $2,082,300 $ 1,652,700
Long-term liabilities $ 773,500 $ 5,400
Total stockholders' equity $ 973,400 $ 1,332,100
</TABLE>
8
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RISK FACTORS
You should consider carefully the following risks before you decide to buy
our Common Stock. We have described these risks and uncertainties under the
following general categories: "Risks Related to Our Business," "Risks Related to
the Internet Industry" and "Risks Related to the Market for Our Common Stock."
Our business, financial condition or results of operations could be materially
and adversely affected by any of these risks. In that case, the trading price of
our Common Stock could decline, and you may lose all or part of the money you
paid to buy our Common Stock. You should also consider the risks and
uncertainties associated with forward-looking statements included in this
Prospectus with respect to our plans, objectives, expectations, and intentions.
See "Cautionary Note Regarding Forward-Looking Statements."
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE OUR POTENTIAL FOR
FUTURE SUCCESS
We were incorporated in October 1997. Accordingly, we have only a limited
operating history upon which you can evaluate our business and prospects. You
must consider the risks and uncertainties frequently encountered by early stage
companies in new and rapidly evolving markets, such as electronic commerce. If
we are unsuccessful in addressing these risks and uncertainties, our business,
results of operations and financial condition will be materially and adversely
affected.
WE HAVE A HISTORY OF LOSSES, AND WE EXPECT LOSSES FOR THE FORESEEABLE FUTURE
Since our inception in October 1997, 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 December 31, 1998, we had an
accumulated deficit of $3.46 million. Because of our plans to invest heavily in
marketing and promotion, to hire additional employees, and to enhance our Web
site and operating infrastructure, we expect to incur 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.
OUR FUTURE REVENUES ARE UNPREDICTABLE AND OUR QUARTERLY OPERATING RESULTS MAY
FLUCTUATE SIGNIFICANTLY
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 Website, the number of
visitors that will become customers, or the amount of sponsorship and
advertising revenues.
We expect our operating results to fluctuate significantly from quarter to
quarter. We believe that sponsorship and advertising sales in traditional media,
such as television and radio, generally are lower in the first and third
calendar quarters of each year. If similar seasonal and cyclical patterns emerge
9
<PAGE>
in Internet sponsorship and advertising spending, these revenues may vary
significantly based on these patterns. See "Management's Discussion and Analysis
of Financial Condition and Operations-Seasonality."
Other factors which may cause our operating results to fluctuate
significantly from quarter to quarter include:
- - - our ability to attract new and repeat visitors to our Web site and convert
them into customers;
- - - our ability to turn viewers into buyers;
- - - our ability to keep current with the evolving tastes of our target
market;
- - - our ability to manage the number of items listed on our services;
- - - the ability of our competitors to offer new or enhanced Web site features,
products or services;
- - - the demand for sponsorship and advertising on our Web site;
- - - price competition;
- - - the level of use of the Internet and online services;
- - - consumer confidence in and acceptance of the Internet and other online
services for commerce;
- - - consumer confidence in the security of transactions over the Internet;
- - - unanticipated cost increases or delays in transaction processing;
- - - unanticipated delays or cost increases with respect to product
introductions; and
- - - the costs, timing and impact of our sales and marketing initiatives.
Because of these and other 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 securities
analysts and investors in some future periods, then our stock price may decline.
YOUR HOLDINGS MAY BE DILUTED IN THE FUTURE
As of May 7, 1999 an aggregate of $5,000,000 principal amount of debentures
were outstanding, which debentures were convertible into shares of Common Stock.
Such debentures entitle the holder to exercise investment options to purchase
additional shares of Common Stock upon conversion of the debentures. If fully
converted and exercised on May 4, 1999, the debentures and investment option
would be convertible into an aggregate of 995,724 shares of 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. Purchasers of Common Stock
could therefore experience substantial dilution of their investment upon
10
<PAGE>
conversion of the debentures and exercise of the investment options. In
addition, as of May 4, 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 certain
antidilution provisions) 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.
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. See "Business- Marketing and Promotion." 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. Unlike advertising on our Website, which gives us
immediate feedback and allows us promptly to adjust our messages, advertising in
print and broadcast media is less flexible. These advertisements typically take
longer and cost more to produce and consequently have longer run times. If we
fail to convey the optimal message in these advertising campaigns, the impact
may be more lasting and more costly to correct.
- - - 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.
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 five 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.
11
<PAGE>
WE RELY HEAVILY ON THIRD PARTIES FOR ESSENTIAL BUSINESS OPERATIONS AND MAY BE
ADVERSELY AFFECTED BY DISRUPTIONS OR FAILURES IN SERVICE
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. See "Business- Strategic Alliances." 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. Further, we cannot be certain that the quality of products
and services that they provide may remain at the levels needed to enable us to
conduct our business effectively. Many of our agreements with technology and
content providers are on very favorable terms that do not include license fees,
but instead provide for revenue sharing. We may not be able to renew these
agreements on similar terms.
We rely heavily on Exodus Communications to co-locate our Web site in its
facilities in Santa Clara, California. 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. See "Business--Operations
and Information Systems" and "--Facilities."
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. These individuals have had little experience working
with our management team. We cannot be certain 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, our business, results of operations and financial
condition will be materially and adversely affected. See "Business-Employees"
and "Managment."
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. 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
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<PAGE>
intense. We may be unable to retain our key employees or attract, assimilate and
retain other highly qualified employees in the future. See
"Business--Employees" and "Management."
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY
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, 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. Competitive pressures created by any one of
these companies, or by our competitors collectively, could have a material
adverse effect on our business, results of operations and financial condition.
We believe that the principal competitive factors in our market are
community cohesion and interaction, customer service, brand recognition, Web
site convenience and accessibility, price, quality of search tools and system
reliability. Certain of our current and 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. 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,
certain of 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 in the Nettaxi brand.
There can be no assurance that we will be able to compete successfully against
current and future competitors. Further, as a strategic response to changes in
the competitive environment, we may, from time to time, make certain pricing,
service or marketing decisions or acquisitions that could have a material
adverse effect on its 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. See "Business--Competition."
WE MAY NEED FURTHER CAPITAL
We currently anticipate that our available funds will be sufficient to meet
our anticipated needs for working capital, capital expenditures and business
expansion through at least the next year. Thereafter, we may need to raise
additional funds. We may need to raise additional funds sooner in order to fund
more rapid expansion, to develop new or enhanced services or products, to
respond to competitive pressures or to acquire complementary products,
businesses or technologies. 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
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<PAGE>
and such securities may have rights, preferences and privileges senior to those
of our Common Stock. There can be no assurance that additional financing will be
available on terms favorable to us or at all. If adequate funds are not
available or are not available on acceptable terms, we may not be able to fund
expansion, take advantage of unanticipated acquisition opportunities, develop or
enhance services or products or respond to competitive pressures. Such inability
could have a material adverse effect on our business, results of operations and
financial condition.
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 alliances 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
strategic alliances 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 or strategic alliances and expand our existing ones could have a
material and adverse effect on our business.
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. See "Business - Intellectual
Property."
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
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<PAGE>
and financial condition. Exodus Communications, which maintains and operates our
Web site and provides our connection to the Internet, has informed us that its
systems are Year 2000 compliant.
To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. However, 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 2000compliant, 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, 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, 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,
any of which would have a material and adverse effect on our business, results
of operations and financial condition. See "Management's Discussion and Analysis
of Financial Statements and Results of Operations- Impact of the Year 2000."
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 buy a company, then we could have difficulty in
assimilating that company's personnel and operations. In addition, the key
personnel of the acquired company may decide not to work for us. If we acquire
distract our management and employees and increase our expenses. Furthermore, we
may have to incur debt or issue equity securities to pay for any future
acquisitions, the issuance of which could be dilutive to our existing
shareholders.
WE ARE VULNERABLE TO ADDITIONAL TAX OBLIGATIONS
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
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.
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<PAGE>
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.
We have 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.
RISKS RELATED TO THE INTERNET INDUSTRY
WE ARE DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE INTERNET INFRASTRUCTURE
Our industry is new and rapidly evolving. Our business 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; or
- imposition of transactional taxes.
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. 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.
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:
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- - - 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 develop or develops slower than expected.
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
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
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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
insubstantial 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'
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 FACE RISKS 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 increase our cost of doing business or
otherwise have a material and adverse effect on our business, results of
operations and financial condition. 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. See "Business - Government
Regulation."
RISKS RELATED TO THE MARKET FOR OUR COMMON STOCK
SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT
OUR STOCK PRICE
If our stockholders sell substantial amounts of our Common Stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market in the future, then the market price of our Common Stock could
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<PAGE>
fall. Restrictions under the securities laws limit the number of shares of
Common Stock available for sale in the public market. See "Shares Eligible for
Future Sale."
We may shortly file a Registration Statement to register all shares of
Common Stock under our 1998 Stock Option Plan. After that Registration Statement
is effective, shares issued upon exercise of stock options will be eligible for
resale in the public market without restriction.
To date, we have had a very limited trading volume in our Common Stock. Sales
of substantial amounts of Common Stock under Rule 144, this Registration
Statement or otherwise could adversely affect the prevailing market price of our
Common Stock and could impair our ability to raise capital at that time through
the sale of our securities. See "Shares Eligible for Future Sale."
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. See
"Description of Capital Stock -- Nevada Anti-Takeover Laws and Certain Charter
Provisions."
OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE
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. See "Price of Common Stock and Dividend Policy." 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;
- - - changes in financial estimates by securities analysts;
- - - conditions or trends in the Internet industry; and
- changes in the market valuations of other Internet companies.
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<PAGE>
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. Factors that could adversely affect actual results and
performance include, among others, our limited operating history, dependence on
continued growth in the use of the Internet, dependence on members, reliance on
advertising revenues, potential fluctuations in quarterly operating results,
security risks of transmitting information over the Internet, government
regulation, technological change and competition. 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 additional factors that could materially adversely affect actual
results and performance. All forward-looking statements attributable to us are
expressly qualified in their entirety by the foregoing cautionary statement.
Moreover, neither we nor anyone else assumes responsibility for the accuracy and
completeness of such statements. We undertake no obligation to update publicly
any forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
USE OF PROCEEDS
Other than the exercise price of such of the warrants held by the Selling
Stockholders that the Selling Stockholders may elect to exercise, and any amount
received by us in the event that RGC exercises its option to acquire additional
shares of our Common Stock upon conversion of the convertible debentures, we
will not receive any proceeds from the sale of the Common Stock by the Selling
Stockholders. The Selling Stockholders are not obligated to exercise their
warrants, and RGC is not obligated to exercise its option to acquire additional
shares, and there can be no assurance that we will receive any amount from the
Selling Stockholders with respect to exercise of the warrants or any option to
acquire additional shares of Common Stock. The gross proceeds to us in the event
that all of the warrants are exercised and RGC exercises its option to acquire
additional shares of our Common Stock would be approximately $7,879,861. Any
proceeds received by us will be utilized for working capital and general
corporate purposes.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our Common Stock has been traded on the OTC Bulletin Board under the
trading symbol "NTXY" since October 1, 1998, the date of the Reorganization.
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
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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) $ 4.50 $ 8.75
Fiscal Year Ended December 31, 1999:
First Quarter (January 1, 1999 - March 31, 1999) $ 6.625 $ 17.625
Second Quarter (through May 4, 1999) $ 15.25 $ 29.50
</TABLE>
On May 4, 1999, the Closing Price for our Common Stock on the Bulletin
Board was $16.75 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 December 31, 1998, 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
December 31, 1998, (B) the pro forma capitalization of the Company after giving
effect to the exercise vested options as of December 31, 1998 to purchase 23,333
shares of Common Stock at a weighted-average exercise price of $0.82 (C) the pro
forma capitalization of the Company after giving effect to the exercise of
options to purchase 100,000 shares of Common Stock at the price of 85% of market
($17.625) (D) the pro forma capitalization of the Company after giving effect to
the conversion of $5,000,000 of convertible debentures (E) the pro forma
capitalization of the Company after giving effect to the exercise of warrants to
purchase 150,000 shares of the Common Stock issued in connection with the
convertible debentures and 125,000 warrants for additional financing.
<TABLE>
<CAPTION>
As of December 31, 1998
----------------------------------------------------------------------------
(A) (B) (C) (D) (E) ProForma
(Unaudited) (Unaudited) (Unaudited) (Unaudited) as adjusted
Actual Pro Forma Pro Forma Pro Forma Pro Forma (Unaudited)
------------ ---------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash and Cash Equivalents . . . . . . . . . . . $ 465,800 $ 19,100 $1,498,100 $ 5,000,000 $2,856,300 $ 9,839,300
Long-term obligations:
Capital lease obligations . . . . . . . . . . . 12,700 5,000,000 12,700
(including current portion)
5% Convertible note payable . . . . . . . . . . - - (5,000,000)
---------- ------------ ------------
Total long-term obligations . . . . . . . . . . 12,700 - 12,700
(including current portion)
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 - 100 400 200 11,500
Additional paid-in capital. . . . . . . . . 4,872,100 19,100 1,498,000 4,999,600 2,856,100 14,244,900
Accumulated deficit . . . . . . . . . . . . (3,455,800) - - - - (3,455,800)
------------ ---------- ----------- ----------- ---------- ------------
Total stockholders' equity. . . . . . . . . 1,332,100 19,100 1,498,100 5,000,000 2,856,300 10,705,600
Total capitalization. . . . . . . . . . . . $ 1,652,700 $ 9,718,300
</TABLE>
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SELECTED FINANCIAL DATA
The following selected financial data for the period from October 23, 1997
(inception) to December 31, 1997 and the year ended December 31, 1998, and as of
December 31, 1997 and 1998, were derived from the financial statements of
Nettaxi which have been audited by BDO Seidman, independent certified public
accountants, whose report appears elsewhere herein. Selected financial data
should be read in conjunction with Nettaxi's Financial Statements and Notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other financial information included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
For the Period From October 23, 1997 (Date of
Incorporation) To December 31, 1997 and for
the Year ended December 31, 1998
---------------------------------------------
1997 1998
----------- -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues. . . . . . . . . $ 144,900 $ 258,000
Gross profit. . . . . . . . . $ 57,500 $ 18,200
Loss from operations. . . . . $ (142,100) $(3,082,300)
Net loss. . . . . . . . . . . $ (159,700) $(3,113,600)
Net loss available
to common shareholders. . . $ (327,200) $(3,127,900)
Basic loss per share. . . . . $ (0.06) $ (0.37)
Diluted loss per share. . . . $ (0.06) $ (0.37)
WEIGHTED-AVERAGE COMMON SHARES:
Basic outstanding shares. . . 5,483,500 8,499,781
Diluted outstanding shares. . 5,483,500 8,499,781
BALANCE SHEET DATA:
Working capital . . . . . . . $ (222,900) $ 300,400
Total assets. . . . . . . . . $2,082,300 $ 1,652,700
Long-term liabilities . . . . $ 773,500 $ 5,400
Total stockholders' equity. . $ 973,400 $ 1,332,100
</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. See "Cautionary Note Regarding Forward-Looking
Statements."
OVERVIEW
Nettaxi was 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. Our website,
nettaxi.com, is the first online community designed to seamlessly integrate
content with an economic revenue model, providing comprehensive information
about news, sports, entertainment, health, politics, finances, lifestyle, and
areas of interest to the growing number of Internet users. Our goal is to
position our 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. Since our website was launched we have become one of the
world's leading online communities. After completing our merger with Plus Net,
Inc., we have over 1,100,000 members in the United States and abroad. In March
1999, Nettaxi was ranked by 100hot in the top 28 most popular sites on the World
Wide Web, and in August 1988 was ranked number 44 on the Media Metrix/PC Meter
Fasted Growing Website list.
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 the technical assets required to drive new users
to our website, including Internet the Citytm, the sophisticated interactive
Internet training CD-ROM that connects users to our Website. We implemented
numerous modifications to the award-winning training tool, 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 "citizens". 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. Traffic to our online community increased
consistently, and growth of the monthly subscribers ("citizen") base has begun
to accelerate. Our website has become one of the Internet's busiest sites,
growing quickly to over 80 million page views per month (2.7 million page views
per day) by March 1999. Along the way, we have created a number of very
powerful assets, including a substantial database of user profiles, a unique and
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proprietary search engine that drives traffic to our community e-commerce sites,
and an expansive range of strategic alliances with dynamic e-commerce,
technology, and content partners.
To date, our revenues have been derived principally from the sale of
advertisements and, to a lesser extent, from subscription revenues and CD ROM
distribution royalties. E-commerce revenues have not been significant to date,
but are expected to increase as our existing e-commerce arrangements grow and
new arrangements are entered into. 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 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 our membership subscriptions. 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
non-advertising revenues may continue to grow through the
development of new membership programs and the planned enhancements of our
e-commerce services in 1999 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 arrangements with our premier e-commerce partners generally
provide us with a fee for renting space on our site and/or 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 provided. Revenues from our share of
the proceeds from its e-commerce partners' sales will be recognized by us upon
notification from our partners of sales attributable to our site. To 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 turnkey 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
award-winning Internet training tool to educate computer users about the
Internet and introduce them to our website, and continued development of
strategic partnerships. See "Business- Our Strategy."
We incurred net losses of $327,200 and $3,127,900 for the period from
October 23, 1997 (date of inception) to December 31, 1997 and the year ended
December 31, 1998, respectively. At December 31, 1998, we had an accumulated
deficit of $3.46 million. The net losses and accumulated deficit resulted from
our lack of substantial revenues and the significant operation, infrastructure
and other
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costs incurred in the development and marketing of our services. As a result of
our expansion plans and our expectation that our operating expenses will
increase significantly in the next several years, especially in the areas of
sales and marketing and brand promotion, 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. See "Risk Factors--We Have A History Of Losses, And We
Expect Losses For The Foreseeable Future."
To date, we have entered into business and technology license arrangements
and other strategic alliances in order to build our website community, provide
community-specific content, generate additional traffic, and provide our
citizens with additional products and services, including e-commerce tools. See
"Business--Strategic Alliances." In April 1999, we completed the acquisition of
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 and return results within a specific subject
category, while enhancing electronic commerce and advertising opportunities.
See "Business--Recent Acquisition." We intend to continue making acquisitions
to increase our citizen base and to seek additional strategic alliances with
content and distribution partners. 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. See "Risk Factors--Acquisitions May Disrupt Or
Otherwise Have A Negative Impact On Our Business."
We have recorded compensation costs of $855,000 for the year ended December
31, 1998 in connection with the grant of certain warrants to officers, employees
and consultants representing the difference between the deemed value of our
Common Stock for accounting purposes and the exercise price of the warrants at
the date of grant.
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.
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<TABLE>
<CAPTION>
OCTOBER 23, JANUARY 1,
1997 TO 1998 TO
DECEMBER 31, DECEMBER 31,
1997 1998
-------------- --------------
<S> <C> <C>
Net Revenues. . . . . . . . $ 144,900 $ 258,000
Cost of Revenues. . . . . . $ 87,400 $ 239,800
-------------- --------------
Gross profit. . . . . . . . $ 57,500 $ 18,200
Operating expenses:
Sales and marketing . . . . $ 3,100 $ 745,600
Research and development. . $ 36,500 $ 634,700
General and administrative. $ 160,000 $ 1,053,200
Asset Impairment. . . . . . $ -- $ 667,000
-------------- --------------
Total operating expenses. . $ 199,600 $ 3,100,500
-------------- --------------
Loss from operations. . . . $ (142,100) $ (3,082,300)
Other Income (expense)
Interest Income . . . . . . $ -- $ 9,800
Interest Expense. . . . . . $ (17,000) $ (68,800)
Other Income. . . . . . . . $ -- $ 28,500
-------------- --------------
Loss before Income Taxes. . $ (159,100) $ (3,112,800)
Income Taxes. . . . . . . . $ (600) $ (800)
-------------- --------------
Net loss. . . . . . . . . . $ (159,700) $ (3,113,600)
Preferred stock dividend. . (167,500) (14,300)
-------------- --------------
Net loss available to
common shareholders . . . (327,200) (3,127,900)
============== ==============
</TABLE>
For the period from October 23, 1997 (inception) to December 31, 1997 and the
year ended December 31, 1998
REVENUES. Revenues were $144,900 and $ 258,000 for the period from October
23, 1997 (inception) to December 31, 1997 and for the year ended December 31,
1998, respectively. The period to period growth resulted from an increase in (i)
the number of advertisers as well as the average contract duration and value,
(ii) our Web site traffic and (iii) to a lesser extent, 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 (inception) 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.
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 (inception) 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 (inception) to December 31 1997 and for the year
ended December 31, 1998, respectively.
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COST OF SALES. Cost of sales were $87,400 or 60% of total revenues, and
$239,800 or 93% of total revenues for the period from October 23, 1997
(inception) 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 consist
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 (inception) 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. See "Business-
Marketing and Promotion."
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 (inception) 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.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist 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 (inception) 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, professional services, travel to support the growth of
our operations. 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 certain technology
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.
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Following attempts to make it compatible, we decided in December, 1998 not to
spend additional funds 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 balue of $667,000.
OTHER INCOME. In 1998 we realized a gain of $28,500 from the disposal of
certain equipment.
INTEREST EXPENSE NET. Interest expense, net was $17,000, and $59,000, for
the period from October 23, 1997 (inception) 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.
See Note 5 to Consolidated Financial Statements
INCOME TAXES. The provision for income taxes for the year ended December
31, 1998 and the two months ended December 31, 1997 consisted of minimum state
taxes.
SEASONALITY
We believe that we may experience seasonality in our business, with use of
the Internet and our Web site being somewhat lower during certain periods of the
year. In addition, 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. If similar seasonal and cyclical patterns emerge in
Internet advertising, our revenues and operating results also may vary
significantly based upon these patterns. See "Risk Factors--Our future revenues
are unpredictable and our quarterly operating results may fluctuate
significantly."
INCOME TAXES
We have 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 carry forwards and our other deferred tax assets will be realized, and
accordingly, fully reserved for these deferred tax assets.
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.
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Net cash used in operating activities was $51,000 and $665,800 for the
period from October 23, 1997 (inception) 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 certain 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 (inception) 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 (inception) 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. We've spent approximately
$159,200 on capital expenditures since inception, excluding capital lease
arrangements.
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 our current cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
at least one year. If cash generated from operations is insufficient to satisfy
our liquidity requirements, we may seek to sell additional equity or debt
securities or to obtain a credit facility. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders. The incurrence of indebtedness would result in an increase in our
fixed obligations and could result in operating covenants that would restrict
our operations. There can be no assurance that financing will be available in
amounts or on terms acceptable to use, if at all. If financing is not available
when required or is not available on acceptable terms, we may be unable to
develop or enhance our products or services. In addition, we may be unable to
take advantage of business opportunities or respond to competitive pressures.
Any of these events could have a material and adverse effect on our business,
results of operations and financial condition. See "Risk Factors--We may need
further capital."
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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 therefor 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 co-locates 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.
COSTS. To date, we have not incurred any material costs in identifying or
evaluating Year 2000 compliance issues. Most of our expenses 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 capital expenditures budget and
are not expected to be material to our financial position or results of
operations. These expenses, however, if higher than anticipated, 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 Web
site 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
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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.
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. See "Risk Factors--We would lose revenues and incur
significant costs if our systems or material third-party systems are not Year
2000-compliant."
This is a Year 2000 readiness disclosure statement within the meaning of
the Year 2000 Information and Readiness Disclosure Act (P.L. 105-271).
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 (FASB) issued SFAS
No. 131, "Disclosure About Segments of an Enterprise and Related Information,"
which is effective for fiscal years beginning after December 15, 1997. SFAS
No.131 requires that public companies report certain 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 certain information about their
products and services, the geographic areas in which they operate and their
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major customers. Reportable operating segments are determined based on the
management approach, as defined by SFAS 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 FASB issued SFAS No. 132, Employer's Disclosure about
Pension and Other Postretirement Benefits, which standardized 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 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.
SFAS No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
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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BUSINESS
OUR BUSINESS
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 virtual community and vertical portal
- - -- that is dedicated to providing e-commerce enabled communities and launch
point for consumers on the Internet. Nettaxi.com is the first online community
designed to seamlessly integrate content with an economic revenue model,
providing comprehensive information about news, sports, entertainment, health,
politics, finances, lifestyle, and areas of interest to the growing number of
Internet users. Our goal is to position our 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 revenues through monthly subscriptions, banner
advertising, and e-commerce transaction fees.
Our website has become one of the Internet's busiest sites, growing quickly
to over 150 million ad views per month (5 million ad views per day) by March
1999. In March 1999, Nettaxi was ranked by 100hot in the top 28 most popular
sites on the World Wide Web, and in August 1988 was ranked number 44 on the
Media Metrix/PC Meter Fasted Growing Website list. We have developed a
substantial database of user profiles, a unique and proprietary search engine
that drives traffic to our community e-commerce sites, and an expansive range of
strategic alliances with dynamic e-commerce, technology, and content partners.
We are now poised to build on our early success by implementing a growth
strategy that, if successful, should make us a major turnkey e-commerce
storefront host, and allow us to meet our goal of becoming one of the top
community-based portals on the Internet.
INDUSTRY BACKGROUND
THE INTERNET
GROWTH OF THE INTERNET AND E-COMMERCE. The Internet has rapidly become a
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, at least 100 million people in 135 countries send
and receive information, and purchase products and services, through the
Internet.
The potential of such a large and still-growing consumer market has led
many business analysts to consider the Internet as the supreme opportunity of
our time, an opinion supported by the following trends:
According to IDC Research, the domestic Internet subscriber base will grow
to 174.5 million by 2001, up from 50.2 million in 1997.
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"Content," the information that people access on the Internet, is estimated
by H&Q, to reach a projected $10 billion in revenues by the year 2000;
E-commerce revenues will explode from $5 billion in 1997 to $94 billion in
2002, according to estimates by Price Waterhouse; and
Sales of enabling technologies for the Internet are projected to reach
$13 billion by 2000 according to H&Q;
Online merchandise sales, which grossed over $21 billion in 1997, are
expected to rise to $300 billion by 2000, and over $1 trillion by 2002,
according to ActivMedia Research.
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 Direct Marketing Association estimates that advertisers and direct
marketers spent approximately $284 billion on all forms of advertising media in
the United States in 1998. Jupiter Communications, Inc. estimates that the
amount of Internet advertising in the U.S. will grow from approximately $1.8
billion in 1998 to $7.7 billion by 2002, a compound annual growth rate of 42%.
The Direct Marketing Association estimates that spending on Internet direct
marketing will grow from $275 million in 1997 to $3.5 billion in 2002.
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.
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
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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
unique 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--unique characteristics that distinguish the Internet
from traditional print, radio and television media.
Similarly, Web users engaged in passive browsing are increasingly seeking
ways of interacting and communicating with other individuals with similar
interests and accessing unique, 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.
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Online communities also provide advertisers and businesses an attractive
means of promoting and selling their products and services. According to Jupiter
Communications, the amount of advertising dollars spent on the Web is expected
to increase 67% annually over the next three years, reaching approximately $4.3
billion by 2000. According to IDC, worldwide commerce revenue on the Internet is
expected to increase from approximately $32 billion in 1998 to approximately
$130 billion in 2000. 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.
USER DEMOGRAPHICS
The demographics of the Internet population clearly suggest that the
Internet has grown from a novelty exploited by computer technologists to an
accepted and growing communications, marketing, and commerce platform. A recent
survey by NUA, Ltd., estimates that in March 1999 there were 88 million Internet
users in the United States and Canada and a total of 159 million Internet users
worldwide. IDC Research summarizes the rapid growth of online users as follows:
- - - By December 2001, 39% of online users will buy goods and services over
the Internet as compared to 25% in December 1996.
- - - The amount of commerce conducted over the World Wide Web is expected to
grow from $2.6 billion in 1996 to more than $220 billion in 2001.
The Yankee Group estimated that while 25% of domestic householders had Internet
access as of March 1999, that number will grow to 33% by the end of 1999 and to
67% by 2003.
In a recent study, Jupiter Communications found that, in 1997, 45% of Web
users were women, a sizable increase from the 5% in 1994. Women using the Web
are projected to outnumber men within three years.
Find/SVP claims that working mothers in dual-income families represent the
fastest-growing demographic segment of the online population. Given their
ever-growing purchasing power, women are expected to drive major advertisers and
retailers to the Internet.
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OUR SOLUTION
Nettaxi was born of the vision of co-founders Robert and Dean Rositano,
veterans of the ISP 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 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.
The founders believed that to survive and thrive in the increasingly
crowded Internet industry, they needed to develop a website with a completely
unique 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, turnkey
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 City(tm), the
sophisticated interactive Internet training CD-ROM that the Rositanos had
developed while at Simply Interactive. Upon acquiring these rights, the
Company moved quickly to implement numerous modifications to the award-winning
training tool, including principally:
[GRAPHIC OMITED]
- - - integrating the Nettaxi "taxicab" [STEP ON IT AND GO] in the main user
interface;
- - - developing and integrating promotional information regarding the Nettaxi
community website, including its free services, features and benefits; and
- - - creating the mechanism whereby users could launch into the Nettaxi
community website 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 partnering 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 several co-marketing
relationships whereby Nettaxi bundles its CD-ROM product with products of major
hardware and software manufacturers, including Apple Computer (bundled with the
Apple iMac Computer and educational curriculum package) and Pinex Computers. In
addition, the Company has entered into partnering agreements with eCharge,
InfoSpace.com, Cybereps, and other companies for important service enhancements
to the Nettaxi community website. See "Strategic Alliances."
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As traffic to our website began to build significantly, we launched our
advertising sales campaign in July 1998. Since then, as traffic to our website
community has continued to grow consistently and prove its stability, growth in
advertising revenues, as well as growth of the monthly subscribers ("citizen")
base has begun to accelerate. The Nettaxi.com website has become one of the
Internet's busiest sites, growing quickly to over 80 million page views per
month (2.7 million page views per day) by March 1999. In March 1999, Nettaxi was
ranked by 100hot in the top 28 most popular sites on the World Wide Web, and in
August 1988 was ranked number 44 on the Media Metrix/PC Meter Fastest Growing
Website list.
We believe that the success of the website 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 turnkey e-commerce
capabilities with thematic community-based content and e-commerce websites, we
are creating a number of powerful assets:
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.
WEBSITE TRAFFIC DRIVER. The ability to drive traffic to Nettaxi subscriber
websites, via our search engine, which first searches and lists Nettaxi's
premium providers' and subscribers' websites, 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 STRATEGIC ALLIANCES. Opportunities to develop an expanded range
of strategic alliances, by virtue of being able to match premium content
providers with themed 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.
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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 turnkey e-commerce
storefront host, and one of the top community-based portals on the Internet.
Our strategic growth plan includes the following principal components:
EXPANDING OUR PRODUCTS AND SERVICES. We have identified a variety of
distinctive -- even unique -- services and products that we intend to develop
through in-house research and development, strategic alliances, licensing, 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 and distinctive 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 turnkey 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 websites visible/invisible.
DEVELOPING AN EXPANDABLE INFRASTRUCTURE. Integral to 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' websites. 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.
The basic components of our technology infrastructure are substantially in
place and operational. We are currently developing our turnkey e-commerce
capabilities in association with Media Lane Group (a leading e-commerce
technology provider), and anticipate launching such services in mid 1999. We
are designing the components of our operational infrastructure to be scalable to
accommodate the substantial transaction volume that we anticipate as we build
our virtual community of citizens, vendors and information.
[INTERNET IN THE CITY PICTURE]
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 professionally produced CD-ROM features an animated, cyber-cabbie
named "URLtm," who takes users wherever they wish to go During the tour, URL
explains and demonstrates how features such as e-mail, chat rooms, search
engines, websites, etc., work. The CD-ROM also acts as a "front end" for our
website by allowing users to actually connect to it.
We plan aggressive promotion of our site through targeted distribution of
our CD-ROM product to the consumer marketplace. With our targeted approach to
distribution, we allow users with specific interests to connect to communities
which address 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. 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.
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By "demystifying" the Internet for potentially millions of computer users,
and directly introducing them to our website, we believe that we will generate
substantial awareness of our Web community and loyalty among novice and
intermediate users.
EXPANSION OF BUSINESS DEVELOPMENT AND TECHNOLOGY PARTNERSHIPS. We have
established formal relationships with providers of premium content, including
InfoSpace.com, Inc., Lycos and Nettopia. See "Strategic Alliances." These
relationships, and the continued development of such partnerships, will provide
us with:
- - - Premium content for news, sports, travel, politics, health, lifestyle, and
other information categories;
- - - Exclusive relationships with providers of proprietary information content;
- - - Turnkey e-commerce sales and fulfillment services through strategic
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.
ACQUISITION STRATEGY. An important element of our strategic growth plan is
its proposed acquisition program. We are investigating several 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, however by
themselves, have limited growth and revenues potential.
We will also seek to identify companies that can significantly extend
certain 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
acquisition of Plus Net, Inc. See "Recent Acquisition."
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:
41
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<TABLE>
<CAPTION>
<C> <S>
- - - 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 our Website;
Transaction processing fees from credit card and
eCharge processing services;
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 virtual community companies and continue an
aggressive plan of infrastructure expansion.
RECENT ACQUISITION
In May, 1999, we completed the acquisition of Plus Net, Inc. ("Plus Net").
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
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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 R&D efforts, and will enrich the Internet
experience of our citizens. We intend to implement and integrate the services
offered by Plus Net throughout 1999.
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 themed 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 and strategic
partners, as opposed to subscriber pages.
NETTAXI'S "TAXI"
[INTERNET TAXI PICTURE]
A key distinguishing characteristic 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 citizen sports
"homes," and then on to other sports sites, including those on the rest of the
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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 provide 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.
[NETTAXI PICTURE]
We are exploring the possibility of eventually serving content to users
based on their preferences, which will be determined by tracking their
activities, using special software from Net Perceptions, as they surf through
our overall website. 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 partnerships with providers of premium content in a variety of
categories. To date, we have established formal relationships with several
premium content providers in a variety of categories, including the following:
- - - INFOSPACE.COM, INC., a leading 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.
- - - LYCOS. One of the most popular hubs on the world wide web offering a
variety of web applications including search, comprehensive directories,
personal home pages and popular shopping functions.
- - - BIG NETWORK.COM. Creator of igNetwork Classic Games, a multi-player Java
game system featuring instant ``click and play'' access.
- - - IWOMAN. A provider of an online community dedicated to providing
information geared primarily to the interests of women. - PI GRAPHIX. A
provider of an online community with e-commerce capabilities and extensive
graphics capabilities.
- - - NETTOPIA, INC. A provider of next generation products including web site
services and high-speed DSL connectivity.
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We are also working to identify and develop a selection of exclusive
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, and the exclusive nature of their availability, would act as
a powerful attractant to the type and volume of subscribers that our advertisers
find desirable.
Our citizens also provide personal or entrepreneurial/commercial content
that is available on our website. We offer each of its 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 "home" (web home page), and they can designate the community and
street where they would like to have their home located.
E-MAIL SERVICES
Nettaxi.com's e-mail services surpass those of other portals and
full-featured ISPs 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 (Colors and fonts) to look like the Citizens home page.
POP e-mail is the type most commonly used by ISPs. 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 -- home, office, airport
kiosk, public library -- 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 (determined by the service offering the e-mail feature) 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.
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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.
E-COMMERCE SERVICES
One of the key features that we offer subscribers is the chance to become
on-the-spot entrepreneurs. We are currently developing its turnkey e-commerce
capabilities in association with Media Lang Group (a leading e-commerce
technology provider), and anticipate launching such services in mid 1999. Media
Lang Group has extensive experience in technology architecture design, with
clients that include E-Trade, Music Blvd., and other sites. Our Premium Service
accounts will include access to a wide variety of special business services
aimed at providing subscribers who wish to launch an online business with a
turnkey e-commerce storefront. The services can be available as a bundle
customized to meet each Premium Service subscriber's sourcing, order processing,
account management, billing, stock balancing, and fulfillment needs, and will be
provided either as part of the subscription fee, or on a per transaction basis,
at reasonable rates. We will be able to package and provide these services
through strategic relationships established with selected vendors with proven
experience in their respective commercial and fulfillment service fields.
COMMERCIAL WEBSITE HOSTING. Premium Service 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. Routine maintenance of the website, including
verification of links and other related functions, is included in the
subscription fee.
WHOLESALE SUPPLY OF PRODUCTS. As part of our turnkey 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 (JIT)
basis, eliminating the need for warehousing. Through negotiating with vendors
and forging strategic alliances, 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 will offer our Premium Service
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
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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.
The 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. See "Recent Acquisition."
INTERNET THE CITY CONNECTED CD ROM
[INTERNET THE CITY PICTURE]
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 "unwired" 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 ("ITC") 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, websites, 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. ITC serves as vehicle to drive
users to our website in a manner that is far more efficient than traditional
means of advertising and promotion. The CD-ROM is expected to undergo a major
update in 1999, and we intends to explore a variety of options for establishing
co-branding and sponsorship partner opportunities for promoting and distributing
ITC.
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We currently have an agreement with Media Technology Services to provide
CD-ROM duplication and packaging services and deliver the packaged CD-ROMs to
our distribution partners, as to us directly for distribution to our Premium
Service account subscribers and others. At this time, the two largest
distributors are Apple Computers, which bundles the CD-ROM with its K-12
curriculum bundle and as an optional upgrade to its iMac computer, and Fountain
Technologies, which bundles the CD-ROM with computer systems from its Quantex
Microsystems and Pionex Technologies subsidiaries. With our targeted approach to
distribution, we potentially allow users of specific interests to connect to a
community which addresses their interests.
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 and deployment 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 services, 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
webpages 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.
Nettaxi's basic Free Citizen account offers the following package of
features and services:
- - - A four page Virtual Office
- - - MyNettaxi, personal start page
- - - 10 Megs of Disk Space
- - - Web Stats - for analyzing who is coming to their site and when.
- - - E-mail service (POP and Web-basedh) 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 www.nettaxi.com/citizens/userID web address (URL), located
in the subscriber's community of choice;
- - - FTP space presented as an "outbox";
- - - 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 free, basic account is allotted 10MB (total) for use. Subscribers are
provided with free, easy-to-use software for designing and building their web
page, tips and techniques for making their websites attractive and exciting to
visit, and a mechanism (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 turnkey
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
ca 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 - Allows users to build and maintain their own
virtual office, including their own message boards, chat rooms, calander and
task manager, address book, etc. Users can build their virtual office through
and easy-to-use Web-based interface.
- - - E-mail service (POP and Web) for unlimited e-mail accounts, each with a
distinct @nettaxi.com address or @ you own domain, and customized look and feel;
- - - Turnkey - e-commerce malls loaded with product
- - - 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; and
- - - Unique Domain name
- - - Unlimited disk space for Web page hosting (Nettaxi reserves the right to
limit any
- - - Child Protection (AVS)
- - - Web Stats - for analyzing who is coming to their site and when.
- - - Free Plane Tickets (With a 3 month Premium Subscription)
Subscribers are provided with professional website services for the initial
website'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 websites 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 (the minimum
permitted by InterNIC).
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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 its 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 unique 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 themed 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 top advertisers and leading 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.
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
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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 ("CPM") 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 CPM 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 CPM 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. Some of our advertising
clients include:
Intel E-Bay MSN
Netscape Sprint NextCard
Visa Zine Zone Go2Net
Talk City Bell Atlantic Bell South
Hot100 On Now Garden.com
Proflowers Macy's Radio Shack
For 1998, advertising revenues represented 69% of our net revenues.
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 intends to implement special software from Net Perceptions 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
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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 ad 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 ad 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 ad selection and placement by providing an
accurate ad 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 ad 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.
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,
close and manage key account customers in the region, and management and
implement sales and promotional program with corporate marketing partners 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 (http://www.adsmart.net), a majority-owned subsidiary of CMGI,
IncUnder 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 full-service advertising sales and marketing organizations,
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as our independent sales representatives. Both organizations specialize in
representing a number of leading websites 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 (for
user/subscriber customers) and corporate advertisers (for banner advertising
sales).
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.
PROMOTIONAL PROGRAMS. A key component of our growth plan is the aggressive
promotion of our site through widespread free distribution of our Internet the
City CD-ROM to the consumer marketplace. We have established an agreement with
Apple Computer whereby Apple bundles the CD-ROM with its iMac computer. We also
plan to offer the CD-ROM to numerous computer software and hardware products
manufacturers for bundling with their respective products.
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, technologies, and partnerships. 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.
TRADE PUBLICATIONS. An effective and extremely 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
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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:
- - - The uniqueness of our integration of online community with premium content
and turnkey e-commerce services;
- - - The uniqueness of our "entrepreneurial" focus; and
- - - The substantial 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.
STRATEGIC ALLIANCES
In order to increase traffic to the our site and to create brand building
opportunities, we seek to enter into strategic relationships with online and
offline business partners who can offer content, technology and distribution
capabilities as well as marketing and cross-promotional opportunities. Examples
include:
APPLE COMPUTER AND FOUNTAIN TECHNOLOGIES, INCWe have entered into
co-marketing relationships whereby we bundle our Internet the City CD-ROM
training product with products of major hardware and software manufacturers,
including Apple Computer (bundled with the Apple iMac Computer and educational
curriculum package) and Pinex Computers, a subsidiary of Fountain Technologies.
ECHARGE. 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
echogram's billing system that can be offered as option functionality for end
users who choose to install the product.
LYCOS. We have recently made an affiliation with Lycos, Inc., one of the
most popular hubs on the world wide web to offer personalized start pages called
My Nettaxi from our portal site. We entered into an Internet Services Suite
Agreement with Wired Digital, Inc. and Lycos, Inc. pursuant to which Lycos have
agreed to 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.
PI GRAPHIX. We have entered into a Website Linking and Promotion Agreement
with PI Graphix. PI Graphix provides e-commerce systems and related information
services on its own website. Under the agreement, our websites 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.
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BIG NETWORK.COM. We have entered into a co-marketing agreement with Big
Network.com which will provide our "citizens" with immediate access to the
BigNetwork.com suite of classic board and card games including chess, checkers,
backgammon, reversi, spades, morph and more. The agreement will also allow our
"citizens to interact in real-time with the 200,000 registered members of
BigNetwork.com. This partnership also allows our "citizens to embed Java-based
games into their own web sites. For those citizens who have developed and
integrated their own personal web pages into the Nettaxi community, they will be
able to create an interactive gaming environment suited to the specific needs of
their visitors.
In addition to the above relationships, we have a variety of other
arrangements designed to enhance the content available to visitors to our site.
See "Our Web Site and Services--Content." We also have entered into agreements
with Cyberreps and Unique Media to provide assistance with advertising sales and
marketing campaigns. See "Marketing and Promotion."
Although we view our strategic relationships as a key factor in our overall
business strategy, it is not certain that our strategic partners will view their
relationships with us as significant to their own business or that they will not
reassess their commitment to us in the future. In addition, it is possible that
one of our strategic partners will break its agreement with us, and we might not
be able to specifically enforce the terms of the agreement. Our arrangements
with strategic partners generally do not establish minimum performance
requirements for our strategic partners but instead rely on their voluntary
efforts. In addition, most of our agreements with strategic partners may be
terminated by either party with little notice. Therefore, there is no guarantee
these relationships will be successful. In the event that a strategic
relationship is discontinued for any reason, our business, results of operations
and financial condition may be materially adversely affected. In addition, we
cannot guarantee that we will be successful in establishing additional strategic
relationships.
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 R&D 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 strategic alliances and partnerships 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 and media partners.
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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.
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' websites is integral to the
implementation of our web community and turnkey e-commerce storefront concept.
We are designing the components of our operational infrastructure to be scalable
to accommodate the substantial transaction volume that we anticipates as we
build our virtual community of 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 citizen 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 co-located at the Exodus Communications Internet
Data Center in Sunnyvale, California. Exodus Communications -- a leading
provider of server hosting, Internet connectivity, collaborative systems
management, and Internet technology services -- 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 (T3 and
fiberoptic) 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
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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.
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, 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 communities include Tripod, GeoCities, theGlobe.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, OSPs, ISPs and other entities, certain of
which may have more resources than ours. In addition, we could face competition
in the future from traditional media companies, a number of which, including
Disney, CBS 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 and Yahoo! We also face competitive
pressure from traditional media such as newspapers, magazines, radio and
television.
We believe that the principal competitive factors in our market are
community cohesion and interaction, customer service, brand recognition, Web
site convenience and accessibility, price, quality of search tools and system
reliability. Certain of our current and 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. 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,
certain of 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.
While we have certain similarities to the typical portals, we distinguish
ourselves by providing host-type services such as premium and even proprietary
content, thematic communities for subscribers, Remind Me electronic calendar
services, and a customizable search engine that also acts as a mechanism for
driving traffic to subscriber and premium content provider sites. A key factor
that sets us apart from other portals is our offer to subscribers of turnkey
e-commerce capabilities, including full hosting of a subscriber's domain,
e-commerce storefront building and launching services, sourcing and fulfillment
services, and billing services. However, there can be no assurance that we will
be able to compete successfully against current and future competitors. Further,
as a strategic response to changes in the competitive environment, we may, from
time to time, make certain pricing, service or marketing decisions or
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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.
INTELLECTUAL PROPERTY
We have applied for trademark or 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".
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 and strategic partners 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 certain 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. 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. See
"Legal Proceedings." 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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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 certain 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
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. An adverse result of the litigation could have a material adverse effect
on our business and results of operations.
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<PAGE>
EMPLOYEES
As of April 30, 1999, we had 15 employees, including 2 in customer support,
4 in product development, 7 in sales, marketing and business development, and 2
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 believe that our current
facility is adequate for our present needs.
We maintain substantially all of our computer systems at our Campbell,
California site and the Santa Clara, California site of Exodus Communications.
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,
despite our implementation of network security measures, our servers are also
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 which could have a material adverse effect on
our business, results of operations and financial condition.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our directors, executive officers and other key employees, and their ages,
as of May 4, 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. . . . . . . . 41 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 Goldie . . . . . . . . 48 Director
Roger Thornton (2) (3) . . 34 Director
<FN>
(1) Robert A. Rositano, Jr. and Dean Rositano are brothers.
(2) Member of Compensation Committee
(3) Member of Audit Committee
</TABLE>
Robert A. Rositano, Jr. Mr. Rositano Jr. co-founded NOL in October, 1997.
He has served as Chief Executive Officer and Secretary of Nettaxi since the
Reorganization and prior to that served in the same capacities with NOL from its
inception. 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 Executive
Vice President in the areas of Inside Sales, Customer Service and Product
Development until he co-founded NOL. 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.
Dean Rositano. Mr. Rositano co-founded NOL in October, 1997. He has served
as President of Nettaxi since the Reorganization and prior to that served in the
same capacities with NOL from its inception. In February 1995, he co-founded
Simply Interactive and served as Executive Vice President of Technology until he
co-founded NOL. 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."
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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 (AIM) 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 ISP
and Internet industry. From December 1995 to June 1996 he was head of Customer
Service at Simply Interactive. While at Simply Interactive, he oversaw the
creation and implementation 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.
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.
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<PAGE>
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.
He is a senior member of the corporate department of Mitchell Silberberg &
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 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 leading 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.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
On August 1, 1998 NOL entered into employment agreements (each an
"Executive Employment Agreement") with Robert A. Rositano, Jr. and Dean Rositano
(each an "Executive"), and these agreements continued in effect after the
Reorganization. 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, each Executive received warrants to purchase up to
883,952 shares of the Common Stock of NOL (the "Warrants"). The Warrants were
to vest over three years and vesting was accelerated upon the Reorganization.
Each Executive exercised his Warrants in September, 1998. See "Executive
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Compensation--Warrant and Option Exercises and Year-End Option Values." Each
Executive has 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 his duties.
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:
(i) conviction or plea of no contest to a felony (ii) willful gross misconduct
materially injurious to Nettaxi (iii) willful and material failure to
substantially perform duties other than a failure resulting from disability;
(iv) violation of the agreement's covenant not to compete; or (v) disclosure of
material Confidential Information without prior written consent. If and
Executive is terminated without cause, he is to receive severance pay equal to:
(i) the base salary for the remainder of the term; (ii) minimum bonus plus any
pro rata bonus in excess of the minimum bonus; (iii) pre payment of all
automobile allowance for the remaining period of the term; and (iv) continued
coverage for life, health and disability insurance for the remainder of the
term. Such 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 (i) any change of equity such that
more than 50% of the outstanding shares of our outstanding shares are
transferred to a third party; (ii) debt ownership such that more than 50% of our
outstanding shares are transferred to a third party; or (iii) 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 Executives have performed other responsibilities not necessarily
within the scope of the definition of their positions under the Employment
Agreements.
BOARD OF DIRECTORS
All directors hold office until the next annual meeting of shareholders
following their election or until their successors have been elected and
qualified. Executive officers are appointed by and serve at the pleasure of the
Board of Directors.
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. See "Compensation
Committee Interlocks and Insider Participation."
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<PAGE>
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 ("Non-Employee Directors"), 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. 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. The Board of Directors established a Compensation Committee as of May
3, 1999. See "Board Committees."
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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
<S> <C> <C> <C>
NAME AND. . . . . . . . SALARY ($) BONUS ($) (4) NUMBER OF SECURITIES
PRINCIPAL POSITION UNDERLYING WARRANTS/
OPTIONS (#)
Robert A. Rositano, Jr. $95,917 (3) -- 1,012,347
Chief Executive Officer
Dean Rositano . . . . . $95,917 (3) -- 1,012,347
President
<FN>
(1) Information set forth herein includes services rendered by the Named Executives while
employed by NOL prior to the Reorganization and by Nettaxi following the Reorganization. No
other executive officer or employee received compensation in excess of $100,000 during this
period. Mr. Goelz began his employment with us on May 3, 1999 and under the terms of his
employment offer letter will receive an annual salary of $125,000 and annual bonus
compensation of at least $50,000.
(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 $2,917 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 $50,000 up to a maximum amount
equal to the base salary then payable. See "Employment Agreements and Termination of
Employment and Change of Control Arrangements." The first bonus payment is not due until
August 1999 and the amount of the bonus earned by the Named Executives for the first bonus
period, including a portion of 1998, will not be determined until August 1999. Accordingly,
no entry has been made in the table for bonus compensation attributable to the year ended
December 31, 1998.
</TABLE>
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<PAGE>
WARRANT AND OPTION GRANTS IN LAST YEAR
The following table sets forth certain information concerning warrants and
options granted to the Named Executives during 1998.
<TABLE>
<CAPTION>
WARRANT AND OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998(1)
NAME Number of % of Total
Securities Warrants/ Exercise
Underlying Options Price Per Potential Realizable Value at Assumed
Warrants/ Granted to Share Annual Rates of Stock Price Appreciation
Options Employees Share Expiration FOR OPTION TERM (7)
Granted (#) (2) in 1998 (5) ($/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.
(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 SEC 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 the
Common Stock and overall stock market conditions. The amounts reflected in the table may not
necessarily be achieved.
</TABLE>
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WARRANT AND OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth certain 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.
<TABLE>
<CAPTION>
AGGREGATE WARRANT AND OPTION EXERCISES IN 1998 AND YEAR END OPTION VALUES(1)
NAME Number of Unexercised Value of Unexercised In-the-
Shares Value Options at Year End(#) Money Options at Year
Acquired On Realized End($) (3)
Exercise (#) (2) ($) ---------------------------- ---------------------------
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 the Company 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 OTC Bulletin Board).
</TABLE>
EMPLOYEE BENEFIT PLANS
1998 STOCK OPTION PLAN. Our 1998 Stock Option Plan (the "Plan") was adopted
by the Board of Directors, and ratified and approved by our stockholders, as of
September 29, 1998. The following description of our1998 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.
The purpose of the Plan is to enhance our profitability and stockholder
value by enabling us to offer stock based incentives to employees, directors and
consultants. The Plan authorizes the grant of options to purchase shares of
Common Stock to employees, directors and consultants of Nettaxi and its
affiliates. Under the 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.
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The number of shares available for options under the Plan is 3,000,000. The
Plan is administered by the Compensation Committee of the board. Subject to the
provisions of the 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%
(110% if the grant is to a stockholder holding more than 10% of our voting
stock) 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 (five years if the grant
is to a stockholder holding more than 5% of our voting stock). Terms and
conditions of awards are set forth in written agreements between Nettaxi and the
respective option holders. Awards under the 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 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 May 4, 1999, no shares had been issued as the result of the exercise
of options previously granted under the Plan, 630,000 shares were subject to
outstanding options and 2,370,000 shares were available for future grants. The
exercise prices of the outstanding options ranged from $0.80 to approximately
$18.00. The options under the Plan vest over varying lengths of time pursuant to
various option agreements that we have entered into with the grantees of such
options. As of May 4, 1999 the outstanding options under the Plan included
options to purchase 250,000 shares of Common Stock at an exercise price of at
least 85% of the fair market value of the underlying securities on the date of
grant to Mr. Goelz in connection with his employment as an executive officer
effective as of the May 3, 1999. Mr. Goelz's options vest over a three-year
period.
We have not registered the Plan, or the shares subject to issuance
thereunder, pursuant to the Securities Act of 1933 (the "Act"). Absent
registration, such shares, when issued upon exercise of options, would be
"restricted securities" as that term is defined in Rule 144 under the Act. See
"Shares Eligible for Future Sale."
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 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.
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The 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, NOL granted
warrants to purchase an aggregate of 2,399,298 shares of NOL's Common Stock for
the same purposes, and on substantially the same terms and conditions, as
options to be granted under the Plan. See "Certain Transactions--Stock
Transactions by Nettaxi Online Communities, Inc." As of the Reorganization, all
such warrants had been exercised by the holders thereof and are no longer
outstanding.
401(K) PLAN. Effective March 15, 1999 we instituted the Nettaxi 401(k)
Savings Plan (the "401(k) Plan"). Eligible employees may begin making deferrals
under the 401(k) Plan. The 401(k) 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) of the Internal Revenue Code. Employees may elect to defer their
eligible current compensation up to the statutorily and 401(k) Plan prescribed
limits and have the amount of such deferral contributed to the 401(k) Plan.
Contributions to the 401(k) Plan are invested in the investment funds described
in the 401(k) Plan. The 401(k) 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
(including attorneys' fees and disbursements) incurred in connection with, or in
any way arising out of, any claim, action or proceeding (whether civil or
criminal) 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. See "Description of Capital Stock--Limitation
of Liability and Indemnification."
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<PAGE>
CERTAIN TRANSACTIONS
STOCK TRANSACTIONS BY NETTAXI ONLINE COMMUNITIES, INC.
ISSUANCES TO FOUNDERS. NOL was formed in October 1997 Robert A. Rositano,
Jr. and Dean Rositano (each an "NOL Founder"). At the time of formation, each
of NOL Founders were issued 1,288,044 shares of NOL Common Stock in
consideration of their efforts in establishing NOL and developing its initial
business strategy.
On February 12, 1998, each of the NOL Founders were issued an additional
66,297 shares of NOL 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, each of the NOL Founders was issued warrants to purchase
88,395 shares of NOL Common Stock. On August 1, 1998, each of the NOL Founders
was issued warrants to purchase 883,952 shares of NOL Common Stock pursuant to
the Executive Employment Agreements. See "Management--Employment Agreements and
Termination of Employment and Change of Control Arrangements." All the warrants
issued to the NOL Founders were exercised in September 1998. See
"Management--Executive Compensation."
During 1998, Robert A. and Dean Rositano transferred 129,435 and 137,012
shares, respectively, of NOL Common Stock by gift to certain individuals.
All the shares of NOL Common Stock held by the NOL Founders and their
donees were converted into shares of Nettaxi Common Stock in the Reorganization
described below.
SSN PROPERTIES, LLC. In October 1997, NOL purchased the assets of Simply
Interactive 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 NOL Common Stock.
In September 1998, SSN Properties converted its promissory note with accrued
interest in exchange for 2,792,763 shares of NOL Common Stock. In September,
1998 NOL also issued 176,790 shares of its NOL Common Stock to SSN Properties in
exchange for the cancellation of a $70,000 accounts payable to SSN Properties.
All the shares of NOL Common Stock held by SSN Properties were converted into
shares of Nettaxi Common Stock in the Reorganization 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.
Robert Rositano, Sr., father of Robert A, and Dean Rositano, is a managing
member of SSN Properties.
NOL PRIVATE OFFERINGS. From October 1997 to September 1998 NOL conducted a
private offering of its Common Stock. Pursuant to that offering, a total of
506,378 shares of NOL Common Stock were sold for total cash consideration of
$200,500.
From October 1997 to September 1998 NOL conducted a private offering of its
Series A Preferred Stock. Pursuant to that offering, a total of 367,215 shares
of NOL 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 NOL Common Stock. In September, 1998, the outstanding shares of Series A
Preferred Stock were converted into 734,438 shares of NOL Common Stock.
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<PAGE>
All the shares of NOL Common Stock issued to investors in the private
offerings were converted into shares of Nettaxi Common Stock in the
Reorganization described below.
REORGANIZATION
In September 1998, NOL entered into the Reorganization with a non-operating
public company, Swan Valley Snowmobiles, Inc., a Nevada corporation incorporated
in October 1995 ("SVSI"). From its incorporation, SVSI engaged in the business
of snowmobile repair. During the first half of 1997, SVSI determined that this
line of business was no longer feasible and discontinued its operations. Under
the Reorganization Agreement, the NOL stockholders received approximately 2.53
shares of Common Stock of SVSI in exchange for each of their shares of NOL
Common Stock, and NOL became a wholly-owned subsidiary of SVSI. An aggregate of
12,000,000 shares were issued to the former NOL stockholders in the
Reorganization and the NOL stockholders owned approximately 85% of SVSI
immediately after the Reorganization. As part of the Reorganization, all of the
executive officers and directors of SVSI resigned and the executive officers and
directors of NOL became the executive officers and directors of SVSI which
changed its name to Nettaxi, Inc. Immediately prior to the Reorganization, SVSI
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.
OFFERING OF DEBENTURES AND WARRANTS
On March 31, 1999, we entered into a Securities Purchase Agreement with RGC
pursuant to which RGC 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. See "Description of Capital Stock--Warrants and Debentures."
OTHER AGREEMENTS
In October 1998, each of Named Executives were granted options to purchase
40,000 shares of our Common Stock under the 1998 Stock Option Plan. See
"Management--Executive Compensation." We have entered into other employment
agreements and other compensation arrangements with our directors and officers.
See "Management--Employment Agreements and Termination of Employment and Change
of Control Arrangements" "--Director Compensation" and "-- Limitation Of
Liability And Indemnification Matters."
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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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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. See "Description of
Capital Stock -- Warrants and Debentures." 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 certain 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 sixty (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). . 1,991,448 1,991,448 -- --
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 consists
of an estimated 1,691,448 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 May 4, 1999. See "Description of Capital
Stock--Warrants and Debentures". 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 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. 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) will not
exceed 4.99% of our then outstanding Common Stock.
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<PAGE>
(3) RGC 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.
</TABLE>
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our Common Stock as of April 28, 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 April 28, 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. See footnote 1
below.
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) 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
EXECUTIVE OFFICERS AND BENEFICIALLY OWNED
DIRECTORS: (1) PERCENT OF CLASS
- - --------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Robert A. Rositano, Jr. (2) (3) . . . . . . . . . . 2,106,787 10.0%
Dean Rositano (2) (4) . . . . . . . . . . . . . . . 2,156,260 10.2%
Glenn Goelz(5). . . . . . . . . . . . . . . . . . . 0 *
Melanie McCarthy(6) . . . . . . . . . . . . . . . . 4,166 *
Brian Stroh(7). . . . . . . . . . . . . . . . . . . 126,779 *
Roger Thornton. . . . . . . . . . . . . . . . . . . 15,153 *
Andrew Garroni. . . . . . . . . . . . . . . . . . . 75,000 *
Ron Goldie. . . . . . . . . . . . . . . . . . . . . 50,000 *
All directors and executive officers as a group (8
Persons)(8) . . . . . . . . . . . . . . . . . . . . 4,534,145 21.5%
OTHER 5% STOCKHOLDERS:
Robert A. Rositano, Sr. (9) . . . . . . . . . . . 1,508,330 7.1%
Janice Rositano-Battistella (10) . . . . . .. . . 1,815,518 8.6%
<FN>
* Less than one percent.
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<PAGE>
(1) Beneficial ownership is determined in accordance with rules of the SEC. 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 April 28, 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 April 28, 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 April 28, 1999.
(5) Excludes 250,000 shares of Common Stock subject to options that will not be
exercisable within 60 days of April 28, 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 April 28, 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 April 28, 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.
(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.
</TABLE>
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 SEC as exhibits to our Registration Statement of which
this Prospectus constitutes a part, and provisions of applicable law.
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<PAGE>
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 May 4, 1999, and 1,000,000 shares of Preferred Stock, par value
$.001, of which no shares were issued and outstanding as of April 28, 1999. As
of April 28, 1999, we estimated that there were approximately 321 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 the Company's Articles of Incorporation or Bylaws. However,
under certain circumstances, cumulative voting rights in the election of our
directors may exist under California law. See "--Application of California GCL".
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.
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. See "Anti-Takeover Effects of
Various Provisions of Nevada Law and Nettaxi's Certificate of Incorporation and
Bylaws."
WARRANTS AND DEBENTURES
WALL STREET TRADING GROUP WARRANTS. In March 1999, we issued warrants to
Wall Street to purchase up to 125,000 shares of our Common Stock. The warrants
issued to Wall Street 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 the resale
of the Common Stock to be issued upon exercise of the warrants held by Wall
Street.
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<PAGE>
RGC DEBENTURES AND WARRANTS. On March 31, 1999, we entered into a
Securities Purchase Agreement with RGC 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 (plus all accrued interested thereon) 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.
As of May 4, 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 May 4, 1999, conversion of the entire
principal amount of the convertible debentures (and accrued interest thereon)
would yield 422,862 shares of Common Stock. In addition, as of May 4, 1999,
RGC's election to fully exercise its option to purchase additional shares of
Common Stock would yield an additional 422,862 shares of Common Stock, resulting
in the issuance of an aggregate of 845,724 shares to RGC as of that date.
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 certain specified events, 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 warrants issued to RGC may be exercised at any time during the
five-year period following their issuance at an exercise price of $12.375 per
share.
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,
the resale of the Common Stock to be issued upon conversion of the debentures or
exercise of the warrants held by RGC.
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<PAGE>
REGISTRATION RIGHTS
RGC. Under a Registration Rights Agreement with RGC entered into on March
31, 1999, we agreed to register the shares of Common Stock issuable to RGC 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 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 certain 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's counsel in excess of $30,000. We are
required to indemnify and hold harmless each investor and its representatives
and RGC and its agents or representatives against: (i) any untrue statement of a
material fact in a Registration Statement; (ii) any untrue statement or alleged
untrue statement contained in any preliminary Prospectus if used prior to the
effective date of the Registration Statement; or (iii) any violation or alleged
violation of the Securities Act or the Exchange Act. Specific procedures for
carrying out such indemnification are set forth in the Agreement. Under the
Registration Agreement, RGC 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
("piggyback registration") in the event that we fail to satisfy our other
obligations as to the registration of the Common Stock acquired by RGC.
BAYTREE CAPITAL. On September 3, 1998, NOL engaged Baytree Capital
Associates to provide financial and business consulting in connection with the
Reorganization. In consideration of such services, Baytree was issued 200,000
shares of our Common Stock in October 1998 and granted certain 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.
WALL STREET TRADING GROUP. Wall Street is entitled to certain registration
rights with respect to the 125,000 shares of our Common Stock that Wall Street
may receive upon exercise of warrants previously issued to Wall Street. Subject
to various and customary exceptions, if we propose to register shares of our
Common Stock, Wall Street 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 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 certain 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.
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<PAGE>
No other stockholders have registration rights with respect to the Common
Stock which they own or have the right to acquire.
ANTI-TAKEOVER EFFECTS OF VARIOUS PROVISIONS OF NEVADA LAW
AND NETTAXI'S CERTIFICATE 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 certain conditions are met. A
"combination" includes (a) 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, (b) 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 (i) an
aggregate market value equal to 5% or more of the aggregate market value of the
corporation's assets, (ii) an aggregate market value equal to 5% or more of the
aggregate market value of all outstanding shares of the corporation, or (iii)
representing 10% or more of the earning power or net income of the corporation,
(c) 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, (d) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by the "interested stockholder," (e)
certain transactions which would have the effect of increasing the proportionate
share of outstanding shares of the corporation owned by the "interested
stockholder," or (f) 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 (i)
directly or indirectly owns 10% or more of the voting power of the outstanding
voting shares of the corporation or (ii) 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 (a)(i) 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 (ii) 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 (b) 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
(S)78.378-78.379, prohibits an acquiror, under certain circumstances, from
voting shares of a target corporation's stock after crossing certain 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 certain 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 certain 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 (which is generally equal to the highest price paid
in the transaction subjecting the stockholder to the statute).
Certain 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.
82
<PAGE>
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 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.
The 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 percentage of our shares required to
approve the action at a meeting.
The Company is not aware of any proposed takeover attempt or any proposed
attempt to acquire a large block of 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 GCL
Although we are incorporated in Nevada, our headquarters is in the State of
California. Section 2115 of the California GCL ("Section 2115") provides that
certain provisions of the California GCL 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 certain 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 GCL regarding the following matters are made applicable to the
exclusion of the law of the State of Nevada: (i) general provisions and
definitions; (ii) annual election of directors; (iii)removal of directors
without cause; (iv) removal of directors by court proceedings; (v)filling of
director vacancies where less than a majority in office were elected by the
stockholders; (vi) directors' standard of care; (vii) liability of directors for
unlawful distributions; (viii) indemnification of directors, officers and
others; (ix) limitations on corporate distributions of cash or property; (x)
liability of a stockholder who receives an unlawful distribution;(xi)
requirements for annual stockholders meetings; (xii) stockholders' right to
cumulate votes at any election of directors; (xiii) supermajority vote
requirements; (xiv) limitations on sales of assets; (xv) limitations on
mergers;(xvi) reorganizations; (xvii) dissenters' rights in connection with
reorganizations; (xviii) required records and papers; (xix) actions by the
California Attorney General; and (xx) rights of inspection.
83
<PAGE>
Pursuant to our agreements with RGC, 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 certain 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 certain circumstances, including (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or (ii) 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.
There is no pending litigation or proceeding involving a director, officer,
associate or other agent of Nettaxi as to which indemnification is being sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification by any director, officer, associate or other agent.
TRANSFER AGENT AND REGISTRAR
Interwest Transfer Co., Inc. is the transfer agent and registrar for our
capital stock.
SHARES ELIGIBLE FOR FUTURE SALE
On May 4, 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. See "Management--Employee Benefit Plans." In addition,
2,116,448 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, unless purchased by or issued to any "affiliate" of ours, as
that term is defined in Rule 144, 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
or another exemption from registration.
84
<PAGE>
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), 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) 1% of the then
outstanding shares of our Common Stock or (2) 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 May 4, 1999, 8,533,231 of our outstanding shares were
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. See "Description of
Capital Stock--Warrants and Debentures." 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 May 4, 1999, 78,332 of these options
were exercisable. Finally, certain of our stockholders have certain demand
registration rights with respect to their shares of Common Stock. See
"Description of Capital Stock--Registration Rights."
There has been very limited trading volume in our Common Stock to date.
Sales of substantial amounts of our Common Stock under Rule144, 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. See "Risk Factors--Shares Eligible For Future Sale By Our
Current Stockholders May Adversely Affect Our Stock Price."
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. See "Description of Capital Stock--Warrants and Debentures" for a
description of the terms of such debentures and warrants. This Prospectus
relates to the offer and sale of the shares of our Common Stock to be received
by the Seller 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. See "Description of Capital Stock--Registration Rights."
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. See "Selling Stockholders."
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:
85
<PAGE>
- - a block trade 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; and
- - face-to-face transactions between the Selling Stockholders and
purchasers without a broker-dealer.
In effecting sales, brokers or dealers engaged by the Selling Stockholders
may arrange for other brokers or dealers to participate. These brokers or
dealers may receive commissions or discounts from the Selling Stockholders in
amounts to be negotiated immediately prior to the sale. These brokers or dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In addition, any securities covered by this Prospectus may also be sold
under Rule 144 rather than pursuant to this Prospectus. See "Shares Eligible for
Future Sale." 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,
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.
86
<PAGE>
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 Exchange Act 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.
We will indemnify the Selling Stockholders, or their transferees or
assignees, against some liabilities, including liabilities under the Securities
Act, 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 certain limited
periods upon notification that certain actions, such as amending or
supplementing this Prospectus, are required in order to comply with federal or
state securities laws.
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
their 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 SEC 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. Certain 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 SEC'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. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms.
87
<PAGE>
We will also file annual, quarterly and current reports, proxy statements
and other information with the SEC. 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
SEC.
Our SEC filings and the Registration Statement can also be reviewed by
accessing the SEC'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 SEC.
88
<PAGE>
NETTAXI, INC.
CONTENTS
================================================================================
<TABLE>
<CAPTION>
NETTAXI, INC.
INDEX TO FINANCIAL STATEMENTS
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets. . . . . . . . . . . . F-3 - F-4
Consolidated statements of operations. . . . . . . F-5
Consolidated statements of shareholders' equity. . F-6
Consolidated statements of cash flows. . . . . . . F-7
Notes to consolidated financial statements . . . . F-8 - F-23
</TABLE>
<PAGE> 89
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 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.
San Jose, California
March 16, 1999 (except with respect to the matters discussed in Note 13 as to
which the date is March 31, 1999).
F-2
<PAGE> 90
NETTAXI, INC.
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, 1998 1997
============================================================== ========== ==========
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 9) . . . . . . . . . . . . . . $ 465,800 $ 49,500
Accounts receivable, net of allowance for doubtful accounts
of $31,200 and $0, respectively (Note 9) . . . . . . . . . 133,700 60,100
Prepaid expenses and other assets. . . . . . . . . . . . . . 16,100 2,900
- - -------------------------------------------------------------- ---------- ----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . 615,600 112,500
- - -------------------------------------------------------------- ---------- ----------
PROPERTY AND EQUIPMENT, net (Note 2) . . . . . . . . . . . . . 255,100 142,800
PURCHASED TECHNOLOGY, net (Note 3). . . . . . . . . . . . . . 667,000 1,682,000
GOODWILL, net (Note 3). . . . . . . . . . . . . . . . . . . . . 115,000 145,000
- - -------------------------------------------------------------- ---------- ----------
$1,652,700 $2,082,300
============================================================== ========== ==========
</TABLE>
F-3
<PAGE> 91
NETTAXI, INC.
CONSOLIDATED BALANCE SHEETS
================================================================================
<TABLE>
<CAPTION>
December 31, 1998 1997
====================================================================== ============ ===========
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 186,900 $ 11,000
Accrued expenses (Note 4). . . . . . . . . . . . . . . . . . . . . . 74,000 77,300
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 47,000 -
Income taxes payable (Note 8). . . . . . . . . . . . . . . . . . . . - 600
Current portion of capital lease obligations (Note 6). . . . . . . . 7,300 -
Current portion of convertible notes payable, related party (Note 5) - 246,500
- - ---------------------------------------------------------------------- ------------ -----------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . 315,200 335,400
- - ---------------------------------------------------------------------- ------------ -----------
LONG-TERM LIABILITIES:
Capital lease obligations, less current portion (Note 6) . . . . . . 5,400 -
Convertible notes payable, related party (Note 5). . . . . . . . . . - 773,500
- - ---------------------------------------------------------------------- ------------ -----------
TOTAL LONG-TERM LIABILITIES. . . . . . . . . . . . . . . . . . . . . . 5,400 773,500
- - ---------------------------------------------------------------------- ------------ -----------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . 320,600 1,108,900
COMMITMENTS AND CONTINGENCIES (Notes 6, 12 and 13)
SHAREHOLDERS' EQUITY (Notes 5, 7 and 13)
Preferred stock, $0.001 par value; 1,000,000 shares
authorized; no shares and 134,000 shares issued and
outstanding, respectively. . . . . . . . . . . . . . . . . . . . . - 100
Common stock subscribed. . . . . . . . . . . . . . . . . . . . . . . (95,000) -
Common stock, $0.001 par value; 50,000,000 shares
authorized; 14,110,000 and 5,238,991 shares issued and
outstanding, respectively. . . . . . . . . . . . . . . . . . . . . 10,800 2,600
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 4,872,100 1,297,900
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . (3,455,800) (327,200)
- - ---------------------------------------------------------------------- ------------ -----------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . 1,332,100 973,400
- - ---------------------------------------------------------------------- ------------ -----------
$ 1,652,700 $2,082,300
====================================================================== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 92
NETTAXI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
<CAPTION>
For the year ended December 31, 1998 and for the Period from
October 23, 1997 (date of incorporation) to December 31, 1997 1998 1997
================================================================ ============ ===========
<S> <C> <C>
NET REVENUES (Notes 9 and 10). . . . . . . . . . . . . . . . . . $ 258,000 $ 144,900
COST OF REVENUES . . . . . . . . . . . . . . . . . . . . . . . . 239,800 87,400
- - ---------------------------------------------------------------- ------------ -----------
GROSS PROFIT . . . . . . . . . . . . . . . . . . . . . . . . . . 18,200 57,500
OPERATING EXPENSES:
Sales and marketing. . . . . . . . . . . . . . . . . . . . . . 745,600 3,100
Research and development . . . . . . . . . . . . . . . . . . . 634,700 36,500
General and administrative . . . . . . . . . . . . . . . . . . 1,053,200 160,000
Asset impairment (Note 3). . . . . . . . . . . . . . . . . . . 667,000 -
- - ---------------------------------------------------------------- ------------ -----------
TOTAL OPERATING EXPENSES . . . . . . . . . . . . . . . . . . . . 3,100,500 199,600
- - ---------------------------------------------------------------- ------------ -----------
LOSS FROM OPERATIONS . . . . . . . . . . . . . . . . . . . . . . (3,082,300) (142,100)
OTHER INCOME (EXPENSE):
Interest income. . . . . . . . . . . . . . . . . . . . . . . . 9,800 -
Interest expense (Note 5). . . . . . . . . . . . . . . . . . . (68,800) (17,000)
Other income . . . . . . . . . . . . . . . . . . . . . . . . . 28,500 -
- - ---------------------------------------------------------------- ------------ -----------
LOSS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . (3,112,800) (159,100)
INCOME TAXES (Note 8). . . . . . . . . . . . . . . . . . . . . . (800) (600)
- - ---------------------------------------------------------------- ------------ -----------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,113,600) $ (159,700)
================================================================ ============ ===========
PREFERRED STOCK DIVIDEND (Note 7) . . . . . . . . . . . . . . . (14,300) (167,500)
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS . . . . . . . . . . . $(3,127,900) $ (327,200)
================================================================ ============ ===========
BASIC AND DILUTED LOSS PER COMMON SHARE. . . . . . . . . . . . . $ (0.37) $ (0.06)
================================================================ ============ ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . 8,499,781 5,483,500
================================================================ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 93
NETTAXI, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Common Additional
Preferred Stock Common Stock Stock Paid-in
------------------- -------------------
Shares Amount Shares Amount Subscribed Capital
================================================= ========= ======== ========== ======= ============ ==========
<S> <C> <C> <C> <C> <C> <C>
BALANCES, October 23, 1997. . . . . . . . . . . . - $ - 2,576,088 $ 100 $ - $ -
Issuance of common stock for services and
salaries. . . . . . . . . . . . . . . . . . . . - - 187,837 - - 52,500
Issuance of common stock for property,
equipment and technology (Note 3) . . . . . . . - - 2,475,066 2,500 - 977,500
Proceeds from sale of preferred stock (Note 7). . 134,000 100 - - - 267,900
Net loss. . . . . . . . . . . . . . . . . . . . . - - - - - -
- - ------------------------------------------------- --------- -------- ---------- ------- ------------ ----------
BALANCES, December 31, 1997 . . . . . . . . . . . 134,000 100 5,238,991 2,600 - 1,297,900
Net proceeds from sale of preferred stock . . . . 11,400 - - - - 22,900
Net proceeds from sale of common stock. . . . . . - - 1,756,378 1,800 - 1,198,300
Issuance of common stock for services and
salaries. . . . . . . . . . . . . . . . . . . . - - 328,132 300 - 142,500
Exchange of convertible notes payable and
accrued interest (Note 5) . . . . . . . . . . . - - 2,792,763 2,800 - 1,103,000
Exchange of preferred stock for common stock. . . (145,400) (100) 734,438 - - 100
Compensation expense related to warrants granted
(Note 7). . . . . . . . . . . . . . . . . . . . - - - - - 855,000
Warrants exchanged for common stock . . . . . . . - - 2,399,298 2,400 (95,000) 92,600
Issuance of common stock to Placement Agent . . . - - 200,000 200 - 159,800
Common stock issued in connection with
Reorganization. . . . . . . . . . . . . . . . . - - 660,000 700 - -
Net loss. . . . . . . . . . . . . . . . . . . . . - - - - - -
- - ------------------------------------------------- --------- -------- ---------- ------- ------------ ----------
BALANCES, December 31, 1998 . . . . . . . . . . . - $ - 14,110,000 $10,800 $ (95,000) $4,872,100
================================================= ========= ======== ========== ======= ============ ==========
Accumulated
Deficit Total
================================================= ============ ============
<S> <C> <C>
BALANCES, October 23, 1997. . . . . . . . . . . . $ - $ 100
Issuance of common stock for services and
salaries. . . . . . . . . . . . . . . . . . . . - 52,500
Issuance of common stock for property,
equipment and technology (Note 3) . . . . . . . - 980,000
Proceeds from sale of preferred stock . . . . . . - 268,000
Net loss. . . . . . . . . . . . . . . . . . . . . (327,200) (327,200)
- - ------------------------------------------------- ------------ ------------
BALANCES, December 31, 1997 . . . . . . . . . . . (327,200) 973,400
Net proceeds from sale of preferred stock . . . . - 22,900
Net proceeds from sale of common stock. . . . . . - 1,200,100
Issuance of common stock for services and
salaries. . . . . . . . . . . . . . . . . . . . - 142,800
Exchange of convertible notes payable and
accrued interest (Note 5) . . . . . . . . . . . - 1,105,800
Exchange of preferred stock for common stock. . . - -
Compensation expense related to warrants granted
(Note 7). . . . . . . . . . . . . . . . . . . . - 855,000
Warrants exchanged for common stock . . . . . . . - -
Issuance of common stock to Placement Agent . . . - 160,000
Common stock issued in connection with
Reorganization. . . . . . . . . . . . . . . . . (700) -
Net loss. . . . . . . . . . . . . . . . . . . . . (3,127,900) (3,127,900)
- - ------------------------------------------------- ------------ ------------
BALANCES, December 31, 1998 . . . . . . . . . . . $(3,455,800) $ 1,332,100
================================================= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 94
NETTAXI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 11)
================================================================================
<TABLE>
<CAPTION>
For the Year ended December 31, 1998 and for the Period from October 23,
1997 (date of incorporation) to December 31, 1997 1998 1997
============================================================================== ============ ==========
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,113,600) $(159,700)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on disposal of equipment. . . . . . . . . . . . . . . . . . . . . . . (28,500) -
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . 433,500 70,200
Allowance for doubtful accounts. . . . . . . . . . . . . . . . . . . . . . 31,200 -
Issuance of common stock for interest on convertible notes . . . . . . . . 68,800 -
Issuance of common stock for services. . . . . . . . . . . . . . . . . . . 302,800 52,500
Asset impairment (Note 3). . . . . . . . . . . . . . . . . . . . . . . . . 667,000 -
Compensation expense related to options granted. . . . . . . . . . . . . . 855,000 -
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . (104,800) (60,000)
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . (13,200) (2,900)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,900 11,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,700 37,300
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,000 -
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . (600) 600
- - ------------------------------------------------------------------------------ ------------ ----------
NET CASH USED IN OPERATING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . (665,800) (51,000)
- - ------------------------------------------------------------------------------ ------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of equipment. . . . . . . . . . . . . . . . . . . . . 34,600 -
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . (159,200) -
- - ------------------------------------------------------------------------------ ------------ ----------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . (124,600) -
- - ------------------------------------------------------------------------------ ------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on obligations under capital lease . . . . . . . . . . . . . . . . . (2,000) -
Net proceeds from issuance of preferred stock. . . . . . . . . . . . . . . . 8,600 100,500
Net proceeds from issuance of common stock . . . . . . . . . . . . . . . . . 1,200,100 -
- - ------------------------------------------------------------------------------ ------------ ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . . . . . . . . . . . . . . . . 1,206,700 100,500
- - ------------------------------------------------------------------------------ ------------ ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . 416,300 49,500
CASH AND CASH EQUIVALENTS, beginning of period . . . . . . . . . . . . . . . . 49,500 -
- - ------------------------------------------------------------------------------ ------------ ----------
CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . . . . . . . . . . . $ 465,800 $ 49,500
============================================================================== ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 95
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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 7).
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-8
<PAGE> 96
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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-9
<PAGE> 97
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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:
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 Goodwill
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 cost in excess of net assets acquired (goodwill) over a 5
year period.
Revenue Recognition and Deferred Revenue
The Company recognizes revenues from product sales upon product shipment.
Advertising revenue is recognized when services are performed, net of
commissions withheld by advertising agencies.
Deferred revenue resulting from subscription and advertising agreements
aggregated $47,000 and $0 as of December 31, 1998 and 1997, and is amortized on
a straight-line basis over the subscription agreement.
F-10
<PAGE> 98
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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.
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.
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 net realizable
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.
F-11
<PAGE> 99
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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.
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 7).
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.
F-12
<PAGE> 100
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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, 1999.
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.
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.
F-13
<PAGE> 101
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 31, 1998 and 1997, follows:
<TABLE>
<CAPTION>
1998 1997
============================= ======== ========
<S> <C> <C>
Furniture and fixtures. . . . $ 5,000 $ 5,000
Office equipment. . . . . . . 59,700 45,000
Computers and equipment . . . 250,200 100,000
- - ----------------------------- -------- --------
314,900 150,000
Less accumulated depreciation 59,800 7,200
- - ----------------------------- -------- --------
$255,100 $142,800
============================= ======== ========
</TABLE>
Equipment under capital lease obligations aggregated $14,700 as of December 31,
1998, with related accumulated amortization of $500.
3. PURCHASED TECHNOLOGY AND GOODWILL
In November 1997, the Company issued a convertible secured promissory note in
the amount of $1,020,000 (Note 5) and 2,475,066 shares of common stock, valued
at $980,000, to a related party in exchange for certain fixed assets,
liabilities and technology. 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 . . . . . . . . . $1,740,000
Goodwill . . . . . . . . . . . . . . . 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>
F-14
<PAGE> 102
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
In 1998, the Company 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, the Company decided, in December 1998, not to spend
additional monies on these components but to replace them. The Company
determined that half of the purchased technology was incompatible with its
operating system and therefore was not technologically viable.
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 goodwill as of December 31, 1998 and 1997,
follows:
<TABLE>
<CAPTION>
1998 1997
============================= ========== ==========
<S> <C> <C>
Purchased technology. . . . . $ 870,000 $1,740,000
Less accumulated amortization 203,000 58,000
- - ----------------------------- ---------- ----------
$ 667,000 $1,682,000
============================= ========== ==========
Goodwill. . . . . . . . . . . 150,000 150,000
Less accumulated amortization 35,000 5,000
$ 115,000 $ 145,000
============================= ========== ==========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
=============================== ======= =======
<S> <C> <C>
Payroll and related expenses. . $10,000 $17,500
Professional fees . . . . . . . 52,700 -
Accrued interest, related party - 17,000
Other . . . . . . . . . . . . . 11,300 42,800
- - ------------------------------- ------- -------
$74,000 $77,300
=============================== ======= =======
</TABLE>
F-15
<PAGE> 103
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
5. CONVERTIBLE NOTES PAYABLE, RELATED PARTY
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. Interest expense on the note aggregated $68,800 in 1998 and $17,000 in
the period ended December 31, 1997.
6. 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:
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>
Operating Capital
December 31, Lease 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-16
<PAGE> 104
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
7. 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.
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.
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.
F-17
<PAGE> 105
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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, employees and consultants 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.
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.
F-18
<PAGE> 106
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The Company has reserved three million shares of common stock for issuance under
The Plan.
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:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- - ---------------------------------------------------- -----------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Remaining Exercise Exercise
Exercise Number Contractual Price per Number Price per
Price Outstanding Life (Years) Share Exercisable Share
- - ------------- ----------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
0.80 - $1.00 280,000 9.75 $ 0.82 23,333 $ 0.82
============= =========== ============ ========== =========== ==========
</TABLE>
F-19
<PAGE> 107
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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 not have been significantly different
having used the fair recorded intrinsic value of stock options, as determined
by using the Black-Scholes pricing-model, when compared to the value of the
options granted.
8. 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.
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>
1998 1997
============================================ ============ =========
<S> <C> <C>
Federal income tax benefit at statutory rate $(1,058,400) $(54,100)
State income tax benefit . . . . . . . . . . (180,800) (9,800)
Tax benefit not currently recognizable . . . 835,400 64,500
Other. . . . . . . . . . . . . . . . . . . . 404,600 -
- - -------------------------------------------- ------------ ---------
Provision for income taxes . . . . . . . . . $ 800 $ 600
============================================ ============ =========
</TABLE>
F-20
<PAGE> 108
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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, 1998 1997
================================= ========== =========
<S> <C> <C>
Net operating loss carryforward . $ 473,900 $ 67,400
Depreciation and amortization . . (90,300) (10,100)
Accrued compensation and benefits 4,000 -
Reserves not currently deductible 316,200 200
- - --------------------------------- ---------- ---------
Total deferred tax asset. . . . . 884,400 57,500
Valuation allowance . . . . . . . (884,400) (57,500)
- - --------------------------------- ---------- ---------
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.
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.
9. 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.
F-21
<PAGE> 109
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
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.
10. 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.
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following is supplemental disclosure for the statements of cash flows.
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997
=========================================== ========== ==========
<S> <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>
F-22
<PAGE> 110
NETTAXI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
12. 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.
13. SUBSEQUENT EVENTS
In March 1999, the Company signed a Letter of Intent to complete an acquisition
of shares of another corporation. It is the parties' intent to structure the
transaction as a pooling of interest.
On March 31, 1997, the Company entered into a $5,000,000 convertible debt
financing agreemnt (the Agreement). The convertible debtinture bears interest
at 5%, matures March 31, 2004, and is convertible into shares of common stock at
$11.88. In conjunction with the Agreement the Company issued warrants, which
vest maturity over 5 years, to purchase 150,000 shares of common stock of
$12.375.
F-23
<PAGE> 111
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 making 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.
NETTAXI, INC.
2,116,448 Shares of
Common Stock
____________________
PROSPECTUS
____________________
_________, 1999
112
<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
SEC registration fee.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration fee . . . . . . . . . . . . . . . . $ 10,502
Accounting Fees and Expenses . . . . . . . . . . . .
Legal fees Fees and Expenses . . . . . . . . . . . .
NASD (National Market System Filing Fee) . . . . . .
Miscellaneous. . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . $
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Nevada Private Corporation Law ("NPCL") 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 (x) 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 (y) 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 NPCL 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.
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.
113
<PAGE>
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 (as defined therein) to the fullest extent permitted
by Nevada law.
The Company maintains liability insurance for its directors and officers
covering, subject to certain 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.
114
<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, as amended (the
"Securities Act"), or rule of the Securities and Exchange Commission under which
exemption from registration was claimed.
All sales, unless otherwise noted, were made in reliance on Section 4(2) of
the Securities Act and/or Regulation D or Rule 701 promulgated under the
Securities Act 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.
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.
(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.
(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.
(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.
(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.
(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.
(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.
115
<PAGE>
(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.
(9) In August and September, 1998, the Company issued 118,190 shares of
Common Stock to certain employees and consultants in consideration for services
rendered to the Company valued at $67,000.
(10) In September, 1998, the Company issued 2,399,298 shares of Common
Stock to certain officers, 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.
(11) In September 1998, the Company and its stockholders entered into a
Reorganization Agreement with Swan Valley Snowmobiles, Inc. ("Swan Valley").
Under the terms of the Reorganization Agreement, the stockholders of the Company
received approximately 2.53 shares of Common Stock of Swan Valley (representing
approximately 85% of the outstanding shares of Swan Valley immediately after 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.
(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.
(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.
(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.
(15) From January, 1999 to May, 1999, the Company pursuant to its 1998
Stock Option Plan, issued options to purchase 100,000 shares of Common Stock to
certain of its employees, with exercise prices ranging from $7.437 to $18.00 per
share.
(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.
116
<PAGE>
(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.
(18) In April, 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.
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
117
<PAGE>
10.2 Sub Lease dated September 3, 1997 by and between Execustaff and the
Company
* + 10.3 Master Software License Bundling and Distribution Agreement dated
November 13, 1997 between Apple Computer, Inc. and the Company
* + 10.4 Master Software License, Bundling and Distribution Agreement dated
March 14, 1997 between Fountain Technologies, Inc. and the Company
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 Web Advertising Services Agreement dated June 3, 1998 between Fly Cast
Communications Corporation and the Company
* + 10.8 Sales and Representation Contract dated July 7, 1998 between Michael
Weiner dba Unique Media Services and the Company
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 Merchant Services Agreement dated August 3, 1998 by and between eCharge
Corporation and the Company
10.14 Letter Agreement dated September 3, 1998 between Bay Tree Capital
Associates, LLC and the Company
* + 10.15 Conversion Agreement dated September 4, 1998 by and between SSN
Properties, LLC and the Company
* + 10.16 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
10.17 1998 Stock Option Plan of the Company
118
<PAGE>
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 Agreement for Terminal Facility Co-Location Space dated January 18, 1999
between Alchemy Communications, Inc. and the Company
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 Letter Agreement dated January 15, 1999 between Babenet, Ltd. and the
Company
* + 10.25 Internet Services Suite Agreement dated February, 1999 between Wired
Digital, Inc., Lycos, Inc. and the Company
* + 10.26 License and Distribution Agreement dated March 30, 1999 by and between
Netopia, Inc. and the Company
* + 10.27 Website Linking and Promotion Agreement dated March 5, 1999 between PI
Graphix, Inc. and the Company
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
119
<PAGE>
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
* + 10.36 Development Agreement dated as of December 16, 1998 between the Big
Network Inc. and the Company
21.1 Subsidiaries of the Company
23.1 Consent of BDO Seidman
* 23.2 Consent of Silicon Valley Law Group (included in Exhibit 5.1)
24.1 Powers of Attorney (included on signature pages to this Registration
Statement)
* 27.1 Financial Data Schedule
<FN>
* To be Filed by amendment
+ Confidential treatment requested
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
Financial Statements Schedules are omitted because the information is
included in the Financial Statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the 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 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 and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
120
<PAGE>
(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.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the Offering.
(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.
121
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Jose, State of California, on May 7, 1999.
NETTAXI, INC.
By: /s/ ROBERT A. ROSITANO, Jr.
- - ------------------------------------
Robert A. Rositano, Jr.
