-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EETUHlen6VoSXUChyI/Pg5AknzOUFPv3E4k0SBr8jj+e3KHCXkco1lyWSby/GlKd dA5aV6ML15J8WzM4h9zd7g== 0001015402-99-001351.txt : 19991117 0001015402-99-001351.hdr.sgml : 19991117 ACCESSION NUMBER: 0001015402-99-001351 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NETTAXI INC CENTRAL INDEX KEY: 0001084876 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 820486102 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26109 FILM NUMBER: 99752879 BUSINESS ADDRESS: STREET 1: 2165 S BASCOM AVENUE CITY: SAN JOSE STATE: CA ZIP: 95008 BUSINESS PHONE: 4088799880 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number: 000-26109 NETTAXI.COM (Exact name of registrant as specified in its charter) Nevada 82-0486102 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 1696 Dell Avenue, Campbell, CA 95008 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (408) 879-9880 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: As of October 31, 1999, the registrant had 21,260,000 shares of common stock, $.001 par value per share, outstanding.
NETTAXI.COM CONTENTS Page No. ------------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets, September 30, 1999 (unaudited) and December 31, 1998 3 Condensed Consolidated Statements of Operations, Three and Nine Months Ended September 30, 1999 (unaudited) and September 30, 1998 (unaudited) 4 Condensed Consolidated Statements of Shareholders' Equity (Deficiency), December 31, 1998 and September 30, 1999 (unaudited) 5 Condensed Consolidated Statements of Cash Flows, Nine Months Ended September 30, 1999 (unaudited) and September 30, 1998 (unaudited) 6 Notes to Condensed Consolidated Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 28 PART II OTHER INFORMATION Item 1. Legal Proceedings 29 Item 2. Changes in Securities and Use of Proceeds 30 Item 3. Defaults Upon Senior Securities 30 Item 4. Submission of Matters to a Vote of Security Holders 30 Item 5. Other Information 30 Item 6. Exhibits and Reports on Form 8-K 31 SIGNATURES 32 EXHIBIT INDEX 33
2 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
NETTAXI.COM Condensed Consolidated Balance Sheets December 31, September 30, 1998 1999 -------------- --------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 465,800 $ 1,440,500 Accounts receivable, net of allowance for doubtful accounts of $31,200 and 133,700 1,019,000 $50,500, respectively Prepaid expenses and other assets 16,100 94,000 -------------- --------------- TOTAL CURRENT ASSETS 615,600 2,553,500 Property and equipment, net 255,100 2,070,000 Intangibles, net 782,000 629,000 Deferred expenses 709,500 Deposits-long term - 40,400 -------------- --------------- TOTAL ASSETS $ 1,652,700 $ 6,002,400 ============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES Accounts payable $ 186,900 $ 3,196,000 Accrued expenses 74,000 885,700 Income taxes payable - 100,000 Other current liabilities 59,700 40,700 -------------- --------------- TOTAL CURRENT LIABILITIES 320,600 4,222,400 Long-term liabilities - Convertible notes payable 5,000,000 -------------- --------------- TOTAL LIABILITIES 320,600 9,222,400 Commitments and contingencies SHAREHOLDERS' EQUITY (DEFICIENCY) Preferred stock, $.001 par value; 1,000,000 shares authorized; no shares issued and outstanding Common stock, $.001 par value; 50,000,000 shares authorized; 21,110,000 and 21,260,000 shares issued and outstanding, respectively 10,800 18,000 Additional paid-in capital 4,777,100 6,954,100 Accumulated deficit (3,455,800) (10,192,100) -------------- --------------- TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) 1,332,100 (3,220,000) -------------- --------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) $ 1,652,700 $ 6,002,400 ============== =============== **The accompanying notes are an integral part of these financial statements
3
NETTAXI.COM Condensed Consolidated Statement of Operations (Unaudited) Three Months ended Three Months ended Nine Months Nine months 9/30/98 9/30/99 ended 9/30/98 ended 9/30/99 -------------------- -------------------- --------------- --------------- Net Revenues $ 66,400 $ 1,102,500 $ 112,800 $ 2,980,900 Operating Expenses: Cost of operations 73,100 1,182,400 122,300 1,914,600 Sales and marketing 513,600 2,291,700 655,200 3,132,700 Research and development 286,500 855,500 517,800 1,585,200 General and administrative 461,100 748,100 655,200 2,756,700 Total Operating Expenses 1,334,300 5,077,700 1,950,500 9,389,200 Loss From Operations (1,267,900) (3,975,200) (1,837,700) (6,408,300) -------------------- -------------------- --------------- --------------- Interest Income 2,400 28,800 8,500 68,300 Interest Expense (17,800) (147,600) (68,800) (299,400) Other Income 28,500 Loss before income taxes (1,283,300) (4,094,000) (1,869,500) (6,639,400) -------------------- -------------------- --------------- --------------- Income Tax (Expense) Benefit - 4,900 (800) (96,700) Net Loss (1,283,300) (4,089,100) (1,870,300) (6,736,100) Net Loss Available to Common $ (1,283,300) $ (4,089,100) $ (1,884,600) $ (6,736,100) Shareholders Basic and diluted loss per common share $ (0.09) $ (0.19) $ (0.14) $ (0.32) Weighted average common shares 14,573,976 21,178,333 13,645,853 21,132,778 outstanding **The accompanying notes are an integral part of these financial statements
4
NETTAXI.COM Condensed Consolidated Statement of Shareholders' Equity (Deficiency) Common Stock Additional Paid-in Accumulated Shares Amount Capital Deficit Total ---------- ------- ------------------- ------------- ------------ Balances, December 31, 1998, (Audited) 14,110,000 $10,800 $ 4,777,100 $ (3,455,800) $ 1,332,100 Issuance of common stock in connection with pooling 7,000,000 7,000 (200) 6,800 Compensation expense related to options granted 634,700 634,700 Interest expense related to warrants granted 361,200 361,200 Warrants exercised for common stock 150,000 200 1,181,100 1,181,300 Net loss (6,736,100) (6,736,100) ---------- ------- ------------------- ------------- ------------ Balances, September 30, 1999 (unaudited) 21,260,000 $18,000 $ 6,954,100 $(10,192,100) $(3,220,000) ========== ======= =================== ============= ============ **The accompanying notes are an integral part of these financial statements
5
NETTAXI.COM Condensed Consolidated Statement of Cash Flows (Unaudited) Nine Months Ended Nine Months Ended September 30, 1998 September 30, 1999 -------------------- -------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (1,870,300) $ (6,736,100) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Gain on disposal of equipment (28,500) Depreciation and amortization 308,600 382,000 Allowance for doubtful accounts 19,300 Issuance of common stock for interest on convertible notes 68,800 Issuance of common stock for services and salaries 142,800 Compensation expense related to options granted 855,000 114,900 Interest expense related to warrants granted 171,500 Changes in operating assets and liabilities: Accounts receivable (500) (904,600) Prepaid expenses and other assets 12,500 (77,900) Accounts payable 66,900 3,009,100 Accrued expenses (7,200) 811,700 Income tax payable (600) 100,000 Note payable 20,000 - Other current liabilities 20,000 (14,000) -------------------- -------------------- NET CASH USED IN OPERATING ACTIVITIES (412,500) (3,124,100) -------------------- -------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of equipment 34,600 Deposits (40,400) Capital expenditures (21,600) (2,048,900) -------------------- -------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 13,000 (2,089,300) -------------------- -------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Convertible notes payable 5,000,000 Net proceeds from issuance of preferred stock 8,600 Net proceeds from issuance of common stock 1,200,100 1,188,100 -------------------- -------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,208,700 6,188,100 -------------------- -------------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 809,200 974,700 CASH AND CASH EQUIVALENTS, beginning of period 49,500 465,800 -------------------- -------------------- CASH AND CASH EQUIVALENTS, end of period $ 858,700 $ 1,440,500 ==================== ==================== **The accompanying notes are an integral part of these financial statements
6 NETTAXI.COM NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY Nettaxi.com (formerly Nettaxi, Inc. and formerly Swan Valley Snowmobiles, Inc.) (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., a Delaware corporation, and changed its name to Nettaxi, Inc. (now Nettaxi.com). 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. All shares and per share data prior to the acquisition have been restated to reflect the stock issuance and related stock split. 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 the periods prior to the reorganization are those of Nettaxi OnLine Communities, Inc. Nettaxi OnLine Communities, Inc. was incorporated on October 23, 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. Effective May 7, 1999, the Company completed a merger with Plus Net, Inc., a California corporation, by exchanging shares of its common stock for all of the outstanding shares of common stock of Plus Net, Inc. The Company's Web site, http://www.nettaxi.com, is an online community designed to seamlessly integrate content with e-commerce services for our subscribers, providing comprehensive information about news, sports, entertainment, health, politics, finances, lifestyle, and areas of interest to the growing number of Internet users. Our mission is to establish nettaxi.com as an entry point, or portal, to the Internet by continuing to develop premium online communities, which are both content-rich to our subscribers, the "citizens" of our communities, and provide easy-to-use e-commerce services to businesses which reside in these online communities. The Company's principal executive offices are located at 1696 Dell Avenue, Campbell, California 95008. The Company's telephone number at this address is (408) 879-9880. 2. FINANCIAL STATEMENT PRESENTATION The accompanying unaudited interim condensed consolidated financial statements as of September 30, 1999 and for the three and nine months ended September 30, 1999 and 1998, include accounts of Nettaxi.com and its subsidiary. All material intercompany balances and transactions have been eliminated. The unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items, which are, in opinion of management, necessary to present a fair statement of the results of the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results for the full year. 7 These condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying unaudited condensed consolidated financial statements do not include all footnotes and certain financial statements normally required under generally accepted accounting principles. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and related notes included in Nettaxi.com's (formerly Nettaxi, Inc.) Registration Statement on Form S-1 (Registration No. 333-78129) declared effective by the Securities and Exchange Commission on August 13, 1999. 3. NET LOSS PER COMMON SHARE The Company adopted SFAS No. 128, "Computation of Earnings Per Share," during the year ended December 31, 1997. In accordance with SFAS 128 and the SEC Staff Accounting Bulleting No. 98, basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if the weighted average number of common shares outstanding for the period included common equivalent shares. Common equivalent shares consist of the incremental common shares issuable upon the conversion of convertible preferred stock (using the if-converted method) and shares issuable upon the exercise of stock options and warrants (using the treasury stock method); common equivalent shares are excluded from the calculation if their effect is anti-dilutive. Diluted loss per share has not been presented separately, as the outstanding stock options, warrants and contingent stock purchase warrants are anti-dilutive for each of the periods presented. 4. CONVERTIBLE NOTES PAYABLE On March 31, 1999, the Company entered into a $5,000,000 Convertible Debt Financing Agreement for which proceeds were received in April 1999. The convertible debenture bears interest at 5% and matures on March 31, 2004. The debentures are convertible at the option of the holder into that number of shares of common stock equal to the principal amount of the debentures to be converted including all accrued interest, divided by the conversion price specified in the debentures. 5. REVENUE RECOGNITION The Company's revenues are derived principally from the sale of banner advertisements, the sale of products from its online mall and the hosting of websites for community content and e-commerce partners. 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. Advertisers are charged on a per impression or delivery basis up to a maximum as specified in the contract. To date, the duration of the Company's advertising commitments has not exceeded one year. When the Company guarantees a minimum number of impressions or deliveries, revenue is recognized ratably in proportion to the number of impressions or deliveries recorded to the minimum number of impressions and deliveries guaranteed. Product revenue is recognized upon shipment. Hosting revenues are recognized in the period the services are provided. 8 6. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION The following is supplemental disclosure for the statements of cash flows.
Nine Months Ended September 30, 1998 1999 ---------- ------ Cash Paid: - ------------------------------------------------------ Income taxes $ 1,400 $1,600 Interest $ 100 $2,500 Noncash Investing and Financing Activities: - ------------------------------------------------------ Issuance of common stock for convertible notes payable $1,020,000 $ - plus accrued interest Conversion of preferred stock to common stock $ 109,100 $ - Promissory notes received for common stock subscribed $ 95,000 $ -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE STRATEGIES THAT ARE SIGNIFIED BY THE WORDS "EXPECTS", "ANTICIPATES", "INTENDS", "BELIEVES", OR SIMILAR LANGUAGE. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND OTHER FACTORS. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF AND SPEAK ONLY AS OF THE DATE HEREOF. THE FACTORS DISCUSSED BELOW UNDER "RISK FACTORS" AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q ARE AMONG THOSE FACTORS THAT IN SOME CASES HAVE AFFECTED THE COMPANY'S RESULTS AND COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto. 9 OVERVIEW We were incorporated in October 1997 and launched our Web site in July 1998. Located in Campbell, California, we are a developer of commerce-enabled and content-rich communities which offer subscribers, or "citizens", a place to build their home pages or businesses on the Internet. 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 thematic "communities," and from there into "streets" and "homes." Nettaxi.com provides access to news, entertainment, sports, financial, and travel information and services such as free e-mail, personal home pages, chat and messages. To date, our revenues have been derived principally from the sale of advertisements. We sell a variety of advertising packages to clients, including banner advertisements, event sponsorships, and targeted and direct response advertisements. Currently, our advertising revenues are derived principally from short-term advertising arrangements, averaging one to six 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. We expect to continue to derive the majority of our revenue for the foreseeable future from the sale of advertising space on our Web site. In the third quarter of 1999, the Company began providing website hosting and internet connectivity services for corporate customers. Our services are delivered through a state-of-the-art Internet data center located in Southern California using a high-performance Internet backbone network. Customers pay monthly fees for the professional services utilized, one-time installation fees, and connectivity charges. These "hosting" revenues are recognized in the period the services are provided. In addition to advertising revenues, we derive other revenues from royalties from the distribution of our CD-ROM tutorial product and our premium account membership subscriptions. Royalty revenues result from relationships with computer manufacturers that bundle and distribute our CD-ROM product with their products. Our membership programs offer premium services for a monthly fee, providing additional services such as unlimited personal e-mail accounts for family or friends, unlimited Nettaxi Site Builder Web pages, themed Web page templates, a personal event calendar, discussion groups, and options to customize personal homepages with pictures, colors and content. In May 1999, we completed the merger with Plus Net, Inc., a California corporation, which has allowed us to provide our users with a web based e-mail program and a robust meta search engine. Plus Net also has an e-commerce processing engine which enables the acceptance and processing of online credit card transactions. We believe this merger also enhances our electronic commerce and advertising opportunities. 10 As a result of our merger with Plus Net, Inc. in May 1999, we received revenues from credit card processing fees during the first half of 1999, with minimal revenues being earned in the third quarter of 1999. The contract through which these fees have been derived will terminate in December 1999 and we anticipate that revenues of this type will be minimal in the foreseeable future. We also receive revenues from e-commerce transactions. Our recent e-commerce arrangements generally provide us with a share of any sales resulting from direct links from our site. Revenues from these programs will be recognized in the month that the service is provided. 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 in the foreseeable future, as we increase the number of contractual relationships with parties offering e-commerce related products and services which can be made available to our subscribers and parties seeking to make online sales to our subscribers and other visitors to our site. We believe that the popularity of our website continues to validate our strategy and prove the viability of the technology that we have acquired and developed since we launched our business in 1997. We are now poised to build on our early success by implementing a growth strategy that, if successful, should make us a major ready-to-use e-commerce storefront host, and allow us to meet our goal of becoming one of the top community-based portals on the Internet. Our strategic growth plan includes expansion of our products and services, widespread distribution of our CD ROM product to educate computer users about the Internet and introduce them to our site, and continued development of relationships with content providers and parties capable of enhancing e-commerce opportunities for our users. We incurred net losses of $3,127,900 and $6,736,100 for the year ended December 31, 1998, and the first nine months of fiscal 1999, respectively. At September 30, 1999, we had an accumulated deficit of $10,192,100. The net losses and accumulated deficit resulted from the significant operational, infrastructure and other costs incurred in the development and marketing of our services and the fact that revenues failed to keep pace with such costs. As a result of our expansion plans and our expectation that our operating expenses, especially in the areas of sales and marketing, will continue to increase significantly, we expect to incur additional losses from operations for the foreseeable future. To the extent that increases in our operating expenses precede or are not subsequently followed by commensurate increases in revenues, or that we are unable to adjust operating expense levels accordingly, our business, results of operations and financial condition would be materially and adversely affected. There can be no assurance that we will ever achieve or sustain profitability or that our operating losses will not increase in the future. To date, we have entered into business and technology license arrangements in order to build our website community, provide community-specific content, generate additional traffic, and provide our subscribers with additional products and services, including e-commerce tools. We intend to continue to investigate potential acquisitions and to seek additional relationships with content providers that fall within the scope of our business strategy, and will serve to increase our subscriber base and overall site traffic. Acquisitions carry numerous risks and uncertainties and we cannot guarantee that we will be able to successfully integrate any businesses, products, technologies or personnel that might be acquired in the future. 11 RESULTS OF OPERATIONS NET REVENUES. Revenues increased to approximately $1.10 million and $2.98 million for the three and nine months ended September 30, 1999, respectively, as compared to approximately $66,000 and $113,000 for the three and nine months ended September 30, 1998, respectively. The absolute dollar increases for both for the three and nine month period in 1999 over the comparable periods in 1998 were the result of the increase in the number of advertisers and the average contract duration and value (the result of higher web site traffic to nettaxi.com web pages), an increase in revenues from the hosting of community partners, transaction processing fee revenue, and to a lesser extent, increases in our royalties and customization fees associated with the distribution of our CD ROM product. Barter revenues accounted for less than 10% of total revenues for all reporting periods. ADVERTISING REVENUES. Advertising revenues were approximately $630,000 and $1.16 million for the three and nine months ended September 30, 1999, respectively, which represented 57% and 39%, respectively, of total net revenues. Advertising revenues were approximately $54,000 for both the three and nine months ended September 30, 1998, which represented 81% and 49%, respectively, of total net revenue. The absolute dollar increases for both the three and nine month periods in 1999 over the comparable periods in 1998 resulted from an increase in the number of advertisers as well as the increase in average contract commitments of these advertisers as a result of increased web traffic to our web site. In the third quarter of 1999, the Company hired additional internal sales personnel to begin direct sales to advertisers. We had deferred revenues of $30,000 at September 30, 1999 and $50,000 at December 31, 1998, attributable to prepaid advertising and prepaid CD ROM customization fees. TRANSACTION PROCESSING FEES. Transaction processing fees were approximately $6,000 and $1.29 million for the three and nine months ended September 30, 1999, respectively, which represented 0% and 43%, respectfully, of total net revenues. There were no transaction processing fees in 1998. Transactions fees consist of revenue derived from credit card evaluations and from the processing of on-line credit card transactions. The 1999 revenue is attributable to the merger with Plus Net, Inc. in May 1999. Revenues of this type were significantly lower in the third quarter of 1999 and we do not expect revenues of this type to be significant in future periods. HOSTING REVENUES. Our hosting revenues were approximately $410,000 and $420,000 for the three and nine months ended September 30, 1999, respectively, which represented 37% and 14%, respectively, of total net revenues. There were no hosting revenues in 1998. In the third quarter of 1999, the Company began providing internet hosting and connectivity services for corporate customers. Our services are delivered through a state-of-the-art Internet data center located in Southern California using a high-performance Internet backbone network. Customers pay monthly fees for the professional services utilized, one-time installation fees, and monthly connectivity charges. These "hosting" revenues were recognized in the period the services were provided. COST OF OPERATIONS. Cost of operations increased to approximately $1.18 million and $1.91 million for the three and nine months ended September 30, 1999, respectively, as compared to approximately $73,000 and $122,000 for the three and nine months ended September 30, 1998, respectively. The substantial absolute dollar increases in both the three and nine month periods in 1999 over the comparable periods in 1998 is the result of increased costs for co-location expenses (Internet connection charges), equipment costs and depreciation of equipment, amortization of intangible assets, and expenses for third party content and development. In the third quarter of 1999, the Company began providing Internet connectivity services to corporate customers and required purchases of additional bandwidth to service these customers. These costs are expected to continue to increase as our web traffic increases and our corporate customer require additional bandwidth for our "citizens". 12 SALES AND MARKETING EXPENSES. Sales and marketing expenses consisted primarily of salaries of our sales and marketing personnel, marketing, promotion, advertising and related costs. Sales and marketing expenses were approximately $2.29 million and $3.13 million for the three and nine month periods ended September 30, 1999, respectively, as compared to approximately $514,000 and $655,000 for the three and nine month periods ended September 30, 1998. The absolute dollar increases in both the three and nine month periods in 1999 over the comparable periods in 1998 in sales and marketing expenses 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. In the third quarter of 1999, the Company began to implement aggressive marketing campaigns online and in traditional media to promote the Nettaxi.com brand and attract an increasing number of visitors to our Web site. We expect sales and marketing expenses to increase significantly in future periods. These increases will be principally related to hiring additional sales and marketing personnel and increased spending on advertising in a variety of media to increase brand awareness and attract additional visitors to our Web site. There can be no assurance that these increased expenditures will result in increased visitors to our Web site or additional revenues. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were approximately $856,000 and $1.59 million for the three and nine month periods ended September 30,1999, respectively, as compared to approximately $287,000 and $518,000 for the three and nine month periods ended September 30, 1998. The absolute dollar increases for both the three and nine month periods in 1999 over the comparable periods in 1998 in research and development expenses were primarily attributable to ongoing updating of the infrastructure and technological development of our web site. The increase for the same period of each year also includes increased salaries that are a result of the highly competitive nature of hiring in the internet software marketplace. The Company experienced substantial costs for engineer consultants during both the three and nine month periods ended September 30, 1999 and expects these increased costs to continue as we continue to recruit and retain personnel to meet the research and development requirements of the Company. