As filed with the Securities and Exchange Commission on July 17, 2002
Registration No. 333-_____
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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RATEXCHANGE CORPORATION
(Exact name of registrant as specified in charter)
Delaware
(State or other jurisdiction of incorporation or organization)
11-2936371
(I.R.S. Employee Identification No.)
--------------------
100 Pine Street
Suite 500
San Francisco, California 94111-5101
(415) 274-5650
(Address and telephone number of executive offices
and principal place of business)
D. Jonathan Merriman, Chief Executive Officer
RateXchange Corporation.
100 Pine Street
Suite 500
San Francisco, California 94111-5101
(415) 274-5650
(Name, address and telephone number of agent for service)
Copies of all communications to:
Barry Feiner, Esq.
170 Falcon Court
Manhasset, New York 11030
(516) 484-6890
Approximate date of proposed sale to the public: From time to time or
at one time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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ii
CALCULATION OF REGISTRATION FEE
======================================== ===================== ===================== ====================== ====================
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Offering Registration
Securities to be Registered (1) Registered (2) Per Unit (3) Price (3) Fee
======================================== ===================== ===================== ====================== ====================
Common Stock 2,593,510 $ 0.29 $ 752,118 $ 69.19
======================================== ===================== ===================== ====================== ====================
Common Stock (4) 8,581,085 $ 0.37 $ 3,175,001 $ 292.10
======================================== ===================== ===================== ====================== ====================
Common Stock (5) 875,000 $ 0.37 $ 323,750 $ 29.79
======================================== ===================== ===================== ====================== ====================
Common Stock (6) 609,756 $ 0.41 $ 250,000 $ 23.00
======================================== ===================== ===================== ====================== ====================
Common Stock (7) 187,500 $ 0.41 $ 76,875 $ 7.07
======================================== ===================== ===================== ====================== ====================
Common Stock (8) 806,366 $ 0.29 $ 233,846 $ 21.51
======================================== ===================== ===================== ====================== ====================
Common Stock (9) 300,000 $ 4.47 $ 1,341,000 $ 123.34
======================================== ===================== ===================== ====================== ====================
Common Stock (10) 500,000 $ 4.70 $ 2,350,000 $ 216.20
======================================== ===================== ===================== ====================== ====================
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Common Stock (11) 500,000 $ 4.92 $ 2,460,000 $ 226.32
======================================== ===================== ===================== ====================== ====================
Common Stock (12) 500,000 $ 5.14 $ 2,570,000 $ 236.44
======================================== ===================== ===================== ====================== ====================
Common Stock (13) 500,000 $ 5.37 $ 2,685,000 $ 247.02
======================================== ===================== ===================== ====================== ====================
Common Stock (14) 878,378 $ 0.44 $ 390,000 $ 35.88
======================================== ===================== ===================== ====================== ====================
TOTAL 16,831,595 $ 16,607,589 $ 1,527.88
======================================== ===================== ===================== ====================== ====================
(1) This Registration Statement covers offers, sales and other
distributions of the securities listed in this table from time to time
at prices to be determined.
(2) Pursuant to Rule 416 of the Securities Act of 1933, there are also
being registered an indeterminate number of additional shares of common
stock as may become issuable upon conversion of notes and preferred
stock and exercise of warrants to prevent dilution resulting from stock
splits, stock dividends or similar transactions.
(3) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(c) of the Securities Act as follows: (i) with
respect to shares of common stock currently held by selling
stockholders and to be sold by them, by multiplying the number of such
shares by $0.31, the average of the high and low prices of the shares
of common stock of the Registrant reported on the American Stock
Exchange on June 25, 2002; (ii) with respect to the shares of common
stock to be sold by selling stockholders which are issuable upon
conversion of notes, by multiplying such number of shares by the
conversion rates of the notes, which are higher than the $0.31 market
price; (iii) with respect to the shares of common stock to be sold by
selling stockholders which are issuable upon exercise of warrants, by
multiplying such number of shares by the exercise prices of the
warrants, which are higher than the $0.31 market price; and (iv) with
respect to the shares of common stock to be sold by selling
stockholders which are issuable upon conversion of preferred stock, by
multiplying such number of shares by the $0.31 market price because the
preferred stock is convertible at the rate of one share of common stock
for each share of preferred stock.
(4) Represents common stock issuable upon conversion of notes held by
selling stockholders in the principal amount of $3,175,000 at the rate
of $0.37 per share.
(5) Represents common stock issuable upon exercise of warrants held by
selling stockholders at an exercise price of $0.37 per share.
iv
(6) Represents common stock issuable upon conversion of a note held by a
selling stockholder in the principal amount of $250,000 at the rate of
$0.41 per share.
(7) Represents common stock issuable upon exercise of warrants held by a
selling stockholder at an exercise price of $0.41 per share.
(8) Represents common stock issuable upon conversion of preferred stock
held by selling stockholders at the rate one share of common stock for
each share of preferred stock.
(9) Represents common stock issuable upon exercise of warrants held by a
selling stockholder at an exercise price of $4.47 per share.
(10) Represents common stock issuable upon exercise of warrants held by a
selling stockholder at an exercise price of $4.70 per share.
(11) Represents common stock issuable upon exercise of warrants held by
selling stockholders at an exercise price of $4.92 per share.
(12) Represents common stock issuable upon exercise of warrants held by a
selling stockholder at an exercise price of $5.14 per share.
(13) Represents common stock issuable upon exercise of warrants held by a
selling stockholder at an exercise price of $5.37 per share.
(14) Represents common stock issuable upon exercise of placement agent
warrants held by selling stockholders at an exercise price of $0.44
per share.
The Registrant hereby amends this registration statement on the date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the registration statement shall become
effective on a date as the Securities and Exchange Commission, acting pursuant
to Section 8(a), may determine.
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[Prospectus Cover Page Legend]
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY APPLICABLE STATE SECURITIES
COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
vi
Subject to Completion Dated July ??, 2002
RATEXCHANGE CORPORATION
Common stock by selling stockholders
--------------------------------
The selling stockholders or their successors may sell, from
time to time, in one or more offerings:
o 2,593,510 shares of common stock currently held by them
o 14,238,085 shares of common stock issuable upon conversion of
notes and preferred stock and exercise of warrants currently held
by them.
We will not receive proceeds from the sale of shares by our
stockholders or the resale of our stockholders' shares that are issued when our
notes and our preferred stock are converted and our warrants are exercised;
however, we will receive proceeds from the exercise of our warrants, if and when
they are exercised.
--------------------------------
Please see the risk factors beginning on page 4 to read about certain
factors you should consider before buying shares of our common stock.
--------------------------------
Our common stock is listed on the American Stock Exchange under the
symbol RTX. The reported last sale price on the American Stock Exchange on July
8, 2002 was $0.29.
Neither the Securities and Exchange Commission, nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The date of this prospectus is ___________________, 2002
INSIDE FRONT COVER
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. All statements
regarding
o future events,
o our financial performance and operating results,
o our business strategy, and
o our financing plans
are forward-looking statements. In some cases you can identify
forward-looking statements by terminology, such as "may," "will," "would,"
"should," "could," "expect," "intend," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or "continue," the negative of such terms, or
other comparable terminology. These statements are only predictions. Known and
unknown risks, uncertainties and other factors could cause actual results to
differ materially from those contemplated by the statements. In evaluating these
statements, you should specifically consider various factors, including the
risks described in the "Risk Factors" section and elsewhere in this prospectus.
These factors may cause our actual results to differ materially from any
forward-looking statements.
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Prospectus Summary
Because this is a summary, it may not contain all information that may
be important to you. You should read this entire prospectus, including the
information incorporated by reference and the financial data and related notes,
before making an investment decision. When used in this prospectus, the terms
"we," "our" and "us" refer to RateXchange and not to the selling stockholders.