Chief Executive Officer
POWER OF ATTORNEY
We the undersigned officers and directors of Nettaxi, Inc., hereby
severally constitute and appoint Robert A. Rositano, Jr. and Dean Rositano, and
each of them singly (with full power to each of them to act alone), our true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution in each of them for him and in his name, place and stead, and in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement (or any other Registration Statement
for the same offering that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933), and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as full to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them or their or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ ROBERT A. ROSITANO, JR Chief Executive Officer, May 7, 1999
- - -----------------------------
Robert A. Rositano, Jr. Secretary and Director
(principal executive officer)
/s/ DEAN ROSITANO President and Director May 7, 1999
- - -----------------------------
Dean Rositano.
/s/ GLENN GOELZ Vice President Chief Financial Officer May 7, 1999
- - ----------------------------- (principal accounting officer)
Glenn Goelz.
122
<PAGE>
/s/ ROGER THORTON Director May 7, 1999
- - -----------------------------
Roger Thornton
/s/ ANDREW GARRONI Director May 7, 1999
- - -----------------------------
Andrew Garroni
/s/ RON GOLDIE Director May 7, 1999
- - -----------------------------
Ron Goldie
</TABLE>
123
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
The following Exhibits are attached hereto and incorporated herein by reference:
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
10.2 Sub Lease dated September 3, 1997 by and between Execustaff and the
Company
* + 10.3 Master Software License Bundling and Distribution Agreement dated
November 13, 1997 between Apple Computer, Inc. and the Company
* + 10.4 Master Software License, Bundling and Distribution Agreement dated
March 14, 1997 between Fountain Technologies, Inc. and the Company
10.5 Stock Option Agreement dated March 20, 1998 by and between Robert A.
Rositano, Jr. and the Company
124
<PAGE>
10.6 Stock Option Agreement dated March 20, 1998 by and between Dean
Rositano and the Company
* + 10.7 Web Advertising Services Agreement dated June 3, 1998 between Fly Cast
Communications Corporation and the Company
* + 10.8 Sales and Representation Contract dated July 7, 1998 between Michael
Weiner dba Unique Media Services and the Company
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 Merchant Services Agreement dated August 3, 1998 by and between
eCharge Corporation and the Company
10.14 Letter Agreement dated September 3, 1998 between Bay Tree Capital
Associates, LLC and the Company
* + 10.15 Conversion Agreement dated September 4, 1998 by and between SSN
Properties, LLC and the Company
* + 10.16 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
10.17 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
125
<PAGE>
* + 10.21 Agreement for Terminal Facility Co-Location Space dated January 18, 1999
between Alchemy Communications, Inc. and the Company
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 Letter Agreement dated January 15, 1999 between Babenet, Ltd. and the
Company
* + 10.25 Internet Services Suite Agreement dated February, 1999 between Wired
Digital, Inc., Lycos, Inc. and the Company
* + 10.26 License and Distribution Agreement dated March 30, 1999 by and between
Netopia, Inc. and the Company
* + 10.27 Website Linking and Promotion Agreement dated March 5, 1999 between PI
Graphix, Inc. and the Company
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
126
<PAGE>
* + 10.36 Development Agreement dated as of December 16, 1998 between the Big
Network Inc. and the Company
21.1 Subsidiaries of the Company
23.1 Consent of BDO Seidman
* 23.2 Consent of Silicon Valley Law Group (included in Exhibit 5.1)
24.1 Powers of Attorney (included on signature pages to this Registration
Statement)
* 27.1 Financial Data Schedule
<FN>
* To be Filed by amendment
+ Confidential treatment requested
</TABLE>
127
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
SWAN VALLEY SNOWMOBILES, INC.
AND
NETTAXI ONLINE COMMUNITIES, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1. Plan of Reorganization 1
2. Exchange of Shares 1
3. Pre-Closing Events 2
4. Exchange of Securities 2
5. Post Acquisition Events 2
6. Other Matters 3
7. Delivery of Shares 3
8. Representations of Nettaxi 4
9. Representations of SVSI and Dixon 5
10. Closing 7
11. Conditions Precedent to the Obligations of Nettaxi 7
12. Conditions Precedent to the Obligations of SVSI 9
13. Indemnification 10
14. Nature and Survival of Representations 10
15. Documents at Closing 10
16. Finder's Fees 11
17. Miscellaneous 12
Signature Page 13
Exhibit A - Nettaxi Stockholder Schedule
Exhibit B - Amendment to Articles of Incorporation
Exhibit C - Investment Letter
</TABLE>
(i)
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
- - ----------------------------------------
This Agreement and Plan of Reorganization (hereinafter the "Agreement") is
entered into effective as of this 24 day of September, 1998, by and among Swan
--
Valley Snowmobiles, Inc., a Nevada corporation (hereinafter "SVSI"); Lynn Dixon,
the principal shareholder of SVSI (hereinafter "Dixon") Nettaxi Online
Communities, Inc., a Delaware corporation (hereinafter "Nettaxi"), arid the
owners of all the outstanding shares of common stock of Nettaxi (hereinafter the
"Nettaxi Stockholders").
RECITALS:
WHEREAS, the Nettaxi Stockholders own all of the issued and outstanding
common stock of Nettaxi which comprises 4,726,592 shares (the "Nettaxi Common
Stock"). SVSI desires to acquire the Nettaxi Common Stock solely in exchange for
voting common stock of SVSI, making Nettaxi a wholly-owned subsidiary of SVSI;
and
WHEREAS, the Nettaxi Stockholders (as set forth on the attached Exhibit
"A") desire to acquire voting common stock of SVSI in exchange for the Nettaxi
Common Stock, as more fully set forth herein.
NOW THEREFORE, for the mutual consideration set out herein and other good
and valuable consideration, the legal sufficiency of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT
- - ---------
1. Plan of Reorganization. It is hereby agreed that all of the Nettaxi
-----------------------
Common Stock shall be acquired by SVSI in exchange solely for SVSI common voting
stock (the "SVSI Shares"). It is the intention of the parties hereto that all of
the issued and outstanding shares of capital stock of Nettaxi shall be
acquired by SVSI in exchange solely for SVSI common voting stock and that this
entire transaction qualify as a corporate reorganization under Section
368(a)(i)(B) and/or Section 351 of the Internal Revenue Code of 1986, as
amended, and related or other applicable sections thereunder.
2. Exchange of Shares. SVSI and Nettaxi Stockholders agree that on the
-------------------
Closing Date or at the Closing as hereinafter defined, the Nettaxi Common Stock
shall be delivered at Closing to SVSI in exchange for the SVSI Shares, after
giving effect to a 1.511 to 1 reverse stock split. (the "SVSI Reverse Stock
Split") as to all presently outstanding shares of SVSI common stock, as follows:
(a) At Closing, SVSI shall, subject to the conditions set forth herein,
issue an aggregate of 12,000,000 shares of SVSI common stock (after giving
effect to the SVSI Reverse Stock Split) for immediate delivery to the Nettaxi
Stockholders on the basis of 2.53 SVSI Shares for each outstanding share of
Nettaxi Common Stock.
<PAGE>
(b) Each Nettaxi Stockholder shall execute this Agreement.
(c) Unless otherwise agreed by SVSI and Nettaxi this transaction shall
close only in the event SVSI is able to acquire all of the outstanding Nettaxi
Common Stock.
3. Pre-Closing Events. The Closing is subject to the completion of the
-------------------
following:
(a) SVSI shall have authorized 50,000,000 shares of $.001 par value common
stock and 1,000,000 shares of $.001 par value preferred stock. The preferred
stock shall be subject to issuance in such series and with such rights,
preferences and designations as determined in the sole discretion of the board
of directors.
(b) SVSI shall have effectuated the SVSI Reverse Stock Split at or prior to
Closing, and shall have 660,000 shares of its common stock issued and
outstanding and no other shares of capital stock issued or outstanding.
(c) SVSI shall demonstrate to the reasonable satisfaction of Nettaxi that
it has no material assets and no liabilities contingent or fixed.
4. Exchange of Securities. As of the Closing Date each of the following
-----------------------
shall occur:
(a) Each share of Nettaxi Common Stock issued and outstanding immediately
prior to the Closing Date shall be exchanged for 2.53 SVSI Shares (up to an
aggregate amount of 12,000,000 SVSI Shares to be delivered at Closing). All such
outstanding shares of Nettaxi Common Stock shall be deemed, after Closing, to be
owned by SVSL The holders of such certificates previously evidencing shares of
Nettaxi Common Stock outstanding immediately prior to the Closing Date shall
cease to have any rights with respect to such shares of Nettaxi Common Stock
except as otherwise provided herein or by law;
(b) Any shares of Nettaxi Common Stock held in the treasury of Nettaxi
immediately prior to the Closing Date shall automatically be canceled and
extinguished without any conversion thereof and no payment shall be made with
respect thereto;
(c) The 660,000 shares of SVSI common stock previously issued and
outstanding prior to the Closing, after giving effect to the SVSI Reverse Split,
will remain outstanding.
5. Other Events Occurring at Closing. At Closing, the following
--------------------------------------
shall be accomplished:
(a) SVSI shall file an amendment to its Articles of Incorporation with the
Secretary of State of the State of Nevada in substantially the form attached
hereto as Exhibit "B" effecting an amendment to its Articles of Incorporation to
reflect a name change and to accomplish the SVSI Reverse Stock Split, all as set
forth in the attached Exhibit "B".
2
<PAGE>
(b) The resignation of the existing SVSI officer and director and
appointment of new officers and directors as directed by Nettaxi.
(c) SVSI shall have completed a limited offering under Regulation D, Rule
504, as promulgated by the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended, of 1,250,000 shares of its common stock at
$.80 per share. The gross proceeds of this offering (the "SVSI Financing") shall
be $1,000,000, which amount, less agreed upon costs, shall be delivered to the
control of new management of SVSI at Closing in good funds. The SVSI Financing
shall have been completed in compliance with all applicable state and federal
securities laws and the securities sold shall be delivered at Closing to the
investors in the SVSI Financing. Persons who have loaned money to Nettaxi, up to
$1,000,000, shall be given the opportunity to convert the principal of said loam
to the purchase of shares in the limited offering prior to Closing upon the same
terms as other investors in the limited offering.
(d) It is recognized by the parties hereto that Nettaxi entered into an
agreement dated September 3, 1998, with Baytree Capital Associates, LLC
("Baytree") wherein Baytree agreed to identify a public company to be involved
in a "reverse merger" with Nettaxi, and that SVSI is the public company agreed
to by Baytree and Nettaxi. Under said Baytree agreement, at Closing of the
transactions described herein, SVSI shall issue 200,000 shares of its common
stock (after given effect to the SVSI Reverse Stock Split) to Baytree. These
200,000 shares are deemed to be covered by the defined term "SVSI Shares" as set
forth herein for purposes of all representations and warranties of SVSI and the
legal opinion given on behalf of SVSI herein. Out of the proceeds of the SVSI
Financing (as further defined herein) there shall be paid at Closing, a
non-accountable expense allowance of $20,000 to Baytrec and the fees and
disbursements of Baytree's legal counsel not to exceed $30,000. Furthermore,
SVSI recognizes and hereby assumes the obligations of Nettaxi set forth in the
Baytree agreement including the obligation to register the 200,000 shares of its
common stock issued to Baytree hereunder at the request of Baytree in accordance
with the express terms and conditions of said agreement including unlimited
"Piggyback" registration rights.
6. Delivery of Shares. On or as soon as practicable after the Closing
--------------------
Date, Nettaxi will use its best efforts to cause the Nettaxi Stockholders to
surrender certificates for cancellation representing their shares of Nettaxi
Common Stock, against delivery of certificates representing the SVSI Shares for
which the shares of Nettaxi Common Stock are to be exchanged at Closing.
7. Representations of Nettaxi Stockholders. Each Nettaxi Stockholder
------------------------------------------
hereby represents and warrants each only as to its own Nettaxi Common Stock,
effective this date and the Closing Date as follows:
(a) Except as may be set forth in Exhibit "A", the Nettaxi Common Stock is
free from claims, liens, or other encumbrances, and at the Closing Date said
Nettaxi Stockholder will have good title and the unqualified right to transfer
and dispose of such Nettaxi Common Stock.
3
<PAGE>
(b) Each Nettaxi Stockholder, respectively, is the sole owner of the issued
and outstanding Nettaxi Common Stock as set forth in Exhibit "A";
(c) No Nettaxi Stockholder has the present intent to sell or dispose of the
SVSI Shares and no Nettaxi Stockholder is under a binding obligation, formal
commitment, or existing plan to sell or other-wise dispose of the SVSI Shares.
8. Representations of Nettaxi. Nettaxi hereby represents and warrants
----------------------------
as follows, which warranties and representations shall also be true as of the
Closing Date:
(a) Except as noted on Exhibit "A", the Nettaxi Stockholders listed on the
attached Exhibit "A" are the sole owners of record and beneficially of the
issued and outstanding common stock of Nettaxi.
(b) Nettaxi has no outstanding or authorized capital stock, warrants,
options or convertible securities other than as described in the Nettaxi
Financial Statements or in Exhibit "A", attached hereto.
(c) The unaudited financial statements as of and for the periods ended
December 31, 1997 and June 30, 1998, which have been delivered to SVSI
(hereinafter referred to as the "Nettaxi Financial Statements") arc complete and
accurate and fairly present the financial condition of Nettaxi as of the dates
thereof and the results of its operations for the periods covered. There are no
material liabilities or obligations, either fixed or contingent, not disclosed
in the Nettaxi Financial Statements or in any exhibit thereto or notes thereto
other than contracts or obligations in the ordinary course of business; and no
such contracts or obligations in the ordinary course of business constitute
liens or other liabilities which materially alter the financial condition of
Nettaxi as reflected in the Nettaxi Financial Statements. Nettaxi has good title
to all assets shown on the Nettaxi Financial Statements subject only to
dispositions and other transactions in the ordinary course of business, the
disclosures set forth therein and liens and encumbrances of record. The Nettaxi
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated therein
or in the notes thereto) and fairly present the financial position of Nettaxi as
of the dates thereof and the results of its operations and changes in financial
position for the periods then ended.
(d) Since the date of the Nettaxi Financial Statements, there have not been
any material adverse changes in the financial position of Nettaxi except changes
arising in the ordinary course of business, which changes will in no event
materially and adversely affect the financial position of Nettaxi.
(e) Nettaxi is not a parry to any material pending litigation or, to its
best knowledge, any governmental investigation or proceeding, not reflected in
the Nettaxi Financial Statements, and to its best knowledge, no material
litigation, claims, assessments or any governmental proceedings are threatened
against Nettaxi.
4
<PAGE>
(f) Nettaxi is in good standing in its jurisdiction of incorporation, and
is in good standing and duly qualified to do business in each jurisdiction where
required to be so qualified except where the failure to so qualify would have no
material negative impact on Nettaxi.
(g) Nettaxi has (or, by the Closing Date, will have filed) all material
tax, governmental and/or related forms and reports (or extensions thereof) due
or required to be filed and has (or will have) paid or made adequate provisions
for all taxes or assessments which have become due as of the Closing Date.
(h) Nettaxi has not materially breached any material agreement to which it
is a party. Nettaxi has previously given SVSI copies or access thereto of all
material contracts, commitments and/or agreements to which Nettaxi is a party
including all relationships or dealings with related parties or affiliates.
(i) Nettaxi has no subsidiary corporations except as described in writing
to SVSL
(j) Nettaxi has made all material corporate financial records, minute
books, and other corporate documents and records available for review to present
management of SVSI prior to the Closing Date, during reasonable business hours
and on reasonable notice.
(k) The execution of this Agreement does not materially violate or breach
any material agreement or contract to which Nettaxi is a party and has been duly
authorized by all appropriate and necessary corporate action under Delaware of
other applicable law and Nettaxi, to the extent required, has obtained all
necessary approvals or consents required by any agreement to which Nettaxi is a
party.
(1) All disclosure information regarding Nettaxi which is to be set forth
in disclosure documents of SVSI or otherwise delivered to SVSI by Nettaxi for
use in connection with the transaction (the "Acquisition") described herein is
true, complete and accurate in all material respects.
9. Representations of SVSI and Dixon. SVSI, and Dixon to the best of
------------------------------------
his knowledge, hereby jointly and severally represent and warrant as follows,
each of which representations and warranties shall continue to be true as of the
Closing Date:
(a) As of the Closing Date, the SVSI Shares, to be issued and delivered to
the Nettaxi Stockholders hereunder will, when so issued and delivered,
constitute, duly authorized, validly and legally issued shares of SVSI common
stock, fully-paid and nonassessable.
(b) SVSI has the corporate power to enter into this Agreement and to
perform its respective obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by the board of directors of SVSL The execution and performance
of this Agreement will not constitute a material breach of any agreement,
indenture, mortgage, license or other instrument or document
5
<PAGE>
to which SVSI is a party and will not violate any judgment, decree, order, writ,
rule, statute, or regulation applicable to SVSI or its properties. The execution
and performance of this Agreement will not violate or conflict with any
provision of the Articles of Incorporation or by-laws of SVSI.
(c) SVSI has delivered to Nettaxi a true and complete copy of its audited
financial statements for the years ended December 31, 1996 and 1997, and prior
to Closing will deliver unaudited financial statements for the six months ended
June 30, 1998, (the "SVSI Financial Statements"). The SVSI Financial Statements
are complete, accurate and fairly present the financial condition of SVSI as of
the dates thereof and the results of its operations for the periods then ended.
There are no material liabilities or obligations either fixed or contingent not
reflected therein. The SVSI Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto) and fairly
present the financial position of SVSI as of the dates thereof and the results
of its operations and changes in financial position for the periods then ended.
(d) Since December 31, 1997, there have not been any material adverse
changes in the financial condition of SVSI except with regard to disbursements
to pay reasonable and ordinary expenses in connection -with maintaining its
corporate status and pursuing the matters contemplated in this Agreement. Prior
to Closing, all accounts payable and other liabilities of SVSI shall be paid and
satisfied in full and SVSI shall have no liabilities either contingent or fixed.
(e) SVSI is not a party to or the subject of any pending litigation,
claims, or governmental investigation or proceeding not reflected in the SVSI
Financial Statements or otherwise disclosed herein, and there are no lawsuits,
claims, assessments, investigations, or similar matters, to the best knowledge
of Dixon, threatened or contemplated against or affecting SVSI, its management
or its properties.
(f) SVSI is duly organized, validly existing and in good standing under the
laws of the State of Nevada; has the corporate power to own its property and to
carry on its business as now being conducted and is duly qualified to do
business in any jurisdiction where so required except where the failure to so
qualify would have no material negative impact on it.
(g) SVSI has filed all federal, state, county and local income, excise,
property and other tax, governmental and/or related returns, forms, or reports,
which are due or required to be filed by it prior to the date hereof, except
where the failure to do so would have no material adverse. impact on SVSI, and
has paid or made adequate provision in the SVSI Financial Statements for the
payment of all taxes, fees, or assessments which have or may become due pursuant
to such returns or pursuant to any assessments received. SVSI is not delinquent
or obligated for any tax, penalty, interest, delinquency or charge.
6
<PAGE>
(h) There are no existing options, calls, warrants, preemptive rights or
commitments of any character relating to the issued or unissued capital stock or
other securities of SVSI, except as contemplated in this Agreement.
(i) The corporate financial records, minute books, and other documents and
records of SVSI have been made available to Nettaxi prior to the Closing and
shall be delivered to new management of SVSI at Closing.
(j) SVSI has not breached, nor is there any pending, or to the knowledge of
management, any threatened claim that SVSI has breached, any of the terms or
conditions of any agreements, contracts or commitments to which it is a party or
by which it or its assets are is bound, The execution and performance hereof
will not violate any provisions of applicable law or any agreement to which SVSI
is subject SVSI hereby represents that it has no business operations or material
assets and it is not a party to any material contract or commitment other than
appointment documents with its transfer agent, and that it has disclosed to
Nettaxi all relationships or dealings with related parties or affiliates.
(k) SVSI common stock is currently approved for quotation on the OTC
Bulletin Board under the symbol "SVSN" and there are no stop orders in effect
with respect thereto.
(1) All information regarding SVSI which has been provided to Nettaxi or
otherwise disclosed in connection with the transactions contemplated herein, is
true, complete and accurate in all material respects. SVSI and Dixon
specifically disclaim any responsibility regarding disclosures as to Nettaxi,
its business or its financial condition.
10. Closing. The Closing of the transactions contemplated herein shall
-------
take place on such date (the "Closing") as mutually determined by the parties
hereto when all conditions precedent have been met and all required documents
have been delivered, which Closing shall be no later than , 1998, unless
extended by mutual consent of all parties hereto. The "Closing Date" of the
transactions described herein (the "Acquisition"), shall be that date on which
all conditions set forth herein have been met and the SVSI Shares are issued in
exchange for the Nettaxi Common Stock.
11. Conditions Precedent to the Obligations of Nettaxi. All obligations
---------------------------------------------------
of Nettaxi under this Agreement are subject to the fulfillment, prior to or as
of the Closing and/or the Closing Date, as indicated below, of each of the
following conditions:
(a) The representations and warranties by or on behalf of Dixon and SVSI
contained in. this Agreement or in any certificate or document delivered
pursuant to the provisions hereof shall be true in all material respects at and
as of the Closing and Closing Date as though such representations and warranties
were made at and as of such time.
(b) SVSI shall have performed and complied with all covenants, agreements,
and conditions set forth in, and shall have executed and delivered all documents
required by this
7
<PAGE>
Agreement to be performed or complied with or executed and delivered by it prior
to or at the Closing.
(c) On or before the Closing, the board of directors, and shareholders
representing a majority interest the outstanding common stock of SVSI, shall
have approved in accordance with applicable state corporation law the execution
and delivery of this Agreement and the consummation of the transactions
contemplated herein.
(d) On or before the Closing Date, SVSI shall have delivered to Nettaxi
certified copies of resolutions of the board of directors and shareholders of
SVSI approving and authorizing the execution, delivery and performance of this
Agreement and authorizing all of the necessary and proper action to enable SVSI
to comply with the terms of this Agreement including the election of Nettaxi's
nominees to the Board of Directors of SVSI and all matters outlined herein.
(e) The Acquisition shall be permitted by applicable law and SVSI shall
have sufficient shares of its capital stock authorized to complete the
Acquisition.
(f) At Closing, the existing sole officer and director of SVSI shall have
resigned in writing from all positions as director and officer of SVSI effective
upon the election and appointment of the Nettaxi nominees.
(g) At the Closing, all instruments and documents delivered to Nettaxi and
Nettaxi Stockholders pursuant to the provisions hereof shall be reasonably
satisfactory to legal counsel for Nettaxi.
(h) The shares of restricted SVSI capital stock to be issued to Nettaxi
Stockholders and in the SVSI Financing at Closing will be validly issued,
nonassessable and fully-paid under Nevada corporation law and will be issued in
compliance with all federal, state and applicable corporation and securities
laws.
(i) Nettaxi and Nettaxi Stockholders shall have received the advice of
their tax advisor, if deemed necessary by them, as to all tax aspects of the
Acquisition.
(j) Nettaxi shall have received all necessary and required approvals and
consents from required parties and its shareholders.
(k) SVSI shall have $1,000,000 in good funds, at Closing, from the SVSI
Financing, for delivery (less costs as described in Section 5(d) and 17(m)
hereof) at the direction of Nettaxi.
(1) At the Closing, SVSI shall have delivered to Nettaxi an opinion of its
counsel dated as of the Closing to the effect that:
(i) SVSI is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
8
<PAGE>
(ii) This Agreement has been duly authorized, executed and delivered by
SVSI and is a valid and binding obligation of SVSI enforceable in accordance
with its terms;
(iii) SVSI through its board of directors and stockholders has taken all
corporate action necessary for performance under this Agreement;
(iv) The documents executed and delivered by SVSI to Nettaxi and Nettaxi
Stockholders hereunder are valid and binding in accordance with their terms and
vest in Nettaxi Stockholders, as the case may be, all right, title and interest
in and to the SVSI Shares to be issued pursuant to the terms hereof, and the
SVSI Shares when issued will be duly and validly issued, fully-paid and
nonassessable;
(v) SVSI has the corporate power to execute, deliver and perform under this
Agreement;
(vi) Legal counsel for SVSI is not aware of any liabilities, claims or
lawsuits involving SVSI;
12. Conditions Precedent to the Obligations of SVSL. All obligations of
------------------------------------------------
SVSI under this Agreement are subject to the fulfillment, prior to or at the
Closing, of each of the following conditions:
(a) The representations and warranties by Nettaxi and Nettaxi Stockholders
contained in this Agreement or in any certificate or document delivered pursuant
to the provisions hereof shall be true in all material respects at and as of the
Closing as though such representations and warranties were made at and as of
such time.
(b) Nettaxi shall have performed and complied with, in all material
respects, all covenants, agreements, and conditions required by this Agreement
to be performed or complied with by it prior to or at the Closing;
(c) Nettaxi shall deliver on behalf of the Nettaxi Stockholders a letter
commonly known as an "Investment Letter," signed by each of said shareholders,
in substantially the form attached hereto as Exhibit "C", acknowledging that the
SVSI Shares are being acquired for investment purposes.
(d) Nettaxi shall deliver an opinion of its legal counsel to the effect
that:
(i) Nettaxi is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and is duly
qualified to do business in any jurisdiction where so required except where the
failure to so qualify would have no material adverse impact on Nettaxi;
(h) This Agreement has been duly authorized, executed and delivered by
Nettaxi.
9
<PAGE>
(iii) The documents executed and delivered by Nettaxi and Nettaxi
Stockholders to SVSI hereunder are valid and binding in accordance with their
terms and vest in SVSI all right, title and interest in and to the Nettaxi
Common Stock, which stock is duly and validly issued, fully-paid and
nonassessable.
13. Indemnification. For a period of one year from the Closing, SVSI
----------------
and Dixon agree to jointly and severally indemnify and hold harmless Nettaxi,
and Nettaxi agrees to indemnify and hold harmless SVSI and Dixon, at all times
after the date of this Agreement against and in respect of any liability, damage
or deficiency, all actions, suits, proceedings, demands, assessments, judgments,
costs and expenses including attorney's fees incident to any of the foregoing,
resulting from any material misrepresentations made by an indemnifying party to
an indemnified party, an indemnifying party's breach of covenant or warranty or
an indemnifying party's nonfulfillment of any agreement hereunder, or from any
material misrepresentation in or omission from any certificate furnished or to
be furnished hereunder.
14. Nature and Survival of Representations. All representations,
-------------------------------------------
warranties and covenants made by any party in this Agreement shall survive the
Closing and the consummation of the transactions contemplated hereby for one
year from the Closing. All of the par-ties hereto are executing and carrying out
the provisions of this Agreement in reliance solely on the representations,
warranties and covenants and agreements contained in this Agreement and not upon
any investigation upon which it might have made or any representation, warranty,
agreement, promise or information, written or oral, made by the other party or
any other person other than as specifically set forth herein.
15. Documents at Closing. At the Closing, the following documents
-----------------------
shall be delivered:
(a) Nettaxi will deliver, or will cause to be delivered, to SVSI the
following:
(i) a certificate executed by the President and Secretary of Nettaxi to the
effect that all representations and warranties made by Nettaxi under this
Agreement are true and correct as of the Closing, the same as though originally
given to SVSI on said date;
(ii) a certificate from the jurisdiction of incorporation of Nettaxi dated
at or about the Closing to the effect that Nettaxi is in good standing under the
laws of said jurisdiction;
(iii) Investment Letters in the form attached hereto as Exhibit "C"
executed by. each Nettaxi Stockholder;
(iv) such other instruments, documents and certificates, if any, as are
required to be delivered pursuant to the provisions of this Agreement;
10
<PAGE>
(v) certified copies of resolutions adopted by the shareholders and
directors of Nettaxi authorizing this transaction; and
(vi) all other items, the delivery of which is a condition precedent to the
obligations of SVSI as set forth herein.
(vii) the legal opinion required by Section 12(d) hereof
(b) SVSI will deliver or cause to be delivered to Nettaxi:
(i) stock certificates representing the SVSI Shares to be issued as a part
of the stock exchange as described herein-2
(ii) a certificate of the President of SVSI, to the effect that all
representations and warranties of SVSI made under this Agreement are true and
correct as of the Closing, the same as though originally given to Nettaxi on
said date;
(iii) certified copies of resolutions adopted by SVSI's board of directors
and SVSI's Stockholders authorizing the Acquisition and all related matters
described herein;
(iv) certificate from the jurisdiction of incorporation of SVSI dated at or
about the Closing Date that SVSI is in good standing under the laws of said
state;
(v) opinion of SVSI's counsel as described in Section 11(l) above;
(vi) such other instruments and documents as are required to be delivered
pursuant to the provisions of this Agreement;
(vii) resignation of the existing officer and director of SVSI;
(viii) all corporate and financial records of SVSI; and
(ix) all other items, the delivery of which is a condition precedent to the
obligations of Nettaxi, as set forth in Section 12 hereof.
16. Finder's Fees. SVSI, represents and warrants to Nettaxi, and
---------------
Nettaxi represents and warrants to SVSI that neither of them, or any party
acting on their behalf, has incurred any liabilities, either express or implied,
to any "broker" of "finder" or similar person in connection. with this Agreement
or any of the transactions contemplated hereby other than the arrangements
described in Section 5(d) hereof. In this regard, SVSI, on the one hand, and
Nettaxi on the other hand, will indemnify and hold the other harmless from any
claim, loss, cost or expense whatsoever (including reasonable fees and
disbursements of counsel) from or relating to any such express or implied
liability other than as disclosed herein.
11
<PAGE>
17. Miscellaneous.
--------------
(a) Further Assurances.At any time, and from time to time, after the
--------------------
Closing Date, each party will execute such additional instruments and take such
action as may be reasonably requested by the other party to confirm or perfect
title to any property transferred hereunder or otherwise to carry out the intent
and purposes of this Agreement.
(b) Waive. Any failure on the part of any party hereto to comply with any
-----
of its obligations, agreements or conditions hereunder may be waived in writing
by the party to whom such compliance is owed.
(c) Termination. All obligations hereunder may be terminated at the
-----------
discretion of either party's board of directors if (i) the closing conditions
specified in Sections 12 and 13 are not met by October 15, 1998, unless
extended, or (ii) any of the representations and warranties made herein have
been materially breached.
(d) Amendment. This Agreement may be amended only in writing as agreed to
----------
by all parties hereto.
(e) Notices. All notices and other communications hereunder shall be
--------
in writing and shall be deemed to have been given if delivered in person or sent
by prepaid first class registered or certified mail, return receipt requested.
(f) Headings. The section and subsection headings in this Agreement are
---------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed simultaneously ir2 two or
-------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of Nevada.
(i) Binding Effect. This Agreement shall be binding upon the parties
---------------
hereto and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors and assigns.
(j) Entire Agreement. This Agreement and the attached Exhibits
------------------
constitute the entire agreement of the parties covering everything agreed upon
or understood in the transaction. There are no oral promises, conditions,
representations, understandings, interpretations or terms of any kind as
conditions or inducements to the execution hereof.
(k) Time. Time is of the essence.
-----
12
<PAGE>
(1) Severability. If any part of this Agreement is deemed to be
-------------
unenforceable the balance of the Agreement shall remain in full force and
---
effect.
(m) Responsibility and Costs. All fees, expenses and out-of-pocket costs
-------------------------
and expenses, including, without limitation, fees and disbursements of counsel,
advisors and accountants, incurred by the parties hereto shall be borne solely
and entirely by the party that has incurred such costs and expenses regardless
of whether the transactions contemplated herein are completed. In the event of
completion of the transaction contemplated herein, the legal fees and out of
pocket costs of legal counsel for SVSI incurred in connection with said
transaction up to a maximum of $30,000 shall be paid from the proceeds of the
SVSI Financing,
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
SWAN VALLEY SNOWMOBILES, INC.
By: /s/ Brenda White
-------------
Brenda White, President and Secretary
/s/ Lynn Dixon
-----------
Lynn Dixon, individually
NETTAXI ONLINE COMMUNITIES, INC.
By: /s/ Robert A. Rositano, Jr. By: /s/ Dean Rositano
-------------------- ------------------
Robert A. Rositano, Jr., Secretary Dean Rositano, President
SHAREHOLDERS OF NETTAXI ONLINE
COMMUNITIES, INC
Robert A. Rositano, Jr.
--------------------------
Robert A. Rositano, Jr.
Dean Rositano
---------------
Dean Rositano
13
<PAGE>
MERGER AGREEMENT AND
PLAN OF REORGANIZATION
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as
of April 1, 1999 is by and among PLUS NET, INC. ("PNI"), a California
corporation whose principal office is located at 9657 Winnetka Avenue, Suite
404, Winnetka, California 91306 and the Shareholders of PNI set forth on the
signature page hereto, and NETTAXI, INC. ("Nettaxi"), a Nevada corporation whose
principal office is located at 2165 S. Bascom Avenue, Campbell, California 95008
and NETTAXI ONLINE COMMUNITIES, INC. ("NOL"), a Delaware corporation whose
principal office -is located at 2165 S. Bascom Avenue, Campbell, California
95009.
RECITALS
--------
A. NOL is in the business of providing Internet services, including a
search engine, Web hosting services and an Internet portal. Nettaxi is
authorized to issue 50,000,000 shares of Common Stock, par value $0.001 (the
"Nettaxi Shares") of which 14,110,000 shares is issued and outstanding.
C. PNI is in the business of providing a variety of Internet services,
including search and electronic commerce engines, and Web-based e-mail.
D. Nettaxi desires to acquire ownership of PNI by causing PNI to merge into
NOL. Nettaxi will issue seven (7) million shares of Common Stock, par value
$.001 (the Nettaxi Common Stock"), to be issued to the PNI shareholders in
exchange for all of the PNT Common Stock issued and outstanding (the "PNI
Stock"), at a ratio as herein set forth.
E. The respective Boards of Directors of PNI, Nettaxi and NOL deem it
desirable and in the best interests of their respective corporations, and of
their respective stockholders, that PNT merge with and into NOL in accordance
with the Delaware Corporation Law ("DCL") and the California General corporation
Law ("CGCL"), as a result of which NOL, the surviving corporation, and the
holders of the outstanding capital stock of PNI will receive the consideration
hereinafter set forth.
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
G. The parties have executed a Letter of Intent dated March 2, 1999 (the
'LOI") providing for the aforesaid merger.
<PAGE>
NOW, THEREFORE, in consideration of the terms, conditions, agreements and
covenants contained herein, and in reliance upon the representations and
warranties contained in this Agreement, the parties hereto agree as follows:
I.
MERGER OF PNI WITH AND INTO NETTAXI
1.1 MERGER AND SURVIVAL OF NETTAXI: In the manner and subject to the terms
and conditions set forth herein, PNI shall be merged with and into NOL (the
"Merger") in accordance with the provisions of, and with the effect provided in
the respective corporate laws of the parties. NOL shall be the surviving
corporation after the Merger and shall continue to exist as a corporation
created and governed by the laws of the State of Delaware.
1.2 EFFECTIVE DATE: if all of the conditions precedent to the obligations
of each of the parties hereto as hereinafter set forth shall have been satisfied
or shall have been waived, the Merger shall become effective on the date (the
"Effective Date") the certificate of merger, in the form set forth as Exhibit 1
hereto, will be presented for filing with the Secretary of State of Delaware and
the Secretary of State of California (the "Merger Filings"). This shall take
place on, or as soon as practical after, the Closing Date as defined herein.
1.3 SHARES OF THE CO4STITUENT AND SURVIVING CORPORATIONS: The manner and
basis of convert4ng the shares of PNI Stock into shares of Nettaxi Common Stock
shall be as follows:
(a) Conversion Ratio:
(1) Each share of PNI Stock shall, by virtue of the Merger and without
any action on the part of the holder thereof, or any other action whatsoever, he
converted into one thousand (1000) shares of validly issued, fully paid and
nonassessable shares of Nettaxi Common Stock (sometimes referred to as "Nettaxi
Merger Stock");
(2) Each issued share of Nettaxi shall remain unchanged,
(3) Nettaxi shall issue a maximum of 7,000,000 shares of common stock.
1.4 NO LIABILITY: Except as specifically provided in Section 9.3, it is the
intention of the parties, that PNI shall be debt free after giving effect to
application of PNI assets provided in Section 9.3.
1.5 EFFECT OF MERGER: As of the Effective Date, all of the following shall
occur:
2
<PAGE>
(a) The separate existence and corporate organization of PNI (except
insofar as they may be continued by statute) shall cease and Nettaxi, as the
corporation surviving the Merger, shall possess the rights, privileges, powers
and franchises, and be subject to all the restrictions, disabilities and duties
of, the constituent corporations in the manner specified in the respective
corporate laws of Nettaxi and PNI.
(b) The Certificate of Incorporation of Nettaxi, as in effect on the
Effective Date, shall continue in effect without change or amendment.
(c) The by-laws of Nettaxi, as in effect on the Effective Date, shall
continue in effect without change or amendment.
(d) Upon the Effective Date, the Board of Directors of Nettaxi shall
continue. However, subject to Nettaxi shareholder approval, two (2)
representatives of PNI shall be appointed to the Board of Directors of Nettaxi
for a period of two (2) years.
1.6 DISCLOSURE SCHEDULES: Simultaneously with the execution of this
Agreement, (a) PNI shall deliver a schedule relating to PNI (the "PNI
DisclosureSchedule"), and (b) Nettaxi and NOL shall deliver a schedule relating
to Nettaxi (the "Nettaxi Disclosure Schedule" and collectively with the PNI
---------- --------
Disclosure Schedule,the "Disclosure Schedules")setting forth the matters
- - --------------------- ------------------------
required to be set forth in the Disclosure Schedulesas described elsewhere in
--------------------
this Agreement. The Disclosure Schedules shall be deemed to be part of this
---------------------
Agreement.
CONDUCT OF BUSINESS PENDING CLOSING; STOCKHOLDER APPROVAL
PNI, Nettaxi and NOL covenant that between the date hereof and the Closing
Date (as hereinafter defined):
2.1 ACCESS BY NETTAXI: PNI shall afford to Nettaxi and to Nettaxi's
counsel, accountants and other representatives full access, during normal
business hours, throughout the period prior to the Closing Date, (a) to all of
the books, contracts and records of PNI and shall furnish Nettaxi during such
period with all information concerning PNi that Nettaxi may reasonably request
and (b) to the properties of PNI in order to conduct inspections at Nettaxi's
expense to determine that PNI is operating in material compliance with all
applicable federal, state and local and foreign statutes, rules and regulations,
and that PNI's assets are substantially in the condition and of the capacities
represented and warranted in this Agreement. Any such investigation or
inspection by Nettaxi shall not be deemed a waiver of, or otherwise limit, the
representations, warranties and covenants contained herein.
3
<PAGE>
2.2 CONDUCT OF BUSINESS: During the period from the date hereof to the
Closing Date, the business of PNI shall be operated by PNI in the usual and
ordinary course of such business and in material compliance with the terms of
this Agreement. Without limiting the generality of the foregoing:
(a) PNI shall use its reasonable efforts to (i) keep available the services
of the present agents of PNI; (ii) complete or maintain all existing
arrangements including but not limited to filings, licensing, affiliate
arrangements, transferals, leases and other arrangements referred to in Sections
3.6(a) through 3.6(d) in full force and effect in accordance with their existing
terms; (iii) maintain the integrity of all confidential information of PNI; (iv)
comply in all material respects with all applicable laws; and (vi) preserve the
goodwill of, and PNI's business and contractual relationship with, suppliers,
customers and others having business relations with PNI; and
(b) PNI shall not (i) sell or transfer any of its assets or property; (ii)
shall not make any distribution, whether by dividend or otherwise, to any of its
stockholders or employees except for compensation to employees and payments to
associated companies for goods and services, in the usual and ordinary course of
business; (iii) not declare any dividend or other distribution; (iv) redeem or
otherwise acquire any shares of its capital stock or other securities; (v) issue
or grant rights to acquire shares of its capital stock or other securities; or
(vi) agree to do any of the foregoing.
2.3 EXCLUSIVITY TO NETTAXI: PNI and its officers, directors,
representatives and agents, from the date hereof until the Closing (unless this
Agreement shall be earlier terminated as hereinafter provided), shall not hold
discussions with any person or entity, other than Nettaxi, concerning the
Merger, or solicit, negotiate or entertain any inquiries, proposals or offers to
purchase the business of PNI or the shares of capital stock of PNI from any
person other than Nettaxi, or, except in connection with the normal operation of
PNI's business, disclose any confidential information concerning PNI to any
person other than Nettaxi and Nettaxi's representatives or agents.
2.4 STOCKHOLDER APPROVAL: The Board of Directors of PNI has determined that
the Merger is fair to and in the best interests of their stockholders and have
approved and adopted this Agreement and the Merger. The approval of PNI'S
shareholders shall be sought as soon as possible. This Agreement constitutes,
and all other agreements contemplated hereby will constitute, when executed and
delivered by PNI the valid and binding obligations of PNI, enforceable in
accordance with their respective terms.
III
4
<PAGE>
REPRESENTATIONS AND WARRANTIES OF PNI
Except as set forth in the PNI Disclosure Schedule,PNI represents and
--------------------
warrants to Nettaxi as follows, with the knowledge and understanding that
Nettaxi is relying materially upon such representations and warranties:
The term "Knowledge" as used in this Agreement with respect to a party's
awareness of the presence or absence of a fact, event or condition shall mean
(a) actual knowledge or, (b) the knowledge that would be obtained if such party
conducted itself faithfully and exercised a sound discretion in the management
of his own affairs.
3.1 ORGANIZATION AND STANDING: PNI is a corporation duly organized, validly
existing and in-good standing under the laws of the State of California. PNI has
all requisite corporate power to carry on its business as it is now being
conducted and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where such qualification is necessary
under applicable law except where the failure to qualify (individually or in the
aggregate) will not have any material adverse effect on the business or
prospects of PNI. The copies of the Articles of Incorporation, By-laws and
minute books of PNI, as amended to date and delivered to Nettaxi, are true and
complete copies of these documents as now in effect. The minute books of PNI are
accurate in all material respects.
3.2 CAPITALIZATION: The authorized capital stock of PNI, the number of
shares of capital stock which are issued and outstanding, the par value thereof
and the record and beneficial holders thereof are as set forth in the PNI
Disclosure Schedule. All of such shares of capital stock that are issued and
- - ---------- --------
outstanding are duly authorized, validly issued and outstanding, fully paid and
nonassessable, and were not issued in violation of the preemptive rights of any
person. There are no subscriptions, options, warrants, rights or calls or other
commitments or agreements to which PNI is a party or by which it is bound,
calling for any issuance, transfer, sale or other disposition of any class of
securities of PNI. There are no outstanding securities convertible or
exchangeable, actually or contingently, into common stock or any
other-securities of PNI.
3.3 SUBSIDIARIES: PNI owns no subsidiaries nor does it own or have an
interest in any other corporation partnership, joint venture or other entity.
3.4 AUTHORITY: PNI's Board of Directors has determined that the Merger is
fair to and in the best interests of PNI's stockholders and has approved and
adopted this Agreement and the Merger and has adopted a resolution recommending
approval and adoption of this Agreement and the Merger by PNI's stockholders.
This Agreement constitutes, and all other agreements contemplated hereby will
constitute, when executed and delivered by PNI in accordance
5
<PAGE>
herewith, the valid and binding obligations of PNI, enforceable in accordance
with their respective terms.
3.5 ASSETS: PNI has good and marketable title to or licenses to all of the
assets and properties which it purports to own as reflected on the most recent
balance sheet comprising a portion of the PNI Financial Statements (as
hereinafter defined), or thereafter acquired, or are otherwise useful in the
business of PNI. No material portion of the assets of PNI is subject to any
governmental decree or order to be sold or is being condemned, expropriated or
otherwise taken by any public authority with or without payment of compensation
therefor, nor, to their knowledge, has any such condemnation, expropriation or
taking been proposed. None of the material assets of PNI is subject to any
restriction that would prevent continuation of the use currently made thereof or
materially adversely affect the value thereof.
3.6 CONTRACTS AND OTHER COMMITMENTS:
(a) Schedule A of PNT Disclosure Scheduleconsists of a true and complete
-------------------
list of all contracts, agreements, commitments and other instruments (whether
oral or written) to which PNI is a party that (i) involve a receipt or an
expenditure by PNI or a company subsidiary or require the performance of
services or delivery of goods to, by, through, on behalf of or for the benefit
of PNI, which in each case, relates to a contract, agreement, commitment or
instrument that either p,) requires payments or receipts in excess of $10,000
per year or (B) is not terminable by PNI on notice of thirty (30) days or less
without penalty or PNI being liable for damages, or (ii) involve an obligation
for the performance of services or delivery of goods by PNI that cannot or in
reasonable probability will not, be performed within thirty (30) days from the
dates as of which these representations are made.
(b) All of the contracts, agreements, commitments and other instruments
described in Schedule A of PNI Disclosure Schedule(individually, "Contract and
-------------------
collectively, the "Contracts") are valid and binding upon PNI, as applicable,
and to its knowledge, the other parties thereto and are in full force and effect
and enforceable, in accordance with their terms, and neither PNI, nor to its
knowledge, any other party to any Contract has breached any provision of, and no
event has occurred which, with the lapse of time or action by a third party,
could result in a material default under, the terms thereof. To its knowledge,
no stockholder of PNI has received any payment from any contracting party in
connection with or as an inducement for causing PNI to enter into any Contract.
3.7 LITIGATION: There is no claim, action, proceeding, or investigation
pending or, to its knowledge, threatened against or affecting PNI before or by
any court, arbitrator or governmental agency or authority which, in its
reasonable
6
<PAGE>
judgment, could have a material adverse effect on the operations or prospects of
PNI. There is no strike or unresolved labor dispute relating to PNI's employees
who, in its judgment, could have a material adverse effect on the business or
prospects of PNI. There are no decrees, injunctions or orders of any court,
governmental department, agency or arbitration outstanding against PNI or
asserted against PNI that has not been paid. There are no Tax liens upon the
assets of PNI. There is no valid basis, to the knowledge of PNI, except as set
forth in the PNI Disclosure Schedule, for any assessment, deficiency, notice,
---------- --------
30-day letter or similar intention to assess any Tax to be issued to PNI by any
governmental authority.
3.8 TAXES: For purposes of this Agreement, (A) "Tax" (and, with correlative
meaning, Tax-es") shall mean any federal, state, local or foreign income,
alternative or add-on minimum, business, employment, franchise, occupancy,
payroll, property, sales, transfer, use, value added, withholding or other tax,
levy, impost, fee, imposition, assessment or similar charge together with any
related addition to tax, interest, penalty or fine thereon; and (B) "Returns"
shall mean all returns (including, without limitation, information returns and
other material information), reports and forms relating to Taxes.
(a) PNI has duly filed all Returns required to be filed by it other than
Returns (individually and in the aggregate) where the failure to file would have
no material adverse effect on the business or prospects of PNI. All such Returns
were, when filed, and to the knowledge of PNI are, accurate and complete in all
material respects and were prepared in conformity with applicable laws and
regulations. PNI has paid or will pay in full or has adequately reserved against
all Taxes otherwise assessed against it through the Closing Date.
(b) PNI is not a party to any pending action or proceeding by any
governmental authority for the assessment of any Tax, and, to the knowledge of
PNI, no claim for assessment or collection of any Tax related to PNI has been
asserted against PNI that has not been paid. There are no Tax liens upon the
assets of PNI. There is no valid basis, to the knowledge of PNI, except as set
forth in the PNI Disclosure Schedule, for any assessment, deficiency, notice,
30-day letter or similar intention to assess any Tax to be issued to PNI by any
governmental authority.
3.9 COMPLIANCE WITH LAWS AND REGULATIONS: To its knowledge, PNI has
complied and is presently complying, in all material respects, with all laws,
rules, regulations, orders and requirements (federal, state and local and
foreign) applicable to it in all jurisdictions where the business of PNI is
conducted or to which PNI is subject, including, without limitation, all
applicable federal and state securities laws, civil rights and equal opportunity
employment laws and regulations, and all federal, antitrust, antimonopoly and
fair trade practice laws. They do not know
7
<PAGE>
of any assertion by any party that PNI is in violation in any material respect
of any such laws, rules, regulations, orders, restrictions or requirements with
respect to its operations and no notice in that regard has been received by PNI.
3.10 HAZARDOUS MATERIALS: TO ITS KNOWLEDGE PNI has not VIOLATED, OR
received any written notice from any governmental authority with respect to the
violation of any law, rule, regulation or ordinance pertaining to the use,
maintenance, storage, transportation or disposal of "Hazardous Materials." As
used herein, the term 'Hazardous Materials' means any substance now or hereafter
designated pursuant to Section 307(a) and 311 (b)(2)(A) of the Federal Clean
Water Act, 33 USC 1317(a),-1321(b)(2)(A), Section 112 of the Federal Clean
Air Act, 42 USC 3412, Section 3001 of the Federal Resource Conservation and
Recovery Act, 42 USC S 6921, Section 7 of the Federal Toxic Substances Control
Act, 15 USC S 2606, or Section 101(14) and Section 102 of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 USC 9601(14),
9602.
3.11 REGULATION: PNI is not required to obtain any licenses, permits,
approvals or authorizations or make any filings with any federal or state
regulatory agency or authority to conduct its business as presently conducted or
as presently proposed to be conducted.
3.12 NO BREACHES: The making and performance of this Agreement will not (i)
conflict with or violate the Certificate of Incorporation or the by-laws of PNI,
(ii) violate any laws, ordinances, rules, or regulations, or any order, writ,
injunction or decree to which PNI is a party or by which PNI or any of its
businesses, or operations may be bound or affected or (iii) result in any breach
or termination of, or constitute a default under, or constitute an event which,
with notice or lapse of time, or both, would become a default under, or result
in the creation of any encumbrance upon any material asset of PNI under, or
create any rights of termination, cancellation or acceleration in any person
under, any Contract.
3.13 EMPLOYEES: PNI has no employees that are represented by any labor
union or collective bargaining unit.
3.14 FINANCIAL STATEMENTS: The PNI Disclosure Schedulecontains unaudited
-------------------
balance sheets of PNI as of February 28,1999 and related unaudited statements of
operations, cash flows and stockholders' equity of PNI for the periods ended at
such date (collectively the "Financial Statements"). The Financial Statements
present fairly, in all material respects, the financial position on the dates
thereof and results of operations of PNI for the periods indicated, prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied. PNI's Financial Statements are capable of being audited in accordance
with Regulation S-X, promulgated by the Securities and Exchange
8
<PAGE>
Commission. There are no assets of PNI, the value of which is materially
overstated in said balance sheets.
3.15 ABSENCE OF CERTAIN CHANGES OR EVENTS: Except as set forth in the PNI
Disclosure Schedule,since December 31, 1998 (the "Balance Sheet Dates"), there
- - ---------- ---------
has not been:
(a) any material adverse change in the financial condition, properties,
assets, liabilities or business of PNI;
(b) any material damage, destruction or loss of any material properties
of PNI, whether or not covered by insurance;
(c) any material adverse change in the manner in which the business of PNI
has been conducted;
(d) any material adverse change in the treatment and protection of trade
secrets or other confidential information of PNI; and
(e) any occurrence not included in paragraphs (a) through (d) of this
Section 3.15 which has resulted, or which PNI has reason to believe, might be
expected to result in a material adverse change in the business or prospects of
PNI.
3.16 GOVERNMENT LICENSES, PERMITS, AUTHORIZATIONS: PNI has all material
governmental licenses, permits, authorizations and approvals necessary for the
conduct of its business as currently conducted ("Licenses and Permits").
3.17 EMPLOYEE BENEFIT PLANS: PNI has no employee benefit plans.
3.18 BUSINESS LOCATIONS: PNI does not own or lease any real or personal
property in any state or country.
3.19 INTELLECTUAL PROPERTY: Schedule B of the PNI Disclosure Schedulesets
---------- --------
forth a complete and correct list and summary description of all intellectual
property, including computer software, trademarks, trade names, service marks,
service names, brand names, copyrights and patents, registrations thereof and
applications therefore, applicable to or used in the business of PNI, together
with a complete list of all licenses granted by or to PNI with respect to any of
the above. Except as otherwise set forth in Schedule B all such trademarks,
trade names, service marks, service names, brand names, copyrights and patents
are owned by PNI, free and clear of all liens, claims, security interests and
encumbrances of any nature whatsoever. PNI is not currently in receipt of any
notice of any violation or infringements of, and PNI is not knowingly violating
or infringing, the rights of others in any
9
<PAGE>
trademark, trade name, service mark, copyright, patent, trade secret, know how
or other intangible asset.
3.20 EXISTING ARRANGEMENTS: Except as set forth in the PNI Disclosure
----------
Schedule,PNI has no knowledge that, either as a result of the actions
- - ---------
contemplated hereby or for any other reason (exclusive of expiration of a
contract upon the passage of time), any entity having an arrangement with PNI
identified in Schedule A will not continue to conduct business with Nettaxi
after the Closing Date in substantially the same manner as it has conducted
business with PNI in the past.
3.21 GOVERNMENTAL APPROVALS: Except as set forth in Section 1.2 as to the
Merger Filing, no authorization, license, permit, franchise, approval, order or
consent of, and no registration, declaration or filing by PNI with, any
governmental authority, domestic or foreign, federal, state or local, is
required in connection with PNI's execution, delivery and Performance of this
Agreement.
3.22 TRANSACTIONS WITH AFFILIATES: PNI is not indebted for money borrowed,
either directly or indirectly, from any of its officers, directors, or any
Affiliate (as defined below), in any amount whatsoever; nor are any of its
officers, directors, or Affiliates indebted for money borrowed from PNI; nor are
there any transactions of a continuing nature between PNI and any of its
officers, directors, or Affiliates net subject to cancellation which will
continue beyond the Effective Date, including, without limitation, use of the
assets of PNI for personal benefit with or without adequate compensation. For
purposes of this Agreement, the term "Affiliate" shall mean any person that,
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified. As used in
the foregoing definition, the term (i) "control shall mean the power through the
ownership of voting securities, contract or otherwise to direct the affairs of
another person and (ii) 11 person" shall mean an individual, firm, trust,
association, corporation, partnership, government (whether federal, state, local
or other political subdivision, or any agency or bureau of any of them) or other
entity.
3.23 ACCOUNTS RECEIVABLE: Except as set forth in the PNI
DisclosureSchedule, all of the accounts receivable of PNI included in the
Financial Statements or otherwise, reflect actual transactions, have arisen in
the ordinary course of business, will not, to its knowledge, be subject to
offset or deduction and, except as noted, will be collectible at the aggregate
recorded amounts thereof net of any reserves established in a manner consistent
with past practices of PNI, all as reflected in the Financial Statements.
3.24 NO DISTRIBUTIONS: PNI has not made nor has any intention of making any
distribution or payment to any Shareholder with respect to the PNI Stock.
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<PAGE>
3.25 LIABILITIES: To the best of its knowledge PNI has no material direct
or indirect indebtedness, liability, claim, loss, damage, deficiency, obligation
or responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise
("Liabilities"), whether or not of a kind required by generally accepted
accounting principles to be set forth on a financial statement, other than (i)
Liabilities fully and adequately reflected or reserved against on the PNI
Balance Sheet, (ii) Liabilities incurred since the Balance Sheet Date in the
ordinary course of the business of PNI, or (iii) Liabilities otherwise disclosed
in this Agreement, including the exhibits hereto and Disclosure Schedule.
---------- ---------
3.26 EMPLOYEE COMPENSATION PLANS: PNI is not party to, or bound by any
currently effective employment contracts, deferred compensation agreements,
bonus plans, incentive plans, profit sharing plans, stock option or equity
incentive plans, retirement agreements or other employee compensation
agreements. Subject to applicable law, the employment of each officer and
employee of the Company is terminable at the will of the Company.
3.27 ACCOUNTS RECEIVABLE: All accounts receivable of PNI reflected on the
Balance Sheet are valid receivables subject to no material setoffs or
counterclaims and are current and collectible (within 90 days after the date on
which it first became due and payable), net of the applicable reserve for bad
debts reflected in the Balance Sheet. To PNI's knowledge, all accounts
receivable reflected in the financial or accounting records of the Company that
have arisen since February 28, 1999 are valid receivables subject to no material
setoffs or counterclaims and are collectible, net of a reserve for bad debts in
an amount proportionate to the reserve reflected in the Balance Sheet.
3.28 No omissions or Untrue Statements: To the best of its knowledge no
representation or warranty made by PNI to Nettaxi or NOL in this Agreement, the
PNI Disclosure Scheduleor in any certificate of a PNI officer required to be
---------- --------
delivered to Nettaxi pursuant to the terms of this Agreement contains or will
contain any untrue statement of a material fact, or omits or will omit to state
a material fact necessary to make the statements contained herein or therein not
misleading as of the date hereof and as of the Closing Date.
Each PNI Shareholder hereby represents and warrants for himself, herself or
itself to Nettaxi and NOL as of the date hereof and the Closing Date:
3.29 Title. Each Shareholder has and as of the Closing Date shall have good
and marketable title to the PNI Stock set forth opposite such Shareholder's name
on the PNI Disclosure Schedulefree and clear of all liens, security
---------- --------
11
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interests, claims, options, charges or encumbrances. None of the PNI Stock is
subject to any outstanding agreements of sale or rights of third parties to
acquire any interest therein. Each Shareholder has the right and authority to
execute, deliver, and perform this Agreement and all agreements delivered in
connection herewith and to sell and transfer the PNI Stock to Nettaxi. This
Agreement and any agreements executed in connection with this transaction
constitute legal, binding and valid obligations of the Shareholder, enforceable
in accordance with their respective terms.
IV
REPRESENTATIONS AND WARRANTIES OF NETTAXI AND NOL
Except as set forth in the Nettaxi Disclosure Schedule,Nettaxi and NOL
--------------------
represent and warrant to, and agree with, PNI as follows as of the date hereof
and as of the Closing Date:
4.1 ORGANIZATION AND STANDING OF NETTAXI: Nettaxi is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada, and has the corporate power to carry on its business as now conducted
and to own its assets and is duly qualified to transact business as a foreign
corporation in each state where such qualification is necessary except where the
failure to qualify will not have a material adverse effect on the business or
prospects of Nettaxi. The copies of the Certificate of Incorporation and By-laws
of Nettaxi, as amended to date, and delivered to PNI, are true and complete
copies of those documents as now in effect.
4.2 ORGANIZATION AND STANDING OF NOL: NOL is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the corporate power to carry on its business as now conducted and to own
its assets and is duly qualified to transact business as a foreign corporation
in each state where such qualification is necessary except where the failure to
qualify will not have a material adverse effect on the business or prospects of
NOL. The copies of the Certificate of Incorporation and By-laws of NOL, as
amended to date, and delivered to PNI, are true and complete copies of those
documents as now in effect.
4.3 STOCKHOLDER APPROVAL: The Board of Directors of Nettaxi and NOL have
determined that the merger is advisable and in the best interests of the
stockholders of Nettaxi and NOL and, subject to its fiduciary obligations as
advised in writing by counsel, shall recommend that Nettaxi's stockholders vote
to approve and adopt this Agreement and the Merger and any other matters to be
submitted to Nettaxi's stockholders in connection therewith. Nettaxi shall
secure from the stockholders of Nettaxi such approval
12
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and adoption either (i) at a meeting of Nettaxi's stockholders to be convened as
soon as practicable after the date of this Agreement or, in lieu thereof, (ii)
pursuant to the written consent of the holders of all of the issued and
outstanding shares of Nettaxi Stock or the written consent of such lesser number
of such shares as may be permitted by the Nevada Revised Statutesfor the
------- --------
approval of a transaction of the type provided for herein.
4.4 NO CONFLICT: The making and performance of this Agreement will not (i)
conflict with the Certificate of Incorporation or the By-laws of Nettaxi or NOL,
(ii) violate any laws, ordinances, rules, or regulations, or any order, writ,
injunction or decree to which Nettaxi or NOL is a party or by which Nettaxi or
any of-its material assets, business, or operations may be bound or affected or
(iii) result in any breach or termination of, or constitute a default under, or
constitute an event which, with notice or lapse of time, or both, would become a
default under, or result in the creation of any encumbrance upon any material
asset of Nettaxi or NOL, or create any rights of termination, cancellation, or
acceleration in any person under, any material agreement, arrangement, or
commitment, or violate any provisions of any laws, ordinances, rules or
regulations or any order, writ, injunction, or decree to which Nettaxi or NOL is
a party or by which Nettaxi or NOL, or any of their material assets may be
bound.
4.5 PROPERTIES: Except as set forth in the Nettaxi DisclosureSchedule,
----------
Nettaxi and NOL have good and marketable title to all of the respective partys'
assets and properties which it purports to own as reflected on the balance sheet
included in the Nettaxi Financial Statements (as hereinafter defined), or
thereafter acquired.
4.6 CAPITALIZATION: The Authorized capital stock of Nettaxi consists of
50,000,000 shares of Common Stock, par value $.001 and 1,000,000 shares of
Preferred Stock, par value $.001. As of November 3, 1998, 14,110,00 shares of
Common Stock and no shares of Preferred stock were issued and outstanding. Such
outstanding shares of Common Stock are duly authorized, validly issued, fully
paid, and non-assessable. The Nettaxi Common Stock to be issued pursuant to this
Agreement, when issued in accordance with the terms of this Agreement, will be
duly authorized, validly issued, fully paid and non-assessable. As of the date
hereof, there were no outstanding options, warrants or rights of conversion or
other rights, agreements, arrangements or commitments relating to the capital
stock of Nettaxi or obligating Nettaxi to issue or sell an aggregate number of
shares of Common Stock.
4.7 CAPITALIZATION: The Authorized capital stock of NOL consists of
6,000,000 shares of Common Stock, par value $.001. As of March 30, 1999,
4,731,590 shares of Common Stock were issued and outstanding. Such outstanding
shares of Common Stock are duly authorized, validly issued, fully
13
<PAGE>
paid, and non-assessable. As of the date hereof, there were no outstanding
options, warrants or rights of conversion or other rights, agreements,
arrangements or commitments relating to the capital stock of NOL or obligating
NOL to issue or sell an aggregate number of shares of Common Stock.
4.8 GOVERNMENTAL APPROVAL; CONSENTS: Except for the reports required to be
filed in the future by Nettaxi and those set forth in the Disclosure Schedule,
and under the Securities Act, no authorization, license, permit, franchise,
approval, order or consent of, and no registration, declaration or filing by
Nettaxi or NOL with any governmental authority, domestic or foreign, federal,
state or local, is required in connection with Nettaxi's execution, delivery and
performance - of this Agreement. No consents of any other parties are required
to be received by or on the part of Nettaxi or NOL to enable Nettaxi and NOL to
enter into and carry out this Agreement.
4.9 NETTAXI FINANCIAL STATEMENTS: The financial consolidated statements of
Nettaxi and NOL (collectively the "Nettaxi Financial Statements") present
fairly, in all material respects, the financial position of Nettaxi and NOL as
of the respective dates and the results of its operations and other information
for the periods covered in accordance with GAAP and in accordance with
Regulation S-X of the SEC (subject, in the case of unaudited interim period
financial statements, to normal and recurring year-end adjustments which,
individually or collectively, are not material).
4.10 ADVERSE DEVELOPMENTS: Since December 31, 1998 there have been no
material adverse changes in the assets, liabilities, properties, operations or
financial condition of Nettaxi, and no event has occurred other than in the
ordinary and usual course of business or as set forth in or in the Nettaxi
Financial Statements which could be reasonably expected to have a materially
adverse effect upon Nettaxi.
4.11 TAXES: Nettaxi has duly filed all returns required to be filed by it
other than Returns which the failure to file would have no material adverse
effect on the business of Nettaxi. All such returns were, when filed, and to
Nettaxi's knowledge are, -accurate and complete in all material respects and
were prepared in conformity with applicable laws and regulations. Nettaxi has
paid or will pay in full or have adequately reserved against all Taxes otherwise
assessed against it through the Closing Date. Nettaxi is not a party to any
pending action or proceeding by any governmental authority for the assessment of
any Tax, and, to the knowledge of Nettaxi, no claim for assessment or collection
of any Tax has been asserted against Nettaxi that have not been paid. There are
no Tax liens upon the assets of Nettaxi (other than the lien of personal
property taxes not yet due and payable). There is no valid basis, to Nettaxi's
knowledge, for any assessment, deficiency, notice,
14
<PAGE>
30-day letter or similar intention to assess any Tax to be issued to Nettaxi by
any governmental authority.
4.12 LITIGATION: Except as set forth on Nettaxi Disclosure Schedule, there
---------- --------
is no material claim, action, proceeding, or investigation pending or, to their
knowledge, threatened against or affecting Nettaxi or NOL before or by any
Court, arbitrator or governmental agency or authority. There are no material
decrees, injunctions or orders of any court, governmental department, agency or
arbitration outstanding against Nettaxi or NOL.
4.13 COMPLIANCE WITH LAWS AND REGULATIONS: To the best of their knowledge,
Nettaxi and NOL have complied and are presently complying, in all material
respects, with all laws, rules, regulations, orders and requirements applicable
to them in all jurisdictions in which their operations are currently conducted
or to which they are currently subject.
4.14 GOVERNMENTAL LICENSES, PERMITS AND AUTHORIZATIONS:
Nettaxi and NOL have all governmental licenses, permits, authorizations and
approvals necessary for the conduct of its business as currently conducted. All
such licenses, permits, authorizations and approvals are in full force and
effect, and no proceedings for the suspension or cancellation of any thereof is
pending or threatened.
4.15 LIABILITIES: To the best of their knowledge neither Nettaxi nor NOL
have any material direct or indirect liabilities, as that term is defined in
Section 3.25 ("Nettaxi Liabilities"), whether or not of a kind required by
generally accepted accounting principles to be set forth on a financial
statement, other than (i) Nettaxi Liabilities fully and adequately reflected or
reserved against on the Nettaxi Balance Sheet, (ii) Nettaxi Liabilities incurred
in the ordinary course of the business of Nettaxi or NOL, and (111) Nettaxi
Liabilities otherwise disclosed in this Agreement, including the Exhibits
hereto.
4.16 NO OMISSION OR UNTRUE STATEMENT: To the best of their knowledge no
representation or warranty made by Nettaxi or NOL to PNI in this Agreement, in
the Nettaxi Disclosure Schedule or in any certificate of a Nettaxi officer
---------- --------
required to be delivered to PNI pursuant to the terms of this Agreement contains
or will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained herein or
therein not misleading as of the date hereof and as of the Closing Date.
4.17 RESTRICTED TRANSACTIONS: Nettaxi represents that it has not and
warrants that it shall not: (i) declare or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any of
its capital stock, or split, split-off, spin-off, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in
15
<PAGE>
substitution for shares of Nettaxi capital stock, or repurchase or otherwise
acquire, directly or indirectly, any shares of its capital stock;
V
STOCKHOLDER APPROVALS AND CLOSING DELIVERIES
5.1 STOCKHOLDER APPROVALS: Nettaxi shall submit the Merger and this
Agreement to its stockholders for approval and adoption as soon as practicable
following the date of this Agreement in accordance with the terms hereof.
Subject to this Agreement and the Merger receiving all requisite stockholder
approvals and subject to the other provisions of this Agreement, the parties
shall hold a closing (the "Closing") on the next business day-(or such later
date as the parties hereto may agree) following the later of (a) the date of the
meeting of stockholders of Nettaxi to consider and vote upon this Agreement and
the Merger, or receipt by PNI of consent approving the Merger, or (b) the
business day on which the last of the conditions set forth in Articles VII and
VIII hereof is fulfilled or waived ~such later date, the Closing Date), at the
offices of Silicon valley Law Group, 50 W. San Fernando Street, Suite 950, San
Jose, California or such other time and place as the parties may agree upon.
5.2 PNI'S CLOSING DELIVERIES: At the Closing, in addition to documents
referred elsewhere, PNI shall deliver, or cause to be delivered, to Nettaxi:
(a) a certificate, dated as of the Closing Date, executed by the Secretary
of PNI, to the effect that representations and warranties contained in this
Agreement are true and correct in all material respects at and as of the Closing
Date and that PNI has complied with or performed in all material respects all
terms, covenants and conditions to be complied with or performed by PNI on or
prior to the Closing Date;
(b) an opinion of PNI's counsel, in form and substance reasonably
satisfactory to Nettaxi, in a form to be mutually agreed to prior to the
closing;
(c) certificates representing PNI Stock owned by all of the PNT
Stockholders;
(d) Certified Resolutions of the Board of Directors & a majority of the
Shareholders of PNI approving the transactions set forth herein;
(e) The PNI Disclosure Schedule,
---------- ----------
(f) Consulting Agreements executed by Robert Gould and Justin Hirsch, the
key consultants of PNI; and
16
<PAGE>
(g) such other documents as Nettaxi or its counsel may reasonably require.
5.3 CLOSING DELIVERIES TO PNI: At the Closing, in addition to documents
referred to elsewhere, Nettaxi shall deliver to PNI:
(a) a certificate of Nettaxi, dated as of the Closing Date, executed by the
President or Chief Executive Officer of Nettaxi to the effect that the
representations and warranties of Nettaxi contained in this Agreement are true
and correct in all materi.al respects and that Nettaxi has complied with or
performed in all material respects all terms, covenants, and conditions to be
complied with or performed by Nettaxi or prior to the Closing Date;
(b) an opinion of Nettaxi's counsel, in a form to be mutually agreed to
prior to the Closing;
(c) certificates representing the Nettaxi Merger Stock issuable upon
consummation of the Merger;
(d) the Nettaxi Disclosure Schedule;and
---------- ---------
(e) such other documents as PNI or it's counsel may reasonably require.
VI
CONDITIONS TO OBLIGATIONS OF PNI
The obligation of PNI to consummate the Closing is subject to the following
conditions, any of which may be waived by it in its sole discretion:
6.1 Compliance by Nettaxi: Nettaxi shall have performed and complied in all
material respects with all agreements and conditions required by this Agreement
to be performed or complied with by Nettaxi prior to or on the Closing Date;
6.2 ACCURACY OF NETTAXI'S REPRESENTATIONS: Nettaxi's representations and
warranties contained in this Agreement (including the Disclosure Schedule) or
any schedule, certificate, or other instrument delivered pursuant to the
provisions hereof or in connection with the transactions contemplated hereby
shall be true and correct in all material respects at and as of the Closing Date
(except for such changes permitted by this Agreement) and shall be deemed to be
made again as of the Closing Date.
6.3 DOCUMENTS: All documents and instruments required hereunder to be
delivered by Nettaxi to PNI at the Closing shall be delivered in form and
substance reasonably satisfactory to PNI and its counsel.
17
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6.4 TAX FREE REORGANIZATION: The Merger shall qualify as a tax-free
reorganization under the Internal Revenue Code.
6.5 LITIGATION: No litigation seeking to enjoin the transactions
contemplated by this Agreement or to obtain damages on account hereof shall be
pending or be threatened.
6.6 MATERIAL ADVERSE CHANGE: No material adverse change shall have occurred
subsequent to December 31, 1998 in the financial position, results of
operations, assets, liabilities or prospects of Nettaxi nor shall any event or
circumstance have occurred which would result in a material adverse change in
the financial position, results of operations, assets, liabilities. or prospects
of Nettaxi.
VII
CONDITIONS TO NETTAXI'S OBLIGATIONS
Nettaxi's obligation to consummate the Closing is subject to the following
conditions, any of which may be waived by it in its sole discretion:
7.1 COMPLIANCE BY PNI: PNI shall have performed and complied in all
material respects with all agreements and conditions required by this Agreement
to be performed or complied with by PNI prior to or on the Closing Date.
7.2 ACCURACY OF REPRESENTATIONS OF PNI: The representations and warranties
of PNI contained in this Agreement (including the exhibits hereto and the
Disclosure Schedule)or any schedule, certificate, or other instrument delivered
- - ---------- ---------
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby shall be true and correct in all material respects at and as
of the Closing Date (except for changes permitted by this Agreement) and shall
be deemed to be made again as of the Closing Date.
7.3 MATERIAL ADVERSE CHANGE: No material adverse change shall have occurred
subsequent to December 31, 1998 in the financial position, results of
operations, assets, liabilities, or prospects of PNI, nor shall any event or
circumstance have occurred which would result in a material adverse change in
the financial position, results of operations, assets, liabilities, or prospects
of PNI.
7.4 LITIGATION: No litigation seeking to enjoin the transactions
contemplated by this Agreement or to obtain damages on account hereof shall he
pending or to Nettaxi's knowledge be threatened.
7.5 TAX FREE REORGANIZATION: The Merger shall qualify as a tax-free
reorganization under the Code.
7.6 DOCUMENTS: All documents and instruments required
hereunder to be delivered by PNI to Nettaxi at the Closing
18
<PAGE>
shall be delivered in form and substance reasonably satisfactory to Nettaxi and
its counsel.
7.7 CONVERSION OF DEBT: Except to the extent provided in Section 1.4, PNI
shall have no liabilities on the Closing Date.
7.8 ADDITIONAL AGREEMENTS: Nettaxi shall have received certificates from
all PNI Shareholders substantially in the form of Exhibit 1.
VIII
TERMINATION
8.1 TERMINATION PRIOR TO CLOSING:
(a) If the Closing has not occurred by May 15, 1999, any party may
terminate this Agreement at any time thereafter by giving written notice of
termination to the other, provided, however, that no party may terminate this
Agreement if such party has willfully or materially breached any of the terms
and conditions hereof.
(b) Prior to May 15, 1999, any party may terminate this Agreement
following the insolvency or bankruptcy of the other party hereto, or if any one
or more of the conditions to Closing set forth in Article VI or Article Vll
shall become incapable of fulfillment or there shall have occurred a material
breach of the LOT and either such condition of breach shall not have been waived
by the party for whose benefit the condition was established, then either PNI
(in the case of a condition in Article Vl) or Nettaxi (in the case of a
condition specified in Article VII may terminate this Agreement.
8.2 CONSEQUENCES OF TERMINATION: Upon termination of this Agreement
pursuant to this Article VIII or any other express right of termination provided
elsewhere in this Agreement, the parties shall be relieved of any further
obligation to the others except as specified in Section 12.4; provided, however,
that no termination of this Agreement, pursuant to this Article VIII hereof or
under any other express right of termination provided elsewhere in this
Agreement shall operate to release any party from any liability to any other
party incurred before the date of such termination or from any liability
resulting from any willful misrepresentation made in connection with this
Agreement or willful breach hereof.
IX
ADDITIONAL COVENANTS
9.1 MUTUAL COOPERATION: The parties hereto will cooperate with each other,
and will use all reasonable efforts to cause the fulfillment of the conditions
to the parties' obligations
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HEREUNDER AND TO OBTAIN AS PROMPTLY AS POSSIBLE ALL CONSENTS, AUTHORIZATIONS,
ORDERS OR APPROVALS FROM EACH AND EVERY THIRD PARTY, WHETHER PRIVATE OR
GOVERNMENTAL, REQUIRED IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
9.2 CHANGES IN REPRESENTATIONS AND WARRANTIES OF A PARTY: Between the date
of this Agreement and the Closing Date, neither party shall directly or
indirectly, enter into any transaction, take any action, or by inaction permit
an event to occur, which would result in any of the representations and
warranties of any party herein contained not being true and correct at and as of
(i) the time immediately following the occurrence of such transaction or event
or (ii) the Closing Date. A party shall promptly give written notice to the
other party upon becoming aware of (A) any fact which, if known on the date
hereof, would have been required to be set forth or disclosed pursuant to this
Agreement and (B) any impending or threatened breach in any material respect of
any of the representations and warranties contained in this Agreement and with
respect to the latter shall use all reasonable efforts to remedy same.
9.3 PAYMENT OBLIGATIONS:
(a) As used herein:
(i) "Pre-Transaction Liquid Assets" shall refer to an amount equal to
the sum of PNI's cash and cash equivalent and prepaid assets, such as deposits,
as of February 28,1999, plus accounts receivable (revenues due for any service
period prior to February 28, 1999 but not collected as of such date).
(ii) "Pre-Transaction Liabilities" shall include all accounts payable and
other third party liabilities of any description of PNI arising in the ordinary
course of business prior to February 28, 1999.
(b) After the Closing all Pre-Transaction Liquid Assets shall first be
applied to the payment of the pre-Transaction Liabilities and the l4ability
referred to in Section 9.3(d).
(c) After the Merger, the Pre-Transaction Liquid Assets shall not be
utilizeFd for the payment of any liabilities arising in the ordinary course of
business subsequent to February 28, 1999 nor shall proceeds arising and accounts
receivables due for service periods subsequent to February 28, 1999 be applied
in connection with payment of Pre-Transaction Liabilities. The debts and
liabilities of PNI arising in the ordinary course of business subsequent to
February 28, 1999 shall, after the Merger, be deemed Nettaxi debts and shall be
payable by Nettaxi from Nettaxi funds.
(d) Notwithstanding anything herein to the contrary, Pre-Transaction Liquid
Assets" shall be applied to the liability of PNI not arising in the ordinary
course of
20
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business, including expenses of this transaction, whether incurred prior or
subsequent to February 28, 1999.
(e) Nothing herein shall be deemed a waiver of obligation of PNI to satisfy
all debts of PNI as provided in Section 9.4.
9.4 COVENANT OF PNI: Except as specifically provided in Section 9.3 above,
PNI covenants that PNI shall be debt free after giving effect to application of
PNI assets provided in Sections 7.9 and 9.3 and the contribution to capital
referred to therein.
9.4 NETTAXI COMMUNITY: PNI shall use reasonable efforts to assist Nettaxi and
NOL with the registration of the PNI users to the Nettaxi community.
X
BROKERS
10.1 BROKERS: Nettaxi and NOL represent to PNI, and PNI represents to
Nettaxi and NOL, that there is no broker or finder entitled to a fee or other
compensation for bringing the parties together to effect the merger.
XI
SECURITIES
11.1 Definitions: As used in this Article, the following terms shall have
the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange Commission
other Federal agency at the time administering the Securities Act.
(b) "Person" shall mean and include an individual corporation, a
partnership, a trust, an unincorporated organization and a government or any
department, agency or political subdivision thereof.
(c) "Holder" shall mean a PNI Stockholder or the PNI Stockholder's
permittedsuccessors or assigns (other than pursuant to a permitted public sale).
(d) "Restricted Securities" shall mean the shares of Nettaxi Merger
Stock issued hereunder.
(e) "Securities Act shall mean the Securities Act of 1933, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(f) "Transfer" shall include any disposition of any Restricted
Securities or of any interest therein which would constitute a sale thereof
within the meaning of the Securities Act.
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11.2 RESTRICTION ON TRANSFER: Each stockholder represents and warrants that
he is acquiring the Restricted Securities for investment and not for
distribution. Such Stockholders acknowledge that the Restricted Securities may
only be sold pursuant to an effective registration statement under the
Securities Act or an exemption therefrom. The Restricted Securities and any
shares of capital stock received in respect thereof, whether by reason of a
stock split or share reclassification thereof, a stock dividend thereon or
otherwise, shall not be transferable except upon the conditions specified
herein.
Based upon execution of the Shareholder Certificate, the representations
herein and assuming no securities violations have occurred on behalf of PNI or
its Stockholders, Nettaxi represents and warrants that the initial issuance of
the Nettaxi Merger Stock to the PNI Stockholders is a private transaction,
exempt from SEC registration requirements.
11.3 RESTRICTIVE LEGENDS: Each certificate for the Restricted Securities
and any shares of capital stock received in respect thereof, whether by reason
of a stock split or share reclassification thereof, a stock dividend thereon or
otherwise, and each certificate for any such securities issued to subsequent
transferees of any such certificate shall contain a legend to the effect that:
"The Restricted Securities covered by a certificate have not been
registered under the Securities Act of 1933, as amended, and may not he sold,
offered for sale, assigned, transferred or otherwise disposed of, unless
registered pursuant to the provisions of that Act or an opinion of counsel to
Nettaxi is obtained stating that such disposition is in compliance with an
available exemption from such registration.
11.4 REGISTRATION RIGHTS:
(a) Nettaxi shall use reasonable efforts to register the Nettaxi Common
Stock with the Securities and Exchange Commission within one (1) year of its
issuance on the same terms and conditions as the shares held by Robert Rositano,
Jr., Dean Rositano and SSN Properties, LLC. Accordingly, if at any time or from
time to time that Nettaxi shall determine to register any of -the Nettaxi Common
Stock, other than (i) a registration relating solely to employee benefit plans,
or (ii) a registration relating solely to a Commission Rule 145 transaction,
Nettaxi shall follow the process set forth below. Any shareholder desiring to
participate in the registered offering shall notify Nettaxi in writing within
twenty (20) days of the delivery of notice of the registration by Nettaxi to
such shareholder.
(b) Notwithstanding any other provision of this Section 11.4(b), if the
total amount of securities, including the Nettaxi Common Stock, requested by
shareholders to be
22
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included in such offering exceeds the amount of securities sold other than by
Nettaxi that Nettaxi or the underwriters determine in their sole discretion is
compatible with the success of the offering, then Nettaxi shall be required to
include in the offering only that number of such securities, including Nettaxi
Common Stock, which the underwriters determine in their sole discretion will not
jeopardize the success of the offering, the securities so included to be
apportioned pro rata among the selling shareholders and holders according to the
total amount of securities entitled to be included therein owned by each selling
shareholder and Holder. For purposes of the preceding sentence, for any selling
shareholder which is a holder of Nettaxi Common Stock and which is a partnership
or corporation, the partners, retired partners and shareholders of such holder,
or the estates and family members of any such partners and retired partners and
any trusts for the benefit of any of the foregoing persons shall be deemed to be
a single "selling shareholder," or holder as the case may be and any pro-rata
reduction with respect to such person or entity shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "selling shareholder," as defined in this
sentence.
(c) The Nettaxi common Stock shall be included with those of the other
common shareholders on a pro rata basis based upon the number of shares owned at
the time of such notice. No shares excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
To facilitate the allocation of shares in accordance with the above provisions,
Nettaxi or the underwriters may round the number of shares allocated to any
Holder or other Nettaxi shareholder to the nearest 100 shares.
(d) Nettaxi shall have the right to terminate or withdraw any
registration initiated by it under this Section prior to the effectiveness of
such registration whether or not any shareholder including the Holders has
elected to include securities in such registration.
(e) All expenses other than underwriting discounts and commissions
incurred in connection with registrations, filings or qualifications of the
Nettaxi Common Stock pursuant to Section 11.4 for each Holder, including without
limitation all registration, filing, and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for Nettaxi and the
reasonable fees and disbursements of one counsel for the selling Holder or
Holders selected by them with the approval of Nettaxi, which approval shall not
be unreasonably withheld, shall be borne by Nettaxi.
(f) In the case of each registration, Nettaxi at its expense, will as
expeditiously as reasonably possible prepare and file with the Commission a
registration statement with respect to such securities including the includable
Nettaxi Common Stock and use its best efforts to cause such registration
statement to become and remain effective for at least one hundred eighty
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<PAGE>
(180) days or until the distribution described in the registration statement has
been completed. Nettaxi shall further use reasonable efforts to register and
qualify the securities including the Nettaxi Common Stock covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions as shall be reasonably necessary to conduct the offering of shares
(g) Each Holder agrees in connection with Nettaxi's public offering of
Nettaxi's securities that, upon request of Nettaxi and the underwriters managing
any underwritten offering of Nettaxi's securities, not to sell, make any short
sale of, grant any option or any other right of the purchase of, or otherwise
dispose of any shares of Nettaxi including the Nettaxi Common Stock owned by
such Holder without the prior written consent of Nettaxi or such underwriters,
as the case may be, for such period of time (not to exceed one hundred eighty
(180) days) from the effective date of such registration as may be requested by
the underwriters.
(h) Registration rights shall terminate six months after the Nettaxi
Common Stock is freely tradeable pursuant Rule 144.
11.5 Indemnification of PNI Shareholders of PNI shall indemnify Nettaxi and
NOL in respect of, and hold Nettaxi and NOL harmless against, any and all debts,
obligations and other liabilities (whether absolute, accrued, contingent, fixed
or otherwise, or whether known or unknown, or due or to become due or
otherwise), monetary damages, fines fees, penalties, interest obligations,
deficiencies, losses and expenses (including without limitation attorneys fees
and litigation costs) incurred or suffered by Nettaxi and NOL:
(a) resulting from any misrepresentation, breach of warranty or failure
to perform any covenant or agreement of PNI contained in this Agreement;
(b) resulting from any employment, excess or property taxes owing or
arising on account of or in connection with the operation of PNI prior to the
Closing; and
(c) resulting from any liability of PHI incurred or resulting from
activities that took place prior to the Closing not disclosed on the February
29, 1999 Balance Sheet and not incurred in the ordinary course of business
between February 28, 1999 and the Closing
11.6 Indemnification by Nettaxi and NOL. Nettaxi and NOL shall indemnify
PNI Shareholders in respect of, and hold PNI Shareholders harmless against, any
and all debts, obligations and other liabilities (whether absolute, accrued,
contingent, fixed or otherwise, or whether known or unknown, or due or to become
due or otherwise), monetary damages, fines fees, penalties, interest
obligations, deficiencies, losses and expenses (including without limitation
attorneys fees and litigation costs) incurred or suffered by PNI Shareholders:
24
<PAGE>
(a) resulting from any misrepresentation, breach of warranty or failure
to perform any covenant or agreement of Nettaxi and NOL contained in this
Agreement;
(b) resulting from any employment, excess or property taxes owing or
arising on account of or in connection with the operation of Nettaxi or NOL
prior to the Closing; and
(c) resulting from any liability of Nettaxi or NOL incurred or
resulting from activities that took place prior to the Closing not disclosed on
the February 28, 1999 Balance Sheet and not incurred in the ordinary course of
business between February 28, 1999 and the Closing
MISCELLANEOUS
12.1 EXPENSES: Except as otherwise provided herein, PNI, Nettaxi and NOL
shall each pay its own expenses incident to the negotiation, preparation, and
carrying out of this Agreement, INCLUDING LEGAL AND ACCOUNTING AND AUDIT FEES.
HOWEVER, THE LEGAL AND ACCOUNTING EXPENSES INCLUDING THE COST OF THE AUDIT OF
PNI'S BOOKS AND RECORDS, PAID BY PNI SHALL NOT EXCEED $25,000.
12.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS: All statements
contained in this Agreement or in any certificate delivered by or on behalf of
PNI or Nettaxi pursuant hereto, or in connection with the actions contemplated
hereby shall be deemed representations, warranties and covenants by Nettaxi or
PNI, as the case may be, hereunder. All representations, warranties, and
covenants made by PNI or Nettaxi in this Agreement, or pursuant hereto, shall
survive the Closing.
12.3 PUBLICITY: Nettaxi and PNI shall not issue any press release or make
any other public statement, in each case, relating to, in connection with or
arising out of this Agreement or the transactions contemplated hereby, without
obtaining the prior approval of the other, which shall not be unreasonably
withheld or delayed, except that prior approval shall not be required if, in the
reasonable judgment of Nettaxi, prior approval by PNI would prevent the timely
dissemination of such release or statement in violation of applicable Federal
securities laws, rules or regulations or policies of NASDAQ OTC Bulletin Board.
12.4 NON DISCLOSURE: PNI will not at any time after the date of this
Agreement, without Nettaxi's consent, except in the ordinary operation of its
business, divulge, furnish to or make accessible to anyone any knowledge or
information with respect to confidential or secret processes, inventions,
discoveries, improvements, formulae, plans, material, devices or ideas or
know-how, whether patentable or not, with respect
25
<PAGE>
to any confidential or secret aspects of PNI (including, without limitation,
customer lists, supplier lists and pricing arrangements with customers or
suppliers) ("Confidential Information"). Nettaxi will not at any time after the
date of this Agreement use, divulge, furnish to or make accessible to anyone any
Confidential Information (other than to its representatives as part of its due
diligence or corporate investigation). Any information, which (i) at or prior to
the time of disclosure by either PNI or Nettaxi was generally available to the
public through no breach of this covenant, (ii) was available to the public on a
nonconfidential basis prior to its disclosure by either PNI or Nettaxi or (iii)
was made available to the public from a third party provided that such third
party did not obtain or disseminate such information in breach of any legal
obligation of PNI or Nettaxi, shall not be deemed Confidential Information for
purposes hereof, and the undertakings in this covenant with respect to
Confidential Information shall not apply thereto. The undertakings of PNI and
Nettaxi set forth above in this Section 12.4 shall terminate upon consummation
of the Closing. If this Agreement is terminated pursuant to the provisions of
Article VIII or any other express right of termination set forth in this
Agreement, Nettaxi shall return to PNI all copies of all Confidential
Information previously furnished to it by PNI.
12.5 SUCCESSION AND ASSIGNMENTS AND THIRD PARTY BENEFICIARIES: This
Agreement may not be assigned (either voluntarily or involuntarily) by any party
hereto without the express Written consent of the other party. Any attempted
assignment in violation of this Section shall be void and ineffective for all
purposes. in the event of an assignment permitted by this Section, this
Agreement shall be binding upon the heirs, successors and assigns of the parties
hereto. There shall be no third party beneficiaries of this Agreement.
12.6 NOTICES: All notices, requests, demands, or other communications with
respect to this Agreement shall be in writing and shall be (i) sent by facsimile
transmission, (ii) sent by the United States Postal Service, registered or
certified mail, return receipt requested, or (iii) personally delivered by a
nationally recognized express overnight courier service, charges prepaid, tothe
--
following addresses (or such other addresses as the parties may specify from
time to time in accordance with this Section)
(a) TO NETTAXI:
Nettaxi, Inc.
2165 S. Bacom Avenue
Campbell, California 95008
Phone No: (408) 879-9880
Fax No: (408) 879-9907
Principal Contact: Robert A. Rositano,Jr.,CEO
26
<PAGE>
(b) TO NOL:
Nettaxi Online Communities, Inc.
2165 S. Bascom Avenue
Campbell, California 95008
Phone No: (408) 879-9880
Fax No: (408) 879-9907
Principal Contact: Robert A. Rositano,Jr.,CEO
(C) To PNI:
PLUS NET, INC.
7657 Winnetka Avenue
Winnetka, California 91306
Phone No: (818) 718-0366
Fax No: (818) 700-2875
Principal Contact: Bruce K. Muhlfeld, CEO
Any such notice shall, when sent in accordance with the preceding sentence,
he deemed to have been given and received on the earliest of (i) the day
delivered to such address or sent by facsimile transmission, (ii) the fifth
business day following the date deposited with the United States Postal Service,
or (iii) 24 hours after shipment hy such courier service.
12.7 CONSTRUCTION: This Agreement shall be construed and enforced in
accordance with the internal laws of the State of California without giving
effect to the principles of conflicts of law thereof.
12.8 COUNTERPARTS: This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one and the same Agreement.
12.9 NO IMPLIED WAIVER; REMEDIES: No failure or delay on the part of the
parties hereto to exercise any right, power, or privilege hereunder or under any
instrument executed pursuant hereto shall operate as a waiver nor shall any
single or partial exercise of any right, power, or privilege preclude any other
or further exercise thereof or the exercise of any other right, power, or
privilege. All rights, powers, and privileges granted herein shall be in
addition to other rights and remedies to which the parties may be entitled at
law or in equity.
12.10 ENTIRE AGREEMENT: This Agreement, including the Exhibits and
DISCLOSURE SCHEDULESattached hereto, sets forth the entire understandings of the
- - ---------- ---------
parties with respect to the subject matter hereof, and it incorporates and
merges
27
<PAGE>
any and all previous communications, understandings, oral or written as to the
subject matter hereof, and cannot be amended or changed except in writing,
signed by the parties.