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consisted primarily of salaries and related costs for our executive, administrative, and finance personnel, as well as legal, accounting and other professional service fees. General and administrative expenses were approximately $748,000 and $2.76 million for the respective three and nine month periods ended September 30, 1999, as compared to approximately $461,000 and $655,000 for the respective three and nine month periods ended September 30, 1998. The increase in absolute dollars for both the three and nine month periods in 1999 over the comparable periods in 1998 in general and administrative expenses was primarily due to increases in the number of general and administrative personnel and the increase in fees for professional services. The increased salaries reflect the highly competitive nature of hiring in the internet software marketplace. We expect general and administrative expenses to grow as we hire additional personnel and incur additional expenses related to the growth of our business and our operation as a public company. 13 INTEREST EXPENSE. Net interest expense was approximately $119,000 and $231,000 for the respective three and nine month periods ended September 30, 1999, as compared to approximately $15,000 and $60,000 for the respective three and nine month periods ended September 30, 1998. The net interest expense for the respective three and nine month periods ended September 30, 1998 was primarily due to a convertible promissory note which, in September 1998, was converted in shares of common stock. The net interest expense for the respective three and nine month periods ended September 30, 1999 related to the convertible promissory note that was issued on March 31, 1999 and to amortization of deferred interest related to warrants issued in conjunction with the convertible promissory note. OTHER INCOME. In the nine months ended September 30, 1999 and 1998 we realized a gain of $0 and $28,500, respectively, from the disposal of capital equipment. INCOME TAXES. At December 31, 1998, we had net operating loss carryforwards available to reduce future taxable income that aggregate approximately $1,227,000 for Federal income tax purposes. These benefits expire through 2018. Pursuant to a "change in ownership" as defined by the provisions of the Tax Reform Act of 1986, utilization of our net operating loss carryforwards may be limited if a cumulative change of ownership of more than 50% occurs over a three-year period. We have not determined if an ownership change has occurred. In the nine months ended September 30, 1999 we have recorded a tax provision which relates to earnings made by Plus Net, Inc. during its fiscal period before our merger. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1999, the Company had cash and cash equivalents of approximately $1.44 million, compared to approximately $466,000 at December 31, 1998. Net cash used in operating activities equaled approximately $3.12 million and $413,000 for the nine-month periods ended September 30, 1999 and 1998, respectively. We had significant negative cash flows from operating activities for both of the nine month periods primarily from our net operating losses, adjusted for non-cash items, and increases in accounts receivable balances due to the time lag between revenue recognition and the receipt of payments from advertisers. These factors were offset by increases in accounts payable and accrued expenses. Net cash used in investing activities was approximately $2.09 million for the nine month period ended September 30, 1999, as compared to net cash provided by investing activities of approximately $13,000 for the nine month period ended September 30, 1998. For the nine month period ended September 30, 1999, substantially all of the cash used in investing activities was primarily related to the purchase of capital equipment in connection with the build out of our Web site and infrastructure. Net cash provided by financing activities was approximately $6.19 million and $1.21 million for the nine month periods ended September 30, 1999 and 1998, respectively. Net cash provided by financing activities in 1998 consisted primarily of net proceeds from the issuance of our common stock. Net cash provided by financing activities in 1999 consisted of both net proceeds from issuance of common stock and issuance of a convertible promissory note. 14 Our capital requirements depend on numerous factors, including market acceptance of our products and services, the 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 in relation to 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 plan to expand our sales and marketing programs and conduct more aggressive brand promotions. We expect to generate the necessary resources for these business objectives through a combination of operating revenues, the sale of equity securities in private placements, and debt financing. No assurances can be given, however, that we will be able to obtain such additional resources. If we are unsuccessful in generating anticipated resources from one or more of the anticipated sources, and unable to replace the shortfall with resources from another source, we may be able to extend the period for which available resources would be adequate by deferring the creation or satisfaction of various commitments, deferring the introduction of various services or entry into various markets, and otherwise scaling back operations. If we are unable to generate the required resources, our ability to meet our obligations and to continue our operations would be adversely affected. IMPACT OF THE YEAR 2000 Many currently installed computer systems and software products are coded to accept or recognize only two digit entries in the date code field. These systems may therefore recognize a date using "00" as the year 1900 rather than the year 2000. As a result, computer systems and/or software used by many companies and governmental agencies may need to be upgraded to comply with Year 2000 requirements or risk system failure or miscalculations causing disruptions of normal business activities. STATE OF READINESS. The third party vendors upon which we materially rely are Exodus Communications and Alchemy Communications, Inc., which house and service our Web equipment and provide our connection to the Internet. Both Exodus and Alchemy have informed us that they believe their systems to be Year 2000 compliant. In addition, we have sought 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 failed to provide certification that they are Year 2000 compliant, we have terminated and replaced these relationships with those who are Year 2000 compliant. We have conducted an internal assessment of all material information technology and non-information technology systems at our headquarters for Year 2000 compliance. We believe that these material systems are or will be Year 2000 compliant before December 31, 1999. COSTS. To date, we have not yet incurred any material costs in identifying or evaluating Year 2000 compliance issues. Most of our costs have related to, and are expected to continue to relate to, the upgrades or replacements, when necessary, of software or hardware, as well as costs associated with time spent by employees in the evaluation process and Year 2000 compliance matters generally. These expenses are included in our operating and capital expenditures budget and are not expected to exceed $100,000. However, if these costs are significantly higher than expected, they could have a material and adverse effect on our business, results of operations and financial condition. 15 RISKS. There can be no assurance that we will not discover Year 2000 compliance problems in our systems that will require substantial revisions or replacements. In the event that the operational facilities that support our business, or our Web-hosting facilities, are not Year 2000 compliant, we may be unable to deliver goods or services to our customers and portions of our Website may become unavailable. In addition, there can be no assurance that third party software, hardware or services incorporated into our material systems will not need to be revised or replaced, which could be time-consuming and expensive. Our inability to fix or replace third party software, hardware or services on a timely basis could result in lost revenues, increased operating costs and other business interruptions, any of which could have a material and adverse effect on our business, results of operations and financial condition. Moreover, the failure to adequately address Year 2000 compliance issues in our software, hardware or systems could result in claims of mismanagement, misrepresentation or breach of contract and related litigation, which could be costly and time-consuming to defend. In addition, there can be no assurance that governmental agencies, utility companies, Internet access companies and others outside our control will be Year 2000-compliant. The failure by these entities to be Year 2000-compliant could result in a systemic failure beyond our control, including, for example, a prolonged Internet, telecommunications or electrical failure, which could also prevent us from delivering our services to our users, decrease the use of the Internet or prevent users from accessing our services, any of which would have a material and adverse effect on our business, results of operations and financial condition. CONTINGENCY PLAN. We 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. We have taken into consideration the results of our Year 2000 compliance evaluation and the responses received from distributors, suppliers and other third parties with which we conduct business 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. This is a Year 2000 readiness disclosure statement within the meaning of the Year 2000 Information and Readiness Disclosure Act P.L. 105-271; however, the disclosures made herein do not affect our liabilities under the federal securities laws. 16 RISK FACTORS WE HAVE A LIMITED OPERATING HISTORY, HAVE INCURRED LOSSES SINCE INCEPTION, AND EXPECT LOSSES FOR THE FORESEEABLE FUTURE We were incorporated in October 1997. Accordingly, we have only a limited operating history upon which you can evaluate our business and prospects. Since our inception, we have incurred net losses, resulting primarily from costs related to developing our Web site, attracting users to our Web site and establishing the Nettaxi.com brand. At September 30, 1999, we had an accumulated deficit of $10,192,100. Losses have continued to grow faster than our revenues during our limited operating history over the last year and a half. This trend is reflective of our continued investments in technology and sales and marketing efforts to grow the business. Because of our plans to continue to invest heavily in marketing and promotion, to hire additional employees, and to enhance our Web site and operating infrastructure, we expect to incur significant net losses for the foreseeable future. We believe these expenditures are necessary to strengthen our brand recognition, attract more users to our Web site and generate greater online revenues. If our revenue growth is slower than we anticipate or our operating expenses exceed our expectations, our losses will be significantly greater. We may never achieve profitability. WE MAY NOT BE ABLE TO OBTAIN FURTHER CAPITAL TO PURSUE OUR BUSINESS OBJECTIVES Given our limited resources and our history of losses from operations, we will need to raise additional funds in order to fund expansion of our business, to develop new or enhanced services or products, to respond to competitive pressures or to acquire complementary products, businesses or technologies. No assurances can be given, however, that we will be able to obtain such additional resources. If we are unsuccessful in generating anticipated resources from one or more of the anticipated sources, and unable to replace the shortfall with resources from another source, we may be able to extend the period for which available resources would be adequate by deferring the creation or satisfaction of various commitments, deferring the introduction of various services or entry into various markets, and otherwise scaling back operations. If we are unable to generate the required resources, our ability to meet our obligations and to continue our operations would be adversely affected. WE ARE SUBJECT TO THE RISKS AND UNCERTAINTIES FREQUENTLY ENCOUNTERED BY EARLY STAGE COMPANIES IN NEW AND RAPIDLY EVOLVING MARKETS Due to our limited operating history, we are subject to many of the risks and uncertainties frequently encountered by early stage companies in new and rapidly evolving markets, such as e-commerce. Among other things, we are faced with the need to establish our credibility with customers, advertising, content providers, and companies offering e-commerce products and services, and such parties are often understandably reluctant to do business with companies that have not had an opportunity to establish a track record of performance and accountability. For example, our ability to enter into exclusive relationships to provide content over the Internet will be dependent on our ability to demonstrate that we can handle high volumes of traffic through our site. Similarly, early stage companies must devote substantial time and resources to recruiting qualified senior management and employees at all levels, and must also make significant investments to establish brand recognition. If we are unable to overcome some of these obstacles, we may be unable to achieve our business goals and raise sufficient capital to expand our business. 17 OUR REVENUE GROWTH IN PRIOR PERIODS IS NOT INDICATIVE OF FUTURE GROWTH AND WE CANNOT ACCURATELY PREDICT OUR FUTURE REVENUES We had revenues of approximately $2,980,900 and $112,800 for the first nine months of calendar year 1999 and 1998, respectively. While our growth rate has been strong, it is unlikely that revenue will continue to grow at this rate in the future and our performance during these periods should not be taken as being indicative of future trends. In addition, a portion of the revenues for the first nine months of 1999 were derived from credit card transaction processing fees that will decline significantly over the balance of 1999. Accurate predictions regarding our revenues in the future are difficult and should be considered in light of our limited operating history and rapid changes in the ever evolving Internet market. For example, our ability to generate revenues in the future is dependent in part on the success of our capital-raising efforts and the investments that we intend to make in sales and marketing, infrastructure, and content development. Our revenues for the foreseeable future will remain primarily dependent on the number of customers that we are able to attract to our Web site, and secondarily on sponsorship and advertising revenues. We cannot forecast with any degree of certainty the number of visitors to our Web site, the number of visitors who will become customers, or the amount of sponsorship and advertising revenues. Similarly, we cannot provide any guarantees regarding the revenues that will be generated from e-commerce products and services that we intend to make available on our site. OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, THEREBY INCREASING THE VOLATILITY OF OUR STOCK PRICE In addition to the uncertainties regarding the rate of growth of our future revenues, we anticipate that our operating results will fluctuate significantly from quarter to quarter. These fluctuations may be due to seasonal and cyclical patterns that may emerge in Internet e-commerce and advertising spending. For example, we believe that the use of our Web site will be somewhat lower during periods of the year if the patterns that currently effect traditional media, such as television and radio where advertising sales are lower during the first and third calendar quarters because of the summer vacation period and post winter holiday season slowdown, develop in the Internet industry. It is likely that similar seasonal patterns will develop in the Internet industry and thus result in decreasing revenues for us during periods of the year. Quarterly results may also vary for some of the same reasons and because it is difficult to predict the long-term revenue growth of our business. If investments in marketing and content development are delayed, we may experience corresponding delays in anticipated revenues from such investments, thereby leading to uneven quarterly results. Because of these factors, we believe that quarter-to-quarter comparisons of our results of operations are not good indicators of our future performance. If our operating results fall below the expectations of investors in future periods, then our stock price may decline. OUR NEED TO RAISE ADDITIONAL CAPITAL MAY CAUSE OUR STOCKHOLDERS TO EXPERIENCE SIGNIFICANT DILUTION IN THE FUTURE It is likely that we will need to raise additional funds in the future in order to pursue our business objectives. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution and such securities may have rights, preferences and privileges senior to those of our common stock. This may make an investment in our common stock less attractive to other investors, thereby weakening the trading market for our common stock. OUR PLANNED ONLINE AND TRADITIONAL MARKETING CAMPAIGNS MAY NOT ATTRACT SUFFICIENT ADDITIONAL VISITORS TO OUR WEB SITE We plan to pursue aggressive marketing campaigns online and in traditional media to promote the Nettaxi.com brand and attract an increasing number of visitors to our Web site. We believe that maintaining and strengthening the Nettaxi.com brand will be critical to the success of our business. This investment in increased marketing carries with it significant risks, including the following: 18 - - Our advertisements may not properly convey the Nettaxi.com brand image, or may even detract from our image. Advertising in print and broadcast media is expensive and is often typically difficult to modify quickly in order to take into account feedback that may indicate that we have failed to convey the optimal message. If our advertisements fail to positively promote our brand and image, the damage to our business may be long-lasting and costly to repair. - - Even if we succeed in creating the right messages for our promotional campaigns, these advertisements may fail to attract new visitors to our Web site at levels commensurate with their costs. We may fail to choose the optimal mix of television, radio, print and other media to cost effectively deliver our message. Moreover, if these efforts are unsuccessful, we will face difficult and costly choices in deciding whether and how to redirect our marketing dollars. WE MAY FAIL TO ESTABLISH AN EFFECTIVE INTERNAL SALES ORGANIZATION TO ATTRACT SPONSORSHIP AND ADVERTISING REVENUES To date, we have relied principally on outside advertising agencies to develop sponsorship and advertising opportunities. We believe that the growth of sponsorship and advertising revenues will depend on our ability to establish an aggressive and effective internal sales organization. Our internal sales team currently has nine members. We will need to substantially increase this sales force in the coming year in order to execute our business plan. Our ability to increase our sales force involves a number of risks and uncertainties, including competition and the length of time for new sales employees to become productive. If we do not develop an effective internal sales force, our business will be materially and adversely affected by our inability to attract sponsorship and advertising revenues. WE RELY HEAVILY ON THIRD PARTIES FOR DEVELOPMENT OF SOFTWARE AND CONTENT AND FOR ESSENTIAL BUSINESS OPERATIONS AND MAY BE ADVERSELY AFFECTED BY OUR FAILURE TO MAINTAIN SATISFACTORY RELATIONSHIPS WITH SUCH PARTIES We depend on third parties for important aspects of our business, including: - - Internet access; - - development of software for new Web site features; - - content; and 19 - - telecommunications. We have limited control over these third parties, and we are not their only client. We may not be able to maintain satisfactory relationships with any of them on acceptable commercial terms, and there is no guarantee that we will be able to renew these agreements at all. Further, we cannot be sure that the quality of products and services that they provide may remain at the levels needed to enable us to conduct our business effectively. WE ARE HEAVILY RELIANT ON THIRD PARTIES TO HOUSE AND SERVICE OUR WEB SITE AND ARE VULNERABLE TO POSSIBLE DAMAGE TO OUR OPERATING SYSTEMS We maintain substantially all of our computer systems at our Campbell, California site and the Santa Clara, California site of Exodus Communications. We are heavily reliant on the ability of Exodus to house and service our Web site. This system's continuing and uninterrupted performance is critical to our success. Growth in the number of users accessing our Web site may strain its capacity, and we rely on Exodus to upgrade our system's capacity in the face of this growth. Exodus also provides our connection to the Internet. Sustained or repeated system failures or interruptions of our Web site connection services would reduce the attractiveness of our Web site to customers and advertisers, and could therefore have a material and adverse effect on our business due to loss of membership and advertising revenues. In 1999 and 1998, we experienced several interruptions and degradations of service as a result of our third party service provider's inability to deliver the contractual bandwidth required to handle our traffic volume. These interruptions result in decreased Web usage volume and therefore impact our ability to serve advertising impressions for our customers. These interruptions can materially impact our revenues. We estimate that during 1998 we lost approximately $35,000 in revenue because of this and through September 1999, we lost an additional $35,000 in revenues. In addition, our operations are dependent in part on our ability to protect our operating systems against physical damage from fire, floods, earthquakes, power loss, telecommunications failures, break-ins or other similar events. Furthermore, our servers are vulnerable to computer viruses, break-ins and similar disruptive problems. The occurrence of any of these events could result in interruptions, delays or cessations in service to our users and result in a decrease in the number of visitors to our site. WE ARE GROWING RAPIDLY, AND EFFECTIVELY MANAGING OUR GROWTH MAY BE DIFFICULT We are currently experiencing a period of significant expansion. In order to execute our business plan, we must continue to grow significantly. This growth will strain our personnel, management systems and resources. To manage our growth, we must implement operational and financial systems and controls and recruit, train and manage new employees. Some key members of our management have only recently been hired, including our chief financial officer and controller. These individuals have had little experience working with our management team. We cannot be sure that we will be able to integrate new executives and other employees into our organization effectively. In addition, there will be significant administrative burdens placed on our management team as a result of our status as a public company. If we do not manage growth effectively, we will not be able to achieve our financial and business goals. 20 WE DEPEND ON OUR KEY PERSONNEL TO OPERATE OUR BUSINESS, AND WE MAY NOT BE ABLE TO HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL AS OUR BUSINESS GROWS Our performance is substantially dependent on the continued services and on the performance of our executive officers and other key employees, particularly Robert A. Rositano, Jr., our Chief Executive Officer, and Dean Rositano, our Chief Operating Officer. The loss of the services of any of our executive officers could materially and adversely affect our business due to their experience with our business plan and the disruption in the conduct of our day-to-day operations. Additionally, we believe we will need to attract, retain and motivate talented management and other highly skilled employees to be successful. Competition for employees that possess knowledge of both the Internet industry and our target market is intense. We may be unable to retain our key employees or attract, assimilate and retain other highly qualified employees in the future. INTENSE COMPETITION FROM OTHER INTERNET-BASED BUSINESSES MAY REDUCE OUR MARGINS AND MARKET SHARE AND CAUSE OUR STOCK PRICE TO DECLINE The markets in which we are engaged are new, rapidly evolving and intensely competitive, and we expect competition to intensify further in the future. Barriers to entry are relatively low, and current and new competitors can launch new sites at a relatively low cost using commercially-available software. Competition could result in price reductions for our products and services, reduced margins or loss of market share. Consolidation within the online commerce industry may also increase competition. We currently or potentially compete with a number of other companies, including a number of large online communities and services that have expertise in developing online commerce, and a number of other small services, including those that serve specialty markets. Many of our potential competitors have longer operating histories, larger customer bases, greater brand recognition in other business and Internet markets and significantly greater financial, marketing, technical and other resources than us. WE MAY FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER WEB SITES TO INCREASE NUMBERS OF WEB SITE USERS AND INCREASE OUR REVENUES We intend to establish numerous strategic relationships with popular Web sites to increase the number of visitors to our Web site. There is intense competition for placements on these sites, and we may not be able to enter into these relationships on commercially reasonable terms or at all. Even if we enter into relationships with other Web sites, they themselves may not attract significant numbers of users. Therefore, our site may not receive additional users from these relationships. Moreover, we may have to pay significant fees to establish these relationships. Our inability to enter into new distribution relationships and expand our existing ones could have a material and adverse effect on our business due to our inability to increase the number of users of our site. 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. 