RATEXCHANGE
We are a brokerage services firm that combines our expertise in
bandwidth and other emerging commodity markets with securities brokerage and
investment banking activities. Our RTX Securities Corporation subsidiary is a
NASD licensed, fully disclosed broker-dealer offering sales and trading services
to institutions and private clients, as well as advisory and investment banking
services to our corporate clients.
We expect to generate revenues from brokerage and investment banking
activities through RTX Securities and, to a lesser extent, from consulting and
information services through our emerging commodities division. We receive
revenue from our investment banking and brokerage services in the form of
o commissions,
o transaction fees,
o capital markets services fees, and
o merger and acquisition advisory fees.
We believe that our consulting and information services may, in the future,
generate revenues in the form of
o subscription fees,
o transaction fees,
o professional services fees, and
o management fees.
The mailing address of our principal executive offices is 100 Pine
Street, Suite 500, San Francisco, California 94111-5101. Our telephone number is
(415) 274-5650 and our web site address is www.ratexchage.com. Information
contained on our web site is not part of this prospectus.
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Recent Developments
We held our annual stockholder meeting on May 30, 2002. At the meeting,
the members of our board of directors were reelected and the stockholders
approved
o our 2002 Employee Stock Purchase Plan and
o our change of auditors from Arthur Andersen, LLP to Ernst & Young,
LLP
Risk Factors
This offering involves a high degree of risk. Each prospective investor
should carefully consider the risks described below and other information in
this prospectus before making an investment decision.
It is difficult to evaluate our business and prospects because we have a limited
operating history in a new and rapidly changing industry.
In December 2001 we acquired a securities broker-dealer firm and
created a wholly-owned subsidiary, RTX Securities Corporation, that began
actively engaging in providing securities brokerage and investment banking
services in February 2002. Accordingly, we have a limited operating history on
which to base an evaluation of our business and prospects. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets. We cannot assure you that we will
be successful in addressing these risks and our failure to do so could have a
material adverse effect on our business and results of operations.
Our ability to attain a positive cash flow and become profitable
depends on our ability to generate and maintain greater revenues while incurring
reasonable expenses. This, in turn, depends, among other things, on the
development of our securities brokerage and investment banking business, as well
as our ability to:
o establish, maintain and increase our client base;
o manage the quality of services delivered by us supporting our
securities brokerage and investment banking business;
o compete effectively with existing and potential competitors;
o further develop our business model;
o manage expanding operations; and
o attract and retain qualified personnel.
If we do achieve a positive cash flow and profitability, we cannot be
certain that we will be able to sustain or increase them on a quarterly or
annual basis in the future. Our inability to achieve or maintain profitability
or positive cash flow could result in disappointing financial results, impede
implementation of our growth strategy or cause the market price of our common
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stock to decrease. Accordingly, we cannot assure you that we will be able to
generate the cash flow and profits necessary to sustain our business
expectations, which makes our ability to implement successfully our business
plan uncertain.
Because we are a developing company, the factors upon which we are able
to base our estimates as to the gross revenues and the number of participating
clients that will be required for us to attain a positive cash flow and any
additional financing that may be needed for this purpose, are unpredictable. In
addition, the emerging commodities part of our business is in an industry that
is new and rapidly changing. For these and other reasons, we cannot assure you
that we will not require higher gross revenues, and an increased number of
o clients,
o securities brokerage and investment banking transactions,
o emerging commodity transactions and/or
more time in order for us to complete the development of our business that we
believe we need to be able to cover our operating expenses, or obtain the funds
necessary to finance this development. It is more likely than not that our
estimates will prove to be inaccurate because actual events more often than not
differ from anticipated events. Furthermore, in the event that financing is
needed in addition to the amount that we estimate either may be or is required
for this development, we cannot assure you that such financing will be available
on acceptable terms, if at all. Accordingly, we can neither assure nor represent
to you that our business will ever generate a positive cash flow or be
profitable.
We have a history of operating losses and negative cash flow and we anticipate
losses and negative cash flow to continue for the foreseeable future. Unless we
are able to generate profits and positive cash flow we may not be able to
continue operations.
We have incurred net losses and generated only nominal revenues from operations
since our inception and financed our operations primarily through sales of
equity and debt securities. We incurred net losses of $30,072,000, $44,729,000
and $9,299,000 for the years ended December 31, 2001, 2000 and 1999,
respectively, and negative cash flow from operations of $11,762,000, $17,161,000
and $3,070,000 in 2001, 2000 and 1999, respectively. We have incurred net losses
of $1,616,000 and $7,641,000 for the three months ended March 31, 2002 and March
31, 2001, respectively, and negative cash flow from operations of $877,000 and
$5,608,000 for the three months ended March 31, 2002 and March 31, 2001,
respectively. At March 31, 2002, our accumulated deficit since inception was
$89,429,000. We expect operating losses and negative cash flow to continue for
the foreseeable future. We may never achieve a positive cash flow and
profitability and even if we do, we may not sustain or increase them on a
quarterly or annual basis in the future. If we are unable to achieve and sustain
a positive cash flow and profitability, we may be unable to continue our
operations.
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The markets for securities brokerage and investment banking services are highly
competitive. If we are not able to compete successfully against current and
future competitors, our business and results of operations will be adversely
affected.
The markets for securities brokerage, investment banking and data
aggregation for emerging commodities are highly competitive. Our ability to
compete with other companies will depend largely upon our ability to capture
market share by obtaining sufficient customers for our securities brokerage and
investment banking services and participants for the RateXchange Trading System.
Increased pressure created by any current or future competitors, or by
our competitors collectively, could materially and adversely affect our business
and results of operations. Increased competition may result in reduced revenue
and loss of market share. Further, as a strategic response to changes in the
competitive environment, we may from time to time make certain pricing, service
or marketing decisions or acquisitions that also could materially and adversely
affect our business and results of operations. We cannot assure you that we will
be able to compete successfully against current and future competitors. In
addition, new technologies and the expansion of existing technologies may
increase the competitive pressures on us.
We have registered one of our subsidiaries as a securities broker-dealer and, as
such, are subject to substantial regulations. If we fail to comply with these
regulations, our business will be adversely affected.
Because we have registered RTX Securities Corporation, our wholly owned
subsidiary, with the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., or NASD, as a securities broker-dealer,
we are subject to extensive regulation under federal and state laws. The
principal purpose of regulation and discipline of broker-dealers is the
protection of customers and the securities markets rather than protection of
creditors and stockholders of broker-dealers. The Securities and Exchange
Commission is the federal agency charged with administration of the federal
securities laws. Much of the regulation of broker-dealers, however, has been
delegated to self-regulatory organizations, such as the NASD and national
securities exchanges. The NASD is our primary self-regulatory organization.
These self-regulatory organizations adopt rules, which are subject to Securities
and Exchange Commission approval, that govern the industry and conduct periodic
examinations of member broker-dealers. Broker-dealers are also subject to
regulation by state securities commissions in the states in which they are
registered. The regulations to which broker-dealers are subject cover all
aspects of the securities business, including net capital requirements, sales
methods, trading practices among broker-dealers, capital structure of securities
firms, record keeping and the conduct of directors, officers and employees. The
Securities and Exchange Commission and the self-regulatory bodies may conduct
administrative proceedings, which can result in censure, fine, suspension or
expulsion of a broker-dealer, its officers or employees. If we fail to comply
with these rules and regulations, our business may be materially and adversely
affected.
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Our business may suffer if we lose the services of our executive officers, or if
we cannot retain existing skilled personnel and recruit additional skilled
personnel.