12.11 HEADINGS: The headings of the Sections of this Agreement, where
employed, are for the convenience of reference only and do not form a part
hereof and in no way modify, interpret or construe the meanings of the parties.
12.12 SEVERABILITY: To the extent that any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted hereof and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
12.13 ATTORNEYS FEES: In the event any legal action is brought to interpret
or enforce this Agreement, the party prevailing in such action shall be entitled
to recover its attorneys, fees and costs in addition to any other relief that it
is entitled.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
ATTEST: NETTAXI ONLINE
COMMUNITIES, INC.
By: /s/ Robert Rositano, Jr. By: /s/ Dean Rositano
---------------------- --------------
Name: Robert Rositano, Jr. Name: Dean Rositano
Title: Secretary Title: President
ATTEST: NETTAXI, INC.
By: /s/ Robert Rositano, Jr. By: /s/ Dean Rositano
---------------------- --------------
Name: Robert Rositano, Jr. Name: Dean Rositano
Title: Secretary Title: President
ATTEST: PLUS NET, INC.
By: /s/ Andrew Garroni By: /s/ Bruce Muhlfeld
--------------- ---------------
Name: Andrew Garroni Name: Bruce Muhlfeld
Title: Secretary Title: President
/s/ John J. Gallagher /s/ Bruce Muhlfeld
------------------- ---------------
John J. Gallagher Bruce Muhlfeld
/s/ Robert Gould /s/ Nolan Quan
------------- -----------
Robert Gould Nolan Quan
/s/ Russell Hampshire
------------------
Russell Hampshire
/s/ Justin Hirsch
--------------
Justin Hirsch
29
<PAGE>
ARTICLES OF INCOPPORATION
OF
SWAN VALLEY SNOWMOBILES, INC.
THE UNDERSIGNED natural person of the age of eighteen (18) Yes or more,
acting as incorporator of a corporation under the Nevada Business Corporation
Act, adopts the following Articles of Incorporation for such corporation.
ARTICLES I - NAME
------------------
The name of the corporation is Swan Valley Snowmobiles, Inc.
ARTICLES II - DURATION
----------------------
The duration of the corporation is perpetual.
ARTICLES III - PURPOSES
-----------------------
The purpose or purposes for which the corporation is engaged are:
(a) To engage in the specific business; of repairing snowmobiles.
Also, the business of making investments, including Investments in, purchase and
Ownership of any and all kinds of property assets or business whether
alone or in conjunction with others. Also, to acquire, develop, explore and
otherwise deal in and with all kinds of real and personal property and all
related activities, and for any and all other lawful purposes.
(b) To acquire by purchase, exchange, gift, bequest subscription, or
otherwise; and to hold, own mortgage, pledge, hypothecate, sell, assign,
transfer, exchange, or otherwise dispose of or deal in or with its own corporate
securities or stock or other securities Including, without limitations, any
shares of stock, bonds, debentures, notes, mortgages, or
<PAGE>
other obligations, and my certification receipts or other instrumentalities
representing rights or interests therein an any property of created or issued by
any person, firm, associate. or corporation, at instrument thereof, to make
payment thereof in any lawful manner or to issue in exchange therefor it
unreserved earned surplus for the purchase of its own shares, and to exercise as
owner or holder of any securities, any and all rights, powers, and privileges,
in respect thereof.
(c) To do each and everything necessary, suitable, or proper for the
accomplishment of any of the purposes or the attainment of any one or more of
the subjects herein enumerated, or which may. at any time, appear conducive to
or expedient for the protection or benefit of this corporation, and to do said
acts as fully and to the same extent as natural persons might or could do in any
part of the world as principals agents, partners, trustees, or otherwise, either
alone or in conjunction with any other person association, or corporation.
(d) The foregoing clauses shall be construed both as purposes and
powers and shall not be hold to limit or restrict in any manner the general
powers of the corporation, and the enjoyment and exercise thereof, as conferred
by the laws of the State of Nevada; and it is the Intention that the Purpose and
powers specified in each of the paragraphs of this Article III shall be regarded
as independent purposes and powers.
2
<PAGE>
ARTICLE IV - STOCK
------------------
The aggregate number of shares which this corporation shall have authority
to issue is 50,000,000 shares of Common Stock having a per value of $.001 per
share. All common stock of the corporation shall be of the same class,
common, and shall have the same rights and preference. Fully paid stock of this
corporation shall not be liable to any further call or assessment. The
corporation shall also have authority to issue 1,000,000 shares of Preferred
Stock having a par value of $.001 per share and to be issued with such rights,
preferences and designations and in such series as determined by the Board of
Directors of the corporation.
ARTICLE V - AMENDMENT
---------------------
These Articles of Incorporation may be amended by the affirmative vote of
"a majority" of the shares entitled to votes an each such amendment
ARTICLE VI - SHAREHOLDERS' RIGHTS
---------------------------------
The authorized and treasury stock of this corporation may be issued at such
time, upon such terms and conditions and for such consideration as the Board of
Directors shall determine. Shareholders shall not have pre-emptive rights to
acquire unissued shares of the stock of this corporation.
ARTICLE VII - INITIAL OFFICE AND AGENT
--------------------------------------------
The Corporate Trust Company of Nevada
One East Fast Street
Reno, Nevada Bowl
3
<PAGE>
ARTICLE VIII - DIRECTORS
---------------------------
The directors are hereby given the authority to do any act an behalf of the
corporation by law and in each instance where the Business Corporation Act
provides that the directors may act in certain Incorporation whom the Articles
of Incorporation authorized such action by the directors, the directors are
hereby given authority to act in such instances without specifically numbering
such potential action Instance herein.
The directors are specifically given the authority to mortgage or pledge
any or all asset of the business without stockholders' approval.
The number of directors constituting the Initial Board of Directors of this
corporation is one. The name and address of the person who is to serve as
Director until the first annual meeting of stockholders or until his successor
is elected, is:
NAME ADDRESS
---- -------
Darold Moeller P.O. Sax 43
Swan Wiley, Idaho &U49
ARTICLES IX - INCORPORATORS
---------------------------
The name and address of each incorporator Is:
NAME ADDRESS
---- -------
Thomm G. Kimble 311 South State, Suite 440
Salt Lake City, Utah 84111
ARTICLE X
---------
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
---------------------------------------------------------
No contract or other transaction between this corporation and any one or more of
its
4
<PAGE>
directors or officers or any other corporation, firm association. or entity in
which one or more of its directors or officers are financially interested, shall
be either void or violable because of such relationship or Interest, or because
such person is present at the meeting of the Board of Directors, or a committee
thereof, which authorizes, approves, or ratifies such contract of transaction,
or because his or their votes are counted for such purpose it (a) the fact of
such relationship or interest Is disclosed or known to the board of Directors or
committee which authorizes, approves, or ratifies the contract or transaction In
good faith by vote or consent sufficient for the purpose without counting the
votes or consents of such Interested director; or (b) the fact of such
relationship or Interest is disclosed or known to the stockholders entitled to
vote and they, authorize. approve, or ratify such contract or transaction by
vote or written consent (c) the fact of the common directorship, office or
financial Interest is not disclosed or known to the director or officer at the
time the transaction is brought before the board of directors of the corporation
for action; or (d) the contract or transaction; is fair and reasonable to the
corporation at the time it is approved.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or committee thereof, which
authorizes, approves, or ratifies such contract or transaction.
ARTICLE XI
----------
LIABILTIY OF DIRECTORS AND OFFICERS
-----------------------------------
No director or officer shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
person as a director or
5
<PAGE>
officer. Notwithstanding the foregoing sentence, a director officer shall be
liable to the extent provided by applicable law, (i) for acts or omissions which
involve intentional misconduct, fraud or a knowing violator of law, or (ii) for
the payment of dividends In violation of NRS 78.300.
The provisions hereof shall not apply to or have any effect an the
liability or alleged liability of any officer or director of the Corporation for
or with respect to any acts or omissions of such person occurring prior to such
amendment.
Under penalties of perjury, I declare that these Articles of Incorporation
have been examined by me and am, to the best of my knowledge and believe, true,
correct and complete.
DATED this 25 day of October, 1995.
/S. Thomas G. Kimble
--------------------------------
Thomas G. Kimble
Incorporator
STATE OF UTAH
COUNTY OF SALT LAKE
On the 25th day of October, 1995, personally appeared before me. Thomas G.
----
Kimble, who duty acknowledged to me that he signed the foregoing Articles of
Incorporation.
Diana L. Holbrook
--------------------------------
NOTARY PUBLIC
Residing at Saft Lake County
[ N O T A R Y P U B L I C S E A L ]
RECEIVED
OCT 26, 1995
6
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
ARTICLCE OF INCORPORATION
OF
SWAN VALLEY SNOMOBILES, INC.
Pursuant to the applicable provisions of the Nevada Business Corporations
Act. Swan Valley Snowmobiles, Inc. (the "Corporation") adopts the following
Articles of Amendment to Its Articles of Incorporation:
FIRST: The present name of the Corporation Is Swan Valley Snowmobiles,
------
Inc.
SECOND: The following amendment to its Articles of Incorporation
-------
were adopted by the board of directors and by majority consent of shareholders
of the Corporation in the manner prescribed by applicable law.
The Article entitled ARTICLE I - NAME, is amended to nod as follows:
ARTICLE I - NAME
the name of the corporation shall be: Nettaxi, Inc.
THIRD: The Corporation has effectuated, effective with the commencement
------
of business an Wednesday, September 30, 1998, a 1.515 to 1 reverse stock split
as to its shares of common outstanding as of the as of business on September 28,
1998, which decreases the outstanding shares as of that daft from 1,000,000
shares to 660,000 shares. The forward split shall not change the number of
shares of common share authorized for Issuance by the Corporation.
FOURTH: The number of shares of the Corporation outstanding and
-------
entitled to vote at the time of the adoption of said amendment was 1,000,000.
FIFTH: The number of shares voted for such amendments was 925,700
------
(92.6%) and no shares were voted against such amendment.
DATED this 22nd day of September, 1998.
----
SWAN VALLEY SNOWMOBILES, INC.
By: /s/ Brenda White
------------------
Brenda White, President / Secretary
<PAGE>
VERIFICATION
- - ------------
STATE OF UTAH )
: SS
COUNTY OF SALT LAKE )
The undersigned being first duly sworn, deposes and states: that the
undersigned is the President of Swan Valley Snowmobiles, Inc. that the
undersigned has read the Certificate of Amendment and knows the contents thereof
and that the same contains a truthful statement of the Amendment duly adopted by
the board of directors and stockholders of the Corporation.
/s/ Brenda White
------------------
Brenda White, President / Secretary
STATE OF UTAH )
: SS
COUNTY OF SALT LAKE )
Before me the undersigned Notary Pubic in and for the said County and States,
personally appeared to President and Secretary of Swan Valley Snowmobiles, Inc.,
a Nevada corporation, and signed the foregoing Articles of Amendment as their
own free and voluntary acts and deeds pursuant to a corporate resolution for the
uses and purposes set forth.
IN WITNESS WHEREOF, I have set my hand and see this 22nd day of
September, 1998.
/S/ THOMAS G. KIMBLE
-----------------------
NOTARY PUBLIC
[NOTARY SEAL]
<PAGE>
BY-LAWS
OF
SWAN VALLEY SNOWMOBILES, INC.
ARTICLE I - OFFICES
-------------------
The principal office of the corporation in the State of Nevada shall be
located in the City of Reno, County of Washoe. The corporation may have such
other offices, either within or without the State of incorporation as the board
of directors may designate or as the business of the corporation may from time
to time require.
ARTICLE II - STOCKHOLDERS
-------------------------
1. ANNUAL MEETING.
The annual meeting of the stockholders shall be held on such date as is
determined by the Board of Directors for the purpose of electing directors and
for the transaction of such other business as may come before the meeting.
2. SPECIAL MEETINGS.
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the president or by the
directors, and shall be called by the president at the request of the holders of
not less than ten per cent of all the outstanding shares of the corporation
entitled to vote at the meeting.
3. PLACE OF MEETING.
The directors may designate any place, either within or without the State
unless otherwise prescribed by statute, as the place of meeting for any annual
meeting or for any special meeting called by the directors. A waiver of notice
signed by all stockholders entitled to vote at a meeting may designate any
place, either within or without the state unless otherwise prescribed by
statute, as the place for holding such meeting. If no designation is made, or if
a special meeting
<PAGE>
be otherwise called, the place of meeting shall be the principal office of the
corporation.
4. NOTICE OF MEETING.
Written or printed notice stating the place, day and hour of the meeting
and, in case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less than ten nor more than thirty days before
the date of the meeting, either personally or by mail, by or at the direction of
the president, or the secretary, or the officer or persons calling the meeting,
to each stockholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon pre-paid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend, or in order to make a determination
of stockholders for any other proper purpose, the directors of the corporation
may provide that the stock transfer books shall be closed for a stated period
but not to exceed, in any case, thirty days. If the stock transfer books shall
be closed for the purpose of determining stockholders entitled to notice of or
to vote at a meeting of stockholders, such books shall be closed for at least
ten days immediately preceding such meeting. In lieu of closing the stock
transfer books, the directors may fix in advance 2 date as the record date for
any such dete7mination of stockholders, such date in any case to be not more
than thirty days and, in case of a meeting of stockholders, not less than ten
days prior to the date on which the particular action requiring such
determination of stockholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or stockholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the directors declaring
such dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled to
vote at any meeting of stockholders has been made as provided in this section,
such determination shall apply to any adjournment thereof.
BY-LAWS
Page 2
<PAGE>
6. VOTING LISTS.
The officer or agent having charge of the stock transfer books for shares
of the corporation shall make, at least ten days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten days prior to such meeting, shall be kept on file at the principal office of
the corporation or transfer agent and shall be subject to inspection by any
stockholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any stockholder during the whole time of the meeting. The
original stock transfer book shall be prima facie evidence as to who are the
stockholders entitled to examine such list or transfer books or to vote at the
meeting of stockholders.
7. QUORUM.
Unless otherwise provided by law, at any meeting of stockholders one-third of
the outstanding shares of the corporation entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders. If
less than said number of the outstanding shares are represented at a meeting, a
majority of the shares so represented may adjourn the meeting from time to time
without further notice. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified. The stockholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
8. PROXIES.
At all meetings of stockholders, a stockholder may vote by proxy executed
in writing by the stockholder or by his duly authorized attorney in fact. Such
proxy shall be filed with the secretary of the corporation before or at the time
of the meeting.
9. VOTING.
Each stockholder entitled to vote in accordance with the terms and
provisions of the certificate of incorporation and these by-laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholders. Upon the demand of any stockholder, the vote for
directors and upon any question before the meeting shall be by ballot. All
elections for
BY-LAWS
Page 3
<PAGE>
directors shall be decided by plurality vote; all other questions shall be
decided by majority vote except as otherwise provided by the Certificate of
Incorporation or the laws of this State.
10. ORDER OF BUSINESS.
The order of business at all meetings of the stockholders, shall be as
follows:
1, Roll Call.
2. Proof of notice of meeting or waiver of notice.
3. Reading of minutes of preceding meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7, Unfinished Business.
8. New Business.
11. INFORMAL ACTION BY STOCKHOLDERS.
Unless otherwise provided by law, any action required to be taken at a
meeting of the shareholders, or any other action which may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by the same percentage of all
of the shareholders entitled to vote with respect to the subject matter thereof
as would be required to take such action at a meeting.
ARTICLE III - B0ARD OF DIRECTORS
---------------------------------
1. GENERAL POWERS.
The business and affairs of the corporation shall be managed by its board
of directors. The directors shall in all cases act as a board, and they may
adopt such rules and regulations for the conduct of their meetings and the
management
BY - LAWS
Page 4
<PAGE>
of the corporation, as they may deem proper, not inconsistent with these by-laws
and the laws of this State.
2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the corporation shall as established by the
board of directors, but shall be no less than one. Each director shall hold
office until the next annual meeting of stockholders and until his successor
shall have been elected and qualified.
3. REGULAR MEETINGS.
A regular meeting of the directors, shall be held without other notice than
this by-law immediately after, and at the same place as, the annual meeting of
stockholders. The directors may provide, by resolution, the time and place for
the holding of additional regular meetings without other notice than such
resolution.
4. SPECIAL MEETINGS.
Special meetings of the directors may be called by or at the request of the
president or any director. The person or persons authorized to call special
meetings of the directors may fix the place for holding any special meeting of
the directors called by them. A director may attend any meeting by telephonic
participation at the meeting.
5. NOTICE.
Notice of any special meeting shall be given at least two days previously
thereto by written notice delivered personally, or by telegram or mailed to each
director at his business address. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail so addressed, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed to
be delivered when the telegram is delivered to the telegraph company. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened.
6. QUORUM.
At any meeting of the directors a majority shall constitute a quorum for
the transaction of business, but if less than said number is present at a
meeting, a
BY-LAWS
Page 5
<PAGE>
majority of the directors present may adjourn the meeting from time to time
without further notice.
7. MANNER OF ACTING.
The act of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the removal
of directors without cause may be filled by a vote of a majority of the
directors then in office, although less than a quorum exists. Vacancies
occurring by reason of the removal of directors without cause shall be filled by
vote of the stockholders. A director elected to fill a vacancy caused by
resignation, death or removal shall be elected to hold office for the unexpired
term of his predecessor.
9. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the
stockholders or by action of the board. Directors may be removed without cause
only by vote of the stockholders.
10. RESIGNATION.
A director may resign at any time by giving written notice to the board,
the president or the secretary of the corporation, Unless otherwise specified in
the notice, the resignation shall take effect upon receipt thereof by the board
or such officer, and the acceptance of the resignation shall not be necessary to
make it effective.
11. COMPENSATION.
No compensation shall be paid to directors, as such, for their services,
but by resolution of the board a fixed sum and expenses for actual attendance at
each regular or special meeting of the board may be authorized. Nothing herein
contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
BY-LAWS
Page 6
<PAGE>
12. PRESUMPTION OF ASSENT.
A director of the corporation who is present at a meeting of the directors
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless his dissent shall be entered in the minutes
of the meeting or unless he shall file his written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the
corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
13. EXECUTIVE AND OTHER COMMITTEES.
The board, by resolution, may designate from among its members an executive
committee and other committees, each consisting of three or more directors. Each
such committee shall serve at the pleasure of the board.
ARTICLE IV - OFFICERS
---------------------
1. NUMBER.
The officers of the corporation shall be a president, a secretary and a
treasurer, each of whom shall be elected by the directors. Such other officers
and assistant officers as may be deemed necessary may be elected or appointed by
the directors.
2. ELECTION AND TERM OF OFFICE.
The officers of the corporation to be elected by the directors shall be
elected annually at the first meeting of the directors held after each annual
meeting of the stockholders. Each officer shall hold office until his successor
shall have been duly elected and shall have qualified or until his death or
until he shall resign or shall have been removed in the manner hereinafter
provided.
3. REMOVAL.
Any officer or agent elected or appointed by the directors may be removed
by the directors whenever in their judgment the best interests of the
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
BY-LAWS
Page 7
<PAGE>
4. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the directors for the unexpired
portion of the term.
5. PRESIDENT.
The president shall be the principal executive officer of the corporation
and, subject to the control of the directors, shall in general supervise and
control all of the business and affairs of the corporation. He-shall, when
present, preside at all meetings of the stockholders and of the directors. He
may sign, with the secretary or any other proper officer of the corporation
thereunto authorized by the directors, certificates for shares of the
corporation, any deeds, mortgages, bonds, contracts, or other instruments which
the directors have authorized to be executed, except in cases where the signing
and execution thereof shall be expressly delegated by the directors or by these
by-laws to some other officer or agent of the corporation, or shall be required
by
law to be otherwise signed or executed; and in general shall per-form all duties
incident to the office of president and such other duties as may be prescribed
by the directors from time to time.
6. VICE-PRESIDENT.
In the absence of the president or in event of his death, inability or
refusal to act, a vice-president may perform the duties of the president, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. A vice-president shall perform such other
duties as from time to time may be assigned to him by the President or by the
directors.
7. SECRETARY.
The secretary shall keep the minutes of the stockholders' and of the
directors' meetings in one or more books provided for that purpose, see that all
notices are duly given in accordance with the provisions of these by-laws or as
required, be custodian of the corporate records and of the sea] of the
corporation and keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder, have general
charge of the stock transfer books of the corporation and in general perform all
duties incident to the office of secretary and such other duties as from time to
time may be assigned to him by the president or by the directors.
BY-LAWS
Page 8
<PAGE>
8. TREASURER.
If required by the directors, the treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the directors shall determine. He shall have charge and custody of and be
responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these by-laws and in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the directors.
9. SALARIES.
The salaries of the officers shall be fixed from time to time by the
directors and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------------------
1. CONTRACTS.
The directors may authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the corporation, and such authority may be general or confined to
specific instances.
2. LOANS.
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the directors. Such authority may be general or confined to specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation, shall be signed
by such officer or officers, agent or agents of the corporation and in such
manner as shall from time to time be determined by resolution of the directors.
BY-LAWS
Page 9
<PAGE>
4. DEPOSITS.
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositaries as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
-------------------------------------------------------
CERTIFICATES FOR SHARES.
Certificates representing shares of the corporation shall be in such
form as shall be determined by the directors. Such certificates shall be signed
by the president and by the secretary or by such other officers authorized by
law and by the directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the stockholders, the
number of shares and date of issue, shall be entered on the stock transfer books
of the corporation. All certificates surrendered to the corporation for transfer
shall be canceled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms and indemnity to the corporation
as the directors may prescribe.
2. TRANSFERS OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the corporation which shall be kept at its principal
office.
(b) The corporation shall be entitled to treat the holder of
record of any share as the holder in fact thereof, and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such share
on the part of any other person whether or not it shall have express or other
notice thereof, except as expressly provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
-------------------------
The fiscal year of the corporation shall end on the last day of such month
in each year as the directors may prescribe.
BY-LAWS
Page 10
<PAGE>
ARTICLE VIII - DIVIDENDS
------------------------
The directors may from time to time declare, and the corporation may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX - SEAL
-----------------
The directors may, in their discretion, provide a corporate seal which
shall have inscribed thereon the name of the corporation, the state of
incorporation, and the words, "Corporate Seal".
ARTICLE X - WAIVER OF NOTICE
----------------------------
Unless otherwise provided by law, whenever any notice is required to be
given to any stockholder or director of the corporation under the provisions of
these by-laws or under the provisions of the articles of incorporation, a
waiver, thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
ARTICLE XI - AMENDMENTS
-----------------------
These by-laws may be altered, amended or repealed and new by-laws may be
adopted by action of the Board of Directors.
October 30, 1995 /S/ Darold Moeller
- - ----------------- --------------------------
Date Darold Moelle, Secretary
BY-LAWS
Page 11
<PAGE>
NOT VALID UNLESS COUNTERSIGNED BY TRANSEFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
[NETTAXI, INC. LOGO]
-------------------------
/ CUSIP NO. 641156 10 2 /
-------------------------
NETTAXI, INC.
AUTHORIZED COMMON STOCK: 50,000 SHARES - PAR VALUE -$.001
THIS CERTIFIES THAT
[SAMPLE]
IS THE RECORD HOLDER OF
Shares of NETTAXI, Inc. Common Stock
Transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Dean Rositano
- - ------------------------ ------------------------
SECRETARY PRESIDENT
[NETTAXI, INC.
CORPORATE
SEAL
NEVADA]
<PAGE>
THIS CONVERTIBLE DENTURE AND THE SHARES ISSUABLE UPON CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR TEH
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUSEL, IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION
IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULL 144 UNDER SUCH
ACT. ANNY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH APPLICABLE
STATE SECURITIES LAWS.
CONVERTIBLE DEBENTURE
March 31, 1999 $5,000,000
FOR VALUE RECEIVED, NETTAXI, INC., a corporation organized under the laws of the
State of Nevada (hereinafter called the "BORROWER" or the "CORPORATION") hereby
promises to pay to the order of RGC INTERNATIONAL INVESTORS, LDC or registered
assigns (the "HOLDER") the sum of Five Million Dollars ($5,000,000)on March 31,
2004 (the "AUTOMATIC CONVERSION DATE") and to pay interest on the unpaid
principle balance hereof at the rate of five (5%) per annum from the date hereof
(the "ISSUE DATE") until the same becomes due and payable (which interest shall
accrue on a daily basis), whether at maturity or upon conversion, redemption,
acceleration or otherwise. Any amount of principal of or interest on this
Debenture which, to the extent not converted in accordance with the provisions
hereof, is not paid when due shall bear interest at the rate of fifteen percent
(15%) per annum from the due date thereof until the same is paid. Interest
shall be calculated based on a 360-day year and shall commence accruing on the
Issue Date and, to the extend not converted in accordance with the provisions
hereof, shall be payable in arrears at such time as the outstanding principal
balance hereof with respect to which such interest has accrued becomes due and
payable hereunder. All payments of principal and interest (to the extent not
converted into shares of the Corporation's common stock, par value $0.001 per
share ("COMMON STOCK"), in accordance with the terms hereof) shall be made in,
and all references herein to monetary denominations shall refer to, lawful money
of the United States of America. All payments shall be made at such address as
Holder shall hereafter give to the Borrower by written notice made in accordance
with the provisions of this Debenture. The Automatic Conversion Date is subject
to extension as provided in Article IV hereof. This Debenture is being issued
by the Borrower pursuant to the Securities Purchase Agreement, dated as of March
31, 1999, between the Borrower and Holder (the "PURCHASE AGREEMENT"). Each
capitalized term used, but not otherwise defined, herein shall have the meaning
ascribed thereto in the Purchase Agreement. For purposes hereof, the term
"DEBENTURES" shall be deemed to refer to this Debenture, all other convertible
debentures issued pursuant to the Purchase Agreement and all convertible
debentures issued in replacement hereof or thereof or otherwise with respect
hereto or thereto.
I. REDEMPTION
A. MANDATORY REDEMPTION. If any of the following events (each, a
----------------------
"MANDATORY REDEMPTION EVENT") shall occur:
(1) The Corporation (i) fails to issue shares of Common Stock or
Investment Options to the holders of the Debentures upon exercise by the holders
of their conversion rights in accordance with the terms of the Debentures (for a
period of at least 60 days if such failure is solely as a result of the
circumstances governed by the second paragraph of Article II.F below and the
Corporation is using its best efforts to authorize a sufficient number of shares
of Common Stock as soon as practicable), (ii) fails to transfer or to cause its
transfer agent to transfer (electronically or in certificated form) any
certificate for shares of Common Stock issued to the holders upon conversion of
or otherwise pursuant to the Debentures or upon exercise of or otherwise
pursuant to the investment Options (as defined in Article II.E below) as and wen
required by the Debentures or the Registration Rights Agreement, dated as of
March 31, 1999, by and among the Corporation and the other signatories thereto
(the "REGISTRATION RIGHTS AGREEMENT"), (iii) fails to remove any restrictive
legend (or to withdraw any stop transfer instructions in respect thereof) of any
certificate or any shares of Common Stock issued to the holders of the
Debentures upon conversion of or otherwise pursuant to the Debentures or upon
exercise of or otherwise pursuant to the Investment Options as and when required
by the Debentures, the Purchase Agreement or the Registration Rights Agreement,
or (iv) fails to fulfill its obligations pursuant to Sections 4(c), 4(d), 4(e),
4(h), 4(i), 4(j), 4(l) or 5 of the Purchase Agreement (or makes any
announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph), and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for ten days after the Corporation shall have
been notified thereof in writing by any holder of the Debentures:
(2) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC") prior to August 28, 1999 of the
Registration Statement(s)(as defined in the Registration Rights Agreement, the
"REGISTRATION STATEMENT(S)" required to be filed pursuant to Section 2(a) of the
Registration Rights Agreement, or fails to obtain the effectiveness of any
additional registration Statement (required to be filed pursuant to Section 3(b)
of the Registration Rights Agreement) within 120 days after the Registration
Trigger Date (as defined in the Registration Rights Agreement), or any such
Registration Statement, after its initial effectiveness and during the
Registration Period (as defined in the Registration Rights Agreement), lapses in
effect or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement, the "REGISTRABLE SECURITIES") otherwise cannot be
made thereunder (whether by reason of the Corporation's failure to amend or
supplement the prospectus included therein in accordance with the Registration
Rights Agreement, the Corporation's failure to file and obtain effectiveness
with the SEC of an additional Registration Statement required pursuant to
Section 3(b) of the Registration Rights Agreement or otherwise) for more than 30
consecutive days or more than 60 days in any 12-month period after such
Registration Statement becomes effective;
(3) The Corporation of any subsidiary of the Corporation shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for all or substantially all of
its property or business; or such a receiver or trustee shall otherwise be
appointed;
(4) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation;
(5) The Corporation shall: (i) fail to maintain the listing of the
Common Stock on the Over-the-Counter Bulletin Board (the "OTC BB"); or (ii)
following the date on which listing or quotation of the Common Stock on the
Nasdaq National Market (the "NNM") has been secured by the Corporation, fail to
maintain such listing on the NNM, the New York Stock Exchange ("NYSE") or the
American Stock Exchange ("AMEX");
(6) The sale, conveyance or disposition of all or substantially
all of the assets of the Corporation, the effectuation by the Corporation of a
transaction or series of related transactions in which more than 50% of the
voting power of the Corporation is disposed of, or the consolidation, merger or
other business combination of the Corporation with or into any other individual,
corporation, limited liability company, partnership, association, trust or other
entity or organization (each, a "PERSON") or Persons when the Corporation is not
the survivor; or
(7) The Corporation breaches any covenant contained in Article III hereof and
such breach continues uncured for a period of ten days after written notice
thereof to the Corporation from any holder of Debentures;
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (1), (2), (5), (6) or (7) at the
option of the holders of at least 50% of the then outstanding principal amount
of the Debentures exercisable by the delivery of written notice (the "MANDATORY
REDEMPTION NOTICE") to the Corporation of such Mandatory Redemption Event, or
upon the occurrence of any Mandatory Redemption Event specified in subparagraphs
(3) or (4), the then outstanding Debentures shall become immediately redeemable
and the Corporation shall purchase each holder's outstanding Debentures for an
amount equal to the greater of (i) 120% multiplied by the sum of (a) the then
outstanding principal amount of the Debentures, plus (b) all accrued and unpaid
interest thereon for the period beginning on the Issue Date and ending on the
date of payment of the Mandatory Redemption Amount (the "MANDATORY REDEMPTION
DATE"), plus (c) all Conversion Default Payments (as defined in Article II.F
below), Delivery Default Payments (as defined in Article II.D(3) below) and any
other amounts owed to such holder pursuant to Section 2(c) of the Registration
rights Agreement, and (i) the "PARITY VALUE" of the Debentures to be redeemed,
where parity value means the product of (a) the highest number of shares of
Common Stock issuable upon conversion of or otherwise pursuant to such
Debentures (including upon exercise of the Investment Options) in accordance
with the terms hereof (without giving any effect to any limitations on
conversions of Debentures contained herein, and treating the Trading Day (as
defined in Article II.B(1)) immediately preceding the Mandatory Redemption Date
as the "CONVERSION DATE" (as defined in Article II.B(1)) for purposes of
determining the lowest applicable Conversion Price, unless the Mandatory
Redemption Event arises as a result of a breach in respect of a specific
Conversion Date in which case such Conversion Date shall be the Conversion
Date), multiplied by (b) the highest Closing Bid Price (as defined in Article
II.B(1)) for the Common Stock during the period beginning on the date of first
occurrence of the Mandatory Redemption Event and ending one day prior to the
Mandatory Redemption Date (the greater of such amounts being referred to as the
"MANDATORY REDEMPTION AMOUNT"). The Mandatory Redemption Amount, together with
all other ancillary amounts payable hereunder, shall immediately become due and
payable, all without demand, presentment or notice, all of which hereby are
expressly waived, together with all costs, including, without limitation,
reasonable legal fees and expenses of collection, and Holder shall be entitled
to exercise all other rights and remedies available at law or in equity.
B. TRADING MARKET REDEMPTION. If any Debentures cease to be
----------------------------
convertible by any holder as a result of the limitations described in Article
II.A(2) below (a "TRADING MARKET REDEMPTION EVENT"), and the Corporation has
not, prior to the date that such Trading Market Redemption Event arises, either
(i) obtained the Stockholder Approval (as defined in Article II.A(2) or (ii)
eliminated any prohibitions under applicable law or the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or any of its securities on
the Corporation's ability to issue shares of Common Stock in excess of the
maximum Share Amount (as defined in Article II.A(2)), then the Corporation shall
be obligated to redeem immediately all of the then outstanding principal amount
of the debentures, in accordance with this Article I.B An irrevocable
redemption notice (the "TRADING MARKET REDEMPTION NOTICE") shall be delivered
promptly to the holders of the Debentures in accordance with the terms hereof
and shall state (i) that the Maximum Share Amount (as defined in Article
II.A(2)) has been issued upon conversion of the Debentures, (ii) that the
Corporation is obligated to redeem all of the outstanding Debentures and (iii)
the Mandatory Redemption Date, which shall be a date within five business days
of the earlier of (a) date of the Trading Market Redemption Notice or (b) the
date on which the holders of the Debentures notify the Corporation of the
occurrence of a Trading Market Redemption Event. On the Mandatory Redemption
Date, the Corporation shall make payment of the Mandatory Redemption Amount (as
defined in Article I.A above) in cash.
C. FAILURE TO PAY REDEMPTION AMOUNTS. In the case of a Mandatory
--------------------------------------
Redemption Event, if the Corporation fails to pay the Mandatory Redemption
Amount within fifteen (15) business days of written notice that such amount is
due and payable, then (assuming there are sufficient authorized shares) in
addition to all other available remedies, Holder shall have the right at
anytime, so long as the Mandatory Redemption Event continues, to require the
Corporation, upon written notice, to issue as soon as practicable thereafter (in
accordance with and subject to the terms of Article II below, including
paragraph A(2) thereof), in lieu of the Mandatory Redemption Amount, the number
of shares of Common Stock of the Corporation equal to such applicable redemption
amount divided by any conversion Price, as chosen in the sole discretion of
Holder, in effect, from the date of the Mandatory Redemption Event until the
date Holder elects to exercise its rights pursuant to this Article I.C.
II. CONVERSION AT THE OPTION OF HOLDER
A. OPTIONAL CONVERSION
--------------------
(1) CONVERSION AMOUNT. Subject to Article II.A(2) below, Holder
-------------------
may, at its option at any time and from time to time, upon surrender of the
Debenture, convert all or any portion of this Debenture into Common Stock as set
forth below (an "OPTIONAL CONVERSION"). This Debentures shall be convertible
into such number of fully paid and nonassessable shares of Common Stock as such
common Stock exists on the Issue Date, or any other shares of capital stock or
other securities of the Corporation into which such Common Stock is thereafter
changed or reclassified, as is determined by dividing (a) the Conversion Amount
(as defined below) by (b) the Conversion Price (as defined in Article II.B
below); provided, however, that in no event (other than pursuant to the
Automatic Conversion (as defined in Article IV)) shall Holder be entitled to
convert this Debenture (or exercise Investment Options in connection with any
such conversion) to the extend that the sum of (x) the number of shares of
Common Stock beneficially owned by Holder and its affiliates (other than shares
of Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of this Debenture, the unexercised Investment Options or
the unexercised or unconverted portion of any other securities of the
Corporation subject to a limitation on conversion or exercise analogous to the
limitations contained herein) and (y) the number of shares of Common Stock
issuable upon the conversion of the portion of this Debenture (and upon the
exercise, if any, of Investment Options in connection therewith) with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by Holder and Holder's affiliates of more than 4.99% of the
outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(x) of such proviso. "CONVERSION AMOUNT" means the portion of the principal
amount of this Debenture being converted, plus all accrued and unpaid interest
thereon for the period beginning on the Issue Date and ending on the Conversion
Date (as defined in Article II(B)(1)), plus any Conversion Default Payments (as
defined in Article II.F) and Delivery Default Payments (as defined in Article
II.D(3)) payable with respect thereto, together with any other amounts owed to
Holder pursuant to Section 2(c) of the Registration Rights Agreement.
(2) TRADING MARKET LIMITATION. Unless the Corporation either (i)
---------------------------
is permitted (or not prohibited) by the applicable rules and regulations of the
principal securities market on which the Common Stock is listed or traded to
issue shares of Common Stock upon conversion of or otherwise pursuant to the
Debentures and upon exercise of or otherwise pursuant to the Investment Options
in excess of the Maximum Share Amount (as defined below) or (ii) has obtained
stockholder approval of the issuance of shares of Common Stock upon conversion
of or otherwise pursuant to the Debentures and upon exercise of or otherwise
pursuant to the Investment Options in excess of the Maximum Share Amount in
accordance with applicable law and the rules and regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation of any of its securities (the
"STOCKHOLDER APPROVAL"), in no event shall the total number of shares of Common
Stock issued upon conversion of or otherwise pursuant to the Debentures and upon
exercise of or otherwise pursuant to the Investment Options (including any
shares of capital stock or rights to acquire shares of capital stock issued by
the Corporation which are aggregated or integrated with the Common Stock issued
or issuable upon conversion of or otherwise pursuant to the Debentures and upon
exercise of or otherwise pursuant to the Investment Options for purpose of any
such rule or regulation) exceed 2,820,589 (19.99% of the total shares of Common
Stock outstanding on the Issue Date) (the "MAXIMUM SHARE AMOUNT"), subject to
equitable adjustments from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the Issue Date. With respect to each Holder of
Debentures, the Maximum Share Amount shall refer to such Holder's pro rata share
thereof determined in accordance with Article V.K below. In the event that (a)
the aggregate number of shares of Common Stock actually issued upon conversion
of or otherwise pursuant to the Debentures and upon exercise of or otherwise
pursuant to the Investment Options represents at least 50% of the Maximum Share
Amount and (b) the sum of (x) the aggregate number of shares of Common Stock
actually issued upon conversion of or otherwise pursuant to the Debentures and
upon exercise of or otherwise pursuant to the Investment Options plus (y) the
aggregate number of shares of Common Stock that remain issuable upon conversion
of the then outstanding Debentures at the then effective Conversion Price and
upon exercise of or otherwise pursuant to the Investment Options, represents at
least 100% of the Maximum Share Amount (the "TRIGGERING EVENT"), the Corporation
will use its best efforts to seek and obtain Stockholder Approval (or obtain
such other relief as will allow conversions hereunder in excess of the Maximum
Share Amount) as soon as practicable following the Triggering Event.
B. CONVERSION PRICE
-----------------
(1) CALCULATION OF CONVERSION PRICE. Subject to subparagraph (2)
-----------------------------------
below, the "CONVERSION PRICE" shall be the lesser of the "VARIABLE CONVERSION
PRICE" and the Fixed Conversion Price. The Conversion Price shall be subject to
adjustments pursuant to the provisions of Article II.C below. "VARIABLE
CONVERSION PRICE" shall mean the product of (x) the Applicable Percentage (as
defined below) and (y) the average of the lowest Closing Bid Prices on any three
Trading Days (which days need not be consecutive)(the "MARKET PRICE DAYS")
during the 22 consecutive Trading period ending one Trading Day prior to the
date (the "CONVERSION DATE") the Notice of Conversion (as defined in Article
II.D) is sent by a holder to the Corporation via facsimile (the "PRICING
PERIOD"). The market Price Days shall be designated by the converting holder
(from amount the days comprising the Pricing Period) in the Notice of
Conversion. "FIXED CONVERSION PRICE" shall mean the product of (x) the
Applicable Percentage and (y) $11.88 (subject to adjustment for stock splits,
stock dividends and similar events). The "APPLICABLE PERCENTAGE" shall
initially mean 100%; provided, however, that in the event that the Corporation
does not secure the listing or quotation of the Common Stock on the NNM by
September 27, 1999, the Applicable Percentage shall be reduced to 80%. The
Applicable Percentage shall be subject to further adjustment as provided herein.
"CLOSING BID PRICE" means for any security as of any date, the closing bid price
on the OTC BB as reported by Bloomberg Financial Markets or an equivalent
reliable reporting service mutually acceptable to and hereafter designated by
the holders of a majority in interest of the Debentures and the Corporation
("BLOOMBERG") or, if the OTC BB is not the principal trading market for such
security, the closing bid price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg, or if no closing bid price of such security is available in any of
the foregoing manners, the average of the bid prices of any market makers for
such security that are listed in the "PINK SHEETS" by the national Quotation
Bureau, Inc. If the Closing Bid Price shall be the fair market value as
mutually determined by the Corporation and the holders of a majority in interest
of the Debentures being converted for which the calculation of the Closing Bid
Price is required in order to determine the Conversion Price of such Debentures.
"TRADING DAY" shall mean any day on which the Common Stock is traded for any
period on OTC BB, or on the principal securities exchange or other securities
market on which the Common Stock is then being traded.
(2) CONVERSION PRICE DURING MAJOR ANNOUNCEMENTS. Nothwithstanding
--------------------------------------------
anything contained in subparagraph (1) of this Paragraph B to the contrary, in
the event the Corporation (a) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Corporation is the surviving or continuing corporation and its capital stock
is unchanged) or sell or transfer all or substantially all of the assets of the
Corporation or (b) any person, group or entity (including the Corporation)
publicly announces a tender offer to purchase 50% or more of the Corporation's
Common Stock (or any other takeover scheme) (the date of the announcement
referred to in clause (a) or (b) is hereinafter referred to as the "ANNOUNCEMENT
DATE"), then the Conversion Price shall, effective on the Announcement Date and
continuing through the Adjusted Conversion Price Termination Date (as defined
below), be equal, for each such date, to the lower of (x) the Conversion Price
which would have been applicable for an Optional Conversion occurring on the
Announcement Date and (y) the Conversion Price that would otherwise be in effect
on such date. From and after the Adjusted Conversion Price Termination date,
the Conversion Price shall be determined as set forth in subparagraph (1) of
this Article II.B For purposes hereof, "ADJUSTED CONVERSION PRICE TERMINATION
DATE" shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this
subparagraph (2) has been made, the date upon which the Corporation (in the case
of clause (a) above) or the person, group or entity (in the case of clause (b)
above) consummates or publicly announces the termination or abandonment of the
proposed transaction or tender offer (or takeover scheme) which caused this
subparagraph (2) to become operative.
C. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price shall be
-----------------------------------
subject to adjustment from time to time as follows:
(1) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK
--------------------------------------------------------------
DIVIDEND, ETC. It at any time when this Debenture is outstanding, the number of
---------
outstanding shares of Common Stock is increased or decreased by a stock split,
stock dividend, combination, reclassification rights offering below the Trading
Price (as defined below) to all holders of Common Stock or other similar event,
which event shall have taken place during the reference period for determination
of the Conversion Price for any Optional Conversion or Automatic Conversion,
then the Conversion Price shall be calculated giving appropriate effect to the
stock split, stock dividend, combination, reclassification or other similar
event. In such event, the Corporation shall notify the Transfer Agent of such
change on or before the effective date thereof. "TRADING PRICE," which shall be
measured as of the record date in respect of the rights offering, means (a) the
average of the last reported sale prices for the shares of Common Stock on the
OTC BB as reported by Bloomberg, as applicable, for the five Trading Days
immediately preceding such date, or (b) if the OTC BB is not the principal
trading market for the shares of Common Stock, the average of the last reported
sale prices on the principal trading market for the Common Stock during the same
period as reported by Bloomberg, or (c) if market value cannot be calculated as
of such date on any of the foregoing bases, the Trading Price shall be the fair
market value as reasonably determined in good faith by (x) the Board of
Directors of the Corporation or, (y) at the option of the holders of a majority
of the then outstanding principal amount of the Debentures, by an independent
investment bank of nationally recognized standing in the valuation of businesses
similar to the business of the Corporation.
(2) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time
---------------------------------------------
when this Debenture is outstanding and prior to the conversion of all
Debentures, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or similar event, as a result of which shares
of Common Stock of the Corporation shall be changed into the same or a different
number of shares of another class or classes of stock or securities of the
Corporation or another entity, or in case of any sale or conveyance of all of
substantially all of the assets of the Corporation other than in connection with
a plan of complete liquidation of the Corporation, then Holder shall thereafter
have the right to receive upon conversion of this Debenture, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore issuable upon conversion, such stock,
securities or assets which Holder would have been entitled to receive in such
transaction had this Debenture been converted in full immediately prior to such
transaction (without regard to any limitations on conversion contained herein),
and in any such case appropriate provisions shall be made with respect to the
rights and interests of Holder to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Price and of the
number of shares of Common Stock issuable upon conversion of this Debenture)
shall thereafter be applicable, as nearly as may be practicable in relation to
any securities or assets thereafter deliverable upon the conversion of the
Debenture. The Corporation shall not effect any transaction described in this
subparagraph (2) unless (a) it first gives, to the extend practical, 30 days'
prior written notice (but in any event at least 15 business days prior written
notice) of the record date of the special meeting of stockholders to approve, or
if there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time Holder shall be entitled to
convert this Debenture), which notice shall be given concurrently with the first
public announcement of such transaction, and (b) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligations of the Corporation hereunder (including under this subparagraph
(2)). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.
(3) ADJUSTMENT DUE TO DISTRIBUTION. If the Corporation shall
----------------------------------
declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a dividend, stock repurchase, by way of return of
capital or otherwise (including any dividend or distribution to the
Corporation's shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off))(a "DISTRIBUTION"), then Holder
shall be entitled, upon any conversion of this Debenture after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to Holder with respect
to the shares of Common Stock issuable upon such conversion had Holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
(4) PURCHASE RIGHTS. If at any time when this Debenture is
-----------------
outstanding the Corporation issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the "PURCHASE RIGHTS")
pro rata to the record holders of any class of Common Stock, then Holder will
been titled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which Holder could have acquired if Holder had held
the number of shares of Common Stock acquirable upon complete conversion of this
Debenture (without regard to any limitations on conversion contained herein and
based upon the Conversion Price as would then be in effect) immediately before
the date on which a record is taken for the grant, issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of which the record
holders of Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights.
(5) ADJUSTMENT FOR RESTRICTED PERIODS. In the event that (a) the
-----------------------------------
Corporation fails to obtain effectiveness with the SEC of any Registration
Statement required to be filed pursuant to the registration Rights Agreement on
or prior to the date on which such Registration Statement is required to become
effective pursuant to the terms of the Registration Rights Agreement, or (b) any
such Registration Statement, after its initial effectiveness and during the
Registration Period, lapses in effect, or sales of all of the Registrable
Securities (as defined in the Registration Rights Agreement) otherwise cannot be
made thereunder, whether by reason of the Corporation's failure or inability to
amend or supplement the prospectus (the "PROSPECTUS") included therein in
accordance with the Registration Rights Agreement or otherwise, then, as the
election of Holder, the Pricing Period shall be comprised of (x) in the case of
an event described in clause (a), the 22 Trading Days preceding the date on
which such Registration Statement is required to become effective pursuant to
the terms of the Registration Rights Agreement plus all Trading Days through and
including the third Trading Day following the actual date of effectiveness of
the Registration Statement and (y) in the case of an event described in clause
(b), the 22 Trading Days preceding the date on which Holder is first notified
that sales may not be made under the Registration Statement. If Holder
determines that sales may not be made pursuant to the Registration Statement
(whether by reason of the Corporation's failure or inability to amend or
supplement the Prospectus or otherwise, it shall so notify the Corporation in
writing and, unless the Corporation provides such holder with a written opinion
of the Corporation's counsel to the contrary, such determination shall be
binding for purposes of this paragraph.
(6) NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment
----------------------
or readjustment of the Conversion Price pursuant to this Article II.C., the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of Holder, furnish to Holder a like certificate setting
forth (a) such adjustment or readjustment, (b) the Conversion Price at the time
in effect and (c) the number of shares of Common Stock and the amount, if any,
of other securities or property which at the time would be received upon
conversion of this Debenture.
D. MECHANICS OF CONVERSION. In order to convert this Debenture into
--------------------------
shares of Common Stock, Holder shall: (1) submit a copy of the fully executed
notice of conversion in the form attached hereto as Exhibit A ("NOTICE OF
CONVERSION") to the Corporation by facsimile dispatched prior to Midnight, New
York City time (the "CONVERSION NOTICE DEADLINE"), on the date specified therein
as the Conversion Date (as defined in Article II.D(5))(or by other means
resulting in, or reasonably expected to result in, written notice to the
Corporation on the date specified therein as the Conversion Date) to the office
of the Corporation, which notice shall specify the principal amount of this
Debenture to be converted, the applicable Conversion Price and a calculation of
the number of shares of Common Stock issuable upon such conversion; and (2)
subject to Article II.D(1) below, surrender this Debenture along with a copy of
the Notice of Conversion to the office of the Corporation as soon as practicable
thereafter. In the case of a dispute as to the calculation of the Conversion
Price, the corporation shall promptly issue that number of shares of Common
Stock as is not disputed in accordance with subparagraph (3) below. The
Corporation shall submit the disputed calculations to its outside accountant via
facsimile within two business days of receipt of the Notice of Conversion. The
accountant shall audit the calculations and notify the Corporation and Holder of
the results no later than 48 hours from the time it receives the disputed
calculations. The accountant's calculation shall be deemed conclusive absent
manifest error.
(1) Notwithstanding anything to the contrary set forth herein,
upon conversion of this Debenture in accordance with the terms hereof, Holder
shall not be required to physically surrender this Debenture to the Corporation
unless the entire unpaid principal amount of this Debenture is so converted.
Holder and the Corporation shall maintain records showing the principal amount
so converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to holder and the Corporation, so as not to require
physical surrender of this Debenture upon each such conversion. In the event of
any dispute or discrepancy, such records of the Corporation shall be controlling
and determinative in the absence of manifest error. Notwithstanding the
foregoing, it any portion of this Debenture is converted aforesaid, Holder may
not transfer this Debenture unless Holder first physically surrenders this
Debenture to the Corporation, whereupon the Corporation will forthwith issue and
deliver upon the order of Holder a new Debenture of like tenor, registered as
Holder may request, representing in the aggregate the remaining unpaid principal
amount of this Debenture. Holder and any assignee, by acceptance of this
Debenture, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Debenture, the unpaid and
unconverted principal amount of this Debenture may be less than the amount
stated on the fact hereof.
(2) LOST OR STOLEN DEBENTURES. Upon receipt by the Corporation of
--------------------------
evidence of the loss, theft, destruction or mutilation of this Debenture, and
(in the case of loss, theft or destruction) of indemnity reasonably satisfactory
to the Corporation, and upon surrender and cancellation of this Debenture, if
mutilated, the Corporation shall execute and deliver a new Debenture of like
tenor and date.
(3) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the submission
-----------------------------------------
of a Notice of Conversion, the Corporation shall, within two business days after
the Conversion Date (the "DELIVERY PERIOD"), issue and deliver (or cause its
Transfer Agent to so issue and deliver) in accordance with the terms hereof and
the Purchase Agreement (including, without limitation, in accordance with the
requirements of Section 2(g) of the Purchase Agreement) to or upon the order of
Holder that number of shares of Common Stock for the portion of this Debenture
converted as shall be determined in accordance herewith. In addition to any
other remedies available to Holder, including actual damages and/or equitable
relief, the Corporation shall pay to Holder $2,000 per day in cash for each day
beyond a two-day grace period following the Delivery Period that the Corporation
fails to deliver Common Stock (a "DELIVERY DEFAULT") issuable upon conversion of
this Debenture pursuant to the Notice of Conversion until such time as the
Corporation has delivered all such Common Stock (the "DELIVERY DEFAULT
PAYMENTS"); provided, however, in the event of a failure by the Corporation to
deliver shares upon conversion as a result of a Conversion Default (as defined
below), Holder shall not be entitled to receive Delivery Default Payments but
shall be entitled to receive Conversion Default Payments in accordance with
Article II.F Such Delivery Default Payments shall be paid to the Holder by the
fifth day of the month following the month in which they have accrued or, at the
option of Holder (by written notice to the Corporation by the first day of the
month following the month in which they have accrued), shall be convertible into
Common Stock in accordance with the terms of this Article II.
In lieu of delivering physical certificates representing the Common Stock
issuable upon conversion, provided the Corporation's Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon written request of Holder and its compliance
with the provisions contained in Article II.A and in this Article II.D, the
Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to Holder by
crediting the account of Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
(4) NO FRACTIONAL SHARES. If any conversion of this Debenture
-----------------------
would result in a fractional share of Common Stock or the right to acquire a
fractional share of common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion of this Debenture
shall be the next higher number of shares.
(5) CONVERSION DATE. The "CONVERSION DATE" shall be the date
-----------------
specified in the Notice of Conversion, provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, written notice) to the Corporation or its Transfer Agent before
Midnight, New York City time, on the date so specified, otherwise the Conversion
Date shall be the first business day after the date so specified on which the
Notice of Conversion is actually received by the Corporation or its Transfer
agent. The person or persons entitled to receive the shares of Common Stock
issuable upon conversion shall be treated for all purposes as the record holder
or holders of such securities as of the Conversion Date and all rights with
respect to this Debenture (or portion thereof) surrendered shall forthwith
terminate except the rights set forth in Article V.J.
E. INVESTMENT OPTIONS. On any Conversion Date relating to a conversion
-------------------
of this Debenture by Holder, the Holder shall have the option 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 (the option to purchase such additional shares shall be
referred to herein as the "INVESTMENT OPTIONS"). Holder (i) shall indicate on
the Notice of Conversion in respect of such Conversion Date that it is
exercising its Investment Option with respect to such conversion and shall
specify the number of shares of Common Stock with respect to which the
Investment Option is being so exercised, and (ii) shall pay to the Corporation,
in immediately available funds, on or within one business day following the
Conversion Date, the aggregate purchase price for the shares of Common Stock
issuable as a result of the exercise of such Investment Options. The provisions
of paragraphs A, D(3) and F of this Article II shall apply to any exercise by
the Holder of the Investment Options.
F. RESERVATION OF SHARES. A number of shares of the authorized but
------------------------
unissued Common Stock sufficient to provide for the conversion in full of the
Debentures outstanding (based on the lesser of the Variable Conversion Price in
effect from time to time and the Fixed Conversion Price) and the exercise in
full of the Investment Options shall at all times be reserved by the
Corporation, free from preemptive rights, for such conversion or exercise. As
of the Issue Date, 1,683,500 authorized and unissued shares of Common Stock have
been duly reserved for issuance upon conversion of the Debentures and upon
exercise of the Investment Options (the "RESERVED AMOUNT"). The Reserved Amount
shall be increased from time to time in accordance with the Corporation's
obligations pursuant to Section 4(h) of the Purchase Agreement. In addition, if
the Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which the
Debentures shall be convertible an for which the Investment Options shall be
exercisable, the Corporation shall at the same time also make proper provision
so that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
Debentures and exercise of the Investment Options.
If at any time Holder submits a Notice of Conversion, and the corporation
does not have sufficient authorized but unissued shares of Common Stock duly
reserved and available for issuance to effect such conversion in accordance with
the provisions of this Article II (a "CONVERSION DEFAULT"), subject to Article
V.K., the Corporation shall issue to Holder all of the shares of Common Stock
which are available to effect such conversion. The portion of the principal
amount of this Debenture included in the Notice of Conversion which exceeds the
amount which is then convertible into available shares of Common Stock (the
"EXCESS AMOUNT") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms hereof
until (and at Holder's option at any time after) the date additional shares of
Common Stock are authorized and duly reserved by the Corporation to permit such
conversion, at which time the Conversion Price in respect thereof shall be the
lesser of (i) the Conversion Price on the Conversion Default Date (as defined
below) and (ii) the Conversion Price on the Conversion Date elected by Holder in
respect thereof. The Corporation shall use its best efforts to effect an
increase in the authorized number of shares of Common Stock as soon as possible
following the earlier of (x) such time that Holder notifies the Corporation or
that the Corporation otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to all full conversion hereof and
(y) a conversion Default. In addition, the Corporation shall pay to Holder
payments ("CONVERSION DEFAULT PAYMENTS") for a Conversion Default in the amount
of (a) .24, multiplied by (b) the Conversion Default Amount (as defined below),
multiplied by (c)(N/365), where N=the number of days from the day Holder submits
a Notice of Conversion giving rise to a Conversion Default (the "CONVERSION
DEFAULT DATE") to the date (the "AUTHORIZATION DATE") that the Corporation
authorizes a sufficient number of shares of Common Stock to effect conversion of
the Debentures. "CONVERSION DEFAULT AMOUNT" means the then outstanding
principal amount of all Debentures held by Holder plus the aggregate accrued
interest thereon as of the first day of the Conversion Default. The Corporation
shall send notice to Holder of the authorization of additional shares of Common
Stock, the Authorization Date and the amount of Holder's accrued Conversion
Default Payments. The accrued Conversion Default Payment for each calendar
month shall be paid in case or shall be convertible into Common Stock at the
applicable Conversion Price, at the Corporation's option, as follows:
(1) In the event Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth day of the month following the
month in which it has accrued.
(2) In the event the Holder elects to take such payment in Common
Stock, Holder may convert such payment and amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after the
fifth day of the month following the month in which it has accrued in accordance
with the terms of this Article II (so long as there is then a sufficient number
of authorized shares of Common Stock).
Holder's election shall be made in writing to the Corporation at any time
prior to 9:00 p.m., New York City time, on the third day of the month following
the month in which Conversion Default payments have accrued. If no election is
made, Holder shall be deemed to have elected to receive cash. Nothing herein
shall limit Holder's right to pursue actual damages (to the extend in excess of
the Conversion Default Payments) for the Corporation's failure to maintain a
sufficient number of authorized shares of Common Stock, and Holder shall have
the right to pursue all remedies available at law or in equity (including a
decree of specific performance and/or injunctive relief).
G. NOTICE OF CONVERSION PRICE ADJUSTMENTS. Upon the occurrence of each
---------------------------------------
adjustment or readjustment of the Conversion Price pursuant to this Article II,
the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
Holder a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of Holder, furnish or
cause to be furnished to Holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in effect and
(iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of
this Debenture.
III. CERTAIN COVENANTS
A. DISTRIBUTIONS ON CAPITAL STOCK. So long as at least ten percent
----------------------------------
(10%) of the original principal amount of the Debentures issued pursuant to the
Purchase Agreement remains outstanding, the Corporation shall not, without the
written consent of the holders of a majority of the then outstanding principal
amount of the Debentures, (a) pay, declare or set apart for such payment, any
dividend or other distribution (whether in cash, property or other securities)
on shares of capital stock or (b) directly or indirectly through any subsidiary
make any other payment or distribution in respect to its capital stock.
B. RESTRICTION ON STOCK REPURCHASES. So long as at least ten percent
-----------------------------------
(10%) of the original principal amount of the Debentures issued pursuant to the
Purchase Agreement remains outstanding, the Corporation shall not, without the
written consent of the holders of a majority of the then outstanding principal
amount of the Debentures, redeem, repurchase or otherwise acquire (whether for
cash or in exchange for property or other securities or otherwise) in any one
transaction or series of related transactions any shares of capital stock of the
Corporation or any warrants, rights or options to purchase or acquire any such
shares; provided, however, that the Company may repurchase shares of capital
stock from former employees of the Company pursuant to repurchase rights
included in a restricted stock purchase plan for such employees so long as (i)
such plan was approved by a majority of the independent directors of the Board
of Directors of the Company, (ii) such shares were purchased pursuant to such
plan, (iii) the purchase price paid by the employee to acquire the shares was at
least equal to the market value of such shares on the date of such purchase, and
(iv) the Company repurchases such shares for no more than the purchase price
paid by such employee.
C. BORROWINGS. So long as at least ten percent (10%) of the original
-----------
principal amount of the Debentures issued pursuant to the Purchase Agreement
remains outstanding, the Corporation shall not, without the written consent of
the holders of a majority of the then outstanding principal amount of the
Debentures, create, incur, assume or suffer to exist any liability for borrowed
money, except (a) borrowings in existence or committed on the date hereof and of
which the Corporation has informed Holder in writing prior to the date hereof,
(b) indebtedness to trade creditors incurred in the ordinary course of business,
(c) borrowings, the proceeds of which shall be sued to repay this Debenture.
D. SALE OF ASSETS. So long as at least ten percent (10%) of the original
-----------------
principal amount of the Debentures issued pursuant to the Purchase Agreement
remains outstanding, the Corporation shall not, without the written consent of
the holders of a majority of the then outstanding principal amount of the
Debentures, sell, lease or otherwise dispose of any of its assets outside the
ordinary course of business. Any consent to the disposition of any assets may
be conditioned on a specified use of the proceeds of disposition.
E. ADVANCE AND LOANS. So long as at least ten percent (10%) of the
--------------------
original principal amount of the Debentures issued pursuant to the Purchase
Agreement remains outstanding, the Corporation shall not, without the written
consent of the holders of a majority of the then outstanding principal amount of
the Debentures, lend money, give credit or make advances to any person, firm,
joint venture or corporation, including, without limitation, officers,
directors, employees, subsidiaries and affiliates of the Corporation, except
loans, credits or advances (a) in existence or committed on the date hereof and
which the Corporation has informed Holder in writing prior to the date hereof,
and (b) made in the ordinary course of business.
F. CONTINGENT LIABILITIES. So long as at least ten percent (10%) of
------------------------
the original principal amount of the Debentures issued pursuant to the Purchase
Agreement remains outstanding, the Corporation shall not, without the written
consent of the holders of a majority of the then outstanding principal amount of
the Debentures, assume, guarantee, endorsed, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumptions, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Corporation has informed Holder in writing prior to the date
hereof, and (b) similar transactions in the ordinary course of business.
IV. AUTOMATIC CONVERSION
Subject to the limitations on conversion set forth in Article II.A.(2), so long
as (i) all of the shares of Common Stock issuable upon conversion of or
otherwise pursuant to all of the then outstanding Debentures are then (x)
authorized and reserved for issuance, (y) registered for re-sale under the
Securities Act by the holders of the Debentures (or may otherwise be able to be
resold publicly without restriction) and (z) eligible to be traded on the OTC
BB, the NNM, the NYSE or the AMEX and (ii) there is not then a continuing
Mandatory Redemption Event or trading Market Redemption Event, the entire
principal amount of the Debentures then outstanding (together with any accrued
and unpaid interest thereon, Conversion Default Payments, Delivery Default
Payments and all other amounts due and payable by the Corporation pursuant to
Section 2(c) of the Registration Rights Agreement) on the Automatic Conversion
Date, automatically shall be converted into shares of Common Stock on such date
at the then effective Conversion Price in accordance with, and subject to, the
provisions of Article II hereof (the "AUTOMATIC CONVERSION"). The Automatic
Conversion Date shall be delayed by one Trading day for each Trading Day
occurring prior thereto and prior to the full conversion of the Debentures that
(i) any Registration Statement required to be filed and to be effective pursuant
to the Registration Rights Agreement is not effective or sales of all of the
Registrable Securities otherwise cannot be made thereunder during the
Registration Period (whether by reason of the Corporation's failure to properly
supplement or amend the prospectus included therein in accordance with the terms
of the Registration Rights Agreement or otherwise), (ii) any Mandatory
Redemption Event or Trading Market Redemption Event exists, without regard to
whether any cure periods shall have run or (iii) the Corporation is in breach of
any of its obligations pursuant to Section 4(h) of the Purchase Agreement. The
Automatic Conversion Date shall be the Conversion Date for purposes of
determining the Conversion Price and the time within which certificates
representing the Common Stock must be delivered to the holder.
V. MISCELLANEOUS
A. FAILURE OF INDULGENCE NOT WAIVER. No failure or delay on the part
-----------------------------------
of Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or any
other right, power or privilege.
B. NOTICES. Any notices required or permitted to be given under the
--------
terms of this Debenture shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, and shall be effective five days
after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier or by facsimile, in each case
addressed to a party. The addresses for such communications shall be:
If to the Corporation:
Nettaxi, Inc.
2165 S. Bascom Avenue
Campbell, California 95008
Attention: Chairman and Chief Executive Officer
Facsimile: (408)879-9907
If no Holder, to the address set forth immediately below Holder's name on
the signature pages to the Purchase Agreement or such other address as is
communicated to the Corporation by notice by Holder in accordance with the terms
hereof.
C. AMENDMENT PROVISION. The Debentures may be amended only by an
---------------------
instrument in writing signed by the Corporation and the holders of a majority of
the then outstanding principal amount of the Debentures.
D. ASSIGNABILITY. This Debenture shall be binding upon the Corporation
--------------
and its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. In the event Holder shall sell or otherwise transfer
any portion of the debenture, each transferee shall be allocated a pro rata
portion of such transferor's Maximum Share Amount and Reserved Amount. Any
portion of the Maximum Share Amount or Reserved Amount which remains allocated
to any person or entity which does not hold any Debentures shall be allocated to
the remaining holders of Debentures, pro rata based on the total principal
amount of Debentures then held by such holders.
E. COST OF COLLECTION. If default is made in the payment of this
---------------------
Debenture, the Corporation shall pay Holder costs of collection, including
reasonable attorney's fees.
F. GOVERNING LAW. This Debenture shall be governed by and construed in
--------------
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in the State of Delaware (without regard to principles of
conflict of laws). The Corporation and Holder irrevocably consent to the
jurisdiction of the United States federal courts and state courts located in
Delaware in any suite or proceeding based on or arising under this Debenture,
the agreements entered into in connection herewith or the transactions
contemplated hereby or thereby and irrevocably agree that all claims in respect
of such suit or proceeding may be determined in such courts. The Corporation
and Holder irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Corporation and Holder further
agree that service of process upon a party mailed by first class mail shall be
deemed in every respect effective service of process upon the party in any such
suit or proceeding. Nothing herein shall affect Holder's right to serve process
in any other manner permitted by law. The Corporation and Holder's right to
serve process in any other manner permitted by law. The Corporation and Holder
agree that a final non-appealable judgment in any such suit or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
G. DENOMINATIONS. At the request of the Holder, upon surrender of this
--------------
Debenture, the Corporation shall promptly issue new Debentures in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $25,000 as Holder shall request.
H. STATEMENTS OF AVAILABLE SHARES. The Corporation shall deliver (or
---------------------------------
cause its transfer agent to deliver) to Holder a written report notifying Holder
of any occurrence which prohibits the Corporation from issuing Common Stock upon
any conversion of Debentures. The Corporation (or its transfer agent) shall
provide, within 15 days after delivery to the Corporation of a written request
by Holder, any of the following information as of the date of such request: (i)
the total outstanding principal amount of all Debentures, (ii) the total number
of shares of Common Stock issued upon all conversions of all Debentures and upon
exercise of Investment Options prior to such date, (iii) the total number of
shares of Common Stock which are reserved for issuance upon conversion of the
Debentures which are then outstanding and upon exercise of Investment Options,
and (iv) the total number of shares of Common Stock which may thereafter be
issued by the Corporation upon conversion of the Debentures and upon exercise of
Investment Options before the Corporation would exceed the maximum Share Amount
and the Reserved Amount.
I. PAYMENT OF CASH: DEFAULTS. Whenever the Corporation is required to
---------------------------
make any cash payment to Holder under this Debenture (as a Conversion Default
Payment or otherwise but not including payments of principal and interest
hereunder), such cash payment shall be made to Holder within five Trading Days
after delivery by Holder of a notice specifying that Holder elects to receive
such payment in cash and the method (e.g., by check, wire transfer) in which
such payment should be made and appropriate delivery instructions, including any
necessary wire transfer instructions. If such payment is not delivered within
such five-Trading Day period, Holder shall thereafter be entitled to interest on
the unpaid amount at a per annum rate equal to the lower of 24% and the highest
rate permitted by applicable law until such amount is paid in full to Holder.
J. STATUS AS DEBENTUREHOLDER. Upon submission of a Notice of
----------------------------
Conversion by Holder, the principal amount of this Debenture and the interest
thereon covered thereby (other than any portion of the Debenture, if any, which
cannot be converted because the conversion thereof would exceed such holder's
allocated portion of the Maximum Share Amount or Reserved Amount) shall be
deemed converted into shares of Common Stock as of the Conversion Date and
Holder's rights as a holder of this Debenture shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such holder because of a failure by the Corporation to comply with the terms
of this Debenture. Notwithstanding the foregoing, if Holder has not received
certificates for all shares of Common Stock prior to the tenth business day
after the expiration of the Delivery Period with respect to a conversion for any
reason, then (unless Holder otherwise elects to retain its status as a holder of
Common Stock by so notifying the Corporation) the portion of the principal
amount and interest thereon subject to such conversion shall be deemed
outstanding under this Debenture and the Corporation shall, as soon as
practicable, return this Debenture to Holder.
In all cases, Holder shall retain all of its rights and remedies
(including, without limitation, (i) the right to receive Conversion Default
Payments pursuant to Article II.F to the extend required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent conversions determined in
accordance with Article II.F) for the Corporation's failure to convert this
Debenture.
K. PRO RATA ALLOCATIONS. The Maximum Share Amount and the Reserved
-----------------------
Amount (including any increases thereto) shall be allocated by the Corporation
pro rata among the holders of the Debentures based on the total principal amount
of Debentures originally issued to each holder. Each increase to the Maximum
Share Amount and the Reserved Amount shall be allocated pro rata among the
holders of the Debentures based on the total principal amount of Debentures held
by each holder at the time of the increase in the Maximum Share Amount or
Reserved Amount. In the event a holder shall sell or otherwise transfer any of
such holder's shares of the Debentures, each transferee shall be allocated a pro
rata portion of such transferor's Maximum Share Amount and Reserved Amount. Any
portion of the Maximum Share Amount or Reserved Amount which remains allocated
to any person or entity which does not hold any Debentures shall be allocated to
the remaining holders of shares of the Debentures, pro rata based on the total
principal amount of Debentures held by such holders.
L. REMEDIES CUMULATIVE. The remedies provided in this Debenture shall
---------------------
be cumulative and in addition to all other remedies available under this
Debenture, at law or in equity (including a decree of specific performance
and/or other injunctive relief), no remedy contained herein shall be deemed a
waiver of compliance giving rise to such remedy and nothing herein shall limit
Holder's right to pursue actual damages for any failure by the Corporation to
comply with the terms of this Debenture. The Corporation therefore agrees, in
the event of any such breach or threatened breach, Holder shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed in its
name by its duly authorized officer as of the date first above written.
NETTAXI, INC.
By:_____________________________
Robert A. Rositano, Jr.
Chairman and Chief Executive Officer
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to convert the Debentures)
The undersigned hereby irrevocably elects to convert $_______ principal
amount of the Debenture (defined below) into shares of common stock, par value
$0.001 per share ("COMMON STOCK"), of Nettaxi, Inc., a Nevada corporation (the
"CORPORATION") according to the conditions of the convertible debentures of the
Corporation dated as of March ____, 1999 (the "DEBENTURES"), as of the date
written below. If securities are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates. No fee will be
charged to the Holder for any conversion, except for transfer taxes, if any. A
copy of each Debenture is attached hereto (or evidence of loss, theft or
destruction thereof).
The undersigned hereby irrevocably elects to exercise its Investment Option
to purchase ____________ shares of Common Stock of the Corporation (up to the
number of shares of Common Stock issuable pursuant to the conversion of the
Debenture) at the Applicable Conversion Price set forth below and shall make
payment of $________________ for such shares by wire transfer of such amount to
the Corporation simultaneously upon transfer of the shares of Common Stock by
the Corporation.
The Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
TRANSFER").
Name of DTC Prime Broker:___________________________
Account number:_____________________________________
In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby requests
that the Corporation issue a certificate or certificates for the number of
shares of Common Stock set forth below (which numbers are based on the Holder's
calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:
Name:________________________________________________
Address:_____________________________________________
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Debentures and exercise of the Investment Options shall be made pursuant to
registration of the securities under the Securities Act of 1933, as amended (the
"ACT"), or pursuant to an exemption from registration under the Act.
Date of Conversion:___________________________________
Market Price Days:____________________________________
Applicable Conversion Price:__________________________
Number of Shares of Common Stock to be Issued
Pursuant to (i) Conversion of the Debentures:_________
(ii) exercise of Investment Options:__________________
Signature:____________________________________________
Name:________________________________________
Address:_____________________________________
AGREED AND ACKNOWLEDGED:
NETTAXI, INC.
By:__________________________________________
Name and Title:______________________________
*Subject to Article II.D of the Debenture(s), the Corporation is not required to
issue shares of Common Stock until the original Debenture(s) (or evidence of
loss, theft or destruction thereof) to be converted are received by the
Corporation or its Transfer Agent and, in the case of shares issuable upon
exercise of Investment Options, it has received payment for such shares. The
corporation shall issue and deliver shares of Common Stock to an overnight
courier not later than three business days following receipt of the original
Debenture(s) to be converted, and shall make payments pursuant to the Debentures
for the number of business days such issuance and delivery is late.
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
This Asset Purchase and Sale Agreement ("Agreement") is made and entered
into as of October 1, 1997, by and between NeTTaxi Online Communities, Inc., a
Delaware corporation ("Buyer"), and SSN Properties, LLC, a California Limited
Company ("Seller").
RECITALS
WHEREAS, Seller acquired all right, title and interest in and to the
Software and Domain Names (ass such terms are defined below), from Simply
Interactive, Inc., a California corporation ("SII"), pursuant to the default
provisions contained in that certain security agreement entered into by and
between SII and Seller, and,
WHEREAS, Seller owns all right, title and interest in and to the F.F.&E.
(as such term is defined below); and,
WHEREAS, Seller desires to forever sell, assign, grant, convey and transfer
to Buyer, and Buyer desires to acquired from Seller, all right, title and
interest in, to and under the Software, the Domain Names, and the F.F.&E., under
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereafter set forth, and
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Definitions. For the purposes of this Agreement, the following terms
-----------
shall have the following meanings:
1.1 "Affiliates" means any past, present or future subsidiaries,
------------
officers, directors, control persons, employees, shareholders, agents,
representatives, attorneys, heirs, successors, beneficiaries, assign, executors,
administrators or any other affiliated individual, corporation, limited
liability company, association, partnership, joint venture, trust or other
entity or organization.
1.2 "Assets" means the Software, the Domain names, the F.F.&E., and all
--------
other similar assets owned by the Seller as of the date hereof, or acquired by
the Seller prior to the Closing Date.
1.3 "Bill of Sale" means the Bill of Sale, to be duly executed and
----------------
delivered by Seller in accordance with this Agreement, conveying to the Buyer
all of the Seller's right, title and interest in and to the F.F.&E. The Bill of
Sale shall be substantially in the form of, and upon the terms contained in,
Exhibit "A", attached hereto and incorporated herein by this reference.
1.4 "Closing" means the closing of the purchase and sale of the Assets
---------
in accordance with the terms of this Agreement on the Closing Date.
1.5 "Closing Date" means the date which is five (5) business days after
--------------
all of the following have occurred: (i) the date that all conditions hereunder
have been satisfied or waived in accordance with this Agreement; (ii) the date
that all applicable periods have run under applicable Bulk Sales Notice laws;
(iii) the date that Seller delivers the Tax Clearance Certificates to the Escrow
Holder, if required; provided, however, the Closing Date shall occur within
thirty (30) calendar days from the execution hereof.
1.6 "Convertible Secured Promissory Note" means the Convertible
----------------------------------------
Secured Promissory Note in favor of Seller, to be duly executed and delivered by
Buyer in accordance with this Agreement, in the principal amount of One Million
Twenty Thousand Dollars (US$1,020,000). The Convertible Secured Promissory Note
shall be substantially in the form of, and upon the terms contained in, Exhibit
"D", attached hereto and incorporated herein by this reference.
1.7 "Domain Names" means the proprietary right to the following names,
---------------
and the Goodwill therein, corresponding to numeric addresses on the WWW,
registered in the name of the Seller with the Network Information Center
(Internic): (i) "simply.com"; (ii) "internetthecity.com"; (iii) "netronew.com";
(iv) "netaxi.com"; (v) "netric.com".
1.8 "Inventory" means the written inventory of the F.F.& E. Prepared
-----------
and approved by the Buyer and Seller, attached hereto as Exhibit "B", and
incorporated herein by this reference.
1.9 "Escrow" means that certain escrow established hereunder with
--------
Escrow Holder for the purpose of completing the purchase and sale of the Assets
in accordance with the terms and conditions contained herein and pursuant to the
applicable provisions of the California Commercial Code and the California
---------------------------- ----------
Business and Professions Code. Any and all fees, costs and expenses associated
--------------------------
with the Escrow shall be borne equally between the parties.
1.10 "Escrow Instructions" means the escrow instructions to be prepared
---------------------
by Escrow Holder and duly executed by Buyer and Seller. The Escrow instructions
shall be consistent with the terms and conditions contained herein. In the
event of any inconsistency between the Escrow instructions and this Agreement,
this Agreement shall prevail.
1.11 "Escrow Holder" means a licensed escrow company to be approved by
----------------
both parties.
1.12 "F.F.&E"means all the Seller's right, title and interest in and to
--------
any and all furniture, fixtures and equipment owned or leased by the Seller, as
set forth in the Inventory.
1.13 "Goodwill" means the Seller's right, title and interest in and to
----------
the goodwill of the Software and the Domain Names, including, without
limitation, any and all tradenames, servicemarks, trademarks, logs, copyrights
and all other rights of intellectual property, whether or not claimed or
asserted by Seller, and the use, application and exclusive right to exploit such
rights of intellectual property, and all other similar assets, owned by the
Seller as of the date hereof, or acquired by the Seller prior to the Closing
Date.
1.14 "Internet The City"means that certain proprietary software program
-------------------
owned by the Seller, in source code and object code form, which functions as a
connected CD ROM allowing access to, and tutorials on the use of, key internet
components (including e-mail, FTP, Usenet, Gopher, Telnet, IRC and the WWW)
through internet The City Online, incorporating live action characters, 3-D
animation and digital movies, the functional specifications of which are set
forth in Exhibit "C", attached hereto and incorporated herein by this reference.
1.15 "Internet The City Online" means that certain proprietary software
--------------------------
program owned by the Seller, in source code and object code form, which
functions to establish and maintain the on-line "community" which is accessible
through the domain name "nettaxi.com" and launched through Internet The City,
the functional specifications of which are set forth in Exhibit "C".
1.16 "Liabilities" means any and all of Seller's past, present and
-------------
future debts, obligations, claims, demands, liens, costs, expenses, penalties,
judgments, damages, accounts payable, agreements, arrangements, understandings
and all other encumbrances whatsoever, whether absolute, accrued, fixed,
contingent, known, unknown, matured or unmatured.
1.17 "Purchase Price" means the cash amount of One Million Twenty
-----------------
Thousand Dollars (US$1,020,000) payable pursuant to the terms and conditions of
the Convertible Secured Promissory Note; and Nine Hundred Eighty Thousand
(980,000) shares in Buyer, delivered to Seller on the Closing Date.
1.18 "Security Agreement" means the Security Agreement in favor of
---------------------
Seller, to be duly executed and delivered by Buyer in accordance with this
Agreement, securing the obligations of Buyer under the Convertible Secured
Promissory Note by the recording of first priority UCC-1 Financing Statement in
the State of California in favor of Seller. The Security Agreement shall be
substantially in the form of, and upon the terms contained in, Exhibit "E",
attached hereto and incorporated herein by this reference.
1.19 "Software" means, collectively, the full retail version of
----------
Internet The City, Internet The City Online and Web Activator, including any and
all improvements, corrections, modifications, updates, enhancements or other
changes thereto, whether or not included in the current retail version, plus all
System Documentation, User Documentation and Goodwill related thereto.
1.20 "System Documentation" means all documentation used in the
-----------------------
development and updating of the Software, including, without limitation, design
or development specifications, error reports and related correspondence and
memoranda.
1.21 "Software Trade Secrets" means any scientific or technical
--------------------------
information, design, process, procedure, formula, or improvement included in the
Software that is valuable, not generally known in the industry, and gives the
owner of the Software a competitive advantage over those competitors who do not
know or use such information.
1.22 "Tax Clearance Certificates" means tax clearance certificates
------------------------------
issued by The State Board of Equalization and the Employment Development
Department certifying that all sales and use taxes and employment taxes,
respectively, resulting to the operation of Seller's business activities through
the Closing Date, have been properly withheld and paid over to such governmental
agencies in accordance with applicable laws.
1.23 "User Documentation" means the end-user instruction manual that
---------------------
usually accompanies the Software instructing end users in the use of the
Software in both printed and electronic form.
1.24 "Web Activator" means that certain proprietary software program
----------------
owned by the Seller, in source code and object code form, which functions as the
system server software, providing the architecture, behind Internet The City
Online, the functional specifications of which are set forth in Exhibit "C".
1.25 "WWW" means the World Wide Web.
-----
2. Purchase and Sale; Closing.
-----------------------------
2.1 Conveyance of Assets. On the Closing Date and subject to the terms
--------------------
and conditions as set forth in this Agreement, Seller shall forever sell,
assign, grant, convey and transfer to the Buyer, free and clear of any and all
Liabilities, and the Buyer shall purchase and acquire from the Seller, all of
the exclusive right, title and interest in, to and under all of the Assets,
including, without limitation, the following corporeal and incorporeal incidents
to the Software:
(a) Title to and possession of the media, devices, and
documentation that constitute all copies of the Software, its component parts,
and all documentation relating thereto, possessed or controlled by Seller, which
are to be delivered to Buyer pursuant to Section 3 of this Agreement;
(b) All Goodwill therein, including, without limitation, all
copyright interests, trademarks and any other intellectual property interests
owned or claimed by Seller in the Software, including, without limitation, the
U.S. Copyright Registrations together with all other copyright interests
accruing by reason of international copyright laws or conventions, as set forth
on the schedule attached as Exhibit "F", attached hereto and incorporated herein
by this reference;
(c) All right, title, and interest of Seller in and to the
Software Trade Secrets and any and all inventions, discoveries, improvements,
ideas, trade secrets, know-how, confidential information, and all other
intellectual property owned or claimed by Seller in the Software;
(d) The exclusive right to exploit the Software in any and all
media now in existence and hereafter devised; and
(e) All right, title, interest and benefit of Seller in, to, and
under all agreements, contracts and licenses, entered into by Seller, or having
Seller as a beneficiary, and pertaining to the Software, as set forth on the
schedule attached as Exhibit "H".
2.2 Possession. Simultaneously with the Closing, Seller shall deliver
----------
possession and enjoyment of the Assets to Buyer and Buyer shall thereupon have
the immediate right to possess, develop, use, sell, encumber and/or transfer the
Assets, or any part thereof for its own account to the total exclusion of
Seller, subject to the requirements of the Security Agreement.
2.3 Closing Date. The Closing Date for the consummation of the
-------------
transaction contemplated by this Agreement shall be established by the Escrow
Holder in accordance with applicable Bulk Sales laws and the terms and
conditions contained herein. Such Closing shall take place at the office of the
Escrow Holder, or such other place as mutually agreeable between the parties, at
a time to be designated between the parties.
3. Deliveries at Closing.
-----------------------
3.1 Deliveries by Seller. At the Closing, Seller shall deliver into
----------------------
Escrow the following:
(a) The original Bill of Sale duly executed by Seller; and
(b) Possession of the F.F.&E.; and
(c) Possession of the physical objects relating to the Software,
including (i) Seller's entire inventory of copies of the Software in object code
form; (ii) a master copy of the software (in both source and object code format)
which shall be in a form suitable for copying; and (iii) all System
Documentation and User Documentation pertaining to the Software; and
(d) Possession of the documents evidencing the chain of title in
the software; and
(e) Possession of the documents evidencing the registration
transfer of the Domain Names; and
(f) Such resolutions, authorizations, certificates of good
standing and/o other corporate documents relating to Seller as are reasonably
required by Buyer in connection with the transactions contemplated under this
Agreement.
3.2 Deliveries by Buyer. At the Closing, Buyer shall deliver into
---------------------
Escrow the following original documents, duly executed by the Buyer.
(a) Such resolutions, authorizations, certificates of good
standing and/or other corporate documents relating to Buyer as are reasonably
required by Seller in connection with the transactions contemplated under this
Agreement; and
(b) The Stock (as such term is defined below); and
(c) The Convertible Secured Promissory Note; and
(d) The Security Agreement; and
(e) Minutes of the special Meeting of Shareholders electing one
member to the Board of Directors of the Company nominated by the Seller.
3.3 Deliveries by Buyer and Seller. Buyer and Seller will each deposit
------------------------------
such other instruments consistent with this Agreement as are reasonably required
to effectuate the transactions contemplated under this Agreement.
4. Payment of Purchase Price.
----------------------------
4.1 Purchase Price. Buyer agrees to pay Seller the total purchase
---------------
price, consisting of:
(a) Nine Hundred Eighty Thousand (980,000) shares of Common Stock
of Buyer, authorized and issued by Buyer and evidenced by a stock certificate
("Stock"), delivered to Seller on the Closing Date; and
(b) A Convertible Secured Promissory Note in the amount of One
Million Twenty Thousand Dollars (US$1,020,000) ("Principal Amount"), delivered
to Seller on the Closing Date, under the following terms and conditions:
(i) no payment of principal or interest shall be due or
payable by Buyer on the Convertible Secured Promissory Note, but shall accrue
from the execution date of this Agreement;
(ii) thereafter, twenty (20) installments of Fifty-One
Thousand Dollars (US$51,000) each, plus interest accrued on the Principal Amount
from the date of execution at a rate of ten percent (10% per annum (such
interest to be paid commencing one (1) year following the execution date of
this Agreement) payable within fifteen (15) calendar days following the end of
each fiscal quarter of Buyer, it being recognized that Buyer's fiscal quarters
end on the final day of March, June, September and December of each year,
(iii) throughout the term of the Convertible Secured
Promissory Note, the Seller shall have the right, but not the obligation, to
convert up to fifty percent (50%) of the Principal Amount owing at the time of
such conversion, into Common Stock of the Buyer, valued at One Dollar ($1) per
share, to be exercised at Seller's exclusive discretion;
(1) such conversion shall be exercisable by delivery of
written notice from the Seller to the Buyer no less than thirty (30) calendar
days prior to any Payment Date (as such term is defined in the Convertible
Secured Promissory Note), which notice shall specify the amount of the Principal
Amount to be so converted (such conversion amount shall apply against the most
recent installment Payments in the Payment Schedule, as such terms are defined
in the Convertible Secured Promissory Note), until expended, and the Payment
Schedule (as such term is defined in the Convertible Secured Promissory Note)
shall be offset and adjusted accordingly (for example, if the Seller elects to
convert $100,000 of the Principal Amount to 100,000 shares of Common Stock in
the Buyer, and gives notice as required above, then the next two (2) Installment
Payments required under the Payment Schedule shall be offset by such amount, and
only the balance shall be payable on such second (2nd) Payment Date following
the conversion);
(2) in no event may the Seller or its Affiliates, by
such conversion, be or become the owner of record, or beneficial owner, of more
than a total of forty-nine percent (49%) of the issued and outstanding Common
Stock in Buyer, it being recognized that the Seller is acquiring the Stock under
the terms hereof;
(3) in the event of any conversion, all of the shares
issued shall be subject to the same restrictions on sale as shall be required of
the principal shareholders of the Company by any underwriter committed to effect
a public offering of the common stock of the Company;
(iv) the Convertible Secured Promissory Note shall be secured
pursuant to the terms and conditions of the Security Agreement;
(v) all payments required under the Convertible Secured
Promissory Note shall be made to the Seller, in the form of a check drawn on the
back account of the Buyer, and delivered to the address as specified below.
4.2. Appraisal. The Purchase Price for the Assets is partially based
---------
upon the fair market value of the Software pursuant to the written appraisal of
the fair market value of the Software, prepared by Oppenheim & Ostrick,
C.P.A.'s, a copy of which is attached hereto as Exhibit "G", and incorporated
herein by this reference ("Appraisal"). The Appraisal is hereby approved by
Buyer and Seller,
4.3. Taxes. The amount payable to Seller by Buyer under this Section 4
-----
is inclusive of any national, state or local sales, use, value-added or other
taxes, customs duties, or similar tariffs and fees which Seller may be required
to pay or collect upon the delivery of the Assets.
5. Representations and Warranties.
--------------------------------
5.1. Seller's Representations and Warranties. Seller hereby represents
---------------------------------------
and warrants to Buyer that:
(a) to the best knowledge and belief the Buyer shall receive,
pursuant to this Agreement as of the Closing Date, complete and exclusive right,
title, and interest in and to the F.F.&E. And all tangible and intangible
property rights existing in the Software and Domain Names, free and clear of any
and all Liabilities, including, without limitation, any claims asserted by SII,
Shareholders or its Affiliates, except for those interests of third parties
pursuant to existing agreements as set forth in Section 6 of this Agreement;
(b) the Seller has acquired, through a proceeding under Article 9
of the Uniform Commercial Code of the State of California, the property listed
in Exhibit B hereof from SII. The Seller has not conducted any investigation of
the property and can only warrant that to the best of its knowledge and belief,
the proceeding under Article 9 was properly held and Seller has acquired
whatever interest SII held in the property described in Exhibit B hereof.
Subject to the limitations of the above, Seller hereby represents
and warrants to the best of Seller's knowledge and belief that Buyer shall
receive pursuant to this Agreement as of the Closing Date, all of Seller's
right, title and interest in and to the F.F.&E. And all of Seller's tangible and
intangible property rights existing in the software and Domain Names.
(c) to the best knowledge and belief of Seller, all personnel,
including employees, agents, consultants, and contractors, who have contributed
to, or participated in, the conception and development of the software either
(1) have been party to a formal, written, work-for-hire agreement with the
developer of the Software that has accorded the developer of the Software full,
effective, and exclusive original ownership of all tangible and intangible
property arising with respect to the Software, notwithstanding the contribution
of any such third parties, or (2) have executed appropriate instruments of
assignment in favor of the developer of the Software as assignee that have
conveyed to the developer of the Software full, effective, and exclusive
ownership of all tangible and intangible property thereby arising with respect
to the Software, notwithstanding the contribution of any such third parties;
(d) except as identified in the schedules set forth in Exhibit
"H", attached hereto and incorporated herein by this reference, Seller has made
no agreements or arrangements in effect with respect to the marketing,
distribution, licensing, or promotion of the Software by any independent
salesperson, distributor, sublicensor, or other remarketer or sales
organization.
(e) Seller, as a shareholder in Buyer, shall be subject to the
terms and
conditions applicable to the shareholders of the Buyer, pursuant to its Articles
of Incorporation, By- Laws, Shareholder Agreement, or any other such
instruments, now promulgated, or as may be promulgated in the future, relating
to the ownership of such equity interests in Buyer.
(f) Seller is duly organized, validly existing and in good
standing
under the laws of the State of California and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted or contemplated. Seller has all requisite power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transaction contemplated hereby.
(g) The execution, delivery and performance by Seller, and the
consummation of the transactions contemplated hereby, have been duly and
validly authorized b all necessary action on the part of Seller. This Agreement
has been duly and validly executed and delivered by Seller and, when executed
and delivered in accordance with its terms, shall constitute the valid and
binding obligations of Seller, enforceable in accordance with the terms thereof.