21 WE MAY NOT BE ABLE TO PROTECT AND ENFORCE OUR TRADEMARKS, WEB ADDRESSES AND PROPRIETARY RIGHTS Our Nettaxi.com brand and our Web address, www.nettaxi.com, are critical to our success. We have filed a trademark application for "Nettaxi", among other trademark applications. We cannot guarantee that any of these trademark applications will be granted. In addition, we may not be able to prevent third parties from acquiring Web addresses that are confusingly similar to our addresses, which could harm our business. Also, while we have entered into confidentiality agreements with our employees, contractors and suppliers in order to safeguard our trade secrets and other proprietary information, there can be no assurance that technology will not be misappropriated or that others may lawfully develop similar technologies. WE WOULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR MATERIAL THIRD PARTY SYSTEMS ARE NOT YEAR 2000-COMPLIANT We have not devised a Year 2000 contingency plan. The failure of our internal systems, or any material third party systems, to be Year 2000-compliant could have a material and adverse effect on our business, results of operations and financial condition if the compliance problems significantly impair access to and use of our Web site. To date, we have not incurred any material costs in identifying or evaluating Year 2000 compliance issues. Most of our costs have related to, and are expected to continue to relate to, the upgrades or replacements, when necessary, of software or hardware, as well as costs associated with time spent by employees in the evaluation process and Year 2000 compliance matters generally. These expenses are included in our operating and capital expenditures budget and are not expected to exceed $100,000. However, if these costs are significantly higher than expected, they could have a material and adverse effect on our business, results of operations and financial condition due to the need to spend substantial amounts on compliance. We may fail to discover Year 2000 compliance problems in our systems that will require substantial revisions or replacements. In the event that the operational facilities that support our business, or our Web-hosting facilities, are not Year 2000 compliant, portions of our Web site may become unavailable and we would be unable to deliver services to our users. In addition, there can be no assurance that third party software, hardware or services incorporated into our material systems will not need to be revised or replaced, which could be time-consuming and expensive. Our inability to fix or replace third party software, hardware or services on a timely basis could result in lost revenues, increased operating costs and other business interruptions. Moreover, the failure to adequately address Year 2000 compliance issues in our software, hardware or systems could result in claims of mismanagement, misrepresentation or breach of contract and related litigation, which could be costly and time-consuming to defend. 22 In addition, there can be no assurance that governmental agencies, utility companies, Internet access companies, third party service providers and others outside our control will be Year 2000 compliant. The failure by these entities to be Year 2000 compliant could result in a systemic failure beyond our control, including, for example, a prolonged Internet, telecommunications or electrical failure, which could also prevent us from delivering our services to our users, decrease the use of the Internet or prevent users from accessing our services. ACQUISITIONS MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON OUR BUSINESS We may acquire or make investments in complementary businesses, products, services or technologies on an opportunistic basis when we believe they will assist us in carrying out our business strategy. Growth through acquisitions has been a successful strategy used by other Internet companies. We do not have any present understanding relating to any such acquisition or investment. If we were to buy a content, service or technology company, the amount of time and level of resources required to successfully integrate their business operation could be substantial. The challenges in assimilating their people and organizational structure, and in encountering potential unforeseen technical issues in integrating their content, service or technology into ours, could cause significant delays in executing other key areas of our business plan. This could include delays in integrating other content, services or technology into our communities, or moving forward on other business development relationships, as management and employees, both of which are time constrained, may be distracted. In addition, the key personnel of the acquired company may decide not to work for us, which could result in the loss of key technical or business knowledge to us. Furthermore, in making an acquisition, we may have to incur debt or issue equity securities to finance the acquisition, the issuance of which could be dilutive to our existing shareholders. WE ARE VULNERABLE TO ADDITIONAL TAX OBLIGATIONS THAT COULD BE IMPOSED ON ONLINE COMMERCE TRANSACTIONS We do not expect to collect sales or other similar taxes in respect of transactions engaged in by customers on our Web site. However, various states or foreign countries may seek to impose sales tax obligations on us and other e-commerce and direct marketing companies. A number of proposals have been made at the state and local levels that would impose additional taxes on the sale of goods and services through the Internet. These proposals, if adopted, could substantially impair the growth of e-commerce and cause purchasing through our Web site to be less attractive to customers as compared to traditional retail purchasing. The United States Congress has passed legislation limiting for three years the ability of the states to impose taxes on Internet-based transactions. Failure to renew this legislation could result in the imposition by various states of taxes on e-commerce. Further, states have attempted to impose sales taxes on catalog sales from businesses such as ours. A successful assertion by one or more states that we should have collected or be collecting sales taxes on the sale of products could have a material and adverse effect on our business due to the imposition of fines or penalties or the requirement that we pay for the uncollected taxes. WE MAY NOT BE ABLE TO TAKE FULL ADVANTAGE OF POTENTIAL TAX BENEFITS FROM OUR NET OPERATING LOSS CARRYFORWARDS At December 31, 1998 we had net operating loss carryforwards available to reduce future taxable income that aggregated approximately $1,227,000 for Federal income tax purposes. These benefits expire through 2018. Pursuant to a "change in ownership" as defined by the provisions of the Tax Reform Act of 1986, utilization of our net operating loss carryforwards may be limited, if a cumulative change of ownership of more than 50% occurs over a three-year period. We have not determined if an ownership change has occurred. If it has, we may not be able to take full advantage of potential tax benefits from our net operating loss carry forwards. 23 WE ARE DEPENDENT ON THE CONTINUED DEVELOPMENT OF THE INTERNET INFRASTRUCTURE Our industry is new and rapidly evolving. Our business is highly dependant on the growth of the internet industry and would be adversely affected if Web usage and e-commerce does not continue to grow. Web usage may be inhibited for a number of reasons, including: - - inadequate Internet infrastructure; - - security concerns; - - inconsistent quality of service; - - unavailability of cost-effective, high-speed service; - - imposition of transactional taxes; or - - limitation of third party service provider's ability and willingness to invest in new or updated equipment to handle traffic volume. If Web usage grows, the Internet infrastructure may not be able to support the demands placed on it by this growth, or its performance and reliability may decline. We are highly dependant on third party service providers. Any interruption experienced by these service providers may have a material impact on our business due to our inability to serve our advertising customers or end users. In addition, Web sites, including ours, have experienced a variety of interruptions in their service as a result of outages and other delays occurring throughout the Internet network infrastructure. If these outages or delays frequently occur in the future, Web usage, including usage of our Web site, could grow slowly or decline. This may have a material impact on future revenues. OUR LONG-TERM SUCCESS DEPENDS ON THE DEVELOPMENT OF THE E-COMMERCE MARKET, WHICH IS UNCERTAIN Our future revenues and profits substantially depend upon the widespread acceptance and use of the Web as an effective medium of commerce by consumers. Rapid growth in the use of the Web and commercial online services is a recent phenomenon. Demand for recently introduced services and products over the Web and online services is subject to a high level of uncertainty. The development of the Web and online services as a viable commercial marketplace is subject to a number of factors, including the following: - - e-commerce is at an early stage and buyers may be unwilling to shift their purchasing from traditional vendors to online vendors; 24 - - insufficient availability of telecommunication services or changes in telecommunication services could result in slower response times; and - - adverse publicity and consumer concerns about the security of commerce transactions on the Internet could discourage its acceptance and growth. ADOPTION OF THE INTERNET AS AN ADVERTISING MEDIUM IS UNCERTAIN The growth of Internet sponsorships and advertising requires validation of the Internet as an effective advertising medium. This validation has yet to fully occur. In order for us to generate sponsorship and advertising revenues, marketers must direct a significant portion of their budgets to the Internet and, specifically, to our Web site. To date, sales of Internet sponsorships and advertising represent only a small percentage of total advertising sales. Also, technological developments could slow the growth of sponsorships and advertising on the Internet. For example, widespread use of filter software programs that limit access to advertising on our Web site from the Internet user's browser could reduce advertising on the Internet. Our business, financial condition and operating results would be adversely affected if the market for Internet advertising fails to further develop due to the loss of anticipated revenues. BREACHES OF SECURITY ON THE INTERNET MAY SLOW THE GROWTH OF E-COMMERCE AND WEB ADVERTISING AND SUBJECT US TO LIABILITY The need to securely transmit confidential information, such as credit card and other personal information, over the Internet has been a significant barrier to e-commerce and communications over the Web. Any well-publicized compromise of security could deter more people from using the Web or from using it to conduct transactions that involve transmitting confidential information, such as purchases of goods or services. Furthermore, decreased traffic and e-commerce sales as a result of general security concerns could cause advertisers to reduce their amount of online spending. To the extent that our activities or the activities of third party contractors involve the storage and transmission of proprietary information, such as credit card numbers, security breaches could disrupt our business, damage our reputation and expose us to a risk of loss or litigation and possible liability. We could be liable for claims based on unauthorized purchases with credit card information, impersonation or other similar fraud claims. Claims could also be based on other misuses of personal information, such as for unauthorized marketing purposes. We may need to spend a great deal of money and use other resources to protect against the threat of security breaches or to alleviate problems caused by security breaches. WE COULD FACE LIABILITY FOR INFORMATION DISPLAYED ON AND COMMUNICATIONS THROUGH OUR WEB SITE We may be subjected to claims for defamation, negligence, copyright or trademark infringement or based on other theories relating to the information we publish on our Web site. These types of claims have been brought, sometimes successfully, against Internet companies as well as print publications in the past. Based on links we provide to other Web sites, we could also be subjected to claims based upon online content we do not control that is accessible from our Web site. Claims may also be based on statements made and actions taken as a result of participation in our chat rooms or as a result of materials posted by members on bulletin boards at our Web site. We also offer e-mail services, which may subject us to potential risks, such as: 25 - - liabilities or claims resulting from unsolicited e-mail; - - lost or misdirected messages; - - illegal or fraudulent use of e-mail; or - - interruptions or delays in e-mail service. - - These claims could result in substantial costs and a diversion of our management's attention and resources. EFFORTS TO REGULATE OR ELIMINATE THE USE OF MECHANISMS WHICH AUTOMATICALLY COLLECT INFORMATION ON USERS OF OUR WEB SITE MAY INTERFERE WITH OUR ABILITY TO TARGET OUR MARKETING EFFORTS AND TAILOR OUR WEB SITE OFFERINGS TO THE TASTES OF OUR USERS Web sites typically place a tracking program on a user's hard drive without the user's knowledge or consent. These programs automatically collect data on anyone visiting a Web site. Web site operators use these mechanisms for a variety of purposes, including the collection of data derived from users' Internet activity. Most currently available Web browsers allow users to elect to remove these mechanisms at any time or to prevent such information from being stored on their hard drive. In addition, some commentators, privacy advocates and governmental bodies have suggested limiting or eliminating the use of these tracking mechanisms. Any reduction or limitation in the use of this software could limit the effectiveness of our sales and marketing efforts. WE COULD FACE ADDITIONAL BURDENS ASSOCIATED WITH GOVERNMENT REGULATION OF AND LEGAL UNCERTAINTIES SURROUNDING THE INTERNET Any new law or regulation pertaining to the Internet, or the application or interpretation of existing laws, could have a material and adverse effect on our business, results of operations and financial condition due to increased costs of doing business. Laws and regulations directly applicable to Internet communications, commerce and advertising are becoming more prevalent. The law governing the Internet, however, remains largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws governing intellectual property, copyright, privacy, obscenity, libel and taxation apply to the Internet. In addition, the growth and development of e-commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad. We also may be subject to future regulation not specifically related to the Internet, including laws affecting direct marketers. WE COULD INCUR MONETARY DAMAGES FROM LITIGATION ARISING OUT OF OUR BUSINESS ACTIVITIES On July 9, 1999, we were named as one of several defendants in a lawsuit filed by four disaffected shareholders in Simply Interactive, Inc. The lawsuit arises out of a series of events relating to certain assets our operating company, Nettaxi Online Communities, purchased from SSN Properties in October 1997. The complaint alleges that we owed, and either intentionally or negligently breached, fiduciary duties to the plaintiffs. The suit also claims that we either intentionally or negligently interfered with the plaintiffs' contract or prospective advantage. While our officers and directors believe that the suit is without merit, we cannot provide you with any assurances that we will prevail in this dispute. If the plaintiffs successfully prosecute any of their claims against us, the resulting monetary damages and reduction in our working capital could significantly harm our business. See Part II, Item 1, "Legal Proceedings". 26 SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE To date, we have had a very limited trading volume in our common stock. As of September 30, 1999, 2,060,000 shares of our common stock were immediately eligible for sale in the public market without restriction or further restriction under the Securities Act of 1933, unless purchased by or issued to any "affiliate" of ours, as that term is defined in Rule 144 promulgated under that act. However, an additional 11,950,337 shares of our common stock became eligible for sale under Rule 144 on November 11, 1999. We may also shortly file a registration statement to register all shares of common stock under our stock option plan. After that registration statement is effective, shares issued upon exercise of stock options, including options for 366,471 shares that were exercisable as of September 30, 1999, will be eligible for resale in the public market without restriction. If our stockholders sell substantial amounts of our common stock under Rule 144 or pursuant to the aforementioned registration statement, the market price of our common stock could be adversely affected and our ability to raise additional capital at that time through the sale of our securities could be impaired. ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A THIRD PARTY ACQUISITION OF US DIFFICULT We are a Nevada corporation. Anti-takeover provisions of Nevada law could make it more difficult for a third party to acquire control of us, even if such change in control would be beneficial to stockholders. Our articles of incorporation provide that our board of directors may issue preferred stock without stockholder approval. The issuance of preferred stock could make it more difficult for a third party to acquire us. All of the foregoing could adversely affect prevailing market prices for our common stock. OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AS IS TYPICAL OF INTERNET COMPANIES The market price of our common stock has been, and is likely to continue to be, highly volatile as the stock market in general, and the market for Internet-related and technology companies in particular, has been highly volatile. Investors may not be able to resell their shares of our common stock following periods of volatility because of the market's adverse reaction to volatility. The trading prices of many technology and Internet-related companies' stocks have reached historical highs within the last 52 weeks and have reflected valuations substantially above historical levels. During the same period, these companies' stocks have also been highly volatile and have recorded lows well below historical highs. We cannot assure you that our stock will trade at the same levels of other Internet stocks or that Internet stocks in general will sustain their current market prices. Factors that could cause such volatility may include, among other things: - - actual or anticipated fluctuations in our quarterly operating results; 27 - - announcements of technological innovations; - - conditions or trends in the Internet industry; and - - changes in the market valuations of other Internet companies. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We could be exposed to market risk related to any and all of our debt obligations for financing working capital and capital equipment requirements in the future. Historically we have financed such requirements from the issuance of both preferred and common stock. In addition, we have augmented our equity financing activities via the issuance of convertible debt financing. We continue to consider financing alternatives, which may include the incurrence of long-term indebtedness. Actual capital requirements may vary based upon the timing and success of the expansion of our operations. We believe that based on the terms and maturities of any future debt obligations that the market risk would be minimal. We currently do not have any material market rate risks. 28 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. On July 9, 1999, four disaffected shareholders in Simply Interactive, Inc., led by Ronald Ventre, filed an action in the Santa Clara County Superior Court (Case No. CV 783127) against Nettaxi.com, Nettaxi Online Communities, Inc., SSN Properties, LLC and certain of our officers, directors and shareholders. This action, which has been consolidated with another action in the Santa Clara County Superior Court (Case No. CV 776736), seeks recovery against the defendants for conduct which occurred prior to the existence of Nettaxi. Distinctions can be made between the claims that the Ventre group is pursuing against us and the other defendants. As to us, the suit claims that we owed, and either intentionally or negligently breached, fiduciary duties to the Ventre group. The suit also claims that we either intentionally or negligently interfered with the Ventre group's contract or prospective advantage. The Ventre group is seeking the following relief against us: - - an unstated amount of compensatory and special damages in the sum of their investments in Simply Interactive, plus prejudgment interest; - - an accounting of profits; - - punitive damages; and - - costs of suit, including attorney fees as permitted by law. The Ventre group's claims against the other defendants, while not clear, include all of the claims described above with respect to us as well as other claims of ineffective management, waste of assets and similar claims. In addition to the relief described above with respect to us, the Ventre group seeks the following from the other defendants: - - declaratory relief concerning the validity of the election of the board of directors of Simply Interactive; and - - orders for the inspection of corporate records in, and the holding of shareholder meetings for, Simply Interactive. Since the action was filed, discussions regarding a possible settlement have taken place. However, Ventre's group has demanded that Robert A. Rositano, Sr., Dean Rositano and Robert A. Rositano, Jr. give them shares of our common stock which had an approximate value of $2.08 million. Given that the Ventre group's original investment in Simply Interactive was approximately $675,000, and that the officers and directors of Nettaxi.com believe that the Ventre group's claims are without merit, the demand was rejected and the defendants intend to vigorously defend the litigation. In its agreement with us for the original sale and purchase of the assets, SSN Properties agreed to indemnify us against claims that might be brought by Simply Interactive with respect to rights that Simply Interactive might have in the transferred assets. We are currently seeking confirmation of the indemnity obligation from SSN Properties. 29 By stipulation, all defendants will file responsive pleadings on or before November 15, 1999. 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. That action has been dismissed without prejudice. 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. There has been no activity on this matter since April 1999. From time to time, we are involved in legal proceedings incidental to our business. We believe that these pending actions, individually and in the aggregate, will not have a material adverse effect on our financial condition, and that adequate provision has been made for the resolution of such actions and proceedings. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. In the three months ended September 30, 1999, we granted options to purchase an aggregate of 1,711,000 shares of our common stock to a total of 19 employees. In August, 1999 we entered into an agreement with RGC International Investors, LDC pursuant to which they exercised 150,000 warrants that were issued to them in connection with the issuance of convertible debentures to them on March 31, 1999 and registered by us upon the effectiveness of our S-1 Registration Statement on August 13, 1999. In consideration for the early exercise of their warrants, the exercise prices for the warrants was decreased from $12.375 to $7.857 and we issued RGC International Investors warrants to purchase an additional 150,000 shares of common stock. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Effective June 30, 1999, the Company, by written consent of holders of a majority of its outstanding common stock, approved an amendment to the Company's Articles of Incorporation to change the Company's name to "Nettaxi.com". ITEM 5. OTHER INFORMATION. Not applicable. 30 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits Exhibit Number Description of Exhibit 3.4 Certificate of Amendment of Articles of Incorporation 10.57 Master Services Agreement dated September 15, 1997 by and between Exodus Communications, Inc. and the Company. 10.58 Gigabit Data Center Services Agreement dated July 1, 1999 by and between Alchemy Communications, Inc. and the Company. 10.59 Advertising Impression Network Contract dated July 1, 1999 by and between White Sand Communications, Inc. and the Company. 10.60 Advertising Impression Network Contract dated July 1, 1999 by and between Multinet Communications Worldwide Limited and the Company. 10.61 Data Center Service Agreement dated July 15, 1999 by and between Babenet, LTD and the Company. 10.62 Data Center Service Agreement dated July 15, 1999 by and between Whitehorn Ventures Limited and the Company 10.63 Data Center Service Agreement dated August 15, 1999 by and between White Sand Communications, Inc. and the Company. 27 Financial Data Schedule (b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended September 30, 1999. 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NETTAXI.COM Date: November 14, 1999 By: /s/ Glenn Goelz ----------------- Glenn Goelz, Chief Financial Officer (Principal Accounting and Financial Officer) 32
(a) Exhibit Index Exhibit Number Description of Exhibit 3.4 Certificate of Amendment of Articles of Incorporation 10.57 Master Services Agreement dated September 15, 1997 by and between Exodus Communications, Inc. and the Company. 10.58 Gigabit Data Center Services Agreement dated July 1, 1999 by and between Alchemy Communications, Inc. and the Company. 10.59 Advertising Impression Network Contract dated July 1, 1999 by and between White Sand Communications, Inc. and the Company. 10.60 Advertising Impression Network Contract dated July 1, 1999 by and between Multinet Communications Worldwide Limited and the Company. 10.61 Data Center Service Agreement dated July 15, 1999 by and between Babenet, LTD and the Company. 10.62 Data Center Service Agreement dated July 15, 1999 by and between Whitehorn Ventures Limited and the Company 10.63 Data Center Service Agreement dated August 15, 1999 by and between White Sand Communications, Inc. and the Company. 27 Financial Data Schedule