We depend on the continued services and performance of D. Jonathan
Merriman, our Chairman and Chief Executive Officer for our future success. We
currently have an employment agreement with Mr. Merriman, which ends on October
8, 2003 but can be terminated by either party on 60 day's notice. The agreement
contains provisions that obligate us to make certain payments to Mr. Merriman
and substantially reduce vesting periods of options granted to him if we should
terminate him without cause or certain events resulting in a change of control
of our board were to occur. Pursuant to an amendment to the agreement, which
became effective as of September 28, 2001, Mr. Merriman reduced his annual
salary from $300,000 to $1.00. Upon the consummation of the sale of the assets
of our futures trading subsidiary and the consummation of our recent private
financing, Mr. Merriman's annual salary has increased to $150,000.
In addition to Mr. Merriman, we are currently managed by a small number
of key management and operating personnel. We do not maintain "key man"
insurance on any employee. Our future success depends, in part, on the continued
service of our key executive, management and technical personnel, many of whom
have only recently been hired, and our ability to attract highly skilled
employees. Our business could be harmed if any key officer or employee were
unable or unwilling to continue in his or her current position. From time to
time we have experienced, and we expect to continue to experience, difficulty in
hiring and retaining highly skilled employees. Competition for employees in our
industry is intense. If we are unable to retain our key employees or attract,
integrate or retain other highly qualified employees in the future, such failure
may have a material adverse effect on our business and results of operations.
We have a number of revenue producers employed by our securities
brokerage and investment banking subsidiary. We do not have employment contracts
with these employees. The loss of one or more of these employees could adversely
affect our business and results of operations.
We may be unable to effectively manage rapid growth that we may experience,
which could place a continuous strain on our resources and, accordingly,
adversely affect our business.
We plan to expand our operations. Our growth, if it occurs, will impose
significant demands on our management, financial, technical and other resources.
We must adapt to changing business conditions and improve existing systems or
implement new systems for our financial and management controls, reporting
systems and procedures and expand, train and manage a growing employee base in
order to manage our future growth. Furthermore, we may acquire technologies or
products or enter into strategic alliances, in order to achieve rapid growth.
For us to succeed, we must make our existing technology, business and systems
work effectively with those of any strategic partners without undue expense,
management distraction or other disruptions to our business. We may be required
to maintain and expand our relationships with various software vendors, Internet
and other online service providers and other
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third parties necessary to our business in order for us to succeed. We may be
unable to implement our business plan if we fail to manage any of the above
growth challenges successfully. Our financial results may suffer and we could be
materially and adversely affected if that occurs.
We may not be able to protect and enforce our intellectual property rights
relating to our RateXchange Trading System, which could result in the loss of
these rights, loss of business or increased costs.
We generally have entered into agreements containing confidentiality
and non-disclosure provisions with our employees and consultants who have
limited access to and distribution of our software, documentation and other
proprietary information. We cannot assure you that the steps we take will
prevent misappropriation of our technology or that agreements entered into for
that purpose will be enforceable. Notwithstanding the precautions we have taken,
it might be possible for a third party to copy or otherwise obtain and use our
software independently. Policing unauthorized use of our technology is
difficult, particularly because the global nature of the Internet makes it
difficult to control the ultimate destination or security of software or other
data transmitted. The laws of other countries may afford us little or no
effective protection of our intellectual property. Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country where our services are made available online.
In the future, we may also need to file lawsuits to enforce our
intellectual property rights, protect our trade secrets and determine the
validity and scope of the proprietary rights of others. Such litigation, whether
successful or unsuccessful, could result in substantial costs and diversion of
resources, which could materially adversely affect our business and results of
operations.
Third parties may claim that our business activities infringe upon
their proprietary rights. From time to time in the ordinary course of business
we may be subject to claims of infringement of third parties' trademarks and
other intellectual property rights. Such claims could subject us to significant
liability and result in invalidation of our proprietary rights. These claims
could also be time-consuming and expensive to defend, even if we ultimately are
not found liable. In addition, these claims could divert our management's time
and attention from the operation of our business.
Our RateXchange Trading System business is dependent on the development and
maintenance of the Internet infrastructure.
Our RateXchange Trading System success will depend, in part, upon the
development and maintenance of the Internet infrastructure as a reliable network
backbone with the necessary speed, data capacity and security, and timely
development of enabling products, such as high-speed modems, for providing
reliable Internet access and services. We cannot assure you that the Internet
infrastructure will continue to effectively support the demands placed on it as
the Internet continues to experience increased numbers of users, greater
frequency of use or increased bandwidth requirements of users. Even if the
necessary infrastructure or technologies
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are developed, we may have to expend considerable resources to adapt our
offerings accordingly. Furthermore, in the past, the Internet has experienced a
variety of outages and other delays. Any future outages or delays could affect
our ability to use the Internet as a successful trading medium for our
broker-dealer and emerging commodities businesses. Our business, results of
operations and financial condition could be materially and adversely affected if
any of these events occur.
Our business and operations would suffer in the event of system failures.
Our success, in particular our ability to successfully facilitate
securities brokerage transactions and provide high-quality customer service,
largely depends on the efficient and uninterrupted operation of our computer and
communications hardware systems. Our systems and operations are vulnerable to
damage or interruption from fire, flood, power loss, telecommunication failures,
break-ins, earthquake and similar events. Despite the implementation of network
security measures, our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to interruptions,
delays, loss of data or the inability to accept and fulfill customer orders. Any
of the foregoing problems could materially adversely affect our business or
future results of operations.
We may incur liability for information retrieved from or transmitted over the
Internet because our business involves the transmission of information.
We may be subject to claims relating to information that is posted or
made available on our web site, including claims for defamation, obscenity,
negligence, or copyright or trademark infringement. We also may be subject to
claims based on the nature, publication or distribution of our content or based
on errors or false or misleading information provided on our web site. These
types of claims have been brought, sometimes successfully, against online
services in the past. We could also be sued for the content that is accessible
from our web site through links to other Internet sites. Although we have
commercial general liability insurance with $1 million coverage per occurrence
and $2 million in the aggregate, an umbrella policy with $5 million of coverage
and errors and omissions and directors and officers coverage, awards may exceed
these amounts. Our insurance may not provide for coverage for certain of these
types of claims and, therefore, may not adequately protect us against them. In
addition, we could incur significant costs in investigating and defending such
claims, even if we ultimately are not found liable. Our business, results of
operations and financial condition could be materially and adversely affected if
any of these events occur.
Computer viruses may cause our systems to incur delays or interruptions and may
increase our expenses or liabilities.
Computer viruses may cause our systems to incur delays or other service
interruptions, which may cause us to incur additional operating expenses to
correct problems we may experience. In addition, the inadvertent transmission of
computer viruses could expose us to a material risk of loss or litigation and
possible liability. Moreover, if a computer virus affecting
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our system is publicly disclosed, our reputation could be materially damaged and
our visitor traffic may decrease.
Your ability to sell your shares may be restricted because there is a limited
trading market for our common stock.
Although our common stock is currently traded on the American Stock
Exchange, a trading market in our stock has been sporadic. Accordingly, you may
not be able to sell your shares when you want or at the price you want.
Our common stock price may be volatile, which could adversely affect the value
of your shares.
The market price of our common stock has in the past been, and may in
the future continue to be, volatile. A variety of events may cause the market
price of our common stock to fluctuate significantly, including:
o variations in quarterly operating results;
o our announcements of significant contracts, milestones, acquisitions;
o our relationships with other companies;
o our ability to obtain needed capital commitments;
o additions or departures of key personnel;
o sales of common stock or termination of stock transfer restrictions;
o general economic conditions, including conditions in the securities
brokerage and investment banking and telecommunications markets;
o changes in financial estimates by securities analysts; and
o fluctuations in stock market price and volume.