Neither the execution, delivery or performance by Seller of this Agreement nor
the consummation by Seller of the transactions contemplated hereby, nor
compliance by Seller with any provision hereof will (i) violate or result in a
breach of any provision of the Articles of Organization and Operating Agreement
of Seller, in each case as in effect of the date hereof, (ii) conflict with any
law, statute, ordinance, rule, regulation, order, writ, judgment, injunction,
award, decree, concession, grant, franchise, restriction or agreement of, form
or with any governmental authority applicable to Seller. No permit, consent or
approval of or by, or any notification of or filing with, any person or entity
is required in connection with the execution, delivery or performance by Seller,
or the consummation of the transactions contemplated hereby.
(h) There are no outstanding orders, judgments, injunctions,
awards or decrees of any court or other governmental authority or arbitration
tribunal against Seller. Seller is not in default of any such order, judgment,
injunction, award or decree. There are no action, suits, claims, investigations
or legal, administrative or arbitration proceedings pending or threatened
against Seller, whether at law or in equity, whether civil or criminal in
nature, or whether before or by any court or other governmental authority.
(i) To the best knowledge and belief of Seller, Seller has no
Liabilities or obligations of any nature, whether absolute, accrued, contingent
or otherwise, and whether due or to become due (including, without limitation,
any liability for taxes and interest, penalties and other charges payable with
respect to any such liability or obligation) which would affect the Buyer or the
Assets or become the obligation of the Buyer as a result of the transactions
consummated hereby.
5.2. Buyer's Representations and Warranties. Buyer hereby represents
----------------------------------------
and warrants to Seller that:
(a) Buyer is, or will be on the Closing Date, duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted or contemplated,
Buyer has all requisite power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby.
(b) The execution, delivery and performance by Buyer, and the
consummation of the transactions contemplated hereby, have been duly and validly
authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly and validly executed and delivered by Buyer and, when
executed and delivered in accordance with its terms, shall constitute the valid
and binding obligations of Buyer, enforceable in accordance with the terms
thereof. Neither the execution, delivery or performance by Buyer of this
Agreement nor the consummation by Buyer of the transactions contemplated
hereby, nor compliance by Buyer with any provision hereof will (i) violate or
result in a breach of any provision of the Articles of Incorporation or Bylaws
of Buyer, in each case as in effect of the date hereof, (ii) conflict with any
law, statute, ordinance, rule, regulation, order, writ, judgment, injunction,
award, decree, concession, grant, franchise, restriction or agreement of, from
or with any governmental authority applicable to Buyer. No permit, consent or
approvals of or by, or any notification of or filing with, any person or entity
is required in connection with the execution, delivery or performance by Buyer,
or the consummation of the transactions contemplated hereby.
6. Existing Agreements.
--------------------
6.1. No Third Party Rights. Seller hereby represents and warrants to
-----------------------
Buyer that the only rights in the Software it has granted to third parties were
granted pursuant to the agreements identified inn Exhibit "H".
6.2. Representations and Warranties. Seller hereby represents and
--------------------------------
warrants to Buyer that each agreement is in full force and effect in accordance
with its terms, without modification or amendment and without default by either
party thereto; that each End-User Agreement grants the licensee thereunder
solely the nonexclusive right and license to use the Software, for internal
purposes only, on a single central processing unit; that each End-User Agreement
provides only for rendering of services (including warranty coverage,
maintenance, and support) that, to the extent required to have been performed as
of the Closing Date, have been performed in full; and that each End-User
Agreement is freely assignable to and assumable by Buyer pursuant to this
Agreement, without the requirement of obtaining any consent or approval, giving
any prior or subsequent notice, paying any further royalty or fee to any party
thereto or to any other third party,. Or performing any duty that has not
already been fully performed by Seller.
6.3. Assignment of Existing Agreements. Seller hereby assigns,
------------------------------------
transfers, and conveys all of the agreements identified in Exhibit "H" to Buyer,
and Buyer hereby assumes the obligations set forth in such Agreements and agrees
to indemnify and hold harmless Seller and its Affiliates from and against any
failure of Buyer to perform its obligations under the agreements in accordance
with their terms. Seller and Buyer shall jointly notify all parties to the
agreements of the foregoing assignment and assumption. It is mutually agreed
that Seller shall retain all amounts previously paid to Seller under the
agreements and that, to the extent further payments may be made thereunder,
Buyer shall be entitled to receive them directly from such contracting parties,
and, if such payments nonetheless are made to Seller, Seller shall remit such
payments to Buyer immediately.
6.4. Liabilities Not Assumed. Anything contained in this Agreement to
------------------------
the contrary notwithstanding, the Buyer is not assuming, and shall not be
responsible for, any liability, cost or expense of the Buyer of its Affiliates,
whether or not such liability, cost or expense relates to the Software or the
agreements identified inn Exhibit "H," which were incurred prior to the Closing
Date, all of which liabilities, costs and expenses shall, at and after the
Closing Date, remain the exclusive responsibility of the Seller and Seller shall
indemnify and hold Buyer and its Affiliates harmless from and against any
liability, claim, cost or expense, including reasonable attorneys' fees (whether
incurred before or after the entry of judgment) arising therefrom.
7. Further Assurances.
-------------------
7.1. Execution of Documents. Seller shall execute and deliver such
------------------------
further conveyance instruments and take such further actions as may be necessary
or desirable to evidence more fully the transfer of ownership of the Assets to
Buyer, Seller therefore agrees:
(a) To execute, acknowledge and deliver any affidavits or
documents of assignment and conveyance regarding the Assets;
(b) To provide testimony in connection with any proceeding
affecting the right, title, or interest of Buyer in the Assets; and
(c) To perform any other acts deemed necessary by Buyer to carry
out the intent of this Agreement.
7.2. Power of Attorney. Seller hereby appoints Buyer as its
-------------------
attorney-in-fact, irrevocably and coupled with an interest, with all right of
substitution and delegation to execute or file any documents, or take any
actions to perfect, protect or assert the right in and to the Assets conveyed
hereunder to Buyer by Seller.
8. Protection of Trade Secrets/Non-Competition.
----------------------------------------------
8.1. Confidentiality. The parties agree to hold each other's
---------------
Confidential Information confidential for a period of five (5) years following
the Closing Date of this Agreement. The parties agree, that unless required by
law, they shall not make each other's Confidential Information available in
any form to any third party or to use each other's Confidential Information for
any purpose other than the implementation of this Agreement. Each party agrees
to take all reasonable steps to ensure that Confidential Information is not
disclosed or distributed by its Affiliates in violation of the terms of this
Agreement. A party's "Confidential Information" shall not include information
that (a) is or becomes a part of the public domain through no act or omission of
the other party; (b) was in the other party's lawful possession prior to the
disclosure and had not been obtained by the other party either directly or
indirectly from the disclosing party; (c) is lawfully disclosed to the other
party by a third party without restriction on disclosure; (d) is independently
developed by the other party; or (e) is required to be disclosed by any judicial
or governmental requirement or order (provided that recipient timely advises
the disclosing party of the governmental demand for disclosure).
8.2. Trade Secrets. Seller hereby agrees that from and after the
---------------
Closing Date, and for so long thereafter as the data or information remains
Software Trade Secrets, Seller shall not use, disclose, or permit any person not
authorized by Buyer to obtain any Software Trade Secrets (whether or not the
Software Trade Secrets are in written or tangible form), except as specifically
authorized by Buyer.
8.3. Non-Competition. Seller hereby expressly acknowledges and
----------------
recognizes the highly competitive nature of the internet access software
development, marketing and distribution industry in general, or related
industries, and the goodwill in the Software and Domain Names which has been
developed through and by the Seller. Accordingly, in consideration of the
premises contained herein, and as a material inducement to the Buyer to enter
into this Agreement, without which the Buyer would not have entered into this
Agreement, Seller expressly agrees, for itself, and its Affiliates (which
Affiliates the Seller represents and warrants shall be bound under this
paragraph), that it will not, for a period of five (5) years following the
Closing Date, and throughout the universe, (i) directly or indirectly engage in,
represent, or in any way be connected with, any business or activity which is in
direct or indirect competition with the business of the Buyer as it relates, in
any manner, to the Software or Domain Name ("Competing Business"), whether such
engagement shall be as a sales broker or agent, independent contractor, officer,
director, shareholder, owner, employee, consultant, partner, affiliate or other
participant, (ii) assist others in engaging in any Competing Business in the
manner described in the foregoing clauses, (iii) directly or indirectly induce
the customers or suppliers of the Seller (prior to the consummation hereof) to
change or alter in any manner their business dealings with the Buyer (following
the consummation hereof), (iv) directly or indirectly interfere with the
business of the Buyer or the Software or the Domain Names, or (v) induce any
employees, officers, sub-brokers or agents or independent contractors of the
Seller to terminate or discontinue their relationship with the Buyer following
the consummation hereof, or engage in any Competing Business. Seller expressly
understands that the foregoing restrictions may limit its ability to earn a
livelihood in the internet access software development, marketing and
distribution industry, or related industries, but it nevertheless believes that
it has received sufficient consideration and other benefits, as provided
hereunder, to clearly justify such restrictions.
9. Acknowledgment of Rights. In furtherance of this Agreement, Seller
---------------------------
hereby acknowledges that, from and after the Closing Date, Buyer has acceded to
all of Seller's right, title, and standing to:
(a) Receive all rights and benefits pertaining to the Assets and
the agreements identified in Exhibit "H;"
(b) Institute and prosecute all suits and proceedings and take all
actions that Buyer, in its sole discretion, may deem necessary or proper to
collect, assert, or enforce any claim, right, or title of any kind in and to any
and all of the Assets, and the agreements identified in Exhibit "H."
(c) Defend and compromise any and all such action, suits, or
proceedings relating to such transferred and assigned rights, title, interest,
and benefits, and perform all other such acts in relation thereto as Buyer, in
its sole discretion, deems advisable.
10. As Is Warranty. SELLER ASSIGNS THE SOFTWARE TO BUYER "AS IS," AND
-----------------
SELLER DISCLAIMS ALL WARRANTIES EXPRESS OR IMPLIED WITH RESPECT TO THE SOFTWARE,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCCHANTABILITY OR FITNESS FOR A
PARTICULAR PUPOSE.
11. Indemnity.
----------
11.1. Indemnification. Seller will hold Buyer harmless and defend
----------------
Buyer, at Seller's sole cost and expense, any claim, suit or proceeding brought
against Buyer or its Affiliates (or appeal following the entry of any judgment)
which is based upon a claim that (i) the Software or the Domain Names infringe
any patent, copyright, or trade secret of any third party in the Software or
Domain Names (including, without limitation, any right asserted by SII or its
Affiliates, provided Buyer gives Seller written notice within thirty (30)
calendar days of receiving notice of such claim, suit or proceeding. Buyer
shall reasonably cooperate with Seller in the defense of any such claim, suit or
proceeding. Seller will pay any damages and costs assessed against Buyer (or
payable by Buyer pursuant to a settlement agreement) in connection with such
proceeding.
11.2. Remedies of Buyer. In the event that the Buyer is directed to
--------------------
cease distribution of the Software by any tribunal or court, Seller will either
(i) modify the Software so that it is no longer infringing, or (ii) procure for
the Buyer the rights necessary for Buyer to exploit the Software at no expense
to Buyer. If Seller is unable to comply with either subsection (i) or (ii),
within thirty (30) days of any such direction to cease distribution of the
Software, Buyer, at its exclusive option, may either replace the infringing
portions of the Software with non-infringing software at Seller's sole cost and
expense, to the satisfaction of Buyer, or terminate this Agreement and receive a
complete refund of the Purchase Price, together with any and all unrecouped
costs and expenses relation to the Software incurred by the Buyer as of such
repayment date.
12. Miscellaneous.
--------------
12.1. Binding. This Agreement shall inure to the benefit of, and be
--------
binding upon, the parties hereto, together with their respective legal
representatives, successors and assigns.
12.2. Choice of Law. This Agreement shall be governed by, and
----------------
construed in accordance with, the laws of the United States and the State of
California, as applied to agreements entered into and to be performed entirely
within California between California residents.
12.3. Notices. Any notices given by either party hereunder will be in
--------
writing and will be given by personal delivery, national overnight courier
service, or by U.S. mail, certified or registered, postage prepaid, return
receipt requested, to Seller or Buyer at the following addresses:
If to Buyer, to: with a copy to:
------------------- ------------------
Nettaxi Online Communities, Inc. John Holt Smith, Esq.
2165 South Bascom Avenue Smith & Associates
Campbell, California 95008 1901 Avenue of the Stars #1800
Facsimile: 408.879.9907 Los Angeles, California 90067
Attention: Mr. Robert Rositano, Jr. Facsimile: 310.286.1816
If to Seller, to: with a copy to:
-------------------- ------------------
SSN Properties, LLC R. Donald McNeil, Esq.
14836 Three Oaks Court Liccardo, Rossi, Sturges & McNeil
Saratoga, CA 95070 1960 The Alameda #200
Facsimile: 408.741.8067 San Jose, California 95126
Attention: Mr. Robert Rositano, Sr. Facsimile: 408.244.3294
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. All notices
will be deemed effective upon personal delivery, or five (5) days following
deposit in the U.S. mail, or two (2) business days following deposit with any
national overnight courier service.
12.4. Entirety and Amendment. This Agreement and all exhibits hereto
------------------------
which are incorporated herein constitute the entire agreement and understanding
between the parties with respect to the subject matter hereof and supersede all
prior or contemporaneous agreements, any representations or communications,
whether written or oral, between the parties. The terms of this Agreement may
not be amended except by a writing executed by both parties.
12.5. Assignment. This Agreement may not be assigned by either part
-----------
hereto without the prior written consent of the other party to this Agreement.
12.6. Severability. It is the desire and intent of the parties hereto
-------------
that the provisions of this Agreement shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any provision of this Agreement
shall be adjudicated to be invalid, illegal or unenforceable in any respect in
any jurisdiction, such provision shall be automatically deemed amended, but only
to the extent necessary to render such provision valid, legal and enforceable in
such jurisdiction, such amendment to apply only with respect to the operation of
such provision in such jurisdiction, and the validly, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
12.7. Construction. The provisions of this Agreement shall be
-------------
construed according to their fair meaning and neither for nor against any party
hereto irrespective of which party caused such provisions, or the Agreement in
its entirety, to be drafted.
12.8. Headings; Gender; Number. The headings of paragraphs and
---------------------------
sections of this Agreement are for convenience and reference only, do not
constitute a part of this Agreement, and shall not in any way affect the
meaning, construction or effect of any provision of this Agreement. Unless the
context otherwise requires, words expressed in the singular shall include the
plural and vice-versa, and the use of the neuter, masculine or feminine gender
is for convenience only and shall be deemed to mean and include the neuter,
masculine or feminine gender, as appropriate.
12.9. Survival. All agreements, statements, representations,
---------
warranties and covenants made by the parties hereto, and all other agreements
and instruments to be executed in connection therewith, shall survive the
execution and delivery to this Agreement.
12.10. Counterparts. This Agreement may be executed in any number of
-------------
counterparts, and each such counterparts shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement; provided, however, that in proving this Agreement, it shall not be
necessary to produce or account for more than one counterpart hereof.
12.11. Counsel. All parties hereto represent that, prior to execution
-------
hereof, they have had the benefit of independent and separate legal counsel in
reviewing this Agreement and have not, in whole or in part, relied upon the
advise or counsel of any attorney, agent or other representative of any other
party hereto.
12.12. Arbitration. Any dispute or claim arising out of this Agreement
-----------
shall be submitted to the American Arbitration Association for binding
arbitration in the City of San Jose, California, under its Commercial
Arbitration rules. The decision of the arbitrator shall be final and binding
upon both parties hereto and judgment on the award rendered by the arbitrator
may be entered in any court of competent jurisdiction. The prevailing party in
such arbitration shall be entitled to recover the costs of arbitration and its
reasonable attorneys' fees (whether incurred before or after the decision of the
arbitrator) from the losing party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"BUYER:" NeTTaxi ONLINE COMMUNITIES, INC.
A Delaware corporation
By: By:
-------------------------- -------------------------
Name: Name: /s/ DEAN ROSITANO
-------------------------- -------------------------
Its: Its: PRESIDENT & CEO
-------------------------- -------------------------
Dated: Dated: 11/01/97
-------------------------- -------------------------
Dated:
-------------------------- -------------------------
"SELLER:" SSN PROPERTIES, LLC
a California limited liability company
By: /S/ ROBERT A. ROSITANO
-------------------------
Its: MANAGER
-------------------------
Dated: 11/01/97
-------------------------
<PAGE>
EXHIBIT A
Bill of Sale
The undersigned, SSN Properties, LLC, a California limited liability
company ("Seller"), for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, does hereby sell, assign, transfer and convey to
NeTTaxi Online Communities, Inc., a Delaware corporation ("Buyer"), all Seller's
right, title and interest in and to the F.F.&E., as set forth in the Inventory
(as such terms are defined in the Asset Purchase and Sale Agreement, dated as of
October , 1997 by and between
Seller and Buyer).
DATED: 11 / 01, 1997
-------
"Seller" SSN PROPERTIES, LLC,
a California limited liability company
By: ROBERT A. ROSITANO
Its: MANAGER
<PAGE>
EXHIBIT B
Inventory of F.F.& E.
All right, title and interest in any and all of the property and assets of
Simply Interactive, Inc. (hereinafter "SII"), whether now owned or hereafter
acquired, whether now existing or hereafter arising, and wherever located,
including without limitation, the following:
(i) All equipment and fixtures, including, without limitation, furniture,
vehicles and other machinery and office equipment, together with all additions
and accessions thereto and replacements therefor.
(ii) All inventory, including, without limitation (a) all raw materials,
work in process and finished goods, and (b) all such goods which are returned to
or repossessed by SII, together with all additions and accessions thereto,
replacements therefor, products thereof and documents therefor.
(iii) All (a) customer and supplier lists and contracts, books and records
and insurance policies, and (b) all goodwill of SII.
(iv) All copyrights, including (a) all original works of authorship fixed in
any tangible medium of expression, all right, title and interest therein and
thereto, and all registrations and recordings thereof, including all
applications, registrations and recordings in the Copyright Office or in any
similar office or agency of the United States, any state thereof, or any foreign
country or any political subdivision thereof, all whether now or owned or
hereafter acquired by SII and (b) all extensions or renewals thereof and all
licenses thereof (collectively, the "Copyrights").
(v) All patentable inventions, patent rights, shop rights, letters patent of
the United States or any other country, all right, title and interest therein
and thereto, and all registrations and recordings thereof, including (a) all
Patent registrations and recordings in the Patent and Trademark Office or in any
similar officer or agency of the United States, any state thereof or any foreign
country or political subdivision thereof, all whether now owned or hereafter
acquired by SII, and (b) all reissues, continuations-in-part or extensions
thereof and all licenses thereof ( collectively, the "Patents").
(vi) All trademarks, tradenames, trade styles and service marks, and all
prints and labels on which said trademarks, tradenames, trade styles and service
marks have appeared or appear, and all designs and general intangibles of like
nature, now existing or hereafter adopted or acquired, all right, title and
interest therein and thereto, all registrations and recordings thereof,
including (a) all applications, registrations and recordings in the Patent and
Trademark Office or in any similar office or agency of the United States, any
state thereof, or any foreign country or any political subdivision thereof, all
whether now owned or hereafter acquired by Debtor, and (b) all reissues,
extensions or renewals thereof and all licenses thereof (collectively, the
"Trademarks").
(vii) All goodwill of SII's business symbolized by the Trademarks and all
customer lists and other records of SII relating to the distribution of products
or provision of services bearing or covered by the Trademarks.
(viii) All information, including formulas, patterns, compilations,
programs, devices, methods, techniques or processes, that derives independent
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by other persons who can obtain
economic value from its disclosure or use, all whether now owned or hereafter
acquired by SII (collectively, the "Trade Secrets").
(ix) All claims by SII against any person for past, present or future
infringement of the Patents, Trademarks, Copyrights, or Trade Secrets.
In addition, the property covered hereby shall include, without limitation,
all the following, whether now owned or hereafter acquired, whether now existing
or hereafter arising and wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases and additions to and all replacements of and substitutions for any
property described.
(b) All products of any of the property described herein.
(c) All accounts, contract rights, general intangibles, instruments, rents,
monies, payments and all other rights, arising out of a sale, lease or other
disposition of any of the property described herein.
(d) All proceeds, including insurance proceeds, from the sale, license,
destruction, loss or other disposition of any of the property described above.
(e) All records and data relating to any of the property described herein,
whether in the form of a writing, photograph, microfilm, microfiche or
electronic media, together with all of SII's right, title and interest in and to
all computer software acquired to utilize, create, maintain and process and such
records or data on electronic media.
<PAGE>
EXHIBIT C
Functional Specifications of Software
<PAGE>
EXHIBIT D
CONVERTIBLE SECURED PROMISSORY NOTE
This Convertible Secured Promissory Note ("Convertible Secured Promissory
Note," herein), dated November 1st 1997, is made and entered into by and between
NeTTaxi Online Communities, Inc., a Delaware corporation ("Maker," herein) and
SSN Properties, LLC, a California limited liability company ("Holder," herein).
RECITALS
WHEREAS, Maker and Holder have entered into that certain Asset Purchase
Agreement dated as of November 1, 1997 ("Asset Purchase Agreement," herein)
under the terms of which the Maker has agreed to purchase, and Holder has agreed
to convey, certain assets, including the Software (as such term is defied in the
Asset Purchase Agreement);
WHEREAS, the Asset Purchase Agreement requires the parties to enter into a
convertible secured promissory note in connection with the payment of One
Million and Twenty Thousand Dollars (US$1,020,000) by Maker to Holder.
NOW, THEREFORE, in consideration of the premises and mutual
representations, warranties, covenants and agreements hereinafter set forth, and
for good and valuable consideration, the receipt and sufficiency of which hereby
are acknowledged, the parties hereto agree as follows:
1. Definitions. For the purposes of this Convertible Secured Promissory
Note, the following terms shall have the following meanings:
1.1 "Grace Period" means the period which commences on the business day
in which a payment is due hereunder (or, if such day falls on a weekend or
holiday, then the business day following immediately thereafter), and completes
at the close of business on the thirtieth (30th) calendar day thereafter (by way
of example only, if a payment is due under the terms hereof on Wednesday April
15th, 1998, such grace period would end at the close of business on Friday April
30th, 1998).
1.2 "Installment Payment" means the payment of Fifty-One Thousand
Dollars (US$51,000), plus Interest, in twenty (20) installments, payable by
Holder to Maker on each Payment Date in accordance with the Payment Schedule.
1.3 "Interest" means interest on the unpaid Principal Amount,
calculated as simple interest at the rate of ten percent (10%) per annum, which
shall accrue commencing as of the execution of this Convertible Secured
Promissory Note, payable after the first twelve (12) months thereafter, in
accordance with the terms hereof (such interest accrued on the Principal Amount,
but unpaid in the first twelve (12) months, shall be paid in twenty (20) equal
installments on each Payment Date in addition to the Installment Payment).
1.4 "Payment Date" means each date upon which each Installment Payment
is due hereunder in accordance with the Payment Schedule. Should the Payment
Date fall on a day other than a business day (i.e. Saturday, Sunday or legal
holiday in the State of California), the Payment Date shall be extended to the
next succeeding business day.
1.5 "Payment Schedule" means the payment of each Installment Payment on
or before the fifteenth (15) day of month following each fiscal quarter, for
five (5) consecutive years, commencing at the end of the first (1st) quarter
immediately following the anniversary date of the execution hereof and
continuing until the final payment to be paid after the last fiscal quarter in
such five (5) year term, or until such earlier date that this Convertible
Secured Promissory Note is paid in full by Maker in accordance to the terms
hereof.
1.6 "Principal Amount" means the total amount of One Million and Twenty
Thousand Dollars (US$1,020,000).
1.7 "Security Agreement" means the Security Agreement dated November 1,
1997, to be duly executed by Maker and delivered to Holder, securing thereby the
obligations of the Maker to pay the Holder as required under this Convertible
Secured Promissory Note, the terms and conditions of which are incorporated
herein by this reference. The Security Agreement shall be substantially in the
form of, and upon the terms and conditions contained in, Exhibit "D" to the
Asset Purchase Agreement.
2. Payment of Principal Amount to Holder. Following the anniversary date of
the execution hereof, and on each Payment Date, and in accordance with the
Payment Schedule, the Maker hereby agrees to pay to the Holder, and the Holder
agrees to accept, the Installment Amount, plus Interest, until the Principal
Amount, and the Interest, is satisfied inn full. All payments to Holder
hereunder shall be in such coin or currency of the United States of America as
shall be legal tender for the payment of public and private debts on the date of
each such payment, or pursuant to sub-paragraph 2.3, below.
2.1 The Maker may, at its exclusive option and at any time following
the execution hereof, prepay all or a portion of the balance of the Principal
Amount, without penalty or premium. Any prepayment hereunder shall first be
applied to interest and then to the unpaid Principal Amount.
2.2 All payments made by Maker under this Convertible Secured
Promissory Note to Holder shall be made at the office of the Holder at the
address set forth below, or at such other address as the Holder may designate in
writing to the Maker.
2.3 Throughout the term of this Convertible Secured Promissory Note,
the Seller shall have the right, but not the obligation, to convert up to fifty
percent (50%) of the Principal Amount owing at the time of such conversion, into
Common Stock of the Buyer, valued at one dollar ($1) per share, to be exercised
at Seller's exclusive discretion, as follows:
(i) such conversion shall be exercisable by delivery of
written notice from the Seller to the Buyer no less than thirty (30) calendar
days prior to any Payment Date, which notice shall specify the amount of the
Principal Amount to be so converted (such conversion amount shall apply against
the most recent Installment Payments in the Payment Schedule, until expended,
and the Payment Schedule shall be offset and adjusted accordingly [for example,
if the seller elects to convert $100,00 of the Principal Amount to 100,000
shares of Common Stock in the Buyer, and gives notice as required above, then
the next two (2) Installment Payments required under the Payment Schedule shall
be offset by such amount, and only the balance shall be payable on such second
(2nd) Payment Date following the conversion];
(ii) in no event may the Seller or its Affiliates, by such
conversion, be or become the owner of record, or beneficial owner, of more than
a total of forty-nine percent (49%) of the issued and outstanding Common Stock
in Buyer.
2.4 The parties hereto have made a reasonable effort to estimate the
actual damages which Holder would sustain as a result of a late payment of any
amount due hereunder, said reasonable estimate being equal to three percent (3%)
of the amount of said late payment. Any payment made by Maker after the Grace
Period has expired, shall be accompanied by a late charge payment equal to three
percent (3%) of the amount of said late payment. The right to receive this late
charge payment shall be in addition to, and not in lieu of, any other remedies
available to Holder under this Convertible Secured Promissory Note, the Security
Agreement, or at law or equity.
3. Default. In case of the occurrence of any of the following events (each
an "Event of Default," herein):
3.1 default shall be made in the payment of any Installment Amount on
each Payment Date, in accordance with the Payment Schedule, pursuant to this
Convertible Secured Promissory Note, as and when the same shall become due and
payable;
3.2 the Maker shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator, (ii) admit in writing its inability to pay his
debts as they mature, (iii) make a general assignment for the benefit of
creditors, (iv) be adjudicated a bankrupt or insolvent, (v) file a voluntary
petition in bankruptcy or petition or answer seeking a reorganization or an
arrangement with its creditors, or (vi) take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation law
or statute or file an answer admitting the material allegations of a petition
filed against it in any proceeding under any such law; or
3.3 an order, judgment or decree shall be entered, without the
application, approval or consent of the Maker, by any court of competent
jurisdiction, approving a petition seeking reorganization of the Maker, or
appointing a receiver, trustee or liquidator for the Maker, and such order,
judgment or decree shall continue unstayed and in effect for any period of 60
days; then the Holder may, after the expiration of the Grace Period notify the
Maker, in writing, of such default and, if such default is left uncured by Maker
for sixty (60) calendar days after the receipt of such notice by Maker, then
Holder may, at its discretion, declare this Convertible Secured Promissory Note
to be forthwith due and payable, whereupon this Convertible Secured Promissory
Note shall become forthwith due and payable without presentment, demand,
protest, or other notice of any kind, all of which are hereby expressly waived.
4. Representations and Warranties.
4.1 Maker hereby represents and warrants to Holder as follows:
(i) Organization; Corporate Authority; Good Standing. Maker is
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted or
contemplated. Maker has all requisite power and authority to execute and
deliver this Convertible Secured Promissory Note, to perform its obligations
hereunder and to consummate the transactions contemplated hereby.
(ii) Corporate Actions; No Conflict. The execution, delivery and
performance by Maker and the consummation of the transactions contemplated
hereby have been duly and validity authorized by all necessary corporate action
on the part of Maker. This Convertible Secured Promissory Note has been duly
and validly executed and delivered by Maker and, when executed and delivered in
accordance with its terms, shall constitute the valid and binding obligations of
Maker, enforceable in accordance with the terms thereof. Neither the execution,
delivery or performance by Maker of this Convertible Secured Promissory Note nor
the consummation by Maker of the transactions contemplated hereby, nor
compliance by Maker with any provision hereof will (i) violate or result in a
breach of any provision of the Articles of Incorporation or Bylaws of Maker, in
each case as in effect of the date hereof, (ii) conflict with any law, statute,
ordinance, rule, regulation, order, writ, judgment, injunction, award, decree,
concession, grant, franchise, restriction or agreement of, from or with any
notification of or filing with, any person or entity is required in connection
with the execution, delivery or performance by Maker, or the consummation of the
transaction contemplated hereby.
4.2. Representations and Warranties of Holder. Holder hereby
represents and warrants to Maker as follows:
(i) Organization; Corporate Authority; Good Standing. Holder is
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted or
contemplated. Holder has all requisite power and authority to execute and
deliver this Convertible Secured Promissory Note, to perform its obligations
hereunder and to consummate the transactions contemplated hereby.
(ii) Company Actions; No Conflict. The execution, delivery and
performance by Holder and the consummation of the transactions contemplated
hereby have been duly and validity authorized by all necessary company action on
the part of Holder. This Convertible Secured Promissory Note has been duly and
validly executed and delivered by Holder and, when executed and delivered in
accordance with its terms, shall constitute the valid and binding obligations of
Holder, enforceable in accordance with the terms thereof. Neither the
execution, delivery or performance by Holder of this Convertible Secured
Promissory Note nor the consummation by Holder of the transactions contemplated
hereby, nor compliance by Holder with any provision hereof will (i) violate or
result in a breach of any provision of the Articles of Organization or Operating
Agreement of Holder, in each case as in effect of the date hereof, (ii) conflict
with any law, statute, ordinance, rule, regulation, order, writ, judgment,
injunction, award, decree, concession, grant, franchise, restriction or
agreement of, from or with any governmental authority applicable to Holder. No
permit, consent or approval of or by, or any notification of or filing with, any
person or entity is required in connection with the execution, delivery or
performance by Holder, or the consummation of the transaction contemplated
hereby.
5. Miscellaneous.
5.1. Notices. All payments, notices or other communications which are
required or permitted hereunder shall be in writing and shall be deemed to have
been given if (i) personally delivered or sent by telecopier, (ii) sent by
nationally-recognized overnight courier or (iii) sent by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to Maker, to: with a second copy to:
------------------- --------------------------
Nettaxi Online Communities, Inc. John Holt Smith, Esq.
2165 South Bascom Avenue Smith & Associates
Campbell, California 95008 1901 Avenue of the Stars #1800
Facsimile: 408.879.9907 Los Angeles, California 90067
Attention: Mr. Robert Rositano, Jr. Facsimile: 310.286.1816
If to Holder, to: with a second copy to:
-------------------- --------------------------
SSN Properties, LLC R. Donald McNeil, Esq.
14836 Three Oaks Court Liccardo, Rossi, Sturges & McNeil
Saratoga, CA 95070 1960 The Alameda #200
Facsimile: 408.741.8067 San Jose, California 95126
Attention: Mr. Robert Rositano, Sr. Facsimile: 408.244.3294
Or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
payments, notices or other communications shall be deemed to have been received
(i) when delivered, if personally delivered or sent by telecopier, (ii) on the
business day after dispatch, if sent by nationally recognized, overnight courier
and (iii) on the third business day following the date on which the piece of
mail containing such payments, notices or other communications is posted, if
sent by mail.
5.2. Confidentiality. The provisions of this Convertible Secured
Promissory Note are deemed confidential and may not be revealed to any third
party, except to the extend that such disclosure is required by law or made to
agents or representative of each party hereto. No press release or other public
announcement may issue or be caused to be issued without the prior written
consent of the Holder and Maker.
5.3. Waiver. No waiver of any provision of or default under this
Convertible Secured Promissory Note shall affect the right of any party
thereafter to enforce such provision or to exercise any right or remedy in the
event of any other default, whether or not similar.
5.4. Successors and Assigns; Assignment. This Convertible Secured
Promissory Note shall be binding upon, inure to the benefit of, and be
enforceable by the parties hereto and their respective successors and assigns.
This Convertible Secured Promissory Note may not be assigned by either party
hereto without the prior written consent of the other party. Notwithstanding
the foregoing, Holder may assign the right to receive payments under this
Convertible Secured Promissory Note to any third party, at its exclusive
discretion.
5.5. Amendment. No modification, amendment, waiver, termination or
discharge of this Convertible Secured Promissory Note or any provisions hereof
shall be binding unless confirmed by a written instrument executed by both
parties.
5.6. Entire Agreement. This Convertible Secured Promissory Note
constitutes the full and final agreement by and between the parties,
incorporating herein all prior or contemporaneous representations or agreements,
whether oral or written, with respect to the subject matter hereof. Neither
party hereto has relied on any representation or warranty not herein contained.
5.7. Governing Law. This Convertible Secured Promissory Note and the
rights and obligations of the parties hereunder shall be construed in accordance
with, and be governed by and under, the laws of the State of California.
5.8 Severability. It is the desire and intent of the parties hereto
that the provisions of this Convertible Secured Promissory Note shall be
enforced to the fullest extend permissible under the laws and public policies
applied in each jurisdiction in which enforcement is sought. Accordingly, if
any provision of this Convertible Secured Promissory Note shall be adjudicated
to be invalid, illegal or unenforceable in any respect in any jurisdiction, such
provision shall be automatically deemed amended, but only to the extent
necessary to render such provision valid, legal and enforceable in such
jurisdiction, such amendment to apply only with respect to the operation of such
provision in such jurisdiction, and the validity, legality and enforceability of
the remaining provisions of this Convertible Secured Promissory Note shall not
in any way be affected or impaired thereby.
5.9. Construction. The provisions of this Convertible Secured
Promissory Note shall be construed according to their fair meaning and neither
for nor against any party hereto irrespective of which party caused such
provisions, or the Convertible Secured Promissory Note in its entirety, to be
drafted.
5.10 Headings: Gender; Number. The headings of paragraphs and sections
of this Convertible Secured Promissory Note are for convenience and reference
only, do not constitute a part of this Convertible Secured Promissory Note, and
shall not in any way affect the meaning, construction or effect of any provision
of this Convertible Secured Promissory Note. Unless the context otherwise
requires, words expressed in the singular shall include the plural and
vice-versa, and the use of the neuter, masculine or feminine gender is for
convenience only and shall be deemed to mean and include the neuter, masculine
or feminine gender, as appropriate.
5.11. Survival. All agreements, statements, representations,
warranties and covenants made by the parties hereto, and all other agreements
and instruments to be executed in connection therewith, shall survive the
execution and delivery of this Convertible Secured Promissory Note.
5.12. Counterparts. This Convertible Secured Promissory Note may be
executed in any number of counterparts, and each such counterpart shall be
deemed to be an original instrument, but all such counterparts together shall
constitute but one agreement; provided, however, that in proving this
Convertible Secured Promissory Note, it shall not be necessary to produce or
account for more than one counterpart hereof.
5.13. Counsel. All parties hereto represent that, prior to
execution hereof, they have had the benefit of independent and separate legal
counsel in reviewing this Convertible Secured Promissory Note and have not, in
whole or in part, relied upon the advice or counsel of any attorney, agent or
other representative of another party hereto.
5.14 Costs of Collection; Attorney's Fees. The Maker agrees to pay all
costs of collection, including reasonable attorney's fees, incurred by the
Holder of this Convertible Secured Promissory Note in collecting or enforcing
this Convertible Secured Promissory Note, whether in connection with a
reorganization, bankruptcy or other similar proceeding, or upon default.
IN WITNESS WHEREOF, the parties hereto have executed this Convertible
Secured Promissory Note as of the date first-above written:
"Holder" SSN PROPERTIES, LLC,
a California limited liability company
By: /S/ ROBERT ROSITANO
Its: MANAGER
"Maker" NETTAXI ONLINE COMMUNITIES, INC.
a Delaware corporation
By: /S/ ROBERT ROSITANO By: DEAN ROSITANO
Its: MANAGER Its: PRESIDENT & CEO
<PAGE>
EXHIBIT E
SECURITY AGREEMENT
This Security Agreement ("Security Agreement", herein), dated October ,
--
1997, is made and entered into by and between NeTTaxi Online Communities,
Inc., a Delaware corporation ("Debtor", herein) and SSN Properties, LLC, a
California limited liability company ("Secured Party", herein).
RECITALS
WHEREAS, Maker and Holder have entered into that certain Asset Purchase
Agreement dated as of October 1, 1997 ("Asset Purchase Agreement", herein) under
the terms of which the maker has agreed to purchase, and Holder has agreed to
convey, certain assets, including the Software (as such term is defined in the
Asset Purchase Agreement);
WHEREAS, pursuant to the terms of the Asset Purchase Agreement, Debtor and
Secured Party have entered into that certain Convertible Secured Promissory
Note, dated October , 1997, in the principal amount of One Million and
Twenty Thousand Dollars (US$1,020,000) ("Principal Amount", herein)
("Convertible Secured Promissory Note", herein).
NOW, THEREFORE, in consideration of the premises and mutual
representations, warranties, covenants and agreements hereinafter set forth, and
for good and valuable consideration, the receipt and sufficiency of which hereby
are acknowledged, the parties hereto agree as follows:
ARTICLE 1
SECURED OBLIGATIONS
This Security Agreement shall secure the obligation of Debtor to pay to the
Secured Party all amounts due and payable under the terms and conditions of the
Convertible Secured Promissory Note ("Secured Obligation", herein).
ARTICLE 2
SECURITY INTEREST
2.1 Grant of Security Interest. As security for the payment and
performance of the Secured Obligation, the Debtor does hereby convey, assign and
transfer to the Secured Party, and does hereby grant to the Secured Party, a
continuing security interest of first priority, in all of the right, title and
interest of the Debtor in, to and under all of the following, wherever located
and whether now existing or hereafter acquired or created (and prior to the
termination of the Security Agreement), including, without limitation, all
products and proceeds thereto, in and to the following (the "Collateral"):
All interests in and to the proprietary internet access software known as
"Internet The City," "Internet The City Online," and "Web Activator," the
functional specifications of which are attached hereto, and incorporated herein,
as Attachment "A", owned by the Debtor, together with any real and personal
property owned or acquired by Debtor, including without limitation, furniture,
fixtures, equipment, inventory, accounts, deposit accounts, accounts receivable,
chattel paper, instruments, documents, general intangibles, or other rights of
payment, together with all renewals, and including all securities, guarantees,
warranties, indemnity agreements, insurance policies, choices of action, and
final judgments in favor of Debtor.
2.2 Power of Attorney. The Debtor hereby constitutes and appoints the
Secured Party as its true and lawful attorney, irrevocably, with the full power,
but not the obligation, exercisable upon any Event of Default, as that term is
defined in, and under the provisions of the Convertible Secured Promissory Note,
in the name of the Debtor or otherwise, to act, require, demand, receive,
compound, and give acquittance for any and all monies and claims for monies due
or to become due to the Debtor under or arising out of the Collateral, to
endorse any checks or other instruments or orders in connection therewith and to
file any claims or take any action or institute any proceedings which the
Secured Party may deem to be necessary or advisable in the circumstances, which
appointment as attorney is coupled with an interest.
ARTICLE 3
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
The Debtor represents, warrants and covenants to and for the benefit of the
Secured Party:
3.1. Necessary Filings. Debtor shall make all filings, registrations
and recordings necessary or appropriate to create, preserve, protect and perfect
the Security Interest in the United State granted by the Debtor to the Secured
Party by this Security Agreement in connection with the Collateral.
3.2. Enforceable Security Interest. The security interest granted to
the Secured Party pursuant to this Security Agreement in and to the Collateral
constitutes a valid and enforceable security interest therein, superior and
prior to the rights of all other persons or entities therein and subject to no
other liens and is entitled to all the rights, priorities and benefits afforded
by the Uniform commercial Code or other relevant law as enacted in any relevant
jurisdiction to perfected security interests.
3.3. No Liens. The Debtor is, and as to Collateral acquired by it at
any time after the date hereof and prior to the termination of this Security
Agreement, the Debtor will be, the owner of the Collateral free from any lien or
the right, title or interest of any person or entity other than liens created
hereby. The Debtor shall defend the Collateral against all claims and demands
of all persons or entities at any time claiming the same or any interest therein
which is adverse to the Secured Party except as set forth herein. The Debtor
will not execute or authorize to be filed in any public office any financing
statement (or similar statement or instrument or registration under the law of
any jurisdiction) or statement relating to the Collateral, except financing
statements filed or to be filed in respect of the security interest granted
pursuant to this Security Agreement by the Debtor to the Secured Party, and will
not surrender or lose possession of, sell, encumber, lease, rent or otherwise
dispose of, or transfer, any Collateral or right therein (by way of security
interest or otherwise) except as contemplated by this Security Agreement, or
otherwise approved in writing by the Secured Party.
3.4. Executive Office; Records. The executive office of the Debtor is
located at 2165 South Bascom Avenue, Campbell, CA 95008. The originals of all
records relating to the Collateral and all receivables, contract rights and
items of chattel paper (as these terms are defined in the California Commercial
Code) and other Collateral are, and will continue to be, kept at such executive
office. The Debtor shall not establish a new location for such offices until
(a) it shall have given to the Secured Party not less than fifteen (15) days
prior notice of its intention to do so, which notice shall clearly describe such
new location and provide such other information in connection therewith as the
Secured Party may reasonably request, and (b) with respect to such new location,
it shall have taken all action, satisfactory to the Secured Party, to maintain
the security interest of the Secured Party in the Collateral granted by this
Security Agreement at all times fully perfected and in full force and effect.
3.5. Accounts and Contract Rights. Each account, contract right, item
of chattel paper, instrument or any other right to the payment of money
constituting Collateral and all records, papers and documents relating thereto
(if any) are genuine, and all papers and documents (if any) relating thereto
evidence true and valid obligations, enforceable in accordance with their
respective terms against the party obligated to pay the same ("Account Debtor",
herein), which terms have not been modified or waived in any respect or to any
extent.
3.6. Maintenance of Records. The Debtor will keep and maintain, at its
sole cost and expense, satisfactory and complete records of the Collateral and
the Debtor will make the same available to the Secured Party for inspection, at
the Debtor's sole cost and expense, at any and all reasonable times, upon seven
(7) days notice by the Secured Party. The Debtor will, at any reasonable time,
upon seven (7) days notice by the Secured Party, exhibit to and allow inspection
by the Secured Party (or persons designated by the Secured Party) of the
Collateral.
3.7. Direction Notice to Account Debtors; Contracting Party, Etc.
Immediately upon any uncured Event of Default, as that term is defined in, and
under the provisions of, the Convertible Secured Promissory Note, until notified
by the Secured Part, the Debtor shall collect, enforce and receive delivery and
payment of the Collateral.
3.8. Protection of the Collateral and the Secured Party's Security.
The Debtor will (a) do nothing to impair the rights of the Secured Party in the
Collateral, (b) do all acts necessary to maintain, preserve and protect the
Collateral, (c) keep the Collateral in good condition and repair, (d) not cause
or permit any waste or unusual or unreasonable depreciation of the Collateral
and (e) comply with all laws, regulations and ordinances relating to the
possession, operation, maintenance and control of the Collateral.
3.9. Further Actions. The Debtor will, at its own expense, make,
execute, endorse, acknowledge, file and/or deliver to the Secured Party from
time to time any endorsements, assignments, financing statements and other
writings, and take such further steps relating to the Collateral and other
property or rights covered by the security interest granted hereby, which the
Secured Party deems reasonably appropriate or advisable to perfect, preserve or
protect its security interest in the Collateral and the priority thereof and
will deliver promptly to the Secured Party all originals of Collateral or
proceeds thereof consisting of chattel paper or instruments.
3.10. Financing Statements. The Debtor agrees to sign and deliver to
the Secured Party such financing statements, in form and substance acceptable to
the Secured Party, as the Secured Party may from time to time reasonably request
or as are necessary or desirable in the opinion of the Secured Party to
establish and maintain a valid, enforceable first priority security interest in
the Collateral as provided herein, and the other rights and security
contemplated herein, all in accordance with the Uniform Commercial Code as
enacted in any and all relevant jurisdictions or any other relevant law. The
Debtor will pay any applicable filing fees and related expenses and authorizes
the Secured Party to file any such financing statements without the signature of
the Debtor.
ARTICLE 4
REMEDIES UPON EVENT OF DEFAULT
4.1. Remedies; Obtaining the Collateral Upon Default. The Debtor
agrees that, upon any uncured Event of Default, as that term is defined in, and
under the provisions of, the Convertible Secured Promissory Note, subject to any
mandatory requirements of applicable law then in effect, the Secured Party, in
addition to any rights now or hereafter existing under this Security Agreement
or applicable law, shall have all rights as a secured creditor under the Uniform
commercial Code in all relevant jurisdictions, and may do any one or more of the
following:
(a) Personally, or by agents or attorneys, immediately retake
possession of the Collateral or any part thereof, from the Debtor or any other
person or entity who then has possession of any part thereof, with or without
notice or process of law, and for that purpose may enter upon the Debtor's
premises where any of the Collateral is located and move the same and use in
connection with such removal any and all services, supplies, aids and other
facilities of the Debtor; and,
(b) Personally, or by agents or attorneys, immediately enter upon
the Debtor's premises for purposes of using any portion of the Collateral to, if
necessary, bill and invoice unbilled receivables and the Debtor hereby grants to
the Secured Party the right and license to so use its premises (whether owned or
leased by the Debtor) until the earlier to occur of either (i) payment in full
of all Secured Obligations or (ii) completion of billing and invoicing of all
unbilled receivables; provide, however, that the Debtor shall be entitled to
receive, for so long as the Secured Party shall have use of the Debtor's
premises pursuant to this Paragraph 4.1.(b), reasonable rent for such use which
shall be, (A) if the Debtor owns its premises, an amount equal to rent for
comparable space incomparable locations used for comparable purposes, or (B) if
the Debtor leases its premises, an amount equal to the rental payments due on
the Debtor's premises for the period of the Secured Party use of such premises,
pro-rated if necessary to reflect the Secured Party actual use of the premises,
such rent to become due and payable as provided in Paragraph 4.3.(c) hereof; and
(c) Instruct the obligor or obligors on any agreement, instrument
or other obligation (including, without limitation, any account receivables)
constituting the Collateral to make any payment required by the terms of such
instruments or agreements directly to the Secured Party; and,
(d) Sell, assign or otherwise liquidate, or direct the Debtor to
sell, assign or otherwise liquidate, any or all of the Collateral or any part
thereof, and take possession of the proceeds of any such sale or liquidation;
and,
(e) Take possession of the Collateral or any part thereof, by
directing the Debtor in writing to deliver the same to the Secured Party at any
place or places designated by the Secured Party, in which event the Debtor shall
at its own expense:
(i) forthwith cause the same to be moved to the place or places so
designated by the Secured Party and there delivered to the Secured Party; and,
(ii) store and keep any Collateral so delivered to the Secured Party at such
place or places pending further action by the Secured Party as provided in
Paragraph 4.2 hereof; and,
(iii) while the Collateral shall be so stored and kept, provide such
reasonable precautions as shall be necessary to protect, preserve and maintain
the Collateral in good condition.
It is expressly understood between the parties hereto that the Debtor's
obligation to deliver the Collateral under this Paragraph is of the essence to
this Security Agreement and that, accordingly, upon application to a court of
equity having jurisdiction, the Secured Party shall be entitled to a decree
requiring specific performance by the Debtor of said obligation.
4.2. Remedies; Disposition of the Collateral. Any Collateral
repossessed by the Secured Party under or pursuant to Paragraph 4.1 hereof, any
other Collateral whether or not so repossessed by the Secured Party, may, at the
exclusive discretion of the Secured Party, be sold, assigned, leased or
otherwise disposed of under one or more contracts or as an entirety, and without
the necessity of gathering at the place of sale the property to be sold, and in
general in such manner, at such time or times, at such place or places and on
such terms as the Secured Party may, in compliance with any mandatory
requirements or applicable law, determine to be leased or otherwise disposed of,
in the condition in which the same existed when taken by the Secured Party or
after any overhaul or repair which the Secured Party shall determine to be
commercially reasonable. Such disposition may be (i) by private sale or other
private proceeding, or (ii) by public sale, at the exclusive discretion of the
Secured Party. Any such disposition which is a private sale or other private
proceeding permitted by such requirements shall be made upon not less than ten
(10)days (which the Debtor acknowledges as being a commercially reasonable
period of time) written notice to the Debtor specifying the time at which such
disposition is to be made and the intended sale price or other consideration
therefore, and shall be subject, for the ten (10) days after the giving of such
notice, to the right of the Debtor or any nominee of the Debtor to acquire the
Collateral involved at a price or for such other consideration at least equal to
the intended sale price or other consideration so specified. Any such
disposition which is a public sale permitted by such requirements shall be made
upon not less than ten (10) days (which the Debtor acknowledges as being a
commercially reasonably period of time) written notice to the Debtor specifying
the time and place of such sale and, in the absence of applicable requirements
of law, shall be by public auction (which may, at the Secured Party's option, be
subject to reserve), after publication of notice of such auction not less than
ten (10) days prior thereto in two newspapers in general circulation in the
County of Los Angeles, California. If, under mandatory requirements of
applicable law, the Secured Party shall be required to make disposition of the
Collateral within a period of time which does not permit the giving of notice to
the Debtor as hereinabove specified, the Secured Party shall be given only such
notice of disposition as shall be reasonably practicable in view of such
mandatory requirements of applicable law. To the extend permitted by any such
requirement of law, the Secured Party may bid (which may be a credit bid) for
and become the purchaser of the Collateral or any item thereof, offered for sale
in accordance with this Paragraph 4.2 without accountability to the Debtor
(except to the extent of surplus money received as provided in Paragraph 4.3
hereof). The Secured Party may, in its discretion, postpone the date of any
public or private sale to be conducted pursuant to this Paragraph by giving the
Debtor written notice of such postponement not less than one (1) day prior to
the scheduled date.
4.3 Application of Proceeds. The proceeds of any Collateral obtained
pursuant to Paragraph 4.1 hereof, or disposed of pursuant to Paragraph 4.2
hereof, shall be applied as follows:
(a) First, to be payment of any and all expenses and fees
(including, without limitation, reasonable attorneys' fees) incurred by the
Secured Party in obtaining, taking possession of , removing, insuring,
repairing, storing and disposing of Collateral and any and all amounts incurred
by the Secured Party in connection therewith; and,
(b) Next, any surplus then remaining to the payment of the balance
of the Secured Obligations in such order as the Secured Party may determine in
its sole discretion; and,
(c) If no other Secured Obligation is outstanding, any surplus
then remaining shall be paid to the Debtor first as rent owing pursuant to
Paragraph 4.1(b) hereof, if any, and then as surplus proceeds of Collateral,
subject, however, to the rights of the holder of any then existing lien of which
the Secured Party has actual notice (without investigation);
It is expressly understood between the parties hereto that the Secured Party
shall have no recourse to the Debtor other than to the proceeds of the
Collateral for any deficiency between the amount of the proceeds of the
Collateral and the aggregate amount of the sums referred to in Subsections (a)
and (b) above with respect to the Debtor.
4.4. Remedies Cumulative. The rights, powers and remedies expressly
provided in this Security Agreement are cumulative and do not exclude the
exercise of any rights, powers or remedies otherwise available to the Secured
Party. No failure or delay by the Secured Party to exercise any right, power
or privilege under this Security Agreement shall impair any such right, power or
privilege and no course of dealing between the Debtor and the Secured Party
shall be construed to be a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege or any single or partial waiver of
breach or default under this Security Agreement shall preclude any further or
other exercise of the same or any other right, power, privilege or be deemed a
waiver of any other breach or Default hereunder. No notice to or demand on the
Debtor in any case shall entitle the Debtor to any further notice or demand in
similar or other circumstances or constitute a waiver of the right of the
Secured Party to take any action without notice or demand. Any waiver, consent
or approval under this Security Agreement must be in writing to be effective.
4.5. Discontinuance of Proceedings. In case the Secured Party shall
have instituted any proceeding to enforce any right, power or remedy under this
Security Agreement by foreclosure, sale, entry or otherwise, and such proceeding
shall have been discontinued or abandoned for any reason or shall have been
determined adversely to the Secured Party, then and in every such case the
Debtor and the Secured Party shall be restored to their former positions and
rights hereunder with respect to the Collateral subject to the security interest
created under this Security Agreement, and all rights, remedies and powers of
the Secured Party shall continue as if no such proceeding had been instituted.
ARTICLE 5
MISCELLANEOUS
5.1. Notices. All payments, notices or other communications which are
required or permitted hereunder shall be in writing and shall be deemed to have
been given if (i) personally delivered or sent by telecopier, (ii) sent by
nationally-recognized overnight courier or (iii) sent by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to Debtor, to: with a second copy to:
-------------------- --------------------------
Nettaxi Online Communities, Inc. John Holt Smith, Esq.
2165 South Bascom Avenue Smith & Associates
Campbell, California 95008 1901 Avenue of the Stars #1800
Facsimile: 408.879.9907 Los Angeles, California 90067
Attention: Mr. Robert Rositano, Jr. Facsimile: 310.286.1816
If to Secured Party, to: with a second copy to:
---------------------------- --------------------------
SSN Properties, LLC R. Donald McNeil, Esq.
14836 Three Oaks Court Liccardo, Rossi, Sturges & McNeil
Saratoga, CA 95070 1960 The Alameda #200
Facsimile: 408.741.8067 San Jose, California 95126
Attention: Mr. Robert Rositano, Sr. Facsimile: 408.244.3294
Or to such other address the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
payments, notices or other communications shall be deemed to have been received
(i) when delivered, if personally delivered or sent by telecopier, (ii) on the
business day after dispatch, if sent by nationally recognized, overnight courier
and (iii) on the third business day following the date on which the piece of
mail containing such payments, notices or other communications is posted, if
sent by mail.
5.2. Confidentiality. The provisions of this Security Agreement are
deemed confidential and may not be revealed to any third party, except to the
extent that such disclosure is required by law or made to agents or
representatives of each party hereto. No press release or other public
announcement may issue or be caused to be issued without the prior written
consent of the Secured Party and Debtor.
5.3. Secured Obligation Absolute. The obligations of Debtor under this
Security Agreement shall be absolute and unconditional and shall remain in full
force and effect, without regard to, and shall not be released, suspended,
discharged, terminated or otherwise affected by, any circumstances or occurrence
whatsoever, including, without limitation, (a) any renewal, extension, amendment
or modification of, or addition or supplement to or deletion from, or any
assignment or transfer of, the Convertible Secured Promissory Note or any
documents related to any transactions contemplated in connection therewith, (b)
any waiver, consent, extension, indulgence or other action or inaction under or
in respect of any such instrument or agreement or this Security Agreement or any
exercise or non-exercise of any right, remedy, power or privilege under or in
respect of this Security Agreement, the Convertible Secured Promissory Note or
any documents related to any transactions contemplated in connection therewith,
(c) the existence of or any furnishing of any additional security to the Secured
Party or any acceptance thereof or any sale, exchange, release, surrender or
realization of or upon any security by the Secured Party or (d) any invalidity,
irregularity or unenforceability of all or part of the Secured Obligations or of
any security therefor.
5.4. Termination. This Security Agreement shall terminate only upon
the full and complete performance of all of the Secured Obligations, and Secured
Party shall thereon execute and deliver such documents as Debtor may reasonably
require to evidence such termination by satisfaction of the Secured Obligations.
5.5. Continuing Security Agreement; Reliance on Security Agreement.
This Security Agreement is a continuing one and the Secured Obligations to which
it applied or may apply pursuant to its terms shall be conclusively presumed to
have been created in reliance on the representations, warranties and agreements
contained in this Security Agreement.
5.6. The Debtor's Duties. Notwithstanding anything to the contrary
contained herein, the Debtor shall remain liable to perform all of the
obligations, if any, assumed by it with respect to the Collateral and the
Secured Party shall not have any obligations or liabilities with respect to any
Collateral by reason of or arising out of this Security Agreement or any other
Document, nor shall the Secured Party be required or obligated in any manner to
perform or with respect to any Collateral.
5.7. Successors and Assigns; Assignment. This Security Agreement shall
be binding upon, inure to the benefit of, and be enforceable by the parties
hereto and their respective successors and assigns. This Security Agreement is
assignable by Debtor, at its exclusive discretion; provided, however, that the
obligations of Debtor hereunder shall be carried out by assignee. This Security
Agreement is not assignable by Secured Party without the express written consent
of Debtor, which consent shall not be unreasonably withheld.
5.8. Amendment. No modification, amendment, waiver, termination or
discharge of this Security Agreement or any provisions hereof shall be binding
unless confirmed by a written instrument executed by both parties.
5.9. Entire Agreement. This Security Agreement constitutes the full
and final agreement by and between the parties, incorporating herein all prior
or contemporaneous representations or agreements, whether oral or written, with
respect to the subject matter hereof. Neither party hereto has relied on any
representation or warranty not herein contained.
5.10. Governing Law. This Security Agreement, and the rights and
obligations of the parties hereunder, shall be construed in accordance with, and
be governed by and under, the laws of the State of California.
5.11. Severability. It is the desire and intent of the parties hereto
that the provisions of this Security Agreement shall be enforced to the fullest
extend permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any provision of
this Security Agreement shall be adjudicated to be invalid, illegal or
unenforceable in any respect in any jurisdiction, such provision shall be
automatically deemed amended, but only to the extent necessary to render such
provision valid, legal and enforceable in such jurisdiction, such amendment to
apply only with respect to the operation of such provision in such jurisdiction,
and the validity, legality and enforceability of the remaining provisions of
this Security Agreement shall not in any way be affected or impaired thereby.
5.12. Construction. The provisions of this Security Agreement shall be
construed according to their fair meaning and neither for nor against any party
hereto irrespective of which party caused such provisions, or the Security
Agreement in its entirety, to be drafted.
5.13. Headings; Gender; Number. The headings of articles and
paragraphs of this Security Agreement are for convenience and reference only, do
no constitute a part of this Security Agreement, and shall not in any way affect
the meaning, construction or effect of any provision of this Security Agreement.
Unless the context otherwise requires, words expressed in the singular shall
include the plural and vice-versa, and the sue of the neuter, masculine or
feminine gender is for convenience only and shall be deemed to mean and include
the neuter, masculine or feminine gender, as appropriate.
5.14. Survival. All agreements, statements, representations,
warranties and covenants made by the parties hereto, and all other agreements
and instruments to be executed in connection therewith, shall survive the
execution and delivery of this Security Agreement and shall continue in full
force and effect until the full, final and indefeasible payment and performance
of all of the Secured Obligations.
5.15. Counterparts. This Security Agreement may be executed by the
parties hereto in any number of counterparts, each of which, when so executed,
shall be deemed an original and all of which shall together constitute one and
the same agreement; provided, however, that in proving this Security Agreement,
it shall not be necessary to produce or account for more than one counterpart
hereof.
5.16. Counsel. All parties hereto represent that, prior to execution
hereof, they have had the benefit of independent and separate legal counsel in
reviewing this Security Agreement and have not, in whole or in part, relied upon
the advice or counsel of any attorney, agent or other representative of another
party hereto.
5.17. Attorney's Fees. Should any dispute occur between Buyer and
Seller with respect to this Security Agreement or any document executed in
connection herewith, which results in litigation, the losing party or parties
shall pay the prevailing party or parties their reasonable attorneys' fees,
costs and expenses, whether incurred before or after the entry of judgment.
IN WITNESS WHERE OF, the parties hereto have executed this Security
Agreement as on the date first-above written:
"Secured Party" SSN PROPERTIES, LLC,
a California limited liability company
By:
Its:
"Debtor" NETTAXI ONLINE COMMUNITIES, INC.
a Delaware corporation
By: By:
Its: Its:
<PAGE>
EXHIBIT F
Copyright Interests, Trademarks and Intellectual Property Interests
Application
Name of Trademark Owner of Trademark Number Filing Date
- - ------------------- ------------------- ----------- -----------------
NETRO NEWS SSN Properties, LLC 75/065,641 February 29, 1996
NETTAXI SSN Properties, LLC 75/045,731 January 18, 1996
INTERNET THE CITY SSN Properties, LLC 184499 April 1, 1996
NET TAXI SSN Properties, LLC 75/044,861 January 18, 1996
URL AND DESIGN SSN Properties, LLC 75/064,721 February 28, 1996
URL AND DESIGN SSN Properties, LLC 75/064,681 February 28, 1996
URL AND DESIGN SSN Properties, LLC 75/064,683 February 28, 1996
<PAGE>
EXHIBIT G
Appraisal of Fair Market Value of Software
<PAGE>
SUBLEASE
--------
1. PARTIES
-------
This Sublease ("Sublease") is entered into as of September 3, 1997, by and
between Internet Associates, Inc,, a Nevada Corporation dba Internet the City,
Inc., ("Sublessee"), and Joe DeCristofaro and Danette DeCristofaro-Hayes dba
Execustaff, ("Sublessor"), as a Sublease under the Lease dated March 21, 1994,
("Master Lease") entered into by Sevgard, as Lessor ("Master Lessor") and Joe
DeCristofaro and Danette DeCristofaro-Hayes dba Execustaff ("Lessee"). A copy of
the Master Lease is attached hereto, marked Exhibit "A", and incorporated herein
by reference.
2. PROVISIONS CONSTITUTING SUBLEASE
----------------------------------
2.1. This Sublease is subject to all of the terms and conditions of the
Master Lease in Exhibit "A", except for Sections 1.4, 1.6, 1.8, 1.9, 15, and 50,
and Sublessee shall assume
and perform the obligations of Sublessor as Lessee under the Master Lease to the
extent such terms and conditions are applicable to the Premises subleased
pursuant to this Sublease. Sublessee shall not commit or permit to be committed
on the subleased Premises any act or omission which shall violate any term or
condition of the Master Lease. In the event of the termination of Sublessor's
interest as Lessee under the Master Lease for any reason, then this Sublease
shall terminate coincidentally therewith without any liability of Sublessor to
Sublcssee.
2.2. All of the terms and conditions contained in the Master Lease are
incorporated herein, as terms and conditions of this Sublease (with each
reference therein to Lessor and Lessee to be deemed to refer to Sublessor and
Sublessee), and along with all of the following paragraphs set out in this
Sublease shall be the complete terms and conditions of this Sublease.
3. PREMISES
--------
Sublessor leases to Sublessee, and Sublessee hires from said Sublessor,
approximately 2,600 square feet, situated in the City of Campbell, County of
Santa Clara, State of California, and located at2165 S.Bascom Avenue (the
------------------------------------------------------
"Premises").
- - ------------
4. TERM
----
4.1. TERM: The term of this Sublease shall be for a period if 25.5
months commencing approximately September 15, 1997 and ending October 31, 1999.
4.2. DELAY IN COMMENCEMENT:Notwithstanding said commencement date, if
------------------------
for any reason Sublessor cannot deliver possession of the Premises to Sublessee
on such
Page 1 of 4
<PAGE>
this Sublease or the obligations of Sublessee hereunder or extend the term
hereof, but in such case Sublessee shall not be obligated to pay rent until
possession of the Premises is tendered to Sublessee ' provided, however, that if
Sublessor shall not have delivered possession of the Premises within fifteen
(15) days from such commencement date, Sublessee may, at Sublessee's option, by
notice in writing to Sublessor, cancel this Sublease. If this Sublease is
canceled as herein provided, Sublessor shall return any monies previously
deposited by Sublessee and the parties shall be discharged from all obligations
hereunder.
4.3. EARLY POSSESSION: In the event that Sublessor shall permit
-----------------
Sublessee to occupy the Premises prior to the commencement date of the term,
such occupancy shall be subject to all of the provisions of this Sublease. Such
early possession shall not advance the termination date of this Sublease.
5. RENT: Sublessee shall pay to Sublessor as rent for the Premises equal
----
monthly installments of Three Thousand Three Hundred Eighty and 00/100 Dollars
($1,380.00), in advance, on the first day of each month of the term hereof.
Sublessee shall pay Sublessor upon the execution hereof the sum of Three
Thousand Three Hundred Eighty and 00/100 Dollars ($3,380.00), as rent for
September 15, 1997 through October 14, 1997. Rent for any period during the
term hereof which is for less than one month shall be a pro rata portion of the
monthly installment Rent shall be payable without notice or demand and without
any deduction, offset, or abatement in lawful money of the United States of
America to Sublessor at the address stated herein or to such other persons
or at such other places as Sublessor may designate in writing.
6. SECURITY DEPOSIT: Three Thousand Three Hundred Eighty and 00/100
------------------
Dollars ($3,380.00), shall be paid by Sublessee upon execution of the Sublease,
and shall be refundable to Sublessee upon fulfillment of all terms and
conditions of the Sublease.
7. USE The Premises shall be used and occupied only for general office
---
for graphics and publication on the Internet.
8. BROKER
------
8.l. DIVIDED AGENCY Sublessee and Sublessor acknowledge that
---------------
Colliers Parrish International is solely the broker for the Sublessee and that
Grubb & Ellis Company is solely the broker for the Sublessor, and that neither
represents the client of the other.
8.2. BROKER COMMISSION: Upon execution of this Sublease, Subiessor
------------------
shall pay Broker a real estate commission pursuant to separate written
agreement.
9. CONDITION OF PREMISES: Sublessee hereby accepts the Premises in their
---------------------
condition existing as of the date Sublessee occupies the Premises, subject to
all applicable zoning-, municipal, county and state laws, ordinances and
regulations governing and relating to the use of the Premises, and accepts this
Sublease subject thereto and to all matters disclosed thereby and by any
exhibits attached hereto. Sublessee acknowledges that neither Sublessor nor
Sublessee's
Page 2 of 4
<PAGE>
agent nor the Broker has made any representations or warranty as to the
suitability of the Premises for the conduct of Sublessee's business.
Dated:___________________ Dated: 9/4/97
-------
SUBLESSOR: SUBLESSEE:
EXECUSTAFF INTERNET ASSOCIATES, INC.
By: _____________________ By: /S/ Robert Rositano Jr.
---------------------
Joe DeCristofaro Robert Rositano Jr.
By: _____________________ Its: President
Danette DeCristofaro-Hayes
Address: 6090 Guadalupe Mines Road Address: 650 Saratoga
San Jose, CA 95120 San Jose, CA 95129
Phone (408) 268-2068 Phone: 408-260-6577
CONSENT TO SUBLEASE
This Consent to Sublease is made on ____________ and shall be made part of the
Sublease Agreement dated September 3, 1997 by and between Execustaff
("Sublessor") and Internet Associates, Inc. ("Sublessee"), as Sublease under the
Master Lease dated March 21, 1994 entered into by Sevgard ("Lessor") and
Execustaff ("Lessee")-
The Consent to Sublease is made in reference to the following facts and
objectives
1) Lessor's Consent to Sublease is hereby given by Sevgard
("Lessor"), to Execustaff ("Lessee" under the Master Lease and "Sublessor" under
Sublease Agreement)'and Internet Associates, Inc. ("Sublessee"), for the
premises located at 2165 S. Bascom Avenue, Campbell, California.
2) It is understood by all parties that each and every covenant,
condition or obligation imposed upon Lessee by the Master Lease and each and
every right, remedy or benefit afforded Lessor by the master lease shall not be
impaired or diminished as a result of this Sublease.
Page 3 of 4
<PAGE>
3) This Sublease, even with the consent of Lessor, shall not
relieve Lessee of its primary obligation to pay the rent and to perform all
other obligations to be performed by Lessee.
Dated: ___________________
MASTER LESSOR:
SEVGARD
By: Paul Sevarino
Its: Managing Partner
Address: 1701 Heron
Sunnyvale, CA 94086
Phone: (408) 252-8920
Page 4 of 4
<PAGE>
Grubb & Ellis Company
Commercial Real Estate Services
CALIFORNIA LEASE AMERICANS WITH DISABILITIES
ACT, HAZARDOUS MATERIALS AND TAX DISCLOSURE
The Americans With Disabilities Act is intended to make many business
establishments equally accessible to persons with a variety of disabilities;
modifications to real property may be required. State and local laws also may
mandate changes. The real estate brokers in this transaction are not qualified
to advise you as to what if any, changes may be required now, or in the future.
Owners and tenants should consult the attorneys and qualified design
professionals of their choice for information regarding these matters. Real
estate brokers cannot determine which attorneys or design professionals have the
appropriate expertise in this area-
Various construction materials may contain items that have been or may in the
future be determined to be hazardous (toxic) or undesirable and may need to be
specifically treated/handled or removed. For example, some transformers and
other electrical components contain PCB's, and asbestos has been used in
components such as fire-proofing, heating and cooling systems, air duct
insulation, spray-on and tile acoustical form materials, linoleum, floor tiles,
roofing, dry wall and plaster. Due to prior or current uses of the Property or
in the area, the Property may have hazardous or undesirable metals (including
lead-based paint), minerals, chemicals, hydrocarbons, or biological or
radioactive items (including electric and magnetic fields) in soils, water,
building components, above or below ground containers or elsewhere in areas that
may or may not be accessible or noticeable. Such items may leak or otherwise be
released. Real estate agents have no expertise in the detection or correction of
hazardous or undesirable items. Expert inspections are necessary. Current or
future laws may require clean up by past, present and/or future owners and/or
operators. It is the responsibility of the Landlord and Tenant to retain
qualified experts to detect and correct such matters and to consult with legal
counsel of their choice to determine what provisions, if any, they may include
in transaction documents regarding the Property.
To the best of Landlord's knowledge, Landlord is not aware of any asbestos and
other hazardous materials and undesirable substances related to the Property.
Landlord are required under California Health and Safety Code Section 25915 et
seq. to disclose reports and surveys regarding asbestos to certain persons,
including their employees, contractors, co-owners, purchasers and tenants.
Tenants have similar disclosure obligations. Landlord and Tenants have
additional hazardous materials disclosure responsibilities to each other under
California Health and Safety Code Section 25359.7 and other California laws.
Consult your attorney regarding this matter. Grubb & Ellis Company is not
qualified to assist you in this matte. or provide you with other legal or tax
advice.
Sale, lease and other transactions can have local, state and federal tax
consequences for the Landlord and/or Tenant. in the event of a sale, Internal
Revenue Code Section 1445 requires that all buyers of an interest in any real
property located in the United States must withhold and pay over to the Internal
Revenue Service (IRS) an amount equal to ten percent (101/6) of the gross sales
price within ten (10) days of the date of the sale unless the Buyer can
adequately establish that the Seller was not a foreigner, generally by having
the Seller sign a Non-Foreign Seller Certificate. Note that depending upon the
structure of the transaction, the tax withholding liability could exceed the net
cash proceeds to be paid to the Seller at closing. California poses an
additional withholding requirement equal to three and one-third percent (3 1/3%)
of the gross sales price not only on foreign Sellers but also out-of-state
---------------------
Sellers and Sellers leaving the-state if the sale price exceeds $100,000,
- - ------------------------------
Generally, withholding is required if the sales price proceeds are disbursed
outside of California, if the last known address of the Seller is outside of
California or if as financial intermediary is used. Consult your tax and legal
advisor. Real estate brokers are not qualified to give legal or tax advice or to
deter-mine whether any other person is properly qualified to provide legal or
tax advice.
SUBLESSOR: SUBLESSEE:
EXECUSTAFF INTERNET THE CITY, INC.
By: ____________________ By: ______________________
Date: ____________________ Date: 9/4/1997
<PAGE>
STOCK OPTION AGREEMENT
----------------------
AGREEMENT dated as of March 20, 1998 by and between NeTTaxi Online
Communities, Inc., a Delaware corporation, with principal offices located at
2165 South Bascom Avenue, Campbell, CA 95008 (the "Company"), and Robert A.
Rositano, Jr., (the "Optionee").
W I T N E S S E T H
-------------------
WHEREAS, the Board of Directors of the Company authorized the grant to the
Optionee of an option to purchase 35,000 shares of Common Stock of the Company
(the "Common Stock"), conditioned upon the Optionee's acceptance thereof upon
the terms and conditions set forth in this Agreement; and
WHEREAS, the Optionee desires to acquire said option on the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, and for other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee,
------------------
effective as of the date hereof, an option to purchase 35,000 shares of Common
Stock at a purchase price of $ .10 per share, subject to the terms and
conditions set forth herein,
2. Vesting, (a) Subject to Sections 2(b), 3, 7, 9 and 10 hereof, this
-------
option may be exercised to purchase 35,000 shares of Common Stock in accordance
with the following schedule; one-third of the shares of Common Stock underlying
this option shall be purchasable on the first anniversary of the date hereof, an
additional one-third shall be purchasable on the second anniversary of the date
hereof, and an additional one-third shall be purchasable on the third
anniversary of the date hereof. This option shall expire and no shares of Common
Stock may be purchased hereunder ten years after the date hereof and thereafter.
(b) Notwithstanding the provisions of Section 2(a) hereof, this
option shall become immediately exercisable upon a Change in Control Date. For
purposes hereof, a Change in Control Date shall mean the date of the first to
occur of a Liquidation or Sale. A "Liquidation" shall occur upon the voluntary
or involuntary dissolution or winding up of the Company. A "Sale" shall occur,
in any single transaction or series of related transactions, upon
(a) a sale, abandonment, transfer, lease or disposition of all or
substantially of the properties or assets of the Company (other than to any
wholly-owned subsidiary of the Company),
<PAGE>
(b) a sale, transfer or other disposition by the Company's
shareholders of securities of the Company representing in excess of 50% of the
Common Stock equivalent voting rights of the Company (on a fully diluted basis)
or
(c) a merger or consolidation of the Company with or into any
other entity or entities (other than a merger of the Company with or into a
wholly-owned subsidiary of the Company with no change in beneficial ownership of
the Company). In addition, notwithstanding the provisions of Section 2(a)
hereof, 50% of any options which are not exercisable upon the consummation of an
initial public offering and registration of the Common Stock under the
Securities Act of 193J, as amended (the "Act") shall become exercisable at such
time,
3. Nonqualified Option Withholding Tax. This option shall not be deemed
-------------------------------------
an "Incentive Stock Option" under the Intemal Revenue Code of 1986, as amended
(the "Code"). Accordingly, the Optionee acknowledges that, under existing laws
and regulations, exercise of this option may be a taxable event under the Code.'
In such event, the Optionee will be subject to a withholding tax on the
difference between the purchase price of the shares and their fair market value
on the date of exercise. Any such tax shall be paid to the Company by the
Optionee within two days of receipt of a notice from the Company containing the
amount thereof.
4. Exercise of Option. Subject to the terms and conditions set forth
--------------------
herein, the Optionee may exercise this option at any time as to all or any of
the shares of Common Stock then purchasable in accordance with Section 2 hereof
15Y delivering to the Company written notice in the form attached hereto as
Exhibit A. Such notice shall specify:
(a) The number of whole shares of Common Stock to be
purchased together with payment in full of the aggregate option price of such
shares, provided that this option may not be exercised for fewer than one
hundred (100) shares of Common Stock or the number of shares of Common Stock
underlying the option that are exercisable pursuant to Section 2 hereof,
whichever is smaller;
(b) The name or names in which the stock certificate
or certificates are to be registered;
(c) The address to which dividends, notices, reports, etc.
are to be sent; arid
(d) The Optionee's social security number.
<PAGE>
Such notice shall be accompanied by payment of the full purchase price for the
shares of Common Stock underlying the option which are being exercised. The
purchase price of the shares of Common Stock as to which the Option is exercised
shall be paid in full in U.S. dollars, in cash, or by certified or bank
cashier's check payable to the order of the Company, free from all collection
charges. The purchase price for the shares of Common Stock covered by this
option may also be paid in shares of Common Stock owned by the Optionee having a
Fair Market Value (as hereinafter defined) on the date of exercise equal to the
aggregate purchase price, or in a combination of cash and Common Stock. As is
used herein, the "Fair Market Value" of a share of Common Stock on any day
means; (i) if -the principal market for the Common Stock is The New York Stock
Exchange, any other national securities exchange or the NASDAQ National Market,
the closing sales price of the Common Stock on such day as reported by such
exchange 'or market, or on a consolidated tape reflection transactions on such
exchange or markets, or (ii) if the principal market for the Common Stock is not
a national securities exchange or the NASDAQ National Market and the Common
Stock is quoted on the National Association of Securities Dealers Automated
Quotations System, the mean between the closing bid ad the closing asked prices
for the Common Stock on such day as quoted on such System, or (iii) if the
Common Stock is not quoted on the National Association of Securities Dealers
Automated Quotations Systems, the mean between the highest bid and lowest asked
prices for the Common Stock on such day as reported by the National Quotation
Bureau, Intl; provided that if clauses (i), (ii) and (iii) of this paragraph are
all inapplicable, or if no trades have been made or no quotes are available for
such day, the Fair Market Value of the Common Stock shall be determined by the
Company by any method which it deems to be appropriate. The determination of the
Company shall be conclusive as to the Fair Market Value of the Common Stock. The
Optionee shall not be entitled to any rights as a stockholder of the Company in
respect of any shares of Common Stock underlying this option until such shares
of Common Stock shall have been paid in full and issued to the Optionee.
5. Delivery of Stock Certificate. As soon as practicable after the
--------------------------------
Company received payment for shares of Common Stock covered by this option, it
shall deliver a certificate or certificates representing the shares of Common
Stock so purchased to the Optionee. Only one stock certificate will be issued
unless the Optionee otherwise requests in writing.
6. Nontransferability of Option. This option is personal to the Optionee
-----------------------------
and during the Optionee's lifetime may be exercised only by the Optionee. This
option and the rights and privileges conferred hereby may not be transferred,
assigned, pledged or hypothecated in any way and shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of this option or any right or
privilege conferred hereby contrary to the provisions hereof, or upon the levy
<PAGE>
or any attachment or similar process on the rights and privileges conferred
hereby, this option and the rights and privileges conferred hereby shall
immediately become null and void.
7. Effect of Terminations of Employment . In the event that the
----------------------------------------
Optionee's employment as an employee of the Company and, if applicable, of each
direct or indirect subsidiary corporation (a "Subsidiary") of the Company
(hereinafter the "Optionee's employment") is terminated prior to the time that
this option has been fully exercised, this option shall be exercisable, as to
any remaining shares of Common Stock subject hereto, only to the extent the
option granted hereunder was exercisable pursuant to Section 2 hereof on the
date of the Optionee's employment ceased, whether for cause, death ' ,
disability or any other reason, and the Optionee shall have no right to exercise
this option with respect to any shares of Common Stock which shall not have
vested pursuant to Section 2 hereof, as of the date of the Optionee's employment
ceased.
8. No Right of Continued Employment. This option does not confer on the
----------------------------------
Optionee any right to continue in the employ of the Company or any Subsidiary or
interfere in any way with the right of the Company or any Subsidiary to
determine the terms of the Optionee's employment.
9. Anti-Dilution. In the event of a reorganization, recapitalization,
-------------
stock split, reverse stock split, stock dividend, combination of shares, merger,
consolidation, rights offering, or any other change in the corporate structure
or shares of the Company, the number of shares covered by any unexercised
portion of this option and the related purchase price per share shall be
adjusted proportionately.
10. Registration of Shares. This option shall be subject to the
------------------------
requirement that if at any time the Board of Directors of the Company shall
determine that the registration, listing or qualification of the shares of
Common Stock covered hereby upon any securities exchange or under any federal or
state law, is necessary or desirable in connection with the granting of this
option or the purchase of shares hereunder, this option may not be exercised
until such registration, listing or qualification shall have been effected or
obtained. The Board of Directors may require that the person exercising this
option shall make such representations and famish such information, as it deems
appropriate to assure compliance with the foregoing or any other applicable
legal requirement.
11. Representations and Warranties of 0ptionee. The Optionee represents
--------------------------------------------
and warrants to the Company that:
(a) The Optionee is acquiring this option and will acquire the
shares of Common Stock purchasable hereunder for the Optionee's own account
<PAGE>
and not with a view towards the distribution, resale, subdivision or
fractionalization of the shares of Common Stock purchased on exercise of this
option;
(b) The Optionee (i) has adequate means of providing for his or
her current needs and contingencies, (ii) has no need for liquidity in an
investment in the Common Stock underlying this options, (iii) can bear the
economic risk of losing his entire investment in the share of Common Stock
underlying this option, (iv) does not have an overall commitment to investments
which are not readily marketable, that is, disproportionate to his or her net
worth, and the Optionee's investment in the Common Stock underlying this option
will not cause such investment to become disproportionate to his or her net
worth, (v) has such knowledge an experience in financial and business matters
that the Optionee is capable of evaluating the risks and merits of an investment
in the Company and, (vi) is not relying on the Company respecting the tax or
other economic considerations of an investment in the Common Stock purchasable
hereunder;
(c) In the Optionee's position with the Company, the Optionee has
had both the opportunity to ask questions and receive answers from the officers
and directors of the Company respecting the Company arid an investment in the
shares of Common Stock purchasable hereunder and to obtain any additional
information to the extent the Company possesses or may possess such information
or can acquire it without unreasonable effort or expense; however, no oral
representations have been made or oral information furnished to the Optionee or
his or her representatives respecting an investment in the shares of Common
Stock purchasable hereunder;
(d) Anything in this Agreement to the contrary notwithstanding, the
Optionee hereby agrees that he or she shall not sell, transfer by any means or
otherwise dispose of the shares acquired by the Optionee without registration
under the Act and applicable state securities laws unless (i) an exemption from
the Act and applicable sales securities laws is available, and (ii) the Optionee
has furnished the Company with notice of such proposed transfer and the
Company's legal counsel, in its reasonable opinion, shall deem such proposed
transfer to be so exempt; and
(e) The Optionee is aware that the Company shall place
stop-transfer orders with its transfer agent against the transfer of any shares
of Common Stock purchasable hereunder in the absence of registration under the
Act and applicable state securities laws unless the Optionee complies with the
provision of Section 11 (d) hereof.
<PAGE>
12 (a)Binding Effect -Successors. Subject to the provisions of Section 6
-----------------------------
hereof, this Agreement shall be binding upon and inure to the benefit of each
party hereto and to the extent not prohibited herein, their respective heirs,
successors, assigns and representatives.
(b)Counter parts. This Agreement may be executed in two or more
------------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(c)Waiver. The waiver by any party hereto of a breach of any
---------
provision of this Agreement shall not operate or be construed as a waiver of any
other or subsequent breach.
(d)Entire Agreement. This Agreement constitutes the, entire
--------------------
agreement between the parties hereto with respect to the subject matter hereof
and may be modified or amended only by an instrument in writing signed by the
party against whom enforcement is sought.
(e)Notices. Any notice, demand, request or consent to be given or
-----------
served in connection herewith shall be in writing and shall be deemed to have
been given and received by the respective parties designated therein on the day
on which delivered by messenger to the receiving party at the address set forth
herein (or at such other address as such party shall specify to the other
parties in writing pursuant to this Section) or, if sent by certified or
registered mail postage prepaid, return receipt requested, on the second day
after the day on which mail to such party at such address.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of
the date first set forth above.
NETTAXI ONLINE COMMUNITIES, INC.
/S/ Robert A Rositano, Jr.
------------------------------
By: Robert A Rositano, Jr. CEO
/S/ Dean Rositano
------------------------------
By: Dean Rositano, President
OPTIONEE: /s/ Robert A Rositano, Jr.
------------------------------
Robert A Rositano, Jr.
Address: 21860 Eaton Place
Copertino, CA 98014
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE OPTION
(Date)
NeTTaxi online Communities, Inc.
2165 South Bascom Avenue
Campbell, CA 95008
Ladies and Gentlemen:
in accordance with the Stock Option Agreement (the "Stock Option Agreement')
dated as of March 20, 1998 between me and NeTTaxi Online Communities, Inc, ("the
Company"), I wish to purchase ________ shares of Common Stock of the Company. I
understand that if I should transfer ownership of these shares within one year
from the date of this letter, I must promptly notify you in writing.
I hereby certify that the representations I made in the Stock Option Agreement
are true and correct on and as of the date hereof.
As payment for my shares, enclosed is my check payable to NeTTaxi Online
Communities, Inc. in the amount of $- and/or securities of the Company having a
value of $_ as determined in accordance with the Stock Option Agreement.
Kindly forward to me a stock certificate issued in my name at your earliest
convenience-c. I understand that delivery of these shares will take
approximately two weeks.
Very truly yours,
____________________________
(Signature)
____________________________
(Print name)
____________________________
Address:
____________________________
Social Security Number:
<PAGE>
STOCK OPTION AGREEMENT
----------------------
AGREEMENT dated as of March 20, 1998 by and between NeTTaxi Online
Communities, Inc., a Delaware corporation, with principal offices located at
2165 South Bascom Avenue, Campbell, CA 95008 (the "Company"), and Dean Rositano,
(the "Optionee").
WITNESSETH
- - ----------
WHEREAS, the Board of Directors of the Company authorized the grant to the
Optionee of an option to purchase 35,000 shares of Common Stock of the Company
------
(the "Common Stock"), conditioned upon the Optionee's acceptance thereof upon
the terms and conditions set forth in this Agreement; and,
WHEREAS, the Optionee desires to acquire said option on the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, and for other good and valuable consideration, the
parties hereto hereby agree as follows:
1. Grant of Option. The Company hereby grants to the Optionee,
------------------
effective as of the date hereof, an option to purchase, 35,000 shares of Common
------
Stock at a purchase price of $ .10 per share, subject to the terms and
-----
conditions set forth herein.
2. Vesting. (a) Subject to Sections 2(b), 3, 7, 9 and 10 hereof,
--------
this option may be exercised to purchase 35,000 shares of Common Stock in
------
accordance with the following schedule; one-third of the shares of Common Stock
underlying this option shall be purchasable on the first anniversary of the date
hereof, an additional one-third shall be purchasable on the second anniversary
of the date hereof, and an additional one-third shall be purchasable on the
third anniversary of the date hereof. This option shall expire and no shares of
Common Stock may be purchased hereunder ten years after the date hereof and
thereafter.
(b) Notwithstanding the provisions of Section 2(a) hereof, this option
shall become immediately exercisable upon a Change in Control Date. For purposes
hereof, a Change in Control Date shall mean the date of the first to occur of a
Liquidation or Sale. A "Liquidation" shall occur upon the voluntary or
involuntary dissolution or winding up of the Company. A "Sale" shall occur, in
any single transaction or series of related transactions, upon
(a) a sale, abandonment, transfer, lease or disposition of all or
substantially of the properties or assets of the Company (other than to any
wholly-owned subsidiary of the Company),
<PAGE>
(b) a sale, transfer or other disposition by the Company's shareholders of
securities of the Company representing in excess of 50% of the Common Stock
equivalent voting rights of the Company (on a fully diluted basis) or
(c) a merger or consolidation of the Company with or into any other entity
or entities (other than a merger of the Company with or into a wholly-owned
subsidiary of the Company with no change in beneficial ownership of the
Company). In addition, notwithstanding the provisions of Section 2(a) hereof,
50% of any options which are not exercisable upon the consummation of an initial
public offering and registration of the Common Stock under the Securities Act of
1933, as amended (the "Act") shall become exercisable at such time.
3. Nonqualified Option Withholding Tax, This option shall not be
---------------------------------------
deemed an "Incentive Stock Option" under the Internal Revenue Code of 1986, as
amended (the "Code"). Accordingly, the Optionee acknowledges that, under
existing laws and regulations, exercise of this option may be a taxable event
under the Code. In such event, the Optionee will be subject to a withholding tax
on the difference between the purchase price of the shares and their fair market
value on the date of exercise. Any such tax shall be paid to the Company by the
Optionee within two days of receipt of a notice from the Company containing the
amount thereof.
4. Exercise of Option. Subject to the terms and conditions set
---------------------
forth herein, the Optionee may exercise this option at any time as to all or any
of the shares of Common Stock then purchasable in accordance with Section 2
hereof by delivering to the Company written notice in the form attached hereto
as Exhibit A. Such notice shall specify:
(a) The number of whole shares of Common Stock to be purchased together
with payment in full of the aggregate option price of such shares, provided that
this option may not be exercised for fewer than one hundred (100) shares of
Common Stock or the number of shares of Common Stock underlying the option that
are exercisable pursuant to Section 2 hereof, whichever is smaller;
(b) The name or names in which the stock certificate or certificates are to
be registered;
(c) The address to which dividends, notices, reports, etc. are to be sent;
and
(d) The Optionee's social security number.
<PAGE>
Such notice shall be accompanied by payment of the full purchase price- for the
shares of Common Stock underlying the options which are being exercised. The
purchase price of the shares of Common Stock as to which the Option is exercised
shall be paid in full in U.S. dollars, in cash, or by certified or bank
cashier's check payable to the order of the Company, free from all collection
charges. The purchase price for the shares of Common Stock covered by this
option may also be paid in shares of Common Stock owned by the Optionee having a
Fair Market Value (as hereinafter defined) on the date of exercise equal to the
aggregate purchase price, or in a combination of cash and Common Stock. As is
used herein, the "Fair Market Value" of a share of Common Stock on any day
means; (i) if the principal market for the Common Stock is The New York Stock
Exchange, any other national securities exchange or the NASDAQ National Market,
the closing sales price of the Common Stock on such day as reported by such
exchange or market, or on a consolidated tape reflection transactions on such
exchange or markets, or (ii) if the principal market for the Common Stock is not
a national securities exchange or the NASDAQ National Market and the Common
Stock is quoted on the National Association of Securities Dealers Automated
Quotations System, the mean between the closing bid ad the closing asked prices
for the Common Stock on such day as quoted on such System, or (iii) if the
Common Stock is not quoted on the National Association of Securities Dealers
Automated Quotations Systems, the mean between the highest bid and lowest asked
prices for the Common Stock on such day as reported by the National Quotation
Bureau, Intl; provided that if clauses (i), (ii) and (iii) of this paragraph are
all inapplicable, or if no trades have been made or no quotes are available for
such day, the Fair Market Value of the Common Stock shall be determined by the
Company by any method which it deems to be appropriate. The determination of the
Company shall be conclusive as to the Fair Market Value of the Common Stock. The
Optionee shall not be entitled to any rights as a stockholder of the Company in
respect of any shares of Common Stock underlying this option until such shares
of Common Stock shall have been paid in full and issued to the Optionee.
5. Delivery of Stock Certificate. As soon as practicable after the
------------------
Company received payment for shares of Common Stock covered by this option, it
shall deliver a certificate or certificates representing the shares of Common
Stock so purchased to the Optionee. Only one stock certificate will be issued
unless the Optionee otherwise requests in writing.