33 EX-3.4 2 EXHIBIT 3.4 FILED OFFICE OF THE SECRETARY OF STATE STATE OF NEVADA AUG 13 1999 C18556-95 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF NETTAXI, INC. Dean Rositano and Robert A. Rositano, Jr. certify that: 1. They are the President and Secretary, respectively, of Nettaxi, Inc., a Nevada corporation (the "Corporation"). 2. The following amendments to the Articles of Incorporation, as amended, were adopted by the board of directors and by majority consent of the shareholders of the Corporation in the manner prescribed by applicable law. 3. ARTICLE I - NAME is amended in its entirety to read as follows: ARTICLE I - NAME The name of the Corporation is: NETTAXI.COM 4. ARTICLE XII is hereby added to read as follows: ARTICLE XII INDEMNIFICATION ---------------------------- The Corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person or his or her testator or intestate is or was a director, officer or employee of the Corporation, or any predecessor of the Corporation, or serves or served at any other enterprise as a director, officer or employee at the request of the Corporation or any predecessor to the Corporation. Any repeal or modification of this paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of the above-identified persons existing at the time of such repeal or modification. 5. The number of shares of the Corporation outstanding and entitled to vote at the time of the adoption of this amendment was 21,110,000. 6. The foregoing amendment has been duly approved by the required vote of the shareholders in accordance with Section 78.320(2) of the Nevada Revised Statutes. The number of shares voting in favor of this amendment was 12,698,423 (60%), which exceeded the vote required. The undersigned further declare under penalty of perjury under the laws of the States of Nevada and California that the matters set forth in this certificate are true and correct of their own knowledge. Dated: June 30, 1999 /s/ Dean Rositano ------------------- Dean Rositano, President /s/ Robert A Rositano, Jr. ------------------------------ Robert A. Rositano, Jr., Secretary State of California ) ) SS County of Santa Clara ) On this 2nd day of July, in the year 1999, before me Kathleen M. Catalano, the undersigned notary public personally appeared Dean Rositano and Robert A. Rositano, personally known to me (or proved to me on the basis of satisfactory evidence) to be the individuals whose names are subscribed to the within instrument and acknowledged to me that they executed the same in their respective capacities, and that by their signatures on the instrument the individuals, or the entity upon behalf of which individuals, acted, executed the instrument. WITNESS my hand and official seal. /s/ Kathleen Catalano ----------------------- Notary Public EX-10.57 3 EXHIBIT 10.57 EXODUS COMMUNICATIONS, INC. MASTER SERVICES AGREEMENT AGREEMENT No. _______ THIS MASTER SERVICES AGREEMENT (this "Agreement") is made effective as of the Acceptance Date ( ____________, 199__ ) indicated in the Services and Price Form attached hereto as Attachment I, by and between Exodus Communications, Inc., a California corporation doing business at 2650 San Tomas Expressway, Santa Clara, California 95051 ("Exodus") and the customer identified below ("Customer"). A. Exodus is in the business of providing managed Internet data center services to its Customers. B. Customer desires to engage Exodus to provide such services to Customer, and Exodus desires to provide such services, on the terms and conditions of this Agreement. C. Customer and Exodus have agreed to enter into this Agreement for Exodus's provision of, and Customer's payment to Exodus for such services. This Agreement, including all Attachments hereto listed below, which are incorporated herein by this reference, constitutes the complete and exclusive agreement between the parties with respect to the subject matter hereof, and supersedes and replaces any and all prior or contemporaneous discussions, negotiations, understandings and agreements, written and oral, regarding such subject matter. EXODUS COMMUNICATIONS, INC. Customer Name: INTERNET ASSOCIATES ------------------------- 2650 San Tomas Expressway Address: 2165 S. BASCOM AVE ------------------------- Santa Clara, CA 95051 CAMPBELL, CA 95008 ------------------------- Phone:(408) 346-2200 Phone: 408-260-6500 ------------------------- Fax:(408) 346-2206 Fax: 408-260-6601 ------------------------- Signature: _____________________ Signature: ______________________ Print Name: ___________________ Print Name: ____________________ Title: _________________________ Title: __________________________ Date: __________________________ Date: ___________________________ INCLUDES: ____ ATTACHMENT I: SERVICES AND PRICE ORDER FORM ____ ATTACHMENT 2: TERMS AND CONDITIONS ____ ATTACHMENT 3: RULES AND RFGULATIQNS ____ ATTACHMENT 4: CUSTOMER EQUIPMENT ____ ATTACHMENT 5: REGISTRATION FORM ____ ATTACHMENT 6: NEGOTIATED CHANGES Exodus Communications, Inc. Confidential EXODUS COMMUNICAT1ONS, INC. INTERNET DATA CENTER SERVICES ORDER FORM Customer Name: Nettaxi Online Communities Form Date: 4/I2/99 Form No: NT-499 IMPORTANT INFORMATION: (1) By submitting this Internet Data Center Services Order Form (Form) to Exodus Communications, Inc. (Exodus), Customer hereby places an order for the Internet Data Center Services described herein pursuant to the terms and conditions of the Internet Data Center Services Agreement between Customer and Exodus (IDC Agreement). (2) Billing, with the exception of Setup Fees, will commence on the earlier of the Installation Date indicated below or the date Customer actually installs its equipment or Exodus begins providing Internet Data Center Services. All Setup Fees will be billed upon receipt of a Customer signed IDC Services Order Form. (3) Exodus will provide the Internet Data Center Services pursuant to the terms and conditions of the IDC Agreement, which incorporates this Form. The terms of this Form supersede, and by accepting this Form, Exodus hereby rejects any conflicting or additional terms provided by Customer in connection with Exodus' provision of Internet Data Center Services. If there is a conflict between this Form and any other Form provided by Customer and accepted by Exodus, the Form with the latest date will control. (4) Exodus will not be bound by or required to provide lnternet Data Center Services pursuant to this Form or the IDC Agreement until each is signed by an authorized representative of Exodus. Customer to complete: CUSTOMER HAS READ, UNDERSTANDS AND HEREBY SUBMITS THIS ORDER Installation Date: 4/19/99 ---------------------- Submitted By: /s/ Submission Date: 4/15/1999 ---------------------- -------------------- (Authorized Signature) (Effective Date of IDC Agreement) Print Name: ---------------------- Title: V.P and I.S. ---------------------- Exodus Communications, Inc. Acceptance /s/ Sue Irvine Date: 6/4/99 - ------------------------ ----------------- (Authorized Signature) CUSTOMER'S INITIALS BS ---- EXODUS COMMUNICATIONS, INC. PROPRIETARY AND CONFIDENTIAL (Rev 6/05) ATTACHMENT 2 TERMS AND CONDITIONS 1.DEFINITIONS. 1.1 "Customer Area" means the portion of the Internet Data Centers made available to Customer hereunder for the placement of Customer Equipment 1.2 "Customer's Business" means Customer's services and/or products to be made available via the Internet in connection with this Agreement. 1.3 "Customer Equipment" means Customer's computer hardware and other tangible equipment identified in Attachment 4, as amended from time to time, that ------------- Customer places in the Customer Area pursuant to this Agreement. All changes in Customer Equipment, including but not limited to installation and removal of Customer Equipment, must be approved by Exodus. 1.4 "Customer Materials" means all software, data, information contained in documentation, and other information and intangibles used by Customer to operate, install, and/or maintain Customer's Business through the Customer Equipment or provided to Exodus by Customer for such purposes. 1.5 "Installation Date" means the earlier to occur of (i) the date indicated in the Services and Price Form by which Customer intends to install Customer Equipment in the Customer Area and (ii) the date the Customer Equipment is actually installed and operational. 1.6 "Internet Date Centers" means the sites owned or leased by Exodus containing the Customer Area and equipment used by Exodus to provide Internet Data Center Services. 1.7 "Internet Data Center Services" means the services and other benefits to be provided by Exodus to Customer under this Agreement, as described in Attachment ---------- 1 as amended from time to time, or substantially similar services if, in the - - reasonable opinion of Exodus, such substantially similar services would provide Customer with substantially similar benefits. 1.8 "Representatives" means the individuals identified and authorized by Customer to have access to the Internet Data Centers and the Customer Area in accordance with this Agreement, whose names are listed in Section 4.4 herein. The Representatives may be changed by Customer from time to time by written notice to Exodus. 1.9 "Rules and Regulations" means the general rules and regulations issued by Exodus relating to its provision of Internet Data Center Services to its customers, the current version of which is attached as Attachment 3, which may ------------ be updated by Exodus from time to time. 2 INTERNET DATA CENTER SERVICES. Subject to the terms and conditions of this Agreement, during the term of this Agreement, Exodus will provide to Customer the Internet Data Center Services. 3. FEES AND BILLING. 3.1 Fees. Customer will pay all fees due hereunder according to the Services and Price Form attached as Attachment 1, as amended from time to time. Exodus may ------------ increase the fees after the first (1st) anniversary of the Installation Date, and Customer agrees to pay such increased fees. 3.2 Billing Commencement. Billing for Internet Data Center Services indicated in the initial Services and Price Form shall commence on the Installation Date, regardless of whether Customer has installed the Customer Equipment or commenced use of the Internet Data Center Services; provided, however, that if Customer is unable to install the Customer Equipment and/or use the Internet Data Center Services by the Installation Date due to the fault of Exodus, billing will not begin until the date Exodus has remedied such fault. In the event that the Services and Price Form is amended after the Installation Date to include additional Internet Data Center Services, billing for such services shall commence on the date Exodus first provides such additional Internet Data Center Services to Customer. 3.3 Billing and Payment Terms. Customer will be billed monthly in advance of the provision of Internet Data Center Services, and payment of such fees will be due within thirty (30) days of the date of each Exodus invoice. All payments will be made in U.S. dollars at Exodus' address set forth in this Agreement or at such other address, as Exodus may from time to time indicate by proper notice to Customer. Late payments hereunder will accrue interest at a rate of one and one-half percent (1 /2%) per month, or the highest rate allowed by applicable law, whichever is lower. If in its judgment Exodus determines that Customer is not creditworthy or is otherwise not financially secure, Exodus may, upon written notice to Customer modify' the payment terms to require full payment before the provision of Internet Data Center Services or other assurances to secure Customer's payment obligations hereunder. 3.4 Taxes. All payments required by this Agreement are exclusive of all national, state, municipal or other governmental excise, sales, value-added, use, personal property, and occupational taxes, excises, withholding taxes and obligations and other levies now in force or enacted in the future, all of which Customer will be responsible for and will pay in full, except for taxes based on Exodus' net income. 4. CUSTOMER'S OBLIGATIONS. 4.1 Compliance with Law. Customer agrees that in connection with the exercise of its rights and performance of its obligations under this Agreement, Customer will comply with all applicable laws and regulations. Customer acknowledges that Exodus exercises no control whatsoever over the content of the information passing through its Internet Data Centers, and that it is the sole responsibility of Customer to ensure that the information it transmits and receives complies with all applicable laws and regulations. 4.2 Compliance with Rule and Regulations. Customer agrees that it will comply at all times with Exodus' Rules and Regulations in existence from time to time. 4.3 Customer's Costs. CUSTOMER AGREES THAT IT WILL BE SOLELY RESPONSIBLE, AND AT ECODUS'S REQUEST WILL REIMBURSE EXODUS, FOR ALL COSTS AND EXPENSES (OTHER THAN THOSE INCLUDED AS PART OF THE INTERNET DATA CENTER SERVICES), AND THIRD PARTY CLAIMS THAT MAY RESULT FROM ITS USE OF, OR ACCESS TO, THE INTERNET DATA CENTERS AND/OR CUSTOMER AREA, INCLUDING BUT NOT LIMITED TO ANY UNAUTHORIZED USE OF ANY ACCESS DEVICES PROVIDED BY EXODUS HEREUNDER. EXCEPT WITH THE ADVANCED WRITTEN CONSENT OF EXODUS, CUSTOMER'S ACCESS TO THE INTERNET DATA CENTERS WILL BE LIMITED SOLELY TO ITS REPRESENTATIVES LISTED ON THE REGISTRATION FORM ATTACHED HERETO AS ATTACHMENT 5, AS AMENDED FROM TIME TO TIME. 4.4 Access and Security. CUSTOMER WILL. BE FULLY RESPONSIBLE FOR ANY CHARGES, COSTS, EXPENSES (OTHER THAN THOSE INCLUDED IN THE INTERNET DATA CENTER SERVICES), AND THIRD PARTY CLAIMS THAT MAY RESULT FROM ITS USE OF, OR ACCESS TO, THE INTERNET DATA CENTERS AND/OR CUSTOMER AREA, INCLUDING BUT NOT LIMITED TO ANY UNAIJTHORIZED USE OF ANY ACCESS DEVICES PROVIDED BY EXODUS HEREUNDER. EXCEPT WITH THE ADVANCED WRITTEN CONSENT OF EXODUS, CUSTOMER'S ACCESS TO THE INTERNET DATA CENTERS WILL BE LIMITED SOLELY TO ITS REPRESENTATIVES LISTED ON THE REGISTRATION FORM ATTACHED HERETO AS ATTACHMENT 5, AS AMENDED FROM TIME TO TIME. 4.5 No Competitive Services. Customer may not at any time permit any Internet Data Center Services to be utilized for the provision of any services that compete with any Exodus services, without Exodus' prior written consent. 4.6 Insurance (a) Minimum Levels. Customer will keep in force and effect during the terms of this Agreement (I) comprehensive general liability insurance in an amount not less than $5 million per occurrence for bodily injury and property damage; (ii) employer's liability insurance in an amount not less than $I million per occurrence; and (iii) workers compensation insurance in any amount not less than that required by applicable law. Customer also agrees that it and its agents (including contractors and subcontractors) will maintain other insurance at levels no less than those required by applicable law and customary in Customer's and its agents' industries. (b) Certificates of Insurance. Prior to installation of any Customer Equipment in the Customer Area, Customer will furnish Exodus with certificates of insurance which evidence the minimum levels of insurance set forth above. (c) Naming Exodus as an Additional Insured. Customer agrees that prior to the installation of any Customer Equipment., Customer will cause its insurance provider(s) to name Exodus as an additional insured and notify Exodus in writing of the effective date thereof. 5. REPRESENTATIONS AND WARRANTIES. 5.1 Warranties by Customer. (a) Customer Equipment and Customer Materials. Customer represents and warrants that it owns or has the legal right and authority, and will continue to own or maintain the legal right and authority during the term of this Agreement, to place and use the Customer Equipment as contemplated by this Agreement, and to use, modify, transmit, and distribute the Customer Materials without infringing, misappropriating, or otherwise violating any intellectual property rights of any third party. Customer further represents and warrants that its placement, arrangement, and use of the Customer Equipment in the Internet Data Centers complies with the Customer Equipment and Customer Materials Manufacturer's environmental and other specifications. (b) Rules and Regulations. Customer has read the Rules and Regulations and represents and warrants that Customer and Customer's Business are currently in full compliance with the Rules and Regulations, and will remain so at oil times during the term of this Agreement. (c) Customer's Business. Customer is familiar with the laws and regulations applicable to Customers Business. Customer represents and warrants that Customer's Business does not as of the Installation Date, and will not during the term of this Agreement, contain or transmit any material that would violate any applicable local, state, national, foreign or international law. In the event of any breach, or reasonably anticipated breach, of such warranty, in addition to any other remedies available at law or in equity, Exodus will have the right immediately, in Exodus' sole discretion: (i) to terminate or restrict access to any such materiaIs in any manner; and/or (ii) to suspend any related Internet Data Center Services. 5.2 Warranties and Disclaimers by Exodus. (a) Service Level Warranty. In the event Customer is unable to transmit and receive information from Exodus' Internet Data Centers to other portions of the Internet and Customer notifies Exodus immediately of such event and Exodus determines in its reasonable judgment that such inability was caused by Exodus' failure to provide Internet Data Center Services for reasons within Exodus' reasonable control and not as a result of any actions or inactions of Customer or any third parties, Exodus will, upon Customer's request, credit Customer's account as follows: If Exodus failed to provide the Internet Data Center Services for (i) more than two (2) consecutive hours in a calendar month, Exodus will credit Customer's account the connectivity charges for one (I) day of service; and (ii) more than eight (8) consecutive hours in a calendar month. Exodus will credit Customer's account the connectivity charges for one (I) wcek of service. The foregoing credits shall not be cumulative, regardless of the number of such occurrences. Exodus' scheduled maintenance of the Internet Data Centers and Internet Data Center Services, as described in the Rules and Regulations, shall not be deemed to be a failure of Exodus to provide Internet Data Center Services. THIS SECTION 5.2(a) STATES CUSTOMER'S SOLE AND EXCLUSIVE REMEDY (OTHER THAN TERMINATION OF THIS AGREEMENT) FOR ANY FAILURE BY EXODUS TO PROVIDE INTERNET DATA CENTER SERVICES. (b) No Other Warranty. EXCEPT FOR THE EXPRESS WARRANTY SET OUT IN SUBSECTION (a) ABOVE, ALL SERVICES PERFORMED AND PRODUCTS PROVIDED AND SPACE MADE AVAILABLE BY EXODUS HEREUNDER ARE PERFORMED, PROVIDED, AND MADE AVABABLE ON AN "AS IS" BASIS, AND CUSTOMER'S USE OF THE INTERNET DATA CENTERS IS AT ITS OWN RISK. EXODUS DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL OTHER EXPRESS AND/OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT, AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICE. EXODUS DOES NOT WARRANT THAT THE INTERNET DATA CENTER SERVICES PROVIDED HEREUNDER WILL BE UNINTERRUPTED, ERROR-FREE, OR COMPLETELY SECURE. (c) Disclaimer of Actions Caused by and/or Under the Control of Third Parties. WHILE EXODUS' INTERNET DATA CENTER SERVICES PROVIDE CUSTOMERS WITH CONNECTIVITY TO THE INTERNET. EXODUS DOES NOT AND CANNOT CONTROL THE FLOW OF INFORMATION TO OR FROM EXODUS INTERNET DATA CENTERS TO OTHER PORTIONS OF THE INTERNET. SUCH FLOW DEPENDS IN LARGE PART ON THE PERFORMANCE OF INTERNET SERVICES PROVIDED OR CONTROLLED BY THIRD PARTIES. AT TIMES, ACTIONS OR INACTIONS CAUSED BY THESE THIRD PARTIES CAN PRODUCE SITUATIONS IN WHICH EXODUS' CUSTOMERS' CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF) MAY BE IMPAIRED OR DISRUPTED. ALTHOUGH EXODUS WILL USE COMMERCIALLY REASONABLE EFFORTS TO TAKE ACTIONS IT DEEMS APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS, EXODUS CANNOT GUARANTEE THAT THEY WILL NOT OCCUR ACCORDINGLY, EXODUS DISCLAIMS ANY AND ALL LIABILITY RESULTING FROM OR REATED TO SUCH EVENTS. 6. LIMITATIONS OF LIABILITY. 6.1 Personal Injury. EACH REPRESENTATIVE, AND ANY OTHER PERSONS, VISITING THE INTERNET DATA CENTERS DOES SO AT ITS OWN RISK AND EXODUS ASSUMES NO LIABILITY WHATSOEVER FOR ANY HARM TO SUCH PERSONS RESULTING IN PERSONAL INJURY TO SUCH PERSONS DURING SUCH A VISIT. 6.2 Damage to Customer Equipment or Materials (a) CERTAIN CUSTOMER EQUIPMENT, INCLUDING BUT NOT LIMITED TO CUSTOMER EQUIPMENT LOCATED ON CYBERRACKS, MAY BE DIRECTLY ACCESSABLE BY OTHER CUSTOMERS. EXODUS ASSUMES NO LIABILITY FOR ANY DAMAGE TO, OR LOSS OF, ANY CUSTOMER EQUIPMENT RESULTING FROM ANY CAUSE OTHER THAN EXODUS' GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. TO THE EXTENT EXODUS IS LIABLE FOR ANY DAMAGE TO, OR LOSS OF, THE CUSTOMER EQUIPMENT FOR ANY REASON, SUCH LIABILITY WILL BE LIMITED SOLELY TO THE THEN-CURRENT VALUE OF THE CUSTOMER EQUIPMENT. (b) EXODUS ASSUMES NO LIABILITY FOR ANY DAMAGE TO, OR LOSS OF, ANY CUSTOMER MATERIALS RESULTING FROM ANY CAUSE WHATSOEVER. 6.3 Exclusions. EXCEPT AS SPECIFIED IN SECTIONS 6.1 AND D 6.2, IN NO EVENT WILL EXODUS BE LIABLE TO CUSTOMER, ANY REPRESENTATIVE, OR ANY THIRD PARTY FOR: (a) ANY CLAIMS ARISING OUT OF OR RELATED TO THE CUSTOMER EQUIPMENT, THE CUSTOMER MATERIALS, THE CUSTOMER'S BUSINESS, OR OTHERWISE; AND (b) ANY LOST ADVERTISING OR OTHER REVENUE, LOST PROFITS, REPLACEMENT GOODS, LOSS OF TECHNOLOGY, RIGHTS OR SERVICES, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, LOSS OF DATA, OR INTERRUPTION OR LOSS OF USE OF SERVICE OR OF ANY CUSTOMER EQUIPMENT OR CUSTOMER MATERIALS, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER UNDER THEORY OF CONTRACT, TORT (INCLUDING nEGLIGENCE), PRODUCTS LIABILITY OR OTHERWISE. 6.4 Maximum Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, EXODUS'S MAXIMUM AGGREGATE LIABILITY TO CUSTOMER RELATED TO OR IN CONNECTION WITH THIS AGREEMENT WILL BE LIMITED TO THE TOTAL AMOUNT PAID BY CUSTOMER TO EXODUS HEREUNDER FOR THE PRIOR TWELVE (12) MONTH PERIOD. 6.5 Customer's Insurance. Customer agrees that it will not pursue any claims against Exodus for any liability Exodus may have under this Agreement until Customer first makes claims against Customer's insurance provider(s) and such insurance provider(s) finally resolve(s) such claims. 6.6 Basis of the Bargain: Failure of Essential Purpose. Customer acknowledges that Exodus has set its prices and entered into this Agreement in reliance upon the limitations of liability and the disclaimers of warranties and damages set forth herein, and that the same form an essential basis of the bargain between the parties. The parties agree that the limitations and exclusions of liability and disclaimers specified in this Agreement will survive and apply even if found to have failed of their essential purpose. 7. Indemnification 7.1 Customer's Indemnification of Exodus. Customer will indemnify and hold Exodus, its affiliates, shareholders, officers, directors, employees, agents, representatives, and customers harmless from and against any and all costs, liabilities, losses, and expenses (including, but not limited to, reasonable attorneys' fees and fees of experts) arising out of any claim, suit, action, or proceeding (each, an "Action"), and Customer will pay any settlement reached or judgment entered thereon against Exodus or such third party, to the extent such Action arises from an allegation that any of the following has occurred or will occur: (a) with respect to the Customer's Business, Customer Materials, or Customer Equipment: (i) infringement of any intellectual property rights, (ii) misappropriation of any intellectual property rights; (iii) defamation, libel, slander, obscenity, pornography, or violation of the rights of privacy or publicity; or (iv) spamming, or any other offensive, harassing or illegal conduct or violation of the Rules and Regulations; or (b) any damage or destruction to the Customer Area, the Internet Data Centers or the equipment of Exodus or any other customer by Customer or Representative(s) or Customer's designess; or (c) any other damage arising from the Customer Equipment, Customer Materials, or Customer's Business. 7.2 Exodus' Indemnification of Customer. Exodus will indemnify and hold Customer, its affiliates, shareholders, officers, directors, employees, agents, and Representatives harmless from and against any and all reasonable costs, liabilities, losses, and expenses ( including, but not limited to, reasonable attorneys' fees) arising out of (i) the infringement of any third party registered U.S. copyright or issued U.S. patent resulting 7.3 Notice. Each pazty will provide the other party prompt written notice upon of the existence of any such event of which it becomes aware, and an opportunity to participate in the defense thereof. 8. TERM AND TERMINATION. 8.1 Term. This Agreement will be effective for a period of two (2) years from the Installation Date, unless earlier terminated according to the provisions of this Section 8. The Agreement will automatically renew for additional terms of one (I) year each. 8.2 Termination. (a) For Convenience. Either party may terminate this Agreement for convenience at any time effective after the second (2nd) anniversary of the Installation Date by providing ninety (90) days' prior written notice to the other parry. (b) For Cause. Either party will have the right to terminate this Agreement if (i) the other party breaches any term or condition of this Agreement and fails to cure such breach within thirty (30) days after written notice of the same, except in the case of failure to pay fees, which must be cured within five (5) days after receipt of written notice from Exodus; (ii) the other party becomes the subject of a voluntary petition in bankruptcy or any voluntary proceeding relating to insolvency,receivership, liquidation, or composition for the benefit of creditors; or (iii) the other party becomes the subject of an involuntary petition in bankruptcy or any involuntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors, if such petition or proceeding is not dismissed within sixty (60) days of filing. (c) By Customer for Failure to Agree on Fee Increases. If Exodus increases the fees after the first (1") anniversary of the Installation Date, Customer may terminate this Agreernent if it refuses to pay such increased fees by providing written notice to Exodus within thirty (30) days of the effective date of any such increase. The effective date of such termination will be ninety (90) days after Exodus receives notice of such termination. 8.3 No Liability for Termination. Neither party will be liable to the other for any termination or expiration of this Agreement in accordance with its terms. 8.4 Effect of Termination. Upon the effective date of expiration or termination of this Agreement: (a)Exodus will immediately cease providing the Internet Data Center Services; (b)any and all payment obligations of Customer which have accrued as of such expiration or termination will become due immediately; (c)within thirty (30) days after such expiration or termination, each party will return all Confidential Information of the other party in its possession at the time of expiration or termination and will not make or retain any copies of such Confidential Information except as required to comply with any applicable legal or accounting record keeping requirement; and (d)Customer will remove from the Internet Data Centers all Customer Equipment, Customer Materials, and any of its other property within the Internet Data Centers within five (5) days of such expiration or termination and return the Customer Area to Exodus in the same condition as it was on the Installation Date, normal wear and tear excepted. If Customer does not remove such property within such five-day period, Exodus will have the option to (i) move any and all such property to secure storage and charge Customer for the cost of such removal and storage, and/or (ii) liquidate the property in any reasonable manner. 8.5 SurvivaL. The following provisions will Survive any expiration or termination of the Agreement: Sections 3, 4, 5,6,7, 3,9, and 10. 9. CONFIDENTIAL 1NFORMATION. 