The last four factors are beyond our control. Any one of the factors
noted herein could have an adverse effect on the value of our common stock.
In addition, the stock market in recent years has experienced
significant price and volume fluctuations that have particularly affected the
market prices of equity securities of many companies and that often have been
unrelated to the operating performance of such companies. These market
fluctuations have adversely impacted the price of our common stock and may do so
in the future.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation often has been
instituted against that company. Such litigation is expensive and diverts
management's attention and resources. We cannot assure you that we will not be
subject to such litigation.
Your ability to sell your shares could be significantly adversely
affected because our common stock could be delisted from trading on the American
Stock Exchange.
Although our common stock is listed for trading on the American Stock
Exchange, it could be delisted because we may be unable to satisfy certain
American Stock Exchange listing guidelines including earnings per share, market
price and stockholder's equity criteria. We cannot assure you that we will be
able to satisfy these guidelines on a continuing basis. Accordingly, although we
have received no communication from the American Stock Exchange with respect to
this matter, we cannot represent to you that our common stock will continue to
be listed. If the listing is not retained and our common stock is thereafter
quoted only on the OTC Electronic Bullentin Board, a significantly less liquid
market than the American Stock Exchange, a stockholder will find it even more
difficult to dispose of, or to obtain accurate quotations as to the price of,
the common stock. In addition, depending on several factors including, among
others, the future market price of our common stock, these securities could
become subject to the so-called "penny stock" rules that impose additional sales
practice and market making requirements on broker-dealers who sell and/or make a
market in such securities. These factors could affect the ability or willingness
of broker-dealers to sell and/or make a market in our common stock and the
ability of purchasers of our common stock to sell their shares in the secondary
market. A delisting could also negatively affect our ability to raise additional
capital in the future.
-10-
Anti-takeover provisions of the Delaware General Corporation Law could
discourage a merger or other type of corporate reorganization or a change in
control even if it could be favorable to the interests of our stockholders.
The Delaware General Corporation Law contains provisions that may
enable our management to retain control and resist our takeover. These
provisions generally prevent us from engaging in a broad range of business
combinations with an owner of 15% or more of our outstanding voting stock for a
period of three years from the date that such person acquires his or her stock.
Accordingly, these provisions could discourage or make more difficult a change
in control or a merger or other type of corporate reorganization even if it
could be favorable to the interests of our stockholders.
Because our board can issue common stock without stockholder approval, you could
experience substantial dilution.
Our board of directors has the authority to issue up to 300,000,000
shares of common stock and to issue options and warrants to purchase shares of
our common stock without stockholder approval. Future issuance of additional
shares of our common stock could be at values substantially below the price at
which you may purchase our stock and, therefore, could represent further
substantial dilution to investors in this offering. In addition, our board could
issue large blocks of our common stock to fend off unwanted tender offers or
hostile takeovers without further stockholder approval.
Our ability to issue preferred stock may adversely affect your rights as a
common stockholder and be used as an anti take-over device.
Our Articles of Incorporation authorize our board of directors to issue
up to 60 million shares of preferred stock without approval from our
stockholders. If you purchase our common stock, this means that the board of
directors has the right, without your approval as a common stockholder, to fix
the relative rights and preferences of the preferred stock. This would affect
your rights as a common stockholder regarding, among other things, dividends and
liquidation. We could also use the preferred stock to deter or delay a change in
control of our company that may be opposed by our management even if the
transaction might be favorable to you as a common stockholder.
Our officers and directors exercise significant control over our affairs, which
could result in their taking actions of which other stockholders do not approve.
Our executive officers and directors, current and past, and entities
affiliated with them, currently control approximately 25% of our outstanding
common stock prior to any conversion of any outstanding notes and/or exercise of
options and warrants. These stockholders, if they act together, will be able to
exercise substantial influence over all matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate
-11-
transactions. This concentration of ownership may also delay or prevent a change
in control of us and might affect the market price of our common stock.
Any exercise of outstanding options and warrants will dilute then-existing
stockholders' percentage of ownership of our common stock.
We have a significant number of outstanding options and warrants.
Shares issuable upon the exercise of these options and warrants, at prices
ranging currently from approximately $0.25 to $14.40 per share, represent
approximately 71% of our total outstanding stock on a fully diluted basis. The
exercise of all of the outstanding options and warrants would dilute the
then-existing stockholders' percentage ownership of our common stock. Any sales
resulting from the exercise of options and warrants in the public market, such
as sales by the selling stockholders pursuant to this prospectus, could
adversely affect prevailing market prices for our common stock. Moreover, our
ability to obtain additional equity capital could be adversely affected since
the holders of outstanding options and warrants may exercise them at a time when
we would also wish to enter the market to obtain capital on terms more favorable
than those provided by such options and warrants. We lack control over the
timing of any exercise or the number of shares issued or sold if exercises
occur.
Members of our Advisory Board may have conflicting interests and may disclose
data and technical knowledge to our competitors.
Some of our Advisory Board members are employed by other entities,
which may include our competitors. Although we require each of our Advisory
Board members to sign a non-disclosure and non-competition agreement with
respect to the data and information that he or she receives from us, we cannot
assure you that members will abide by them. If a member were to reveal this
information to outside sources, accidentally or otherwise, our operations could
be negatively affected. Since our business depends in large part on our ability
to keep our technology confidential, any revelation of this information to a
competitor or other source could have an adverse effect on our operations.
Dividend Policy
We have not paid any cash dividends since our inception and do not
anticipate paying cash dividends in the foreseeable future.
Use of Proceeds
We will not receive any of the proceeds from the sale of common stock
by the selling stockholders or the resale by them of the shares of common stock
issuable on conversion of the notes and preferred stock or exercise of the
warrants except for commissions which selling stockholders may pay for sales
effected by them through our broker-dealer subsidiary. We will, however, receive
proceeds from the exercise of warrants, which we intend to use for general
corporate purposes.
-12-
Selling Stockholders
The registration statement, of which this prospectus forms a part, relates to
the registration for the account of selling stockholders of an aggregate of
16,831,595 shares of common stock. The following table sets forth the names of
the selling stockholders, the number of shares of common stock beneficially
owned by them as of July 8, 2002, the number of shares of common stock being
offered by them, the number of shares of common stock each selling stockholder
will beneficially own if the stockholder sells all of the shares being
registered and the selling stockholder's percentage ownership of our common
stock if all the shares in the offering are sold. The shares being offered
hereby are being registered to permit public secondary trading and the selling
stockholders may offer all or part of the shares for resale from time to time.
However, the selling stockholders are under no obligation to sell all or any
portion of such shares or are the selling stockholders obligated to sell any
shares immediately under this prospectus. All information with respect to share
ownership has been furnished by the selling stockholders. Because the selling
stockholders may sell all or part of their shares, no estimates can be given as
to the number of shares of common stock that will be held by the selling
stockholders upon termination of any offering made hereby.
The shares being offered for resale by the selling stockholders consist
of shares of common stock currently owned by them and common stock issuable upon
conversion of the selling stockholders' notes and preferred stock and exercise
of their warrants.
We believe, based on information supplied by the selling stockholders,
that except as may otherwise be indicated in the notes to the table below, each
of them has sole voting and investment power with respect to the shares of
common stock owned by them and issuable on conversion of the notes and preferred
stock and exercise of the warrants.