6. Nontransferability of Option. This option is personal to the
-------------------------------
Optionee and during the Optionee's lifetime may be exercised only by the
Optionee. This option and the rights and privileges conferred hereby may not be
transferred, assigned, pledged or hypothecated in any way and shall Dot be
subject to execution, attachment or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this option or any
right or privilege conferred hereby contrary to the provisions hereof, or upon
the levy
<PAGE>
or any attachment or similar process on the rights and privileges conferred
hereby, this option and the rights and privileges conferred hereby shall
immediately become null and void.
7. Effect of Terminations of Employment. In the event that the
-----------------------------------------
Optionee's employment as an employee of the Company and, if applicable, of each
direct or indirect subsidiary corporation (a "Subsidiary") of the Company
(hereinafter the "Optionee's employment) is terminated prior to the time that
this option has been fully exercised, this option shall be exercisable, as to
any remaining shares of Common Stock subject hereto, only to the extent the
option granted hereunder was exercisable pursuant to Section 2 hereof on the
date of the Optionee's employment ceased, whether for cause, death, disability
or any other reason, and the Optionee shall have no right to exercise this
option with respect to any shares of Common Stock which shall not have vested
pursuant to Section 2 hereof, as of the date of the Optionee's employment
ceased.
8. No Right of Continued Employment. This option does not confer on
---------------------------------
the Optionee any right to continue in the employ of the Company or any
Subsidiary or interfere in any way with the right of the Company or any
Subsidiary to determine the terms of the Optionee's employment.
9. Anti-Dilution. In the event of a reorganization,
--------------
recapitalization, stock split, reverse stock split, stock dividend, combination
---
of shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of the Company, the number of shares covered by
any unexercised portion of this option and the related purchase price per share
shall be adjusted proportionately.
10. Registration of Shares. This option shall be subject to the
-------------------------
requirement that if at any time the Board of Directors of the Company shall
determine that the registration, listing or qualification of the shares of
Common Stock covered hereby upon any securities exchange or under any federal or
state law, is necessary or desirable in connection with the granting of this
option or the purchase I of shares hereunder, this option may not be exercised
until such registration, listing or qualification shall have been effected or
obtained. The Board of Directors may require that the person exercising this
option shall make such representations and furnish such information, as it deems
appropriate to assure compliance with the foregoing or any other applicable
legal requirement.
11. Representations and Warranties of Optionee. The Optionee represents
-------------------------------------------
and warrants to the Company that:
(a) The Optionee is acquiring this option and will acquire the shares of
Common Stock purchasable hereunder for the Optionee's own account
<PAGE>
and not with a view towards the distribution, resale, subdivision or
fractionalization of the shares of Common Stock purchased on exercise of this
option;
(b) The Optionee (i) has adequate means of providing for his or her current
needs and contingencies, (ii) has no need for liquidity in an investment in the
Common Stock underlying this options, (iii) can bear the economic risk of losing
his entire investment in the share of Common Stock underlying this option, (iv)
does not have an overall commitment to investments which are not readily
marketable, that is, disproportionate to his or her net worth, and the
Optionee's investment in the Common Stock underlying this option will not cause
such investment to become disproportionate to his or her net worth, (v) has such
knowledge and experience in financial and business matters that the Optionee is
capable of evaluating the risks and merits of an investment in the Company and,
(vi) is not relying on the Company respecting the tax or other economic
considerations of an investment in the Common Stock purchasable hereunder-,
(c) In the Optionee's position with the Company, the Optionee has had
both the opportunity to ask questions and receive answers from the officers and
directors of the Company respecting the Company and an investment in the shares
of Common Stock purchasable hereunder and to obtain any additional information
to the extent the Company possesses or may possess such information or can
acquire it without unreasonable effort or expense; however, no oral
representations have been made or oral information furnished to the Optionee or
his or her representatives respecting an investment in the shares of Common
Stock purchasable hereunder;
(d) Anything in this Agreement to the contrary notwithstanding, the
Optionee hereby agrees that he or she shall not sell, transfer by any means or
otherwise dispose of the shares acquired by the Optionee without registration
under the Act and applicable state securities laws unless (i) an exemption
from the Act and applicable sales securities laws is available, and (ii) the
Optionee has furnished the Company with notice of such proposed transfer and
the Company's legal counsel, in its reasonable opinion, shall deem such proposed
transfer to be so exempt; and
(e) The Optionee is aware that the Company shall place stop-transfer
orders with its transfer agent against the transfer of any shares of Common
Stock purchasable hereunder in the absence of registration under the Act and
applicable state securities laws unless the Optionee complies with the provision
of Section I I (d) hereof.
<PAGE>
12. (a) Binding Effect - Successors. Subject to the provisions of
-------------------------------
Section 6 hereof, this Agreement shall be binding upon and inure to the benefit
of each party hereto and to the extent not prohibited herein, their respective
heirs, successors, assigns and representatives.
(b) Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(c) Waiver. The waiver by any party hereto of a breach of any provision
-------
of this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach.
(d) Entire Agreement . This Agreement constitutes the entire agreement
----------------
between the parties hereto with respect to the subject matter hereof and may be
modified or amended only by an instrument in writing signed by the party against
whom enforcement is sought.
(e)Notices, Any notice, demand, request or consent to be given or
--------
served in connection herewith shall be in writing and shall be deemed to have
been given and received by the respective par-ties designated therein on the day
on which delivered by messenger to the receiving party at the address set forth
herein (or at such other address as such party shall specify to the other
parties in writing pursuant to this Section) or, if sent by certified or
registered mail postage prepaid, return receipt requested, on the, second day
after the day on which mail to such party at such address.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of
the date first set forth above.
NETTAXI ONLINE COMMUNITIES, INC.
By: Robert A. Rositano, Jr. CEO
By: Dean Rositano, President
OPTIONEE: Dean Rositano
Address 1165 Coolidge Ave.
San Jose, CA 95125
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE OPTION
- - -------------------
(Date)
NeTTaxi Online Communities, Inc.
2165 South Bascom Avenue
Campbell, CA 95008
Ladies and Gentlemen:
In accordance with the Stock Option Agreement (the, "Stock Option Agreement")
dated as of March 20, 1998 between me and Nettaxi Online Communities, Inc, ("the
Company"), I wish to purchase ____________ shares of Common Stock of the
Company. I understand that if I should transfer ownership of these shares within
one year from the date of this letter, I must promptly notify you in writing.
I hereby certify that the representations I made in the Stock Option Agreement
are true and correct on and as of the date hereof.
As payment for my shares, enclosed is my check payable to NeTTaxi Online
Communities, Inc. in the amount of $______ and/or securities of the Company
having a value of $______ as determined in accordance with the Stock Option
Agreement.
Kindly forward to me a stock certificate issued in my name at your earliest
convenience. I understand that delivery of these shares will take approximately
two weeks.
Very truly yours
___________________________________________________
(Signature)
___________________________________________________
(Print name)
Address: _________________________________________
___________________________________________________
___________________________________________________
Social Security Number: __________________________
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
DATED: August 1, 1998
PARTIES: NeTTaxi Online Communities, Inc., a Delaware corporation (herein
the "Employer")
Dean J. Rositano, an individual (herein the "Employee")
RECITALS:
A. Employee desires to provide services to Employer and Employer
desires to retain
the services of Employee.
B. Employer and Employee desire to formalize the terms and conditions
of
Employee's employment with Employer.
AGREEMENT:
NOW, THEREFORE, in consideration of the Recitals and the mutual covenants set
forth herein below, and as a material inducement for Employee to enter into this
Employment Agreement (the "Agreement"), Employer and Employee hereby agree as
follows:
Section 1. Employment. Employer hereby employs Employee in the capacity of
- - ------------------------
Chief Executive Officer and a member of the Board of Directors (the "Board").
Employee hereby accepts such employment, upon the terms and subject to the
conditions herein contained.
Section 2. Duties. During the Employee's employment with Employer, Employee
will report directly to the Board, will be responsible for performing those
duties consistent with the position of President as may from time to time may be
reasonably assigned to or requested of Employee by Employer's Board. Employee
shall use his reasonable efforts to per-form faithfully and effectively such
responsibilities. Employee shall conduct all of his activities in a manner so as
to maintain and promote the business and reputation of the Employer. Employee,
during his employment with Employer, will devote all of his business time,
attention and skills to the business and affairs of Employer. Employee's
principal place of employment during his employment with Employer shall be in
Campbell, California. In the event that Employer shall change the location of
its principal office, Employee shall be entitled to be reimbursed for reasonable
documented relocation expenses.
Section 3. Compensation and Benefits.
3.1 Annual Salary. Employer shall pay to Employee, and Employee will
---------------
accept, as full compensation for any and all services rendered and to be
rendered by him to Employer in all capacities during the term of his employment
under this Agreement: (i) a base salary at the annual rate of $125,000 for the
first year of employment hereunder, or at such higher rate as the Board shall
determine, in its sole discretion ("Base Salary"), payable in accordance with
the regular payroll practices of Employer; and (ii) the additional benefits
hereinafter set forth in this Section 3.
3.2 Annual Bonus and Option.
(a) Employee shall be entitled to an annual bonus in the minimum amount of
Fifty Thousand Dollars ($50,000) U.S.D. (the "Minimum Bonus"), up to a maximum
of the Annual Salary then payable to Employee in accordance with the terms and
provisions of this Agreement, payable on the anniversary date of this Agreement,
commencing August 1, 1999. Any annual bonus in excess of the Minimum Bonus shall
be determined by the Board in its sole discretion based upon performance targets
established by the Board at the beginning of each year of employment hereunder;
and
-1-
<PAGE>
(b) Upon execution of this Agreement, Employer hereby grants to Employee a
stock option for 175,000 shares of common stock of Employer to Employee as an
inducement to Employee to enter into this Agreement, together with an option to
purchase an additional 175,000 shares of common stock of Employer at the price
of $0.10 per share all under the Company's Employee Stock Option PlanThe option
may be exercised annually as to one-third (113) of such shares, if and only if
Employee is in the employ of Employer. In the event Employee is not employed due
to those events described in Section 5(a), 5(b), 5(d), 5(e) and 5(f), then and
in such event the option may be exercisable at the time of such termination
irrespective of the fact that Employee is no longer employed by Employer. The
option may be exercisable at any time within five (5) years from the date of
this Agreement, after which time the option shall lapse and be of no further
force or effect.
3.3 Annual Salary Increases.The Base Salary set forth for the Employee in
-------------------------
Section 3.1 shall be increased by an amount equivalent to an increase of Ten
Percent (10%) per annum, which increase shall be cumulative for each year. For
example, in year three (3) of the Term of Employment, as defined below, the base
annual salary due Employee shall be the sum of One Hundred Fifty One Thousand
Two Hundred Fifty Dollars ($151,250), based upon the formula of year one base of
$125,000 x 10% = $137,500; and for year two base x 10% for year three annual
increase of 10% = $151,250. The Minimum Bonus or any additional bonus amount
shall not be taken into consideration when determining the annual salary
increases.
3.4 Employee Benefits.
(a) Expenses. Employer shall reimburse Employee for expenses he
---------
reasonably incurs in connection with the performance of his duties (including
business, travel and entertainment expenses), and all in accordance with
Employer's policies with respect hereto.
(b) Employer Health and Welfare Plans. Employee will be entitled to
------------------------------
participate in such Employee benefit plans and programs as Employer may from
time to time offer or provide to Employees of Employer, including, but not
limited to, participation life insurance, health and accident, medical and
dental, disability and retirement plans and programs.
(c) Vacation. Employee shall be eligible for three (3) weeks of
---------
paid vacation leave per year after the first year of employment, and thereafter
four (4) weeks per annum.
(d) Automobile.Employer shall pay to Employee, or to an automobile leasing
-----------
company chosen by Employee, a car allowance not to exceed the sum of Six Hundred
Dollars ($600) per month, payable monthly, commencing on the first calendar
month of each month after the effective date of this Agreement. In addition,
Employer shall pay all insurance costs and repair costs for the vehicle leased
by Employee within 30 days after receipt of bills or statements reflecting such
expenditures.
Section 4. Employment Term. Employee's employment by Employer pursuant to
- - -----------------------
this Agreement shall commence on the date of this Agreement and will continue
until the day prior to the fourth anniversary of the date of this Agreement (the
"Initial Term"). Thereafter, this Agreement shall be automatically renewed for
successive one year periods commencing on August 1st of each subsequent year
(the Initial Term, together with any subsequent employment period being referred
to herein as the "Employment Term'); provided, however, that either party may
elect to terminate this Agreement as of July 31, 2001 or as of any subsequent
July 31st (a "Renewal Termination Date"), by written notice to such effect
delivered to the other party at least 90 days prior to the Renewal Termination
Date.
Section 5. Termination of Employment.
- - -----------------------------------------
5.1 Events of Termination. Employee's employment with Employer will
----------------------
terminate upon the occurrence of any one or more of the following events:
-2-
<PAGE>
(a) Death. In the event of Employee's death, Employee's employment
------
will terminate on the date of death.
(b) Disability. In the event of Employee's Disability (as hereinafter
-----------
defined), Employer will have the option to terminate Employee's employment by
giving a notice of termination to Employee. The notice of termination shall
specify the date of termination, which date shall not be earlier than thirty
(30) days after the notice of termination is given. For purposes of this
Agreement, "Disability" means the inability of Employee to substantially
perform. his duties hereunder for 180 days out of 365 consecutive days as a
result of a physical or mental illness, all as determined in good faith by the
Board.
(c) Termination by Employer for Cause. Employer may, at its option,
-------------------------------------
terminate Employee's employment for "Cause" based on objective factors
determined in good faith by a majority of the Board by giving a Notice of
Termination to Employee specifying the reasons for termination and if Employee
shall fail to cure same within ten (10) days of his receiving -the Notice of
Termination his Employment shall terminate at the end of such ten (10) day
period; provided, that in the event the Board in good faith determines that the
underlying reasons giving rise to such determination cannot be cured, then said
cure period shall not apply and Employee's employment shall terminate on the
date of Employee's receipt of the Notice of Termination. "Cause" shall mean: (i)
Employee's conviction of, guilty or no contest plea to, or confession of quilt
to, a felony; (H) 2 willful act by Employee which constitutes gross misconduct
and which is materially injurious to Employer; (M) a willful and material
failure by Employee to substantially perform his duties, other than a failure
resulting from a Disability as defined in Section 5.1(b) hereof", (iv) violation
by Employee of Section 7.4 of this Agreement; or (v) except as may be permitted
herein, disclosure of material Confidential Information (as defined in Section
7.1 hereof) without the prior written consent of Employer.
(d) Without Cause by Employer.Employer may, at its option, terminate
-----------------------------
Employee's employment for any reason whatsoever (other than for the reasons set
forth above in Subsection (c) above) by giving a notice of termination to
Employee, and Employee's employment shall terminate on the later of the date the
notice of termination is given or the date set forth in such notice of
termination. At the time of such termination without cause, Employer shall pay
to Employee, without offset, excepting standard and consistent withholdings as
required by governmental taxing authorities pertaining to wages, all benefits
reasonably calculated to be due Employee, including but not limited to: (i) base
annual salary commutatively for the remainder of the entire Employment Term;
(ii) Minimum Bonus, plus any pro rata bonus in excess of the Minimum Bonus, as
determined by the date of such termination; (Iii) pre-payment of all automobile
allowance for the remaining period of the Employment Term, together with
insurance premiums based upon the initial cost of automobile insurance as
existed in the immediately preceding calendar year prior to such termination of
the Employment Term; and (iv) continued coverage for life, health and disability
insurance for the remainder of the Employment Term. All such sums due Employee
shall be paid in a lump sum within three (3) calendar days of such termination,
excepting that the continuation of Employee in any Employment Benefit P1@n shall
continue to be paid monthly or other periodic payment period as other employees
of Employer throughout the natural expiration of the Employment Term.
Notwithstanding the foregoing, the severance provision, provided in subsection
(d) immediately below, shall supersede the foregoing termination provisions of
this subsection based upon a change of control of the Employer based upon a
takeover of the Employer through a change of control of the company.
(e) Severance Based upon Chance of Control. In the event Employer
--------------------------------------------
enters into an agreement with another person or entity, the effect of which is
to change the control of the Employer as of the date of entry into this
Agreement and in which event there is any change in the provisions of this
Agreement or the benefits due the Employee by virtue of this Agreement, then and
in such event, Employee shall be exclusively entitled to terminate this
Agreement, and in such event, Employer shall pay to Employee a severance payment
equal to three (3) years of annual benefits to be realized by Employee in accord
with the terms of this Agreement, payable in one lump sum, as if no change of
control were to have occurred. In other words, all base income, incentive
income, deferred compensation, stock options and warrants (deemed immediately
vested), and health and welfare benefits will be paid to Employee in
-3-
<PAGE>
one lump sum effective upon the change of control of Employer. In the event of
any delayed benefits owed to Employee hereunder are accelerated based upon the
provisions of this subparagraph (e), Employer shall pay same to Employee on an
accelerated basis, without discount for current payment accorded the amount of
such payment.
For purposes of this subparagraph (e), the term "change of control" shall
mean: (I) any change of equity such that more than fifty percent (50%) of the
issued and outstanding shares are transferred to a third party; (ii) or debt
ownership, including but not limited to conversion rights of debt to equity of
the Employer such that more than fifty percent (50%) of the issued and
outstanding shares are transferred to a third party; or (iii) a sale of
substantially all of Employer's assets, defined herein as Seventy Percent (70%)
or greater of the Employer's gross assets.
(f) Employer's Material Breach. Employee may, at his option, terminate
---------------------------
Employee's employment upon Employer's material breach of this Agreement by
giving Employer written notice of such breach (which notice will identify the
manner in which Employer has materially breached this Agreement) and if such
breach is not cured within thirty (30) days of employer receiving such written
notice, Employee's employment shall terminate at the end of such thirty (30) day
period. Employer's "Material Breach" of this Agreement shall mean: (i) the
failure of Employer to pay Base Salary or additional compensation hereunder in
accordance with this Agreement; (ii) the assignment to Employee without
Employee's consent of duties substantially inconsistent with his duties as set
forth in Section 2 hereof; or (iii) the relocation of Employer's principal
offices to a geographic location other than in the northern California vicinity.
In the event of Employer's breach, the amounts due Employee would be equivalent
to those benefits set forth in Paragraph 5.1 (e).
(g) Certain Obligations of Employer Following Termination of Employee's
----------------------------------------------------------------------
Employment. Following the termination of Employee's employment under the
- - ----------
circumstances described below, Employer will pay to Employee in accordance with
its regular payroll practices the following compensation and provide the
following benefits in full satisfaction and final settlement of any and all
claims and demands that Employee now has or hereafter may have hereunder against
Employer under this Agreement:
(i) Death; Disability. In the event that Employee's employment is
------------------
terminated by reason of Employee's death or Disability, Employee or his estate,
as the case may be, shall be entitled to the following payments:
(1) Base Salary through the date Employee's employment is terminated,
(2) Any additional compensation, pro rated to the date of death of
Employee or the date of termination due to Employee's Disability; and Employer
shall pay to Employee or his estate, as the case may be, the amounts and shall
provide all benefits generally available under the employee benefit plans, and
the policies and practices of Employer, determined in accordance with the
applicable terms and provisions of such plans, policies and practices, in each
case, as accrued to the date of termination or otherwise payable as a
consequence of Employee's death or disability.
(ii) Termination by Employer for Cause. In the event Employee's
--------------------------------------
employment is terminated by Employer pursuant to Section 5.1 (c) hereof,
Employee shall be entitled to no further compensation or other benefits under
this Agreement except as to that portion of any unpaid Base Salary, Minimum
Bonus, and other benefits accrued and earned by him hereunder up to and
including the effective date of such termination.
(iii) Nature of Payments.All amounts to be paid by Employer to Employee
---------------------
pursuant to this Section 5 shall be considered by the parties to be severance
payments. In the event such payments are treated as damages, it is expressly
acknowledged by the payments that damages to Employee
-4-
<PAGE>
for termination of employment would be difficult to ascertain and the above
amounts are reasonable estimates thereof.
Section 6. Duties Upon Termination. Upon termination of Employee's
- - ---------------------------------------
employment with Employer pursuant to Sections 5.1 (a), 5.1 (b), 5.1 (d) and 5.1
- - ---------
(0 hereof, or upon expiration of the Employment Term, Employee will be released
from any duties and obligations hereunder; and, in the event of termination of
Employee's employment pursuant to Sections 5.11(c) and 5.1(e) hereof, the
obligations of Employer to Employee will be as set forth in Section 7 hereof.
Section 7. Confidentiality and Non-Compete.
7.1 Confidential Information Defined. "Confidential Information" means
---------------------------------
any and all information (oral or written) relating to Employer or any person
controlling, controlled by, or under common control with Employer or any of
their respective activities, including, but not limited to, information relating
to: discoveries, innovations, software, patents, patent applications, know how,
secret processes, research, test procedures and results, machinery, and
equipment; manufacturing processes; financial information; products; identify
and description of materials and services used; purchasing; costs; pricing;
customers and prospects; advertising, promotion and marketing; trademarks and
trademark registrations; copyrights and copyright registrations; and information
pertaining to any governmental investigation, except such information which can
be shown by Employee to be generally known in the industry or in the public
domain (such information not being deemed to be in the public domain merely
because it is embraced by more general information which is in the public
domain).
7.2 Non-Disclosure of Confidential Information. Employee shall not, at
-------------------------------------------
any time (other than as may be required or appropriate in connection with the
performance by him of his duties hereunder) directly or indirectly, use,
communicate, disclose or disseminate any Confidential Information in any manner
whatsoever (except as may be required under legal process by subpoena or other
court order; provided, that Employee will take reasonable steps to give Employer
sufficient prior written notice in order to contest such requirement or order).
7.3 Certain Activities. Employee shall not while employed by Employer
--------------------
and for a period of two years thereafter, directly or indirectly, hire, offer to
hire, entice away or in any other manner persuade or attempt to persuade any
officer, employee, agent, lessor, lessee, licensor, licensee, customer,
prospective customer, supplier or shareholder or perspective shareholder of
Employer to discontinue or alter his, her or its relationship with Employer.
7.4 Covenant Not to Compete. During the Employee's employment and for a
------------------------
period of one year after the termination of. Employee's employment, Employee
will not directly or indirectly engage in competition with Employer by being
associated with any competitor of Employer that sells or offers to sell any
products or services which compete with the products or services offered or sold
by Employer or being developed by Employer for sale at the time of termination
of Employee, or induce or attempt to induce, directly or indirectly, any then
potential customer contemplating doing business with Employer to not commence
doing business, or any current customer of Employer to cease doing business, in
whole or in part, with Employer or solicit business of any such customer for any
products or services of any competitor of Employer which compete with the
products or services offered or sold by Employer or being developed by Employer
for sale at the time of termination of Employee.
7.5 Injunctive Relief. Employee acknowledges and agrees that: (a)
-------------------
Employer will be irreparably injured in the event of a breach by Employee of any
of his obligations under this Section 7; (b) monetary damages will not be an
adequate remedy for any such breach; (c) Employer will be entitled to injunctive
relief, in addition to any other remedy which it may have, in the event of any
such breach, including, but not limited to, termination of Employee's employment
for Cause; and (d) the existence of any claims which Employee may have against
Employer, whether under this Agreement or otherwise, will not be a defense to
the enforcement by Employer of any of its rights under this Section 7.
-5-
<PAGE>
7.6 Non-Exclusivity and Survival. The covenants and obligations of
-------------------------------
Employee contained in this Section 7 are in addition to, and not in lieu of, any
covenants and obligations which Employee may have with respect to the subject
matter hereof, whether by contract, as a matter of law or otherwise, and such
covenants and obligations, and their enforceability, will survive any
termination of Employee's employment by either party and any investigation made
with respect to the breach thereof by Employer at any time.
Section 8. Registration Rights.
8.1 Company Registration.
(a) Notice of Registration. If at any time or from time to time the
-------------------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than a
registration relating solely to employee benefit plans or a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof', and
(ii) include in such registration (and any related qualification under blue
sky laws or other compliance), and in any underwriting involved therein, all the
Registrable Securities specified in a written request or requests, made within
20 days after receipt of such written notice from the Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives notice
-------------
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as part of the written notice given pursuant to Section
8.1 (a)(i). In such event the right of any Holder to registration pursuant to
this Section 8.6 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
any other shareholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 8.1, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities to
be included in such registration. The Company shall so advise all Holders and
the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. To facilitate the allocation of shares in accordance with the above
provisions, the Company may round the number of shares allocated to any Holder
or other shareholder to the nearest 100 shares. If any Holder or other
shareholder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to 90 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require. The Company may include shares of Common Stock held by
shareholders other than Holders in a registration statement pursuant to this
Section B.6, and to the extent that, the amount of Registrable Securities
otherwise includable in such registration statement would not thereby be
diminished.
(c) Right to Terminate Registration. The Company shall have the right
-------------------
to terminate or withdraw any registration initiated by it under this Section
8.1(c) prior to the effectiveness of such registration whether or not any Holder
has elected to include securities in such registration.
Section 9. Miscellaneous Provisions.
-6-
<PAGE>
9.1 Severability If in any jurisdiction any term or provision hereof is
------------
determined to be invalid or unenforceable; (a) the remaining terms and
provisions hereof shall be unimpaired; (b) any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction, and (c) the invalid or
unenforceable term or provision shall, for purposes of such jurisdiction, be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision.
9.2 Execution in Counterparts. This Agreement may be executed in one or
--------------------------
more counterparts, and by the different parties hereto ~n separate counterparts,
each of which shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement (and all signatures need not appear
on any one counterpart), and this Agreement shall become effective when one or
more counterparts has been signed by each of the pates hereto and delivered to
each of the other parties hereto.
9.3 Notices. All notices, requests, demands and other communications
--------
hereunder shall be in writing and shall be deemed duly given when delivered by
hand, or when delivered if mailed by registered or certified mail or private
courier service, postage prepaid, return receipt requested or via facsimile
(with written confirmation of receipt) as foiIo,,4s-.
If to Employer, to: NeTTaxi Online Communities, Inc.
2165 South Bascom Avenue
Campbell, CA 95008
Attn: Robert Rositano, Jr., President
Telefax No.: 408.879.9907
Copy to: John Holt Smith, Esq.
Inman Steinberg Nye & Stone
1925 Century Park East #1600
Los Angeles, California 90067
Telefax No.: 310.286.1816
If to Employee, to: Mr. Robert A. Rositano, Jr.
2165 South Bascom Avenue
Campbell, CA 95008
Telefax No.: 408.879.9907
or to other such address(es) as a party hereto shall have designated by like
notice to the other parties hereto.
9.4 Amendment. No provision of this Agreement may be modified,
----------
amended, waived or discharged in any manner except by a written instrument
executed by Employer and Employee.
9.5 Entire Agreement. This Agreement constitutes the entire agreement
------------------
of the parties hereto with respect to the subject matter hereof, and supersedes
all prior agreements and understandings of the parties hereto, oral or written,
with respect to the subject matter hereof.
9.6 Applicable Law. This Agreement shall be governed by and construed
----------------
in accordance with the laws of the State of California applicable to contracts
made and to be wholly performed therein without regard to its conflicts or
choice of law provisions.
9.7 Heading. The headings contained herein are for the sole purpose of
--------
convenience of reference. and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
-7-
<PAGE>
9.8 Binding Effect; Successors and Assigns. Employee may not delegate
----------------------------------------
his duties or assign his rights hereunder. This Agreement will inure to the
benefit of, and be binding upon, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.
9.9 Waiver. The failure of either of the par-ties hereto at any time to
-------
enforce any of the provisions of this Agreement shall not be deemed or construed
to be a waiver of any such provision, nor to in any way affect the validity of
this Agreement or any provision hereof, or the right of either of the parties
hereto to thereafter enforce each and every provision of this Agreement. No
waiver of any breach of any of the provisions of this Agreement shall be
effective unless set forth 'in a w6tten Instrument executed by the party against
whom or which enforcement of such waiver is sought, and no waiver of any such
breach shall be construed or deemed to be a waiver of any other or subsequent
breach.
9.10 Representations and Warranties. Employee and Employer hereby
---------------------------------
represent and warrant to the other that: (a) he or it has full power, authority
and capacity to execute and deliver this Agreement, and to per-form his or its
obligations hereunder; (b) such execution, 'delivery and performance will not,
and with the giving of notice or lapse of time or both would not, result in the
breach of any agreements or other obligations to which he or it is a party or he
or it is otherwise bound; and (c) this Agreement is his or its valid and binding
obligation in accordance with its terms. Employer represents that it will
purchase directors' and officers' liability insurance covering Employee in such
amounts as reasonably determined by the Board and consistent with the amounts
purchased for other Employee officers of the Company.
9.11 Enforcement. If any party institutes legal action to enforce or
------------
interpret the terms and conditions of this Agreement, the prevailing party shall
be awarded reasonable attorneys' fees at all trial and appellate levels, and the
expenses and costs incurred by such prevailing party in connection therewith.
9.12 Arbitration. Except as provided in Section 7.5 hereof any dispute
------------
arising out of this Agreement, including but not limited to the determination by
the Board of a termination for Cause pursuant to Section 5 hereof or in respect
of the breach hereof shall be resolved under the following procedures. The
burden of proof for demonstrating cause shall be on Employer. The party claiming
to be aggrieved shall furnish to the other party a written statement of the
grievance and the relief requested and proposed. If the other party does not
agree to furnish the relief requested or proposed, or otherwise does not satisfy
the demand of the party claiming to be aggrieved, the parties shall submit the
dispute to non-binding mediation before a mediator to be jointly selected by the
parties. Employer shall pay the cost of the mediation. If the mediation does
not produce a resolution of the dispute, the parties agree that the dispute
shall be resolved by final and binding arbitration before an arbitrator mutually
selected by the parties or, if no agreement is reached, then under the Expedited
Labor Arbitration Rules of the American Arbitration Association, except that the
arbitrator shall be selected by alternately striking names from a panel of five
(5) neutral labor or employment arbitrators designated by the American
Arbitration Association. The arbitrator shall have the authority to grant any
relief authorized by law. The arbitrator shall not have the authority to modify,
change or refuse to enforce the terms of this Agreement. In addition, the
arbitrator shall not have the authority to require Employer to change any lawful
policy or benefit plan. The hearing shall be transcribed. Employer shall bear
the costs of arbitration if Employee prevails. If Employer prevails, Employee
will pay half the cost of arbitration or $500, whichever is less. Each party
shall bear his or its own legal fees. Arbitration shall be the exclusive final
remedy for any dispute between the parties; provided, however, that nothing in
this Section 5.12 shall limit the right of Employer to go to court to obtain
injunctive relief for violation of Section 7 hereof. The parties further agree
that no dispute shall be submitted to arbitration where the party claiming to be
aggrieved has not provided the other party with a written statement of the
grievance and First sought mediation.
9.13 Continuing Effect. Where the context of this Agreement
-------------------
requires, the respective rights and obligations of the parties shall survive any
termination or expiration of the term of this Agreement.
9.14 Expenses. Each party to this Agreement agrees to bear his or
---------
its own expenses in connection with the negotiation and execution of this
Agreement.
-8-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
NETTAXI ONLINE COMMUNITIES, INC.
By _________________________
Name Dean Rositano
--------------
Title President
---------
/s/ Dean J. Rositano
- - -----------------------
Dean J. Rositano
-9-
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
DATED: August 1, 1998
PARTIES: NeTTaxi Online Communities, Inc., a Delaware corporation (herein
the 'Employer")
Robert A. Rositano, Jr., an individual (herein the "Employee")
RECITALS:
A. Employee desires to provide services to Employer and Employer desires to
retain the services of Employee.
B. Employer and Employee desire to formalize the terms and conditions of
Employee's employment with Employer.
AGREEMENT:
NOW, THEREFORE, in consideration of the Recitals and the mutual covenants set
forth herein below, and as a material inducement for Employee to enter into this
Employment Agreement (the "Agreement"), Employer and Employee hereby agree as
follows:
Section 1. Employment. Employer hereby employs Employee in the capacity
- - ---------- ------------
of Chief Executive Officer and a member of the Board of Directors (the "Board").
Employee hereby accepts such employment, upon the terms and subject to the
conditions herein contained.
Section 2. Duties. During the Employee's employment with Employer,
- - ----------- --------
Employee will report directly to the Board, will be responsible for performing
those duties consistent with the position of President as may from time to time
may be reasonably assigned to or requested of Employee by Employer's Board.
Employee shall use his reasonable efforts to perform faithfully and effectively
such responsibilities. Employee shall conduct all of his activities in a manner
so as to maintain and promote the business and reputation of the Employer.
Employee, during his employment with Employer, will devote all of his business
time, attention and skills to the business and affairs of Employer. Employee's
principal place of employment during his employment with Employer shall be in
Campbell, California. In the event that Employer shall change the location of
its principal office, Employee shall be entitled to be reimbursed for reasonable
documented relocation expenses.
Section 3. Compensation and Benefits,
- - ----------- ----------------------------
3.1 Annual Salary. Employer shall pay to Employee, and Employee
---------------
will accept, as 'FULL compensation for any and all services rendered and to be
rendered by him to Employer in all capacities during the term of his employment
under this Agreement: (1) a base salary at the annual rate of $125,000 for the
first year of employment hereunder, or at such higher rate as the Board shall
determine, in its sole discretion ("Base Salary"), payable in accordance-'with
the regular payroll practices of Employer; and (ii) the additional benefits
hereinafter set forth in this Section 3.
3.2 Annual Bonus and Option
--------------------------
(a) Employee shall be entitled to an annual bonus in the minimum amount
of Fifty Thousand Dollars ($50,000) U.S.D. (the "Minimum Bonus"), up to a
maximum of the Annual Salary then payable to Employee in accordance with the
terms and provisions of this Agreement, payable on the anniversary date of this
Agreement, commencing August 1, 1999. Any annual bonus in excess of the Minimum
Bonus shall be determined by the Board in its sole discretion based upon
performance targets established by the Board at the beginning of each year of
employment hereunder; and
(b) Upon execution of this Agreement, Employer hereby grants to
Employee a stock option for 175,000 shares of common stock of Employer to
Employee as an inducement to Employee to
<PAGE>
enter into this Agreement, together with an option to purchase an additional
175,000 shares of common stock of Employer at the price of $0.10 per share all
under the Company's Employee Stock Option PlanThe option may be exercised
annually as to one-third (1/3) of such shares, if and only if Employee is in the
employ of Employer. In the event Employee is not employed due to those events
described in Section 5(a), 5(b), 5(d), 5(e) and 5(f), then and in such event the
option may be exercisable at the time of such termination irrespective of the
fact that Employee is no longer employed by Employer. The option may be
exercisable at any time within five (5) years from the date of this Agreement,
after which time the option shall lapse and be of no further force or effect.
3.3 Annual Salary Increases. The Base Salary set forth for the
--------------------------
Employee in Section 3.1 shall be increased by an amount equivalent to an
increase of Ten Percent (10%) per annum, which increase shall be cumulative for
each year. For example, in year three (3) of the Term of Employment, as defined
below, the base annual salary due Employee shall be the sum of One Hundred Fifty
One Thousand Two Hundred Fifty Dollars ($151,250), based upon the formula of
year one base of $125,000 x 10% = $137,500; and for year two base x 10% for year
three annual increase of 10% = $151,250. The Minimum Bonus or any additional
bonus amount shall not be taken into consideration when determining the annual
salary increases.
3.4 Employee Benefits.
-------------------
(a) Expenses. Employer shall reimburse Employee for expenses he
---------
reasonably incurs in connection with the performance of his duties (including
business, travel and entertainment expenses), and all in accordance with
Employer's policies with respect hereto.
(b) Employer Health and Welfare Plans. Employee will be entitled to
----------------------------------
participate in such Employee benefit plans and programs as Employer may from
time to time offer or provide to Employees of Employer, including, but not
limited to, participation in life insurance, health and accident, medical and
dental, disability and retirement plans and programs.
(c) Vacation. Employee shall be eligible for three (3) weeks of
---------
paid vacation leave per year after the first year of employment, and thereafter
four (4) weeks per annum.
(d) Automobile. Employer shall pay to Employee, or to an automobile
-----------
leasing company chosen by Employee, a car allowance not to exceed the sum of Six
Hundred Dollars ($600) per month, payable monthly, commencing on the first
calendar month of each month after the effective date of this Agreement. In
addition, Employer shall pay all insurance costs and repair costs for the
vehicle leased by Employee within 30 days after receipt of bills or statements
reflecting such expenditures.
Section 4. Employment Term. Employee' s employment by Employer pursuant
- - ----------- ----------------
to this Agreement shall commence on the date of this Agreement and will continue
until the day:.prior to the fourth anniversary of the date of this Agreement
(the "Initial Term"). Thereafter, this Agreement shall be automatically renewed
for successive one year periods commencing on August 1st of each subsequent year
(the Initial Term, together with any subsequent employment period being referred
to herein as the "Employment Term"); provided, however, that either party may
elect to terminate this Agreement as of July 31, 2001 or as of any subsequent
July 31st (a "Renewal Termination Date"), by written notice to such effect
delivered to the other party at least 90 days prior to the Renewal Termination
Date.
Section 5. Termination of Employment.
- - ----------- ----------------------------
5.1 Events of Termination. Employee's employment with Employer will
----------------------
terminate upon the occurrence of any one or more of the following events:
(a) Death. In the event of Employee's death, Employee's employment
------
will terminate on the date of death.
(b) Disability. In the event of Employee's Disability (as
-----------
hereinafter defined), Employer will have the option to terminate Employee's
employment by giving a notice of termination to Employee. The notice of
termination shall specify the date of termination, which date shall not be
earlier
-2-
<PAGE>
than thirty (30) days after the notice of termination is given. For purposes of
this Agreement, "Disability" means the 'inability of Employee to substantially
perform his duties hereunder for 180 days out of 365 consecutive days as a
result of a physical or mental illness, all as determined in good faith by the
Board.
(c) Termination by Employer for Cause. Employer may, at its option,
----------------------------------
terminate Employee's employment for "Cause" based on objective factors
determined in good faith by a majority of the Board by giving a Notice of
Termination to Employee specifying the reasons for termination and if Employee
shall fail to cure same within ten (10) days of his receiving the Notice of
Termination his Employment shall terminate at the end of such ten (10) day
period; provided, that in the event the Board in good faith determines that the
underlying reasons giving rise to such determination cannot be cured, then said
cure period shall not apply and Employee's employment shall terminate on the
date of Employee's receipt of the Notice of Termination. "Cause" shall mean: (a)
Employee's conviction of, guilty or no contest plea to, or confession of guilt
to, a felony; (ii) a willful act by Employee which constitutes gross misconduct
and which is materially injurious to Employer; (iii) a willful and material
failure by Employee to substantially perform his duties, other than a failure
resulting from a Disability as defined in Section 5.1 (b) hereof; (iv) violation
by Employee of Section 7.4 of this Agreement; or (v) except as may be permitted
herein, disclosure of material Confidential Information (as defined in Section
7.1 hereof) without the prior written consent of Employer.
(d) Without Cause by Employer. Employer may, at its option,
-----------------------------
terminate Employee's employment for any reason whatsoever (other than for the
reasons set forth above in Subsection (c) above) by giving a notice of
termination to Employee, and Employee's employment shall terminate on the later
of the date the notice of termination is given or the date set forth in such
notice of termination. At the time of such termination without cause, Employer
shall pay to Employee, without offset, termination standard and consistent
withholdings as required by governmental taxing authorities pertaining to wages,
all benefits reasonably calculated to be due Employee, including but not limited
to: (i) base annual salary commutatively for the remainder of the entire
Employment Term; (H) Minimum Bonus, plus any pro rata bonus in excess of the
Minimum Bonus, as determined by the date of such termination; (Iii) pre-payment
of all automobile allowance for the remaining period of the Employment Term,
together with insurance premiums based upon the initial cost of automobile
insurance as existed in the immediately preceding calendar year prior to such
termination of the Employment Term; and (iv) continued coverage for life, health
and disability Insurance for the remainder of the Employment Term. All such sums
due Employee shall be paid in a lump sum within three (3) calendar days of such
termination, excepting that the continuation of Employee in any Employment
Benefit Plan shall continue to be paid monthly or other periodic payment period
as other employees of Employer throughout the natural expiration of the
Employment Term. Notwithstanding the foregoing, the severance provision,
provided in subsection (d) immediately below, shall supersede the foregoing
termination provisions of this subsection based upon a change of control of the
Employer based upon a takeover of 'the Employer through a change of control of
the company.
(e) Severance Based upon Chance of Control. In the event Employer
-----------------------------------------
enters into an agreement with another person or entity, the effect of which is
to change the control of the Employer as of the date of entry into this
Agreement and in which event there is any charge in the provisions of this
Agreement or the benefits due the Employee by virtue of this Agreement, then and
in such event, Employee shall be exclusively entitled to terminate this
Agreement, and in such event, Employer shall pay to employee a severance payment
equal] to three (3) years of annual benefits to be realized by Employee in
accord with the terms of this Agreement, payable in one lump sum, as if no
change of control were to have occurred. In other words, ail base income,
incentive income, deferred compensation, stock options and warrants (deemed
immediately vested), and health and welfare benefits will be paid to Employee in
one lump sum effective upon the change of control of Employer. In the event of
any delayed benefits owed to Employee hereunder are accelerated based upon the
provisions of this subparagraph (e), Employer shall pay same to Employee on an
accelerated basis, without discount for current payment accorded the amount of
such payment.
For purposes of this subparagraph (e), the term "change of control" shall
mean: (i) any change of equity such that more than fifty percent (50%) of the
issued and outstanding shares are transferred to a third party; (H) or debt
ownership, including but not limited to conversion rights of debt to equity of
the Employer such that more than fifty percent (50%) of the issued and
outstanding shares are
-3-
<PAGE>
transferred to a third party, or (iii) a sale of substantially all of Employees
assets, defined herein as Seventy Percent (70%) or greater of the Employees
gross assets.
(f) Employees Material Breach. Employee may, at his option,
----------------------------
terminate Employee's employment upon Employees material breach of this Agreement
by giving Employer written notice of such breach (which notice will identify the
manner in which Employer has materially breached this Agreement) and if such
breach is not cured within thirty (30) days of employer receiving such written
notice, Employee's employment shall terminate at the end of such thirty (30) day
period. Employer's "Material Breach" of this Agreement shall mean- (i) the
failure of Employer to pay Base Salary or additional compensation hereunder in
accordance with this Agreement; (ii) the assignment to Employee without
Employee's consent of duties substantially inconsistent with his duties as set
forth in Section 2 hereof; or (iii) the relocation of Employer's principal
offices to a geographic location other than in the northern California vicinity.
In the event of Employees breach, the amounts due Employee would be equivalent
to those benefits set forth in Paragraph 5.1 (e).
(g) Certain Obligations of Employer Following Termination of Employee's
-------------------------------------------------------------------
Employment. Following the termination of Employee's employment under the
- - -----------
circumstances described below, Employer will pay to Employee in accordance with
its regular payroll practices the following compensation and provide the
following benefits in full satisfaction and final settlement of any and all
claims and demands that Employee now has or hereafter may have hereunder against
Employer under this Agreement:
(i) Death; Disability. In the event that Employee's employment is
-------------------
terminated by reason of Employee's death or Disability, Employee or his estate,
as the case may be, shall be entitled to the following payments:
(1) Base Salary through the date Employee's employment is terminated.
(2) Any additional compensation, pro rated to the date of death of
Employee or the date of termination due to Employee's Disability; and Employer
shall pay to Employee or his estate, as the case may be, the amounts and shall
provide all benefits generally available under the employee benefit plans, and
the policies and practices of Employer, determined in accordance with the
applicable terms and provisions of such plans, policies and practices, in each
case, as accrued to the date of termination or otherwise payable as a
consequence of Employee's death or disability.
(ii) Termination by Employer for Cause. In the event Employee's
--------------------------------------
employment is terminated by Employer pursuant to Section 5.1 (c) hereof,
Employee shall be entitled to no further compensation or other benefits under
this Agreement except as to that portion of any unpaid Base Salary, Minimum
Bonus, and other benefits accrued and earned by him hereunder up, to and
including the effective date of such termination.
(iii) Nature of Payments. All amounts to be paid by Employer to
---------------------
Employee pursuant to this Section 5 shall be considered by the parties to be
severance payments. In the event such payments are treated as damages, it is
expressly acknowledged by the parties that damages to Employee for termination
of employment would be difficult to ascertain and the above amounts are
reasonable estimates 'thereof.
Section 6. Duties Upon Termination. Upon termination of Employee's
- - ----------- --------------------------
employment with Employer pursuant to Sections 5.1 (a), 5.1 (b), 5.1 (d) and 5.1
(f) hereof, or upon expiration of the Employment Term, Employee will be released
from any duties and obligations hereunder; and, in the event of termination of
Employee's Pmn1nvmPnt pursuant to Sections 5.1(c) and 5.1(e) hereof, the
obligations of Employer to
7.1 Confidential Information Defined. "Confidential Information"
-----------------------------------
means any and all information (oral or written) relating to Employer or any
person controlling, controlled by, or under common
-4-
<PAGE>
control with Employer or any of their respective activities, including, but not
limited to, information relating to: discoveries, innovations, software,
patents, patent applications, know how, secret processes, research, test
procedures and results, machinery, and equipment; manufacturing processes;
financial information; products; identify and description of materials and
services used; purchasing; costs; pricing; customers and prospects; advertising,
promotion and marketing; trademarks and trademark registrations; copyrights and
copyright registrations; and information pertaining to any governmental
investigation, except such information which can be shown by Employee to be
generally known in the industry or in the public domain (such information not
being deemed to be in the public domain merely because it is embraced by more
general information which is in the public domain).
7.2 Non-Disclosure of Confidential Information. Employee shall not,
-------------------------------------------
at any time (other than as may be required or appropriate in connection with the
performance by him of his duties hereunder) directly or indirectly, use,
communicate, disclose or disseminate any Confidential Information in any manner
whatsoever (except as may be required under legal process by subpoena or other
court order; provided, that Employee will take reasonable steps to give Employer
sufficient prior written notice in order to contest such requirement or order).
7.3 Certain Activities. Employee shall not while employed by
--------------------
Employer and for a period of two years thereafter, directly or indirectly, hire,
offer to hire, entice away or in any other manner persuade or attempt to
persuade any officer, employee, agent, lessor, lessee, licensor, licensee,
customer, prospective customer, supplier or shareholder or perspective
shareholder of Employer to discontinue or alter his, her or its relationship
with Employer.
7.4 Covenant Not to Compete. During the Employee's employment and
--------------------------
for a period of one year after the termination of Employee's employment,
Employee will not directly or indirectly engage in competition with Employer by
being associated with any competitor of Employer that sells or offers to sell
any products or services which compete with the products or services offered or
sold by Employer or being developed by Employer for sale at the time of
termination of Employee, or induce or attempt to induce, directly or indirectly,
any then potential customer contemplating doing business with Employer to not
commence doing business, or any current customer of Employer to cease doing
business, in whole or in part, with Employer or solicit business of any such
customer for any products or services of any competitor of Employer which
compete with the products or services offered or sold by Employer or being
developed by Employer for sale at the time of termination of Employee
7.5 Injunctive Relief. Employee acknowledges and agrees that: (a)
-------------------
Employer wilt be irreparably injured in the event of a breach by Employee of any
of his obligations under this Section 7; (b) monetary damages will not be an
adequate remedy for any such breach; (c) Employer will be entitled to injunctive
relief, in addition to any other remedy which it may have, in the event of any
such breach, including, but not limited to, termination of Employee's employment
for Cause; and (d) the existence of any claims which Employee may have against
Employer, whether under this Agreement or otherwise, will not be a defense to
the enforcement by Employer of any of its rights under this Section 7.
7.6 Non-Exclusivity and Survival. The covenants and obligations of
------------------------------
Employee contained in this Section 7 are in addition to, and not in lieu of, any
covenants and obligations which Employee may have with respect to the subject
matter hereof, whether by contract, as a matter of law or otherwise, and such
covenants and obligations, and their enforceability, will survive any
termination of Employee's employment by either party and any investigation made
with respect to the breach thereof by Employer at any time.
Section B. Registration Rants.
- - ---------------------------------
8.1 Company Registration.
(a) Notice of Registration. If at any time or from time to time the
-------------------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than a
registration relating solely to employee benefit plans or a registration
relating solely to a Commission Rule 145 transaction, the Company will:
-5-
<PAGE>
(i) Promptly give to each Holder written notice thereof, and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved therein,
ail the Registrable Securities specified in a written request or requests, made
within 20 days after receipt of such written notice from the Company, by any
Holder.
(b) Underwriting. If the registration of which the Company gives
-------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the written notice given pursuant
to Section 8.1 (a)(i). In such event the right of any Holder to registration
pursuant to this Section 3.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and any other shareholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by
the Company. Notwithstanding any other provision of this Section 8.1, if the
Managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities to be included in such registration. The Company shall so
advise all Holders' and the number of shares of Registrable Securities that may
be included in the registration and underwriting shall be allocated among all
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders at the time of Filing the
registration Statement. To facilitate the allocation of shares in accordance
with the above provisions, the Company may round the number of shares allocated
to any Holder or other shareholder to the nearest 100 shares. If any Holder or
other shareholder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to 90 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require. The Company may include shares of Common Stock held by
shareholders other than Holders in a registration statement pursuant to this
Section 8.6, and to the extent that, the amount of Registrable Securities
otherwise includable in such registration statement would not thereby be
diminished.
(c) Right to Terminate Registration. The Company shall have the
-----------------------------------
right to terminate or withdraw any registration initiated by it under this
Section 8.1(c) prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration.
Section 9. Miscellaneous Provisions.
9.1 Severability. If in any jurisdiction any term or provision
-------------
hereof is determined to be invalid or ' unenforceable; (a) the remaining terms
and provisions hereof shall be unimpaired; (b) any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction, and (c) "he Invalid or
unenforceable term or provision shall, for purposes of such jurisdiction, be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision.
9.2 Execution in Counterparts. This Agreement may be executed in
----------------------------
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement (and all signatures
need not appear on any one counterpart), and this Agreement shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
9.3 Notices. All notices, requests, demands and other
--------
communications hereunder shall be in writing and shall be deemed duly given when
delivered by hand, or when delivered if mailed by registered or certified mail
or private courier service, postage prepaid, return receipt requested or via
far-simile (with written confirmation of receipt) as follows:
-6-
<PAGE>
If to Employer, to: NeTTaxi Online Communities, Inc.
2165 South Bascom Avenue
Campbell, CA 95008
Attn: Robert Rositano, Jr., President
TeIefax, No.: 408.879.9907
Copy to: John Holt Smith, Esq.
Inman Steinberg Nye & Stone
1925 Century Park East #1600
Los Angeles, California 90067
Telefax No.: 310.286.1816
If to Employee, to: Mr. Robert A- Rositano, Jr.
2165 South Bascom Avenue
Campbell, CA 95008
Telefax No.: 408.879.9907
or to other such address(es) as a party hereto shall have designated by like
notice to the other parties hereto.
9.4 Amendment. No provision of this Agreement may be modified,
----------
amended, waived or discharged in any manner except by a written instrument
executed by Employer and Employee.
9.5 Entire Agreement This Agreement constitutes the entire
-----------------
agreement of the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings of the parties hereto, oral
or written, with respect to the subject matter hereof.
9.6 Applicable Law. This Agreement shall be governed by and
----------------
construed in accordance with the laws of the State of California applicable to
contracts made and to be wholly performed therein without regard to its
conflicts or choice of law provisions.
9.7 Heading. The headings contained herein are for the sole purpose
--------
of convenience of reference, and, shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
9.8 Binding Effect: Successors and Assigns. Employee may not
-------------------------------------------
delegate his duties or assign his rights hereunder. This Agreement will inure to
the benefit of, and be binding upon, the parties hereto and their respective
heirs, legal representatives, successors and permitted assigns.
9.9 Waiver. The failure of either of the parties hereto at any time
-------
to enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor to in any way affect the
validity of this Agreement or any provision hereof, or the right of either of
the parties hereto to thereafter enforce each and every provision of this
Agreement. No waiver of any breach of any of the provisions of this Agreement
shall be effective unless set forth in a written instrument executed by the
party against whom or which enforcement of such waiver is sought, and no waiver
of any such breach shall be construed or deemed to be a waiver of any other or
subsequent breach.
9.10 Representations and Warranties. Employee and Employer hereby
---------------------------------
represent and warrant to the other that: (a) he or it has full power, authority
and capacity to execute and deliver this Agreement, and to perform his or 'its
obligations hereunder-, (b) such execution, delivery and performance will not,
and with the giving of notice or lapse of time or both would not, result in the
breach of any agreements or other obligations to which he or it is a party or he
or it is otherwise bound; and (c) this Agreement is his or its valid and binding
obligation in accordance with its terms. Employer represents that it will
purchase directors' and officers' liability insurance covering Employee in such
amounts as reasonably determined by the Board and consistent with the amounts
purchased for other Employee officers of the Company.
9.11 Enforcement. If any party institutes legal action to enforce
------------
or interpret the terms and conditions of this Agreement, the prevailing party
shall be awarded reasonable attorneys' fees at all trial
-7-
<PAGE>
and appellate levels, and the expenses and costs incurred by such prevailing
party in connection therewith.
9.12 Arbitration. Except as provided in Section 7.5 hereof any
------------
dispute arising out of this Agreement, including but not limited to the
determination by the Board of a termination for Cause pursuant to Section 5
hereof or in respect of the branch hereof shall be resolved under the following
procedures. The burden of proof for demonstrating cause shall be on Employer.
The party claiming to be aggrieved shall furnish to the other party a written
statement of the grievance and the relief requested and proposed. If the other
party does not agree to furnish the relief requested or proposed, or otherwise
does not satisfy the demand of the party claiming to be aggrieved, the parties
shall submit the dispute to non-binding mediation before a mediator to be
jointly selected by the parties. Employer shall pay the cost of the meditation.
If the mediation does not produce a resolution of the dispute, the par-ties
agree that the dispute shall be resolved by final and blinding arbitration
before an arbitrator mutually selected by the parties or, if no agreement is
reached, then under the Expedited Labor Arbitration Rules of the American
Arbitration Association, except that the arbitrator shall be selected by
alternately striking names from a panel of five (5) neutral labor or employment
arbitrators designated by the American Arbitration Association, The arbitrator
shall have the authority to grant any relief authorized by law. The arbitrator
shall not have the authority to modify, change or refuse to enforce the terms of
this Agreement. In addition, the arbitrator shall not have the authority to
require Employer to change any lawful policy or benefit plan. The hearing shall
be transcribed. Employer shall bear the costs of arbitration if Employee
prevails. If Employer prevails, Employee will pay half the cost of arbitration
or ' $500, whichever is less. Each party shall beer his or its own legal fees.
Arbitration shall bear the exclusive final remedy for any dispute between the
parties; provided, however, that nothing in this Section 5.12 shall limit the
right of Employer to go to court to obtain injunctive relief for violation of
Section 7 hereof. The parties further agree that no dispute shall be submitted
to arbitration where the party claiming to be aggrieved has not provided the,
other party with a written statement of the grievance and first sought
mediation.
9.13 Continuing Effect. Where the context of this Agreement
-------------------
requires, the respective rights and obligations of the parties shall survive any
termination or expiration of the term of this Agreement.
9.14 Expenses. Each part/ to this Agreement agrees to bear his or
---------
its own expenses in connection with the negotiation and execution of this
Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto as of the date first above written.
NETTAXI ONLINE COMMUNITIES, INC.
By /S/ ROBERT A. ROSITANO, Jr.
-----------------------------------
Name ROBERT A. ROSITANO, Jr.
-----------------------------------
Title CEO
-----------------------------------
-8-
<PAGE>
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement"), by and between NETTAXI
Online Communities, Inc, a Delaware corporation (the "Company"), and Robert
Rositano, Jr. ("Optionee"), is made effective as of this 1 st day of August,
1998.
RECITALS
WHEREAS, the Board of Directors of the Company has authorized the grant of
stock options to Optionee pursuant to that certain Employment Agreement dated
August 1, 1998.
WHEREAS, the Company desires to issue stock options to Optionee and
Optionee desires to accept such stock options on the terms and conditions set
forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Grant of Options. The Company hereby grants to the Optionee, as
------------------
a separate incentive and not in lieu of any fees or other compensation for his
services, options ("the Options") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of THREE HUNDRED FIFTY
THOUSAND (350,000) shares of common stock (the "Shares"). The Options are fully
vested.
2. Exercise Price. The exercise price shall be $0.10 per share of
----------------
common stock (the "Exercise Price"). The Exercise Price will be payable in legal
tender of the United States, in cash or by promissory note.
3. Time of Exercise. Upon execution of this Agreement, Optionee
-------------------
shall receive the right to exercise the Options.
4. Notice of Exercise. Optionee may exercise the Options by giving
---------------------
written notice of exercise of the Options sent by certified or registered mail,
return receipt requested, to the Company and sending a check for the Exercise
Price of the Options exercised.
5. Transferability. The Options will be exercisable for a period of
----------------
ten (10) years from the date hereof only by Optionee. The Options shall be
non-transferable.
6. Adjustment. The number and class of shares specified in
-----------
paragraph I above, and the Option Price, are subject to appropriate adjustment
in the event of certain changes in the capital structure of the Corporation
which alter the per share value of Common Stock or the rights of holders
thereof. A dissolution or liquidation of the Corporation, or a merger or
consolidation in which the Corporation is not the surviving corporation, will
cause the option granted hereunder to terminate unless the agreement of merger,
consolidation or other acquisition otherwise provides. In the event of such
dissolution, liquidation, merger, or consolidation, Optionee will have the right
for a period of not less than sixty (60) days prior to the effective date of
such event~ to exercise the option granted hereunder as to all of the shares
specified in paragraph I above. Such right of exercise will accrue,
notwithstanding any limitations in this option agreement as to the time Optionee
may exercise such option, including "vesting" schedules.
7. Securities Laws. The issuance of shares of Common Stock upon the
----------------
exercise of the Options will be subject to compliance by the Company and the
person exercising the Options with all applicable requirements of federal and
state securities and other laws relating thereto. No person may exercise the
Options at any time when, in the opinion of counsel to the Company, such
exercise is not permitted under applicable federal or state securities laws.
Nothing herein will be construed to require the Company to register or qualify
any securities under applicable federal or state securities laws, or take any
action to secure an exemption from such registration and qualification for the
issuance
<PAGE>
of any securities upon the exercise of the Options.
8. Investment Representations. In connection with the receipt of
----------------------------
the Options and potential purchase of shares of common stock Optionee represents
and wan-ants to the Company as follows:
a. Investment Intent. Optionee is receiving the Options and may
purchase the shares represented thereby solely for her own account for
investment. Optionee has no present intention to resell or distribute the
Options of underlying shares or any portion thereof. The entire legal and
beneficial interest of the Options and any underlying shares purchased, will be
held, for Optionee's account only, and neither in whole or in part for any other
person.
b. Information Concerning Company. Optionee has significant prior
experience and knowledge of the affairs of the Company. Optionee is aware of the
Company's business and financial condition and has acquired sufficient
information about the Company to make an informed and acknowledgeable decision
regarding the Options and the potential purchase of the Shares.
c. Economic Risk. Optionee realizes that the exercise of the
Options and purchase of the underlying shares will be a highly speculative
investment and involve a high degree of risk. Optionee is able, without
impairing his financial condition, to hold any shares purchased for an
indefinite period of time and to suffer a complete loss of his investment.
d. Restriction on Transfer. Optionee understands that the Options
and/or underlying Shares must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Optionee understands that the certificate evidencing any shares
purchased will be imprinted with a legend that prohibits the transfer of the
shares unless they are registered or unless the Company receives an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required.
e. Sales Under Rule 144. Optionee is aware of the adoption of rule
144 by the Securities and Exchange Commission (the "Commission") promulgated
under the Securities Act, which permits limited public resale of securities
acquired in a non-public offering subject to the satisfaction of certain
conditions, including among other things: (i) the availability of certain
current public information about the Company, (ii) the resale occurring not less
than two years after the party has purchased and paid for the securities to be
sold, (iii) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a "market maker," and (iv) the
amount of securities sold during any three-month period not exceeding specified
limitations (generally 1% of the total shares outstanding).
f. Limitation on Rule 144 Sales. Optionee further acknowledges and
understands that the Company is not now and at the time she wishes to sell the
any purchased shares may not be satisfying the current public information
requirement of Rule 144, and, in such case, Optionee could be precluded from
selling any shares purchased as a result of the exercise of the Options under
Rule 144 even if the one-year minimum holding period has been satisfied.
g. Sales Not Under Rule 144. Optionee further acknowledges that, if
all of the requirements of Rule 144 are not met, then registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, although Rule 144 is not exclusive, the
staff of the Commission has expressed its opinion (i) that persons proposing to
sell private placement securities other than in a registered offering and other
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and (ii) that such persons and the brokers who participate in the
transactions do so at their own risk.
<PAGE>
10. Legends, California Securities Law.
--------------------------------------
a. The certificate or certificates representing any shares purchased as
a result of the exercise of the Options will bear the following legends (as well
as any legends required by applicable California and other state corporate and
securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE RAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BY EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933
b. The Options and underlying shares which are the subject of this Agreement
have not been qualified with the Commissioner of Corporations of the State of
California, and the issuance of such securities or the payment or receipt of any
part of the consideration therefor prior to such qualification is unlawful,
unless the sale of securities is exempt from the qualification by an applicable
section of the California Corporations Code, including Section 25100, 25102 or
25105. The rights of all parties to this Agreement are expressly conditioned
upon such qualification being obtained, unless the sale is so exempt.
11. No Rights as Shareholder. Neither Optionee nor any person
----------------------------
claiming under or through Optionee will be, or have any of the rights or
privileges of, a shareholder of the Company in respect of any of the Shares
issuable upon the exercise of the Options, unless and until any of the Options
are properly and lawfully exercised.
12. Notices. Any notice to be given to the Company under the terms
--------
of this Agreement will be addressed to the Company, in care of its Secretary, at
its executive offices, or at such other address as the Company may hereafter
designate in writing. Any notice to be given to Optionee will be in writing and
delivered or mailed by registered or certified mail, return receipt requested,
postage prepaid, addressed to Optionee at the address set forth beneath
Optionee's signature in writing. Any such notice will be deemed to have been
duly given where deposited in a United States post office in compliance with the
foregoing.
13. Successor. Subject to the limitation on the transferability of
----------
the Options contained herein, this Agreement will be binding upon and inure to
the benefit of the heirs, legal representatives, successors and assigns of the
parties hereto.
14. Attorney's Fees. In the event that any legal action is brought
-----------------
to enforce or interpret any part of this Agreement, the prevailing party shall
be entitled to recover reasonable attorney's fees and other costs incurred in
that action, in addition to any other relief to which that party may be
entitled.
15. Governing Law. This Agreement shall in all respects be
---------------
construed, interpreted, and enforced in accordance with, and governed by the
laws of the State of California.
16. Severability. If any term or provision of this Agreement shall
-------------
be held invalid or unenforceable to any extent, the remainder of this Agreement
shall not be affected and each other term and provision of this Agreement shall
be valid to the fullest extent permitted by law.
17. Counterparts. This Agreement may be executed in counterparts,
-------------
each of which shall constitute an original and all of which shall be one and the
same instrument.
18. Modification. Any amendment, change or modification of this
-------------
Agreement shall be effective only if it is in writing and signed by the parties
hereto.
<PAGE>
19. Waiver. The failure of either party to insist upon strict
-------
compliance with any of the terms, covenants or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenant or
condition, nor shall any waiver or relinquishment of any right or power at any
one time be deemed a waiver or relinquishment of that fight or power for all or
any other time.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written
above.
COMPANY: NETTAXI ONLINE COMMUNITIES, INC.
By: /s/ Robert Rositano, Jr.
---------------------------
Title: CEO
---
OPTIONEE: /s/ Robert Rositano, Jr.
---------------------------
Address: 2165 S. Bascom Ave.
----------------------
Campbell, CA 95008
<PAGE>
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement"), by and between NETTAXI
Online Communities, Inc, a Delaware corporation (the "Company"), and Dean
Rositano ("Optionee"), is made effective as of this 1st day of August, 1998.
RECITALS
WHEREAS, the Board of Directors of the Company has authorized the grant of
stock options to Optionee pursuant to that certain Employment Agreement dated
August 1, 1998.
WHEREAS, the Company desires to issue stock options to Optionee and
Optionee desires to accept such stock options on the terms and conditions set
forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Grant of Options. The Company hereby grants to the Optionee, as
------------------
a separate incentive and not in lieu of any fees or other compensation for his
services, options ("the Options") to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of THREE HUNDRED FIFTY
THOUSAND (350,000) shares of common stock (the "Shares"). The Options are fully
vested.
2. Exercise Price. The exercise price shall be $0.10 per share of
----------------
common stock (the "Exercise Price"). The Exercise Price will be payable in legal
tender of the United States, in cash or by promissory note.
3. Time of Exercise. Upon execution of this Agreement, Optionee
-------------------
shall receive the right to exercise the Options.
4. Notice of Exercise. Optionee may exercise the Options by giving
--------------------
written notice of exercise of the Options sent by certified or registered mail,
return receipt requested, to the Company and sending a check for the Exercise
Price of the Options exercised.
5. Transferability. The Options will be exercisable for a period of
----------------
ten (10) years from the date hereof only by Optionee. The Options shall be
non-transferable.
6. Adjustment. The number and class of shares specified in
-----------
paragraph I above, and the Option Price, are subject to appropriate adjustment
in the event of certain changes in the capital structure of the Corporation
which alter the per share value of Common Stock or the rights of holders
thereof. A dissolution or liquidation of the Corporation, or a merger or
consolidation in which the Corporation is not the surviving corporation, will
cause the option granted hereunder to terminate unless the agreement of merger,
consolidation or other acquisition otherwise provides. In the event of such
dissolution, liquidation, merger, or consolidation, Optionee will have the right
for a period of not less than sixty (60) days prior to the effective date of
such event, to exercise the option granted hereunder as to all of the shares
specified in paragraph I above. Such right of exercise will accrue,
notwithstanding any limitations in this option agreement as to the time Optionee
may exercise such option, including "vesting" schedules.
7. Securities Laws. The issuance of shares of Common Stock upon the
----------------
exercise of the Options will be subject to compliance by the Company and the
person exercising the Options with all applicable requirements of federal and
state securities and other laws relating thereto. No person may exercise the
Options at any time when, in the opinion of counsel to the Company, such
exercise is not permitted under applicable federal or state securities laws.
Nothing herein will be construed to require the Company to register or qualify
any securities under applicable federal or state securities laws, or take any
action to secure an exemption from such registration and qualification for the
issuance
<PAGE>
of any securities upon the exercise of the Options.
8. Investment Representations. In connection with the receipt of
----------------------------
the Options and potential purchase of shares of common stock Optionee represents
and wan-ants to the Company as follows:
a. Investment Intent. Optionee is receiving the Options and may
purchase the shares represented thereby solely for her own account for
investment. Optionee has no present intention to resell or distribute the
Options of underlying shares or any portion thereof. The entire legal and
beneficial interest of the Options and any underlying shares purchased, will be
held, for Optionee's account only, and neither in whole or in part for any other
person.
b. Information Concerning Company. Optionee has significant prior
experience and knowledge of the affairs of the Company. Optionee is aware of the
Company's business and financial condition and has acquired sufficient
information about the Company to make an informed and acknowledgeable decision
regarding the Options and the potential purchase of the Shares.
C. Economic Risk. Optionee realizes that the exercise of the Options
and purchase of the underlying shares will be a highly speculative investment
and involve a high degree of risk. Optionee is able, without impairing his
financial condition, to hold any shares purchased for an indefinite period of
time and to suffer a complete loss of his investment.
d. Restriction on Transfer. Optionee understands that the Options
and/or underlying Shares must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Optionee understands that the certificate evidencing any shares
purchased will be imprinted with a legend that prohibits the transfer of the
shares unless they are registered or unless the Company receives an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required.
e. Sales Under Rule 144. Optionee is aware of the adoption of rule 144
by the Securities and Exchange Commission (the "Commission") promulgated under
the Securities Act, which pen-nits limited public resale of securities acquired
in a non-public offering subject to the satisfaction of certain conditions,
including among other things: (i) the availability of certain current public
information about the Company, (ii) the resale occurring not less than two years
after the party has purchased and paid for the securities to be sold, (iii) the
sale being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a "market maker," and (iv) the amount of securities
sold during any three-month period not exceeding specified limitations
(generally 1% of the total shares outstanding).
f. Limitation on Rule 144 Sales. Optionee further acknowledges and
understands that the Company is not now and at the time she wishes to sell the
any purchased shares may not be satisfying the current public information
requirement of Rule 144, and, in such case, Optionee could be precluded from
selling any shares purchased as a result of the exercise of the Options under
Rule 144 even if the one-year minimum holding period has been satisfied.
g. Sales Not Under Rule 144. Optionee further acknowledges that, if all
of the requirements of Rule 144 are not met, then registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, although Rule 144 is not exclusive, the
staff of the Commission has expressed its opinion (i) that persons proposing to
sell private placement securities other than in a registered offering and other
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and (ii) that such persons and the brokers who participate in the
transactions do so at their own risk.
<PAGE>
10. Legends, California Securities Law.
--------------------------------------
a. The certificate or certificates representing any shares purchased as a
result of the exercise of the Options will bear the following legends (as well
as any legends required by applicable California and other state corporate and
securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BY EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933
b. The Options and underlying shares which are the subject of this Agreement
have not been qualified with the Commissioner of Corporations of the State of
California, and the issuance of such securities or the payment or receipt of any
part of the consideration therefor prior to such qualification is unlawful,
unless the sale of securities is exempt from the qualification by an applicable
section of the California Corporations Code, including Section 25100, 25102 or
25105. The rights of all parties to this Agreement are expressly conditioned
upon such qualification being obtained, unless the sale is so exempt.
11. No Rights as Shareholder. Neither Optionee nor any person
----------------------------
claiming under or through Optionee will be, or have any of the rights or
privileges of, a shareholder of the Company in respect of any of the Shares
issuable upon the exercise of the Options, unless and until any of the Options
are properly and lawfully exercised.
12. Notices. Any notice to be given to the Company under the terms
--------
of this Agreement will be addressed to the Company, in care of its Secretary, at
its executive offices, or at such other address as the Company may hereafter
designate in writing. Any notice to be given to Optionee will be in writing and
delivered or mailed by registered or certified mail, return receipt requested,
postage prepaid, addressed to Optionee at the address set forth beneath
Optionee's signature in writing. Any such notice will be deemed to have been
duly given where deposited in a United States post office in compliance with the
foregoing.
13. Successor. Subject to the limitation on the transferability of
----------
the Options contained herein, this Agreement will be binding upon and inure to
the benefit of the heirs, legal representatives, successors and assigns of the
parties hereto.
14. Attorney's Fees. In the event that any legal action is brought
----------------
to enforce or interpret any part of this Agreement, the prevailing party shall
be entitled to recover reasonable attorney's fees and other costs incurred in
that action, in addition to any other relief to which that party may be
entitled.
15. Governing Law. This Agreement shall in all respects be
---------------
construed, interpreted, and enforced in accordance with, and governed by the
laws of the State of California.
16. Severability. If any term or provision of this Agreement shall
-------------
be held invalid or unenforceable to any extent, the remainder of this Agreement
shall not be affected and each other term and provision of this Agreement shall
be valid to the fullest extent permitted by law.
17. Counterpart. This Agreement may be executed in counterparts,
-----------
each of which shall constitute an original and all of which shall be one and the
same instrument.
18. Modification. Any amendment, change or modification of this
-------------
Agreement shall be effective only if it is in writing and signed by the parties
hereto.
<PAGE>
19. Waiver. The failure of either party to insist upon strict
-------
compliance with any of the terms, covenants or conditions of this Agreement by
the other party shall not be deemed a waiver of that term, covenant or
condition, nor shall any waiver or relinquishment of any right or power at any
one time be deemed a waiver or relinquishment of that right or power for all or
any other time.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.
COMPANY: NETTAXI ONLINE COMMUNITIES, INC.
By: /s/ Dean Rositano
-------------------
Title: President
---------
OPTIONEE: /s/ Dean Rositano
-------------------
Address: 1841 Simpson Way
------------------
San Jose, CA 95125
---------------------
<PAGE>
BAYTREE CAPITAL ASSOCIATES, LLC.
INVESTMENT BANKERS
THE TRUMP BUILDING AT
40 WALL STREET
NEW YORK, NEW YORK 10005
212/509-1700 * FACSIMILE 212/363-4231
September 3, 1998
Nettaxi Online Communities, Inc.
2165 S. Bascom Avenue
Campbell, California 95008
Attn: Mr. Robert Rositano, Jr.
CEO
Dear Mr. Rositano:
This letter agreement (the "Agreement") confirms the terms and conditions
----------
of the exclusive engagement of Baytree Capital Associates, LLC ("Baytree") by
---------
Nettaxi Incorporated and its affiliates to render certain financial advisory and
investment banking services to Nettaxi and any person, corporation or other
entity formed by or affiliated with such person (the "Company") which
participates in, or which was formed for the purpose of effecting a Transaction
(as hereinafter defined) and effecting a certain Financing as hereinafter
described. In the context of this Agreement, "Transaction" shall mean, whether
effected in one transaction or a series of transactions, (i) any merger,
consolidation, reorganization, recapitalization or other business combination
pursuant to which the business of Nettaxi is combined with that of another
entity (the "Merger Candidate"),whether or not Nettaxi is the surviving entity
--------------------
in such business combination.
1. Services. Baytree will assist Nettaxi in negotiating and
---------
effecting a loan as described in subparagraph (a) hereinbelow and thereafter
structuring a Transaction on the terms and conditions as set forth in this
Agreement. In this regard, we propose to undertake certain activities on behalf
of Nettaxi, including, the following:
(a) structuring and negotiating a loan (the "Loan") in the principal
amount of One Million Dollars (S1,000,000) to Nettaxi within ten (10) days of
the execution of this Agreement on terms and conditions substantially in the
form of the Note (the "Note") as set forth in Annex B attached hereto;
<PAGE>
(b) identifying a Merger Candidate which is a public company within the
meaning of Rule 15(c)-2 of the Securities Act of 1934;
(c) advising Nettaxi as to the structure and form of the Transaction;
(d) assisting Nettaxi in obtaining appropriate information and
performing due diligence regarding the Merger Candidate-,
(e) counseling Nettaxi with respect to, and conducting, negotiations
with, the Merger Candidate regarding the Transaction;
(f) arranging for consummation of the Transaction;
(g) arranging for financing on behalf of the Company as otherwise
discussed in this Agreement;
(h) rendering such other financial advisory and investment banking
services as may from time to time be agreed upon by Baytree and Nettaxi or the
Company.
Any obligations pursuant to this Paragraph I shall survive the termination
or expiration of this Agreement.
2. FINANCING.
---------
(a) Baytree shall arrange the Loan and thereafter arrange a financing
(the "Financing") on behalf of the Company either by conversion of the Loan or
funding the Financing otherwise to be completed contemporaneously with the
consummation of the Transaction through the private placement of One Million
Dollars ($1,000,000 U.S.) of Common Stock subject to Baytree's successful
completion of its due diligence. The placement of the Common Stock will rely on
Rule 504 of Regulation D ("Regulation D") promulgated under the U.S. Securities
------------
Act of 1933, as amended (the "Act"), and shall thereby be exempt from the
---
registration requirements of the Act, and will close contemporaneously with the
Transaction. In connection with their purchase of the Common Stock in the
Financing, the purchasers will receive One Million Two Hundred Fifty Thousand
shares (1,250,000) of the Common Stock of the Company based upon the
post-Transaction value of the Company.
Baytree shall not be deemed an agent of the Company nor an agent of Nettaxi
for any other purpose. Any proceeds shall be paid, less the Expense Allowance
and legal fees reimbursement (each as defined in Paragraph 4 below), to the
Company at a closing held with respect to the sale of the Common Stock in the
Financing (the "Closing") against delivery of certificates representing the
-------
securities sold. The Company agrees that until the later of the termination of
the Offering Period, or twelve (12) months from the Closing, it will not,
directly or indirectly, seek to arrange or place any equity or convertible
security financing, without Baytree's prior written consent except if such
financing is a sale of securities of nonconvertible
2
<PAGE>
debt. Additionally, the Company agrees that upon Closing, the Company shall
grant Baytree a right of first refusal for a period of twenty-four (24)
----------------
monthsfrom the Closing with respect to any sale of securities by the Company
except if the sale is either pursuant to an underwritten public offering or is
of securities of non-convertible debt and except for the issuance of securities
upon the exercise of currently outstanding options and warrants. Baytree shall
have ten (10) business days following receipt of written notice from the Company
setting forth the terms of any proposed financing to be conducted by it (a
"Notice"),to exercise the right of first refusal by presenting a letter of
------
intent for a proposed financing on the same or better economic terms as
presented to the Company. In the event Baytree falls to exercise this right to
present a letter of intent for a proposed financing, the Company shall be free
to sell such securities in the manner, amount and for the prices and terms set
forth in the Notice without liability to Baytree, subject to Baytree's right of
consent for a period of twelve (12) months as set forth above.
(b) In the event that the Loan shall have been converted to stock
pursuant to the terms of the Note, then and in that event Baytree shall be
deemed to have provided the Company the financing contemplated in subparagraph
(a) hereof and shall therefore be entitled to all Fees and Expenses provided for
in Paragraph 4 of this Agreement.
This Agreement does not constitute an understanding or a commitment,
express or implied, by Baytree to provide any of the Financing from its own
account. Any obligations pursuant to this Paragraph 2 shall survive the
termination or expiration of this Agreement.
3. REGISTRATION RIGHTS. The shares of Common Stock representing
---------------------
compensation to Baytree as provided for in Paragraph 4(e) will be registered by
--------------
the Company under the Act on any appropriate form necessary for the registration
- - -----------
of said shares at the request of Baytree anytime after six months from the date
of ClosingThe Company shall file such registration statement with the Securities
and Exchange Commission within sixty (60) days from the date of the request by
Baytree. The Company shall use its best efforts to cause the registration
statement to be declared effective by the Securities and Exchange Commission as
soon as practicable thereafter, and take whatever action may be necessary in
order to cause such registration statement to remain effective for so long as
any of the shares of Common Stock issued as a result of the Financing are
beneficially owned by Baytree or until all shares of Common Stock may be sold
pursuant to Rule 144 under the Securities Exchange Act of 1934, as amended,
without limitation, In addition, Baytree shall receive unlimited "Piggy back"
registration rights for the shares of Common Stock representing compensation to
Baytree.
4. Fees and Expenses. Nettaxi agrees to cause the Company to pay
--------------
Baytree for its services as follows:
(a) Baytree shall receive a placement fee equal to two hundred thousand
(200,000) shares of the Common Stock of the Company(the "Placement Fee")on a
----------------
post-split basis as described in Paragraph 5 (d) (11), infra. The Placement Fee
and Baytree's
3
<PAGE>
Expense Allowance (as hereinafter defined) with respect to the Financing shall
be payable concurrently with Closing.
(b) In addition to any other fees payable to Baytree hereunder, if at
any time commencing with the date hereof and ending twenty-four (24) months
after termination of this Agreement or the closing of the Transaction (whichever
is later) a party introduced to Nettaxi or the Company by Baytree or by any
broker-dealers selected by Baytree to participate in the Financing shall
purchase or commit to purchase any securities of Nettaxi, the Company or any
person or entity controlled by or under common control with Nettaxi, the
Company, or such other person (which commitment the Company shall have accepted
or shall subsequently accept), Baytree shall receive as compensation the
Placement Fee that would have, been payable and issuable had such purchases
occurred in connection with the Financing (10% of the gross proceeds),
regardless of the type of securities so purchased or the form of payment
therefor.
(c) It shall be the Company's obligation to bear all of its expenses in
connection with the Transaction and the Financing, which expenses shall include,
but are not limited to the following: printing and duplication costs, postage
and mailing expenses with respect to the transmission of offering materials,
registrar and transfer agent fees, accounting fees and issue and transfer taxes,
if any. In addition, Nettaxi will cause the Company to pay to Baytree a
non-accountable expense allowance of three (3%) percent of the gross proceeds of
the Financing, and to pay the fees and disbursements of Baytree's legal counsel,
Camhy Karlinsky & Stein, LLP incurred in connection with the Transaction and
Financing (collectively, the "Expense Allowance").
----------------------
Any obligation pursuant to this Paragraph 4 shall survive the termination
or expiration of this Agreement.
(d) Following the provision of a Merger Candidate into which there
shall have been any merger, consolidation, reorganization, recapitalization or
other business combination pursuant to Paragraph I of this Agreement, the
Company agrees that 660,000 shares of the Common Stock of the Merger Candidate
shall remain with the original shareholders of the Merger Candidate on
post-split basis as described in Paragraph 5 (d) (ii), infra.
5. REPRESENTATIONS, WARRANTIES, AND COVENANTS.
----------------------------------------------
(a) The Company represents and warrants that this Agreement has been
duly authorized, executed and delivered by the Company and constitutes a valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms. The Company further represents and warrants that
consummation of the transactions contemplated herein will not conflict with or
result in a breach of any of the terms, provisions or conditions of any written
agreement to which it is a party.
(b) The Company has done nothing that may be considered a direct
selling effort in the United States or which could reasonably be expected to
result in general
4
<PAGE>
preconditioning Of the United States Market for the Securities of the Company.
Subject to the requirements of law, the Company shall not make any public
announcement of the Financing without the prior written consent of Bay-tree and
in any event, shall make no such disclosure which could be deemed to be a
general solicitation or directed selling effort within the meaning of Regulation
D under the Act.
(c) Baytree covenants that it will comply with all Rules and
Regulations applicable to Regulation D with regard to this Offering. Further,
Baytree represents and warrants that this Agreement has been duly authorized,
executed and delivered by it and constitutes its valid and binding agreement
enforceable against it in accordance with its terms. Baytree further represents
and warrants that consummation of the transactions contemplated herein will not
conflict with or result in a breach of any of the terms, provisions or
conditions of any written agreement to which it is a party.
(d) The Company represents and warrants that:
(i) The total number of issued and outstanding shares of stock in
Nettaxi as of the date of this Agreement does not exceed 4,785,092 shares of
common stock.
(ii) In conjunction with any reverse merger as described in Paragraph
I of this Agreement Nettaxi agrees to forward split its existing common stock on
a 2.51 for I basis so that simultaneously with any reverse merger Nettaxi would
have twelve million shares issued and outstanding to exchange with the Merger
Candidate.
(e) The Company represents that upon the completion the Transaction it
shall cause a nominee identified by Baytree to be added to the Company's Board
of Directors for the maximum term provided for in the Company's By Laws.
(f) The Company represents that it has One Million Dollars
($1,000,000) of eligibility pursuant to Rule 504 of Regulation D. In the event
that it is determined that the Company has less than One Million Dollars of
eligibility, then the amount under-taken in connection with any Financing shall
be reduced to the amount of the Company's remaining Rule 504 eligibility.
(g) The Company acknowledges that Baytree's undertaking to perform the
Financing described in Paragraph 2 is on a best efforts basis.
(h) The Company represents that the post Transaction capitalization of
the Company shall be as set forth on Annex C attached hereto.
6. TERM. The term of this Agreement with regard to the completion
-----
of the Transaction shall be sixty (60) days from the date of the execution of
this Agreement. This Agreement may be renewed upon mutual written agreement of
Baytree and Nettaxi and/or the
5
<PAGE>
Company. Nettaxi agrees to cause the Company to pay Baytree any fees specified
in Paragraph 4 if the events specified therein shall occur during the term of
this Agreement or within two years after the termination or expiration of this
Agreement. Any obligation pursuant to this Paragraph 6 shall survive the
termination or expiration of this Agreement.
Notwithstanding anything in this Agreement to the contrary, in the event
that Baytree shall have failed to arrange for and fund the Loan within thirty
(30) days of the date of execution of this Agreement, then and in that event
this Agreement shall be null and void and of no further force or effect.
7. INDEMNIFICATION. In addition to the payment of fees and
----------------
reimbursement of fees and expenses provided for above, and regardless of whether
the Transaction or the Financing are consummated, Nettaxi agrees to indemnify
and to cause the Company to indemnify Baytree and any broker-dealers who
participate in the Financing, as set forth in Annex A, attached hereto, which is
incorporated by reference as if fully set forth herein. This Paragraph 7 shall
survive the termination or expiration of this Agreement.
8. INFORMATION. Nettaxi recognizes and confirms that in performing
------------
its duties pursuant to this Agreement, Baytree and broker-dealers selected by it
to participate in the Financing will be using and relying on data, material, and
other information (the "Information")or ("Offering Materials")furnished by
-------------- -----------------------
Nettaxi and the Merger Candidate or their respective employees and
representatives. In connection with Baytree's activities on Nettaxi's behalf,
Nettaxi will cooperate with Baytree and will furnish Baytree with all
information concerning Nettaxi, the Transaction and, to the extent available to
Nettaxi, the Merger Candidate, which Baytree deems appropriate and will provide
Baytree with access to Nettaxi's officers, directors, employees, independent
accountants and legal counsel for the purpose of performing Baytree's
obligations pursuant to this agreement. To the extent that Nettaxi has access to
the officers, directors, employees, independent accountants and legal counsel of
the Merger Candidate, it will provide such access to Baytree for the purpose of
performing Baytree's obligations pursuant to this Agreement. Nettaxi hereby
agrees and represents that all Information (a) furnished to Baytree pursuant to
this Agreement, and (b) contained in any filing by Nettaxi with any court or
governmental or regulatory agency, commission or instrumentality (each, an
"Agency") shall, at all times during the period of the engagement of Baytree
------
hereunder, be accurate and complete in all material respects and that, if the
Information provided by Nettaxi becomes materially inaccurate, incomplete or
misleading during the term of Baytree's engagement hereunder, the Company shall
so advise Baytree in writing. Accordingly, Baytree assumes no responsibility for
the accuracy and completeness of the Information. In rendering its services
hereunder, Baytree will be using and relying upon the Information without
independent verification thereof or independent evaluation of any of the assets
or liabilities of Nettaxi or the Merger Candidate. All Information that is not
publicly available will be treated in strict confidence, and will not be
revealed, or used (except in the performance of Baytree's duties under this
Agreement) by Baytree unless legally compelled as determined in good faith by
counsel to Baytree.
6
<PAGE>
9. DISCLOSURE. Nettaxi agrees that, except as compelled by law,
-----------
rule or regulation, it will not disclose and will cause the Company not to
disclose the services or advice to be provided by Baytree under this Agreement
publicly or to any third party without the prior written approval of Baytree.
10. SEVERABILITY. If any provision of this Agreement shall be held
-------------
or made invalid by a statute, rule, 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.
11. AUTHORIZATION. Nettaxi and Baytree-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.
12. 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.
13. HEADINGS. The descriptive headings of the Paragraphs 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.
14. NO BROKERS. Other than Elliot, Lane & Co., Nettaxi represents
------------
and warrants to Baytree that there are no brokers, representatives or other
persons which have an interest in or claim for compensation due to Baytree from
any transaction contemplated herein.
15. NOTICES. Any notice or other communication to be given to
--------
Nettaxi hereunder may be given by delivering the same in writing to the address
set forth above, and any notice or other communication to be given to Bay-tree
may be given by delivering the same to Bay-tree Capital Associates, LLC, 40 Wall
Street, New York, New York 10005, Attention: Michael Gardner, Principal, 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.
16. ARBITRATION. In the case of any dispute, question, controversy
------------
or claim arising among the parties hereto which shall arise out of or in
connection with this Agreement, the same shall be submitted to arbitration
before a panel of three arbitrators in New York, New York, in accordance with
the rules of the American Arbitration Association. One arbitrator shall be
appointed by the party or parties bringing the claims ("Claimant") and one
--------
arbitrator shall be appointed by the party or parties defending the claim
("Respondent"). The arbitrators selected by such parties shall be selected
----------
within thirty (30) days after notification by the
7
<PAGE>
Claimant to the Respondent that it has determined to submit such dispute,
question, controversy or claim to arbitration. The two arbitrators so selected
shall select a third arbitrator within thirty (30) days after the selection of
the arbitrator selected by such parties. Should a party fall to select an
arbitrator within the specified time period, or should the arbitrators selected
by the parties fail to select a third arbitrator, the missing arbitrator or
arbitrators shall be appointed by the New York, New York office of the American
Arbitration Association. The decision of the panel shall be final and binding on
the parties and enforceable in any court of competent junsdiction. The costs of
the arbitration will be imposed upon the Claimant and Respondent as determined
by the arbitration panel or, failing such determination, will be borne equally
by the Claimant and the Respondent. The successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees in addition to
any other relief to which it may be entitled.
In the event of any dispute, question, controversy or claim arising among
the parties hereto which shall arise out of or in connection with this
Agreement, the parties shall keep the proceeding related to such controversy in
strict confidence and shall not disclose the nature of said dispute, the status
of the proceeding or any testimony, documents or information obtained or
exchanged in the course of said proceeding without the express written consent
of all parties to such dispute unless either party is legally compelled to make
any such disclosure.
Please confirm that the foregoing correctly sets forth our agreement by
signing the enclosed letters in the space provided and returning them to us for
execution, whereupon we will send you a fully executed original letter which
shall constitute a binding agreement as of the date first above written.
Very truly yours,
BAYTREE CAPITAL ASSOCIATES, LLC
By: /s/ Michael Gardner
----------------------------
Michael Gardner, Principal
Agreed to and accepted as of the above date I
NETTAXI ONLINE COMMUNITIES, INC.
By:
Robert Rositano, Jr., CEO
8
<PAGE>
ANNEX A: INDEMNIFICATION
Nettaxi agrees to indemnify and to cause the Company to indemnify Baytree,
any broker-dealers who participate in the Financing, and their respective
employees, directors, officers, agents, affiliates, and each person, if any, who
controls them within the meaning of either Section 20 of the Securities Exchange
Act of 1934 or Section 15 of the Securities Act of 1933 (each such person,
including Baytree and such broker-dealers, is referred to as "Indemnified
Party") from and against any losses, claims, damages and liabilities, joint or
several including all legal or other expenses reasonably incurred by an
Indemnified Party in connection with the preparation for or defense of any
threatened or pending claim, action or proceeding, whether or not resulting in
any liability ("Damages"), to which such Indemnified Party, in connection with
its services or arising out of its engagement hereunder, may become subject
under any applicable Federal or state taw or otherwise, including but not
limited to liability (1) caused by or arising out of an untrue statement or an
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact necessary in order to make a statement not misleading
in light of the circumstances under which it was made, (11) caused by or arising
out of any act or failure to act or (ill) arising out of Baytree's engagement or
the rendering by any Indemnified Party of its services under this Agreement;
provided, however, that neither Nettaxi nor the Company will be liable to the
Indemnified Party hereunder to the extent that any Damages are found in a final
non-appealable judgment by a court of competent jurisdiction to have resulted
from the gross negligence, bad faith or willful misconduct of the Indemnified
Party seeking indemnification hereunder.
These indemnification provisions shall be in addition to any liability
which Nettaxi and/or the Company may otherwise have to any Indemnified Party.