9.1 ConfidentiaL Information. Each party acknowledges that it will have access to certain confidential information and materials of the other party concerning the other party's business, plans, customers, technology, and products, including the terms and conditions of this Agreement ("Confidential Information"). Confidential lnforrnation will include, but not be limited to, each party's proprietary software and customer information. Each party agrees that it will not use in any way, for its own account or the account of any third party, except as expressly permitted by this Agreement, nor disclose to any third party (except as required by law or to that party's attorneys, accountants and other advisors as reasonably necessary), any of the other party's Confidential Information and will take reasonable precautions to protect the confidentiality of such information. 9.2 Exceptions. Information will not be deemed Confidential Information hereunder if such information: (i) is known to the receiving party prior to receipt from the disclosing party directly or indirectly from a source other than one having an obligation of confidentiality to the disclosing party; (ii) becomes known (independently of disclosure by the disclosing party) to' the receiving party directly or indirectly from a source other than one having an obligation of confidentiality to the disclosing party; (iii) becomes publicly known or otherwise ceases to be secret or confidential, except through a breach of this Agreement by the receiving party; or (iv) is independently developed by the receiving party. 10. MISCELLANEOIJS PROVISIONS. 10.1 Governing Law. This Agreement is made under and will be governed by and construed in accordance with the laws of the State of California, United States of America (except that body of law controlling conflicts of law) and specifically excluding from application to this Agreement that law known as the United Nations Convention on the International Sale of Goods. 10.2 Arbitration. Any dispute relating to the terms, interpretation or performance of this Agreement (other than claims for preliminary injunctive relief or other pre-judgment remedies) will be resolved at the request of either party through binding arbitration. Arbitration will be conducted in Santa Clara County, California, under the rules and procedures of the Judicial Arbitration and Mediation Society ("JAMS"). The parties will request that JAMS appoint a single arbitrator possessing knowledge of online services agreements; however the arbitration will proceed even if such a person is unavailable. 10.3 Force Majeure. Except for the obligation to pay money, neither party will be liable for any failure or delay in its performance under this Agreement due to any cause beyond its reasonable control, including act of war, acts of God, earthquake. flood, embargo, riot, sabotage, labor shortage or dispute, governmental act or failure of the Internet, provided that the delayed party: (a) gives the other party prompt notice of such cause, and (b) uses its reasonable commercial efforts to correct promptly such failure or delay in performance. 10.4 No Lease. This Agreement is a services agreement and is not intended to and will not constitute a lease of any real or personal property. Customer acknowledges and agrees that it has been granted only a license to occupy the Customer Space and use the Internet Data Centers in accordance with this Agreement, Customer has not been granted any real property interest in the Customer Space or Internet Data Centers, and Customer has no rights as a tenant or otherwise under any real property or landlord/tenant laws, regulations, or ordinances. For good cause, Exodus may suspend the right of any Representative or other Customer personnel to visit the Internet Data Centers. 10.5 Inherently Dangerous Applications. The Internet Data Center are not intended nor provided for use in connection with, and Customer will not use them for, any nuclear, aviation, mass transit, life-support, or any other inherently dangerous applications or services, the failure of which could result in denth, personal injury, catastrophic damage, or mass destruction. 10.6 Marketing. Customer agrees that Exodus may refer to Customer by trade name and trademark, and may briefly describe Customer's Business, in Exodus' marketing materials and web site. Customer hereby grants Exodus a license to use any Customer trade names, trademarks or service marks solely in connection with the rights granted to Exodus pursuant to this Section10.6. 10.7 Government Regulations. Customer will not export, re-export, transfer, or make available, whether directly or indirectly, any regulated item or information to anyone outside the U.S. in connection with this Agreement without first complying with all export control laws and regulations which may be imposed by the U.S. Govermnent and any country or organization of nations within whose jurisdiction Customer operates or does business. 10.8 Non-.Solicitation. During the period beginning on the 1ntallation Data and ending on the first anniversary of the termination or expiration of this Agreement in accordance with its terms, Customer and its affiliates agree that they will not, directly or indirectly, solicit or attempt to solicit for employment any persons employed by Exodus during such period. 10.9 Severability. In the event any provision of this Agreement is held by a tribunal of competent jurisdiction to be contrary to the law, the remaining provisions of this Agreerntmt will remain in full force and effect. 10.10 Waiver. The waiver of any breach or default of this Agreement will not constitute a waiver of any subsequent breach or default, and will not act to amend or negate the rights of the waiving party. 10.11 Assignment. Neither party may assign its rights or delegate its duties under this Agreement either in whole or in part without the prior written consent of the other party, except that this Agreement may be assigned in whole as part of a corporate reorganization, consolidation, merger, or sale of substantially all of its assets, provided that it notifies such other parry at least thirty (30) days prior to the effective date of such event. Any attempted assignment or delegation without such consent will be void. This Agreement will bind and inure to the benefit of each party's successors and permitted assigns. 10.12 Notices. Any notice or communication required or permitted to be given hereunder may be delivered by hand, deposited with an overnight courier, sent by confirmed facsimile, or mailed by registered or certified mail, return receipt requested, postage prepaid, in each case to the address of the receiving party indicated on the signature page hereof, or at such other address as may hereafter be furnished in writing by either party hereto to the other. Such notice will be deemed to have been given as of the date it is delivered, mailed or sent by facsimile or overnight courier, whichever is earlier. 10.13 Counterparts. This Agreement may be executed in two or more counterparts, each of which will be deemed an original, but all of which together shall constitute one and the same instrument. 10.14 Relationship of Parties. Exodus and Customer are independent contractors and this Agreement will not establish any relationship of partnership, joint venture, employment, franchise or agency between Exodus and Customer. Neither Exodus nor Customer will have the power to bind the other or incur obligations on the other's behalf without the other's prior written consent, except as otherwise expressly provided herein. 10.15 Priority. The following order of precedence will govern any conflict or discrepancy between any portions of this Agreement: (1) Attachment 6. (2) Attachment 2. (3) Attachment 3. (4) Signature Page (5) Attachment 4. (6) Attachment(s) I(in reverse chronological order). (7) Attachment 5. ATTACHMENT 3 RULES AND REGULATiONS All Exodus Customers and their Representatives, employees, contractors, customers, agents and users of Customers' online facilities are subject to these Rules and Regulations in connection with their use of Exodus' Internet Data Center Services. ACCESS TO (NTERNET DATA CENTtRS - Only those individuals identified by Customer as its Representatives may access the Internet Data Centers. Customer may not allow any unauthorized persons to access the Internet Data Centers. - Customer will notify Exodus in writing of any change in Customer's Representatives. - Customer agrees to adhere at all times to security measures that have been established by Exodus to protect the Internet Data Centers, its equipment and its customers' equipment. USE OF INTERNET DATA CENTER FACILITY Customer must keep the Customer Area clean at all times. Customncr may not store any paper products or materials of any kind in the Customer Area (other than equipment manuals). Customer may not bring, or make use of, any of the following into the Facility: - Food or drink - Alcohol or other intoxicants. - Tobacco products - Electro-magnetic devices. - Explosives - Radioactive materials. - Weapons - Photographic or recording equipment of - Chemicals any kind (oilier than tape back-up - Illegal drugs equipment). EQUIPMENT AND CONNECTIONS - All Customer Equipment must be clearly labeled with Customer's name (or code name provided to Exodus) and individual component identification. - Customers may not connect or disconnect any Customer Equipment or other equipment except as specifically pre-approved by an authorized employee of Exodus, at least 48 hours in advance of proposed installation, except as otherwise approved by Exodus. - All connections to and from Customer Equipment must be clearly labeled. - Customer Equipment must be configured and run at all times in compliance with the manufacturer's specifications, including power outlet, power consumption and clearance requirements. - Exodus makes available at its Data Centers certain equipment for the temporary use by Customers at the Internet Data Centers. This equipment is provided on an "AS IS" basis without any warranties of any kind. Customer may borrow and/or use any Exodus property or equipment, at its own risk, after receiving permission from Exodus. SCHEDULED MAINTENANCE Periodically, Exodus will conduct routine scheduled maintenance of its Internet Data Centers and Internet Data Center Services pursuant to a schedule posted on Exodus' World Wide Web site (http://www.bengi.exodus.net/exo_maintenance_frame.html). During such time, Customer's Equipment may be unable to transmit and receive data and Customer may be unable to access its Equipment. Customer agrees to cooperate with Exodus during the scheduled maintenance so that Exodus may keep such period or time to a minimum. MISCONDUCT Customer and its Representatives may not: - Misuse or abuse any Exodus property or equipment; - Make any unauthorized use or interfere with any property or equipment of any other Exodus customer. - Harass any individual, including Exodus personnel and representatives of other customers of Exodus; or - Engage in any activity that is in violation of the law, or aid in ct-imirial activity while on Exodus property or in connection with the Internet Data Center Services. ONLINE CONDUCT Customer will not, and will not permit any persons using Customer's online facilities (including but not limited to Customer's Web site(s) and transmission capabilities), to do any of the following: - Send Spam (unsolicited commercial messages or communications in any form) - Infringe or misappropriate the intellectual property rights of others. This includes posting copyrighted materials without appropriate permission, using trademarks of others without appropriate permission or attribution, and posting or distributing trade secret information of others in violation of a duty of confidentiality. - Violate the persona] privacy rights of others. This includes collecting and distributing information about Internet users without their permission, except as expressly permitted by applicable law. - Send, post or host harassing, abusive, libelous or obscene materials or take arty similar actions. - Intentionally omit, delete, forge or misrepresent transmission information, including headers, return addressing information and IP addresses or take any other actions intended to cloak Customer's or its users' indentity or contact information. - Use the online facilities for any illegal purposes. - Assist or permit any persons in engaging in any of the activities described above. If Customer becomes aware of any such activities, Customer will take all actions necessary to stop such activities immediately, including, if necessary, terminating Customer's user's access to Customer's online facilities. M0DIFICATI0N OF RULES AND REGULATIONS Exodus reserves the right to change these Rules and Regulations at any time. Customer is responsible for regularly reviewing these Rules and Regulations. Continued use of the Internet Data Center Services following any such changes shall constitute the Customer's acceptance of such changes. EX-10.58 4 EXHIBIT 10.58 ALCHEMY COMMUNICATIONS, INC. GIGABIT DATA CENTER SERVICES AGREEMENT THIS AGREEMENT made this 1st day of July, 1999, (the "Effective Date") by and between., ALCHEMY COMMUNICATIONS, INC. a California corporation (hereinafter called "Alchemy") and NETTAXI.COM, INC. a Nevada corporation (hereinafter called "Customer"). 1. GENERAL TERMS A. This document, along with the Gigabit Data Center Service Order ("GDCSO") agreement, shall comprise a complete and binding agreement between Customer and Alchemy. Each GDCSO agreement, and any amendments thereto, when dated and subscribed by Customer and Alchemy, shall incorporate the terms and conditions of this Agreement. In the event of any conflict or inconsistency between this Agreement and the terms set forth in a GDCSO agreement, the terms of the GDCSO agreement shall in all cases prevail. B. In connection with the Space made available hereunder, Alchemy shall perform services which support the overall operation of the Gigabit Data Center ("GDC"), e.g., janitorial services, environmental systems maintenance, and power plant maintenance, at no additional charge to Customer. However, Customer shall be required to maintain the Collocation Space in an orderly manner and shall be responsible for the removal of trash, packing, cartons, etc. from the Space. Further, Customer shall maintain the Space in a safe condition, including but not limited to the preclusion of storing combustible materials in the Space. C. Any option granted to Customer to renew its license to occupy the Space shall be contingent on the election by Alchemy to continue to own or lease the Premises in which the Space is located for the duration of the Renewal Period(s), such election to be exercised at the sole discretion of Alchemy. 2. GDC SERVICES A. Collocation Space: Alchemy shall provide Customer with shared or ------------------- dedicated Rack Space as indicated in the GDCSO. B. Connectivity: Alchemy shall provide Customer with connectivity to the ------------- Internet through Alchemy's network as specified in the GDCSO. Alchemy shall provide cross-connectivity, where applicable, for an additional fee. C. Technical Support: Alchemy shall provide Customer with complete ------------------- technical support upon Customer's request and in accordance with Alchemy's terms and conditions and listed rates. D. Eyes Hands Support: Alchemy shall provide Customer with assistance to --------------------- observe conditions in their Collocation Space and offer light hands assistance such as shutting off and turning on equipment as directed by Customer. 3. TERM OF AGREEMENT A. Customer's license to occupy the Collocation Space shall begin on the "Requested Service Date," as set forth in the GDCSO agreement or on the date Alchemy completes the build-out of the Space, whichever is later. The minimum term of the Customer's license to occupy the Space shall be one year, but may be longer as indicated on the GDCSO. B. Should Alchemy fail, for any reason to tender possession of the Space to Customer on or before the Requested Service Date (specified in the GDCSO agreement relevant thereto) this Agreement shall not be void or voidable. If Alchemy fails to tender possession of the Space to Customer within a sixty (60) day period after such Requested Service Date (due to any reason other than the acts or omissions of Customer), Customer may, upon written notice to Alchemy, declare the relevant GDCSO agreement null and void with no further obligation attributed to Customer, and Alchemy shall refund all fees and charges paid in advance by Customer, except in the case where the delay was caused by Customer, in which case, Alchemy shall retain any funds necessary to recover the cost or obligations incurred on behalf of Customer. Except as provided herein, Alchemy shall not be liable to Customer in any way as a result of a delay or failure to tender possession. C. Following the expiration of the Term for each Space or failure of the Parties to enter into any Renewal Periods, Customer's license to occupy the Space and receive services shall continue in effect on a month-to-month basis upon the same terms and conditions specified herein, unless terminated by either Customer or Alchemy upon thirty (30) days prior written notice. 4. TERMINATION A. Either party shall have the right to terminate this agreement should the other party breach a material term or condition of this Agreement and fail to cure such breach within thirty (30) days after receipt of written notice of the breach, except in the case of failure to make timely payment to Alchemy, which must be cured within ten (10) days of the payment due date. Alchemy has the option, at its sole discretion, to terminate this Agreement should Customer become insolvent or the subject of bankruptcy proceedings, a receivership, liquidation or a sale for the benefit of creditors B. Upon termination or expiration of the Term for each Space, Customer agrees to do the following: (i) remove the Equipment and other property that has been installed by Customer or Customer's agent(s) and return the Space to Alchemy in substantially the same condition as it was on the date of installation; (ii) pay any outstanding fees within five (5) days of termination of service; (iii) return any confidential information it has received from Alchemy and (iii) return any equipment or supplies that are the property of Alchemy. In the event such Equipment or property has not been removed within thirty (30) days of the effective termination or expiration date, the Equipment shall be deemed abandoned and Customer shall lose all rights and title thereto. C. In the event the GDC becomes the subject of a taking by eminent domain by any authority having such power, Alchemy shall have the right to terminate this Agreement. Alchemy shall attempt to give Customer reasonable advance notice of the removal schedule. Customer shall have no claim against Alchemy for any relocation expenses, any part of any award that may be made for such taking or the value of any unexpired term or renewed periods that result from a termination by Alchemy under this provision, or any loss of business from full or partial interruption or interference due to any termination. However, nothing contained in this Agreement shall prohibit Customer from seeking any relief or remedy against the condemning authority in the event of an eminent domain proceeding or condemnation that affects the Space. 5. DEFAULT A. If Customer fails to perform its obligations, or fails to pay for services rendered hereunder, Alchemy may, at its sole option and with written notice, issue a default notice letter to Customer, demanding the default condition be cured. If the default condition is not remedied within the time period specified in the notice letter, Alchemy may then, without the necessity of any further notice, discontinue performance and terminate this Agreement, for default, and pursue any other remedies available at law or in equity, including reimbursement of the cost of collection and reasonable attorney fees. Alchemy's failure to exercise any of its rights hereunder shall not constitute or be construed by Customer as being a waiver of any past, present, or future right or remedy. In the case of Customer's failure to make timely payments, Alchemy may discontinue any or all services for any period of time as it deems appropriate without written notice to Customer, and such action shall not be deemed a breach of this Agreement by Alchemy. B. At any time during the term of this Agreement, Alchemy may, at it's sole option, immediately terminate this Agreement if Customer is not then maintaining the Equipment solely for the purpose of originating and/or terminating telecommunications transmissions carried over the Alchemy Network or as otherwise set forth in this Agreement, or pursuant to the terms and conditions, if any, contained in any Collocation Schedule identified herewith. C. If Customer commits an act of default under any Collocation Schedule to which this Agreement pertains, Alchemy may, in its sole discretion, declare Customer to be in default of any and all other Collocation Schedules then in effect, without the necessity of showing separate failures, acts or omissions by Customer. D. If Customer commits an act of default with respect to the purchase of telecommunications services which would entitle Alchemy under its separate tariffs and agreements to terminate its services to Customer, then Alchemy and all Alchemy's Affiliates shall be entitled to terminate this Agreement and all GDC services to which this Agreement pertains. E. Alchemy may, without notice, suspend or terminate services to customer if Customer is found to be engaged in unlawful activities or upon the request to do so by any legal or governmental agencies. 6. PRICES AND PAYMENT TERMS A. Customer shall pay ALCHEMY monthly recurring fees (the "Recurring Fees"), which shall include charges for use and occupancy of the Space (the "Occupancy Fees"), connectivity (or cross-connect fees, if applicable), power charges and, where applicable, technical support and system administration. In addition to any Recurring Fees, Customer shall be charged non-recurring fees for build-out of the Space (the "Build-Out Charges"), where applicable, Escort charges, and other services, which shall be set forth in the GDCSO agreement. If Customer requests that Alchemy provide services not delineated herein or in the GDCSO agreement at any time during the Term, Customer agrees to pay the fee for such services in effect at the time such service was rendered. All payments will be made in U.S. dollars. Late payments hereunder will accrue interest at a rate of one and one-half percent (1 %) per month, or the highest rate allowed by applicable law, whichever is lower. If in its judgment Alchemy determines that Customer is not creditworthy or is otherwise not financially secure, Alchemy may, upon written notice to Customer, modify the payment terms to require assurances to secure Customer's payment obligations hereunder. B. All payments required by this Agreement are exclusive of all national, state, municipal or other governmental excise, sales, value-added, use, personal property, and occupational taxes, excises, withholding taxes and obligations and other levies now in force or enacted in the future, all of which Customer will be responsible for and will pay in full. Customer agrees to pay or reimburse Alchemy for any applicable taxes that are levied based on the transactions hereunder, exclusive of taxes on income and real estate taxes on the GDC. Any such charges shall be invoiced and payable within the payment terms of this Agreement. Alchemy agrees to provide Customer with reasonable documentation to support invoiced amounts applied to taxes within thirty (30) calendar days of receipt of a Customer's written request. C. The Occupancy Fee and/or Power Charges shall be increased to reflect any increases incurred by and required under the lease relevant to the Premises in which the Space is located. Customer shall pay to Alchemy its pro rata share of any such increases based on the number of square feet of the Space compared to the number of square feet leased by Alchemy under the applicable lease. Alchemy shall notify Customer of any such increase as soon as practicable. D. Payments shall be due upon Customer's receipt of each monthly invoice. Late payment charges will be calculated based on 1.5% per month of the unpaid amount. E. Charges delineated in the Collocation Schedule for build-out of the Space shall be invoiced and paid by Customer when invoiced. Alchemy may require payment of up to fifty percent (50%) of the "Build Out Fees" prior to commencing construction. F. Customer agrees to reimburse Alchemy for all reasonable repair or restoration costs associated with damage or destruction caused by Customer's personnel, Customer's agent(s) or Customer's suppliers/contractors or Customer's visitors during the Term or as a consequence of Customer's removal of the Equipment or property installed in the Space. 7. ADDITIONAL TERMS GOVERNING USE OF COLLOCATION SPACE AND INSTALLATION OF EQUIPMENT A. Before beginning any delivery, installation, replacement or removal work, Customer must obtain Alchemy 's written approval of Customer's choice of suppliers and contractors which approval shall not be unreasonably withheld or delayed. Alchemy may request additional information before granting approval and may require scheduling changes and substitution of suppliers and contractors as conditions of its approval. Approval by Alchemy is not an endorsement of Customer's supplier or contractor, and Customer will remain solely responsible for the selection of the supplier or contractor and all payments to Alchemy for construction work performed on their behalf. B. Customer shall not make any construction changes or material alterations to the interior or exterior portions of the Space, including any cabling or power supplies for the Equipment, without obtaining Alchemy's written approval for Customer to have the work performed. Alchemy reserves the right to perform and manage any construction or material alterations within the GDC and Collocation Space areas at rates to be negotiated between the Parties hereto. C. Customer's use of the Space, installation of Equipment and access to the GDC shall at all times be subject to Customer's adherence to the generally accepted industry standards, security rules and rules of conduct established by Alchemy for the GDC. Except where advanced written permission has been given by Alchemy, Customer's access to the GDC shall be limited to the individuals identified and authorized by Customer to have such access. Customer agrees not to erect any signs or devices to the exterior portion of the Space without submitting the request to Alchemy and obtaining Alchemy's written approval. D. Customer may not provide, or make available to any third party, space within the Collocation Space without Alchemy's prior written consent. If Customer should provide, or make available to any third party, space within the Collocation Space without obtaining the written consent of Alchemy, Customer shall be in breach of this Agreement and Alchemy may pursue any legal or equitable remedy, including but not limited to the immediate termination of this Agreement. E. Alchemy shall not arbitrarily or discriminatorily require Customer to relocate the Equipment; however, upon sixty (60) days prior written notice or, in the event of an emergency, such time as may be reasonable, Alchemy reserves the right to change the location of the Space or the GDC to a site which shall afford comparable environmental conditions for the Equipment and comparable accessibility to the Equipment. Alchemy and Customer will work together in good faith to minimize any disruption of Customer's services as a result of such relocation. Alchemy shall be responsible for the cost of improving the Space to which the Equipment may be relocated, and for relocation of Equipment interconnected to Alchemy services, except that Alchemy shall not be responsible for relocating facilities installed in violation of this Agreement. F. All equipment brought into or taken out of the GDC facility must be cleared through Alchemy's equipment control system. 