To our knowledge, none of the selling stockholders has had any position
with, held any office of, or had any other material relationship with us except
for
o Robert E. Ford, who is our President and Chief Operating Officer;
o Gregory S. Curhan, who is our Executive Vice President and Chief
Financial Officer;
o Kenneth R. Werner, trustee of the Kenneth R. Werner Revocable Trust,
who is our Senior Vice President, Trading;
o Sanjay Lillaney, who was the Chairman and Chief Executive Officer of
our subsidiary RMG Partners Corporation until its sale in April 2002;
o Mark Burger, who was the President of our subsidiary RMG Partners
Corporation until its sale in April 2002; and
o Patrick Arbor, Donald H. Sledge, Ronald Spears, John E. McConnaughy,
Jr., and Steven W. Town, who are members of our board of directors.
Mr. Town is also the co-chief executive officer of Amerex Bandwidth, Ltd, a
selling stockholder and a brokerage services firm that executed bandwidth trades
for us pursuant to an agreement
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under which, among other things, we reimbursed Amerex for expenses approximating
$699,000 in 2001. We also issued warrants to Amerex to purchase 2,300,000 shares
of our common stock at prices ranging from $4.70 to $5.37 per share and
terminate on December 17, 2005. Amerex is a selling stockholder and pursuant to
this prospectus is offering the shares issuable upon exercise of these warrants.
We have determined beneficial ownership in accordance with the rules of
the Securities and Exchange Commission, which generally includes voting or
investment power with respect to securities and also includes common stock
issuable upon conversion of notes and preferred stock and exercise of warrants
and options which are convertible and/or exercisable within 60 days of the date
hereof. Percentage calculations are based upon 21,925,983 shares of our common
stock outstanding as of July 8, 2002.
Common Percent of
Common Stock Percent of Stock Owned Stock Common
Name of Selling Owned Prior Stock Owned Prior Common Stock After Common Owned after
Stockholder to Offering (1) to Offering (1) Offered (1) Offering (1)(2) Offering (1)(2)
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Amerex Bandwidth, Ltd. 1,985,000(3)(4) 8.7(3)(4) 1,985,000(3)(4) -0-(4) -0-(4)
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Patrick Arbor 331,318(3) 1.6(3) 153,818(3) 177,500(3) *
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Mark Burger 322,600 1.5 322,600 -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Barry W. Blank, Trustee, Barry W
Blank Trust dated 11/13/96 1,254,899(3) 5.7(3) 1,254,899(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Richard E. Boerke 397,878(5) 1.9(5) 397,878(5) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Gregory S. Curhan 45,000 * 40,000 5,000 *
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Courtland Gates 5,305(5) *(5) 5,305(5) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Don and Gayle Canada 73,818(3) *(3) 73,818(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
CQG, Inc. 369,088(3) 1.8(3) 369,088(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Dorsey Ventures 590,541(3) 2.8(3) 590,541(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Richard Fels and Carla Fels 73,818(3) *(3) 73,818(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
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---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Ford Investors Limited 295,270(3) 1.4(3) 295,270(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Rob Ford and Lindsey Ford Joint
Tenants (6) 938,818(3)(7) 4.3(3)(7) 103,818(3) 835,000(3)(7) 3.8(3)(7)
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Soledad Garcia 28,500 * 28,500 -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Kenneth S. Hammer 73,818(3) *(3) 73,818(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
HSBC Global Custody Nominee (UK)
Limited 885,811(3) 4.2(3) 885,811(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Larry G. Kirk and Judy G. Kirk
Tenants in Common 147,635(3) *(3) 147,635(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Stephen C. Lehman 295,270(3) 1.4(3) 295,270(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Maryon D. Lewis 295,270(3) 1.4(3) 295,270(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Sanjay Lillaney 673,776 3.2 673,776 -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
John E. McConnaughy, Jr 935,811(3) 4.3(3) 885,811(3) 50,000(3) *(3)
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Julian Mann 115,000 * 115,000 -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Timothy Meckel 5,305(5) *(5) 5,305(5) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Richard Michaelson 73,818(3) *(3) 73,818(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
MicroCapital LLC (8) 928,904(3) 4.4(3) 928,904(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Morgens Waterfall Holdings, LLC 1,476,351(3) 6.6(3) 1,476,351(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
M.H. Capital Partners, L.P. 147,635(3) *(3) 147,635(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Rob Nixon Trustee for the Rob
Nixon Trust 73,818(3) *(3) 73,818(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Derrick Parkhill 315,000(3) 1.5(3) 315,000(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Jon M. Plexico 147,635(3) *(3) 147,635(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
PWREF/MCC-China Basin, LLC 50,000 * 50,000 -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
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---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Ramsey Financial 397,878(5) 1.9(5) 397,878(5) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Earl S. Rivers 73,818(3) *(3) 73,818(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Malcolm Rogers, Jr. and
Janet L Rogers 955,635(3) 4.5(3) 147,635(3) 808,000(3) 3.8
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
SACC Partners, Ltd 590,541(3) 2.8(3) 590,541(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Alan Shoup and Kathleen Shoup 147,635(3) *(3) 147,635(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Ronald Spears 210,000(3) 1.0(3) 10,000 200,000(3) *
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Lynn Stiefeling 10,000 * 10,000 -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Theodore H. Swindells 1,151,604(3)(9) 5.5(3)(9) 147,635(3) 1,003,969(3) 4.6
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Switch & Data Facilities Company, LLC 200,000 1.0 200,000 -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Tenaire Inc. P/S/Tr Dtd 1/30/69
Thomas Babington Trustee 147,635(3) *(3) 147,635(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Leonard Toboroff 73,818(3) *(3) 73,818(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Steven W. Town 231,318(3)(10) 1.1(3)(10) 73,818(3) 157,500(3) *
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Kenneth R. Werner Revocable Trust 813,200(3) 3.8(3) 400,000 413,200(3) 2.0
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
John V. Winfield 1,653,432(3) 7.8(3) 1,535,432(3) 118,000 *
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
Murphy & Durieu 590,540(3) 2.8(3) 590,540(3) -0- -0-
---------------------------------------- --------------------- ----------------- ------------------ ---------------- ---------------
------------------------
* Less than 1%
(1) This information is based on information provided to us by the selling
stockholders.
(2) Assumes the sale of all shares offered in this prospectus.
(3) Includes shares of our common stock held by the selling stockholder, as
well as, common stock issuable upon conversion of notes and/or exercise
of warrants or options that are exercisable or vested within 60 days of
the date hereof.
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(4) Excludes shares of our common stock owned by Steven W. Town.
(5) Includes shares of our common stock issuable upon conversion of our
Series A Convertible Preferred stock.
(6) 45,000 of these shares are owned in the name of Robert E. Ford and
Lindsey P. Ford JTTEN.
(7) 820,000 of these shares are issuable upon exercise of options owned by
Mr. Ford.
(8) 411,862 of these shares are owned in the name of MicroCapital Fund, LP
and 221,772 of these shares are owned in the name of MicroCapital Fund,
Ltd. MicroCapital LLC is the general partner and investment advisor to
MicroCapital Fund, LP and MicroCapital Fund, Ltd. Ian P. Ellis is the
principal owner of MicroCapital LLC and has sole responsibility for the
selection, acquisition and disposition of the portfolio securities by
MicroCapital LLC on behalf of its funds.
(9) 150,000 of these shares are held indirectly by Mr. Swindells.
(10) Excludes shares of our common stock owned by Amerex Bandwidth, Ltd.
Plan of Distribution
The selling stockholders may sell shares of our common stock offered by
this prospectus from time to time to purchasers directly by them in one or more
transactions at a fixed price, which may be changed, or at varying prices
determined at the time of sale or at negotiated prices. Such prices will be
determined by the holders of such securities or by agreement between such
holders and underwriters or dealers who may receive fees or commissions in
connection with such sales.