If for any reason, other than a final non-appealable judgment finding an
Indemnified Party liable for Damages for its gross negligence, bad faith, or
willful misconduct the foregoing indemnity is unavailable to an Indemnified
Party or insufficient to hold an Indemnified Party harmless, then Nettaxi shall
and shall cause the Company, to contribute to the amount paid or payable by an
Indemnified Party as a result of such Damages in such proportion as is
appropriate to reflect not only the relative benefits received by Nettaxi or the
Company, as the case may be and its shareholders on the one hand, and Bay1ree on
the other, but also the relative fault of Nettaxi or the Company, as the case
may be, and the Indemnified Party as well as any relevant equitable
considerations, subject to the limitation that in no event shall the total
contribution of all Indemnified Parties to all such Damages exceed the amount of
fees actually received and retained by Baytree and the broker-dealers selected
by Baytree that participate in the placement of the Common Stock.
Promptly after receipt by the Indemnified Party of notice of any claim or
of the commencement of any action in respect of which indemnity may be sought,
the Indemnified Party will notify Nettaxi or the Company in writing of the
receipt or commencement thereof and
9
<PAGE>
Nettaxi or the Company shall have the right to assume the defense of such claim
or action (including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of fees and expenses of such counsel),
provided that the Indemnified Party shall have the right to control its defense
if, in the opinion of its counsel, the Indemnified Party's defense is unique or
separate to it as the case may be, as opposed to a defense pertaining to Nettaxi
or the Company In any event, the Indemnified Party shall have the right to
retain counsel reasonably satisfactory to Nettaxi or the Company, at Nettaxi's
or the Company's expense, to represent it in any claim or action in respect of
which indemnity may be sought and agrees to cooperate with Nettaxi or the
Company and Nettaxi's or the Company's counsel in the defense of such claim or
action, it being understood, however, that Nettaxi or the Company shall not, in
connection with any one such claim or action or separate, but substantially
similar or related claims or actions in the same jurisdiction arising out of the
same general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys, for all the Indemnified
Parties unless the defense of one Indemnified Party is unique or separate from
that of another Indemnified Party subject to the same claim or action. In the
event that Nettaxi or the Company does not promptly assume the defense of a
claim or action, the Indemnified Party shall have the right to employ counsel
reasonably satisfactory to Nettaxi or the Company, at Nettaxi's or the Company's
expense, to defend such claim or action. The omission by an Indemnified Party to
promptly notify Nettaxi or the Company of the receipt or commencement of any
claim or action in respect of which indemnity may be sought will relieve Nettaxi
or the Company from any liability Nettaxi or the Company may have to such
Indemnified Party only to the extent that such a delay in notification
materially prejudice Nettaxi's or the Company's defense of such claim or action.
Nettaxi or the Company shall not be liable for any settlement of any such claim
or action effected without its written consent, which shall not be unreasonably
withheld or delayed. Any obligation pursuant to this Annex shall survive the
termination or expiration of this Agreement.
10
<PAGE>
ANNEX B: FORM OF PROMISSORY NOTE
1,000,000.00 September 3, 1998
- - ------------
FOR VALUE RECEIVED, NETTAXI, INC. (the "Maker"), a California corporation, with
offices at 2165 S. Bascom Avenue, Campbell, California 95008, hereby promises to
pay to the order of _________________(the "Payee"), residing at (or with a
business office located at) ____________________________, the principle sum of
One Million Dollars ($ 1,000,000), together with interest on the principal
- - -------------------------------------
amount outstanding from the date hereof until payment in full.
The principal amount of this Note together with all interest then accrued
shall be payable three months from the date hereof (the "Due Date"). However,
the term of this Note shall automatically be extended for an additional three
months from the original Due Date in the event that the conversion of this Note
as hereinafter described has not been completed by the original Due Date.
Interest on outstanding principal shall accrue at the rate of 9% per annum from
the date hereof and shall be paid on the Due Date. All interest shall be
calculated on the basis of a 365-day year, counting the actual number of days
elapsed from the date of this Note to the Due Date. Interest on any overdue
payments of principal and interest due hereunder shall accrue and be payable at
the rate of twelve (12%) percent per annum, based on the actual number of days
elapsed from the date such principal or interest payment was due to the date of
actual payment.
The principal of this Note may be prepaid in whole or in part, without
premium or penalty, at any time. The Maker shall prepay the principal and
accrued interest of this Note, as and to the extent that the Maker receives
proceeds (net of expenses) (1) from the sale of common stock of the Maker prior
to the Due Date, or (2) as a part of being acquired by a public company prior to
the Due Date.
This Note shall be convertible at the option of by the Payee to shares of
common stock of any publicly-held corporation which acquires at least 51% of the
Maker at any time prior to the Due Date. The terms of the issuance of such
shares shall be part of a structure wherein the public company shall have
12,660,000 shares of common stock outstanding after the acquisition of Maker
(but before the conversion of this Note). In connection with said acquisition,
the public company shall issue 12,000,000 shares to the shareholders of the
Maker and shall sell 1,250,000 shares at $.80 per share (the "Offering Shares").
The shares issuable upon conversion of this Note shall be a part of the Offering
Shares and shall be converted at $.80 per share.
All principal and interest payments hereunder are payable in lawful money
of the United States of America to the Payee at the address first shown above,
or at such other address as may be directed by Payee, in immediately available
funds.
11
<PAGE>
The Maker hereby waives presentment, demand, dishonor, protest, notice of
protest, diligence and any other notice or action otherwise required to be given
or taken under the law in connection with the delivery, acceptance, performance,
default, enforcement or collection of this Note, and expressly agrees that this
Note, or any payment hereunder, may be extended, modified or subordinated (by
forbearance or otherwise) from time to time, without in any way affecting the
liability of the Maker.
In the event that (a) the Maker shall fall to pay when due, any payment of
principal or interest due hereunder and such failure to pay is not cured within
ten (10) days of the date such payment was due, or (b) if the maker shall
(0-make a general assignment for the benefit of creditors; (11) be adjudicated a
bankrupt or insolvent; (111) file a voluntary petition in bankruptcy; (1v) take
advantage of any bankruptcy or insolvency law or statute of the United States of
America or any state or jurisdiction thereof now or hereafter in effect; (v)
have a petition or proceeding filed against the Maker under any bankruptcy or
insolvency taw or statute of the United States of America or any state or
jurisdiction thereof, which petition or proceeding is not dismissed within
forty-five (45) days from the date of commencement thereof, or (vi) have a
receiver, trustee, custodian, conservator or other person appointed by any court
to take charge of the Maker's affairs, assets or business and such appointment
is not vacated or discharged within forty-five (45) days thereafter; then, and
upon the happening of any such event, the Payee, at Payee's option, by written
notice to the Maker, may declare the entire indebtedness evidenced by this Note
immediately due and payable, whereupon the same shall forthwith mature and
become immediately due and payable without presentment, demand, protest or
further notice.
In the event that Maker shall fail to pay when due any principal or
interest payment, and the Payee shall exercise or endeavor to exercise any of
its remedies hereunder, the Maker shall pay all reasonable costs and expenses
incurred in connection therewith including, without limitation, reasonable
attorneys' fees, and the Payee may take judgment for all such amounts in
addition to all other sums due hereunder.
No consent or waiver by the Payee with respect to any action or failure to
act by maker which, without such consent or waiver, would constitute a breach of
any provision of this Note shall be valid and binding unless in writing and
signed by the Payee.
All agreements between the Maker and the Payee are expressly limited to
provide that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to the Payee for the use, forbearance
or detention of the indebtedness evidenced hereby exceed the maximum amount
which the Payee is permitted to receive under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision hereof, at the time
performance of such provision shall be due, shall involve transcending the limit
of validity prescribed by law, then, without the necessity of any action by
Payee or Maker, the obligation to be fulfilled shall automatically be reduced to
the limit of such validity, and if from any circumstance the Payee should ever
receive as interest an amount which would exceed the highest lawful rate, such
12
<PAGE>
amount which would be excessive interest shall be applied to the reduction of
the principal balance hereof, and not to the payment of interest. As used
herein, the term "applicable law" shall mean the law in affect as of the date
hereof, provided, however, that in the event there is a change in the law which
results in a higher permissible rate of interest, then this Note shall be
governed by such new law as of its effective date. This provision shall control
every other provision of all agreements between the Maker and the Payee.
This Note shall be governed by and construed in accordance with the laws of
the State of New York, except to the extent that such laws are superseded by
Federal enactments.
If any covenant or other provision of the Note is invalid, illegal, or
incapable of being enforced by reason of any rule of law or public policy, all
other covenants and provisions of the Note shall nevertheless remain in full
force and effect, and no covenant or provision shall be deemed dependent upon
any other covenant or provision.
IN WITNESS WHEREOF, the Maker, by its duly authorized officer, has executed
this Note as of the date first above written.
NETTAXI ONLINE COMMTJNITIES, INC.
By: _______________________________
Robert Rositano, Jr., CEO
13
<PAGE>
NETTAXI, INC.
1998 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN
The purposes of this 1998 Stock Option Plan (the "Plan") of Nettaxi, Inc.,
a Nevada corporation (the "Company") are to:
(i) Encourage selected officers, directors, key employees and
consultants to improve operations and increase profits of the Company or its
Affiliates;
(ii) Encourage selected officers and key employees to accept or
continue employment with the Company or its Affiliates; and
(iii) Increase the interest of selected officers, directors, key
employees and consultants in the Company's welfare through participation in the
growth in value of the common stock of the Company ("Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is a key employee of the
Company or of any Affiliate (as defined below) (including employees who are also
officers or directors of the Company or of any Affiliate) is eligible to receive
NQOs or ISOs under this Plan. The term "Affiliate" as used in the Plan means a
parent or subsidiary corporation as defined in the applicable provisions
(currently Sections 424(e) and (0, respectively) of the Code. Every person who
is a director of or consultant to the Company or any Affiliate at the date of
grant of an Option is eligible to receive NQOs under this Plan.
3. STOCK SUBJECT TO THIS PLAN
Subject to the provisions of Section 6.1.1 of the Plan, the maximum
aggregate number of shares of stock which may be granted pursuant to this Plan
is three million (3,000,000) shares of Common Stock. The shares unexercised
shall become available again for grants under the Plan.
4. ADMINISTRATION
4.1 Option Committee. This Plan shall be administered by the Board
------------------
of Directors of the Company (the "Board") or by a committee of at least two
Board members, one of which is the President, (hereinafter referred to as the
"Committee Chairman") to which administration of the Plan is delegated (in
either case, the "Option Committee"). No member of the Option Committee shall be
liable for any decision, action, or omission respecting the Plan, any options,
or any option shares.
4.2 Disinterested Administration. From and after such time as the
------------------------------
Company registers a class of equity securities under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), this Plan
shall be administered in accordance with the disinterested administrative
requirements of Rule 16b-3 promulgated by the Securities and Exchange Commission
("Rule 16b-3"), or any successor rule thereto.
<PAGE>
4.3 Authority of the Option Committee. Subject to the other provisions
-----------------------------------
of this Plan, the Options Committee shall have the authority, in its discretion:
(i) to grant Options; (ii) to determine the fair market of the Common Stock
subject to Options; (iii) to determine the exercise price of Options granted;
(iv) to determine the persons to whom, and the time or times at which, Options
shall be granted, and the number of shares subject to each Option; (v) to
interpret this Plan; (vi) to prescribe, amend, and rescind rules and regulations
relating to this Plan; (vii) to determine the terms and provisions of each
Option granted (which need not be identical), including but not limited to, the
time or times at which Options shall be exercisable; (viii) with the consent of
the optionee, to modify or amend any Option; (ix) to defer (with the consent of
the optionee) or accelerate the exercise date or vesting of any Option; (x) to
authorize any person to execute on behalf of the Company any instrument
evidencing the grant of an Option; and (xi) to make all other determinations
deemed necessary or advisable for the administration of this Plan. The Option
Committee may delegate nondiscretionary administrative duties to such employees
of the Company as it deems proper.
4.4 Determinations Final. All questions of interpretation,
----------------------
implementation, and application of this Plan shall be determined by the Board or
the Option Committee. Such determinations shall be final and binding on all
persons.
5. GRANTING OF OPTIONS: OPTION AGREEMENT
5.1 Ten-Year Term. No Options shall be granted under this Plan
---------------
after ten years from the date of adoption of this Plan by the Board.
5.2 Option Agreement. Each Option shall be evidenced by a written
------------------
stock option agreement, in form satisfactory to the Company, executed by the
Company and the person to whom such Option is granted; provided, however, that
the failure by the Company, the optionee, or both to execute such an agreement
shall not invalidate the granting of any Option.
5.3 Designation as ISO or NOO. The agreement shall specify whether
---------------------------
each Option it evidences is a NQO or an ISO. Notwithstanding designation of any
Option as an ISO or a NQO, if the aggregate fair market value of the shares
under Options designated as ISOs which would become exercisable for the first
time by any Optionee at a rate in excess of $ 100,000 in any calendar year
(under all plans of the Company), then unless otherwise provided in the stock
option agreement or by the Option Committee, such Options shall be NQOs to the
extent of the excess above $ 100,000. For purposes of this Section 5.3, Options
shall be taken into account in the order in which they were granted, and the
fair market value of the shares shall be determined as of the time the Option,
with respect to such shares, is granted.
5.4 Grant to Prospective Employees. The Option Committee or the
----------------------------------
Committee Chairman may approve the grant of Options under this Plan to persons
who are expected to become employees of the Company, but who are not employees
at the date of approval. In such cases, the Option shall be deemed granted,
without further approval, on the date the optionee is first treated as an
employee for payroll purposes.
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be designated as a NQO or an ISO.
Each Option shall be subject to the terms and conditions set forth in Section
6.1. NQOs shall be also subject to the terms and conditions set forth in Section
6.2, but not those set forth in Section 6.3. ISOs shall also be subject to the
terms and conditions set forth in Section 6.3, but not those set forth in
Section 6.2.
6.1 Terms and Conditions to Which Options Are Subject. Options
------------------------------------------------------
granted under this Plan shall, as provided in Section 6, be subject to the
following terms and conditions:
6.1.1 Changes in Capital Structure. The existence of outstanding
--------------------------------
Options shall not affect the Company's right to effect adjustments,
recapitalizations, reorganizations, or other changes in its or any other
<PAGE>
corporation's capital structure or business, any merger or consolidation, any
issuance of bonds, debentures, preferred, or prior preference stock ahead of or
affecting Common Stock, the dissolution or liquidation of the Company's or any
other corporation's assets or business or any other corporate act whether
similar to the events described above or otherwise. Subject to Section 6.1.2, if
the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, recapitalization, or other event, or converted into or
exchanged for other securities as a result of a merger, consolidation,
reorganization, or other event, appropriate adjustments shall be made in (i) the
number and class of shares of stock subject to this Plan and each outstanding
Option; provided, however, that the Company shall not be required to issue
fractional shares as a result to any such adjustments. Each such adjustment
shall be subject to approval by the Option Committee in its sole discretion, and
may be made without regard to any resulting tax consequence to the optionee.
6.1.2 Corporate Transactions.In connection with (i) any merger,
------------------------
consolidation, acquisition, separation, or reorganization in which more than
fifty percent (50%) of the shares of the Company outstanding immediately before
such event are converted into cash or into another security, (ii) any
dissolution or liquidation of the Company or any partial liquidation involving
fifty percent (50%) or more of the assets of the Company, (iii) any sale of more
than fifty percent (50%) of the Company's assets, or (iv) any like occurrence in
which the Company is involved, the Option Committee may, in its absolute
discretion, do one or more of the following upon ten days' prior written notice
to all optionees; (a) accelerate any vesting schedule to which an Option is
subject; (b) cancel Options upon payment to each optionee in cash, with respect
to each Option to the extent then exercisable, of any amount which, in the
absolute discretion of the Option Committee, is determined to be equivalent to
any excess of the market value (at the effective time of such event) of the
consideration that such optionee would have received if the Option had been
exercised before the effective time over the exercise price of the Option; (c)
shorten the period during which such Options are exercisable (provided they
remain exercisable, to the extent otherwise exercisable, for at least ten days
after the date the notice is given); or (d) arrange that new option rights be
substituted for the option rights granted under this Plan, or that the Company's
obligations as to Options outstanding under this Plan be assumed, by an employer
corporation other than the Company or by a parent or subsidiary of such employer
corporation. The actions described in this Section 6.1.2 may be taken without
regard to any resulting tax consequence to the optionee.
6.1.3 Time of Option Exercise. Except as necessary to satisfy the
--------------------------
requirements of Section 422 of the Code and subject to Section 5, Options
granted under this Plan shall be exercisable at such times as are specified in
the written stock option agreement relating to such Option: provided, however,
that so long as the optionee is a director or officer, as those terms are used
in Section 16 of the Exchange Act, such Option may not be exercisable, in whole
or in part, at any time prior to the six-month anniversary of the date of the
Option grant, unless the Option Committee determines that the foregoing
provision is not necessary to comply with the provisions of Rule 16b-3 or that
Rule 16b-3 is not applicable to the Plan. No Option shall be exercisable,
however, until a written stock option agreement in form satisfactory to the
Company is executed by the Company and the optionee. The Option Committee, in
its absolute discretion, may later waive any limitations respecting the time at
which an Option or any portion of an Option first becomes exercisable.
6.1.4 Option Grant Date. Except as provided in Section 5.4 or as
-------------
otherwise specified by the Option Committee, the date of grant of an Option
under this Plan shall be the date as of which the Option Committee approves the
grant.
6.1.5 Nonassignability of Option Rights. No Option granted under
-------------------------------------
this Plan shall be assignable or otherwise transferable by the optionee except
by will, by the laws of descent and distribution, or pursuant to a qualified
domestic relations order (limited in the case of an ISO, to a qualified domestic
relations order that effects a transfer of an ISO that is community property as
part of a division of community property). During the life of the optionee, an
Option shall be exercisable only by the optionee.
6.1.6 Payment. Except as provided below, payment in full shall be
-------
made for all stock purchased at the time written notice of exercise of an Option
is given to the Company, and proceeds of any payment shall constitute general
funds of the Company. Payment may be made in cash, by promissory note, by
delivery to the
<PAGE>
Company of shares of Common Stock owned by the optionee (duly endorsed in favor
of the Company or accompanied by a duly endorsed stock power), or by any other
form of consideration and method of payment to the extent permitted under
applicable law. Any shares delivered shall be valued as of the date of exercise
of the Option in the manner set forth in Section 6.1.12. Optionees may not
exercise Options by delivery of shares more frequently than at six-month
intervals.
6.1.7 Termination of Employment. Unless determined otherwise by the
-------------------------
Option Committee in its absolute discretion to the extent not already expired or
exercised, every Option granted under this Plan shall terminate at the earlier
of (a) the Expiration Date (as defined in Section 6.1.12) or (b) three months
after termination of employment with the Company or any Affiliate; provided,
that an Option shall be exercisable after the date of termination of employment
only to the extent exercisable on the date of termination; and provided further,
that if termination of employment is due to the optionee's "disability" (as
determined in accordance with Section 22(e)(3) of the Code), the optionee, or
the optionee's personal representative, may at any time within one (1) year
after the termination of employment (or such lesser period as is specified in
the option agreement but in no event after the Expiration Date of the Option),
exercise the option to the extent it was exercisable at the date of termination;
and provided further that if termination of employment is due to the Optionee's
death, the Optionee's estate or a legal representative thereof, may at any time
within and including six (6) months after the date of death of Optionee (or such
lesser period as is specified in the option agreement but in no event after the
Expiration Date of the Option), exercise the option to the extent it was
exercisable at the date of termination. Transfer of an optionee from the Company
to an Affiliate or vice versa, or from one Affiliate to another, or a leave of
absence due to sickness, military service, or other cause duly approved by the
Company, shall not be deemed a termination of employment for purposes of this
Plan. For the purpose of this Section 6.1.7, "employment" means engagement with
the Company or any Affiliate of the Company either as an employee, as a
director, or as a consultant.
6.1.8 Repurchase of Stock. In addition to the right of first
----------------------
refusal set forth in Section 6.1.9, at the time it grants Options under this
Plan, the Company may retain, for itself or others, rights to purchase the
shares acquired under the Option or impose other restrictions on the transfer of
such shares. The terms and conditions of any such rights or other restrictions
shall be set forth in the option agreement evidencing the Option.
6.1.9 Company's Right of First Refusal.
-------------------------------------
(i) Company's Right; Notice. Stock delivered pursuant to the exercise of
any option granted under this Plan shall be subject to a right of first refusal
by the Company in the event that the holder of such shares proposes to sell,
pledge, or otherwise transfer such shares or any interest in such shares to any
person or entity. Any holder of shares purchased under this Plan desiring to
transfer such shares or any interest in such shares shall give a written notice
(the "Offer Notice") to the Company describing the proposed transfer, including
the number of shares proposed to be transferred, the proposed transfer price and
terms, and the name and address of the proposed transferee. The Company's rights
under this Section 6.1.9 shall be freely assignable.
(ii) Exercise. Except as provided under any repurchase right imposed under
Section 6.1.8, if the Company fails to exercise its right of first refusal
within 20 days from the date on which the Company receives the Offer Notice, the
shareholder may, within the next 90 days, conclude a transfer to the proposed
transferee of the exact number of shares covered by that notice on terms not
more favorable to the transferee than those described in the notice. Any
subsequent proposed transfer shall again be subject to the Company's right of
first refusal. If the Company exercises its right of first refusal, the
shareholder shall endorse and deliver to the Company the stock certificates
representing the shares being repurchased. The Company shall pay the shareholder
the total repurchase price for the shares no later than the later of (a) sixty
(60) days after receipt of the Offer Notice and (b) the end of such period for
payment offered by the bona fide third-party transferor. The holder of the
shares being repurchased shall cease to have any rights with respect to such
shares immediately upon receipt of the repurchase price.
(iii) Exceptions. Notwithstanding the foregoing provisions of this Section
6.1.9, no notice of a proposed transfer shall be required and no right of first
refusal shall exist with respect to transfers, including sales,
<PAGE>
to an optionee's children, grandchildren, or parents or to trusts, estates, or
custodianships of or for the account of an optionee or an optionee's children,
grandchildren, or parents; provided, however, that the transferee shall take
such shares subject to the provisions of Sections 6.1.8. and 6.1.9.
(iv) Termination of Company's Right. The right of first refusal set forth
in this Section 6.1.9 shall terminate upon the earlier of the consummation of an
underwritten public offering of the Company's Common Stock registered under the
Securities Act of 1933 or the date on which the Common Stock is registered under
Section 12 of the Exchange Act.
(v) No Limitation. Nothing in this Section 6.1.9 shall limit the rights
of the Company under any repurchase right imposed under Section 6. 1. S.
(vi) Conflict. In the event that the terms of this paragraph 6.1.9
conflict or are inconsistent with any provision in the Bylaws of the Company,
the terms of the Bylaws shall control.
6.1.10 Withholding and Employment Taxes. At the time of exercise of
---------------------------------
an Option (or at such later time(s) as the Company may prescribe), the optionee
shall remit to the Company in cash all applicable (as determined by the Company
in its sole discretion) federal and state withholding taxes. The Option
Committee may, in the exercise of its sole discretion, permit an optionee to pay
some or all of such taxes by means of a promissory note on such terms as the
Option Committee deems appropriate. If authorized by the Option Committee in its
sole discretion, and if the Option has been held for six months or more, an
optionee may elect to have shares of Common Stock which are acquired upon
exercise of the Option withheld by the Company or to tender to the Company other
shares of Common Stock or other securities of the Company owned by the optionee
on the date of determination of the amount of tax to be withheld as a result of
the exercise of such Option (the "Tax Date") to pay the amount of tax that is
required by law to be withheld by the Company as a result of the exercise of
such Option, provided that the election satisfies the following requirements:
(i) the election shall be irrevocable, shall be made at least six months
before the Option exercise, and shall be subject to the disapproval of the
Option Committee at any time before consummation of the Option exercise; or
(ii) the election shall be made in advance to take effect in a subsequent
"window period" (as defined below) in which the Option is exercised, and the
Option Committee shall approve the election when it is made or at any time
thereafter up to consummation of the Option exercise; or
(iii) the election shall be made in a window period and the approval of the
Option Committee shall be given after the election is made and within the same
window period, and the Option exercise shall be consummated within such window
period; or
(iv) shares or other previously owned securities shall be tendered (but
stock shall not be withheld) at any time up to the consummation of the Option
exercise (in which event, neither a prior irrevocable election nor window period
timing shall be required).
Notwithstanding the foregoing, clauses (ii) and (iii) shall not be
available until the Company has been subject to the reporting requirements of
the Securities Exchange Act of 1934 for at least one year.
A "window period" is the period beginning on the third business day
following the date of release for publication of quarterly or annual summary
statements of sales and earnings and ending on the 12th business day following
such date. Any securities so withheld or tendered shall be valued by the Company
as of the Tax Date.
6.1.11 Other Provisions. Each Option granted under this Plan may
------------------
contain such other terms, provisions, and conditions not consistent with this
Plan as may be determined by the Option Committee, and each ISO
<PAGE>
granted under this Plan shall include such provisions and conditions as are
necessary to qualify the Option as an "incentive stock option" within the
meaning of Section 422 of the Code.
6.1.12 Determination of Value. For purposes of the Plan, the value
------------------------
of Common Stock or other securities of the Company shall be determined as
follows:
(i) If the stock of the Company is listed on any established stock exchange
or a national market system, including without limitation the National Market
System of the National Association of Securities Dealers Automated Quotation
System, its fair market value shall be the closing sales price for such stock or
the closing bid if no sale was reported, as quoted on such system or exchange
(or the largest such exchange) for the date the value is to be determined (or if
there is no sale for such date, then for the last preceding business day on
which there was at least one sale), as reported in the Wall Street Journal.
------------------------
(ii) If the stock of the Company is regularly quoted by a recognized
securities dealer but selling prices are not reported, its fair market value
shall be the mean between the high bid and low asked prices for the stock on the
date the value is to be determined (or if there is no quoted price for the date
of grant, then for the last preceding business day on which there was a quoted
price).
(iii) If the stock of the Company is as described in Section 6.1.12(i) or
(ii), but is restricted by law, contract, market conditions, or otherwise as to
salability or transferability, its fair market value shall be as set forth in
Section 6.1.12(i) or (ii), as appropriate, less, as determined by the Option
Committee, an appropriate discount, based on the nature and terms of the
restrictions.
(iv) In the absence of an established market for the stock, the fair market
value thereof shall be determined by the Option Committee, with reference to the
Company's net worth, prospective earning power, dividend-paying capacity, and
other relevant factors, including the goodwill of the Company, the economic
outlook in the Company's industry, the Company's position in the industry and
its management, and the values of stock of other corporations in the same or a
similar line of business.
6.1.13 Option Term. No Option shall be exercisable more than ten
-------------
years after the date of grant, or such lesser period of time as set forth in the
option agreement (the end of the maximum exercise period stated in the option
agreement is referred to in this Plan as the "Expiration Date"). No ISO granted
to any person who owns, directly or by attribution, stock possessing more than
ten percent of the total combined voting power of all classes of stock of the
Company of any Affiliate ( a "Ten Percent Stockholder") shall be exercisable
more than five years after the date of grant.
6.1.14 Exercise Price. The exercise price of any Option granted to
----------------
any Ten Percent Stockholder shall in no event be less than 110 percent of the
fair market value (determined in accordance with Section 6.1.12) of the stock
covered by the Option at the time the Option is granted.
6.1.15 Compliance with Securities Laws. The Company shall not be
-----------------------------------
obligated to offer or sell any shares upon exercise of an Option unless the
shares are at that time effectively registered or exempt from registration under
the federal securities laws and the offer and sale of the shares are otherwise
in compliance with all applicable state and local securities laws. The Company
shall have no obligation to register the shares under the federal securities
laws or take whatever other steps may be necessary to enable the shares to be
offered and sold under federal or other securities laws. Upon exercising all or
any portion of an Option, an optionee may be required to furnish representations
or undertakings deemed appropriate by the Company to enable the offer and sale
of the Option shares or subsequent transfers of any interest in the shares to
comply with applicable securities laws. Stock certificates evidencing shares
acquired upon exercise of options shall bear any legend required by, or useful
for purposes of compliance with, applicable securities laws, this Plan, or the
option agreement evidencing the Option.
<PAGE>
6.2 Terms and Conditions to Which Only NQOs Are Subject. Options
-------------------------------------------------------
granted under this Plan which are designated as NQOs shall be subject to the
following additional terms and conditions:
6.2.1 Exercise Price. Except as set forth in Section 6.1.14, the
----------------
exercise price of a NQO shall not be less than 85 percent of the fair market
value (determined in accordance with Section 6.1.12) of the stock subject to the
Option on the date of grant.
6.3 Terms and Conditions to Which Only ISOs Are Subject. Options
-------------------------------------------------------
granted under this Plan which are designated as ISOs shall be subject to the
following additional terms and conditions:
6.3.1 Exercise Price. Except as set forth in Section 6.1.14, the
----------------
exercise price of an ISO shall be determined in accordance with the applicable
provisions of the Code and shall in no event be less than the fair market value
(determined in accordance with Section 6.1.12) of the stock covered by the
Option at the time the Option is granted.
6.3.2 Disqualifying Disposition. If stock acquired upon exercise of
-------------------------
an ISO is disposed of in a "disqualifying disposition" within the meaning of
Section 422 of the Code, the holder of the stock immediately before the
disposition shall notify the Company in writing of the date and terms of the
disposition and comply with any other requirements imposed by the Company in
order to enable the Company to secure any related income tax deduction to which
it is entitled.
7. MANNER OF EXERCISE
7.1 Notice of Exercise. An optionee wishing to exercise an Option
---------------------
shall give written notice to the Company at its principal executive office, to
the attention of the officer of the Company designated by the Option Committee,
accompanied by payment of the exercise price as provided in Section 6.1.6. The
date the Company receives written notice of an exercise hereunder accompanied by
payment of the exercise price and, if required, by payment of any federal or
state withholding or employment taxes required to be withheld by virtue of
exercise of the Option will be considered as the date such Option was exercised.
7.2 Issuance of Certificates. Promptly after receipt of written
---------------------------
notice of exercise of an Option, the Company shall, without stock issue or
transfer taxes to the optionee or other person entitled to exercise the Option,
deliver to the optionee or such other person a certificate or certificates for
the requisite number of shares of stock. Unless the Company specifies otherwise,
an optionee or transferee of an optionee shall not have any privileges as a
shareholder with respect to any stock covered by the Option until the date of
issuance of a stock certificate. Subject to Section 6. 1.1 hereof, no adjustment
shall be made for dividends or other rights for which the record date is prior
to the date the certificates are delivered.
8. EMPLOYMENT RELATIONSHIP
Nothing in this Plan or any Option granted hereunder shall interfere with
or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment at any time, nor confer upon any optionee
any right to continue in the employ of the Company or any of its Affiliates.
9. AMENDMENTS TO PLAN
The Board may amend this Plan at any time. Without the consent of an
optionee, no amendment may affect outstanding Options except to conform this
Plan and ISOs granted under this Plan to federal or other tax laws relating to
incentive stock options. No amendment shall require shareholder approval unless
shareholder approval is required to preserve incentive stock option treatment
for tax purposes or the Board otherwise concludes that shareholder approval is
advisable.
<PAGE>
10. SHAREHOLDER APPROVAL: TERM
----------------------------
The Board of Directors of the Company adopted this Plan as of September 29,
1998 and the Company's shareholders approved this Plan as of September 29, 1998.
This Plan shall terminate ten years after initial adoption by the Board unless
terminated earlier by the Board. The Board may terminate this Plan without
shareholder approval. No Options shall be granted after termination of this
Plan, but termination shall not affect rights and obligations under then
outstanding Options.
<PAGE>
NETTAXI, INC.
STOCK OPTION AGREEMENT
This Nettaxi, Inc. Stock Option Agreement (the "Agreement"), by and between
Nettaxi, Inc., a Nevada corporation (the "Company"), and ("Optionee"), is made
effective as of this _________ day of _____, 199_.
RECITALS
1. Pursuant to the Nettaxi, Inc. 1998 Stock Option Plan (the "Plan"), the
Board of Directors of the Company (the "Board") has authorized the grant of an
option to purchase common stock of the Company ("Common Stock") to Optionee,
effective on the date indicated above, thereby allowing Optionee to acquire a
proprietary interest in the Company in order that Optionee will have further
incentive for continuing his or her employment by, and increasing his or her
efforts on behalf of, the Company or an Affiliate of the Company.
2. The Company desires to issue a stock option to Optionee and Optionee
desires to accept such stock option on the terms and conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Option Grant. The Company hereby grants to the Optionee, as a separate
--------------
incentive and not in lieu of any fees or other compensation for his or her
services, an option to purchase, on the terms and conditions hereinafter set
forth, all or any part of an aggregate of _________ (_________) shares of
authorized but unissued shares of Common Stock, at the Purchase Price set forth
in paragraph 2 of this Agreement.
2. Purchase Price. The Purchase Price per share (the "Option Price") shall
---------------
be $ ________ which is not less than percent (___%) of the fair market value per
share of Common Stock on the date hereof. The Option Price shall be payable in
the manner provided in paragraph 9 below.
3. Adjustment. The number and class of shares specified in paragraph I
----------
above, and the Option Price, are subject to appropriate adjustment in the event
of certain changes in the capital structure of the Company such as stock splits,
recapitalizations and other events which alter the per share value of Common
Stock or the rights of holders thereof. In connection with (i) any merger,
consolidation, acquisition, separation, or reorganization in which more than
fifty percent (50%) of the shares of the Company outstanding immediately before
such event are converted into cash or into another security, (ii) any
dissolution or liquidation of the Company or any partial liquidation involving
fifty percent (50%) or more of the assets of the Company, (iii) any sale of more
than fifty percent (50%) of the Company's assets, or (iv) any like occurrence in
which the Company is involved, the Company may, in its absolute discretion, do
one or more of the following upon ten days' prior written notice to the
Optionee: (a) accelerate any vesting schedule to which this option is subject;
(b) cancel this option upon payment to the Optionee in cash, to the extent this
option is then exercisable, of any amount which, in the absolute discretion of
the Company, is determined to be equivalent to any excess of the market value
(at the effective time of such event) of the consideration that the Optionee
would have received if this option had been exercised before the effective time
over the Option Price; (c) shorten the period during which this option is
exercisable (provided that this option shall remain exercisable, to the extent
otherwise exercisable, for at least ten days after the date the notice is
given); or (d) arrange that new option rights be substituted for the option
rights granted under this option, or that the Company's obligations under this
option be assumed, by an employer corporation other than the Company or by a
parent or subsidiary of such employer corporation. The actions described
<PAGE>
in this paragraph 3 may be taken without regard to any resulting tax consequence
to the Optionee.
[OPTIONAL FOUR YEAR VESTING]
4. Option Exercise. Commencing on the date one (1) year after the date
----------------
of this Agreement the right to exercise this option will accrue as to one-fourth
(1/4) of the number of shares subject to this option. Thereafter, the right to
exercise the remainder of this option will accrue in twelve (12) equal quarterly
installments. Shares entitled to be, but not, purchased as of any accrual date
may be purchased at any subsequent time, subject to paragraphs 5 and 6 below.
The number of shares which may be purchased as of any such anniversary date will
be rounded up to the nearest whole number. No partial exercise of the option may
be for an aggregate exercise price of less than One Hundred Dollars ($ 100). In
order to exercise any part of this option, Optionee must agree to be bound by
the Company's Shareholder Buy-Sell Agreement, if any, existing at the time of
the exercise of this Option.
[OPTIONAL IMMEDIATE VESTING]
4. Option Exercise. Commencing on the date of this Agreement, the right
----------------
to exercise this option will accrue as to all of the shares subject to this
option. Shares entitled to be, but not, purchased as of the accrual date may be
purchased at any subsequent time, subject to paragraphs 5 and 6 below. No
partial exercise of the option may be for an aggregate exercise price of less
than One Hundred Dollars ($100). In order to exercise any part of this option,
Optionee must agree to be bound by the Company's Shareholder Buy-Sell Agreement,
if any, existing at the time of the exercise of this Option.
5. Termination of Option. The right to exercise this option will lapse
----------------------
in four (4) equal installments of the number of shares subject to this option on
each of the sixth, seventh, eighth, and ninth anniversaries of the effective
date of this Agreement. Notwithstanding any other provision of this Agreement,
this option may not be exercised after, and will completely expire on, the close
of business on the date ten (10) years after the effective date of this
Agreement, unless terminated sooner pursuant to paragraph 6 below.
6. Termination of Employment. In the event of termination of Optionee's
--------------------------
employment with the Company for any reason, this option will terminate three (3)
months after the date of the termination of Optionee's employment, unless
terminated earlier pursuant to paragraph 5 above. However, (i) if termination is
due to the death of Optionee, the Optionee's estate or a legal representative
thereof, may at any time within and including six (6) months after the date of
death of Optionee, exercise the option to the extent it was exercisable at the
date of termination; or (ii) if termination is due to Optionee's "disability"
(as determined in accordance with Section 22(e)(3) of the Internal Revenue
Code), Optionee may, at any time, within one (1) year following the date of this
Agreement, exercise the option to the extent it was exercisable at the date of
termination. If the Optionee or his or her legal representative fails to
exercise the option within the time periods specified in this paragraph 6, the
option shall expire. The Optionee or his or her legal representative may, on or
before the close of business on the earlier of the date for exercise set forth
in paragraph 5 or the dates specified in paragraph 4 above, exercise the option
only to the extent Optionee could have exercised the option on the date of such
termination of employment pursuant to paragraphs 4 and 5 above.
7. Repurchase Option of Company. Pursuant to Section 6.1.8 of the Plan,
----------------------------
in the event of termination of Optionee's employment with the Company for any
reason, the Company shall have an option to repurchase ("Repurchase Option") any
Common Stock owned by the Optionee or his or her heirs, legal representatives,
successors or assigns at the time of termination, or acquired thereafter by any
of them at any time, by way of an option granted hereunder. The Repurchase
Option must be exercised, if at all, by the Company within ninety (90) days
after the date of termination upon notice ("Repurchase Notice") to the Optionee
or his or her heirs, legal representatives, successors or assigns, in
conformance with paragraph 13 below. The purchase price to be paid for the
shares subject to the Repurchase Option shall be One Hundred Fifteen Percent (it
SO/6) of their book value. For the purposes of this paragraph, the Company's
book value shall be determined in accordance with generally accepted accounting
principles applied on a basis consistent with those previously applied by the
Company. The book value shall be fixed under this paragraph by the accountants
of the Company and shall be computed as of the last day of the Company's fiscal
quarter most recently preceding the Repurchase Notice. Any shares issued
pursuant to an exercise of an option hereunder shall contain the following
legend condition in addition to any other applicable legend condition:
2
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO REPURCHASE PROVISIONS
IN ACCORDANCE WITH T14E TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
8. Transferability. This option will be exercisable during
----------------
Optionee's lifetime only by Optionee. Except as otherwise set forth in the Plan,
this option will be non-transferable.
9. Method of Exercise. Subject to paragraph 10 below, this option may
--------------------
be exercised by the person then entitled to do so as to any shares which may
then be purchased by delivering to the Company an exercise notice in the form
attached hereto as Exhibit A and:
(a) full payment of the Option Price thereof (and the amount of any tax
the Company is required by law to withhold by reason of such exercise) in the
form of:
(i) cash or readily available funds; or
(ii) delivery of Optionee's promissory note (the "Note") substantially
in the form attached hereto as Exhibit B in the amount of the aggregate Option
Price of the exercised shares together with the execution and delivery by the
Optionee of the Security Agreement attached hereto as Exhibit C;or
-----------
(iii) a written request to Net Exercise, as defined in this paragraph
9(a)(iii). In lieu of exercising this Option via cash payment or promissory
note, Optionee may elect to receive shares equal to the value of this Warrant
(or portion thereof being canceled) by surrender of this Option at the principal
office of the Company together with notice of election to exercise by means of a
Net Exercise in which event the Company shall issue to Optionee a number of
shares of the Company computed using the following formula:
X = Y (A-B)
--------
A
where X is the number of shares of stock to be issued to Optionee; Y is the
number of shares purchasable under this Option; A is the fair market value of
the stock determ8ined in accordance with Section 6.1.12 of the Plan; and B is
the Option Price as adjusted to the date of such calculation.
(b) payment of any withholding or employment taxes, if any;
(c) an executed Shareholders Buy-Sell Agreement, if any, binding the
Company's shareholders and restricting the transfer of their shares, executed
appropriately by the Optionee and his or her spouse, if any.
The Company will issue a certificate representing the shares so purchased within
a reasonable time after its receipt of such notice of exercise, payment of the
Option Price and withholding or employment taxes, and execution of any existing
Shareholders Buy-Sell Agreement, with appropriate certificate legends.
10. Securities Laws. The issuance of shares of Common Stock upon the
-----------------
exercise of the option will be subject to compliance by the Company and the
person exercising the option with all applicable requirements of federal and
state securities and other laws relating thereto. No person may exercise the
option at any time when, in the opinion of counsel to the Company, such exercise
is permitted under applicable federal or state securities laws. Nothing herein
will be construed to require the Company to register or qualify any securities
under applicable federal or state securities laws, or take any action to secure
an exemption from such registration and qualification for the issuance of any
securities upon the exercise of this option.
11. No Rights as Shareholder. Neither Optionee nor any person claiming
-------------------------
under or through Optionee will be, or have any of the rights or privileges of, a
shareholder of the Company in respect of any of the shares issuable upon the
exercise of the option, unless and until this option is properly and lawfully
exercised.
3
<PAGE>
12. No Right to Continued Employment. Nothing in this Agreement will be
---------------------------------
construed as granting Optionee any right to continued employment. EXCEPT AS THE
COMPANY AND OPTIONEE WILL HAVE OTHERWISE AGREED IN WRITING, OPTIONEE'S
EMPLOYMENT WILL BE TERMINABLE BY THE COMPANY, AT WILL, WITH OR WITHOUT CAUSE FOR
ANY REASON OR NO REASON. Except as otherwise provided in the Plan, the Board in
its sole discretion will determine whether any leave of absence or interruption
in service (including an interruption during military service) will be deemed a
termination of employment for the purpose of this Agreement.
13. Notices. Any notice to be given to the Company under the terms of
--------
this Agreement will be addressed to the Company, in care of its Secretary, at
its executive offices, or at such other address as the Company may hereafter
designate in writing. Any notice to be given to Optionee will be in writing and
delivered or mailed by registered or certified mail, return receipt requested,
postage prepaid, addressed to Optionee at the address set forth beneath
Optionee's signature in writing. Any such notice will be deemed to have been
duly given where deposited in a United States post office in compliance with the
foregoing.
14. Non-Transferable. Except as otherwise provided in the Plan or in
-----------------
this Agreement, the option herein granted and the rights and privileges
conferred hereby will not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise). Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this option, or of
any right or upon any attempted sale under any execution, attachment or similar
process upon the rights and privileges conferred hereby, this option will
immediately become null and void.
15. Successor. Subject to the limitation on the transferability of the
----------
option contained herein, this Agreement will be binding upon and inure to the
benefit of the heirs, legal representatives, successors and assigns of the
parties hereto.
16. California Law. This Agreement will be governed by and construed in
---------------
accordance with the laws of the State of California.
17. Type of Option. The option granted in this Agreement:
-----------------
Is intended to be an Incentive Stock Option ("ISO") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended.
Is a non-qualified Option and is not intended to be an ISO.
18. Plan Provisions Incorporated by Reference. A copy of the Plan is
--------------------------------------------
attached hereto as Exhibit "A" and incorporated herein by this reference. In the
case of conflict between any provision in this Agreement and any provision in
the Plan or a Shareholder Buy-Sell Agreement, if any, the terms of this
Agreement shall prevail. In the case of conflict between any provision in the
Plan and a provision in a Shareholders Buy-Sell Agreement, if any, the terms of
the Plan shall prevail.
19. Term. Capitalized terms used herein, except as otherwise indicated,
-----
shall have the same meaning as those terms have under the Plan.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year written below.
COMPANY: NETTAXI, INC.
By: ___________________
Its: ___________________
OPTIONEE:
(print name) ___________________
________________________
(signature)
Address: ___________________
________________________
5
<PAGE>
NETTAXI,INC.
STOCK OPTION AGREEMNT
This Nettaxi, Inc. Stock Option Agreement (the "Agreement"), by and between
Nettaxi, Inc., a Nevada corporation (the "Company"), and Dean Rositano
("Optionee"), is made effective as of this 29th day of September, 1999,
RECITALS
I Pursuant to the Nettaxi, Inc. 1998 Stock Option Plan (the "Plan"), the
Board of Directors of the Company (the "Board") has authorized the grant of an
option to purchase common stock of the Company ("Common Stock") to Optionee,
effective on the date indicated above, thereby allowing Optionee to acquire a
proprietary interest in the Company in order that Optionee will have further
incentive for continuing his or her employment by, and increasing his or her
efforts on behalf of, the Company or an Affiliate of the Company.
2. The Company desires to issue a stock option to Optionee and Optionee
desires to accept such stork option on the terms and conditions sat forth below.
NOW THEREFORF, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
AGREEMMNT
1. Option Grant The Company hereby grants to the Optionee, as
-------------
corporate incentive and not in lieu of any fees or other compensation for his or
her services, an option to purchase, on the terms and conditions hereinafter set
forth, all or any part of an aggregate of forty thousand (40,000) sham of
authorized but unissued shares of Common Stock, at the Purchase Price set forth
in paragraph 2 of this Agreement
2. Purchase Price. The Purchase Price per share (the "Option
----------------
Price") shall be $0.88, which is not less than eighty five percent (110%) of the
fair market value per share of Common Stock on the date hereof The Option Price
shall be payable in the manner provided in paragraph 9 below.
3. Adjustment. The number and class of shares specified in
----------
paragraph I above, and the Option Price, am subject to appropriate adjustment in
the event of certain changes in the capital structure of the Company such as
stock splits, recapitalizations and other events which alter the per share value
of Common Stock or the rights of holders thereof. In connection with (i) any
merger, consolidation, acquisition, separation, or reorganization in which more
than fifty percent (50%) of the shares of the Company outstanding immediately
before such event are converted into cash or into another security, (ii) any
dissolution or liquidation of the Company or any partial liquidation involving
fifty percent (50%) or more of the assets of the Company, (W) any sale of more
than fifty percent (50%) of the Company's assets, or (iv) any like occurrence in
which the Company is involved, the Company may, in its absolute discretion, do
one or more of the following upon ten days prior written notice to the Optionee:
(a) accelerate any vesting schedule to which this option is subject; (b) cancel
this option upon payment to the Optionee in cash, to the 8xtent this option is
then exercisable, of any amount which, in the absolute discretion of the
Company, is determined to be equivalent to any excess of 1he market value (at
the effective time of such event) of the consideration that the Optionee would
have received if this option had been exercised before the elective time over
the Option Price; (c) shorten the period during which this option is exercisable
(provided that this option shall remain exercisable, to the extent otherwise
exercisable, for at least ten days after the date the notice is given); or (d)
arrange that new option rights be substituted for the option rights granted
under this option, or that the Company's obligations under this option be
assumed, by an employer corporation other than the Company or by a parent or
subsidiary of such employer corporation. The actions described
<PAGE>
in this paragraph 3 may be taken without regard to any resulting tax consequence
to the Optionee.
4. Option Exercise. Commencing on the date one (1) year after the
-----------------
date of this Agreement the right to exercise this option will accrue in twelve
(12) equal quarterly installments. Shares entitled to be, but not purchased a of
any accrual date may be purchased at any subsequent time, subject to paragraphs
5 and 6 below. The number of shams which may be purchased as of any such
anniversary date will be rounded up to the nearest whole number. No partial
exercise of the option may be for an aggregate exercise price of less than One
Hundred Dollars (S 100). In order to exercise any part of this option, Optionee
must agree to be bound by the Company's Shareholder Buy-Sell Agreement, if any,
existing at the time of the exercise of this option.
5. Termination of Option. The right to exercise this option will
------------------------
lapse in four (4) equal installments of the number of shares subject to this
option on each of the sixth, seventh, eighth, and ninth anniversaries of the
effective date of this Agreement. Notwithstanding any other provision of this
Agreement this option may not be exercised after, and will completely expire on,
the close of business on the date ten (10) years after the effective date of
this Agreement, unless terminated sooner pursuant to paragraph 6 below.
6. Termination Of Employment.In the event of termination of Optionee's
--------------------------
employment with the Company for any reason, this option will terminate three (3)
months after the date of the termination of Optionee's employment, unless
terminated earlier pursuant to paragraph 5 above, However, (i) If termination is
due to the death of Optionee, the Optionee's estate or a legal representative
thereof, may at any time within and including six (6) months after the date of
death of Optionee, exercise the option to the extent it was exercisable at the
date of termination; or (ii) if termination is due to Optionee's "disability"
(as determined in accordance with Section 22(e)(3) of the Internal Revenue
Code), Optionee may, at any time, within one (1) year following the date of this
Agreement, exercise the option to the extent it was exercisable at the date of
termination. If the Optionee or his or bar legal representative fails to
exercise the option within the time periods specified in this paragraph 6, the
option shall expire. The Optionee or his or her legal representative may, on or
before the close of business on the earlier of the date for exercise set forth
in paragraph 5 or the dates specified in paragraph 4 above, exercise the option
only to the extent Optionee could have exercised the option on the date of such
termination of employment pursuant to paragraphs 4 and 5 above.
7. Repurchase Option of Company.Pursuant to Section 6.1.9 of the Plan,
-----------------------------
in the event of termination of Optionee's employment with the Company for any
reason, the Company shall have an option to repurchase ("Repurchase Option") any
Common Stock owned by the Optionee or his or her heirs, legal representatives,
successors or assigns at the time of termination, or acquired thereafter by any
of them at any time, by way of an option granted hereunder. no Repurchase Option
must be excrcis4 if at all, by the Company within ninety (90) days after the
date of termination upon notice ("Repurchase Notice") to the Optionee or his or
her heirs, legal representatives, successors or assigns, in conformance with
paragraph 13 below. 'Me purchase price to be paid for the shares subject to the
Repurchase Option shall be One Hundred Fifteen Percent (115%) of their book
value. For the purposes of this paragraph, the Company's book value shall he
determined in accordance with generally accepted accounting principles applied
on a basis consistent with those previously applied by the Company. The book
value shall be fixed under this paragraph by the accountants of the Company and
shall be computed as of the last day of the Company's fiscal quarter most
recently preceding the Repurchase Notice. Any shares issued pursuant to an
exercise of an option hereunder shall contain the following legend condition in
addition to any other applicable legend condition:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO REPURCHASE PROVISIONS
IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE CONVANY AND THE
SHAREHOLDER, A COPY OF W141CH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
8. Transferability. This option will be exercisable during
----------------
Optionee's lifetime only by Optionee. Except as otherwise set forth in The Plan,
this option will be non-transferable.
9. Method of Exercise. Subject to paragraph 10 below, this option may be
-------------------
exercised by the person then entitled to do so as to any shares which may then
be purchased by delivering to the Company an exercise notice in The
2
<PAGE>
form attached home as Exhibit A and,
---------
(a) full payment of the Option Price thereof (and the amount of any tax
the Company is required by law to withhold by reason of such exercise) in the
form of,
(i) cash or readily available funds; or
(ii) delivery of Optionee's promissory note (the 'Note") substantially
in the form attached hereto as Exhibit Bin the amount of the aggregate Option
---------
Price of the exercised shares together with the execution and delivery by the
Optionee of the Security Agreement attached hereto as Exhibit C; or
---------
(iii) a written request to Not Exercise, as defined in this paragraph
9(a)(iii). In lieu of exercising this Option via cash payment or promissory
note, Optionee may elect to receive shares, equal to the value of this Warrant
(or portion thereof being canceled) by surrender of this Option at the principal
office of the Company together with notice of election to exercise by means of a
Net Exercise in which event the Company shall issue to Optionee a number of
shares of the Company computed using the following formula:
X = Y (A-B)
-------
A
where X is the number of shares of stock to be issued to Optionee; Y is the
number of shares purchasable under this Option; A is the fair market value of
the stock determined in accordance with Section 6.1,12 of the Plan; and B is the
Option Price as adjusted to the date of such calculation.
(b) payment of any withholding or employment taxes, if any;
(c) an executed Shareholders Buy-Sell Agreement if any, binding the
Company's shareholders and restricting the transfer of their shares, executed
appropriately by the Optionee and his or her spouse, if any.
The Company will issue a certificate representing the shares so purchased within
a reasonable time after its receipt of such notice of exercise, payment of the
Option Price and withholding or employment taxes, and execution of any existing
Shareholders Buy-Sell Agreement, with appropriate certificate legends.
10. Securities Laws. The issuance of shares of Common Stock upon
-----------------
the exercise of the option will be subject to compliance by the Company and the
person exercising the option with all applicable requirements of federal and
state securities and other laws relating thereto. No person may exercise the
option at any time when, in the opinion of counsel to the Company, such exercise
is permitted under applicable federal or state securities laws. Nothing herein
will be construed to require the Company to register or qualify any securities
under applicable federal or state securities laws, or take any action to secure
an exemption from such registration and qualification for the issuance of any
securities upon the exercise of this option.
11. No Rights as Shareholders. Neither Optionee nor any person
----------------------------
claiming under or through Optionee will be, or have any of the rights or
privileges of, a shareholder of the Company in respect of any of the shares
issuable upon the exercise of the option, unless and until this option is
properly and lawfully exercised.
12. No Right to Continued Employment. Nothing in this Agreement will be
---------------------------------
construed as granting Optionee any right to continued employment. EXCEPT AS THE
CONTANY AND OPTIONEE WILL HAVE OTHERWISE AGREED IN WRITING, OPTIONPE'S EWLOYMENT
WILL 13E ITAMWA13LE BY THE COWANY, AT WILL, WITH OR WITTIOUT CAUSE FOR ANY
REASON OR NO REASON. Except as otherwise provided in the Plan, the Board in its
sole discretion will determine whether any leave of absence or interruption in
service (including an interruption during military service) will be deemed a
termination of employment for the purpose of this Agreement,
13. Notices. Any notice to be given to the Company under the terms of
this Agreement will be addressed
3
<PAGE>
to the Company, In care of its Secretary, at its executive offices, or at such
other address as the Company may hereafter designate in writing. Any notice to
be given to Optionee will be in writing and delivered or mailed by registered or
certified mail, return receipt requested, postage prepaid, addressed to Optionee
at the address set forth beneath Optionee's signature in writing. Any such
notice will be deemed to have been duly given where deposited in a United States
post office in compliance with the foregoing.
14. Non-Transferable. Except as otherwise provided in the Plan or in
-----------------
this Agreement, the option herein granted and the rights and privileges
conferred hereby will not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise). Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this option, or of
any right or upon any attempted sale under any execution, attachment or similar
process upon the rights and privileges conferred hereby, this option will
immediately become null and void.
15. Successor. Subject to the limitation on the transferability of
----------
the option contained herein, this Agreement will be binding upon and inure to
the benefit of the heirs, legal representatives, successors and assigns of the
parties hereto,
16. California Law. This Agreement will be governed by and
----------------
construed in accordance with the laws of the State of California,
17. Type of Option. The option granted in this Agreement-
-----------------
Is intended to be an Incentive Stock Option ("ISO") within the meaning of
Section 422 of The Internal Revenue Code of 1986, as amended.
Is a non-qualified Option and is not intended to be an ISO.
18. Plan Provisions Incorporated by Reference. A copy of the Plan is
--------------------------------------------
attached hereto as Exhibit "A" and incorporated herein by this reference. In the
case of conflict between any provision in this Agreement and any provision in
the Plan or a Shareholder Buy-Sell Agreement, if any, the terms of this
Agreement shall prevail. In the case of conflict between any provision in the
Plan and a provision in a Shareholders Buy-Sell Agreement, if any, the terms of
the Plan shall prevail.
19. Term. Capitalized terms used herein, except as otherwise
----
indicated, shall have the same meaning as those terms have under the Plan.
4
<PAGE>
IN WITINESS WHEREOF, the parties have executed this Agreement as of the day
and year written below.
COMPANY: NETTAXI, INC.
By: /s/ Dean Rositano
-------------------
Its: President
---------
OPTIONEE: /s/ Dean Rositano
-------------------
Dean Rositano
Address: 1841 Simpson Way
------------------
San Jose, CA 95125
---------------------
5
<PAGE>
NETTAXI INC,
STOCK OPTION AGREENMNT
This Nettaxi, Inc. Stock Option Agreement (the "Agreement"), by and between
Nettaxi, Inc,, a Nevada corporation (the "Company"), and Robert A. Rositano, Ir.
("Optionee"), is made effective as of this 29th day of September, 1998.
RECITALS
1. Pursuant to the Nettaxi, Inc. 1998 Stock Option Plan (the "Plan"), the
Board of Directors of the Company (the "Board") bas authorized the grant of an
option to purchase Common stock of the Company ("Common Stock") to Optionee,
effective on the date indicated above, thereby allowing Optionee to acquire a
proprietary interest in the Company in order that Optionee will have further
incentive for continuing his or her employment by, and increasing his or her
efforts on behalf of, the Company or an Affiliate of the Company.
2. The Company desires to issue a stock option to Optionee and Optionee
desires to accept such stock option on the terms and conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Option Grant. The Company hereby grants to the Optioner, as a
---------------
separate incentive and not in lieu of any fees or other compensation for his or
her services, an option to purchase, on the terms and conditions hereinafter set
forth, all or any part of an aggregate of forty thousand (40,000) shares of
authorized but unissued shares of Common Stock, at the Purchase Price set forth
in paragraph 2 of this Agreement.
2. Purchase Price. The Purchase Price per share (the "Option
----------------
Price") shall be $0.88, which is not less than eighty five percent (1100/6) of
the fair market value per share of Common Stock on the date hereof. The Option
Price shall be payable in the manner provided in paragraph 9 below.
3. Adjustment. The number and class of shares specified in
-----------
paragraph 1 above, and the Option Price, are subject to appropriate adjustment
in the event of certain changes in the capital structure of the Company such as
stock splits, recapitalizations and other events which alter the per share value
of Common Stock or the rights of holders thereof. In connection with (i) any
merger, consolidation, acquisition, separation, or reorganization in which more
than fifty percent (50%) of the shares of the Company outstanding immediately
before such event are converted into cash or into another security, (ii) any
dissolution or liquidation of the Company or any partial liquidation involving
fifty percent (50%) or more of the assets of the Company, (iii) any sale of
more than fifty percent (50%) of the Company's assets, or (iv) any like
occurrence in which the Company is involved, the Company may, in its absolute
discretion, do one or more of the following upon ten days' prior written notice
to the Optionee: (a) accelerate any vesting schedule to which this option is
subject; (b) cancel this option upon payment to the Optionee in cash, to the
extent this option is then exercisable, of my amount which, in the absolute
discretion of the Company, is determined to be equivalent to any excess of the
market value (at the effective time of such event) of the consideration that the
Optionee would have received if this option had been exercised before the
effective time ever the Option Price; (c) shorten the period during which this
option is exercisable (provided that this option shall remain exercisable, to
the extent otherwise exercisable, for at least ten days after the date the
notice is given); or (d) arrange that new option rights be substituted for the
option rights granted under this option, or that the Company's obligations under
this option be assumed, by an employer corporation offer than the Company or by
a parent or subsidiary of such employer corporation, The actions described
<PAGE>
in this paragraph 3 may be taken without regard to any resulting tax consequence
to the Optionee.
4. Option Exercise. Commencing on the date one (1) year after the
----------------
date of this Agreement the right to exercise this option will accrue in twelve
(12) equal quarterly installments. Shares entitled to be, but not, purchased as
of any accrual date may be purchased at any subsequent time, subject to
paragraphs 5 and 6 below. The number of shares which may be purchased as of any
such anniversary date will be rounded up to the nearest whole number. No partial
exercise of the option maybe for an aggregate exercise price of less than One
Hundred Dollars ($100). In order to exercise any part of THIS option, Optionee
must agree to be bound by the Company's Shareholder Buy-Sell Agreement, if any,
existing at the time of the exercise of this Option.
5. Termination of Option. The right to exercise THIS option will
------------------------
lapse in four (4) equal installments of tie number of shares subject to this
option an each of the sixth, seventh, eighth, and ninth anniversaries of the
effective date of this Agreement. Notwithstanding any other provision of this
Agreement this option may not be exercised after, and will completely expire on,
the close of business on tie date ten (10) years aft the effective date of this
Agreement, unless terminated sooner pursuant to paragraph 6 below.
6. Termination of Employment. In the event of termination of
----------------------------
Optionee's employment with the Company for any reason, this option will
terminate three (3) months after the date of the termination of Optionee's
employment, unless terminated earlier pursuant to paragraph 5 above. However,
(i) if termination is due to the death of Optionee, the Optionee's estate or a
legal representative thereof, may at any time within and including six (6)
months after the date of death of Optionee, exercise the option to the extent it
was exercisable at the date of termination; or (ii) if termination is due to
Optionee's "disability" (as determined in accordance with Section 22(e)(3) of
the Internal Revenue Code), Optionee may, at any time, within one (1) year
following the date of this Agreement exercise the option to the extent it was
exercisable at the dam of termination. If the Optionee or his or her legal
representative fails to exercise the option within the time periods specified in
this paragraph 6, the option shall expire. The Optionee or his or her legal
representative may, on or before the close of business on the earlier of the
date for exercise set forth in paragraph 5 or the dates specified in paragraph
4 above, exercise the option only to the extent Optionee could have exercised
the option an the date of such termination of employment pursuant to paragraphs
4 and 5 above.
7. Repurchase Option of Company Pursuant to Section 8 of the
----------------------------
Plan, in the event of termination of Optionee's employment with the Company for
any reason, the Company shall have an option to repurchase ("Repurchase Option")
any Common Stock owned by the Optionee or his or her heirs, legal
representatives, successors or assigns at the time of termination, or acquired
thereafter by any of them at any time, by way of an option granted hereunder.
The Repurchase Option must be exercised, if at all, by the Company within ninety
(90) days after the date of termination upon notice ("Repurchase Notice") to the
Optionee or his or her heirs, legal representatives, successors or assigns, in
conformance with paragraph 13 below. The purchase price to be paid for the
shares subject to the Repurchase Option shall be (One Hundred Fifteen Percent)
(115%) of their book value, For the purposes of this paragraph, the Company's
book value shall be determined in accordance with generally accepted accounting
principles applied on a basis consistent with those previously applied by the
Company. The back value shall be fixed under this paragraph by the accountants
of the Company and shall be computed as of the last day of the Company's fiscal
quarter most recently preceding the Repurchase Notice. Any shares issued
pursuant to an exercise of an option hereunder shall contain the following
legend condition in addition to any other applicable legend condition:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RE-PURCHASE PROVISIONS
IN ACCORDANCE WITTI THE TERMS OF AN AGREEMENT BETWFXN THE COMPANY AND TTM
SHAREHOLDER, A COPY OF WHICH IS ON FILE AT THE PRIN'CIPAL OFFICE OF THE COMPANY.
8. Transferability. This option will be exercisable during
----------------
Optionee's lifetime only by Optionee. Except As otherwise set forth in the Plan,
this option will be non-transferable.
9. Method of Exercise. Subject to paragraph 10 below, this option
---------------------
may be exercised by the person then entitled to do so as to any shares which may
then be purchased by delivering to the Company an exercise notice in the
2
<PAGE>
form attached hereto as Exhibit A and:
---------
(a) full payment of the Option Price thereof (and the amount of any tax
the Company is required by law to withhold by reason of such exercise) in the
form of
(i) cash or readily available funds; or
(ii) delivery of Optionee's promissory note (the "Note") substantially
in the form attached hereto as Exhibit B in the amount of the aggregate Option
---------
Price of the exercised shares together with the execution and delivery by the
Optionee of the Security Agreement attached hereto as Exhibit C; or
(iii) a written request to Net Exercise, as defined in this paragraph
9(a)(iii). In lieu of exercising this Option via cash payment or promissory
note, Optionee may elect to receive shares equal to the value of this Warrant
(or portion thereof being canceled) by surrender of this Option at the principal
office of the Company together with notice of election to exercise by means of a
Net Exercise in which event the Company shall issue to Optionee a number of
shares of the Company computed using the following formula:
X = Y (A-B)
--------
A
where X is the number of shares of stock to be issued to Optionee; Y is the
number of shares purchasable under this Option; A is the fair market value of
the stock determined in accordance with Section 6.1.12 of the Plan; and B is the
Option Price as adjusted to the date of such calculation.
(b) payment of any withholding or employment taxes, if any;
(c) an executed Shareholders Buy-Sell Agreement, if any, binding the
Company's shareholders and restricting the transfer of their shares, executed
appropriately by the Optionee and his or her spouse, if any,
The Company will issue a certificate representing the shares so purchased within
a reasonable time after its receipt of such notice of exercise, payment of the
Option Price and withholding or employment taxes, and execution of any existing
Shareholders Buy-Sell Agreement, with appropriate certificate legends.
10. Securities Laws. The issuance of shares of Common Stock upon
-----------------
the exercise of the option will be Subject to compliance by the Company and the
person exercising the option with all applicable requirements of federal and
state securities and other laws relating thereto. No person may exercise the
option at any time when, in the opinion of counsel to the Company, such exercise
is permitted under applicable federal or state securities laws. Nothing herein
will be construed to require the Company to register or qualify any securities
under applicable federal or state securities laws, or take any action to secure
an exemption from such registration and qualification for the issuance of any
Securities upon the exercise of this option.
11. No Rights as Shareholder. Neither Optionee nor any person
----------------------------
claiming under or through Optionee will be, or have any of the rights or
privileges of, a shareholder of the Company in respect of any of the shares
issuable upon the exercise of the option, unless and until this option is
properly and lawfully exercised.
12. No Right to Continued Employment. Nothing in this Agreement
-------------------------------------
will be construed as granting Optionee any right to continued employment. EXCEPT
AS THE COMPANY AND OPTIONEE WILL HAVE OTHERWISE AGREED IN WRITING, OPTIONEE'S
EMPLOYMENT WILL BE TERMINABLE BY THE COMPANY, AT WILL, WITH OR WITHOUT CAUSE
FOR ANY REASON OR NO REASON. Except as otherwise provided in the Plan, the Board
in its sole discretion will determine whether any leave of absence or
interruption in service (including an interruption during military service) will
be deemed a termination of employment for the purpose of this Agreement.
13. Notices. Any notice to be given to the Company under the terms of
--------
this Agreement will be addressed
3
<PAGE>
to the Company, in care of its Secretary, at its executive offices, or at such
other address as the Company may hereinafter designate in writing. Any notice to
be given to Optionee will be in writing and delivered or mailed by registered or
certified mail, return receipt requested, postage prepaid, addressed to Optionee
at the address set forth beneath Optionee's signature in writing, Any such
notice will be deemed to have been duly given where deposited in a United States
post office in compliance with the foregoing,
14. Non-Transferable. Except as otherwise provided in the Plan or
----------------
in this Agreement, the option herein granted and the rights and privileges
conferred hereby will not be transferred, assigned, pledged or hypothecated in
any way (whether by operation of law or otherwise). Upon any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of this option, or of
any right or upon any attempted sale under any execution, attachment or similar
process upon the rights and privileges conferred hereby, this option will
immediately become null and void.
15. Successor. Subject to the limitation on the transferability of
----------
the option contained herein, this Agreement will be binding upon and inure to
the benefit of the heirs, legal representatives, successors and assigns of the
parties hereto.
16. California Law. This Agreement will be governed by and
----------------
construed in accordance with the laws of the State of California.
17. Type of Option. The option granted in this Agreement:
-----------------
[ ] Is intended to be an Incentive Stock Option ("ISO") within the
meaning of Section 422 of the internal Revenue Coda of 1986, as amended.
[ ] Is a non-qualified Option and is not intended to be an ISO.
18. Plan Provisions Incorporated by Reference. A copy of the Plan
--------------------------------------------
is attached hereto as Exhibit "A" and incorporated herein by this reference. In
the case of conflict between any provision in this Agreement arid any provision
in the Plan or a Shareholder Buy-Sell Agreement, if any, the terms of this
Agreement shall prevail. In the cue of conflict between any provision in the
Plan and a provision in a Shareholders Buy-Sell Agreement, if any, the terms of
the Plan shall prevail.
19. Term. Capitalized terms used herein, except as otherwise
-----
indicated, shall have the same meaning as those terms have under the Plan.
4
<PAGE>
IN WITINESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT AS OF THE DAY
AND YEAR WRITTEN BELOW.
COMPANY: NETTAXI, INC.
BY: /S/ ROBERT A. ROSITANO, JR.
-----------------------------
ITS: ROBERT A. ROSITANO, JR.
------------------------
OPTIONEE /S/ ROBERT A. ROSITANO, JR.
-----------------------------
ROBERT A. ROSITANO, JR.
ADDRESS: 2165 S. BASCOM AVE.
----------------------
CAMPBAELL, CA 95008
----------------------
5
<PAGE>
GO HIP, INC.
TECHNOLOGY LICENSING AGREEMENT
THIS AGREEMENT is entered into this 3rd day of February, 1999 by and
between GO HIP, INC., a California corporation, whose address is 9610 DeSoto
Avenue, Chatsworth, California 91311 (hereinafter "Licensor"), and PLUS NET,
INC. a California corporation located at 24633 Mulholland Highway, Calabasas,
California 91302 (hereinafter "Licensee").
RECITALS
--------
WHEREAS, Licensor is engaged in the business of designing and developing
computerrelated software and hardware systems and related products for
application on the Internet, and has, over the years, acquired and developed
substantial and valuable technical knowledge, know how, and experience in the
design and development of such systems and products described in detail in
Exhibit "A" attached hereto (the Licensed Technologies); and
WHEREAS, Licensee desires to use the products generated by the Licensed
Technologies in the operation of its business or businesses on the Internet; and
WHEREAS, Licensor and Licensee believe it is in their mutual interest and
desire to enter into an agreement whereby Licensee would use Licensor's
Technologies in the conduct of its operations on the Internet pursuant to the
terms and conditions hereinafter provided.
NOW, THEREFORE, for good and valuable consideration, the parties do hereby
agree as follows:
1. LICENSE:
A. Licensor hereby grants to Licensee for the term of this Agreement
the right and license to use the Licensed Technologies, described in Schedule
"A, " incorporated herein by this reference, in the operation of its business on
the Internet in perpetuity.
B. No right or license is being conveyed to Licensee other than that
which is specifically granted in this Agreement.
2. TERM:
This Agreement shall be effective in perpetuity as of the date of execution by
Both parties.
3. LICENSOR'S OBLIGATIONS AND REPRESENTATIONS:
A. Beginning upon the effective date of this Agreement Licensor shall
meet with and provide Licensee with such technology relating to the installation
and operation of hardware, software, equipment, materials, source codes,
specifications, designs, methods, layout, and the
<PAGE>
like that Licensor believes Licensee may require in order to use the Licensed
Technologies on its Internet Web sites.
B. Licensor shall also provide Licensee such technical and other
qualified experts to train and otherwise educates Licensee in the use of the
Licensed Technologies and assist in the resolution of any problems or matters
that require Licensor's assistance.
C. Licensor shall provide Licensee with any upgrades it shall make in
the future. While Licensee has the right to make modifications to the Licensed
Technologies, Licensor is not responsible for the modifications and may not use
such modifications without Licensee's written approval, which shall not be
unreasonably withheld.
4. LICENSEE'S OBLIGATIONS AND REPRESENTATIONS:
A. Licensee represents that it has the financial resources and business
operations that will enable it to reasonably commercialize the Licensed
Technologies. Licensee further agrees that it will, in good faith and with
reasonable diligence, conduct all operations incorporating the Licensed
Technologies in accordance with the highest standards of business customs of the
industry and that it will endeavor to utilize its skill and resources in such
effort to the extent that high standards of business practice and judgment
dictate.
B. Licensee may not sell, sublicense, grant a security interest in, or
other-wise transfer rights to the Licensed Technologies to a third party without
the express written consent of Licensor.
C. Licensee shall fully comply with the marking provisions of the
intellectual property laws of the United States.
5. CONFIDENTIALITY:
Licensee recognizes that such Licensed Technologies are the proprietary and
confidential property to the Licensor. Accordingly, Licensee shall not, without
the prior express written consent of Licensor, disclose or reveal to any third
party or utilize for its own benefit other than pursuant to this Agreement, any
such Licensed Technologies, provided that such information was not previously
known to Licensee or to the general public. Licensee further agrees to take all
reasonable precautions to preserve the confidentiality of the Licensed
Technologies and shall assume responsibility that its employees, contractors,
agents and assignees will similarly preserve this information against third
parties. The provisions of this clause shall survive termination of this
Agreement.
6. IMPROVEMENTS:
During the term of this Agreement, each party shall advise the other party
of any technical improvements and inventions relating to the Licensed
Technologies. All such improvements and inventions made by Licensor shall be the
property of Licensor, and Licensee
2
<PAGE>
shall have the right to use such improvements and inventions. However, any
improvements or inventions made by Licensee shall be the property of Licensee.
7. TECHNICAL INFORMATION:
Licensor represents that the technical information and assistance relating
to the Licensed Technologies conveyed under this Agreement shall be provided
with reasonable care and will, where applicable, be of the same types as
currently practiced by Licensor.
8. OWNERSHIP:
Licensor owns the Licensed Technologies and all proprietary technology
embodied therein, including copyrights and valuable trade secret embodied in the
design and coding methodology. This agreement provides Licensee with a license
to use and modify such Licensed Technologies on its sites.
9. DISCLAIMER OF WARRANTY:
Licensor represents that it has used all reasonable efforts to provide
Licensee with programs that are properly functioning and viable for their
intended use. However, Licensor is providing the Licensed Technologies on an "AS
IS" basis, without warranty of any kind, including, without limitation, the
warranties that the software is free of defects, merchantable, fit for a
particular purpose or non-infringing. Licensor does not guarantee that
Licensee's use of the Licensed Technologies will be uninterrupted.
10. TERMINATION:
The following termination right is in addition to the termination rights,
which may be provided elsewhere in the Agreement:
1. Files a petition in bankruptcy or is adjudicated a bankrupt or
insolvent, or makes an assignment for the benefit of creditors or an arrangement
pursuant to any bankruptcy law, or if Licensee discontinues or dissolves its
business or if a receiver is appointed for Licensee or for Licensee's business
and such receiver is not discharged within ten (10) days;
11. POST TERMINATION RIGHTS:
A. Upon the termination of this Agreement, all rights granted to
Licensee under this Agreement shall forthwith terminate and immediately revert
to Licensor and
Licensee shall discontinue all use of the Licensed Technologies except as
provided in Schedule
B hereof.
B. Upon the termination of this Agreement, Licensor may require that
Licensee transmit to Licensor, at no cost, all material relating to the
Technology, provided, however, that Licensee shall be permitted to retain a full
copy of all material subject to the confidentiality provisions of this agreement
and the provisions of Schedule B.-
3
<PAGE>
12. INDEMNITY:
A. Licensee agrees to defend, indemnify, and hold Licensor, and its
officers, directors, agents, and employees, harmless against all costs,
expenses, and losses (including reasonable attorney fees and costs) incurred
through claims of third parties against Licensor based on the conduct of
Licensee, including, but not limited to, actions founded on copyright, trademark
or patent infringement, rights of privacy or publicity, consumer fraud or
misrepresentation or product liability.
B. Licensor agrees to defend, indemnify, and hold Licensee, and its
officers, directors, agents, and employees, harmless against all costs, expenses
and losses (including reasonable attorney fees and costs) incurred through
claims of third parties against Licensee based on a breach by Licensor of any
representation or warranty made in this Agreement.
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). Licensee:
Plus Net Inc.
24633 Mulholland Highway
Calabasas, California 91302
Attn: Mr. Bruce K. Muhlfeld
(ii). Licensor:
Go Hip, 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.
4
<PAGE>
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 otherwise available.
15. AGREEMENT BINDING ON SUCCESSORS:
This Agreement shall be binding on and shall inure to the benefit of the
parties hereto, and their heirs, administrators, successors, and assigns.
16. WAIVER:
No waiver by either party of any default shall be deemed as a waiver of any
prior or subsequent default of the same or other provisions of this Agreement.
17. SEVERABILITY:
If any provision hereof is held invalid or unenforceable by a court of
competent jurisdiction, such invalidity shall not affect the validity or
operation of any other provision and such invalid provision shall be deemed to
be severed from the Agreement.
18. ASSIGNABILITY:
Licensee shall have the right to assign this License to any successor company.
19. 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 parties hereto have executed this Agreement the day and
year first above written.
GO HIP INC. PLUS NET, INC.
By: /s/ Nolan Quan By: /s/ Bruce K. Mulhfeld
---------------- -------------------
Name: Nolan Quan Name: Bruce K. Mulhfeld
Dated: 2-3-99 Dated: 2/3/99
------ -------
5
<PAGE>
SCHEDULE A
TO
TECHNOLOGY LICENSE AGREEMENT
BETWEEN
GO HIP, INC.
AND
PLUS NET, INC.
DATED: FEBRUARY 3, 1999
THE LICENSED TECHNOLOGIES
1. SEARCH ENGINE SYSTEM: This engine enables the user to search many of the
Internet's most prominent search engines and to select those engines from which
they would like their results. The "Super-Search Window" returns results within
a specific subject category and specifically designed to enhance electronic
commerce ("e-commerce") and advertising opportunities.
2. INTERNET GUIDE: This program provides an Internet directory, which can be
customized to present any theme. The program contains an interactive component
allowing users to suggest additional listing, making them co-creators of the
Guide. The Guide is designed to enhance advertising opportunities.
3. WEB-BASED E-MAIL SYSTEM: This system enables Licensee to provide its
members with a web-based e-mail hosting system. The system also generates a
"member" mailing list, which can be used for marketing and promotional
purposes.
6
<PAGE>
SCHEDULE B
TO
TECHNOLOGY LICENSE AGREEMENT
BETWEEN
GO HIP, INC.
AND
PLUS NET, INC.
DATED: FEBRUARY 3,1999
ADDITIONAL PROVISIONS
1. SEARCH ENGINE SYSTEM: Licensor agrees to program a separate server
dedicated for Licensee's exclusive use. The server will be a stand alone system
to Licensee, although it is acknowledged by Licensee that the server may be
located with other servers operated by Licensor ("Server Farm"). In addition,
Licensor will deliver, at the request of Licensee, a printout on CD-ROM of the
"source code" and a manual for Licensor's Search Engine. It being understood
that Licensee is hereby authorized to use this proprietary source code in the
development or enhancement of a search engine that Licensee might develop in the
future. Licensee will also have access to any future program updates.
2. INTERNET GUIDE: Licensor agrees to program a separate server dedicated
for Licensee's exclusive use. In addition, Licensee will receive a printout on
CD-ROM of the "source code" and a manual for Licensor's Internet Guide. It being
understood that Licensee is hereby authorized to use this proprietary source
code in the development or enhancement of an Internet Guide that Licensee
might develop in the future.
3. WEB-BASED E-MAIL SYSTEM: Licensor agrees to program three (3) separate
servers dedicated for Licensee's exclusive use. The servers will be a stand
alone system to Licensee, although it is acknowledged by Licensee that the
servers will be located with other servers operated by Licensor ("Server Farm").
The maintenance and operation of any Server Farm will in no way constitute a
breach of this License by Licensor. In addition, Licensor will deliver, at the
request of Licensee, a printout on CD-ROM of the "source code" and a manual for
Licensor's Web-Based E-Mail System. It being understood that Licensee is hereby
authorized to use this proprietary source code in the development or enhancement
of an Web-Based E-Mail System that Licensee might develop in the future.
Licensee will also have access to any future program updates.
7
<PAGE>
FIRST AMENDMENT TO TECHNOLOGY LICENSING AGREEMENT
This First Amendment to Technology Licensing Agreement (the "Amendment") is
entered into as of April 1, 1999 (the "Effective Date") by and among GO HIP,
INC., a California corporation ("Licensor") and PLUS NET, INC., a California
corporation ("Licensee").
RECITALS
A. On or about February 3, 1999, the parties executed that certain
Technology Licensing Agreement (the "Agreement") for the license of certain
technology of Licensor to Licensee.
B. The parties desire to amend the Agreement and provide for certain
other matters as set forth herein.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency is hereby acknowledged, the parties agree as follows:
1. Paragraph A of Section 1 of the Agreement "LICENSE" is hereby amended to
delete Paragraph A and replace it with the following:
Licensor hereby grants to Licensee a worldwide, perpetual, irrevocable, fully
paid-up, royalty free license, with the right to sublicense and authorize the
granting of sublicenses, to make, have made, use, reproduce, import, copy,
modify, offer to sell, sell, lease and otherwise distribute and display the
Licensed Technologies described in Schedule "A" and Schedule "B" attached hereto
and incorporated herein by reference and all Intellectual Property Rights with
respect thereto (the "Technology").
2. Paragraph B of Section 1 of the Agreement "LICENSE" is hereby deleted.
3. Paragraph B of Section 4 of the Agreement "LICENSEE'S OBLIGATIONS AND
REPRESENTATIONS" is hereby deleted.
4. Paragraph C of Section 4 of the Agreement "LICENSEE'S OBLIGATIONS AND
REPRESENTATIONS" is hereby deleted.
5. Section 5 of the Agreement "CONFIDENTIALITY" is hereby deleted.
6. Section 8 of the Agreement "OWNERSHIP" is hereby deleted and replaced
with the following:
1
<PAGE>
Nothing in this Amendment or the Agreement shall limit or prevent Licensor from
exploiting, using, modifying, developing or licensing the source code of the
Technology retained by Licensor. Licensor shall own all right title and interest
in and to the source code of the Technology retained by Licensor and all
intellectual property rights therein. Licensor shall also own all right, title
and interest in any improvement, modification or enhancement of the version of
such source code or the Technology retained by Licensor and all intellectual
property rights therein. Licensor shall have full right to transfer all of its
right, title and interest in the source code or Technology retained by Licensor
and all intellectual property rights therein. Licensor may continue to license
the source code of the Technology retained by Licensor to others in its absolute
discretion.
Licensor hereby transfers and Licensee shall own all right, title, and interest
in and to the version of the source code of the Technology delivered to
Licensee. Licensee shall also own all right, title and interest in any
improvement, modification or enhancement of the Technology or version of the
source code delivered to Licensee and all intellectual property rights therein
and Licensor hereby irrevocably transfers, conveys and assigns to Licensee all
of its right, title, and interest therein. Licensor shall execute such
documents, render such assistance, and take such other action as Licensee may
reasonably request, at Licensee's expense, to apply for, register, perfect,
confirm, and protect Licensee's rights as set forth in this paragraph. Licensor
hereby waives any and all moral rights, including without limitation any right
to identification of authorship or limitation on subsequent modification that
Licensor (or its employees, agents or consultants) has or may have in the
Technology as modified, improved or enhanced or any derivatives thereof created
or developed by Licensee. Licensee shall have full right to transfer all of its
right, title and interest in this Agreement, the Technology, source code owned
by Licensee and all intellectual property rights therein. Licensee may license
the version of the source code of the Technology delivered to Licensee to others
in its absolute discretion.
Licensor agrees that if Licensee is unable because of Licensor's unavailability,
dissolution or incapacity, or for any other reason, to secure Licensor's
signature to apply for or to pursue any application for any United States or
foreign patents or mask work or copyright registrations covering the inventions
assigned to Licensee above, then Licensor hereby irrevocably designates and
appoints Licensee and its duly authorized successors, officers and agents as
Licensor's agent and attorney in fact, to act for and in Licensor's behalf and
stead to execute and file any such applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents, copyright and
mask work registrations thereon with the same legal force and effect as if
executed by Licensor.
Neither party to this Agreement or the Amendment shall be required to account to
or share with the other party any royalties, license fees, sales revenue or any
other revenue of any nature earned, received or otherwise derived from a party's
commercial exploitation of the source code owned by him and each party hereby
waives any right to an accounting of profits from the other party.
2
<PAGE>
7. Section 11 of the Agreement "POST TERMINATION RIGHTS" is hereby deleted
and replaced with the following:
Upon the termination of this Agreement, Licensee shall return Licensor's
property licensed hereunder, but Licensee shall have the right to retain all
technology owned by Licensee as set forth in this Agreement.
8. Paragraph B of Section 12 of the Agreement "INDEMNITY" is hereby deleted
and replaced with the following:
Licensor shall defend, indemnify and hold Licensee harmless from any and all
damages, liabilities, costs and expenses (including but not limited to
reasonable attorneys' fees) incurred by Licensee as a result of (i) any breach
of this Agreement; or (ii) any claim that the Technology or, any part thereof,
infringes or misappropriates any Intellectual Property Right of a third party.
As a condition to such defense and indemnification, Licensee will provide
Licensor with prompt written notice of the claim and permit Licensor to control
the defense, settlement, adjustment or compromise of any such claim. Licensee
may employ counsel at its own expense to assist it with respect to any such
claim; provided, however, that if such counsel is necessary because of a
conflict of interest of either Licensor or its counsel or because Licensor does
not assume control, Licensor will bear the expense of such counsel. Licensee
shall have no authority to settle any claim on behalf of Licensor.
9. Except as amended hereby, all terms and conditions of the Agreement shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to Asset
Purchase Agreement as of the date first set forth above.
LICENSEE: PLUS NET, INC.
a California Corporation
By: /s/ Bruce K. Muhlfeld
Its: President
LICENSOR: GO HIP, INC.
a California Corporation
By:_/s/ Nolan Quan
Its: President
3
<PAGE>
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (the "Agreement") is made as of the 2nd day of
March, 1999, by and among MICHAEL GARDNER (a/k/a Mike Gardner and referred to
herein as "Gardner"), BAYTREE CAPITAL ASSOCIATES LLP, which offices at 40 Wall
Street, New York, New York ("Baytree Capital"), WALL STREET TRADING GROUP, with
offices in San Francisco, California ("Wall Street"), BRUCE K. DORFMAN
("Dorfman"), NETTAXI INC., with offices at 2165 S. Bascom Avenue, Campbell,
California 95008 (Nettaxi"), ROBERT A. ROSITANO, JR. ("Robert Rositano") and
DEAN ROSITANO ("Dean Rositano") (the foregoing collectively referred to as the
"Parties").
WHEREAS, a document dated November 5, 1998 headed "RE: Consulting Agreement
Nettaxi Online Communications" was executed by Gardner on November 5, 1998 (with
Gardner acting on behalf of Baytree Capital Associates LLP) and by Dorfman on
November 9, 1998 with Dorfman acting on behalf of Wall Street.
WHEREAS, Dorfman has asserted certain claims against Gardner and initiated
an arbitration proceeding on behalf of Wall Street with JAMS/ENDISPUTE, Inc.
WHEREAS, Dorfman and Wall Street have also asserted certain claims against
Nettaxi, Robert Rositano and Dean Rositano.
WHEREAS, without any admission of liability, the Parties are desirous of
settling their disputes and resolving all claims, terminating the arbitration
and releasing all claims that one or more of the Parties may have against any of
the other Parties.
1
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the Parties agree as follows:
1. Payment by Baytree to Wall Street. Baytree will immediately upon
------------------------------------
the receipt of a fully-executed original of this agreement deposit in the Escrow
Account of its attorneys Camhy Karlinsky & Stein LLP the sum of $65,000.00 with
instructions to Camhy Karlinsky & Stein LLP as escrow to pay such amount to Wall
Street immediately upon receipt by Camhy Karlinsky & Stein LLP of executed
general releases of Gardner, Baytree, Nettaxi, Robert Rositano and Dean Rositano
and an executed stipulation of discontinuance of the arbitration proceeding
commenced by Wall Street with JAMS/ENDISPUTE each executed by Wall Street and
Dorfman.
2. Issuance of Option by Nettaxi. Nettaxi shall authorize and prepare
------------------------------
a stock option, to expire March 5, 2001, entitling Wall Street to purchase
125,000 shares of Nettaxi at $8.00 per share, a certified resolution of the
board of directors of Nettaxi granting the stock option, and an acknowledgment
of the transfer agent of Nettaxi acknowledging the existence of the stock
option. Said option, board resolution and transfer agent acknowledgment shall
be delivered to Camhy Karlinsky & Stein LLP with instructions to exchange said
option, board resolution, and transfer agent acknowledgment for original general
releases from Wall Street and Dorfman releasing Nettaxi, Robert Rositano and
Dean Rositano.
2
<PAGE>
3. General Releases.
-----------------
a. Wall Street and Dorfman will execute and deliver general
releases in the form annexed hereto of Gardner, Baytree, Nettaxi, Robert
Rositano and Dean Rositano.
b. Gardner and Baytree will execute and deliver general releases
of Wall Street and Dorfman in the form annexed hereto.
c. Nettaxi, Robert Rositano and Dean Rositano will execute general
releases of Dorfman and Wall Street in the form annexed hereto.
d. All general releases provided pursuant to this section shall
expressly state that the parties waive the benefits of California Civil Code
1542.
Immediately upon the exchange of the payment to Wall Street provided for in
paragraph 1 above, and the releases provided for in paragraph 3 above, Dorfman,
Wall Street and Gardner will file such documents and take such other steps as
may be necessary to terminate the arbitration proceeding with JAMS/ENDISPUTE.
4. Amendments and Modifications. This Agreement contains the entire
------------------------------
agreement of the Parties with respect to the subject matter hereof and may not
be amended, nor shall any waiver, change, modification, consent or discharge be
effected, except by an instrument in writing executed by or on behalf of the
Party against whom enforcement of such amendment, waiver, change, modification,
consent or discharge is sought.
3
<PAGE>
5. Further Actions. At any time and from time to time, each party
----------------
agrees, without further consideration, to take such actions and to execute and
deliver such documents as may be reasonably necessary to effectuate the purposes
of this Agreement, including, but not limited to, the stock purchase options,
the releases, and the stipulation of discontinuance, and including but not
limited to a certificate from a duly-authorized officer of each Party attesting
to the due authority and the office held by each signatory to this Agreement.
6. Counterparts. This Agreement may be executed by facsimile and in
------------
two or more counterparts, all of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7. Section and Other Headings. The headings contained in this
-----------------------------
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
8. Joint Preparation and Representation by Counsel. The Parties
----------------------------------------------------
acknowledge that this Agreement was prepared by them jointly, and that each
party was represented by counsel in connection therewith. No presumption shall
arise from this Agreement against the drafter of any particular provision
hereof.
4
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their respective duly authorized officers as of the date first stated above.
WALL STREET TRADING GROUP
By:
Name:
Title:
STATE OF )
) ss.:
COUNTY OF )
Personally came before me this _____ day of March 1999, the above named
, on behalf of Wall Street Trading Group, to me known to be the person who
executed the foregoing Settlement Agreement.
Notary Public
BAYTREE CAPITAL ASSOCIATES, LLP
By:
Name:
Title:
STATE OF )
) ss.:
COUNTY OF )
Personally came before me this _____ day of March 1999, the above named
, on behalf of Baytree Capital Associates, LLP, to me known to be the person who
executed the foregoing Settlement Agreement.
Notary Public
5
<PAGE>
NETTAXI, INC.
By: /S/Robert A. Rositano Jr.
-------------------------
Name: Robert A. Rositano Jr.
Title: CEO
STATE OF )
) ss.:
COUNTY OF )
Personally came before me this 4th day of March 1999, the above named
Robert A. Rositano, Jr., on behalf of Nettaxi, Inc., to me known to be the
person who executed the foregoing Settlement Agreement.