8. INSURANCE A. Customer agrees to maintain, at Customer's expense, during the entire period of occupancy, for each Collocation Space (i) Comprehensive General Liability Insurance for bodily injury or property damage, in an amount not less than one million dollars per occurrence; (ii) Workers' Compensation Insurance, with a limit not less than five hundred thousand dollars Bodily Injury each accident (iii) "All Risk" Property insurance covering all of Client's personal property located at the GDC, (iv) commercial automobile liability insurance (bodily injury and property damage) in an amount not less than one million dollars per accident for all vehicles including owned, non-owned, leased and hired vehicles; (v) Errors and Omissions insurance. All property insurance covering customer's property located in the GDC premises shall expressly waive any right of subrogation on the part of the insurer against Alchemy, its officers, directors employees, agents and contractors. Customer further agrees to name Alchemy and the party from whom Alchemy leases its GDC space, as "Additional Insured" on the appropriate policies. B. All policies subject to this provision shall be issued by a reputable insurance company authorized to do business in the state of California. Prior to installation of equipment in Customer's collocation space, customer shall furnish Alchemy with certificates of insurance which evidence the minimum levels of insurance set forth herein. Customer shall not materially alter or cancel insurance relating to GDC occupancy without notification to Alchemy of not less than thirty days. 9. REPRESENTATIONS AND WARRANTIES OF CUSTOMER A. Equipment: Customer represents and warrants that it owns or --------- has the legal right and authority, and will continue to own or have such right and authority during the term of this Agreement, to place and use the Customer Equipment as contemplated by this Agreement. Customer further represents and warrants that its placement, arrangement, and use of the Customer Equipment in the Gigabit Data Center complies with the Customer Equipment Manufacturer's environmental and other specifications. B. Customer's Business: Customer represents and warrants that -------------------- Customer's services, products, materials, data, information and equipment used in connection with this Agreement and Customer's use of GDC Services (collectively, "Customer's Business") does not as of the Installation Date, and will not during the term of this Agreement operate in any manner that would violate any applicable federal, state or local law or regulation or infringe in any way upon the rights of third parties. C. Breach of Warranties: In the event of any breach, or ---------------------- reasonably anticipated breach, of any of the foregoing warranties, in addition to any other remedies available in law or equity, Alchemy shall have the right, at Alchemy's sole discretion, to suspend any related GDC Services if deemed reasonably necessary by Alchemy to prevent any harm to its business. 10. DISCLAIMERS AND LIMITATION OF LIABILITY A. THE COLLOCATION SPACE IS ACCEPTED "AS IS" BY CUSTOMER. CUSTOMER ACKNOWLEDGES THAT NO REPRESENTATION HAS BEEN MADE BY ALCHEMY AS TO THE FITNESS OF THE COLLOCATION SPACE FOR CUSTOMER'S INTENDED PURPOSE. EXCEPT FOR THE WARRANTIES SET FORTH IN THIS ARTICLE, THERE ARE NO WARRANTIES, WHETHER EXPRESS, IMPLIED, ORAL, OR WRITTEN, WITH RESPECT TO THE COLLOCATION SPACE OR SERVICES COVERED OR FURNISHED PURSUANT TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. MOREOVER, THE REMEDIES PROVIDED IN THIS ARTICLE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER REMEDIES. B. CUSTOMER AND ITS REPRESENTATIVES VISIT THE GDC AT THEIR OWN RISK AND ALCHEMY ASSUMES NO LIABILITY FOR ANY HARM TO SUCH PERSONS RESULTING FROM ANY CAUSE OTHER THAN ALCHEMY'S NEGLIGENCE OR WILLFUL MISCONDUCT RESULTING IN PERSONAL INJURY TO SUCH VISITIORS. C. ALCHEMY ASSUMES NO LIABILITY FOR DAMAGE OR LOSS RELATING TO CUSTOMERS BUSINESS. TO THE EXTENT ALCHEMY IS LIABLE FOR ANY DAMAGE TO OR LOSS OF CUSTOMER'S EQUIPMENT, SUCH LIABILITY SHALL BE LIMITED SOLELY TO THE THEN-CURRENT VALUE OF CUSTOMER'S EQUIPMENT. D. THE LIABILITY OF ALCHEMY FOR DAMAGES ARISING OUT OF THE SERVICES PROVIDED HEREIN, INCLUDING, WITHOUT LIMITATION, MISTKES, OMISSIONS, INTERRUPTIONS, DELAYS, TORTIOUS CONDUCT OR ERRORS, OR FAILURE TO FURNISH SPACE, WHETHER CAUSED BY ACTS OF COMMISSION OR OMISSION, SHALL BE LIMITED TO A PRORATED REFUND OF THE CHARGES PAID BY CLIENT FOR THE USE OF THE SPACE. THE RECEIPT OF SUCH REFUNDS SHALL BE THE SOLE REMEDY AFFORDED TO CUSTOMER. 11. CONFIDENTIAL INFORMATION A. Each party acknowledges that it will have access to certain confidential information of the other party concerning the other party's business, plans, customers, technology, and products, including the terms and conditions of this Agreement ("Confidential Information"). Confidential Information will include, but not be limited to, each party's proprietary software and customer information. Each party agrees that it will not use in any way, for its own account or the account of any third party, except as expressly permitted by this Agreement, nor disclose to any third party (except as required by law or to that party's attorneys, accountants and other advisors as reasonably necessary), any of the other party's Confidential Information and will take reasonable precautions to protect the confidentiality of such information. B. Information will not be deemed Confidential Information hereunder if such information: (i) is known to the receiving party prior to receipt from the disclosing party directly or indirectly from a source other than one having an obligation of confidentiality to the disclosing party; (ii) becomes known (independently of disclosure by the disclosing party) to the receiving party directly or indirectly from a source other than one having an obligation of confidentiality to the disclosing party; (iii) becomes publicly known or otherwise ceases to be secret or confidential, except through a breach of this Agreement by the receiving party; or (iv) is independently developed by the receiving party. 12. EXCUSED PERFORMANCE Neither Party shall be liable to the other Party under this Agreement for any failure nor delay in performance that is due to causes beyond its reasonable control, including but not limited to, acts of nature, governmental actions, fires, civil disturbances, interruptions of power, or transportation problems. 13. ASSIGNMENT OR TRANSFER Customer shall not assign or transfer the rights or obligations associated with this Agreement, in whole or in part, without ALCHEMY's prior written consent. 14. PUBLICITY Customer shall not use Alchemy's name in publicity or press releases without Alchemy's prior written consent. 15. LIMITATION OF LIABILITY A. In no event shall Alchemy or any of its officers, directors, agents, contractors or employees, be liable for any loss of profit or revenue or for indirect, incidental, special, punitive or exemplary damages incurred or suffered Customer arising ftom or pertaining to Customer's use or occupancy of the Collocation Space including (without limitation) damages arising from interruption of electrical power or HVAC services. B. Customer shall indemnify and hold harmless Alchemy, its officers, directors, agents, contractors and employees, from and against any and all third party claims, costs, expenses or liabilities arising from or in connections with Customer's use of the GDC facility. Customer further agrees to indemnify Alchemy against Customer's acts of negligence resulting in damage to third parties. 16. FORCE MAJEURE Neither party shall be deemed in default of this Agreement to the extent that performance of their obligations or attempts to cure any breach were delayed or prevented by acts of nature, including earthquakes and floods, fire, natural disaster, accident, acts of government, labor strikes or any other cause beyond the control of such party. 17. GOVERNING LAW This Agreement shall be governed and construed by the laws of the State of California except as they pertain to its conflict of law provisions. The courts of the State of California, County of Los Angeles shall have jurisdiction over any legal disputes relating to or in connection with this Agreement. 18. ENTIRE AGREEMENT This Agreement constitutes the entire understanding between the parties and supercedes all other agreements, whether written or oral. This Agreement may not be modified except in a writing which is signed by both parties or their duly authorized representatives. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. ALCHEMY COMMUNICATIONS, INC. BY: /s/ -------------------------------------------- Authorized Signature TITLE: -------------------------------------------- NETTAXI.COM, INC. BY: /s/ -------------------------------------------- Authorized Signature TITLE: -------------------------------------------- EX-10.59 5 EXHIBIT 10.59 ADVERTISING IMPRESSION NETWORK CONTRACT This agreement ("Agreement") is made on this 1st day of July 1999, by and between NETTAXI.COM, INC. (hereinafter "Nettaxi"), located at 1696 Dell Avenue, Campbell, CA 95008 and WHITE SAND COMMUNICATIONS, INC. (hereinafter "Client"), located at 9800D Topanga Canyon Blvd., Suite 318, Chatsworth, California 91311: WHEREAS, Nettaxi is in the business of providing Internet services, including Web hosting services, an Internet portal and the business of advertising delivery to unique IP addresses on the Internet, and WHEREAS, Client wishes to engage Nettaxi to deliver banner advertising, sponsorship advertising and "exit traffic" advertising, NOW THEREFORE, for good and valuable consideration the parties do hereby agree as follows: 1. TERM: The term of this Agreement shall be six (6) months commencing on July 1, 1999, and then continue on a month-to-month basis subject to cancellation by either party with thirty (30) days written notice. 2. PRICING: Client shall pay a minimum monthly guaranteed payment to Nettaxi in the amount specified in Exhibit A. Client understands that Nettaxi has allocated the agreed upon minimum number of banner advertising impressions for their exclusive use. This minimum monthly amount is also intended to cover the direction of "exit traffic" to the Client website, as well as occasional sponsorship opportunities that may be provided at the sole discretion of Nettaxi. Client agrees that should their website receive less than the guaranteed number of ad impressions, or exit traffic, in any month, the Client will accept such lesser amount as satisfaction of Nettaxi's impression commitment. 3. ADVERTISING: Client will place banner advertising as well as receive "exit traffic" as such term is understood on the Internet originating from the URL's operated by Nettaxi.com, Inc. Client will have the right to resell such banner advertising and exit traffic to its end customers. 4. WARRANTIES: Neither Client nor Nettaxi makes any warranties or representations, either express or implied except as expressly set forth in this Agreement. The Client acknowledges that it has the right and authority to enter into this agreement. 5. LIMITATION OF LIABILITIES: Neither Client nor Nettaxi shall be liable or held responsible for any delays, errors or problems in displaying advertising materials, which may result in damages, direct, indirect or consequential. In no event shall Nettaxi or the Client be responsible for any alleged loss of profits, damages or other expenses alleged to have arisen out of this Agreement. Any claims in this respect are expressly waived. 6. INDEMNIFICATION: Client agrees to indemnify and hold harmless Nettaxi from and against any and all third party claims, suits or court actions, including, by way of example and not limitation, actions for libel, copyright, trademark or trade name infringement, or infringements of rights of privacy or publicity, and any and all claims based upon the content or subject matter of Client's advertisements. In connection with this indemnification, Client shall be responsible for the associated costs, including reasonable attorney fees. 7. GOVERNING LAW: This Agreement shall be governed and construed in accordance with the laws of the United States of America, the State of California, without effect to its conflict of law principles. The courts of the State of California, county of Los Angeles shall have jurisdiction over any disputes arising from or in connection with this Agreement. 8. SEVERABILITY: Should any provision of this Agreement be held to be invalid or unenforceable, the remaining provisions will continue in full force and effect. 9. INDEPENDENT CONTRACTORS: It is understood that the parties to this Agreement are independent contractors and no agency, partnership, joint venture or employer-employee relationship has been created by this Agreement. 10. ASSIGNMENT: This Agreement shall inure to the benefit of the parties, their beneficiaries, successors and assigns. 11. ENTIRE AGREEMENT: This instrument constitutes the entire agreement between the parties and may not be modified except by a written instrument signed by both parties. NETTAXI.COM, INC. BY: /s/ --------------- DATE: ------------- Accepted and agreed: WHITE SAND COMMUNICATIONS, INC. BY: /s/ ------------------------------ DATE: ------------------------------
Exhibit A --------- Minimum Payment Impressions Allocated ---------------- --------------------- July $ 50,000 7,142,857 August $ 50,000 7,142,857 September $ 50,000 7,142,857 October $ 100,000 14,285,714 November $ 150,000 21,428,571 December $ 200,000 28,571,429
EX-10.60 6 EXHIBIT 10.60 ADVERTISING IMPRESSION NETWORK CONTRACT This agreement ("Agreement") is made on this 1st day of July 1999, by and between NETTAXI.COM hereinafter "Nettaxi"), located at 1696 Dell Avenue, Campbell, CA 95008 and MULTINET COMMUNICATIONS WORLDWIDE LIMITED (hereinafter "Client"), located at 2001 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong: WHEREAS, Nettaxi is in the business of providing Internet services, including Web hosting services, an Internet portal and the business of advertising delivery to unique IP addresses on the Internet, and WHEREAS, Client wishes to engage Nettaxi to deliver banner advertising, sponsorship advertising and "exit traffic" advertising, NOW THEREFORE, for good and valuable consideration the parties do hereby agree as follows: 1. TERM: The term of this Agreement shall be six (6) months commencing on July 1, 1999, and then continue on a month-to-month basis subject to cancellation by either party with thirty (30) days written notice. 2. PRICING: Client shall pay a minimum monthly guaranteed payment to Nettaxi in the amount specified in Exhibit A. Client understands that Nettaxi has allocated the agreed upon minimum number of banner advertising impressions for their exclusive use. This minimum monthly amount is also intended to cover the direction of "exit traffic" to the Client website, as well as occasional sponsorship opportunities that may be provided at the sole discretion of Nettaxi. Client agrees that should their website receive less than the guaranteed number of ad impressions, or exit traffic, in any month, the Client will accept such lesser amount as satisfaction of Nettaxi's impression commitment. 3. ADVERTISING: Client will place banner advertising as well as receive "exit traffic" as such term is understood on the Internet originating from the URL's operated by Nettaxi.com, Inc. Client will have the right to resell such banner advertising and exit traffic to its end customers. 4. WARRANTIES: Neither Client nor Nettaxi makes any warranties or representations, either express or implied except as expressly set forth in this Agreement. The Client acknowledges that it has the right and authority to enter into this agreement. 5. LIMITATION OF LIABILITIES: Neither Client nor Nettaxi shall be liable or held responsible for any delays, errors or problems in displaying advertising materials, which may result in damages, direct, indirect or consequential. In no event shall Nettaxi or the Client be responsible for any alleged loss of profits, damages or other expenses alleged to have arisen out of this Agreement. Any claims in this respect are expressly waived. 6. INDEMNIFICATION: Client agrees to indemnify and hold harmless Nettaxi from and against any and all third party claims, suits or court actions, including, by way of example and not limitation, actions for libel, copyright, trademark or trade name infringement, or infringements of rights of privacy or publicity, and any and all claims based upon the content or subject matter of Client's advertisements. In connection with this indemnification, Client shall be responsible for the associated costs, including reasonable attorney fees. 7. GOVERNING LAW: This Agreement shall be governed and construed in accordance with the laws of the United States of America, the State of California, without effect to its conflict of law principles. The courts of the State of California, county of Los Angeles shall have jurisdiction over any disputes arising from or in connection with this Agreement. 8. SEVERABILITY: Should any provision of this Agreement be held to be invalid or unenforceable, the remaining provisions will continue in full force and effect. 9. INDEPENDENT CONTRACTORS: It is understood that the parties to this Agreement are independent contractors and no agency, partnership, joint venture or employer-employee relationship has been created by this Agreement. 10. ASSIGNMENT: This Agreement shall inure to the benefit of the parties, their beneficiaries, successors and assigns. 11. ENTIRE AGREEMENT: This instrument constitutes the entire agreement between the parties and may not be modified except by a written instrument signed by both parties. NETTAXI.COM, INC. BY: _______________ DATE: _____________ Accepted and agreed: MULTINET COMMUNICATIONS WORLDWIDE LIMITED BY: ______________________________ DATE: ____________________________
Exhibit A --------- Minimum Payment Impressions Allocated ---------------- --------------------- July $ 50,000 7,142,857 August $ 50,000 7,142,857 September $ 50,000 7,142,857 October $ 50,000 7,142,857 November $ 50,000 7,142,857 December $ 50,000 7,142,857
EX-10.61 7 EXHIBIT 10.61 NETTAXI.COM, INC. DATA CENTER SERVICE AGREEMENT THIS AGREEMENT made this 15th day of July, 1999, (the "Effective Date") by and between NETTAXI.COM, INC., a Nevada corporation (hereinafter called "Nettaxi"), located at 1696 Dell Avenue, Campbell, California 95008 and BABENET, LTD., a California corporation (hereinafter called "Customer"), Located at 9610 De Soto Avenue, Chatsworth, California 91311. 1. GENERAL TERMS A. This document, along with the Data Center Service Order ("DCSO") agreement, shall comprise a complete and binding agreement between Customer and Nettaxi regarding services to be provided at the location known as 1200 West 7th Street, Suite L1-100, Los Angeles, California 90017 (hereinafter called the "Data Center".) Each DCSO agreement, and any amendments thereto, when dated and subscribed by Customer and Nettaxi, shall incorporate the terms and conditions of this Agreement. In the event of any conflict or inconsistency between this Agreement and the terms set forth in a DCSO agreement, the terms of the DCSO agreement shall in all cases prevail. B. In connection with the Space made available hereunder, Nettaxi shall perform services which support the overall operation of the Data Center, e.g., janitorial services, environmental systems maintenance, and power plant maintenance, at no additional charge to Customer. However, Customer shall be required to maintain the Collocation Space in an orderly manner and shall be responsible for the removal of trash, packing, cartons, etc. from the Space. Further, Customer shall maintain the Space in a safe condition, including but not limited to the preclusion of storing combustible materials in the Space. C. Any option granted to Customer to renew its license to occupy the Space shall be contingent on the election by Nettaxi to continue to own or lease the Premises in which the Space is located for the duration of the Renewal Period(s), such election to be exercised at the sole discretion of Nettaxi. 2. DATA CENTER SERVICES A. Collocation Space: Nettaxi shall provide Customer with shared or ------------------- dedicated Rack Space as indicated in the DCSO. B. Connectivity: Nettaxi shall provide Customer with connectivity to the ------------- Internet through Nettaxi's network as specified in the DCSO. Nettaxi shall provide cross-connectivity, where applicable, for an additional fee. C. Technical Support: Nettaxi shall provide Customer with complete ------------------- technical support upon Customer's request and in accordance with Nettaxi's terms and conditions and listed rates. D. Eyes Hands Support: Nettaxi shall provide Customer with assistance to --------------------- observe conditions in their Collocation Space and offer light hands assistance such as shutting off and turning on equipment as directed by Customer. 3. TERM OF AGREEMENT A. Customer's license to occupy the Collocation Space shall begin on the "Requested Service Date," as set forth in the DCSO agreement or on the date Nettaxi completes the build-out of the Space, whichever is later. The minimum term of the Customer's license to occupy the Space shall be one year, but may be longer as indicated on the DCSO. B. Should Nettaxi fail, for any reason to tender possession of the Space to Customer on or before the Requested Service Date (specified in the DCSO agreement relevant thereto) this Agreement shall not be void or voidable. If Nettaxi fails to tender possession of the Space to Customer within a sixty (60) day period after such Requested Service Date (due to any reason other than the acts or omissions of Customer), Customer may, upon written notice to Nettaxi, declare the relevant DCSO agreement null and void with no further obligation attributed to Customer, and Nettaxi shall refund all fees and charges paid in advance by Customer, except in the case where the delay was caused by Customer, in which case, Nettaxi shall retain any funds necessary to recover the cost or obligations incurred on behalf of Customer. Except as provided herein, Nettaxi shall not be liable to Customer in any way as a result of a delay or failure to tender possession. C. Following the expiration of the Term for each Space or failure of the Parties to enter into any Renewal Periods, Customer's license to occupy the Space and receive services shall continue in effect on a month-to-month basis upon the same terms and conditions specified herein, unless terminated by either Customer or Nettaxi upon thirty (30) days prior written notice. 4. TERMINATION A. Either party shall have the right to terminate this agreement should the other party breache a material term or condition of this Agreement and fail to cure such breach within thirty (30) days after receipt of written notice of the breach, except in the case of failure to make timely payment to Nettaxi, which must be cured within ten (10) days of the payment due date. Nettaxi has the option, at its sole discretion, to terminate this Agreement should Customer become insolvent or the subject of bankruptcy proceedings, a receivership, liquidation or a sale for the benefit of creditors B. Upon termination or expiration of the Term for each Space, Customer agrees to do the following: (i) remove the Equipment and other property that has been installed by Customer or Customer's agent(s) and return the Space to Nettaxi in substantially the same condition as it was on the date of installation; (ii) pay any outstanding fees within five (5) days of termination of service; (iii) return any confidential information it has received from Nettaxi and (iii) return any equipment or supplies that are the property of Nettaxi. In the event such Equipment or property has not been removed within thirty (30) days of the effective termination or expiration date, the Equipment shall be deemed abandoned and Customer shall lose all rights and title thereto. C. In the event the Data Center becomes the subject of a taking by eminent domain by any authority having such power, Nettaxi shall have the right to terminate this Agreement. Nettaxi shall attempt to give Customer reasonable advance notice of the removal schedule. Customer shall have no claim against Nettaxi for any relocation expenses, any part of any award that may be made for such taking or the value of any unexpired term or renewed periods that result from a termination by Nettaxi under this provision, or any loss of business from full or partial interruption or interference due to any termination. However, nothing contained in this Agreement shall prohibit Customer from seeking any relief or remedy against the condemning authority in the event of an eminent domain proceeding or condemnation that affects the Space. 5. DEFAULT A. If Customer fails to perform its obligations, or fails to pay for services rendered hereunder, Nettaxi may, at its sole option and with written notice, issue a default notice letter to Customer, demanding the default condition be cured. If the default condition is not remedied within the time period specified in the notice letter, Nettaxi may then, without the necessity of any further notice, discontinue performance and terminate this Agreement, for default, and pursue any other remedies available at law or in equity, including reimbursement of the cost of collection and reasonable attorney fees. Nettaxi's failure to exercise any of its rights hereunder shall not constitute or be construed by Customer as being a waiver of any past, present, or future right or remedy. In the case of Customer's failure to make timely payments, Nettaxi may discontinue any or all services for any period of time as it deems appropriate without written notice to Customer, and such action shall not be deemed a breach of this Agreement by Nettaxi. B. At any time during the term of this Agreement, Nettaxi may, at it's sole option, immediately terminate this Agreement if Customer is not then maintaining the Equipment solely for the purpose of originating and/or terminating telecommunications transmissions carried over the Nettaxi Network or as otherwise set forth in this Agreement, or pursuant to the terms and conditions, if any, contained in any Collocation Schedule identified herewith. C. If Customer commits an act of default under any Collocation Schedule to which this Agreement pertains, Nettaxi may, in its sole discretion, declare Customer to be in default of any and all other Collocation Schedules then in effect, without the necessity of showing separate failures, acts or omissions by Customer. D. If Customer commits an act of default with respect to the purchase of telecommunications services which would entitle Nettaxi under its separate tariffs and agreements to terminate its services to Customer, then Nettaxi and all Nettaxi's Affiliates shall be entitled to terminate this Agreement and all Data Center services to which this Agreement pertains. E. Nettaxi may, without notice, suspend or terminate services to customer if Customer is found to be engaged in unlawful activities or upon the request to do so by any legal or governmental agencies. 