Each of the selling stockholders may, from time to time, offer shares
of our common stock beneficially owned by him or her through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, commissions or concessions from the selling stockholder and the
purchasers of the shares for whom they may act as agent. Each of the selling
stockholders will be responsible for payment of any commissions, concessions and
discounts of underwriters, dealers or agents. The aggregate proceeds to the
selling stockholders from the sale of the shares of our common stock offered by
them will be the purchase price of such shares less discounts and commissions,
if any. Each of the selling stockholders reserves the right to accept and,
together with his or her agents, from time to time to reject, in whole or in
part, any proposed purchase of shares to be made directly or through agents.
Alternatively, the selling stockholders may sell all or a portion of the shares
of our common stock beneficially owned by them and offered from time to time on
any exchange on which the securities are listed on terms to be determined at the
times of such sales. The selling stockholders may also make private sales
directly or through a broker or brokers.
From time to time, the selling stockholders may transfer, pledge,
donate or assign shares of our common stock to lenders or others. The number of
shares beneficially owned by a selling
-17-
stockholder who transfers, pledges, donates or assigns shares of our common
stock will decrease as and when he or she takes such actions. The plan of
distribution for shares sold under this prospectus will otherwise remain
unchanged, except that the transferees, pledgees, donees or other successors
will be selling stockholders under this prospectus and may sell their shares in
the same manner as the selling stockholders.
A selling stockholder may enter into hedging transactions with
broker-dealers, and the broker-dealers may engage in short sales of the shares
of our common stock in the course of hedging the positions they assume with such
selling stockholder, including in connection with the distribution of the shares
of our common stock by such broker-dealers. In addition, a selling stockholder
may, from time to time, sell short the shares of our common stock, and in such
instances, this prospectus may be delivered in connection with such short sales
and the shares offered may be used to cover such short sales. The selling
stockholders may also enter into options or other transactions with
broker-dealers that involve the delivery of the shares of our common stock to
the broker-dealers, who may then resell or otherwise transfer such shares. The
selling stockholders may also loan or pledge the shares to a broker-dealer and
the broker-dealer may sell the shares as loaned or upon a default may sell or
otherwise transfer the pledged shares.
The selling stockholders and any underwriters, dealers or agents that
participate in the distribution of the shares of our common stock offered by
this prospectus may be deemed to be underwriters within the meaning of the
Securities Act, and any discounts, commissions or concessions received by them
and any provided pursuant to the sale of shares by them might be deemed to be
underwriting discounts and commissions under the Securities Act.
In addition, any securities covered by this prospectus, which qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act, may be sold
under Rule 144 or Rule 144A rather than pursuant to this prospectus. We cannot
assure you that any selling stockholder will sell any or all of the shares of
our common stock described in this prospectus, and any selling stockholder may
transfer, devise or gift such securities by other means not described in this
prospectus.
If necessary, we will set forth the specific shares of our common stock
to be sold in this prospectus, the names of the selling stockholders, the
respective purchase prices and public offering prices, the name of any agent,
dealer or underwriter, and any applicable commissions or discounts with respect
to a particular offer in an accompanying prospectus supplement or, if
appropriate, a post-effective amendment to the registration statement of which
this prospectus is a part.
We will pay substantially all of the expenses incurred by the selling
stockholders and us incident to the offering and sale of the shares of our
common stock pursuant to this prospectus.
Under the Exchange Act and the regulations thereunder, any person
engaged in the distribution of shares of common stock, or securities convertible
into common stock, offered by this prospectus may not simultaneously engage in
market-making activities with respect to the common stock during the applicable
"cooling off" period prior to the commencement of this
-18-
distribution. In addition, and without limiting the foregoing, the selling
stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including without limitation Regulation M
promulgated under the Exchange Act, in connection with transactions in the
shares, which provisions may limit the timing of purchases and sales of shares
of common stock by the selling stockholders.
Sales of any shares of common stock by the selling stockholders may
depress the price of the common stock.
Description of Securities
The following section does not purport to be complete and is qualified
in all respects by reference to the detailed provisions of our certificate of
incorporation and by-laws, as amended, copies of which have been filed with the
Securities and Exchange Commission.
Capital Stock
Our authorized capital stock consists of 300 million shares of common
stock, $0.0001 par value per share, and 60 million shares of preferred stock,
$0.0001 par value per share.
Common Stock
Under our certificate of incorporation, our board is authorized,
subject to limitations prescribed by law and certain rules of the American
State Exchange, without further stockholder approval, from time to time to issue
up to an aggregate of 300 million shares of common stock. There are 20,875,859
shares issued and outstanding as of the date hereof. Holders of our common stock
are entitled to:
o one vote per share;
o share in all dividends that our board, in its discretion, declares
from legally available funds; and
o participate pro rata in all assets subject to the prior rights of
creditors and holders of any preferred stock, in the event of our
liquidation, dissolution or winding up.
Holders of our common stock have no cumulative voting rights and no
conversion, preemptive or other subscription rights, and there are no redemption
provisions applicable to our common stock.
We have reserved an aggregate of 16,900,000 shares of our common stock
for issuance to directors, officers and other key employees pursuant to four
stock option plans and one employee stock purchase plan. We have issued options
to purchase 12,871,370 shares of our common stock under these plans of which
options to purchase 9,413,167 shares of our common stock are currently
exercisable. The exercise prices of these options range from $0.34 per share to
$7.00 per share.
-19-
In addition, we have notes and preferred stock that are convertible
into an aggregate of 10,345,361 shares and warrants that are exercisable for an
aggregate of 7,973,129 shares of our common stock. The selling stockholders who
are offering the underlying shares for sale pursuant to this prospectus own the
preferred stock and certain of the notes and warrants. We have also issued one
convertible promissory note in the principal amount of $5,949,042 that is
convertible at the rate of 80% of the average market price of our common stock
for the five trading days preceding the date of conversion. This note matures on
August 31, 2006.
Preferred Stock
Our board has the authority, without further stockholder approval, to
issue up to 60 million shares of preferred stock in one or more series. Each
series may have different rights, preferences and designations and
qualifications, limitations and restrictions.
There are 806,366 shares of non-redeemable Series A Convertible
Preferred Stock currently issued and outstanding. The Series A is convertible
into common stock on a share for share basis, subject to change pursuant anti
dilution provisions. Holders of the Series A are entitled to
o dividends in kind at the rate of 6% per annum;
o a liquidation preference equal to $2.75 per share;
o one vote for each share of common stock into which the Series A is
convertible; and
o elect two directors as long as no less than 500,000 shares of Series
A stock is outstanding.
Our amended certificate of incorporation authorizes our board of
directors, without any vote or action by the holders of our common stock, to
issue preferred stock from time to time in one or more series. Our board is
authorized to determine the number of shares and to fix the
o powers,
o designations,
o preferences, and
o relative, participating, optional or other special rights
of any series of preferred stock. Depending on the terms established by our
board, any or all series of preferred stock could have preference over the
common stock with respect to dividends and other distributions and upon our
liquidation as well as other matters.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is OTC Stock
Transfer, Inc., Salt Lake City, Utah.
-20-
Legal Matters
Barry Feiner, Esq., Manhasset, New York 11030 has passed upon the
legality of the common stock offered in this prospectus for us.
Experts
The consolidated financial statements of RateXchange Corporation and
its subsidiaries as of December 31, 2001 and 2000 and for each of the three
years in the period ended December 31, 2001 have been incorporated by reference
in this prospectus and in the registration statement in reliance upon the
reports of Arthur Andersen LLP, independent public accountants, and upon the
authority of said firm as experts in accounting and auditing. We have not been
able to obtain the written consent of Arthur Andersen LLP as required by Section
7 of the Securities Act after reasonable efforts. Accordingly, investors will
not be able to sue Arthur Andersen LLP pursuant to Section 11(a)(4) of the
Securities Act and therefore may have their recovery limited as a result of the
lack of consent.