Notary Public
BRUCE K. DORFMAN
STATE OF )
) ss.:
COUNTY OF )
Personally came before me this _____ day of March 1999, the above named
, on behalf of Baytree Capital Associates, LLP, to me known to be the person who
executed the foregoing Settlement Agreement.
Notary Public
6
<PAGE>
MICHAEL GARDNER
STATE OF )
) ss.:
COUNTY OF )
Personally came before me this _____ day of March 1999, the above named
Michael Gardner, to me known to be the person who executed the foregoing
Settlement Agreement.
Notary Public
/S/ Robert A. Rositano Jr.
-------------------------
Robert A. Rositano Jr.
STATE OF )
) ss.:
COUNTY OF )
Personally came before me this _____ day of March 1999, the above named
Robert A. Rositano, Jr. to me known to be the person who executed the foregoing
Settlement Agreement.
Notary Public
7
<PAGE>
DEAN ROSITANO
STATE OF )
) ss.:
COUNTY OF )
Personally came before me this _____ day of March 1999, the above named
Dean Rositano, to me known to be the person who executed the foregoing
Settlement Agreement.
Notary Public
ESCROW ACCEPTED:
Camhy, Karlinsky & Stein LLP
By: /S/ G. Oliver Koppel
-----------------
G. Oliver Koppel
8
<PAGE>
under Section 1542 of the California Civil Code, which provides as
follows:
"A general release of claims does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of execution of the
release, which if known by him must have affected his settlement with the
debtor."
DATED: March , 1999 DATED: March , 1999
NETTAXI, INC.
By: /S/ ROBERT ROSITANO
ROBERT ROSITANO
DATED: March , 1999
DEAN ROSITANO
9
<PAGE>
THIS COMMON STOCK PURCHASE OPTION AND ANY SHARES ISSUABLE UPON THE EXERCISE OF
THIS COMMON STOCK PURCHASE OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAWS, AND
SUCH SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR (2) THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH
SECURITIES (WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE
COMPANY), THAT SUCH SECURITIES MAY BE SO PLEDGED, SOLD, ASSIGNED, HYPOTHECATED
OR OTHERWISE TRANSFERRED PURSUANT TO AN EXEMPTION FROM THE ACT AND WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE SECURITIES
LAWS.
Void after 5:00 p.m. (California time) on
March 4, 2001, as provided herein.
Issue Date: March 4, 1999 Option to Purchase Common Shares
Expiration Date: March 4, 2001 Exercisable Commencing March 4, 1999
COMMON STOCK PURCHASE OPTION
TO PURCHASE COMMON SHARES OF
NETTAXI, INC.
Nettaxi, Inc. ("Optionor" or "Company"), hereby certifies that for good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Wall Street Trading Group ("Holder") is entitled, subject to the
terms set forth in this common stock purchase option (the "Option"), at any time
or from time to time, commencing March 4, 1999 (such date being called herein
the "Exercise Date"), through but not later than March 4, 2001 (the "Expiration
Date"), to purchase from the Company an aggregate of One Hundred and Twenty-Five
Thousand (125,000) shares of common stock, par value $.01 (the "Common Stock")
of Nettaxi, Inc. (OTC BB: NTXY) at an exercise price of $8.00 per share (such
exercise price per share, as adjusted from time to time pursuant to the
1
<PAGE>
Provisions set forth below, being referred to herein as the "Exercise Price").
This Option and all rights hereunder, to the extent such rights shall not have
been exercised, shall terminate and become null and void to the extent the
Holder (as hereinafter defined) fails to exercise any portion of this Option
prior to 5:00 p.m., San Francisco, California time, on the Expiration Date.
1. Restrictions on Transfer of Shares
--------------------------------------
This Option, and the shares of Common Stock underlying this Option, are
restricted securities and have not been the subject of registration under the
Securities Act of 1933, as amended (the "Act"), nor under any applicable state
securities laws, and may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of in the absence of: (a) an effective
registration statement for such securities under the Act and any applicable
state securities laws, or (b) the Company's having received an opinion of
counsel to the Company or counsel to the Holder of such securities (which
counsel and opinion are reasonably satisfactory to the Company), that such
securities may be so pledged, sold, assigned, hypothecated or otherwise
transferred pursuant to an exemption from the Act and without an effective
registration statement under the Act and any applicable state securities laws.
In the absence of (a) or (b) of the foregoing sentence, the shares of Common
Stock issued upon exercise of this Option shall be subject to a stop transfer
order and the certificate or certificates evidencing such shares shall bear
substantially the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAWS, AND SUCH
SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE
TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH
SECURITIES (WHICH COUNSEL AND OPTION ARE REASONABLY SATISFACTORY TO THE
COMPANY), THAT SUCH SECURITIES MAY BE SO PLEDGED, SOLD, ASSIGNED, HYPOTHECATED
OR OTHERWISE TRANSFERRED PURSUANT TO AN EXEMPTION FROM THE ACT AND WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS."
2
<PAGE>
2. Exercise of Option
--------------------
(a) Commencing March 4, 1999 and through the Expiration Date, all or
any part of this Option may be exercised by the Holder of this Option by
surrendering it, with the form of subscription annexed hereto duly executed by
such Holder, to the Company at its address set forth herein in Section 11
accompanied by payment in full, in cash or by certified or official bank check,
of the Exercise Price payable in respect of all or part of the Option being
exercised;
(b) The Company shall physically deliver to Holder the share
certificate(s) for the number of shares of Common Stock Holder has requested
within not more than three business days after the Company receives Holder's
properly executed subscription and readily available funds in payment for that
number of shares;
(c) If less than the entire Option is exercised, the Optionor shall,
upon such exercise, execute and deliver to the Holder hereof a new option in the
same form as this Option evidencing the right to purchase shares of Common Stock
hereunder to the extent not exercised. This Option shall be deemed to have been
exercised prior to the close of business on the date this Option is surrendered,
a properly executed subscription is received, and payment is made in accordance
with the foregoing provision;
(d) The Optionor shall, at any time of exercise of all or part of this
Option, upon the request of the Holder hereof, acknowledge in writing its
continuing obligation to afford to such Holder any rights to which such Holder
shall continue to be entitled after such exercise in accordance with the
provisions of this Option; provided that if the Holder of this Option shall fail
to make any such request, such failure shall not affect the continuing
obligations of the Company to afford such Holder any such rights;
(e) The shares of Common Stock which may be delivered upon the exercise
of this Option shall, upon delivery, be fully paid and non-assessable and free
from all taxes, liens and charges with respect thereto; and
(f) Subject to applicable securities laws, the Optionor shall cooperate
with the Holder in an exercise pursuant to which all or part of the shares of
Common Stock will be sold simultaneously with the exercise of this Option with
the broker-dealer, if any, participating in such sale being irrevocably
instructed to remit the proceeds of the exercise to the Optionor upon settlement
of the sale of the underlying shares of Common Stock.
3
<PAGE>
3. Fractional Shares
------------------
No fractional securities or scrip representing fractional securities shall
be issued upon the exercise of this Option. With respect to any fraction of a
security called for upon any exercise hereof, the Optionor shall pay to the
Holder an amount in cash equal to such fraction multiplied by the current market
value of such security, determined as follows:
(a) If the security is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the security on such exchange on the
last business day prior to the date of exercise of this Option, or if no such
sale is made on such day, the average closing bid and asked prices for such day
on such exchange; or
(b) If the security is not listed or admitted to unlisted trading
privileges, the current value shall be the last reported sale price on the
Nasdaq National Market System ("NASDAQ/NMS") or the mean of the last reported
bid and asked prices reported by the Nasdaq SmallCap Market ("NASDAQ") or the
OTC Bulletin Board (or, if not so quoted, by the National Quotation Bureau,
Inc.) on the last business day prior to the date of the exercise of this Option;
or
(c) If the security is not so listed or admitted to unlisted trading
privileges and prices are not reported on NASDAQ, or the OTC Bulletin Board (or
by the National Quotation Bureau, Inc.), an amount, not less than the book
value, determined in such reasonable manner as may be prescribed by Optionor.
4. Rights of the Holder
-----------------------
(a) The Optionor shall advise the Holder, whether the Holder holds the
Option or has exercised the Option and holds shares of Common Stock, by written
notice at least thirty (30) days prior to the filing by the Company of any
registration statement under the Act covering any securities of the Company, for
its own account or for the account of others, and will for a period of three
years beginning on the Exercise Date, upon the written request of the Holder
within 20 days after the mailing of such notice, include in any registration
statement (other than a Form S-4 or a Form S-8 or any successor forms thereto),
such information as may be required to permit a public offering of the shares of
Common Stock underlying the Option (the "Registrable Securities"). The Optionor
shall instruct the Company to supply prospectuses and such other documents as
the Holder may reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities, use its best efforts to
register and qualify any of the
4
<PAGE>
Registrable Securities for sale in such states as such Holder reasonably
designates, and do any and all other acts and things which may be necessary to
enable such Holder to consummate the public sale or other disposition of the
Registrable Securities; provided, however, that the Company shall not be
------------------
required to (1) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify, (2) subject itself to taxation in
any such jurisdiction, or (3) consent to general service of process in any such
jurisdiction. Notwithstanding the foregoing, if such public offering is on an
underwritten basis and the managing underwriter thereof advises the Company in
writing that the sale of such securities would impair the underwritten offering
of securities for the account of the Company, the Holder will not be permitted
to include such securities in the subject offering.
(b) Notwithstanding the provisions of this Section 4, the Company shall
have the right at any time after it shall have given notice pursuant to Section
4(a) (irrespective of whether a written request for inclusion of such securities
shall have been made) to elect not to file any such proposed registration
statement or to withdraw the same after the filing date thereof.
(c) The Company may require the selling Holder of Registrable
Securities as to which such registration is being effected to furnish the
Company, in writing, any such information required in connection with such
registration.
(d) The Holder of this Option shall not, by virtue hereof, be entitled
to any voting or other rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Option.
5. Adjustments
-----------
(a) The number of shares of Common Stock purchasable on exercise of
this Option and the purchase prices therefor shall be subject to adjustment from
time to time in the event that the Company shall: (1) pay a dividend in, or
make a distribution of, shares of Common Stock; (2) subdivide its outstanding
shares of Common Stock into a greater number of shares; (3) combine its
outstanding shares of Common Stock into a smaller number of shares; or (4)
spin-off a subsidiary by distributing, as a dividend or otherwise, shares of the
subsidiary to its stockholders. In any such case, the total number of shares of
Common Stock and the number of any other securities purchasable upon exercise of
this Option immediately prior thereto shall be adjusted so that the Holder shall
be entitled to receive from the Optionor, at the same aggregate exercise price,
the number of shares of Common Stock and the number of any other securities that
the Holder would have owned or would have been entitled to receive immediately
following the occurrence of any
5
<PAGE>
of the events described above had this Option been exercised in full immediately
prior to the occurrence (or applicable record date) of such event. An
Adjustment made pursuant to this subsection shall, in the case of a stock
dividend or distribution, be made as of the record date and, in the case of a
subdivision or combination, be made as of the effective date thereof. If, as a
result of any adjustment pursuant to this subsection, the Holder shall become
entitled to receive shares of two or more classes or series of securities of the
Company, the board of directors of the Company shall equitably determine the
allocation of the adjusted exercise price between or among shares or other units
of such classes or series and shall notify the Holder of such allocation.
(b) In the event of any reorganization or recapitalization of the
Company or in the event the Company consolidates with or merges into or with
another entity or transfers all or substantially all of its assets to another
entity, then and in each such event, the Holder, upon exercise of this Option as
provided herein, at any time after the consummation of such reorganization,
recapitalization, consolidation, merger or transfer, shall be entitled, and the
documents executed to effectuate such event shall so provide, to receive the
stock or other securities or property to which the Holder would have been
entitled upon such consummation if the Holder had exercised this Option
immediately prior thereto. In such case, the terms of this Option shall survive
the consummation of any such reorganization, recapitalization, consolidation,
merger or transfer and shall be applicable to the shares of stock or other
securities or property receivable on the exercise of this Option after such
consummation.
(c) Whenever a reference is made in this section to the issue or sale
of shares of Common Stock, the term "Common Stock" shall mean the Common Stock
of the Company of the class authorized as of the date hereof and any other class
of stock ranking on a parity with such Common Stock.
(d) Whenever the number of shares of Common Stock purchasable upon
exercise of this Option or the exercise prices thereof shall be adjusted as
required herein, the Company shall forthwith file such information with its
Secretary at its principal office, and with the exercise price determined as
herein provided and setting forth in detail the facts requiring such adjustment.
Each such officer's certificate shall be made available at all reasonable times
for inspection by the Holder and the Company shall, forthwith after such
adjustment, deliver a copy of such certificate to the Holder.
(e) The Company: (1) shall not cause the par value of any shares of
Common Stock issuable on exercise of this Option to be in excess of the amount
payable therefor on such exercise; and (2) shall take all action as may be
necessary
6
<PAGE>
or appropriate so that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock (or other securities or property
deliverable hereunder) upon the exercise of this Option. This Option shall bind
the successors and assigns of the Optionor.
(f) Notwithstanding anything in this section to the contrary, no
adjustment in the number of shares of Common Stock purchasable on exercise of
this Option shall be made with respect to dilution which would result from the
issuance of Common Stock pursuant to the exercise of options which may be or
have been granted pursuant to any employee option plan of the Company, whether
qualified or non-qualified, or the conversion of any outstanding securities of
the Company.
6. Notices of Record Dates, Etc.
---------------------------------
(a) If the Company shall fix a record date of holders of Common Stock
(or other securities at the time deliverable on exercise of this Option) for the
purpose of entitling or enabling them to receive any dividends or other
distribution, or to receive any right to subscribe for or purchase any shares of
any class of any securities or to receive any other right contemplated by
Section 5 or otherwise; or
(b) In the event of any reorganization or recapitalization of the
Company, any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another corporation or any
transfer of all or substantially all of the assets of the Company to another
entity; or
(c) In the event of the voluntary or involuntary dissolution,
liquidation or winding up of the Company, then, the Company shall mail or cause
to be mailed to the Holder a notice specifying, as the case may be: (1) the
date on which a record is to be taken for the purpose of such dividend,
distribution or right and stating the amount and character of such dividend,
distribution or right; or (2) the date on which a record is to be taken for the
purpose of voting on or approving such reorganization, recapitalization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding up and the date on which such event is to take place and the time, if
any, is to be fixed, as of which a holder of record of Common Stock (or any
other securities at the time deliverable on exercise of this Option) shall be
entitled to exchange its shares of Common Stock (or such other securities) for
securities or other property deliverable on such reorganization,
recapitalization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding up. Such notice shall be mailed at the same
date as the Company shall inform its stockholders, but in no event less than ten
(10) days preceding such record date.
7
<PAGE>
7. Reservation of Shares
-----------------------
The Optionor shall at all times reserve, for the purpose of issuance on
exercise of this Option, such number of shares of Common Stock (or such class or
classes of capital stock or other securities) as shall from time to time be
sufficient to comply with this Option, and shall not sell or transfer any shares
of Common Stock held by it so that the number of shares held by Optionor falls
below the number required to comply with this Option.
8. Approvals
---------
The Optionor and the Company shall from time to time use its best efforts
to obtain and continue in effect any and all permits, consents, registrations,
qualifications and approvals of governmental agencies and authorities and to
make all filings under applicable securities laws that may be or become
necessary in connection with the issuance, sale, transfer and delivery of this
Option and the issuance of securities on any exercise hereof. Nothing contained
in this section shall in any way expand, alter or limit the rights of the Holder
set forth in Section 1 hereof.
9. Restrictions on Transfer
--------------------------
This Option has not been registered under the Act or qualified under any
state securities or "blue sky" law. This Option may not be offered, sold or
otherwise transferred unless registered and qualified pursuant to the provisions
of such Act and "blue sky" laws, or unless an exemption from registration and
qualification is available.
10. Survival
--------
All agreements, covenants, representations and warranties herein shall
survive: (a) the execution and delivery of this Option and any investigation at
any time made by or on behalf of any parties hereto; and (b) the sale, exercise
and purchase of this Option and the shares of Common Stock (and any other
securities or property) issuable upon exercise hereof.
11. Notices
-------
All demands, notices, consents and other communications to be given
hereunder shall be in writing and shall be deemed duly given when delivered
8
<PAGE>
personally or five (5) days after being mailed certified mail/return receipt
requested, postage prepaid, properly addressed, as follows:
(a) If to the Optionor: Nettaxi, Inc., Attn:
[address]
with a copy to: [name]
[address]
(b) If to the Holder: Wall Street Trading Group
c/o Attorney James Braden
44 Montgomery Street, Suite 1210
San Francisco, California 94104
with a copy to: Bruce Dorfman
c/o The Wall Street Trading Group
465 California Street, #433
San Francisco, CA 94104
The Company and the Holder may change such address at any time or times by
notice hereunder to the other.
12. Amendments; Waivers; Terminations; Governing Law; Headings; Entire
------------------------------------------------------------------------
Agreement
- - ---------
This Option and any term hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Option shall be governed by and construed and interpreted in accordance with the
laws of the State of California. The headings in this Option are for
convenience of reference only and are not part of this Option. This Option is
intended to and does contain and embody all of the understandings and
agreements, both written and oral, of the parties hereto with respect to the
subject matter of this Option, and there exists no oral agreement or
understanding, express or implied, whereby the absolute, final and unconditional
character and nature of this Option shall be in any way invalidated, empowered
or affected. A modification or waiver of any of the terms, conditions or
provisions of this Option shall be effective only if made in writing and
executed with the same formality of this Option.
9
<PAGE>
13. Litigation: Venue, Forum and Attorney's Fees
-------------------------------------------------
If any dispute should arise about or concerning this Common Stock Purchase
Option, or any of its provisions, it shall be resolved by binding arbitration
before, and in accordance with the rules of, JAMS/ENDISPUTE with forum in San
Francisco, California. The prevailing party in any such proceeding shall be
entitled to a binding and enforceable award of all its reasonable attorney's
fees and costs incurred in the matter.
IN WITNESS WHEREOF, Optionor has duly caused this Common Stock Purchase
Option to be signed in its name and on its behalf by its duly authorized
officers, as of the date first set forth above.
ATTEST NETTAXI, INC.
By:
Secretary Name:
Title:
10
<PAGE>
ANNEX TO OPTION
FORM OF SUBSCRIPTION
--------------------
(To be completed and signed only upon an exercise of the Common Stock
Purchase Option in whole or in part)
TO: [Optionor]
The undersigned, the Holder of the attached Option, hereby irrevocably
elects to exercise the purchase right represented by the Option for and to
purchase thereunder shares of Common Stock from to
(or other securities or property), and herewith makes payment of $
therefor in cash or by certified or official bank check. The undersigned
hereby requests that the Certificate(s) for such securities be issued in the
name(s) and delivered to the address(es) as follows:
Name: ___________________________________
Address: ___________________________________
Social Security Number: ___________________________________
Deliver to: ___________________________________
Address: ___________________________________
If the foregoing Subscription evidences an exercise of the Option to
purchase fewer than all of the Shares (or other securities or property) to which
the undersigned is entitled under such Option, please issue a new Option, of
like tenor, for the remaining portion of the Option (or other securities or
property) in the name(s), and deliver the same to the address(es), as follows:
Name: ___________________________________
Address: ___________________________________
DATED: ______ , 19___.
(Name of Holder)
(Signature of Holder or Authorized Signatory)
Signature Guaranteed: ___________________________________
(Social Security or Taxpayer Identification Number of Holder)
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March 3 1,
1999, by and among Nettaxi, Inc., a Nevada corporation, with headquarters
located at 2165 S. Bascom Avenue, Campbell, California 95-008 (the "Company"),
and the purchaser set forth_ on the signature pages hereto (the "Buyer").
WHEREAS:
A. The Company and the Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D ("REGULATION D") as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 ACT");
B. The Buyer desires to purchase from the Company, upon the terms and
conditions stated in this Agreement, a convertible debenture or debentures in
the aggregate principal amount of $5,000,000 in the form attached hereto as
"EXHIBIT A" (the "DEBENTURES"), convertible into shares of the Company's common
stock, par value $0.00 1 per share (the "COMMON STOCK"). The shares of Common
Stock issuable upon conversion of or otherwise pursuant to the Debentures
(including, but not limited to, the shares of Common Stock issuable pursuant to
the investment options described in Article ILE of the Debentures (the
"INVESTMENT OPTIONS")) are referred to herein collectively as the "CONVERSION
SHARES."
C. The Company has authorized the issuance to the Buyer of warrants, in
the form attached hereto as EXHIBIT "B", to purchase One Hundred Fifty Thousand
(150,000) shares of Common Stock (the "WARRANTS"). The shares of Common Stock
issuable upon exercise of or otherwise pursuant to the Warrants are referred to
herein collectively as the "WARRANT SHARES." The Debentures, the Warrants, the
Conversation Shares and the Warrant Shares are sometimes collectively referred
to herein as the "SECURITIES."
D. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws; and
<PAGE>
NOW THEREFORE, the Company and the Buyer agree as follows:
1. PURCHASE AND SALEOF DEBENTURES AND WARRANTS
------------------------------------------------
(a) PURCHASE OF DEBENTURES AND WARRANTS. On the Closing Date (as defined
--------------------------------------
below), the Company shall issue and sell to the Buyer and the Buyer agrees to
purchase from the Company the Debentures and the Warrants for an aggregate
purchase price (the "PURCHASE PRICE") equal to $5,000,000.
(b) Form of Payment. On the Closing Date, (i) the Buyer shall pay the
----------------
Purchase Price for the Debentures and the Warrants to be issued and sold to it
at the Closing (as defined below) by wire transfer of immediately available
funds to the Company, in accordance with the Company's written wiring
instructions, against delivery of the duly executed Debentures and Warrants
which the Buyer is purchasing and (ii) the Company shall deliver such Debentures
and Warrants duly executed on behalf of the Company, to the Buyer, against
delivery of such Purchase Price.
(c) CLOSING DATE. Subject to the satisfaction (or waiver) of the
--------------
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Debentures and the Warrants pursuant to this
Agreement (the "Closing Date") shall be 12:00 noon Eastern Standard Time on
March 3 t, 1999 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at the offices of Ballard Spahr Andrews & Ingersoll, LLP, 1735
Market Street, Philadelphia, Pennsylvania 19103 or at such other location as may
be agreed to by the parties. The parties may close the transactions contemplated
by this Agreement by transmitting signature pages and copies of other documents
via facsimile followed by overnight delivery and exchange of the originally
executed documents.
2. BUYER' S REPRESENTATIONS AND WARRANTIES. The Buyer represents and
warrants to the Company that:
(a) INVESTMENT PURPOSE. As of the date hereof, the Buyer is
--------------------
purchasing the Securities for its own account and not with a present view
towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; provided however,
----------------
that by making the representation herein, the Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
(b) . ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor"
---------------------------
as that term is defined in Rule 501 (a) of Regulation D (an "ACCREDITED
INVESTOR").
(c) RELIANCE ON EXEMPTIONS. The Buyer understands that the
-------------------------
Securities are being offered and sold to it in reliance upon specific exemptions
from the
- 2 -
<PAGE>
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
(d) INFORMATION. The Buyer and its advisors, if any, have been
------------
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or, representatives shall modify,
amend or affect Buyer's right to rely on the Company's representations and
warranties contained in Section 3, below. The Buyer understands that its
investment in the Securities involves a significant degree of risk.
(e) GOVERNMENTAL REVIEW. The Buyer understands that no United
---------------------
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
(f) TRANSFER OR RESALE. The Buyer understands that (i) except as
---------------------
provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration, (c) the Securities are sold or transferred
to an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("RULE 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said, Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement.
- - ---- ----
- 3 -
<PAGE>
(g) LEGENDS. The Buyer understands that the Debentures and the
--------
Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then be
immediately sold, the Conversion Shares and Warrant Shares may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended. The securities may not be sold,
transferred or assigned in the absence of an effective registration statement
for the securities under said Act, or an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to Rule 144
under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale" under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, or (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the 1933 Act and such
sale or transfer is effected or (c) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule 144. The
Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
(h) AUTHORIZATION, ENFORCEMENT. This Agreement has been duly
----------------------------
authorized, executed and delivered on behalf of the Buyer and is valid and
binding agreement of the Buyer, enforceable against the Buyer in accordance with
its terms. The Registration Rights Agreement has been duly authorized and, when
executed and delivered on behalf of the Buyer, will be a valid and binding
agreement of the Buyer, enforceable against the Buyer in accordance with its
terms.
(i) RESIDENCY. The Buyer is a resident of the jurisdiction set
----------
forth immediately below the Buyer's name on the signature pages hereto.
- 4 -
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------------
represents and warrants to the Buyer that:
(a) ORGANIZATION AND QUALIFICATION. The Company and each of its
---------------------------------
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. Schedule 3(a) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary,, except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "MATERIAL ADVERSE EFFECT" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, or
(iii) on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith. "SUBSIDIARIES" means any
corporation or other organization, whether incorporated or unincorporated, in
which the Company owns, directly or indirectly, any equity or other ownership
interest. The Company owns all of the issued and outstanding shares of capital
stock of Nettaxi Online Communities, Inc.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
----------------------------
corporate power and authority to enter into and perform this Agreement, the
Debentures, the Registration Rights Agreement and the Warrants and to consummate
the transactions contemplated hereby and thereby and to issue and sell the
Securities in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Debentures, the Registration Rights
Agreement and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation, the
issuance of the Debentures and the Warrants and the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares issuable upon conversion or
exercise thereof) have been duly authorized by the Company's Board of Directors
and no further consent or authorization of the Company, its Board of Directors,
or its stockholders is required, (iii) this Agreement has been duly executed and
delivered by the Company, and (iv) this Agreement constitutes, and upon
execution and delivery by the Company of the Registration Rights Agreement, the
Debentures and the Warrants each of such agreements and instruments will
constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, subject to any applicable laws
regarding bankruptcy, insolvency, moratoriums, reorganization or other laws of
general application affecting enforcement or creditors rights.
(c) CAPITALIZATION. As of the date hereof, the authorized capital stock
---------------
of the Company consists of (i) 50,000,000 shares of Common Stock of which
14,110,000 shares are issued and outstanding, 1,000,000 shares are reserved for
issuance pursuant to the Company's stock option plans, 555,000 shares are
reserved for issuance pursuant to securities (other than the
- 5 -
<PAGE>
Debentures and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 1,983,500 (2x currently required)
shares are reserved for issuance upon conversion of the Debentures and exercise
of the Warrants (subject to adjustment pursuant to the Company's covenant set
forth in Section 4(h) below); and (ii) 1,000,000 shares of preferred stock, none
of which are issued, outstanding or designated. All of such outstanding shares
of capital stock are, or upon issuance will be, duly authorized, validly issued,
fully paid and nonassessable. No shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the stockholders of
the Company or any liens or encumbrances imposed through the actions or failure
to act of the Company. Except as disclosed in SCHEDULE 3(C), as of the effective
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal, agreements,
understandings, claims or other commitments or rights of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for any shares of capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to Issue additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
its or their securities under the 1933.Act (except the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Debentures, the Warrants, the Conversion Shares or Warrant Shares. The Company
has furnished to the Buyer true and correct copies of the Company's Certificate
of Incorporation as in effect on the date hereof ("CERTIFICATE OF
INCORPORATION"), the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS"), and the terms of all securities convertible into or exercisable for
Common Stock of the Company and the material rights of the holders thereof in
respect thereto. The Company shall provide the Buyer with a written update of
this representation signed by the Company's Chief Executive or Chief Financial
Officer on behalf of the Company as of the Closing Date.
(D) ISSUANCE OF SHARES. The Conversion Shares and the Warrant
---------------------
Shares are duly authorized and reserved for issuance and, upon conversion of the
Debentures and exercise of the Warrants in accordance with the terms thereof and
exercise of the Investment Options in accordance with Article ILE of the
Debentures, will be validly issued, fully paid and non-assessable, and free from
all taxes, liens, claims and encumbrances created by the Company and will not be
subject to preemptive rights of other similar rights of stockholders of the
Company and will not impose personal liability upon the holder thereof.
(e) ACKNOWLEDGMENT OF DILUTION. The Company understands and
-----------------------------
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares upon conversion of or otherwise pursuant to
the Debentures (including upon the exercise of the Investment Options contained
therein) and upon the issuance of the Warrant Shares upon exercise of the
Warrants. The Company's executive officers have studied and fully understand the
nature of the Securities being sold hereunder. The Company further acknowledges
that its obligation to issue Conversion Shares and Warrant Shares upon
conversion of the Debentures or exercise of the Warrants in accordance with this
Agreement, the Debentures
- 6 -
<PAGE>
and the Warrants is- absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company. Taking the foregoing into account, the Company's
Board of Directors has determined in its good faith business judgment that the
issuance of the Securities hereunder and under the Debentures and the Warrants
and the consummation of the transactions contemplated hereby and thereby are in
the best interests of the Company and its stockholders.
(f) SERIES OF PREFERRED STOCK. There are currently no outstanding
-----------------------------
shares of preferred stock of the Company, and no series of preferred stock of
the Company has been designated.
(g) NO CONFLICTS. The execution, delivery and performance of this
-------------
Agreement, the Registration Rights Agreement, the Debentures and the Warrants by
the Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the issuance and reservation
for issuance, as applicable, of the Debentures, the Warrants, the Conversion
Shares and the Warrant Shares) will not (i) conflict with or result in a
violation of any provision of the Certificate of Incorporation or By-laws or
(ii) violate or conflict with, or result in a breach of any provision of, or
constitute a default (or an event which with notice or lapse of time or both
could become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its Subsidiaries is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity, the violation of
which individually, or in the aggregate, would have a Material Adverse Effect.
Except as specifically contemplated by this Agreement and as required under the
1933 Act and any applicable state securities laws, the Company is not required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency or self
regulatory organization or stock market or any third party in order for it to
execute, deliver or
- 7 -
<PAGE>
perform any of its obligations under this Agreement, the Registration Rights
Agreement, the Debentures or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Debentures and Warrants in accordance with the
terms hereof and to issue the Conversion Shares upon conversion of or otherwise
pursuant to the Debentures (including upon the exercise of the Investment
Options) and the Warrant Shares upon exercise of or otherwise pursuant to the
Warrants. Except as disclosed in Schedule 3(g), all consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior to
the date hereof or will be obtained or effected prior to the Closing. The
Company is not in violation of any of the requirements of the Over-the-Counter
Bulletin Board (the "OTC BB") and does not reasonably anticipate that the Common
Stock will cease trading on the OTC BB in the foreseeable future (unless such
cessation in trading is due to the fact that the Common Stock has been listed or
included for quotation on the Nasdaq National Market (the "NNM"), the Nasdaq
SmallCap Market (the "NASDAQ SMALLCAP"), the New York Stock Exchange (the
"NYSE"), or the American Stock Exchange (the "AMEX")). The -Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
(h) FINANCIAL STATEMENTS. As of their respective dates, the draft
----------------------
audited financial statements of the Company for the periods ended December 31,
1997 and December 31, 1998 (collectively, the "FINANCIAL STATEMENTS") complied
as to form in all material respects with United States generally accepted
accounting principles. Such Financial Statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except as may be otherwise
indicated in such financial statements or the notes thereto) and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended. Except as
set forth in the Financial Statements of the Company, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the date of such Financial Statements
and (ii) obligations under contracts and commitments incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which liabilities or
obligations referred to in clause (i) and (ii), individually or in the
aggregate, are not material to the financial condition or operating results of
the Company.
(i) ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, there has
----------------------------
been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition,
results of operations or prospects of the Company or any of its Subsidiaries.
ABSENCE OF LITIGATION. There is no action, suit, claim, proceeding,
------------------------
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company
or any of its Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect. SCHEDULE 3(J)
- 8 -
<PAGE>
contains a complete list and summary description of any pending or threatened
proceeding against or affecting the Company or any of its Subsidiaries, without
regard to whether it would have a Material Adverse Effect. There are no facts
which, if known by a potential claimant or governmental authority, could give
rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or any of its Subsidiaries, could have a Material
Adverse Effect.
(k) PATENTS, COPYRIGHTS, ETC.-YEAR 2000 COMPLIANCE.
---------------------------------------------------
(i) The Company and each of its Subsidiaries owns or possesses the
requisite licenses or rights to use all patents, patent applications, patent
rights, inventions, know-how, trade secrets, trademarks, trademark applications,
service marks, service ' names, trade names and copyrights ("INTELLECTUAL
PROPERTY") necessary to enable it to conduct its business as now operated (and,
except as set forth in SCHEDULE 3(K) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); there is no
claim or action by any person pertaining to, or proceeding pending, or to the
Company's knowledge threatened, which challenges the right of the Company or of
a ' Subsidiary with respect to any Intellectual Property necessary to enable it
to conduct its business as now operated (and, except asset forth in SCHEDULE
3(K) hereof, to the best of the Company's knowledge, as presently contemplated
to be operated in the future); to the best of the Company's knowledge, the
Company's or its Subsidiaries' current and intended products, services and
processes do not infringe on any Intellectual Property or other rights held by
any person; and the Company is unaware of any facts or circumstances which might
give rise to any of the foregoing. Neither the Company nor any of its
Subsidiaries has received written notice of any pending conflict with or
infringement upon such third party Intellectual Property. Neither the Company
nor any of its Subsidiaries has entered into any consent, indemnification,
forbearance to sue or settlement agreements with respect to the validity of the
Company's or its Subsidiaries' ownership or right to use its Intellectual
Property and, to the knowledge of the Company, there is no reasonable basis for
any such claim to be successful. The Intellectual Property is valid and
enforceable and no registration relating thereto has lapsed, expired or been
abandoned or canceled or is the subject of cancellation or other adversarial
proceedings, and all applications therefor are pending and in good standing. The
Company and its Subsidiaries have complied, in all material respects, with their
respective contractual obligations relating to the protection of the
Intellectual Property used pursuant to licenses. To the best knowledge of the
Company, no person is infringing on or violating the Intellectual Property owned
or used by the Company or its Subsidiaries. The Company and each of its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of their Intellectual Property.
(ii) All of the Company's computer software and computer hardware, and
other similar or related items of automated, computerized or software systems
that are used or relied on by the Company in the conduct of its business or that
were, or currently are being, sold or licensed by the Computer to customers
(collectively, "INFORMATION TECHNOLOGY"), are Year 2000 Complaint. For purposes
of this Agreement, the term "YEAR 2000 COMPLIANT" means, with respect to the
Company's Information Technology, that the Information Technology
- 9 -
<PAGE>
is designed to be used prior to, during and after the calendar Year 2000 A.D.,
and the Information Technology used during each such time period will accurately
receive, provide and process date and time data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the 20' and 21s'
centuries, including the years 1999 and 2000, and leap-year calculations, and
will not malfunction, cease to function, or provide invalid or incorrect results
as a result of the date or time data, to the extent that other information
technology, used in combination with the Information Technology, properly
exchanges date and time data with it. The Company has delivered to the Buyer
true and correct copies of all analyses, reports, studies and similar written
information, whether prepared by the Company or another party, relating to
whether the Information Technology is Year 2000 Complaint.
(1) No Materially Adverse Contracts, Etc. Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers-has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
(m) TAX STATUS. Except as set forth on SCHEDULE 3(M), the Company
------------
and each of its Subsidiaries has made or filed all federal and state income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim. The Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal,
state or local tax. Except as set forth on SCHEDULE 3(M), none of the Company's
tax returns is presently being audited by any taxing authority.
(n) CERTAIN TRANSACTIONS. Except as set forth on SCHEDULE 3(N) and
----------------------
except for arm's length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on SCHEDULE
3(C), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or
- 10 -
<PAGE>
other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
(o) DISCLOSURE. All information relating to or concerning the
-----------
Company or any of its Subsidiaries set forth in this Agreement or provided to
the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred Or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which has
not been publicly disclosed but, under applicable law, rule or regulation
(assuming for this purpose that the Company is subject to the public reporting
requirements of Section 13 of the Securities Exchange Act of, 193 4, as amended
(the " 1934 ACT")), would be required to be disclosed by, the Company in-a
registration statement filed on the date hereof by the Company under the 1933
Act with respect to a primary issuance of the Company's securities).
(p) ACKNOWLEDGMENT REGARDING BUYERS PURCHASE OF SECURITIES. The
-----------------------------------------------------------
Company acknowledges and agrees that the Buyer is acting solely in the capacity
of arm's length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that the Buyer is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and that any statement made by the Buyer or any of its representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is not advice or a recommendation and is merely incidental to the Buyer's
purchase of the Securities and has not been relied upon by the Company, its
officers or directors in any way. The Company further represents to the Buyer
that the Company's decision to enter into this Agreement has been based solely
on the independent evaluation of the Company and its representatives.
(q) NO INTEGRATED OFFERING. Neither the Company, nor any of its
------------------------
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyer. The issuance of the
Securities to the Buyer will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of the 1933 Act or
any stockholder approval provisions applicable to the Company or its securities.
(r) NO BROKERS. The Company has taken no action which would give
------------
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments relating to this Agreement or ' the transactions contemplated
hereby, except as disclosed on SCHEDULE 3(R). Any such broker's commissions and
fees will be paid for by the Company.
(s) PERMITS; COMPLIANCE. The Company and each of its Subsidiaries
---------------------
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances,
- 11 -
<PAGE>
exemptions, conse6ts, certificates, approvals and orders necessary to own, lease
and operate its properties and to carry on its business as it is now being
conducted (collectively, the "COMPANY PERMITS"), and there is no action pending
or, to the knowledge of the Company, threatened regarding suspension
or1cancellation of any of the Company Permits. Neither the Company nor any of
its Subsidiaries is in conflict with, or in default or violation of, any of the
Company Permits, except for any such conflicts, defaults or violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect. Since December 31, 1998, neither the Company nor any of
its Subsidiaries has received any notification with respect to possible
conflicts, defaults or violations of applicable laws, except for notices
relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
(T) ENVIRONMENTAL MATTERS.
-----------------------
(i) Except as set forth in SCHEDULE 3(T), THERE ARE, TO THE Company's
knowledge, with respect to the Company or any of its Subsidiaries or any
predecessor of the Company, no past or present violations of Environmental Laws
(as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"ENVIRONMENTAL LAWS" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "HAZARDOUS MATERIALS") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as 0 authorizations, codes, decrees, demands or demand letters
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on or about
any real property currently owned, leased or used by the Company or any of its
Subsidiaries and, to the Company's knowledge, no Hazardous Materials were
released on or about any real property previously owned, leased or used by the
Company or any of its Subsidiaries during the period the property was owned,
leased or used by the Company or any of its Subsidiaries, except in the normal
course of the Company's or any of its Subsidiaries' business.
- 12 -
<PAGE>
(iii) Except as set forth in Schedule 3(t), to the Company's knowledge
there are no underground storage tanks on or under any real property owned,
leased or used by the Company or any of its Subsidiaries that are not in
compliance with applicable law.
(u) TITLE TO PROPERTY. The Company owns no real Property. The
--------------------
Company and its Subsidiaries have good and marketable title to all personal
property owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 3(u) or such as would not have a
Material Adverse Effect. Any real property and facilities held under lease by
the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a Material Adverse
Effect.
(v) INSURANCE. The Company and each of its Subsidiaries are insured
----------
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect.
(w) INTERNAL ACCOUNTING CONTROLS. The Company and each of its
-------------------------------
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(x) FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
---------------------------
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
(Y) SOLVENCY. The Company (both before and after giving effect to
---------
the transactions contemplated by this Agreement) is solvent (i.e.,its assets
------
have a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they
- 13 -
<PAGE>
become absolute and matured) and currently the Company has no information that
would lead it to reasonably conclude that the Company would not have the ability
to, nor does it intend to take any action that would impair its ability to, pay
its debts from time to time incurred in connection therewith as such debts
mature. The Company did not receive a qualified opinion from its auditors with
respect to its most recent fiscal year end and does not anticipate or know of
any basis upon which its auditors might issue a qualified opinion in respect of
its current fiscal year.
(z) FORM S-1 ELIGIBILITY. The Company is currently eligible to
-----------------------
register the resale of its Common Stock on a registration statement on Form S-1
under the 1933 Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form S-1 with
respect to the Registrable Securities (as defined in the Registration Right
Agreement) within the time periods referred to therein.
(aa) NO GENERAL SOLICITATION. Neither the Company nor any distributor
-------------------------
participating on the Company's behalf in the transactions contemplated hereby,
if any, nor any person acting for the Company, or any such distributor, has
conducted any "general
1~
solicitation," as such term is defined in Regulation D, with respect to any of
the Securities being offered hereby.
4. COVENANTS.
----------
(a) BEST EFFORTS.The parties shall use their best efforts to satisfy
--------------
timely each of the conditions described in Section 6 and 7 of this Agreement.
(b) FORM D; BLUE SKY LAWS. The Company agrees to file a Form D with
----------------------
respect to the Securities as required under Regulation D and to provide a copy
thereof to the Buyer promptly after such filing. The Company shall, on or before
the Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Buyer at the applicable
closing pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Buyer on or prior to the Closing Date.
(c) ELIGIBILITY TO USE FORM S-1; REPORTING STATUS. The Company
represents and warrants that it meets the requirements for the use of Form S-1
for registration of the sale by the Buyer of the Registrable Securities (as
defined in the Registration Rights Agreement). The Company agrees to take all
actions necessary to register the Common Stock under Section 12(g) of the 1934
Act and to become subject to the reporting requirements of Section 13 of the
1934 Act as soon as practicable after the date hereof (but in any event not
later than the Registration Deadline (as defined in the Registration Rights
Agreement)). In furtherance of the foregoing, upon filing the Registration
Statement (as defined in the Registration Rights Agreement) required to be filed
pursuant to the Section 2(a) of the Registration Rights Agreement, the Company
agrees to timely file a registration statement on Form 8-A so as to obtain
effectiveness thereof on or prior to the declaration of effectiveness of
- 14 -
<PAGE>
the Registration Statement and at all times following such effectiveness to file
all reports required to be filed by the Company with the SEC pursuant to Section
13 of the 1934 Act. Once the Company's Common Stock is registered under Section
12(g) of the 1934 Act and the Company becomes subject to the reporting
requirements of Section 13 of the 1934 Act, so long as the Buyer beneficially
owns any of the Securities, the Company shall timely file all reports required
to be filed with the SEC pursuant to the 1934 Act, and the Company shall not
terminate its status as an issuer required to file reports under the 1934 Act
even if the 1934 Act or the rules and regulations thereunder would permit such
termination. The Company further agrees to file all reports required to be filed
by the Company with the SEC in a timely manner so as to become eligible, and
thereafter to maintain its eligibility, for the use of Form S-3.
(d) USE OF PROCEEDS. The Company shall use the proceeds from
------------------
thesale of the Securities in the manner set forth in SCHEDULE 4(D) attached
hereto and made a part -hereof and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its currently existing
direct or indirect Subsidiaries).
(e) ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST OFFER. Subject to
---------------------------------------------------
the exceptions described below, the Company agrees that during the period (the
"LOCK-UP PERIOD") beginning on the date hereof and ending on the date that is
180 days after the effective date of the Registration Statement (as defined in
the Registration Rights Agreement) required pursuant to Section 2(a) of the
Registration Rights Agreement, the Company will not, without the prior written
consent of the Buyer, contract with any party to obtain additional financing in
which any equity or equity-linked securities are issued (including any debt
financing with an equity component) ("FUTURE OFFERINGS"). In addition, the
Company will not conduct any Future Offering during the 180-day period
immediately following the expiration of the Lock-Up Period unless it shall have
first delivered to the Buyer, at least ten business days prior to the closing of
such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof and proposed definitive documentation
to be entered into in connection therewith, and providing the Buyer and its
affiliates an option during the ten business day period following delivery of
such notice to purchase all of the securities being offered in the Future
Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this and the immediately preceding sentence are
collectively referred to as the CAPITAL RAISING LIMITATIONS"). In the event the
terms and conditions of a proposed Future Offering are amended in any respect
after delivery of the notice to the Buyer concerning the proposed Future
Offering, the Company shall deliver a new notice to the Buyer describing the
amended terms and conditions of the proposed Future Offering and the Buyer
thereafter shall have an option during the ten (10) business day period
following delivery of such new notice to purchase the securities being offered
on the same terms as contemplated by such proposed Future Offering, as amended.
The foregoing sentence shall apply to successive amendments to the terms and
conditions of any proposed Future OfferingThe Capital Raising Limitations shall
not apply to any transaction involving issuances of securities as consideration
in a merger, consolidation or acquisition of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or as consideration for the acquisition or disposition of
a
- 15 -
<PAGE>
business, product or license by the Company. The Capital Raising Limitation also
shall not apply to (i) the issuance of securities pursuant to a firm commitment
underwritten public offering (other than a continuous offering pursuant to Rule
415 of the SEC), (ii) the issuance of securities upon exercise or conversion of
the Company' options, warrants or other convertible securities outstanding as of
the date hereof or (iii) the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan approved by the stockholders of the Company.
(f) EXPENSES. The Company shall reimburse Rose Glen Capital
---------
Management, L.P. ("Rose Glen") for all expenses incurred by it in connection
with the negotiation, preparation, execution, delivery and performance of this
Agreement and the other agreements to be executed in connection herewith,
including, without limitation, attorneys' and,. consultants' fees and expenses.
The Company's obligation to reimburse Rose Glen's expenses under this Section
4(f) shall be limited to Thirty Thousand Dollars ($30,000) of which Ten Thousand
Dollars ($10,000) was advanced previously.
(G) FINANCIAL INFORMATION. The Company agrees to send the following
----------------------
reports to the Buyer until the Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form I O-K, its Quarterly Reports on Form I O-Q and any
Current Reports on Form 8-K; provided howeverthat in the event the Company is
----------------
not subject to the reporting requirements under the 1934 Act, the Company will
promptly deliver to the Buyer all monthly, quarterly and annual financial
statements upon their preparation by the Company or its accountants; (ii) within
one (1) day after release, copies of all press releases issued by the Company or
any of its Subsidiaries; and (iii) contemporaneously with the making available
or giving to the stockholders of the Company, copies of any notices or other
information the Company makes available or gives to such stockholders.
(H) RESERVATION OF SHARES. The Company shall at all times have
------------------------
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Debentures and issuance of the Conversion Shares in connection therewith (based
on the lesser of the Variable Conversion Price in effect from time to time and
the Fixed Conversion Price (each as defined in the Debentures)) and as otherwise
required by the Debentures (including sufficient shares to provide for the full
exercise of the Investment Options) and the full exercise of the Warrants and
issuance of the Warrant Shares in connection therewith (based on the Exercise
Price of the Warrants in effect from time to time). The Company shall not reduce
the number of shares of Common Stock reserved for issuance upon conversion of or
otherwise pursuant to the Debentures (except as a result of any such conversion
thereof or exercise of the Investment Options thereunder) and exercise of the
Warrants (except as a result of any exercise thereof) without the consent of the
Buyer. The Company shall use its best efforts at all times to maintain the
number of shares of Common Stock so reserved for issuance at no less than two
(2) times the number that is then actually issuable upon fall conversion of the
Debentures and exercise of the Investment Options thereunder (based on the
lesser of the Variable Conversion Price in effect from time to time and
- 16 -
<PAGE>
the Fixed Conversion Price) and the full exercise of the Warrants. If at any
time the number of shares of Common Stock authorized and reserved for issuance
is below the aggregate number of Conversion Shares issued and issuable upon
conversion of or otherwise pursuant to the Debentures (based on t1te lesser of
the Variable Conversion Price in effect from time to time and the Fixed
Conversion Price and assuming the full exercise of the Investment Options
thereunder) and the aggregate number of Warrant Shares issued and issuable upon
exercise of the Warrants, the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of stockholders to authorize
additional shares to meet the Company's obligations under this Section 4(h), in
the case of an insufficient number of authorized shares, and using its best
efforts to obtain shareholder approval of an increase in such authorized number
of shares.
(i) LISTING. The Company shall promptly secure the listing of the,
--------
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, so long as the Buyer owns
any of the Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares from time to
time issuable upon conversion of or otherwise pursuant to the Debentures
(including upon exercise of the Investment Options thereunder) and of all
Warrant Shares from time to time issuable upon exercise of the Wan-ants. The
Company will, so long as the Buyer owns any of the Securities, take all action
necessary to continue the listing and trading of its Common Stock on the OTC BB,
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company will take all
necessary action to promptly secure the listing or quotation of the Common Stock
on the NNM and will thereafter, so long as the Buyer owns any of the Securities,
maintain the listing or quotation of the Common Stock on the NNM, the NYSE or
the AMEX. The Company shall promptly provide to the Buyer copies of any notices
it receives from OTC'BB and any other exchanges or quotation systems on which
the Common Stock is then listed regarding the continued eligibility of the
Common Stock for listing on such exchanges and quotation systems.
(j) CORPORATE EXISTENCE. So long as the Buyer beneficially owns any
--------------------
Debentures or Warrants, the Company shall maintain its corporate existence and
shall not sell all or substantially all of the Company's assets, except in the
event of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on the NNM, the Nasdaq
SmallCap, the NYSE or the AMEX.
(k) NO INTEGRATION. The Company shall not make any offers or sales of
----------------
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of
- 17 -
<PAGE>
Securities to be integrated with any other offering of securities by the Company
for the purpose of any stockholder approval provision applicable to the Company
or its securities.
(l) Redemption and Dividends. So long as the Buyer
beneficially owns any Debentures, the Company shall not, without first obtaining
the written approval of the Buyer, redeem, or declare or pay any cash dividend
or distribution on. any shares of capital stock of the Company; provided,
however, that the Company may repurchase shares of capital stock from former
employees of the Company pursuant to repurchase rights included in a restricted
stock purchase plan for such employees so long as (i) such plan was approved by
a majority of the independent directors of the Board of Directors of the
Company, (ii) such shares were purchased pursuant to such plan, (iii) the
purchase price paid by the employee to acquire the shares was at least equal to
the market value of such shares on the date of such purchase, and (iv) the
Company repurchases such shares for no more than the purchase price paid by such
employee.
(m) REGISTRATION STATEMENT DISCLOSURE. The Company shall fully
------------------------------------
disclose in the Registration Statement (as defined in the Registration Rights
Agreement) required to be filed pursuant to Section 2(a) of the Registration
Rights Agreement all information which constitutes or could be deemed to
constitute material, non-public information that was previously or is hereafter
provided or disclosed to the Buyer in connection with the transactions
contemplated hereby.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
----------------------------
instructions to its transfer agent to issue certificates, registered in the name
of the Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by the Buyer to the Company upon
conversion of the Debentures (including upon exercise of the Investment Options)
or exercise of the Warrants in accordance with the terms thereof (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the
Conversion Shares and Warrant Shares under the 1933 Act or the date on which the
Conversion Shares and Warrant Shares may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date that can
then be immediately sold, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(f)
hereof (in the case of the Conversion Shares and Warrant Shares, prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act or
the date on which the Conversion Shares and Warrant Shares may be sold pursuant
to Rule 144 without any restriction as to the number of securities as of a
particular date that can then be immediately sold), will be given by the Company
to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way the Buyer's obligations and agreement set
forth in Section 2(g) hereof to comply with all applicable prospectus delivery
requirements, if any, upon re-sale of the Securities. If the Buyer provides the
Company with (i) an opinion of counsel, in form, substance and scope customary
for opinions in
- 18 -
<PAGE>
comparable transactions, to the effect that a public sale or transfer of such
Securities may be made without registration under the 1933 Act and such sale or
transfer is effected or (ii) the Buyer provides reasonable assurances that the
Securities can be sold pursuant to Rule - 144, the Company shall permit the
transfer, and, in the case of the Conversion Shares and Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates, free from any
restrictive legend, in such name and in such denominations as specified by the
Buyer.
6. CONDITIONS TO THE COMPANYS OBLIGATION TO SELL. The obligation of the
----------------------------------------------
Company hereunder to issue and sell the Debentures and Warrants to the Buyer at
the Closing is subject to the satisfaction, at or before the Closing Date, of
each of the following conditions thereto, provided that these conditions are for
the Company's sole benefit and may be waived by the Company at any time in its
sole discretion:
(a) The Buyer shall have executed this Agreement and the Registration
Rights Agreement, and delivered the same to the Company.
(b) The Buyer shall have delivered the Purchase Price in accordance
with Section I (b) above.
(c) The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except for representations and warranties that
speak as of a specific date, which representations and warranties shall be true
and correct as of such date), and the Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied. or complied with by the
Buyer at or prior to the Closing Date.
(d) No litigation, statute, rule, regulation, executive order, decree,
ruling, injunction, action or proceeding shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which questions the validity of, or challenges
or prohibits the consummation of any of the transactions contemplated by this
Agreement.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE. The obligation
-------------------------------------------------
of the Buyer hereunder to purchase the Debentures and Warrants at the Closing is
subject to the satisfaction, at or before the Closing Date, of each of the
following conditions, provided that these conditions are for the Buyer's sole
benefit and may be waived by the Buyer at any time in its sole discretion:
(a) The Company shall have executed this Agreement and the Registration
Rights Agreement, and delivered the same to the Buyer.
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<PAGE>
(b) The Company shall have delivered to the Buyer duly executed
Debentures and Warrants in accordance with Section 1 (b) above.
(c) The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Buyer, shall have been delivered to and acknowledged in
writing by the Company's Transfer Agent.
(d) The representations and warranties of the Company shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at such time (except for representations and warranties that
speak as of a specific date, which representations and warranties shall be true
and correct as of such date) and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyer shall have received a
certificate or certificates, executed by the chief executive officer of the
Company, dated as of the Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by the Buyer including, but not
limited to certificates with respect to the Company's Certificate of
Incorporation, By-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
(e) No litigation, statute, rule, regulation, executive order, decree,
ruling, injunction, action or proceeding shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which questions the validity of, or challenges
or prohibits the consummation of any of the transactions contemplated by this
Agreement.
(f) The Conversion Shares and the Warrant Shares shall have been
authorized for quotation on the OTC BB and trading in the Common Stock on the
OTC BB shall not have been suspended by the SEC or the OTC BB.
(g) The Buyer shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "D"
attached hereto.
(h) The Buyer shall have received an officer's certificate described in
Section 3(c) above, dated as of the Closing Date.
(i) No material adverse change or development in the business,
operations, properties, prospects, financial condition, or operations of the
Company shall have occurred since the date hereof.
- 20 -
<PAGE>
8. GOVERNING LAW; MISCELLANEOUS.
-------------------------------
(a) GOVERNING LAW, JURISDICTION. This Agreement shall be governed
------------------------------
by and construed in acc6rdance with the laws of the State of Delaware applicable
to contracts made and to be performed in the State of Delaware (without regard
to principles of conflict of laws). Both parties irrevocably consent to the
jurisdiction of the United States federal courts and the state courts located in
Delaware in any suit or proceeding based on or arising under this Agreement, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby and irrevocably agree that all claims in respect of such suit
or proceeding may be determined in such courts. Both parties irrevocably waive
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. Both parties further agree that service of process upon a party
mailed by first class mail shall be deemed in every respect effective service of
process upon the party in any such suit or proceeding. Both parties agree that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
(b) COUNTERPARTS; SIGNATURES BY FACSIMILE.This Agreement may be
-----------------------------------------
executed in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. This Agreement, once executed by
a party, may be delivered to the other party hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
(c) HEADINGS.The headings of this Agreement are for convenience of
---------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) SEVERABILITY.If any provision of this Agreement shall be invalid or
-------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(e) ENTIRE AGREEMENT; AMENDMENTS.This Agreement and the instruments
-------------------------------
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
(f) NOTICES. Any notices required or permitted to be given under
--------
the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized
- 21 -
<PAGE>
overnight delivery service) or by facsimile, in each case addressed to a party.
The addresses for such communications shall be:
If to the Company:
Nettaxi, Inc.
2165 S. Bascom Avenue
Campbell, California 95008
Attention: Chairman and Chief Executive officer
Facsimile: (408) 879-9907
With copy to:
Silicon Valley Law Group
50 West San Fernando Street
Suite 950
San Jose, California 95113
Attention: James C. Chapman, Esq.
Facsimile: (408) 286-1400
If to the Buyer: To the address set forth immediately below the Buyer's
name on the signature pages hereto. Each party shall provide notice to the other
party of any change in address.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
-------------------------
and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor the Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2( the Buyer may assign its
rights hereunder to any person that purchases ten percent (10%) or more of the
original principal amount of Debentures issued pursuant hereto (or Conversion
Shares underlying ten percent (10%) or more of the Debentures based upon the
Conversion Price then in effect on the date of transfer) in a private
transaction from the Buyer or to any of its "affiliates," as that term is
defined under the 1934 Act, without the consent of the Company or to any other
person or entity with the consent of the Company. This provision shall not limit
the Buyer's right to transfer the Securities pursuant to the terms of this
Agreement, the Debentures, the Warrants or the Registration Rights Agreement or
to assign the Buyer's rights hereunder or thereunder to any such transferee.
(h) THIRD PARTY BENEFICIARIES. This Agreement is intended for the
----------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
(i) SURVIVAL. The representations and warranties of the Company and
---------
the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive
the Closing
- 22 -
<PAGE>
'hereunder until the Buyer no longer beneficially owns any Securities,
notwithstanding any due diligence investigation conducted by or on behalf of the
Buyer. The Company agrees to indemnify and hold harmless the Buyer and each of
its officers, directors, employees, partners, members, affiliates and 'agents
(including investment managers) for loss or damage arising as a result of or
related to any breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3 and 4 hereof
or any of its covenants and obligations under this Agreement or the Registration
Rights Agreement, including advancement of expenses as they are incurred.
(j) PUBLICITY. The Company and the Buyer shall have the right to
----------
review a reasonable period of time before issuance of any press releases,
filings with the SEC, the NASD or any stock exchange or interdealer quotation
system, or any other public statements, with respect to the transactions
contemplated hereby; provided, however,that the Company shall be entitled,
-------------------
without the prior approval of the Buyer, to make any press release or public
filings with respect to such transactions as is required by applicable law and
regulations (although the Buyer shall be consulted by the Company in connection
with any such press release prior to its release and shall be provided with a
copy thereof and be given. an opportunity to comment thereon).
(k) FURTHER ASSURANCES. Each party shall do and perform, or cause
--------------------
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(1) NO STRICT CONSTRUCTION. The language used in this Agreement
-------------------------
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party,
(m) EQUITABLE RELIEF. The Company acknowledges that a breach by it
------------------
of its obligations hereunder will cause irreparable harm to the Buyer by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations hereunder (including, but not limited to, its obligations pursuant
to Section 5 hereof) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that the
Buyer shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate transfer, without the
necessity of showing economic loss and without any bond or other security being
required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 23 -
<PAGE>
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
NETTAXI, INC.
By: /s/ Robert Rositano, Jr.
----------------------
Robert Rositano, Jr.
Chairman and Chief Executive Officer
ROC INTERNATIONAL INVESTORS, LDC
BY: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: ________________
Steve Katznelson
Managing Director
RESIDENCE: Cayman Islands
ADDRESS.
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 ST. Asaphs Road
Bala Cynwood, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
Principal Amount of Debentures: $5,000,000
Number of Warrants: 150,000
Aggregate Purchase Price: ss'000,000
- 24 -
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS
OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED AS OF
MARCH 31,1999, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN FORM, SUBSTANCE
AND SCOPE, CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SUCH ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.
Right to Purchase 150,000 Shares of Common Stock, par value $0.001 per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC INTERNATIONAL INVESTORS, LDC
or its registered assigns, is entitled to purchase from Nettaxi, Inc., a Nevada
corporation (the "Company"), at any time or from time to time during the period
specified in Paragraph 2 hereof, One Hundred Fifty Thousand (150,000) fully paid
and nonassessable shares of the Company's Common Stock, par value $0.001 per
share (the "Common Stock"), at an exercise price of $12.375 per share (the
"Exercise Price"). The term "Warrant Shares," as used herein, refers to the
shares of Common Stock purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in Paragraph 4 hereof. The
term Warrants means this Warrant and the other warrants issued pursuant to that
certain Securities Purchase Agreement, dated March 31, 1999, by and among the
Company and the Buyers listed on the execution page thereof (the "Securities
Purchase Agreement").
<PAGE>
This Warrant is subject to the following terms, provisions, and conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
--------------------------------------------------------------------
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as' defined in Section 11 (c) below) for the
Warrant Shares specified in the Exercise Agreement-. The Warrant Shares so
purchased shall be deemed to be issued to the holder hereof or such holder's
designee, as the record owner of such shares, as of the close of business on the
date on which this Warrant shall have been surrendered, the completed Exercise
Agreement shall have been delivered, and payment shall have been made for such
shares as set forth above. Certificates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
three (3) business days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by
the holder hereof and shall be registered in the name of such holder or such
other name as shall be designated by such holder. If this Warrant shall have
been exercised only in part, then, unless this Warrant has expired, the Company
shall, at its expense, at the time of delivery of such certificates, deliver to
the holder a new Warrant representing the number of shares with respect to which
this Warrant shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in no event shall
the Holder of this Warrant be entitled to exercise a number of Warrants (or
portions thereof) in excess of the number of Warrants (or portions thereof) upon
exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including the Debentures (as defined in the
Securities Purchase Agreement)) subject to a limitation on conversion or
exercise analogous to the limitation contained herein) and (ii) the number of
shares of Common Stock issuable upon exercise of the Warrants (or portions
thereof) with respect to which the determination described herein is being made,
would result in beneficial ownership by the Holder and its affiliates of more
than 4.9% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(i) hereof.
- 2 -
<PAGE>
2. Period of Exercise. This Warrant is exercisable at any time or
---------------------
from time to time on or after the date on which this Warrant is issued and
delivered pursuant to the terms of the Securities Purchase Agreement (the "Issue
Date") and before 5:00 p.m., New York City time on the fifth (5') anniversary of
the Issue Date(the "Exercise Period").
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants
-----------------------------------
and agrees as follows:
(a) SHARES TO BE FULLYPAID. All Warrant Shares will, upon issuance
-------------------
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.
(b) RESERVATION OF SHARES. During the Exercise Period, the Company
------------------------
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the full exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the listing of the
-------
shares of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by amendment
----------------------------
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding upon any
-------------------------
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
- 3 -
<PAGE>
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the
-------------------------
Exercise Price and the number of Warrant Shares shall be subject to adjustment
from time to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up to the
nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON ISSUANCE OF
-------------------------------------------------------------------
COMMON STOCK. Except as otherwise provided in Paragraphs 4(c) and 4(e)
- - --------------
hereof, if and whenever on or after the Issue Date, the Company issues or sells,
or in accordance with Paragraph 4(b) hereof is deemed to have issued or sold,
any shares of Common Stock for no consideration or for a consideration per share
(before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Market Price (as
hereinafter defined) on the date of issuance (or deemed issuance) of such Common
Stock (a "Dilutive Issuance"), then immediately upon the Dilutive Issuance, the
Exercise Price will be reduced to a price determined by multiplying the Exercise
Price in effect immediately prior to the Dilutive Issuance by a fraction, (i)
the numerator of which is an amount equal to the sum of (x) the number of shares
of Common Stock actually outstanding immediately prior to the Dilutive Issuance,
plus (y) the quotient of the aggregate consideration, calculated as set forth in
Paragraph 4(b) hereof, received by the Company upon such Dilutive Issuance
divided by the Market Price in effect immediately prior to the Dilutive
Issuance, and (ii) the denominator of which is the total number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after the
Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes of
-----------------------------------------------
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any manner
----------------------------------
issues or grants any warrants, rights or options, whether or not immediately
exercisable, to subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("Convertible Securities")
(such warrants, rights and options to purchase Common Stock or Convertible
Securities are hereinafter referred to as "Options") and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than
the Market Price on the date of issuance or grant of such Options, then the
maximum total number of shares of Common Stock issuable upon the exercise of all
such Options will, as of the date of the issuance or grant of such Options, be
deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon the exercise of such Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of all such Options,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the exercise of all such Options, plus, in the case of
Convertible Securities issuable upon the exercise of such Options, the minimum
aggregate amount of additional consideration payable upon the conversion or
exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the
- 4 -
<PAGE>
maximum total number of shares of Common Stock issuable upon the exercise of all
such Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Options or upon
the conversion or exchange of Convertible Securities issuable upon exercise of
such Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Company in any
--------------------------------------
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Market Price on the date of issuance of
such Convertible Securities, then the maximum total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon such conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. Ifthere is a
------------------------------------------------ --
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
(IV) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
--------------------------------------------------------------
SECURITIES. If, in any case, the total number of shares of Common Stock
- - ----------
issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted to the
Exercise Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
- 5 -
<PAGE>
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
-----------------------------------------
Options or Convertible Securities are issued, granted or sold for cash, the
consideration received therefor for purposes of this Warrant will be the amount
received by the Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid or
incurred by the Company in connection with such issuance, grant or sale. In case
any Common Stock, Options or Convertible Securities are issued or sold for a
consideration part or all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible -Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
(vi) EXCEPTIONS-TO ADJUSTMENT OF EXERCISE PRICE. No adjustment to
---------------------------------------------
the Exercise Price will be made (i) upon the exercise of any warrants, options
or convertible -securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan of the Company now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; (iii) upon the exercise of the Warrants; or (iv) upon the issuance of
7,000,000 shares of Common Stock in connection with the Company's acquisition of
Plus Net, Inc.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Company at
---------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of the
-----------------------------------
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
- 6 -
<PAGE>
(e) CONSOLIDATION, MERGER OR SALE. In case of any consolidation of
------------------------------
the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this Warrant in lieu
of the shares of Common Stock immediately theretofore acquirable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shards of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall declare or
-------------------------
make any distribution of its assets (including cash) to holders of Common Stock
as a partial liquidating dividend, by way of return of capital or otherwise,
then, after the date of record for determining stockholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event which
-----------------------
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of the
-----------------------------------------
Exercise Price shall be made in an amount of less than I% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1 % of such
Exercise Price.
- 7 -
<PAGE>
(i) NO FRACTIONAL SHARES. No fractional shares of Common Stock are
----------------------
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
OTHER NOTICES. In case at any time:
- - ---------------
(i) the Company shall declare any dividend upon the Common Stock
payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the holders
of the Common Stock any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization of the Company, or
reclassification of the Common Stock, or consolidation or merger of the Company
with or into, or sale of all or substantially all its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) Certain Events. If any event occurs of the type contemplated
by the adjustment provisions of this Paragraph 4 but not expressly provided for
by such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the Holder
shall be neither enhanced nor diminished by such event.
- 8 -
<PAGE>
(1) CERTAIN DEFINITIONS.
---------------------
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean the number of
------------------------------------
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
(ii) "MARKET PRICE," as of any date, (i) means the average of the
----------------
last reported sale prices for the shares of Common Stock on the Over-the-Counter
Bulletin Board (the "OTC BB") for the five (5) trading days immediately
preceding such date as reported by I Bloomberg, L.P. ("Bloomberg"), or (ii) if
the OTC BB is not the principal trading market for the shares of Common Stock,
the average of the last reported sale prices on the principal trading market for
the Common Stock during the same period as reported by Bloomberg, or (iii) if
market value cannot be calculated as of such date on any of the foregoing bases,
the Market Price shall be the fair market value as reasonably determined in good
faith by (a) the Board of Directors of the Corporation or, at the option of a
majority-in-interest of the holders of the outstanding Warrants by (b) an
independent investment bank of nationally recognized standing in the valuation
of businesses similar to the business of the corporation. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "COMMON STOCK," for purposes of this Paragraph 4, includes
----------------
the Common Stock, par value $0.001 per share, and any additional class of stock
of the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, par value $0.001 per share, in respect of
which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization, .
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon
-----------
the exercise Of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. NO RIGHTS O R LIABILITIES AS A SHAREHOLDER. This Warrant shall
---------------------------------------------
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
- 9 -
<PAGE>
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFER, EXCHANGE, AND REPLACEMENT OF WARRANT.
----------------------------------------------------
(a) RESTRICTION ON TRANSFER. This Warrant and the rights granted to
------------------------
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the. owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in
Paragraph 8 are assignable only in accordance with the provisions of that
certain Registration Rights Agreement, dated as of March 31, 1999, by and among
the Company and the other signatories thereto (the "Registration Rights
Agreement".).
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This Warrant
--------------------------------------------------
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
(e) REPLACEMENT OF WARRANT Upon receipt of evidence reasonably
------------------------
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION, PAYMENT OF EXPENSES. Upon the surrender of this
------------------------------------
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.
(e) REGISTER. The Company shall maintain, at its principal
---------
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
- 10 -
<PAGE>
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the
------------------------------------------
time of the surrender of this Warrant in connection with any exercise, transfer,
or exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, famish to the
Company a written opinion of counsel, which opinion and counsel are acceptable
to the Company, to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable to
the Company and (iii) that the transferee be an "accredited investor" as defined
in Rule 5 0 1 (a) promulgated under the Securities Act; provided that no such
opinion, letter or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act. The
first holder of this Warrant, by taking and holding the same, represents to the
Company that such holder is acquiring this Warrant for investment and not with a
view to the distribution thereof
8. REGISTRATION RIGHTS. The initial holder of this Warrant (and
---------------------
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in Section 2 of the
Registration Rights Agreement.
9. NOTICES. All notices, requests, and other communications
--------
required or permitted to be given or delivered hereunder to the holder of this
Warrant shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to such holder at the address shown for such holder on
the books of the Company, or at such other address as shall have been famished
to the Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 2165 S. Bascom Avenue,
Campbell, California 95008, Attention: Chief Executive Officer at such other
address as shall have been famished to the holder of this Warrant by notice from
the Company. Any such notice, request, or other communication may be sent by
facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address of
such person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.
10. GOVERNING LAW. This Warrant shall be governed by and construed
---------------
in accordance with the laws of the State of Delaware applicable to contracts
made and to be performed in the State of Delaware (without regard to principles
of conflict of laws). The Company and the
- 11 -
<PAGE>
holder irrevocably consent to the jurisdiction of the United States federal
courts and the state courts located in Delaware in any suit or proceeding based
on or arising under this Warrant, the agreements entered into in connection
herewith or the transactions contemplated hereby or thereby and irrevocably
*agree that all claims in respect of such suit or proceeding may be determined
in such courts. The Company and the holder irrevocably waive the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
and the holder further agree that service of process upon a party mailed by
first class mail shall be deemed in every respect effective service of process
upon the party in any such suit or proceeding. Nothing herein shall affect the
right of the Company or the holder hereof to serve process in any other manner
permitted by law. The Company and the holder agree that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
11. MISCELLANEOUS.
--------------
(a) AMENDMENTS. This Warrant and any provision hereof may only be
-----------
amended by an instrument in writing signed by the Company and the holder hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the several
----------------------
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof
(c) CASHLESS EXERCISE. Notwithstanding anything to the contrary
-------------------
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by presentation and surrender of
this Warrant to the Company at its principal executive offices with a written
notice of the holder's intention to effect a cashless exercise, including a
calculation of the number of shares of Common Stock to be issued upon such
exercise in accordance with the terms hereof (a "Cashless Exercise"). In the
event of a Cashless Exercise, in lieu of paying the Exercise Price in cash, the
holder shall surrender this Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be the then current
Market Price per share of Common Stock.
- 12 -
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
NETTAXI, INC.
By: ______________________
Robert Rositano, Jr.
Chairman and Chief Executive
Officer
Dated as of March 3 1, 1999
- 13 -
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ______ __, 199_
To: Nettaxi, Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ______ shares of Common Stock covered by such
Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in
the amount of, or, if the resale of such Common Stock by the undersigned is
not currently registered pursuant to an effective registration statement under
the Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 1 l(c) of
the Warrant) equal to $ ____________. Please issue a certificate or
certificates for such shares of Common Stock in the name of and pay any cash for
any fractional share to:
Name: _______________________
Signature: __________________
Address: ____________________
____________________
Note: The above signature should correspond
Exactly with the name on the face of the
within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth herein below, to:
Name of Assignee Address No of Shares
- - ------------------ ------- --------------
, and hereby irrevocably constitutes and appoints _______________________as
agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: ______ __, 199_
In the presence of:
__________________
Name: __________________
Signature: __________________
Title of Signing Officer or Agent (if any):
Address: __________________
__________________
Note: The above signature should correspond
exactly with the name on the face of
the within Warrant.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March 31,
1999, by and among Nettaxi, Inc., a Nevada corporation, with its headquarters
located at 2165 S. Bascom Avenue, Campbell, California 95008 (the "Company"),
and each of the undersigned (together with their respective affiliates and any
permitted assignee or transferee of all of their respective rights hereunder,
the "INITIAL INVESTORS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) convertible debentures
(the "DEBENTURES") in the aggregate principal amount of Five Million Dollars
($5,000,000) which are convertible into shares of the Company's common stock,
par value $0.001 per share (the "COMMON STOCK"), upon the terms and subject to
the limitations and conditions set forth in the Debentures; and (ii) warrants
(the "WARRANTS") to acquire 150,000 shares of Common Stock upon the terms and
conditions and subject to the limitations and conditions set forth in the
Warrants; and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Initial Investors hereby agree as follows:
1. DEFINITIONS.
------------
a. As used in this Agreement, the following terms shall have the
following
meanings:
<PAGE>
(i) "INVESTORS" means the Initial Investors and any transferee or
assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," AND "REGISTRATION" refer to a
registration effected by preparing and filing a Registration Statement
or Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("RULE 415"), and the declaration or
ordering of effectiveness of such Registration Statement by the United
States Securities and Exchange Commission (the "SEC").
(iii) "REGISTRABLE SECURITIES" means (A) the Conversion Shares
issued or issuable upon conversion of or otherwise pursuant to the
Debentures (including, without -limitation, shares of Common Stock
issued or issuable upon exercise of the Investment Options (as defined
in the Debentures), Damage Shares (as defined in the Debentures) and
shares of Common Stock issued or issuable in respect of interest on or
in redemption of the Debentures in accordance with the terms thereof);
(B) the Warrant Shares issued or issuable upon exercise of or
otherwise pursuant to the Warrants; and (C) any shares of capital
stock issued or issuable as a dividend on or in exchange for or
otherwise with respect to any of the foregoing (including, without
limitation, any shares issued or issuable pursuant to Section 2(c)
hereof).
(iv) "REGISTRATION STATEMENT(S)" means a registration
statement(s) of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
-------------
a. MANDATORY REGISTRATION. The Company shall use its best efforts to
-----------------------
prepare and file with the SEC a Registration Statement on Form S- I
covering the resale of the Registrable Securities as soon as practicable
after the date hereof, but in any event not later than the date (the
"FILING DATE") -which is thirty (30) days after the date of the Closing
under the Securities Purchase Agreement (the "Closing Date"). Such
Registration Statement, to the extent allowable under the 1933 Act and the
rules and regulations promulgated thereunder (including Rule 416), shall
state that such Registration Statement also covers such indeterminate
number Of additional shares of Common Stock as may become issuable upon
conversion of or otherwise pursuant to the Debentures'(including, but not
limited to, shares issued or issuable upon exercise of the Investment
Options) and upon exercise of or otherwise pursuant to the Warrants to
prevent dilution resulting from stock splits, stock dividends or similar
transactions. The number of shares of Common Stock initially included in
such Registration Statement shall be no less than two (2) times the sum of
(i) the aggregate number of Conversion Shares that are then issuable upon
conversion of or otherwise pursuant to the Debentures (including upon
exercise of the
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Investment Options thereunder) (in each case based on the lesser of the Variable
Conversion Price and the Fixed Conversion Price (each as defined in the
Debentures) then in effect), and (ii) the number of Warrant Shares issuable upon
exercise of or otherwise pursuant to the Warrants, in each case without regard
to any limitation on the Investor's ability to convert the Debentures or
exercise the Warrants. The Company acknowledges that the number of shares
initially included in the Registration Statement represents a good faith
estimate of the maximum number of shares issuable upon conversion of or
otherwise pursuant to the Debentures (including upon exercise of the Investment
Options thereunder) and upon exercise of the Warrants. The Registrable
Securities included in the Registration Statement shall be allocated to the
Investors as set forth in Section 11 (k) hereof. The Registration Statement (and
each amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided to (and subject to the approval of) the
Initial Investors and its counsel prior to its filing or other submission.
B. UNDERWRITTEN OFFERING. If any offering pursuant to ~
-----------------------
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of a
majority-in-interest of the Initial Investors, shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company. In the event that any
Investors elect not to participate in such underwritten offering, the
Registration Statement covering all of the Registrable Securities shall contain
appropriate plans of distribution reasonably satisfactory to the Investors
participating in such underwritten offering and the Investors electing not to
participate in such underwritten offering (including, without limitation, the
ability of nonparticipating Investors to sell from time to time and at any time
during the effectiveness of such Registration Statement).
C. PAYMENTS BY THE COMPANY. The Company shall use its best efforts
-------------------------
to obtain effectiveness of the Registration Statement as soon as practicable,
but in any event not later than the 105' day after the Closing Date (the
"REGISTRATION DEADLINE"). If (i) the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not filed with the SEC by the Filing Date or declared effective
by the SEC on or before the Registration Deadline, or (ii) after the
Registration Statement has been declared effective by the SEC, sales of all of
the Registrable Securities cannot be made pursuant to the Registration Statement
during the Registration Period (as defined in Section 3(a)), or (iii) the Common
Stock is not listed or included for quotation on the Nasdaq National Market (the
"NNM"), the Nasdaq SmallCap Market (the "NASDAQ SMALLCAP"), the New York Stock
Exchange (the "NYSE") OR the American Stock Exchange (the "AMEX") after being so
listed or included for quotation on one of such markets, or (iv) the Common
Stock ceases to be traded on the Over-the-Counter Bulletin Board (the "OTC BB")
prior to being listed or included for quotation on one of the aforementioned
markets, then the Company will make payments to the Investors in such amounts
and at such times as shall be determined pursuant to this Section 2(c) as
partial relief for the damages to the Investors by reason of any such delay in
or reduction of their ability to sell the Registrable Securities (which remedy
shall not be exclusive of any other remedies available at law or in equity). The
Company shall pay to each Investor an amount
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<PAGE>
equal to the product of (i) the aggregate principal amount of the Debentures
held by such Investor (including, without limitation, Debentures that have been
converted into Conversion Shares then held by such Investor) (the "AGGREGATE
PRINCIPAL AMOUNT"), multiplied by (ii) the Applicable Percentage (as defined
below), multiplied by (iii) the sum of (A) the number of months (prorated for
partial months) after the Filing Date and prior to the date the Registration
Statement required to be filed pursuant to Section 2(a) is filed with the SEC,
plus (B) the number of months (prorated for partial months) after the
Registration Deadline and prior to the date the Registration Statement filed
pursuant to Section 2(a) is declared effective by the SEC (provided, however,
that there shall be excluded from such period any delays which are solely
attributable to (i) the Investors' failure to review any Registration Statement
(or any amendment or supplement thereto, or any request for acceleration of
effectiveness thereof) and provide comments to the Company within three (3)
business days of receipt thereof pursuant to Section -2(a) hereof, (ii) the
Investors' failure to timely provide information to the Company in -accordance
with Section 4(a) hereof, or (iii) changes (other than corrections of Company
mistakes with respect to information previously provided by the Investors)
required by the Investors in the Registration Statement with respect to
information relating to the Investors, including, without limitation, changes to
the plan of distribution), plus (C) the number of months (prorated for partial
months) that sales of all of the Registrable Securities cannot be made pursuant
to the Registration Statement after the Registration Statement has been declared
effective and during the Registration Period (including, without limitation,
when sales cannot be made by reason of the Company's failure to properly
supplement or amend the prospectus included therein in accordance with the terms
of this Agreement (including Section 3(b) hereof or otherwise), but excluding
any days during an Allowed Delay (as defined in Section 3(f)); and (D) the
number of months (prorated for partial months) that the Common Stock is not
listed or included for quotation on the OTC BB, the NNM, Nasdaq Small Cap, NYSE
or AMEX or that trading thereon is halted after the Registration Statement has
been declared effective. The term "APPLICABLE PERCENTAGE" means two hundredths
(.02). For example, if the Registration Statement is not effective by the
Registration Deadline, the Company would pay $20,000 per month for each
$1,000,000 of Aggregate Principal Amount until the Registration Statement
becomes effective. Such amounts shall be paid in cash or, at each Investor's
option, may be added to the principal amount of the Debentures and thereafter be
convertible into Common Stock at the "CONVERSION PRICE" (as defined in the
Debentures) in accordance with the terms of the Debentures. Any shares of Common
Stock issued upon conversion of such amounts shall be Registrable Securities. If
the Investor desires to convert the amounts due hereunder into Registrable
Securities, it shall so notify the Company in writing within two (2) business
days of the date on which such amounts are first payable in cash and such
amounts shall be so convertible (pursuant to the mechanics set forth in the
Debentures), beginning on the last day upon which the cash amount would
otherwise be due in accordance with the following sentence. Payments of cash
pursuant hereto shall be made within five (5) days after the end of each period
that gives rise to such obligation, provided that, if any such period extends
for more than thirty (30) days, interim payments shall be made for each such
thirty (30) day period.
D. PIGGY-BACK REGISTRATIONS. Subject to the last sentence of this
--------------------------
Section 2(d), if at any time prior to the expiration of the Registration Period
(as hereinafter defined) the
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<PAGE>
Company shall determine to file with the SEC a Registration Statement relating
to an offering for its own account or the account of others under the 1933 Act
of any of its equity securities (other than on Form S-4 or Form S-8 or their
then equivalents relating to equity securities to be issued solely in connection
with any acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans), the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within fifteen (15) days after
the effective date of such notice, such Investor shall so request in writing,
the Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering for the account of the
Company the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock ' which may be included in the Registration
Statement because, in such underwriter(s)' judgment, marketing or other factors
dictate such limitation is necessary to facilitate public distribution, then the
Company shall be obligated to include in such Registration Statement only such
limited portion of the Registrable Securities with respect to which such
Investor has requested inclusion hereunder as the underwriter shall permit. Any
exclusion of Registrable Securities shall be made pro rata among the Investors
seeking to include Registrable Securities in proportion to the number of
Registrable Securities sought to be included by such Investors; provided,
---------
howeverthat the Company shall not exclude any Registrable Securities unless the
- - -----------
Company has first excluded all outstanding securities, the holders of which are
not entitled to inclusion of such securities in such Registration Statement or
are not entitled to pro rata inclusion with the Registrable Securities; and
provided,further howeverthat, after giving effect to the immediately preceding
- - -------- ------- -----------
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering. Notwithstanding anything to the contrary set forth herein, the
registration rights of the Investors pursuant to this Section 2(d) shall only be
available in the event the Company fails to timely file, obtain effectiveness or
maintain effectiveness of any Registration Statement to be filed pursuant to
Section 2(a) in accordance with the terms of this Agreement.
E. ELIGIBILITY FOR FORM S-1. CONVERSION TO FORM S-3. The Company
----------------------------------------------------
represents and warrants that it meets the requirements for the use of Form S-1
for registration of the sale by the Initial Investors and any other Investors of
the Registrable Securities. Upon filing the Registration Statement required
pursuant to Section 2(a), the Company agrees to timely file a registration
statement on Form 9-A so as to obtain effectiveness thereof on or prior to the
declaration of effectiveness of the Registration Statement to be filed pursuant
hereto and at all
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<PAGE>
times following such effectiveness to file all reports required to be filed by
the Company with the SEC pursuant to Section 13 of the Securities Exchange Act
of 1934, as amended (the "1934 ACT"). The Company further agrees to file all
reports required to be filed by the Company with the SEC in a timely manner so
as to become eligible, and thereafter to maintain its eligibility, for the use
of Form S-3. Not later than ten (10) days after the Company first meets the
registration eligibility and transaction requirements for the use of Form S-3
(or any successor form) for registration of the offer and sale by the Initial
Investors and any other investor of Registrable Securities, the Company shall
file a Registration Statement on Form S-3 (or such successor form) with respect
to the Registrable Securities covered by the Registration Statement on Form S- I
filed pursuant to Section 2(a) (and include in such Registration Statement on
Form S-3 the information required by Rule 429 under the 1933 Act) or convert the
Registration Statement on Form S-1 filed pursuant to Section 2(a) to a Form S-3
pursuant to Rule 429 under the 1933 Act and use its best efforts to have such
Registration Statement (or such amendment) declared -effective as soon as
practicable thereafter.
3. OBLIGATIONS OF THE COMPANY.
------------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly and file with the SEC the
Registration Statement required by Section 2(a) as soon as practicable
after the Closing Date (but in no event later than the Filing Date), and
thereafter cause such Registration Statement relating to Registrable
Securities to become effective as soon as possible after such filing (but
in no event later than the Registration Deadline), and keep the
Registration Statement (and, following the effectiveness of the
Registration Statement on Form S-3 referred to in Section 2(e), such later
Registration Statement) effective pursuant to Rule 415 at all times until
such date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (H) the date on which the Registrable
Securities (in the opinion of counsel to the Initial Investors) may be
immediately sold to the public without registration or restriction
(including without limitation as to volume by each holder thereof) under
the 1933 Act (the "REGISTRATION PERIOD"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein, or necessary to
make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statements and the prospectus used in connection with the Registration
Statements as may be necessary to keep the Registration Statements
effective at all times during the Registration Period, and, during such
period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by the
Registration Statements until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the
Registration Statements. In the
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<PAGE>
event the number of shares available under a Registration Statement filed
pursuant to this Agreement is, on any trading day (such trading day being
the "REGISTRATION TRIGGER DATE"), INSUFFICIENT to cover 135% of the
Registrable Securities issued or issuable upon conversion of or otherwise
pursuant to the Debentures (including upon exercise of the Investment
Options thereunder) (in each case based on the lesser of the Variable
Conversion Price and the Fixed Conversion Price (each as defined in the
Debentures) then in effect) and upon exercise of or otherwise pursuant to
the Warrants, in each case without giving effect to any limitations on the
Investor's ability to convert the Debentures or exercise the Warrants, the
Company shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both,
so as to cover 200% of the Registrable Securities so issued or issuable
(without giving effective to any limitations on conversion or exercise
contained in the Debentures or Warrants, as applicable) as of the
Registration Trigger Date, in each case, as soon -as practicable, but in
any event within 15 days after the Registration Trigger Date (based on-the
market price of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall use its best efforts
to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing there of, but in any
event within 90 days after the Registration Trigger Date. The provisions of
Section 2(c) above shall be applicable with respect to the Company's
obligations under this Section 3(b).
c. The Company shall furnish to each Investor whose Registrable
Securities are included in a Registration Statement and one legal counsel
for all of the Investors (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the Company, one
copy of each Registration Statement and any amendment thereto, each
preliminary prospectus and prospectus and each amendment or supplement
thereto, and, in the case of the Registration Statement referred to in
Section 2(a), each letter written by or on behalf of the Company to the SEC
or the staff of the SEC, and each item of correspondence from the SEC or
the staff of the SEC, in each case relating to such Registration Statement
(other than any portion of any thereof which contains information for which
the Company has sought confidential treatment), and (ii) such number of
copies of a prospectus, including a preliminary prospectus, and all
amendments and supplements thereto and such other documents as such
Investor may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such Investor. The Company will
immediately notify each Investor by facsimile of the effectiveness of each
Registration Statement or any post-effective amendment. The Company will
promptly respond to any and all comments received from the SEC, with a view
towards causing each Registration Statement or any amendment thereto to be
declared effective by the SEC as soon as practicable and shall file an
acceleration request as soon as practicable following the resolution or
clearance of all SEC comments or, if applicable, following notification by
the SEC that any such Registration Statement or any amendment thereto will
not be subject to review,
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statements
under such other securities or "blue sky" laws of such jurisdictions in the
United States as the Investors who hold a majority in interest of the
Registrable Securities being offered reasonably request, (ii) prepare and
file in
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<PAGE>
those jurisdictions such amendments (including post-effective amendments)
and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration
Period, (iii) take such other actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary
or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required in
-------- -------
connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), (b) subject itself to general taxation
in any such jurisdiction, (c) file a general consent to service of process
in any such jurisdiction, (d) provide any undertakings that cause the
Company undue expense or burden, or (e) make any change in its charter or
bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. In the event Investors who hold a majority-in- interest of the
Registrable Securities being offered in the offering (with the approval of
a majority-in-interest of the Initial Investors) select underwriters for
the offering, the Company shall enter into and perform its obligations
under an underwriting agreement, in usual and customary form, including,
without limitation, customary indemnification and contribution obligations,
with the underwriters of such offering.
f. As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor of the happening of any event, of which
the Company has knowledge, as a result of which the prospectus included in
any Registration Statement, as then in effect, includes an untrue statement
of a material fact or omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and use its best efforts promptly to prepare a supplement or amendment to
any Registration Statement to correct such untrue statement or omission,
and deliver such number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request; provided that, for not
more than ten (10) consecutive trading days (or a total of not more than
thirty (3 0) trading days in any twelve (12) month period), the Company may
delay the disclosure of material non-public information concerning the
Company (as well as prospectus or Registration Statement updating) the
disclosure of which at the time is not, in the good faith opinion of the
Company, in the best interests of the Company (an "ALLOWED DELAY");
provided, further, that the Company shall promptly (i) notify the Investors
in writing of the existence of (but in no event, without the prior written
consent of an Investor, shall the Company disclose to such investor any of
the facts or circumstances regarding) material non-public information
giving rise to an Allowed Delay and (ii) advise the Investors in writing to
cease all sales under such Registration Statement until the end of the
Allowed Delay. Upon expiration of the Allowed Delay, the Company shall
again be bound by the first sentence of this Section 3(f) with respect to
the information giving rise thereto.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of any Registration
Statement, and, if such an order is issued, to obtain the withdrawal of
such order at the earliest possible moment and to notify each
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<PAGE>
Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance of
such order and the resolution thereof.
h. The Company shall permit a single firm of counsel designated by the
Initial Investors to review such Registration Statement and all amendments
and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing
with the SEC, and not file any document in a form to which such counsel
reasonably objects and will not request acceleration of such Registration
Statement without prior notice to such counsel. The sections of such
Registration Statement covering information with respect to the Investors,
the Investor's beneficial ownership of securities of the Company or the
Investors intended method of, disposition of Registrable Securities shall
conform to the information provided to the Company by each of the
Investors.
i. The Company shall make generally available to its security holders
as soon as practicable, but not later than ninety (90) days after the close
of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 193 3 Act) covering a
twelve-month period beginning not later. than the first day of the
Company's fiscal quarter next following the effective date of the
Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with any Registration Statement or, if such
securities are not being sold by an underwriter, on the date of
effectiveness thereof (i) an opinion, dated as of such date, from counsel
representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the underwriters, if any, and the Investors and (ii)
a letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to
a Registration Statement, (iii) one firm of attorneys and one firm of
accountants or other agents retained by the Initial Investors, (iv) one
firm of attorneys and one firm of accountants or other agents retained by
all other Investors, and (v) one firm of attorneys retained by all such
underwriters (collectively, the "INSPECTORS") all pertinent financial and
other records, and pertinent corporate documents and properties of the
Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably
request for purposes of such due diligence; provided however that each
-------- -------
Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the
Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of
such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement, (b) the
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<PAGE>
release of such Records is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in
such Records to any Inspector until and unless such Inspector shall have
entered into confidentiality agreements (in form and substance satisfactory
to the Company) with the Company with respect thereto, substantially in the
form of this Section 3(k). Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential. Nothing herein (or
in any other confidentiality agreement between the Company and any
Investor) shall be deemed to limit the Investor's ability to sell
Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
1. The Company shall hold in confidence and not make any disclosure of
information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such inf6rmation is necessary to
avoid or correct a misstatement or omission in any Registration Statement,
(iii) the release of such information is ordered pursuant to a subpoena or
other order from a court or governmental body of competent jurisdiction, or
(iv) such information has been made generally available to the public other
than by disclosure in violation of this or any other agreement. The Company
agrees that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to such
Investor prior to making such disclosure, and allow the Investor, at its
expense, to under-take appropriate action to prevent disclosure of, or to
obtain a protective order for, such information.
m. The Company shall (i) cause all the Registrable Securities covered
by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the
Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) to
the extent the securities of the same class or series are not then listed
on a national securities exchange, secure the designation and quotation of
all the Registrable Securities covered by the Registration Statement on the
NNM or the Nasdaq SmallCap or, if not eligible for the NNM or the Nasdaq
SmallCap, on the OTC BB and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with
respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar, which may
be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold Registrable
Securities being offered and the managing underwriter or underwriters, if
any, to facilitate the
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<PAGE>
timely preparation and delivery of certificates (not bearing any
restrictive legends) representing Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in
such denominations or amounts, as the case may be, as the managing
underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and
shall cause legal counsel selected by the Company to deliver, to the
transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement)
an instruction in the form attached hereto as EXHIBIT I and an opinion of
such counsel in the form attached hereto as EXHIBIT 2.
p. At the request of the holders of a majority-in-interest of the
Registrable Securities, the Company shall prepare and file with the SEC
such amendments (including post- effective amendments) and supplements to a
Registration Statement and any prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all
applicable rules and regulations of governmental authorities in connection
therewith (including without limitation the 1933 Act and the 1934 Act and
the rules and regulations promulgated by the SEC).
r. The Company shall not, and shall not agree to, allow the holders of
any securities of the Company to include any of their securities in any
Registration Statement under Section 2(a) hereof or any amendment or
supplement thereto under Section 3(b) hereof without the consent of the
holders of a majority-in-interest of the Registrable Securities. In
addition, the Company shall not offer any securities for its own account or
the account of others in any Registration Statement under Section 2(a)
hereof or any amendment or supplement thereto under Section 3(b) hereof
without the consent of the holders of a majority-in-interest of the
Registrable Securities.
s. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
4. OBLIGATIONS OF THE INVESTORS.
--------------------------------
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of
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<PAGE>
a particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as
shall be reasonably required to effect the registration of such Registrable
Securities after shall execute such documents in connection with such
registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by
the Company in connection with the preparation and filing of the
Registration Statements hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration Statements.
c. In the event Investors holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each
Investor agrees to enter into and perform such Investor's obligations under
an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with
the managing underwriter of such offering and take such other actions as
are reasonably required in order to expedite or facilitate the disposition
of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from such Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3
(f) or 3 (g), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f) or 3(g)
and, if so directed by the Company, such Investor shall deliver to the
Company (at the expense of the Company) or destroy (and deliver to the
Company a certificate of destruction) all copies in such Investor's
possession, of the prospectus covering such Registrable Securities current
at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting
arrangements in usual and customary form entered into by the Company, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the
terms of such underwriting arrangements, and (iii) agrees to pay its pro
rata share of all underwriting discounts and commissions and any expenses
in excess of those payable by the Company pursuant to Section 5 below.