6. PRICES AND PAYMENT TERMS A. Customer shall pay NETTAXI monthly recurring fees (the "Recurring Fees"), which shall include charges for use and occupancy of the Space (the "Occupancy Fees"), connectivity (or cross-connect fees, if applicable), power charges and, where applicable, technical support and system administration. In addition to any Recurring Fees, Customer shall be charged non-recurring fees for build-out of the Space (the "Build-Out Charges"), where applicable, Escort charges, and other services, which shall be set forth in the DCSO agreement. If Customer requests that Nettaxi provide services not delineated herein or in the DCSO agreement at any time during the Term, Customer agrees to pay the fee for such services in effect at the time such service was rendered. All payments will be made in U.S. dollars. Late payments hereunder will accrue interest at a rate of one and one-half percent (1 %) per month, or the highest rate allowed by applicable law, whichever is lower. If in its judgment Nettaxi determines that Customer is not creditworthy or is otherwise not financially secure, Nettaxi may, upon written notice to Customer, modify the payment terms to require assurances to secure Customer's payment obligations hereunder. B. All payments required by this Agreement are exclusive of all national, state, municipal or other governmental excise, sales, value-added, use, personal property, and occupational taxes, excises, withholding taxes and obligations and other levies now in force or enacted in the future, all of which Customer will be responsible for and will pay in full. Customer agrees to pay or reimburse Nettaxi for any applicable taxes that are levied based on the transactions hereunder, exclusive of taxes on income and real estate taxes on the Data Center. Any such charges shall be invoiced and payable within the payment terms of this Agreement. Nettaxi agrees to provide Customer with reasonable documentation to support invoiced amounts applied to taxes within thirty (30) calendar days of receipt of a Customer's written request. C. The Occupancy Fee and/or Power Charges shall be increased to reflect any increases incurred by and required under the lease relevant to the Premises in which the Space is located. Customer shall pay to Nettaxi its pro rata share of any such increases based on the number of square feet of the Space compared to the number of square feet leased by Nettaxi under the applicable lease. Nettaxi shall notify Customer of any such increase as soon as practicable. D. Payments shall be due upon Customer's receipt of each monthly invoice. Late payment charges will be calculated based on 1.5% per month of the unpaid amount. E. Charges delineated in the Collocation Schedule for build-out of the Space shall be invoiced and paid by Customer when invoiced. Nettaxi may require payment of up to fifty percent (50%) of the "Build Out Fees" prior to commencing construction. F. Customer agrees to reimburse Nettaxi for all reasonable repair or restoration costs associated with damage or destruction caused by Customer's personnel, Customer's agent(s) or Customer's suppliers/contractors or Customer's visitors during the Term or as a consequence of Customer's removal of the Equipment or property installed in the Space. 7. ADDITIONAL TERMS GOVERNING USE OF COLLOCATION SPACE AND INSTALLATION OF EQUIPMENT A. Before beginning any delivery, installation, replacement or removal work, Customer must obtain Nettaxi 's written approval of Customer's choice of suppliers and contractors which approval shall not be unreasonably withheld or delayed. Nettaxi may request additional information before granting approval and may require scheduling changes and substitution of suppliers and contractors as conditions of its approval. Approval by Nettaxi is not an endorsement of Customer's supplier or contractor, and Customer will remain solely responsible for the selection of the supplier or contractor and all payments to Nettaxi for construction work performed on their behalf. B. Customer shall not make any construction changes or material alterations to the interior or exterior portions of the Space, including any cabling or power supplies for the Equipment, without obtaining Nettaxi's written approval for Customer to have the work performed. Nettaxi reserves the right to perform and manage any construction or material alterations within the Data Center and Collocation Space areas at rates to be negotiated between the Parties hereto. C. Customer's use of the Space, installation of Equipment and access to the Data Center shall at all times be subject to Customer's adherence to the generally accepted industry standards, security rules and rules of conduct established by Nettaxi for the Data Center. Except where advanced written permission has been given by Nettaxi, Customer's access to the Data Center shall be limited to the individuals identified and authorized by Customer to have such access. Customer agrees not to erect any signs or devices to the exterior portion of the Space without submitting the request to Nettaxi and obtaining Nettaxi's written approval. D. Customer may not provide, or make available to any third party, space within the Collocation Space without Nettaxi's prior written consent. If Customer should provide, or make available to any third party, space within the Collocation Space without obtaining the written consent of Nettaxi, Customer shall be in breach of this Agreement and Nettaxi may pursue any legal or equitable remedy, including but not limited to the immediate termination of this Agreement. E. Nettaxi shall not arbitrarily or discriminatorily require Customer to relocate the Equipment; however, upon sixty (60) days prior written notice or, in the event of an emergency, such time as may be reasonable, Nettaxi reserves the right to change the location of the Space or the Data Center to a site which shall afford comparable environmental conditions for the Equipment and comparable accessibility to the Equipment. Nettaxi and Customer will work together in good faith to minimize any disruption of Customer's services as a result of such relocation. Nettaxi shall be responsible for the cost of improving the Space to which the Equipment may be relocated, and for relocation of Equipment interconnected to Nettaxi services, except that Nettaxi shall not be responsible for relocating facilities installed in violation of this Agreement. F. All equipment brought into or taken out of the Data Center facility must Be cleared through Nettaxi's equipment control system. 8. REPRESENTATIONS AND WARRANTIES OF CUSTOMER A. Equipment: Customer represents and warrants that it owns or --------- has the legal right and authority, and will continue to own or have such right and authority during the term of this Agreement, to place and use the Customer Equipment as contemplated by this Agreement. Customer further represents and warrants that its placement, arrangement, and use of the Customer Equipment in the Gigabit Data Center complies with the Customer Equipment Manufacturer's environmental and other specifications. B. Customer's Business: Customer represents and warrants that -------------------- Customer's services, products, materials, data, information and equipment used in connection with this Agreement and Customer's use of Data Center Services (collectively, "Customer's Business") does not as of the Installation Date, and will not during the term of this Agreement operate in any manner that would violate any applicable federal, state or local law or regulation or infringe in any way upon the rights of third parties. C. Breach of Warranties: In the event of any breach, or ---------------------- reasonably anticipated breach, of any of the foregoing warranties, in addition to any other remedies available in law or equity, Nettaxi shall have the right, at Nettaxi's sole discretion, to suspend any related Data Center Services if deemed reasonably necessary by Nettaxi to prevent any harm to its business. 9. DISCLAIMERS AND LIMITATION OF LIABILITY A. THE COLLOCATION SPACE IS ACCEPTED "AS IS" BY CUSTOMER. CUSTOMER ACKNOWLEDGES THAT NO REPRESENTATION HAS BEEN MADE BY NETTAXI AS TO THE FITNESS OF THE COLLOCATION SPACE FOR CUSTOMER'S INTENDED PURPOSE. EXCEPT FOR THE WARRANTIES SET FORTH IN THIS ARTICLE, THERE ARE NO WARRANTIES, WHETHER EXPRESS, IMPLIED, ORAL, OR WRITTEN, WITH RESPECT TO THE COLLOCATION SPACE OR SERVICES COVERED OR FURNISHED PURSUANT TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. MOREOVER, THE REMEDIES PROVIDED IN THIS ARTICLE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER REMEDIES. B. CUSTOMER AND ITS REPRESENTATIVES VISIT THE Data Center AT THEIR OWN RISK AND NETTAXI ASSUMES NO LIABILITY FOR ANY HARM TO SUCH PERSONS RESULTING FROM ANY CAUSE OTHER THAN NETTAXI'S NEGLIGENCE OR WILLFUL MISCONDUCT RESULTING IN PERSONAL INJURY TO SUCH VISITIORS. C. NETTAXI ASSUMES NO LIABILITY FOR DAMAGE OR LOSS RELATING TO CUSTOMERS BUSINESS. TO THE EXTENT NETTAXI IS LIABLE FOR ANY DAMAGE TO OR LOSS OF CUSTOMER'S EQUIPMENT, SUCH LIABILITY SHALL BE LIMITED SOLELY TO THE THEN-CURRENT VALUE OF CUSTOMER'S EQUIPMENT. D. THE LIABILITY OF NETTAXI FOR DAMAGES ARISING OUT OF THE SERVICES PROVIDED HEREIN, INCLUDING, WITHOUT LIMITATION, MISTKES, OMISSIONS, INTERRUPTIONS, DELAYS, TORTIOUS CONDUCT OR ERRORS, OR FAILURE TO FURNISH SPACE, WHETHER CAUSED BY ACTS OF COMMISSION OR OMISSION, SHALL BE LIMITED TO A PRORATED REFUND OF THE CHARGES PAID BY CLIENT FOR THE USE OF THE SPACE. THE RECEIPT OF SUCH REFUNDS SHALL BE THE SOLE REMEDY AFFORDED TO CUSTOMER. 10. CONFIDENTIAL INFORMATION A. Each party acknowledges that it will have access to certain confidential information of the other party concerning the other party's business, plans, customers, technology, and products, including the terms and conditions of this Agreement ("Confidential Information"). Confidential Information will include, but not be limited to, each party's proprietary software and customer information. Each party agrees that it will not use in any way, for its own account or the account of any third party, except as expressly permitted by this Agreement, nor disclose to any third party (except as required by law or to that party's attorneys, accountants and other advisors as reasonably necessary), any of the other party's Confidential Information and will take reasonable precautions to protect the confidentiality of such information. B. Information will not be deemed Confidential Information hereunder if such information: (i) is known to the receiving party prior to receipt from the disclosing party directly or indirectly from a source other than one having an obligation of confidentiality to the disclosing party; (ii) becomes known (independently of disclosure by the disclosing party) to the receiving party directly or indirectly from a source other than one having an obligation of confidentiality to the disclosing party; (iii) becomes publicly known or otherwise ceases to be secret or confidential, except through a breach of this Agreement by the receiving party; or (iv) is independently developed by the receiving party. 11. EXCUSED PERFORMANCE Neither Party shall be liable to the other Party under this Agreement for any failure nor delay in performance that is due to causes beyond its reasonable control, including but not limited to, acts of nature, governmental actions, fires, civil disturbances, interruptions of power, or transportation problems. 12. ASSIGNMENT OR TRANSFER Customer shall not assign or transfer the rights or obligations associated with this Agreement, in whole or in part, without Nettaxi's prior written consent. 13. PUBLICITY Customer shall not use Nettaxi's name in publicity or press releases without Nettaxi's prior written consent. 14. LIMITATION OF LIABILITY A. In no event shall Nettaxi or any of its officers, directors, agents, contractors or employees, be liable for any loss of profit or revenue or for indirect, incidental, special, punitive or exemplary damages incurred or suffered Customer arising ftom or pertaining to Customer's use or occupancy of the Collocation Space including (without limitation) damages arising from interruption of electrical power or HVAC services. B. Customer shall indemnify and hold harmless Nettaxi, its officers, directors, agents, contractors and employees, from and against any and all third party claims, costs, expenses or liabilities arising from or in connections with Customer's use of the Data Center facility. Customer further agrees to indemnify Nettaxi against Customer's acts of negligence resulting in damage to third parties. 15. FORCE MAJEURE Neither party shall be deemed in default of this Agreement to the extent that performance of their obligations or attempts to cure any breach were delayed or prevented by acts of nature, including earthquakes and floods, fire, natural disaster, accident, acts of government, labor strikes or any other cause beyond the control of such party. 16. GOVERNING LAW This Agreement shall be governed and construed by the laws of the State of California except as they pertain to its conflict of law provisions. The courts of the State of California, County of Los Angeles shall have jurisdiction over any legal disputes relating to or in connection with this Agreement. 17. ENTIRE AGREEMENT This Agreement constitutes the entire understanding between the parties and supercedes all other agreements, whether written or oral. This Agreement may not be modified except in a writing which is signed by both parties or their duly authorized representatives. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. NETTAXI.COM, INC. BY: /s/ -------------------------------------------- Authorized Signature TITLE: -------------------------------------------- BABENET, LTD. BY: /s/ -------------------------------------------- Authorized Signature TITLE: President EX-10.62 8 EXHIBIT 10.62 NETTAXI.COM, INC. DATA CENTER SERVICE AGREEMENT THIS AGREEMENT made this 15th day of July, 1999, (the "Effective Date") by and between NETTAXI.COM, INC. a Nevada corporation (hereinafter called "Nettaxi"), located at 1696 Dell Avenue, Campbell, California 95008 and Whitehorn Ventures Limited (hereinafter called "Customer"), Located at 2001 Central Plaza, 18 Harbour Road, Wanchai, Hong Kong. 1. GENERAL TERMS A. This document, along with the Data Center Service Order ("DCSO") agreement, shall comprise a complete and binding agreement between Customer and Nettaxi regarding services to be provided at the location known as 1200 West 7th Street, Suite L1-100, Los Angeles, California 90017 (hereinafter called the "Data Center".) Each DCSO agreement, and any amendments thereto, when dated and subscribed by Customer and Nettaxi, shall incorporate the terms and conditions of this Agreement. In the event of any conflict or inconsistency between this Agreement and the terms set forth in a DCSO agreement, the terms of the DCSO agreement shall in all cases prevail. B. In connection with the Space, if any, made available hereunder, Nettaxi shall cause to be performed services which support the overall operation of a Data Center, e.g., environmental systems maintenance and power plant maintenance, at no additional charge to Customer. C. Any option granted to Customer to renew its license hereunder shall be contingent on the election by Nettaxi to continue to own or lease the Premises in which the services provided herein are located for the duration of the Renewal Period(s), such election to be exercised at the sole discretion of Nettaxi. 2. DATA CENTER SERVICES A. Connectivity: Nettaxi shall provide Customer with connectivity to the ------------- Internet through Nettaxi's network as specified in the DCSO. Nettaxi shall provide cross-connectivity, where applicable, for an additional fee. B. Technical Support: Nettaxi shall provide Customer with complete ------------------- technical support upon Customer's request and in accordance with Nettaxi's terms and conditions and listed rates. C. Eyes Hands Support: Nettaxi shall provide Customer with assistance to --------------------- observe conditions in their Collocation Space and offer light hands assistance such as shutting off and turning on equipment as directed by Customer. 3. TERM OF AGREEMENT A. Customer's license shall begin on the "Requested Service Date," as set forth in the DCSO agreement or on a date specified by Nettaxi, whichever is later. The minimum term of the Customer's license shall be one year, but may be longer as indicated on the DCSO. B. Should Nettaxi fail, for any reason to provide services to Customer on or before the Requested Service Date (specified in the DCSO agreement relevant thereto) this Agreement shall not be void or voidable. If Nettaxi fails to provide services to Customer within a sixty (60) day period after such Requested Service Date (due to any reason other than the acts or omissions of Customer), Customer may, upon written notice to Nettaxi, declare the relevant DCSO agreement null and void with no further obligation attributed to Customer, and Nettaxi shall refund all fees and charges paid in advance by Customer, except in the case where the delay was caused by Customer, in which case, Nettaxi shall retain any funds necessary to recover the cost or obligations incurred on behalf of Customer. Except as provided herein, Nettaxi shall not be liable to Customer in any way as a result of a delay or failure to provide services. C. Following the expiration of the Term or failure of the Parties to enter into any Renewal Periods, Customer's license to receive services shall continue in effect on a month-to-month basis upon the same terms and conditions specified herein, unless terminated by either Customer or Nettaxi upon thirty (30) days prior written notice. 4. TERMINATION A. Either party shall have the right to terminate this agreement should the other party breach a material term or condition of this Agreement and fail to cure such breach within thirty (30) days after receipt of written notice of the breach, except in the case of failure to make timely payment to Nettaxi, which must be cured within ten (10) days of the payment due date. Nettaxi has the option, at its sole discretion, to terminate this Agreement should Customer become insolvent or the subject of bankruptcy proceedings, a receivership, liquidation or a sale for the benefit of creditors B. Upon termination or expiration of the Term, Customer agrees to do the following: (i) remove any Equipment or other property that may have been set up by Customer or Customer's agent(s) and return to Nettaxi all services that had been provided to Customer by Nettaxi; (ii) pay any outstanding fees within five (5) days of termination of service; (iii) return any confidential information it has received from Nettaxi and (iii) return any equipment or supplies that are the property of Nettaxi. In the event such Equipment or property has not been removed within thirty (30) days of the effective termination or expiration date, the Equipment shall be deemed abandoned and Customer shall lose all rights and title thereto. 5. DEFAULT A. If Customer fails to perform its obligations, or fails to pay for services rendered hereunder, Nettaxi may, at its sole option and with written notice, issue a default notice letter to Customer, demanding the default condition be cured. If the default condition is not remedied within the time period specified in the notice letter, Nettaxi may then, without the necessity of any further notice, discontinue performance and terminate this Agreement, for default, and pursue any other remedies available at law or in equity, including reimbursement of the cost of collection and reasonable attorney fees. Nettaxi's failure to exercise any of its rights hereunder shall not constitute or be construed by Customer as being a waiver of any past, present, or future right or remedy. In the case of Customer's failure to make timely payments, Nettaxi may discontinue any or all services for any period of time as it deems appropriate without written notice to Customer, and Nettaxi shall not deem such action a breach of this Agreement. B. At any time during the term of this Agreement, Nettaxi may, at it's sole option, immediately terminate this Agreement if Customer is not then maintaining the services being rendered solely for the purpose of originating and/or terminating telecommunications transmissions carried over the Nettaxi Network or as otherwise set forth in this Agreement. C. If Customer commits an act of default with respect to the purchase of telecommunications services which would entitle Nettaxi under its separate tariffs and agreements to terminate its services to Customer, then Nettaxi and all Nettaxi's Affiliates shall be entitled to terminate this Agreement and all Data Center services to which this Agreement pertains. D. Nettaxi may, without notice, suspend or terminate services to customer if Customer is found to be engaged in unlawful activities or upon the request to do so by any legal or governmental agencies. 6. PRICES AND PAYMENT TERMS A. Customer shall pay Nettaxi monthly recurring fees (the "Recurring Fees"), which shall include charges for connectivity (or cross-connect fees, if applicable), power charges and, where applicable, technical support and system administration. In addition to any Recurring Fees, Customer shall be charged non-recurring fees where applicable, Escort charges, and other services, which shall be set forth in the DCSO agreement. If Customer requests that Nettaxi provide services not delineated herein or in the DCSO agreement at any time during the Term, Customer agrees to pay the fee for such services in effect at the time such service was rendered. All payments will be made in U.S. dollars. If in its judgment Nettaxi determines that Customer is not creditworthy or is otherwise not financially secure, Nettaxi may, upon written notice to Customer, modify the payment terms to require assurances to secure Customer's payment obligations hereunder. B. All payments required by this Agreement are exclusive of all national, state, municipal or other governmental excise, sales, value-added, use, personal property, and occupational taxes, excises, withholding taxes and obligations and other levies now in force or enacted in the future, all of which Customer will be responsible for and will pay in full. Customer agrees to pay or reimburse Nettaxi for any applicable taxes that are levied based on the transactions hereunder, exclusive of taxes on income and real estate taxes on the Data Center. Any such charges shall be invoiced and payable within the payment terms of this Agreement. Nettaxi agrees to provide Customer with reasonable documentation to support invoiced amounts applied to taxes within thirty (30) calendar days of receipt of a Customer's written request. C. Payments shall be due upon Customer's receipt of each monthly invoice. D. Customer agrees to reimburse Nettaxi for all reasonable repair or restoration costs associated with damage or destruction caused by Customer's personnel, Customer's agent(s) or Customer's suppliers/contractors or Customer's visitors during the Term. 7. ADDITIONAL TERMS GOVERNING USE OF SERVICES RENDERED BY NETTAXI A. Before beginning any delivery, replacement or removal work, Customer must obtain Nettaxi 's written approval of Customer's choice of suppliers which approval shall not be unreasonably withheld or delayed. Nettaxi may request additional information before granting approval and may require scheduling changes and substitution of suppliers as conditions of its approval. Approval by Nettaxi is not an endorsement of Customer's supplier and Customer will remain solely responsible for the selection of the supplier and all payments to Nettaxi for work performed on their behalf. B. Customer shall not make any changes or material alterations to any cabling or power supplies for the Equipment, without obtaining Nettaxi's written approval for Customer to have the work performed. Nettaxi reserves the right to perform and manage any material alterations at rates to be negotiated between the Parties hereto. C. Customer's access to the Data Center shall at all times be subject to Customer's adherence to the generally accepted industry standards, security rules and rules of conduct established by Nettaxi for the Data Center. Except where advanced written permission has been given by Nettaxi, Customer's access to the Data Center shall be limited to the individuals identified and authorized by Customer to have such access D. All equipment brought into or taken out of the Data Center facility must be cleared through Nettaxi's equipment control system 8. REPRESENTATIONS AND WARRANTIES OF CUSTOMER A. Equipment: Customer represents and warrants that, in the --------- event it places or uses Equipment, that it owns or has the legal right and authority, and will continue to own or have such right and authority during the term of this Agreement, to place and use the Customer Equipment as contemplated by this Agreement. Customer further represents and warrants that its placement, arrangement, and use of the Customer Equipment in the Data Center complies with the Customer Equipment Manufacturer's environmental and other specifications. B. Customer's Business: Customer represents and warrants that -------------------- Customer's services, products, materials, data, information and equipment used in connection with this Agreement and Customer's use of Data Center Services (collectively, "Customer's Business") does not as of the Requested Service Date, and will not during the term of this Agreement operate in any manner that would violate any applicable federal, state or local law or regulation or infringe in any way upon the rights of third parties. C. Breach of Warranties: In the event of any breach, or ---------------------- reasonably anticipated breach, of any of the foregoing warranties, in addition to any other remedies available in law or equity, Nettaxi shall have the right, at Nettaxi's sole discretion, to suspend any related Data Center Services if deemed reasonably necessary by Nettaxi to prevent any harm to its business. 9. DISCLAIMERS AND LIMITATION OF LIABILITY A. CUSTOMER AND ITS REPRESENTATIVES VISIT THE DATA CENTER AT THEIR OWN RISK AND NETTAXI ASSUMES NO LIABILITY FOR ANY HARM TO SUCH PERSONS RESULTING FROM ANY CAUSE OTHER THAN NETTAXI'S NEGLIGENCE OR WILLFUL MISCONDUCT RESULTING IN PERSONAL INJURY TO SUCH VISITIORS. B. NETTAXI ASSUMES NO LIABILITY FOR DAMAGE OR LOSS RELATING TO CUSTOMERS BUSINESS. TO THE EXTENT NETTAXI IS LIABLE FOR ANY DAMAGE TO OR LOSS OF CUSTOMER'S EQUIPMENT, SUCH LIABILITY SHALL BE LIMITED SOLELY TO THE THEN CURRENT VALUE OF CUSTOMER'S EQUIPMENT. D. THE LIABILITY OF NETTAXI FOR DAMAGES ARISING OUT OF THE SERVICES PROVIDED HEREIN, INCLUDING, WITHOUT LIMITATION, MISTKES, OMISSIONS, INTERRUPTIONS, DELAYS, TORTIOUS CONDUCT OR ERRORS, OR FAILURE TO FURNISH SPACE, WHETHER CAUSED BY ACTS OF COMMISSION OR OMISSION, SHALL BE LIMITED TO A PRORATED REFUND OF THE CHARGES PAID BY CLIENT FOR THE USE OF THE SPACE. THE RECEIPT OF SUCH REFUNDS SHALL BE THE SOLE REMEDY AFFORDED TO CUSTOMER. 