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities
Delaware General Corporation Law Section 145 provides for
indemnification of directors and officers in terms sufficiently broad to permit
such indemnification, under certain circumstances, for liabilities, including
reimbursement for expenses incurred, arising under the Securities Act. In
addition, Delaware law provides that a corporation may purchase and maintain
insurance on behalf of an officer or director against liability incurred by the
officer or director as an officer or director.
Our Certificate of Incorporation and Amended Bylaws require that we
indemnify our directors and officers to the fullest extent allowed under
Delaware law. Our Amended Bylaws also provide that we may purchase and maintain
insurance on behalf of our officers and directors against any liability asserted
against them as officers and directors. Currently, we carry directors and
officers liability insurance, which may insure against officer or director
liability arising under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers, and controlling persons, or
otherwise, we have been advised that in the opinion of the Commission this
indemnification is against public policy as expressed in the Securities Act and
the Securities Exchange Act of 1934 and is, therefore, unenforceable. In the
event that a claim for indemnification against these liabilities, other than our
payment of expenses incurred or paid by one of our directors, officers, or
controlling persons in the successful defense of any action, suit or proceeding,
is asserted by that director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by a controlling precedent, submit to a court of
appropriate jurisdiction the question whether this indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of this issue.
-21-
Incorporation by Reference
The Securities and Exchange Commission allows us to incorporate by
reference the information we file with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and later information that we file with the Securities and Exchange
Commission will automatically update and supercede this information. We
incorporate by reference the documents listed below and any future filings we
may make with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until this offering is terminated. This
prospectus is part of a registration statement we filed with the Securities and
Exchange Commission, Registration No. 333-________________.
(a) Annual Report on Form 10-K for our fiscal year ended December 31, 2001
filed March 28, 2002;
(b) Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2002 filed May 1, 2002;
(c) Current Report on Form 8-K filed on April 8, 2002;
(d) amended Current Report on Form 8-KA filed on April 15, 2002; and
(e) Notice of Annual Meeting and Proxy Statement filed on May 3, 2002.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: RateXchange Corporation, 100 Pine
Street, Suite 500, San Francisco, California 94111-5101, telephone number (415)
274-5650.
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement. We have not authorized anyone
else to provide you with different information. You should not assume that the
information in this prospectus or any supplement is accurate as of any date
other than the date on the front of those documents.
Available Information
We have filed a registration statement on Form S-3 under the Securities
Act with the Securities and Exchange Commission with respect to the shares
offered hereby. This prospectus is filed as a part of the registration
statement. It does not contain all of the information included in the
registration statement and exhibits and we refer you to such omitted
information. Statements made in this registration statement are summaries of the
terms of these referenced contracts, agreements or documents and are not
necessarily complete. We refer you to each
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exhibit for a more complete description of the matters involved and these
statements shall be deemed qualified in their entirety by this reference.
In addition, we file annual, quarterly, and special reports, proxy
statements, and other information with the Securities and Exchange Commission.
You may read and copy our registration statement on Form S-3, the
exhibits thereto, any reports, statements and other information we file at the
Securities and Exchange Commission's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission
at 1-800-SEC-0330 for further information on the operations of the public
reference room. Our filings with Securities and Exchange Commission are also
available on the Securities and Exchange Commission's Internet site, which is
http://www.sec.gov. Our common stock is traded on the American Stock Exchange
where you can inspect reports and other information about us.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent accountants.
-23-
=============================================================== =========================================================
No dealer, salesman or any other person is 2,593,510 SHARES OFFERED BY
authorized to give any information or to represent anything SELLING STOCKHOLDERS,
not contained in this prospectus. You must not rely on any 9,997.207 SHARES OFFERED BY
unauthorized information or representations. This prospectus SELLING STOCKHOLDERS
is an offer to sell these securities and it is not a UPON
solicitation of an offer to buy these securities in any state CONVERSION OF NOTES
where the offer or sale is not permitted. The information AND
contained in this Prospectus is current only as of this date. PREFERRED STOCK
AND
4,240,878 SHARES OFFERED BY
SELLING STOCKHOLDERS UPON
EXERCISE OF WARRANTS
TABLE OF CONTENTS
RATEXCHANGE CORPORATION
Page
Summary...........................................
Risk Factors......................................
Dividend Policy...................................
Use of Proceeds...................................
Selling Stockholders.............................. _______________
Plan of Distribution..............................
Description of Securities......................... PROSPECTUS
Legal Matters..................................... _______________
Experts...........................................
Disclosure of Commission _______, __, 2002
Position on Indemnification for
Securities Act Liabilities Incorporation
by Reference Available Information................
--------------------
--------------------------------------------------------------- ---------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
SEC Registration Fee $ 1,527.88
Printing $ 3,500.00*
Legal Fees and Expenses $30,000.00*
Listing fees $10,000.00
Miscellaneous Expenses $ 1,000.00*
-----------
TOTAL $46,034.15*
===========
*Estimated
The Selling Stockholders will not pay any portion of the
foregoing expenses.
Item 15. Indemnification of Directors and Officers.
Delaware General Corporation Law Section 145 provides for
indemnification of directors and officers in terms sufficiently broad to permit
such indemnification, under certain circumstances, for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933.
In addition, Delaware law provides that a corporation may purchase and maintain
insurance on behalf of an officer or director against liability incurred by the
officer or director as an officer or director.
Our Certificate of Incorporation and Bylaws require that we indemnify
our directors and officers to the fullest extent allowed under Delaware law. Our
Bylaws also provide that we may purchase and maintain insurance on behalf of our
officers and directors against any liability asserted against them as officers
and directors. Currently, we carry directors and officers liability insurance,
which may insure against officer or director liability arising under the
Securities Act.
Insofar as indemnification for liabilities under the Securities Act may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Item 16. Exhibits and Financial Statement Schedule
(a) Unless noted otherwise the following exhibits are filed
herewith:
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation, as amended
(incorporated herein by reference to Exhibit 3.1 to
RateXchange's Registration Statement on Form S-1
(Reg. No. 333-37004)).
3.2 Amended and Restated Bylaws, as amended (incorporated
herein by reference to Exhibit 3.1 to RateXchange's
Registration Statement on Form S-1 (Reg. No.
333-53316).
4.1 Form of Convertible Subordinated Note related to
Ratexchange private financing, dated November 26,
2001 (incorporated herein by reference to Exhibit 4.1
to RateXchange's Annual Report on Form 10-K for the
year ended December 31, 2001 filed on March 28,
2002).
4.2 Form of Class A Redeemable Warrant to Purchase Common
Stock of Ratexchange related to Ratexchange
Corporation private financing, dated November 26,
2001 (incorporated herein by reference to Exhibit 4.2
to RateXchange's Annual Report on Form 10-K for the
year ended December 31, 2001 filed on March 28,
2002).
5.1 Opinion of Barry Feiner, Esq.
10.1 Agreement and Plan of Merger between RateXchange and
Rate Exchange, Inc. dated June 1, 1999 (incorporated
herein by reference to Exhibit 10.1 to RateXchange's
Form 10-Q for the quarter ended September 30, 1999).
10.2 Acquisition Agreement between RateXchange and
PolarCap, Inc. (incorporated herein by reference to
Exhibit 2.01 to RateXchange's Form 8-K/A filed on
October 8, 1998).
10.8+ Employment Agreement between RateXchange I, Inc. and
Donald H. Sledge dated September 15, 1999
(incorporated herein by reference to Exhibit 10.8 to
RateXchange's Registration Statement on Form S-1
(Reg. No. 333-53316)).
10.9+ Amendment No. 1 to Employment Agreement of Donald H.