- 12 -
<PAGE>
5. EXPENSES OF REGISTRATION.
---------------------------
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Initial Investors pursuant to Sections 2(b) and 3(h)
hereof shall be borne by the Company, provided that such fees and expenses shall
be counted against the maximum amount of fees and expenses to be reimbursed
pursuant to Section 4(f) of the Security Purchase Agreement. In addition, the
Company shall pay all of the costs and expenses (including legal fees) incurred
in connection with the enforcement of the Investors' rights hereunder.
6. INDEMNIFICATION.
----------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and
each person who controls any Investor within the meaning of the 1933 Act or
the 1934 Act, if any, (iii) any underwriter (as defined in the 1933 Act)
for the Investors, and (iv) the directors, officers, partners, employees
and each person who controls any such underwriter within the meaning of the
1933 Act or the 1934 Act, if any (each, an "INDEMNIFIED PERSON"), against
any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any
regulatory or self- regulatory organization, whether commenced or
threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any
untrue statement or alleged untrue statement of a material fact in a
Registration Statement or the omission or alleged omission to state therein
a material fact required to be stated or necessary to make the statements
therein not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if
used prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading;
or (iii) any violation or alleged violation by the Company of the 1933 Act,
the 1934 Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities (the matters in the foregoing clauses
(i) through (iii) being, collectively, "VIOLATIONS"). Subject to the
restrictions set forth in Section 6(c) with respect to the number of legal
counsel, the Company shall reimburse the Indemnified Person, promptly as
such expenses are incurred and are due and payable, for any reasonable
legal fees or other reasonable expenses incurred by them in
- 13 -
<PAGE>
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim arising out
of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by any
Indemnified Person or underwriter for such Indemnified Person expressly for
use in connection with the preparation of such Registration Statement or
any such amendment thereof or supplement thereto; (ii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not
be unreasonably withheld; and (iii) with respect to any preliminary
prospectus, shall not inure to the benefit of any Indemnified Person if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus, as then
amended or supplemented, such corrected prospectus was timely made
available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on
behalf of the Indemnified Person and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor
is ' participating, each such Investor agrees severally and not jointly to
indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934
Act, any underwriter and any other stockholder selling securities pursuant
to the Registration Statement or any of its directors or officers or any
person who controls such stockholder or underwriter within the meaning of
the 1933 Act or the 1934 Act (collectively and together with an Indemnified
Person, an "INDEMNIFIED PARTY"), against any Claim to which any of them may
become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation by such Investor,
in each case to the extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection
with such Registration Statement; and subject to Section 6(c) such Investor
will reimburse any legal or other expenses (promptly as such expenses are
incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided however,that the
-------- -------
indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not
be unreasonably withheld; provided, further however that the Investor shall
-------- ------- -------
be liable under this Agreement (including this Section 6(b) and Section 7)
for only that amount as does not exceed the net proceeds to such Investor
as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9. Notwithstanding anything
to the contrary contained herein, the indemnification agreement contained
in this Section 6(b) with respect to any preliminary prospectus shall not
inure to the benefit of any Indemnified Party if
- 14 -
<PAGE>
the untrue statement or omission of material fact contained in the preliminary
prospectus was corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party
a written notice of the commencement thereof, and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly
noticed, to assume control of the defense thereof with counsel mutually
satisfactory to the indemnifying party and the Indemnified Person or the
Indemnified Party, as the case may be; providedhowever, that an Indemnified
Person or Indemnified Party shall have the right to retain its own counsel
with the fees and expenses to be paid by the indemnifying party, if, in the
reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified
Party and the indemnifying party would be inappropriate due to actual or
potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The indemnifying party shall pay for only one separate legal
counsel for the Indemnified Persons or the Indemnified Parties, as
applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the
Registration Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are
entitled to indemnification hereunder, or the Company, if the Company is
entitled to indemnification hereunder, as applicable. The failure to
deliver written notice to the indemnifying party within a reasonable time
of the commencement of any such action shall not relieve such indemnifying
party of any liability to the Indemnified Person or Indemnified Party under
this Section 6, except to the extent that the indemnifying party is
actually prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due
and payable.
7. CONTRIBUTION.
-------------
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided howeverthat (i) no
-----------------
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the 193 3 Act) shall
be entitled to contribution from any seller of Registrable Securities who was
not guilty of such fraudulent misrepresentation, and (iii) contribution
(together with any indemnification or other obligations under this Agreement) by
- 15 -
<PAGE>
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
8. REPORTS UNDER THE 1934 ACT.
-------------------------------
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public 'information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so
long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations under
Section 4(c) of the Securities Purchase Agreement) and the filing of such
reports and other documents is required for the applicable provisions of
Rule 144; and
c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company
that it has complied with the reporting requirements of Rule 144, the 1933
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
-------------------------------------
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if.
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "ACCREDITED INVESTOR" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
- 16 -
<PAGE>
10. AMENDMENT OF REGISTRATION RIGHTS.
------------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
--------------
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
b. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by -courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five
days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case
addressed to a party. The addresses for such communications shall be:
If to the Company:
Nettaxi, Inc.
2165 S. Bascom Avenue
Campbell, California 95008
Attention: Chairman and Chief Executive Officer
Facsimile: (408) 879-9907
With copy to:
Silicon Valley Law Group
50 West San Fernando Street, Suite 950
San Jose, California 95113
Attention: James C. Chapman, Esquire
Facsimile: (408) 286-1400
If to an Investor: to the ad-dress set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
- 17 -
<PAGE>
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to agreements made and to
be performed in the State of Delaware (without regard to principles of
conflict of laws). Both parties irrevocably consent to the jurisdiction of
the United States federal courts and the state courts located in Delaware
with respect to any suit or proceeding based on or arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such
courts. Both parties irrevocably waive the defense of an inconvenient forum
to the maintenance, of such suit or proceeding. Both parties further agree
that service of process upon a party mailed by first class mail shall be
deemed in every respect effective service of process upon the party in any
such suit or proceeding. Nothing herein shall affect either party's right
to serve process in any other manner permitted by law. Both parties agree
that a final non-appealable judgment in any such suit or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
e. This Agreement, the Securities Purchase Agreement, the Debentures
and the Warrants (including all schedules and exhibits thereto) constitute
the entire agreement among the parties hereto with respect to the subject
matter hereof and thereof. There are no restrictions, promises, warranties
or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Securities Purchase Agreement, the Debentures
and the Warrants supersede all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done and performed,
all such further acts and things, and shall execute and deliver all such
other agreements, certificates, instruments and documents, as. the other
party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
- 18 -
<PAGE>
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall
be made by Investors holding a majority of the Registrable Securities
(determined as if all of the Debentures and Warrants then outstanding have
been 6onverted into or exercised for Registrable Securities) then held by
all Investors, as the case may be,
k. The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable
Securities included thereon shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the
time of such establishment or increase, as the case may be. In the event an
Investor shall sell or otherwise transfer any of such holder's Registrable
Securities, each transferee shall be allocated a pro rata portion of the
number of Registrable Securities included on a Registration Statement for
such transferor. Any shares of Common Stock included on a Registration
Statement and which remain allocated to any person or entity which does not
hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of shares of Registrable Securities
then held by such Investors. For the avoidance of doubt, the number of
Registrable Securities held by an Investor shall be determined as if all
Debentures and Warrants then outstanding and held by an Investor were
converted into or exercised for Registrable Securities.
1. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to each Investor by vitiating the
intent and purpose of the transactions contemplated hereby. Accordingly,
the Company acknowledges that the remedy at law for breach of its
obligations hereunder will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of any of the provisions
hereunder, that each Investor shall be entitled, in addition to all other
available remedies in law or in equity, to an injunction or injunctions to
prevent or cure breaches of the provisions of this Agreement and to enforce
specifically the terms and provisions hereof.
m. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
n. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule
of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other
provision hereof
- 19 -
<PAGE>
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors have
caused this Agreement to be duly executed as of the date first above written.
NETTAXI, INC.
By:
---------------------------
Robert Rositano, Jr.
Chairman and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner ,
By:
---------------------------
Steve Katznelson
Managing Director
- 20 -
<PAGE>
EMPLOYER COPY
CALIFORNIA PENSION ADMINISTRATORS & CONSULTANTS, INC.
In conjunction with Oppenheimer Funds
CLIENT SERVICE AGREEMENT
THIS AGREEMENT is made this 15 day of March, 1999, by and between California
Pension Administrators and Consultants, Inc., 10390 Santa Monica Boulevard,
Suite 340, Los Angeles, California 90025 ("CALPAC"), and the Client Listed
below.
Client: Nettaxi, Inc.
2165 S. Bascom Avenue
Campbell, CA 95008
In consideration of the mutual covenants expressed herein, the parties agree as
follows:
1. SERVICES PROVIDED: CALPAC will prepare and provide the Client with one
copy annually of the reports, tests, or other procedures listed in this
Agreement unless otherwise directed by the Client. Additional copies and
services specifically references will be subject to additional charges.
<TABLE>
<CAPTION>
<S> <C>
Set-Up Fee
1-50 Employees - New Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . $500
Annual Recordkeeping and Plan Administration
Annual Base Fee 401(k) Plan 1=50 Employees . . . . . . . . . . . . . . . . . . .$1,500
Other Fees
Loan Initiation Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50
Annual Loan Administration Fee . . . . . . . . . . . . . . . . . . . . . . . . $50
Distribution Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60
IDA Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 per year per account
Fee for Additional Mutual Fund Families. . . . . . . . . . . . . . . . . . . . 250 per quarter per family
Fee for Frozen Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100 per quarter
Fee for excess funds (over 12) . . . . . . . . . . . . . . . . . . . . . . . . $400 per year
Consulting, audit support. . . . . . . . . . . . . . . . . . . . . . . . . . . $90-$150 per hour
Spanish Language Voice Response Unit . . . . . . . . . . . . . . . . . . . . . $250 annually
Spanish Language Enrollment Materials. . . . . . . . . . . . . . . . . . . . . $90 minimum
Spanish Language Enrollment Meetings . . . . . . . . . . . . . . . . . . . . . Up to $90 per meeting
Additional Annual Fees Applicable to Profit Sharing and Money Purchase Plans
Profit Sharing Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . $250
Money Purchase Plan Administration . . . . . . . . . . . . . . . . . . . . . . $250
<PAGE>
For the above fees the following services are included:
Plan Compliance and Plan Administration
- Review and/or design of Plan(s)
- Plan and Trust document: (Use of California Pension plan document is assumed.
Submission to the IRS is billed separately.)
- Summary Plan Description
- Sample resolutions to adopt/amend plan
- Annual discrimination testing
- Annual top-heavy testing
- Completion of IRS Form 5500
Record keeping
- Plan setup and preparation for daily valuation system
- 401(k) deferrals, employer match and employer (3 money sources)
- Quarterly reports
- Quarterly participant statements
- Contributions as frequently as 26 per year
- Up to ten investment funds
- Participant Loan Processing
Education, Communications and Data Processing
- Enrollment meetings, materials and individualized illustrations*
- Electronic payroll data transmission**
- Interface of monthly reporting through Internet, E-mail and diskette media
- Voice Response Unit 800 number
</TABLE>
All participant records should be submitted through electronic media and
reconciled to plan assets. Trust reconciliation work will be billed at $90 per
hour. Loan set-up fee is $10 per loan in excess of 10.
* For individualized deferral and results illustrations certain limitations
may apply. Such limits, when applicable, will be reviewed with the employer
regarding additional cost.
** A $10 per participant per payroll surcharge may be assessed if account and
payroll data is not transmitted electronically or on diskette.
1. CLIENT RESPONSIBLE FOR: The Client agrees to provide CALPAC with correct
and accurate information in a timely manner. The Client understands that a
vital part of CALPAC's services include preparation of information forms for the
Internal Revenue Service (IRS) and other governmental agencies which may include
<PAGE>
the Department of Labor (DOL), and the Pension Benefit Guaranty Corporation
(PBGC). Returns are to be filed by the Client. Information requested from the
Client by CALPAC must be submitted by the due date specified by CALPAC in its
request. The Client understands that if Client does not provide CALPAC with
correct and accurate information in a timely manner and within the time limits
specified by CALPAC, THE Client and not CALPAC will be responsible for any
consequences, including but not limited to penalties and/or late fees incurred
for failure to file required returns and/or other information as may be required
by various governmental agencies. If any CALPAC service or report must be
revised, recalculated or amended as a result of incorrect or insufficient data
provided by the Client, or any of the Client's agents or representatives, CALPAC
shall be compensated by the client for any additional services or reports on a
time and charges basis at CALPAC's then prevailing hourly rates.
CALPAC assumes no responsibility for the accuracy and correctness of any records
or data provided by the Client or the Client's agents and representatives. The
Client assumes full responsibility for the accuracy and correctness of any
records or data provided by the Client to CALPAC. Such records and data
included, but are not limited to, employee census data, trust accounting data,
asset data and investment data.
The Client agrees that CALPAC is not a provider of legal advice, tax advice, or
investment advice. The Client agrees to seek the advice of an attorney,
accountant or other financial advisor for advice and counseling on legal issued
or the suitability of an investment. The Client agrees to verify any legal or
investment advice which it may incidentally receive from CALPAC in the course of
servicing the Plan. Such verification is the responsibility of the Client, and
may include seeking the advice of an attorney, accountant or financial advisor.
3. PRIOR SERVICE PROVIDERS: CALPAC assumes no responsibility for the
accuracy and correctness of any records or data provided by prior service
providers or trustees. CALPAC will rely on information provided by previous
service providers and trustees. The Client assumes all responsibility for the
accuracy and correctness of any records or data provided by prior service
providers or trustees, and the Client agrees to indemnify and hold CALPAC
blameless for any errors or omissions occurring prior to CALPAC becoming a
service provider.
4. TRUSTEE ACTIONS: Client agrees to indemnify and hold CALPAC blameless
for any and all errors or omissions which are the result of actions by the
Trustee.
5. PAYMENTS: The Client will pay CALPAC for services rendered. Payment
shall be by U.S. currency and may be in the form of a check, money order or
cash. CALPAC will bill Client for the costs and charges of services provided.
Client's payment is due CALPAC upon receipt of each billing statement.
Notwithstanding the foregoing if the client fails to receive a billing statement
from CALPAC, for any reason, Client will be responsible for timely and prompt
payment of amounts owed.
CALPAC will assess a late charge of any amounts owed by Client to CALPAC which
<PAGE>
are more than thirty (30) days past due. The large charge will be 1.5% of the
outstanding balance due CALPAC for each month or part of a month that the
outstanding balance is more than thirty (30) days past due. Such late charges
shall be assessed and compounded for each month or part of a month that the
payments due CALPAC are more than thirty (30) days past due.
All fees and expenses may be deducted from the Client's trust account(s) if the
Client does not pay such fees and expenses within fifteen (15) days of the date
printed upon a statement for such fees and expenses. The Client cannot
reimburse the trust for such fees and expenses.
CALPAC may change its fees and charges upon thirty (30) days written notice to
the Client.
Any service not specifically described in this agreement or any of its
attachments may be performed by CALPAC on a time and charges basis by CALPAC's
then prevailing hourly rates. The Client agrees to promptly pay all such
charges within thirty (30) days of receipt of a billing statement from CALPAC.
In the event that the Client postpones or cancels the implementations or
operation of the Plan, the Client agrees to pay CALPAC for the actual time,
charges and expenses incurred by CALPAC in attempting to implement the Client's
plan.
The Client agrees to reimburse CALPAC for all extra ordinary out-of-pocket
expenses incurred by CALPAC in performing services for the Client. Such
out-of-pocket expenses may include, but are not limited to, long distance
telephone calls, facsimile transmissions, photocopying expenses, fees paid to
third parties, postage, shipping costs, and messenger services.
The Client shall be responsible to review cash billing statement from CALPAC,
and Client shall not receive credit for any alleged errors unless Client
notifies CALPAC in writing within sixty (60) days of the billing date.
The Client shall be responsible for all applicable personal, property, excise,
sales taxes and other assessments which may be incurred in the servicing of the
Plan.
The Client shall be responsible for all other transaction fees incurred by the
Plan, including but not limited to, broker's fees, commissions, appraisal fees,
mortgage servicing fees, title searches, and other such third-party fees.
6. EFFECTIVE DATE AND TERM: This Agreement shall take effect on the
execution hereof, and shall continue in force for a period of twelve (12)
months. This Agreement shall automatically renew for succeeding twelve (12)
month periods unless the Client or CALPAC gives written notice of non-renewal or
cancellation to the other. Such written notice must be sent to the addresses of
the Client or of CALPAC as indicated above, or as changed in subsequent periods.
<PAGE>
This agreement may be terminated by either party, at any time, for any reason.
Any termination shall be subject to the notice requirements above, and CALPAC
shall be entitled to reimbursement for any services rendered prior to
termination. At time of termination of this Agreement, CALPAC and Client will
determine final termination/transfer services required of CALPAC and a separate
Agreement based on time and charges with a retainer paid in advance will apply.
7. CONVERSION DATES, BLACKOUT PERIOD, "GO LIVE" DATE: The Conversion Date
is the effective date of the conversion. It is the date of the final valuation
by the prior Recordkeeper. CALPAC assumes responsibility for processing payroll
contributions. On the Conversion Start Date, the prior Recordkeeper provides
CALPAC with conversion records consisting of participant financial data, a
reconciliation of participant assets to Trust assets, a Trust statement and hard
copy reports of plan records supporting the reconciliation. Typically, the
Conversion Start Date is 6 to 8 weeks after the Conversion Date. The period
between the Conversion Start Date and Conversion Date is the Blackout Period.
During the Blackout Period, all transactions except contribution processing will
be suspended. Participants will be unable to transfer existing balances, change
fund elections, or process loan/distribution requests. Plan Sponsors must
continue to make loan repayment deductions via payroll, in addition to enrolling
new participants, changing deferral rates and suspending contributions according
to plan parameters.
A Blackout Period is required because, initially, CALPAC does not know the
individual share balances for each participant or possesses any of the pertinent
data necessary to execute transactions on our system. This information must
first be provided by your prior Recordkeeper. After we receive the data, we
load it onto our system and make certain that the participant records and trust
account assets are in balance. We then "true up" any conversion reconciling
items. This entire process will normally take approximately 2 months. The
prior Recordkeeper may require up to 6-8 weeks to complete the valuation
and reconciliation. CALPAC then may require up to 45 days to convert the plan
to our system; 60 days if we must do a manual conversion.
Should your prior Recordkeeper be delayed in forwarding the requested
documentation to us, the Blackout Period will be extended and the go live date
will be delayed until 45 days after our receipt of the final valuation and
reconciliation.
The "Go-Live" Date is the date that the Blackout Period ends and we open our
Voice Response Unit to participants who can request transactions on daily basis.
Based upon information that you provide to us, we can schedule a tentative
"Go-Live" date, generally 3-4 months after the Conversion Date. However, please
communicate to the Participants that the "Go-Live" date is tentative, and is
subject to delays because we depend on the prior Recordkeeper to provide
complete and accurate data within our file on the scheduled Conversion Start
Date.
<PAGE>
8. TELEPHONE MONITORING: CALPAC may record telephone calls to monitor the
quality of service provided to Client and to verify transaction information.
9. FORCE MAJEURE: CALPAC shall not be responsible for delays or failures in
the performance of its obligations hereunder resulting from circumstances beyond
CALPAC's reasonable control, including but not limited to acts of God, acts of
information providers, software providers, communication line failures,
governmental regulations and laws, riots, strikes, war or other disasters.
10. DEFAULT AND REMEDIES: Should the Client default in the performance of
any of its obligations under this Agreement, including without limitation, its
obligation to pay any required fees with thirty (30) days after such fees are
due, CALPAC may, in addition to and without excluding any other remedies
available to it, terminate servicing the Plan. The Client shall be liable for
the balance of all fees outstanding at the date of termination, for all costs of
collection, including attorney's fees, and for all other costs CALPAC may incur
in securing payment hereunder. The remedies contained in this paragraph are
cumulative and in addition to all other rights and remedies available to CALPAC
under this Agreement.
11. LIMITATION OF LIABILITY: CALPAC shall not have any liability or
obligation to the Client for any errors or omissions in servicing the Plan, nor
for any incidental or consequential damages incurred in connection with services
provided under this Agreement, except those arising solely from the actions of
CALPAC.
12. SUCCESSORS and ASSIGNS: This Agreement shall be binding upon the
successors and assigns of the parties. CALPAC may freely assign any duties,
rights or claims under this Agreement. The Client shall no assign any duties,
rights or claims under this Agreement without the prior written consent of
CALPAC, which shall not be unreasonably withheld. Any attempted assignment in
violation of this provision shall be void.
13. NOTICES: Both the Client and CALPAC agree to give written notice to the
other in the event either shall change address. Such notice shall be given no
later than forty-five (45) days after a change of address.
14. GOVERNING LAW: This Agreement will be governed by the laws of the State
of California.
15. SEVERABILITY: If any term or condition of this Agreement is held
invalid or unenforceable, the remaining terms and conditions shall remain in
full force and effect and shall not be affected thereby.
16. WAIVER: None of the provisions contained herein shall be deemed waived
because of previous failure to insist upon strict performance thereof.
<PAGE>
17. ENTIRE AGREEMENT: This Agreement represents the entire agreement
between the parties. All other oral or written agreement, representations or
understandings are superseded hereby and merged into this Agreement.
THIS AGREEMENT ENTERED INT BY:
CLIENT: /s/ Dean Rositano
------------------
Authorized Signature
Dean Rositano
--------------
Name
President
---------
Title
CALPAC: /s/ C. Ellner
------------------
Authorized Signature
C. Ellner
----------
Name
President
---------
Title
<PAGE>
SECTION HEADINGS
Section
Introduction 1
Executive Summary 2
About OppenheimerFunds 3
Developing a Portfolio Strategy 4
Plan Services and Administration 5
Fees for Administrative Services 6
Employee Education and Communication 7
The Next Steps 8
Why Custom Plus? 9
<PAGE>
INTRODUCTION
In today's retirement market, plan sponsors and their needs are almost as
diverse as the participants themselves. There are some areas of retirement plan
service, however, which plan sponsors almost always identify as common areas of
concern:
- - - INVESTMENT OPTIONS: Are sufficient choices available? Do they cover a
broad range of objectives? Do the funds perform well? Do they provide
adequate, reliable returns? Do they stay on course to their objectives? Do
they have qualified management?
- - - RECORDKEEPING AND ADMINISTRATION: Are the fees reasonable? Are the
statements timely? Do they provide reliable information? Are periodic employer
reports supplied? Is assistance with regulatory compliance provided? Is
participant tax reporting handled correctly? Is the plan administration
accurate and flexible overall?
- - - PARTICIPANT EDUCATION AND COMMUNICATION: Do the plan materials provide
motivation to save for the future? Do they promote learning? Is in-depth fund
performance information provided? Is individual counseling and guidance
available?
OppenheimerFunds' knowledge, experience, technology, network of Third Party
Administrators and family of funds enable us to answer all of these questions
with a resounding "Yes!" Clients of OppenheimerFunds recognize the strength of
our:
- - - nearly 40 years in money management and mutual funds
- - - solid fund performance
- - - cohesive company philosophy and values
- - - more than 50 funds
- - - $80 billion in assets
- - - more than 3 million shareholder accounts
All of these factors contribute to OppenheimerFunds' answer to the problems of
custom plan administration: OppenheimerFunds Retirement Services Custom Plus.
Custom Plus is a complete 401(k) plan solution that satisfies even the most
demanding plan sponsor. It combines experienced investment management, flexible
recordkeeping, and a focus on participant education with OppenheimerFunds'
strong core values: excellence, caring, integrity, and team spirit. This
combination results in a comprehensive retirement program that assists plan
sponsors in helping employees plan for a financially secure retirement.
<PAGE>
EXECUTIVE SUMMARY
OppenheimerFunds recognize Patil & Associates has many retirement plan providers
from which to choose. We believe, however, that after studying this proposal
carefully, you will agree: Custom Plus stands out from the competition.
Custom Plus1 combines the solid, established mutual funds of OppenheimerFunds
with the administrative and recordkeeping services of California Pension
Administrators & Consultants, and the guidance of your financial advisor, Nader
Issa, MML Investors Services Inc. Working in concert, each member of your
Custom Plus team brings their special strengths and perspective to bear on your
plan, creating a solid platform of shared expertise that provides the support a
custom-designed retirement plan demands.
OppenheimerFunds' nearly 40 years in mutual fund management and history of
strong fund performance has made it a respected name in the investing arena.
Our broad range of funds provides choices that cover the risk/reward spectrum
and are diverse enough to satisfy any risk tolerance, regardless of the
demographics of your employees. In addition, our partnership approach ensures
that your costs are kept relatively low.
At OppenheimerFunds, we have carefully integrated our belief in The Right Way to
Invest and our Six Guiding Principles into the framework of Custom Plus. These
codes of conduct are at the heart of our business philosophy and are explained
in more detail on the pages that follow.
Your administrative burden as a plan sponsor will be visibly reduced by
California Pension Administrators & Consultants's responsiveness, efficiency,
and skilled plan administration.
Another facet of Custom Plus that will assist you in your fiduciary
responsibilities is the clear, uncomplicated employee education material that we
provide. Communications that motivate and educate are critical to the success
of any retirement plan. The materials provided by OppenheimerFunds will give
your employees the information they need to become responsible, knowledgeable
investors.
Custom Plus will erase your administrative burden while providing your employees
with a broad range of investments and motivating communications.
Custom Plus provides:
- - -----------------------
- - - Broad range of investment options
- - - Your choice of a quality independent third party administrator
- - - Low employer costs
- - - In-depth employee education
1Custom Plus is a collection of third party administrators and Oppenheimer funds
from which a plan sponsor may choose to create a retirement plan that serves
it's particular needs.
<PAGE>
ABOUT OPPENHEIMER FUNDS
At OppenheimerFunds, our commitment to excellence has guided us since we began
managing money in 1959 and continues to define us nearly 40 years later. Our
passion for excellence, dedication to caring, commitment to integrity, and team
spirit have provided a solid foundation for our efforts to deliver the
performance that our customers deserve. Today, we manage more than 50 mutual
funds, with assets of over $80 billion, and provide service to more than 3
million shareholder accounts.
OUR SIX GUIDING PRINCIPLES
Our range of mutual funds-one of the broadest available-can accommodate every
risk tolerance, investment style, and financial goal. Supporting the diversity
of our fund family are our Six Guiding Principles, which direct our efforts to
provide consistent long-term performance across a wide range of funds. Combined
with our unique Investment Approach, these principles represent the spirit and
motivating force behind The Right Way to Invest, our unique philosophy of
investing.
1. INSIST ON EXCELLENT, LONG-TERM PERFORMANCE. Performance is a mutual fund
company's reason for being. Performance is the driving force behind everything
we do, and we pursue it tenaciously, across the whole range of our funds.
2. DO WHAT YOU SAY YOU'RE GOING TO DO. Each of our funds has a stated
objective, a stated strategy for pursuing the objective and the discipline to
stick to all that's been stated. This is critical, because a mutual fund should
be only part of a broad financial plan. For that plan to be successful, all its
parts must perform.
3. EMBRACE A DISCIPLINED, COLLABORATIVE APPROACH TO INVESTING. Ultimately,
the responsibility for a fund's performance lies with the portfolio manager.
This accountability is a powerful incentive. When coupled with an environment
where insights and expertise are shared, where challenges to each other's
thinking are encouraged, it becomes an even more potent tool in the pursuit of
performance.
4. KNOW THE DIFFERENCE BETWEEN RISK AND RISKY. Risk is a natural, necessary
part of investing. It is the engine that drives reward. More importantly,
well-managed risk helps investors achieve their goals. Our unique risk
management system helps us to identify and manage risk, and helps us to deliver
the right balance of risk and reward for each fund.
5. ENCOURAGE FINANCIAL PLANNING AND PROFESSIONAL ADVICE. Investing without
a financial plan, like starting a journey without a map, is fraught with risk.
Every investor, novice or sophisticate, should have a financial plan and
professional advice in creating it. This advice will help avoid the
distractions of the short term, and instead, concentrate on long-term success.
6. BE USER-FRIENDLY. Investing with a mutual fund should be easy.
Communications should be honest, accurate and easy to understand; the mutual
fund company itself easy to work with. This commitment to service extends to
every facet of our firm and may help to explain why OppenehimerFunds is the only
mutual fund company ever to win the International Customer Service Association
Award of Excellence.
Years of successful mutual fund investing have taught us these principles. They
are our pledge. A pledge investors can depend on. A pledge that defines the
right way to invest, which we believe makes OppenheimerFunds the right way to
invest.
<PAGE>
Our Investment Approach
We manage money based on a proven philosophy that distinguishes us from
companies that rely on either a "star manager" or "committee management" style.
Our Investment Approach weaves three key elements into one dynamic process to
help us try to meet our shareholders' goals and expectations:
- - --[Investment Approach Graphic]--
- - - DISCIPLINE. A clear direction and goal is the starting point for all our
portfolio management decisions. This means that every fund manager adheres to
the fund's stated investment objectives and policies and uses a consistent
investment style. In order to maintain product integrity, each fund's portfolio
manager articulates and operates within a disciplined investment process. This
process serves as the framework for security selection, risk management, and
buy/sell decisions.
- - - COLLECTIVE INSIGHT. This dimension of analytical balance assures that the
portfolio manager operates in collaboration with an expert team or research
professionals and specialists. Working together, this team constantly exchanges
investment ideas and information, resulting in more and better ideas for the
portfolio manager. Managers and analysts meet on a regular basis to share their
ideas and perspectives, as well as company and industry research.
- - - INDIVIDUAL ACCOUNTABILITY. Ultimately, each portfolio manager is held
responsible and accountable for decisions about security selection, risk
management, and investment strategy. Holding the portfolio manager accountable
for investment decisions helps ensure consistency in management approach.
Our dedication to the Six Guiding Principles and our unique Investment Approach
makes OppenheimerFunds The Right Way to Invest.
<PAGE>
OUR FAMILY OF FUNDS
The OppenheimerFunds family of mutual funds provides a broad range of investment
options to meet virtually every level of risk tolerance and investment return
target. The options are diverse enough to address the demographics of your
employee population now and in the future.
There are 34 investment choices which are appropriate for retirement plans:
- - - 15 stock funds
- - - 10 stock and bond funds
- - - 7 bond funds
- - - 2 money market funds
These funds cover the entire risk/reward spectrum and permit customization of
your plan's investment options to satisfy the plan's investment policy.
Nader has designed a diverse portfolio of plan investments for your
consideration. The details follow in the next section.
ADVANTAGES FOR YOUR EMPLOYEES
For plan participants, the array of fund choices permits them to tailor their
individual portfolio to their risk tolerance and saving priorities. The variety
enables each participant to design his or her own investment approach, and to
diversify to the degree he or she desires. They also enjoy the level of comfort
that comes with investing with a major financial services firm.
Participants may easily monitor the value of their investments by checking the
share prices of their funds each day in the newspaper, or on the
OppenheimerFunds Web site.
ADVANTAGES FOR THE PLAN SPONSOR
The availability of such a diverse group of investment options will put you well
on the road to satisfying the Department of Labor's ERISA Section 404( c)
regulations. By carefully selecting the plan's funds from OppenheimerFunds'
array, you will give participants an opportunity to influence the level of
return and degree of risk to which their accounts are subject, choose from among
investments which have different risk and return characteristics, and diversify
in order to reduce volatility. And, since there are 34 funds from which the
plan sponsor may choose, the "broad range" requirement of the Section 404( c)
regulations can be met without difficulty.
You also have the advantage of offering to your employees investment choices
managed by a firm that is established and respected in both the money management
and retirement plan arenas.
With OppenheimerFunds' distinctive Investment Approach and full commitment to
our Six Guiding Principles, you have the comfort of knowing that meeting the
investor's needs is our primary goal, and that our focus on that goal is
unwavering.
<PAGE>
DEVELOPING A PORTFOLIO STRATEGY
Nader Issa, MML Investors Services Inc. is pleased to present a portfolio
strategy for your consideration.
Nader has carefully considered your plan's needs with respect to the number and
type of investment options to be made available to employees. 10 investment
options are proposed for your plan.
These were selected by Nader to meet the goals and objectives on which
retirement plans need to focus:
- - - a primary investment objective of growth
- - - a secondary objective of protecting capital from inflation
- - - a long-term investment time horizon
- - - a proportional representation of the entire risk/reward spectrum
- - - a diversified portfolio
The fund selections described on the next page, taken as a group, meet these
goals. Furthermore, they offer an exciting range of options to your employees,
since each fund has a specific objective to which participants can relate their
individual tolerance for risk and their retirement savings goals.
THE PROPOSED PORTFOLIO
- - - The funds from the OppenheimerFunds family proposed for your plan are:
- - - OPPENHEIMER CAPITAL APPRECIATION FUND - invests for capital appreciation
primarily through investments in common stocks of undervalued growth companies.
- - - OPPENHEIMER DISCIPLINED VALUE FUND - seeks to long-term growth of capital
through investments in common stocks using a disciplined approach to buying and
selling based on price and earnings, and secondarily, current income.
- - - OPPENHEIMER EQUITY INCOME FUND - seeks current income plus potential for
capital appreciation through investments in high-dividend-paying stocks,
convertible securities and fixed-income securities.
- - - OPPENHEIMER GLOBAL FUND - offers potential for capital appreciation
through investments in foreign and U.S. companies by pursuing growth trends
worldwide.
- - - OPPENHEIMER INTERNATIONAL GROWTH FUND - seeks capital appreciation by
investing in non-U.S. equity securities.
- - - OPPENHEIMER LIMITED TERM GOVERNMENT FUND - invests for high current
income, preservation of capital and the maintenance of liquidity primarily
through U.S. government-backed obligations, including Treasury securities and
Ginnie Maes, and CMOs and other mortgage-backed securities.
- - - OPPENHEIMER MAIN STREET GROWTH & INCOME FUND - seeks high total return,
which includes current income and capital appreciation.
- - - OPPENHEIMER MONEY MARKET FUND - seeks current income with stability of
principal and liquidity through investments in money market instruments.
<PAGE>
- - - OPPENHEIMER QUEST OPPORTUNITY VALUE FUND - offers potential for long-term
capital appreciation by investing primarily in common stocks, convertible bonds
and cash equivalents.
- - - OPPENHEIMER STRATEGIC INCOME FUND - offers high current income potential
by strategically allocating investments among U.S. government issues, foreign
debt securities and higher-yielding, lower-rated corporate bonds mainly by
investing in debt securities.
ADDITIONAL INVESTMENT OPTIONS
- - - None
<PAGE>
RISK VS. REWARD SPECTRUM
FOR THE PROPOSED PORTFOLIO
Knowing where each of the OppenheimerFunds choices falls on the risk/reward
spectrum is very important. The funds are presented on a summary chart below.
This should be helpful in assessing the opportunities for diversification.
- - --[Risk/Reward for September 30, 193 to October 1, 1998 Graphic]--
This chart depicts results from ahypotehtical cumulative investment in Class A
at net asset value, without sales charge, allocating to Oppenheimer Money Market
Fund, Oppenheimer Limited-Term Government Fund, Oppenheimer Strategic Income
Fund, Oppenheimer Equity Income Fund, Oppenheimer Main Street Income & Growth
Fund, Oppenheimer Quest Opportunity Value Fund, Oppenheimer Disciplined Value
Fund, Oppenheimer Capital Appreciation Fund, Oppenheimer International Growth
Fund, and Oppenheimer Global Fund for the period from September 30, 1993 to
October 1, 1998, with the exception of Oppenheimer International Growth Fund,
which is measured from inception (4/96). All dividends and capital gains
distributions were reinvested. The performance data are based on monthly total
return data from September 30, 1993 to October 1, 1998. The vertical axis of
the chart represents the average annual total return at net asset value for the
various portfolios over this time period. The horizontal axis of the chart
measures risk return over the stated time period. Standard deviation is a
statistical measure of the typical distance from which one month's total return
tends to vary from the average of all monthly returns for the 5 year period.
Past performance is not a guarantee of future results.
<PAGE>
PLAN SERVICES AND ADMINISTRATION
A successful retirement plan involves a great deal more than just selecting the
most appropriate investment choices. Custom plus combines a broad array of
investment options with state-of-the-art administration and ongoing services
from California Pension Administrators & Consultants.2 Coupled with the
consultative and coordinating efforts provided by Nader, your plan includes
complete services and administration under the Custom Plus umbrella.
ADMINISTRATION
Accurate and timely recordkeeping of participant transactions and plan-level
activities is critical to the overall success of any retirement plan.
Minimizing the plan sponsor's involvement in day-to-day administration, and
simplifying the process when the employer's attention is required are key
elements of Custom Plus. Your time is valuable, and it shouldn't be spent
monitoring the work of the recordkeeper, correcting errors, and making sure
transactions are processed correctly and on time.
With these concerns in mind, Nader has carefully selected California Pension
Administrators & Consultants to provide the administrative services for your
plan. Only recordkeepers that have significant experience with custom plans,
are technologically advanced, and have a strong quality service orientation are
available through the Custom Plus program.
2Custom Plus third party administrators are not affiliated with, nor agent for,
OppenheimerFunds
<PAGE>
CALIFORNIA PENSION ADMINISTRATORS & CONSULTANTS, INC.
INTRODUCTION
California Pension Administrators & Consultants, Inc. (CALPAC) is an
independent, privately owned firm of attorneys, actuaries, and retirement plan
professionals. CALPAC specializes in design, implementation and conversion,
administration, asset recordkeeping, and employee communication for all types of
retirement programs. Through commitment to quality consulting, creative design
and reliable service, we have built a staff of talented and diligent
professionals.
Founded in 1969 as a financial services company to provide individual choice in
asset selection for retirement planning, we service the broadest range of
self-directed investment options allowed by law.
CURRENT TECHNOLOGY
For all recordkeeping functions, a team of three individuals is responsible for
each client relationship. The components of the team depend on the type of
plan, number of participants, and services desired. For example, the completely
automated 401(k) will be implemented on our daily valuation system with voice
response. The team leader will be the compliance consultant, but because of the
heavy reliance on the daily valuation trust accounting system, a trust
accounting specialist will be involved with the account relationship. Each of
these two individuals has a fully trained back up and support staff. Any of
these individuals are accessible by clients.
CALPAC licenses its use of the ASC plan compliance system, TrustMark MBA3d Daily
Valuation trust accounting system and Hyperprep 5500 reporting system. Under
the terms of each licensing agreement, we are always operational on the most
currently available updated release.
We have report writer capabilities for special processing, which include
exporting ASCII files to word processing software.
AUTOMATED SYSTEMS EMPLOYEE AND EMPLOYER SUPPORT
The Voice Response Unit is available 23 hours per day (available in Spanish).
Office staff is available from 7:30 AM to 5:30 PM Pacific Time. Separate 800
number for each client can be easily accommodated if the case size so warrants.
The Voice Response Unit permits investment reallocation and a variety of inquiry
functions including loan modeling.
DESIGN AND INSTALLATION
Plan documents may be individually drafted for the client by their legal
representative. However, it has been our experience that a prototype plan
document pre-qualified by the Internal Revenue Service, usually provided
sufficient range of options for the client.
We sponsor both standard and non-standard regional prototype defined
contribution plans with elective provisions flexible enough to meet most plan
goals and objectives, thereby avoiding the additional start-up expense
associated with plan drafting. In addition to defined contribution plans, we
also service volume submitter defined benefit and general test plans.
Consulting - the single most important service we offer is effective design
consulting. It is essential that the retirement program be designed to respond
to both the client's current needs and to the changing environment in which the
business operates. The services provided with CALPAC vary from one plan sponsor
to another. In many instances, we provide a comprehensive evaluation and
analysis from which the appropriate plan design can be established.
ANNUAL COMPLIANCE AND ADMINISTRATION
To assist with the ongoing administration of a retirement program, CALPAC offers
the following services:
- - - Assist in year-end planning by estimating plan contributions
- - - Determine limitations on benefits under Section 415 of the Internal
Revenue Code
- - - Prepare the appropriate Annual Return in the Form 5500 series
- - - Prepare the required Summary Annual Report for distribution to
participants
- - - Prepare a summary report showing activity
- - - Perform the required anti-discrimination tests and provide guidance in
making any necessary adjustments. Additional ADP/ACP test runs are
available up request.
<PAGE>
PARTICIPANT RECORDKEEPING
The 401(k) plan is only as successful as employees perceive it to be.
Information must be timely and records must be accurate. The planning process
for the installation of all plans include:
1. Initial Plan Set-up:Transfer of accounts (if applicable)
- - - Set-up of plan account and features (loans, vesting schedules, etc)
- - - Set-up of participant accounts and investment selection
2. Process:
- - - Contributions
- - - In-service withdrawals
- - - Loans
- - - Benefit payments
3. Transactions:
- - - As frequently as daily, changes processed for participant
4. Implement changes to Asset Allocation Portfolios:
- - - Rebalance individual portfolios on a monthly basis
- - - Reallocate (if necessary) individual portfolios on a monthly basis
5. Maintain:
- - - Employee personal data
- - - Employer plan data
6. Provide Reports:
- - - Monthly reports for trustees
- - - Monthly participant statements
- - - Ability for plan sponsor to be electronically linked via modem
PLAN COMMUNICATION
The challenge of communicating retirement plans is to help employees appreciate
the importance of building future financial security. One of our objectives it
to support the employer in achieving high levels of participation through
education. Some of the services we provide for employee and employer
communications are:
- - - Design general announcement to employees
- - - Prepare visual presentation for employee meetings
- - - Present the plan at employee meetings or train others to conduct employee
meetings
- - - Draft simplified employee brochures describing highlights of the plan
- - - Design employee enrollment/election forms
- - - Prepare designation of beneficiary and distribution forms
- - - Assist legal counsel in drafting required Summary Plan Description or
prepare the draft for legal counsel's review
- - - Prepare administrative manual of forms and procedures
- - - Analyze plan design based on changing business circumstances
PLAN IMPLEMENTATION
The controlled and effective implementation of a new qualified plan or the
conversion and transition of an existing plan are critical. Implementation
involves many complex investment, administrative, and communication issues. A
rigorous review of all plan details and operation will be undertaken in
connection with the set-up of the plan. Generally , the set-up of a new plan
takes between one and three months, where as a conversion may take three to six
months.
Implementation tasks include:
Assist with the selection of plan features and investment options, and
completing the Plan Adoption Agreement. Meet with the benefits department, and
if necessary, conferring with your management to develop final understanding of
all plan details and operation, communicating with your payroll processor to
coordinate information flow from payroll.
Load all participant and plan information onto the recordkeeping system and
testing for reliability to proceed on a continuing basis.
If converting a plan, work with existing trustee and recordkeeper to ensure
smooth transition of data and assets from a prior plan.
Check all systems/reports for accuracy prior to conversion/installation
sign-off.
REPORTS
Participant Level:
- - - Participant Certificate (annual vested interest update)
- - - Participant Statement
Plan Level:
- - - Allocation Report
- - - Plan Accounting
- - - Plan Digest
- - - Cross Reference
- - - Confirmation Letter
- - - Eligibility List
- - - Delinquent Loans
<PAGE>
CALIFORNIA PENSION ADMINISTRATORS & CONSULTANTS, INC.
IN CONJUNCTION WITH OPPENHEIMER FUNDS
401(K) RETIREMENT PLAN FEE PROPOSAL
PLAN ADMINISTRATION AND PARTICIPANT RECORDKEEPING FEE SCHEDULE
Set-Up Fee
A. 1-50 Employees - New Plan $500
Conversion $1,000
B. 51-150 Employees - New Plan $500
Conversion $1,500
C. 151 + Employees - New Plan $500
Conversion $1,500+*
*subject to an individualized quote based on method of conversion and current
status of records
Annual Recordkeeping and Plan Administration
Annual Base Fee 401(k) Plan
A. $1,500
B. $2,500 plus $10 per participant
C. $3,800 plus $10 per participant
Other Fees:
Loan Initiation Fee $50
Annual Loan Administration Fee $50
Distribution Fee $60
IDA Fee $250 per year per account
Consulting, audit support $90 - $150 per hour
Spanish Language Voice Response Unit $250 annually
Spanish Language Enrollment Materials $90 minimum
Spanish Language Enrollment Meetings up to $90 per meeting
Additional Annual Fees Applicable to Profit Sharing
Or New Comparability Features Only
Profit Sharing Contribution $250
New Comparability Allocation $850
A discount may be quoted for more than one plan
<PAGE>
For the above fees the following services are included:
Plan Compliance and Plan Administration
Review and/or design of Plan(s)
Plan and Trust document: (Use of California Pension plan document is assumed.
Submission to the IRS is billed separately.)
Summary Plan Description
Sample resolutions to adopt/amend plan
Annual discrimination testing
Annual top-heavy testing
Completion of IRS Form 5500
Record keeping
Plan setup and preparation for daily valuation system
401(k) deferrals, employer match and employer (3 money sources)
Quarterly reports
Quarterly participant statements
Contributions as frequently as 26 per year
Up to ten investment funds
Participant Loan Processing
Education, Communications and Data Processing
Enrollment meetings, materials and individualized illustrations*
Electronic payroll data transmission**
Interface of monthly reporting through Internet, E-mail and diskette media
Voice Response Unit 800 number
All participant records should be submitted through electronic media and
reconciled to plan assets. Trust reconciliation work will be billed at $90 per
hour. Loan set-up fee is $10 per loan in excess of 10.
*For individualized deferral and results illustrations certain limitations may
apply. Such limits, when applicable, will be reviewed with the employer
regarding additional cost.
**A $10 per participant per payroll surcharge may be assessed if account and
payroll data is not transmitted electronically or on diskette.
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EMPLOYEE EDUCATION AND COMMUNICATION
Empowering your employees to make sound financial decisions about preparing for
retirement is vital to maintaining a successful retirement plan. Numerous
surveys have shown that employees want and need more information about
investing, and that the quality of the education and communication efforts is
directly related to plan participation rates and how well employees are
financially prepared for retirement.
Custom Plus combines a team approach to the goal of equipping employees with the
tools they need to actively plan for their financial future. All efforts are
coordinated to provide a continuous flow of practical, accurate, easy-to-read
information to your employees.
YOUR FINANCIAL ADVISOR
Your financial advisor will play a key role in getting the new plan off to a
running start by conducting the enrollment meetings.
OPPENHEIMERFUNDS
Supporting your financial advisor will be highly effective and comprehensive
educational material from OppenheimerFunds. Recognizing that education is the
foundation of a successful retirement planning effort, the materials focus on
helping employees develop realistic expectations, and on meeting those
expectations with practical solutions.
Among the materials employees may receive are:
- - - Enrollment Poster
This four-color poster, for display in the workplace, announces the date, time
and location of the enrollment meeting.
- - --[Enrollment Poster Graphic]-
- - - Payroll Stuffers
Provide quick highlights of major 401(k) benefits and are designed to generate
employee excitement and interest in the upcoming enrollment meeting.
- - --[Payroll Stuffers Graphic]-
- - - Retirement Planning Guide
Emphasizes the benefits of participating in a retirement plan, explains
diversification, and includes worksheets to assist in estimating saving needs.
- - --[Retirement Planning Guide Graphic]--
- - - Retirement Opportunities
A quarterly educational newsletter containing articles about planning and
investing for the future.
- - --[Retirement Opportunities Graphic]--
- - - Fund Performance Sheets
Easy-to-understand reviews of recent investment performance, fund strategy,
asset allocations and insights from the fund managers.
- - --[Fund Performance Sheets Graphic]-
<PAGE>
- - - www.oppenheimerfunds.com
------------------------
OppenheimerFunds' home page on the Internet provides tips on planning for
retirement as well as background on OppenheimerFunds and its investment
offerings.
--[www.oppenheimerfunds.com Graphic]-
- - - A Successful Retirement: What Will It Take?
Helps participants plan, save and invest for retirement through the use of
worksheets, quizzes and explanations of key retirement and investment terms.
- - --[A Successful Retirement: What Will It Take? Graphic]--
- - - When You Retire or Change Jobs
This guide reviews the pros and cons of various options for taking a lump-sum
distribution from a qualified retirement plan.
- - --[ When You Retire or Change Jobs Graphic]-
- - - Getting Your Money's Worth
A new educational series that explores managing large sums of money generated by
an inheritance, severance package, divorce settlement or retirement plan
rollover.
- - --[ Getting Your Money's Worth Graphic]-
Of course, employees will also receive a prospectus for each fund available in
the plan and information about how those funds have performed.
A Coordinated Approach
By taking a coordinated, comprehensive approach to educating employees about
retirement planning, Custom Plus combines the expertise of investment
specialists to produce a campaign of useful, informative, and practical
information.
<PAGE>
THE NEXT STEPS
California Pension Administrators & Consultants looks forward to working closely
with you to make this transition a seamless one. One call from you will get the
process moving.
THE FIRST STEP
Contact Nader Issa about your decision to take advantage of Custom Plus, and
suggest a date on which you'd like to start the new plan. Nader will notify
OppenheimerFunds and California Pension Administrators & Consultants.
THE NEXT STEP
OppenheimerFunds will work closely with Nader Issa to coordinate the enrollment
process, and will include California Pension Administrators & Consultants in all
planning.
Nader will work with you to schedule enrollment meetings and to identify what
materials would be appropriate for use in the meetings.
OppenheimerFunds will assign a Client Relationship Associate to your plan, and
he or she will work with Nader and California Pension Administrators &
Consultants to develop a time frame for implementing the plan and to identify
any special considerations such as: existing plan assets, payroll schedules and
type of output, locations where enrollment sessions will need to be scheduled,
and recordkeeper data requirements.
The Client Relationship Associate will contact you to introduce himself or
herself, and your primary representative at California Pension Administrators &
Consultants. During each conversation with your Client Relationship Associate,
you'll be advised of what specific activities are occurring to move installation
of your plan forward, and any changes in the implementation schedule.
Your California Pension Administrators & Consultants representative will contact
you to discuss data submission procedures and any other issues that arise during
the installation phase.
YOUR PRIMARY CONTACT
Throughout the implementation phase, and on a continuing basis after the plan is
operating, your primary contact is Nader Issa. Nader will initiate action
regarding your questions and requests, and will follow through to make certain
that there are no unresolved issues.
<PAGE>
WHY CUSTOM PLUS?
Although plan sponsors take into account many factors when considering 401(k)
plan providers, three issues consistently rise to the top of the list:
- - - Investment portfolio design and fun performance
- - - Plan administration and recordkeeping capabilities
- - - Employee education and communication
OppenheimerFunds Retirement Services Custom Plus is the right package to address
these issues, because:
- - - The OppenheimerFunds family of mutual funds has one of the broadest ranges
of mutual funds in the financial services industry. It encourages
diversification, and permits the investor to knowledgeably choose funds which
match his or her risk tolerance and financial goals. The OppenheimerFunds
family has a record of staying true to each fund's stated objectives.
- - - Recordkeeping is an integral part of the Custom Plus solution. California
Pension Administrators & Consultants's goal is to provide top quality service to
plan sponsors and individual investors at a reasonable price.
- - - We want investors in our funds to be informed about investing principles
and the particular funds into which they've chosen to place assets, and to have
the tools to build a solid financial future.
OppenheimerFunds, Nader Issa, and California Pension Administrators &
Consultants look forward to working with you to establish a successful
retirement plan and to assist your employees in planning for retirement.
This proposal must be accompanied or proceeded by a prospectus of any of the
selected Oppenheimer funds.
<PAGE>
STANDARD OFFICE LEASE-GROSS
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated, for reference purposes only, March ___,
1999, is made by and between South Bay Construction and Development Co. III &
South Bay Construction and Development Co. VII (herein called "Lessor"), and
Nettaxi, Inc, a Nevada corporation (herein called "Lessee").
1.2 PREMISES: Second floor space, consisting of approximately 8,644 rentable
square feet, more or less, as defined in Paragraph 2 and as shown on Exhibit "A"
hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 1696 Dell Avenue
in the City of Campbell, in the County of Santa Clara, State of California, and
as defined in Paragraph 2.
1.4 USE: Office, subject to Paragraph 6.
1.5 TERM: Three (3) years commencing May 1, 1999 or such other date as
the Improvements are completed, excluding any punchlist items "Commencement
Date") and ending thirty-six (36) months thereafter as defined in Paragraph 3.
1.6 BASE RENT: $21,610.00 per month, payable on the first day of each month,
per Paragraph 4.1.
1.7 BASE RENT INCREASE: At the commencement of the 13th and 25th
months, the monthly Base Rent payable under Paragraph 1.6 above shall be
increased to $22,582.00 and $23,599.00, respectively.
1.8 RENT PAID UPON EXECUTION: $21,610.00 for first month.
1.9 SECURITY DEPOSIT: $23,599.00.
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 12.06% as defined in
Paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS:
2.1 PREMISES: The Premises are a portion of a building, herein
sometimes referred to as the "Building" identified in Paragraph 1.3 of the Basis
Leave Provisions. The Premises, the Building, the Common Areas, the land upon
which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project". Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, Paragraph 1.2 as
the "Premises", including rights to the Common Areas as hereinafter specified.
2.2 VEHICLE PARKING: so long as Lessee is not in default, and subject to the
rules and regulations attached hereto, and as established by Lessor from time to
time, Lessee shall be entitled to use 34 parking spaces in the Office Building
Project.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, the Lessor shall
have the right, without notice, in addition to such other rights and remedies
that it may have, to remove or tow away the vehicle involved and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Office Building Project that are provided and designated by the
Lessor form time to time for the general non-exclusive use of Lessor, Lessee and
of other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including, but not limited to,
common entrances, lobbies, corridors, stairways and stairwells, public
restrooms, elevators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
1
<PAGE>
2.4 COMMON AREAS - RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project.
2.5 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time.
(a) To make changes to the Building interior and exterior and
Common Areas, including, without limitation, changes in the location, size,
shape, number, and appearance thereof, including, but not limited to, the
lobbies, windows, stairways, air shafts, elevators, escalators, restrooms,
driveways, entrances, parking spaces, parking areas, loading and unloading
areas, ingress, egress, direction of traffic, decorative walls, landscaped areas
and walkways; provided, however, Lessor shall at all times provide the parking
facilities required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available.
(c) To designate other land and improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provided that such other land and improvements have a reasonable and functional
relationship to the Office Building Project;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project as Lessor
may in the exercise of sound business judgment deem to be appropriate.
3. TERM.
3.1 Term. The Term and Commencement Date of this Lease shall be as
specified in Paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if
for any reason Lessor cannot deliver possession of the Premises to Lessee on
said date and subject to Paragraph 3.2.2, Lessor shall not be subject to any
liability therefore, nor shall such failure affect the validity of this Lease or
the obligations of Lessee hereunder or extend the term hereof; but, in such
case, Lessee shall not be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may at Lessee's option, by notice in writing to Lessor
within ten (10) days thereafter cancel this Lease, in which event the parties
shall be discharged from all obligations hereunder; provided, however, that, as
to Lessee's obligations, Lessee first reimburses Lessor for all costs incurred
for Non-Standard Improvements and, as to Lessor's obligations, Lessor shall
return any money previously deposited by Lessee (less any offsets due Lessor for
Non-Standard Improvements); and provided further, that if such written notice by
Lessee is not received by Lessor within said ten (10) day period, Lessee's right
to cancel this Lease hereunder shall terminate and be of no further force of
effect.
3.2.1 Possession Tendered - Defined. Possession of the Premises
shall be deemed tendered to Lessee ("Tender of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises, and (3)
Lessee has reasonable access to the Premises.
3.2.2 Delays Caused by Lessee. There shall be no abatement of rent,
and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under Paragraph 3.2, shall not be
deemed extended to the extent of any delays caused by acts or omissions of
Lessee, Lessee's agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event commencement of the lease
term is defined as the completion of the improvements, Lessee and Lessor shall
execute an amendment to this Lease establishing the date of Tender of Possession
(as defined in Paragraph 3.2.1) of the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in
Paragraph 4.3, and except as may be otherwise expressly provided in this Lease,
Lessee shall pay to Lessor the Base Rent for the Premises set forth in Paragraph
1.6 of the Basic Lease Provisions, without offset or deduction, Lessee shall pay
Lessor upon execution hereof the advance Base Rent described in Paragraph 1.8 of
the Basic Lease Provisions. Rent for any period during the term hereof which is
for less than one month shall be prorated based upon the actual number of days
of the calendar month involved. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.
2
<PAGE>
4.2 OPERATING EXPENSE INCREASE. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share, as hereinafter
defined, of the amount by which all Operating Expenses, as hereinafter defined,
for each Comparison Year exceeds the amount of all Operating Expenses for the
Base Year, such excess being hereinafter referred to as the "Operating Expense
Increase", in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease,
as the percentage set forth in Paragraph 1.10 of the Basic Lease Provisions,
which percentage has been determined by dividing the approximate square footage
of the Premises by the total approximate square footage of the rentable space
contained in the Office Building Project. It is understood and agreed that the
square footage figures set forth in the Basic lease Provisions are
approximations which Lessor and Lessee agree are reasonable and shall not be
subject to revision except in connection with an actual change in the size of
the Premises or change in the space available for lease in the Office Building
Project.
(b) "Base Year" is defined as the calendar year in which the Lease
term commences.
(c) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year; provided, however, Lessee shall
have no obligation to pay a share of the Operating Expense Increase applicable
to the first twelve (12) months of the Lease Term (other than such as are
mandated by a governmental authority, as to which government mandated expenses
Lessee shall pay Lessee's Share, notwithstanding they occur during the first
twelve (12) months). Lessee's Share of the Operating Expense Increase for the
first and last Comparison Years of the Lease Term shall be prorated according to
that portion of such Comparison Year as to which Lessee is responsible for a
share of such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease,
to include all costs, if any, incurred by Lessor in the exercise of its
reasonable discretion, for:
(i) The operation, repair, maintenance, and replacement,
in neat, clean, safe, good order and condition, of the Office Building Project,
including, but not limited to, the following:
(aa) The Common Areas, including their surfaces,
coverings, decorative items, carpets, drapes and window coverings, and including
parking areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, stairways, parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, Common Area lighting facilities, building exteriors and
roofs, fences and gates.
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of, lessees or occupants of the Office Building
Project, including elevators and escalators, tenant directories, fire detection
systems including sprinkler systems maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The costs of the premiums for the liability and property
insurance policies to be maintained by Lessor under Paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by
Lessor under Paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and
costs, materials, supplies and tools, used in maintaining and/or cleaning the
Office Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a
useful life for depreciation purposes according to federal income tax guidelines
of five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of
replacements of equipment or improvements that have a useful life for federal
income tax purposes in excess of five (5) years unless it is of the type
described in Paragraph 4.2(d)(viii), in which case their cost shall be included
as above provided.
3
<PAGE>
(f) Operating Expenses shall not include any expenses paid by
any lessee directly to third parties, or as to which Lessor is otherwise
reimbursed by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable
to Lessee within ten (10) days after a reasonable detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expenses Increase for any Comparison Year, and the same shall
be payable monthly or Quarterly, as Lessor shall designate, during each
Comparison Year of the Lease term, on the same day as the Base Rent is due
hereunder. In the event that Lessee pays Lessor's estimate of Lessee's Share of
Operating Expense Increase as aforesaid, Lessor shall deliver to Lessee within
sixty (60) days after the expiration of each Comparison Year a reasonably
detailed statement showing Lessee's Share of the actual Operating Expense
Increase incurred during such year. If Lessee's payments under this Paragraph
4.2(g) during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expenses Increase next falling due. If
Lessee's payments under this paragraph during said Comparison Year were less
than Lessee's Share as indicted on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement. Lessor and Lessee shall forthwith adjust between them
by cash payment any balance determined to exist with respect to that portion of
tire last Comparison Year for which Lessee is responsible as to Operating
Expense Increases, notwithstanding that the Lease term may have terminated
before the end of such Comparison Year.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder.
If Lessee fails to pay Rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Lease, Lessor may use, apply or
retain all or any portion of said Deposit for the payment of any Rent or other
charge in default for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss or
damage which Lessor may suffer thereby. If Lessor so uses or applies all or any
portion of said Deposit, Lessee shall within ten (10) days after written demand
therefor deposit cash with Lessor in an amount sufficient to restore said
Deposit to the full amount then required of Lessee. If the Monthly Base Rent
shall from time to time, increase during the term of this Lease, Lessee shall,
at the time of such increase, deposit with Lessor additional money as a Security
Deposit so that the total amount of the Security Deposit held by Lessor shall at
all times bear the same proportion to the then current Base Rent as the initial
Security Deposit bears to the initial Base Rent set forth in Paragraph 1.6 of
the Basic Lease Provisions. Lessor shall not be required to keep said Security
Deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said Deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in Paragraph
1.4 of the Basic Lease Provisions or any other use which is reasonably
comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee or the
use for which Lessee will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect an such Lease term Commencement Date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation
(b) Except as provided in Paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they elect a change in policy - front
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas in any manner that will tend to
create waste or a nuisance or shall tend to disturb other occupants of the
Office Building Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, and heating systems in the Premises shall be in good operating
condition, in the event that it is determined that this warranty has been
violated, then it shall be the obligation of Lessor, after receipt of written
notice from Lessee setting forth with specificity the nature of the violation,
to promptly, at Lessor's sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
arty exhibits attached hereon. Lessee nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
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<PAGE>
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building
Project, including the Premises, interior and exterior walls, roof, and Common
Areas, and the equipment whether used exclusively for the Premises or in common
with other premises, in good condition and repair; provided, however, Lessor
shall not be obligated to paint, repair or replace wall coverings, or to repair
or replace any improvements that are not ordinarily a part of the Building or
are above then Building standards. Except as provided in Paragraph 9.5, there
shall be no abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs, made by Lessor to the Office Building Project or any
part thereof. Lessee expressly waives the benefits of any statute now or
hereinafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in
good condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises and in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, Utility Installations or repairs in,
on or about the Premises, or the Office Building Project. As used in this
Paragraph 7.3 the term "Utility Installation' shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication wiring
and equipment. At the expiration of the term, Lessor may require the removal of
any or all of said alterations, improvements, additions or Utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions or Utility
Installations, Lessee shall use only such contractors as has been expressly
approved by Lessor, and Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in the amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or
Utility Installations without the prior approval of Lessor, or use a contractor
not expressly approved by Lessor, Lessor may, at any time during the term of
this Lease, require that Lessee remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Office Building Project that Lessee shall desire
to make shall be presented td Lessor in written form, with proposed detailed
plans. If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) day's notice prior
to the commencement of any work in the Premises by Lessee, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surely bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee
to pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest to do so.
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(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including, but
not limited to, floor coverings, panelings, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
Lease term) unless Lessor requires their removal pursuant to Paragraph 7.3(a).
Provided Lessee is not ii-t default, notwithstanding the provisions of this
Paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of Paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications
for any alterations, improvements, additions or Utility Installation.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee0's use of
the Premises.
8. INSURANCE; INDEMNITY.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Comprehensive
Liability Insurance utilizing an Insurance Services Office standard form with
Broad Form General Liability Endorsement (GL0404), or equivalent, in an amount
of not less than $1,000,000 per occurrence of bodily injury and property damage
combined or in a greater amount as reasonably determined by Lessor and shall
insure Lessee with Lessor as an additional insured against liability arising out
of the use, occupancy or maintenance of the Premises. Compliance with the above
requirement shall not, however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 PROPERTY INSURANCE - LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 PROPERTY INSURANCE - LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these Paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in Paragraph 9.1(0
hereof, the deductible amounts under the applicable insurance policies carried
shall be deemed an operating Expense. Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies carried by Lessor.
Lessee shall pay the entirety of any increase in the property insurance premium
for the Office Building Project over what it was immediately prior to the
commencement of the term of this Lease if the increase is specified by Lessor's
insurance carrier as being caused by the nature of Lessee's occupancy or any act
or omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of liability
insurance policies required under Paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be canceled or subject to
reduction of coverage or other modification except after thirty (30) days' prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this
Lease shall be endorsed to so provide.
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8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessors master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from any and all claims, costs and expenses
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorneys'
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including, but not limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessee need not have first paid
any such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this Paragraph 8 are adequate to cover Lessee's property or obligations under
this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
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(b) "Premises Building Partial Damage" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the Building.
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall
mean if the Office Building Project Buildings are damaged or destroyed to the
extent that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
Paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to
be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of Paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Damage
or Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of Paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in fail
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage, in which
event this Lease shall terminate as of the date of the occurrence of such
damage.
9.3 Premises Building Total Destruction, Office Building Project Total
Destruction. Subject to the provisions of Paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not its is an
Insured Loss, which falls into the classifications of either (i) Premises
Building Total Destruction, or (ii) Office Building Project Total Destruction,
then Lessor may at Lessor's option either (i) repair such damage or destruction
as soon as reasonably possible at Lessor's expense (to the extent the required
materials are readily available through usual commercial channels) to its
condition existing at the time of damage, but not to Lessee's fixtures,
equipment or tenant improvements, and this Lease shall continue in full force
and effect, or (ii) give written notice to Lessee within thirty (30) days after
the date of occurrence of such damage of Lessor's intention to cancel and
terminate this Lease, in which case this Lease shall terminate as of the date of
the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to Paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding Paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period, notwithstanding
any term or provision in the grant of option to the contrary.
9.5 ABATEMENT OF RENT, LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or
Premises pursuant to the provisions of this Paragraph 9, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services), the rent payable hereunder (including Lessee's Share of
Operating Expense Increase) for the period during which such damage, repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to the
extent the operation and profitability of Lessee's business as operated from the
Premises is adversely affected. Except for said abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including, but not limited to, the approval and/or
execution of plans and specifications required.
9.6 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
therefore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
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10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, defined in
Paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of Paragraph 4.2, except as otherwise provided in Paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under Paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special ordinary, and any license fee, commercial rental tax, improvement bond
or bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed on the Office Building Project or any portion thereof by any authority
having the direct or indirect power to tax, including any city, county, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, as against any legal or
equitable interest of Lessor in the Office Building Project. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax", or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax", or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a change in ownership, as
defined by applicable local statutes for property tax purposes, of the Office
Building Project or which is added to a tax or charge hereinbefore included
within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, arty
modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for which
are to be paid separately by Lessee under Paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuation assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, on good faith,
shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning,
and janitorial service as reasonably required, reasonable amounts of electricity
for normal lighting and office machines, water for reasonable and normal
drinking and lavatory use, and replacement light bulbs and/or fluorescent tubes
and ballasts for standard overhead fixtures.
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately
metered to the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor of all charges
jointly metered with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as may
hereafter be set forth. Utilities and services required at other times shall be
subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof. After hours usage of the HVAC system will be billed at $25 per hour.
Accepted business hours are 7:00 a.m. to 7:00 p.m. Monday through Friday.
11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including, but not limited to, security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
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11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. NONASSIGNMENT.
12.1 LESSEE'S CONSENT REQUIRED. Lessee's interest in this Lease is not
assignable, by operation of law or otherwise, nor shall Lessee have the right to
sublet the Premises, transfer any interest of Lessee therein or permit any use
of the Premises by another party, without the prior written consent of Lessor to
such assignment, subletting, transfer or use, which consent Lessor agrees not to
withhold unreasonably subject to the provisions of Subparagraph B below. A
consent to one assignment, subletting, occupancy or use by another party shall
not be deemed to be a consent to any subsequent assignment, subletting,
occupancy or use by another party. Any assignment or subletting without such
consent shall be void and shall, at the option of Lessor, terminate this Lease.
Lessor's waiver or consent to any assignment or subletting hereunder shall not
relieve Lessee from any obligation under this Lease unless the consent shall so
provide.
12.2 TRANSFEREE INFORMATION REQUIRED. If Lessee desires to assign its
interest in this Lease or sublet the Premises, or transfer any interest of
Lessee therein, or permit the use of the Premises by another party (hereinafter
collectively referred to as a "Transfer"), Lessee shall give Lessor at least
thirty (30) days prior written notice of the proposed Transfer and of the terms
of such proposed Transfer, including, but not limited to, the name and legal
composition of the proposed transferee, a financial statement of the proposed
transferee, the nature of the proposed transferee's business to be carried on in
the Premises, the payment to be made or other consideration to be given to
Lessee on account of the Transfer, and such other pertinent information as may
be requested by Lessor, all in sufficient detail to enable Lessor to evaluate
the proposed Transfer and the prospective transferee.- It is the intent of the
parties hereto that this Lease shall confer upon Lessee only the right to use
and occupy the Premises, and to exercise such other rights as are conferred upon
Lessee by this Lease. The parties agree that this Lease is not intended to have
a bonus value nor to serve as a vehicle whereby Lessee may profit by a future
Transfer of this Lease or the right to use or occupy the Premises as a result of
any favorable terms contained herein, or future changes in the market for leased
space. It is the intent of the parties that any such bonus value that may
attach to this Lease shall be and remain the exclusive property of Lessor.
Accordingly, in the event Lessee seeks to Transfer its interest in this Lease or
the Premises, Lessor shall have the following options, which may be exercised at
its sole choice without limiting Lessor in the exercise of any other right or
remedy which Lessor may have by reason of such proposed Transfer:
(a) Lessor may elect to terminate this Lease effective as of the
proposed effective date of the proposed Transfer and release Lessee from any
further liability hereunder accruing after such termination date by giving
Lessee written notice of such termination within twenty (20) days after receipt
by Lessor of Lessee's notice of intent to transfer as provided above. If Lessor
makes such election to terminate the Lease, Lessee shall surrender the Premises,
in accordance with Paragraph 34, on or before the effective termination date; or
(b) Lessor may consent to the proposed Transfer on the condition that
Lessee agrees to pay to Lessor, as additional rent, any and all rents or other
consideration (including key money) received by Lessee from the transferee by
reason of such Transfer in excess of the rent payable by Lessee to Lessor under
this Lease (less any reasonable brokerage commissions incurred by Lessee in
connection with the Transfer). Lessee expressly agrees that the foregoing is a
reasonable condition for obtaining Lessor's consent to any Transfer; or
(c) Lessor may reasonably withhold its consent to the proposed
Transfer.
13. DEFAULT, REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a
material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation
of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent
is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of Paragraphs 7.3.(a), (b) or (d) (Alterations), 12.1 (Assignment or
Subletting), 13.1(a) (Vacation or Abandonment), 13.1(e) (Insolvency), 13.1(0
(False Statement), 16(a) (Estoppel Certificate), 30(b) (Subordination), 33
(Auctions), or 41.1 (Easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by the
subparagraph.
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(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee other than those referenced in Subparagraphs (b) and (c) above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law,
such thirty (30) day notice shall constitute the sole and exclusive notice
required to be given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the case
of a petition filed against Lessee, the same is dismissed within sixty (60)
days); (iii) the appointment f a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this Paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 REMEDIES. In the event of any material default or breach of this Lease
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default, including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations to Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have thereforeto been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required to performance then Lessor shall not be in default if
Lessor commences performance within such 30day period and thereafter diligently
pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Office Building Project. Accordingly, if any
installment of Base Rent, Operating Expense Increase, or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10) days
after such amount shall be due, then, without any requirements for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to 6% of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's default with respect to such overdue amount, nor prevent
Lessor from exercising any of the other rights and remedies granted hereunder.
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14. CONDEMNATION. If the Premises or any portion thereof or the Office
Building Project are taken under the power of eminent domain, or sold under the
threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs;
provided that if so much of the Premises or the Office Building Project are
taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option, to be exercised only in writing within thirty (30)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within thirty (30) days after receipt after the
condemning authority shall have taken possession), to terminate this Lease as of
the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the rent and Lessee's Share of Operating Expense Increase shall be reduced
from the Common Areas usable by Lessee and no reduction of rent shall occur with
respect thereto or by reason thereof. Lessor shall have the option in its sole
discretion to terminate this Lease as of the taking of possession by the
condemning authority, by giving written notice to Lessee of such election within
thirty (30) days after receipt of notice of a taking by condemnation of any part
of the Premises or the Office Building Project. Any award for the taking of all
or any part of the Premises or the Office Building Project under the power or
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any separate award for loss of or damage to Lessee's trade fixtures,
removable personal property and unamortized tenant improvements that have been
paid for by Lessee. For that purpose the cost of such improvements shall be
amortized over the original term of this Lease excluding any options. In the
event that this Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of severance damages received by Lessor in connection with
such condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall pay any amount in excess of such severance damages
required to complete such repair.
15. BROKERS. Lessee represents and warrants to Lessor that it has not dealt
with any broker respecting this transaction except Wayne Mascia Associates and
hereby agrees to indemnify and hold Lessor harmless from and against any
brokerage commission or fee, obligation, claim or damage (including attorneys'
fees) paid or incurred respecting any other broker claiming through Lessee or
with which/whom Lessee has dealt. It is acknowledged that one or more of Lessor
partners may be real estate brokers.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to the responding party's knowledge, any uncured defaults on the
part of the requesting party, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Office Building Project or of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only
the owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in Paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
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19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided,
any amount due to Lessor not paid when due shall bear interest at the maximum
rate then allowable by law or judgments from the date due. Payment of such
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges incurred
by Lessee nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations
to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including, but not limited, to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in Paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall
be in writing and may be given by personal delivery or by certified or
registered mail, and shall be deemed sufficiently given if delivered or
addressed to Lessee or to Lessor at the address noted below or adjacent to the
signature of the respective parties, as the case may be. Mailed notices shall
be deemed given upon actual receipt at the address required, or forty-eight
hours following deposit in the mail, postage prepaid, whichever first occurs.
Either party may by notice to the other specify a different address for notice
purposes except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice purposes. A copy of all
notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach by Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
25. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession
of the Premises or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions of
this Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent (200%) of the rent payable immediately preceding
the termination date of this Lease, and all Options, if any, granted under the
terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
26. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
27. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
28. BINDING EFFECT, CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
Paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assignees. This Lease shall be governed by the laws of the state
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
29. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted hereby, at
Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed or trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
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(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this Paragraph 29(b).
30. ATTORNEYS' FEES.
30.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon, shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
30.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
30.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection herewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
31. LESSOR'S ACCESS.
31.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises of the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
31.2 All activities of Lessor pursuant to this Paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
31.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forcible or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
32. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in
violation of this Paragraph shall constitute a material default of this Lease.
33. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
34. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
35. CONSENTS. Except for Paragraphs 32 (Auctions) and 33 (Signs) hereof,
wherever in this Lease, the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
36. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
37. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Office Building Project.
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38. HAZARDOUS MATERIAL.
A. DEFINITIONS. As used herein, the term "Hazardous Material" shall mean
any substance: (i) the presence of which requires investigation or remediation
under any federal, state or local statutes, regulation, ordinance, order,
action, policy or common law; (ii) which is or becomes defined "hazardous
waste", "hazardous substance," pollutant or contaminant under any federal, state
or local statute, regulation, rule or ordinance or amendments thereto including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601 et seq.) and/or the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.); (iii) which is toxic,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic, or otherwise hazardous and is or becomes regulated by any
governmental authority, agency, department, commission, board, agency, or
instrumentality of the United States, the State of California or any political
subdivision thereof; (iv) the presence of which on the Premises causes or
threatens to cause a nuisance upon the Premises or to adjacent properties or
poses or threatens to pose a hazard to the health or safety of persons on or
about the Premises; (v) the presence of which on adjacent properties could
constitute a trespass to Lessor or Lessee; (vi) without limitation which
contains gasoline, diesel fuel, or other petroleum hydrocarbons; (vii) without
limitation which contains polychlorinated biphenyls (PCBs), asbestos or urea
formaldehyde foam insulation; or (viii) without limitation radon gas.
B. LESSOR'S INDEMNITY. Lessor shall indemnify, defend, protect and hold
Lessee harmless from and against all liabilities, claims, penalties, fines,
response costs and other expenses (including, but limited to, reasonable
attorneys' fees and consultants' fees and costs) arising out of, resulting from,
or caused by any Hazardous Material used, generated, discharged, transported to
or from, stored or disposed of by Lessor or its Agents in, on, under, over,
through or about the Premises and/or the surrounding real property.
C. PERMITTED USE. Subject to the compliance by Lessee with the provisions
of Subparagraphs D, E, F, G, I, J and K below, Lessee shall be permitted to use
and store on the Premises those Hazardous Materials listed in Exhibit "D"
attached hereto in the quantities attached set forth in Exhibit "D".
D. HAZARDOUS MATERIALS MANAGEMENT PLAN. Prior to Lessee using, handling,
transporting or storing any Hazardous Material at or about the Premises
(including, without limitation, those listed in Exhibit "D"), Lessee shall
submit to Lessor a Hazardous Materials Management Plan ("HMMP") for Lessor's
review and approval, which approval shall not be unreasonably withheld. The
HMMP shall describe: (i) the quantities of each material to be used, (ii) the
purpose for which each material is to be used, (iii) the method of storage of
each material, (iv) the method of transporting each material to and from the
Premises and within the Premises, (v) the methods Lessee will employ to monitor
the use of the material and to detect any leaks or potential hazards, and (vi)
any other information any department of any governmental entity (city, state or
federal) requires prior to the issuance of any required permit for the Premises
or during Lessee's occupancy of the Premises. Lessor may, but shall have no
obligation to review and approve the foregoing information and HMMP, and such
review and approval or failure to review and approve shall not act as an
estoppel or otherwise waive Lessor's rights under this Lease or relieve Lessee
of its obligations under this lease. If Lessor determines in good faith by
inspection of the Premises or review of the HMMP that the methods in use or
described by Lessee are not adequate in Lessor good faith judgment to prevent or
eliminate the existence of environmental hazards, then Lessee shall not use,
handle, transport, or store such Hazardous Materials at or about the Premises
unless and until such methods are approved by Lessor in good faith and added to
an approved HMMP. Once approved by Lessor, Lessee shall strictly comply with
the HMMP and shall not change its use, operations or procedures with respect to
Hazardous Materials without submitting an amended HMMP for Lessor's review and
approval as provided above.
E. USE RESTRICTION. Except as specifically allowed in Subparagraph C above,
Lessee shall not cause or permit any Hazardous Material to be used, stored,
generated, discharged, transported to or from, or disposed of in or about the
Premises, or any other land or improvements in the vicinity of the Premises.
Without limiting the generality of the foregoing, Lessee, at its sole cost,
shall comply with all Laws relating to the storage, use, generation, transport,
discharge and disposal by Lessee or its Agents of any Hazardous Material. If
the presence of any Hazardous Material on the Premises caused or permitted by
Lessee or its Agents results in contamination of the Premises or any soil, air,
ground or surface waters under, through, over, on, in or about the Premises,
Lessee, at its expense, shall promptly take all actions necessary to return the
Premises and/or the surrounding real property to the condition existing prior to
the appearance of such Hazardous Material.
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F. LESSEE INDEMNITY. Lessee shall defend, protect, hold harmless and
indemnify Lessor and its Agents and Lenders with respect to all actions, claims,
losses (including, diminution in value of the Premises), fines, penalties, fees,
(including, but not limited to, reasonable attorneys' and consultants' fees and
costs) costs, damages, liabilities, remediation costs, investigation costs,
response costs and other expenses arising out of, resulting from, or caused by
any Hazardous Material used, generated discharged, transported to or from,
stored, or disposed of by Lessee or its Agents in, on, under, over, through or
about the Premises and/or the surrounding real property. Lessee shall not
suffer any lien to be recorded against the Premises as a consequence for the
disposal of any Hazardous Material on the Premises by Lessee or its Agents,
including any so called state, federal or local "super fund" lien related to the
"clean up" of any Hazardous Material in, over, on, under, through, or about the
Premises.
G. COMPLIANCE. Lessee shall immediately notify Lessor of any inquiry, test,
investigation, enforcement proceeding by or against Lessee or the Premises
concerning any Hazardous Material. Any remediation plan prepared by or on
behalf of Lessee must be submitted to Lessor prior to conducting any work
pursuant to such plan and prior to submittal to any applicable government
authority and shall be subject to Lessor's consent. Lessor acknowledges that
Lessor, as the owner of the Property, at its election, shall have the sole right
to negotiate, defend, approve and appeal any action taken or order issued with
regard to any Hazardous Material by any applicable governmental authority.
H. ASSIGNMENT AND SUBLETTING. It shall not be unreasonable for Lessor to
withhold its consent to any proposed assignment or subletting if (i) the
proposed assignee's or subtenant's anticipated use of the Premises involves the
storage, generation, discharge, transport, use or disposal of any Hazardous
Material not permitted under Subparagraph C above; (ii) if the proposed assignee
or subtenant has been required by any prior landlord, lender, or governmental
authority to "clean up" or remediate any Hazardous Material and has failed to
promptly do so; (iii) if the proposed assignee or subtenant is subject to
investigation or enforcement order or proceeding by any governmental authority
in conjunction with the use, generation, discharge, transport, disposal or
storage of any material amount of Hazardous Material; provided that (ii) and
(iii) will not apply in the case of a Fortune 500 Company.
I. SURRENDER. Upon the expiration or earlier termination of the Lease,
Lessee, at its sole cost, shall remove all Hazardous Materials from the Premises
that Lessee or its Agents introduced to the Premises. If Lessee fails to so
surrender the Premises, Lessee shall indemnify, protect, defend and hold Lessor
harmless from and against all damages resulting from Lessee's failure to
surrender the Premises as required by this Paragraph, including, without
limitation, any actions, claims, losses, liabilities, fees (including but not
limited to, reasonable attorneys' fees and consultants' fees and costs), fines,
costs, penalties, or damages in connection with the condition of the Premises
including, without limitation, damages occasioned by the inability to relet the
Premises or a reduction in the fair market and/or rental value of the Premises
by reason of the existence of any Hazardous Materials in, on, over, under,
through or around the Premises.
J. RIGHT TO APPOINT CONSULTANT. Lessor shall have the right to appoint a
consultant to conduct an investigation to determine whether any Hazardous
Material is being used, generated, discharged, transported to or from, stored or
disposed of in, on, over, through, or about the Premises, in an appropriate and
lawful manner. If Lessor has violated any Law or covenant in this Lease
regarding the use, storage or disposal of Hazardous Materials on or about the
Premises, Lessee shall reimburse Lessor for the cost of such investigation.
Lessee, at its expense, shall comply with all reasonable recommendations of the
consultant required to conform Lessee's use, storage or disposal of Hazardous
Materials to the requirements of applicable Law or to fulfill the obligations of
Lessee hereunder.
K. HOLDING OVER. If any action of any kind is required to be taken by any
governmental authority to clean-up, remove, remediate or monitor Hazardous
Material (the presence of which is the result of the acts or omissions of Lessee
or its Agents) and such action is not completed prior to the expiration or
earlier termination of the Lease, Lessee shall be deemed to have impermissibly
held over until such time as such required action is completed, and Lessor shall
be entitled to all damages directly or indirectly incurred in connection with
such holding over, including without limitation, damages occasioned by the
inability to re-let the Premises or a reduction of the fair market and/or rental
value of the Premises.
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<PAGE>
L. EXISTING ENVIRONMENTAL REPORTS. Lessee hereby acknowledges that it has
received, read and reviewed the reports and test results described in Exhibit
"B" attached hereto and made a part hereof (the "Existing Environmental
Reports").
M. PROVISIONS SURVIVE TERMINATION. The provisions of this Paragraph 39
shall survive the expiration or termination of this Lease.
N. CONTROLLING PROVISIONS. The provisions of this Paragraph 39 are intended
to govern the rights and liabilities of the Lessor and Lessee hereunder
respecting Hazardous Materials to the exclusion of any other provisions in this
Lease that might otherwise be deemed applicable. The provisions of this
Paragraph 39 shall be controlling with respect to any provisions in this Lease
that are inconsistent with this Paragraph 39.
39. SECURITY MEASURES - LESSOR'S RESERVATIONS.
39.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide or other security measures for the benefit of the Premises
or the Office Building Project. Lessee assumes all responsibility for the
protection of Lessee, its agents, and invitees and the property of Lessee and of
Lessee's agents and invitees from acts of third parties. Nothing herein
contained shall prevent Lessor, at Lessor's sole option, from providing security
protection for the Office Building Project or any part thereof, in which event
the cost thereof shall be included within the definition of Operating Expense,
as set forth in Paragraph 4.2(b).
39.2 LESSOR SHALL HAVE THE FOLLOWING RIGHTS:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than ninety
(90) days prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business as
long as such exclusive does not conflict with any rights expressly given herein;
(d) To place such signs, notices or displays as Lessor reasonably deems
necessary or advisable upon the roof, exterior of the buildings or the Office
Building Project or on pole signs in the Common Areas;
39.3 LESSEE SHALL NOT.
(a) Use a representation (photographic or otherwise) of the
Building or the Office Building Project or their name(s) in connection with
Lessee's business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
40. EASEMENTS.
40.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
40.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
41. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
42. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
43. CONFLICT. Any conflict between the printed provisions, Exhibits or
Addenda of this Lease and the typewritten or handwritten provisions, if any,
shall be controlled by the typewritten or handwritten provisions.
17
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44. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
45. LENDER MODIFICATION. Lessee agrees to make such reasonable
modifications to this Lease as may be reasonably required by an institutional
lender in connection with the obtaining of normal financing or refinancing of
the Office Building Project.
46. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
47. WORK LETTER. This Lease is supplemented by that certain Work Letter of
even date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
48. ATTACHMENTS. Attached hereto are the following documents which
constitute a part of this Lease:
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACRION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
South Bay Construction and Development III Nettaxi, Inc.,
a Nevada corporation
By--------------- By------------------------
James D. Mair Dean J. Rositano
Its: General Partner Its: President & COO
By-------------- By------------------------
William F. Jury Robert Rositano
Its: General Partner Its: CEO
Executed at 2165 S. Bascom Avenue
Campbell, CA 95008
On------------------------------------
South Bay Construction and Development VII
By---------------------
James D. Mair
Its: General Partner
By--------------------
William F. Jury
Its: General Partner
Executed at 511 Division Street
Campbell, CA 95008
<PAGE>
WEST VALLEY CORPORATE CENTER
1696 DELL AVENUE, CAMPBELL
-------------["Exhibit A" SECOND FLOOR PLAN] -------------
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated:---------------
By and Between South Bay Construction and Development III & VII ("Lessor") and
Nettaxi, Inc. a Nevada corporation ("Lessee").
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways,
walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles, or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts, without prior consent of Lessor.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
Premises or Office Building Project.
9. Lessee shall not suffer or permit anything in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out
of the building only with the Lessor's knowledge and consent, and subject to
such reasonable limitations, techniques and timing, as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work
to be performed in the
Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 7:00 P.M. and
7:00 A.M. of the following day. If Lessee uses the Premises during such
periods, Lessee shall be responsible for securely locking any doors it may have
opened for entry.
13. Lessee shall return all keys at the termination of its tenancy and shall
be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars
or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other
than as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon
the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing cooking or
food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by
Lessor or any applicable governmental agency.
Initials:________
________
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21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular
Lessee, and any such waiver shall not constitute a waiver of any other rule or
regulation or any subsequent Application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles".
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles".
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of the
holder's parking privileges. Lessee will pay such replacement charge as is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces
from floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
- - -spaces, as long as the same complies with applicable laws, ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in the
areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
arty damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure of Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees, agents
and invitees comply with the applicable parking rules, regulations, laws and
agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and nondiscriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
EXHIBIT "B"
Initials:________
________
2
<PAGE>
WEST VALLEY CORPORATE CENTER
1696 DELL AVENUE, CAMPBELL
-------------["Exhibit C" SECOND FLOOR PLAN] -------------
<PAGE>
LIST OF SUBSIDIARIES OF THE COMPANY
Nettaxi Online Communities, Inc.
A Delaware Corporation.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report, in the Registration Statement on
Form S-1, dated March 16, 1999, relating to the balance sheets of Nettaxi, Inc.
as of December 31, 1998 and 1997, 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.
BDO Seidman, LLP
San Jose, California
May 6, 1999 (except with respect to the matters discussed in Note 13 as to
which the date is March 31, 1999).