10. CONFIDENTIAL INFORMATION A. Each party acknowledges that it will have access to certain confidential information of the other party concerning the other party's business, plans, customers, technology, and products, including the terms and conditions of this Agreement ("Confidential Information"). Confidential Information will include, but not be limited to, each party's proprietary software and customer information. Each party agrees that it will not use in any way, for its own account or the account of any third party, except as expressly permitted by this Agreement, nor disclose to any third party (except as required by law or to that party's attorneys, accountants and other advisors as reasonably necessary), any of the other party's Confidential Information and will take reasonable precautions to protect the confidentiality of such information. B. Information will not be deemed Confidential Information hereunder if such information: (i) is known to the receiving party prior to receipt from the disclosing party directly or indirectly from a source other than one having an obligation of confidentiality to the disclosing party; (ii) becomes known (independently of disclosure by the disclosing party) to the receiving party directly or indirectly from a source other than one having an obligation of confidentiality to the disclosing party; (iii) becomes publicly known or otherwise ceases to be secret or confidential, except through a breach of this Agreement by the receiving party; or (iv) is independently developed by the receiving party. 11. EXCUSED PERFORMANCE Neither Party shall be liable to the other Party under this Agreement for any failure nor delay in performance that is due to causes beyond its reasonable control, including but not limited to, acts of nature, governmental actions, fires, civil disturbances, interruptions of power, or transportation problems. 12. ASSIGNMENT OR TRANSFER Customer shall not assign or transfer the rights or obligations associated with this Agreement, in whole or in part, without Nettaxi's prior written consent. 13. PUBLICITY Customer shall not use Nettaxi's name in publicity or press releases without Nettaxi's prior written consent. 14. LIMITATION OF LIABILITY A. In no event shall Nettaxi or any of its officers, directors, agents, contractors or employees, be liable for any loss of profit or revenue or for indirect, incidental, special, punitive or exemplary damages incurred or suffered Customer arising from or pertaining to Customer's use of the Data Center Facility including (without limitation) damages arising from interruption of electrical power or HVAC services. B. Customer shall indemnify and hold harmless Nettaxi, its officers, directors, agents and employees, from and against any and all third party claims, costs, expenses or liabilities arising from or in connection with Customer's use of the Data Center facility. Customer further agrees to indemnify Nettaxi against Customer's acts of negligence resulting in damage to third parties. 15. FORCE MAJEURE Neither party shall be deemed in default of this Agreement to the extent that performance of their obligations or attempts to cure any breach were delayed or prevented by acts of nature, including earthquakes and floods, fire, natural disaster, accident, acts of government, labor strikes or any other cause beyond the control of such party. 16. GOVERNING LAW This Agreement shall be governed and construed by the laws of the State of California except as they pertain to its conflict of law provisions. The courts of the State of California, County of Los Angeles shall have jurisdiction over any legal disputes relating to or in connection with this Agreement. 17. ENTIRE AGREEMENT This Agreement constitutes the entire understanding between the parties and supercedes all other agreements, whether written or oral. This Agreement may not be modified except in a writing that is signed by both parties or their duly authorized representatives. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. NETTAXI.COM, INC. BY: /s/ -------------------------------------------- Authorized Signature TITLE: -------------------------------------------- WHITEHORN VENTURES LIMITED BY: /s/ -------------------------------------------- Authorized Signature TITLE: Director EX-10.63 9 EXHIBIT 10.63 NETTAXI.COM, INC. DATA CENTER SERVICE AGREEMENT THIS AGREEMENT made this 15th day of August, 1999, (the "Effective Date") by and between NETTAXI.COM, INC., a Nevada corporation (hereinafter called "Nettaxi"), located at 1696 Dell Avenue, Campbell, California 95008 and WHITE SAND COMMUNICATIONS, INC., Inc. a California corporation (hereinafter called "Customer"), Located at 9800D Topanga Canyon Blvd., Suite 318, Chatsworth, California 91311. 1. GENERAL TERMS A. This document, along with the Data Center Service Order ("DCSO") agreement, shall comprise a complete and binding agreement between Customer and Nettaxi regarding services to be provided at the location known as 1200 West 7th Street, Suite L1-100, Los Angeles, California 90017 (hereinafter called the "Data Center".) Each DCSO agreement, and any amendments thereto, when dated and subscribed by Customer and Nettaxi, shall incorporate the terms and conditions of this Agreement. In the event of any conflict or inconsistency between this Agreement and the terms set forth in a DCSO agreement, the terms of the DCSO agreement shall in all cases prevail. B. In connection with the Space made available hereunder, Nettaxi shall perform services which support the overall operation of the Data Center, e.g., janitorial services, environmental systems maintenance, and power plant maintenance, at no additional charge to Customer. However, Customer shall be required to maintain the Collocation Space in an orderly manner and shall be responsible for the removal of trash, packing, cartons, etc. from the Space. Further, Customer shall maintain the Space in a safe condition, including but not limited to the preclusion of storing combustible materials in the Space. C. Any option granted to Customer to renew its license to occupy the Space shall be contingent on the election by Nettaxi to continue to own or lease the Premises in which the Space is located for the duration of the Renewal Period(s), such election to be exercised at the sole discretion of Nettaxi. 2. DATA CENTER SERVICES A. Collocation Space: Nettaxi shall provide Customer with shared or ------------------- dedicated Rack Space as indicated in the DCSO. B. Connectivity: Nettaxi shall provide Customer with connectivity to the ------------- Internet through Nettaxi's network as specified in the DCSO. Nettaxi shall provide cross-connectivity, where applicable, for an additional fee. C. Technical Support: Nettaxi shall provide Customer with complete ------------------- technical support upon Customer's request and in accordance with Nettaxi's terms and conditions and listed rates. D. Eyes Hands Support: Nettaxi shall provide Customer with assistance to --------------------- observe conditions in their Collocation Space and offer light hands assistance such as shutting off and turning on equipment as directed by Customer. 3. TERM OF AGREEMENT A. Customer's license to occupy the Collocation Space shall begin on the "Requested Service Date," as set forth in the DCSO agreement or on the date Nettaxi completes the build-out of the Space, whichever is later. The minimum term of the Customer's license to occupy the Space shall be one year, but may be longer as indicated on the DCSO. B. Should Nettaxi fail, for any reason to tender possession of the Space to Customer on or before the Requested Service Date (specified in the DCSO agreement relevant thereto) this Agreement shall not be void or voidable. If Nettaxi fails to tender possession of the Space to Customer within a sixty (60) day period after such Requested Service Date (due to any reason other than the acts or omissions of Customer), Customer may, upon written notice to Nettaxi, declare the relevant DCSO agreement null and void with no further obligation attributed to Customer, and Nettaxi shall refund all fees and charges paid in advance by Customer, except in the case where the delay was caused by Customer, in which case, Nettaxi shall retain any funds necessary to recover the cost or obligations incurred on behalf of Customer. Except as provided herein, Nettaxi shall not be liable to Customer in any way as a result of a delay or failure to tender possession. C. Following the expiration of the Term for each Space or failure of the Parties to enter into any Renewal Periods, Customer's license to occupy the Space and receive services shall continue in effect on a month-to-month basis upon the same terms and conditions specified herein, unless terminated by either Customer or Nettaxi upon thirty (30) days prior written notice. 4. TERMINATION A. Either party shall have the right to terminate this agreement should the other party breache a material term or condition of this Agreement and fail to cure such breach within thirty (30) days after receipt of written notice of the breach, except in the case of failure to make timely payment to Nettaxi, which must be cured within ten (10) days of the payment due date. Nettaxi has the option, at its sole discretion, to terminate this Agreement should Customer become insolvent or the subject of bankruptcy proceedings, a receivership, liquidation or a sale for the benefit of creditors B. Upon termination or expiration of the Term for each Space, Customer agrees to do the following: (i) remove the Equipment and other property that has been installed by Customer or Customer's agent(s) and return the Space to Nettaxi in substantially the same condition as it was on the date of installation; (ii) pay any outstanding fees within five (5) days of termination of service; (iii) return any confidential information it has received from Nettaxi and (iii) return any equipment or supplies that are the property of Nettaxi. In the event such Equipment or property has not been removed within thirty (30) days of the effective termination or expiration date, the Equipment shall be deemed abandoned and Customer shall lose all rights and title thereto. C. In the event the Data Center becomes the subject of a taking by eminent domain by any authority having such power, Nettaxi shall have the right to terminate this Agreement. Nettaxi shall attempt to give Customer reasonable advance notice of the removal schedule. Customer shall have no claim against Nettaxi for any relocation expenses, any part of any award that may be made for such taking or the value of any unexpired term or renewed periods that result from a termination by Nettaxi under this provision, or any loss of business from full or partial interruption or interference due to any termination. However, nothing contained in this Agreement shall prohibit Customer from seeking any relief or remedy against the condemning authority in the event of an eminent domain proceeding or condemnation that affects the Space. 5. DEFAULT A. If Customer fails to perform its obligations, or fails to pay for services rendered hereunder, Nettaxi may, at its sole option and with written notice, issue a default notice letter to Customer, demanding the default condition be cured. If the default condition is not remedied within the time period specified in the notice letter, Nettaxi may then, without the necessity of any further notice, discontinue performance and terminate this Agreement, for default, and pursue any other remedies available at law or in equity, including reimbursement of the cost of collection and reasonable attorney fees. Nettaxi's failure to exercise any of its rights hereunder shall not constitute or be construed by Customer as being a waiver of any past, present, or future right or remedy. In the case of Customer's failure to make timely payments, Nettaxi may discontinue any or all services for any period of time as it deems appropriate without written notice to Customer, and such action shall not be deemed a breach of this Agreement by Nettaxi. B. At any time during the term of this Agreement, Nettaxi may, at it's sole option, immediately terminate this Agreement if Customer is not then maintaining the Equipment solely for the purpose of originating and/or terminating telecommunications transmissions carried over the Nettaxi Network or as otherwise set forth in this Agreement, or pursuant to the terms and conditions, if any, contained in any Collocation Schedule identified herewith. C. If Customer commits an act of default under any Collocation Schedule to which this Agreement pertains, Nettaxi may, in its sole discretion, declare Customer to be in default of any and all other Collocation Schedules then in effect, without the necessity of showing separate failures, acts or omissions by Customer. D. If Customer commits an act of default with respect to the purchase of telecommunications services which would entitle Nettaxi under its separate tariffs and agreements to terminate its services to Customer, then Nettaxi and all Nettaxi's Affiliates shall be entitled to terminate this Agreement and all Data Center services to which this Agreement pertains. E. Nettaxi may, without notice, suspend or terminate services to customer if Customer is found to be engaged in unlawful activities or upon the request to do so by any legal or governmental agencies 6. PRICES AND PAYMENT TERMS A. Customer shall pay NETTAXI monthly recurring fees (the "Recurring Fees"), which shall include charges for use and occupancy of the Space (the "Occupancy Fees"), connectivity (or cross-connect fees, if applicable), power charges and, where applicable, technical support and system administration. In addition to any Recurring Fees, Customer shall be charged non-recurring fees for build-out of the Space (the "Build-Out Charges"), where applicable, Escort charges, and other services, which shall be set forth in the DCSO agreement. If Customer requests that Nettaxi provide services not delineated herein or in the DCSO agreement at any time during the Term, Customer agrees to pay the fee for such services in effect at the time such service was rendered. All payments will be made in U.S. dollars. Late payments hereunder will accrue interest at a rate of one and one-half percent (1 %) per month, or the highest rate allowed by applicable law, whichever is lower. If in its judgment Nettaxi determines that Customer is not creditworthy or is otherwise not financially secure, Nettaxi may, upon written notice to Customer, modify the payment terms to require assurances to secure Customer's payment obligations hereunder. B. All payments required by this Agreement are exclusive of all national, state, municipal or other governmental excise, sales, value-added, use, personal property, and occupational taxes, excises, withholding taxes and obligations and other levies now in force or enacted in the future, all of which Customer will be responsible for and will pay in full. Customer agrees to pay or reimburse Nettaxi for any applicable taxes that are levied based on the transactions hereunder, exclusive of taxes on income and real estate taxes on the Data Center. Any such charges shall be invoiced and payable within the payment terms of this Agreement. Nettaxi agrees to provide Customer with reasonable documentation to support invoiced amounts applied to taxes within thirty (30) calendar days of receipt of a Customer's written request. C. The Occupancy Fee and/or Power Charges shall be increased to reflect any increases incurred by and required under the lease relevant to the Premises in which the Space is located. Customer shall pay to Nettaxi its pro rata share of any such increases based on the number of square feet of the Space compared to the number of square feet leased by Nettaxi under the applicable lease. Nettaxi shall notify Customer of any such increase as soon as practicable. D. Payments shall be due upon Customer's receipt of each monthly invoice. Late payment charges will be calculated based on 1.5% per month of the unpaid amount. E. Charges delineated in the Collocation Schedule for build-out of the Space shall be invoiced and paid by Customer when invoiced. Nettaxi may require payment of up to fifty percent (50%) of the "Build Out Fees" prior to commencing construction. F. Customer agrees to reimburse Nettaxi for all reasonable repair or restoration costs associated with damage or destruction caused by Customer's personnel, Customer's agent(s) or Customer's suppliers/contractors or Customer's visitors during the Term or as a consequence of Customer's removal of the Equipment or property installed in the Space. 7. ADDITIONAL TERMS GOVERNING USE OF COLLOCATION SPACE AND INSTALLATION OF EQUIPMENT A. Before beginning any delivery, installation, replacement or removal work, Customer must obtain Nettaxi 's written approval of Customer's choice of suppliers and contractors which approval shall not be unreasonably withheld or delayed. Nettaxi may request additional information before granting approval and may require scheduling changes and substitution of suppliers and contractors as conditions of its approval. Approval by Nettaxi is not an endorsement of Customer's supplier or contractor, and Customer will remain solely responsible for the selection of the supplier or contractor and all payments to Nettaxi for construction work performed on their behalf. B. Customer shall not make any construction changes or material alterations to the interior or exterior portions of the Space, including any cabling or power supplies for the Equipment, without obtaining Nettaxi's written approval for Customer to have the work performed. Nettaxi reserves the right to perform and manage any construction or material alterations within the Data Center and Collocation Space areas at rates to be negotiated between the Parties hereto. C. Customer's use of the Space, installation of Equipment and access to the Data Center shall at all times be subject to Customer's adherence to the generally accepted industry standards, security rules and rules of conduct established by Nettaxi for the Data Center. Except where advanced written permission has been given by Nettaxi, Customer's access to the Data Center shall be limited to the individuals identified and authorized by Customer to have such access. Customer agrees not to erect any signs or devices to the exterior portion of the Space without submitting the request to Nettaxi and obtaining Nettaxi's written approval. D. Customer may not provide, or make available to any third party, space within the Collocation Space without Nettaxi's prior written consent. If Customer should provide, or make available to any third party, space within the Collocation Space without obtaining the written consent of Nettaxi, Customer shall be in breach of this Agreement and Nettaxi may pursue any legal or equitable remedy, including but not limited to the immediate termination of this Agreement. E. Nettaxi shall not arbitrarily or discriminatorily require Customer to relocate the Equipment; however, upon sixty (60) days prior written notice or, in the event of an emergency, such time as may be reasonable, Nettaxi reserves the right to change the location of the Space or the Data Center to a site which shall afford comparable environmental conditions for the Equipment and comparable accessibility to the Equipment. Nettaxi and Customer will work together in good faith to minimize any disruption of Customer's services as a result of such relocation. Nettaxi shall be responsible for the cost of improving the Space to which the Equipment may be relocated, and for relocation of Equipment interconnected to Nettaxi services, except that Nettaxi shall not be responsible for relocating facilities installed in violation of this Agreement. F. All equipment brought into or taken out of the Data Center facility must be cleared through Nettaxi's equipment control system. 8. REPRESENTATIONS AND WARRANTIES OF CUSTOMER A. Equipment: Customer represents and warrants that it owns or --------- has the legal right and authority, and will continue to own or have such right and authority during the term of this Agreement, to place and use the Customer Equipment as contemplated by this Agreement. Customer further represents and warrants that its placement, arrangement, and use of the Customer Equipment in the Gigabit Data Center complies with the Customer Equipment Manufacturer's environmental and other specifications. B. Customer's Business: Customer represents and warrants that -------------------- Customer's services, products, materials, data, information and equipment used in connection with this Agreement and Customer's use of Data Center Services (collectively, "Customer's Business") does not as of the Installation Date, and will not during the term of this Agreement operate in any manner that would violate any applicable federal, state or local law or regulation or infringe in any way upon the rights of third parties. C. Breach of Warranties: In the event of any breach, or ---------------------- reasonably anticipated breach, of any of the foregoing warranties, in addition to any other remedies available in law or equity, Nettaxi shall have the right, at Nettaxi's sole discretion, to suspend any related Data Center Services if deemed reasonably necessary by Nettaxi to prevent any harm to its business. 9. DISCLAIMERS AND LIMITATION OF LIABILITY A. THE COLLOCATION SPACE IS ACCEPTED "AS IS" BY CUSTOMER. CUSTOMER ACKNOWLEDGES THAT NO REPRESENTATION HAS BEEN MADE BY NETTAXI AS TO THE FITNESS OF THE COLLOCATION SPACE FOR CUSTOMER'S INTENDED PURPOSE. EXCEPT FOR THE WARRANTIES SET FORTH IN THIS ARTICLE, THERE ARE NO WARRANTIES, WHETHER EXPRESS, IMPLIED, ORAL, OR WRITTEN, WITH RESPECT TO THE COLLOCATION SPACE OR SERVICES COVERED OR FURNISHED PURSUANT TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. MOREOVER, THE REMEDIES PROVIDED IN THIS ARTICLE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER REMEDIES. B. CUSTOMER AND ITS REPRESENTATIVES VISIT THE Data Center AT THEIR OWN RISK AND NETTAXI ASSUMES NO LIABILITY FOR ANY HARM TO SUCH PERSONS RESULTING FROM ANY CAUSE OTHER THAN NETTAXI'S NEGLIGENCE OR WILLFUL MISCONDUCT RESULTING IN PERSONAL INJURY TO SUCH VISITIORS. C. NETTAXI ASSUMES NO LIABILITY FOR DAMAGE OR LOSS RELATING TO CUSTOMERS BUSINESS. TO THE EXTENT NETTAXI IS LIABLE FOR ANY DAMAGE TO OR LOSS OF CUSTOMER'S EQUIPMENT, SUCH LIABILITY SHALL BE LIMITED SOLELY TO THE THEN-CURRENT VALUE OF CUSTOMER'S EQUIPMENT. D. THE LIABILITY OF NETTAXI FOR DAMAGES ARISING OUT OF THE SERVICES PROVIDED HEREIN, INCLUDING, WITHOUT LIMITATION, MISTKES, OMISSIONS, INTERRUPTIONS, DELAYS, TORTIOUS CONDUCT OR ERRORS, OR FAILURE TO FURNISH SPACE, WHETHER CAUSED BY ACTS OF COMMISSION OR OMISSION, SHALL BE LIMITED TO A PRORATED REFUND OF THE CHARGES PAID BY CLIENT FOR THE USE OF THE SPACE. THE RECEIPT OF SUCH REFUNDS SHALL BE THE SOLE REMEDY AFFORDED TO CUSTOMER. 10. CONFIDENTIAL INFORMATION A. Each party acknowledges that it will have access to certain confidential information of the other party concerning the other party's business, plans, customers, technology, and products, including the terms and conditions of this Agreement ("Confidential Information"). Confidential Information will include, but not be limited to, each party's proprietary software and customer information. Each party agrees that it will not use in any way, for its own account or the account of any third party, except as expressly permitted by this Agreement, nor disclose to any third party (except as required by law or to that party's attorneys, accountants and other advisors as reasonably necessary), any of the other party's Confidential Information and will take reasonable precautions to protect the confidentiality of such information. B. Information will not be deemed Confidential Information hereunder if such information: (i) is known to the receiving party prior to receipt from the disclosing party directly or indirectly from a source other than one having an obligation of confidentiality to the disclosing party; (ii) becomes known (independently of disclosure by the disclosing party) to the receiving party directly or indirectly from a source other than one having an obligation of confidentiality to the disclosing party; (iii) becomes publicly known or otherwise ceases to be secret or confidential, except through a breach of this Agreement by the receiving party; or (iv) is independently developed by the receiving party. 11. EXCUSED PERFORMANCE Neither Party shall be liable to the other Party under this Agreement for any failure nor delay in performance that is due to causes beyond its reasonable control, including but not limited to, acts of nature, governmental actions, fires, civil disturbances, interruptions of power, or transportation problems. 12. ASSIGNMENT OR TRANSFER Customer shall not assign or transfer the rights or obligations associated with this Agreement, in whole or in part, without Nettaxi's prior written consent. 13. PUBLICITY Customer shall not use Nettaxi's name in publicity or press releases without Nettaxi's prior written consent. 14. LIMITATION OF LIABILITY A. In no event shall Nettaxi or any of its officers, directors, agents, contractors or employees, be liable for any loss of profit or revenue or for indirect, incidental, special, punitive or exemplary damages incurred or suffered Customer arising ftom or pertaining to Customer's use or occupancy of the Collocation Space including (without limitation) damages arising from interruption of electrical power or HVAC services. B. Customer shall indemnify and hold harmless Nettaxi, its officers, directors, agents, contractors and employees, from and against any and all third party claims, costs, expenses or liabilities arising from or in connections with Customer's use of the Data Center facility. Customer further agrees to indemnify Nettaxi against Customer's acts of negligence resulting in damage to third parties. 15. FORCE MAJEURE Neither party shall be deemed in default of this Agreement to the extent that performance of their obligations or attempts to cure any breach were delayed or prevented by acts of nature, including earthquakes and floods, fire, natural disaster, accident, acts of government, labor strikes or any other cause beyond the control of such party. 16. GOVERNING LAW This Agreement shall be governed and construed by the laws of the State of California except as they pertain to its conflict of law provisions. The courts of the State of California, County of Los Angeles shall have jurisdiction over any legal disputes relating to or in connection with this Agreement. 17. ENTIRE AGREEMENT This Agreement constitutes the entire understanding between the parties and supercedes all other agreements, whether written or oral. This Agreement may not be modified except in a writing which is signed by both parties or their duly authorized representatives. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. NETTAXI.COM, INC. BY: /s/ -------------------------------------------- Authorized Signature TITLE: -------------------------------------------- WHITE SAND COMMUNICATIONS, INC. BY: /s/ -------------------------------------------- Authorized Signature TITLE: Director, Valdir Managers Limited EX-27 10
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1440500 0 1069500 50500 0 2553500 3378800 679800 6002400 4222400 5000000 0 0 18000 (3238000) 6002400 2980900 2980900 1914600 1914600 7474600 0 299400 (6639400) 96700 (6736100) 0 0 0 (6736100) (.32) (.32)
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