Sledge dated October 5, 2000 (incorporated herein by
reference to Exhibit 10.9 to RateXchange's
Registration Statement on Form S-1 (Reg. No.
333-53316)).
10.15+ Employment Agreement between RateXchange and D.
Jonathan Merriman dated October 5, 2000 (incorporated
herein by reference to Exhibit 10.15 to RateXchange's
Registration Statement on Form S-1 (Reg. No.
333-53316)).
II
10.17+ 1999 Stock Option Plan (incorporated herein by
reference to Exhibit 4.1to RateXchange's Registration
Statement on Form S-8 (Reg. No.333-43776)).
10.18+ Form of Non-Qualified, Non-Plan Stock Option
Agreement dated February 24, 2000 (incorporated
herein by reference to Exhibit 4.2 to RateXchange's
Registration Statement on Forms S-8 (Reg. No.
333-43776)).
10.19+ Schedule of non-plan option grants made under
Non-Qualified, Non-Plan Stock Option Agreements to
directors and executive officers (incorporated herein
by reference to Exhibit 10.19 to RateXchange's
Registration Statement on Form S-1 (Reg. No.
333-53316)).
10.20+ 2000 Stock Option Plan, as amended (incorporated
herein by reference to Exhibit 10.20 to RateXchange's
Registration Statement on Form S-1 (Reg. No.
333-53316)).
10.24* Agreement between RateXchange and Amerex Bandwidth,
Ltd Dated September 17, 2000, including Warrants
(incorporated herein by reference to Exhibit 10.26 to
RateXchange's Registration Statement on Form S-1
(Reg. No. 333-53316)).
10.25 Master Equipment Lease Agreement dated March 16,
2000 (incorporated herein by reference to Exhibit
10.6 to RateXchange's Registration Statement on Form
S-1 (Reg. No. 333-37004)).
10.28 Co-location License by and between RateXchange and
Switch & Data Facilities Company dated March 1, 2000
(incorporated herein by reference to Exhibit 10.28 to
RateXchange's Registration Statement on Form S-1
(Reg. No. 333-53316)).
10.31 RateXchange Placement Agent Agreement with Murphy &
Durieu, dated November 28, 2001, for private
financing transaction (incorporated herein by
reference to Exhibit 10.31 to RateXchange's Annual
Report on Form 10-K for the year ended December 31,
2001 filed on March 28, 2002).
10.32 Form of Placement Agent Warrant to Murphy & Durieu,
dated November 28, 2001 (incorporated herein by
reference to Exhibit 10.32 to RateXchange's Annual
Report on Form 10-K for the year ended December 31,
2001 filed on March 28, 2002).
III
10.33 Convertible Promissory Note held by Forsythe/McArthur
Associates, Inc., dated September 1, 2001, related to
restructure of Master Equipment Lease Agreement that
is Exhibit 10.23 to Form 10K for the year ended
December 31, 2000 (incorporated herein by reference
to Exhibit 10.33 to RateXchange's Annual Report on
Form 10-K for the year ended December 31, 2001 filed
on March 28, 2002).
10.34+ Employment Agreement between Ratexchange and Gregory
S. Curhan, dated January 9, 2002 (incorporated herein
by reference to Exhibit 10.34 to RateXchange's Annual
Report on Form 10-K for the year ended December 31,
2001 filed on March 28, 2002).
10.35+ Employment Agreement between Ratexchange Corporation
and Robert E. Ford, dated January 1, 2002
(incorporated herein by reference to Exhibit 10.35 to
RateXchange's Annual Report on Form 10-K for the year
ended December 31, 2001 filed on March 28, 2002).
10.36 Lease Termination and Settlement Agreement by and
between Ratexchange and PWREF/MCC-China Basin, LLC,
dated February 25, 2001 (incorporated herein by
reference to Exhibit 10.36 to RateXchange's Annual
Report on Form 10-K for the year ended December 31,
2001 filed on March 28, 2002).
10.37 Stock Purchase Agreement by and among Ratexchange and
Instream Securities, Inc, (formerly known as Spider
Securities, Inc.) and Independent Advantage Financial
& Insurance Services, Inc., dated December 7, 2001
(incorporated herein by reference to Exhibit 10.37 to
RateXchange's Annual Report on Form 10-K for the year
ended December 31, 2001 filed on March 28, 2002).
10.38 Asset Purchase Agreement by and among Xpit
Acquisition, LLC, CQG, Inc., Xpit Corporation,
Ratexchange and certain Related Parties, dated
October 24, 2001 (incorporated herein by reference to
Exhibit 10.38 to RateXchange's Annual Report on Form
10-K for the year ended December 31, 2001 filed on
March 28, 2002).
10.39+ RateXchange Corporation 2002 Employee Stock Purchase
Plan (incorporated herein by reference to Annex A of
the RateXchange Corporation Notice of Annual Meeting
and Proxy Statement filed on May 3, 2002)
21.1 List of Subsidiaries of RateXchange (incorporated
herein by reference to Exhibit 21.1 to RateXchange's
Annual Report on Form 10-K for the year ended
December 31, 2001 filed on March 28, 2002.
IV
23.3 Consent of Barry Feiner, Esq. (included in Exhibit
5.1).
+ Represents management contract or compensatory plan
or arrangement.
* Certain confidential portions of this Exhibit were
omitted by means of redacting a portion of the text.
This Exhibit has been filed separately with the
Secretary of the Securities and Exchange Commission
without such redaction pursuant to our Application
Requesting Confidential Treatment under Rule 406 of
the Securities Act which was approved.
b. Financial Schedules
All schedules are omitted from this Registration Statement
because they are not required or the required information is included
in the Consolidated Financial Statements or Notes thereto.
Item 17. Undertakings.
(a) Rule 415 Offerings.
The undersigned issuer hereby undertakes that it will:
(1) File, during any period in which it offers or
sells securities, a post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by
Section 10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or
events which, individually or together, represent a
fundamental change in the information in the
Registration Statement; and notwithstanding the
foregoing, if the total dollar value of securities
offered would not exceed that which was registered,
any increase or decrease in the volume of securities
offered and any deviation from the low or high and of
the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20
percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
and
V
(iii) Include any additional or changed
material information on the plan of distribution.
(2) For determining liability under the Securities
Act, treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
(e) Request for acceleration of effective date.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the issuer of expenses incurred or paid by a director, officer or
controlling person of the issuer in the successful defense of any action, suit
or proceedings) is asserted by such director, officer or controlling person in
connection with the securities being registered, the issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such court.
VI
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing this Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, in the City of San
Francisco, State of California, on July 12, 2002.
RATEXCHANGE CORPORATION
By: /s/ D. Jonathan Merriman
----------------------------------------
D. Jonathan Merriman
Chief Executive Officer
In accordance with the requirements of the Securities Act, this
Registration statement was signed by the following persons in the capacities and
on the dates stated.
July 12, 2002
/s/ D. Jonathan Merriman Chairman of the Board and
------------------------- Chief Executive Officer
D. Jonathan Merriman
/s/ Gregory S. Curhan Executive Vice President and July 12, 2002
------------------------- Chief Financial Officer
Gregory S. Curhan
Director June , 2002
------------------------- ----
Patrick Arbor
/s/ E. Russell Braziel Director July 10, 2002
------------------------
E. Russell Braziel
June , 2002
----------------------- ----
John E. McConnaughy, Jr. Director
/s/ Donald H. Sledge Director July 2, 2002
-----------------------
Donald H. Sledge
/s/ Ronald E. Spears Director July 11, 2002
-------------------------
Ronald E. Spears
/s/ Steven W. Town Director July 12, 2002
-------------------------
Steven W. Town
VII